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The South Florida ecosystem extends from the Chain of Lakes south of Orlando to the reefs southwest of the Florida Keys. This vast region, which is home to more than 6 million Americans, a huge tourism industry, and a large agricultural economy, also encompasses one of the world's unique environmental resources--the Everglades. Before human intervention, freshwater moved south from Lake Okeechobee to Florida Bay in a broad, slow-moving sheet. The quantity and timing of the water's flow depended on rainfall patterns and on slow releases of stored water. Even during dry seasons, water stored throughout the vast areas of the Everglades supplied water to wetlands and coastal bays and estuaries. For centuries, the Everglades provided habitat for many species of wading birds and other native wildlife, including the American alligator, which depended on the water flow patterns that existed before human intervention. Following major droughts from the early 1930s through the mid-1940s and drenching hurricanes in 1947, the Congress authorized the Central and Southern Florida Project in 1948. The project, an extensive system of over 1,700 miles of canals and levees and 16 major pump stations, prevents flooding and saltwater intrusion into the state's aquifer while providing drainage and water for the residents of South Florida. However, as shown in figure 1, the engineering changes from the Central and Southern Florida Project, coupled with agricultural and industrial activities and urbanization, have reduced the Everglades to about half its original size and have had a detrimental effect on wildlife habitats and water quality. The loss of habitat has caused sharp declines in native plant and animal populations, placing many native species at risk. To address the ecosystem's deterioration, the South Florida Ecosystem Restoration Task Force was established by a federal interagency agreement to promote and facilitate the development of consistent policies, strategies, and plans for addressing the environmental concerns of the South Florida ecosystem. The Task Force consisted of assistant secretaries from the Departments of Agriculture, the Army, Commerce, and the Interior; an assistant attorney general from the Department of Justice; and an assistant administrator from the Environmental Protection Agency. The Water Resources Development Act of 1996 formalized the Task Force; expanded its membership to include state, local, and tribal representatives; and charged it with coordinating and facilitating the efforts to restore the ecosystem. To accomplish the ecosystem's restoration, the Task Force established the following three goals: Get the Water Right. Restoring more hydrologic functions to the ecosystem while providing adequate water supplies and flood control will involve enlarging the ecosystem's freshwater supply and improving how water is delivered to natural areas. The goal is to deliver the right amount of water, of the right quality, to the right places, at the right times. Restore, Preserve, and Protect Natural Habitats and Species. Restoring lost and altered habitats and recovering the endangered or threatened species native to the ecosystem will involve acquiring lands and reconnecting natural habitats that have become disconnected through growth and development. Foster Compatibility of the Built and Natural Systems. Achieving the long- term sustainability of the ecosystem will not be possible if decisions about the built environment are not consistent with the ecosystem's health. Land use decisions must be compatible with the ecosystem's restoration while supporting of the needs for water supply, flood control, and recreation. The goal will also require developing public understanding and support of ecosystem restoration issues. The Task Force has published several documents and developed strategies and plans to address specific restoration issues since its establishment in 1993. However, at the time of our review in 1999, it had not developed an overall strategic plan to guide the restoration effort and accomplish its goals. We recommended that the Task Force develop a strategic plan that would clearly lay out how the restoration would occur and contained quantifiable goals and performance measures that could be used to track the restoration's progress. On July 31, 2000, the Task Force issued its strategic plan entitled Coordinating Success: Strategy for Restoration of the South Florida Ecosystem. The July 2000 plan submitted by the Task Force fully addresses two of the four recommended elements. The plan identifies the resources needed and identifies the agencies accountable for accomplishing specific actions. In addition, because the Task Force included discussions of several important aspects of outlining how the restoration will occur, we believe the plan partially addresses the third element. (The section after this one discusses why the plan does not fully address the third element.) In identifying the resources needed to achieve the restoration and assigning accountability for accomplishing specific actions, the plan states that it will cost an estimated $14.8 billion to restore the South Florida ecosystem and describes major programs and plans that will contribute to the restoration. The plan also includes an appendix that provides additional information on the cost estimate, the categories of costs, and how the estimate was developed. The appendix contains information on the estimated cost of each goal and shows how the costs will be shared between the federal and state governments. Information on the ongoing and future programs and activities that are associated with the goals, the agencies accountable for implementing those programs and activities, the total cost of each program and activity, and the amount appropriated for or allocated to those programs through fiscal year 2000 is also presented in the appendix. The plan also provides information on the over 260 projects that the Task Force believes will contribute to achieving the ecosystem's restoration. The plan contains a project summary table that clearly identifies which of the goals and subgoals each project is associated with and provides information on each project's total costs, the lead agencies accountable for implementing each project, the start and end date of each project, and the amount that has been appropriated for each project to date. For example, the plan's table shows that the Modified Water Deliveries Project is associated with subgoal 1.A.3, Removing Barriers to Sheetflow, which is one of the subgoals of Goal 1--Get the Water Right. The table identifies the National Park Service as the accountable agency for the project, which is intended to reestablish natural hydrologic conditions in Everglades National Park, and shows that the project started in 1990 and is expected to be completed in 2003. The project summary table also shows that the total cost of the project is $135,363,000 and that $62,037,000 has already been appropriated. In addition, the plan includes detailed data sheets that provide a description of each project and detailed budget information. By showing where the projects fit into the overall restoration effort, the plan provides information that, if utilized by the participating agencies, will be very valuable in assisting the agencies involved in the restoration in establishing priorities and justifying and obtaining the authorization and funding necessary to implement the planned projects. The Task Force could also use this information to develop interim outcome performance targets--a key element not yet included in this plan--that could provide the Task Force with a greater ability to gauge the progress being made in restoring the ecosystem. The Task Force's plan also includes discussions of several important aspects of how the restoration will occur--the third element. The Task Force added subgoals and specific objectives for accomplishing two of the restoration's three strategic goals. For example, the plan divides the restoration's strategic goal of delivering the right amount of water, of the right quality, to the right places, at the right times (Get the Water Right) into two subgoals. Under the first subgoal--Get the Hydrology Right (water quantity, timing, and distribution), the plan describes three objectives designed to recapture and store water that is currently discharged to the Atlantic Ocean or Gulf of Mexico and redirect it to match, as closely as possible, natural hydrological patterns. The plan also describes two objectives under the second subgoal--Get the Water Quality Right--that are aimed at reducing the level of phosphorus entering the Everglades and other protected areas and ensuring that impaired water bodies in the ecosystem will meet federal, state, and tribal water quality standards. Similar details have been provided for the restoration's second goal--Restore, Preserve, and Protect Natural Habitats and Species. The Task Force also included a list of end results (outcomes) that are representative of what it expects to eventually achieve by carrying out the activities described in the plan. In addition, the Task Force included a description of desired future conditions when describing each of its goals to further explain what each goal means. The Task Force also included a discussion of the other factors, such as obtaining adequate and reliable funding and the willingness of landowners to sell or lease their lands, that could affect its ability to achieve the restoration's goals. In describing these aspects in its plan, the Task Force has begun to develop a blueprint, or framework, for restoring the ecosystem that it can use to guide the restoration as well as communicating the size, scope, and importance of the effort to the Congress, other decisionmakers, and the public. Although the Task Force has included discussions of several important aspects of the third element of outlining how the restoration will occur, additional work is needed before the plan will provide a clear picture of how the restoration will occur. The current plan also does not link the strategic goals of the restoration to outcome-oriented interim goals, an element that is essential to tracking and measuring the Task Force's progress in restoring the ecosystem. The Task Force's strategic plan does not contain several key attributes that are necessary to clearly outline how the restoration will occur. The plan does not discuss or describe the approaches and strategies that will be used to achieve one of its long-term strategic goals--the compatibility of the built and natural systems. The Task Force recognizes that unless decisions made about the built environment are consistent with the ecosystem's health, the long-term sustainability of the ecosystem cannot be achieved, and the billions of dollars spent to restore the ecosystem could be wasted. Given the significance of the link between the built and natural environments, it is important that the Task Force define and integrate this aspect of the restoration into its plan. With a clear picture, or blueprint, of how the entire restoration will occur, the Task Force and participating agencies will be better able to establish appropriate priorities and milestones for accomplishing the entire effort and will improve their ability to accomplish the restoration in a timely and efficient manner. Having a clear outline of the restoration could also help the Task Force to ensure that the participating agencies do not duplicate or counter each other's efforts. In addition, because of the inevitable turnover in the Task Force's representation that will occur over the time it will take to restore the ecosystem, having a clear outline of how the restoration will occur could make the transition of new and replacement members easier by helping them to more quickly understand what is needed to successfully complete the restoration effort. The plan also does not describe the relationship between the end results, or outcomes, that the Task Force has indicated that it expects to achieve and its long-term strategic goals. We recognize that the Task Force will continue to refine its plan because not all of the data needed to restore the South Florida ecosystem are available now and uncertainties exist about how the ecosystem will respond to the projects undertaken by agencies participating in the restoration. However, showing how the strategic goals, objectives, and projects contained in the plan will achieve or contribute to achieving the end results expected by the Task Force will provide the Congress and other participants with a better understanding and appreciation of the Task Force's direction and what its participants are accomplishing with the funding being provided. Such assurances could help the participating agencies justify their requests for funding and help address one of the challenges that the Task Force discusses in its plan-- obtaining adequate and reliable funding from the federal and state governments. In addition, the plan submitted by the Task Force in July 2000 does not consistently include a quantifiable or numerical starting point (baseline) or target when describing the end results and future conditions that the Task Force expects to achieve. For example, the Task Force includes the following--"the spatial extent of wetlands and other natural systems will be sufficient to support the historic functions of the greater Everglades ecosystem"--as a "desired future condition" under goal 2--Restore, Preserve, and Protect Natural Habitat and Species. But the plan does not discuss how many acres of wetlands and other natural systems now exist (baseline) or the number of acres that will be needed to support the historic functions of the greater Everglades ecosystem (target). Without the inclusion of baselines and targets that will allow the Task Force to accurately measure the results or outcomes that it is achieving, the Congress, the Task Force, and other stakeholders will be not able to accurately compare the expected progress in restoring the ecosystem with the actual progress made. Furthermore, the Task Force's plan is missing the fourth element that we recommended--linking the strategic goals of the restoration to outcome- oriented interim goals. Many of the end results and future conditions expected by the Task Force may take up to 50 years to realize. For example, one of the end results that the Task Force expects to achieve is improving the status for 14 federally listed threatened or endangered species, and no decline in status for those additional species listed by the state, by 2020. However, the plan does not discuss any plans for assessing the Task Force's progress in achieving this result during the 20-year period. Setting interim time frames and performance measures will provide focus and a sense of direction and help the Task Force gauge its progress in achieving the end results or outcomes that it expects. In addition, establishing interim benchmarks for performance would enable the Task Force to identify problems early and work with the accountable agencies to make needed adjustments if progress is not satisfactory, thus minimizing the impact on the restoration effort. Conversely, establishing and measuring interim benchmarks could show that the Task Force had underestimated the expected results and that the expected end results, or outcomes, could be accomplished more quickly. Such information would provide the basis for adjusting the restoration's time lines, revising the Task Force's priorities, or increasing the Task Force's expected outcomes. The Task Force has efforts under way to develop the additional information that we believe needs to be added to the plan. For example, the Task Force has established a subcommittee to complete the development of the restoration's third strategic goal--Foster Compatibility of the Built and Natural Systems. The subcommittee is already working with advisors who include many state and local technical experts to refine and complete the development of this goal. The Task Force also has other efforts under way, such as the development of a land acquisition plan for the restoration effort and working with the Multi-species/Ecosystem Recovery Implementation Team to develop a strategy to implement a plan for protecting and recovering threatened and endangered species located in South Florida. According to Interior's Director of Everglades Restoration, information developed from these efforts is expected to be included in the July 2002 update of the plan. The initial strategic plan developed by the Task Force is a good start. However, because the plan does not contain all the elements that we recommended, it does not fulfill the requirement placed on the Secretary of the Interior, as the Task Force Chair, by the House and Senate Committees on Appropriations. We recognize that the plan is a "work in progress" and that the Task Force will continue to refine and improve its strategic plan as it learns more about the ecosystem and how the ecosystem is responding to the Task Force's efforts. Revising the plan when it is updated in 2002 to include all the elements would fulfill the Committees' requirement and provide the Task Force with a basis for better assessing the progress of the restoration and determining what refinements are needed. It will also help smooth the transitions that will occur as the restoration progresses and Task Force members are replaced because new and replacement members could more quickly gain an understanding of what is needed to restore the ecosystem. We provided the Department of the Interior with a draft of our report for review and comment. The Department shares our view that the Task Force has made substantial progress in developing a strategic plan and believes that the plan is a solid foundation that the Task Force can build on. The Department also agreed that the plan submitted in July 2000 does not yet include all the recommended elements and that further refinements and revisions are necessary before the plan will fulfill the requirement placed upon the Secretary of the Interior, as Chair of the Task Force, by the House and Senate Committees on Appropriations. The Department acknowledged that additional work needs to be done to complete the restoration's third strategic goal--Foster Compatibility of the Built and Natural Systems--and pointed out that a subcommittee established by the Task Force is presently working with advisors who include state and local government technical experts to develop subgoals and measurable objectives for this goal. The Department also agreed that the plan can be improved by refining and expanding the interim time frames and performance measures. The Department indicated that the Task Force expects to revise the plan to include additional information and refinements when it is updated in July 2002. The Department's comments are presented in their entirety in appendix I. The Department also provided technical comments, which we incorporated as appropriate. To determine if the strategic plan developed by the South Florida Ecosystem Restoration Task Force included all the elements that we recommended in our April 1999 report, we obtained and reviewed the strategic plan submitted to the Congress on July 31, 2000. We compared the plan's elements and attributes with the elements that we recommended to determine the plan's completeness. In addition, because we used the criteria in Agencies' Strategic Plans Under GPRA: Key Questions to Facilitate Congressional Review (GAO/GGD-10.1.16, May 1997) and OMB's Circular A-11 in our 1999 review to develop (1) our finding that existing Task Force documents did not contain all of the elements of a strategic plan and (2) our recommendation to the Task Force to develop a strategic plan, we also used these documents to assess whether the Task Force's plan contained all the necessary elements and would be sufficient to guide the restoration effort. We also reviewed other Task Force documents, such as the South Florida Ecosystem Restoration Program's Fiscal Year 2001 Cross-Cut Budget, which provides detailed budget information for the federal and state agencies involved in the restoration, and the 1999 biennial report entitled Maintaining the Momentum, which summarizes the progress that the Task Force made in the preceding 2 years to restore the South Florida ecosystem. We also met with and discussed the development of the strategic plan with the Executive Director of the South Florida Ecosystem Restoration Task Force and representatives from the Task Force and the Department of the Interior who were involved in developing the strategic plan. In addition, we met with scientists and representatives of agencies involved in the restoration who attended the Greater Everglades Ecosystem Restoration Science Conference held in December 2000. The conference's objectives were to define specific restoration goals, determine the best approaches to meet these goals, and provide benchmarks for measuring the success of restoration efforts. We also met with the Director of the Chesapeake Bay Program Office and discussed the efforts, experiences, and lessons learned by that program in developing and using environmental indicators and outcome measures to determine the success of efforts to restore the Chesapeake Bay. We conducted our review from October 2000 through February 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Honorable Gale A. Norton, Secretary of the Interior; Michael Davis, Director of Everglades Restoration, Department of the Interior; and other interested parties. We will also make copies available to others upon request. If you or your staff have any questions, please call me at (202) 512-3841. Key contributors to this report were Chet Janik and Sherry McDonald.
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The South Florida Ecosystem Restoration Initiative is a complex, long-term effort to restore the South Florida ecosystem--including the Everglades--that involves federal, state, local, and tribal entities, as well as public and private interests. In response to growing signs of the ecosystem's deterioration, federal agencies established the South Florida Ecosystem Restoration Task Force in 1993 to coordinate ongoing federal activities. The Task Force is charged with coordinating and facilitating the overall restoration effort. The Task Force's strategic plan is a good start. However, because the plan does not contain all the elements that GAO recommended in a previous report, it does not fulfill the requirement placed on the Secretary of the Interior, as the Task Force Chair, by the House and Senate Committees on Appropriations. GAO recognizes that the plan is a "work in progress" and that the Task Force will continue to refine and improve its strategic plan as it learns more about the ecosystem and how the ecosystem is responding to the Task Force's efforts. Revising the plan when it is updated in 2002 to include all the elements would fulfill the Committees' requirement and provide the Task Force with a basis for determining what refinements are needed. It will also help smooth the transitions that will occur as the restoration progresses and the Task Force members are replaced because new and replacement members could more quickly gain an understanding of what is needed to restore the ecosystem.
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Studies published by the Institute of Medicine and others have indicated that fragmented, disorganized, and inaccessible clinical information adversely affects the quality of health care and compromises patient safety. In addition, long-standing problems with medical errors and inefficiencies increase costs for health care delivery in the United States. With health care spending in 2004 reaching almost $1.9 trillion, or 16 percent, of the gross domestic product, concerns about the costs of health care continue. As we reported last year, many policy makers, industry experts, and medical practitioners contend that the U.S. health care system is in a crisis. Health IT provides a promising solution to help improve patient safety and reduce inefficiencies. The expanded use of health IT has great potential to improve the quality of care, bolster the preparedness of our public health infrastructure, and save money on administrative costs. As we reported in 2003, technologies such as electronic health records and bar coding of certain human drug and biological product labels have been shown to save money and reduce medical errors. For example, a 1,951-bed teaching hospital reported that it realized about $8.6 million in annual savings by replacing outpatient paper medical charts with electronic medical records. This hospital also reported saving more than $2.8 million annually by replacing its manual process for managing medical records with an electronic process to provide access to laboratory results and reports. Health care organizations also reported that IT contributed other benefits, such as shorter hospital stays, faster communication of test results, improved management of chronic diseases, and improved accuracy in capturing charges associated with diagnostic and procedure codes. However, according to HHS, only a small number of U.S. health care providers have fully adopted health IT due to significant financial, technical, cultural, and legal barriers such as a lack of access to capital, a lack of data standards, and resistance from health care providers. According to the Institute of Medicine, the federal government has a central role in shaping nearly all aspects of the health care industry as a regulator, purchaser, health care provider, and sponsor of research, education, and training. Seven major federal health care programs, such as Medicare and Medicaid, provide health care services to approximately 115 million Americans. According to HHS, federal agencies fund more than a third of the nation's total health care costs. Table 1 summarizes the programs and number of citizens who receive health care services from the federal government and the cost of these services. Given the level of the federal government's participation in providing health care, it has been urged to take a leadership role in driving change to improve the quality and effectiveness of medical care in the United States, including an expanded adoption of IT. In April 2004, President Bush called for the widespread adoption of interoperable electronic health records within 10 years and issued an executive order that established the position of the National Coordinator for Health Information Technology within HHS. The National Coordinator's responsibilities include the development and implementation of a strategic plan to guide the nationwide implementation of interoperable health IT in both the public and private sectors. The first National Coordinator was appointed in May 2004, and two months later HHS released The Decade of Health Information Technology: Delivering Consumer-centric and Information-rich Health Care--Framework for Strategic Action, the first step toward the development of a national strategy. The framework described goals for achieving nationwide interoperability of health IT and actions to be taken by both the public and private sectors to implement a strategy. Just last week, President Bush issued an executive order calling for federal health care programs and their providers, plans, and insurers to use IT interoperability standards recognized by HHS. In the summer of 2004, we testified on the benefits that effective implementation of IT can bring to the health care industry and the need for HHS to provide continued leadership, clear direction, and mechanisms to monitor progress in order to bring about measurable improvements. Last year, we reported that HHS, through the Office of the National Coordinator for Health IT, had taken a number of actions toward accelerating the use of IT to transform the health care industry. To further accelerate the adoption of interoperable health information systems, we recommended that HHS establish detailed plans and milestones for meeting the goals of its framework for strategic action and take steps to ensure that those plans are followed and milestones are met. The department agreed with our recommendation. We also reported in June 2005 that challenges associated with major public health IT initiatives still need to be overcome to strengthen the IT that supports the public health infrastructure. Federal agencies face many challenges in their efforts to improve the public health infrastructure, including (1) the integration of current initiatives into a national health IT strategy and federal architecture to reduce the risk of duplicative efforts, (2) development and adoption of consistent standards to encourage interoperability, (3) coordination of initiatives with state and local agencies to improve the public health infrastructure, and (4) overcoming federal IT management weaknesses to improve progress on IT initiatives. To address these challenges, we recommended that HHS align federal public health initiatives with the national health IT strategy and federal health architecture, coordinate with state and local public health agencies, and continue federal actions to encourage the development and adoption of data standards. Last September, we testified about the importance of defining and implementing data and communication standards to speed the adoption of interoperable IT in the health care industry. Hurricane Katrina highlighted the need for interoperable electronic health records as thousands of people were separated from their health care providers and their paper medical records were lost. As we have noted, standards are critical to enabling this interoperability. Although federal leadership has been established to accelerate the use of IT in health care, we testified that several actions were still needed to position HHS to further define and implement relevant standards. Otherwise, the health care industry will continue to be plagued with incompatible systems that are incapable of exchanging medical information that is critical to delivering care and responding to public health emergencies. In March 2006, we testified before this subcommittee on HHS's continued efforts to move forward with its mission to guide the nationwide implementation of interoperable health IT in the public and private health care sectors. We identified several steps taken by the department, such as the establishment of the organizational structure and management team for the Office of the National Coordinator for Health IT under the Office of the Secretary and the formation of a public-private advisory body--the American Health Information Community--to advise HHS on achieving interoperability for health information exchange. The community, which is co-chaired by the Secretary of HHS and the former National Coordinator for Health IT, identified four breakthrough areas -- consumer empowerment, chronic care, biosurveillance, and electronic health records--and formed workgroups intended to make recommendations for actions in these areas that will produce tangible results within a one-year period. Subsequently, in May 2006 the workgroups presented 28 recommendations to the American Health Information Community that address standards, privacy and security, and data-sharing issues. We also reported in March 2006 that HHS--through the Office of the National Coordinator for Health IT-- awarded $42 million in contracts that address a range of issues important for developing a robust health IT infrastructure, such as an increasing number of health care providers adopting electronic health records, definitions of health information standards being developed, architectural definitions for a national network, and the development and implementation of privacy and security policies. HHS intends to use the results of the contracts and recommendations from the American Health Information Community proceedings to define the future direction of a national strategy. In March, the National Coordinator told us that he intended to release a strategic plan with detailed plans and milestones later this year. The contracts are described in table 2. HHS and its Office of the National Coordinator for Health IT have made progress through the work of the American Health Information Community and several contracts in five major areas: (1) advancing the use of electronic health records, (2) establishing standards to facilitate the exchange of patient data, (3) defining requirements for the development of prototypes of the Nationwide Health Information Network, (4) incorporating privacy and security policy, practices, and standards into the national strategy, and (5) integrating public health into nationwide health information exchange. These activities and others are being used by the Office of the National Coordinator for Health IT to continue its efforts to complete a national strategy to guide the nationwide implementation of interoperable health IT. Since the release of its initial framework in 2004, the office has taken additional steps to define a complete national strategy, building on its earlier work. However, while HHS has made progress in these areas, it still lacks detailed plans, milestones, and performance measures for meeting the President's goals. HHS has made progress toward advancing the adoption of electronic health records by defining initial certification criteria for ambulatory electronic health records. The Certification Committee for Health IT, which was awarded the Compliance Certification Process for Health IT contract, finalized functionality, security, and reliability certification criteria for ambulatory electronic health records in May 2006 and described interoperability criteria for future certification requirements. The committee subsequently certified 22 vendors' electronic health records products in July. Its next phase is to define and recommend certification criteria for inpatient electronic health records. The committee plans to publish these criteria for public comment during the last quarter of 2006, with certification beginning in the second quarter of 2007. Additionally, the Nationwide Health Information Network contracts have thus far resulted in the identification of draft functional requirements for incorporating lab results and patient information, such as medical history and insurance information, into electronic health records. The requirements were presented to the Secretary of HHS in June 2006, and an initial set of requirements for the Nationwide Health Information Network are expected to be issued in September 2006. In our March 2006 testimony, we described the Gulf Coast Electronic Digital Health Recovery contract, which was awarded by HHS to promote the use of electronic health records to rebuild medical records for patients in the Gulf Coast region affected by hurricanes last year. The outcomes of the contract are expected to coordinate planning for the recovery of digital health information in cases of emergencies or disasters and to develop a prototype of health information sharing and electronic health records support. The contract established a task force of local and national experts to help area providers turn to electronic medical records as they rebuild medical records for their patients. HHS awarded its Standards Harmonization Process for Health IT contract to ANSI. The contract is supported by ANSI's Health IT Standards Panel, a collaborative partnership between the public and private sector. This effort integrates standards previously identified by the Consolidated Health Informatics and other federal initiatives. To date, the panel has selected 90 interoperability standards for areas such as electronic health records and public health detection and reporting. The selected standards specifically address components of the breakthrough areas defined by the American Health Information Community and were produced by accepted standards organizations. The Nationwide Health Information Network functional requirements also incorporate standards defined through the work of the Standards Harmonization Process for Health IT contract. The selected standards are currently being reviewed for acceptance by the Secretary. HHS has also involved the Department of Commerce's National Institute for Standards and Technology (NIST) with HHS's work to implement health IT standards through its standards harmonization contract. HHS's standards harmonization contractor is required to maximize the use of existing processes and collaborate with NIST where appropriate, including consideration of outputs from the standards harmonization process as Federal Information Processing Standards relevant to federal agencies. NIST's issuance of Federal Information Processing Standards for health IT is to be aligned with recommendations from public and private sector coordination efforts through the American Health Information Community, as accepted by the Secretary of HHS. The Federal Information Processing Standards are to be consistent with the standards adopted by the harmonization contract to enable the alignment of federal and private sector standards and widespread interoperability among health IT systems, particularly electronic health records systems. HHS's Nationwide Health Information Network contracts are intended to provide architectures and prototypes of national networks based on the breakthrough areas defined by the American Health Information Community. HHS awarded contracts for developing these architectures and prototypes to four contractors. The contractors are to deliver final operating plans and prototypes of a national network that demonstrates health information exchange across multiple markets in November 2006. In late June 2006, HHS held its first Nationwide Health Information Network forum. More than 1000 functional requirements for a Nationwide Health Information Network were presented for discussion and public input. The requirements addressed general Nationwide Health Information Network infrastructure needs and the breakthrough areas defined by the American Health Information Community. The requirements are being reviewed by the National Committee for Vital and Health Statistics, which is expected to release its approved requirements by September 2006. HHS, through its contracts and recommendations from the American Health Information Community and the National Committee for Vital and Health Statistics, has initiated several actions to address privacy and security issues associated with the nationwide exchange of health information. In May 2006, 22 states subcontracted under HHS's privacy and security contract to perform assessments of the impact of organization-level business policies and state laws on security and privacy practices and the degree to which they pose challenges to interoperable health information exchange. In August 2006, 11 more states and Puerto Rico were added to the scope of the contract. The outcomes of the contract are to provide a nationwide synthesis of information to inform privacy and security policy making at federal, state, and local levels. In addition, the standards selected through the standards harmonization contract include those that are applicable to the consumer empowerment breakthrough area, specifically privacy and confidentiality. Its initial standards are intended to allow consumers the ability to establish and manage permissions and access rights, along with informed consent for authorized and secure exchange, viewing, and querying of their medical information between designated caregivers and other health professionals. Additionally, the proposed functional requirements for the Nationwide Health Information Network include security requirements that are needed for ensuring the privacy and confidentiality of health information. In May 2006, several of the American Health Information Community workgroups recommended the formation of an additional workgroup comprised of privacy, security, clinical, and technology experts from each of the other American Health Information Community workgroups. The Confidentiality, Privacy, and Security Workgroup was formed in July to frame the privacy and security policy issues relevant to all breakthrough areas and solicit broad public input to identify viable options or processes to address these issues. The recommendations developed by this workgroup are intended to establish an initial policy framework and address issues including methods of patient identification, methods of authentication, mechanisms to ensure data integrity, methods for controlling access to personal health information, policies for breaches of personal health information confidentiality, guidelines and processes to determine appropriate secondary uses of data, and a scope of work for a long-term independent advisory body on privacy and security policies. The workgroup convened last month. In June 2006, the National Committee on Vital and Health Statistics presented to the Secretary of HHS a report recommending actions regarding privacy and confidentiality in the Nationwide Health Information Network. The recommendations cover topics that are, according to the committee, central to challenges for protecting health information privacy in a national health information exchange environment. Specifically, they address (1) the role of individuals in making decisions about the use of their personal health information, (2) policies for controlling disclosures across a national health information network, (3) regulatory issues such as jurisdiction and enforcement, (4) use of information by non-health care entities, and (5) establishing and maintaining the public trust that is needed to ensure the success of a national health information network. The recommendations are being evaluated by the American Health Information Community workgroups, the Certification Commission for Health IT, Health Information Technology Standards Panel, and other HHS partners. The committee intends to continue to update and refine its recommendations as the architecture and requirements of the network advance. To help promote the integration of public health data into a nationwide health information exchange, the American Health Information Community's biosurveillance workgroup made recommendations in May 2006 intended to help the simultaneous flow of clinical care data to and among local, state, and federal biosurveillance programs. The community recommended that HHS develop sample data-use agreements and implementation guidance to facilitate the sharing of data from health care providers to public health agencies. The workgroup also recommended that HHS, in collaboration with privacy experts, state and local governmental public health agencies, and clinical care partners, develop materials to educate the public about the information that is used for biosurveillance including the benefits to the public's health, improved national security, and the protection of patient confidentiality by September 30, 2006. Information exchange standards for sharing clinical health information (e.g., emergency department visit data and lab results) with public health are included in the 90 standards recently recommended as a result of HHS's standards harmonization contract. The standards are intended to enable the transmission of essential ambulatory care and emergency department visit, utilization, and lab result data from electronic health care delivery and public health systems in standardized and anonymized format to authorized public health agencies within less than one day. In addition to advancing the use of electronic health records, the Gulf Coast contract is intended to help support public health emergency response by fostering the availability of field-level electronic health records to clinicians responding to disasters. As called for by the President's executive order in April 2004, the national coordinator's office is continuing its efforts to complete a national strategy for health IT. Since we testified in March 2006, the office has worked to evolve the initial framework and, with guidance from the American Health Information Community, has revised and refined the goals and strategies identified in the initial framework. The new draft framework--The Office of the National Coordinator: Goals, Objectives, and Strategies--provides high-level strategies for meeting the President's goal for the adoption of interoperable health IT and is to be used to develop internal performance measures for the office's activities. The framework identifies objectives for accomplishing each of four goals, along with 32 high-level strategies for meeting the objectives. The Office of the National Coordinator has identified and prioritized the 32 strategies for accomplishing the framework's goals and has initiated 10 of them, which are supported by the contracts that HHS awarded in fall 2005. Table 3 illustrates the framework's goals, objectives, and strategies and identifies the 10 strategies that have been initiated. The Office of the National Coordinator has prioritized the remaining 22 strategies defined in its framework. Six strategies are under active consideration, and the remaining 16 require future discussion. According to officials with the office, the strategies were prioritized based on guidance and direction from the American Health Information Community. The Office of the National Coordinator expects the framework to continue to evolve through collaboration among the Office of the National Coordinator and its partners, such as other federal agencies and the American Health Information Community, and as additional activities are completed through the contracts. While HHS has taken additional steps toward completing a national strategy and has initiated specific activities defined by its strategic framework, it still lacks the detailed plans, milestones, and performance measures needed to ensure that its goals are met. While the National Coordinator acknowledged the need for more detailed plans for its various initiatives and told us in March that HHS intended to release a strategic plan with detailed plans and milestones later this year, current officials with the office could not tell us when detailed plans and milestones would be defined. Given the complexity of the tasks at hand and the many activities to be completed, a national strategy that defines detailed plans, milestones, and performance measures is essential. Without it, HHS risks not meeting the President's goal for health IT. In summary, Mr. Chairman, our work shows that HHS is continuing its efforts to help transform the use of IT in the health care industry. However, much work remains. While HHS, through the Office of the National Coordinator for Health IT and the American Health Information Community, has initiated specific actions for supporting the goals of a national strategy, detailed plans and milestones for completing the various initiatives and performance measures for tracking progress have not been developed. Until these plans, milestones, and performance measures are completed, it remains unclear specifically how the President's goal will be met and what the interim expectations are for achieving widespread adoption of interoperable electronic health records by 2014. 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 statement, please contact me at (202) 512-9286 or by e-mail at [email protected]. Other individuals who made key contributions to this statement are Amanda C. Gill, Nancy E. Glover, M. Saad Khan, and Teresa F. Tucker. 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 GAO and others have reported, the use of information technology (IT) has enormous potential to improve the quality of health care and is critical to improving the performance of the U.S. health care system. Given the federal government's role in providing health care in the U.S., it has been urged to take a leadership role in driving change to improve the quality and effectiveness of health care, including the adoption of IT. In April 2004, President Bush called for widespread adoption of interoperable electronic health records within 10 years and issued an executive order that established the position of the National Coordinator for Health Information Technology. A National Coordinator within the Department of Health and Human Services (HHS) was appointed in May 2004 and released a framework for strategic action two months later. In May 2005, GAO recommended that HHS establish detailed plans and milestones for each phase of the framework and take steps to ensure that its plans are followed and milestones are met. GAO was asked to identify progress made by HHS toward the development and implementation of a national health IT strategy. To do this, GAO reviewed prior reports and agency documents on the current status of relevant HHS activities. In late 2005, to help define the future direction of a national strategy, HHS awarded several health IT contracts and formed the American Health Information Community, a federal advisory committee made up of health care stakeholders from both the public and private sectors. Through the work of these contracts and the community, HHS and its Office of the National Coordinator for Health IT have made progress in five major areas associated with the President's goal of nationwide implementation of health IT. These activities and others are being used by the Office of the National Coordinator for Health IT to continue its efforts to complete a national strategy to guide the nationwide implementation of interoperable health IT. Since the release of its initial framework in 2004, the office has defined objectives and high-level strategies for accomplishing its goals. Although HHS agreed with GAO's prior recommendations and has made progress in these areas, it still lacks detailed plans, milestones, and performance measures for meeting the President's goals.
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Medicare FFS consists of Part A, hospital insurance, which covers inpatient stays, care in skilled nursing facilities, hospice care, and some home health care; and Part B, which covers certain physician visits, outpatient hospital treatments, and laboratory services, among other services. Most persons aged 65 and older, certain individuals with disabilities, and most individuals with end-stage renal disease are eligible to receive coverage for Part A services at no premium. Individuals eligible for Part A can also enroll in Part B, although they are charged a Part B premium. MA plans are required to provide benefits that are covered under the Medicare FFS program. Most Medicare beneficiaries who are eligible for Medicare FFS can choose to enroll in the MA program, operated through Medicare Part C, instead of Medicare FFS. All Medicare beneficiaries, regardless of their source of coverage, can choose to receive outpatient prescription drug coverage through Medicare Part D. Beneficiaries in both Medicare FFS and MA face cost-sharing requirements for medical services. In Medicare FFS, cost sharing includes a Part A and a Part B deductible, the amount beneficiaries must pay for services before Medicare FFS begins to pay. Medicare FFS cost sharing also includes coinsurance--a percentage payment for a given service that a beneficiary must pay, and copayments--a standard amount a beneficiary must pay for a medical service. Medicare allows MA plans to have cost-sharing requirements that are different from Medicare FFS's cost-sharing requirements, although an MA plan cannot require overall projected average cost sharing that exceeds what beneficiaries would be expected to pay under Medicare FFS. MA plans are permitted to establish dollar limits on the amount a beneficiary spends on cost sharing in a year of coverage, although Medicare FFS has no total cost-sharing limit. MA plans can use both out-of-pocket maximums, limits that can apply to all services but can exclude certain service categories, and service-specific maximums, which are limits that apply to a single service category. These limits help provide financial protection to beneficiaries who might otherwise have high cost- sharing expenses. MA plans projected that, on average, they would allocate most of the rebates to beneficiaries as reduced cost sharing and reduced premiums for Part B services, Part D services, or both. In 2007, almost all MA plans in our study (1,874 of the 2,055 plans, or 91 percent) received a rebate payment from Medicare that averaged $87 PMPM. MA plans projected they would allocate 69 percent of the rebate ($61 PMPM) to reduced cost sharing and 20 percent ($17 PMPM) to reduced premiums. MA plans projected they would allocate relatively little of the rebates (11 percent or $10 PMPM) to additional benefits that are not covered under Medicare FFS. (See fig. 1.) On average, for plans that provided detailed cost estimates, the projected dollar amounts of the common additional benefits ranged from a low of $0.11 PMPM for international outpatient emergency services to $4 PMPM for dental services. Additional benefits commonly offered included dental services, health education services, and hearing services. About 41 percent of beneficiaries, or 2.3 million people, were enrolled in an MA plan that also charged additional premiums to pay for additional benefits, reduced cost sharing, or a combination of the two. The average additional premium charged was $58 PMPM. Based on plans' projections, we estimated that about 77 percent of the additional benefits and reduction in beneficiary cost sharing was funded by rebates, with the remainder being funded by additional beneficiary premiums. For 2007, MA plans projected that MA beneficiary cost sharing, funded by both rebates and additional premiums, would be 42 percent of estimated cost sharing in Medicare FFS. Plans projected that their beneficiaries, on average, would pay $49 PMPM in cost sharing, and they estimated that the Medicare FFS equivalent cost sharing for their beneficiaries was $116 PMPM. Although plans projected that beneficiaries' overall cost sharing was lower, on average, than Medicare FFS cost-sharing estimates, some MA plans projected that cost sharing for certain categories of services was higher than Medicare FFS cost-sharing estimates. This is because overall cost sharing in MA plans is required to be actuarially equivalent or lower compared to overall cost sharing in Medicare FFS, but may be higher or lower for specific categories of services. For example, 19 percent of MA beneficiaries were enrolled in plans that projected higher cost sharing for home health services, on average, than in Medicare FFS, which does not require any cost sharing for home health services. Similarly, 16 percent of MA beneficiaries were in plans with higher projected cost sharing for inpatient services relative to Medicare FFS. (See table 1.) Some MA beneficiaries who frequently used these services with higher cost sharing than Medicare FFS could have had overall cost sharing that was higher than what they would pay under Medicare FFS. Cost sharing for particular categories of services varied substantially among MA plans. For example, with regards to inpatient cost sharing, more than half a million beneficiaries were in MA plans that had no cost sharing at all. In contrast, a similar number of beneficiaries were in MA plans that required cost sharing that could result in $2,000 or more for a 10-day hospital stay and $3,000 or more for three average-length hospital stays. In Medicare FFS in 2007, beneficiaries paid a $992 deductible for the first hospital stay in a benefit period, no deductible for subsequent hospital stays in the same benefit period, and a 20 percent coinsurance for physician services that averaged $73 per day for the first 4 days of a hospital stay and $58 per day for subsequent days in the stay. Figure 2 provides an illustrative example of an MA plan that could have exposed a beneficiary to higher inpatient costs than under Medicare FFS. While the plan in this illustrative example had lower cost sharing than Medicare FFS for initial hospital stays of 4 days or less as well as initial hospital stays of 30 days or more, for stays of other lengths the MA plan could have cost beneficiaries more than $1,000 above out-of-pocket costs under Medicare FFS. The disparity between out-of-pocket costs under the MA plan and costs under Medicare FFS was largest when comparing additional hospital visits in the same benefit period, since Medicare FFS does not charge a deductible if an admission occurs within 60 days of a previous admission. Some MA plans had out-of-pocket maximums, which help protect beneficiaries against high spending on cost sharing. As of August 2007, about 48 percent of beneficiaries were enrolled in plans that had an out-of- pocket maximum. However, some plans excluded certain services from the out-of-pocket maximum. Services that were typically excluded were Part B drugs obtained from a pharmacy, outpatient substance abuse and mental health services, home health services, and durable medical equipment. For 2007, MA plans projected that of their total revenues ($783 PMPM), they would spend approximately 87 percent ($683 PMPM) on medical expenses. Plans further projected they would spend approximately 9 percent of total revenue ($71 PMPM) on nonmedical expenses, such as administration expenses and marketing expenses, and approximately 4 percent ($30 PMPM) on the plans' profits, on average. There was variation among individual plans in the percent of revenues projected to be spent on medical expenses. For example, about 30 percent of beneficiaries--1.7 million--were enrolled in plans that projected spending less than 85 percent on medical expenses. While there is no definitive standard for the percentage of revenues that should be spent on medical expenses, Congress adopted the 85 percent threshold to require minimum thresholds for MA plans in the Children's Health and Medicare Protection Act of 2007. MA plans projected expenses separately for certain categories of nonmedical expenses, including marketing and sales. One type of MA plan--Private Fee-for-Service (PFFS)--allocated a larger percentage of revenue to marketing and sales than other plan types. On average, as a percentage of total revenue, marketing and sales expenses were 3.6 percent for PFFS plans compared to 2.4 percent for all MA plans. Medicare spends more per beneficiary in MA than it does for beneficiaries in Medicare FFS, at an estimated additional cost to Medicare of $54 billion from 2009 through 2012. In 2007, the average MA plan receives a Medicare rebate equal to approximately $87 PMPM, on average. MA plans projected they would allocate the vast majority of their rebates--approximately 89 percent--to beneficiaries to reduce premiums and to lower their cost- sharing for Medicare-covered services. Plans projected they would use a relatively small portion of their rebates--approximately 11 percent--to provide additional benefits that are not covered under Medicare FFS. Although the rebates generally have helped to make health care more affordable for many beneficiaries enrolled in MA plans, some beneficiaries may face higher expenses than they would in Medicare FFS. Further, because premiums paid by beneficiaries in Medicare FFS are tied to both Medicare FFS and MA costs, beneficiaries covered under Medicare FFS are subsidizing the additional benefits and lower costs that MA beneficiaries receive. Whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and extra benefits is worth the increased cost borne by beneficiaries in Medicare FFS is a decision for policymakers. However, if the policy objective is to subsidize health-care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of the MA program, it will be important for policymakers to balance the needs of beneficiaries--including those in MA plans and those in Medicare FFS--with the necessity of addressing Medicare's long-term financial health. Mr. Chairman, this completes my prepared remarks. 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 testimony, please contact James Cosgrove 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. Christine Brudevold, Assistant Director; Jennie Apter, Alexander Dworkowitz, Gregory Giusto, Drew Long, and Christina C. Serna 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. 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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Although private health plans were originally envisioned in the 1980s as a potential source of Medicare savings, such plans have generally increased program spending. In 2006, Medicare paid $59 billion to Medicare Advantage (MA) plans--an estimated $7.1 billion more than Medicare would have spent if MA beneficiaries had received care in Medicare fee-for-service (FFS). MA plans receive a per member per month (PMPM) payment to provide services covered under Medicare FFS. Almost all MA plans receive an additional Medicare payment, known as a rebate. Plans use rebates and sometimes additional beneficiary premiums to fund benefits not covered under Medicare fee-for-service; reduce premiums; or reduce beneficiary cost sharing. In 2007, MA plans received about $8.3 billion in rebate payments. This testimony is based on GAO's report, Medicare Advantage: Increased Spending Relative to Medicare Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs ( GAO-08-359 , February 2008). For this testimony, GAO examined MA plans' (1) projected allocation of rebates, (2) projected cost sharing, and (3) projected revenues and expenses. GAO used 2007 data on MA plans' projected revenues and covered benefits, accounting for 71 percent of beneficiaries in MA plans. GAO found that MA plans projected they would use their rebates primarily to reduce cost sharing, with relatively little of their rebates projected to be spent on additional benefits. Nearly all plans--91 percent of the 2,055 plans in the study--received a rebate. Of the average rebate payment of $87 PMPM, plans projected they would allocate about $78 PMPM (89 percent) to reduced cost sharing and reduced premiums and $10 PMPM (11 percent) to additional benefits. The average projected PMPM costs of specific additional benefits across all MA plans ranged from $0.11 PMPM for international outpatient emergency services to $4 PMPM for dental care. While MA plans projected that, on average, beneficiaries in their plans would have cost sharing that was 42 percent of Medicare FFS cost-sharing estimates, some beneficiaries could have higher cost sharing for certain service categories. For example, some plans projected that their beneficiaries would have higher cost sharing, on average, for home health services and inpatient stays, than in Medicare FFS. If beneficiaries frequently used these services that required higher cost sharing than Medicare FFS, it was possible that their overall cost sharing was higher than what they would have paid under Medicare FFS. Out of total revenues of $783 PMPM, on average, MA plans projected that they would allocate about 87 percent ($683 PMPM) to medical expenses. MA plans projected they would allocate, on average, about 9 percent of total revenue ($71 PMPM) to nonmedical expenses, including administration and marketing expenses; and about 4 percent ($30 PMPM) to the plans' profits. About 30 percent of beneficiaries were enrolled in plans that projected they would allocate less than 85 percent of their revenues to medical expenses. As GAO concluded in its report, whether the value that MA beneficiaries receive in the form of reduced cost sharing, lower premiums, and additional benefits is worth the additional cost to Medicare is a decision for policymakers. However, if the policy objective is to subsidize health care costs of low-income Medicare beneficiaries, it may be more efficient to directly target subsidies to a defined low-income population than to subsidize premiums and cost sharing for all MA beneficiaries, including those who are well off. As Congress considers the design and cost of MA, it will be important for policymakers to balance the needs of beneficiaries and the necessity of addressing Medicare's long-term financial health.
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The Defense Logistics Agency (DLA), service headquarters, and inventory control points are responsible for managing secondary inventory. Through their respective item managers, DLA and service inventory control points ensure that needed items are available to the operating forces when and where needed. An item manager's tasks include determining when to repair or purchase items, positioning them at depots to meet demands, and disposing of unneeded items. The items managed by DLA and service item managers are stored at depots operated and managed by DLA. Depot managers have no authority over what items are stored or whether they should be disposed of. These decisions are made by the item managers. The current DLA distribution depot system consists of two distribution region headquarters. They are located at New Cumberland, Pennsylvania, and Stockton, California. Each of the 27 distribution depots report to one of these regions. For fiscal year 1994, total DOD distribution costs amounted to about $1.5 billion. Figure 1 shows the locations of these depots. When inventory is managed efficiently, enough is stored to meet wartime and peacetime requirements and unnecessary storage costs are avoided. When the total on-hand and due-in inventory falls to or below a certain level--called the reorder point--inventory control points place an order for additional inventory. The reorder point includes items needed to satisfy war reserve requirements and items to be issued during the lead time (the time between when an order is placed and when it is received). In addition, a safety level of inventory is kept on hand in case of minor interruptions in the resupply process or unpredictable fluctuations in demand. By placing orders when the reorder point is reached, item managers ensure that inventory arrives before stock runs out. Generally, the amount of inventory ordered is based on a formula that DOD calls an economic order quantity (also known as a replenishment formula). According to DLA, DOD's secondary inventory occupies about 360 million cubic feet of storage space and has an actual volume of about 300 million cubic feet. We obtained computerized inventory data records from DLA and each of the military services and identified secondary inventory items with a volume of 218.8 million cubic feet. Our figure differs from DLA's 300 million cubic feet because approximately 12 percent of the items on the DLA and service data tapes that we used did not have storage space data. To determine whether there are opportunities for reductions, we analyzed DOD's secondary inventory as it relates to war reserve and current operational needs and in terms of the years of supply that is on hand on an item basis. Using this data, we visited selected storage activities to examine the condition and reasons for continuing to store items that appeared to be no longer needed. This work showed that DOD has a substantial number of items that (1) have over a 20-year supply beyond the levels needed to meet war reserve and operational needs, (2) are for weapon systems no longer in use, (3) are no longer usable, and (4) are not needed. Our analysis of DOD's September 30, 1993, Supply System Inventory Report and inventory stratification reports indicates that $36.3 billion of the $77.5 billion secondary inventory that DOD reported exceeded current war reserve and operating requirements. On the basis of our analysis of computerized records, we determined that about 2.2 million different items had a volume of 130.4 million cubic feet. A typical DOD warehouse is approximately 595 feet long and 180 feet deep. DLA officials said that it would take approximately 205 warehouses to store the 130.4 million cubic feet of inventory. Figure 2 shows that inventory by DOD component. DLA estimates that the holding costs for the 130 million cubic feet are approximately $94 million per year, which is less than 1 percent of the inventory value. This is low when compared to industry experience, which according to one study, ranges from 5 to 15 percent. For purchase decisions, some inventory control points use a percentage of the item's value, which can be as high as 18 to 22 percent of the value. However, DOD believes that the holding costs for items already on hand is considerably less than the 18 to 22 percent. As discussed later, DOD has an effort underway to benchmark its holding costs with private industry (see p. 17). The concern about unnecessary secondary inventory storage is not new. In 1992, we reported that storing unneeded secondary inventory would prevent DLA from realizing savings from depot consolidations. We recommended that DLA reduce this inventory so that fewer depots would be required. To estimate the years of supply for each of the types of items, we divided the on-hand inventory by past or projected demand data. We had demand data for about 488,000 of the 2.2 million items that were not needed to satisfy current war reserves or operating requirements. Those items occupied about 73 percent (95.7 million cubic feet) of the 130.4 million cubic feet of space; 84,000 of the items (41.7 million cubic feet) had more than a 20-year supply. The 1.7 million items that did not have demand dataoccupied 34.7 million cubic feet of space. In figure 3, we show the years of supply by service. Figure 4 shows the space occupied by these items. To identify items that will likely never be used, we (1) used DLA and service databases to determine the amounts of stock on hand, (2) discussed with item managers the likelihood of these items being used and plans to dispose of them, and (3) visited supply depots to inspect items that had been in storage for an extensive period of time with little or no demand. Some examples of the items we identified follow. At the Fleet Industrial Supply Center, Norfolk, Virginia, three pump rotors (costing about $22,000 each) for a ship water pump have remained in storage since 1970. Recently, these items were transferred to DLA for management under the Consumable Item Transfer Program. Under this program, DLA assumes management responsibility for selected consumable items used by more than one service. Because DLA now manages these items, they will not be considered for disposal for at least 2 years due to DLA's disposal policy. At the same location, 10 bearings ($5,590 each) for a gear assembly on an aircraft carrier had been in storage since 1986. After our discussions with the item manager, the Navy disposed of all 10 of these bearings. Figure 5 shows the bearings in storage. At Warner Robins Air Logistics Center, Warner Robins, Georgia, 79 modular radio transmitters belonging to the Army and valued at approximately $16,000 were in storage. Although 69 of these items are excess, the Air Force had not taken any action to determine whether they were needed by the Army. Air Force officials told us that they planned to contact the Army for disposal authority. Figure 6 shows the modular radio transmitters in storage. At the Defense Construction Supply Center, Columbus, Ohio, we were informed that 65 housings for air cylinders used on a electric generating unit have had no demand in years, and no demand is forecasted for the coming year. The item manager indicated that it is unlikely that all the housings will be used, but they cannot be disposed of until additional information is available concerning possible uses for them. Some items have become obsolete as technology has advanced and weapon systems and equipment have been phased out of the inventory. At the Fleet Industrial Supply Center in Norfolk, Virginia, we located two electric pumps valued at approximately $90,700 (about $45,350 each). Though these pumps were for destroyer class ships no longer in the U.S. inventory, they remained in storage. When we questioned this retention decision, the Navy item manager informed us that the pumps were being retained for potential foreign military sales. Despite the absence of U.S. military users, responsibility for their management was transferred to DLA under the Consumable Item Transfer Program. Thus, the electric pumps will be stored for at least 2 years. Figure 7 shows them in storage. DLA also assumed management responsibility for four large distillation units for which there were no known users. The items (costing $72,140 each) have been in storage since 1968 and were used to distill water on Navy ships. According to the Navy, the decision to retain the items was predicated on their high cost. Because of this cost, the Navy chose to research the possible uses of these items before disposing of them. Like other items transferred to DLA, they will not be considered for disposal for at least 2 years. Figure 8 shows the distillation units stored at the Fleet Industrial Supply Center, Norfolk, Virginia. At Warner Robins Air Logistics Center, Warner Robins, Georgia, 4,044 missile control systems (a total cost of approximately $21 million) are being phased out of the inventory. These items have been in storage for many years with no demands. However, subsequent to our visit, the item manager received approval to dispose of them. Also, at Warner Robins Air Logistics Center, three equalizer assemblies costing approximately $75,000 had been in storage for at least 3 years. The assemblies were part of the F-4 aircraft reconnaissance system. Though the items were obsolete to DOD, they were being retained for possible foreign military sales. Figure 9 shows the assemblies in storage. Many items have deteriorated to the point that they are no longer usable. For example, at the Fleet Industrial Supply Center, in Norfolk, Virginia, a hoisting antenna (which cost about $48,500) had been stored outside so long that grass and rust covered it. The Navy item manager informed us that the item is no longer usable and will be disposed of. Figure 10 shows the antenna in outside storage. Also, at the Fleet Industrial Supply Center in Norfolk, Virginia, 13 modernization kits for the P-3C aircraft have been in storage since 1978. These kits (which cost about $4,480 each, for a total cost of approximately $58,240) are obsolete. During subsequent discussions with Navy officials, they indicated that these items will be disposed of. At the Defense Supply Depot, New Cumberland, Pennsylvania, seven obsolete Army clutch assemblies were in storage. They cost approximately $5,334 and were previously used on the M125 10-ton Prime Mover. As a result of our visit, the Army decided to dispose of all seven items. In addition, at the San Antonio Air Logistics Center in San Antonio, Texas, two maintenance antennae valued at approximately $230,000 each had been in storage for at least 5 years. Though these items were in need of repair, both were being retained, and the Air Force has no plans to dispose of them. The item manager informed us that the items would have to be researched to determine any possible users before any disposal action could be taken, but as of November 30, 1994, the item manager had not initiated this action. Figure 11 shows the maintenance antennae in storage. In 1990, we reported on 57 Navy items that we identified as candidates for disposal that had little or no potential for future use. During that review, we sampled 100 items that had unneeded inventory and identified 57 items that had one or more of the following characteristics: (1) no active users, (2) no demands in the previous 2 years, and (3) no demands forecasted. When we followed up on these items in 1994, we found that of the 57 items that were on hand in 1990, 32 were still in the inventory. The Navy still manages 26 of these items, which have approximately $2.7 million in stock exceeding the reorder point and replenishment formula. The other six had been transferred to DLA. Six of the items still under Navy management had demand forecasted for the following year. Four of these had excessive stock on hand, ranging from 6 to more than 20 years of supply. DOD has implemented several programs--some DOD-wide and others service specific--to reduce secondary inventory. Over the last 3 years, DOD disposals have amounted to about $43.4 billion. (See table 1.) One reason more progress has not been made is because incentive for the disposal of secondary items was lacking. In 1992, DOD consolidated its industrial and stock funds into the Defense Business Operations Fund. DOD was partly motivated to consolidate the funds in order to improve the visibility of storage costs. However, neither the inventory control points nor the weapon system program managers have an incentive to reduce storage costs. The service unit (customer) that requests and uses the inventory pays for the cost of storage because cost is included in the price charged the customer. For fiscal year 1996, DLA plans to begin charging inventory control points for storing the material they manage. Although rates will vary by type of commodity and storage, the rate for covered storage (which applies to most secondary items) will be $5.15 a square foot. This charge should be an incentive for item managers to dispose of material that is not needed. In addition, DOD has initiated a study to determine its inventory holding costs. As part of this study, DOD will compare its holding costs with those of private industry. In commenting on a draft of this report, DOD said that it had no preconceptions as to what impact, if any, the project would have on retention or disposal decisions. The project is scheduled for completion in the spring of 1995. Furthermore, as manager of DOD's depot system, DOD and DLA have developed strategic plans for reducing DOD's storage capacity as secondary item inventories are reduced. DLA officials told us that a number of contributing factors, including Base Closure and Realignment Commission actions and its own efforts, have resulted in storage facilities being vacated and substantial reductions in storage requirements during the past 2 fiscal years. DLA projects that DOD's secondary inventory will be reduced to approximately $54 billion by 2001 and that its total requirement for covered space will be reduced to approximately 400 million cubic feet. According to DLA officials, these reductions take into account additional requirements generated as a result of units returning secondary items from Europe, as well as moving items currently stored outside into covered storage. We believe that DOD's efforts are a good start and that continued emphasis should be placed on getting rid of inventory that is not needed. Therefore, we recommend that the Secretary of Defense develop a systematic approach for reviewing the secondary inventory currently on hand. The Secretary could begin by instructing inventory control points and program managers to focus their inventory reduction efforts on the material that occupies a great deal of storage space and has more than 20 years of supply on hand. In commenting on a draft of this report (see app. I), DOD said that it generally agrees that inventories should be reduced and excess storage capacity should be eliminated. DOD partially agreed with our findings and recommendations. While DOD agrees that it holds secondary inventory that will probably never be used and should be disposed of, it does not agree with the criteria we used for assessing the potential for reducing the amount of inventory it currently holds. Our analysis focused on the stock that exceeded the war reserve and current operating requirements. We believe this is a logical starting point and our report points out that we are not suggesting that DOD dispose of all stock that exceeds that level. Rather, we point out that DOD should focus its reduction efforts on stock that occupies a great deal of space and has more than 20 years of supply on hand. DOD expressed concern that the implication of using our criteria would be that this material should be disposed of and the related warehouse space eliminated. It also points out that our criteria are used for ordering stock, not for making decisions concerning whether to retain it. However, in its 1993 material management regulation, DOD used this same criteria as the maximum quantity of material to be maintained on hand or on order to sustain current operations and core war reserves. DOD stated that in hindsight it would not order much of the stock it has on hand, but wants to be careful not to dispose of any stock that might be needed in the future. DOD stated that it might already have disposed of much of the material we discuss in our report. We acknowledge that some of this material might have been disposed of while our review was on going. However, we do not believe that DOD had the opportunity to dispose of most of this material. We obtained the computerized records on which we based our analysis from DLA and the services as they were available. The tapes for DLA, for example, were not obtained until August 1994, and therefore, DLA would have had limited opportunity to dispose of DLA material we identified. DOD partially concurred with our recommendation that DOD develop a systematic approach for reducing inventories. DOD emphasized that it already has in place a systematic approach to reducing inventory and is tracking its progress toward meeting established goals. DOD agreed that the number of storage locations should be reduced, but stated that the depot system is already being downsized. DOD indicated that its requirement for covered storage space had been reduced more than 180 million cubic feet, or 28 percent, between September 1992 and September 1994. In the draft of this report submitted to DOD for comment, we included a recommendation for the Secretary to consider the significant amount of inventory that exceeds current requirements when determining the number of depots to close or consolidate in the 1995 base closure and realignment process. Since the Secretary's recommendations to close and realign bases have been made, we deleted this recommendation from our final report. We conducted our work between January 1993 and September 1994 in accordance with generally accepted government auditing standards. (See description of our scope and methodology in app. II.) Unless you publicly announce this report's contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to the Chairmen, Senate Committee on Armed Services, Senate and House Committees on Appropriations, and House Committee on National Security; the Secretaries of Defense, the Air Force, the Army, and the Navy; and the Directors of the Defense Logistics Agency and the Office of Management and Budget. We will also make copies available to others upon request. If you have any questions, I may be reached at (202) 512-8412. Major contributors to this report are listed in appendix III. The following are GAO's comments on the Department of Defense's (DOD) letter dated March 23, 1995. 1. The points raised in DOD's transmittal letter are addressed in the section of this report entitled agency comments and our evaluation. 2. By using the criteria we selected for assessing DOD's use of warehouse space, we do not believe that all the material we identified as exceeding current war reserve and operating requirements needs to be disposed of. As we stated in our report, many of these items may have potential future use and should be retained. 3. We agree that a certain amount of uncertainty is associated with projecting spare parts usage. DOD has insurance items to account for the fact that accidents, abnormal equipment or system failures, or other unexpected demands occur. The requirements for these items are included in operating stocks that we excluded from our analyses. 4. We believe that DOD's comment supports our position. Even after disposing of excess stock, the supply system was able to satisfy customer demand. 5. DOD commented that during hostilities, items (particularly insurance items) with more than 100 years of supply can very quickly become exhausted. Our analysis considered only items with demand. Insurance items, because they had no demand, were excluded. With respect to the noninsurance items with more than 100 years of supply, it is unlikely that all the quantities will be used. We agree, however, that DOD should focus not only on the number of years of supply on hand, but also on the space that the items occupy. 6. DOD commented that the Defense Logistics Agency's (DLA) inventory managers are authorized to dispose of stocks transferred to DLA by other services sooner, with approval from the losing service. However, DLA's item managers informed us that they do not consider disposing of such material for 2 years. 7. We reported in August 1994 that DOD's reported inventory values decreased by $31.9 billion between fiscal years 1989 and 1993, from $109.4 billion to $77.5 billion. However, because of accounting changes, the values were not comparable. When the inventory was valued on a comparable basis, we estimated that the total reduction was $11.2 billion, not $31.9 billion. We believe that there are further opportunities for inventory reductions with appropriate incentives. 8. We agree with DOD that, to date, the major incentive to reduce inventory has been imposed externally by the Congress in the form of budget reductions. We believe that internal incentives, such as DOD's future plan to charge organizations that cause inventory to be stored for storage costs, should be effective in reducing unneeded inventory. 9. We believe that DOD is capable of further inventory reductions. The statement that inventory disposals have been insufficient to offset increases in material returns is from DOD officials. Since DOD took exception with the statement, we removed it from the report. 10. DOD stated that it holds inventory that will likely never be used. In view of the number of items with more than 20 years of supply, we believe that it is unlikely that much of this inventory would have to be repurchased if DOD systematically reviewed and disposed of material for which it forecasted no need. We visited the following sites to review policies, procedures, and documents related to retaining and disposing of inventory: the Office of the Deputy Under Secretary of Defense for Logistics; the Army, the Navy, and the Air Force headquarters, Washington, D.C.; the Defense Logisics Agency, Alexandria, Virginia. Inventory commands: the Army Material Command, Alexandria, Virginia; the Naval Supply Systems Command, Washington, D.C.; the Air Force Material Command, Wright-Patterson Air Force Base, the Defense Logistics Services Center, Battle Creek, Michigan. Inventory control points: Army--Tank-Automotive Command, Warren, Michigan; Navy--Aviation Supply Office, Philadelphia, Pennsylvania and the Ships Parts Control Center, Mechanicsburg, Pennsylvania; Air Force--Ogden Air Logistics Center, Ogden, Utah; Oklahoma City Air Logistics Center, Oklahoma City, Oklahoma; San Antonio Air Logistics Center, San Antonio, Texas; and Warner Robins Air Logistics Center, Warner Robins, Georgia; and DLA--Defense Construction Supply Center, Columbus, Ohio. Naval Fleet Industrial Supply Center, Norfolk, Virginia; the Air Logistics Centers at Tinker Air Force Base, Oklahoma; Warner Robins Air Force Base, Georgia; Kelly Air Force Base, Texas; and Hill Air Force Base, Utah; and DOD Supply Depot, Columbus, Ohio. In conducting our work, we used the same computer files, records, and reports that DOD uses to make stocking decisions for secondary items. We did not independently determine the reliability of these sources. To determine the extent of inventory not needed to satisfy current war reserve and operating requirements, we analyzed computerized files of DLA and service inventories between March 31, 1993, and August 31, 1994. Specifically, we compared, on an item-by-item basis, on-hand inventory needed to satisfy war reserve and current operating requirements to the total inventory that was on hand. To determine why inventory was being retained and whether retention was justified, we selected a sample of approximately 150 line items from computerized inventory records for the inventory control points visited. At the inventory control points, we reviewed inventory records and interviewed officials to identify the reasons for retaining inventory. To determine the extent of space required to store items beyond the current war reserve and operating requirements, we matched DLA and service inventory files with the cube information DOD provided by national stock number. Approximately 12 percent of the items analyzed had no cube data in the DLA or service computer records and were assigned a cube size of zero. This reduced our calculation of the space occupied by secondary inventory. When we visited the depots, we observed selected items to determine the accuracy of the cube data in DOD's databases and found this data to be relatively accurate. To compute years of supply for the Army, the Navy, and the Air Force, we used DOD's computerized inventory records to determine, on an item-by-item basis, the amount of inventory that was not needed to satisfy war reserve and operating requirements. We divided that inventory by projected annual demands to determine how many years it would take to use the inventory. By excluding items that did not have projected demands from this analysis, we were able to avoid computing years of supply for insurance items that had no projected demand. Because projected demands were not available for DLA items, we used historical demands in lieu of projected demands to compute years of supply. We excluded items that had no historical demand data from this analysis. Organizational Culture: Use of Training to Help Change DOD Inventory Management Culture (GAO/NSIAD-94-207, Aug. 30, 1994). Army Inventory: Unfilled War Reserve Requirements Could Be Met With Items From Other Inventory (GAO/NSIAD-94-207, Aug. 25, 1994). Defense Inventory: Changes in DOD's Inventory, 1989-93 (GAO/NSIAD-94-235, Aug. 17, 1994). Navy Supply: Improved Material Management Can Reduce Shipyard Costs (GAO/NSIAD-94-181, July 27, 1994). Commercial Practices: DOD Could Reduce Electronics Inventories by Using Private Sector Techniques (GAO/NSIAD-94-129, June 29, 1994). Army Inventory: Changes to Stock Funding Repairables Would Save Operations and Maintenance Funds (GAO/NSIAD-94-131, May 31, 1994). Defense Management Initiatives: Limited Progress in Implementing Management Improvement Initiatives (GAO/AIMD-94-105, Apr. 14, 1994). Commercial Practices: Leading-Edge Practices Can Help DOD Better Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, Apr. 13, 1994). Defense Inventory: Changes in DOD's Inventory Reporting, 1989-92 (GAO/NSIAD-94-112, Feb. 10, 1994). Defense Inventory: More Accurate Reporting Categories Are Needed (GAO/NSIAD-93-31, Aug. 12, 1993). Commercial Practices: DOD Could Save Millions by Reducing Maintenance and Repair Inventories (GAO/NSIAD-93-110, June 4, 1993). Army Inventory: Current Operating and War Reserve Requirements Can Be Reduced (GAO/NSIAD-93-119, Apr. 14, 1993). Defense Logistics Agency: Why Retention of Unneeded Supplies Persists (GAO/NSIAD-93-29, Nov. 4, 1992). Army Inventory: Divisions' Authorized Levels of Demand-Based Items Can Be Reduced (GAO/NSIAD-93-09, Oct. 20, 1992). 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 Department of Defense's (DOD) inventory management system, focusing on the: (1) size and space occupied by DOD secondary inventory; (2) cost of storing this inventory; and (3) efforts taken to reduce DOD secondary inventory. GAO found that: (1) DOD secondary inventory occupies about 218.8 million cubic feet; (2) 60 percent of the secondary inventory is not needed to satisfy current war reserve or operating requirements, however, many items may have potential future use; (3) the inventory not currently needed consists of 2.2 million different types of items; (4) DOD has more than a 20-year supply for some items, but many others have deteriorated or become obsolete; (5) DOD should get rid of unneeded items that occupy space and exceed more than 20 years of supply; (6) although DOD has begun programs to reduce the secondary inventory, its efforts have been partially offset by decreasing inventory demands and increasing returns of materials by deactivated forces; (7) DOD disposed of secondary inventory items valued at $43 billion during the past 3 fiscal years; and (8) the Defense Logistics Agency is implementing a pricing procedure that should increase inventory managers' incentives for disposing of unneeded items.
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The Bureau has made significant progress redesigning its approach for conducting the 2010 Census, including early planning, a greater reliance on contractors, and actions related to nonresponse follow-up, a key cost driver. Specifically, the Bureau's preparations for the 2010 Census appear to be further along than at a similar point during the planning cycle for the 2000 Census. The Bureau also plans to make the most extensive use of contractors in its history, turning to the private sector to supply a number of different mission-critical functions, including data collection, data processing, and address and map updates. In addition, the Bureau has developed new initiatives to reduce the cost of nonresponse follow-up that include using a short-form-only census questionnaire and automating field operations. For the 2010 decennial, the Bureau developed a design for the census early in the decade, and Congress has been supportive of the Bureau's approach. However, the situation 10 years ago for the 2000 decennial was somewhat different. In testimony before Congress in late 1995, we expressed concern that Congress and the Bureau had not agreed on the fundamental design and budget of the census, and that the longer this situation continued, the greater the risk that the census would not be planned well and that hundreds of millions of dollars would be spent inefficiently. Indeed, the final life-cycle cost for the 2000 Census exceeded the original estimates by about $1.5 billion, or about 30 percent. While this time the Bureau has planned earlier than in the past, it needs to do more. The Bureau has a significant responsibility to provide Congress with detailed documentation and analyses that provide support and justification for its 2007 budget and 2010 life-cycle cost estimate, especially during a time when the nation is facing serious fiscal challenges. In our view, the Bureau needs to inform Congress in a timely manner on the cost and progress being made toward a successful 2010 Census. In planning early for the 2010 Census, the Bureau established four goals aimed at addressing shortcomings with the 2000 enumeration: (1) increase the relevance and timeliness of data, (2) reduce operational risk, (3) increase coverage and accuracy, and (4) contain costs. To achieve these goals, three components--all new operations--are key to the Bureau's plans for 2010: enhancing procedures for building its address list, known as the Master Address File (MAF), and its associated geographic information system, called the Topologically Integrated Geographic Encoding and Referencing (TIGER®️) database; replacing the census long-form questionnaire with the American Community Survey (ACS); and conducting a short-form-only decennial census supported by early research and testing. Steps that the Bureau has taken to correct problems it encountered when planning past censuses are another sign of the thoroughness of the Bureau's planning process. For example, early in the decade, senior Bureau staff considered various goals for the 2010 Census and articulated a design to achieve those goals. Moreover, staff with operational experience in the census participated in the 2010 design process. According to Bureau officials, this was a departure from the 2000 planning effort, in which Bureau staff with little operational experience played key roles in the design process, resulting in impractical reform ideas that could not be implemented. For the 2010 Census the Bureau plans to make the most extensive use of contractors in its history, turning to the private sector to supply a number of different mission-critical functions, including nationwide data collection and processing activities, and improvements to the address file and maps. The Bureau estimates that of the $11.3 billion total cost of the census, around $1.9 billion (or 17 percent) will be spent for its seven largest contracts. To date, the Bureau has awarded three of its seven major contracts that account for approximately $1.3 billion. Those contracts support (1) MAF/TIGER modernization; (2) the development and operation of the Decennial Response and Integration System (DRIS)--a system planned to integrate decennial responses; and (3) the Field Data Collection Automation (FDCA) program--a system designed to provide field staff with the equipment and infrastructure needed to collect census data. As detailed below, it will be important for the Bureau to monitor the contracts to avoid late design changes and hastily designed, untested systems that could result in additional costs. In fiscal year 2007, the Bureau will also award three of four remaining major decennial contracts as follows: in February 2007, the Bureau plans to award the contract for Data Access and Dissemination System II, which will replace the Bureau's current data tabulation and dissemination system; in March or April 2007, the 2010 Census printing contract will be awarded; and, in April 2007, the Bureau will begin to lease office space for the 2010 Census. The exact date for the 2010 communications contract--which is set to be awarded sometime in fiscal year 2008--is not yet firmly established. As we noted in our May 2006 report, the Bureau has a tight schedule for systems development and testing; therefore, it will be important for the Bureau to keep the award of decennial contracts on schedule. To stay on schedule, we recommended that the Bureau ensure that key systems provided by contractors are fully functional and ready to be assessed as part of the 2008 Dress Rehearsal. While the Bureau neither agreed nor disagreed with this recommendation, the Bureau did state that it would be providing the results from the 2006 Census Test to the FDCA contractor. Staying on track is important because we previously reported that during the 1998 Dress Rehearsal for the 2000 Census a number of new features were not test-ready; as a result, the Bureau said it could not fully evaluate them with any degree of assurance as to how they would affect the census. These late design changes and hastily developed, untested systems resulted in additional costs to the census. We recognize that contractors can help the Bureau address the challenges it faces as it plans for and implements the 2010 Census, especially as it becomes increasingly difficult to count the nation's population with the Bureau's in-house staff and capabilities. For example, the contractors that the Bureau relied on to perform some of its major decennial activities during Census 2000 generally performed well. However, increased reliance on contractors entails certain management challenges, including overseeing them to ensure that they meet the Bureau's needs in an effective, economical, and timely manner. For example, according to the Department of Commerce Office of Inspector General, the Bureau did not have sufficient program management staff to efficiently acquire systems and manage complex, high-dollar contracts during Census 2000. As a result, the cost of the Bureau's data capture system increased from $49 million to $238 million by the end of that decennial. Closely monitoring these major contracts will be important. In March 2006, we testified that while project offices responsible for the DRIS and FDCA contracts had carried out initial acquisition management activities, neither office had the full set of capabilities needed to effectively manage the acquisitions. For DRIS, the Bureau's project office had established baseline requirements, but the Bureau had not validated the requirements and had not implemented a process for managing the requirements. Also, the project office had identified the project's risks but had not developed written mitigation plans or established milestones for completing key risk mitigation activities. As for FDCA, the Bureau again had specified baseline requirements but had not validated them. While the project office had begun activities to oversee the contractor's performance, it had not determined which performance measures it would use, and the office had not implemented a risk management process. Until these basic management activities are implemented, both systems could face increased risks of cost overruns, schedule delays, and performance shortfalls. The Bureau has agreed to take steps to mitigate some of these challenges, such as enhancing the ability of key contract project offices to better manage contracts through such actions as developing action plans with milestones for key activities and regularly briefing senior managers. Since 2000, the Bureau has reengineered the decennial census and has begun to implement new initiatives to reduce the cost of nonresponse follow-up, including a short-form-only census and automation, the key feature of which is the use of hand-held mobile computing devices (MCD). First, the Bureau plans to contain the cost of nonresponse follow-up by increasing mail response through a short-form-only census. The overall mail response rate has been declining steadily since 1970. In the 1980 Census, the mail response rate was 75 percent, 3 percentage points lower than it was in the 1970 Census. In the 1990 census, the mail response rate dropped to 65 percent and, in 2000, appeared to be leveling off at about 64 percent. Contributing to this decline was the unwillingness of some of the public to complete the long form. Specifically, the response rates during the 1990 and 2000 censuses to the short form were higher than the response rate to the long form. Bureau data suggest a 1 percent increase in the mail response rate would result from conducting a short-form-only census. Secondly, by using the MCD, the Bureau plans to automate field data collection to contain the cost of nonresponse follow-up. If successfully used, the MCD would allow the Bureau to automate operations and eliminate the need to print millions of paper questionnaires and maps used by census workers to conduct address canvassing and nonresponse follow-up, as well as managing field staff's payroll. The benefits of using the MCD have been tested in the 2004 and 2006 tests. For example, during the 2004 Census Test, the MCD allowed the Bureau to successfully remove over 7,000 late mail returns from enumerators' assignments, reducing the total nonresponse follow-up workload by nearly 6 percent. The ability to remove late mail returns from the Bureau's nonresponse follow-up workload reduces costs, because census workers no longer need to make expensive follow-up visits to households that return their questionnaire after the mail-back deadline. However, the MCDs experienced significant reliability problems during the 2004 and 2006 census tests. At this point, the uncertainty surrounding the MCD's reliability constitutes a risk to the cost-effective implementation of the 2010 Census. Specifically, during the 2004 Census Test, the MCDs experienced transmission problems, memory overloads, and difficulties with a mapping feature--all of which added inefficiencies to the test's nonresponse follow-up operation. During the 2006 Census Test's address canvassing operation, the device was slow to pull up address data and accept the data entered by census workers. Further, the MCD's global positioning system (GPS) receiver--a satellite-based navigational system to help workers locate street addresses and collect coordinates for each structure in their assignment area--was also unreliable. According to Bureau officials, some workers had trouble receiving signals; but even when a signal was available, the receiver was slow to find assignment areas and correct map locations. The Bureau extended the operation 10 days and still was unable to complete the job, leaving census blocks in Austin, Texas and on the Cheyenne River Reservation, South Dakota unverified. While acknowledging that the MCD's performance is an issue, the Bureau believes the problem will be addressed through a contract that was awarded on March 30, 2006, to develop a new MCD, among other things. However, the new MCD will not be operationally tested until the 2008 Dress Rehearsal, and if problems do emerge, little time will be left to develop, test, and incorporate refinements. In our May 2006 report, we highlighted the tight time frames to develop the MCD and recommended that systems being developed or provided by contractors for the 2010 Census--including the MCD--be fully functional and ready to be assessed as part of the 2008 Dress Rehearsal. The Department of Commerce noted in its comments on our draft report that the Bureau provided competitors for the contract with information about the design, requirements, and specification for the 2006 test in the request for proposals. Commerce also noted that the Bureau would share preliminary results from the 2006 test with the firm that was awarded the contract, upon the availability of those results. The Bureau, however, did not specify when preliminary results would be available. If after the 2008 Dress Rehearsal the MCD is found not to be reliable, the Bureau could be faced with a remote but daunting possibility of having to revert to the costly, paper-based census used in 2000. The Bureau in its 2005 life-cycle cost estimate did indicate that if it were to conduct a paper-based census in 2010 using the same methods as 2000, the life-cycle cost would increase by $1.3 billion dollars. However, as discussed in more detail later in this testimony, we are unable to determine the validity of the Bureau's cost estimates, paper-based or not, because those estimates are not supported by timely and detailed data. Nevertheless, we support the Bureau's efforts to contain cost and look forward to seeing the MCD that is currently being designed under the FDCA contract as well as more details concerning the Bureau's cost estimates. Despite its emphasis on cost containment, the Bureau does not have a comprehensive, integrated project plan that details milestones and itemized costs for completing key activities for the 2010 Census, and its $11.3 billion life-cycle cost estimate for the 2010 Census lacks timely and complete supporting data. The supporting data of the estimate are not timely because they do not include the most current information from testing and evaluation, and the estimate is not complete because it does not provide sufficient information on how changing assumptions could affect cost. Absent this information, we are unable to determine the affect proposed budget reductions will have in 2007, as well as the impact of those reductions on the overall design and the Bureau's 2010 life-cycle cost estimate. In our January 2004 report, we reported that the Bureau's cost projections for the 2010 decennial census continue an escalating trend. As previously noted, the Bureau now estimates the 2010 Census will cost over $11.3 billion, making it the most expensive in history, even after adjusting for inflation. Although some cost growth can be expected, in part because the number of housing units--and hence the Bureau's workload--has become larger, the cost growth has far exceeded the increase in the number of housing units. For example, the Bureau estimates that the number of housing units for the 2010 Census will increase by 10 percent over 2000 Census levels, while the average cost per housing unit for 2010 is expected to increase by approximately 29 percent from 2000 levels. Moreover, the risk exists that the actual, final cost of the census could be considerably higher. Indeed, the Bureau's initial cost projections for previous censuses proved to be too low because of such factors as unforeseen operational problems or changes to the fundamental design. For example, during the 2000 Census, the Bureau was unable to finalize its fundamental design until late in the decade because of lack of agreement between the administration and Congress over the design. This required the Bureau to proceed down a dual track. The Bureau estimated that the 2000 Census would cost around $4 billion if sampling was used, as opposed to $5 billion for a traditional census without sampling. In the end, the price tag for the 2000 Census (without sampling) was over $6.5 billion, a 30 percent increase in cost. Our January 2004 report contained a recommendation for improving the transparency, comprehensiveness, and timeliness of the 2010 Census' life- cycle costs. We specifically recommended that the Bureau develop a comprehensive, integrated project plan for the 2010 Census, and we also emphasized the importance of providing information on the interrelationships and dependencies among project milestones. Such a project plan would be updated as needed and would include: (1) detailed milestones that identify all significant interrelationships; (2) itemized estimated costs of each component, including a sensitivity analysis, and an explanation of significant changes in the assumptions on which these costs are based; (3) key goals translated into measurable, operational terms to provide meaningful guidance for planning and measuring progress, and (4) risk and mitigation plans that fully address all significant potential risks. We noted then that, although some of this information is available piecemeal, to facilitate a thorough, independent review of the Bureau's plans and hold the agency accountable for results, having a single, comprehensive document would be important. Although the Bureau disagreed with the recommendation, it stated it would develop and provide such a document to Congress and GAO. More than 2 years passed and the Bureau did not provide this plan. The Bureau has stated that it agrees with the Office of Management and Budget that the annual budget submission process is the appropriate vehicle for providing comprehensive and detailed cost information on 2010 Census planning. However, in our view, having a single comprehensive project plan that is updated annually, as we recommended in 2004, would have provided the Bureau with additional support for its fiscal year 2007 budget request. Further, GAO reemphasized the need for such a plan in testimonies during March and June 2006. The Bureau's most recent cost estimate is not based on timely and complete information. As stated in our January 2004 report, the Bureau derived its 2010 cost estimate, in June 2001, by using the actual cost of the 2000 Census combined with assumptions about such cost drivers as (1) staffing needs, (2) enumerator productivity, (3) pay rates for census workers, (4) the nonresponse rate for mailing back the questionnaires, and (5) inflation. However, the most recent life-cycle cost estimate does not incorporate current information about assumptions made in 2001, leaving us unable to link information on assumptions among the cost estimates released in 2001, 2003, and 2005. For example, one key assumption that has not been updated pertains to the use of a new technology--new hand-held, GPS-enabled MCDs. These devices are important to the success of the 2010 census because they are expected to make possible automated and streamlined address canvassing, nonresponse follow-up, coverage measurement, and payroll operations. The Bureau anticipated that the use of MCDs would facilitate reductions in administrative and support costs in the Bureau's field offices, including a 50 percent reduction in clerical and administrative local census office staff costs and a 50 percent reduction in space at each local census office. However, the Bureau's existing assumptions about the use and reliability of the MCD were not updated to reflect information from the 2004 Census Test, which revealed that assumptions about staffing and space associated with the new technology had changed since the June 2001 life-cycle estimate. Specifically, Bureau evaluations of the 2004 test show that more help desk staff at the local census office were needed to support the use of the MCD, and additional storage space was needed for the devices. However, the Bureau did not use this information when revising its cost estimate in 2005 because, according to Bureau officials, they conduct field tests for operational purposes only--not to inform the cost estimates. In our view, revising cost estimates on the most recent information-- including test results that are pertinent to cost assumptions--can assist the Bureau and external decision makers to oversee costs and make necessary resource allocations to help ensure a successful, cost-effective census. The Bureau's cost estimate also lacks complete information, such as sensitivity analysis regarding assumptions that could affect cost drivers. OMB Circular A-94 provides guidelines for cost-benefit analysis of federal programs and recommends that agencies develop a sensitivity analysis for major projects with significant uncertainty, like the decennial census. The circular provides a method for determining how sensitive outcomes relate to changes in assumptions. In January 2004, we reported that the Bureau could provide more robust information on the likelihood that the values the Bureau assigned to key cost drivers could differ from those initially assumed. We also stated that updates of the life-cycle cost could be timelier--previously the life-cycle cost estimate had been provided at 2- year intervals. While the Bureau agreed to provide updates of the life- cycle cost annually, the Bureau's latest life-cycle cost document does not contain a sensitivity analysis on assumptions that impact cost. Having transparent information about cost estimates is especially important, because decennial costs are sensitive to many key assumptions. In fact, for the 2000 Census, the Bureau's supplemental funding request for $1.7 billion in fiscal year 2000 primarily involved changes in assumptions related to increased workload, reduced employee productivity, and increased advertising. Given the cost of the census in an era of serious national fiscal challenges, it would be beneficial for the Bureau and Congress to have sensitivity information about the likelihood--high, medium, or low--that certain assumptions would drive costs. By providing this information, the Bureau would better enable Congress to consider funding levels in this uncertain environment. Questions have been raised about the impact of proposed reductions in the Bureau's fiscal year 2007 overall budget request. Would such a budgetary change cause the dramatic changes in the decennial's overall design and life-cycle cost that the Bureau predicts? The answer is that given the lack of consolidated, timely, and detailed plans and cost estimates, we simply cannot tell. Importantly, this testimony notes that the preparatory steps for the 2010 Census have almost reached a point where the Bureau will no longer be able to effectively undertake design changes and other significant corrective actions if such are needed--for example, in response to unanticipated failures of the MCD. To help policymakers make informed decisions, including funding decisions, the Bureau needs to provide policymakers with comprehensive, timely, and updated information. As we have previously reported, the Bureau has planned earlier than in the past and that its plans and efforts to reengineer the census have potential to contain costs. However, we believe the Bureau needs to do more. In this testimony, as well as in our previous reports and testimonies, we have discussed the Bureau's ongoing emphasis on reengineering the census to contain costs. We have noted that while the $11.3 billion estimate makes the 2010 Census the most expensive in history, new cost drivers have emerged. As we previously recommended, a periodically updated comprehensive project plan and cost estimate that is supported by transparent, detailed, and comprehensive analyses and documentation would enable analysts, policymakers, and others to ascertain whether significant risks exist that could cause costs to increase. We believe that in this era of serious national budget challenges, it is important for the Bureau to implement our 2004 recommendation not only for this fiscal year but every fiscal year of the 2010 decennial life-cycle. To conduct its oversight and budgetary functions, Congress needs the Bureau to provide it with an annually updated comprehensive, integrated project plan which includes milestones, itemized costs, measurable goals, and risk mitigation plans. That concludes my statement, Mr. Chairman. I would be pleased to respond to any questions you or other members of the Subcommittee may have. For questions regarding this testimony, please contact Brenda S. Farrell, on (202) 512-6806, or by email at [email protected]. Individuals making contributions to this testimony include Carlos Hazera, Assistant Director; Mike Carley, Betty Clark, Robert Goldenkoff, , Shirley Hwang, Wright Lewis, Krista Loose, Lisa Pearson, Scott Purdy, Mark Ryan, Shannon VanCleave, and Timothy Wexler. 2010 Census: Census Bureau Needs to Take Prompt Actions to Resolve Long-standing and Emerging Address and Mapping Challenges. GAO- 06-272. Washington, D.C.: June 15, 2006. 2010 Census: Costs and Risks Must be Closely Monitored and Evaluated with Mitigation Plans in Place. GAO-06-822T. Washington, D.C.: June 6, 2006. 2010 Census: Census Bureau Generally Follows Selected Leading Acquisition Planning Practices, but Continued Management Attentions Is Needed to Help Ensure Success. GAO-06-277. Washington, D.C.: May 18, 2006. Census Bureau: Important Activities for Improving Management of Key 2010 Decennial Acquisitions Remain to be Done. GAO-06-444T. Washington, D.C.: March 1, 2006. 2010 Census: Planning and Testing Activities Are Making Progress. GAO-06-465T. Washington D.C.: March 1, 2006. Information Technology Management: Census Bureau Has Implemented Many Key Practices, but Additional Actions Are Needed. GAO-05-661. Washington, D.C.: June 16, 2005. 2010 Census: Basic Design Has Potential, but Remaining Challenges Need Prompt Resolution. GAO-05-09. Washington, D.C.: January 12, 2005. Data Quality: Census Bureau Needs to Accelerate Efforts to Develop and Implement Data Quality Review Standards. GAO-05-86. Washington, D.C.: November 17, 2004. Census 2000: Design Choices Contributed to Inaccuracies in Coverage Evaluation Estimates. GAO-05-71. Washington, D.C.: November 12, 2004. American Community Survey: Key Unresolved Issues. GAO-05-82. Washington, D.C.: October 8, 2004. 2010 Census: Counting Americans Overseas as Part of the Decennial Census Would Not Be Cost-Effective. GAO-04-898. Washington, D.C.: August 19, 2004. 2010 Census: Overseas Enumeration Test Raises Need for Clear Policy Direction. GAO-04-470. Washington, D.C.: May 21, 2004. 2010 Census: Cost and Design Issues Need to Be Addressed Soon. GAO- 04-37. Washington, D.C.: January 15, 2004. Decennial Census: Lessons Learned for Locating and Counting Migrant and Seasonal Farm Workers. GAO-03-605. Washington, D.C.: July 3, 2003. Decennial Census: Methods for Collecting and Reporting Hispanic Subgroup Data Need Refinement. GAO-03-228. Washington, D.C.: January 17, 2003. Decennial Census: Methods for Collecting and Reporting Data on the Homeless and Others Without Conventional Housing Need Refinement. GAO-03-227. Washington, D.C.: January 17, 2003. 2000 Census: Lessons Learned for Planning a More Cost-Effective 2010 Census. GAO-03-40. Washington, D.C.: October 31, 2002. The American Community Survey: Accuracy and Timeliness Issues. GAO-02-956R. Washington, D.C.: September 30, 2002. 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The U.S. Census Bureau (Bureau) estimates that the 2010 Census will cost over $11.3 billion, making it the most expensive in our history. The U.S. House of Representatives and Senate appropriation bills propose to reduce the Bureau's fiscal year 2007 budget request, raising questions about the Bureau's design of the 2010 Census and associated costs. Based on issued GAO work, this testimony addresses the extent to which the Bureau has (1) made progress redesigning its approach, including nonresponse follow-up, a key cost driver; and (2) developed a comprehensive project plan for the 2010 Census, as well as timely, detailed cost data for effective oversight and cost control. Since 2000, the Bureau has made significant progress in redesigning the 2010 Census. Preparations for the 2010 Census appear to be further along than at a similar point of the 2000 Census; the Bureau plans to make the most extensive use of contractors in its history to implement such mission-critical tasks as data collection and processing, and updating addresses and maps; and it has developed new initiatives, such as changing to a short-form-only census and automating field operations to reduce nonresponse follow-up costs. Still, the Bureau will have to resolve challenges that could increase the costs of the census. For example, the Bureau will need to effectively monitor contracts, as $1.9 billion of the $11.3 billion life-cycle costs will be spent on seven major contracts. The Bureau has agreed to take steps to mitigate some of these challenges, such as enhancing the ability of key contract project offices to better manage contracts through such actions as developing action plans with milestones for key activities and regularly briefing senior managers. Also, the use of hand-held mobile computing devices (MCD) to help reduce nonresponse follow-up costs by automating operations and managing the agency's payroll is a key component of the redesigned census. However, the MCDs experienced reliability problems during testing. The Bureau maintains that those problems will be fixed by developing a new MCD through a contract awarded in March 2006; however, the new MCD will not be tested until the 2008 Dress Rehearsal, and little time will remain to develop, test, and incorporate refinements if the MCDs do not perform as expected. If after the Dress Rehearsal the MCD is found to be unreliable, the Bureau could be faced with the remote but daunting possibility of having to revert to the costly paper-based census used in 2000. The Bureau has not developed and provided a comprehensive, integrated project plan that details milestones, itemized costs, and measurable goals for completing key activities. Also, the Bureau's $11.3 billion life-cycle cost estimate lacks timely and complete supporting data, because it does not contain the most current information from testing and evaluation nor does it provide sufficient information on how changing assumptions could affect costs. For example, one key assumption that has not been updated pertains to the use of the MCDs. The Bureau anticipates that their use could reduce administrative and support costs in its local census offices, including 50 percent cost reductions for staff and office space. However, the 2004 Census Test showed that more help desk staff and more storage space would be needed to support the devices. The Bureau did not change the life-cycle cost estimate because, in the view of Bureau managers, field tests are for operational purposes, not to inform cost estimates. However, using test results to update cost assumptions could assist the Bureau and external policymakers to oversee costs and make necessary resource allocations. Furthermore, absent a comprehensive plan and updated cost information, the effect of proposed 2007 budget reductions on the overall design and life-cycle costs of the 2010 Census cannot be determined.
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Funds from the rental-of-space account in FBF pay for all leased space in GSA's inventory. During fiscal years 1997 and 1998, GSA received appropriations of about $4.6 billion in NOA for this account, about $2.3 billion in each fiscal year. GSA submitted two requests, totaling $324 million in NOA, to reprogram funds from other FBF accounts into the rental-of-space account. On August 8, 1997, GSA requested approval to reprogram $110 million of the fiscal year 1997 appropriated funds, and on January 9, 1998, it requested approval to reprogram another $214 million of fiscal year 1998 appropriated funds. Both requests were approved. The amounts requested equaled about 4.7 percent of the amount initially requested by GSA in its budget requests for the rental-of-space account for fiscal year 1997, and 9.4 percent of the amount requested for fiscal year 1998. In its August 8, 1997, reprogramming request for fiscal year 1997, GSA attributed the need for the reprogramming to three causes. First, it had estimated that the overall average rents would increase by 2 percent, but actual rent increases ranged from 3 to 5 percent. This resulted in the cost to the account being underestimated by about $30.9 million. Second, on the basis of regional expectations, GSA had overestimated the amounts that would be saved through lease cancellations by about $74.1 million. Third, GSA had not been able to absorb a $5.1 million congressional reduction in appropriations requested for rental-of-space expenditures in fiscal year 1997. According to a GSA official, the agency could not absorb this cut because GSA was already short of NOA in this account. GSA alerted its oversight committees in its reprogramming request letter that these problems would also affect the rental-of-space account in fiscal year 1998. In its January 9, 1998, reprogramming request for fiscal year 1998, GSA attributed the need for the reprogramming to four causes. First, GSA needed $143.6 million to cover the $110 million underestimation in fiscal year 1997 and to annualize this error for fiscal year 1998. Second, as in fiscal year 1997, GSA had estimated the overall average rental rate increase at 2 percent, but actual increases ranged from 3 to 5 percent. This resulted in the cost to the account being underestimated by about $22.5 million. Third, as in fiscal year 1997, it had overestimated savings from lease cancellations, this time by about $41.8 million. Finally, on the basis of what regional staff believed was going to happen, GSA had underestimated the need for expansion space. This resulted in a need for an additional $6.1 million. The process of formulating the budget is to begin no later than the spring of each year, about 9 months before it is transmitted to Congress and 18 months before the beginning of the fiscal year in which the budget becomes effective. During the first 6 months of this period (from about April through September), PBS compiles information on the various budget elements, including the rental-of-space account; reviews the information for reasonableness and accuracy; and prepares its budget estimates. During the next 3 months (October through December) these estimates are to be submitted as a portion of GSA's budget request to the Office of Management and Budget (OMB) for review. OMB reviews the budget request and passes it back to GSA with any changes, and GSA may appeal OMB 's changes before the budget is finalized. Early the following year (between the first Monday in January and the first Monday in February), the budget is to be submitted to Congress for its review and appropriation of funds. Because of the timing of the budget process, when GSA realizes that an estimation error has been included in its budget request for that fiscal year (in fiscal year 1997 in this case), the error usually cannot be corrected in a future budget estimate until the second fiscal year after the error occurred (in this case, fiscal year 1999). To accomplish our objectives, we observed the Galaxy program in operation, reviewed training materials on its operation, reviewed documentation on the reprogramming requests, and interviewed PBS officials and budget and/or program analysts responsible for maintaining Galaxy in 10 of GSA's 11 regions. We discussed with the PBS Deputy Controller what elements were needed to track and forecast rent expenditures. We checked to see that the elements discussed were included in the Galaxy program. We did not verify the accuracy of the data in Galaxy, but we did obtain information from PBS on how it planned to ensure that the data would be accurate, reliable, and consistent. We also did not contact customer agencies to verify the extent to which they were being contacted by GSA regarding their future space needs. We did our work in Washington, D.C., between August 1998 and May 1999 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Administrator of GSA. GSA's comments are discussed at the end of this letter. GSA has taken corrective actions to specifically improve its tracking of the rental-of-space account and to improve its budget estimating for this account. The major step taken to improve both the tracking and estimating of the rental-of-space account was GSA's development of the Galaxy program to be the primary tool to manage the rental-of-space account for fiscal year 1999 and to help manage project expenditures for fiscal year 2001. The reason Galaxy was developed was to provide a means to have all the regions use a consistent format, the same set of tools, and the same assumptions to monitor, reconcile, and estimate future expenditures from the rental-of-space account. Rent account analysts responsible for the rental-of-space account had not had a financial management tool for tracking and analyzing the account since September 1997. The previous automated system was discontinued when STAR was being put on-line. Rent account analysts had been using manual spreadsheets to monitor the account since that time. The Galaxy program software was developed under an existing support services contract, at no additional cost to GSA except for some travel to a region, as an interim program until a module could be developed for STAR. Current plans are to enhance Galaxy so that it will interface with STAR. A statement of work to accomplish this objective is currently being developed. To implement Galaxy, GSA provided each region with training on its use and a copy of the software already loaded with the region's data for active lease contracts and active lease projects as of October 1, 1998. Galaxy has seven basic components, which include the elements PBS has identified as needed for tracking actual expenditures and estimating the funding requirements for future expenditures from the rental-of-space account. These components are described in table 1. The program can also generate various reports on both leases and projects, such as base rent by month, RWAs by lease number, IBAAs by lease number, lump sums by lease, operating cost escalation/CPI by lease, NOA by base lease, and estimate of rent increases tied to projects. Rent account analysts are responsible for ensuring that Galaxy's data are accurate, reliable, and consistent. The training manual states that all active leases and projects loaded in Galaxy "must be validated." The manual lists five steps that the analyst must follow to validate the information. Table 2 lists these steps. Also, other guidance in the manual indicates that Galaxy must be reconciled to NEAR on a monthly basis to ensure that accurate obligations are stated in NEAR. Further, the manual states that the effectiveness of any system is contingent upon the information it is supplied. Therefore, each region is responsible for ensuring the accuracy of the data input into Galaxy. Without accurate data, a credible status report for the rental-of- space account cannot be produced. Further, the regional rent account analysts we interviewed all agreed that communications between themselves and the realty specialists will be key in maintaining the accuracy of Galaxy. The analysts believed that communications would be of particular importance in estimating the rent account for a future budget year because, in order to estimate future expenditures, they rely not only on information about active leases, but also on information on projects in process. Project information is dependent upon the realty specialists' communications with the customer agencies. The analysts we interviewed all believed that, with proper communications, Galaxy should help avoid past problems and improve the estimating process. We were told that all GSA regions are to create a branch that will have as one of its responsibilities the initiating and inputting of all project data into STAR. This process should help ensure that the projects are entered into STAR. In May 1999, at least one region had already begun interviewing applicants for positions in the new branch. We agree that good communication between the analysts maintaining Galaxy and the realty specialists maintaining STAR is critical to the accuracy of the data in Galaxy. To project the rent expenditure account, it is particularly important to obtain data on lease projects, which reflect potential changes in the inventory. This information is not as readily available as data on existing leases, but must be obtained from customer agencies. Further, we agree that good communication between GSA and its customer agencies is essential to improving the accuracy of the rental- of-space estimate. However, this may not be easily accomplished, even with good communications, given that for budget purposes GSA needs to estimate changes in space requirements approximately 18 months in advance. In his testimony on April 24, 1997, the PBS Commissioner testified that, when he asked federal agency facility managers in a quarterly meeting whether they could identify the space reductions from downsizing a year in advance, they all said that they could not. This shows how difficult it may be for GSA to get accurate information on changes in the inventory. In addition to implementing Galaxy, GSA has taken other steps to address its underestimation that led to a total of $324 million in reprogramming requests for fiscal years 1997 and 1998. Table 3 lists the areas with budget estimation problems in the rental-of-space account as well as the NOA needed by fiscal year. In addition to implementing Galaxy, GSA has taken several other steps to specifically address the problem areas listed in table 3. First, a GSA official told us that GSA regions would use local market rental rate increases to determine the region's estimated rental rate increase for a budget year. In fiscal years 1997 and 1998, GSA used national averages to determine rental rate increases. Further, according to an official, GSA will try to improve its estimation of lease cancellations by comparing the amount of a region's projected cancellations with the historical trends for that region. If the projected cancellations for a region appear to deviate from the historical trends, the divergence will be reviewed to see whether there is a justification for it. If there is not, GSA will rely on the historical trend data. In fiscal years 1997 and 1998, the budget estimates that overestimated the savings from lease cancellations relied on the figures provided by the regions. Finally, with regard to expansion space, according to a GSA official, no specific action other than the use of Galaxy is being taken. The variance in this area only amounted to 0.03 percent and that only in fiscal year 1998. Also, PBS officials told us that four controls have been established to improve the rental-of-space account estimate of future expenditures. Each region (1) will be required to develop a financial plan to be used to track the rental-of-space account on a quarterly basis, (2) will be required to provide an explanation for a variance of plus or minus 0.5 percent between actual obligations and the established targets, (3) will have a set limit of NOA for existing leases and annualizations of leases, and (4) will have a "cannot exceed limit" for indefinite authority. Further, as we stated in our March 1998 testimony on overestimation of rental revenue projections, GSA issued an order in July of 1997 establishing FIS, with one of its responsibilities being the budget estimating process. It also hired a chief financial officer to oversee FIS. If implemented as designed, both actions should, in our opinion, improve PBS' financial management of FBF. Galaxy appears to have elements needed to track PBS' rental-of-space account and aid in more accurately estimating this account for future budgets. To the extent that PBS effectively implements the steps it has taken to maintain accurate data and good communications within GSA and with its customer agencies, has improved its estimation and budgetary process, and has corrected the problems it identified as causing its underestimation of the rental-of-space account, it should be able to produce better estimates of this account in the future. On July 16, 1999, the PBS Deputy Controller provided oral comments on a draft of this report. He said that GSA generally agreed with the draft report and pointed out that PBS had established a requirement that the regions explain variances of plus or minus 0.5 percent between actual obligations and established targets. We modified our report to reflect this requirement. We are sending copies of this report to Representative Robert E. Wise, Ranking Democratic Member of your Subcommittee; Senator Ben Nighthorse Campbell, Chairman, and Senator Byron L. Dorgan, Ranking Minority Member, Senate Subcommittee on Treasury and General Government, Committee on Appropriations; Senator George V. Voinovich, Chairman, and Senator Max S. Baucus, Ranking Minority Member, Senate Subcommittee on Transportation and Infrastructure, Committee on Environment and Public Works; Representative Jim Kolbe, Chairman, and Representative Steny Hoyer, Ranking Minority Member, House Subcommittee on Treasury, Postal Service, and General Government, Committee on Appropriations; the Honorable David J. Barram, Administrator, GSA; and to others upon request. If you have any questions regarding this report, please call me or Ron King at (202) 512-8387. The key contributor to this assignment was Tom Keightley. Bernard L. Ungar Director, Government Business Operations Issues 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 reviewed the General Services Administration's (GSA) Galaxy program for estimating the rental expenses of the Federal Buildings Fund, focusing on whether the: (1) new Galaxy program included the elements needed for tracking actual rental expenditures and forecasting future rental-of-space funding requirements; and (2) additional actions the Public Building Service (PBS) was taking to improve its budget process addressed the causes of its underestimation of the rental-of-space account. GAO noted that: (1) Galaxy has seven basic components that appear capable of providing the data elements needed to track the actual expenditures made from the rental-of-space account and thus aid in forecasting the funding required for the rental-of-space account for budget purposes; (2) PBS has recognized that the success of the Galaxy program depends on the accuracy and maintenance of the data entered into Galaxy; (3) consequently, it has emphasized this issue in its training manual for Galaxy; (4) this manual states that all active leases and projects loaded into Galaxy must be validated; (5) the manual lists five steps that the analyst must follow to validate the information; (6) rent account analysts that GAO interviewed emphasized the need to maintain good communications among: (a) themselves, who maintain Galaxy; (b) the realty specialists, who maintain PBS' System for Tracking and Administering Real Property, the system from which the data in Galaxy were downloaded; and (c) customer agencies that provide information on their space needs; (7) GAO agrees that GSA and its customer agencies need to have good communications to ensure that GSA knows about any potential changes in inventory that a customer agency may plan in a given fiscal year, so that those changes are reflected in GSA's budget submission; (8) PBS has taken steps to improve: (a) how it calculates the rental-of-space estimate, such as using local market rental increases instead of national averages in calculating the rent increase estimates; and (b) the budgeting process in general, by establishing the Office of Financial and Information systems to oversee budget formulation, including estimating the rental-of-space account funding requirements; and (9) GAO believes that the actions PBS has identified to improve its budgeting process, if effectively implemented, address the causes it identified for its underestimation of the rental-of-space account.
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Attention deficit disorders are among the most commonly diagnosed childhood behavioral disorders. Although there are a number of disorder subtypes, as a group these disorders are referred to as Attention Deficit Hyperactivity Disorder (ADHD). Symptoms include hyperactivity, impulsiveness, and inattention. The American Psychiatric Association's diagnostic manual provides criteria for identifying ADHD; however, there is no agreed upon test to confirm an attention disorder. Estimates of the prevalence of the disorder vary widely. A recent international review of 19 epidemiological studies conducted in various countries since 1980 on the prevalence of ADHD in school-age children reported ranges of 2 percent to 18 percent. The review found that the ADHD prevalence rate varies depending on the diagnostic criteria, the children included in the sample, and how the data were collected. Researchers conducting the review concluded with a "best" estimate of between 5 and 10 percent of children and adolescents having some form of this disorder. Although controversial, stimulants are the most common treatment for attention disorder symptoms and are the only drugs that are approved by the Food and Drug Administration (FDA) for this purpose. Methylphenidate is the most widely used stimulant, but amphetamines have been increasingly prescribed. Antidepressants, including buproprion and velafaxine, are not approved by the FDA for the treatment of ADHD; however, they are sometimes prescribed by physicians for ADHD if stimulant medications are ineffective or inappropriate for a particular patient. ADHD drugs come in generic forms, but are often referred to by their brand names. Methylphenidate brand names include Ritalin (see fig. 1), Concerta, Methylin and Metadate. Brand name amphetamines include Adderall, Dexedrine, and Dextrostat. Both types of stimulants are available in quick acting, but short duration (2 to 6 hours) tablets. Recently, sustained or extended release tablets lasting 8 to 12 hours have become available, and a once-a-day skin patch is under development. Longer acting drugs may reduce the need for some children to take their medications at school. Several companies are testing nonstimulant drugs for ADHD treatment that do not have the potential for abuse or physical dependency associated with stimulant drugs. Methylphenidate and amphetamines are classified under the federal Controlled Substances Act as Schedule II drugs--those with a high potential for abuse and severe psychological or physical dependence if abused. A 1995 Drug Enforcement Administration (DEA) review of methylphenidate concluded that based on studies of laboratory animals and humans, methylphenidate was similar in pharmacological effects to cocaine and amphetamines. The DEA establishes annual production quotas for Schedule II drugs by analyzing data on past sales, inventories, market trends, and anticipated need. The production quotas for methylphenidate and amphetamines have risen considerably since 1990. (See table 1.) A number of factors have contributed to the increase in the quotas, according to researchers. Key factors include (1) the number of people diagnosed as having ADHD has grown with an expansion in the criteria used to diagnose ADHD; (2) longer periods of treatment for the disorder; (3) more girls are receiving medication than in prior years; and (4) a greater public acceptance of psychopharmacologic treatment of youth. According to data obtained by DEA, about 80 percent of the prescriptions for amphetamines and methylphenidate were to treat children with ADHD. Along with the increase in the use of stimulant medications have come concerns that these drugs may be being diverted from their prescribed use, or otherwise abused. School settings are perceived as particularly vulnerable for abuse because schools store attention disorder drugs for students needing medication while at school. DEA interviews in 1997 with schools officials in three states indicated that schools might leave medications in unsecured locations, such as teachers' desks, making theft possible. A number of anecdotal news accounts of students abusing these drugs at school have heightened concerns. (See app. IV.) However, no studies are available to document the degree to which these medications are diverted at school. There is some evidence from a small number of studies and national data that abuse of these drugs does occur. (See app. V.) For example, the University of Michigan has surveyed a national sample of public and private 8th, 10th, and 12th grade students since 1991. Of 12th graders surveyed in 2000, 2 percent reported using Ritalin without a prescription in the past year. The University of Michigan survey does not specify where drug use occurred. Based on our survey, an estimated 8 percent of principals in public middle schools and high schools in the United States reported at least one incident of diversion or abuse of attention disorder drugs during the current 2000-2001 school year. (See fig. 2.) Most of those principals reported knowing of only one incident at their school. An additional 3 percent of school principals reported at least one possible incident, but were uncertain of the drugs involved. Of the 8 percent reporting an incident of diversion or abuse in the current school year, only methylphenidate was involved at 73 percent of the schools, and only amphetamines were involved at 20 percent of the schools. In the remaining cases, the specific drug could not be determined or both drugs were involved. Using the U.S. Department of Education designations for community, we classified schools as being located in central cities, urban communities, or small towns. We compared incident rates by school and community type. (See fig. 3.) Due to the low number of incidents overall, we were unable to draw any statistical conclusions about possible association between these factors and the incidence rate. Principals reporting any incident at their school were asked to briefly describe the incident for which they had the most information. A content analysis of the 51 incidents described by our sample respondents showed that in 38 cases the student gave or sold pills to other students. For example, "Student brought Adderall to school and attempted to sell it to other students." A second type of incident (4 cases) involved pills being stolen from other students or the school. The remaining incident descriptions were varied, such as "In all (6) cases, a pill was found outside the entrance to the main building. We aren't sure if it is a student taking the medication at school or bringing it from home and dropping it outside." The students involved in the estimated 8 percent of schools with reported diversion or abuse incidents were most often expelled or suspended from school as a consequence of the incident, according to principals. Other measures taken by schools in response to the incident are shown in table 2. An estimated 42 percent of the principals that were aware of an incident did not call police regarding the drug diversion or abuse incident. Consequently, measures of attention disorder diversion or abuse based on official police records may underreport actual occurrences. Most principals did not perceive the diversion or abuse of prescribed attention disorder drugs to be a major problem at their school. An estimated 89 percent reported that it was less of a problem than other illicit drug use, excluding alcohol and marijuana. In general, illicit drug use (excluding alcohol and marijuana) was reported to be not a problem at all or a minor problem by approximately 78 percent of the principals. In addition, the most frequent comments voluntarily written by principals were comments regarding the lack of an ADHD medication abuse problem at their school. For example, one principal stated that "I feel comfortable in stating that there is 'NO DIVERSION' of medication that is administered through the office/clinic." We compared incident rates by the principal's assessment of the problem, but were unable to draw any statistical conclusions about a possible association due to the low number of incidents overall. Most school officials reported that attention disorder medications are administered to students during the school day, most often by a nurse. However, only a small fraction (less than 2 percent) of a school's students were reported to receive these drugs. Most schools reported that drugs were stored in locked cabinets or rooms, and that students are observed when they take their medications. Nationally, an estimated 90 percent of schools have school staff administering attention disorder medication to some students on a typical day, according to principals we surveyed. Schools that do not typically administer these drugs may have policies that prohibit dispensing medication, or do not have students currently requiring attention disorder medication during school hours. As shown in figure 4 estimates, statistically more middle school officials (96 percent) administered ADHD medications than did high school officials (83 percent). However, incident estimates by community type were not statistically different. While 90 percent of principals in our study population reported that their schools administer attention disorder medications, a relatively small fraction of students attending these schools were administered attention disorder medications while at school. An estimated 1.1 percent of students (in schools where drugs are administered) were dispensed methylphenidate and an estimated 0.5 percent of students were administered amphetamines, for an overall rate of almost 2 percent. A DEA drug diversion official expressed concern during recent congressional testimony with the volume of methylphenidate on hand at school for student daytime dosing. Our survey found that 6 percent of schools stored 600 pills or more, while over half of the schools stored 100 pills or less. (See fig. 5.) At schools that dispense attention disorder medications, the personnel approved to administer medications varied among schools. Nurses were reported to most often carry out that task, and second to nurses, nonhealthcare professionals, such as secretaries, most often dispense medications. (See table 3.) Lack of a nurse or other trained healthcare professional was noted as a concern by several principals. Of the 107 optional comments written by principals in our survey, 13 comments were about the need for nurses to administer medication to students. For example, one wrote, "School districts should be forced to provide full- time nursing services so that only medically-trained personnel can distribute medication." For nonhealthcare professionals administering attention disorder medications, all but 5 percent of school officials reported some kind of training was provided to prepare staff for their duties. Principals reported multiple forms of training for staff. Training was provided by written instruction at 41 percent of schools, by healthcare professionals in about 49 percent of the schools, by oral instruction at 49 percent of schools, and 9 percent were provided video instruction. Most school principals reported that ADHD medications are kept in locked spaces. Approximately 72 percent of the schools that dispense attention disorder medications store the drugs in a locked cabinet and a locked office or room. Examples of this type of storage are shown for schools "A" and "B" in figure 6. An additional 24 percent of schools kept medications in either a locked cabinet or a locked office or room. Some school principals noted that during nonschool hours medication security was tighter, such as locking the room in which medication was stored in addition to a locked cabinet, or using a vault. Of those reporting that medications were kept locked, the average number of people with access was three people, and at most schools (93 percent) fewer than six persons have access to the medications. Because most schools secure attention disorder medications in locked storage, and the low overall rate of diversion or abuse, we were unable to draw statistical conclusions about any possible association between number of incidents, medication security, or security and school type. Cabinet and door locks school B Almost all (96 percent) of the school principals in schools that administer medications reported that students are observed when they are administered medication to assure that it is taken. Of the 90 percent of schools that administer attention disorder medications, about 48 percent have parents only transporting student medications from home to school. Another 34 percent of schools allow either parents or students to transport medications and 12 percent had students transporting their own medications. Among those schools that have students transporting their own medications, several principals commented that controls were in place to assure that none of the medication was diverted from home to school. For example, one principal reported that the medication bottle must be taped closed with the number of pills inside indicated on the bottle and accompanied by a note signed by the parent. We compared incident rates by how the medications were transported to school, but were unable to draw any statistical conclusions due to the low number of incidents overall and the distribution of responses. Many states in the United States have statutes, regulations, and/or mandatory policies regarding the administration of medication at schools. At the local level, most of the principals in our survey of middle and high schools reported having school district provisions regarding the administration of medication. From our survey of state education officials (see app. III), we determined that 37 states and the District of Columbia have statutes, regulations, and/or mandatory policies addressing medication administration at schools, as shown in appendix VI. The remaining 13 states do not, as discussed in the following sections. Of the 37 states with applicable provisions, 29 require or authorize schools to adopt medication administration policies; in most of these states, schools issuing policies for the administration of medication must incorporate minimum statewide requirements. The other eight states and the District of Columbia do not expressly delegate authority to local schools, but provide for the regulation of medication administration in schools based on statewide or districtwide requirements. We analyzed provisions in the 37 states and the District of Columbia based on five common statewide requirements for administering medication at schools: (1) whether schools must obtain authorization from the student's parent or guardian to administer medication, (2) whether schools must obtain written orders or instructions from the student's physician or other licensed medication prescriber to administer medication, (3) whether schools must receive and store prescription medication in an original container with proper pharmaceutical labeling, (4) whether schools must provide storage for medication that is secure and inaccessible except to authorized school personnel, and (5) whether schools must document the administration of medication to the student in a medication log. Although these five categories represent the more common statewide requirements, they do not represent the full array of state requirements that regulate the administration of medication in schools. For example, Maine and New Jersey have minimum state requirements for school medication administration policies, but not in one of the five categories reflected in appendix VI. Maine requires that all unlicensed personnel receive training before administering medication, while New Jersey prohibits anyone other than a doctor, nurse, or parent from administering medication in a non-emergency situation. Other states limit the amount of medication that schools may store; require parents or guardians to deliver medications to schools; establish procedures for returning and/or destroying any unused medications; and establish safeguards specific to self-administration of medications by students. From our review, we found that 28 states and the District of Columbia require that schools obtain authorization from the student's parent or guardian before administering medication. Virtually all of these jurisdictions specifically require written authorization. In addition, 19 states and the District of Columbia require that schools obtain orders or instructions from the student's physician or other licensed medication prescriber before administering medication. In most of these jurisdictions, the requirement for a medication order is met if the prescriber provides specific instructions for administration (e.g., the name, route, and dosage of the medication and the frequency and time of the administration). However, in two states, Utah and Washington, schools must also obtain a written statement from the prescriber that administering medication at school is medically necessary or advisable. Finally, 22 states and the District of Columbia require schools to obtain prescription medication in an original container with proper pharmaceutical labeling. Eighteen states specify the manner in which schools must store medication to ensure its security. These states vary in terms of the level of security required. States such as Indiana, Iowa, and Oklahoma simply require a secure or inaccessible location to store medication. However, most states specify locked storage for medication and a few impose more stringent security measures. For example, Massachusetts requires schools to store prescription medications in a securely locked cabinet, which is substantially constructed and anchored to a solid surface, with access to keys restricted. Sixteen states require schools to document the administration of medication to the student in a medication log or other like-named record.Documentation requirements vary between these states. Although some of the states do not specify the content or format of the medication log, many require, at a minimum, that the log reflect the date, time, and dosage of the medication given to the student, and the name or signature of the person administering the medication. A few states impose additional documentation requirements. For example, along with other states, Connecticut requires schools to document any skipped dose and the reason for it; Maryland requires scheduled pill counts for controlled substances and reconciliation against the medication log; and Massachusetts requires schools to document the return of any unused medication to the student's parents. From our survey responses, we found that 13 states do not have applicable statutes, regulations, or mandatory policies addressing the administration of medication in schools, as reflected in appendix VI. Although 5 of the 13 states (Idaho, Kansas, Missouri, Montana, and New York) identified provisions in their survey responses, the cited provisions cover areas that are not directly within the scope of our inquiry and are not included in appendix VI. For example, Missouri and New York have statutes addressing when a student with asthmatic conditions may carry and use a prescribed inhaler at school. Thus, appendix VI does not include every provision cited by a survey respondent, only those provisions relevant to our work. Finally, during our survey, 22 states and the District of Columbia reported that they have policy guidelines addressing the administration of medication in schools. The policies in these jurisdictions are discretionary and do not create legal requirements for administering medication in schools, as do the statutes, regulations, and mandatory policies reflected in appendix VI. Nevertheless, the discretionary policies often contain detailed recommendations to assist schools adopting medication administration policies. The discretionary policies cover the same broad range of medication administration procedures reflected in the various state statutes, regulations, and mandatory policies. Only seven states have no applicable statutes, regulations, or policies (discretionary or mandatory) addressing the administration of medication in schools. Lack of a state policy on the administration of medication does not prevent schools in a state from developing their own provisions, and most have. According to responses in our survey of school principals, 90 percent of schools have received district regulations or policies regarding the administration of prescription medications. For example, South Carolina officials reported that the state has no statutes, regulations, or policies in this area; however, the Charleston County School District medication administration policy mirrors many of the policies developed by other states. For example, the Charleston district requires that written medication requests be completed by the prescribing physician and parent, that medication be delivered by the parent in its original container, that medication be kept locked at the school, and be administered by a nurse or designated staff. An estimated 17 percent of school principals reported that their school policy had recently changed regarding the administration of prescription drugs to students. Of the 17 percent reporting a policy change in the last 2 years, 29 percent reported that the change was due to problems with the handling of medications at the principal's school or at a neighboring school. We do not believe that the diversion or abuse of attention disorder medications is a major problem at middle or high schools. Based on our findings, few middle or high school principals are aware of ADHD medication diversion or abuse, and most do not believe this is a major problem. Furthermore, states and localities appear to be cognizant of the potential for problems and many have established policies and procedures to minimize risks. Finally, the development of nonstimulants for attention disorders and increasing use of once-a-day stimulant medications may reduce the potential for diversion or abuse at school by reducing the need for the medications to be administered during school hours. Agency comments were not requested for this report because no federal agency or federal policies were reviewed. We did discuss our findings with the Drug Enforcement Administration's Office of Diversion Control prior to the completion of our report and have incorporated changes where necessary. We will send copies of this report to the Ranking Member, House Committee on the Judiciary; the Chairman, Senate Committee on the Judiciary; the Ranking Member, Senate Committee on the Judiciary; the Administrator, Drug Enforcement Administration; and other interested parties. Copies of this report will be available on GAO's homepage at http://gao.gov. The major contributors to this report are acknowledged in appendix VII. If you or your staffs have any questions about this report, please contact me at (202) 512-8777 or Darryl W. Dutton at (213) 830-1000. Our objectives in this review were to (1) determine the prevalence of diversion and abuse of attention disorder drugs in public schools, 2) describe the school environment in which drugs are administered to students, and (3) obtain information on state laws and regulations regarding the administration of prescription drugs in schools. We conducted our review between February and June 2001 in accordance with generally accepted government auditing standards. To attain our objectives, we surveyed a statistically representative random sample of public school principals. We focused our attention on middle schools and high schools, which we defined as schools containing grades 6 or higher. Specifically, we asked these principals a series of questions about any incidents of diversion and abuse of attention disorder drugs at their school since the beginning of the 2000-2001 school year. We also asked a number of questions covering school policies and practices on the administration and storage of these types of attention disorder drugs. The study population for the survey of public school principals consisted of all public schools in the 2000-2001 school year that have at least one grade between 6th and 12th (inclusive), more than 1 teacher, and a total of at least 10 students. The sample was drawn from a list of all public schools in the United States compiled by The Common Core of Data (CCD) for the 1998-99 school year. The CCD is the U.S. Department of Education's primary database on public elementary and secondary education in the United States. We used the 1998-99 CCD file to produce a list of schools representing our study population. From this list of 35,522 schools, we drew a random sample of 1,033 schools to represent the study population in the 50 states and the District of Columbia. Of the 1,033 surveys we mailed out, 735 completed surveys were returned, a response rate of 71 percent. See appendix II for a copy of our survey instrument. The sample design for this study is a single-stage stratified sample of schools in the study population. The strata were defined in terms of type of school (middle school, high school, etc.) and community type (city, urban, or small community). Since type of school was not available on the sample frame, we developed criteria based on the highest and lowest grade level reported for the school. The first six strata consist of schools for which an unambiguous assignment to middle school or high school can be made. An additional three strata consist of upper grade schools that have grade levels that overlap between the middle school and high school definitions. The following rules are used to assign middle, high, or high/middle school type: High school - Schools on the CCD having their high grade and their low grade between 9th and 12th grade, inclusive. Middle school - Schools on the CCD having their high grade between 6th and 9th, inclusive. In addition the low grade for the school must be 8th or below (but not less than 4th grade). High/middle - Schools with at least one grade that is greater than or equal to 6th grade, no grades less than 4th grade, and not meeting the above definitions for high school or middle school. Finally, we sampled another six residual strata that are composed of schools that would meet either the "middle school" or the "high/middle school" definition, except for the presence of some grades less than the 4th grade. The strata definitions, population sizes, and sample sizes are summarized below. Estimates produced in this report are for schools in our study population that could be classified as either a middle school or a high school for the 2000-2001 school year. Although the sample was stratified according to 1998-99 grade levels at the school, estimates are produced for type of school (middle and high school) as determined from the responding school's grade composition for the 2000-2001 school year. The survey responses provide each school's lowest and highest grade for the 2000- 2001 school year, and these data were used to classify the responding schools as a middle school or as a high school according to the definition shown below. Of the 735 surveys returned, 596 could be classified as either a middle school or as a high school. Data from schools that could not unambiguously be classified as middle or as a high school are not included in our estimates of middle or high school characteristics. High school - Responding schools having their high grade and their low grade between 9th and 12th grade, inclusive, for the 2000-2001 school year. Middle school - Responding schools having their high grade between 6th and 9th, inclusive, for the 2000-2001 school year. In addition, the low grade for the school must be 8th or below (but not less than 4th grade). These definitions are consistent with those used in the definition of the survey's sampling strata, except that the low and high grade is based on 2000-2001 school year data instead of on the 1998-99 CCD data. Because we surveyed a sample of public school principals, our results are estimates of all participants' characteristics and thus are subject to sampling errors that are associated with samples of this size and type. Our confidence in the precision of the results from this sample is expressed in 95-percent confidence intervals. The 95-percent confidence intervals are expected to include the actual results for 95 percent of the samples of this type. We calculated confidence intervals for our study results using methods that are appropriate for a stratified, probability sample. For the percentages presented in this report, we are 95-percent confident that the results we would have obtained if we had studied the entire study population are within +/- 10 or fewer percentage points of our results, unless otherwise noted. For example, a nurse administers medications at an estimated 59 percent of the middle and high schools. The 95-percent confidence interval for this estimate would be no wider than +/- 10 percent, or from 49 percent to 69 percent. For estimates other than percentages (including estimates of ratios), 95-percent confidence intervals are +/- 10 percent or less of the value of the estimate, unless otherwise noted. In addition to these sampling errors, the practical difficulties in conducting surveys of this type may introduce other types of errors, commonly referred to as nonsampling errors. For example, questions may be misinterpreted or the respondents' answers may differ from those of people who did not respond. We took several steps in an attempt to reduce such errors. For example, we developed our survey questions with the aid of a survey specialist. We discussed the questionnaire with officials at the American Association of School Administrators and the National Association of Secondary School Principals. We held discussions or pretested the questionnaire with 10 public school principals. All initial sample nonrespondents were sent at least one follow-up questionnaire mailing. All data were double keyed during data entry, and GAO staff verified a sample of the resulting data. Computer analyses were performed to identify inconsistencies and other indications of errors, and a second independent analyst reviewed all computer programs. To obtain information on state laws and regulations regarding the administration of prescription drugs in schools, we conducted a brief survey of state department of education officials (or persons designated by officials) in the 50 states and the District of Columbia. The survey requested information on all state statutes, regulations, or other written policies regarding the administration of prescription drugs to students in public schools. As was the case with the survey of public school principals, the questionnaire sent to the state education officials was developed with the aid of a survey specialist, was reviewed by an attorney, and was pretested. See appendix III for a copy of this survey instrument. We received survey responses from 48 states and the District of Columbia, and we verified the accuracy of the survey information by researching the states' statutes and regulations. Likewise, we researched the statutes and regulations of the two states that did not respond (Ohio and Oregon). We focused on five types of medication administration requirements that appeared in many states as the basis for analyzing the various state laws. As background, we searched Lexis-Nexis and Proquest databases for anecdotal evidence of diversion and abuse of attention disorder medications in schools. Using only the information provided in the resulting pool of articles, specific incidents described in each article were identified, matched for duplication where evidence allowed, and summarized. We did not verify the reliability or validity of the reports. We reviewed the anecdotal accounts of school-based diversion or abuse of attention disorder medications to provide an indication of the public perception of diversion and abuse of attention disorder medications at schools. We searched two major on-line databases for the period January 1996 to February 2001 for anecdotal accounts. The databases include articles from over 30,000 sources, including every major U.S. newspaper, magazines, and other published sources. Because of the nature of news coverage, no conclusions can be drawn from these accounts. We did not verify the reliability or validity of the identified incidences. "Administrators at xx Middle School had heard about Ritalin Abuse for almost three years, Principal X said. But they did not know of abuse within the school until a teacher spotted two students passing something in a restroom last month. Since then, 15 students have been suspended." Cincinnati Post (Cincinnati, OH) May 8, 2000. "Fifteen students at xx Middle School are suspected of abusing the prescription drug Ritalin. According to details of the investigation of this incident, students gave away the tablets or sold them for 50 cents to $1." Daily Herald (IL) May 8, 2000. "Now comes word that the drug used to control the disorder - Ritalin - is being used recreationally by people who certainly don't need it.... At xx Middle School, 15 students were suspended recently for this." The Deseret News (Salt Lake City, UT) May 6, 2000. While most of the incidents identified involved students caught selling or stealing the medications at school, about 20 anecdotal incidents involved theft or abuse by a teacher, principal, nurse, or other school personnel. For example, in one anecdotal incident, a principal was arrested on charges that he stole Ritalin pills from the school medicine cabinet. Anecdotal incidents were reported in 37 out of 50 states. Measure of abuse Students are asked if they have used any of a wide range of drugs, including alcohol and tobacco. Only students who answered "yes" to the use of amphetamines are then asked to specify the type of amphetamine used, with Dexedrine and Ritalin as two of the amphetamine type choices. Students are asked about their lifetime, annual, monthly, and daily use of specific drugs, including their nonprescribed use of Ritalin and of amphetamines, which are described in the survey as "uppers." Study population Since 1991, a representative national sample of public and private school 8th, 10th, and 12th graders have been surveyed annually, a sample of about 50,000 students overall in 420 public and private schools. Since 1991, 6th through 12th graders in Indiana have been surveyed on their use of amphetamines, and since 1998 on their nonprescribed use of Ritalin. Students are asked about use of Ritalin without a prescription in their lifetime and within the last 30 days. Interviewees are asked about their use and frequency of use of various licit and illicit drugs. Nonmedical use of any psychotherapeutic includes any prescription-type pain reliever, tranquilizer, stimulant, or sedative. Every 3 years since 1984, the state has surveyed 6th through 12th graders. The 1999-2000 survey of approximately 7,000 students was the first to include questions specifically about Ritalin. Since 1971, random samples of households throughout the United States have been interviewed at their place of residence. In 1999, 66,706 persons including 12 to 17 year olds were interviewed. Drug Treatment Episodes Methylphenidate (Ritalin) Within each facility participating in DAWN, a designated reporter, usually a member of the emergency department or medical records staff, is responsible for identifying drug-related episodes and recording and submitting data on each case. Juvenile Amphetamine Use % Tested Positive (Range at different cities) Arrestees are asked about taking specific drugs, including amphetamines "like Ritalin," on a lifetime, annual, monthly, and 48-hour basis. A general question is asked to include other drugs not specifically mentioned. Since 1988, data on emergency department drug related visits has been collected from a representative sample of U.S. acute care hospitals, including 21 oversampled metropolitan areas. The 1999 sample consisted of 592 hospitals. More than 2,500 juvenile male detainees in 9 sites and more than 400 juvenile female detainees in 6 sites are administered urine tests and interviewed in detail about their drug taking, purchases and other drug- related questions. Appendix VI: State Statutes, Regulations, and Mandatory Policies Addressing the Administration of Medication to Students The California respondent told us that the implementing regulations are being drafted. The respondent for the District of Columbia told us that currently there are no implementing rules or regulations. The regulation requires either a pharmacy label or the physician's prescription. See 511 Ind. Admin. Code 7-21-8(a)(3). In addition, although the regulation does not require schools to obtain a physician's written orders, an Indiana statute provides immunity from liability to school employees who administer prescription medication in compliance with the parent's or guardian's written permission and the practitioner's written orders. See Ind. Code 34-30-14-2. The Maine statute also requires the state commissioner of education to adopt rules for medication administration in schools, including training requirements for unlicensed personnel. The Maine respondent told us that the rules have been proposed but not yet enacted. The regulation requires either the physician's instructions or a pharmacy label. Oregon Admin. Rules, 581-021-0037(1)(c). The Pennsylvania respondent told us that currently there are no implementing guidelines in effect. The pharmacy-container requirement is specific to self-administered medications. Code of Rhode Island Rules 14-000-011, sec. 18.9.1.1. The South Dakota respondent told us that the state board of education has not promulgated rules under the statute, but that the state department of health has issued discretionary guidelines addressing medication administration in schools. William Bates, Christine Davis, Jennifer Joseph, Stuart Kaufman, Monica Kelly, Lawrence Kinch, Lori Levitt, Mark Ramage, Anne Rhodes-Kline, and Lisa Wallace.
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Children diagnosed with attention deficit disorders are often treated with stimulant medications, such as Ritalin or Adderall. These drugs are controlled substances under federal law because of their high potential for abuse. Many of these stimulant drugs must be taken several times a day to be effective, so children need medication during the school day. Concern has arisen that the increasing use of these medications in school might provide additional opportunities for drug abuse. No data exists on the extent to which attention disorder drugs have been diverted or abused at school, or the extent to which state laws or regulations guide local school officials in safely administering these drugs. Middle and high school principals reported little diversion or abuse of attention disorder drugs. For the first seven to nine months of school year 2000-2001, about eight percent of principals in public middle and high schools reported that attention disorder drugs had been diverted or abused at their school. Most of the principals reported that school officials administer attention disorder medications, with about two percent of the school's students on average being administered attention disorder drugs on a typical day. Medications are given by nurses in about 60 percent of the schools, and by non-health professionals, such as secretaries, in most of the remaining schools. Medications are kept locked in almost all (96 percent) of the schools, according to the principals, and students are observed while taking their medications. Thirty-seven states and the District of Columbia have either statutes, regulations, or mandatory policies addressing the administration of medication to students. State provisions require schools to obtain written parental authorization to administer medication, ensure that the medication is securely stored, and store prescription medication in the original pharmacy container.
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DOD has made significant progress in reducing delays in personnel security clearance decisions and in meeting statutory timeliness objectives since we first designated DOD's personnel security clearance program as a high-risk area in 2005. In 2007, we found that initial clearances for DOD industry personnel took an average of 325 days to complete. With the passage of IRTPA in 2004, timeliness requirements were established in law under which executive branch agencies were initially required to make decisions on at least 80 percent of initial clearances within an average of 120 days. We found that by 2008, DOD had made significant improvements in reducing delays. For example, in examining fiscal year 2008 data, we reported that the average of the fastest 80 percent of initial DOD clearances, including military, civilians, and industry personnel, took an average of 87 days to complete, well below what was required by law. However, despite these improvements, we continued to designate this program as a high-risk area due to more stringent timeliness objectives that were to take effect in December 2009. IRTPA required the Performance Accountability Council to develop a plan under which, to the extent practical, each authorized adjudicative agency would be required to make a determination on at least 90 percent of all applications for a personnel security clearance within an average of 60 days from the date of receipt of the completed application by an authorized investigative agency. Although the government is required to only report on the average of the fastest 90 percent of cases, we previously identified that the absence of comprehensive reporting limits full visibility over the timeliness of initial clearance decisions. Consistent with GAO's recommendation, the government now reports on the remaining 10 percent. Our ongoing work has shown that DOD has continued to improve its timeliness and DOD reports that it is meeting the new statutory timeliness requirements. According to data provided by the Performance Accountability Council, DOD initial personnel security clearances met the 60 day IRTPA overall timeliness objective and the 20 day objective for the timeliness of adjudications for each of the first, second, and third quarters of fiscal year 2010, as shown in Table 1. Over this same period, average timeliness for the fastest 90 percent of DOD industry personnel security clearances ranged from 64 days to 69 days. In addition, DOD reported meeting the IRTPA 40 day timeliness objective for investigations in the third quarter of fiscal year 2010. However, timeliness data for investigations is a reflection of OPM as the investigative service provider for DOD. DOD's Defense Industrial Security Clearance Office adjudicates clearances for industrial personnel. When the Defense Industrial Security Clearance Office identifies issues with these cases that may potentially affect the adjudicative decision, they sumit the cases to the Defense Office of Hearings and Appeals. The time it takes the Defense Industrial Security Clearance Office to arrive at the initial decision is included in DOD timeliness. However, timeliness information is not reported for cases sent to the Defense Office of Hearings and Appeals. "DOD other" includes 1) all secret and confidential clearances and initial top secret clearances adjudicated y the DOD Central Adjudication Facilities for the Joint Chiefs of Staff and the Washington Headuarters Services and 2) the initial Sensitive Compartmented Information clearance cases adjudicated on their ehalf y elements of the intelligence community, such as the Defense Intelligence Agency. Although DOD has made significant progress in reducing delays in making personnel security clearance decisions, it is important that DOD sustain this progress. Reducing delays in the security clearance process will enable DOD to reduce risks to national security, expedite the start of classified work, hire the best-qualified workers, and decrease the government's cost of national security-related contracts. We are also encouraged by a number of recent developments that are intended to enhance visibility over the quality of the security clearance process. In our prior work, we have stated that timeliness alone does not provide a complete picture of the clearance process and we emphasized the need for attention to quality. However, we found an uneven attention to quality within DOD's process; specifically, we found missing documentation in reports prepared by OPM that DOD adjudicators had used to make clearance decisions. In May 2009, for example, we estimated that 87 percent of OPM investigative reports provided to DOD at three Central Adjudication Facilities in July 2008 were missing required documentation. Because neither OPM nor DOD measured the completeness of their investigative reports or adjudicative files, we reported that both agencies were limited in their ability to explain the extent to which, or the reasons why, some documents were incomplete. Incomplete documentation may increase the time needed to complete the clearance process, increase the overall costs of the process, and reduce the assurance that appropriate safeguards are in place to prevent DOD from granting clearances to untrustworthy individuals. We emphasized that building quality throughout DOD's process could promote positive outcomes, such as facilitating reciprocity with other agencies. DOD has taken a number of positive steps to integrate quality into its investigative and adjudicative processes and demonstrated the commitment of senior leadership to reforming the personnel security process within DOD. For example, according to DOD officials, DOD recently initiated the creation of a Performance Accountability Directorate within USD(I)'s Directorate of Security to provide oversight and accountability for the DOD Central Adjudication Facilities that process DOD adjudicative decisions. Most importantly, DOD has also issued guidance and developed tools to measure quality. For example: Guidance. DOD has taken steps to issue guidance on adjudication standards. On November 8, 2009, the USD(I) issued guidance on adjudication standards that outline the minimum documentation requirements adjudicators must adhere to when documenting personnel security clearance adjudication rationales in the Joint Adjudication Management System. These standards are for cases with significant derogatory information and for Single Scope Background Investigations that are missing standard investigative scope items but were still adjudicated. In response to our recommendation, the USD(I) issued additional guidance on March 10, 2010 that clarifies when adjudicators may use incomplete investigative reports as the basis for granting clearances. This guidance provides standards that can be used for the sufficient explanation of missing or incomplete scope items. Tools. DOD has taken steps to measure the frequency with which documentation for investigations and adjudications meets federal standards. DOD developed two tracking tools--the Rapid Assessment of Incomplete Security Evaluations (RAISE) and the Review of Adjudication Documentation Accuracy and Rationales (RADAR)-- to assess the quality of investigative and adjudication documentation. These tracking tools are embedded capabilities in DOD's Clearance Adjudication Tracking System (CATS), which is used by all non-intelligence DOD Central Adjudication Facilities. Although these are positive steps, it is too early to assess the effectiveness of these tools as they have not yet been fully deployed. The RAISE tracking tool will document the instances of missing case information or unresolved case issues for records of investigation provided by OPM. In July 2010, DOD issued guidance requiring that each DOD Central Adjudication Facility that utilizes the Clearance Adjudication Tracking System use the RAISE tracking tool on all incomplete national security investigations and on random samples of other clearance cases accounting for 7 percent of their respective Single Scope Background Investigations and 14 percent of both their Periodic Reinvestigations and National Agency Check with Local Agency Check and Credit Check investigations. The results are to be reported to the DNI who, as Security Executive Agent of the Performance Accountability Council, will arbitrate disagreements between OPM and DOD and clarify policy questions. DOD deployed the RAISE tracking tool to four Central Adjudication Facilities between July and October 2010 and plans to complete deployment to the remaining Central Adjudication Facilities by the beginning of calendar year 2011. The RADAR tracking tool will enable DOD to independently evaluate the quality of adjudicative decisions against the adjudicative standards. The USD(I) has directed DOD Central Adjudication Facilities to provide adjudication case records to the Defense Personnel Research Center for analysis. The USD(I) plans to use results of the RADAR tracking tool assessments to monitor Central Adjudication Facilities' compliance with documentation policies, communicate performance to the Central Adjudication Facilities, identify potential weaknesses and training needs, increase compliance, and establish trend data. DOD has completed a pilot program for the use of the RADAR tracking tool and has begun its implementation for the Army, Defense Industrial Security Clearance Office, and Navy Central Adjudication Facilities in September 2010. Further, implementation is scheduled for the Air Force and Washington Headquarters Services by November 2010. Beyond these steps, DOD has participated in the development and tracking of quality metrics through the Performance Accountability Council. On March 17, 2010, the leaders of the reform effort--the OMB, OPM, DNI, and DOD--along with GAO, briefed this Subcommittee's chairman and ranking member on the status of security clearance reform efforts. Subsequent to this briefing, this Subcommittee requested that the Joint Reform Team and GAO engage in an effort to develop metrics to measure the quality of security clearance investigations and adjudications in order to address GAO's concerns about quality. In May 2010, the leaders of the reform effort provided this Subcommittee with 15 metrics assessing the timeliness and quality of investigations, adjudications, reciprocity, and automation. According to Joint Reform Team officials, these metrics were communicated to executive agencies in June 2010. Given the role of the executive branch and the need for GAO to remain independent in carrying out its auditing responsibilities, decisions related to performance measures and their effective implementation are fundamentally an executive branch management responsibility. However, we are encouraged by the Joint Reform Team's collaborative efforts to develop these quality measures. We have previously reported that successful performance measures should meet nine criteria. For example, successful measures should clearly link to agency goals, have measurable targets, and be reasonably free from bias. GAO has been examining the Performance Accountability Council metrics and our preliminary observations show that many of the quality metrics appear to address attributes of a successful performance measure, such as being objective, quantifiable, and are linked to reform effort goals. We view the quality metrics as a positive step towards identifying specific quantifiable targets linked to goals that can be measured objectively and used by leaders and others to gauge progress and assess the quality of the personnel security clearance process. Although these are positive developments that can contribute to greater visibility over the clearance process, these measures have not yet been fully implemented and we are continuing to examine these efforts as part of our ongoing work. In conclusion, Mr. Chairman, we are strongly encouraged by the progress that the Performance Accountability Council, and in particular, DOD, has made over the last few years to implement recommendations, reduce overall timeliness, and take steps to integrate quality into its processes. As I have already noted, based on Performance Accountability Council data, DOD has reported that it is meeting IRTPA timeliness requirements for the first three quarters of fiscal year 2010, which represents significant and noteworthy progress. Moreover, the progress that has been made with respect to the overall governmentwide reform efforts would not be possible without committed and sustained leadership of Congress and by the senior leaders involved in the Performance Accountability Council. Their continued oversight and stewardship of the reform efforts is the cornerstone to sustaining momentum and making future progress. Although DOD has taken steps to develop and implement quality assessment tools, these tools have not yet been fully implemented. Therefore, it is important that management focus is sustained to ensure that these efforts are implemented and continuously evaluated. We are continuing to track timeliness and monitor the implementation and results of DOD's quality assessment tools. This work will help inform the Comptroller General's high-risk update decision in January 2011. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond at this time to any questions that you or members of the Subcommittee may have at this time. For further information regarding this testimony, please contact me at (202) 512-3604 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 testimony are Liz McNally, Assistant Director; James Ashley; Joseph M. Capuano; Sara Cradic; Cindy Gilbert; Linda Keefer; James Krustapentus; Greg Marchand; Richard Powelson; and Jillena Roberts. Privacy: OPM Should Better Monitor Implementation of Privacy-Related Policies and Procedures for Background Investigations, GAO-10-849. Washington, D.C.: September 7, 2010. Personnel Security Clearances: An Outcome-Focused Strategy and Comprehensive Reporting of Timeliness and Quality Would Provide Greater Visibility over the Clearance Process. GAO-10-117T. Washington, D.C.: October 1, 2009. Personnel Security Clearances: Progress Has Been Made to Reduce Delays But Further Actions Are Needed to Enhance Quality and Sustain Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009. Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to Guide Implementation of the Reformed Clearance Process. GAO-09-488. Washington, D.C.: May 19, 2009. DOD Personnel Clearances: Comprehensive Timeliness Reporting, Complete Clearance Documentation, and Quality Measures Are Needed to Further Improve the Clearance Process. GAO-09-400. Washington, D.C.: May 19, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 22, 2009. DOD Personnel Clearances: Preliminary Observations about Timeliness and Quality. GAO-09-261R. Washington, D.C.: December 19, 2008. Personnel Security Clearances: Preliminary Observations on Joint Reform Efforts to Improve the Governmentwide Clearance Eligibility Process. GAO-08-1050T. Washington, D.C.: July 30, 2008. Personnel Clearances: Questions for the Record Regarding Security Clearance Reform. GAO-08-965R. Washington, D.C.: July 14, 2008. Personnel Clearances: Key Factors for Reforming the Security Clearance Process. GAO-08-776T. Washington, D.C.: May 22, 2008. Employee Security: Implementation of Identification Cards and DOD's Personnel Security Clearance Program Need Improvement. GAO-08-551T. Washington, D.C.: April 9, 2008. DOD Personnel Clearances: Questions for the Record Related to the Quality and Timeliness of Clearances. GAO-08-580R. Washington D.C.: March 25, 2008. DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 12, 2008. Personnel Clearances: Key Factors to Consider in Efforts to Reform Security Clearance Processes. GAO-08-352T. Washington, D.C.: February 27, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found For Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed To Improve The Security Clearance Process. GAO-06-1070. Washington, D.C.: September 28, 2006. DOD Personnel Clearances: Questions and Answers for the Record Following the Second in a Series of Hearings on Fixing the Security Clearance Process. GAO-06-693R. Washington, D.C.: June 14, 2006. DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Funding Challenges and Other Impediments Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.: May 17, 2006. Questions for the Record Related to DOD's Personnel Security Clearance Program and the Government Plan for Improving the Clearance Process. GAO-06-323R. Washington, D.C.: January 17, 2006. DOD Personnel Clearances: Government Plan Addresses Some Long- standing Problems with DOD's Program, But Concerns Remain. GAO-06-233T. Washington, D.C.: November 9, 2005. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO's High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 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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In light of longstanding problems with delays and backlogs, Congress mandated personnel security clearance reforms through the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA), which requires, among other things, that executive agencies meet objectives for the timeliness of the investigative and adjudicative phases of the security clearance process. Since 2005, the Department of Defense's (DOD) clearance program has been on GAO's high-risk list due to timeliness delays and GAO continued that designation in 2007 and 2009 also due to concerns about quality. Based on prior and ongoing work, this statement addresses DOD's progress in (1) reducing the timeliness of initial personnel security clearances at DOD and (2) building quality into the processes used to investigate and adjudicate security clearances. GAO reviewed Performance Accountability Council timeliness data and has begun a preliminary analysis of available DOD data, examined key clearance reform documents, and conducted interviews with DOD and the Performance Accountability Council officials about timeliness and efforts to improve the quality of investigations and adjudications. GAO plans to continue examining the timeliness and quality of personnel security clearances in DOD. This work will help inform the Comptroller General's high risk update decision in January 2011. DOD, which comprises the vast majority of clearances, has made significant progress in reducing delays in making personnel security clearance decisions and meeting statutory timeliness objectives since GAO first designated DOD's personnel security clearance program as a high risk area in 2005. In 2007, GAO found that initial clearances for DOD industry personnel took an average of 325 days to complete. With the passage of IRTPA in 2004, timeliness requirements were established in law and executive branch agencies were required to make decisions on at least 80 percent of initial clearances within an average of 120 days. In 2008, GAO found that DOD had made significant improvements in reducing delays, with the fastest 80 percent of clearances taking an average of 87 days to complete. As of December 2009, IRTPA's timeliness objective is for each federal agency to process the fastest 90 percent of initial security clearances within an average of 60 days, including a period of not longer than 40 days to complete the investigative phase and 20 days to complete the adjudicative phase. DOD met the 60 day IRTPA timeliness objective for initial personnel security clearances, as well as the 20 day objective for the timeliness of adjudications, for each of the first, second, and third quarters of fiscal year 2010, according to data provided by the Performance Accountability Council. GAO's ongoing work continues to examine the timeliness of personnel security clearances in DOD. DOD has taken a number of positive steps to integrate quality into its investigative and adjudicative processes, including issuing guidance and developing tools to measure quality. For example, in November 2009, the Under Secretary for Defense for Intelligence (USD(I)) issued guidance to outline the requirements that adjudicators must adhere to when documenting personnel security clearance adjudication rationales. Similarly, in March 2010, the USD(I) issued guidance to clarify when adjudicators may use incomplete investigative reports as the basis for granting clearances. In addition, DOD created two electronic quality assessment tools--the Rapid Assessment of Incomplete Security Evaluations (RAISE) and the Review of Adjudication Documentation Accuracy and Rationales (RADAR)--to track the quality of investigative and adjudicative documentation. These tools are embedded in DOD's Clearance Adjudication Tracking System (CATS), a system used by all non-intelligence DOD Central Adjudication Facilities. Although these are positive developments that can contribute to greater visibility over the clearance process, these tools have not been fully implemented. GAO's ongoing work continues to examine the implementation of these tools and other efforts to ensure that momentum is sustained.
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The decennial census is mandated by the U.S. Constitution and provides data that are vital to the nation. This information is used to apportion the seats of the U.S. House of Representatives; realign the boundaries of the legislative districts of each state; allocate billions of dollars in federal financial assistance; and provide social, demographic, and economic profiles of the nation's people to guide policy decisions at each level of government. As shown in figure 1, the cost of enumerating each housing unit has escalated from around $16 in 1970 to around $94 in 2010, in constant 2010 dollars (an increase of over 500 percent). At the same time, the mail response rate--a key indicator of a cost-effective enumeration--has declined from 78 percent in 1970 to 63 percent in 2010. In many ways, the Bureau has had to invest substantially more resources each decade just to try and match the results of prior enumerations. Beginning in 1990, we reported that rising costs, difficulties in securing public participation, and other long-standing challenges required a revised census methodology--a view that was shared by other stakeholders. We and other organizations--including the Bureau itself--have stated that fundamental changes to the design, implementation, and management of the census must be made in order to address operational and organizational challenges. Accordingly, in preparation for the 2020 Census, the Bureau has been researching and testing new methods and technologies to more cost- effectively count the population while maintaining high-quality results. This includes conducting several major field tests that are intended to inform the September 2015 preliminary design decision. For example, in 2014 the Bureau tested new methods for conducting self-response and non-response follow-up (referred to as the 2014 Census Test) in the Maryland and Washington, D.C., area. The Bureau is also conducting tests in 2015 that are expected to inform the design decision, including the Address Validation Test, which was completed in early 2015 and was used to examine new methods for updating the Bureau's address list; the 2015 Census Test, which is currently being conducted in Arizona to test, among other things, reengineered non-response follow-up field operations, as well as enabling enumerators to use their personally owned mobile devices to collect census data; and the Optimizing Self Response Test, which is currently being conducted in Savannah, Georgia, and the surrounding area and is intended to further explore methods of encouraging households to respond using the Internet, such as using advertizing and outreach to motivate respondents, and enabling households to respond without a Bureau-issued identification number. Following its design decision, the Bureau plans to conduct additional research and testing and further refine the design through 2018. By September 2018, the Bureau plans to have fully implemented the design so that it can begin operational readiness testing. Figure 2 provides the timeline for planned 2020 Census research and testing. The Bureau has been making important progress in researching and testing various design options associated with four interrelated cost- savings initiatives: using data previously provided to the government to help enumerate the population, updating the Bureau's address list and maps of the nation, only where needed, reengineering management of field work, and maximizing self-response. Combined, the Bureau estimates these efforts could generate up to $5 billion in cost savings and that the total life-cycle cost for the 2020 Census will be approximately $12.7 billion. However, we have identified various challenges and unanswered questions in these areas that, if unresolved, could affect the accuracy of the count and put the estimated cost savings at risk. The Bureau has identified or acknowledged many of these issues and is working to address them. The Bureau incurs a large part of the census' cost while following up at residences that did not return a census questionnaire. To ensure a complete count, Bureau guidance in 2010 had enumerators visit some places up to six times to try to obtain a response. In addition to being costly, such follow-up can also affect the accuracy of the count, because when census enumerators cannot contact a household, they may turn to a neighbor or some other person knowledgeable about the household to obtain the data. However, this information may be less reliable than information provided by a household member. In addition, many residences are subsequently found to be vacant or nonexistent. For example, in one operation in 2010 with the purpose of verifying whether some housing units were vacant or should be deleted from the Bureau's address list, the Bureau visited nearly 9 million housing units at a cost of about $280 million in labor and other expenses. To reduce the need for these costly operations and to increase accuracy, the Bureau is testing how it might be able to expand its use of information the government already has from the administration of other programs-- administrative records. The Bureau is conducting these tests in Maricopa County, Arizona, this month and has further testing planned for 2016. Examples of administrative records include Social Security Administration data and Medicare records, as well as records from state, local, and tribal governments and commercial sources. The Bureau has previously made limited use of administrative records. For example, it used U.S. Postal Service files to update its address list. The Bureau estimates that using administrative records for the 2020 Census to reduce the number of in- person visits, local census offices, and operations needed has the potential to save $1.2 billion. Our ongoing work and our December 2010 reportBureau will need to resolve a number of questions before it will be able to realize cost savings or improvements in data reliability from the use of such records, including the following: What records will meet the Bureau's needs? The Bureau is exploring questions about the quality of other records and their completeness. Information contained in those records was collected for other purposes, so it may not always provide exactly what the Bureau needs. For example, while race and ethnicity data are collected in the census, the records available to the Bureau may not record this information. Likewise, while the Bureau needs the location of a residence for apportionment and other purposes, available records may only provide locations where people receive mail such as a post office box. To what extent does the Bureau have access to these records for operational purposes? Some of the data the Bureau may want to use is personally identifiable information collected for other specific purposes. In some cases, the Bureau may need to enter into agreements with other agencies or levels of government to obtain access. In other cases, legislative changes may be needed to provide the Bureau with the necessary access authority. The Bureau will need to be sensitive to the time involved for these efforts so that it has the access it may need in time for 2020. To what extent will the public accept the sharing of personal data across government agencies for purposes of the census? The Bureau and others have ongoing research exploring public perceptions on topics such as trust, the potential for decreased burden on respondents, and the social benefits of sharing data. This research is also exploring the factors relating to public outreach that the Bureau may need to focus on in order to enhance the public's acceptance of greater use of administrative records. We have ongoing work examining the Bureau's efforts to research the use of administrative records for the 2020 Census, including the test in Maricopa County, Arizona. We anticipate issuing the results this fall. The Bureau relies on a complete and accurate address list to identify all households that are to receive a census questionnaire. The address list also serves as the control mechanism for following up with non- responding households. Accurate addresses and precise maps are critical for counting the population in the proper locations--the basis of congressional reapportionment, redistricting, and allocations of federal aid to state and local governments. In prior decades the Bureau employed field staff to walk almost every street in the nation as one of several operations to update the Bureau's inventory of addresses and geography--in 2013, we testified that the Bureau's 2010 address canvassing operation required 140,000 temporary workers to verify 145 million addresses at a cost of $444 million. The Bureau has relied on this operation to help identify hidden housing units--that is, people living in, for example, converted basements or lofts--as well as changes to the address list such as from newly constructed or demolished residences. To reduce the scope of this operation, the Bureau is focusing on areas that it believes have experienced change, such as rapid recent housing development, and for which the Bureau has no data sources capturing those changes. The Bureau is working with the U.S. Postal Service, other federal agencies, and state, local, and tribal governments on an initiative that allows government agencies at all levels to regularly share and continuously update their address lists and road data with the Bureau. To help fill in gaps and better target reduced resources, in January 2015 the Bureau solicited information from commercial firms on their capabilities to detect changes in addresses in local areas. Additionally, in February 2015 the Bureau solicited commercial proposals to provide national address or imagery datasets. The Bureau recently completed tests of some modeling methods to help identify where updates are most needed, and has additional tests planned for 2016. The Bureau estimates it will save up to $1 billion with the successful implementation of this initiative. Going forward, the Bureau's success at more efficiently updating its address list and maps depends on how it resolves questions such as the following: Which map and address data sources are the most cost- effective? In October 2014, we found that the Bureau needed to implement processes for reviewing the cost and quality of data source selections and for documenting support for those decisions while documenting management approval of key data source decisions. The Bureau agreed with our corrective recommendations and is taking steps to address them. The Bureau has ongoing research to determine how best to measure cost and quality trade-offs in data sources. Will the Bureau be able to complete a nationwide continuous update of its addresses and maps in time for 2020? With over 3,200 counties in the country, in addition to other local and state governments the Bureau might be partnering with, the Bureau has much work to do. In October 2014, we recommended that the Bureau develop a detailed plan with measurable goals for the updating initiative and track performance against these goals.agreed with our recommendations and is taking steps to address them. In November 2013, we also reported on weaknesses in the Bureau's scheduling practices related to its address list development activity. The Bureau recently announced it had improved the organization of its entire 2020 Census schedule to at least in part respond to these concerns. How will the Bureau decide where to conduct door-to-door canvassing? Removing geographic areas from the possible door-to- door canvassing workload requires being able to predict which areas are stable and which areas have undetected change. The Bureau is investigating a variety of statistical models and other novel approaches, such as the use of automated tools to scan aerial imagery for new developments, to inform how to target resources. The Bureau is researching and testing ways to more efficiently and effectively manage its multiple field operations for the 2020 Census. For example, the Bureau is researching ways to use an operational control system that automatically manages tasks and decisionmaking, such as case assignment and prioritization. The Bureau is also researching use of mobile devices to collect data in the field, automated human resources functions (e.g., payroll, recruiting), automated training, and reorganization of the roles of field managers. The Bureau is actively testing each of these changes alongside more traditional methods in its ongoing test in Arizona. These changes could reduce the costs for staff, training, and paper processing as well as the number of temporary census offices. The Bureau estimates it could save up to $2.3 billion with the implementation of this initiative. We have previously testified to this Committee about the importance of the Bureau's organizational culture and human capital planning in enabling management to achieve cost savings with its business practices The Bureau is taking many steps that show promise, such and systems.as with its internal reorganization, and its efforts to identify critical skills gaps as we discuss later in the statement. If the Bureau is to attain the tremendous cost savings that it estimates from its field management reengineering efforts, it will need to resolve questions such as: Will the Bureau be able to fully test systems, procedures, field operations and people in time for 2020? Prior to the 2010 Census, concerns about the testing of key operations under census-like conditions led us to designate that census a high-risk program. It will be important for the Bureau to make progress in all areas of field reengineering so that it is ready for its planned end-to-end testing in 2018. Later this year, we plan to review the Bureau's efforts in this cost-savings area, as well as the IT systems that will heavily support this initiative. To hold down costs, the Bureau will need higher rates of public participation, because that will reduce the need for enumerators to visit non-responding households. According to the Bureau, for the 2010 Census, approximately 635,000 employees were hired for non-response follow-up at a cost of more than $1.6 billion. As previously mentioned, the Bureau is conducting a test in Savannah, Georgia, and the surrounding area to explore ways to encourage households to respond using the Internet with advertising and outreach. These efforts have the potential to save money by reducing the need for enumerators, printing, postage, and paper, and can speed up data collection. The Bureau estimates these efforts could save around $500 million. We reported in February 2015 that the Bureau's efforts to deliver an Internet response option were under way. These efforts included developing a web application for use in major field tests, as well as researching methods for promoting the Internet response option and allowing households to respond online without a Bureau-issued identification number (to authenticate respondents). However, the Bureau had yet to establish reliable estimates of how much it will cost to deliver an Internet response option. Moreover, the Bureau did not have integrated schedules for completing the work, nor did it have plans and time frames for addressing IT infrastructure scalability needs. For example, the Internet response option for the 2020 Census is expected to require a much greater data processing and storage capacity than the Bureau's existing IT infrastructure can support, and Bureau officials stated that they plan to use a cloud environment to provide the increased IT infrastructure. The Bureau was not positioned to answer research questions critical to determining how much larger it should scale its IT infrastructure in time for the upcoming September 2015 design decision. We also found the Bureau had not yet established high-level time frames for when key cloud computing decisions needed to be made. Bureau IT Directorate officials stated that they had not yet established time frames due to a lack of internal cloud computing expertise and that they were planning to use a contractor to assist in assessing cloud computing technologies for the 2020 Census. While this assistance may be helpful, without, at a minimum, high-level time frames, the Bureau will not know whether there is enough time to successfully acquire and implement a cloud solution for the 2020 Census. In our February 2015 report, we recommended that the Bureau update estimated costs for the Internet response option and ensure future cost estimates are reliable, develop methodologies for answering key research questions, and establish high-level time frames for cloud computing decisions. The Bureau neither agreed nor disagreed with the recommendations but identified actions to address some of them. For example, the Bureau stated that it planned to revise the 2020 Census cost estimate once the September 2015 design decision is made. The Bureau also stated that it had established a plan and implementation team--the 2020 Census Concept of Operations--to document results of the design decision, including the Internet self-response rate and key dates for making decisions. In addition to these challenges, the Bureau will need to resolve other operational questions before it can realize cost savings in this area, including the following: What methods work best to convince diverse audiences to self- respond in a digital environment? In the Savannah, Georgia, test, the Bureau is exploring how to target various audiences through social media, such as Twitter and Facebook, and the effect on response rates over the Internet. How can non-Internet response options be improved, for those without access to the Internet? The Bureau has historically provided support for completing questionnaires at locations within communities and over the telephone. The Bureau will need to examine how if at all it can improve such efforts to help people complete their questionnaires. In October 2014, the Bureau initiated an enterprise-wide IT initiative called the Census Enterprise Data Collection and Processing (CEDCAP) program, which is intended to deliver a "system of systems" to serve all of the Bureau's survey data collection and processing functions--rather than continuing to build and maintain unique, survey-specific systems with redundant capabilities. Most importantly for the 2020 Census, CEDCAP is expected to deliver the systems and IT infrastructure needed to implement the Bureau's cost-savings initiatives. For example: To reengineer field work, CEDCAP is expected to implement a new dynamic operational control system to track and manage field work that can make decisions on which visits enumerators should attempt on a daily basis using real-time data, as well as provide automated route planning to make enumerator travel more efficient. CEDCAP also includes testing the use of mobile devices, either government- furnished or employee-owned, to automate data collection in the field. To maximize self-response with the use of the Internet response option, CEDCAP is responsible for developing and testing a web- based survey application and exploring options for establishing the IT infrastructure to support the increased volume of data processing and storage. CEDCAP is a large and complex modernization program, consisting of 14 projects that are to deliver CEDCAP capabilities incrementally, through the deployment of over 10 versions. The Bureau expects to reuse selected systems, make modifications to other systems, and develop or acquire additional systems and infrastructure. As of March 2015, the CEDCAP program was projected to cost about $548 million through 2020. The September 2015 design decision that is expected to result from the Bureau's ongoing research and testing is also intended to drive the business requirements for the systems and infrastructure that CEDCAP will be expected to deliver. However, as noted in our April 2014 report, the Bureau had not prioritized key IT research and testing needed for the fast-approaching September 2015 design decision. Specifically, the Bureau was not completing the necessary plans and schedules for research and testing efforts and prioritizing what needs to be done by September 2015--a milestone that had already been pushed back by a year (see fig. 3) and cannot afford to slip further. We concluded that, given the current trajectory and the lack of supporting schedules and plans, it was unlikely that all planned IT-related research and testing activities would be completed in time to support the September 2015 design decision. These findings were particularly concerning since we had reported in November 2012 that, during the early stages of research and testing, key research and testing project plans were incomplete.recommended at that time that the Bureau ensure that documentation for projects was complete and the Bureau agreed, incomplete project plans continued to be an issue 2 years later. In light of these ongoing challenges, we recommended in our April 2014 report that the Bureau prioritize its IT-related research and testing projects that need to be completed to support the design decision and develop schedules and plans to reflect the new prioritized approach. The Bureau agreed with our recommendations and has taken steps to address them. For example, in September 2014, the Bureau released a plan that identified inputs, such as research questions, design components, and testing, that was needed to inform the September 2015 design decision. However, as we reported in February 2015,determined how key IT research questions that had been identified as critical inputs into the design decision--estimating the Internet self- response rate and determining the IT infrastructure for security and scalability needed to support Internet response--were to be answered. Bureau officials stated that they had begun to establish projects responsible for addressing these questions, but they did not have time frames for when these new projects would develop a planned research methodology. We emphasized that, with 8 months remaining until the design decision was to be made and major tests already designed or completed, the Bureau had limited time to determine how these critical questions would be answered to inform a key design decision. the Bureau had not yet Given the Bureau's prior and existing challenges, as well as the importance of CEDCAP to the successful delivery of an accurate, efficient, and secure 2020 Census, we identified CEDCAP as an IT investment in need of attention in our February 2015 High-Risk report.We plan to conduct a review of the CEDCAP program for this Committee later this year. As we have previously reported, the Bureau's past efforts to implement new approaches and IT systems have not always gone well. For example, leading up to the 2010 Census, fundamental weaknesses in key IT management practices contributed to the Bureau not being able to successfully deploy custom-developed handheld enumeration devices for non-response follow-up, which increased the cost of that Census by up to $3 billion. The Bureau has made progress in practices related to IT governance and requirements management, but more work is needed to address critical workforce gaps and information security. Institutionalizing key IT management controls, such as IT governance, system development methodology, and requirements management processes, helps establish a consistent and repeatable process for managing and overseeing IT investments and reduces the risk of experiencing cost overruns, schedule slippages, and performance shortfalls, like those that affected the previous census. The Bureau has made progress in strengthening these areas in response to recommendations we made in September 2012. Specifically, we found that the Bureau lacked a sufficiently mature IT governance process to ensure that investments are properly controlled and monitored, and did not have a comprehensive system development methodology, and that effective requirements management continued to be a long-standing challenge for the Bureau. We made several recommendations to address these issues, and the Bureau took actions to fully implement all of them. For example, the Bureau addressed gaps in policies and procedures related to IT governance, such as establishing guidelines on the frequency of investment review board meetings and thresholds for escalation of cost, risk, or impact issues; finalized its adoption of an enterprise system development life-cycle methodology, which included the short incremental development model, referred to as Agile, and a process for continuously improving the methodology based on lessons learned; and implemented a consistent requirements development tool that includes guidance for developing requirements at the strategic mission, business, and project levels and is integrated with its enterprise system development life-cycle methodology. As a result, the Bureau has established a consistent process for managing and overseeing its IT investments. Effective workforce planning is essential to ensure organizations have the proper skills, abilities, and capacity for effective management. While the Bureau has made progress in IT workforce planning efforts, many critical IT competency gaps remain to be filled. In September 2012 we reported, among other things, that the Bureau had not developed a Bureau-wide IT workforce plan; identified gaps in mission-critical IT occupations, skills, and competencies; or developed strategies to address gaps. Accordingly, we recommended that the Bureau establish a repeatable process for performing IT skills assessments and gap analyses and establish a process for directorates to coordinate on IT workforce planning. In response, in 2013 the Bureau completed an enterprise-wide competency assessment and identified several mission-critical gaps in technical competencies. In 2014 the Bureau established documents to institutionalize a strategic workforce planning process, identified actions and targets to close the competency gaps by December 2015, and established a process to monitor quarterly status reports on the implementation of these actions. These are positive steps in establishing strategic workforce planning capabilities; however, more work remains for the Bureau to close competency gaps critical to the implementation of its IT efforts. As we reported in February 2015, the Bureau's workforce competency assessment identified several mission-critical gaps that would challenge its ability to deliver IT-related initiatives, such as the IT systems that are For example, the Bureau found expected to be delivered by CEDCAP. that competency gaps existed in cloud computing, security integration and engineering, enterprise/mission engineering life-cycle, requirements development, and Internet data collection. The Bureau also found that enterprise-level competency gaps existed in program and project management, budget and cost estimation, systems development, data analytics, and shared services. The Bureau's efforts to monitor the status of its efforts to close these competency gaps will be critical to ensuring the Bureau has the skills it needs to effectively deliver IT solutions for the 2020 Census. GAO, 2020 Census: Key Challenges Need to Be Addressed to Successfully Enable Internet Response, GAO-15-225 (Washington, D.C.: Feb. 5, 2015). Critical to the Bureau's ability to perform its data collection and analysis duties are its information systems and the protection of the information they contain. A data breach could result in the public's loss of confidence in the Bureau, thus affecting its ability to collect census data. To ensure the reliability of their computerized information, agencies should design and implement controls to prevent, limit, and detect unauthorized access to computing resources, programs, information, and facilities. Inadequate design or implementation of access controls increases the risk of unauthorized disclosure, modification, and destruction of sensitive information and disruption of service. In January 2013, we reported on the Bureau's implementation of information security controls to protect the confidentiality, integrity, and availability of the information and systems that support its mission. We concluded that the Bureau had a number of weaknesses in controls intended to limit access to its systems and information, as well as those related to managing system configurations and unplanned events. We attributed these weaknesses to the fact that the Bureau had not fully implemented a comprehensive information security program, and made The 115 recommendations aimed at addressing these deficiencies.Bureau expressed broad agreement with the report and said it would work to find the best ways to address our recommendations. However, to date, the Bureau has fully addressed only 19 of the 115 recommendations, and while it is making progress on others, significant work remains. For example, the Bureau has implemented elements of a comprehensive information security program, such as establishing appropriate policies and procedures, providing security awareness training, and addressing incident response weaknesses; however, among many other things, it is not yet comprehensively assessing risk. Given that the Bureau is considering using IT systems to collect the public's personal information for the 2020 Census in ways that it has not in previous censuses (e.g., web-based surveys, cloud computing, and enabling enumerators to use their personally owned mobile devices to collect census data), implementing our security recommendations from over 2 years ago must be a high priority. Until then, the Bureau will have limited assurance that its information and systems, including those needed for the 2020 Census, are being adequately protected against unauthorized access, use, disclosure, modification, disruption, or loss. In summary, the Bureau is pursuing initiatives to significantly reform its outdated and inefficient methods of conducting decennial censuses. However, with only 3-and-a-half years remaining until the Bureau plans to have all systems and processes for the 2020 Census developed and ready for end-to-end system testing, the magnitude of the planned changes, the Bureau's prior track record, and existing challenges, the 2020 Census program faces significant risk. As the Bureau approaches the September 2015 preliminary decision deadline, it needs to ensure that it only commits to what its capacity can truly accommodate. In addition, the Bureau will need to ensure that quality and information security are effectively managed in a census design that may entail significant change. Moreover, the Bureau needs to take action to address the specific challenges we have highlighted in prior reports. If these actions are not taken, cost overruns, schedules delays, and performance shortfalls may diminish the potentially significant cost savings that the Bureau estimates will result from redesigning the census for 2020. Chairman Johnson, Ranking Member Carper, and Members of the Committee, this completes our prepared statement. We would be pleased to respond to any questions that you may have. If you have any questions concerning this statement, please contact Carol Cha, Director, Information Technology Acquisition Management Issues, at (202) 512-4456 or [email protected] or Robert Goldenkoff, Director, Strategic Issues, at (202) 512-2757 or [email protected]. Other individuals who made key contributions include Shannin O'Neill and Ty Mitchell, Assistant Directors; Jeffrey DeMarco; Lee McCracken; Jeanne Sung; and Timothy Wexler. 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 cost of the decennial census has steadily increased each decade, with the 2010 Census being the most costly in history, totaling approximately $13 billion. If the growth rate continues, the 2020 Census could cost approximately $25 billion (in constant 2010 dollars). In an effort to contain costs while continuing to ensure an accurate enumeration, the Bureau is researching and testing new methods and technologies. This September, the Bureau plans to announce its preliminary design for the 2020 Census, and in October 2018 the Bureau plans to have all systems and processes for the 2020 Census developed and ready for operational testing. As Census Day 2020 gets closer, the margin for schedule slippages is becoming increasingly narrow. GAO was asked to testify on the Bureau's progress in implementing cost-savings initiatives and associated challenges for the 2020 Census. To prepare this statement, GAO relied on its previously published work in this area over the last several years. The Census Bureau (Bureau) has research and testing efforts well under way to support reforming aspects of the 2020 Census in order to contain costs. The table below briefly describes the four main cost-saving initiatives and the Bureau's associated savings estimates. However, the Bureau faces significant challenges and unanswered questions related to these initiatives and their associated cost savings. For example, the Bureau needs to finalize decisions on: the use of data records from other government agencies; more cost-effectively maintaining complete and accurate map and address data; and the use of technology to more efficiently manage field operations. The Bureau also needs to take action on GAO's recommendations to develop reliable cost estimates and time frames for key decisions related to deploying the Internet self-response option. The successful execution of the 2020 Census also depends on the effective implementation of a large and complex information technology (IT) development effort. This effort--the Census Enterprise Data Collection and Processing program--is intended to result in an interconnected set of systems to serve all the Bureau's data collection and processing functions, including the systems and infrastructure needed to support the 2020 Census cost-savings initiatives. But as GAO has reported, the Bureau has not always prioritized key testing and research activities needed to inform IT system development. GAO has also previously found weaknesses in the Bureau's management of IT , and made recommendations to address them. In response, the Bureau has made important improvements in the areas of governance, system development methodologies, requirements management, and workforce planning. However, more work remains to ensure that it has the critical skills needed to effectively deliver IT solutions and that its systems and information are protected from unauthorized access or tampering. The Bureau needs to take action to address the recommendations GAO has made in prior reports. If these actions are not taken, cost overruns, schedule delays, and performance shortfalls will likely diminish the potential cost savings that the Bureau estimates will result from redesigning the census for 2020. In its prior work, GAO made 121 recommendations to, among other things, assist the Bureau in planning for its Internet response option, completing key research and testing activities, and improving its IT management and security. The Bureau generally agreed with these recommendations.
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Over the past year, DOD has substantially restructured the JSF program, taking positive actions that should lead to more achievable and predictable outcomes. Restructuring has consequences--higher development costs, fewer aircraft in the near term, training delays, and extended times for testing and delivering capabilities to warfighters. Key restructuring changes include the following: The total system development cost estimate rose to $56.4 billion and its schedule was extended to 2018. This represents a 26 percent increase in cost and a 5-year slip in schedule compared to the current approved program baseline established in 2007. Resources and time were added to development testing. Testing plans were made more robust by adding another development test aircraft and the use of several production aircraft; increasing the number of test flights by one-third; extending development testing to 2016; and reducing its overlap with initial operational testing. Near-term procurement quantities were reduced by 246 aircraft through 2016; the annual rate of increase in production was lowered; and the full-rate production decision moved to 2018, a 5-year slip from the current baseline. The military services were directed to reexamine their initial operational capability (IOC) requirements, the critical need dates when the warfighter must have in place the first increment of operational forces available for combat. We expect the Marine Corps' IOC will slip significantly from its current 2012 date and that the Air Force's and Navy's IOC dates will also slip from the current dates in 2016. To address technical problems and test deficiencies for the short takeoff and landing (STOVL) variant, the Department significantly scaled back its procurement quantities and directed a 2-year period for evaluating and engineering technical solutions to inform future decisions on this variant. DOD also "decoupled" STOVL testing from the other two variants so as not to delay them and to allow all three to proceed at their own speeds. The fiscal year 2012 Defense Budget reflects the financial effects from restructuring actions through fiscal year 2016. The net effect was increased development funding and decreased procurement funding in the near term. For example, compared to last year's estimate for the same year, DOD for fiscal year 2012 requested an increase of $520 million for JSF development and a decrease of $2.6 billion for procurement, reflecting the reduction of 13 aircraft and associated spares. Table 1 summarizes the revised procurement funding requirements and annual quantities during this 5-year period following the Secretary's reductions. Even after decreasing annual quantities and lowering the production rate of increase, JSF procurement still escalates significantly. Annual procurement funding levels more than double and quantities more than triple during this period. These numbers do not include the additional orders expected from the international partners. DOD does not yet know the full impact from restructuring actions on future procurement funding requirements beyond this 5-year period. Cost analysts are still calculating the net effects from deferring the near-term procurement of 246 aircraft to future years and from lowering the annual rate of increased procurement. After a Nunn-McCurdy breach of the critical cost growth threshold and DOD certification, the most recent milestone must be rescinded, the program restructured to address the cause of the breach, and a new acquisition program baseline must be approved that reflects the certification approved by the milestone decision authority. The Secretary has not yet granted new milestone B approval for the JSF nor approved a new acquisition program baseline. Future funding requirements could be higher than projected and the quantities, which are considered affordable by the U.S. and allies, could be reduced, further driving up unit costs. Affordability--in terms of the investment costs to acquire the JSF, the continuing costs to operate and maintain it over the life-cycle, and its impact on other defense programs--is a challenging issue. Including the funding added by the restructuring actions, system development cost estimates have increased 64 percent since program start. (App. II summarizes the increases in target prices on development contracts, and major cost drivers contributing to increased system development funding requirements.) Also, the estimated average unit procurement price for the JSF has about doubled since program start and current forecasts indicate that life-cycle costs will be substantially higher than the legacy aircraft it replaces. Rising JSF costs erode buying power and may make it difficult for the U.S. and its allies to buy and sustain as many aircraft as planned. Going forward, the JSF will require unprecedented demands for funding in a period of more austere defense budgets where it will have to annually compete with other defense and nondefense priorities for the discretionary federal dollar. Figure 1 illustrates the substantive annual development and procurement funding requirements--almost $11 billion on average through program completion in 2035. This reflects the program's estimate at the time of the fiscal year 2011 budget submission. These funding levels do not include additional funding increases pursuant to the June 2010 Nunn-McCurdy certification nor funding changes in the fiscal year 2012 budget request. As discussed earlier, defense cost analysts are still computing the long-term procurement funding requirements reflecting the deferral of aircraft to future years. The JSF program established 12 clearly stated goals in testing, contracting, and manufacturing for completion in calendar year 2010. It had mixed success, achieving 6 goals and making varying degrees of progress on the other 6. For example, the program exceeded its goal for the number of development flight tests but did not deliver as many test and production aircraft as planned. Also, the program awarded its first fixed-price contract on its fourth lot of production aircraft, but did not award the fixed-price engine contract in 2010 as planned. Table 2 summarizes JSF goals and accomplishments for 2010. Although still hampered by the late delivery of test aircraft to testing sites, the development flight test program significantly ramped up operations in 2010, accomplishing 3 times as many test flights as the previous 3 years combined. The Air Force conventional takeoff and landing variant significantly exceeded the annual plan while initial limited testing of the Navy's carrier variant was judged satisfactory, below plans for the number and hours of flight but ahead on flight test points flown. The Marine Corps STOVL, however, substantially underperformed in flight tests, experienced significant down times for maintenance, and was challenged by several technical issues unique to this variant that could add to its weight and cost. The STOVL's problems were a major factor in the Secretary's decision to give the STOVL a 2-year period to solve engineer issues, assess impacts, and inform a future decision as to whether and h to proceed with this variant. Table 3 summarizes 2010 flight test results fo each variant. After completing 9 years of system development and 4 years of overlapping production activities, the JSF program has been slow to gain adequate knowledge to ensure its design is stable and the manufacturing process ready for greater levels of annual production. The JSF program still lags in achieving critical indicators of success expected from well- performing acquisition programs. Specifically, the program has not yet stabilized aircraft designs--engineering changes continue at higher than expected rates long after critical design reviews and well into procurement, and more changes are expected as testing accelerates. Also, manufacturing cost increases and delays in delivering test and production aircraft indicate need for substantial improvements in factory throughput and performance of the global supply chain. Engineering drawings released since design review and the number and rate of design changes exceed those planned at program outset and are not in line with best practices. Critical design reviews were completed on the three aircraft variants in 2006 and 2007 and the designs declared mature, but the program continues to experience numerous changes. Since 2007, the program has produced 20,000 additional engineering drawings, a 50-percent increase in total drawings and about five times more than best practices suggest. In addition, changes to drawings have not yet decreased and leveled off as planned. Figure 2 tracks and compares monthly design changes and future forecasts against contractor plans in 2007. The monthly rate in 2009 and 2010 was higher than expected and the program now anticipates more changes over a longer period of time-- about 10,000 more changes through January 2016. With most of development testing still ahead for the JSF, the risk and impact from required design changes are significant. In addition, emerging concerns about the STOVL lift fan and drive shaft, fatigue cracks in a ground test article, and stealth-related issues may drive additional and substantive design changes. As in prior years, lingering management inefficiencies, including substantial out-of-station work and part shortages, continued to increase the labor needed to manufacture test aircraft. Although there have been improvements in these factors, final acceptance and delivery of test jets were still delayed. Total labor hours required to produce the test aircraft increased over time. The cumulative actual labor hours through 2010 to complete the 12 test aircraft exceeded the budgeted hours estimated in 2007 by more than 1.5 million hours, a 75 percent increase. Figure 3 depicts forecasted and actual labor hours for building test jets. DOD began procuring production jets in 2007 and has now ordered 58 aircraft on the first four low-rate initial production lots. The JSF program anticipated the delivery of 14 production aircraft through 2010, but none have been delivered. Delivery of the first two production jets has been delayed several times since the contract was signed and is now expected in April 2011. The prices on the first three cost-reimbursable production contracts have increased from amounts negotiated at contract award an the completion dates for delivering aircraft have been extended over 9 months on average. We are encouraged by DOD's award of a fixed-price incentive fee contract for lot 4 production and the prospects for the cos t study to inform lot 5 negotiations, but we have not examined cont specifications. Accumulating a large backlog of jets on order but undelivered is not an efficient use of federal funds, tying up millions of dollars in produce. obligations ahead of the ability of the manufacturing process to The aircraft and engine manufacturers now have significantly more ite in production flow compared to prior years and are making efforts to implement restructuring actions and recommendations from expert defense teams assembled to evaluate and improve production and su operations. Eight of 20 key recommendations from the independent manufacturing review team have been implemented as of Septemb Until improvements are fully implemented and demonstrated, the restructuring actions to reduce near term procurement quantities and establish a more achievable ramp rate are appropriate and will provide more time to fully mature manufacturing and supply processes and catch up with aircraft backlogs. Improving factory throughput and controlling costs--driving down labor and material costs and delivering on time-- are o the warfighter essential for efficient manufacturing and timely delivery t at the increased production rates planned for the future. er 2010. Since the first flight in December 2006, only about 4 percent of JSF capabilities have been completely verified by flight tests, lab results, both. The pace of flight testing accelerated significantly in 2010, but overall progress is still much below plans forecast several years ago. Furthermore, only a small portion of the extensive network of ground te labs and simulation models are fully accredited to ensure the fidelity of results. Software development--essential for achieving about 80 percent is significantly behind schedule as it enters its of the JSF functionality-- most challenging phase. Development flight testing was much more active in 2010 than prior ye and had some notable successes, but cumulatively still lagged behind previous expectations. The continuing effects from late delivery of test aircraft and an inability to achieve the planned flying rates per aircraft ars substantially reduced the amount and pace of testing planned previously. Consequently, even though the flight test program accelerated its pace la year, the total number of flights accomplished during the first 4 years ofthe test program significantly lagged expectations when the program's 2007 baseline was established. Figure 4 shows that the cumulative numbe of flights accomplished by the end of 2010 was only number forecast by this time in the 2007 test plan. By the end of 2010, about 10 percent of more than 50,000 planned flight test points had been completed. The majority of the points were earned on airworthiness tests (basic airframe handling characteristics) and in ferrying the planes to test sites. Remaining test points include more complex and stringent requirements, such as mission systems, ship suitability, and weapons integration that have yet to be demonstrated. The JSF test program relies much more heavily than previous weapon systems on its modeling and simulation labs to test and verify aircraft design and subsystem performance. However, only 3 of 32 labs and models have been fully accredited to date. The program had planned to accred it 11 labs and models by now. Accreditation is essential to validate that the models accurately reflect aircraft performance and it largely depends upo flight test data to ground testing for some flight testing is unproven. Contracting officials told us that early results are providing good correlation between ground and flight tests. verify lab results. Moreover, the ability to substitute Software providing essential JSF capability is not mature and releases the test program are behind schedule. Officials underestimated the time and effort needed to develop and integrate the software, substantially nd contributing to the program's overall cost and schedule problems a testing delays, and requiring the retention of engineers for longer periods Significant learning and development work remains before the program can demonstrate the mature software capabilities needed to meet warfighter requirements. The JSF software development effort is one of the largest and most complex in DOD history, providing functionality essential to capabilities such as sensor fusion, weapons and fire control, maintenance diagnostics, and propulsion. JSF depends on millions more lines of software code than the F-22A Raptor and F/A-18E/F Super Hornet lines While good progress has been reported on the writing of code, total . . of code have grown by 40 percent since preliminary design review and 13 cal design review. The amount of code needed will percent since the criti likely increase as integration and testing efforts intensify. A second software integration line added as part of the restructuring will impr capacity and output. Delays in developing, integrating, and releasing software to the te program have cascading effects hampering flight tests, training, and lab accreditation. While progress is being made, a substantial amount of software work remains before the program can demonstrate full warfighting capability. The program released its second block, or increment, to flight test nearly 2 years later than the plan set in 2006, largely due to integration problems. Each of the remaining three blocks-- providing full mission systems and warfighting capabilities--are now projected to slip more than 3 years compared to the 2006 plan. Figure 5 st ates the actual and projected slips for each of the 5 software blocks g software to the test program. The JSF program is at a critical juncture--9 years in development and 4 years in limited production-but still early in flight testing to verify aircraft design and performance. If effectively implemented and sustaine the restructuring DOD is conducting should place the JSF program on a firmer footing and lead to more achievable and predictable outcomes. However, restructuring comes with a price--higher development costs, fewer aircraft received in the near term, training delays, prolonged times for testing and delivering the capabilities required by the warfighter, and impacts on other defense programs and priorities. Reducing near-term d, procurement quantities lessens, but does not eliminate the still substant and risky concurrency of development and production. Development testing activities will now overlap 11 years of procurement. Flight testing and production activities are increasing and contractors are improving supply and manufacturing processes, but deliveries are still lagging. Slowed deliveries have led to a growing backlog of jets on order but not delivered. This is not a good use of federal funds, obligating millions of dollars well before the manufacturing process can deliver aircraft. We agree with defense leadership that a renewed and sustained focus on affordability by contractors and the government is critical to mo ving this important program forward and enabling our military services and our allies to acquire and sustain JSF forces in needed quantities. Maintainin senior leadership's increased focus on program results, holding government and contractors accountable for improving performance bringing a more responsible management approach to the JSF to "live within its means" may help limit future cost growth and the consequence for other programs in the portfolio. The JSF acquisition demands an unprecedented share of the Department's future investment funding. The program's size and priority are such that its cost overruns and extended schedules must either be borne by funding cuts to other programs or else drive increases in the top line of defense spending; the latter may not be n a period of more austere budgets. Given the other priorities that option i DOD must address in a finite budget, JSF affordability is critical and DOD m future. ust plan ahead to address and manage JSF challenges and risks in the Chairman Bartlett, Ranking Member Reyes, and members of the Tactical Air and Land Forces Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have. For further information on this statement, please contact Michael Sullivan at (202) 512-4841 or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement are Bruce Fairbairn, Charlie Shivers, Julie Hadley, W. Kendal Roberts, LeAnna Parkey, and Matt Lea. development start) December 2003 (2004 replan) baseline) April 2010 (initial program restructure) June 2010 (Nunn-McCurdy) Cost estimates (then-year dollars in billions) Unit cost estimates (then-year dollars in millions) Projected costs for three contracts comprise about 80 percent of total system development funding requirements. The airframe and primary engine development contracts have experienced significant price increases since contract awards--79 percent and 69 percent respectively. The alternate, or second, engine contract price has increased about 12 percent. By design, it began about 4 years after the primary engine contract and has a more limited scope. The primary engine contract includes development of both the common engine and the STOVL lift system while the alternate engine contract develops its version of the conventional common engine. Figures 6, 7, and 8 depict the price histories for these three contracts and the reasons behind major price increases. Table 4 shows changes in engine development schedules. The initial service release milestone usually coincides with low rate initial production. The engine should have completed required verification activities and meet specification requirements. The operational capability release milestone is generally associated with the start of full-rate production when the engine is acceptable for full production release. Tactical Aircraft: Air Force Fighter Force Structure Reports Generally Addressed Congressional Mandates, but Reflected Dated Plans and Guidance, and Limited Analyses. GAO-11-323R. Washington, D.C.: February 24, 2011. Defense Management: DOD Needs to Monitor and Assess Corrective Actions Resulting from Its Corrosion Study of the F-35 Joint Strike Fighter. GAO-11-171R. Washington D.C.: December 16, 2010. Joint Strike Fighter: Assessment of DOD's Funding Projection for the F136 Alternate Engine. GAO-10-1020R. Washington, D.C.: September 15, 2010. Tactical Aircraft: DOD's Ability to Meet Future Requirements is Uncertain, with Key Analyses Needed to Inform Upcoming Investment Decisions. GAO-10-789. Washington, D.C.: July 29, 2010. Joint Strike Fighter: Significant Challenges and Decisions Ahead. GAO-10-478T. Washington, D.C.: March 24, 2010. Joint Strike Fighter: Additional Costs and Delays Risk Not Meeting Warfighter Requirements on Time. GAO-10-382. Washington, D.C.: March 19, 2010. Joint Strike Fighter: Significant Challenges Remain as DOD Restructures Program. GAO-10-520T. Washington, D.C.: March 11, 2010. Joint Strike Fighter: Strong Risk Management Essential as Program Enters Most Challenging Phase. GAO-09-711T. Washington, D.C.: May 20, 2009. Joint Strike Fighter: Accelerating Procurement before Completing Development Increases the Government's Financial Risk. GAO-09-303. Washington D.C.: March 12, 2009. Joint Strike Fighter: Impact of Recent Decisions on Program Risks. GAO-08-569T. Washington, D.C.: March 11, 2008. Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks. GAO-08-388. Washington, D.C.: March 11, 2008. Tactical Aircraft: DOD Needs a Joint and Integrated Investment Strategy. GAO-07-415. Washington, D.C.: April 2, 2007. Joint Strike Fighter: Progress Made and Challenges Remain. GAO-07-360. Washington, D.C.: March 15, 2007. Tactical Aircraft: DOD's Cancellation of the Joint Strike Fighter Alternate Engine Program Was Not Based on a Comprehensive Analysis. GAO-06-717R. Washington, D.C.: May 22, 2006. Defense Acquisitions: Major Weapon Systems Continue to Experience Cost and Schedule Problems under DOD's Revised Policy. GAO-06-368. Washington, D.C.: April 13, 2006. Defense Acquisitions: Actions Needed to Get Better Results on Weapons Systems Investments. GAO-06-585T. Washington, D.C.: April 5, 2006. Tactical Aircraft: Recapitalization Goals Are Not Supported by Knowledge-Based F-22A and JSF Business Cases. GAO-06-487T. Washington, D.C.: March 16, 2006. Joint Strike Fighter: DOD Plans to Enter Production before Testing Demonstrates Acceptable Performance. GAO-06-356. Washington, D.C.: March 15, 2006. 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 F-35 Lightning II, also known as the Joint Strike Fighter (JSF), is the Department of Defense's (DOD) most costly and ambitious aircraft acquisition, seeking to simultaneously develop and field three aircraft variants for the Air Force, Navy, Marine Corps, and eight international partners. The JSF is critical for recapitalizing tactical air forces and will require a long-term commitment to very large annual funding outlays. The estimated total investment cost is currently about $385 billion to develop and procure 2,457 aircraft. Because of a history of relatively poor cost and schedule outcomes, defense leadership over the past year has directed a comprehensive restructuring of the JSF program that is continuing. This testimony draws substantially from our extensive body of work on the JSF, including the current annual review mandated in the National Defense Authorization Act for Fiscal Year 2010, Pub. L. No. 111-84 244 (2009). Our draft report is being reviewed by the Department and we expect to issue it early next month. That report and this testimony discusses (1) program cost and schedule changes and their implications on affordability; (2) progress made during 2010; (3) design and manufacturing maturity; and (4) test plans and progress. GAO's work included analyses of a wide range of program documents and interviews with defense and contractor officials. DOD continues to restructure the JSF program, taking positive, substantial actions that should lead to more achievable and predictable outcomes. Restructuring has consequences--higher up-front development costs, fewer aircraft bought in the near term, training delays, and extended times for testing and delivering capabilities to warfighters. Total development funding is now estimated at $56.4 billion to complete in 2018, a 26 percent cost increase and a 5-year schedule slip from the current baseline. DOD also reduced procurement quantities by 246 aircraft through 2016, but has not calculated the net effects of restructuring on total procurement costs nor approved a new baseline. Affordability for the U.S. and partners is challenged by a near doubling in average unit prices since program start and higher estimated life-cycle costs. Going forward, the JSF requires unprecedented funding levels in a period of more austere defense budgets. The program had mixed success in 2010, achieving 6 of 12 major goals and progressing in varying degrees on the rest. Successes included the first flight of the carrier variant, award of a fixed-price aircraft procurement contract, and an accelerated pace in development flight tests that accomplished three times as many flights in 2010 as the previous 3 years combined. However, the program did not deliver as many aircraft to test and training sites as planned and made only a partial release of software capabilities. The short takeoff and landing (STOVL) variant had significant technical problems and deficient flight test performance. DOD directed a 2-year period to evaluate and engineer STOVL solutions. After more than 9 years in development and 4 in production, the JSF program has not fully demonstrated that the aircraft design is stable, manufacturing processes are mature, and the system is reliable. Engineering drawings are still being released to the manufacturing floor and design changes continue at higher rates than desired. More changes are expected as testing accelerates. Test and production aircraft cost more and are taking longer to deliver than expected. Manufacturers are improving operations and implemented 8 of 20 recommendations from an expert panel, but have not yet demonstrated a capacity to efficiently produce at higher production rates. Substantial improvements in factory throughput and the global supply chain are needed. Development testing is still early in demonstrating that aircraft will work as intended and meet warfighter requirements. About 4 percent of JSF capabilities have been completely verified by flight tests, lab results, or both. Only 3 of the extensive network of 32 ground test labs and simulation models are fully accredited to ensure the fidelity of results. Software development--essential for achieving about 80 percent of the JSF functionality--is significantly behind schedule as it enters its most challenging phase.
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GPRA is intended to shift the focus of government decisionmaking, management, and accountability from activities and processes to the results and outcomes achieved by federal programs. New and valuable information on the plans, goals, and strategies of federal agencies has been provided since federal agencies began implementing GPRA. Under GPRA, annual performance plans are to clearly inform the Congress and the public of (1) the annual performance goals for agencies' major programs and activities, (2) the measures that will be used to gauge performance, (3) the strategies and resources required to achieve the performance goals, and (4) the procedures that will be used to verify and validate performance information. These annual plans, issued soon after transmittal of the president's budget, provide a direct linkage between an agency's longer term goals and mission and day-to-day activities. Annual performance reports are to subsequently report on the degree to which performance goals were met. The issuance of the agencies' performance reports, due by March 31, represents a new and potentially more substantive phase in the implementation of GPRA--the opportunity to assess federal agencies' actual performance for the prior fiscal year and to consider what steps are needed to improve performance and reduce costs in the future. FEMA is an independent agency whose mission is to reduce the loss of life and property and protect our institutions from natural and technological hazards by leading and supporting the nation in a comprehensive, risk- based emergency management program of mitigation, preparedness, response, and recovery. Traditionally, the role of the federal government has been to supplement the emergency management efforts of state and local governments, voluntary organizations, and private citizens. According to FEMA's strategic plan, the nation's emergency management capability is built on a partnership of local, state, and federal governments; voluntary agencies; business and industry; and individual citizens. FEMA's focus is on building partnerships and mitigating the effects of disaster by assisting state, tribal, and local governments to prepare for, respond to, and recover from natural, manmade, and technological disasters. This section discusses our analysis of FEMA's performance in achieving its selected key outcomes and the strategies it has in place, particularly strategic human capital management and information technology, for accomplishing these outcomes. In discussing these outcomes, we have also provided information drawn from our prior work on the extent to which the agency provided assurance that the performance information it is reporting is credible. According to its fiscal year 2000 annual performance report, FEMA has made some progress in minimizing human suffering and property losses after natural disasters. FEMA has 10 performance goals related to this key outcome. It reported that it met three of this outcome's goals, including efforts to process disaster declaration requests within an average of 8.3 days and achieved an 85-percent customer satisfaction rating for elements of its Public Assistance Program. We could not determine progress for two other goals because FEMA did not provide data for all measures associated with these goals. For example, FEMA did not provide data on reducing costs for disseminating FEMA documents and public announcements making it difficult to assess FEMA's progress toward its goal of providing reliable data and communications services to disaster locations. FEMA also reported that it did not fully meet five goals related to this outcome but generally provided explanations for why goals were not achieved. For instance, FEMA reported that its growth rate for National Flood Insurance Program (NFIP) policies fell short of its 5 percent goal but discusses a number of factors that affected overall policy growth in fiscal year 2000. FEMA's fiscal year 2000 performance report was similar to its fiscal year 1999 performance report in that it did little to identify significant limitations that potentially affect the credibility of data used to measure its performance. For example, FEMA has a goal associated with this outcome to enhance recovery by expediting disaster operations through the National Emergency Management Information System. FEMA does not acknowledge reported limitations associated with this system. In a report to be issued in July 2001, we note that FEMA had identified weaknesses in the system, such as untimely data, as reported in FEMA after-action reports. The fiscal year 2000 performance report presented more descriptive details for each of the annual performance goals than the fiscal year 1999 performance report, including more explanation on the goals' background and why the goals are important. In some cases, FEMA included information on the benefits derived from achieving goals. For example, one of the Response and Recovery goals is to enhance a community's disaster recovery process by improving administrative processes and training. FEMA stated in its fiscal year 2000 performance report that achieving this goal means that customers are satisfied with the overall Public Assistance Program and are being served in a timely manner by responsive, competent, and accountable staff. In some cases, FEMA also identified special conditions that affected the agency's ability to meet the goals. For example, one of the measures used to determine progress toward the goal discussed in the previous example did not have complete data on fiscal year 2000. As a result, FEMA reported on data for the first half of the fiscal year and provided an explanation of why the data were not available for the entire year. FEMA also indicated that incomplete data would be a continuing problem because of the lag time between collecting and analyzing data on this goal. FEMA's fiscal year 2000 performance report also used more data to illustrate progress toward achieving goals. For example, FEMA has a goal to increase the effective delivery of response services by ensuring immediate response to a governor's request for a presidential declaration. One measure is that FEMA will process a governor's request within an average of 8.3 days. Figure 1 illustrates FEMA's progress toward achieving its processing goal for fiscal years 1999 and 2000. In its fiscal year 2002 performance plan, FEMA outlines several strategies to improve disaster response operations such as enhancing interagency coordination through a number of groups, including the Catastrophic Disaster Response Group, Emergency Support Function Leaders, and the Regional Interagency Committee and establishing improved disaster declaration criteria. FEMA's plan also discusses specific actions for coordinating with other agencies to accomplish this goal. In the area of information technology, FEMA's fiscal year 2002 performance plan states that it plans to reduce the resources needed and increase the speed for processing disaster assistance within the National Emergency Management Information System. However, FEMA mentions no specifics on how it plans to achieve this goal. In the area of strategic human capital management, FEMA presents a strategy to increase senior management effectiveness at disaster field offices for three goals, but provides no specifics on how it plans to pursue this strategy. Although FEMA reported accomplishing most performance measures under this outcome, it reported that it did not fully meet any goal under this outcome. This outcome contained three goals with numerous performance measures. For example, FEMA's goal to increase the level of internal and external customer satisfaction with FEMA services contains nine performance measures. FEMA reported that four of nine measures were accomplished, two were not accomplished, and three were discontinued and not reported. Although FEMA provided a rationale for why some of these goals were not fully achieved, it did not provide a detailed strategy on how it plans to achieve these unmet goals in the future. For example, FEMA explained it did not fully achieve its goal of referring 100 percent of eligible delinquent debts to the Department of the Treasury. However, the only discussion provided on needed changes was that FEMA must develop a policy on the collection of delinquent debts, publish rules and regulations in the Federal Register before collecting such debts, and transfer remaining delinquent debts to the Treasury. FEMA's fiscal year 2002 performance plan has two performance goals under this outcome that represent goals for several FEMA offices. FEMA acknowledges that these goals are iterations of goals found in the other two outcomes--minimizing human suffering and mitigation efforts. Although the goals themselves appear to be clear and reasonable, they could result in confusion over who is responsible for achieving these goals. For example, the Response and Recovery Directorate has a performance goal in this outcome to determine cost drivers in the response and recovery processes and implement re-engineered processes to support improvements in FEMA cost efficiency. Under the outcome to minimize human suffering and property losses after natural disasters, FEMA has performance measures to improve disaster processing by 5 percent and reduce the total dollar value of assets at closed disaster field offices by 10 percent. In the area of strategic human capital management, FEMA outlines the skills base it needs to achieve goals under this outcome and has one goal for the Human Resources Management Office to provide timely and effective human resource tools, services, information, and assistance to FEMA organizations. In the area of information technology, FEMA's fiscal year 2002 performance plan has measures to expand public access to information through e-government services and deliver accessible and standardized information technology services at 98 percent availability with no undetected virus attacks. Expanding e-government services is a new administration initiative, which FEMA plans to use to provide information to the public in a more timely and efficient manner. FEMA's fiscal year 2000 performance report showed that the agency was making progress in preventing or reducing harm and losses from future disasters through mitigation efforts. The agency reported meeting the majority of its goals for this key outcome, which included results such as entering into formal agreements with 11 agencies to support mitigation designating 63 communities as Project Impact communities,implementing building standards that increased the use and effectiveness of mitigation tools, and completing seven hurricane evacuation studies. Most of the performance goals for this key outcome have at least one measurable or quantifiable performance measure that helps demonstrate progress toward reaching the goals. For example, FEMA reported that the Federal Insurance Administration (FIA) successfully refined and remeasured the savings achieved from flood loss reduction. FEMA estimated flood loss reduction amounted to just over $1 billion in fiscal year 2000. It also reported that tests of the National Warning System showed emergency alerts were disseminated within 2 minutes--exceeding FEMA's goal of 3-minute dissemination. In addition, as we pointed out in our May 2001 testimony, opportunities are emerging to better measure the success of the NFIP in protecting lives and preventing loss of property. FEMA's FIA has a number of performance goals aimed at improving the results of the NFIP, including increasing the number of insurance policies sold. FEMA did not meet the 5 percent annual increase goal for policies sold in fiscal years 1999 and 2000. However, it decided not to change the goal, according to the acting FIA Administrator, because FIA felt it was an effective workforce driver. Although this goal may serve a workforce purpose and provide insight on program volume, it does not measure the degree of participation by the most vulnerable residents--those living in flood-prone areas. Capturing data on the number of both uninsured and insured structures in flood- prone areas could provide FEMA with another indication of how effectively the program is penetrating into those areas most at risk of flooding, whether the financial consequences of floods in these areas are increasing or decreasing, and where to better target marketing efforts. Our May 2001 testimony also pointed out that opportunities are developing for FEMA to obtain valuable information about the program's success through analysis of the rate of participation for those communities involved in the program. The participation rate is obtained by dividing the number of properties located in special flood hazard areas (SFHA) with flood insurance by the total number of properties in these SFHAs. FIA maintains a database on the number of flood insurance policies in force, including the number in SFHAs. However, the data FEMA has on the national and local community levels for the number of structures in SFHAs are of varying quality, according to FIA's Acting Administrator. Even so, several current mapping technologies can be used to facilitate the collection of data on the number of structures in the SFHAs. Local communities, such as Dekalb County, GA and Charlotte, NC, are using mapping technologies to estimate the number of structures in SFHAs. Combining these technologies with the digital flood maps that FEMA is already producing would increase accuracy in the identification of structures within SFHAs and the calculation of participation rates. FIA officials agree that program participation rates are a useful measure that can provide insights for measuring the program's success, including the effectiveness of marketing. However, it is still difficult to determine the degree of progress FEMA has made in achieving some of it goals. This is because FEMA did not clearly state whether some goals were fully achieved. For example, FEMA cited that it had achieved "substantial advancement" in achieving its efforts to evaluate the effectiveness of the mitigation planning. It would be more helpful if FEMA clearly stated whether or not the goal had been met or not met as required under GPRA, then discuss the degree of achievement FEMA made under this goal. In addition, FEMA did not report the results achieved for some of the performance measures. For example, FEMA's goal to increase public awareness of fire hazards has two performance measures: (1) increase the usage of public education materials by 4 percent and (2) increase the number of hotels and motels with automatic sprinkler and smoke detection systems by 20 percent. FEMA provided performance data for the first measure but did not provide any performance data or information on the second measure. Also, FEMA still needs to provide better information on significant limitations to the data used to measure performance. Although the Director of FEMA acknowledges there are limitations with some of FEMA's data in the fiscal year 2000 performance report, the report did not always discuss where data limitations exist and how they affect the accuracy, completeness, and availability of performance measurement data under this outcome. FEMA's fiscal year 2002 performance plan shows that the agency has made some improvements in its strategies by streamlining a number of its mitigation goals into one outcome-oriented goal that will support the development of disaster resistance in a number of communities. FEMA reports that this consolidation is in recognition that several fiscal year 2000 goals were better identified as means and strategies to the revised goal. FEMA's strategies for achieving progress towards this key outcome include conducting post-disaster economic impact studies and coordinating with other federal departments and agencies via Memorandums of Understanding to identify ways existing programs and new initiatives can support national mitigation goals. In the area of strategic human capital management, FEMA discusses the skills needed to achieve performance goals under this outcome in its fiscal year 2002 performance plan. In the area of information technology, FEMA plans to evaluate and apply emerging technologies that enable more cost- effective modeling and mapping. For the selected key outcomes, this section describes major improvements or remaining weaknesses in FEMA's (1) fiscal year 2000 performance report in comparison with its fiscal year 1999 report and (2) fiscal year 2002 performance plan in comparison with its fiscal year 2001 plan. It also discusses the degree to which the agency's fiscal year 2000 report and fiscal year 2002 plan address concerns and recommendations made by the Congress, GAO, FEMA's Inspector General, us and others. FEMA made a number of improvements in its fiscal year 2000 performance report, such as using more trend data and providing explanations about variations in its performance goals but omitted a key piece of information that highlighted the degree of progress it made towards achieving its performance goals. However, unlike FEMA's fiscal year 1999 performance report which clearly stated the extent to which goals were met, FEMA's fiscal year 2000 performance report did not include a quantitative assessment of the progress the agency made in achieving each goal, which makes it difficult, in some cases, to determine whether the agency achieved its goal. FEMA's fiscal year 2000 performance report used more data to illustrate progress towards achieving goals. The report made frequent use of graphics to illustrate trends--which is helpful to the reader. For example, FEMA has an annual performance goal to provide a safe and secure environment for FEMA and its emergency management partners at disaster facilities. One measure is to provide trained safety and security staff for 80 percent of major declared disasters. FEMA illustrates its achievement with a graph of security staff deployments to major disasters for fiscal years 1998 through 2000. FEMA's fiscal year 2000 performance report also showed improvement in providing explanations for its inability to meet some of its performance goals and measures. For example, FEMA reported that it did not meet its goal to increase the number of policies in the NFIP but cited several factors, such as lack of flood activity and drought conditions across many parts of the United States, that affected overall policy growth. In addition, when applicable, FEMA identified whether its goal changed in the next fiscal year. In some cases, it is difficult to determine the degree of progress FEMA made towards achieving goals under its three outcomes because FEMA did not provide a quantitative assessment of progress. For example, the goal on evaluating the effectiveness of mitigation planning processes and related initiatives does not explicitly state whether the goal was met. The narrative under "Achievement" states fiscal year 2000 efforts have resulted in substantial advancement in mitigation planning. The text goes on to discuss a variety of mitigation planning activities but does not clearly state whether the goal has been achieved. Both GPRA and the Office of Management and Budget (OMB) Circular A-11's guidance for developing performance plans and reports require that agencies provide an indication of whether a goal is or is not met. FEMA made some improvements to its fiscal year 2002 performance plan as compared to its fiscal year 2001 performance plan. FEMA continued to streamline its performance goals and make them more outcome-oriented. FEMA also provided more descriptive details on the background of the goals and means and strategies for achieving them; more graphics and trend data on annual outcomes; and added goals to reflect FEMA's commitment to the administration's reform goals. FEMA's fiscal year 2002 performance plan also shows improvement in providing details about the procedures for verification and validation for most of the performance goals. However, the agency did not generally provide information on significant limitations that may potentially affect the credibility of the data used to measure performance. As mentioned previously, FEMA continued its streamlining by consolidating a number of goals. As a result, FEMA has 19 performance goals in its fiscal year 2002 performance plan compared with 30 in its fiscal year 2001 performance plan. The fiscal year 2002 performance plan's goals have some measures that were performance goals in the fiscal year 2001 plan. For example, FEMA consolidated a number of mitigation-related goals to form a more outcome-oriented goal to support the development of disaster resistance in communities and states. FEMA's fiscal year 2002 performance plan also has more descriptive details for each of the outcomes. For example, FEMA outlines a number of mitigation tools, education and outreach activities, and partnership agreements it will pursue to support the development of disaster resistance in communities and states. FEMA plans to coordinate with other federal departments and agencies to identify ways in which their existing programs and new initiatives can support national mitigation goals. FEMA also plans to discuss specific actions for coordinating with other agencies to accomplish these goals. FEMA makes use of trend data, for example, to illustrate the costs FEMA avoids when purchasing new equipment by recycling previously used equipment in support of its goals to operate a logistics program that provides timely and cost effective resources in support of emergency management missions. FEMA added six goals to its fiscal year 2002 performance plan in support of its commitment to the administration's reform goals issued in February 2001 through OMB. Five of the six reform goals are part of the outcome to provide timely responses to disaster aid requests. Of these five goals, one has elements of strategic human capital management--determine management levels for streamlining purposes. The remaining four goals include reducing erroneous payments, expanding on-line procurement, and making greater use of performance-based contracts. The sixth goal-- related to minimizing human suffering and property losses after natural disasters--calls for the development of a disaster declaration process that better defines federal and state responsibilities for providing disaster assistance. Three of the six goals have quantitative measures to measure success, but FEMA does not provide any details on its strategies for achieving the goals. FEMA has addressed weaknesses that we identified in the 1999 plan by providing additional descriptions of the procedures for verification and validation for most performance goals. For example, FEMA plans to use additional verification and validation strategies to measure progress in supporting the reduction of loss of life from fire-related incidents. FEMA's fiscal year 2002 performance plan states it will use reports from several sources, including the National Fire Data Center, the National Center for Health Statistics, and the Consumer Product Safety Commission to compare data on fire-related deaths, injuries, and losses. However, FEMA still needs to do a better job of identifying limitations that potentially affect the credibility of the data used to measure performance and identifying external factors that may affect performance data. For example, FEMA has a goal to improve response operations for which one measure requires FEMA to act on requests for water, food, and shelter within 12 hours after a presidential disaster declaration. FEMA reports the goal's intent is to coordinate through partnerships with other federal agencies, states, and local governments and private and voluntary organizations for initial provision of these basic needs. The difficulties inherent in working with so many other agencies and organizations are not acknowledged, although they may have an effect on FEMA's ability to meet this performance goal. We have identified two governmentwide high-risk areas: strategic human capital management and information security. We found that FEMA's performance plan had goals and measures related to human capital, but the agency's performance report did not explain its progress in resolving human capital challenges except that progress had been made in improving Disaster Field Office operations. We also found that FEMA's fiscal year 2000 performance report discusses information security activities such as the interception of major viruses and strengthening its Internet firewall policies, but the fiscal year 2002 performance plan had no goals and measures directly related to information security. While FEMA's fiscal year 2002 performance plan has no goals and measures directly related to information security, it does have a performance measure indirectly related to information technology that is associated with its customer satisfaction goal. FEMA has a two-part performance measure that calls for (1) delivering accessible and standardized information technology services at 98-percent availability with no undetected virus attacks and (2) resolving 80 percent of help desk trouble issues on the first call. In its fiscal year 2000 performance report, FEMA reported it had established a Critical Infrastructure Assurance Officer position and an Information Assurance Branch and was taking actions to protect and strengthen its Intranet/Internet assets. FEMA also reported that it had intercepted major viruses, conducted network scan and security audits, and implemented Intranet security measures. However, as part of an audit of FEMA's fiscal year 2000 financial statements, an independent auditor reported a material weakness in computer-based controls over FEMA's automated financial information systems. In addition, we identified three other major management challenges facing FEMA. In our January 2001 Presidential and Congressional Transition effort, we identified three management challenges--determining the cost effectiveness of mitigation efforts, reducing the cost of disaster assistance, and improving the financial condition of the NFIP. For these three major management challenges, FEMA's performance plan had 19 goals or measures that were directly related to these challenges. Appendix I provides detailed information on how FEMA addressed these challenges, high-risk areas that we identified, and the challenges identified by FEMA's Office of Inspector General. As agreed, our evaluation was generally based on the requirements of GPRA; the Reports Consolidation Act of 2000; guidance to agencies from OMB for developing performance plans and reports (OMB Circular A-11, part 2); previous reports and evaluations by us and others; our knowledge of FEMA's operations and programs; our identification of best practices concerning performance planning and reporting; and our observations of FEMA's other GPRA-related efforts. We also discussed our review with agency officials and with FEMA's Office of Inspector General. The agency outcomes that were used as the basis for our review were identified by the Ranking Minority Member of the Senate Governmental Affairs Committee as important mission areas for the agency and generally reflect the outcomes for all of FEMA's programs or activities. The major management challenges confronting FEMA, including the governmentwide high-risk areas of strategic human capital management and information security, were identified by us in our January 2001 Performance and Accountability Series and High-Risk Update or in our January 2001 Presidential and Congressional Transition effort. The management challenges identified by FEMA's OIG were included in a December 2000 letter from the OIG to the Director. We did not independently verify the information contained in the performance report and plan, although we did draw from some of our other work in assessing the validity, reliability, and timeliness of FEMA's performance data. We conducted our review from April 2001 through June 2001 in accordance with generally accepted government auditing standards. We provided a draft of this report to FEMA for its review and comment. FEMA chose to meet with us to provide oral comments on the draft report, and we met with FEMA's GPRA Manager of the Administration and Resource Planning Directorate on June 28, 2001, to discuss these comments. While the FEMA official agreed with the report, she provided suggested changes that we have included in this final report. The suggested changes that we incorporated in this report include (1) adding clarifying language that FEMA did not "fully meet" five goals related to the outcome to minimize human suffering and property losses to recognize the progress FEMA had made, (2) adding five goals outlined in FEMA's fiscal year 2002 performance plan related to the major management challenge to support terrorism preparedness coordination, and (3) adding additional information on progress made to resolve the major management challenge to improve the financial condition of the NFIP. FEMA also asked us to identify its key outcomes with FEMA's own numbering system in its performance plan in addition to the narrative description we provided to increase clarity in the discussion of agency outcomes. We did not include this change because it does not improve the clarity of the report. As arranged with your office, 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 appropriate congressional committees; the Director, Federal Emergency Management Agency; and the Director, Office of Management and Budget. Copies will also be made available to others upon request. If you or your staff have any questions, please call me at (202) 512-8984. Key contributors to this report were Mark Abraham, Julia Duquette, David Gill, Signora May, Robert Procaccini, and Carrie Watkins. The following table identifies the major management challenges confronting the Federal Emergency Management Agency (FEMA), including the governmentwide high-risk areas of strategic human capital management and information security. The first column lists the challenges identified by our office and/or FEMA's Office of Inspector General (OIG). The second column discusses the progress that has been made in resolving the challenges as discussed in FEMA's fiscal year 2000 performance report. The third column discusses the extent to which FEMA's fiscal year 2002 performance plan includes performance goals and measures to address the challenges that we and/or FEMA's OIG identified. FEMA's fiscal year 2000 performance report generally discussed the agency's progress in resolving its challenges. Of the agency's 9 major management challenges, its performance plan had (1) 38 goals or measures that were directly related to 7 challenges; (2) 3 goals or measures that were indirectly applicable to 2 challenges--one of these challenges also has goals or measures directly related to it; and (3) no goals or measures related to 1 challenge--financial management systems--but discussed strategies to address this challenge.
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This report discusses the Federal Emergency Management Agency's (FEMA) fiscal year 2000 performance report and fiscal year 2002 performance plan required by the Government Performance and Results Act of 1993. Although FEMA did not attain all of its goals for selected key outcomes in its fiscal year 2000 annual performance report, FEMA did make progress toward achieving the outcomes. FEMA's progress varied for each outcome, and the information presented in the performance report did not always provide enough information to allow an independent assessment of FEMA's progress in achieving the outcome. In general, FEMA's strategies for achieving these key outcomes appeared to be clear and reasonable. Although FEMA has more work to do on the outcomes GAO reviewed, its fiscal year 2000 performance report and fiscal year 2002 performance plan reflect continued improvement compared with the prior year's report and plan. FEMA has refined its performance goals and made them more outcome oriented. FEMA's fiscal year 2000 performance report and fiscal year 2002 performance plan generally addressed the management challenges GAO cited in earlier reports. The report and plan indicate that FEMA has taken some actions to address strategic human capital management and information security management challenges.
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DOD's efforts to build partner capacity include a broad range of security cooperation activities designed to build the defense capacity of foreign partners and allies. These security cooperation activities include military- to-military training, military exercises in cooperation with partner nations, knowledge sharing from subject matter experts, visits between senior military leaders, providing military equipment and supplies, and counternarcotics activities. Table 1 below describes selected partner capacity activities that DOD implements. The table illustrates the broad range of activities DOD engages in to build partner capacity and is not a comprehensive list. To perform its military missions around the world, DOD operates six unified military geographic combatant commands, which are responsible for a variety of functions including planning for and conducting missions that range from humanitarian assistance to combat operations.their planning responsibilities, geographic combatant commands develop theater campaign plans, which are multiyear plans that reflect the command's strategy to achieve certain end states within their areas of responsibility. These plans are the primary vehicle for designing, organizing, integrating, and executing security cooperation activities. A hierarchy of national and strategic guidance--including the National Security Strategy, the National Defense Strategy, the National Military Strategy, and the Guidance for Employment of the Force--informs the development of the combatant commands' theater campaign plans. The U.S. Special Operations Command is responsible for preparing special operations forces to carry out assigned missions and to plan and conduct special operations. Its mission is (1) to provide fully capable special operations forces to defend the United States and its interests and (2) to synchronize global operations against terrorist networks, including receiving, reviewing, coordinating, and prioritizing all DOD plans that support the global campaign against terror. notifies the combatant command and solicits proposals from the adjutants general of the state Guards. These proposals go through three levels of review within DOD, and the Chief of the National Guard Bureau forwards a recommended nominee to the combatant command and the partner country's U.S. embassy for final approval. I would like to now discuss the key practices we have identified that can aid DOD in more effectively managing its building partner capacity activities. Setting clear goals and defining terminology can help stakeholders understand what partnership capacity programs seek to accomplish and how they fit in with broad national security interests. In our reviews, we found that DOD's efforts to align goals with broader strategies and clarify terminology have varied. More specifically, in some reviews, we found that programs have aligned with broader strategies but DOD officials have experienced challenges in agreeing upon key terms. A positive example of strategic alignment involves our work on the Section 1206 program. In 2010, we reported that the Section 1206 activities have generally been in alignment with U.S. counterterrorism priorities while also addressing the partner countries' security interests. For example, in 2010, we found that DOD and the State Department (State) have used Section 1206 funds in Kazakhstan to address its priority of enhancing the country's counterterrorism capacity in the Caspian Sea, according to a U.S. embassy official. Additionally, in Pakistan, U.S. officials used Section 1206 funds to increase special operations capacity to support counterterrorism operations on its western border. Overall, from fiscal year 2006 to 2009, DOD and State allotted $932 million, or 95 percent, of all Section 1206 funding for counterterrorism-related equipment and training for partner countries and the remaining $47 million, or 5 percent, to build the capacity of five partner nations to participate in stability operations with the United States, such as providing spare parts for a country's ground vehicles. We also found that most Section 1206 counterterrorism resources had been directed to countries that the U.S. intelligence community has identified as priority countries for the counterterrorism effort. In another case we found that DOD is taking steps to address challenges faced by department officials in identifying and defining partner country assistance requirements. In a November 2012 report on the Defense Security Cooperation Agency's oversight of security cooperation and assistance programs, we found that since 2009, DOD has initiated reforms to improve the process of developing assistance requests that are intended to reduce implementation delays and improve the effectiveness of assistance to partner countries. new training courses and provided in-country advisors to help country officials identify short- and long-term requirements and strategies to meet those requirements. Second, DOD is reforming its own processes for defining requirements to improve long-term effectiveness of security cooperation programs and provide short-term solutions for meeting requirements using assistance requests. Third, DOD created a strategic planning support group to assist combatant commands with early identification and resolution of issues related to capability requirements and certain types of assistance requests. Fourth, the Defense Security Cooperation Agency established expeditionary teams whose purpose is to help the combatant commands, partner countries, and security cooperation officers identify and refine a partner country's requirements. GAO, Security Assistance: DOD's Ongoing Reforms Address Some Challenges, but Additional Information Is Needed to Further Enhance Program Management, GAO-13-84 (Washington, D.C.: November 16, 2012). the Task Force's original mission of countering violent extremism and its location at Camp Lemonnier remain important, particularly given terrorist threats in the region, we found some activities that may not be aligned with the command's mission. For example, at a training exercise for incoming Combined Joint Task Force-Horn of Africa officials, discussion was raised concerning Combined Joint Task Force-Horn of Africa's discovery of a dilapidated school in Kenya with a placard stating "donated by Combined Joint Task Force-Horn of Africa"; current staff had been unaware of the school's existence. While the activity may have promoted temporary benefits for the participants at the time it was built, its dilapidated state could have potentially promoted unfavorable views of the U.S. military within the partner nation and heightened concerns about how such activities fit into a framework of sustained security engagement. In another example, other embassy officials stated that the experiences of African navy and coast guard participants of Task Force maritime training sessions were dampened because participants had anticipated a permanent training program; instead, they received sporadic and short- term training, which may not promote U.S. Africa Command's mission of sustained or long-term security engagement. As a result, we recommended that U.S. Africa Command complete its evaluation of Combined Joint Task Force-Horn of Africa to determine whether the Task Force should be retained, and if so, whether changes are needed to its mission, structure, and resources to best support the command's mission. In a 2012 follow up on our recommendation, U.S. Africa Command stated that it had issued a plan to alter the Task Force's mission in accordance with the command's assessment of the current security environment. However, DOD has not identified how the Task Force is changing its structure and resources to support the new mission. Another review in 2012 found that DOD's lack of clarity surrounding the term "security force assistance" has created challenges for the combatant commands and military services in their efforts to plan for security force assistance as a distinct activity and enhance force capabilities. DOD intends to focus more on security force assistance activities and has directed the combatant commands to incorporate them into their long range plans and forecast requirements. In its instruction, DOD defined security force assistance as "DOD activities that contribute to unified action by the U.S. government to support the development of the capacity and capability of foreign security forces and their supporting institutions." Seeking to clarify this definition, DOD has further stated that security force assistance encompasses all DOD activities conducted under various programs to "organize, train, equip, rebuild/build and advise foreign security forces and their supporting institutions from the tactical to ministerial levels." Notwithstanding DOD's efforts to clarify its terminology, we found that the commands continue to lack a common understanding of the term and therefore some were unclear as to what additional actions were needed to meet DOD's intent. Officials we interviewed generally viewed security force assistance as a recharacterization of some of their existing security cooperation activities but had different interpretations of what types of activities should be considered as security force assistance. For example, within one command, officials considered nearly every activity with partner nations to be security force assistance. Another command considered only individual efforts to train partner nations as security force assistance and excluded other activities. Also, some command officials were not clear as to the intent of DOD's increased focus on security force assistance and whether any related adjustments should be made in their plans and scope or level of activities. As a result, they do not currently distinguish security force assistance from other security cooperation activities in their plans. The services are taking steps and investing resources to organize and train general purpose forces capable of conducting security force assistance based on current requirements. Without greater clarity in regard to future needs, the services are uncertain whether their current efforts are sufficient or whether additional capabilities will be required. Therefore, we recommended that DOD take steps to clarify its intent, including the level of effort that combatant commands should devote to security force assistance, and what additional actions are required by the commands to plan for and conduct security force assistance beyond their existing security cooperation efforts. These steps would also help inform the services' efforts to ensure that the capabilities that they are developing and thus the resources that they are investing are appropriate and adequate to meet future requirements. DOD generally agreed with our recommendations. In another instance, we found that DOD, State, and the U.S. Agency for International Development used different terminology to describe similar efforts during our review of DOD's humanitarian assistance efforts. For example, according to DOD officials, DOD uses the term "humanitarian assistance" to describe its strategically planned assistance. In contrast, the U.S. Agency for International Development and State refer to immediate, life-saving relief as "humanitarian assistance" but other capacity-building efforts as "development assistance." DOD officials explained that the terminology they use is derived from their legislative authority to perform humanitarian assistance, and DOD and U.S. Agency for International Development officials said that DOD uses "humanitarian assistance" rather than "development assistance" to ensure that the department is not perceived as performing development efforts that are outside of its legislatively-prescribed areas of responsibility. Further, DOD officials who are engaged in implementing some of DOD's humanitarian assistance efforts told us that differences in terminology can create challenges among agencies in understanding the scope and nature of each others' efforts. State officials said that differing terminology creates challenges to setting goals or objectives when planning with other agencies. As a result, we recommended and they agreed that DOD, State, and the U.S. Agency for International Development collaborate to develop guidance that provides a common understanding of the terminology used for their humanitarian and development assistance efforts. In a 2013 follow-up on our recommendation, DOD officials stated that they have continued to regularly engage officials at State and the U.S. Agency for International Development through working groups and briefings to minimize confusion over terminology, but did not identify any actions taken to develop guidance on the differences in the agencies' terminology. National strategies have emphasized the importance of building partner capacity using an interagency and whole of government approach, but mechanisms for coordinating activities and sharing information within DOD and across agencies have not been consistently implemented. Our work shows that DOD has taken steps to work with other agencies on activities, such as embedding representatives from their agencies at its combatant commands, but challenges remain. Agencies have different organizational structures, planning processes, and funding sources to plan for and conduct their building partner capacity efforts, which can hinder interagency collaboration. Given these organizational differences, coordination mechanisms that can facilitate interagency collaboration are needed to achieve integrated approaches to building partner capacity efforts. Our work has found that DOD has led or participated in coordinating activities and taken steps to share and integrate information for building partner capacity activities through some of the programs at its geographic combatant commands. For instance, U.S. Southern Command is a geographic combatant command that operates in the Americas and the Caribbean, areas primarily affected by challenges such as corruption, crime, transnational terrorism, natural disasters, and poverty that impact the security and stability of the region. In recent years, in an effort to better support security and stability in the region, U.S. Southern Command has sought to become a more interagency-oriented command, recognizing that many of the challenges it faces cross role and mission lines of various U.S. government agencies. In 2010, our review of U.S. Southern Command found that the command coordinated with interagency partners to develop mutually reinforcing strategies, including its 2009 Theater Campaign Plan and its 2020 Command Strategy. U.S. Southern Command coordinated the development of its 2009 Theater Campaign Plan, which lays out the command's theater priorities and guides its resource allocations, with over 10 U.S. government departments, agencies, and offices. In addition, for U.S. Southern Command's 2020 Command Strategy, which was in development in 2010, the command conducted a 3-day conference to gather perspectives from interagency partners on the command's assessment of challenges in the region and the command's strategic objectives. However, challenges with coordinating and information sharing with other agencies remain. In 2012, we reported that DOD, State, and the U.S. Agency for International Development recognize the need to improve information sharing for humanitarian assistance efforts and they have begun to take steps to address the challenge.assistance efforts include constructing schools, digging water wells, preparing communities for natural disasters, and helping local populations obtain medical care. Despite DOD's various collaborative efforts, challenges remain, particularly in project coordination and data management for information sharing. For example, officials said that the frequent rotation of personnel can lead to continuity challenges. Many officials also stated that coordination tends to be personality driven; when staff is replaced, relationships have to be rebuilt and progress can be lost. Further, while officials from DOD, State, and the U.S. Agency for International Development said that interagency personnel at the commands have helped improve coordination with DOD, the roles of these personnel may be limited. Some State and U.S. Agency for International Development officials explained that the role of their advisors assigned to DOD's combatant commands is limited. Specifically, they are able to report on what is happening in their respective areas of responsibility but cannot make decisions or speak on behalf of their home agencies. Moreover, DOD, State, and U.S. Agency for International Development do not have full visibility over each others' assistance efforts, which could result in a fragmented approach to U.S. assistance. There are several initiatives under way to improve information sharing; however, no framework, such as a common database, currently exists for the agencies to readily access information on each others' efforts. Therefore, we recommended that the State Department, U.S. Agency for International Development, and DOD develop a framework for sharing information to be used by all agencies in their assistance efforts, and indicated that this framework could involve selecting an existing initiative, such as the Foreign Assistance Dashboard. They agreed with our recommendation, and in 2012 DOD officials stated they submitted foreign assistance data on their peacetime humanitarian assistance programs and 12 other security programs to State for inclusion into the Foreign Assistance Dashboard. Further, State officials said they expect to have DOD's foreign assistance data available on the Dashboard by the end of fiscal year 2013. We have found that when agencies share information, managing and integrating information from multiple sources present challenges regarding data comparability. For instance, we found that the multiple data systems used to track National Guard State Partnership Program activities and funding are not interoperable and users apply varying methods and definitions to guide data inputs. In 2012, we reported that we could not provide complete information on the types and frequency of State Partnership Program activities because activity data are incomplete as well as inconsistent. According to National Guard Bureau officials, DOD's Guidance for Employment of the Force mandates that all security cooperation activities be tracked, including State Partnership Program activities, in management information system databases. However, the National Guard Bureau and the combatant commands maintain separate databases for tracking events and each entity independently tracks its activities in databases that are not interoperable. Further, the terminology used to identify activity types varied both across the combatant commands and between the combatant commands and the National Guard Bureau. As a result, we found it difficult to identify whether the data in different databases were describing the same activity or two separate activities. Therefore, we recommended and the department agreed that DOD, in coordination with the National Guard Bureau, the combatant commands, and the embassy country teams, develop guidance for all stakeholders that includes agreed-upon definitions for data fields and rules for maintaining data until the program's global data system is fully implemented. In December 2012, DOD issued an instruction requiring combatant commanders to submit annual records of State Partnership Program activities and defining specific data that must be included in these reports. While this instruction does not directly identify data field definitions, it could provide a basis for improving the department's efforts to track State Partnership Program activities and funding. In 2012, we found that DOD efforts to provide timely security assistance were affected by communication and coordination issues within DOD that in some cases delayed assistance and increased costs. DOD's Security Cooperation Organizations in foreign countries reported persistent difficulties obtaining information from the Defense Security Cooperation Agency and the implementing agencies of the military departments--the Army, Navy, and Air Force--on the status of security assistance equipment acquisitions and deliveries because information systems are difficult for them to access and contain limited information. DOD's existing delivery tracking system provides only limited data on the status of equipment deliveries because partner country agents and DOD agencies are not entering the needed data into the system. Without advance notice of deliveries, Security Cooperation Organization staff have been unable to ensure that addresses were correct and that partner countries were ready to receive and process deliveries, resulting in delays or increased costs. For example, security cooperation officers we met with reported instances where: equipment was held by the partner country's customs agency because the delivery lacked proper documentation or proper address labels, and additional customs fees were incurred while the security cooperation officers found the missing information; shipments were warehoused in a customs office for 2 years because they had no addresses or were improperly addressed; the Security Cooperation Organization discovered equipment at ports and airports that had arrived without advance notice. To improve the ability of combatant commands and Security Cooperation Organization officials to obtain information on the acquisition and delivery status of assistance agreements, we recommended that DOD establish procedures to help ensure that DOD agencies populate security assistance information systems with complete data. In response, the Defense Security Cooperation Agency stated that it would work with the military departments to ensure that information systems are populated with acquisition and delivery status data. The Defense Security Cooperation Agency is also developing a new electronic system, the Security Cooperation Enterprise Solution, to improve visibility and aggregate data from the separate computer management systems used by DOD's implementing agencies, but it is not expected to be fully implemented until 2020. Developing plans to sustain DOD's building partner capacity activities and establishing mechanisms to monitor programs and evaluate results can help ensure that these programs have long-term impact. Our work has shown that some building partner capacity activities may not endure because planning for sustainment has been a systemic challenge. In a 2009 memo to the Assistant to the President for National Security Affairs, the Secretary of Defense stated that sustaining the results of capacity- building has proven difficult because the lack of multi-year planning and funding authorities at the outset of security assistance efforts makes it difficult for the U.S. government and its partners to build or maintain effective collaborative relationships. Further, our work has also shown that DOD had not consistently defined performance measures, and reporting on progress and effectiveness of some building partner capacity activities has been limited to anecdotal information. One example of sustainment planning challenges came from our review of the Section 1206 program. In 2010, we reported that the long-term impact of some Section 1206 projects could be limited because U.S. agencies have not fully addressed how to sustain these projects. For example, we found that most participating countries have relatively low incomes and may be unwilling or unable to provide the necessary resources to sustain projects. According to project proposal instructions applicable at the time of our report, proposals must explain how projects will be sustained in future years. However, we found that only 26 percent of the 135 proposals we reviewed for fiscal years 2007-2009 projects explicitly addressed the recipient country's ability or willingness to bear sustainment costs. Moreover, only 1 of the 15 Security Assistance Officers we interviewed indicated that he believed his partner nation had the ability to sustain its Section 1206 projects independently. For example, the Security Assistance Officer in Mali noted that sustainment of the Section 1206 project to train and equip that country's light infantry units would be problematic if the country had to find its own funding. Our 2010 report also showed that DOD and State had conducted little monitoring and evaluation of the Section 1206 security assistance program. Specifically, DOD and State's reporting has generally consisted of anecdotal information and DOD officials told us that they had not consistently monitored these security assistance projects. Our review of 149 approved proposals for Section 1206 projects for fiscal years 2006 through 2009 showed that only 32 percent (48 proposals) defined measures of effectiveness or anticipated outcomes. In addition, only 25 percent (34) of 135 approved fiscal year 2007 through 2009 proposals we reviewed documented an intention to monitor results. We recommended that DOD and State develop and implement specific plans to monitor, evaluate, and report routinely on the results of such monitoring and evaluation for Section 1206 projects. DOD agreed with our recommendation and, in response, completed its first systematic assessments of Section 1206 projects implemented in 5 countries in 2012. As part of that effort, DOD also created the Section 1206 Assessment Handbook to be used for the future, annual assessment efforts. Officials we spoke to stated that these pilot assessments validated the assessment methodology, which will be used to evaluate all future potential recipients' capabilities prior to receipt of Section 1206 equipment, as well as to conduct evaluations of selected Section 1206 efforts following the implementation. In a separate review of U.S. Africa Command in 2010, we found that it is unclear whether all of the activities that U.S. Africa Command inherited or is planning fully align with its mission of sustained security engagement in Africa because the command was generally not measuring the long-term effects of its activities. met with while observing a command activity in Uganda told us that the command planned to produce an "after action" report after the activity, but they acknowledged that U.S. Africa Command needs to develop a method to perform longer-term assessments of activities. Command officials also stated they did not know whether projects such as reconstructing a school would have a sustainable effect on the community and State officials added that the command's efforts to support U.S. GAO, Defense Management: Improved Planning, Training, and Interagency Collaboration Could Strengthen DOD's Efforts in Africa, GAO-10-794 (Washington, D.C.: July 28, 2010). embassies by augmenting or broadening existing public-diplomacy efforts were not being assessed. While long-term evaluation can be difficult to achieve, particularly the ability to link an action to a desired effect, we noted it nonetheless remains important for the command to have some performance measures. Therefore, we recommended that U.S. Africa Command conduct long-term assessments of the full range of its activities to determine whether the activities are having their intended effects and supporting the Command's mission. In a 2012 follow up to our recommendation, the command stated that it has conducted nationwide polling and stakeholder interviews across several African countries to develop a baseline against which progress can be measured. For example, the command asked how participants viewed their nation's military and how they felt toward international cooperation in military training and peacekeeping in Africa. However, U.S. Africa Command still needs to take steps to develop metrics and indicators in order to conduct more thorough assessments. Until the long-term assessments of its activities are completed, U.S. Africa Command may have difficulty making successful future planning decisions and allocating resources to maximize its effect in Africa. More recently, in 2012, we found that because the National Guard's State Partnership Program did not have agreed-upon goals or metrics, it could not assess progress. National Guard Bureau officials acknowledged that once they update program goals and objectives, they will need to develop metrics to measure results of the program. The officials are working with experts from other organizations and have begun to develop metrics for the program. However, they indicated that due to the relationship-building nature of the program, it is difficult to establish appropriate metrics that capture the effects of the program. We recommended that the department complete and implement the program's comprehensive oversight framework by using the goals, objectives, and metrics currently being developed. In the December 2012 DOD instruction, the department directed the alignment of State Partnership Program activities with combatant commanders' theater security cooperation program objectives, as well as with the objectives of the U.S. embassies and national security objectives of the partner nations. This is a positive step; however, goals, objectives, or metrics specific to the State Partnership Program still need to be completed. Such goals, objectives, and metrics would form the foundation for a comprehensive oversight framework and, until they are put into place, DOD cannot fully assess whether the program is an effective and efficient use of resources. In addition, our work on counternarcotics efforts has found challenges with the reliability of performance data. For example, our 2012 review of the Andean countries found that although DOD is working to improve its counternarcotics performance measurement system, the department's Inspector General has been unable to attest to the reliability of the performance data from 2007 through 2011, as required by the Office of National Drug Control Policy. We previously reported that DOD had established performance measures for its counternarcotics activities, such as percentage of tasked counternarcotics missions flown, the number of partner nation law enforcement agencies engaged, and the number of military working dog teams trained. However, during our 2012 review, we found that the DOD Inspector General cited a number of reasons for not attesting to the reliability of DOD's performance data. One example was that DOD's 2008 performance report did not include 4 consecutive years of data required for tracking improvements. Lacking these attestations from DOD, the Office of National Drug Control Policy has minimal assurance of the reliability of DOD's reporting on its estimated $956 million in counternarcotics assistance for those years. Without reliable information, the Office of National Drug Control Policy may be limited in its ability to carry out its responsibility for coordinating and overseeing implementation of the policies, goals, objectives, and priorities established by the national drug control program and to report to Congress on counternarcotics assistance provided by agencies under its purview. As a result, we recommended that the department submit its performance summary report along with the Inspector General's attestations of the reliability of the information reported to the National Drug Control Policy office. DOD agreed with our recommendation but did not detail how it would address this recommendation. In conclusion, DOD's building partner capacity efforts encompass a broad range of security cooperation activities that focus on emphasizing existing alliances and expanding cooperation with emerging partners to ensure collective capability and capacity for securing common interests, as well as sharing the costs and responsibilities of global leadership. Given the recent emphasis on these efforts, it is vital to manage them effectively and efficiently. By setting clear goals and defining terminology, coordinating activities and sharing information, and sustaining efforts and evaluating progress, DOD can avoid confusion about the activities and help to assess their long-term impact. Effective management of current and future building partner capacity efforts will help DOD steward its resources to achieve its strategic priorities and provide Congress with the information it needs as it evaluates current programs and considers future funding levels. Moreover, effective management of these efforts will likely better position the U.S. government to respond to changing conditions and future uncertainties around the world. Chairman McKeon, Ranking Member Smith, this concludes my prepared remarks. I would be pleased to respond to any questions you may have. For future information regarding this statement, please contact Janet A. St. Laurent at (202) 512-4300 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs can be found on the last page of this statement. Key contributors to this statement are listed in appendix II. Security Assistance: DOD's Ongoing Reforms Address Some Challenges, but Additional Information Is Needed to Further Enhance Program Management. GAO-13-84. Washington, D.C.: November 16, 2012. Counternarcotics Assistance: U.S. Agencies Have Allotted Billions in Andean Countries, but DOD Should Improve Its Reporting of Results. GAO-12-824. Washington, D.C.: July 10, 2012. State Partnership Program: Improved Oversight, Guidance, and Training Needed for National Guard's Efforts with Foreign Partners. GAO-12-548. Washington, D.C.: May 15, 2012. Security Force Assistance: Additional Actions Needed to Guide Geographic Combatant Command and Service Efforts. GAO-12-556. Washington, D.C.: May 10, 2012. Humanitarian and Development Assistance: Project Evaluations and Better Information Sharing Needed to Manage the Military's Efforts. GAO-12-359. Washington, D.C.: February 8, 2012. 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. Defense Management: Improved Planning, Training, and Interagency Collaboration Could Strengthen DOD's Efforts in Africa. GAO-10-794. Washington, D.C.: July 28, 2010. Drug Control: DOD Needs to Improve Its Performance Measurement System to Better Manage and Oversee Its Counternarcotics Activities. GAO-10-835. Washington, D.C.: July 21, 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. International Security: DOD and State Need to Improve Sustainment Planning and Monitoring and Evaluation for Section 1206 and 1207 Assistance Programs. GAO-10-431. Washington, D.C.: April 15, 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. Janet A. St. Laurent, (202) 512-4300 or [email protected]. In addition to the contact name above, Charles Michael Johnson Jr., Director; John Pendleton, Director; Sharon Pickup, Director; Marie Mak, Assistant Director; James Michels, Assistant Director; Jennifer Andreone, Kathryn Bolduc, Katherine Forsyth, Simon Hirschfeld, Meghan Perez, Erika Prochaska, Steven Putansu, Jodie Sandel, Michael Simon, John Van Schaik, Erik Wilkins-McKee, and Nicole Willems 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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DOD has increasingly focused on security cooperation activities designed to build the defense capacity of foreign partners and allies, furthering the U.S. objective of securing international peace and cooperation. Both the 2011 National Military Strategy of the United States of America and the 2011 National Strategy for Counterterrorism identify building partner capacity as a worldwide priority. As DOD continues to emphasize building partner capacity, the need for efficient and effective coordination with foreign partners and within the U.S. government has become more important, in part due to fiscal challenges, which can be exacerbated by overlapping or ineffective efforts. This testimony highlights opportunities to strengthen DOD's management of its building partner capacity efforts by focusing on three key practices: (1) setting clear goals and defining terminology, (2) coordinating activities and sharing information, and (3) sustaining efforts and evaluating progress. It is based on GAO's body of work on building partner capacity from April 2010 through November 2012. GAO's recent work has identified key practices that would enhance the Department of Defense's (DOD) management of building partner capacity efforts. Such efforts include a range of security cooperation activities such as military exercises with partner nations and counternarcotics activities. In GAO's reviews of these activities, GAO found that DOD has demonstrated some of these key practices, but opportunities for improvement remain. Setting clear goals and defining terminology. Setting clear goals and defining terminology can help stakeholders understand what partnership capacity programs seek to accomplish and how they fit in with broad national security interests. GAO has reported that DOD activities to build the capacity of foreign military forces though the Global Train and Equip program have generally been in alignment with U.S. counterterrorism priorities while also addressing partner countries' security interests. However, in a 2012 review of security force assistance, GAO found that the lack of a common understanding of this term within DOD resulted in different interpretations of what types of activities are included and presented challenges in planning activities and forecasting needs for force capabilities. GAO recommended DOD take steps to clarify its intent and then determine what additional actions are required to plan for and conduct security force assistance. Coordinating activities and sharing information. Coordination mechanisms that facilitate communication within DOD and across agencies are needed to achieve integrated approaches to building partner capacity efforts. In 2012, GAO found that stakeholders had difficulties in obtaining status information on security assistance acquisitions and deliveries because information systems are difficult to access and contain limited information. The department is developing a new information system to address this gap but it will not be fully implemented until 2020. Further, GAO's review of the National Guard State Partnership Program in 2012 found that data systems used by the combatant commands and the National Guard Bureau were not interoperable and users applied varying methods and definitions to track the program's activities and funding. As a result, the data on types and frequency of activities were incomplete and inconsistent. GAO recommended that DOD develop guidance including agreed-upon definitions for data fields. Sustaining efforts and evaluating progress. Developing plans to sustain projects and establishing mechanisms to evaluate them can help ensure that programs have long-term impact. In 2010, GAO reported that the long-term impact of some projects to train and equip foreign militaries could be limited because U.S. agencies have not fully addressed their sustainment. Specifically, only 26 percent of the 135 proposals for fiscal years 2007-2009 projects explicitly addressed the recipient country's ability or willingness to bear sustainment costs. In a review on counternarcotics efforts in 2012, GAO found that DOD is working to improve its counternarcotics performance measurement system, but the department has been unable to attest to the reliability of the performance data for several countries from 2007 through 2011. GAO recommended that DOD submit its performance summary report with the reliability attestation to the National Drug Control Policy office. GAO has made numerous recommendations to align goals with broader strategies and to clarify terminology; develop mechanisms to better coordinate activities and share information; and develop and implement plans and metrics to sustain and evaluate progress. DOD has generally concurred with GAO's recommendations and has taken some actions, but work remains to fully implement GAO's recommendations.
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Under the Housing Act of 1937, as amended, HUD contracts with housing authorities to provide subsidies and grants for operating expenses and modernizing deteriorated housing. In return, housing authorities agree to provide residents with decent, safe, and sanitary housing. These agreements are formalized in a contract between HUD and the housing authority stipulating that housing authorities will operate in a manner that promotes serviceability, efficiency, economy, and stability. In New Orleans, as in many other cities, the mayor appoints a governing body or board of commissioners which, in turn, hires the local housing authority's executive director and may approve other top management positions. The board provides for policy guidance, while the executive director is responsible for the day-to-day operations. Both are responsible for complying with the terms of the contract with HUD. In 1979, HUD began tracking housing authorities' performance and providing corrective action for those that performed poorly. HUD's current monitoring system--the Public Housing Management Assessment Program (PHMAP)--evaluates 12 performance indicators, calculates a numerical score for each, and relates the total score to a 100-point scale. Poor performers under PHMAP are classified as troubled, and under current law, HUD must negotiate with them a Memorandum of Agreement that includes performance targets for improving the poor performers' operations. This process establishes a joint responsibility between HUD and the housing authority for improving the performance. However, if HUD determines that a troubled authority cannot, within a reasonable time and with reasonable resources, improve its operations, make effective use of federal funds, and adequately house its residents, HUD can declare the authority in breach of its contract. This legal step allows HUD either to take direct control of the housing authority's operations and assets or to appoint (or petition a court to appoint) a receiver to control and manage the housing authority. HUD's field offices and Office of Distressed and Troubled Housing Recovery (ODTHR) use the results from PHMAP to oversee and assist housing authorities. HUD's field offices oversee troubled housing authorities' performance, ensure that these authorities comply with such agreements as the Memorandum of Agreement (MOA), and provide them with technical assistance. ODTHR, which was formed in 1994 to focus resources on assisting large troubled housing authorities and to administer a special grant program aimed at rehabilitating distressed properties, can marshal resources from city governments, HUD, and housing authorities to improve the troubled authorities' operations. During 1995, ODTHR provided for the funding to support and temporarily place experienced public housing officials and independent consultants in the Atlanta, Chicago, Detroit, New Orleans, and Puerto Rico housing authorities. On the basis of its size and need, HANO received over $245 million in federal modernization grants and other subsidies during 1992 through 1994. HANO has been designated as troubled since 1979 and is currently ranked by HUD as the worst performing large housing authority. As a result, HANO operated under an MOA which HUD first signed in 1988; a special partnership agreement with the Secretary since September 1994; and, as of February 8, 1996, a new cooperative agreement with the Secretary to help it improve its housing conditions. (See app. I for an abbreviated time line for significant events at HANO over the past 17 years.) In the future, troubled housing authorities may not have as many years as HANO has had to improve their performance before the Secretary of HUD is legally compelled to declare the housing authority in breach of its contract. HUD and both houses of the Congress have proposed reform legislation for public housing that includes the stringent treatment of long-troubled housing authorities. In legislation proposed by HUD and in a bill passed by the Senate, a 1-year period is proposed as the grace period within which a housing authority would be allowed to demonstrate improvement or suffer the mandatory declaration of a breach of contract. A pending House bill contains similar language but limits the grace period to 180 days. All three of these proposals are consistent with a September 1993 report of the National Performance Review that recommended that "HUD should make a hard-hitting, targeted effort to resolve the severe difficulties of those few public housing agencies identified as problem." Over the past 12 years, the problems at HANO have been well documented in numerous audit reports by HUD's Office of the Inspector General (OIG), HUD's Office of Public and Indian Housing, and private consultants. The audit reports show a continuous decline in HANO's management performance and the condition of HANO's housing stock. Among the many significant problems at HANO, the reports consistently cite the lack of an effective maintenance program and HANO's inability to operate a program to carry out major modernization and rehabilitation projects. The OIG's first review of HANO, released in December 1983, detailed four operational and managerial deficiencies related to poor maintenance of the housing stock. These problems included the deteriorating condition of two housing developments, an ineffective maintenance operation, excessive utility costs, and poor tenant selection and eviction procedures. Five years later, a management review of HANO--initiated at HUD's headquarters and implemented by an interdisciplinary team of 31 people from HUD's headquarters and field offices--reported 241 findings of deficiencies that reiterated many of the same problems noted in the OIG's 1983 report. When the OIG auditors from HUD returned to HANO in 1994, they found that the housing authority and its management contractor were still not effectively administering the maintenance program and that, as a result, HANO had breached its contract with HUD. For example, the OIG's June 1994 audit report stated that all 150 housing units randomly selected for inspection failed to meet HUD's housing quality standards in one or more areas. Under these areas were structural problems such as missing ceilings and holes in walls, loose and peeling paint, steady leaks from faucets, and roach infestations. In addition, the report determined that HANO still had not established a preventive maintenance program and that no maintenance improvements had been realized at HANO in the past 10 years. The report concluded that a lack of preventive maintenance resulted in the continued deterioration of the buildings and HANO's inability to "turn around" vacant units in fewer than 140 calendar days. In addition, the OIG estimated that HANO had lost over $3 million in potential rental income because vacant units were not occupied in a timely manner. In addition to day-to-day maintenance deficiencies, the OIG's 1994 audit found that HANO and the private firm that was hired in accordance with the MOA to manage HANO did not follow certain federal regulations and standards in contracting for modernization work on HANO's properties. For example, the private manager approved the construction of private balconies, which are prohibited in public housing, and the disposal of valuable steel railings without recouping the salvage value of at least $50,000. In its report, the OIG recommended that HUD recover nearly $5 million in federal payments. In addition, the OIG discovered HANO modernization projects whose costs exceeded the upper limits established by HUD. Moreover, HANO had failed to follow proper procurement procedures, such as obtaining competitive bids for major expenditures and price quotes for small purchases. HANO also did not expend its modernization funding--between $20 million and $30 million per year--in a timely manner or within about 3 years after HUD obligated the funds to the housing authority. On the basis of these findings, the OIG concluded that HANO was incapable of carrying out an effective modernization program. Since the OIG's report, HANO's ability to use its modernization funding efficiently has not improved. HANO currently has nearly $200 million in unexpended funds. Furthermore, an independent consultant hired by HUD to review HANO's performance cited ineffective maintenance and modernization programs as serious problems. The consultant's review shows that HANO's PHMAP score dropped from 47 in 1993 to 26 in 1994, despite the presence of a property management contractor hired to operate HANO as specified in the housing authority's MOA with HUD. According to the Director of HUD's Office of Troubled Housing, the 1994 score rose marginally in 1995 to 29. As highlighted earlier, HANO's board had a long history of problems in governing HANO. Also, the continued decline in HANO's overall performance suggests that HUD's New Orleans Field Office has not fulfilled its responsibility to provide for the effective oversight of HANO. Although the field office, together with headquarters staff, has tried various options available under the 1937 act to intervene in HANO's management, little has improved. Over the years, HANO's board of commissioners has tended to interfere with HANO's day-to-day operations. In response, HUD exercised sanctions against the board, often to no avail. Thus, when the Mayor appointed HANO's most recent seven-member board--four of whom were HANO residents--in May 1994, HUD staff conducted a 1.5-day briefing session for the board at the Mayor's request. The topics covered during the training included a review of the 1937 Housing Act, HANO's contract with HUD, HANO's by-laws, the provisions of the MOA, and the state's enabling legislation. In addition, the briefing session detailed the board's responsibility to develop policies and procedures to ensure that HANO operates efficiently and economically and provides for housing in accordance with the existing laws and regulations. Despite the emphasis on the board's expected role, HUD's headquarters and field office staff began in June 1994 to document inappropriate actions by the board. For example, the board overstepped its bounds by directing HANO's private manager to hire and fire staff, stop payment on contracts, and disregard proper procurement procedures. In addition, the minutes of board meetings documented that board members, contrary to their governance role, directed HANO staff to move tenants from one housing unit to another as well as into larger units without regard to HANO's waiting list for potential tenants. HUD's OIG recently documented additional inappropriate involvement by the current board in HANO's contracting activities. The OIG concluded that because of the board's inappropriate involvement in modernization activities, including canceling several contracts, HANO is susceptible to multimillion-dollar lawsuits, and partially completed units have remained unoccupied and exposed to the weather for an extended period. The OIG also concluded that current board members (1) directed the preferential placement of individuals into subsidized units ahead of hundreds of people on the waiting lists or (2) were involved in this activity. During the confirmatory review of HANO's 1994 PHMAP score, an independent consultant who specializes in public housing management and assessment and was hired by HUD also cited the board's intrusion into HANO's day-to-day operations, hiring, and contracting. The review concluded that this behavior impeded HANO's recovery and that the board was preventing effective performance by HANO staff. In August 1995, HUD sent an official to HANO to help revise the housing authority's by-laws to (1) better define the board's policy and monitoring role and (2) include a clause describing the ethical conduct expected of the board. According to the OIG, the board had not adopted the revisions as of December 8, 1995. Finally, the board had not ensured that HANO has sound policies and procedures for improving its management operations and housing stock, as illustrated by the following example. One of the board's first actions was to commission, with HUD approval, a strategic plan for HANO that (1) would address its operational deficiencies and (2) develop a plan for improving physical and other living conditions in the housing developments. HUD's field office believed that this strategic plan also could provide the information needed to resolve many of the recommendations in the OIG's June 1994 audit report on HANO. The final plan, as accepted by the board from the contractor, was a large document costing approximately $490,000. But our review showed that the plan did not contain the necessary policies and procedures contracted for and that we believe would help improve HANO's day-to-day maintenance operations and the long-term condition of the housing units. Similarly, the independent consultant's confirmatory review stated that although the plan was a good guide for HANO's future, it did not address HANO's operational deficiencies. HUD's field offices are responsible for enforcing compliance with the federal housing regulations, monitoring the performance of all housing authorities, and providing housing authorities with technical assistance. For troubled authorities, the field offices' additional responsibilities include administering the MOA and conducting on-site reviews of the housing units. However, on the basis of HANO's long-standing problems--as documented in the OIG's audit reports, random inspections of housing units, and the consultant's confirmatory review of HANO's performance assessment--we believe that HUD's oversight of HANO has contributed little to improving HANO's performance. In addition, even as the OIG's 1994 report called for specific corrective actions by HANO and close monitoring of HANO by HUD, the OIG concluded that this "course of action had failed in the past." This judgment suggests to us that HUD's field office in New Orleans has not provided for the necessary and effective oversight of HANO. To deal with the problems identified by the numerous audit reports and the poor performance results as measured by HUD's Public Housing Management Assessment Program, HUD has unsuccessfully attempted on several occasions to improve HANO's management, including a September 1994 partnership between the Secretary of HUD and the then-Mayor of New Orleans. The partnership's purposes were to avoid a federal takeover of HANO, hold the Mayor and the New Orleans City Council accountable for progress, and ultimately solve New Orleans' public housing crisis and improve the residents' housing conditions. However, a consultant's estimate of HANO's 1995 PHMAP score and a recent housing quality inspection by HUD show that HANO has not fulfilled its obligations under the 1994 partnership nor made significant management and operational improvements. For these reasons, HUD declared HANO to be in breach of its contract and entered into a second agreement with the Mayor on February 8, 1996. Over the last decade, HUD has tried many approaches to find a satisfactory means of improving HANO's performance, including the following: In 1984, HUD withheld HANO's annual share (approximately $10 million) of HUD's appropriation for modernization grants because no improvement had occurred in HANO's performance. HUD believed that withholding funding would motivate HANO's management to improve its performance. Although HANO remained on HUD's troubled list, HUD reinstated modernization funding the next year. After the 1988 management review revealed 241 findings of deficiencies, HUD required HANO's board of commissioners to enter into an MOA that placed HANO under a private manager until HUD determined that HANO was no longer troubled. As discussed earlier, the private management of HANO did not prove effective and resulted in few lasting improvements over its 5-year duration. In 1991, HUD attempted to prevent HANO's board of commissioners from interfering with the private manager's activities by issuing a "limited denial of participation" against HANO's board of commissioners. HUD rescinded the denial a year later when the board agreed to resign and the Mayor appointed a new board. In March 1993, however, under pressure from HUD, HANO's board chairman resigned because of allegations that he interfered with and impeded the private manager's effort to improve HANO. The 1994 OIG report stated that under the private manager's tenure, little improvement had occurred in the condition of HANO's properties or its management capacity. The OIG concluded that HANO had breached its contract with HUD and that HUD should declare the breach and take control of the housing authority's properties and assets. In response to the report and to avoid declaring a breach, the Secretary of HUD entered into a partnership agreement with the Mayor and the city, which the Secretary confirmed in a letter of August 1, 1994, to the Mayor. As part of the partnership, the Secretary and the Mayor of New Orleans agreed to form an executive council that would provide policy guidance for HANO's board, maintain the private manager on a month-to-month basis for continuity in critical operations until a permanent executive director could be hired, and develop a 6-month strategic plan. However, because the board allowed the private management contract to expire and had not hired necessary top managers at HANO, HUD subsequently revised the partnership agreement with the Mayor to include a transitional management structure. The following are highlights of the events that occurred under the partnership and transitional management: The transitional management team, formed by ODTHR and staff from the city, remained at HANO from October 1, 1994, through April 4, 1995. The team comprised more than 15 individuals--both full- and part-time--from a variety of sources, including well-performing housing authorities, HUD offices, and city offices. HUD provided over $220,000 to pay for the salaries and living expenses of the transitional staff loaned from other housing authorities and to cover the expenses of HUD staff. In addition, HANO provided over $260,000 to compensate nine city employees. The transitional management team stabilized, to some extent, HANO's critical operations by addressing two-thirds of the authority's 21,000 outstanding work orders for routine repairs and implementing standard contracting procedures for HANO. The team did not, however, address HANO's vacancy rate in this effort. The partnership agreement also required HANO to develop the 6-month strategic plan within 45 days. However, the board did not approve the strategic plan--which would become the foundation of a new MOA--for submittal to HUD until November 1995, about 10 months later. The partnership agreement also provided for HANO to hire a permanent executive director within 90 days. HUD helped HANO to obtain waivers from Louisiana's Civil Service System to hire the executive director and upper-level managers at salaries higher than the system allowed. However, the new executive director, who was formerly a member of HANO's transitional management team and has significant experience in managing public housing, was not hired until April 1995, about 4 months later than agreed. As part of a routine confirmation of HANO's 1994 PHMAP score, an independent private consultant estimated that HANO's performance scores for 1995 would be low. HUD officials also estimated that the score would be low--about 29--and now note that their estimate is being confirmed. Thus, according to these estimates, HANO made little improvement on PHMAP indicators from September 1994--when the partnership was first initiated--to the time of the consultant's June 1995 confirmatory review. The confirmatory review found modernization to be one of HANO's most troubled areas and cited HANO's inability to spend backlogged funds and obtain quality work. Our review of HUD's records found that since the new board took control of HANO in May 1994, HUD's New Orleans field office has ordered HANO twice to take corrective actions for failing to submit contracts and a 5-year modernization plan for HUD's approval. A November 1995 inspection of housing quality by HUD's field office further substantiates the lack of improvement at HANO over the last year. The inspection found that 93 percent (70 out of 75) of the occupied units that were randomly selected from HANO's 10 developments failed HUD's quality standards for housing. The inspectors described the conditions as "deplorable, unsafe, and in many instances unfit for human habitation." The results of the inspection mirrored the earlier findings in the OIG's 1994 inspections of housing quality. Furthermore, the inspectors said that they found no visible indication that maintenance staff were deployed on-site, that they were responding to scheduled maintenance, or that recent maintenance work had been done in any of the units, even though many of the tenants reported broken space heaters and other problems that should have been addressed. In a December 4, 1995 memorandum, HUD's then-Deputy Assistant Secretary for Distressed and Troubled Housing Recovery advised the Secretary that HUD should take control of HANO and declared HANO to be in breach of its contract, if necessary. The memorandum stated that the actions by HANO's current board and the Mayor had been "too little, too late and fall far short of reversing HANO's decline in performance." In documenting his decision to declare HANO in breach of its contract, the Secretary said that multiple disputes, conflicts of interests, confrontations, and standoffs between the board and HANO staff had hindered critical decision-making for operations and improvements. The Secretary also noted that as of June 1995, unspent balances for operating subsidies and grants at HANO reached almost $200 million, or 82 percent of all funding provided for HANO under its public housing programs. On February 8, 1996, the Secretary of HUD declared HANO to be in breach of its contract and entered into a cooperative endeavor agreement with the Mayor of New Orleans for improving HANO's performance. The highlights of the agreement include the following: HANO's board of commissioners has been dissolved, and HUD's Acting Assistant Secretary of Public and Indian Housing will fulfill the duties of the board. HUD and the City of New Orleans will provide joint administrative oversight of HANO. HUD reserves its right under law to seek the appointment of a receiver for HANO if the requirements of the agreement are not accomplished. The general counsel of Tulane and Xavier Universities will act for HUD as an "executive monitor" of the agreement, subject to the Acting Assistant Secretary's oversight. HUD and the City of New Orleans agreed to a series of specific actions, which include developing and beginning to implement by May 1, 1996, a 24-month action plan to complete the tasks and strategies needed to (1) establish adequate maintenance of HANO's properties, (2) address quantifiable short- and long-term targets for PHMAP, (3) accomplish other necessary management improvements, and (4) specify reporting milestones. According to the Director of HUD's Office of Troubled Housing, the relationship between HUD's field office in New Orleans and HANO has changed to reflect the declaration of the breach. She said that as of the end of March 1996, an 11-member HUD team has been on-site at HANO to guide the housing authority as it tries to correct the deficiencies that led to the breach. She also said that HUD has approved a plan to guide HANO's operations over the next 120 days and that the 24-month plan should be ready for approval by May 1996. On the basis of the current experiences of other large housing authorities taken over by HUD or in receivership, we believe that it could take 6 months to 1 year to determine whether this agreement will have a lasting, positive impact on HUD. The Secretary has reserved his right to appoint a receiver if the agreement does not work out, and he could exercise this right if the quantifiable performance targets that are to be set as part of the 24-month plan are not achieved within the time frames established. We believe that this would be consistent with earlier proposals by HUD and pending legislation in the Congress to resolve the severe difficulties of long-troubled housing authorities. On February 15, 1996, we provided the Secretary of HUD with a copy of a draft of this report for his review and comment. Within several days thereafter, we provided the Mayor of New Orleans and the acting executive director of HANO with copies of a draft of this report. We met with the Mayor and the acting executive director in New Orleans to discuss their comments. The acting executive director provided us with comments that both clarified and updated certain portions of the draft, which we have incorporated into the report. In providing informal comments to us, the Director of HUD's Office of Troubled Housing said she believes that our report incorrectly describes the 1994 partnership agreement between the Mayor of New Orleans and the Secretary of HUD. She said that rather than providing a significant level of technical assistance, the 1994 partnership was an effort to hold things together at HANO until permanent management staff could be hired. However, we believe that the effort was significant because of the resources applied to carry out the partnership. During the 6-month period from October 1994 through April 1995, an executive council was formed to provide policy guidance for HANO, a 15-member transitional team of consultants and other staff was formed and put in place to manage HANO, and nearly $1 million dollars was spent for the transition team's salaries and for a contractor to prepare a strategic plan. The Troubled Housing Office's Director provided other clarifying comments, which we have incorporated into the report. Subsequent to these comments, we received written comments from HUD on April 16, 1996, and they are included as appendix II. The Mayor of New Orleans raised two concerns about our report. First, he was concerned about our conclusion that the contractor-prepared strategic plan should have contained policies and procedures with which to manage HANO. The Mayor stated that the board of commissioners did not intend for the plan to include such material. This statement is not supported, however, by the contract and the statement of work for preparing the strategic plan. According to the contract's statement of work, the strategic plan should have contained policies and procedures for operating HANO. Second, the Mayor believed that our report--and those of HUD's OIG--are too limited because they do not contain information obtained from stakeholders other than the staff of HUD and HANO. He stated that residents, for example, should have been interviewed because they are the consumers and have definite opinions on the services that they should be receiving. To address our objectives, we relied on our analysis of the documented historical record of housing conditions and management problems at HANO. Included in that record are minutes of scheduled meetings held by HANO's board of commissioners at which residents and other interested parties were given the opportunity to participate and share their views and concerns. We also relied on the record of numerous and varied actions taken to resolve and remedy those problems. We supplemented our analysis with discussions with HUD, OIG, and HANO officials. The Mayor made a number of other comments that were not directly related to the accuracy of our report but which were germane to HUD's oversight of public housing and the measurement of HANO's performance. For example, he believes that HUD has too many approval layers and that this review process caused significant delays to HANO's modernization program. The Mayor, however, was pleased with the approach that the Secretary is taking toward public housing and his willingness to try innovative funding methods in areas such as modernization. In connection with performance measurement, the Mayor does not believe that the PHMAP system measures critical actions taken by housing authorities to improve the quality of residents' lives. To illustrate, he said that by using police substations located within public housing, HANO has reduced the murder rate by 80 percent in its Desire Development. He noted, however, that HANO has received no recognition for improving this important facet of HANO's mission. Nevertheless, on the basis of this success, the Mayor said that HANO is planning to implement the police substation concept in HANO's other housing developments. To identify HANO's major operational problems, HUD's actions to address these problems, and the problems' underlying causes, we collected data from many sources. We reviewed pertinent legislation, documentation on the housing program, minutes of HANO's board meetings, and HUD's regulations on the operation of public housing authorities. We discussed management and oversight issues with HUD officials in Washington, D.C., including officials at the Office of Public and Indian Housing, the Office of Distressed and Troubled Housing Recovery, the Office of the Inspector General, and the Office of General Counsel. We also spoke with HUD officials in HUD's Office of the Inspector General, Southwest District. We interviewed officials and reviewed documentation from HUD's New Orleans Office, Region VI, and Office of Public Housing, and from consultants and contractors. Our discussions and data-gathering activities focused on HUD's oversight of HANO's management. We also visited New Orleans to discuss HANO's operational problems with members of the transitional management team, the executive director, and other key management officials. To observe conditions and gain perspective on HANO's problems, we visually observed the HANO developments. This report is based on work we conducted from March 1995 through March 1996 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 14 days after the date of this letter. At that time, we will send copies of this report to the appropriate Senate and House committees; the Secretary of HUD; and the Director, 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. Major contributors to this report are listed in appendix III. HUD designates HANO as troubled for the first time. From 1979 to the present, HANO remains on HUD's troubled list, where it is currently ranked as the lowest performing large housing authority. HUD releases a Comprehensive Management Review of HANO containing 241 findings; many are similar to the issues raised in a 1983 OIG report. HUD and HANO enter into a memorandum of understanding requiring HANO to contract with a private firm to manage the housing authority's day-to-day operations. HUD issues a Limited Denial of Participation to every member of HANO's board of commissioners for inappropriately interfering with HANO's day-to-day operations. New Orleans' Mayor and HUD agree that the Mayor should appoint a new board. HUD pressures HANO's board chairman into resigning because he interfered with and impeded the private manager's efforts to manage the housing authority. HUD's OIG releases an audit report of HANO stating that HANO is in breach of its contract with HUD to provide decent, safe, and sanitary housing because all 150 housing units chosen at random failed to meet housing quality standards. HUD's Secretary enters into a partnership with New Orleans' Mayor to avoid declaring HANO in breach of its contract. The partnership states that HANO will hire an executive director and develop a strategic plan with performance targets detailing management improvements. HUD's Secretary agrees to declare HANO in breach of its contract and take control of the housing authority and its properties. HUD's Secretary declares HANO in breach of its contract and enters into a cooperative endeavor agreement with the Mayor. Eric A. Marts, Assistant Director Carol Anderson-Guthrie, Evaluator-in-Charge Kirk Menard, Senior Evaluator Terri Russell, 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 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 reviewed the Housing Authority of New Orleans (HANO), focusing on: (1) its major operational difficulties; (2) the causes of those problems; and (3) the Department of Housing and Urban Development's (HUD) corrective actions and the effects of those actions. GAO found that: (1) HANO has been unable to implement and maintain effective maintenance, modernization, and rehabilitation programs; (2) in 1994, none of the 150 HANO housing units that HUD sampled met HUD housing quality standards; (3) although HANO has over $200 million in unspent modernization grants that have accumulated over the past decade, its housing units continue to deteriorate and unit vacancies remain at over 25 percent; (4) the HANO board of commissioners has not effectively governed HANO and has interfered with its day-to-day operations, hiring, and contracting; (5) this interference has slowed HANO management improvements, prevented its staff from performing effectively, and resulted in the cancellation of modernization contracts; (6) HUD and its New Orleans Field Office have not helped to improve HANO operations; (7) unsuccessful HUD attempts to correct HANO mismanagement have included punitive actions, imposing private management, and limiting the board of commissioners' authority; (8) in 1994, HUD entered into a partnership with New Orleans to avoid a federal takeover of HANO, hold local officials responsible for HANO performance, and improve management and housing conditions; and (9) in February 1996, HUD declared HANO in breach of its contract and entered into a new partnership with New Orleans.
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Under the current LCS program, two shipyards are building an equal number of two different versions of the LCS seaframe: Lockheed Martin builds the Freedom variant at Fincantieri Marinette Marine in Marinette, Wisconsin, and Austal USA builds the Independence variant in Mobile, Alabama. Table 1 shows the status of LCS seaframe acquisition, including the LCS with minor modifications, referred to as a frigate. When the Navy first conceived of the LCS in the early 2000s, the concept was that two shipbuilders would build prototypes based on commercial designs. The Navy planned to experiment with these ships to determine its preferred design variant. This experimentation strategy was subsequently abandoned. The Navy determined that, based on cost considerations, it would be impractical to have the two competing shipyards build only one or two ships and then wait for the Navy to complete the period of experimentation before awarding additional contracts. Instead, the Navy opted to continue funding additional seaframes without having completed the planned period of discovery and learning. The Navy has made several other revisions to the LCS acquisition strategy over time, some in response to direction from the Office of the Secretary of Defense. These have included changes over time regarding whether the Navy would downselect to one seaframe design. Although it might be expected that a new acquisition concept would require some adjustments over time, the LCS program has evolved significantly since it began, as shown in figure 1. As figure 1 indicates, the Navy now plans to buy LCS with minor modifications, which it refers to as frigates. This change to the acquisition strategy followed an analysis in 2014 by a Navy task force (known as the Small Surface Combatant Task Force) that was completed in response to direction from the then Secretary of Defense to identify options for a more capable small surface combatant. In seeking a frigate concept that would improve upon the capabilities provided by LCS, the Navy selected an LCS concept--referred to as a minor modified LCS. This concept, which Navy leadership believed would offer cost, schedule, and shipbuilding advantages, also was assessed as the least capable option considered for the LCS successor. The Navy has noted that the selected design provides some improvements, such as multi-mission and over-the-horizon missile capabilities, at a relatively lower cost than other options by leveraging the existing LCS shipyards and vendors. However, the Navy's chosen frigate design will presumably carry forward some limitations inherent to its LCS origins, such as space limitations and equipment that has posed maintenance and logistics challenges. The Navy's Small Surface Combatant Task Force charged with exploring alternatives to the LCS presented Navy leadership with a number of options, from which the Navy chose the option of a minor modified LCS based on cost, schedule, and industrial base stability factors. As we found in June 2016, the task force concluded that the Navy's desired capability requirements could not be met without major modifications to an LCS design or utilizing other non-LCS designs. When presented with this conclusion, senior Navy leadership directed the task force to explore what capabilities might be more feasible on a minor modified LCS. In response to this direction, the task force created two additional LCS options with minor modifications. These options provided a multi-mission capability instead of the single-mission capability of LCS and retained the modular mission package characteristic of the LCS program (i.e., ability to more readily swap mission systems in and out). In developing these alternatives, the task force also found that it was feasible to permanently install an over-the-horizon missile to offer longer range surface warfare capability, plus a lightweight towed torpedo countermeasure and multi- function towed array sonar to offer some anti-submarine warfare capability. However, these improvements would still need to be augmented by an LCS surface warfare or anti-submarine warfare mission package to provide the full suite of LCS capability. The task force found that it was not technically feasible to include additional vulnerability capabilities (i.e., capabilities to improve the ship's ability to sustain battle damage and still perform its mission) beyond adding armor protection to some vital spaces. Task force documentation also stated that in developing these alternative LCS options with minor modifications, some capabilities, like speed, had to be traded. Ultimately, the Navy chose--and the Office of the Secretary of Defense approved--a frigate concept based on a minor modified LCS, despite the task force's findings that it was the least capable small surface combatant option considered. Navy leadership indicated this decision was based on LCS's relatively lower cost and quicker ability to field, as well as the ability to upgrade remaining LCS and maintain stability in the LCS industrial base and vendor supply chain. In selecting the minor modified LCS concept, the Navy has made trade- offs in refining the capabilities of the frigate, prioritizing lethality and survivability improvements. The Navy noted that as part of the refinement process, the frigate program office identified additional capacity in the LCS designs that has enabled improvements to the ship's planned capabilities. In particular, the Navy stated that the program office determined that full surface warfare and anti-submarine warfare capabilities could be included in baseline frigate plans, as opposed to the partial capabilities that were found to be possible by the Small Surface Combatant Task Force analysis. Table 2 presents an overview of capability changes the Navy has planned for the frigate, as compared to LCS, and the expected effect of those changes. However, we found in June 2016 that the Navy's planned frigate upgrades will not include significant improvements in certain survivability areas. Further, the Navy sacrificed capabilities that were prioritized by fleet operators. For example, when asked in engagement sessions by the Small Surface Combatant Task Force, fleet operators consistently prioritized a range of 4,000 nautical miles, but the selected LCS concept with minor modifications was noted to have a minimum range requirement of 3,000 nautical miles. The Navy asserted that it is working with the prospective frigate shipbuilders to achieve a range more consistent with the priorities of fleet operators. The Director, Operational Test and Evaluation (DOT&E) has noted that the Navy's proposed frigate design is not substantially different from LCS and does not add much more redundancy or greater separation of critical equipment or additional compartmentation, making the frigate likely to be less survivable than the Navy's previous frigate class. Additionally, the Navy plans to make some similar capability improvements to existing and future LCS, narrowing the difference between LCS and the frigate. As we found in June 2016, the proposed frigate will utilize the offensive anti- submarine or surface warfare capabilities that are already part of the LCS mission packages, so while the frigate will have multi-mission capability that LCS lacks, the capabilities of the individual mission packages will be consistent with what is available for LCS. Though specific details are classified, there are only a few areas where there are differences in frigate warfighting capability compared to the LCS. Since the frigate will be based on an LCS design, it will likely carry forward some LCS design limitations. For example, LCS is configured to support up to 98 personnel, including core and mission package crew and an aviation detachment. Navy officials have stated that the frigate is being designed for a crew of 130. However, given the space limitations on LCS and the fact that the frigate will be based on one of the two LCS designs, achieving this significant increase in crew size could prove challenging. Additionally, barring Navy-directed changes to key mechanical systems, the frigate will carry some of the more failure-prone LCS equipment, such as some propulsion equipment, and will likely carry some of the LCS- unique equipment that has challenged the Navy's support and logistics chain. Current acquisition plans for the frigate require Congress and the Navy to make significant decisions and potential future commitments of about $9 billion--based on early budget estimates--without key program knowledge. The Navy plans to request authority from Congress in 2017 to use what the Navy refers to as a block buy approach for all 12 planned frigates and request funding for the lead frigate as part of the fiscal year 2018 budget request. Because of recent changes to the acquisition approach that hastened the frigate award, the decisions that Congress will be asked to make in 2017 will not be informed by realistic cost estimates or frigate-specific detail design knowledge that helps solidify cost and construction expectations. Further, Congress will not possess critical information on LCS performance in testing that would increase understanding of the operational capability of LCS, which provides the design foundation for the frigate. The Navy's award decision planned for 2018 will be informed by formal cost estimate information, but like Congress, the Navy will lack detail design knowledge and have more limited information on LCS's operational capability than would have been available for the previously planned fiscal year 2019 frigate award. And finally, the current and planned LCS construction demands at both LCS shipyards that extend into 2021 suggest no schedule imperative exists that would require the Navy to request or to receive authority in 2017 for the frigate or to award the lead ship in 2018 as currently planned. The frigate acquisition plan has undergone notable changes since late 2015, for various reasons. As it now stands, an accelerated schedule effectively prevents the Navy from being able to provide Congress with a current, formal cost estimate for the frigate--independently completed or otherwise--before Congress is asked to make significant commitments to the program. Navy officials previously stated that the frigate is expected to cost no more than 20 percent--approximately $100 million--more per ship than the average LCS seaframes, though this was an initial estimate. However, our recent work has shown that LCS under construction have exceeded contract cost targets, with the government responsible for paying for a portion of the cost growth. Regarding expected costs for the frigate, prior LCS context is important to consider. When faced with the prospect of a downselect to one LCS variant in 2010, the two shipbuilders provided competitive pricing that propelled the Navy to continue production at both shipyards. Those prices have not yet been achievable. According to frigate program officials, under the current acquisition approach, the Navy will award contracts in fiscal year 2017 to each of the current LCS contractors to construct one LCS with a block buy option for 12 additional LCS--not frigates. Then, the Navy plans to obtain proposals for frigate-specific design changes and modifications from both LCS contractors in late 2017 that will be used to upgrade the LCS options to frigates. The Navy intends to evaluate pricing and technical factors for the proposed frigate upgrade packages and award frigate construction to one contractor based on a best value determination. This frigate downselect to one of the LCS shipyards is planned to occur in summer 2018. Figure 2 illustrates how the Navy plans to modify the fiscal year 2017 LCS contract to convert the ships in the block buy options to frigates. Navy officials explained that the frigate acquisition plan changed substantially in response to a Secretary of Defense memorandum issued in December 2015 that directed the Navy to revise its LCS and frigate acquisition plans. This included direction to reduce the total number of LCS and frigates from 52 to 40, downselect to one ship design, and award the frigate in fiscal year 2019. The Navy subsequently revised its plans to include a downselect decision, but also decided to accelerate the award of the lead frigate from fiscal year 2019 to 2018 as a replacement for awarding a single LCS in 2018. Table 3 shows the changes that have occurred since that memorandum. A consequence of the Navy's accelerated frigate schedule is increased risk to the government because it refigures a commitment to buy ships in advance of adequate knowledge--a continuation of premature commitments by the LCS program. The Navy plans to award frigate construction to one shipyard before detail design activities specific to the frigate begin, which--as we previously have found--can result in increased ship prices and reduced understanding of how design changes will affect ship construction costs. Detail design enables the shipbuilders to visualize spaces and test the design as the granularity of the design for individual units, or zones, of the ship comes into focus. The Navy had plans in 2015 to have each LCS shipyard conduct frigate detail design activities in fiscal year 2018. This improved understanding of the frigate design was then going to be available to support the Navy's construction contracts to both shipyards for frigates in fiscal year 2019. However, as we noted above, the Navy changed course in response to direction from the Secretary of Defense and currently plans for a downselect award in 2018. The reduced contract award timeline led the Navy to abandon its plans to conduct detail design activities before contract award; the current plan is to begin detail design after the frigate downselect award and complete design activities before beginning construction. The Navy has noted that LCS's design is already complete and many areas of the frigate will be common to LCS--greater than 60 percent according to the frigate program office. However, with no detail design activities specific to the frigate upgrades planned until after the frigate shipbuilder is chosen by the Navy, the procurement activities--including shipbuilder proposal development, the Navy's completion of a construction cost estimate, and finalization of the target cost for constructing the lead frigate--will not be informed by a more complete understanding of the frigate-specific design. Our work on best practices for program cost estimates has found that over time, cost estimates become more certain as a program progresses--as costs are better understood and program risks identified. Further, we found in August 2016 that even Navy shipbuilders acknowledged the benefits of having detail design knowledge available to inform decisions. Specifically, the two shipbuilders for the Navy's newest configuration of the Arleigh Burke class destroyers--DDG 51 Flight III--agreed that allowing more time for the design to mature, via detail design, would provide greater confidence in their understanding of the Flight III-specific design changes and how the changes will affect ship construction costs. By completing more detail design activities prior to procuring a ship, the Navy--and shipbuilders-- are better positioned for procurement and construction. We also found in June 2016 and February 2005 that awarding a contract before detail design is completed--though common in Navy ship acquisitions--has resulted in increased ship prices. For example, the Navy negotiated target prices for construction of the lead San Antonio class ship (LPD 17) and the first two follow-on ships (LPD 18 and LPD 19) before detail design even began, preventing the Navy from leveraging information that would be gained during detail design when negotiating target prices for these three ships. In contrast, the Navy's Virginia class and Columbia class submarine programs had or planned to have a high level of design complete prior to the award of the lead ship construction contract, thus enabling the government to benefit from the knowledge gained from detail design in negotiating prices for construction. Along with a shift away from detail design activities prior to the frigate award and a shortened time frame before the award, the Navy moved away from its planned government-driven design process to a less prescriptive contractor-driven design process, adding potential risk. This approach is similar to what the Navy used for the original LCS program, whereby the shipyards were given performance specifications and requirements and systems that would be provided by the government, but then selected the design and systems that they determined were best suited to fit their designs in a producible manner. Program officials told us that this new approach should yield efficiencies; however, history from LCS raises concern that this approach for the frigate similarly could lead to the ships having some non-standard equipment, with less commonality with LCS and the rest of the Navy's ships. In addition to the prevailing cost and design unknowns that pose risk to the Navy's accelerated frigate acquisition plans, uncertainties remain regarding the operational capabilities of LCS that are relevant to the frigate. Some testing of operational capability already has been performed for LCS seaframes and the surface warfare mission package; however, the Navy does not plan to demonstrate operational capability in initial operational test and evaluation for the final surface warfare mission package until 2018 or demonstrate operational capability through initial operational test and evaluation for the anti-submarine warfare mission package until 2019. Additionally, the Navy has not demonstrated that LCS will achieve its survivability requirements--the LCS program office is planning for the final survivability assessment report to be completed in fiscal year 2018. While preliminary results from full ship shock trials in 2016--live fire testing of the survivability of LCS and its subsystems against underwater shocks (i.e., explosions)--suggest some positive findings, DOT&E continues to have questions about LCS's survivability against more significant underwater shocks. Comprehensive reporting on the results of shock testing is not expected until later in 2017, which should provide a better understanding of any issues with the seaframes' response to underwater shock that have implications for the frigate design. In addition to shock trials, both LCS variants sustained some damage in trials completed in rough sea conditions. Although the Navy indicated that the results of these trials have been incorporated into the structural design of both prospective frigate variants, the Navy has not completed its analytical reports of these events. Results from air defense testing also indicate capability concerns, and both seaframe variants were found to have significant reliability and maintainability issues during several tests and trials. Further, DOT&E has expressed concern that LCS effectiveness with its mission packages remains undemonstrated, which means questions persist about the LCS's ability to perform many of its missions. These unknowns, in turn, will be carried over to the frigate program until the mission package capabilities that will also be employed by the frigate are fully demonstrated on the LCS. DOD has made some progress with the frigate acquisition approach over the last year that is consistent with a recommendation we made in June 2016. Specifically, we recommended that the Secretary of Defense require that before a downselect decision is made for the frigate, the program must submit appropriate milestone documentation, such as an independent cost estimate and a plan to incorporate the frigate into DOD's Selected Acquisition Reports that are provided to Congress. The frigate's requirements have been finalized, with Joint Requirements Oversight Council approval received for its capabilities development document in 2016, and the Navy is in the process of establishing a service cost position. DOD's Office of Cost Assessment and Program Evaluation also plans to complete an independent cost estimate in fiscal year 2018. Still, if current acquisition plans hold, the Navy will ask Congress to consider authorizing what the Navy calls a block buy of 12 frigates and funding the lead frigate when the fiscal year 2018 budget is proposed. This authorization decision involves potential future commitments of about $9 billion based on early budget estimates. As indicated in table 4, the Navy's request for authority from Congress appears premature, since significant uncertainties will remain for the cost and design changes needed to turn an LCS into a frigate, and relevant questions regarding LCS operational capability will remain unresolved. For example, under the Navy's current plans, no formal cost estimate is expected to be completed before Congress is asked to make such a decision. Our prior work on best practices in weapon system acquisition has emphasized the importance of attaining key knowledge regarding cost, design, and capability expectations before making major commitments. While a block buy contracting approach may provide cost savings and other benefits for an acquisition program, it also may present challenges, such as reduced funding flexibility. For example, the LCS block buy contracts provide that a failure to fully fund the purchase of a ship in a given year would make the contract subject to renegotiation. DOD has pointed to this as a risk that the contractors would demand higher prices if DOD deviated from the agreed to block buy plan. Thus, once the frigate block buy contract is authorized and funded, DOD and Congress may once again have a notable disincentive to take any action that might delay procurement. This has been the case with LCS, even when it became apparent that the program was underperforming. The existing and planned LCS construction workloads at both shipyards suggest that a request in 2017 to authorize the frigate (with the fiscal year 2018 budget request) may not only be premature, but also unnecessary. Although the Navy has argued that pausing LCS production would result in loss of production work and start-up delays to the frigate program, current schedule delays for LCS under construction and the projected schedules for the yet-to-be-awarded LCS show that both shipyards have substantial workloads remaining that could offset the need to award the frigate in 2018 as planned. The Navy's concern about shipyard workload also does not account for the possibility of continued delays in the delivery of LCS. Deliveries of almost all LCS under contract at both shipyards (LCS 5-26) have been delayed by several months, and, in some cases, close to a year or longer. Despite having had 5 years of LCS construction to help stabilize ship delivery expectations, the program did not deliver four LCS in fiscal year 2016 as planned. As figure 3 depicts, delays that have occurred for previously funded ships have resulted in a construction workload that extends into fiscal year 2020. This prolonged workload, when combined with the two LCS awarded in 2016 and two more LCS that have been authorized by congressional conferees and the Navy plans to award in fiscal year 2017, takes construction at both shipyards into 2021. With 13 LCS in various phases of construction (LCS 9, 11-22) and 3 more (LCS 23, 24, and 26) set to begin construction later in fiscal year 2017, delaying a decision on the frigate until fiscal year 2019 would enable the Navy and the shipbuilders to improve knowledge on cost, design, and operational capability of LCS that relates directly to the frigate. This, in turn, would offer Congress an opportunity to be better informed on the expectations for the frigate before committing substantial taxpayer funds to this program. The Navy's impending fiscal year 2018 budget request presents a key opportunity for Congress to affect the way forward for the frigate program by ensuring the Navy possesses sufficient knowledge on cost, design, and capability before authorizing an investment of a potential $9 billion for a program that has no current formal cost estimate--independent or otherwise, will not have begun key detail design activities, has significant unknowns in regards to operational performance of the ship upon which it will be based, and based on the existing and planned shipyard workloads, has no industrial base imperative to begin construction in the Navy's planned time frame. The block buy pricing the Navy expects to receive from LCS contractors in 2017 will be for the basic LCS seaframes that the Navy has acknowledged do not meet its needs. As we stated above, the two LCS shipbuilders--when faced with the prospect of a downselect in 2010-- provided competitive pricing that propelled the Navy to continue production at both shipyards. Those prices have not been shown to be achievable. Even if LCS prices offered once again appear favorable, the ships ultimately are intended to be frigates, and the upgrade cost--to be proposed by the shipyards later--is a significant unknown. A decision by Congress to authorize the block buy of 12 frigates is effectively the final decision for the entire planned buy of 40 LCS and frigates. According to the Navy's approved acquisition strategy, the frigates would still require annual appropriations and Congress could thus conduct oversight of the program through that process; however, it will likely be more difficult to make decisions to reduce or delay the program should that become warranted, as the Navy may point to losses in favorable block buy prices, as has been done previously with LCS. We recognize that the Navy had to revise its frigate acquisition plans based on the Secretary of Defense's direction to reduce quantities and select a single ship design. However, the direction did not necessitate an acceleration of the frigate procurement and the corresponding shift away from a planned approach that would have provided substantially improved cost, design, and capability information to inform the frigate acquisition decisions. Reverting back to a frigate award in fiscal year 2019 would provide time to complete realistic cost estimates, build detail design knowledge, and make significant progress in understanding the operational capability and limitations of LCS, upon which the frigate design will be based. To ensure sound frigate procurement decisions, Congress should consider not enacting authority pursuant to the Navy's request for a block buy of 12 frigates in the fiscal year 2018 budget and consider delaying funding of the lead frigate until at least fiscal year 2019 when sufficient cost, design, and capability knowledge is expected to be available to inform decisions. To ensure the department and the shipbuilders have sufficient knowledge of the frigate's anticipated cost and design during the procurement process, the Secretary of Defense should direct the Secretary of the Navy to delay frigate procurement plans and the award of the lead frigate contract until at least fiscal year 2019 when cost estimates will be completed, detail design could be underway, and significant progress will have been made in demonstrating through testing the operational capabilities of LCS that are relevant to the frigate. We provided a draft of this report to DOD for review and comment. Its written comments are reprinted in appendix I of this report. DOD partially concurred with our recommendation to delay procurement plans and the award of the lead frigate contract until sufficient cost, design, and capability knowledge is available to inform decisions. In its response, DOD acknowledged that the Navy's final contract decision includes risks, but stated that it believes the current plan offers an acceptable tradeoff between technical and affordability risks. DOD highlighted two actions that it believes will allow the department to assess program risk before moving forward: (1) annual frigate program review activities in 2017 intended to ensure risks are understood prior to the release of the formal frigate request for proposals, and (2) the planned completion of an independent cost estimate in fiscal year 2018 by the Office of Cost Assessment and Program Evaluation, which is expected to inform a 2018 annual program review prior to a contract award. While these are positive oversight actions, the assessments of design risk and maturity for these reviews will lack any frigate-specific detail design information, which leads us to maintain that waiting until at least fiscal year 2019 to procure the first ship and to make decisions on future frigate procurements would provide DOD and Congressional decision-makers with a more comprehensive understanding of frigate cost, design, and capability expectations before making substantial commitments to the program. This lack of knowledge, coupled with the ongoing and planned LCS construction workload at both shipyards, present, in our view, a compelling rationale for delaying a frigate decision. DOD also separately provided technical comments on our draft report. We incorporated the comments as appropriate, such as to provide additional context in the report. In doing so, we found that the findings and message of our report remained the same. In some cases, the department's suggestions or deletions were not supported by the preponderance of evidence or were based on a difference of opinion, rather than fact. In those instances, we did not make the suggested changes. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Navy, and other interested parties. 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 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. GAO staff who made key contributions to this report are listed in appendix IV. Littoral Combat Ship and Frigate: Slowing Planned Frigate Acquisition Would Enable Better-Informed Decisions. GAO-17-279T. Washington, D.C.: December 8, 2016. Littoral Combat Ship and Frigate: Congress Faced with Critical Acquisition Decisions. GAO-17-262T. Washington, D.C.: December 1, 2016. Littoral Combat Ship: Need to Address Fundamental Weaknesses in LCS and Frigate Acquisition Strategies. GAO-16-356. Washington, D.C.: June 9, 2016. Littoral Combat Ship: Knowledge of Survivability and Lethality Capabilities Needed Prior to Making Major Funding Decisions. GAO-16-201. Washington, D.C.: December 18, 2015. Littoral Combat Ship: Navy Complied with Regulations in Accepting Two Lead Ships, but Quality Problems Persisted after Delivery. GAO-14-827. Washington, D.C.: September 25, 2014. Littoral Combat Ship: Additional Testing and Improved Weight Management Needed Prior to Further Investments. GAO-14-749. Washington, D.C.: July 30, 2014. Littoral Combat Ship: Deployment of USS Freedom Revealed Risks in Implementing Operational Concepts and Uncertain Costs. GAO-14-447. Washington, D.C.: July 8, 2014. Navy Shipbuilding: Opportunities Exist to Improve Practices Affecting Quality. GAO-14-122. Washington, D.C.: November 19, 2013. Navy Shipbuilding: Significant Investments in the Littoral Combat Ship Continue Amid Substantial Unknowns about Capabilities, Use, and Cost. GAO-13-738T. Washington, D.C.: July 25, 2013. Navy Shipbuilding: Significant Investments in the Littoral Combat Ship Continue Amid Substantial Unknowns about Capabilities, Use, and Cost. GAO-13-530. Washington, D.C.: July 22, 2013. Defense Acquisitions: Realizing Savings under Different Littoral Combat Ship Acquisition Strategies Depends on Successful Management of Risks. GAO-11-277T. Washington, D.C.: December 14, 2010. National Defense: Navy's Proposed Dual Award Acquisition Strategy for the Littoral Combat Ship Program. GAO-11-249R. Washington, D.C.: December 8, 2010. Defense Acquisitions: Navy's Ability to Overcome Challenges Facing the Littoral Combat Ship Will Determine Eventual Capabilities. GAO-10-523. Washington, D.C.: August 31, 2010. Littoral Combat Ship: Actions Needed to Improve Operating Cost Estimates and Mitigate Risks in Implementing New Concepts. GAO-10-257. Washington, D.C.: February 2, 2010. Best Practices: High Levels of Knowledge at Key Points Differentiate Commercial Shipbuilding from Navy Shipbuilding. GAO-09-322. Washington, D.C.: May 13, 2009. Defense Acquisitions: Overcoming Challenges Key to Capitalizing on Mine Countermeasures Capabilities. GAO-08-13. Washington, D.C.: October 12, 2007. Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate Capability of First Littoral Combat Ships. GAO-05-255. Washington, D.C.: March 1, 2005. Michele Mackin at (202) 512-4841 or [email protected]. In addition to the contact above, Diana Moldafsky, Assistant Director; Pete Anderson; Jacob Leon Beier; Laurier Fish; Kristine Hassinger; C. James Madar; Sean Merrill; LeAnna Parkey; Anne Stevens; and Robin Wilson made key contributions to this report.
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The Navy envisioned a revolutionary approach for the LCS program: dual ship designs with interchangeable mission packages intended to provide mission flexibility. This approach has fallen short, with significant cost increases, schedule delays, and reduced capabilities--some of which have yet to be demonstrated. The LCS acquisition approach has changed several times. The latest change led to the frigate--a ship that involves minor modifications to an LCS design. The House report 114-537 for the National Defense Authorization Act for Fiscal Year 2017 included a provision for GAO to examine the Navy's plans for the frigate. This report examines the Navy's plans for the frigate acquisition as well as remaining opportunities for oversight. To conduct this work, GAO reviewed documentation and interviewed Department of Defense (DOD) officials, and leveraged prior GAO reports on shipbuilding and acquisition best practices. The Navy's current acquisition approach for its new frigate--a ship based on a Littoral Combat Ship (LCS) design with minor modifications--requires Congress to make significant program decisions and commitments in 2017 without key cost, design, and capability knowledge. In particular, the Navy plans to request authority from Congress in 2017 to pursue what the Navy calls a block buy of 12 planned frigates and funding for the lead ship, which the Navy intends to award in 2018. Approval of these plans would effectively represent the final decision for the entire planned buy of 40 LCS and frigates. According to the Navy's approved acquisition strategy, the frigates would still require annual appropriations, so Congress would maintain its oversight through its annual appropriation decisions; however, any decision to reduce or delay the program, should that become warranted, could nevertheless be more difficult as the Navy may point to losses in favorable block buy prices, as has been done previously with LCS. The Navy's impending request presents a key opportunity for Congress to affect the way forward for the frigate program by ensuring the Navy possesses sufficient knowledge on cost, design, and capability before authorizing an investment of a potential $9 billion for a program that * has no current formal cost estimate--independent or otherwise, * will not begin key detail design activities until late fiscal year 2018, * has significant unknowns in regards to operational performance of the ship upon which its design will be based, and * based on the existing and planned shipyard workloads, has no industrial base imperative to begin construction in the Navy's planned time frame. The Navy's previous frigate acquisition plans included achieving a higher degree of ship design knowledge before awarding the lead ship in fiscal year 2019, as the plans included significant detail design activities prior to contract award. As GAO has previously found, such an approach--which has been supported by shipbuilders--offers greater confidence in the understanding of design changes and how they will affect ship construction costs. Further, as GAO's work on best practices for program cost estimates suggests, the Navy's prior plans for frigate design efforts and an award in fiscal year 2019 would have provided more information on which to base a decision, including a better understanding of risks and costs. The previous plans also better aligned with LCS test plans to improve the department's understanding of the operational capability and limitations for each ship variant. This knowledge could then be used to inform the Navy's decision on which LCS-based design for the frigate it will pursue. In addition to the valuable knowledge to be gained by not pursuing the frigate in the planned 2018 time frame, the existing and planned LCS construction workload for both shipyards is another important factor to consider. Specifically, each shipyard has LCS construction demands that extend into 2021, suggesting no imperative for the Navy to award the frigate in 2018. Delaying the frigate award until at least fiscal year 2019--when more is known about cost, design, and capabilities--would enable better-informed decisions and oversight for this potential $9 billion taxpayer investment. Congress should consider not enacting authority pursuant to the Navy's request for a block buy of 12 frigates in fiscal year 2018 and delaying funding of the lead frigate until at least fiscal year 2019, when more information is available on the ship's cost, design, and capabilities. GAO also recommends that DOD delay its procurement plans until sufficient knowledge is attained. DOD partially concurred with the recommendation but is not planning to delay frigate procurement. GAO continues to believe the recommendation is valid.
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As the nation's principal border agency, the Customs Service has a significant narcotics interdiction role and is increasingly relying upon technology to help implement that role. Equipment and technology used by Customs for screening and drug interdiction activities include automated databases, portable contraband detectors ("busters"), sonic and laser range finders, fiber-optic scopes, and X-ray systems. Nonintrusive technology, such as X-ray systems, allow Customs staff to inspect for contraband without having to physically enter into or unload vehicles or containers. According to its February 1998 Five-Year Technology Acquisition Plan for the Southern Tier, Customs currently uses over 800 items of nonintrusive inspection technology, primarily for inspecting inbound vehicles and containers. Nearly 50 percent ($289.1 million) of Customs' proposed 5-year technology investment of $631.4 million is for new nonintrusive inspection equipment, including fixed-site and mobile X-ray systems for inspecting tank trucks, railcars, and sea containers. For counterterrorism and other purposes, nonintrusive inspection technologies are also important for supporting the missions of DOD and FAA. DOD, for example, has evaluated PFNA and other technologies for possible force protection uses. Also, FAA has considered various technologies for screening air baggage and cargo for explosives and contraband. Whereas X-ray technology is widely used, PFNA or neutron interrogation technology has not been operationally fielded anywhere in the world. A claimed potential advantage of PFNA technology is that it can be used to inspect fully loaded trucks and containers and specifically identify drugs and explosives ("material specificity") automatically without human interpretation. In contrast, X-ray inspection technology identifies (with human interpretation) anomalous "shapes or shadows" in empty, partially loaded, and fully loaded vehicles and containers, which could result in false alarms and, in turn, might require further intrusive inspection for resolution, such as by unloading the vehicles and containers. During fiscal years 1989 to 1998, according to Ancore officials, PFNA "laboratory" funding totaled about $60 million--with the large majority provided by DOD (about $28.4 million) and the Eurotunnel consortium(about $20 million), and the remainder by FAA (about $6.5 million) and the vendor or its parent company (about $5 million). The most recent congressional funding-related guidance regarding PFNA is as follows: The DOD Appropriations Act for fiscal year 1999, P.L. 105-262, directs DOD to spend $3 million in prior-year PFNA-related funds through cooperation with ONDCP. According to DOD officials, the actual amount available for expenditure will be about $2.7 million, which reflects general budget reductions mandated by Congress and the Office of the Secretary of Defense. DOD must obligate its PFNA funds by September 30, 1999, or the funding authority will expire. The conference report (H. Conf. Rep. 105-825) on the Omnibus Appropriations Act for fiscal year 1999, P.L. 105-277, indicates that $2.5 million is for FAA to develop PFNA. Also, as mentioned earlier, Senate Report 105-251 (July 1998) on the Treasury and General Government Appropriations bill for fiscal year 1999 directs the Commissioner of Customs to enter into negotiations with the private sector to conduct a field test of PFNA technology at no cost to the federal government. In conducting our work, we interviewed responsible officials at and reviewed applicable documents obtained from the Customs Service, DOD, FAA, ONDCP, and Ancore Corporation. We requested comments on a draft of this report from the Customs Service, DOD, FAA, ONDCP, and Ancore Corporation. Their comments are discussed near the end of this letter. We performed our work from October 1998 to February 1999 in accordance with generally accepted government auditing standards. Appendix I presents more details about our objectives, scope, and methodology. Customs, DOD, and FAA are making plans to comply with their respective congressional guidance on PFNA. In November 1998, the Commissioner of Customs met with Ancore representatives to discuss field testing of PFNA. Also, in November 1998, DOD officials told us that they would begin drafting, with Ancore's participation, a rough or preliminary plan with general parameters for field testing a PFNA system. In December 1998, Ancore submitted a written proposal to Customs. Specifically, Ancore proposed that a 4-month Customs/DOD field test be conducted at a U.S. sea or land port of entry, at an estimated cost ranging from $5 million to $5.5 million, including the cost of a site facility. In its proposal, Ancore mentioned the availability of $2.7 million from fiscal year 1998 DOD appropriations. Ancore indicated that this money could be used for system engineering modifications for ease of relocation, system shipment and installation, and operation and maintenance of the system throughout the test. Ancore asked Customs to fund the remaining amount needed for the field test, $2.3 million to $2.8 million, to be used for constructing a facility to house the PFNA system, preparing related infrastructure, and modifying an existing automated ground vehicle. Also, Ancore proposed that Customs' responsibilities for the test would include selecting a test site, ensuring the availability of real drugs and other contraband for inspection if real drugs are to be used, and providing cargo- handling labor and equipment. In January 1999, the Commissioner of Customs responded in writing to Ancore's proposal. In his response, the Commissioner expressed interest in working with Ancore to conduct a field test. The Commissioner said, however, that before Customs could make a final decision on the proposed test, a more detailed description of respective responsibilities was needed. Also, the Commissioner indicated that after receiving the requested detailed information, Customs could select a site and make more precise estimates of funding needed. He also stated that Customs would be responsible for preparing the final test report. As reflected in his January 1999 response to Ancore's proposal for a field test, the Commissioner of Customs is considering whether Customs should contribute to the funding of such a test. In this regard, recognizing the no- federal-cost language of Senate Report 105-251, in February 1999, Customs officials told us that they were working closely with applicable congressional committees and subcommittees. In December 1998, Ancore submitted a written proposal to FAA for use of its fiscal year 1999 PFNA funds ($2.5 million). Ancore proposed to (1) build on previous FAA development and testing efforts to modify the existing land/sea container and truck inspection system for FAA's specific air cargo inspection requirements and (2) conduct a laboratory test. Given the vulnerability of aircraft to explosives, FAA requires the modifications in order to improve the system's capability to detect small amounts of target materials. In January 1999, a FAA official told us that FAA had contacted Customs and DOD about the possibility of working jointly to conduct a field test. However, the FAA official noted that detailed discussions with Customs, DOD, and Ancore might be needed to determine whether a joint test could adequately cover the combined counterdrug and counterterrorism operational requirements of the three agencies. Further, the FAA official said that, if a three-agency field test is conducted, most of FAA's funds would be used for engineering modifications to PFNA components to allow the system to detect small amounts of target materials. In January 1999, a Customs official told us that, in order to minimize the expenditure of federal government funds, he was hopeful that the three agencies could agree on and implement a joint field testing plan. Also, Customs, DOD, FAA, and ONDCP officials indicated that it might be appropriate to form a "configuration board" or test review group made up of agency officials to evaluate the joint agency test plan before it is implemented to ensure that all operational requirements are considered and include advisory representation from the National Academy of Sciences on the configuration board to lend scientific advice and expertise, objectivity, and credibility. Regarding a field test location, Ancore's proposal would give Customs the responsibility for selecting a site. Initially, Customs officials told us that the Army's Thunder Mountain Evaluation Center (Fort Huachuca, AZ) would be considered as a possible test site rather than a port of entry. However, after considering Ancore's proposal, the Commissioner of Customs decided that conducting a field test at a port of entry would be more appropriate. DOD officials expressed no preference for a location; rather, the officials indicated that DOD probably would defer to Customs--the agency that has a primary counterdrug role and potentially the most need for PFNA technology. FAA officials prefer having the field test at an airport or a seaport and stated their least preferred site is Fort Huachuca. ONDCP officials prefer testing at a port of entry to ensure a realistic stream of commerce. Ancore officials also prefer testing at a port of entry for the same reason. In February 1999, Customs, DOD, FAA, and Ancore officials told us that four port-of-entry sites were being considered for the field test. These sites are two seaports in California (Long Beach and Oakland) and two land ports in El Paso, Texas. There is general agreement that PFNA's technical feasibility has been proven in the laboratory. However, citing cost, size, and other operational concerns, the three prospective users--Customs, DOD, and FAA--do not foresee using a PFNA system in their missions or operations and, therefore, question the value of further testing. ONDCP, on the other hand, believes that an informed decision about the operational viability of a PFNA system cannot be made without first conducting a field test. Ancore expressed similar views about the need for field testing. In January 1998, the Department of the Treasury and DOD jointly issued an assessment report, which concluded that--although proven effective in a laboratory setting for detecting and distinguishing target materials--a PFNA system would not meet their respective counterdrug and counterterrorism needs. The joint assessment report cited several limiting factors of a PFNA system as follows: The $10 million cost of procuring and installing each PFNA system is excessive compared with other systems. Similarly, the estimated $1 million annual cost per system for operations and maintenance is excessive. The 15,000 square feet of physical space needed to accommodate a PFNA system for operations is excessive and would limit application of a PFNA system to installations that have no space restrictions. It is unlikely a PFNA system could ever achieve the mobility goal of being relocatable from one site to another within 3 to 5 days. Although a PFNA system can detect operationally significant quantities of cocaine, the system has throughput rate (e.g., number of vehicles or containers that can be screened per hour) and detection limitations regarding other contraband, such as explosives, nuclear weapons and materials, and chemical agents. Less than 10 DOD facilities worldwide could accommodate or would have requirements for a PFNA inspection system. Treasury and DOD therefore recommended terminating the PFNA program and using any remaining fiscal year 1998 funds for other purposes. Early in our review, in response to our inquiries, Customs and DOD reaffirmed the conclusions presented in the joint assessment and stated that the primary reasons for rejecting PFNA were the high cost and excessive space requirements. Customs believes PFNA will cost about $12 million per system to acquire and install at each port of entry, a cost that Customs considers excessive. In comparison, for example, for the cost of 1 PFNA system, Customs officials said that the agency can purchase 5 to 10 alternative inspection systems and deploy them at multiple ports of entry. Customs' current 5-year technology acquisition plan (dated February 1998) does not include PFNA systems; rather, the plan calls for deploying X-ray systems and other alternative inspection technologies, such as gamma-ray imaging, to be used for counterdrug purposes. The officials stated that a PFNA system would be effective only at locations where it can screen vehicles and cargo that must pass through entry or "choke" points. Moreover, at our exit conference in February 1999, DOD officials emphasized that DOD does not want a PFNA system, does not envision using such a system in an operating environment, and would prefer using available PFNA funds for higher priorities. Despite some interest in PFNA in previous years, FAA currently does not envision a role for this technology in the agency's security operations. As with Customs and DOD, FAA has concerns about the costs, size, and other operational aspects of a PFNA inspection system. Alternatively, FAA sees more advantages in other types of inspection technology, particularly scanning technology adapted from the medical field to detect a wide range of explosives. In fact, FAA has already officially certified alternative detection systems as meeting FAA standards. Moreover, FAA officials told us that the agency's evolving or maturing operational philosophy has further lessened FAA's interest in PFNA. The officials explained that FAA is putting more emphasis on "know-your- customer" concepts and on screening air cargo parcels before they are combined onto pallets. Ancore prepared a detailed response to Treasury's and DOD's January 1998 joint assessment report. In its response, Ancore made the following assertions: Treasury and DOD have not quantified the concept of "affordability." However, PFNA is affordable because the capital cost of PFNA is lower than or the same as any of the existing systems claiming to be able to inspect fully loaded trucks and containers. The life-cycle cost of a system that lasts 10 to 30 years should be considered. The joint assessment claimed maintenance costs could be as high as $1 million per system per year, but the only time such costs were asked for, a fixed-price bid of $500,000 to $600,000 was given to the European consortium for maintenance for the first year. The operations cost is lower for PFNA than for X-ray because PFNA needs fewer people to look at images. The major cost of operating an inspection system is one that Customs regularly ignores (i.e., the cost of processing vehicles or containers rejected by a system). Such rejections can result from false alarms. Also, rejections include any vehicles or containers that the system cannot effectively inspect, such as fully loaded trucks. Yet, sometimes Customs uses the argument that manual unloading of vehicles or containers represents fixed costs that should not be considered in any comparative analyses. However, while retaining the same staff for opening trucks and containers, Customs could seize more contraband with PFNA because it provides a much higher detection rate than any other technique. Thus, PFNA would provide a better return on cost than other inspection technologies. A PFNA system can be accommodated in different size areas, depending on the site requirement. The current system, with the existing type of elecrostatic accelerator, protective shielding, and full- size truck interrogation tunnel, occupies about 4,000 to 5,000 square feet. Also, the joint assessment report disqualifies PFNA based on size, ignoring the space required for the alternative, namely partially or fully unloading trucks or containers. Use of a PFNA system, compared with the less efficient X-ray systems, results in a better utilization of the scarce real estate in ports of entry. The current throughput rate of a PFNA system is similar to or exceeds that of the X-ray system selected by Treasury to inspect empty trucks. The agreed-upon goal was to have a PFNA inspection system that could be moved from one location to another within 14 days. However, the joint assessment report said that Treasury wants a system that can be relocated within 3 to 5 days. Ancore has been in discussions with barge manufacturers about mounting the PFNA system on a barge, which could be towed from one port to another as a method for meeting Treasury's time requirement. In response to our inquiries, Ancore officials reaffirmed their disagreement with the joint assessment report's conclusions. Further, Ancore's officials commented that a fairly designed and conducted field test would demonstrate the operational effectiveness of a PFNA system. ONDCP's position is that a PFNA system should be operationally field tested. ONDCP officials noted that the technology has successfully passed laboratory tests, which proved the physics of neutron interrogation. In a 1996 report on inspection systems, ONDCP concluded that: "The state-of-the art in PFNA inspection systems is not sufficiently developed for current operational use. Any field implementation of the current PFNA system should be in an operational test bed environment." ONDCP recommended that a test bed at a port of entry be procured to facilitate gathering data and making a more informed, analytical decision. More recently, in its July 1998 10-year plan, ONDCP characterized neutron-based inspection technology as an emerging technology (7 to 10 years out) rather than an off-the-shelf technology. In responding to a draft of the plan, Customs urged ONDCP to remove all references to PFNA because it did not want the plan to be construed as representing Customs support for a PFNA system. In response to our inquiries, the Director of ONDCP's Counterdrug Technology Assessment Center said that Customs seemed to have rejected PFNA without the benefit of sufficient, empirical data. According to the Director, PFNA warrants field testing to provide a sound basis for decisionmaking. A point not in dispute is that PFNA's technical feasibility has been proven in the laboratory. Nonetheless, agency officials said that solving the physics problem does not solve the operational problems. In this regard, in addition to costs, the principal areas of controversy about a PFNA inspection system involve "operational" rather than "physics" issues. Even the issue of system size or space requirements is in dispute. In the absence of field testing, there may be no definitive answer as to whether a PFNA system has operational merit--particularly if these disagreements continue. The prospective users--Customs, DOD, and FAA--seriously question whether a PFNA system has operational merit and, thus, also question the need for field testing. On the other hand, ONDCP, which coordinates counterdrug technology research and development within the federal government, questions rejecting a PFNA system on operational grounds when no field testing has been conducted. Also, Ancore believes a field test of PFNA will demonstrate its operational effectiveness. Despite their views on PFNA, Customs, DOD, and FAA are planning to comply with their respective congressional guidance, and Customs said it is working with Congress to clarify its own funding guidance. These agencies recognize that, if a test is to be conducted, a joint, cooperative effort would be the most efficient use of government funds and that a configuration or test review board with advisory representation from the National Academy of Sciences may be appropriate to evaluate the test plan before implementation. On February 24, 1999, we provided a draft of this report for review and comment to the Customs Service, DOD, FAA, ONDCP, and Ancore Corporation. We received either written or oral comments during the period March 9-15, 1999, from the Director, Applied Technology Division, Office of Information and Technology, the Customs Service; the Assistant for Science and Technology, Office of Assistant Secretary of Defense for Special Operations and Low Intensity Conflicts, the Department of Defense; the Scientific Advisor, Office of Civil Aviation Security, the Federal Aviation Administration; the Director, Counterdrug Technology Assessment Center, the Office of National Drug Control Policy; and the President/Chief Executive Officer of the Ancore Corporation. In its written comments, Customs said that: The report accurately reflects the agency's position on the field test and discussions with the vendor, as well as the current status of interagency planning. Customs continues to differ with Ancore, as summarized in the report. In its written comments, DOD concurred with the report. FAA orally advised us that the agency had no comments on the draft. ONDCP, in its written comments, said that our presentation of its views was essentially correct and added the following: Additional emphasis on a national policy to pursue innovative and emerging technologies is needed. A continued investment in research and development is essential to improving interdiction capabilities. ONDCP's views should not be misinterpreted to indicate that the focus of technology development is specific to PFNA or to Ancore's views. As presented in ONDCP's latest Ten-Year Counterdrug Technology Plan and Development Roadmap, PFNA is viewed as one of many potential candidates that fall within emerging technologies and neutron interrogation. In its written comments, Ancore said that the report was factual and correctly described the status of operational testing. Further, Ancore commented substantially as follows: Ancore has always maintained that an effective national drug interdiction program requires having a "system of systems," i.e., deploying a variety of complementary nonintrusive systems, including X-ray and PFNA, as well as continuing to rely on intelligence. The effectiveness of the overall interdiction effort will be severely affected if this complementary deployment excludes PFNA and its high- performance capabilities (e.g., selectivity, material specificity, and automatic decision). Also, Ancore had a few technical comments and clarifications, which have been incorporated in this report where appropriate. We are sending copies of this report to Representative Jim Kolbe, Chairman, and Representative Steny H. Hoyer, Ranking Minority Member, Subcommittee on Treasury, Postal Service, and General Government, Committee on Appropriations, House of Representatives; Representative J.C. Watts; and to other relevant congressional committees. We are also sending copies of this report to: The Honorable William Cohen, Secretary of Defense; The Honorable Robert E. Rubin, Secretary of the Treasury; The Honorable Raymond W. Kelly, Commissioner of Customs; The Honorable Rodney E. Slater, Secretary of Transportation; The Honorable Jane F. Garvey, Administrator, FAA; The Honorable Barry R. McCaffrey, Director, ONDCP; The Honorable Jacob Lew, Director, Office of Management and Budget; and Mr. Tsahi Gozani, President and Chief Executive Officer of the Ancore Corporation. Copies will also be made available to others upon request. The major contributors to this report are listed in appendix II. If you or your staffs have any questions about this report, please contact me on (202) 512-8777. Our objectives were to provide information about (1) the status of plans for field testing a pulsed fast neutron analysis (PFNA) inspection system for counterterrorism and/or counterdrug purposes and (2) federal agency and vendor views on the mission viability of such a system. Initially, to obtain background and overview perspectives on PFNA technology, we conducted a literature search to identify past studies, reports, and other relevant materials, including appropriations acts and other congressional guidance. In directly addressing the objectives, we interviewed responsible officials at applicable federal agencies. Our contacts included the following: Customs Service: Our primary meetings were with the Director and other staff of the Applied Technology Division, a component of Customs' Office of Information and Technology. In addition, we met with representatives from the Office of Field Operations and the Office of Finance. Department of Defense (DOD): We interviewed representatives of DOD's interoffice project for developing PFNA: (1) the project leader from the Office of the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and (2) the project manager from the Department of the Navy's Office of Special Technology. DOD develops technologies for detecting explosives and chemical agents for its counterterrorism activities and narcotics for Customs' counterdrug programs. Federal Aviation Administration (FAA): We mainly interviewed officials in the Office of Civil Aviation Security and its research and development division in Atlantic City, NJ. Office of National Drug Control Policy (ONDCP): Our principal contact was the Director of the Counterdrug Technology Assessment Center. Established within ONDCP by Congress in fiscal year 1991, the Center serves as the federal government's central research and development organization for counterdrug enforcement. Also, we contacted the PFNA vendor, Ancore Corporation. During our November 1998 visit to Ancore's headquarters and facilities in Santa Clara, CA, we watched a brief demonstration of the PFNA technology. Also, we were provided detailed briefings by senior executives, including the President and Chief Executive Officer, the Chief Operating Officer, and the Vice President for Programs and Business Development. To better understand federal agency and vendor views on the PFNA system, we obtained copies of various documents on its capabilities. Two of the primary documents we reviewed were (1) the January 1998 Joint Assessment of the Pulsed Fast Neutron Analysis Cargo Inspection System by Departments of Defense and Treasury and (2) Ancore's May 1998 response to the joint assessment. We also reviewed relevant documents on congressional guidance on the development of counterterrorism and PFNA laboratory test results, other technical and claimed operational capabilities of PFNA, Customs' narcotics inspection operations and 5-year technology development and acquisition plans, ONDCP's assessments of inspection technologies and 10-year plans for PFNA contract and budget data. However, our review of these documents did not constitute a comprehensive or an independent technical analysis of PFNA. That is, the scope of our work did not include determining whether the PFNA technology is ready for field testing or whether a PFNA system has operational merit. James D. Moses, Evaluator-in-Charge Samuel L. Hinojosa, 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. 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Pursuant to a legislative requirement, GAO provided information on the operational viability of pulsed fast neutron analysis technology (PFNA), which is designed to directly and automatically detect and measure the presence of specific materials by exposing their constituent chemical elements to short bursts of subatomic particles called neutrons, focusing on: (1) the status of plans for field testing a PFNA inspection system for counterterrorism and counterdrug purposes; and (2) federal agency and vendor views on the operational viability of such a system. GAO noted that: (1) the Customs Service, the Department of Defense (DOD), the Federal Aviation Administration (FAA), and the Ancore Corporation recently began planning to field test PFNA; (2) because they are in the early stage of planning, they do not expect the actual field test to begin until mid to late 1999 at the earliest; (3) generally, agency and vendor officials estimate that a field test covering Customs' and DOD's requirements will cost at least $5 million and that the cost could reach $8 million if FAA's requirements are included in the joint test; (4) Customs officials told GAO they are working closely with applicable congressional committees and subcommittees to decide whether Customs can help fund the field test, given that Senate Report 105-251 directs the Commissioner of Customs to enter into negotiations with the private sector to conduct a field test of PFNA technology at no cost to the federal government; (5) generally, a complete field test would include: (a) preparing a test site and constructing an appropriate facility; (b) making any needed modifications to the only existing PFNA system and its components; (c) disassembling, shipping and reassembling the system at the test site; and (d) conducting an operational test for about 4 months; (6) according to agency and Ancore officials, test site candidates are two seaports in California (Long Beach and Oakland) and two land ports in El Paso, Texas; (7) federal agency and vendor views on the operational viability of PFNA vary; (8) while Customs, DOD, and FAA officials acknowledge that laboratory testing has proven the technical feasibility of PFNA, they told GAO that the current Ancore inspection system would not meet their operational requirements; (9) among other concerns, Customs, DOD, and FAA officials said that a PFNA system not only is too expensive (about $10 million to acquire per system) but also is too large for operational use in most ports of entry or other sites; (10) accordingly, these agencies question the value of further testing; (11) Ancore disputes these arguments, believes it can produce an operationally cost-effective system, and is proposing that a PFNA system be tested at a port of entry; and (12) the Office of National Drug Control Policy has characterized neutron interrogation as an emerging or future technology that has shown promise in laboratory testing, and, thus, warrants field testing to provide a more informed basis for deciding if PFNA has operational merit.
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The Army Materiel Command initiated an effort in 1999 to replace its existing materiel management systems--the Commodity Command Standard System and the Standard Depot System--with LMP. In addition to replacing these systems, which have been used for over 30 years to manage inventory and depot maintenance operations, the Army intended for LMP to transform logistics operations in six core processes: order fulfillment, demand and supply planning, procurement, asset management, materiel maintenance, and financial management. According to the Army, the implementation of LMP is intended to help the Army reduce inventory, improve supply and demand forecast planning, and provide a single source of data for decision making. When LMP is fully implemented, it is expected to include approximately 21,000 users at 104 locations and will be used to manage more than $40 billion worth of goods and services. LMP became operational at the Army Communications-Electronics Command and Tobyhanna Army Depot in July 2003 and was originally expected to be fully deployed by fiscal year 2005. However, because of problems experienced during the deployment, the Army decided to delay implementation until the problems were resolved. In May 2009, LMP became operational at the Army Aviation and Missile Command and Corpus Christi and Letterkenny Army Depots. The third and final deployment of LMP began on October 1, 2010, at depots, arsenals, and sites within the Army Sustainment Command, the Joint Munitions and Lethality Life Cycle Management Command, and the Tank-automotive and Armaments Command. Preparations for the third and final deployment of LMP began in December 2008, and it is the largest of the three deployments, affecting approximately 11,000 users at 83 sites across the globe. LMP program management officials told us that 29 of these sites will significantly use LMP. The Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 indicates that the executive-level oversight of business systems modernization and overall business transformation--including defining and measuring success in enterprise resource planning--is the responsibility of a military department-level chief management officer. In the case of the Army, the Under Secretary of the Army serves as the Chief Management Officer. In this capacity, the Under Secretary of the Army provides oversight for business systems modernization, such as LMP. Prior to transitioning to LMP, the Army is directed to certify that each Army depot is prepared to transition. Specifically, in House Armed Services Committee Report 110-652 accompanying the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, the committee directed the Secretary of the Army to certify to the Senate Committee on Armed Services and the House Committee on Armed Services that each Army depot is prepared for the transition to LMP. On September 20, 2010, the Secretary of the Army certified to the chairmen and ranking members of the committees that the Tank-automotive and Armaments Command, the Joint Munitions and Lethality Life Cycle Management Command, their subordinate industrial sites, and the Army Sustainment Command were prepared for transition to the LMP automated information system. According to Army officials, based on the timing of this memorandum, the Army intended to begin using the system at the third deployment locations on October 21, 2010, to manage operations for fiscal year 2011. With the exception of this certification, the Army is not presently required to report to Congress other information specifically focused on LMP implementation on a regular basis. The Army has improved its LMP implementation strategy from the previous two deployments, but continues to face several problems that may prevent LMP from fully providing its intended functionality at each of the third deployment locations. While the Army has improved its data testing strategy for the third deployment, data quality problems continue to persist at locations that previously deployed LMP, which prevent these locations from using LMP as intended. Furthermore, the Army has yet to develop fully the software capabilities needed to achieve the intended LMP functionality for some sites, which may limit their ability to perform certain tasks, such as maintaining accountability of ammunition. Although the Army has mitigation plans in place if the software capabilities are not delivered on time or as intended, these mitigation plans will increase costs. Our prior reviews of LMP identified weaknesses in the Army's efforts to effectively implement the processes needed to reduce risks to acceptable levels. During our current review, we found that the Army had taken action on some of these areas. For example, we previously recommended that the Army use system testers that are independent of the LMP system developers to help ensure that the system is providing its users the intended capabilities. Based on our observations of the third deployment, the Army implemented this recommendation and testing activities were being conducted by LMP users as opposed to the LMP system developers. Additionally, to assist in the preparation for the third deployment of LMP, we previously recommended that the Army establish performance metrics that will enable the Army to assess whether the deployment sites are able to use LMP as intended. The Army developed performance measures to monitor the progress of LMP implementation and finalized these measures on September 30, 2010. These measures, if effectively implemented, should enable the Army to determine the extent to which the third deployment sites are able to use LMP as intended. The Army does not have reasonable assurance that the data used by LMP are of sufficient quality to enable the commands, depots, and arsenals to perform their day-to-day missions using LMP as intended. The Army initiated a testing strategy to determine data accuracy, but it has not provided reasonable assurance that the data used by LMP can support the LMP processes. As we have previously reported, testing is a critical process utilized by organizations with the intent of finding errors before a system is implemented. Although the Army implemented new testing activities to support the third deployment of LMP, these activities were designed to assess whether the sites could use the software but did not evaluate whether the data loaded into LMP are of sufficient quality to support the LMP processes. LMP program management officials told us that these testing activities were not designed to assess data quality. Instead, the Army conducted data quality audits to determine whether select data elements were accurate. Based on our observations, the data quality audits did not effectively assess whether the data would work in the LMP system. Based on our observations during the second deployment of LMP, we previously recommended that the Army direct the Army Materiel Command to improve its testing activities to obtain reasonable assurance that the data are of a quality that can be used by LMP to support the LMP processes. The Army concurred with our recommendation and stated that the third deployment would involve improved testing as well as additional efforts to enhance the quality of the data. The Army implemented two new test activities--the Process and Data Integration Test and the Business Operations Test--for the third deployment of LMP. According to Army officials, these test activities incorporated some lessons learned from the second deployment of LMP. The Process and Data Integration Test, which was conducted from April 2010 through June 2010, was intended to test an end-to-end business process using migrated, validated business data from critical weapons systems. The Business Operations Test, which was conducted from July 2010 through September 2010, was intended to be an activity where users would perform transactions in the LMP system using local data, from their home stations, which would bring data, business processes, standard operating procedures, and end user training materials together to ensure success. LMP program management officials told us in January 2010 that these tests were an improvement over the tests used during the second deployment of LMP. Specifically, LMP program management officials stated that the Process and Data Integration Test was an improvement because the test activity would assess the compatibility of the migrated data to support LMP processes, such as verifying that invoices and goods receipts can be processed against purchase orders. Also, LMP program management officials stated that the Business Operations Test was an improvement because the sites would select commodities at their sites and then execute an end-to-end process to ensure that the LMP processes work. According to LMP program management officials, the two testing activities were linked because the test scripts used during the Process and Data Integration Test would be used to develop the test scripts for the Business Operations Test. LMP program management officials also told us in June 2010 that both tests would be used to determine whether the software is meeting the operational requirements of the third deployment locations, and that the Business Operations Test, in particular, would evaluate whether the data used by LMP can support the envisioned LMP processes. Based on our observations at the third deployment sites, the Army's tests were not effective in evaluating whether the quality of the data used in LMP could support the LMP processes. Specifically, officials at several of the sites we visited stated that they had observed shortcomings in the Process and Data Integration Test. For example, officials at the Army Sustainment Command told us that at the time the Process and Data Integration Test activity was conducted, their data had yet to be loaded into LMP. Accordingly, these officials stated that the Process and Data Integration Test activity used data from the second deployment of LMP. Officials at sites from the Joint Munitions and Lethality Life Cycle Management Command also identified other problems with the Process and Data Integration Test activity, such as test scripts that were incorrect or not reflective of their business processes because the software necessary to support their operations was still being developed. Officials at a Tank-automotive and Armaments Command site expressed similar sentiments, noting that the test scripts used during the Process and Data Integration Test activity did not reflect some of their business processes, such as building items in support of foreign military sales. Similarly, officials at several other sites told us that the test scripts used were out of sequence, so the test scripts had to be corrected in order to reflect how the location conducted its business. We also observed challenges related to the Army's Business Operations Test activity. Specifically, officials at several sites told us in July and August 2010 that some of the test scripts they executed during the Business Operations Test activity were not reflective of their business processes. For example, during our site visits in August, officials at one site told us that although manufacturing represented more than 90 percent of their workload, they spent the first 5 weeks of the Business Operations Test activity evaluating whether they could perform repair operations. Additionally, the officials stated that during the course of this testing, some of the data necessary to conduct the test were missing and other data did not load correctly into LMP and had to be generated for the test. For example, officials told us that in order to test whether they were able to conduct materiel requirements planning, which is the process used to determine the number of parts needed to support a repair, the test managers had to create the data that listed the component parts for the item so that the test scripts could be executed. At another site, officials told us that the data that were necessary to assign a production order to their location were not in LMP, and that in order to conduct the tests, the test managers directed them to use the data from a different command. Site officials also told us that they were limited in the number of commodities that they could test. For example, officials at one site told us that they manage more than a thousand different items. However, because of time constraints, they were only able to test one item. Furthermore, the Business Operations Test activity did not exercise the full range of data. For example, officials at one site told us that an item they tested contained multiple levels of data; however, the test script directed them to evaluate only the first and second levels of data. Accordingly, the Business Operations Test activity did not assess whether the data could support the actual functions that the site would need to perform once LMP was deployed. On August 13, 2010, we shared our observations with LMP program management officials, and on August 18, 2010, LMP program management officials told us that the Business Operations Test activity was intended to test the software using the data from the sites and that this test would identify and document data and training issues. However, they noted that while the test would provide indicators related to data issues, it would not provide an overall data accuracy assessment. LMP program management officials stated that the data audits being conducted by the Army Logistics Support Activity were the best indicator for data accuracy. According to Army officials, these audits were intended to provide an initial assessment of data accuracy and then serve as an ongoing measurement as part of the Army's strategy to ensure the accuracy of the data. LMP program management officials stated that in response to our observations, the Army would accelerate the time frame for the data accuracy audits. LMP program management officials stated that these data accuracy audits were completed on September 30, 2010. Additionally, LMP program management officials stated that these audits were not designed to be an automated data test, but rather an inspection by subject matter experts to ensure that the data were accurate. Although an important step, based on our observations at the third deployment sites, the Army's data audits do not provide reasonable assurance that the data are of sufficient quality to support the LMP processes. According to Army officials, the data audits do not include all data elements. Consequently, when the sites conducted simulations, they identified data errors that had not been identified by the audits. Officials at one of the sites we visited told us that they had conducted an extensive process to build and validate their data, including having subject matter experts review individual data elements and compare the data elements against the technical data for that item. However, the officials stated that they had discovered through simulations that some of the data that had transferred into LMP from the legacy systems--and had undergone audits--still contained errors. The officials stated that these errors, which were related to an incorrect unit of measure, would have prevented them from using LMP as intended. Officials at another site we visited in June 2010 told us that during a simulation they conducted in between the planned testing activities, they discovered that an item that takes 5 days to repair was projected to take 5 years to repair. Officials at this site stated that after they visually inspected and corrected the data elements, they conducted another simulation, and the projected time to complete repairs dropped from 5 years to 3 years. According to LMP program management officials, the sites would have the opportunity to conduct simulations to assess their data upon completion of testing activities. We observed simulations being conducted at Anniston Army Depot on September 22, 2010, and Red River Army Depot on September 23, 2010. These simulations were useful, in part, but also had weaknesses. For example, depot officials told us that the simulations enabled the depots to identify data errors and develop processes to correct data errors after LMP is deployed and provided an opportunity to perform actual tasks in LMP. While these simulations and the innovative actions taken at both depots--such as developing mitigation strategies to correct data errors--reduce the risk that data problems will adversely affect the depots after LMP is deployed, these simulations also revealed weaknesses in the Army-wide testing activities. For example, depot officials told us that the simulations revealed problems with the data audits being conducted by the Army Logistics Support Activity. Specifically, depot officials told us that the data reviewed by the Army Logistics Support Activity were generally considered to be accurate in over 90 percent of the cases. However, when conducting simulations, depot officials stated that they found data errors that would have prevented the LMP processes from being exercised. Additionally, depot officials told us that the data audits identified data errors that would affect their ability to use LMP but were also beyond their ability to correct because the data elements were managed by other Army or DOD organizations. While the simulations we observed at Anniston Army Depot and Red River Army Depot are a positive step, they may not be representative of the Army's actions. During our visit to these depots in June 2010, officials at both depots told us that they intended to conduct simulations as soon as practicable. In contrast, according to the LMP program management office, other locations would not be able to begin simulations until October 4, 2010. Additionally, the strategies used to conduct simulations at both depots we visited were site specific and different from each other. Depot officials told us that they had developed their simulation strategy internally and without direction from the Army or the LMP program management office, and LMP program management officials told us that there was not a formal requirement to conduct simulations. As a result, there was likely to be variation in how the 29 sites conducted simulations, if at all. Depot officials told us that the simulations did not mirror all of the functions in LMP that would be used in performing their day-to-day mission of repairing and overhauling items that were needed by the warfighter and were not representative of the LMP environment. Moreover, depot officials told us that they did not expect that the corrections they made to fix data errors identified during the simulations would transfer correctly into LMP because based on their experience the process of migrating data between systems introduces errors. However, depot officials told us that on September 23, 2010, officials from the LMP program management office told them that the depots would have access to the actual LMP environment on October 14, 2010. Depot officials stated that they intended to conduct additional simulations using LMP until the system was deployed on October 21, 2010. Depot officials also stated that they would continue to correct the data in LMP after the system was deployed. Persistent data issues have prevented Corpus Christi Army Depot and Letterkenny Army Depot--the two depots that deployed LMP in May 2009--from achieving the intended benefits from LMP. Although officials at both locations acknowledged that the system is an improvement over the previous legacy systems, officials also told us that they are unable to always use the system as intended. For example, as we previously reported, one of the intended benefits that LMP was expected to provide the depots was the ability to automatically calculate the materiel requirements for a repair project. According to an Army regulation, this process--known as materiel requirements planning--works to ensure that repair parts and components are available to meet the maintenance, repair, overhaul, or fabrication schedule while maintaining the lowest possible level of inventory. Officials at both locations told us that while the LMP software was capable of automatically conducting materiel requirements planning, the data that LMP uses to conduct the calculations are inaccurate. Accordingly, officials at both depots told us that they must either adjust the settings within LMP to ensure that each calculation matches the planned delivery time or manually input the specific requirements. Officials at both locations told us that they have developed strategies and are conducting reviews to address data quality problems. For example, officials at Letterkenny Army Depot told us that they have completed addressing data issues for about half of their major systems since May 2009. Similarly, officials at Corpus Christi Army Depot told us that they were continuing to address data quality problems, and that this was a long-term process that could take years. Inaccurate data are also affecting the Army's ability to use other management systems. For example, the Army uses the Army Workload and Performance System to determine, among other things, whether the workforce at a depot matches the projected workload. Army officials told us that because the Army Workload and Performance System relies on data from LMP in order to generate the reports, inaccurate data in LMP will result in inaccurate reports. For example, Army officials showed us a report from the Army Workload and Performance System that compared the projected workload at Corpus Christi Army Depot and Letterkenny Army Depot against the planned workforce and, according to that report, the workforce needed to accomplish the projected workload was higher than previous levels. Specifically, Letterkenny Army Depot, which normally requires approximately 1,800 resources per day, was projected to need 6,000 resources per day to address the projected workload. Similarly, Corpus Christi Army Depot, which normally requires approximately 2,900 resources per day, was projected to need nearly 14,500 resources per day. Army officials stated that these incorrect reports were related, in part, to incorrect data that had been loaded into LMP. Army officials at the depots also told us that their ability to use the Army Workload and Performance System was directly related to the quality of the data in LMP, and that until the data in LMP are corrected, they do not expect the reports to be accurate. Despite the data issues, depot officials at both Corpus Christi Army Depot and Letterkenny Army Depot stated that LMP is an improvement over the previous legacy systems because it has increased visibility over assets and provided a single source of data for decision making. For example, officials at Corpus Christi Army Depot told us that LMP has enhanced their ability to share information and interact with original equipment manufacturers, and that they now have increased visibility over contractor-managed inventories compared to that under the legacy systems. Similarly, Letterkenny Army Depot officials told us that LMP provides the Army increased visibility over items they maintain in inventory, and depot officials told us that a unit in Afghanistan was able to identify and requisition an item from the depot's inventory that was not available in the supply system. As we previously reported, these capabilities were not available in legacy systems. Additionally, Letterkenny Army Depot officials told us that as they improve the quality of their data, they expect to be able to improve their ability to use LMP for evaluating repair overhaul factors as well as forecasting workloads and parts requirements. The Army's software development schedule and subsequent testing of capabilities needed by several locations was not expected to be delivered until after September 2010. Unlike operations under the previous deployments of LMP, the operations at some of the third deployment locations are unique and therefore require additional capabilities. For example, the Army Sustainment Command and the Joint Munitions and Lethality Life Cycle Management Command require LMP to interface with existing systems in order to perform their day-to-day missions. In contrast, some sites within the Tank-automotive and Armaments Command use existing systems to collect manufacturing data that will no longer be available once LMP is deployed. The Army has developed mitigation plans to address the shortfalls in capability, but those plans often involve hiring additional staff or employing time-consuming manual processes. The Army has yet to develop the software functionality needed by the Army Sustainment Command to perform its mission under LMP, but Army officials expect the functionality to be delivered prior to LMP deployment. The Army Sustainment Command uses an automated information system called the Army War Reserve Deployment System (AWRDS) to track inventory and transfer accountability of pre-positioned stocks to units. In a briefing to the Army Materiel Command in December 2009, officials at the Army Sustainment Command stated that the interface between LMP and AWRDS was critical to a go-live decision and a key to the success of Army Sustainment Command operations in Southwest Asia. During that briefing, officials at the Army Sustainment Command also stated that full development of the interface between LMP and AWRDS was scheduled for completion and testing in March 2010, and that the functionality was scheduled for release in May 2010. However, development and delivery of the LMP and AWRDS interface was delayed and, according to LMP program management officials, the Business Operations Test activity for this interface occurred from August 30, 2010, through September 3, 2010. During the Business Operations Test activity, LMP program management officials told us that all but one of the test cases passed, and that this issue is currently under review. The Army Sustainment Command also requires additional software functionality to conduct a mass upload--which is the automated movement of thousands of items of inventory between the Army Sustainment Command and the warfighter. Army officials stated that LMP provides this capability, but only through the use of manual processes that Army officials said are time consuming and staffing resource intensive. The expected delivery date of this functionality was October 11, 2010; however, Army officials stated on October 14, 2010, that testing on the functionality was still in process. Army Sustainment Command officials stated that without this capability, users would have to enter information manually into LMP, which would require certain locations to hire additional staff to accommodate the workload and mitigate the effects of the missing capability. On August 27, 2010, the Commander of the Army Sustainment Command endorsed the recommendation to deploy LMP on October 13, 2010, but noted that AWRDS/LMP interface testing would not be completed until September and that training materials for the new software had yet to be made available for end users. The Army is continuing to develop the software functionality that the Joint Munitions and Lethality Life Cycle Management Command needs to perform its mission using LMP, but Army officials said that full functionality will not be available until after LMP has been deployed. The Joint Munitions and Lethality Life Cycle Management Command conducts operations related to the production, management, and maintenance of ammunition. Officials at Joint Munitions and Lethality Life Cycle Management Command sites told us that LMP--unlike the systems that they currently have in place that will be replaced once LMP is deployed-- did not enable them to ship, receive, inventory, and perform stock movements for ammunition. LMP program management officials told us that this missing functionality was identified in 2009, and that development of this functionality began in January 2010. The Army plans to deliver the ammunition-specific functionality and interfaces in phases through March 2011. Joint Munitions and Lethality Life Cycle Management Command officials stated that they have developed strategies to enable them to conduct operations in the event that the new software functionality is not delivered on time or does not provide the intended capability. For example, in the event that this functionality is not delivered or does not operate as expected, the Joint Munitions and Lethality Life Cycle Management Command expects to hire 172 additional personnel to perform manual data entry until the software can provide the required and agreed-upon functionality. Joint Munitions and Lethality Life Cycle Management Command officials stated that this mitigation plan would enable them to deliver ammunition to the warfighter. However, they also stated that this mitigation strategy will remove efficiencies associated with automation of these activities that are present in the legacy systems being replaced by LMP and lead to a degradation of data integrity and inventory accuracy. During our visits to the Joint Munitions and Lethality Life Cycle Management Command sites, officials provided examples of the effect of lost visibility and accountability of ammunition on their operations. Officials at one site told us that the intended benefit from LMP usage was to provide a common data set and real-time visibility over ammunition. However, in the event that the software capability is not delivered, the officials stated that their mitigation strategy would be to track ammunition using "pencils and index cards." While this strategy would enable some accountability over ammunition, the site would not be able to achieve the intended benefit of real-time visibility over ammunition. Officials at another site told us that their mitigation strategy would enable them to continue to ship ammunition to the warfighter. However, manually entering data into LMP would also reduce their ability to track ammunition. For example, officials told us that the existing systems are capable of tracking the serial numbers assigned to missiles, as well as the serial numbers of a missile's component parts--such as the warhead and the guidance system--and that the software necessary for LMP to be able to provide this capability was expected to be delivered on October 12, 2010. However, as of October 14, 2010, development of this capability was only partially completed. The officials stated that without this capability, their mitigation strategy of manually entering data into LMP would cause delays in their ability to track the individual serial numbers and, in the event that a missile component needed to be recalled, would make finding missiles that have components that are being recalled difficult, especially if those missiles had been shipped to a customer. On August 20, 2010, the Executive Director of the Joint Munitions and Lethality Life Cycle Management Command signed a memorandum that stated that the command was prepared for the deployment of LMP. The memorandum also stated that the tasks that had yet to be completed, upon which deployment was contingent, were development of, training on, and testing of the ammunition functionality. The memorandum also stated that in the event that all ammunition functionality is not in place by the go-live date, the Joint Munitions and Lethality Life Cycle Management Command is prepared to exercise its documented mitigation strategy until such time as the functionality is available in LMP, with the understanding that the use of the mitigation strategy will increase costs and decrease inventory accuracy. Certain functionality that the arsenals under the Tank-automotive and Armaments Command need to perform their missions will not be deployed until after LMP is deployed. These arsenals currently have systems-- commonly referred to as manufacturing and execution systems--in place to report manufacturing data and track the status of items being manufactured. According to Tank-automotive and Armaments Command officials, the arsenals will lose this capability once LMP is deployed until a replacement system is fielded. According to LMP program management officials, LMP was never intended to provide this capability. Instead, the Army has another project to develop this capability and integrate it with LMP. According to Army officials, this project is expected to provide the needed functionality and be deployed to the LMP locations that need it in phases. The first phase of this system improvement effort is expected to occur in February 2011 with the final delivery to occur in July 2011. In order to compensate for this lost capability, officials at the Tank- automotive and Armaments Command developed a mitigation strategy that includes hiring an estimated 95 additional people in order to manually perform the actions in LMP that were once handled by the legacy systems. Tank-automotive and Armaments Command officials stated that these personnel will be needed until the manufacturing and execution system is fielded and effectively implemented. In an August 30, 2010, memorandum, the Commander of the Tank- automotive and Armaments Command confirmed the command's preparedness to deploy LMP on October 13, 2010, with minimal impact to mission accomplishment. The memorandum, however, identified a number of the Commander's concerns, such as the potential requirement to hire an estimated 95 additional people to manage the manual efforts required to address the lack of a manufacturing and execution solution, as well as potential out-of-pocket costs that could approach an unbudgeted $300 million in the near term. The intention behind an enterprise resource planning system, like LMP, is to enhance the effectiveness and efficiency of an organization. Implementation of these types of systems is a complex endeavor, and the ability to gain these efficiencies depends on the quality of the data in the system. As illustrated by the experiences at the locations that deployed LMP in May 2009, data quality continues to be a challenge. The Army, however, has not adopted a testing strategy that provides adequate insight on whether the data loaded into LMP can support the LMP processes. Moreover, the functionality that is required to support some of the locations is still being developed, so the Army does not have reasonable assurance that the system is meeting its needs before LMP is deployed. Without software that is working and data of sufficient quality to use in the system, the Army's ability to gain the anticipated increase in its effectiveness and efficiency for its $1 billion investment remains unclear. Although the Army has mitigation strategies in place that are expected to address potential shortcomings, the Army expects that these strategies will increase costs and decrease accuracy of inventory, which are the opposite effects of what LMP functionality was intended to provide. Accordingly, given the delays in implementing LMP and the long-standing problems that have precluded the Army from realizing LMP functionality, additional oversight and reporting is needed to better inform Congress of the Army's progress in addressing these problems and the status and costs of the mitigation strategies the Army is employing. Given the long-standing challenges associated with the Army's implementation of LMP and the need for mitigation strategies that may result in increased costs until LMP is fully functional, we are recommending that the Secretary of Defense direct the Under Secretary of the Army as the Army's Chief Management Officer to report to Congress within 90 days of the beginning of the LMP third deployment on the progress of LMP implementation at the Army depots, arsenals, and life cycle commands, and provide periodic updates to Congress until such time as the mitigation strategies are no longer necessary. This report should identify the extent to which the third deployment sites are able to use LMP as intended, the benefits that LMP is providing, an assessment of the Army's progress in ensuring that data used in LMP can support the LMP processes, timelines for the delivery of software and additional capabilities necessary to achieve the full benefits of LMP, and the costs and time frames of the mitigation strategies. In written comments on a draft of this report, DOD agreed with our findings with respect to data, software development, and systems, and also agreed on the need to implement prior LMP recommendations with which the department has previously concurred. DOD stated that the Army has established additional oversight of the third deployment of LMP and has no issues with GAO's facts, observations, or recommendations, as stated in this report. DOD also stated that the Army Materiel Command is working closely with the LMP Project Office and third deployment sites to establish appropriate management controls. With respect to our recommendation, DOD stated that the department fully understands Congress's interest in this deployment and that the Army will comply with GAO's recommendation and the prescribed reporting timetable and conditions. The department's written comments are reprinted in appendix I. We are sending copies of this report to interested congressional committees; the Secretary of Defense; the Secretary of the Army; and the Director, Office of Management and Budget. The report also is available at no charge on the GAO Web site at http://www.gao.gov. Please contact William M. Solis at (202) 512-8365 or [email protected], Asif A. Khan at (202) 512-9869 or [email protected], or Nabajyoti Barkakati at (202) 512-4499 or [email protected] if you or your staff have questions on matters discussed in 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 II. In addition to the contacts named above, J. Chris Martin, Senior-Level Technologist; David Schmitt, Assistant Director; Darby Smith, Assistant Director; Jim Melton; Gilbert Kim; Grace Coleman; and Michael Shaughnessy made key contributions to this report.
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The Logistics Modernization Program (LMP) is an Army business system that is intended to replace the aging Army systems that manage inventory and depot repair operations. From 1999 through 2009, the Army expended more than $1 billion for LMP. LMP was originally scheduled to be completed by 2005, but after the first deployment in July 2003, the Army delayed fielding because of significant problems. The Army later decided to field the system in two additional deployments: the second in May 2009 and the third in October 2010. GAO was asked to evaluate the extent to which the Army will achieve the intended functionality (e.g., supply chain management and materiel maintenance) from LMP for the commands, depots, and arsenals participating in the third deployment. To do this, GAO reviewed Army plans and policies related to LMP and met with Army officials at three Army commands and several third deployment sites. The Army has made improvements to its LMP implementation strategy, but it may not fully achieve the intended LMP functionality in its third deployment, which began in October 2010, because it has not corrected long-standing data inaccuracies and has not fully developed the software and systems needed to support critical functionality. Specifically: (1) GAO previously recommended that the Army improve testing activities to obtain reasonable assurance that the data used by LMP can support the LMP processes. The Army implemented data audits and new testing activities to improve data accuracy, but data issues persist, which could impede LMP functionality. According to Army officials, these new testing activities were designed to assess how well the LMP software functions but not how well the data work in LMP. Third deployment locations were also able to perform individual tests on the data, but these activities were not coordinated or managed by the Army. As a result, the audits and new testing activities did not provide the Army reasonable assurance that the data in LMP are of sufficient quality to achieve the intended LMP functionality once the system has been deployed. Without this assurance, the Army may experience the same data-related problems during the third deployment that were experienced during the second deployment, which prevented Corpus Christi and Letterkenny Army Depots from using LMP functionality as intended. (2) The Army's software development schedule and subsequent testing of capabilities needed by several locations are not expected to be delivered until after September 2010, but costly mitigations may be required if delivery is delayed. Unlike the previous deployments of LMP, the operations at some of the third deployment locations require additional capabilities. For example, the Army Sustainment Command and the Joint Munitions and Lethality Life Cycle Management Command perform missions that require LMP to interface with existing systems in order to perform day-to-day missions. If the software capabilities are not operating as intended, several sites will not have the necessary LMP functionality to perform their missions. The Army has mitigation plans to address this functionality gap. For example, the Joint Munitions and Lethality Life Cycle Management Command plans to hire 172 additional personnel, and the Tank-automotive and Armaments Command expects to hire 95 additional personnel to perform manual data entry until the capability is delivered. The Army expects that these mitigation plans will increase costs. Prior to transitioning to LMP, the Army is directed to certify that it is prepared to make the transition, but it is not required to regularly report to Congress specifically on LMP implementation. Congress therefore lacks complete and ongoing information to aid in its oversight of this program characterized by implementation delays and long-standing problems that have precluded LMP functionality at the sites included in the first two LMP deployments. GAO previously recommended that the Army address issues related to its implementation of LMP. GAO recommends further that the Army periodically report to Congress on the progress of LMP, including its progress in ensuring that the data used in LMP can support the system, timelines for the delivery of software necessary to achieve full benefits, and the costs and time frames of its mitigation strategies. DOD agreed with GAO's findings and recommendation.
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The VWP was established as a pilot program, with two participating countries, in November 1986 and became a permanent program in October 2000. The program allows eligible nationals from the 38 VWP countries to travel to the United States for 90 days or less for business or pleasure without a visa and requires that VWP countries extend reciprocal privileges to U.S. citizens. Additionally, the VWP makes it possible for State to allocate more resources to visa-issuing posts in countries with higher-risk applicant pools. In fiscal year 2013, there were nearly 20 million traveler admissions to the United States under the VWP, with admissions from each of the 38 countries ranging from about 700 to more than 4 million (see fig. 1). In August 2008, responding to a requirement in the Implementing Recommendations of the 9/11 Commission Act of 2007, DHS's U.S. Customs and Border Protection (CBP) introduced the Electronic System for Travel Authorization (ESTA). In 2009, CBP began requiring all travelers arriving by air or sea under the VWP to, among other things, submit an application through ESTA before departure. VWP travelers are also required to possess a passport containing an electronic chip (e- passport) issued by the VWP country. Before a traveler can depart for the United States under the VWP, CBP vets the traveler's ESTA application against several databases. These databases include, among others, the Federal Bureau of Investigation's (FBI) Terrorist Screening Database--the U.S. government's consolidated watch list of known or suspected terrorists--and the International Criminal Police Organization's (INTERPOL) Stolen and Lost Travel Documents database. If CBP approves an ESTA application, the VWP traveler is authorized to depart for the United States. If CBP denies an ESTA application, CBP refers the traveler to the U.S. embassy or consulate to complete the standard visa application process. This process includes submitting an application and being interviewed, fingerprinted, and vetted against the FBI's Terrorist Screening Database and INTERPOL's Stolen and Lost Travel Documents database, among others, before travel to the United States. At U.S. ports of entry, CBP interviews, fingerprints, and photographs VWP travelers arriving by air or sea with an approved ESTA as well as travelers with a U.S. visa and vets the fingerprints against biometrics databases. In November 2014, DHS revised the ESTA application to address concerns that foreign terrorist fighters might exploit the VWP to enter the United States. The revised application requires additional passport data, contact information, information about connections to U.S. persons, and any other names or aliases. According to DHS documents, DHS determined that these revisions would improve its ability to vet prospective VWP travelers and to more accurately and effectively identify those who pose a security risk to U.S. interests. DHS also rephrased questions in the ESTA application to make them easier for the general public to understand. In response to the Implementing Recommendations of the 9/11 Commission Act of 2007, DHS worked with interagency partners to develop several requirements to help prevent terrorists from using the VWP to travel to the United States, according to DHS officials. To continue participating in the program, each VWP country must, among other things, accept repatriation of any citizens, former citizens, and nationals ordered removed from the United States within 3 weeks of the final order of removal. In addition, since before the 2007 act, VWP countries have been required to extend reciprocal visa-free travel to U.S. citizens and issue machine-readable passports. Further, the U.S. government requires each country to enter into a 1. Lost and Stolen Passport (LASP) agreement to report information about the theft or loss of passports, 2. Homeland Security Presidential Directive 6 (HSPD-6) arrangement to share watch list information about known or suspected terrorists, and 3. Preventing and Combating Serious Crime (PCSC) agreement to establish frameworks for enhanced law enforcement cooperation, including sharing of criminal history information. As of December 2015, all VWP countries are also required by law to, among other things, fully implement their agreements to share information on whether their citizens and nationals traveling to the United States represent a threat to the security or welfare of the United States or its citizens. Under existing law, a number of factors can result in a VWP country's termination or suspension from the program. DHS is required to terminate a country's VWP designation if the country (1) experiences an emergency that the DHS Secretary, in consultation with the Secretary of State, determines to be a threat to the law enforcement or security interests of the United States, including interests in enforcing U.S. immigration laws; (2) does not report the theft or loss of passports, as jointly determined by DHS and State; or (3) does not share required passenger information. In addition, DHS may place on probationary status or, in certain circumstances, terminate the designation of any VWP country if, following certain criteria, more than 2 percent of the country's nationals who applied for admission as nonimmigrant visitors to the United States during the previous fiscal year were denied admission, withdrew their application for admission, or were admitted as nonimmigrant visitors and violated the terms of admission. In consultation with State, DHS also may for any reason--including national security--rescind any waiver or designation previously granted at any time or may refrain from waiving the visa requirement for nationals of any country that may otherwise qualify for designation. In addition, DHS may terminate a VWP country's designation if, in consultation with State, DHS determines through its biennial evaluation that a country's participation is inconsistent with the law enforcement and security interests of the United States, including U.S. interests in enforcing immigration laws and securing criminal extraditions. Further, in consultation with State, DHS may suspend a VWP country's designation if the Director of National Intelligence informs the Secretary of Homeland Security of any current and credible threat of an imminent danger to the United States or its citizens that originates from a VWP country. Under U.S. law, DHS is required to periodically evaluate VWP countries and report its findings to Congress. In particular, DHS, in consultation with State, must perform the following at least once every 2 years: Evaluate the effect of each VWP country's continued participation in the program on U.S. law enforcement and national security interests (including immigration enforcement interests). Determine, based on the evaluation conducted, whether each VWP country's participation in the program should be continued or terminated. Submit a written report to appropriate congressional committees, including the Secretary's determination with an explanation of any effects of each VWP country's continued participation in the program on U.S. law enforcement and security interests. Submit a written report to Congress regarding the implementation of the electronic system for travel authorization. Within DHS, the Visa Waiver Program Office (VWPO) is responsible for overseeing and monitoring VWP countries' adherence to the program's statutory and policy requirements. VWPO's responsibilities include evaluating the effects of VWP countries' participation in the program, preparing the Secretary of Homeland Security's determinations to continue or terminate VWP countries' participation, and submitting the written reports to Congress. According to VWPO officials, the office also monitors VWP country security, law enforcement, and immigration enforcement issues outside the formal review periods to identify issues that could negatively affect U.S. interests. In addition, the DHS Office of Intelligence and Analysis produces an independent intelligence review of each VWP country, examining threats associated with the country's participation in the VWP, the country's counterterrorism capabilities, and the country's information sharing with the United States about terrorist threats, according to officials from that office. All 38 countries participating in the VWP have entered into the three types of required information-sharing agreements, or their equivalents, with the United States, but not all countries are sharing information through two of the agreements. According to DHS, all VWP countries are reporting losses or thefts of passports through LASP agreements, although DHS previously placed two countries on provisional status partly because of a lack of timely reporting. However, as of December 2015, about a third of VWP countries were not sharing identity information about known or suspected terrorists through HSPD-6 arrangements. Also, about a third of VWP countries had not yet shared criminal history information through PCSC agreements. Although U.S. agencies receive law enforcement and national security information from VWP countries through other means, such as multilateral entities, the U.S. government identified the information-sharing agreements as critical for protecting the United States from nationals of VWP countries who might present a threat. While U.S. law before December 2015 required VWP countries to enter into, but not to implement, the agreements, DHS announced in August 2015 that it had developed a new requirement that countries implement them by sharing information. However, contrary to standard program management practices, DHS has not specified time frames for working with VWP countries to institute this and other new VWP security requirements. All 38 VWP countries have entered into LASP agreements with the United States and, according to DHS officials, are reporting lost or stolen passports through the agreements. Before December 2015, U.S. law required that VWP countries enter into an agreement with the United States to report, or to make available to the U.S. government through INTERPOL or other means designated by the Secretary of Homeland Security, information about the theft or loss of passports within a strict time limit and in a manner specified in the agreement. Since December 2015, U.S. law has required that countries agree to report on lost and stolen passports not later than 24 hours after becoming aware of the theft or loss. Of the 38 countries, 35 agreed to report lost or stolen travel documents exclusively through INTERPOL and in accordance with INTERPOL standards. According to DHS officials, 2 of the remaining countries agreed to report through the Regional Movement Alert System, an alternative mechanism for reporting LASP information that provides a direct query capability between national document-issuing authorities and border control systems; the third country agreed to report through another means. According to VWPO officials, VWPO considers all VWP countries to be in compliance with the requirement to report lost and stolen passports. VWPO officials noted that VWPO bases its compliance determinations in part on data from INTERPOL's Stolen and Lost Travel Documents database that are available to VWPO and other U.S. agencies. DHS and State use information about lost and stolen passports to vet travelers to the United States. DHS's CBP uses information obtained through the LASP agreements to vet foreign travelers attempting to enter the United States, which, according to CBP and DOJ documents, may help counter the threat of foreign terrorist fighters. CBP and State use this information to vet travelers' ESTA applications and visa applications before travel, and CBP uses it to vet foreign passports of all travelers before boarding and at U.S. ports of entry. According to testimony by the DHS Deputy Assistant Secretary for International Affairs, CBP has denied over 165,000 ESTA applications since 2008 on the basis of LASP information, potentially preventing criminals or terrorists from using stolen passports to illegally enter the United States. In 2013, U.S. agencies-- primarily DHS--queried INTERPOL's Stolen and Lost Travel Documents database over 238 million times. All VWP countries have entered into HSPD-6 or equivalent arrangements to exchange information with the United States about known or suspected terrorists, but not all countries are sharing information through these arrangements. U.S. law requires that each VWP country enter into an agreement with the United States to share information regarding whether the country's citizens and nationals traveling to the United States represent a threat to the security or welfare of the United States or its citizens. Since December 2015, U.S. law has also required that VWP countries fully implement these agreements. State's Bureau of Counterterrorism and the FBI's Terrorist Screening Center (TSC) negotiate HSPD-6 arrangements between the U.S. government and VWP countries. Under the arrangements, VWP countries share information directly with the TSC, which then integrates the information into the U.S. terrorist watch list. As of December 2015, most VWP countries were exchanging information about known or suspected terrorists with the TSC through HSPD-6 arrangements, but about a third of VWP countries were not exchanging information directly with the TSC. The TSC reported in December 2015 that the number of known or suspected terrorist identities that each VWP country had shared with the TSC through HSPD-6 arrangements ranged from zero to over 1,000. For example, one country that entered into a HSPD-6 arrangement in 2012 had not shared information through the arrangement as of December 2015. According to DHS officials, some countries share information about known or suspected terrorists with U.S. agencies through alternative arrangements rather than sharing directly with the TSC. Information provided through the HSPD-6 arrangements has enhanced U.S. traveler-screening capabilities and improved U.S. agencies' ability to prevent known and suspected terrorists from traveling to the United States. According to FBI documents, from 2008 through 2015, the TSC received information about approximately 9,000 known or suspected terrorists, including approximately 3,500 who were previously unidentified, through HSPD-6 arrangements with VWP countries. The FBI integrates into the Terrorist Screening Database the information that VWP countries provide to the TSC, and U.S. agencies reported using the database to vet travelers attempting to enter the United States. CBP vets ESTA applications against the Terrorist Screening Database to identify any potential known or suspected terrorists attempting to use the VWP to travel to the United States. According to the DHS Deputy Assistant Secretary for International Affairs, since 2008, CBP has denied over 4,300 ESTA applications for national security concerns as a result of vetting against the Terrorist Screening Database and other terrorism- related databases. In addition, at ports-of-entry, CBP vets every international traveler attempting to enter the United States against the database, according to DHS documents. State also uses the Terrorist Screening Database to vet visa applicants. As of February 2014, all 38 VWP countries had entered into PCSC agreements, or their equivalents, with the United States regarding the exchange of information about criminals who pose a risk to U.S. interests, but not all VWP countries had shared information through the agreements. U.S. law requires that VWP countries enter into an agreement with the United States to share information regarding whether citizens and nationals of that country traveling to the United States represent a threat to the security or welfare of the United States or its citizens. Since December 2015, U.S. law has also required that VWP countries fully implement these agreements. In some cases, countries entered into the agreements several years after the requirement to enter into agreements was established in 2008. According to DHS officials, the existing domestic political environments of individual VWP countries may have delayed some countries' entry into the agreements. As of September 2015, about two-thirds of VWP countries had shared information about criminals with U.S. agencies through PCSC or equivalent agreements, using interim, manual query mechanisms--either electronic file transfer systems or compact disc exchanges. The remaining VWP countries had not shared such information through the agreements. For example, one country that entered into a PCSC agreement in 2008 had not shared information through the agreement as of September 2015. PCSC agreements are intended to automate and expedite the sharing of information about individuals suspected or convicted of committing serious crimes, according to DHS officials. PCSC agreements allow for the exchange of biometric data, such as fingerprints, and biographic data of suspected criminals while protecting individual privacy. According to DHS, by authorizing both the United States and a VWP country to conduct automated queries of the other's criminal fingerprint databases, PCSC agreements establish a framework for enhanced law enforcement cooperation. Both DOJ and DHS reported using interim exchange mechanisms established through PCSC agreements to aid in law enforcement investigations. Likewise, many VWP countries had used interim exchange mechanisms to query U.S. law enforcement databases. As of January 2016, U.S. agencies and VWP countries had not fully established virtual private networks to allow for automated querying of criminal databases as authorized by PCSC agreements. However, the FBI reported working with several VWP countries to establish these networks. In addition to receiving information through the three agreements required for participation in VWP, U.S. agencies may receive information related to national security and law enforcement through other means, such as multilateral entities. For example, since 2013, INTERPOL has issued 670 notices seeking arrest and extradition of suspected foreign terrorist fighters to all 190 of its members, and individual members had issued an additional 2,100 alerts. The United States also works with an international coalition--which includes at least 30 VWP countries--to counter threats posed by ISIS, such as the threat of foreign terrorist fighters' entering this country. The coalition has a working group focused on disrupting the recruitment, travel, and sustainment of foreign terrorist fighters. While VWP countries may use other means to share information that is useful to U.S. agencies responsible for law enforcement and national security, the U.S. government identified the three information-sharing agreements as critical for protecting the United States from nationals of VWP countries who might present a threat. As we reported in 2011, DHS officials told us that formal agreements--in contrast to the sharing of information on an informal, case-by-case basis--expand the pool of information to which the United States has systematic access and generally expedite information sharing by laying out specific terms that can be referenced easily in requests for data. DHS officials observed that timely access to information is especially important for CBP officials at ports of entry. In August 2015, the Secretary of Homeland Security announced that DHS and other agencies were developing additional requirements for VWP participation, including a requirement to implement HSPD-6 and PCSC agreements by sharing information. Previously, in accordance with U.S. law, DHS required VWP countries to enter into the arrangements and agreements but did not require the countries to implement them in order to participate in the program. According to testimony by the Secretary, DHS developed the new VWP requirements in order to detect and prevent travel by foreign terrorist fighters. However, contrary to standard program management practices, DHS did not establish time frames for instituting the new requirements. In October 2015, DHS officials confirmed that the department had not established time frames for DHS's consultations with each country or for instituting the new requirements. Standard practices in program and project management call for, among other things, developing a plan to execute specific projects needed to obtain defined results within a specified time frame. Time frames for working with VWP countries to institute the requirement to implement the HSPD-6 arrangements and PCSC agreements could help DHS ensure that countries meet all legal criteria for participating in the VWP--including the December 2015 law requiring them to fully implement their agreements--and could help DHS protect against threats to the United States or its citizens. Our analysis of a nongeneralizable sample of 12 internal VWPO evaluation reports on VWP countries found that VWPO assessed the effect of the countries' participation in the program on U.S. law enforcement and security interests, including immigration enforcement, as required by federal law. However, almost one-quarter of DHS's most recent reports to Congress regarding whether VWP countries should continue to participate in the program were submitted, or remained outstanding, 5 or more months after the dates when DHS had determined that, under U.S. law, they were due. As a result, Congress may lack timely information that it needs to conduct oversight of the VWP. The internal VWPO evaluation reports for 12 countries that we reviewed showed that, for each of these countries, VWPO assessed the effect of the country's participation in the program on U.S. law enforcement and security interests, including immigration enforcement, as required by U.S. law. The law states, among other things, that DHS, in consultation with State, must periodically evaluate the effect of each VWP country's continued participation in the program on U.S. law enforcement and security interests, including immigration enforcement interests. VWPO standard operating procedures lay out steps for conducting, and for reporting internally on, VWPO's evaluations of VWP countries, which it uses to prepare the required DHS reports to Congress. For the 12 countries, VWPO completed 10 internal evaluation reports after a site visit to the relevant VWP country and completed 2 reports on the basis of desk-based, administrative reviews. In the 12 reports, the required sections on law enforcement interests and security interests, including immigration enforcement interests, had been updated from previous evaluations of the VWP country. The reports showed that VWPO consulted broadly with relevant U.S. agency officials, both in Washington, D.C., and at overseas posts and also consulted with relevant foreign VWP country officials to gather information about law enforcement interests, security interests, and immigration enforcement interests. Moreover, according to U.S. officials and VWP country officials whom we spoke with overseas, VWPO's site visits, including questionnaires sent to countries beforehand, were generally thorough and complete and addressed the topic of foreign terrorist fighters. Our review showed that almost a quarter of DHS's most recent reports to Congress about VWP countries were submitted 5 or more months after the dates when, according to DHS, they were due under U.S. law. U.S. law requires DHS to submit a written report to Congress for each VWP country not less than once every 2 years. Each report must provide DHS's determination of whether the country's participation in the program should be continued or terminated as well as an explanation of any effects of the country's continued participation on U.S. law enforcement and security interests, including immigration enforcement interests. Because of DHS's inconsistency in submitting the reports within the required statutory time frame, Congress may lack access to timely information needed for its oversight of the VWP. DHS's timeliness in reporting to Congress about VWP countries has improved since 2011, when we found that the department had not completed half of its recent VWP congressional reports in a timely manner and that many of the reports were more than a year past due. Nonetheless, our current analysis shows that as of October 31, 2015, 28 of DHS's 38 most recent congressional reports on VWP countries had been submitted, or remained outstanding, 1 or more months after the due dates. Nine of those reports were 5 or more months past due, including 2 that were past due by more than a year (see fig. 2). Since its establishment in 1986, the VWP has evolved to address U.S. national security and law enforcement interests while allowing travelers from VWP countries to contribute significantly to the U.S. economy. Most recently, the Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015 included changes to the program--including requiring VWP countries to fully implement their agreements--that may help prevent foreign terrorist fighters from attempting to exploit it to travel to this country. U.S. agencies have used information that some VWP countries have shared under the required agreements or their equivalents to mitigate this and other threats to U.S. interests. However, because many VWP countries have not yet provided information through the agreements--possibly including information about known or suspected terrorists--agencies' access to this critical information may be limited. Time frames for instituting the new requirement that VWP countries fully implement the information-sharing agreements could help strengthen DHS's ability to protect against threats to the security of the United States and its citizens. The VWPO internal reports that we reviewed showed that DHS has evaluated the effect of VWP countries' participation in the program on U.S. security and law enforcement interests, as required by law. DHS has also improved the timeliness of its required reports to Congress about the effects of VWP countries' participation in the program on U.S. interests and its determinations of countries' eligibility to continue in the program. Nonetheless, DHS's inconsistency in submitting its congressional reports by the statutory deadlines may have limited Congress's access to information needed for conducting oversight of the VWP and identifying any modifications to the program necessary to protect U.S. law enforcement and national security interests. To strengthen DHS's ability to fulfill legislative requirements for the VWP and protect the security of the United States and its citizens, we are making the following two recommendations to the Secretary of Homeland Security: Specify time frames for working with VWP countries to institute the additional VWP security requirements, including the requirement that the countries fully implement agreements to share information about known or suspected terrorists through the countries' HSPD-6 arrangements and PCSC agreements with the United States. Take steps to improve DHS's timeliness in reporting to Congress, within the statutory time frame, the department's determination of whether each VWP country should continue participating in the program and any effects of the country's participation on U.S. law enforcement and security interests. We provided a draft of the classified report to DHS, DOJ, and State for their review and comment. DHS and DOJ provided technical comments, which we incorporated as appropriate. DHS also provided written comments, which are reproduced in appendix II. In its written comments, DHS concurred with both of our recommendations. In addition, DHS noted that it had begun taking steps to address our first recommendation and was planning actions to address our second recommendation. 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 Secretary of Homeland Security, the Secretary of State, and the Attorney General of the United States. 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 concerning this report, please contact Michael J. Courts at (202) 512-8980 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. To determine whether Visa Waiver Program (VWP) countries have entered into the required Lost and Stolen Passport (LASP) agreements, Homeland Security Presidential Directive 6 (HSPD-6) arrangements, and Preventing and Combating Serious Crime (PCSC) agreements, we analyzed data provided by the Department of Homeland Security (DHS) and interviewed officials from DHS and the Department of State (State) in Washington, D.C. We also reviewed supporting documentation from DHS and State, such as diplomatic notes, letters of intent, and memorandums of understanding, that indicate whether countries entered into the agreements. To identify the information-sharing requirements, we reviewed relevant U.S. law and DHS policy. In addition, to better understand what each agreement entailed and to learn of any associated challenges, we interviewed officials from the agencies that are responsible for negotiating each agreement. We determined that the information we obtained was sufficiently reliable for our purposes. To determine the extent to which VWP countries have implemented LASP agreements, HSPD-6 arrangements, and PCSC agreements, or their equivalents, we analyzed data from DHS and the Department of Justice (DOJ) showing the status of, and information sharing through, the signed agreements and arrangements. We also visited four VWP countries: Belgium, Greece, France, and Spain. We selected these countries from among the 38 VWP countries on the basis of numerous factors--in particular, high estimated total and per capita numbers of foreign fighters and concerns about border security and counterterrorism capacity. In these four countries, we interviewed U.S. and VWP country officials responsible for implementing the agreements and arrangements to understand challenges associated with the countries' sharing information with the United States. LASP agreements. To examine VWP countries' sharing of information about lost and stolen passports, we reviewed data provided by DHS and INTERPOL for calendar years 2014 and 2015. We also discussed with DHS officials their level of engagement with VWP countries regarding the timeliness of their information sharing under the LASP agreement. Although we discussed the DHS and INTERPOL data with DHS and DOJ officials, we did not interview officials of all VWP countries that report through INTERPOL. DOJ officials described their uses and checks of the data they received. We determined that the DHS and INTERPOL data were sufficiently reliable for placing the reporting countries in broad categories that indicate the relative frequency with which they report to INTERPOL but were not sufficiently reliable for determining the countries' compliance with the VWP requirement to report lost and stolen passports. We did not independently verify the legal status of each VWP country's LASP agreement. HSPD-6 arrangements. To examine VWP countries' information sharing through HSPD-6 arrangements, we reviewed information that we received from the Federal Bureau of Investigation (FBI) about VWP countries' provision of information through these arrangements or their equivalents. When we encountered anomalies in the information we received, we discussed and resolved them with agency officials. We discussed the data with DOJ officials but did not interview officials of all VWP countries that report to the Terrorist Screening Center. DOJ officials described their uses and checks of the data they received but stated that they did not formally study the accuracy of the underlying data. We determined that the FBI data we received were sufficiently reliable for placing the reporting countries in broad categories that indicate the relative volume and frequency of their reporting of information to the Terrorist Screening Center through HSPD-6 arrangements or their equivalents. We did not independently verify the legal status of each VWP country's HSPD-6 arrangement. PCSC agreements. To examine VWP countries' information sharing through PCSC agreements, as well as the mechanisms that VWP countries have established for sharing information through the agreements, we reviewed information and data that DHS and DOJ provided. We discussed the data with DOJ officials but did not interview VWP country officials regarding the data. DOJ officials described their uses and checks of the data they received but stated that they did not formally study the data's accuracy. We determined that the data were sufficiently reliable to place countries into broad categories that indicate the relative frequency with which they shared information. We did not independently verify the legal status of each VWP country's PCSC agreement. In addition, to determine the extent to which U.S. agencies have been able to use the shared information to address U.S. law enforcement and security interests, we reviewed U.S. agency data and documents reporting the agencies' use of information shared through the agreements. We also discussed the value and utility of information obtained through the agreements with U.S. law enforcement and counterterrorism officials in the United States and in the countries where we conducted our fieldwork. We determined that the information and data provided were sufficiently reliable for the purposes of this report. To determine the extent to which DHS has evaluated VWP countries' effect on U.S. security and law enforcement interests, including immigration enforcement, we selected and analyzed a nongeneralizable sample of 12 internal DHS reports evaluating VWP countries. We selected these reports on the basis of a number of factors chosen to identify countries where concerns might exist regarding foreign terrorist fighters traveling to the United States--for example, high estimated numbers of foreign terrorist fighters; border security and counterterrorism capacity concerns; a high number of ESTA denials; number of travelers to the United States, including the percentage that traveled under the VWP; relative population size (e.g., large or small); date of entry into the VWP (i.e., pre-2000, 2001-2010, 2010-the present); geographic variation (e.g., Western Europe, Eastern Europe, the Asia Pacific region); and status of VWP information-sharing agreements as characterized by U.S. agencies (i.e., whether agreements had been signed, were ratified, and were in force and whether sharing had occurred). We used a data collection instrument developed in consultation with a methodological expert to analyze the nongeneralizable sample of 12 internal DHS reports. We also reviewed relevant U.S. agency documents and guidance, such as VWPO's January 2015 "Visa Waiver Program Continuing Designation Country Reviews Standard Operating Procedures." In addition, we interviewed U.S. agency and VWP country officials regarding the processes for conducting the evaluations and communicating results of the evaluations to VWP countries. To determine the extent to which DHS has submitted required reports about VWP countries to Congress, we collected and analyzed information from DHS that documented the due dates and actual delivery dates to Congress for DHS's most recent VWP congressional reports. To assess DHS's timeliness in submitting the required reports to Congress since 2011, when we last reviewed the VWP, we compared the results of our current analysis with our 2011 findings on DHS's timeliness in submitting the reports. In addition, we interviewed VWPO officials regarding the process they use to prepare the reports and submit them to Congress. We determined that the information we obtained was sufficiently reliable for our purposes. We conducted this performance audit from October 2014 to January 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 evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. . Michael J. Courts, (202) 512-8980 or [email protected]. In addition to the contact named above, Hynek Kalkus (Assistant Director), Ian Ferguson, Brandon Hunt, Reid Lowe, and Christal Ann Simanski made key contributions to this report. Ashley Alley, Kathryn Bernet, Jose Cardenas, Martin De Alteriis, and Ozzy Trevino also provided assistance.
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The Visa Waiver Program allows nationals from the 38 VWP countries to travel to the United States for tourism or business for up to 90 days without a visa. To help prevent terrorists and others who present a threat from travelling to the United States, DHS requires VWP countries to, among other things, enter into information-sharing agreements with the United States. In addition, U.S. law requires DHS to evaluate, at least once every 2 years, the effect of each VWP country's participation on U.S. law enforcement, security, and immigration enforcement interests; determine whether the country should continue in the program; and report on its determination to Congress. GAO was asked to review the VWP. In this report, GAO examines the extent to which VWP countries have implemented the required agreements. GAO also examines the extent to which DHS evaluated VWP countries and reported to Congress as required. GAO reviewed documents related to the VWP, including a sample of DHS reports. In addition, GAO interviewed U.S. officials in Washington, D.C., and U.S. and foreign officials in four VWP countries selected on the basis of factors such as high estimated numbers of foreign terrorist fighters. This is a public version of a classified report GAO issued in January 2016. All 38 countries participating in the Visa Waiver Program (VWP) have entered into required agreements, or their equivalents, to (1) report lost and stolen passports, (2) share identity information about known or suspected terrorists, and (3) share criminal history information. However, not all countries have shared information through the agreements. The Department of Homeland Security (DHS) reported that all VWP countries have reported passport information through the first agreement, but more than a third of VWP countries are not sharing terrorist identity information through the second agreement and more than a third of the countries have not yet shared criminal history information through the third agreement. While VWP countries may share information through other means, U.S. agency officials told GAO that information sharing through the agreements is essential for national security. In August 2015, DHS decided to require VWP countries to implement agreements to share terrorist identity and criminal history information; previously, VWP countries were required to enter into, but not to implement, these agreements. However, contrary to standard program management practices, DHS did not establish time frames for instituting the amended requirements. In December 2015, Congress passed a law requiring that VWP countries fully implement information-sharing agreements in order to participate in the program. Time frames for working with VWP countries to implement their agreements could help DHS enforce U.S. legal requirements and could strengthen DHS's ability to protect the United States and its citizens. GAO's analysis of a nongeneralizeable sample of 12 internal DHS reports, each evaluating one VWP country, found the reports assessed the effects of the countries' participation on U.S. law enforcement, security, and immigration enforcement interests, as required by U.S. law. Since 2011, when GAO last reviewed the VWP, DHS has improved its timeliness in reporting to Congress at least once every 2 years its determinations of whether countries should continue in the program. Nonetheless, as of October 31, 2015, GAO found that about a quarter of DHS's most recent VWP congressional reports were submitted, or remained outstanding, 5 or more months past the statutory deadlines (see figure). As a result, Congress may lack timely information needed to conduct oversight of the VWP and assess whether further modifications are necessary to prevent terrorists from exploiting the program. DHS should (1) specify time frames for working with VWP countries on the requirement to implement information-sharing agreements and (2) take steps to improve its timeliness in reporting to Congress on whether VWP countries should continue in the program. DHS concurred with the recommendations.
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The FBI's mission responsibilities include investigating serious federal crimes, protecting the nation from foreign intelligence and terrorist threats, and assisting other law enforcement agencies. Approximately 12,000 special agents and 16,000 analysts and mission support personnel are located in the bureau's Washington, D.C., headquarters and in more than 450 offices in the United States and 45 offices in foreign countries. Mission responsibilities at the bureau are divided among the following five major organizational components. * Administration: manages the bureau's personnel programs, budgetary and financial services, records, information resources, and information security. * Counterterrorism and Counterintelligence: identifies, assesses, investigates, and responds to national security threats. * Criminal Investigations: investigates serious federal crimes and probes federal statutory violations involving exploitation of the Internet and computer systems. * Intelligence: collects, analyzes, and disseminates information on evolving threats to the United States. * Law Enforcement Services: provides law enforcement information and forensic services to federal, state, local, and international agencies. The components are further organized into subcomponents, such as divisions, offices, and other groups (hereafter referred to as "divisions"). Table 1 lists the components and briefly describes their respective divisions. To execute its mission responsibilities, the FBI relies extensively on IT, and this reliance is expected to grow. For example, the bureau operates and maintains hundreds of computerized systems, networks, databases, and applications, such as * the Combined DNA Index System, to support forensic * the National Crime Information Center and the Integrated Automated Fingerprint Identification System, to help state and local law enforcement agencies identify criminals; * the Automated Case Management System, to manage information collected on investigative cases; * the Investigative Data Warehouse, to aggregate data in a standard format from disparate databases to facilitate content management and data mining; and * the Terrorist Screening Database, to consolidate identification information about known or suspected international and domestic terrorists. According to the FBI, it also has almost 500 systems, applications, databases, and networks that are in operation, undergoing enhancement, or being developed or acquired. In particular, it has identified 18 new or enhancement projects that support its intelligence, investigative, and analyst activities. Included in these 18 is its Sentinel program, the FBI's effort to deliver--using commercially available software and hardware components--a modern automated capability for investigative case management and information sharing, with the goal of helping field agents and analysts to perform their jobs more effectively and efficiently. As we have previously reported, these ongoing and planned IT programs and projects are part of the FBI's systems modernization program. This program is based both on the bureau's long-standing recognition of its antiquated, nonintegrated systems environment and its awareness of the importance of modern, integrated IT systems to its transformation efforts in the wake of the September 11 attacks. Currently, the FBI reports that it will spend approximately $484 million on modernization projects in fiscal year 2005 out of a total IT budget of $1.07 billion. Technology can be a valuable tool in helping organizations transform and better achieve mission goals and objectives. Our research on leading private and public sector organizations, as well as our past work at federal departments and agencies, shows that successful organizations embrace the central role of IT as an enabler for enterprisewide transformation. These leading organizations develop and implement institutional or agencywide system modernization management controls to ensure that the vast potential of technology is effectively applied to achieving mission outcomes. Among these management controls are * assigning IT responsibility and providing commensurate authority centrally with the agency's CIO, * using a well-defined enterprise architecture as a systems modernization blueprint, * following a portfolio-based approach to selecting among competing IT programs and projects and controlling investment in each during their life cycles, * adhering to a structured and disciplined system development and acquisition life cycle management methodology, and * employing sufficient and qualified IT human capital. We have observed that without these types of controls and capabilities, organizations increase the risk that system modernization projects will (1) experience cost, schedule, and performance shortfalls and (2) lead to systems that are redundant and overlap. They also risk not achieving their aim of increased interoperability and effective information sharing. All told, this means that technology will not effectively and efficiently support agency mission performance and help realize strategic mission outcomes and goals. The FBI Director has recognized the importance of IT to transformation, and accordingly made it one of the bureau's top 10 priorities. Consistent with this, the FBI's strategic plan contains explicit IT-related strategic goals, objectives, and initiatives (near- term and long-term) to support the collection, analysis, processing, and dissemination of information. However, as we have previously reported, the bureau's long- standing approach to managing IT has not always been fully consistent with leading practices. The effects of this approach can be seen in, for example, the cost and schedule shortfalls experienced on a key infrastructure and applications modernization program, Trilogy, and particularly on one of its projects (the Virtual Case File), which was recently terminated by the bureau. Reviews of this project identified management weaknesses as the cause for its cost, schedule, and performance shortfalls. Among these weaknesses were lack of integration planning, inadequately defined requirements, project management deficiencies, and frequent turnover of key personnel. In place of the Virtual Case File project, the FBI launched its Sentinel program in early 2005 to develop what the bureau describes as its next-generation electronic information management system. According to the FBI, the system is planned to consolidate and replace its existing case management capabilities with an integrated, paperless file management and workflow system. The FBI is making progress in establishing institutional IT modernization management capabilities. It has centralized IT responsibility and authority under the CIO, and it is establishing and beginning to implement management capabilities in the areas of enterprise architecture, IT investment management, systems development and acquisition, and IT human capital. Before it can effectively leverage technology to transform itself, the FBI will have to build on these capabilities and effectively implement them on its system investments. Our research on leading private and public sector organizations, as well as our past work at federal departments and agencies, shows that successful organizations adopt a corporate, or agencywide, approach to managing IT under the leadership and control of a senior executive--commonly called a chief information officer-- who operates as a full partner with the organizational leadership team in charting the strategic direction and making informed IT investment decisions. The Clinger-Cohen Act also mandates that major federal departments and agencies establish the position of CIO. As the focal point for IT management within an agency, the CIO is positioned to oversee the establishment and implementation of agencywide capabilities in IT management. In the FBI, responsibility for managing IT was historically decentralized and diffused. For example, we testified in March 2004 that the FBI had not provided its CIO with bureauwide IT management authority and responsibility, vesting these instead in the bureau's divisions. This is part of the reason that the FBI's IT environment at the time consisted of nonintegrated applications residing on different servers, each of which had its own unique databases, unable to share information with other applications or with other government agencies. To address this, we discussed with the Director in 2003 the importance of centralizing IT management responsibility and authority under the CIO, and we subsequently recommended that the CIO be provided with the responsibility and authority for managing IT bureauwide, including budget management control and oversight of IT programs and initiatives. The FBI has since taken steps to strengthen the scope and influence of the CIO Office. In particular, the CIO was assigned agencywide responsibility, authority, and control over IT resources, including responsibility for preparing the bureau's IT strategic plan and operating budget; operating and maintaining existing systems and networks; developing and deploying new systems; defining and implementing IT management policies, procedures, and processes; and developing and maintaining the bureau's enterprise architecture. To fulfill these responsibilities, the CIO's office has begun the process of developing and implementing a corporatewide approach to managing IT. For example, the FBI reorganized the CIO Office, establishing four offices to carry out key institutional management functions, and issued an IT strategic plan in September 2004 that outlined ongoing and planned efforts to strengthen policies and procedures by standardizing them across the bureau and incorporating best practices. Among other things, this plan provided for building capabilities in a number of key IT management areas, including the following four areas: enterprise architecture, IT investment management, systems development and acquisition, and IT human capital. As our research and evaluations have shown, it is risky to attempt to modernize an IT environment without using an architecture, or blueprint, to guide and constrain the definition, design, and development of IT programs and projects. An enterprise architecture provides systematic structural descriptions--in useful models, diagrams, tables, and narrative--of how a given entity operates today and how it plans to operate in the future, and it includes a road map for transitioning from today to tomorrow. Our experience with federal agencies has shown that attempting to modernize systems without having an enterprise architecture often results in systems that are duplicative, not well integrated, unnecessarily costly to maintain, and limited in terms of optimizing mission performance. To assist agencies in effectively developing, maintaining, and implementing an enterprise architecture, we published a framework for architecture management, grounded in federal guidance and recognized best practices. In 2002 and again in 2003, we reported that the FBI did not have either an architecture to guide and constrain its IT investments or the means in place to develop and implement one. We further reported that the development of an architecture was not being given the priority that it deserved. Accordingly, we recommended that the Director make it an institutional priority, and provided a series of recommendations for building an architecture management foundation, developing and completing the architecture, and using it to inform IT investment decision making. In the last 12 months, the bureau has made important progress in developing its architecture. Last week we issued a congressionally mandated report on the state of the FBI's enterprise architecture efforts. In summary, we found that the FBI is now managing its enterprise architecture program in accordance with many best practices, but it has yet to adopt others. Examples of best practices that the bureau has implemented include the following: * the bureau has established a program office that is responsible for the development of the architecture; it has issued a written and approved policy governing architecture development; and it has ongoing efforts to complete a target architecture. We ascribed this important progress, in part, to the demonstrated commitment of the FBI's top management to the enterprise architecture program. Nonetheless, we recognized that much remains to be accomplished before the FBI's enterprise architecture program will be mature. For example, we reported that the architecture program office did not yet have appropriate human resources with architecture expertise and that the bureau was not following a defined methodology for developing its architecture, both of which are foundational items. Also, the bureau's current and target architectures were not yet complete. (For instance, the program office had not completed mapping FBI data structures, classifications, and exchanges to the business processes that use the data, nor has it finished defining how the various IT applications currently interrelate.) Further, the bureau had not yet begun to develop its investment plans for transitioning from the current to the target architectural states. We also reported that the FBI had not employed effective contract management controls in developing its enterprise architecture, which is risky because the bureau is relying heavily on contractor support in this effort. (We discuss this contract management issue further in the section of this testimony dealing with system development and acquisition.) Because we had already made comprehensive recommendations regarding the FBI's enterprise architecture program, we made no additional recommendations in this area. However, because of the FBI's heavy reliance on contractor assistance in developing its architecture and the state of its contract management controls, we recommended that the FBI employ performance-based contracting on all further architecture contract actions (to the maximum extent practicable) and follow effective contract tracking and oversight practices. In response, the FBI stated that it would continue to strive to develop a robust enterprise architecture program supported by effective contract management practices and cited steps under way to strengthen its architecture management foundation. For example, since our report was issued, the FBI provided us with a document that the bureau stated defines its enterprise architecture methodology. In addition, the bureau reported that it is very close to hiring staff with architecture expertise (four senior level technologists) for the program office. Further, the FBI stated that it was taking steps to increase its use of performance-based contracting. Clinger-Cohen Act of 1996, 40 U.S.C. SSSS11101-11703. * planned (proposed systems or system enhancements), * under way (systems being developed or acquired), and * completed (existing systems being operated and maintained). The FBI's progress over the last 3 years to define and refine an IT investment approach has been slow. In 2002, the bureau first focused on developing an approach that addressed solely IT investments and in 2003 expanded the approach's scope to include all capital investments. In 2004, under the leadership of the current CIO, the bureau redirected its investment selection, control, and evaluation activities back to include IT investments only. In September 2004, we reported that this redirected approach included one set of processes for new investments that are planned and under way and another set for the operation and maintenance of existing systems. At that time, the process for investments in new systems was still being defined, while a process for allocating operations and maintenance resources across existing systems had been developed. We also reported that the bureau was to pilot test its developed process on different types of investments (systems, applications, databases, and networks) with the goal of subsequently implementing the process enterprisewide. In our view, it was important that the implemented process be in accordance with key IT investment decision-making best practices (such as our ITIM framework). Accordingly, we made recommendations aimed at expediting implementation of ITIM-compliant policies and procedures. Since then, the FBI has taken a number of steps to strengthen its capability to manage IT investments. For example, in November 2004, the FBI established an investment review board, composed of senior executives, that meets about every 2 weeks to review proposed and ongoing investments in new systems. The CIO stated that the board recently completed its first evaluation of the bureau's 89 ongoing IT investments to, among other things, establish cost, schedule, and performance baselines and to begin the process of having the CIO and other senior executive review the projects at critical development milestones. The CIO also reported that the bureau has reviewed over 37 new proposals and is using the results in preparing its fiscal year 2007 IT budget request. Further, to establish a more defined structure to support the board's activities, the CIO's office recently issued an ITIM guide, which defines, among other things, the processes that the board is to follow in selecting and controlling these investments. In addition, the CIO's office is in the process of assessing the performance of existing systems (i.e., those in the operations and maintenance phase of their life cycle). Using cost and other criteria, these assessments are designed to determine which systems can be better used, replaced, outsourced, or retired. According to the CIO, the program recently completed a pilot assessment of projects in one FBI division, and it is currently preparing to perform similar assessments in the other divisions, which are scheduled to be completed by April 2006. Notwithstanding these efforts, until the FBI fully implements processes for selecting, controlling, and evaluating all its IT investments, it will not be able to ensure that it is applying its resources to the best mix of investments to meet the goals of modernizing IT and transforming itself. Having rigorous and disciplined IT system development and acquisition life cycle processes is an important component of IT management. The Clinger-Cohen Act recognizes the importance of such effective processes, and the Software Engineering Institute's (SEI) Capability Maturity Models™️ define a suite of such processes. Five process areas associated with systems acquisition (which collectively are composed of 30 key practice areas) are configuration management, project management, quality assurance, requirements development and management, and risk management. In combination with other process areas, these five provide a foundation for managing software-intensive systems in a manner that minimizes risks and increases the chances of systems delivering required system capabilities and benefits on time and within budget. In September 2004, we reported that the life cycle management policies and procedures then in place at the FBI for these five areas varied widely by division. On the one hand, for example, the policies and procedures for the six divisions that we examined generally addressed all the practices associated with the project management process area (see table 2); this process area involves management of project office activities so that projects are timely, efficient, and effective. On the other hand, for example, the policies and procedures for these six divisions generally did not address the key practices associated with requirements development and management process area (see table 3); this process area involves establishing and maintaining agreement on system requirements. We would note that according to the CIO, it was a lack of bureau rigor and discipline in this area that in part caused the Virtual Case File project to be terminated. Examples of requirements development and management practices that most divisions did not adequately address are (1) appraising changes to requirements for their impact on the project or the IT environment, which is important because it allows management and the project team to determine whether the benefits of changes to the requirements would be worth the likely cost and effect of making the changes, and (2) developing and baselining requirements and maintaining them under change control, which is important to ensuring that requirements are completely and correctly defined and that uncontrolled changes, commonly referred to as "requirements creep," are avoided. In our September 2005 report, we addressed another key process area associated with system acquisition life cycle management-- contract management. Federal acquisition regulations and relevant IT acquisition management guidance recognize the importance of effectively managing contractor activities. According to the Federal Acquisition Regulation (FAR), for example, agencies are to use performance-based contracting to the maximum extent practicable when acquiring most services. Under the FAR, performance-based contracting includes, among other things, defining the work to be performed in measurable, results-oriented terms and specifying performance standards (quality and timeliness). The FAR and associated regulations also require government oversight of contracts to ensure that the contractor performs the requirements of the contract, and the government receives the service as intended. Although the regulations do not prescribe specific methods for this oversight, other acquisition management guidance describes a number of practices associated with this activity. However, the FBI's approach to managing its enterprise architecture contract did not include most of the performance-based contracting features described in the FAR. For example, the contract's statement of work did not specify the products in results-oriented, measurable terms. In addition, the bureau did not have plans for assuring the quality of the contractor's work; instead, according to bureau officials, they worked with the contractor to determine whether each deliverable was acceptable. In addition, in overseeing its contractor, the FBI has not employed the kind of effective practices specified in relevant guidance. For example, the bureau does not have a written policy to govern its tracking and oversight activities, has not designated responsibility or established a group for performing contract tracking and oversight activities, and has not developed an approved contractor monitoring plan. To address weaknesses in the FBI's systems development and acquisition life cycle processes, we have recommended that the FBI establish effective policies and procedures for such systems acquisition and development areas as configuration management, project management, quality assurance, requirements development and management, risk management, and contract tracking and oversight. Recognizing the need to strengthen and standardize its IT requirements and development management capabilities, the FBI has issued a bureauwide standard life cycle management directive with the aim of achieving consistent processes in the systems acquisition and development areas mentioned above. A second goal is to integrate these processes with other key IT disciplines, including those discussed in this testimony as well as others, such as information security management. CIO officials told us that they recently began implementing parts of the life cycle management directive across all projects. According to the CIO, the directive is to be fully defined and implemented by the end of 2006. The FBI acknowledges that the directive needs to be enhanced and extended to adequately address all relevant process areas. For example, FBI officials stated that they are still working to define effective contract management controls, such as procedures for the use of performance-based contracting methods and the establishment of tracking and oversight structures, policies, and processes. For other key practices, procedures have been drafted but require further development. A strategic approach to human capital management includes viewing people as assets whose value to an organization can be enhanced by investing in them, and thus increasing both their value and the performance capacity of the organization. Based on our experience with leading organizations, we issued a model encompassing strategic human capital management, in which strategic human capital planning was one cornerstone. Strategic human capital planning enables organizations to remain aware of and be prepared for current and future needs as an organization, ensuring that they have the knowledge, skills, and abilities needed to pursue their missions. We have also issued a set of key practices for effective strategic human capital planning. These practices are generic, applying to any organization or component, such as an agency's IT organization. They include involving top management, employees, and other stakeholders in developing, communicating, and implementing a strategic workforce plan; * determining the critical skills and competencies needed to achieve current and future programmatic results; * developing strategies tailored to address gaps between the current workforce and future needs; * building the capability to support workforce strategies; and * monitoring and evaluating an agency's progress toward its human capital goals and the contribution that human capital results have made to achieving programmatic goals. As we have reported, the FBI's enterprisewide strategic human capital plan, issued in March 2004, includes policies and procedures for IT human capital. These IT policies and procedures are in alignment with the key practices discussed above. More specifically, they call for the following. * Top management stakeholders (e.g., the CIO, the head of the Office of Strategic Planning, and the head of Administration) and other stakeholders (e.g., section and unit chiefs) are to be involved with the development, communication, and implementation of the policies and procedures. * A detailed data bank is to be developed to store critical skills needed in the development and selection of personnel, including IT staff. * Strategies are to be defined to address workforce gaps, including recruiting programs that provide for tuition assistance and cooperative education. * An IT center is to be established to support workforce strategies and train existing personnel for future competencies and skills that will be needed. * The agency's progress is to be monitored and evaluated by tracking implementation plans to ensure that results are achieved on schedule. Since that time, the CIO stated that his office is taking steps to enhance its IT human capital capability. For example, it is working with the bureau's Training Division to identify the skills and abilities of the existing IT workforce and to provide training to enhance these skills and abilities, including having program and project managers work toward becoming certified in their respective disciplines. In addition, the CIO said that as part of reorganizing the CIO's office, he has created 12 senior executive and 4 senior level technical positions and is in the process of filling them with experienced and qualified staff. According to the CIO, the bureau has hired 8 senior executives and is in the process of hiring the others as well as the 4 senior technical staff. However, the bureau has yet to create an integrated plan of action that is based on a comprehensive analysis of the human capital roles and responsibilities needed to support the IT functions established under the CIO office's reorganization. Such an analysis should include an assessment of core competencies and essential knowledge, skills, and abilities, as well as linking current human capital strengths and weaknesses to permit gaps to be identified between current capabilities and those needed to perform the established IT functions. The plan should then describe actions needed to fill the identified gaps (that is, the planned combination of hiring, training, contractor support, and so on), along with time frames, resources, performance measures, and accountability structures. According to the CIO, he is in the process of hiring a contractor with human capital expertise to help identify gaps between existing skills and abilities and those that will be needed to successful modernize the bureau's IT. The CIO intends to have this effort completed, including the development of an implementation plan to address any gaps, by the end of calendar year 2005. As part of this effort, the CIO stated that he is planning to implement a formal management structure within the Deputy CIO's office to monitor and evaluate human capital initiatives to ensure that results are achieved on schedule. Notwithstanding the initiatives under way and planned, the FBI's IT human capital situation remains a work in progress, and this is a significant challenge. As we have previously reported, when organizations implement a strategic approach to human capital management, how this is done, when it is done, and the basis on which it is done can make all the difference. With successful implementation, the bureau can better position itself to ensure that it has the right people, in the right place, at the right time to effectively modernize IT and transform the organization. The success of the FBI in using IT to support its transformation efforts and in achieving its mission goals and outcomes will depend on how well it actually implements and institutionalizes the IT management structures, processes, and controls that have been or are currently being put in place. When the bureau's IT investments have been successfully delivered, and operational assets and tools are available to analysts and field agents to help them do their jobs better, only then can the mission value of technology be fully realized. The FBI has identified several ongoing new or enhanced system projects that in our view will need to employ these kinds of IT management capabilities in order for each to be successfully defined, designed, developed or acquired, and deployed. For example, the FBI reports that it currently has 18 IT investments that support its "investigative, intelligence, and analytical" line of business, which is a major component of how the bureau accomplishes its mission. According to the bureau, each of these 18 investments is benefiting from the bureau's newly established IT management approach and capabilities. Included in these 18 investments is Sentinel, the FBI's program to deliver an automated case management and information sharing capability; this is the successor to the Virtual Case File, the failed component of the Trilogy program. According to the FBI, Sentinel is to leverage commercially available technologies to consolidate and replace the bureau's existing case management capabilities with an integrated, paperless file management and workflow system, and to enhance information access and promote information sharing with both the law enforcement and intelligence communities. Thus far, the bureau reports it has developed detailed system requirements, a concept of operations, an acquisition strategy and schedule, and a notional development and deployment strategy involving four increments delivered over 4 years. In August 2005, the FBI issued a request for vendor proposals to more than 40 eligible companies under a National Institutes of Health governmentwide contracting vehicle. According to the CIO, the request also was provided to over 500 eligible subcontractors. Vendor proposals are due later this month; the goal is to issue a contract in November 2005. As an FBI flagship program, Sentinel can serve as a barometer of how well the FBI defines and implements its new IT management approaches and capabilities, particularly with regard to a system that is to rely extensively on commercially available components (software and hardware). As we discuss above (and have previously reported), there are a number of IT system management practices related to architecture, investment, acquisition/development, and human capital that are critical to delivering promised system capabilities and benefits, on time and within budget. Moreover, these include management practices that are critical to any system, whether custom-developed or built from commercial components, as well as certain practices unique to systems based on commercial components. Although each of these practices is relevant to Sentinel, there are several that we believe to be especially germane given the FBI's experience on the Virtual Case File, particularly with regard to requirements management and the bureau's reported efforts and plans going forward. Specifically, it is critical for the FBI to examine and control its requirements in the context of what capabilities are to be addressed through enterprise-provided services (e.g., records management and security) and what capabilities are to be provided through Sentinel. At the same time, it is essential that the bureau examine its requirements in the context of which capabilities can be provided by commercially available products and which cannot, and for those that cannot, how such requirements will be satisfied, if at all. As we and others have reported, this examination involves continuous but controlled analyses of trade-offs among stated system requirements, commercial product availability, and enterprise architecture constraints; it also involves such practical constraints as human capital and financial resources. Another area that is critical with respect to Sentinel is ensuring that decisions about the use of commercial components are based on an approach that includes deliberate and thorough research, analysis, and evaluation of components' dependencies. In this regard, it will be important for the FBI to ensure that it understands the behavioral interaction and compatibility of commercial off-the-shelf (COTS) components in order to select components that can be integrated in a predictable and standard way. We have found based on our research and past work that doing so requires an effective methodology to gain and apply such knowledge; without such a methodology, building a COTS-based system can quickly lapse into trial and error, which is fraught with risks. For example, a trial and error approach can lead to expensive, ad hoc modifications, customized solutions, or unnecessary increases in the number and complexity of interfaces--all of which increases costs, delays delivery, and postpones realization of expected benefits. An effective approach would include (1) performing gap analysis between requirements and component capabilities, as mentioned above, (2) allocating requirements among the various products for a given system design option, (3) defining the interactions that need to occur among the components, (4) documenting decisions, and (5) using iterative prototyping to assess the interactions among the components. Another very important area particularly relevant to Sentinel is ensuring that the project's plans explicitly provide the necessary time and resources for (1) integrating the commercial components with the FBI's existing systems and (2) preparing users for the impact that the business processes embedded in the COTS products will have on how the users will be expected to do their jobs, including potentially new roles and responsibilities. Available research suggests that insufficient attention to this organization change management issue has been a major cause of COTS solution implementations failing to live up their expectations. Other management practices relevant to commercial component- based systems will be important on Sentinel, including (1) discouraging the modification of COTS products; (2) managing the systems configuration in a way that provides for evaluation, acquisition, and implementation of new, often frequent, releases of COTS products; and (3) ensuring that contractors are experienced in implementing COTS-based system solutions. In light of the importance of these and other areas, we have just initiated a review of Sentinel at the request of the Chairman and Ranking Member of the House Judiciary Committee; as part of this review, we plan to address many of these keys to project success. In closing, the FBI has made important progress, particularly in the last 12 months under the new CIO's leadership, in establishing certain IT management and control capabilities that our research and evaluations show are key to exploiting technology to enable transformation. But although the bureau has come a long way from where it was just 18 months ago, establishing these capabilities is not enough. For the FBI to effectively use technology to transform itself and accomplish its goals, it will need to ensure that its capabilities are appropriately enhanced and extended and, most important, effectively implemented on all IT programs and projects. Nowhere will this be more crucial than on the Sentinel program. Because of the FBI's stated approach to building Sentinel, it will be particularly important for the bureau to ensure that it follows the kind of acquisition management practices that our work has shown to be critical for commercial component-based systems to be successful. If it does not, the FBI increases the likelihood that Sentinel will encounter the same cost, schedule, and performance shortfalls as its predecessor, the Virtual Case File. Mr. Chairman, this concludes our statement. We would be happy to answer any questions that you or members of the Subcommittee may have at this time. If you should have any questions about this testimony, please contact Randolph C. Hite at (202) 512-3439 or [email protected]. Other major contributors to this testimony included Gary Mountjoy, Assistant Director; Justin Booth; Barbara Collier; Kush Malhotra; Lori Martinez; Teresa Neven; Warren Smith; and Teresa Tucker. 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 Bureau of Investigation (FBI) is in the process of modernizing its information technology (IT) systems. Replacing much of its 1980s-based technology with modern system applications and supporting technical infrastructure, this modernization is intended to enable the FBI to take an integrated, agencywide approach to performing its critical missions, such as federal crime investigation and terrorism prevention. At the request of the Congress, GAO has conducted a series of reviews of the FBI's modernization management. GAO was requested to testify on the bureau's progress to date in several areas of IT management. In addition, GAO discusses the importance of these areas for maximizing the prospects for success of the bureau's ongoing and future IT system investments, including the FBI's flagship Sentinel program; this program replaces the bureau's failed Virtual Case File project and aims to acquire and deploy a modern investigative case management system. In this testimony, GAO relied extensively on its previous work on the FBI's management of its IT processes, human capital, and tools, and it obtained updates on these efforts through reviews of documentation and interviews with responsible FBI officials, including the Chief Information Officer (CIO). Over the last 18 months, the FBI has made important progress in establishing IT management controls and capabilities that GAO's research and experience show are key to exploiting technology to enable transformation. These include centralizing IT responsibility and authority under the CIO and establishing and beginning to implement management capabilities in the areas of enterprise architecture, IT investment management, systems development and acquisition life cycle management, and IT human capital. The FBI has developed an initial version of its enterprise architecture and is managing its architecture activities in accordance with many key practices, but it has yet to adopt others (such as ensuring that the program office has staff with appropriate architecture expertise). The FBI is in the process of defining and implementing investment management policies and procedures. For example, it is performing assessments of existing systems to determine if any can be better used, replaced, outsourced, or retired, but these assessments have yet to be completed. The bureau has issued an agencywide standard life cycle management directive, but it has yet to fully implement this directive on all projects. Also, certain key practices, such as acquisition management, require further development. The FBI has taken various steps to bolster its IT workforce, but it has yet to create an integrated plan based on a comprehensive analysis of existing and needed knowledge, skills, and abilities. According to the CIO, he intends to hire a contractor to perform this and develop an implementation plan. The CIO also intends to establish a management structure to carry out the plan. The challenge now for the FBI is to build on these foundational capabilities and implement them effectively on the program and project investments it has under way and planned, none of which is more important than the Sentinel program. The success of this program will depend on how well the FBI defines and implements its new IT management approaches and capabilities, particularly those associated with acquiring a system made up of commercial components, which Sentinel is to be. In this regard, it will be crucial for the FBI, among other things, to understand and control Sentinel requirements in the context of (1) its enterprise architecture, (2) the capabilities and interoperability of commercially available products, and the (3) bureau's human capital and financial resource constraints. It will also be important for the FBI to prepare users for the impact of the new system on how they do their jobs. To the extent that the FBI does not take these steps, it will introduce program risks that could lead to problems similar to those that contributed to the failure of the Virtual Case File project.
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The Bureau's $11.3 billion life-cycle cost estimate for the 2010 Census lacks timely and complete supporting data. The supporting data of the estimate is not timely because it does not contain the most current information from testing and evaluation. Also, the supporting data of the estimate is not complete because it does not provide sufficient information on the how changing assumptions could affect cost. In January 2004, we reported that the Bureau's cost projections for the 2010 decennial census continue an escalating trend. As noted above, the Bureau now estimates the 2010 Census will cost $11.3 billion, making it the most expensive in history, even after adjusting for inflation. Although some cost growth can be expected, in part because the number of housing units--and hence the Bureau's workload--has become larger, the cost growth has far exceeded the increase in the number of housing units. The Bureau estimates that the number of housing units for the 2010 Census will increase by 10 percent over 2000 Census levels. At the same time, as shown in figure 1, the average cost per housing unit for 2010 is expected to increase by approximately 29 percent from 2000 levels (from $56 per housing unit to $72 per housing unit in 2000 inflation-adjusted dollars). The risk exists that the actual, final cost of the census could be considerably higher. Indeed, the Bureau's initial cost projections for previous censuses proved to be too low because of such factors as unforeseen operational problems or changes to the fundamental design. For example, the Bureau estimated that the 2000 Census would cost around $4 billion if sampling was used, and a traditional census without sampling would cost around $5 billion. However, the final price tag for the 2000 Census (without sampling) was over $6.5 billion, a 30 percent increase in cost. Today's climate of large federal deficits and other fiscal challenges requires holding the decennial's costs as low as possible, while promoting an accurate, timely census. Despite a history of cost increases, the Bureau's most recent cost estimate is not based on timely and complete information. Table 1 shows the Bureau's latest revised estimate that was released in September 2005. Based on this table, the bulk of the funds will be spent between fiscal years 2007 through 2013. As we stated in our January 2004 report, in June 2001, the Bureau derived its 2010 cost estimate by using the actual cost of the 2000 Census combined with assumptions about cost drivers, such as (1) staffing needs, (2) enumerator productivity, (3) pay rates for census workers, (4) the nonresponse rate for mailing back the questionnaires, and (5) inflation. However, the most recent life-cycle cost estimate does not incorporate current information about those 2001 assumptions. One key assumption, that has not been updated pertains to the use of a new technology-- specifically, new hand-held, GPS-enabled mobile computing devices (MCDs)--that would be important to the success of the 2010 census by automating and streamlining address canvassing, nonresponse follow-up, coverage measurement, and payroll operations. The Bureau anticipated that the use of MCDs would facilitate reductions in administrative and support costs in the Bureau's field offices, including a 50 percent reduction in clerical and administrative local census office staff costs and a 50 percent reduction in space at each local census office. However, the Bureau's existing assumptions about the use and reliability of the MCD were not updated to reflect information from the 2004 test, which showed that assumptions about staffing and space associated with the new technology had changed since the June 2001 estimate. The Bureau's evaluations about those test results indicate that more help desk staff at the local census office were needed to support the use of the MCD, and additional storage space was needed for the devices. However, the Bureau did not use this information when revising its cost estimate in 2005 because, according to Bureau officials, they conduct field tests for operational purposes only--not to inform the cost estimates. In our view, revising cost estimates on the most recent information--including test results that are pertinent to cost assumptions--can assist the Bureau and external decision makers to oversee costs and make necessary resource allocations to help ensure a successful, cost-effective, census. The Bureau's cost estimate lacked complete information, such as a sensitivity analysis regarding assumptions that could affect cost drivers. OMB Circular A-94 provides guidelines for cost-benefit analysis of federal programs and recommends that agencies develop a sensitivity analysis for major projects with significant uncertainty, like the decennial census. The circular provides a method for determining how sensitive outcomes are to changes in assumptions. In January 2004, we reported that the Bureau could provide more robust information on the likelihood that the values the Bureau assigned to key cost drivers could differ from those initially assumed and be timelier--previously the life-cycle cost estimate had been provided at 2-year intervals. The Bureau's latest life-cycle cost document does not contain a sensitivity analysis on assumptions that impact cost; it did, however, indicate that the life-cycle cost would be updated annually. Having transparent information about cost estimates is especially important because decennial costs are sensitive to many key assumptions. In fact, for the 2000 Census, the Bureau's supplemental funding request for $1.7 billion in fiscal year 2000 primarily involved changes in assumptions related to increased workload, reduced employee productivity, and increased advertising. Given the cost of the census in an era of serious national fiscal challenges, it would be beneficial for the Bureau and Congress to have sensitivity information about the likelihood--high, medium, or low--that certain assumptions would drive costs. By providing this information, the Bureau would better enable Congress to consider funding levels in this uncertain environment. Our January 2004 report also highlighted the challenge that the Bureau would have in containing the cost of the 2010 Census. To increase the transparency of the census' life-cycle costs for Congress, we recommended that Office of Management and Budget (OMB) establish triggers that would signal when the annual 2010 Census costs and/or life- cycle 2010 Census costs exceeded some predetermined amount. We also recommended, among other things, that OMB ensure the Bureau analyzes the sensitivity of the cost figures to specific assumptions. However, OMB disagreed with our recommendation, because it said it already has internal procedures within its budget reviews to monitor 2010 Census costs. OMB shared our view that the costs and risks associated with the 2010 Census must be carefully monitored and evaluated throughout the decade. OMB also agreed that it is essential to understand the key cost drivers and said that it is working with the Bureau to ensure that the Bureau develops high- quality, transparent life-cycle cost estimates. In addition, we recommended in our 2004 report that the Bureau develop a comprehensive project plan that would be updated as needed to (1) include milestones for completing key activities; (2) itemize the estimated cost of each component; (3) articulate a clear system of coordination among project components; and (4) translate key goals into measurable, operational terms to provide meaningful guidance for planning and measuring progress. Some, but not all, of this information is available in various documents, and to be useful, it would need to be pieced together. As a result, we recommended that the Bureau combine this information into a single, comprehensive document. The Bureau disagreed with our recommendation, although it said it would develop such a plan nonetheless and provide it to GAO, Congress, and other stakeholders. The Bureau has not yet issued such a document. Since 2000, the Bureau has reengineered the decennial census and has begun to implement new initiatives. These include (1) using a short-form- only census questionnaire; (2) automating field operations; and (3) using a targeted second mailing to households that fail to respond to the initial census questionnaire, instead of sending an enumerator to visit houses that have not responded. These initiatives could reduce the workload and cost of nonresponse follow-up. While these initiatives show promise, the Bureau will need to address technological challenges with the MCD that will be used to collect data for nonresponse follow-up. The Bureau is finding it increasingly difficult to locate people and get them counted in the census. As in previous censuses, the major cost for the 2010 Census is what the Bureau calls "field data collection and support systems," accounting for over half of the life-cycle costs of the decennial census. First, the Bureau plans to contain the cost of nonresponse follow-up by increasing mail response through a short-form-only census. The overall mail response rate has been declining steadily since 1970. In the 1980 Census, the mail response rate was 75 percent, 3 percentage points lower than it was in the 1970 Census. In the 1990 census, the mail response rate dropped to 65 percent and, in 2000, appeared to be leveling off at about 64 percent. Contributing to this decline is the public's unwillingness to complete the long form. Specifically, the response rates in 1990 and 2000 to the short form have been higher than the response rate to the long form. Bureau data suggest a 1 percent increase in the mail response rate would result from conducting a short-form-only census. Secondly, by using the MCD, the Bureau plans to automate field data collection to contain the cost of nonresponse follow-up. The MCD allows the Bureau to automate operations and eliminate the need to print millions of paper questionnaires and maps used by census workers to conduct address canvassing and nonresponse follow-up, as well as managing field staff's payroll. As stated above, the benefits of using the MCD have been tested in the 2004 and 2006 tests. For example, during the 2004 Census Test, the MCD allowed the Bureau to successfully remove over 7,000 late mail returns from enumerators' assignments, reducing the total nonresponse follow-up workload by nearly 6 percent. The ability to remove late mail returns from the Bureau's nonresponse follow-up workload reduces costs, because census workers no longer need to make expensive follow-up visits to households that return their questionnaire late, after the mail-back deadline. If the Bureau had possessed this capability during the 2000 Census, it could have eliminated the need to visit nearly 773,000 late-responding households and saved an estimated $22 million (based on our estimate that a 1 percentage point increase in workload could add at least $34 million in direct salary, benefits, and travel costs to the price tag of nonresponse follow-up). Moreover, operations that traditionally had to be done in sequence, such as nonresponse follow-up and then verifying the housing unit status for addresses marked vacant, can now be performed simultaneously by using the MCD, which may shorten the time needed for local census offices to stay open. However, the Bureau's ability to collect and transmit data using the MCD is not known and, at this point, constitutes a risk to the cost-effective implementation of the 2010 Census. During the 2004 test of nonresponse follow-up and the 2006 test of address canvassing, the MCDs experienced significant reliability problems. During the 2004 Census Test, the MCDs experienced transmission problems, memory overloads, and difficulties with a mapping feature--all of which added inefficiencies to the nonresponse follow-up operation. During the 2006 Census Test, for address canvassing, the device was slow to pull up and exit address registers, accept the data entered by the census workers, and link map locations to addresses for multiunit structures. Furthermore, the MCDs would sometimes lockup, requiring workers to reboot them. Census workers also found it difficult to transmit an address and map location that were identified for deletion. Because the Bureau could not fix this problem, workers returned to the local census office so technicians could address the problem. The MCD's global positioning system (GPS) receiver, a satellite-based navigational system to help workers locate street addresses and collect coordinates for each structure in their assignment area, was also unreliable. Some workers had trouble receiving signals, and when a signal was available, the receiver was slow to find assignment areas and correct map locations, according to Bureau officials. The Bureau extended the operation 10 days and still was unable to complete the job, leaving census blocks in Austin, Texas and on the Cheyenne River Reservation, South Dakota, unverified. The Bureau has acknowledged that the MCD's performance is an issue but believes it will be addressed through a contract awarded on March 30, 2006, to develop a new MCD. However, the new MCD will not be tested until the 2008 Dress Rehearsal, and if problems do emerge, little time will be left to develop, test, and incorporate refinements. Given that, it will be important that the Bureau have a risk mitigation plan in place to help ensure the successful testing of the MCD at the Dress Rehearsal. In our May 2006 report, we highlighted the tight time frames to develop the MCD and recommended that systems being developed or provided by contractors for the 2010 Census--including the MCD--be fully functional and ready to be assessed as part of the 2008 Dress Rehearsal. The Department of Commerce, the Census Bureau's parent agency, noted in its comments on our draft report that the Bureau provided competitors for the contract with information about the design, requirements, and specification for the 2006 test in the request for proposals. Commerce also noted that the Bureau would share preliminary results from the 2006 test with the firm that was awarded the contract, upon the availability of those results. The Bureau, however, did not specify when preliminary results would be available. However, if after the 2008 Dress Rehearsal the MCD is found not to be reliable, the Bureau could be faced with a remote but daunting possibility of having to revert to the costly, paper-based census used in 2000. Finally, a targeted second mailing to households that fail to respond to the initial census questionnaire could reduce the workload and cost of nonresponse follow-up. According to Bureau studies, sending a second questionnaire could yield a gain in overall response of 7 to 10 percent from non-responding households. In reports, we have highlighted how a second mailing could boost the mail response rate by several percentage points, which in turn would result in considerable savings by reducing the number of costly personal visits enumerators would need to make to non- responding households. The Bureau has never before included this operation as part of a decennial census and over the decade has been testing its feasibility. The targeted second mailing is a part of the 2006 test, the results of which will allow the Bureau to identify and resolve any operational issues; to demonstrate a more refined plan as part of the 2008 Dress Rehearsal; and, ultimately, to increase the likelihood that the second mailing will produce the desired cost savings and other benefits in 2010. Recent work that we have conducted has identified several challenges that, if not properly managed, could increase the cost of the 2010 Census. As the Bureau moves from testing to demonstrating the design in the Dress Rehearsal, it will be important for the Bureau to have risk mitigation plans in place to reduce the severity of challenges to a cost-effective census. These challenges include (1) overseeing contractors responsible for conducting key census-taking operations, (2) successfully updating address and map files, and (3) assessing the resources that will be needed to update the address files and maps for areas affected by hurricanes Katrina and Rita. The Bureau is relying extensively on contractors to supply mission-critical functions and technologies for the 2010 Census. The Bureau estimates that they will spend $1.9 billion, or nearly 17 percent, of the Bureau's overall decennial costs to award seven major contracts for the 2010 Census. To date, the Bureau has awarded three of its seven major contracts. These three contracts support (1) MAF/TIGER modernization; (2) the development and operation of the Decennial Response and Integration System (DRIS)--a system planned to integrate paper, Internet, and telephone responses; and (3) the Field Data Collection Automation (FDCA) program--a system designed to provide field staff with the equipment and infrastructure needed to collect census data. Contractors can help the Bureau address the challenges it faces as it plans for and implements the 2010 Census, especially as it becomes increasingly difficult for the Bureau to count the nation's population with its in-house staff and capabilities. The contractors that the Bureau relied on to perform major decennial activities during Census 2000 generally performed well. However, increased reliance on contractors entails certain management challenges, including the oversight of contractors to ensure that they meet the Bureau's needs in an effective, economical, and timely manner. For example, according to the Department of Commerce Office of Inspector General, the Bureau did not have sufficient program management staff to efficiently acquire systems and manage complex, high-dollar contracts during Census 2000. As a result, the cost of the Bureau's data capture system increased from $49 million to $238 million by the end of that decennial. As we noted in our May 2006 report, the Bureau has not yet awarded four other major contracts for the 2010 Census, but has already pushed back the award dates of two of the remaining contracts because of changes in its acquisition approach. The Bureau's tight schedule for systems development and testing as well as the interdependence of decennial systems could affect its ability to develop fully functional and sufficiently mature systems that can be demonstrated in concert with other operations during the 2008 Dress Rehearsal. We previously reported that during the 1998 Dress Rehearsal for the 2000 Census, a number of new features were not test-ready; as a result, the Bureau said it could not fully evaluate them with any degree of assurance as to how they would affect the census. These late design changes and untested systems resulted in additional costs to the census. Closely monitoring major contracts continues to be important. In March 2006, we testified that while project offices responsible for the DRIS and FDCA contracts had carried out initial acquisition management activities, neither office had the full skill sets needed to effectively manage the acquisitions. For DRIS, the Bureau's project office had established baseline requirements, but the Bureau had not validated the requirements and had not implemented a process for managing them. Also, the project office had identified the project's risks but had not written mitigation plans or established milestones for completing key risk mitigation activities. As for FDCA, the Bureau again had specified baseline requirements but had not validated them. While, the project office had begun to oversee the contractor's performance, it had not determined which performance measures it would use, and the office had not implemented a risk management process. Until these basic management activities are implemented, both systems could face increased risks of cost overruns, schedule delays and performance shortfalls. We have made recommendations addressing those issues, such as developing mitigation plans with milestones for key activities and regularly briefing senior managers. The Bureau has agreed to complete these activities as soon as possible. As part of its effort to allow respondents to use the Internet during the decennial census, the Bureau proposed to develop the use of the Internet under the DRIS contract. However, in May 2006, Bureau officials informed us that the Internet response option was no longer a contract requirement and that they are uncertain whether Internet response would be an option for the 2010 Census. The removal of the Internet from the DRIS contract is an unexpected change, because just 3 months earlier in our March 2006 testimony, we reported that the DRIS contract was expected to process Internet responses for the 2010 Census. High-level Bureau officials explained that they made the decision to remove the Internet from the contract partly because of the potential risks associated with computer security attacks. In addition, according to a Bureau official, the Bureau's testing to date showed nothing to indicate that offering an Internet response option would improve overall response rates or save any money. According to Bureau officials, if the Internet response option is included in the design, it will be developed in-house by Bureau staff. Bureau officials emphasized that they only have one chance every 10 years to collect this information; moreover, any public perception of an unsecured Internet Web site could result in residents not responding to the census, and in the long term could cost more than if the Internet had not been used. It should be noted that there are security techniques to address Internet attacks, and other federal agencies use the Internet to successfully meet many missions. According to a Bureau official, the Bureau believes it made a sound business decision by removing the Internet from the DRIS contract requirements. Further, the official told us that the Bureau did not develop a formal business case document on this decision. To contain decennial costs, long-standing and emerging issues related to the Bureau's address lists and maps need to be addressed. A complete and accurate address list is the cornerstone of a successful census because it identifies all households that are to receive a census questionnaire and serves as the control mechanism for following up with households that fail to respond. Although the Bureau went to great lengths to build a complete and accurate MAF for the 2000 Census, of the 116 million housing units contained in the database, the Bureau estimates it incorrectly included 2.3 million housing units and missed another 2.7 million housing units. In light of these and other problems, the Bureau concluded that enhancements to MAF/TIGER were necessary to make census data more complete and accurate. The Bureau has conducted research and testing to help resolve each of the problems experienced in the 2000 Census, including addresses that were duplicated, missed, deleted, and incorrectly located on a map (a problem known as "geocoding error"). For example, the Bureau is researching ways to capture missed addresses for housing units that were hard to find--often associated with apartments in small multiunit structures. However, some deadlines for completing research are not firm, while other deadlines that have been set continue to slip. As a result, it is not known whether the research and evaluation efforts underway will be completed in sufficient time to allow the Bureau to develop new methodologies and procedures for improving the MAF by June 2007--the Bureau's announced deadline for determining the baseline for all program requirements. In addition, one major research effort using software to identify duplicate addresses (an estimated 1.4 million duplicate addresses were removed during the 2000 Census) did not work and will not be used in 2010. As a result, duplicate addresses may still be a problem for the 2010 MAF, and if not detected, can result in increased cost when nonresponse enumerators attempt to collect data from a duplicate address incorrectly listed in the MAF. New issues surrounding the schedule of address activities have emerged. One such issue revolves around the planning and development of the 2010 Census amid tight and overlapping schedules for updating addresses and map files. For example, Bureau officials estimate that TIGER maps for 600 to 700 counties of 3,232 counties in the United States will not be updated in time to be part of local update of census address (LUCA)--the Bureau's program to give local, state, and tribal government officials the opportunity to review the address lists and maps and suggest corrections. LUCA participation is important because local knowledge contributes to a more complete and accurate address file. Not having the most current TIGER maps could affect the quality of a local government's review and could potentially increase the cost of conducting the census. For example, to the extent LUCA participants are not able to use the maps to identify duplicate and nonexistent addresses, and if subsequent address operations also fail to identify those same addresses, then nonresponse follow-up enumerators would make unnecessary and costly attempts to locate these incorrectly included addresses. The Bureau does not have a plan to assess additional resources that may be needed to update the address and map file for areas affected by hurricanes Katrina and Rita. The task of updating Census address files to reflect the changes caused by the hurricanes will be formidable and possibly costly, as much has changed to the landscape since the 2000 Census. On August 29, 2005, hurricane Katrina devastated the coastal communities of Louisiana, Mississippi, and Alabama. A few weeks later, hurricane Rita hit the border areas of Texas and Louisiana. Damage was widespread. For example, the Red Cross estimated that nearly 525,000 people were displaced as a result of hurricane Katrina and approximately 90,000 square miles were affected. In some places, entire communities were obliterated. Homes were declared uninhabitable, and streets, bridges, and other landmarks were destroyed. For the 2010 Census, locating housing units and the people who reside in them will be critical to accurate population counts of places hit by the hurricanes, especially since it is estimated that hundreds of thousands of people have--either temporarily or permanently--migrated to other areas of the country. The Bureau anticipates that by 2009, residents will have decided whether to return to the region. However, Bureau officials have not provided information regarding the basis of this conclusion. Given the magnitude of the area, population, and infrastructure affected, it would be prudent for the Bureau to begin assessing whether new procedures will be necessary, determining whether additional resources may be needed, and identifying whether local partners will be available to assist the Bureau in its effort to update address and map data, as well as other census-taking activities. Without having done a resource analysis, the Bureau remains uncertain about whether additional funds will be needed to help locate and count residents affected by the hurricanes. In summary, the 2010 Census is an expensive but vitally important undertaking, the success of which is needed to meet the information requirements of policymakers at all levels of government, as well as business interests, and academic researchers. The Bureau responded to concerns about the accuracy, completeness, and cost-effectiveness of the 2000 Census by reengineering the heretofore paper-based processes used in all previous censuses. At the same time, the projected life-cycle cost of $11.3 billion makes the next decennial census the most expensive in our history, and many factors can cause the 2010 Census to be more expensive. It is important to consider that some factors that may increase the costs of the census-- such as counting more people than ever who do not speak English or who live in alternative, hard-to-find housing--are inherent in the characteristics of the population that needs to be counted. Largely, demographically related cost factors will continue to exist, regardless of actions taken by the Bureau, and must be treated as givens by Bureau planners. Still, other factors that can cause cost increases can and should be mitigated. While needed, the reengineering introduced by the Bureau presents new challenges and increased risks. The Bureau needs to ensure that its new MCDs work as designed, and that contractors perform according to requirements, on schedule, and at cost. Moreover, the Bureau still needs to fully resolve preexisting issues related to the accuracy and completeness of the address list. Overall, we have long recognized that redesigning massive enterprises entail risks and uncertainties. Such risks and uncertainties need to be managed through the use of adequate planning and risk management by Bureau management. Such tools also serve the oversight requirements of external stakeholders--most notably Congress, which is being asked to authorize and appropriate more funds than ever to pay for the census. In January 2004, recognizing the cost escalation risks of the 2010 Census, we concluded that the Bureau's plans for 2010 lacked the needed budgetary supporting detail, supporting analysis, and other information, making it difficult for Congress and us to oversee the Bureau's operations and assess the feasibility of the Bureau's design and the extent to which it would lead to greater cost-effectiveness. While the Bureau has made progress in planning and designing the 2010 Census, the Bureau will need to continue to take steps to manage and mitigate risks for a comprehensive, accurate, and cost-effective population count in 2010. That concludes my statement, Mr. Chairman. I would be pleased to respond to any questions you or other members of the Subcommittee may have. For questions regarding this testimony, please contact Brenda S. Farrell, on (202) 512-6806, or by email at [email protected] Individuals making contributions to this testimony include Betty Clark, Robert Goldenkoff, Ernie Hazera, Shirley Hwang, Krista Loose, Lisa Pearson, Scott Purdy, Cynthia Scott, and Tim Wexler. 2010 Census: Census Bureau Generally Follows Selected Leading Acquisition Planning Practices, but Continued Management Attentions Is Needed to Help Ensure Success. GAO-06-277. Washington, D.C.: May 18, 2006. Census Bureau: Important Activities for Improving Management of Key 2010 Decennial Acquisitions Remain to Be Done. GAO-06-444T. Washington, D.C.: March 1, 2006. 2010 Census: Planning and Testing Activities Are Making Progress. GAO-06-465T. Washington D.C.: March 1, 2006. Information Technology Management: Census Bureau Has Implemented Many Key Practices, but Additional Actions Are Needed. GAO-05-661. Washington, D.C.: June 16, 2005. 2010 Census: Basic Design Has Potential, but Remaining Challenges Need Prompt Resolution. GAO-05-09. Washington, D.C.: January 12, 2005. Data Quality: Census Bureau Needs to Accelerate Efforts to Develop and Implement Data Quality Review Standards. GAO-05-86. Washington, D.C.: November 17, 2004. Census 2000: Design Choices Contributed to Inaccuracies in Coverage Evaluation Estimates. GAO-05-71. Washington, D.C.: November 12, 2004. American Community Survey: Key Unresolved Issues. GAO-05-82. Washington, D.C.: October 8, 2004. 2010 Census: Counting Americans Overseas as Part of the Decennial Census Would Not Be Cost-Effective. GAO-04-898. Washington, D.C.: August 19, 2004. 2010 Census: Overseas Enumeration Test Raises Need for Clear Policy Direction. GAO-04-470.Washington, D.C.: May 21, 2004. 2010 Census: Cost and Design Issues Need to Be Addressed Soon. GAO- 04-37. Washington, D.C.: January 15, 2004. Decennial Census: Lessons Learned for Locating and Counting Migrant and Seasonal Farm Workers. GAO-03-605. Washington, D.C.: July 3, 2003. Decennial Census: Methods for Collecting and Reporting Hispanic Subgroup Data Need Refinement. GAO-03-228. Washington, D.C.: January 17, 2003. Decennial Census: Methods for Collecting and Reporting Data on the Homeless and Others Without Conventional Housing Need Refinement. GAO-03-227. Washington, D.C.: January 17, 2003. 2000 Census: Lessons Learned for Planning a More Cost-Effective 2010 Census. GAO-03-40. Washington, D.C.: October 31, 2002. The American Community Survey: Accuracy and Timeliness Issues. GAO-02-956R. Washington, D.C.: September 30, 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 decennial census is a constitutionally mandated activity, with immutable deadlines. It produces data used to allocate about $200 billion yearly in federal financial assistance, reapportion the seats of the House of Representatives, and provide a profile of the nation's people to help guide policy decisions. The U.S. Census Bureau (Bureau) estimates the 2010 Census will cost $11.3 billion, making it the most expensive census in the nation's history, even after adjusting for inflation. Based primarily on GAO's issued reports, this testimony addresses the extent to which the Bureau has (1) developed detailed and timely cost data for effective oversight and cost control, (2) reduced nonresponse mail follow up costs, and (3) produced risk mitigation plans to address identified challenges. The Bureau's most recent life-cycle cost estimate for the 2010 Census does not reflect the most current information from testing and evaluation nor provide complete information on how changing assumptions may affect cost. As GAO reported in January 2004, the Bureau derived its initial cost estimate by considering the cost of the 2000 Census along with certain assumptions that drive costs, such as staffing needs, the nonresponse rate for mailing back the census questionnaire, census worker productivity and pay rates, and inflation; however, GAO's ongoing work has found that the most recent (September 2005) estimate does not incorporate current information on certain 2001 assumptions. For example, the 2004 Census Test suggests some assumptions about staffing and space associated with new technology have changed. Specifically, Bureau evaluations indicate that more staff at the local census office was needed to support the use of the new hand-held mobile computing device (MCD) and additional storage space was needed for the MCDs. Since 2000, the Bureau has reengineered the decennial census and has begun new initiatives to reduce nonresponse follow up costs. Key to the Bureau's steps to reduce the costs of nonresponse follow up is successfully using the MCDs to eliminate millions of paper questionnaires and maps. Importantly, the Bureau must first resolve the MCD's technological challenges. During 2004 and 2006 tests, the MCDs had significant reliability problems. For example, in the 2004 test the MCDs experienced transmission problems, memory overloads, and difficulties with the map ping feature. Bureau officials have contracted the design and implementation for a new MCD that will not be ready until the 2008 Dress Rehearsal. If after the Dress Rehearsal the MCD is found not to be reliable, the Bureau could be faced with the remote but daunting possibility of having to revert to the costly paper-based Census used in 2000. The Bureau does not have risk mitigation plans to address certain identified challenges to a cost-effective census. Most notably, the Bureau does not have a plan to assess additional resources that may be needed to update the address and map file for areas affected by hurricanes Katrina and Rita. Moreover, the Bureau has not yet assessed whether new procedures will be necessary nor whether local partners will be available to assist in updating address and map data. Updating address files to reflect the changes caused by the hurricanes will be formidable, in part because, according to Red Cross estimates, nearly 525,000 people were displaced in a 90,000 square mile area. Another risk to be mitigated stems from the need to closely monitor the performance of about $1.9 billion in contracts. The Bureau has agreed to take steps to mitigate some of those risks. For example, the Bureau has said it will enhance the ability of key contract project offices to better manage contracts through such actions as developing mitigation plans with milestones for key activities and regularly briefing senior managers.
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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 agencies determine that such action is cost-effective. OMB formalized the policy in its Circular A-76, issued in 1966. In 1979, OMB supplemented the circular with a handbook that included procedures for competitively determining whether commercial activities should be performed in-house, by another federal agency through an interservice support agreement, or by the private sector. OMB has updated this handbook several times. Under A-76, commercial activities may be converted to or from contractor performance either by direct conversion or by cost comparison. Under direct conversion, specific conditions allow commercial activities to be moved from government or contract performance without a cost comparison study (e.g., for activities involving 10 or fewer civilians.)Generally, however, commercial functions are to be converted to or from contract performance by cost comparison, whereby the estimated cost of government performance of a commercial activity is compared with the cost of contractor performance in accordance with the principles and procedures set forth in Circular A-76 and the revised supplemental handbook. As part of this process, the government identifies the work to be performed (described in the performance work statement), prepares an in-house cost estimate on the basis of its most efficient organization, and compares it with the winning offer from the private sector. According to A-76 guidance, an activity should not be moved from one sector to the other (whether public to private or vice versa) unless doing so would save at least $10 million or 10 percent of the personnel costs of the in-house performance (whichever is less). OMB established this minimum cost differential to ensure that the government would not convert performance for marginal savings. The handbook also provides an administrative appeals process. An eligible appellant must submit an appeal to the agency in writing within 20 days of the date that all supporting documentation is made publicly available. Appeals are supposed to be adjudicated within 30 days after they are received. Private-sector offerors who believe that the agency has not complied with applicable procedures have additional avenues of appeal. They may file a bid protest with GAO or file an action in a court of competent jurisdiction. Circular A-76 requires agencies to maintain annual inventories of commercial activities performed in-house. A similar requirement was included in the 1998 Federal Activities Inventory Reform (FAIR) Act, which directs agencies to develop annual inventories of their positions that are not inherently governmental. The fiscal year 2001 inventory identified approximately 841,000 full-time equivalent commercial-type positions, of which approximately 413,000 were in the Department of Defense (DOD). DOD has been the leader among federal agencies in recent years in its use of OMB Circular A-76; the Circular's use by other agencies has been very limited. However, in 2001, OMB signaled its intention to direct greater use of the circular on a government-wide basis. In a March 9, 2001, memorandum, OMB directed agencies to take action in fiscal year 2002 to directly convert or complete public-private competitions of not less than 5 percent of the full-time equivalent positions listed in their FAIR Act inventories. Subsequent guidance expanded the requirement to 15 percent in fiscal year 2003, with the ultimate goal of competing at least 50 percent. Although comprising a relatively small portion of the government's overall service contracting activity, competitive sourcing under Circular A-76 has been the subject of much controversy because of concerns about the process raised both by the public and private sectors. Federal managers and others have been concerned about the organizational turbulence that typically follows the announcement of A-76 studies. Government workers have been concerned about the impact of competition on their jobs, the opportunity for input into the process, and the lack of parity with industry offerors to protest A-76 decisions. Industry representatives have complained about unfairness in the process and the lack of a level playing field between the government and the private sector in accounting for costs. Concerns have also been raised about the adequacy of the oversight of subsequent performance, whether the work is being performed by the public or private sector. Amid these concerns over the A-76 process, the Congress enacted section 832 of the National Defense Authorization Act for Fiscal Year 2001. The act required the Comptroller General to convene a panel of experts to study the policies and procedures governing the transfer of commercial activities for the federal government from government to contactor personnel. The act also required the Comptroller General to appoint highly qualified and knowledgeable persons to serve on the panel and ensure that the following entities received fair representation on the panel: DOD. Persons in private industry. Federal labor organizations. OMB. Appendix I lists the names of the Panel members. The legislation mandating the Panel's creation required that the Panel complete its work and report the results of its study to the Congress no later than May 1, 2002. The Panel's report was published on April 30, 2002. In establishing the Panel, a number of steps were taken to ensure representation from all major stakeholders as well as to ensure a fair and balanced process. This began with my selection of Panel members, which was then followed by the Panel's establishment of a process to guide its work. To ensure a broad array of views on the panel, we used a Federal Register notice to seek suggestions on the Panel's composition. On the basis of the nominations received in response to that notice, as well as the need to include the broad representation outlined in legislation, I personally interviewed a number of potential panel members before selecting other members to serve on the panel. I believe that we selected a group of outstanding individuals representative of diverse interest groups from the public and private sectors, labor unions, academia, and members with experience in dealing with sourcing decisions at the local government level. Once convened, the Panel, as a group, took a number of steps at the outset to guide its deliberations and ensure a full and balanced consideration of issues. The first step was the adoption of the following mission statement: Mission of the Commercial Activities Panel The mission of the Commercial Activities Panel is to improve the current sourcing framework and processes so that they reflect a balance among taxpayer interests, government needs, employee rights, and contractor concerns. The Panel also agreed that all of its findings and recommendations would require the agreement of at least a two-thirds supermajority of the Panel in order to be adopted. The Panel further decided that each Panel member would have the option of having a brief statement included in the report explaining the member's position on the matters considered by the Panel. In addition to the Federal Register notice soliciting input on issues to be considered by the Panel, the Panel held 11 meetings over the period of May 2001 to March 2002, 3 of which were public hearings in Washington, D.C.; Indianapolis, Indiana; and San Antonio, Texas. In the public hearings, Panel members heard testimony from scores of representatives of the public and private sectors, state and local governments, unions, contractors, academia, and others. Panelists heard first-hand about the current process, primarily the cost comparison process conducted under OMB Circular A-76, as well as alternatives to that process. Appendix II provides more detail on the topics and concerns raised at the public hearings. The Panel also maintained an E-mail account to receive written comments from any source. After the completion of the field hearings, the Panel members met in executive session several times, augmented between meetings by the work of staff to help them (1) gather background information on sourcing trends and challenges, (2) identify sourcing principles and criteria, (3) consider A-76 and other sourcing processes to assess what's working and what's not, and (4) assess alternatives to the current sourcing processes. As the Panel began its work, it recognized early on the need for a set of principles that would provide a framework for sourcing decisions. Those principles, as they were debated and fleshed out, provided an important vehicle for assessing what does or does not work in the current A-76 process, and provided a framework for identifying needed changes in the process. During its meetings, the Panel coalesced around a set of principles to guide sourcing decisions. The principles helped frame many of the Panel's deliberations and became a reference point for the Panel's work. Moreover, the principles were unanimously adopted by the Panel and included as part of the Panel's recommendations. While each principle is important, no single principle stands alone, and several are interrelated. Therefore, the Panel adopted the principles and their accompanying narrative comments as a package and then used these principles to assess the government's existing sourcing system and to develop additional Panel recommendations. The Panel believes that federal sourcing policy should: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 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 and certain other functions should be performed by federal workers. Create incentives and processes to foster high-performing, efficient, and effective organizations throughout the federal government. Be based on a clear, transparent, and consistently applied process. Avoid arbitrary full-time equivalent or other arbitrary numerical goals. Establish a process that, for activities that may be performed by either the public or the private sector, would permit public and private sources to participate in competitions for work currently performed in-house, work currently contracted to the private sector, and new work, consistent with these guiding principles. Ensure that, when competitions are held, they are conducted as fairly, effectively, and efficiently as possible. Ensure that competitions involve a process that considers both quality and cost factors. Provide for accountability in connection with all sourcing decisions. The principles and their accompanying commentary are included in their entirety in appendix III. The Panel's principles supplied a strong conceptual framework and specific criteria against which to measure any proposals for change in the government's competitive-sourcing policies. The Panel concluded that there are some advantages to the current system. First, A-76 cost comparisons are conducted under an established set of rules, the purpose of which is to ensure that sourcing decisions are based on uniform, transparent, and consistently applied criteria. Second, the A-76 process has enabled federal managers to make cost comparisons between sectors that have vastly different approaches to cost accounting. Third, the current A-76 process has been used to achieve significant savings and efficiencies for the government. Savings result regardless of whether the public or the private sector wins the cost comparison. This is because competitive pressures have served to promote efficiency and improve the performance of the activity studied. Despite these advantages, the Panel heard frequent criticisms of the A-76 process. The Panel's report noted that both federal employees and private firms complain that the A-76 competition process does not meet the principles' standard of a clear, transparent, and consistently applied process. Since January 1999, GAO has issued 22 decisions on protests involving A-76 cost comparisons. Of these decisions, GAO sustained 11 and denied 11. "Sustaining" a protest means that GAO found that the agency had violated procurement statutes or regulations in a way that prejudiced the protester. Protests involving A-76 represent a very small percentage of the many hundreds of bid protest decisions that GAO issued in the past 3 years. They do, however, indicate an unusually high percentage of sustained protests. In protests decisions covering all procurements, GAO has sustained about one-fifth of the protests, while in A-76 protests, GAO has sustained half. (It should be kept in mind, though, that most A-76 decisions are not protested, just as most contract award decisions are not protested.) These sustained protests generally reflect only the errors made in favor of the government's most efficient organization since only the private-sector offeror has the right to protest to GAO. While any public-private competition is, by nature, challenging and open to some of the concerns that have been raised regarding the A-76 process, the high rate of successful A-76 protests suggests that agencies have a more difficult time applying the A-76 rules than they do applying the normal (i.e., Federal Acquisition Regulation) acquisition rules. At least in part, this may be because the Federal Acquisition Regulation (FAR) rules are so much better known. While training could help overcome this lack of familiarity (and many agencies, particularly those in DOD, have been working on A-76 training), the Panel noted that the FAR acquisition and source selection processes are already better known and better understood; they, in a sense, serve as a "common language" for procurements and source selections. In the Panel's view, the most serious shortcoming of the A-76 process is that it has been stretched beyond its original purpose, which was to determine the low-cost provider of a defined set of services. Circular A-76 has not worked well as the basis for competitions that seek to identify the best provider in terms of quality, innovation, flexibility, and reliability. This is particularly true in today's environment, where solutions are increasingly driven by technology and may focus on more critical, complex, and interrelated services than previously studied under A-76. In the federal procurement system today, there is common recognition that a cost-only focus does not necessarily deliver the best quality or performance for the government or the taxpayers. Thus, while cost is always a factor, and often the most important factor, it is not the only factor that may need to be considered. In this sense, the A-76 process may no longer be as effective a tool, since its principal focus is on cost comparisons. During its year-long study, the Panel identified several key characteristics of a successful sourcing policy. First, the Panel heard repeatedly about the importance of competition and its central role in fostering economy, efficiency, high performance, and continuous performance improvement. The means by which the government utilizes competition for sourcing its commercial functions was at the center of the Panel's discussions and work. The Panel strongly supported a continued emphasis on competition as a means to improve economy, efficiency, and effectiveness of the government. The Panel also believed that whenever the government is considering converting work from one sector to another, public-private competitions should be the norm. Direct conversions generally should occur only where the number of affected positions is so small that the costs of conducting a public-private competition clearly would outweigh any expected savings. Moreover, there should be adequate safeguards to ensure that activities, entities, or functions are not improperly separated to reduce the number of affected positions and avoid competition. A second theme consistently cited at the public hearings was the need for a broader approach to sourcing decisions, rather than an approach that relies on the use of arbitrary quotas or that is unduly constrained by personnel ceilings. Critical to adopting a broader perspective is having an enterprise-wide perspective on service contract expenditures, yet the federal government lacks timely and reliable information about exactly how, where, and for what purposes, in the aggregate, taxpayer dollars are spent for both in-house and contracted services. The Panel was consistently reminded about, and fully agrees with, the importance of ensuring accountability throughout the sourcing process, providing the workforce with adequate training and technical support in developing proposals for improving performance, and assisting those workers who may be adversely affected by sourcing decisions. Improved accountability extends to better monitoring of performance and results after competitions are completed--regardless of the winner. The Panel heard about several successful undertakings involving other approaches to sourcing decisions. Some involved business process reengineering and public-private partnerships, and emphasized labor- management cooperation in accomplishing agency missions. For example, in Indianapolis, Indiana, on August 8, 2001, the Panel heard from representatives from several organizations that had taken different approaches to the sourcing issue. Among them were the Naval Surface Warfare Center in Crane, Indiana, which reengineered its business processes to reduce costs and gain workshare, and the city of Indianapolis, which effectively used competition to greatly improve the delivery of essential services. In doing so, the city also provided certain technical and financial assistance to help city workers successfully compete for work. These entities endeavored to become "most efficient organizations." It was from these examples and others that the Panel decided that all federal agencies should strive to become "high performing organizations." Third, sourcing policy is inextricably linked to the government's human capital policies. This linkage has many levels, each of which is important. It is particularly important that sourcing strategies support, not inhibit, the government's efforts to attract, motivate, and retain a high-performing in- house workforce, as well as support its efforts to access and collaborate with high-performance, private-sector providers. Properly addressed, these policies should be complementary, not conflicting. In addition to the principles discussed earlier, the Panel adopted a package of additional recommendations it believed would improve significantly the government's policies and procedures for making sourcing decisions. It is important to emphasize that the Panel decided to consider and adopt these latter recommendations as a package, recognizing the diverse interests represented on the Panel and the give and take required to reach agreement among a supermajority of the Panelists. As a result, a supermajority of the Panel members recommended the adoption of the following actions: Conduct public-private competitions under the framework of an integrated FAR-based process. The government already has an established mechanism that has been shown to work as a means to identify high-value service providers: the negotiated procurement process of the Federal Acquisition Regulation. The Panel believes that in order to promote a more level playing field on which to conduct public-private competitions, the government needs to shift, as rapidly as possible, to a FAR-type process under which all parties compete under the same set of rules. Although some changes in the process will be necessary to accommodate the public- sector proposal, the same basic rights and responsibilities would apply to both the private and the public sectors, including accountability for performance and the right to protest. This and perhaps other aspects of the integrated competition process would require changes to current law or regulation (e.g., requirements in title 10 of the U.S. Code that DOD competitive sourcing decisions be based on low cost). Make limited changes to the existing A-76 process. The development of an integrated FAR-type process will require some time to be implemented. In the meantime, the Panel expects current A-76 activities to continue, and therefore believes some modifications to the existing process can and should be made. Accordingly, the Panel recommended a number of limited changes to OMB Circular A-76. These changes would, among other things, strengthen conflict-of-interest rules, improve auditing and cost accounting, and provide for binding performance agreements. Encourage the development of high-performing organizations (HPOs). The Panel recommended that the government take steps to encourage HPOs and continuous improvement throughout the federal government, independent of the use of public-private competitions. In particular, the Panel recommended that the Administration develop a process to select a limited number of functions currently performed by federal employees to become HPOs, and then evaluate their performance. Then, the authorized HPOs would be exempt from competitive sourcing studies for a designated period of time. Overall, however, the HPO process is intended to be used in conjunction with, not in lieu of, public-private competitions. The successful implementation of the HPO concept will require a high degree of cooperation between labor and management, as well as a firm commitment by agencies to provide sufficient resources for training and technical assistance. In addition, a portion of any savings realized by the HPO should be available to reinvest in continuing reengineering efforts and for the HPO to use for further training and/or for incentive purposes. Let me speak specifically to the creation of HPOs. Many organizations in the past, for various reasons, have found it difficult to become high- performing organizations. Moreover, the federal government continues to face new challenges in making spending decisions for both the long and near term because of federal budget constraints, rapid advances in technology, the impending human capital crisis, and new security challenges brought on by the events of September 11, 2001. Such a transformation will require that each organization reverse decades of underinvestment and lack of sustained attention to maintaining and enhancing its capacity to perform effectively. The Panel recognized that incentives are necessary to encourage both management and employees to promote the creation of HPOs. It envisioned that agencies would have access to a range of financial and consulting resources to develop their plans, with the costs offset by the savings realized. The Panel's report focused primarily on HPOs in the context of commercial activities, given its legislative charter. However, there is no reason why the concept could not be applied to all functions, since much of the government's work will never be subject to competition. HPOs may require some additional flexibility coupled with appropriate safeguards to prevent abuse. The Panel also envisioned the use of performance agreements and periodic performance reviews to ensure appropriate transparency and accountability. Although a minority of the Panel did not support the package with the three additional recommendations noted above, some of them indicated that they supported one or more elements of the package. Importantly, there was a good faith effort, even at the last minute of the report's preparation, to maximize agreement and minimize differences between Panelists. In fact, changes were made even when it was clear that some Panelists seeking changes were highly unlikely to vote for the supplemental package of recommendations. As a result, on the basis of Panel meetings and my personal discussions with Panel members at the end of our deliberative process, the major differences between the Panelists were few in number and philosophical in nature. Specifically, disagreement centered primarily on the (1) recommendation related to the role of cost in the new FAR-type process and (2) the number of times the Congress should be required to act on the new integrated process, including whether the Congress should specifically authorize a pilot program that tests that process for a specific time period. Many of the Panel's recommendations can be accomplished administratively under existing law, and the Panel recommends that they be implemented as soon as practical. The Panel also recognizes that some of its recommendations would require changes in statutes or regulations and that making the necessary changes could take some time. Any legislative changes should be approached in a comprehensive and considered manner rather than a piecemeal fashion in order for a reasonable balance to be achieved. Like the guiding principles, the recommendations were the result of much discussion and compromise and should be considered as a whole. Moreover, although the Panel views the use of a FAR-type process for conducting public-private competitions as the end state, the Panel also recognizes that some elements of its recommendations represent a shift in current procedures for the federal government. Therefore, the Panel's report outlined the following phased implementation strategy that would allow the federal government to demonstrate and then refine its sourcing policy on the basis of experience: A-76 studies currently under way or initiated during the near term should continue under the current framework. Subsequent studies should be conducted in accordance with the improvements listed in our report. OMB should develop and oversee the implementation of a FAR-type, integrated competition process. In order to permit this to move forward expeditiously, it may be advisable to limit the new process initially to civilian agencies where, except for allowing protests by federal employees, its use would not require legislation. Statutory provisions applying only to DOD agencies may require repeal or amendment before the new process could be used effectively at DOD, and the Panel recommends that any legislation needed to accommodate the integrated process in DOD be enacted as soon as possible. As part of a phased implementation and evaluation process, the Panel recommends that the integrated competition process be used in a variety of agencies and in meaningful numbers across a broad range of activities, including those currently performed by federal employees, work currently performed by contractors, and new work. Within 1 year of initial implementation of the new process, and again 1 year later, the Director of OMB should submit a detailed report to the Congress identifying the costs of implementing the new process, any savings expected to be achieved, the expected gains in efficiency or effectiveness of agency programs, the impact on affected federal employees, and any lessons learned as a result of the use of this process together with any recommendations for appropriate legislation. GAO would review each of these OMB reports and provide its independent assessment to the Congress. The Panel anticipates that OMB would use the results of its reviews to make any needed "mid-course corrections." On the basis of the results generated during the demonstration period, and on the reports submitted by OMB and GAO, the Congress will then be in a position to determine the need for any additional legislation. The federal government is in a time of transition, and we face a range of challenges in the 21st century. This will require the federal government to transform what it does, the way that it does business, and who does the government's business in the 21st century. This may require changes in many areas, including human capital and sourcing strategies. On the basis of our statutory mandate, the Commercial Activities Panel primarily focused on the sourcing aspects of this needed transformation. I supported the adoption of the set of principles as well as the package of additional recommendations contained in the Panel's report. Overall, I believe that the findings and recommendations contained in the Panel's report represent a reasoned, reasonable, fair, and balanced approach to addressing this important, complex, and controversial area. I hope that the Congress and the Administration will consider and act on this report and its recommendations in a timely manner. I particularly want to urge the Congress and the Administration to consider the importance of encouraging agencies to become high-performing organizations on an ongoing basis. Agencies should not wait until faced with the challenge of public-private competitions to seek efficiencies to retain work in-house. In addition, most of government's workers will never be subject to competitions. As a result, I believe that the Panel's recommendation pertaining to high-performing organizations could be an important vehicle for fostering much needed attention to how we enhance the economy, efficiency, and effectiveness of the federal government in ways other than through competition. Finally and most importantly, in considering the Panel's package of recommendations or any other changes that may be considered by the Congress and the Administration, the guiding principles, developed and unanimously agreed upon by the Panel, should be the foundation for any future action. Let me also add that I appreciate the hard work of my fellow Panelists and their willingness to engage one another on such a tough issue--one where we found much common ground despite a range of divergent views. I also want to thank the GAO staff and the other support staff who contributed to this effort. The Panel has completed its work. It is time for the Congress and OMB to act on our report. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other members of the subcommittee may have. David M. Walker, Chairman, Comptroller General of the United States E. C. "Pete" Aldridge, Jr., Under Secretary of Defense for Acquisition, Technology and Logistics Frank A. Camm, Jr., Senior Analyst, RAND Mark C. Filteau, President, Johnson Controls World Services, Inc. Washington, D.C., June 11, 2001 "Outsourcing Principles and Criteria" Status quo is not acceptable to anyone. Sourcing decisions require a strategic approach. Federal workers should perform core government functions. Need for MEOs throughout the government. Government needs clear, transparent, and consistently applied sourcing criteria. Avoid arbitrary FTE goals. Objective should be to provide quality services at reasonable cost. Provide for fair and efficient competition between the public and private sectors. Sourcing decisions require appropriate accountability. Indianapolis, Indiana, August 8, 2001 "Alternatives to A-76" Crane Naval Surface Warfare Center's reengineering process led to significant efficiencies and reduced workforce trauma. Employees must be involved with any reform effort. Secrecy is counterproductive. Committed leadership, effective implementation, and well-planned workforce transition strategies are key to any reform effort. Privatization-in-place was used effectively at Indianapolis Naval Air Warfare Center to avert a traditional Base Realignment and Closure action. The city of Indianapolis provided certain technical and financial assistance to help workers successfully compete for the work. Certain technology upgrades in Monterey, California, via a public-private partnership led to efficiencies and increased effectiveness. Measuring performance is critical. A-76 is only one of many efficiency tools available to federal managers. Other tools include Bid to goal, which helps units become efficient and thus avoid A-76, Transitional Benefit Corporation, a concept that promotes the transfer of government assets to the private sector and provides transition strategies for employees, and ESOP, under which employees own a piece of the organization that employs them. ESOPs have been established in a few federal organizations. San Antonio, Texas, August 15, 2001 "A-76, What's Working and What's Not" A-76 process is too long and too costly. Cost of studies can greatly reduce government savings. Cost to industry in both dollars and uncertainty. Demoralized workers quit. But successful contractors need these workers. Larger A-76 studies can yield greater savings, but these studies become much more complex. Lack of impetus for savings without competition. One-step bidding process should be used. MEO and contractors should Compete together in one procurement action, Be evaluated against the same solicitation requirements using the same Be awarded contracts based on best value. Provide more training for MEO and A-76 officials. MEOs should have legal status to protest and appeal awards and obtain bid information. A-76 rules should be more clear and applied consistently through a centralized management structure. For bid and monitoring purposes, government costs should be collected and allocated consistent with industry (e.g., activity-based costing). Need to eliminate any suggestion of conflicts of interest. Need incentives for agencies and workers (e.g., share-in-savings). Provide soft landings for workers. Allow workers to form public-sector organizations for bidding. Based on public input, a review of previous studies and other relevant literature, and many hours of deliberation, the Panel developed and unanimously adopted a set of principles that it believes should guide sourcing policy for the federal government. While each principle is important, no single principle stands alone. As such, the Panel adopted the principles as a package. The Panel believes that federal sourcing policy should: 1. Support agency missions, goals, and objectives. Commentary: This principle highlights the need for a link between the missions, goals, and objectives of federal agencies and related sourcing policies. 2. Be consistent with human capital practices designed to attract, motivate, retain, and reward a high-performing federal workforce. Commentary: This principle underscores the importance of considering human capital concerns in connection with the sourcing process. While it does not mean that agencies should refrain from outsourcing due to its impact on the affected employees, it does mean that the federal government's sourcing policies and practices should consider the potential impact on the government's ability to attract, motivate, retain, and reward a high-performing workforce both now and in the future. Regardless of the result of specific sourcing decisions, it is important for the workforce to know and believe that they will be viewed and treated as valuable assets. It is also important that the workforce receive adequate training to be effective in their current jobs and to be a valuable resource in the future. 3. Recognize that inherently governmental and certain other functions should be performed by federal workers. The sourcing principles were taken in their entirety from Commercial Activities Panel, Improving the Sourcing Decisions of Government: Final Report (Washington, D.C.: April 2002). the Federal Activities Inventory Reform (FAIR) Act has helped to identify commercial work currently being performed by the government. It is clear that government workers need to perform certain warfighting, judicial, enforcement, regulatory, and policymaking functions, and the government may need to retain an in-house capability even in functions that are largely outsourced. Certain other capabilities, such as adequate acquisition skills to manage costs, quality, and performance and to be smart buyers of products and services, or other competencies such as those directly linked to national security, also must be retained in-house to help ensure effective mission execution. 4. Create incentives and processes to foster high-performing, efficient, and effective organizations throughout the federal government. Commentary: This principle recognizes that, historically, it has primarily been when a government entity goes through a public-private competition that the government creates a "most efficient organization" (MEO). Since such efforts can lead to significant savings and improved performance, they should not be limited to public-private competitions. Instead, the federal government needs to provide incentives for its employees, its managers, and its contractors to constantly seek to improve the economy, efficiency, and effectiveness of the delivery of government services through a variety of means, including competition, public-private partnerships, and enhanced worker-management cooperation. 5. Be based on a clear, transparent, and consistently applied process. Commentary: The use of a clear, transparent, and consistently applied process is key to ensuring the integrity of the process as well as to creating trust in the process on the part of those it most affects: federal managers, users of the services, federal employees, the private sector, and the taxpayers. 6. Avoid arbitrary full-time equivalent (FTE) or other arbitrary numerical goals. Commentary: This principle reflects an overall concern about arbitrary numbers driving sourcing policy or specific sourcing decisions. The success of government programs should be measured by the results achieved in terms of providing value to the taxpayer, not the size of the in- house or contractor workforce. Any FTE or other numerical goals should be based on considered research and analysis. The use of arbitrary percentage or numerical targets can be counterproductive. 7. Establish a process that, for activities that may be performed by either the public or the private sector, would permit public and private sources to participate in competitions for work currently performed in- house, work currently contracted to the private sector, and new work, consistent with these guiding principles. Commentary: Competitions, including public-private competitions, have been shown to produce significant cost savings for the government, regardless of whether a public or a private entity is selected. Competition also may encourage innovation and is key to improving the quality of service delivery. While the government should not be required to conduct a competition open to both sectors merely because a service could be performed by either public or private sources, federal sourcing policies should reflect the potential benefits of competition, including competition between and within sectors. Criteria would need to be developed, consistent with these principles, to determine when sources in either sector will participate in competitions. 8. Ensure that, when competitions are held, they are conducted as fairly, effectively, and efficiently as possible. Commentary: This principle addresses key criteria for conducting competitions. Ineffective or inefficient competitions can undermine trust in the process. The result may be, for private firms (especially smaller businesses), an unwillingness to participate in expensive, drawn-out competitions; for federal workers, harm to morale from overly long competitions; for federal managers, reluctance to compete functions under their control; and for the users of services, lower performance levels and higher costs than necessary. Fairness is critical to protecting the integrity of the process and to creating and maintaining the trust of those most affected. Fairness requires that competing parties, both public and private, or their representatives, receive comparable treatment throughout the competition regarding, for example, access to relevant information and legal standing to challenge the way a competition has been conducted at all appropriate forums, including the General Accounting Office and the United States Court of Federal Claims. 9. Ensure that competitions involve a process that considers both quality and cost factors.
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The Commercial Activities Panel is a congressionally mandated panel to study, and make recommendations for improving, the policies and procedures governing the transfer of commercial activities from government to contractor personnel. The growing controversy surrounding competitions under the Office of Management and Budget's Circular A-76 to determine whether the government should obtain commercially available goods and services from the public or private sectors led to the establishment of this Panel. In establishing the Panel, several steps were taken to ensure representation from all major stakeholders as well as to ensure a fair and balanced process. To ensure a broad range of views on the Panel, a Federal Register notice was used to seek suggestions for the Panel's composition. As the Panel began its work, it recognized the need for a set of principles for sourcing decisions. These principles provide for an assessment of what does or does not work in the current A-76 process and provide a framework for identifying needed changes. Many of the Panel's recommendations can be accomplished administratively under existing law, and the Panel recommends that they be implemented as soon as practical. The Panel also recognizes that some of the recommendations would require changes in statutes or regulations that could take some time. Any legislative changes should be comprehensive and considered to achieve a reasonable balance.
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The DOD supply chain is a global network through which DLA and the military departments provide commodities and distribution services to the U.S. military forces. The Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics and its subordinate, the Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness, prescribe policies and procedures for the conduct of logistics, maintenance, materiel readiness, and sustainment support, to include supply and transportation, and monitor and review these activities. The Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness also exercises authority, direction, and control over DLA. In addition, the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics has overall responsibility and oversight of DOD real property, including the infrastructure in DOD's network of distribution centers, and its subordinate, the Office of the Assistant Secretary of Defense for Energy, Installations, and Environment, is responsible for managing policy for DOD's real property. The Secretaries of the military departments also have specific assigned responsibilities for real property management that include implementing policies and programs to acquire, manage, and dispose of real property. The OUSD Comptroller establishes the policies and procedures for DOD's financial management, including the Defense-wide Working Capital Fund. As part of this role, the OUSD Comptroller provides guidance in DOD's Financial Management Regulation to operate the Defense-wide Working Capital Fund and to set prices for commodities and services that are to reimburse the fund. In addition, the OUSD Comptroller provides oversight of the prices set by DLA during the annual budget process. DLA is responsible for the effective and efficient provision of commodities and services that have been determined to be appropriate for integrated management by a single agency on behalf of all DOD components, or that have been otherwise specifically assigned. To carry out this responsibility, DLA is organized into five management subgroups for commodities that provide troop support--clothing and textiles, construction and equipment, industrial hardware, medical, and subsistence--three subgroups for commodities that support weapons systems--aviation, land, and maritime--and one subgroup for distribution services. During the annual budget formulation process, DLA establishes a price to charge its customers for commodities and distribution services for that upcoming budget year. In the current budget year, however, these prices remain unchanged. This "stabilized" price is intended to protect DLA's customers, who are appropriated funds based on the expected price, from any market price volatility. Instead, the cash balance of the Defense- wide Working Capital Fund absorbs any fluctuations in the costs to procure or to provide the commodity or distribution services during the current budget year. According to DOD's Financial Management Regulation, the goal of the fund is to remain revenue-neutral--to neither make a gain nor incur a loss--over time. At the end of execution of each budget year, DLA assesses its actual revenue against its actual costs. Any gains are returned to customers as reductions to future prices. Any losses will be added as increases to future prices, with the aim of ultimately recovering all costs to the fund. A price increase resulting from a loss will apply to all consumers of the good or service, regardless of the impact of their demand on DLA's costs. This practice results in some cross-subsidization across the military departments. DLA considers three components to set prices for a budget year: costs, price adjustments, and estimated workload. Costs: DLA's commodities include two types of costs, material costs and operating costs, while DLA's distribution services involve only operating costs. Material cost is the cost of procuring a commodity from a vendor (e.g., purchasing fabric and having uniforms sewn) and operating costs are the non-material costs to provide a commodity (e.g., storing uniforms and shipping once ordered). Operating costs-- also referred to as "overhead"--are further defined as direct or indirect costs. A direct cost is associated with direct support to a specific mission (e.g., labor to process uniform orders) while an indirect cost is associated with support provided to multiple missions or agency-wide operational activities (e.g., information technology). Both direct and indirect costs can include labor and non-labor costs. Price adjustments: There are four types of price adjustments that can be used to increase or decrease cash balances with the fund. These include responses to revenue gains or losses as well as cash surcharges, capital surcharges, and depreciations. DLA adjusts prices for both commodities and distribution services based on revenue gains or losses to remain revenue-neutral over time. In addition, DLA may use cash surcharges, capital surcharges, and depreciation to adjust prices for commodities. Cash surcharges are used to recover unplanned investments in inventory to ensure that the appropriate cash balance is maintained. Capital surcharges or depreciations are used to cover the costs associated with capital or infrastructure- related investments, depending on the number of years needed to recover the cost to prevent steep increases in the year-to-year price. Estimated workload: DLA's estimation of its customers' requirements for a future budget year is based on input from the military departments on their budget planning decisions and execution data from prior years. These estimates may be made as early as 18 months before the budget year. The sum of the costs and all price adjustments represents the amount of revenue that is required to break even. This total is divided by the estimated workload to determine a price, as shown in figure 1. Since fiscal year 2009, DLA has contributed to reductions in the costs to provide its commodities and has maintained fairly constant prices for them. Specifically, our analysis showed that DLA's operating costs, as a percentage of material costs, declined by almost 6 percent between fiscal years 2009 and 2015. When developing annual budgets, DLA has also generally underestimated revenue for commodities, which has contributed to gains that were subsequently applied as reductions to future prices. Lastly, we found that DLA has maintained fairly constant prices for commodities, which have not exceeded an annual increase of more than 3.3 percent due, in part, to the reductions in costs and revenue gains. OUSD Comptroller officials told us that they consider increases above 5 percent to be significant. Since fiscal year 2009, DLA's operating costs to provide commodities to the military departments and other customers has declined by almost 6 percent. As discussed earlier, DLA's commodities include two types of costs, material costs (i.e., the cost of procuring a commodity from a vendor) and operating costs (i.e., the non-material costs to provide a commodity). DOD monitors the operating costs that DLA charges by assessing the proportion of these costs to the material cost, and then reports this information in budget justification materials for the Defense- wide Working Capital Fund. Our review of this information shows DLA's proportion of operating costs to the total cost declined by 5.7 percent, from 14.0 percent in fiscal year 2009 to 13.2 percent in fiscal year 2015. DLA officials told us they have contributed to reductions in their operating costs, in part through various actions such as improvements to customer delivery methods and integration of information technology systems. For example, for items that are readily available from commercial vendors, such as most medical and subsistence commodities, DLA keeps operating costs low by not purchasing or storing these items. Instead, DLA has these items shipped directly from the vendors to DLA's customers when ordered. In addition, DLA consolidated different legacy financial and business operation databases into one enterprise-wide system to streamline business functions across DLA and to improve the quality and timeliness of data used to inform DLA's operations. For fiscal years 2009 through 2015, DLA underestimated annual revenue for commodities in all but 2 fiscal years, as shown in figure 2. DLA develops annual revenue estimates based on operating costs and the military departments' estimated workload demands during the annual process to develop a budget and set prices for commodities. When actual revenue is more than estimated revenue, DLA must adjust future prices to return the gained revenue to its customers. Similarly, when actual revenue is less than estimated, DLA must increase future prices to make up for lost revenue. In the fiscal years that DLA underestimated revenue for commodities, the difference between the estimated and actual revenue ranged between 9.9 percent and 26.4 percent. For these years, DLA yielded a gain above estimated costs that ranged between $1.9 billion and $5.2 billion in fiscal year 2015 dollars. According to DLA officials, in years for which they underestimated revenue, the military departments had more workload demand than DLA had initially anticipated. Specifically, the military departments purchased more commodities than anticipated when DLA was formulating the budget for that fiscal year, a process that typically occurs more than 18 months earlier. Some of the difference can be explained by unanticipated changes in DLA's actual workload that were not part of the estimated workload demand. For example, in 2010, the Defense Health Agency implemented a home prescription service that increased revenue for DLA's medical supply chain group. Also, in 2014, the firefighting equipment and materials, known as "stock group 80", was transferred from the General Services Administration to DLA, increasing DLA's customers for the items to all federal, state, and local firefighters. In contrast, in fiscal years 2013 and 2014, DLA overestimated revenue by 3.2 percent and 4.4 percent, respectively, and experienced lost revenue of approximately $670 million and $970 million, respectively, in fiscal year 2015 dollars. These losses are much smaller in magnitude compared with the gains in other fiscal years. The workload demand in these 2 fiscal years was less than DLA had initially anticipated. For example, DLA officials told us that the military departments' workload demand when formulating the budget for fiscal year 2013 did not anticipate the sequestration ordered in March 2013, which triggered a reduction in spending authority across all DOD accounts funded with nonexempt discretionary amounts. Also, when formulating the budget for fiscal year 2014, the workload estimates did not anticipate lower enacted funding than DOD planned due to the Budget Control Act of 2011. Our prior work has found that, while challenging to do, the military departments can take action to better estimate their workload demand for commodities. For example, we identified weaknesses in the demand forecasts for spare parts that have contributed to the military departments creating at times inventory in excess of current need and backorders of spare parts across DOD. DOD has taken steps to address weaknesses in this forecasting for commodities through the implementation of the department's Comprehensive Inventory Management Improvement Plan. As part of this effort, the Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness, in collaboration with the military departments and DLA, began using two metrics to track and monitor each organization's performance in accurately forecasting the workload demand for spare parts. We have found that DOD has taken actions that have resulted in greater accuracy in its forecasts and that DOD continues to implement additional actions aimed at improved forecasting, including efforts to measure the accuracy of planning factors. DLA has maintained fairly constant prices for commodities since fiscal year 2009, due in part to reductions in operating costs and large gains in revenue, as previously discussed. Specifically, we found that the aggregate price for all commodities that DLA offers has increased marginally since fiscal year 2009, but that year-to-year fluctuations did not exceed an increase of 3.3 percent between fiscal years 2009 and 2017, as shown in figure 3. DOD reports the year-to-year change in price in the annual budget justification materials submitted to Congress. OUSD Comptroller officials told us that they consider increases above 5 percent to be significant. As discussed earlier, for all but 2 of the fiscal years we reviewed, DLA reduced the costs to provide commodities and returned the gains from prior fiscal years to its customers in the form of reductions in future fiscal year prices. For example, in fiscal year 2009, DLA had a revenue gain of about $5.2 billion that could be applied to reduce future prices. Such revenue gains have contributed to the marginal increases in DLA's annual prices for commodities by offsetting inflationary increases in material costs and the relatively smaller revenue losses of fiscal years 2013 and 2014, among other things. OUSD Comptroller officials told us they collect information on the aggregate year-to-year change in price for commodities to understand any potential impacts on the budget and to monitor growth in prices attributed to an increase in the costs to provide the commodities. Officials told us they conduct a review when prices increase above 5 percent, seek additional details to understand the specific costs that are influencing the increase, and direct DLA, when necessary, to make adjustments in how it allocates cost when setting a price. DLA and OUSD Comptroller officials told us that while aggregate prices have remained stable, the individual prices of commodities that DLA offers its customers may experience price increases between fiscal years, and that such increases are usually generated by growth in material costs. To help control increases in material costs, DLA has implemented numerous initiatives that have further contributed to the relative price stability. For example, DLA awarded more long-term contracts (whereby prices are set over the contract period) and introduced reverse auctions (whereby suppliers can view other suppliers' bids with the intent of increasing competition among the suppliers to lower bids). Between fiscal years 2011 and 2015, DLA has contributed to reductions by about 25 percent in its overall operating costs for providing distribution services, in part, through the use of existing authorities to reduce infrastructure, while the indirect portion of these costs increased by 9.4 percent. This increase in indirect costs was due, in part, to policy-driven changes such as to achieve audit readiness. However, DLA has consistently overestimated revenue since fiscal year 2009 for distribution services, which resulted in losses that DLA must eventually recover in future year prices. Finally, we found that DLA had often increased annual prices above 10 percent for fiscal years 2009 through 2015 as a result of a declining workload and the need to recoup losses, among other things. DLA has contributed to an overall reduction in operating costs of about 25 percent to provide distribution services to the military departments and other customers between fiscal years 2011 and 2015. DLA's operating costs for distribution services can either be direct (e.g., the labor to operate a distribution center) or indirect (e.g., administrative support). According to DLA's data, direct costs have declined by more than half (or 55.8 percent) from about $1.1 billion in fiscal year 2011 to $480 million in fiscal year 2015. DLA has achieved cost reductions, in part, by using existing infrastructure-related authorities to implement the following steps: Demolishing facilities: DOD has authority to dispose of infrastructure assets under certain conditions. As part of DLA's initiative to reduce excess inventory, officials took steps to demolish warehouses in poor condition that DOD determined were no longer needed through its demolition approval process. Since 2012, DLA has taken action to demolish 42 buildings, totaling 4.6 million gross square feet. These efforts were concentrated at distribution centers in Richmond, Virginia; Mechanicsburg, Pennsylvania; and San Joaquin, California. According to DLA officials, this effort contributed to reducing DLA's costs to operate the facilities and achieved cost savings for the department. Closing and realigning operations: DOD has authority to close or realign facilities outside of a Base Realignment and Closure process based on certain thresholds. In 2013, DLA used this authority to consolidate all of its San Joaquin regional operations at its Tracy Defense Distribution Depot and to terminate its operations at Sharpe Army Depot, reducing costs to DLA by about $8.5 million in fiscal year 2015. According to officials, this effort achieved a cost savings and future cost avoidance for DLA, but the Army continues to operate the space that DLA formerly used at Sharpe Army Depot. Therefore, the effort did not achieve a cost savings for the department as a whole. Although direct costs have declined, indirect costs have increased for distribution services by 9.4 percent over the same period. Specifically, DLA identified three different categories of indirect costs that have significantly increased since fiscal year 2011. Most of these costs are considered policy-driven changes, but DLA has taken steps to manage growth in these areas and continues to look for opportunities to reduce them in the future. The indirect costs, which have been adjusted into constant fiscal year 2015 dollars, are as follows: Audit readiness: The costs associated with achieving audit readiness across DLA increased from $1.3 million in fiscal year 2011 to $151.9 million in fiscal year 2015, more than a hundredfold increase. DLA officials stated they allocated an average of 1.6 percent of these costs to distribution services. According to DLA officials, in order to add inventory controls associated with the department's congressionally mandated efforts to become auditable, DLA had to invest in technology and hire additional civilian employees to implement the inventory controls. To manage growth in audit readiness costs, DLA officials told us that they have taken steps to consolidate contract support and rely more heavily on its existing workforce. Information technology: Information technology costs across DLA increased from $842.8 million in fiscal year 2011 to $974.4 million in fiscal year 2015, an increase of about 15.6 percent. DLA officials stated they allocated 7 percent of these costs to distribution services. DLA officials also stated that the increase in information technology costs were primarily for sustainment and the modernization of information technology infrastructure to improve business operations and capabilities as well as to purchase greater data storage and more bandwidth to ensure the continuity of business operation systems and secure communications. DLA officials also told us they have taken steps to manage growth in information technology costs. For example, DLA leveraged the Defense Information Services Agency's lower cost teleconferencing and voice services. Infrastructure support: Infrastructure support costs increased from $83.4 million in fiscal year 2011 to $125.8 million in fiscal year 2015, an increase of more than half or about 51 percent. According to DLA officials, the rise in infrastructure support costs is due to the sustainment, restoration, and modernization of the aging facilities that DLA operates and to demolition costs. For example, many of the buildings that DLA operates at its distribution centers were constructed during the 1940s and 1950s and are close to the end of their lifecycle, requiring more funds to maintain. To try to control these cost increases, DLA officials told us that they fund the suggested sustainment, restoration, and maintenance costs at a lower percentage than DOD's model suggests and prioritize repairs that are health and safety related, but such a strategy can result in higher costs over the long term if needed maintenance continues to be deferred. Also, since fiscal year 2012, DLA has invested about $24.4 million to demolish aged facilities to avoid future infrastructure support costs. For fiscal years 2009 through 2015, DLA consistently overestimated revenue for its distribution services. As with commodities, DLA develops annual revenue estimates based on operating costs and the military departments' workload demands during the annual process to develop a budget and set prices for distribution services in advance of the budget request. When the actual revenue is less than estimated revenue, DLA adjusts future prices to recover the loss in its operating costs. Such adjustments contribute to increasing prices in future budget years. According to DLA data, distribution services have experienced annual losses ranging from $39.2 million to $352.9 million in every year from fiscal year 2009 through fiscal year 2015, as shown in figure 4. According to DLA officials, they have generated less revenue than estimated for distribution services because the military departments' workload demand was less than they had initially anticipated when formulating the budget for the budget year at least 18 months earlier. Some of the difference can be explained by unanticipated changes in DOD's planned operations. For example, DLA planned in years 2008 through 2010, based on the military departments' estimates, that the workload to move equipment and materiel from Iraq to other locations would be greater in fiscal years 2010 through 2013 than the actual workload demand for those years. Also, DLA planned in 2011 and 2012, based on the military department's plans for withdrawal from Afghanistan that the workload demand for processing inventory to these locations would decrease in fiscal years 2013 and 2014. However, the actual reduction in workload demand was greater than planned. DLA officials stated there are opportunities for the military departments to improve their estimates of workload demand for distribution services. As such, DLA has taken actions since 2014 to work with the military departments to improve workload estimates by holding quarterly meetings with senior-level military department representatives from their finance and logistics offices. According to DLA officials, these quarterly cost summits are used to discuss estimates of workload demand and how differences during budget execution can affect DLA's cost recovery and the military departments' budgets. For example, during the November 2016 cost summit, DLA officials provided 5 years of data for second destination transportation costs--a distribution service cost associated with processing--that compared the price each military department was charged based on their combined workload estimates with the cost for the actual amount each military department had used. DLA officials had not previously shared these data with the military departments. DLA reported that over the 5 years, two of the three military departments had used less second destination transportation than their workload estimate and cumulatively had overpaid by approximately $100 million, while the third military department had underpaid by $12.6 million. In response to questions during the cost summit about the status of the surplus payments, DLA officials stated that any gains were returned through reductions in price to all customers regardless of whether they had previously overpaid or underpaid compared with their workload estimate. DLA plans to continue to share data that compares estimates with actuals to encourage the military departments to develop more accurate workload estimates. In addition, DLA has proposed to the military departments to not include second destination transportation in the price for processing, but to bill separately for actual second destination transportation costs. Since fiscal year 2009, DLA's annual prices for distribution services have often increased above 10 percent. DOD reports its annual prices for distribution services in the budget justification materials, but does not include information on the year-to-year change in price. Therefore, we calculated the year-to-year change in annual price for four types of distribution services to determine the trends in pricing. The four types of distribution services--covered storage, open storage, specialized storage, and processing--all experienced significant price increases. For example, covered storage prices increased by more than 10 percent in 5 out of the 9 years reviewed. The largest increases in the price for all distribution services occurred in fiscal year 2017, as shown in figure 5. As discussed earlier, any losses from prior fiscal years as a result of overestimated revenue must be eventually recovered by DLA in its future pricing. In addition to such losses, DLA's declining workload at its distribution centers has also contributed to significant increases in annual prices for distribution services. DLA officials told us that the costs to operate these centers are relatively fixed and do not fluctuate based on the workload. As DLA's workload has declined with combat operations in Iraq and Afghanistan and through inventory reduction initiatives, DLA has had to continue to apply the fixed costs of operating these distribution centers to the declining workload. For example, in fiscal year 2009, DLA spread the operating cost across a larger storage workload, which resulted in an average cost per cubic foot for covered storage of $3.05, but by fiscal year 2012 these costs spread across a smaller workload resulting in an average cost per cubic foot of $5.67. Moreover, DLA's decision to delay recovering its prior revenue losses when setting prices for distribution services in fiscal years 2014 through 2016 led to the largest price increases for distribution services in fiscal year 2017 for the period reviewed. Specifically, DLA set lower-than-actual prices to keep prices constant in fiscal years 2014 through 2016 while military departments recovered from budgetary cuts due to sequestration. In fiscal year 2017, DLA returned to its usual procedure and set prices based on estimated costs, estimated workload, and prior years' losses. When we asked OUSD Comptroller officials about these price increases, they told us that they do not separately track the aggregate price changes for distribution services over time. Instead, the officials stated that they can assess price growth in distribution services through the price change information reported in the budget justification materials because the costs for approximately 70 percent of DLA's distribution services workload is included in DLA's prices for commodities. Moreover, when workload decreases and DLA experiences prior-year revenue losses in providing distribution services, the Financial Management Regulation allows DLA to increase prices significantly to recover its full operating costs. DLA has taken steps to manage growth in indirect costs and to improve workload estimates for distribution services. In addition, DLA officials stated they have also sought opportunities to reverse the recent decline in workload for distribution services in order to lower prices. Specifically, our analysis of DLA covered storage shows that its usage declined from 70.8 million cubic feet in fiscal year 2009 to 42.1 million cubic feet in fiscal year 2015, a decrease of 41 percent. To address this decline in usage, DLA reviewed how the department is consuming these services and found instances where the military departments are using private storage for government-owned inventory in close proximity to DLA distribution centers. For example, the Army's Stryker program stores inventory in commercial locations that are located near DLA distribution centers in Anniston, Alabama and Puget Sound, Washington. DLA estimates moving Stryker inventory from storage owned by private companies to DLA distribution centers in Anniston, Alabama and San Joaquin, California could save DOD approximately $4 million in distribution costs in the first year. In addition, according to DLA officials, they found instances where the military departments had moved storage workload from DLA's distribution centers to their own storage facilities. DLA officials told us that increasing their workload could contribute to reducing prices and this could be achieved by changing, when appropriate, the military departments' practice of obtaining distribution services outside of DLA. DOD has taken steps to increase the use of its U.S. distribution centers, but additional opportunities exist to more efficiently use this network of distribution centers, including those that DLA operates. For example, the department has recently taken steps to address the military departments' use of private storage when DLA distribution centers are in the same vicinity as the private storage locations. In January 2017, the department revised DOD Instruction 5000.02, Operation of the Defense Acquisition System, to require that program managers who are responsible for contracts with DOD maintenance depots store government-owned inventory at DLA's distribution centers when located in the same geographic area as those depots. According to officials, this revision is intended to reduce unnecessary costs to DOD's total budget by utilizing DOD's existing investment in DLA's network. In addition, the department sought authority from Congress to make DLA's storage and distribution services support available to defense weapon system contractors. The National Defense Authorization Act for Fiscal Year 2017 provided such authority under a 6-year pilot program whereby DLA and defense weapon system contractors can enter into a separate contract for the storage and distribution of materiel and spare parts used in the support of a defense weapon systems contract. DOD has other opportunities to more efficiently use its network of distribution centers to provide distribution services. Specifically, DOD previously identified inefficiencies, including overlapping and duplicative distribution service functions, across its distribution network. The Under Secretary of Defense for Acquisition, Technology, and Logistics has the responsibility to ensure that its policies and programs are designed and managed to improve efficiency, among other things, and to use DOD's existing systems, facilities, and services to avoid unnecessary overlap and duplication and to achieve maximum efficiency and economy. As a subordinate to the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Assistant Secretary of Defense for Logistics and Materiel Readiness has been delegated the responsibility and authority to prescribe policies and procedures in the department for the conduct of logistics and materiel readiness, to include supply and transportation, among others. In carrying out this responsibility, starting in 2010, DOD established a program called Strategic Network Optimization that identified and undertook actions to address inefficiencies in its distribution network. The program had a three-phased approach with each phase primarily focused on one of the following areas: transportation, inventory, and infrastructure. In the context of distribution infrastructure, Strategic Network Optimization program officials identified in 2011 that DLA and the military departments provided distribution services--including storage and processing--at 256 distribution centers in the United States that often are in close proximity to one another and, in some cases located on the same installations. In addition, they found that 91 of the distribution centers accounted for 95 percent of the total network's historical workload while the other sites accounted for the remaining 5 percent. To address this issue, Strategic Network Optimization program officials suggested a number of possible actions to improve the efficiency of the distribution service network. In January 2012, the Joint Logistics Board approved an approach whereby 5 DLA distribution centers were designated as the main suppliers within an assigned region of the United States to the remaining 12 DLA distribution centers, which are smaller, and to other distribution centers run by the military departments. The 5 main suppliers would ship inventory to all customers within the distribution network. Each of the other distribution centers would be limited to providing service to local customers located on its individual installation. See figure 6 for an example of the regional consolidation that was proposed in the redesign of the U.S. distribution network. This approach was intended to minimize DLA and the military departments providing unnecessary overlapping or duplicative distribution services by redistributing the workload. In addition, the workload redistribution was to have decreased the number of distribution centers within DOD's network and increased DLA's overall distribution services workload. In October 2014, DOD discontinued the Strategic Network Optimization program. By this time, DOD had implemented a majority of the actions for the first two--transportation and inventory--of the program's three phases. But DOD had not yet developed a business plan to guide the implementation of the third phase intended to reduce infrastructure in the distribution network through consolidation. According to DOD and DLA officials, all of the remaining actions from the first and second phases of the program were incorporated into normal business processes. DOD and DLA officials acknowledged that unnecessary overlap and duplication continues to exist in DOD's network of distribution centers. However, in the case of the effort to reduce infrastructure, the officials stated that without Base Realignment and Closure authority, they would not be able to address unnecessary overlap and duplication in functions at DOD's U.S. distribution centers, as many of the distribution centers are owned by the military departments. According to DOD and DLA officials, proposals within the department on the appropriate course of action to address unnecessary overlap and duplication in DOD's network of distribution centers have evolved since the 2011 study to include options for base closures. In each annual budget request since fiscal year 2013, the department has requested Base Realignment and Closure authority, but Congress has yet to approve DOD's request. DOD has existing authorities it can use to minimize unnecessary overlap and duplication and more efficiently use the department's network of distribution centers. For example, DOD could use its existing authorities to close or realign its installations and functions outside of a Base Realignment and Closure round. However, if doing so would exceed certain thresholds set out in 10 U.S.C. SS 2687--based on the number of civilian personnel affected or potentially affected--DOD must notify Congress and wait 60 days after notification before taking any irreversible actions. In addition, DOD has authority to dispose of real property through demolition when a facility's condition has deteriorated. We found that DOD had not assessed the extent to which it could use existing authorities to minimize unnecessary overlap and duplication and more efficiently use the department's network of U.S. distribution centers, beyond the actions DLA has already taken. We previously reported that while DOD makes hundreds of basing decisions a year that are not subject to congressional notification, it has yet to take any actions that require notification. In discussions about DOD's existing authorities, officials at the Office of the Assistant Secretary for Energy, Installations, and Environment told us that the department does not believe 10 U.S.C. SS 2687 is a viable tool to achieve significant base closures because under that section, DOD's authorities are narrowly circumscribed and the statutory requirements are burdensome. However, other DOD components could assess and implement similar actions as DLA using existing authorities. Further, in discussing the current fiscal pressures and budgetary constraints within the department and the need to reduce lower priority programs to comply with the Bipartisan Budget Act, DOD's budget overview for fiscal year 2017 states that "the need to reduce unneeded facilities is so critical that in the absence of authorization for a new round of base realignment and closure, the department will explore any and all authorities that Congress has provided to eliminate wasteful infrastructure." While these actions may not entirely address inefficiencies in its network of U.S. distribution centers, they could achieve efficiencies and potential cost savings. Without maximizing the use of its existing authorities in the absence of a Base Realignment and Closure round, DOD's network of distribution centers will continue to result in inefficiencies and pose difficulties in minimizing price increases for distribution services. In addition, the department will continue to spend funds on storage and distribution costs that could be applied to support higher priorities. Under current fiscal pressures and budgetary constraints within the department, DOD has sought to provide its commodities and distribution services to its U.S. military forces as efficiently as possible while reducing costs. Further, DOD has identified inefficiencies in how it provides distribution services at its network of U.S. distribution centers. DOD maintains that it needs Base Realignment and Closure authority; however, the department has not assessed whether it can use existing authorities to minimize unnecessary overlap and duplication, and more efficiently use this network. Any actions resulting from DOD's assessment, if implemented, could also have the potential to realize near- term savings in storage and distribution costs that could be made available to support higher priorities. To minimize unnecessary overlap and duplication and more efficiently use DOD's U.S. distribution centers, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Acquisition, Technology, and Logistics (or the subsequent Under Secretary for Acquisition and Sustainment), in conjunction with the Director of DLA, and the Secretaries of the Army, the Air Force, and the Navy, to assess and direct the implementation of actions, as appropriate, that can be taken using existing authorities to close, realign, or dispose of existing infrastructure. We provided a draft of this report to DOD for review and comment. In its comments, DOD concurred with our recommendation and cited various statutes that constrain both the department's authority to conduct large- scale closures or realignments of installations and small-scale closures, realignments, or disposals of facilities, including the infrastructure in the network of U.S. distribution centers. DOD's comments are reprinted in their entirety in appendix I. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and to the Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology, and Logistics; the Under Secretary of Defense, Comptroller; the Director of DLA, and the Secretaries of the Air Force, Army, and Navy. 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 (213) 830-1011 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 II. In addition to the contact named above, Tina Won Sherman (Assistant Director), Vincent Buquicchio, Tim Carr, Lina Grant, Mae Jones, Susan Langley, Amie Lesser, Benjamin Sclafani, and Michael Silver made key contributions to this report.
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In fiscal year 2015, DLA generated $23 billion in revenues from supply chain management sales to the military departments and other customers, such as federal agencies. These sales included commodities and distribution services provided through the Defense-wide Working Capital Fund, a revolving fund. Senate Report 114-255 and House Report 114-537 included provisions for GAO to evaluate DLA's costs to provide commodities and services using the Defense-wide Working Capital Fund. This report identifies trends in the costs and annual prices that DLA has charged for commodities and distribution services; and evaluates the extent to which DOD has taken steps to more efficiently use its network of U.S. distribution centers. GAO analyzed the most currently available DLA cost data, estimated and actual revenue, and prices for commodities and distribution services since fiscal year 2009; reviewed DOD documentation; and interviewed knowledgeable DOD officials. GAO found that since fiscal year 2009, the Defense Logistics Agency (DLA)--the largest logistics combat support agency for the Department of Defense (DOD)--had reduced costs and maintained fairly constant prices for commodities, such as repair parts, clothing, and food. When developing annual budgets, DLA has generally underestimated revenue from the sales of commodities. The underestimated revenue contributed to gains that were applied to future year prices in the form of reductions, and helped offset inflationary increases in material costs. GAO also found that since fiscal year 2011, DLA had reduced costs for distribution services (e.g., the processing and storing of inventory) by about 25 percent through the use of existing authorities to reduce infrastructure. However, DLA has often increased annual prices for distribution services by more than 10 percent due, in part, to a declining workload. DLA has generally overestimated revenue from the sales of distribution services. The overestimated revenue contributed to losses as well as to price increases in subsequent years as DLA sought to recover those losses. DOD has taken steps to increase the use of DLA's 17 U.S. distribution centers to improve efficiency of DLA's operations, but additional opportunities for efficiencies exist across DOD's network of approximately 256 U.S. distribution centers. In January 2017, DOD revised guidance to require storage of government-owned inventory at DLA's distribution centers instead of at privately owned storage when both are located in the same geographic area to reduce costs. DOD has also identified inefficiencies in the provision of its distribution services. Specifically, the military departments, along with DLA, provided distribution services using U.S. distribution centers that often were in close proximity to or located on the same installation. To address inefficiencies, DOD established a program to, among other things, decrease the number of U.S. distribution centers. In October 2014, DOD discontinued the program without implementing its plan to reduce the number of distribution centers. Though DLA has been able to use existing authorities to realign functions and demolish some facilities to gain efficiencies at its distribution centers, DOD officials told us the department needs Base Realignment and Closure authority--a process whereby Congress authorizes an independent federal commission to review and determine whether to forward to the President for approval DOD's proposals to realign and close military installations--to address any additional inefficiencies. GAO found, however, that DOD had not assessed the extent to which the department could further use its existing authorities to minimize unnecessary overlap or duplication in its network of distribution centers. Without assessing the use of its existing authorities, inefficiencies in DOD's network of U.S. distribution centers that the department has previously identified may remain. GAO recommends that DOD assess and direct the implementation of actions, as appropriate, that can be taken using existing authorities to close, realign, or dispose of existing infrastructure to more efficiently use the department's network of U.S. distribution centers. DOD concurred with the recommendation.
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Since 2003, JPDO and ATO have made progress in planning for and implementing NextGen. In accordance with Vision 100, JPDO created a multi-agency research and development plan for the transition to NextGen. This plan consists of three basic documents--a Concept of Operations, an Enterprise Architecture, and an Integrated Work Plan. Collectively, these three documents form a basis for interagency and industry planning and coordination. JPDO views these plans as iterative and intends to issue further versions as NextGen technologies are developed and implemented. As NextGen progressed from the planning to the implementation phase, ATO produced its NextGen Implementation Plan, which addresses the more detailed level of planning and activities necessary to achieve NextGen capabilities. According to ATO, it and JPDO have worked to align and ensure linkages between these planning documents. The current version of the NextGen Implementation Plan, released in January 2009, focuses on the midterm (2012 though 2018) implementation of NextGen capabilities. In a previous testimony, we raised some concerns about the usefulness of the NextGen planning documents, and we still have some concerns. For example, we reported that the planning documents lacked the type of specific information that industry stakeholders need for their own planning purposes, such as a catalog of critical needs, clearly defined and prioritized intermediate objectives, and a structured plan for achieving tangible results. Recent versions of NextGen planning documents have partially addressed some of these concerns, but industry stakeholders continue to express frustration that the planning documents lack any specific timelines or commitments. A senior FAA official has acknowledged that FAA will face ongoing challenges in attempting to communicate effectively with industry and other stakeholders to ensure that they fully understand the content and objectives of the initiative and remain engaged and committed to its planning and implementation. Beyond these planning efforts, FAA has continued to move forward in planning and conducting demonstrations of some key NextGen technologies. For example, a recently announced demonstration with US Airways and Aviation Communications and Surveillance Systems at the Philadelphia International Airport will test ADS-B technology that allows an aircraft with the necessary avionics to transmit its own position as well as to receive information from other similarly equipped aircraft. FAA is providing $6 million to purchase the necessary avionics equipment for the aircraft involved in the demonstration. FAA has also initiated projects to demonstrate the benefits of integrating NextGen capabilities. For example, in December 2008, FAA signed a memorandum of agreement with NetJets--an Ohio-based air service provider with a fleet of 600 aircraft. In this demonstration, FAA will test a number of NextGen technologies and procedures including ADS-B. The company will provide real-time data, allowing FAA to validate performance requirements. This demonstration will help FAA identify the costs and benefits associated with NextGen implementation. To help address current congestion and delays, many stakeholders have suggested that FAA focus on maximizing what can be done with existing, proven capabilities and existing infrastructure. For example, industry stakeholders highlighted "off-the-shelf" technologies, including Traffic Management Advisor (TMA), Traffic Flow Management (TFM), and User Request Evaluation Tool (URET), as well as performance-based navigation and tailored arrival procedures. Such technologies and procedures are being implemented in airports now and, according to these stakeholders, could be implemented more widely and used more effectively to address capacity constraints. For example, TMA--a decision- support tool that helps controllers manage air traffic flows more efficiently--has been used at some airports to increase capacity. However, according to one stakeholder, some airports equipped with TMA are not using it to its fullest extent to increase capacity. Industry stakeholders also maintain that using existing performance-based navigation procedures during low-visibility conditions--when the required distances separating aircraft are normally increased for safety reasons--would enable greater use of closely spaced parallel runways, thereby increasing capacity. In part to help accelerate the implementation of existing capabilities in the midterm--including technologies that are part of NextGen's five transformational programs such as ADS-B--FAA has created a NextGen Midterm Implementation Task Force through RTCA. According to the NextGen Implementation Plan, the task force will focus on maximizing the benefits of midterm NextGen operational capabilities and addressing business and investment-related issues associated with implementing these capabilities. A member of the task force indicated that it will be identifying a handful of capabilities that can be implemented in the midterm and prioritizing them according to their relative net benefits. Furthermore, the task force will be examining the potential for deploying capabilities regionally to address key bottlenecks in the national air transportation system before deploying them nationally. Current plans call for the task force to provide final conclusions and recommendations to FAA in August 2009. Implementing these capabilities in the midterm, as well as over the long term, depends not only on FAA, but also on aircraft operators, who must acquire the necessary equipment. For example, aircraft must be equipped with appropriate technology to use ADS-B. Some airlines have purchased some of the necessary technology, but over all, airlines are waiting for FAA to specify requirements and address funding concerns. In addition, industry stakeholders have expressed concerns about the progress made by FAA in adequately explaining and demonstrating the benefits of equipping aircraft with advanced avionics equipment, which comes at a significant cost to the aviation industry. For example, one industry stakeholder told us that, without an explicit FAA commitment to reduce separation standards--a key benefit of deploying aircraft with ADS-B equipment--the industry has little incentive to voluntarily purchase the equipment. One objective of the new NextGen Midterm Implementation Task Force is to help operators identify the benefits of acquiring NextGen- compatible equipment sooner rather than later. A range of potential requirements and incentives could encourage aircraft operators to purchase equipment. These could include mandated deadlines or operational preferences--such as preferred airspace, routings, or runway access. Industry stakeholders have expressed concerns that the array of operational benefits available to early equippers has yet to be identified and defined, and have also questioned the extent to which such preferences would result in tangible benefits. Another proposed option would combine mandated deadlines and operational preferences with equipment investment tax credits that would financially support equipment implementation for a limited initial set of aircraft operators. The credits would provide a competitive advantage for early equippers. Airlines that continue to delay equipage will become more and more disadvantaged, thus providing an incentive for these airlines to equip. Before midterm NextGen implementation can occur, FAA must validate and certify technologies and issue rules for the use of procedures. FAA has made some progress in this area, including developing specifications for performance-based navigation procedures at selected airports, but much remains to be done. We and others have previously expressed concerns about the time and human resources required for these efforts and have identified them as a significant risk to the timely and cost- effective implementation of NextGen. In recent interviews, stakeholders have expressed similar concerns about the midterm implementation of existing or off-the-shelf technologies and capabilities. For example, an avionics manufacturer, an aircraft manufacturer, and an airline association we interviewed all cited the time it takes to develop rules for new procedures and the problems that result from deploying equipment before rules are finalized. Any activities needed to implement new policies and procedures, such as the expanded use of performance-based navigation procedures; to demonstrate new capabilities, such as the use of closely spaced parallel runways; to set parameters for the certification of new systems, such as ADS-B; and to develop new technologies will take time and be a priority in the mid- and long-term planning for NextGen. Just as important, the time required to complete such activities will have to be balanced against the need to ensure the reliability and safety of procedures and systems before they are used in the national airspace system. We have previously reported on stakeholders' concerns about the fragmented management structure for NextGen and resulting lack of clear accountability for NextGen's implementation, as well as concerns about JPDO's and FAA's efforts to fully involve stakeholders and acquire needed expertise. Resolving these issues will be critical to advancing both the implementation of capabilities in the midterm and the full transformation to NextGen in the long term. Initially, JPDO was established as a separate and independent office within FAA, reporting directly to both the COO of ATO and the FAA Administrator (see fig. 1). In May 2008, FAA announced a reorganization of its NextGen management structure and named a Senior Vice President for NextGen and Operations Planning who reports to ATO's COO (see fig. 2.). The reorganization eliminated JPDO's dual reporting status, and the JPDO Director now reports directly to the newly created Senior Vice President for NextGen and Operations Planning. The reorganization also led to JPDO's placement lower in FAA's organizational structure--it is now a fourth-level organization. According to ATO's COO, a purpose of the reorganization was to respond to industry stakeholders' concerns about the fragmentation of authority and lack of accountability for NextGen, which might delay its implementation. In particular, stakeholders have expressed frustration that a program as large and important as NextGen does not follow the industry practice of having one person with the authority to make key decisions. In the COO's view, the reorganization creates one "team" with one person in charge to plan, implement, and oversee NextGen. According to FAA, the Senior Vice President for NextGen and Operations Planning is responsible for integrating and implementing all elements of NextGen. In November 2008, the President issued Executive Order 13479, which took the positive step of treating NextGen as an important national initiative, but potentially added another level of complexity and uncertainty to the management structure for NextGen. The order directed the Secretary to create a staff to support the Senior Policy Committee, an advisory body chaired by the Secretary of Transportation whose members are the heads of the federal partner agencies and whose purpose is to provide policy guidance for NextGen planning. Previously, JPDO coordinated the agenda of the Senior Policy Committee, but now, according to FAA, the new support staff will coordinate the committee's agenda, although JPDO will continue to be involved in the development of issues and topics for the committee. Furthermore, notwithstanding JPDO's statutory responsibility for coordinating with the federal partner agencies, the director of the support staff will serve as the senior DOT liaison between the Secretary and the federal partner agencies. It remains unclear how these changes will affect JPDO's role relative to the Senior Policy Committee or to other federal partner agencies. The executive order also directed the Secretary to establish a committee to advise the Secretary on the implementation of NextGen. According to FAA's interpretation of the executive order, the new advisory committee will be an external (nongovernmental) committee whose role will be to provide an external stakeholder perspective. The role of this committee could potentially duplicate the roles of other advisory bodies associated with the NextGen initiative. FAA has said that it and JPDO are working with the Department to clarify roles and responsibilities in executing the executive order. It is difficult to tell how well the reorganization and the implementation of the executive order will address stakeholders' concerns about the fragmentation of authority for NextGen. For example, although the reorganization places JPDO and the office responsible for NextGen integration and implementation under the leadership of the same Senior Vice President, other activities critical to NextGen's implementation lie outside this official's jurisdiction. Several types of aviation operations are under the leadership of the Senior Vice President for Operations, and responsibilities for airport and aviation safety activities fall outside ATO altogether and are headed by FAA Associate Administrators. According to FAA, the NextGen Management Board, which is composed of Associate Administrators, the COO, Senior Vice Presidents, and the Director of the JPDO, ensures agencywide support for NextGen. However with no direct line of authority between the Senior Vice President for NextGen and Operations Planning and these other operations and activities, accountability for NextGen outcomes is unclear, creating the potential for delays in implementation. It is also unclear how the reorganization and the implementation of the executive order will affect the overall role created for JPDO by Vision 100. For example, according to one industry stakeholder, its ability to understand and be involved in the NextGen- related efforts of federal partner agencies has been hampered by JPDO's placement under ATO's management. Several stakeholders have suggested that an office above the Senior Vice President for NextGen and Operations Planning and these other units--an office that would report directly to the FAA Administrator or the Secretary of Transportation--is needed to ensure accountability for NextGen results. In contrast, another stakeholder suggested that further reorganization may not be needed, but FAA's existing leadership could play a greater role in clarifying the responsibilities of the various offices involved in planning and implementing NextGen and in clearly assigning accountability for NextGen outcomes. In September 2008, the National Academy of Public Administration (NAPA) released a workforce study contracted by FAA that identified leadership as the single most important element of success for large-scale systems integration efforts like NextGen and highlighted leadership as a NextGen implementation challenge. The study, therefore, recommended that FAA tailor its leadership development program to focus on the specific leadership skills needed for managing this large, complex, evolving program, to include communication, collaboration, change management, and accountability and measurement. Some stakeholders, such as current air traffic controllers and technicians, will play critical roles in NextGen, and their involvement in planning for and deploying the new technologies will be important to its success. We have previously reported that active air traffic controllers were not involved in the NextGen planning effort. In following up on this issue, we found that some progress has been made. According to FAA, it has used active controllers as subject matter experts in NextGen development; representatives of both the controllers' and the technicians' unions have seats on the NextGen Management Board; and the controllers' union is participating in the NextGen Midterm Implementation Task Force. Controller union officials have likewise reported participating in several NextGen planning and decision-making groups, including the Institute Management Council, and acknowledge that active controllers serve as subject matter experts for NextGen working groups. However, these union officials have expressed concern that the union is not involved in selecting the subject matter experts. According to the technicians' union, it does not generally participate in NextGen efforts, although it has a liaison working on ADS-B and is seeking to participate in the NextGen Midterm Implementation Task Force. We maintain that input from current air traffic controllers with recent experience controlling aircraft, who will be responsible for managing traffic in the NextGen environment, and from current technicians, who will maintain NextGen equipment, is important when considering human factors and safety issues. Our work on past air traffic control modernization projects has shown that a lack of stakeholder or expert involvement early and throughout a project can lead to cost increases and delays. FAA will also need technical skills, such as systems engineering and contract management expertise, to implement NextGen. Because of the scope and complexity of the NextGen effort, the agency may not currently have the in-house expertise to manage the transition to NextGen without assistance. In November 2006, we recommended that FAA examine the strengths and weaknesses of its technical expertise and contract management expertise in light of the skills required to define, implement, and integrate the numerous complex programs inherent in the transition to NextGen. In response to our prior recommendation and as noted earlier in this statement, ATO contracted with NAPA to (1) determine the mix of skills needed by the nonoperational (acquisition) workforce to implement NextGen and (2) identify the strategies for acquiring the necessary workforce competencies. The study found that ATO will need to develop or strengthen skills in the areas of software development, systems engineering, research and development, strategic planning, financial budget analysis, and contract administration, among others. Strategies presented to ATO for consideration in acquiring the skills needed for the NextGen transition include aggressively marketing the NextGen vision, enhancing internal research and development skills, and working collaboratively with the agency's human capital office to develop a more integrated approach to NextGen workforce planning. According to an FAA official, FAA plans to fill a total of 378 NextGen positions in fiscal years 2009 and 2010. NextGen staffing needs can be difficult to address, a senior FAA official said, because historically NextGen skills have been in short supply and competitively priced in the marketplace. However, the current economic conditions could make hiring for these positions less difficult than it otherwise might be. If not adequately addressed, this situation could contribute to delays in integrating new technologies and transforming the national airspace system. A number of other challenges affect FAA's ability to move forward with NextGen's implementation, such as addressing ongoing research and development needs, reconfiguring and maintaining existing facilities, and enhancing the physical capacity of airports. As NextGen moves forward, applied research will be needed to integrate its five transformational technologies, as well as the legacy facilities and systems that will also be part of NextGen, to ensure that all the components work safely and reliably together. According to FAA, the funding requested in its Capital Improvement Program for 2009 through 2013 reflects the research and development and capital investments deemed necessary to deliver NextGen capabilities in the midterm. The funding requested for FAA NextGen research and development has significantly increased, from a total of $83 million in fiscal year 2009 to about twice that amount in each of the next 4 fiscal years. FAA believes that this level of FAA funding for NextGen research and development will complement investments made by federal partner agencies--particularly the National Aeronautics and Space Administration (NASA)--and will adequately support NextGen's implementation. In addition, the American Recovery and Reinvestment Act has increased NASA's budget for aeronautics research by $150 million, although it does not indicate whether this additional funding will be focused on NextGen-specific research. NASA's aeronautics research has long supported FAA's air traffic modernization efforts. To help ensure that NASA's aeronautics research is effectively transferred to FAA, the two agencies have developed a strategy that initially establishes four research transition teams, which are aligned with JPDO's planning framework. This strategy also outlines the two agencies' responsibilities for the research--FAA will develop user requirements, and NASA will conduct the fundamental research in each of the four areas and then transfer projects back to FAA for further development. According to FAA, its collaboration with NASA on the research transition teams has better focused NASA's investments on FAA's requirements. Research transition teams have not, however, been established between FAA and the other partner agencies. Prioritizing the research and development needed for NextGen is also important to avoid gaps and delays. The most recent version of JPDO's Integrated Work Plan identifies the sequence of research that must be completed before specific NextGen capabilities can completed. This research, however, cannot be fully prioritized without identifying the benefits that can be expected from the different capabilities and technologies. According to JPDO officials, they are developing a matrix that will identify benefits and costs and build a business case for all the components of NextGen over the next year that will help in prioritizing research and development. Going forward, further research and development is needed in a number of areas to implement NextGen, according to FAA, stakeholders, and our analysis. For example: Environmental Impact Research: According to a JPDO analysis, the environmental impact of aviation will be the primary constraint on the capacity and flexibility of the national airspace system unless this impact is managed and mitigated. In proposed legislation reauthorizing FAA, $111 million for fiscal years 2009 through 2011 may be used for a new FAA research and development program to help reduce aviation noise and emissions. This program--the Continuous Lower Energy, Emissions, and Noise (CLEEN) initiative--would facilitate over the next 10 years the development, maturation, and certification of improved airframe technologies. Aeronautics industry representatives and experts we consulted said that the program's funding levels may not be sufficient to attain the goals specified in the proposal. According to these experts, the proposed funding levels would allow for the further development of one or possibly two projects. FAA recognizes the implications of the proposed funding structure for CLEEN and characterizes the program as a "pilot." Human Factors Research: Human factors research explores what is known about people and their abilities, characteristics, and limitations in the design of the equipment they use, the environments in which they function, and the jobs they perform. Compared with the current ATC system, NextGen will rely to a greater extent on automation, and the roles and responsibilities of pilots and air traffic controllers will change. For example, both pilots and controllers will depend more on automated communications and less on voice communications. Such changes in roles and responsibilities raise significant human factors issues for the safety and efficiency of the national airspace system. Until fiscal year 2005, NASA was a primary source of federal aviation-related human factors research, but NASA then began reducing its human factors research staff, reassigning some staff to other programs and reducing the contractor and academic technical support for human factors research. According to NASA, human factors research continues to be a critical component of its aeronautics research program, although its work is now focused at the foundational (earlier-stage) level. FAA plans to invest $180.4 million in human factors research from fiscal year 2009 through fiscal year 2013. It remains to be seen whether or to what extent FAA's research and development, which is typically more applied than NASA's, will offset NASA's reductions in human factors research. Weather Related Research: Improved weather information is essential to realize key NextGen capabilities that depend on accurate weather information for decision-making. According to FAA, 70 percent of delays are attributable to weather every year. NextGen Network Enabled Weather (NNEW) is one of the five NextGen transformational programs for which current reseach and development is needed, even though their full benefits may not be realized until after the midterm. NNEW is intended to provide weather support services for decision-making in the NextGen environment. More specifically, NNEW is FAA's contribution to the 4- dimensional weather cube--a technology that will provide weather observations and analyses, including forecasts of expected weather conditions, for all users of the national airspace system. FAA is developing the requirements for this program, and the Department of Commerce, through its National Oceanic and Atmospheric Administration, will lead the development of the 4-dimensional weather cube, using the Department's resources and those of the partner agencies. FAA expects to finish defining the requirements for NNEW in March 2009. After validating the requirements, FAA will solicit reviews from the relevant stakeholders on the extent to which their requirements are aligned with those of the other agencies. This is a collaborative effort whose success will depend on contributions from all parties. Delays in aligning agency requirements, as well as the lack of meteorological knowledge, could lead to delays in implementing NextGen systems. To fully realize NextGen's capabilities, a new configuration of ATC facilities will be required. FAA has not developed a comprehensive reconfiguration plan, but says that preliminary efforts are underway to plan concepts for future FAA facilities. Going forward, it will also be critical for FAA to ensure the safety and efficiency of its existing ATC system, since it will be the core of the national airspace system for a number of years and some of its components will become part of NextGen. FAA faces an immediate task to maintain and repair existing facilities so that the current ATC system continues to operate safely and reliably. FAA has estimated a one-time cost of approximately $268 million to repair over 400 existing terminal and en route facilities. Once FAA develops and implements a facility reconfiguration plan, the costs of facility repairs and maintenance may be reduced. The American Recovery and Reinvestment Act provides $200 million to be made available within the next 2 years for improvements in power systems, air route traffic control centers, air traffic control towers, terminal radar approach control facilities, and navigation and landing equipment and indicates that projects that can be completed in 2 years should be given priority. The availability of these funds increases the importance of FAA's developing facility consolidation and reconfiguration plans to ensure that the funds are spent efficiently and effectively. FAA has acknowledged the need to keep long- term plans in mind so that it does not invest unnecessarily in facilities that will not be used for NextGen. Finally, FAA has determined that, even after planned improvements have been completed at 35 of the busiest airports, 14 airports--including some of the 35 busiest--will still need enhanced physical capacity by 2025. Planning infrastructure projects to increase capacity, such as building additional runways, can be a lengthy process, and will require substantial advance planning and safety and cost analyses. Furthermore, without substantial reductions in emissions and noise around the nation's airports and continuing efforts at all levels of government, including increased research and development activities, achieving the goal of safely expanding the capacity and efficiency of the national airspace system to meet 21st century needs may not be attainable. Thank you Mr. Chairman. I would be pleased to answer any questions that you or Members of the Subcommittee may have at this time. For further information on this testimony, please contact Dr. Gerald L. Dillingham at (202) 512-2834 or [email protected]. Individuals making key contributions to this testimony include Andrew Von Ah (Assistant Director), Bess Eisenstadt, Bert Japikse, Kieran McCarthy, and Richard Scott. Next Generation Air Transportation System: Status of Systems Acquisition and the Transition to the Next Generation Air Transportation System. GAO-08-1078. Washington, D.C.: September 11, 2008. Responses to Questions for the Record; Hearing on the Future of Air Traffic Control Modernization. GAO-07-928R. Washington, D.C.: May 30, 2007. Next Generation Air Transportation System: Status of the Transition to the Future Air Traffic Control System. GAO-07-784T. Washington, D.C.: May 9, 2007. Joint Planning and Development Office: Progress and Key Issues in Planning the Transition to the Next Generation Air Transportation System. GAO-07-693T. Washington, D.C.: March 29, 2007. Federal Aviation Administration: Key Issues in Ensuring the Efficient Development and Safe Operation of the Next Generation Air Transportation System. GAO-07-636T. Washington, D.C.: March 22, 2007. Next Generation Air Transportation System: Progress and Challenges Associated with the Transformation of the National Airspace System. GAO-07-25. Washington, D.C.: November 13, 2006. 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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To prepare for forecasted air traffic growth, the Federal Aviation Administration (FAA), including its Joint Planning and Development Office (JPDO) and Air Traffic Organization (ATO), is planning for and implementing the Next Generation Air Transportation System (NextGen) in partnership with other federal agencies and the aviation industry. NextGen will transform the current radar-based air traffic control system into a more automated, aircraft-centered, satellite-based system. GAO's previous work has identified issues related to the usefulness of NextGen planning documents, FAA's organizational structure to manage the transition to NextGen, and FAA's workforce to oversee and implement NextGen. Recently, the focus of NextGen planning and implementation has shifted to capabilities that can be achieved in the midterm, defined as 2012 through 2018. GAO's testimony focuses on (1) JPDO's and ATO's progress in planning and implementing NextGen, (2) ongoing efforts to implement midterm capabilities to address capacity constraints and delays, (3) the potential impact on NextGen of organizational changes and human capital issues, and (4) research and development and facilities maintenance and reconfiguration challenges going forward. GAO's testimony updates prior GAO work with FAA data and interviews with agency and union officials and industry stakeholders, including airline, aircraft, and avionics manufacturer representatives. JPDO and ATO have made progress in planning for and developing NextGen. JPDO has continued to update its basic planning documents, and in January 2009, ATO released the current version of its NextGen Implementation Plan, which focuses on the midterm implementation of capabilities. Recent versions of NextGen planning documents have partially addressed some of GAO's concerns about their usefulness, but industry stakeholders continue to express frustration that the documents lack any specific timelines or commitments. In addition to these planning efforts, FAA has continued to plan and conduct several demonstrations of some key NextGen technologies. To help address current congestion and delays, industry stakeholders have frequently suggested that FAA focus on maximizing what can be done with existing, proven capabilities and existing infrastructure. Partly to help accelerate the implementation of capabilities in the midterm, FAA has created a NextGen Midterm Implementation Task Force, which is to report its recommendations to FAA in August 2009. The task force plans to identify and prioritize capabilities that can be implemented in the midterm and potentially be deployed regionally to address key bottlenecks. Essential to the mid- and long-term success of these efforts is persuading the airlines to make costly investments in NextGen equipment--a step they are reluctant to take without clearly demonstrated benefits. Incentives that could encourage such investments include operational preferences--such as preferred airspace, routings, or runway access--and equipment investment tax credits. FAA will also have to validate, certify, and issue rules for these capabilities. Recent changes in the management structure for NextGen, though designed to address industry stakeholders' and others' concerns about fragmentation of authority and lack of accountability, have not fully addressed these issues and have raised further questions about parties' roles and responsibilities. Additionally, human capital issues remain to be resolved, including the degree to which key stakeholders, such as controllers and technicians, are involved in NextGen efforts and whether FAA is able to acquire the systems engineering, contract management, leadership, and other skills needed for NextGen. FAA plans to fill 378 NextGen positions in fiscal years 2009 and 2010. Going forward, FAA faces challenges in addressing ongoing research needs, reconfiguring and maintaining existing facilities, and enhancing the physical capacity of airports. For NextGen, research on the environmental impact of aviation, human factors, and weather will be critical. Air traffic facilities will also have to be reconfigured to support NextGen, and existing facilities require maintenance to ensure safety and reliability. FAA is currently reviewing its facility needs.Finally, even with the efficiencies anticipated from implementing NextGen, FAA has determined that it will need additional airport and runway capacity. Efforts to develop new infrastructure will require significant advance planning and cost and safety analyses.
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Although NORAD had performed some risk assessments in response to individual DOD leadership inquiries about ASA operations, it had not done routine risk assessments as part of a risk-based management approach to determine ASA operational requirements. Moreover, NORAD has not conducted similar assessments since 2006. For example, NORAD had completed three assessments that we determined could be part of a risk- based management approach. NORAD completed the first of these assessments after the September 11, 2001, terrorist attacks, when it worked with other federal agencies and determined, based on vulnerabilities and criticality, which sites should be protected by ASA operations. NORAD conducted two other assessments, in 2005 and 2006, primarily in response to the 2005 Base Closure and Realignment Commission process and efforts to cut costs for Operation NOBLE EAGLE. On both of these occasions, NORAD conducted a cost evaluation, considering aviation security improvements--such as secured cockpits and enhanced passenger screening--that were made by the Transportation Security Administration since 2001. At the time of our review, DOD had not required NORAD to manage ASA operations using a risk management approach, which includes routine risk assessments. By performing routine risk assessments, NORAD could better evaluate the extent to which previous threats have been mitigated by DOD or other government agencies, better evaluate current and emerging threats to determine which ones require the most urgent attention, and determine operational requirements to address changing conditions. Routine risk assessments could also help NORAD determine the appropriate level and type of resources, including units, personnel, and aircraft for ASA operations, especially in a resource-restricted environment. Furthermore, during the course of our review, Air Force and ANG officials acknowledged the benefits of performing risk assessments on a routine basis for determining operational requirements for ASA operations. Although its units are conducting ASA operations, the Air Force had not implemented these operations as a steady-state mission in accordance with NORAD, DOD, and Air Force directives and guidance. For example, in response to a December 2002 NORAD declaration of a steady-state air defense mission, the Air Force issued a directive assigning specific functions and responsibilities to support the mission. According to the directive, the Air Force was to take 140 actions to implement ASA as a steady-state mission. For example, the directive required the Air Force Deputy Chief of Staff for Personnel to ensure that ASA active personnel requirements were included in the Air Force submission to the Future Years Defense Program. The directive also required Air Force major commands to develop the capability to report on the readiness of ASA activities in DOD's readiness system, and the Deputy Chief of Staff for Personnel to work with the appropriate officials to limit adverse effects on the careers of personnel affected by the steady-state mission. However, the Air Force had not implemented ASA operations as a steady-state mission. For example, although the Office of the Secretary of Defense directed the Air Force to program ASA operations across the 6 years of its Future Years Defense Program submission, the Air Force decided to program ASA operations in 2-year increments. According to headquarters Air Force officials, the Air Force did not implement ASA operations as a steady-state mission because (1) it has focused on other priorities, such as overseas military operations, and (2) it believed that ASA operational requirements, such as number of sites, might be decreased to pre-September 11, 2001, levels at some point in the future. As a result, the readiness of the units conducting ASA operations was not being fully assessed, and commanders of ASA units reported they were experiencing difficulties pertaining to a variety of factors, such as personnel and funding, which challenged their ability to perform both their expeditionary missions and ASA operations. NORAD partially assessed readiness through inspections; however, the Air Force, which as the force provider is responsible for measuring readiness for its missions by evaluating personnel, training, and the quantity and quality of equipment needed, has not done so for ASA operations. Air Force officials said they do not perform such assessments because the service has not formally assigned the mission to the units. Specifically, the Air Force issues mission Designed Operational Capability statements that identify the unit's mission(s) and related requirements (e.g., type a However, the Air Force has not identified ASA number of personnel). operations as a mission in the operational capability statements of those units that conduct ASA operations on a daily basis. Unit commanders told us during our structured interviews that they did not evaluate and report the personnel, training, or quantity and quality of equipment to perform ASA operations because they had not been assigned the mission in their operational capability statements. As a result, the Air Force did not have complete information to assess readiness, and DOD and Congress lacked visibility of costs and other important information to inform decisions for these homeland defense operations. Because the Air Force did not implement ASA operations as a steady-state mission in accordance with NORAD, DOD, and Air Force guidance, at the time of our review ASA units were experiencing a number of difficulties that challenged their ability to perform both their expeditionary missions and ASA operations. The unit commanders we interviewed identified funding, personnel, and dual tasking of responsibilities as the top three factors affecting ASA operations. For example, during our structured interviews, officials from 17 of the 20 units stated that personnel issues were a moderate or great concern and that recruiting, retention, and promotion limitations were the primary issues arising from the current practice of programming for ASA operations in 2-year increments. Commanders at the ASA sites that we visited told us that they had lost some of their most experienced personnel due to job instability caused by the manner in which ASA operations are programmed. Similarly, commanders at 17 of the 20 units stated that the Air Force treats ASA operations as a temporary mission and has not provided sufficient resources. Thirteen of the 20 units reported that dual tasking--training and conducting for their expeditionary mission and for ASA operations-- was a moderate or great concern and that the Air Force was not adequately equipping units to conduct both missions. Headquarters Air Force and National Guard Bureau/Air National Guard (NGB/ANG) officials acknowledged the units' difficulties in conducting ASA operations. Figure 1 depicts units' responses regarding difficulties they have experienced in conducting ASA operations. Because the Air Force has not programmed for ASA operations in its Future Years Defense Program submissions, the Office of the Secretary of Defense, NORAD, and Congress lack visibility into the costs of these operations. This program is one of the principal tools used to inform DOD senior leaders and Congress about resources planned to support various programs, and reflects DOD decisions regarding allocation of federal resources. Implementing ASA operations as a steady-state mission may help to mitigate the challenges associated with ASA operations, as well as provide Congress and DOD leaders cost visibility into ASA operations, which support DOD's high-priority homeland defense mission. Of the 18 ASA sites, 13 sites are currently equipped with F-16s, which, according to ANG estimates, will reach the end of their useful service lives between fiscal years 2015 and 2020. Five sites have F-15s, which were grounded for 3 months in late 2007 and early 2008 after an F-15 broke apart during a normal flying operation in November 2007. According to Air Force and ANG officials, the F-15s' useful service lives could end earlier than the expected time frame of 2025 if the aircraft are used increasingly for overseas deployments or other missions. Depending on when the F-16s reach the end of their useful service lives and on the availability of next- generation F-22 and F-35 fighter aircraft, a gap in the number of available aircraft may affect units performing ASA operations. Figure 2 shows the projected number of current ASA sites with and without viable aircraft to conduct ASA operations through 2032. As the figure reflects, unless the Air Force modifies its current fielding schedules or extends the service lives of its F-15s and F-16s to the extent that this option is possible, it will lack viable aircraft to conduct ASA operations at some of the 18 current ASA sites after fiscal year 2015. The figure also shows that 2 of the current ASA sites will not be equipped with viable aircraft and thus will be unable to conduct ASA operations even after the Air Force fields all of its currently planned F-22s and F-35s in fiscal year 2031. This figure is based on our analysis of documentation on the expected service lives of the F- 15s and F-16s and the Air Force's fielding schedules for the F-22s and F- 35s at the time of our review, and represents one possible scenario. The House report accompanying the National Defense Authorization Act for Fiscal Year 2008 directed the Secretary of the Air Force, in consultation with the Chief of the National Guard Bureau and the Secretary of Homeland Security, to conduct a study on the feasibility and desirability of equipping certain ASA units with F-35s. The Air Force study, which was submitted to Congress in December 2008, states that, although the F-35's capabilities make it a desirable platform to conduct air defense operations, a number of factors--such as fiscal, operational, and environmental considerations--will affect where F-35s are based. Consequently, it is unclear whether or when the current ASA sites will receive F-35 aircraft. For the purpose of our analysis, however, we assumed that the Air Force would provide the F-35s to ANG sites conducting ASA operations. Our March 2009 reports about the F-35 acquisition program have also questioned the reliability of its production schedule and cost estimates. For example, we reported that despite the program's continued manufacturing problems and the infancy of the flight test program, DOD officials wanted to accelerate F-35 production from 485 to 654 aircraft over a 6-year time frame from fiscal years 2010 through 2015. On April 6, 2009, the Secretary of Defense announced that DOD intends to increase F-35 production to 513 aircraft across the 5-year defense plan. We continue to believe DOD's increased production approach is overly optimistic. During our review, we discussed some options with Air Force and ANG officials that could reduce the potential gap between retired aging aircraft and the replacements needed to conduct ASA operations, but these options are not without challenges. The options we discussed included the following: Replace the F-16s with either F-22s or F-35s, both of which the Air Force is acquiring. However, according to the F-22 and F-35 fielding schedules at the time of our review, only 1 of the 12 units--Shaw Air Force Base, South Carolina--will receive the new aircraft before its fleet of F-16s reaches the end of its useful service life. Replace the F-16s with F-15 models from the current inventory. However, F-15s, like F-16s, are beginning to reach the end of their useful service lives for reasons including structural problems and accelerated use for overseas deployments and other missions. Extend the service life of the F-15 and F-16 aircraft. However, at the time of our review, the Air Force had not determined the extent to which such actions were viable. Until the Air Force plans accordingly, the extent to which replacement aircraft will be available to conduct ASA operations and mitigate this fighter shortage is unclear. Given the importance of the capability to deter, detect, and destroy airborne threats to the United States, it is important that the Air Force address current and future requirements of the ASA mission to ensure its long-term sustainability. In our January 2009 report, we recommended that DOD take a number of actions to address the issues that we identified during our review. In summary, we recommended that the Secretary of Defense direct The Commander of the U.S. command element of NORAD to routinely conduct risk assessments to determine ASA requirements, including the appropriate numbers of ASA sites, personnel, and aircraft to support ASA operations. The military services with units that consistently conduct ASA operations to formally assign ASA duties to these units and then ensure that the readiness of these units is fully assessed, to include personnel, training, equipment, and ability to respond to an alert. The Secretary of the Air Force to establish a timetable and implement ASA operations as a steady-state mission, to include: updating and implementing the ASA program action directive; updating Air Force guidance to incorporate and define the roles and responsibilities for ASA operations; and incorporating the ASA mission within the Air Force submissions for the 6-year Future Years Defense Program. The Secretary of the Air Force to develop and implement a plan to address any projected capability gaps in ASA units due to the expected end of the useful service lives of their F-15s and F-16s. In its written comments on our report, DOD fully or partially concurred with all of our recommendations. However, based on DOD's written response, it is unclear the extent to which DOD will implement these recommendations. For example, DOD partially concurred with our recommendation to employ a risk-based management approach, which would include routine risk assessments to determine ASA requirements. However, DOD stated that sufficient guidance and a long-standing risk- based process currently guide its decisions on ASA operations and, therefore, it does not plan on taking any further action. Mr. Chairman and Members of the Subcommittee, this concludes my prepared statement. I would be happy to answer any questions that you may have at this time. For further information regarding this testimony, please contact Davi M. D'Agostino at (202) 512-5431 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 Lorelei St. James and Marc Schwartz (Assistant Directors), Tommy Baril, Grace Coleman, Greg Marchand, Terry Richardson, Bethann Ritter, Kenneth Cooper, and Jane Ervin. In addition, Victoria DeLeon and John Trubey made significant contributions to the January 2009 report that supported this testimony. The Vermont ANG unit at Burlington International Airport is conducting ASA operations until the Massachusetts ANG unit at Barnes Air National Guard Station assumes responsibility for ASA operations in fiscal year 2010. A detachment from the Vermont ANG conducts ASA operations at Langley Air Force Base, Virginia; the South Dakota ANG unit from Sioux Falls is assisting with ASA operations at this site until the Massachusetts ANG assumes responsibility for the New England ASA operations in fiscal year 2010. ASA operations at Homestead Air Force Base, Florida are conducted by a detachment from the Jacksonville, Florida ANG unit. ASA operations at Ellington Field, Texas are conducted by a detachment from the Tulsa, Oklahoma ANG unit. 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 GAO's recently issued report on the North American Aerospace Defense Command's (NORAD) and the Department of Defense's (DOD) air sovereignty alert (ASA) operations. According to the National Strategy for Aviation Security, issued in March 2007, and officials from U.S. intelligence agencies with whom we met, air attacks are still a threat to the United States and its people. To address this threat, NORAD and DOD have fully fueled, fully armed aircraft and trained personnel on alert 24 hours a day, 365 days a year, at 18 ASA sites across the United States. Of the 18 sites, 16 are maintained by Air National Guard (ANG) units and 2 are maintained by active duty Air Force units. If warranted, NORAD can increase personnel, aircraft, and the number of ASA sites based on changes in threat conditions. The Air Force provides NORAD with personnel and equipment, including F-15 and F-16 aircraft, for these operations. ASA units are tasked to conduct and train for both expeditionary missions (e.g., military operations in Iraq) and ASA operations. This testimony will discuss whether (1) NORAD routinely conducts risk assessments to determine the appropriate operational requirements; (2) the Air Force has implemented ASA operations as a steady-state mission, which would require programming funding and measuring readiness, in accordance with NORAD, DOD, and Air Force guidance; and (3) the Air Force has developed a plan to address the recapitalization challenges to sustaining ASA operations for the future. Although NORAD had performed some risk assessments in response to individual DOD leadership inquiries about ASA operations, it had not done routine risk assessments as part of a risk-based management approach to determine ASA operational requirements. Moreover, NORAD has not conducted similar assessments since 2006. Although its units are conducting ASA operations, the Air Force had not implemented these operations as a steady-state mission in accordance with NORAD, DOD, and Air Force directives and guidance. For example, in response to a December 2002 NORAD declaration of a steady-state air defense mission, the Air Force issued a directive assigning specific functions and responsibilities to support the mission. According to the directive, the Air Force was to take 140 actions to implement ASA as a steady-state mission. NORAD partially assessed readiness through inspections; however, the Air Force, which as the force provider is responsible for measuring readiness for its missions by evaluating personnel, training, and the quantity and quality of equipment needed, has not done so for ASA operations. Air Force officials said they do not perform such assessments because the service has not formally assigned the mission to the units. Specifically, the Air Force issues mission Designed Operational Capability statements that identify the unit's mission(s) and related requirements (e.g., type anumber of personnel). Because the Air Force did not implement ASA operations as a steady-state mission in accordance with NORAD, DOD, and Air Force guidance, at the time of our review ASA units were experiencing a number of difficulties that challenged their ability to perform both their expeditionary missions and ASA operations. The unit commanders we interviewed identified funding, personnel, and dual tasking of responsibilities as the top three factors affecting ASA operations.
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As we reported in March 2012, retirement plan sponsorship is low among small employers, which may reflect the challenges employers face in establishing and maintaining a plan. Our analysis of available Labor and IRS data found that about 14 percent of small employers sponsored some type of plan in 2009. As shown in figure 1, the smallest employers--those with 1 to 4 employees--had the lowest sponsorship rate at 5 percent but even employers with 26 to 100 employees had a sponsorship rate of 31 percent. To put this in context, about 50 percent of the private sector workforce at any one time participates in an employer-sponsored pension plan. Also, small employers paying average annual wages of $50,000 to $99,999 had the highest rate of plan sponsorship at 34 percent while small employers paying average wages of under $10,000 had the lowest sponsorship rate at 3 percent. When we met with small employers and other stakeholders, they identified a variety of factors as challenges to sponsoring retirement plans or as reasons for terminating existing plans. One commonly cited concern focused on the multiplicity of plan types and the burden of paperwork and administration. For example, some small employers and retirement experts said that the broad range of plan types and features made it difficult for small employers to compare and choose plans. Another small employer who previously sponsored a 401(k) plan with a company match said the amount of required plan paperwork, including generating annual reports, was a key reason he terminated it. Other areas of concern for small employers centered on a sponsor's fiduciary responsibilities with respect to managing or controlling plan assets. Specifically, some small employer sponsors found the fiduciary responsibility of selecting investment fund choices for their plans particularly challenging. A small employer with a 401(k) plan described the difficulties of selecting investment options with an appropriate balance of risk for a workforce that includes both younger and older workers. Moreover, a number of stakeholders said some small employers may not have an adequate understanding of their fiduciary duties and are not always aware of all their legal responsibilities. One service provider explained that some small employers mistakenly believe that all fiduciary responsibilities and liabilities are transferred to a service provider when they are hired. Another expert noted that some small employers have an exaggerated sense of the possible liabilities that being a fiduciary carries, and may avoid sponsoring a plan out of fear of being sued by their employees. In addition to these challenges, smaller or newer firms may be unwilling or unable to sponsor plans because they lack sufficient financial resources, time, and personnel. For instance, smaller employers noted that startup and ongoing costs involved with maintaining a plan, costs associated with reporting and testing requirements, administrative fees paid to an outside party, and any employer requirements to match employee contributions were barriers to plan sponsorship. Small employers also expressed the need to reach a certain level of profitability before they would consider sponsoring a plan and that general economic uncertainty makes them reluctant to commit to such long-term expenses. Low employee demand for an employer-sponsored plan may also be a challenge for small employers. For example, a number of small employers stated that employees prioritized health care benefits over retirement benefits. One small employer thought that, given the limited funds available to contribute towards benefits, his employees would prefer those resources be applied toward lowering the employees' share of health insurance premiums. Small employers emphasized that offering health care benefits was necessary to attract quality employees. Additionally, some small employers, such as those who described having a younger workforce, stated that their employees were less concerned about saving for retirement and, as a result, were not demanding retirement benefits. Other small employers told us that employees, particularly those with low pay, do not have any interest in retirement benefits because they live paycheck to paycheck and are less likely to have funds left over to contribute to a plan. For example, one small employer discontinued his plan when too few of his employees--most of whom he described as low-wage--participated in the plan. Another small employer noted that even senior-level managers in his business did not participate in the plan. However, a retirement expert stated that while some employees might not be interested in participating in a retirement plan, he believed the perceived lack of demand to be exaggerated. He added that he believed some businesses may use lack of employee demand as an excuse when the small employer was not interested in sponsoring a plan. In March 2012, we made a recommendation to Labor to convene an interagency task force with the Department of the Treasury, IRS, SBA, and other appropriate agencies to review, analyze, and address the challenges small employers face in helping ensure retirement security. The agencies generally agreed with this recommendation, however, Labor disagreed with one aspect of our recommendation, which was for the task force to create a single webportal for federal guidance. We believe consolidating plan information onto one webportal could benefit small employers, mainly because federal resources are scattered across different sites. We also made a recommendation to the Department of the Treasury to collect additional information on IRA plans. Small employers are more likely to sponsor 401(k) plans and participants of these plans tend to pay higher fees than larger plans. According to our analysis of Labor and IRS data, out of slightly more than 712,000 small employers that sponsored a single type of plan in 2009, about 46 percent sponsored a 401(k) plan, 40 percent a SIMPLE IRA, and the remaining employers sponsored other types of plans, including DB and non-401(k) Experts have identified low contribution rates as a profit sharing plans.key problem facing workers seeking to secure an adequate retirement income. In 2011, the average account balance of 401(k) plans with 100 or fewer participants was about $59,000. This may reflect the challenges facing participants in small plans of not only contributing faithfully, but also investing prudently and avoiding high fees. Regarding fees, plans with fewer than 100 participants account for the majority of 401(k) plans, and these plans usually pay higher fees. According to industry experts and research, plans with fewer participants generally have lower plan assets, and therefore pay higher fees as a percentage of assets than plans with more assets or older plans that have grown their assets over time. Service providers and an industry expert we met with noted that administrative fees to start a 401(k) plan can be significant for small plans. Additionally, representatives of a retirement industry organization said that it may be difficult for sponsors of small plans to negotiate for lower fees because assets in these plans are modest. In April 2012, we reported that participants in smaller plans typically pay higher fees than participants in larger plans. Specifically, our nationally representative survey of plan sponsors found that participants in plans with fewer than 50 participants paid an average of 0.43 percent of their plan assets annually, while participants in larger plans--those with more than 500 participants--paid 0.22 percent for record keeping and administrative services. On top of these fees, participants likely paid other plan fees. For example, according to survey results, in about 69 percent of small plans, participants paid all of the investment fees (see fig. 2 for additional details), which ranged from less than 0.01 percent to 3.24 percent of assets. 32 disclosure of service providers' direct and indirect compensation; and before regulations to disclose certain plan and investment-related information, such as fees, to participants and their beneficiaries in participant-directed individual accounts were in effect. 29 C.F.R. SSSS 2550.408b-2 and 2550.404a-5 (2012). GAO-12-325. This work was conducted before Labor finalized regulations regarding 33 For further details on the design of our 401(k) plan sponsor survey on fees, see GAO-12-325. As we reported in September 2012, little is known about the employers that participate in MEPs, or even the number of MEPs by type, in part because the federal government no longer collects these data. As of 2009, the most recent data available for our September 2012 report, MEPs represented only a small portion of the pension universe. Specifically, DB MEPs represented 0.7 percent of all DB plans, about 6.0 percent of all DB assets and 5.0 percent of all DB participants. DC MEPs represented about the same percentage of all DC plans, assets and participants. In our September 2012 report, we found smaller employers in MEPs were mainly participating in association-sponsored MEPs. Two associations told us their participating employers averaged between 20 and 60 employees. However, one MEP sponsored by a PEO reported that the typical participating employer in its plan was small as well. In particular, little data exist on the current number of PEO or open MEP plan types, their asset size, the number of participants, or the participating employers. Relative to other MEP types, PEO and open MEPs are the newest, and may be the only types actively marketing their MEPs to participating employers. MEPs have been suggested by PEO and open MEP representatives as a viable way for small employers to reduce their administrative responsibility for their pension plans. Several MEP representatives said MEP administrators can complete the record keeping and the annual testing, and can submit required filings such as a single Form 5500 for the MEP on behalf of all the participating employers. Furthermore, employees can more easily move among employers in the plan. For example, in a DB MEP sponsored by an association, as long as a participant remains an employee of an employer within the association, participants can change employers and continue earning vesting service credit in the same plan. A small employer sponsoring a single employer plan can also contract with a service provider to perform administrative functions, but a couple of interviewees said employers not already offering plans might find it easier and faster to join a MEP than to create their own single employer plan. MEPs have also been suggested by some as a possible means to lower the costs of plan sponsorship, since participating employers can pool assets to obtain lower pricing available to larger plans. One expert we spoke with said that certain association plans have been very effective at offering efficient, cost-effective retirement options for their members. Furthermore, a couple of interviewees said MEPs may also reduce costs for employers since they will not need to spend money to create an initial plan document, as they would in establishing a new single-employer plan. As we found in September 2012, another possible benefit of MEPs, according to some MEP marketing material, is reducing participating employers' fiduciary liability since the MEP administrator takes on some fiduciary duties. However, it is not clear how much relief from fiduciary liability a MEP can provide to participating employers, and it is not clear that such relief is unique to MEPs. For example, small employers may also be able to receive a similar degree of reduced fiduciary liability by using a service provider to administer the employer's own plan. Because small employers may not be familiar with how to manage a plan, reduced fiduciary liability may be an attractive feature for them, and, in our March 2012 small employer report, small employers identified possible fiduciary responsibility as a barrier to sponsoring a pension plan. However, while MEP representatives and MEP marketing materials sometimes stated otherwise, participating employers retain some fiduciary responsibility, according to Labor officials. At a minimum, participating employers must still select a MEP to join and monitor a plan's investments and fees, which Labor considers a fiduciary function. Overall, no consensus existed among MEP representatives and pension experts on the potential for MEPs to substantially expand coverage. Large associations can provide the option of joining a MEP to their members. That option is unavailable to small employers not part of a membership organization looking out for their interests. The extent to which small employers can join a MEP may depend on whether a MEP is actively marketed and sold, since one pension expert observed that small employers do not extensively research pension plans or actively seek them out. Additionally, employers who choose to become part of a MEP for the first time may already have been providing a plan for their employees. While a couple of the MEP representatives we spoke with specifically targeted employers without plans, several targeted businesses with existing plans. From Labor's perspective, their primary regulatory concern centers on one type of MEP, the open MEP. During our review for our September 2012 report, Labor issued an advisory opinion stating that one particular open MEP did not constitute a pension plan under ERISA because it was not established or maintained by an employer or an employee organization. Labor determined that, in the case of this MEP, participating employers did not constitute a bona fide employer group or association, sufficient to be considered an employer sponsoring the arrangement, because, among other things, they did not exercise sufficient control over the plan. As a consequence of this guidance, the participating employers in that open MEP were instead determined to each be the sponsors of their own, individual plans. Association MEP representatives told us Labor's guidance had no affect on their plans. As a practical matter, Labor's ruling is being treated by many as meaning that individual participating employers in an open MEP have to comply with any reporting, auditing, and bonding requirements on an individual rather than aggregate basis. In our September 2012 report, we noted that a number of compliance-related questions were left unanswered for open MEPs. treatment, IRS might still consider an open MEP to be one plan rather than a series of individual plans. In an effort to remove confusion for plan sponsors, we recommended Labor and IRS coordinate their interpretations and develop compliance-related guidance. Labor and IRS generally agreed with our recommendations on coordination. Additionally, we noted that, for purposes of preferential tax Labor's expectation is that the recently issued opinions on open MEPs will serve as guidance to the pension industry at large. However, despite the ruling on open MEPs from Labor, pension experts and MEP representatives told us that broader policy questions remain. The opinion did not provide Labor's view on the potential of open MEPs to lower plan costs or expand coverage, but we were told by MEP representatives and pension experts that open MEPs will continue to receive the attention of policymakers for that reason. At this time no one knows for certain how many open MEPs there are, who is in them, or how they may affect future pension coverage. Pension experts cautioned that any legislative change allowing certain open MEPs should ensure that there are appropriate safeguards to protect plan participants. GAO-12-665. Labor officials said the potential for inadequate employer oversight of a MEP is greater than for other pension arrangements because employers pass along so much responsibility to the entity controlling the MEP. Labor officials noted that potential abuses might include layering fees, misusing assets, or falsifying benefit statements. One pension expert agreed that there is potential for MEPs to charge excess fees without the enrolled employer being aware. While Labor officials acknowledged that single employer plans could be subject to similar abuses, they cautioned that the way a MEP is structured and operated could make it particularly susceptible to abuses.can be important. Representatives of MEPs maintained by associations we interviewed said they had an appointed board made up of association members who served as the named fiduciaries of the plan. Most of these associations required board members to also participate in the MEP. However, the extent to which open MEPs have or would have such structures in place is unclear. Given the limited knowledge some plan sponsors have of the fees they pay and their fiduciary responsibilities, it would appear that some such governance structure or related safeguards is warranted to protect employer and participant interests. For this reason, the structure of a particular MEP Labor's lack of data to identify different MEP sponsor types or any employers participating in MEPs limits the agency's ability to protect MEP employers and participants. To ensure Labor has information needed to oversee MEPs, in September 2012, we recommended that Labor gather additional information about the employers participating in MEPs, potentially through the Form 5500, which is the primary source of pension plan information for government oversight activities. Labor officials said the number of participating employers or the names of participating employers could be useful oversight information. The agencies generally agreed with our recommendation on gathering additional MEP-related information and said they will consider MEP-related changes to the Form 5500 as part of their regular evaluations. We consider this an important first step, and await any proposed or scheduled changes to data collection. For workers at small employers, building an adequate level of income for retirement is becoming increasingly challenging. Particularly for small employers, the low level of plan sponsorship means that many of their workers may enter retirement with little or no income outside of Social Security. Small employers also face some greater challenges to sponsorship than larger employers and they often have less time, fewer resources and personnel to handle them. The potential advantages of multiple employer plan design are appealing in this context, however, current data and information, as well as other safeguards, will be necessary to ensure that small employer interests are protected and promises to participants are not broken. Chairman Harkin, Ranking Member Alexander, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. For further information about this testimony, please contact Charles A. Jeszeck 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 testimony. Tamara Cross, Assistant Director; James Bennett, Edward Bodine, Sarah Cornetto, Patrick diBattista, Chuck Ford, Gene Kuehneman, David Lehrer, Ted Leslie, Sheila McCoy, Thomas A. Moscovitch, MaryLynn Sergent, Roger Thomas, Frank Todisco, Kathleen van Gelder, Lacy Vong,and Craig Winslow were key contributors 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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About 42 million workers, or about onethird of all private-sector employees, work for employers with fewer than 100 employees, and recent federal data suggest many of these workers lack access to work-based retirement benefits. Despite efforts by the federal government to develop new plan designs and to increase tax incentives, plan sponsorship remains low among small employers. MEPs, a type of arrangement involving more than one employer, have been suggested as a potential way to increase coverage. This testimony describes (1) the challenges small employers face in helping ensure that their workers secure retirement income, and (2) types of MEPs and their potential to address these challenges. GAO drew from its previous reports related to small employer challenges in establishing and maintaining a retirement plan and recent work on MEPs issued from March 2012 through September 2012. About 14 percent of small employers sponsor some type of plan for their employees to save for retirement and these employers in general can face numerous challenges establishing and maintaining a plan. GAO's March 2012 report found that many of the small employers who were contacted said they felt overwhelmed by the number of plan options, plan administration requirements, and fiduciary responsibilities. For example, some small employers found it challenging to select investment funds for their plans. Small employers also cited other challenges in sponsoring a plan, including a lack of financial resources, time, and personnel. GAO's April 2012 review of select 401(k) plans--the most common type of plan sponsored by small employers--found that some smaller plan sponsors did not know about or fully understand fees they and their participants were charged, such as fees associated with group annuity contracts. In addition to these fees, participants in small plans often pay higher recordkeeping and investment management fees than participants in larger plans. GAO's work demonstrates the need for plan sponsors, particularly small sponsors, to understand fees in order to help participants secure adequate retirement savings. Any fees paid by participants, even a seemingly small amount, can significantly reduce retirement savings over time. Little is known about the types of employers that participate in multiple employer plans (MEP), particularly because, since 2004, no publically available information has been collected on such employers. MEP representatives have suggested MEPs as a viable way for small employers to reduce the administrative and fiduciary responsibilities that come with sponsoring a pension plan, and for reducing costs, in part through asset pooling. However, GAO found that these advantages are not always unique to MEPs. There was also no consensus on the potential for MEPs to increase plan coverage. During GAO's September 2012 study the Department of Labor (Labor) ruled that some MEPs made up of otherwise unrelated employers did not constitute a single pension plan but an arrangement under which each employer sponsored a separate plan for its own employees. Because this raises significant policy and compliance questions and data are limited, it is important that Labor gather information on participating employers to inform policy and oversight activities on retirement security for employees of small businesses. GAO is not making any new recommendations. GAO made several recommendations in prior reports to Labor and the Internal Revenue Service (IRS) to address challenges facing small employers and to improve oversight and coordination for MEPs. The agencies generally agreed with GAO's recommendations. However, Labor disagreed with a recommendation to create a single webportal for federal guidance. GAO believes consolidating information could benefit small employers, mainly because resources are scattered.
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Research indicates that making price and other contextual information available is important for consumers to be able to anticipate the costs of their care and also to make informed health care decisions. In recent years, many public and private price transparency initiatives have been initiated to provide consumers with information about the price of their health care services. Determining the price of a health care service often involves coordination between providers, insurers, and consumers. Providers, such as hospitals or physicians, charge consumers fees for the services they receive, which are known as billed charges. Payers, such as insurance companies, often have contractual agreements with providers under which the payers negotiate lower payment rates for a service on behalf of their members or beneficiaries. These rates are known as negotiated rates. In the case of Medicare specifically, CMS sets the program's payment rates for providers based on a formula that includes several factors, such as geographic location. For consumers with health insurance, their out-of-pocket costs for a health care service is determined by the amount of cost sharing specified in the benefits of their health insurance plan for services covered by the insurer. For consumers who lack health insurance, they are often billed for the full amount charged by the provider, such as a billed charge from a hospital. The estimated out-of-pocket cost for an uninsured consumer will typically be the billed charge for a health care service minus any charity care or discounts that may be applied by the provider. Providers and payers often price health care services using the various codes used by health care professionals. For example, physicians may bill for their services based on Current Procedural Terminology (CPT) codes developed by the American Medical Association. Individual health care services, such as those referred to by individual CPT codes, can be grouped or bundled together into an episode of care, which refers to a group of health care services associated with a patient's condition over a defined period of time. An episode of care for a knee replacement, for example, includes multiple services such as those provided during the actual surgery, as well as preoperation and postoperation consultations. The episode of care would also include services provided by various providers who typically bill separately, such as a hospital, surgeon, and anesthesiologist. PPACA requires HHS to develop a national pilot program, which may include bundled payments for episodes of care surrounding certain hospitalizations, in order to improve the coordination, quality, and efficiency of health care services. According to researchers, it is important for consumers to have access to quality of care and other information to provide context to the price information and help consumers in their decision making. For example, according to the Agency for Healthcare Research and Quality (AHRQ), appropriate quality of care information for consumers may include the mortality rates for a specific procedure, the percentage of patients with surgical complications or postoperative infections, or the average length of stay, among other measures. By combining quality and price information, some researchers argue that consumers can then use this information to choose providers with the highest quality and the lowest price--thereby obtaining the greatest value when purchasing care. Furthermore, some research suggests that information on volume (the number of services performed) may be used as an indication of quality for certain procedures. This assumes a positive association between the number of times a provider administers a service and the quality of the service provided. Information about previous patients' satisfaction with a provider's service can also help consumers make decisions about their health care. Public price transparency initiatives often began in response to laws or orders requiring an agency or organization to make price information available to consumers, while private sector initiatives started primarily through voluntary efforts. For example, in response to a 2006 federal executive order to promote quality and efficiency in federal health care programs, federal agencies that administer or sponsor a health care program were directed, among other things, to make available to enrollees the prices paid for health care services. In response, agencies including HHS (including its component agencies such as CMS and AHRQ) and OPM began to make health care price information available. Similarly, over 30 states have proposed or enacted some type of price transparency legislation, though what is actually required varies greatly across the states. For example, some states, such as Colorado and South Dakota, require hospitals to disclose, upon request, the expected or average price for the treatment requested. In contrast, some states, such as Maine and Minnesota, require that certain health care price information be made publicly available through an Internet website. While many public price transparency initiatives began as a result of legislation, private sector price transparency initiatives, such as insurance company initiatives, were established voluntarily for various reasons. For example, insurance officials that we spoke with said their price transparency initiatives started for reasons such as increased interest from employers to curb costs, to gain a competitive edge over other insurance companies without price transparency initiatives, and to help their members become better health care consumers. Other private price transparency initiatives, such as Health Care Blue Book and PriceDoc, were started to help consumers find and negotiate fair prices for health care services. Though both public and private price transparency initiatives have become more widespread in the last 5 years, some research suggests that even if consumers have access to price information, such as price information made available by these initiatives, they may not use such information in their decision making. For example, insured consumers may be less sensitive to prices, since the financial costs of selecting one provider over another may be borne by the insurer, not the consumer. Despite these concerns, some research indicates that consumers want access to price information before they receive health care services and have tried to use price information to some degree to inform their decision making. Furthermore, research states that incentives may be helpful to further consumers' use of transparent price information. Specifically, financial incentives may include insurers providing lower out-of-pocket costs for their members if they select low-price, high-quality providers. Several health care and legal factors can make it difficult for consumers to obtain price information--in particular, estimates of their complete costs--for health care services before the services are provided. The health care factors include the difficulty of predicting in advance all the services that will be provided for an episode of care and billing services from multiple providers separately. In addition, according to researchers and officials we interviewed, legal factors, such as contractual obligations, may prevent insurers and providers from making available their negotiated rates, which can be used to estimate consumers' complete costs. One factor that may make it difficult for consumers to obtain estimates of their complete costs for a health care service is that it may be difficult for providers to predict which services a patient will need in advance. Specifically, physicians often do not decide what services their patients will need until after examining them. Researchers and officials we spoke with commented that health care services are not standardized across all patients because of each patient's unique circumstances, which influence the specific services a physician would recommend. For example, when we anonymously contacted 20 physicians' offices to obtain information on the price of a diabetes screening, several representatives said the patient needs to be seen by a physician before the physician would know what tests the patient would need. In addition, even after identifying what health care service or services a patient may need, additional aspects associated with the delivery of a service may be difficult to predict in advance, such as the length of time a patient stays in a hospital. This factor can make it challenging for providers to estimate consumers' complete costs in advance. For example, when we anonymously contacted 19 hospitals to obtain information on the price of a full knee replacement surgery, several hospital representatives quoted a range of prices, from about $33,000 to about $101,000. The representatives explained that the price for the procedure could vary based on a variety of factors, such as the time the patient will be in the operating room and the type of anesthetic the patient may receive, and some noted that they would need to know this information if they were to provide a more specific price estimate. Several hospital and physician office representatives we spoke with recommended that insured consumers contact their insurer for complete cost information; however, the inability to predict which health care services will be needed in advance also makes it challenging for insurers to provide complete cost estimates. Officials from an insurer association commented that, if asked by their members for cost estimates, insurance company representatives may require more information--such as the CPT codes for the services a patient will receive--before the insurers can provide a cost estimate. However, in the instances when providers cannot predict in advance the codes for which they will bill, consumers will be unable to provide the respective codes to insurers and obtain complete cost estimates from them. Another factor is that many services included in one episode of care may be provided by multiple providers, such as a hospital and surgeon, who bill for their services separately. This makes obtaining complete cost information challenging because, in these cases, consumers may have to contact multiple providers to obtain estimates of their complete costs. Many providers can only give price estimates in advance for the services that they provide, and are often unaware of the prices for services performed by other providers. For example, when we contacted hospitals anonymously for the price of a full knee replacement, none were able to provide information on the complete cost to consumers for this service. The hospital representatives we contacted who could provide price information were only able to provide us with the hospital's estimated charges or a Medicare deductible amount for the service and could not provide us with the charges associated with the other providers involved in the service, such as a surgeon or anesthesiologist. Charges from these providers are typically billed separately from the hospital's charges, even though some of these services are provided in the hospital. Similarly, when we called physicians' offices to obtain information on the price of a diabetes screening, most representatives could not tell us how much the associated lab fees would cost and some noted that this was because the lab fees are billed separately. Several hospital and physician office representatives we spoke with suggested we contact the other providers, such as a surgeon or lab, separately in order to obtain information on the price of these services. However, officials from a provider association questioned how consumers would even know which providers to contact to get price information if the consumers do not know all of the different providers who are involved in an episode of care in advance. Lastly, consumers may have difficulty obtaining complete cost estimates from providers because providers are often unaware of these costs due to the variety of insured consumers' health benefit structures. For example, according to officials from a provider association, physicians may have difficulty accessing insured consumers' health benefit plan information, and thus may not be able to provide estimates of consumers' out-of- pocket costs under their specific benefit plans. For example, officials stated that for physicians to inform a patient about the price of a health care service in advance they have to know the status of consumers' cost sharing under their specific health benefit plan, such as how much consumers have spent in out-of-pocket costs or towards their deductible at any given time. Without this information, physicians may have difficulty providing accurate out-of-pocket estimates for insured consumers. In addition, different consumers may have out-of-pocket costs that vary within the same benefit plan, which adds to the variety of potential costs a patient could have, and creates complexity for providers in providing complete cost estimates to consumers. Officials from provider associations commented that insurers should be responsible for providing complete cost information to their insured customers because insurers can provide price information specific to insured consumers' situations. However, insurers may also have difficulty estimating consumers' complete costs. Specifically, according to a 2007 report by the Healthcare Financial Management Association, many insurers do not have data systems that are capable of calculating real- time estimates of complete costs for their members prior to receiving a service. As a result, insurers may have difficulty maintaining real-time data on how much their members have paid towards their deductibles, which could affect an estimate of the complete cost. Additionally, according to officials from an insurance company, it is difficult for insurers to estimate complete costs when insured customers receive services from providers that are outside of the insurer's network. These estimates may be difficult to provide because insurers have not negotiated a rate with providers out of the insurer's network, and thus may be unaware of these providers' billed charges before a service is given. Officials from an insurance company explained that this concern is especially a problem for their members who go to an in-network hospital and are seen by a nonparticipating physician within that hospital during their visit. The officials explained that this can occur without the patient's knowledge because patients often do not choose certain providers, such as radiologists or anesthesiologists, and consumers may be faced with significant out-of-pocket costs. Researchers and officials we interviewed identified several legal factors that may prevent providers and insurers from sharing negotiated rates, which can be used to estimate consumers' complete costs. First, some officials stated that some contractual obligations between insurers and providers prohibit the disclosure of negotiated rates with anyone outside of the contracting entities, such as an insurer's members. Specifically, most officials representing insurance companies have reported that some hospitals have included contractual obligations in their agreements with insurers that restrict insurers from disclosing negotiated rates to their members. For example, some insurance company officials we interviewed told us that these contractual obligations prohibited the sharing of specific information on negotiated rates between providers and insurers on their price transparency initiatives' websites. Officials from one insurance company said that they generally accept these contractual obligations, particularly in the case of hospitals that have significant market leverage, because they do not want to exclude these hospitals from their networks. Second, some of the officials and researchers we spoke with reported that providers and insurers may be concerned with sharing their negotiated rates, considered proprietary information, which may be protected by law from unauthorized disclosure. Some officials and researchers we spoke with suggest that without these rates, it could be more difficult for consumers to obtain complete cost estimates. According to officials from an insurer association, proprietary information such as negotiated rates may be prohibited from being shared under the Uniform Trade Secrets Act, which many states have adopted to protect the competitive advantage of the entities involved. These laws are designed to protect against the wrongful disclosure or wrongful appropriation of trade secrets, which may include negotiated rates. For example, if a hospital was aware that another hospital negotiated a higher rate with the same insurance company, then the lower-priced hospital could seek out higher negotiated rates which may eliminate the first hospital's competitive advantage. Conversely, if officials from an insurance company were aware that another insurer paid the same hospital a lower rate for a given service, the higher-paying insurer may try to negotiate lower payment rates with that hospital. Lastly, some researchers and officials noted that antitrust law concerns may discourage providers and insurers from making negotiated rates public. For example, some insurance company officials we spoke with expressed concerns that sharing negotiated rates publicly would give multiple competing providers access to each other's rates, and therefore could lead to collusion in price negotiations between providers and insurers. According to the Federal Trade Commission (FTC) and the Department of Justice (DOJ)--the principal federal agencies enforcing the antitrust laws--antitrust laws aim to protect and promote competition by preventing businesses from acting together in ways that can limit competition. Joint guidance from FTC and DOJ indicates that without appropriate safeguards, exchanges of price information--which insurance company officials told us could include negotiated rates--among competing providers may present the risk that competing providers communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees. Although some officials and researchers noted that antitrust laws may discourage making negotiated rates public, the FTC and DOJ guidance also identifies circumstances in which exchanges of health care price information--that could include negotiated rates--are unlikely to raise significant antitrust concerns. These circumstances require the collecting of price information by a third-party entity and ensuring that any information disseminated is aggregated such that it would not allow recipients to identify the prices charged by an individual provider. Under these circumstances, consumers may not be hindered in their ability to have information that will allow them to make informed decisions about their health care. The price information made available to consumers by the eight selected price transparency initiatives varies, in large part due to differences in the price data available to each initiative. Additionally, we found that few of the selected initiatives are able to provide estimates of consumers' complete costs, primarily due to limitations of the price data that they use and other obstacles. The eight public and private price transparency initiatives that we examined vary in the price information they make available to consumers. (See table 2.) Three public initiatives in California, Florida, and Wisconsin make information available on hospitals' billed charges, which are typically the amounts hospitals bill payers and patients for services before any negotiated or reduced payment discounts are applied. In general, hospitals' billed charges do not reflect the amount most payers and patients ultimately pay for the service. Two private initiatives administered by Aetna and Anthem provide their members with price information based on their contracts with providers, and this information reflects the insurer's negotiated discounts. Similarly, the federal initiative provides price information based on Medicare payment rates. Initiatives in Massachusetts and New Hampshire provide price information, based on payments made to providers, using claims data, and these prices reflect any negotiated discounts or other reductions off the billed charges. Despite differences in the types of price information they provide, the selected initiatives are generally similar in the types of services for which they provided price information, with most providing price information only for a limited set of hospital or surgical services that are common, comparable, or planned in advance, such as a knee replacement or a diagnostic test. Various factors help explain the differences in the types of price information made available by the selected initiatives. In some cases, the initiatives provide certain types of price information because of the price data available to them, generally through state law. For example, the Wisconsin initiative provides price information based on hospitals' billed charges because the state contracted with the Wisconsin Hospital Association (WHA) to collect and disseminate hospital information, including hospitals' billed charges, when the state privatized hospital data collection. WHA saw this as an opportunity to develop a price transparency initiative that reported billed charges for consumers. In both California and Florida, initiative officials said that state laws enabled the state to collect and make hospitals' billed charges public and this gave the states the authority to make this information available to consumers. In Massachusetts, officials said that 2006 state health reform legislation provided the state with the necessary authority to collect claims data for the price transparency initiative. In other cases, the price information the initiatives provide reflects choices made by initiative officials regarding the types of information that they considered would be most helpful to consumers. For example, in developing Hospital Compare, CMS officials chose to provide price information based on Medicare payment rates to hospitals because, according to officials, this information would be more helpful than hospitals' retrospective billed charges for Medicare patients. The officials explained that hospitals' billed charges are too divergent from what Medicare and insurance companies actually pay for the same service, and CMS officials reasoned that Medicare rates could give consumers, particularly those without insurance, a point of comparison from which they may be able to negotiate lower prices with providers. In New Hampshire, officials said they successfully sought legislation to get access to claims data from all payers in the state to establish an All Payer Claims Database (APCD) for their initiative. Based on an earlier experience with posting billed charges and feedback from consumers, New Hampshire officials were convinced that billed charges were not useful for insured consumers. Additionally, some factors that may limit access to certain price data also limit how the price information is presented to consumers. For example, some of the selected initiatives, such as Florida and Anthem, present price information as a range, which avoids providing a specific price that providers may consider proprietary. Anthem officials further noted that the primary reason the initiative provides price information as a range is so that the price information can better reflect for consumers the billing variation and differences in treatment decisions that occur when health care services are delivered to different patients. In Massachusetts, the initiative combines the claims, or prices paid, by commercial insurers for that specific hospital service and reports a provider's median price as well as a range of prices paid for that service. Officials explained that they present aggregated price information across all health plans to avoid disclosing prices that may raise proprietary concerns among providers and insurers. In another approach, the two initiatives by New Hampshire and Aetna bundle multiple services typically performed at the same time into the price presented, such as bundling all associated costs for a hip replacement surgery. By doing so, New Hampshire officials said that they are able to mask the specific rates paid for individual items, and avoid proprietary concerns, while providing an easily understandable estimate for the total health care service. Lastly, officials from the Aetna and Anthem initiatives cited provider resistance as limiting the extent to which they can make price information available to their members for all providers in the insurers' networks--with provider-imposed contractual obligations requiring the Aetna and Anthem initiatives to omit price information for certain providers in the initiatives' websites' search results. In addition to providing the price of a service, most selected initiatives also provide a wide range of nonprice information, such as information on quality of care measures or patient volume. Five of the eight selected initiatives provide quality information for consumers to consider along with price when making decisions about a provider. (See table 3.) In addition to providing quality and volume measures, initiatives also shared information, such as resources for understanding and using price information, including explanations of the source and limitations of the price data, glossaries, and medical encyclopedias. Initiatives also provided a range of supplementary financial information to give context to the price information provided. For example, Massachusetts' initiative presents symbols ($, $$, $$$) to indicate how the provider's price compares to the state median for that service in an effort to provide what officials described as more easily understood price information for consumers who are familiar with graphical ratings systems. Additionally, Wisconsin's initiative provides pie charts representing the percentage different payer types--such as private insurers, Medicare, and Medicaid--paid to a specific hospital in relation to the total billed charges, which indicates at an aggregate level the extent of discounts given by payer category. Some officials expressed reservations about how consumers may use price and quality information together. Insurance company officials we spoke with see linking price to quality information as a means for consumers to identify high-value providers and for the company to create more cost-efficient provider networks. In Hospital Compare, however, quality data and price data are not linked. CMS officials said that while quality data are featured prominently on Hospital Compare, price information is featured less prominently. CMS officials explained that promoting price information to consumers, in the absence of greater consumer education about how to understand price information in relation to quality, could lead consumers to select high-priced providers due to an assumption that price is indicative of quality. Due to similar concerns that consumers may assume that a higher price is a sign of higher quality, Aetna's initiative provides information to educate consumers that high quality and low price are not mutually exclusive. Lastly, in addition to the variety of price and other information made available by the selected initiatives, the initiatives also vary in terms of who has access to the initiatives' websites and in terms of their expected audiences. For example, the price information provided by the federal initiative we selected is available to all consumers through a publicly available website. CMS officials said the expected audience of this initiative includes insured and uninsured consumers, researchers, Medicare beneficiaries, and providers. Like the federal initiative, all of the selected state initiatives' websites are publicly available, although they include price information only for their particular state. In contrast, the price information provided by the two selected insurance company initiatives' websites are accessible to their members, but not to the general public. Few of the selected initiatives provide estimates of consumers' complete costs, which is price information that incorporates any negotiated discounts; is inclusive of all costs associated with a particular health care service, such as hospital, physician, and lab fees; and identifies consumers' out-of-pocket costs. (See table 4.) Specifically, of our eight selected initiatives, only the Aetna and New Hampshire initiatives provide estimates of a consumer's complete cost. The two initiatives are able to provide this information in part because they have access to and use price data--negotiated rates and claims data, respectively--that allow them to provide consumers with a price for the service by each provider that is inclusive of any negotiated discounts or reduced payments made to the billed charge. Specifically, Aetna bases its price data on its contractual rates with providers, which include negotiated discounts. New Hampshire provides price information based on its records of closed claims of particular providers for particular services under a consumer's specific health insurance plan. Both initiatives use claims data to identify all of the hospital, physician, and lab fees associated with the services for which they provide price information. For calculating estimated out-of- pocket costs, Aetna links member data to its price transparency website, which automatically updates and calculates the member's estimated out- of-pocket costs in real-time based on the provider and service reported, and the member's partially exhausted deductibles. In contrast, to calculate out-of-pocket costs, insured users of New Hampshire's initiative's website enter their insurance plan, their deductible amount, and their percentage rate of co-insurance. New Hampshire's Health Cost website then uses that information to calculate an out-of-pocket cost, along with a total cost for the service by provider. Both initiatives demonstrate that while providing complete cost information presents challenges, it can be done--either as undertaken by Aetna for its members or as carried out by New Hampshire, which makes complete cost information available through publicly accessible means. As table 4 shows, six of the eight initiatives that we reviewed do not provide estimates of consumers' complete costs. The reasons for this vary by initiative, but are primarily due to the limitations of the price data that each initiative uses. For example, initiatives in California, Florida, and Wisconsin provide price information based on billed charges from hospitals, which do not reflect discounts negotiated by payers and providers, all associated costs (such as physician fees), and out-of-pocket costs. An official representing Wisconsin's initiative said that WHA commonly receives requests from consumers to include physician fees in the price estimate, but the initiative does not have access to these price data, as they are part of a separate billing process and the hospitals do not have these data to submit. California officials said that collecting claims data from insurers would require additional legal authority, raise proprietary concerns, and pose resource challenges. Florida officials acknowledged that providing a billed charge is not as meaningful for consumers as other types of price data, such as claims data. However, while Florida officials have the authority to collect claims data, they said that at this time they are limited from pursuing such information due to the expected financial costs of collecting and storing the data and the challenges of overcoming the proprietary concerns of providers and insurers. Florida officials characterized their initiative's inability to report out-of-pocket costs as a major limitation. The federal initiative provides price information that reflects what Medicare pays to hospitals for a given service but does not reflect what consumers, including Medicare beneficiaries, would pay out-of-pocket. CMS officials said that providing out-of-pocket costs was too complicated to calculate in advance due to consumers' medical variation and technological limitations. In contrast, other initiatives have access to data that may enable the initiatives to provide more complete cost estimates to consumers, but certain factors limit the extent to which this type of information is made available. For example, the Massachusetts initiative has access to claims data that could be used to provide more complete cost estimates to consumers, such as negotiated discounts for commercial insurers. However, it presents price information that aggregates the prices paid by commercial insurers for particular services, in part due to insurers' and providers' concerns about the initiative disclosing price information by insurer. As a result, consumers are unable to see an estimate for a particular provider that is specific to their insurance company or to calculate their out-of pocket costs based on their specific plan. The officials noted that providers' and insurers' resistance to publicly reporting payments made by insurers may also be a challenge for states seeking access to more meaningful price information for their initiatives, such as claims data. Lastly, Anthem's initiative does provide a price inclusive of all associated fees and negotiated discounts, but currently does not use the specific details of consumers' insurance plan benefits, such as their deductible, copayment, or coinsurance, to estimate consumers' out-of- pocket costs. Transparent health care price information--especially estimates of consumers' complete costs--can be difficult for consumers to obtain prior to receiving care. For example, when we contacted hospitals and physicians to obtain price information for two common services, we generally received only incomplete estimates, which are insufficient for helping consumers to anticipate all of the costs associated with these services or to make more informed decisions about their health care. Our review identified various health care and legal factors that can make it difficult for consumers to obtain meaningful health care price information, such as estimates of consumers' complete costs, in advance of receiving services. This lack of health care price transparency presents a serious challenge for consumers who are increasingly being asked to pay a greater share of their health care costs. Despite the complexities of doing so, two of the eight price transparency initiatives we examined were able to make complete cost estimates available to consumers. Making meaningful health care price information available to consumers is important, and the fact that two initiatives have been able to do it suggests that this is an attainable goal. To promote health care price transparency, HHS is currently supporting various efforts to make price information available to consumers--including the CMS initiative in our review--and the agency is expected to do more in this area in the future. We note in our review, for example, that HHS provides price information on insurance plans through its healthcare.gov website. Similarly, CMS's web-based Medicare Part D Plan Finder also provides information on prescription drug prices and CMS's Health Care Consumer Initiatives provide information on the price Medicare pays for common health care services at the county and state levels. In the near future, HHS's price transparency efforts are expected to expand. For example, PPACA requires HHS to provide oversight and guidance for the Exchanges that are expected to provide certain price information for consumers through participating insurers. PPACA also directs HHS to develop a pilot program which may include bundled payments, providing another possible opportunity for price transparency. In total, HHS has several opportunities to promote greater health care price transparency for consumers. As HHS implements its current and forthcoming efforts to make transparent price information available to consumers, we recommend that HHS take the following two actions: Determine the feasibility of making estimates of complete costs of health care services available to consumers through any of these efforts. Determine, as appropriate, the next steps for making estimates of complete costs of health care services available to consumers. HHS reviewed a draft of this report and 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 Health and Human Services 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 II. To obtain illustrative examples of factors that influence the availability of health care price information for consumers, we anonymously contacted hospitals and primary care physicians with zip codes located in the Denver, Colorado, health care market. We requested the price of a full knee replacement from hospitals and the price of a diabetes screening from primary care physicians. We requested these prices for patients without insurance and for patients with Medicare (without supplemental health insurance). Specifically, we called 19 hospitals and 20 primary care physicians between February 28 and March 10, 2011, and contacted each provider up to three times in an attempt to get a response. We determined that we obtained a response from representatives if they answered the phone or they transferred us to a price quote voice mail message that requested specific information from us about the requested service so representatives could call back with cost estimates. In cases where we were asked to provide more information, such as in the case of receiving a price quote voice mail, we did not provide such information in order to help maintain our anonymity. We considered hospitals and physicians nonresponsive if no one answered the phone, or if we received a voice mail message that did not indicate what we needed to provide in order to receive price information, in all three attempts. We received a response from representatives at 17 of the 19 hospitals we contacted. Of the 17 hospital representatives that responded, 10 did not provide any type of price information. None of the hospital representatives could provide a complete cost estimate for a full knee replacement, meaning the price given was not reflective of any negotiated discounts, was not inclusive of all associated costs, and did not identify consumers' out-of-pocket costs. Almost all of the hospital representatives that responded (14 of 17) required more information from us to provide a complete cost estimate, such as current procedural terminology (CPT) codes, the length of time in the operating room, the model of knee used, or what kind of anesthetic would be provided, which we did not provide. Of the 7 hospital representatives that were able to provide some price information, 5 provided billed charges in either a range, such as between $32,974.73 and $100,676.50 or an average charge, such as $82,390, which is typically reflective of what an uninsured consumer would pay. (See table 5 for more information.) We received a response from 18 of the 20 representatives we contacted. Of the physician representatives that responded, most could provide some type of price information (14 of 18), but only 4 out of 18 representatives who responded could provide a complete cost estimate for a diabetes screening. Most representatives who responded (13 of 18) required more information from us to provide a complete cost estimate, such as a diagnosis from a physician and the amount the laboratory would charge, which we did not provide. Additionally, almost half (8 of 18) of representatives who responded said the patient needs to be seen by a physician before determining a complete cost estimate. All 14 physician representatives who were able to provide some type of price information provided price information based on billed charges. (See table 6 for more information.) In addition to the individual named above, Will Simerl, Assistant Director; Rebecca Hendrickson; Giselle Hicks; Krister Friday; Martha Kelly; Julian Klazkin; Monica Perez-Nelson; Rebecca Rust; and Amy Shefrin made key contributions to this report.
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In recent years, consumers have become responsible for a growing proportion of the costs of their health care. Health care price information that is transparent--available before consumers receive care--may help consumers anticipate these costs. Research identifies meaningful types of health care price information, such as estimates of what the complete cost will be to the consumer for a service. GAO defines an estimate of a consumer's complete health care cost as price information on a service that identifies a consumer's out-of-pocket cost, including any negotiated discounts, and all costs associated with a service or services. GAO examined (1) how various factors affect the availability of health care price information for consumers and (2) the information selected public and private health care price transparency initiatives make available to consumers. To do this work, GAO reviewed price transparency literature; interviewed experts; and examined a total of eight selected federal, state, and private insurance company health care price transparency initiatives. In addition, GAO anonymously contacted providers and requested the price of selected services to gain a consumer's perspective. Several health care and legal factors may make it difficult for consumers to obtain price information for the health care services they receive, particularly estimates of what their complete costs will be. The health care factors include the difficulty of predicting health care services in advance, billing from multiple providers, and the variety of insurance benefit structures. For example, when GAO contacted physicians' offices to obtain information on the price of a diabetes screening, several representatives said the patient needs to be seen by a physician before the physician could determine which screening tests the patient would need. According to provider association officials, consumers may have difficulty obtaining complete cost estimates from providers because providers have to know the status of insured consumers' cost sharing under health benefit plans, such as how much consumers have spent towards their deductible at any given time. In addition to the health care factors, researchers and officials identified several legal factors that may prevent the disclosure of negotiated rates between insurers and providers, which may be used to estimate consumers' complete costs. For example, several insurance company officials GAO interviewed said that contractual obligations with providers may prohibit the sharing of negotiated rates with the insurer's members on their price transparency initiatives' websites. Similarly, some officials and researchers told GAO that providers and insurers may be concerned with sharing negotiated rates due to the proprietary nature of the information and because of antitrust law concerns. The eight public and private price transparency initiatives GAO examined, selected in part because they provide price information on a specific health care service by provider, vary in the price information they make available to consumers. These initiatives include one administered by HHS, which is also expected to expand its price transparency efforts in the future. The price information made available by the selected initiatives ranges from hospitals' billed charges, which are the amounts hospitals bill for services before any discounts are applied, to prices based on insurance companies' contractually negotiated rates with providers, to prices based on claims data that report payments made to a provider for that service. The price information varies, in large part, due to limits reported by the initiatives in their access or authority to collect certain price data. In addition to price information, most of the selected initiatives also provide a variety of nonprice information, such as quality data on providers, for consumers to consider along with price when making decisions about a provider. Lastly, GAO found that two of the selected initiatives--one publicly available with information only for a particular state and one available to members of a health insurance plan--are able to provide an estimate of a consumer's complete cost. The two initiatives are able to provide this information in part because of the type of data to which they have access--claims data and negotiated rates, respectively. For the remaining initiatives, they either do not use more meaningful price data or are constrained by other factors, including concerns about disclosing what providers may consider proprietary information. As HHS continues and expands its price transparency efforts, it has opportunities to promote more complete cost estimates for consumers. GAO recommends that the Department of Health and Human Services (HHS) determine the feasibility of making estimates of complete costs of health care services available to consumers, and, as appropriate, identify next steps. HHS reviewed a draft of this report and provided technical comments, which GAO incorporated as appropriate.
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Job Corps was established in 1964 as an employment and training program aimed at providing severely disadvantaged youth with a comprehensive array of services, primarily in a residential setting. Administered by the Department of Labor, Job Corps services are provided at 110 centers located throughout the United States. All but four of the states have at least one center operating within their boundaries. The program receives annual funding of approximately $1 billion to serve about 100,000 youths. The program enrolls youths aged 16 to 24 who are severely disadvantaged, in need of additional education or training, and living in a disruptive environment. Our previous report contained an analysis of characteristics of those terminating from Job Corps in program year 1993, which showed that over two-thirds of the program's participants had multiple barriers to employment. Enrollment is voluntary, and training programs are open entry and self-paced, allowing participants to enroll throughout the year and to progress at their own pace. On average, participants spend about 8 months in the program but can stay up to 2 years. Each of the centers provides participants with a range of services including basic education, vocational skills training, social skills instruction, counseling, health care (including dental), room and board, and recreational activities. Skills training is offered in a variety of vocational areas, such as business occupations, automotive repair, construction trades, and health occupations. These programs are taught by center staff, private contractors, or instructors provided under contracts with national labor and business organizations. One feature that makes Job Corps different from other youth training programs is its residential component. About 90 percent of the approximately 63,000 youths enrolled each year live at the centers, allowing services to be provided 24 hours a day, 7 days a week. The premise for boarding participants is that most come from a disruptive environment and therefore can benefit from receiving education and training in a different setting where a variety of support services is available around the clock. Job Corps typically employs residential staff to oversee dormitory living and security staff for the safety and well-being of its participants. Furthermore, Job Corps participants must have permission to leave the Job Corps center grounds, and participants "earn" home leave, which must be approved before being taken and can be denied for a number of reasons such as failure to follow a center's rules of conduct. The Job Corps program recently implemented a "Zero Tolerance" policy for violence and drugs in order to ensure a safe and drug-free environment. This policy includes a "one-strike-and-you're-out" provision for the most serious violent or criminal offenses as well as for drug violations. Job Corps enrollees receive periodic allowance and incentive payments. For example, initially a participant receives a base allowance of about $50 per month, which increases to about $80 per month after 6 months. In addition, participants are eligible to receive incentive bonuses of between $25 and $80 each if they earn an exceptional rating on their performance evaluations, held every 60 days. Participants can also earn bonuses of $250 each for graduating from high school or receiving a general equivalency diploma, completing vocational training, and getting a job. Participants receive an additional $100 if the job is related to the vocational training they received while in Job Corps. Participants obtain jobs through a variety of mechanisms, including finding the job on their own, being referred by their vocational instructor, and being placed by the Job Corps center or a contracted placement agency. Participation in Job Corps can lead to placement in a job or enrollment in further training or education. It can also lead to educational achievements such as attaining a high school diploma and reading or math skill gains. However, the primary outcome for Job Corps participants is employment; about 60 percent of those leaving the program get jobs. Recently, the Department of Labor placed emphasis on participants receiving a job related to the occupational training they received by including training-related employment among its program performance measures. State and local entities have established a wide array of youth training programs using funds from various sources, including federal, state, and local governments and private contributors. While many of these programs share some individual characteristics with Job Corps, we found that the extent to which the four characteristics were present in state or locally established youth training programs was limited. However, we did identify two programs that had all four characteristics. Most state officials we surveyed told us their states had programs that provided disadvantaged youth with basic education. For example, the Learning Center, operated by a Boston community-based antipoverty organization, offers a specialized year-round alternative education program for youth that includes alternative high school, general equivalency diploma, and school-to-work programs. The program is not residential nor does it provide vocational training. Furthermore, some programs identified by state officials as offering basic education also provided vocational training. The vocational training, however, consisted of preemployment preparation or introduction to the working world but not training in a specific occupation. For example, the Youth Opportunities Unlimited program in Arkansas is a high school intervention program, administered by the state's Department of Higher Education, designed to encourage economically disadvantaged youth to remain in school. In addition to basic education, program participants receive classroom training in preemployment and work maturity skills combined with the practical application of skills provided through on-campus employment. No job-specific skills training, however, is provided. Residential programs operated by the states generally targeted specific populations--such as youths who have been involved with the court system, disabled individuals, or substance abusers. For example, one state-funded program, the Gulf Coast Trades Center in Texas, integrates in a residential setting vocational training, basic education, and support services for delinquent youth. The program is designed to prepare young people for employment in one of nine trades including auto mechanics, construction trades, and culinary arts. In addition, the program provides a range of other services including counseling, health care, transitional living assistance, and job search skills development. We found that state and local youth corps programs most closely resembled Job Corps. Both youth corps programs and Job Corps operate in a large number of states, typically serve disadvantaged youth, and provide instruction to enhance basic education skills. On the other hand, few youth corps programs are residential. We found two that contained all four characteristics that describe Job Corps. Youth corps programs originated in the 1930s when President Roosevelt founded the Civilian Conservation Corps to provide alternative employment for young men during the Great Depression. The program was disbanded in 1942 but was revived with the enactment of legislation in 1970 that created the Youth Conservation Corps--a summer work program. In 1977, the enactment of the Young Adult Conservation Corps provided youths with year-round conservation-related employment and educational opportunities. Both programs were virtually eliminated through dramatic federal budget reductions in 1981. By that time, however, many states had begun to support these programs directly. According to the National Association of Service and Conservation Corps, 81 year-round state and local youth corps programs operated in 32 states and the District of Columbia in 1994, providing services to about 9,300 full-time participants. (See app. I for a listing of the 81 programs.) Funding for these programs was about $166 million in 1994. Approximately one-fourth of this funding was from federal sources, such as the Job Training Partnership Act, the National and Community Service Act, and the Community Development Block Grant. The remaining funds came from state and local governments and private contributions. Over half of the youth corps programs are operated by independent, nonprofit organizations; the remainder are part of state and local governments. We found two youth corps programs that most closely resembled the Job Corps program from among the youth programs we identified; that is, they operated residential sites; served disadvantaged youth; offered basic education; and, to an extent, provided vocational training. We visited both programs--California Conservation Corps, which had multiple locations in California, and Seaborne Conservation Corps in Galveston, Texas--to obtain detailed information on how these programs operated compared with Job Corps. The California Conservation Corps was established in 1976 to assist youth in becoming more employable by providing educational opportunities and meaningful work aimed at protecting and enhancing California's natural and human resources. The program's motto "hard work, low pay, miserable conditions" provides prospective enrollees with a preview of corps life and reflects the nature of the program. For example, each year about 85 youths participate in the Backcountry Trails Project and spend an entire 6-month period in remote areas of California's parks and forests doing trail work. During this time, participants live in spartan tent camps supplied by mule train and helicopter, hike as much as 15 miles each day while clearing trails, and earn minimum wages for their efforts. In 1994, the California Conservation Corps had an annual budget of about $50 million and served about 1,700 youths at its 44 locations statewide, 13 of which were residential. Participants average 7.4 months in the program, and almost two-thirds of participants live in the residential component. As shown in figure 1, the program receives its operating funds from a variety of sources--the largest source being the state's general fund, which contributes about 56 percent of the program's operating budget. About a third of the operating budget comes from revenue generated by program activities, such as reimbursements for public service conservation work and installation of energy-efficient lighting in public buildings. In addition, the California Conservation Corps requires youths participating in the residential component to pay the program for a portion of their room and board. This accounts for approximately 10 percent of the program's operating funds. Several differences exist between the California Conservation Corps and Job Corps. For example, Job Corps seeks to enroll the most severely disadvantaged youths who have multiple barriers to employment, while the California Conservation Corps does not specifically target disadvantaged youth--any California resident not on probation or parole is eligible. However, over half of the participants are high school dropouts. Job Corps participants receive an allowance of $50 to $80 per month and receive free room and board and medical and dental services, whereas California Conservation Corps participants earn a weekly wage but must pay $225 per month for their room and board and another $50 per month if they elect the optional health insurance. Whereas Job Corps provides training in specific vocational areas and emphasizes job placement in related occupations, the California Conservation Corps seeks to improve the employability of its participants primarily by providing work experience through environmental and public conservation projects. Some of the skills involved in these projects may be transferable to related fields in the labor market when the participants leave the program, but employment in occupations related to the training received is not a primary focus of the California Conservation Corps. California Conservation Corps participants have been involved in such projects as rebuilding trails at Yosemite National Park, fighting wildfires in Southern California, installing solar panels at a state training facility in Galt, landscaping San Diego's Wild Animal Park, and cleaning up an oil spill near Oxnard. According to program officials, many former participants become employed as rangers with the National Park Service and National Forest Service. Others who were enrolled in the energy conservation program have found jobs in the private sector performing similar work. We visited two of the residential sites in California--Placer Service District in Auburn and Delta Service District in Stockton. The Placer site is located about 1 hour northeast of Sacramento, in a rural setting. The site is self-contained, having been built in 1952 as a conservation camp for convicts. The facilities consist of two dormitories (housing about 100 youths), an administration building, auto shop, wood shop, energy lab, cafeteria, and recreation hall. Participants are not restricted to facility grounds and can maintain their own vehicles. About half of all Placer participants are in the energy conservation program, while most of the other members participate in resource conservation activities. A few opportunities also exist for specialist training as cook, auto mechanic, and office clerk. The Delta site is on the grounds of the Stockton Development Center, a former state mental hospital. The site is located in an urban area and has open access. The main building consists of an administrative area, a large classroom, and several smaller classrooms. The building contains adjacent wings for dormitories housing about 75 participants. Except for administrative and operations staff, no other professional or medical staff are on site. Most of the training opportunities at Delta are in the environmental conservation area, such as fire fighting, flood control, and erosion control. The Seaborne Conservation Corps is a relatively new program, having been established by Texas A&M University at Galveston in September 1994 through a partnership among the university, the Department of the Navy, and the Texas National Guard, with support from the Corporation for National and Community Service's AmeriCorps. About two-thirds of its $2 million budget is funded by the Department of Defense (Civil-Military Cooperation) and the remainder is funded by AmeriCorps. Because of funding uncertainties from both the Department of Defense and AmeriCorps, program officials hope to turn to the state of Texas for funding beyond its current class, which is scheduled to graduate in May 1996. Seaborne is a residential training program targeted to high school dropouts. Its 7-month training program provides basic education, life skills instruction, and vocational skills training. However, differences exist between Seaborne and Job Corps. For example, Seaborne's training program has fixed start and end dates, whereas Job Corps uses an open-entry/open-exit format. In addition, Seaborne participants train in a military-style environment, including undergoing a 4-week boot camp, observing military standards and discipline, and typically training and working 16 hours a day, 6 days a week. Participants are required to perform 900 hours of community service, which program officials believe promotes a strong work ethic while instilling a sense of community pride. All participants live aboard the T/S Texas Clipper, the Texas A&M University training ship supplied by the Maritime Administration for training students in the Texas State Maritime Training Program. While no income requirement exists, participants must be high school dropouts. Furthermore, the program will not accept delinquent youths or youths who test positive for drugs. The program requires participants to pass a military-type physical examination and prefers to enroll those who can read at or above the grade 7 level, although exceptions may be made. All interested youths are also interviewed by program staff in an attempt to assess their motivation. Seaborne maintains a drug-free policy similar to Job Corps' Zero Tolerance policy. Seaborne tests each participant for drugs at enrollment and then randomly tests a sample of participants (10 to 12 percent) each month. In addition, Seaborne tests any participant for cause or suspicion and may command a 100-percent drug test at any time. For example, all participants in the current class have been tested for drugs following each home leave. If a participant tests positive at any time, he or she is dismissed immediately from the program. Seaborne's vocational training component is tied directly to the local economy by focusing on the maritime industry. Participants receive maritime training on board the Clipper and perform an internship at the University's Center for Marine Training and Safety. According to the program's Director, the maritime industry has a critical need for entry-level workers. He stated that he could easily find jobs for 300 youths every year. However, not all participants want to work in the maritime industry. In fact, of the 76 graduates from Seaborne's first two classes, only 21 (28 percent) became employed in the maritime industry. As shown in figure 2, about 42 percent of Seaborne's first two classes either dropped out or were dismissed before completing the program. The attrition rate has been reduced with each class--from 48 percent in the first class to about 15 percent in the third (current) class. The program Director attributed the 48-percent dropout rate in the first class to the staff's not fully explaining to prospective participants the program's difficult lifestyle, especially the military structure and discipline, the 16-hour days, and the rigorous physical requirements. A distinguishing feature of the Seaborne program is the interrelationship of a number of organizations. Seaborne is operated by a local university specializing in ocean sciences. The university provides the ship that participants live and train on, and all program staff are university employees. Program staff have developed links with local maritime companies, who have indicated they are willing to hire all Seaborne graduates interested in maritime careers. The program has also cultivated close relationships with area school districts, which are a major source of prospective recruits. In addition, a private foundation and local bank have cooperated in developing a guaranteed loan program for Seaborne graduates. This low-interest loan program not only provides participants with money to help them transition to the workplace but also gives them a credit history. Seaborne also works closely with the Texas National Guard, using its facilities and medical staff. Program staff use local Navy, Marine, and National Guard recruiters for outreach and placement. Youths who interview with military recruiters but are not eligible for the military are often referred to Seaborne. In comments on a draft of this report, the Department of Labor generally agreed with the information contained in the report. We have incorporated Labor's comments where appropriate. Labor pointed out that a fifth feature of Job Corps that should not be overlooked is its emphasis on job placement following program separation. We recognize Job Corps' overall goal of placement in a job or additional education and training and have so noted this in our report. Labor also stated that, unlike most other programs, Job Corps focuses on severely disadvantaged youth. Labor believed that this distinction could be made clearer. We made minor adjustments to our draft to clarify this distinction. Labor's comments are printed in appendix II. We also provided pertinent sections from our draft report to officials from the California Conservation Corps and Seaborne Conservation Corps for their review. They agreed with our characterization of their programs and provided minor technical clarifications. We incorporated their comments where appropriate. We are sending copies of this report to the Secretary of Labor; the Director, Office of Management and Budget; relevant congressional committees; and other interested parties. If you or your staff have any questions concerning this report, please call me at (202) 512-7014 or Sigurd Nilsen at (202) 512-7003. Major contributors to this report include Thomas Medvetz, Wayne Sylvia, and Marquita Sylvia.
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Pursuant to a congressional request, GAO identified state and local youth training programs that incorporate four basic characteristics of the Job Corps Program: (1) serving a severely disadvantaged population; (2) providing basic education instruction; (3) focusing on vocational training services; and (4) providing those services in a residential setting. GAO found that: (1) while many state and local youth training programs feature, to some extent, some of the Job Corps' basic characteristics, most do not feature all four characteristics; (2) most youth training programs provide disadvantaged youth with basic education; (3) states' residential youth programs generally target specific populations such as youths involved in the court system, disabled youth, or substance abusers; (4) although state and local youth corps programs most closely resemble the Job Corps, few are residential; and (5) the California Conservation Corps and Seaborne Conservation Corps in Galveston, Texas, feature all four Job Corps characteristics, but differ from Job Corps in program operations.
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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 Bachus, 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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The Authority has designed an integrated transportation network for Los Angeles County called the Metro System. To develop part of that system, it has signed three grant agreements with FTA to help fund the final design and construction phases of a heavy rail system called the Red Line. As shown in figure 1, the Red Line links with other parts of the Metro System--the Blue and Green lines, which are light rail systems. The Green Line and part of the Blue Line are operational; both have relied solely on local funds to pay the construction costs. The Authority will use state and local funds for the Pasadena Blue Line, which is under construction. In contrast, the Red Line project is being designed and constructed using federal, state, and local funds. As of February 1996, about $3.3 billion had been appropriated for the project: $1.8 billion from the federal government; $393 million from the state government; and $1.1 billion from local governments. KENNETH HAHN/103RD ST. Map not to scale. Effective December, 1995. (Figure notes on next page) The Authority is responsible for the design, construction, and operation of the Red Line project. Day-to-day design activities are managed by an engineering management consultant, while construction activities are managed by several construction management consultants, all under contract to the Authority. FTA approves and oversees expenditures of federal funds for the project and has hired a contractor, Hill International, Inc., to help ensure that the Authority maintains a reasonable process for successfully designing and constructing the project and to monitor the Authority's development and implementation of the project. As of February 1996, the Authority estimated the project's total cost at $5.9 billion, an 8 percent ($427 million) increase over the $5.5 billion estimated in the grant agreements. As shown in table 1, this increase was the result of construction problems, new construction requirements, and enhancements of the project. For example, on segment one, unanticipated groundwater and soil contamination resulted in costs for cleanup as well as for purchasing property on the right-of-way for a new station alignment that avoided the contaminated area. In addition, on segment two, the Authority's Board of Directors approved $65 million to add a new station entrance and make some modifications to stations for commercial development. Furthermore, during the construction of segment two, a small part of Hollywood Boulevard collapsed into the subway tunnel being dug under the roadway, creating a 70-by-70-foot-wide sinkhole. As a result of this and prior problems, the Authority fired the contractor. Contract costs resulting from the firing and from the rebidding of the remaining work will add about $67 million to the project's costs. The Authority believes its cost containment program has helped to keep cost increases to a minimum. The project's cost could increase beyond the $5.9 billion estimate. For example, on segment three, the design of the Mid-City extension was suspended following the discovery of high concentrations of hydrogen sulfide gas on the planned tunnel alignment. The Authority is considering two alternatives: (1) constructing shallow underground stations and a tunnel, estimated to cost an additional $190 million, or (2) constructing a subway with aboveground stations, estimated to cost an additional $130 million. A third option--constructing a deep tunnel with a different alignment--is being studied because of public opposition to the proposed aboveground stations and the estimated costs of the first two alternatives. Authority officials estimate that it could take up to 8 years to complete the Mid-City extension after the Authority's board chooses an alternative. The Authority has made management decisions that may increase costs in the short term but that could provide better quality design work and forestall costly water damage to the tunnel. For instance, the final design of the East Side extension is behind schedule because the Authority is requiring the design contractor to, among other things, implement new quality control and cost containment procedures and perform additional geotechnical studies of fault areas before proceeding. In addition, the Authority has implemented some mitigation measures for the North Hollywood extension that are delaying construction, including performing additional grouting to stabilize the soil and prevent water from flowing into the tunnel. Pending lawsuits could also increase costs. For example, tunneling under Runyon Canyon Park is scheduled to begin at the end of May 1996. However, a lawsuit filed by two environmental groups seeks to prevent digging and tunneling below the canyon until federal, state, and local agencies develop a supplement to the 1989 environmental impact statement. If the tunneling is delayed, the project's schedule would be extended, thereby increasing costs. Other lawsuits could also increase costs because they include financial claims against the Authority. The lawsuits are by retail establishment owners affected by settlement on Hollywood Boulevard and the construction contractor fired by the Authority for inadequate construction techniques. Depending on the outcome of the lawsuits and the ability of the Authority's existing insurance to cover any awards against the Authority, the risk remains that the project's cost will increase. The Authority estimates that it has secured sufficient federal, state, and local funding to finance $5.9 billion, its current estimate of the project's total cost. However, about $380 million in financing commitments may not be realized. Furthermore, as noted earlier, the cost could increase beyond the current estimate. Therefore, to cover current and future funding shortfalls, the Authority may have to make difficult decisions, such as reducing the funding or scope of other rail capital projects; deferring or cancelling planned transit projects; or extending the schedule for completing the Red Line, which could further increase the project's cost. The Authority plans to fund $3.1 billion of the project's $5.9 billion total cost with federal funds and the remainder from state and local funding sources. Most of the federal funds--$2.8 billion--are from FTA's new starts discretionary capital program. An additional $300 million has been provided from other federal programs, including the Surface Transportation and Congestion Mitigation and Air Quality programs--highway programs that provide states with the flexibility to use these funds for transit projects. California has committed about $539 million of the project's funding. The majority of these state funds, about $500 million, are being provided from state gas tax revenues, which are allocated to both highway and transit projects. The remainder of the state's share of the cost of the project will come from revenues generated from general obligation bonds for rail capital projects. Local funding for the project--about $2.3 billion--comes from three sources: Los Angeles County, the city of Los Angeles, and assessments levied on properties adjacent to the planned stations. Los Angeles County dedicates revenues from a 1-cent sales tax to the Authority for existing transit systems and new transit projects in the Los Angeles area; the Authority has allocated about $1.6 billion of these revenues to the Red Line. Some funds from the county's dedicated sales tax are returned to the surrounding cities. The city of Los Angeles uses a portion of these funds to finance the 7 percent of the project's costs that it has committed. The Authority estimates that the remainder of the local funding for the project will be derived from assessments levied on the retail properties adjacent to planned Red Line stations on all three segments because the Authority has or will designate the areas to be taxed as "benefit assessment districts," since these areas may derive benefits from the project. About $380 million committed by federal, state, and local governments toward the current cost estimate of $5.9 billion may not be realized. On the federal level, there is currently a $94 million shortfall. Under the grant agreements for the Red Line, the federal government committed, subject to annual appropriations, $2.8 billion for the expected life of the project. The agreement breaks this total down into yearly amounts that are also contingent upon congressional action to appropriate funds. In fiscal years 1995 and 1996, the Congress did not provide the annual commitments identified in the grant agreements, resulting in the funding shortfall. While the grant agreements allow the federal government to provide additional funds at a later date to cover any annual shortfalls, and the Authority's long-range plan assumes that the shortfalls will be made up, federal budget constraints could make it difficult to make up existing or additional shortfalls in the future. Authority officials indicated that they could absorb an additional small shortfall in fiscal year 1997 but may not be able to complete the Red Line as scheduled if there are future shortfalls in the federal funding. In 1995, the state legislature diverted $50 million in state sales tax revenues that had been committed to the Authority for its bus operations.Since the legislature specified that the shortfall could not be allowed to affect the bus program, the Authority provided to bus operations $50 million in county sales tax revenues that had been slated for segment three. Authority officials told us that they must offset this loss through operating efficiencies over the next 4 years and may delay segment three by 1 year. Some of the Authority's local revenue commitments may also not be realized. The Authority is currently working with the city to reach agreement on its commitment to contribute $200 million for segment three. The Authority's long-range plan indicates that if the city's contribution to the project does not materialize, funds slated for current and planned rail construction projects, such as the Pasadena Blue Line and further extensions to the Red Line, would be needed to make up the shortfall. Diverting these funds could delay the affected projects by up to 3 years. Furthermore, the Authority's long-range plan also states that $36 million of the expected $75 million in estimated revenues from assessments levied on retail properties adjacent to the planned stations for segments two and three may not be realized because retail property owners oppose the assessment. Apart from the revenues from the county's dedicated sales tax, the Authority's funding sources for cost increases beyond the $5.9 billion estimate are somewhat limited. Federal funds will likely not be forthcoming to finance further cost increases for the Red Line project. The grant agreements essentially limit the federal government's exposure to increased costs for the project by capping the federal share from the new starts discretionary grant program at $2.8 billion. However, an extraordinary cost provision in the agreements allows the Authority to seek additional federal funds under certain circumstances, such as higher-than-estimated inflation. In 1995, the Authority requested an additional $30 million in federal funds under this provision for segment one. While FTA has not formally responded to the Authority's request, FTA officials told us that because of the amount of competition for new starts discretionary grant funds, FTA is unlikely to grant this or future requests for funds above the level in the grant agreements. In fact, FTA has approved only one of several requests for extraordinary costs from grantees in the new starts program--for the St. Louis Metrolink--in the last 5 years. Without increased federal funds, the Authority will have to turn to state and local funding sources. However, the state will provide funds only in the case of extraordinary costs. On the other hand, the city of Los Angeles will pay 50 percent of the cost increase for segment one--up to $100 million--and has committed to pay up to $90 million for segment two. The city has made no commitment to fund cost increases for segment three. The remaining local funding source is the county's dedicated sales tax. FTA and Hill International officials believe that one way the Authority can absorb increases above the current cost estimate is by using revenues that the Authority currently allocates to other rail capital projects. However, Authority officials told us that the amount of flexibility the Authority has in a given year is limited, in part because about 70 percent of discretionary sales tax revenues are allocated to the bus program and the Authority does not plan to use these funds for the Red Line project. Therefore, any decision to use sales tax revenues could adversely affect other rail capital projects. For example, when the recent recession reduced planned revenues, the Authority allocated these losses to the Pasadena Blue Line project. This delayed the project, which was not yet under construction, for 3 years. This decision meant that the Red Line would not lose revenues and could maintain its construction schedule. To determine how much flexibility it has to address a cost increase and/or revenue loss, the Authority assesses the magnitude of the increase and/or loss, the Red Line's completion schedule, the available bonding capacity based on sales tax revenues, other potential sources of funding, and the impact on other rail capital projects. For example, the Authority recently determined that it had enough bonding capacity to provide $40 million toward the cost increase for segment two and still maintain the Red Line's construction schedule. However, Authority officials acknowledge that if the bonding capacity is not sufficient and no other funding sources are available, the Red Line's completion schedule would have to be extended and the project's cost could increase. According to Authority officials, the Red Line is their number-one rail priority and the decision on the new alignment for Mid-City--not expected for about a year--is the single most costly increase currently expected for the project. They stated that the project would have to be assessed at that time to determine whether revenues are available to fund construction or whether that extension will have to be delayed. Depending on how long the Mid-City extension is delayed, funding slated for other projects, such as the San Fernando extension, scheduled to begin in 2003, could be used for Mid-City. FTA's monitoring of financing capacity for the project, particularly once the cost of the Mid-City extension is determined, will be critical to help ensure that funding is available to proceed with design and construction. In November 1994, the Authority and FTA agreed to a plan to improve the overall management of construction of the Red Line project. However, this plan did not come about until FTA took action to stop tunneling under Hollywood Boulevard for the Red Line and temporarily suspended federal funding for the project to compel the Authority to address long-standing problems. Among these long-standing problems was the lack of a mechanism for elevating safety and quality assurance concerns to the appropriate level within the Authority's and the construction management contractor's organization. For example, during 1993 and 1994 several inspection reports alerted the resident engineer about weaknesses in the installation of the initial tunnel lining under Hollywood Boulevard. However, the issue was not elevated to the Authority's Director of Quality until excessive surface settlement occurred on Hollywood Boulevard in the summer of 1994. The tunnel lining support was cited as a possible cause. Because of concerns about the management attention given to quality assurance, FTA recommended that this function be placed sufficiently high in the Authority's and the construction management contractor's organization to help ensure independence and adequate attention to deficiency reports by quality control inspectors. Because corrective actions were not taken, on this and other issues, FTA took action to stop tunneling under Hollywood Boulevard for the Red Line and suspended federal funding--from October 5 to November 10, 1994--for the project. As a condition for resuming federal funding, the Authority and FTA agreed to a plan in November 1994 that called for transferring quality assurance, quality control, and safety from the construction management contractor to the Authority and increasing staffing for quality assurance. These actions are now being implemented. For example, the Authority increased the number of quality assurance positions from 4.5 staff years in 1994 to 6 staff years in 1995, and it plans further increases. Also, in September 1995 FTA increased the number of permanent Hill International staff, from 5 to 7; provided 3 temporary staff, who have been extended at least through May 1996; and increased the frequency of interactions between Hill International, FTA, and the Authority. With more staff, according to Hill International, four rather than one staff members are present on the construction sites daily. Our past work has shown that FTA has rarely exercised the enforcement tool of withholding funds to compel grant recipients to fix long-standing problems. With its action on the Red Line project, FTA has seen the success of withholding funds to compel change. Given the cost and potential risks of underground tunneling and a history of resistance to certain quality control recommendations made in the past, timely enforcement actions could help to ensure that the Authority addresses key recommendations in the future. We provided copies of a draft of this report to FTA and Los Angeles County Metropolitan Transportation Authority officials for their review and comment. We met with FTA officials, including the Director, Office of Oversight, and the Program Manager for the Project Management Oversight Program in Headquarters and with the Director of the Office of Program Management in FTA's Region IX. We also met with Authority officials, including the Deputy Executive Officer for Program Management, Director for Strategic Funding Analysis and Director for Grants Management. FTA and the Authority generally agreed with the facts as presented. However, both suggested that the report's presentation of FTA's oversight of the project's quality assurance and quality control practices heavily emphasized past problems rather than focused on recent positive changes. We have revised that section of the report to clearly describe the actions FTA and the Authority have taken to improve construction management of the Red Line project. FTA and the Authority also commented that our discussion of the project's future growth and potential financing issues are speculative. We agree that future projections are speculative, but the report describes clear examples of potential reasons for cost increases, such as the decision to realign the Mid-City extension and design delays for the East Side extension, as well as the Authority's potential solutions to financing these increases. The Authority was also concerned that our discussion of cost growth, particularly in table 1, could be misconstrued because the cost growth for segment three is an estimate. To address their comments, we changed the title of the table to reflect that the figures are estimates and added a footnote stating that cost mitigation measures have reduced the estimated cost growth for the East Side extension from $29 million to $8 million. Both FTA and the Authority offered technical comments to clarify information in the report, and we have incorporated these comments, as appropriate. To prepare this report, we reviewed the Authority's February 1996 Project Manager's Status and Construction Reports for each segment of the Red Line. We reviewed supporting documentation and discussed costs, financing, and oversight issues with officials at FTA's headquarters in Washington, D.C.; FTA's Regional Office in San Francisco; Hill International, Inc. in Los Angeles; and the Los Angeles County Metropolitan Transportation Authority. We also reviewed the Authority's 20-year transportation plan and February 1996 financial update and discussed them with officials at FTA, Hill International, and the Authority. We performed our work from October 1995 through April 1996 in accordance with generally accepted government auditing standards. As arranged with your office, 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 the Secretary of Transportation, the Administrator of the Federal Transit Administration, the Chief Executive Officer of the Authority, and cognizant congressional committees. We will also make copies available to others upon request. Please call me at (202) 512-2834 if you or your staff have any questions. Major contributors to this report are listed in appendix II. Gary Hammond Roderick Moore James Moses 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 reviewed the Los Angeles County Metropolitan Transportation Authority's Red Line subway project, focusing on the: (1) project's estimated cost; (2) Authority's financing plans; and (3) Federal Transit Administration's (FTA) oversight of the project's quality control and assurance practices. GAO found that: (1) as of February 1996, the project's estimated total cost was $5.9 billion; (2) project costs have increased due to construction problems, new construction requirements, and project enhancements; (3) additional design problems and pending lawsuits may further increase project costs; (4) the Authority plans to use $3.1 billion in federal funds and $2.8 billion in state and local funds to finance the project, but it may not realize about $380 million of the total; (5) the Authority may have to reduce the funding or scope of other rail projects, defer or cancel planned projects, or extend the project's construction schedule to cover current or future funding shortfalls, but extending the project's construction schedule could also increase costs; (6) in response to FTA actions, the Authority is reorganizing its quality control and assurance programs and increasing program staff; and (7) FTA has increased the number of on-site oversight personnel to improve project monitoring.
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Information security is a critical consideration for any organization that depends on information systems and computer networks to carry out its mission or business and is especially important for government agencies, where maintaining the public's trust is essential. While the dramatic expansion in computer interconnectivity and the rapid increase in the use of the Internet have enabled agencies such as SEC to better accomplish their missions and provide information to the public, agencies' reliance on this technology also exposes federal networks and systems to various threats. This can include threats originating from foreign nation states, domestic criminals, hackers, and disgruntled employees. Concerns about these threats are well founded because of the dramatic increase in reports of security incidents, the ease of obtaining and using hacking tools, and advances in the sophistication and effectiveness of attack technology, among other reasons. Without proper safeguards, systems are vulnerable to individuals and groups with malicious intent who can intrude and use their access to obtain or manipulate sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. We and federal inspectors general have reported on persistent information security weaknesses that place federal agencies at risk of disruption, fraud, or inappropriate disclosure of sensitive information. Accordingly, since 1997, we have designated information security as a government-wide high-risk area, and we continued to do so in the most recent update to our high-risk list. The Federal Information Security Management Act (FISMA) of 2002 is intended to provide a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets. to develop, document, and implement an agency-wide security program to provide security for the information and systems that support the operations and assets of the agency, including information and information systems provided or managed by another agency, contractor, or other source. Additionally, FISMA assigns responsibility to the National Institute of Standards and Technology (NIST) to provide standards and guidelines to agencies on information security. NIST has issued related standards and guidelines, including Recommended Security Controls for Federal Information Systems and Organizations, NIST Special Publication (NIST SP) 800-53, and Contingency Planning Guide for Federal Information Systems, NIST SP 800-34. FISMA was enacted as Title III, E-Government Act of 2002, Pub L. No 107-347, 116 Stat. 2946 (2002). The Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system performs the automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others that are required to file certain information with SEC. Its purpose is to accelerate the receipt, acceptance, dissemination, and analysis of time-sensitive corporate information filed with the commission. EDGAR/Fee Momentum, a subsystem of EDGAR, maintains accounting information pertaining to fees received from registrants. End User Computing Spreadsheets and/or User Developed Applications are used by SEC to prepare, analyze, summarize, and report on its financial data. The Financial Reporting and Analysis Tool facilitates the compilation of monthly, quarterly, and year-end financial reports. This tool also helps perform data reconciliation and analysis of the principal financial statements. The ImageNow application is a workflow tool that tracks, reviews, and approves documents related to disgorgements, penalties, and court registry. The general support system provides (1) business application services to internal and external customers and (2) security services necessary to support these applications. Under FISMA, the SEC Chair has responsibility for, among other things, (1) providing information security protections commensurate with the risk and magnitude of harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of the agency's information systems and information; (2) ensuring that senior agency officials provide information security for the information and information systems that support the operations and assets under their control; and (3) delegating to the agency chief information officer (CIO) the authority to ensure compliance with the requirements imposed on the agency. FISMA further requires the CIO to designate a senior agency information security officer who will carry out the CIO's information security responsibilities. Although SEC had implemented and made progress in strengthening information security controls, weaknesses limited their effectiveness in protecting the confidentiality, integrity, and availability of a key financial system. SEC did not consistently control access to this financial system's network, servers, applications, and databases; manage its configuration; segregate duties; and plan for contingencies and disasters. These weaknesses existed, in part, because SEC did not effectively oversee and manage the migration of the key financial system to a new location. Consequently, SEC's financial information and systems were exposed to increased risk of unauthorized access, disclosure, modification, and disruption. A basic management objective for any organization is to protect the resources that support its critical operations and assets from unauthorized access. Organizations accomplish this by designing and implementing controls that are intended to prevent, limit, and detect unauthorized access to computer resources (e.g., data, programs, equipment, and facilities), thereby protecting them from unauthorized disclosure, modification, and loss. Specific access controls include border protection, identification and authentication of users, authorization restrictions, cryptography, audit and monitoring procedures, incident response procedures, and physical security. Without adequate access controls, unauthorized individuals, including intruders and former employees, can surreptitiously read and copy sensitive data and make undetected changes or deletions for malicious purposes or for personal gain. In addition, authorized users could intentionally or unintentionally modify or delete data or execute changes that are outside of their authority. Although SEC had issued policies and implemented controls based on those policies, it did not consistently protect its network boundary from possible intrusions; identify and authenticate users; authorize access to resources; ensure that sensitive data are encrypted; audit and monitor actions taken on the commission's systems and network; and restrict physical access to sensitive assets. Boundary protection controls logical connectivity into and out of networks and controls connectivity to and from network-connected devices. Implementing multiple layers of security to protect an information system's internal and external boundaries provides defense in depth. By using a defense-in-depth strategy, entities can reduce the risk of a successful cyber attack. For example, multiple firewalls could be deployed to prevent both outsiders and trusted insiders from gaining unauthorized access to systems. At the system level, any connections to the Internet, or to other external and internal networks or information systems, should occur through controlled interfaces (for example, proxies, gateways, routers and switches, firewalls, and concentrators). At the host or device level, logical boundaries can be controlled through inbound and outbound filtering provided by access control lists and personal firewalls. SEC deployed multiple firewalls that were intended to prevent unauthorized access to its systems; however, it did not securely configure access control lists on firewalls inside a key financial system's environment. For example, its network devices and firewall settings inappropriately permitted users in the production environment to access the system's network management server. In addition, the system's production Internet firewalls were configured to allow systems in the "demilitarized zone" to connect to each other. As a result of these configurations, SEC introduced vulnerability to unnecessary and potentially undetectable access at multiple points in the key financial system's network environment. Information systems need to be managed to effectively control user accounts and identify and authenticate users. Users and devices should be appropriately identified and authenticated through the implementation of adequate logical access controls. Users can be authenticated using mechanisms such as a password and user ID combination. SEC policy requires strong password controls for authentication, such as passwords that are at least 8 eight alphanumeric characters in length and that expire after a predetermined period of time. However, SEC did not consistently implement strong password controls for identifying and authenticating users to certain servers, network devices, and databases in the key financial system's environment. For example, password length on a network management device and a server contained fewer characters than required. User account passwords on another server were configured to never expire. Additionally, two databases had a user password that had the same name as the user account. As a result, SEC is at increased risk that accounts could be compromised and used by unauthorized individuals to access sensitive information. Authorization encompasses access privileges granted to a user, program, or process. It is used to allow or prevent actions by that user based on predefined rules. Authorization includes the principles of legitimate use and least privilege. Operating systems have some built-in authorization features such as user rights and privileges, groups of users, and permissions for files and folders. Network devices, such as routers, may have access control lists that can be used to authorize users who can access and perform certain actions on the device. Access rights and privileges are used to implement security policies that determine what a user can do after being allowed into the system. Maintaining access rights, permissions, and privileges is one of the most important aspects of administering system security. However, SEC did not always employ the principle of least privilege when authorizing access permissions to a key financial system. Specifically, it did not appropriately restrict access to security-related parameters and users' rights and privileges for several network devices, databases, and servers supporting key financial applications. As a result, users had excessive levels of access that were not required to perform their jobs. This could lead to data being inappropriately modified, either inadvertently or deliberately. Cryptographic controls can be used to help protect the integrity and confidentiality of data and computer programs by rendering data unintelligible to unauthorized users and/or protecting the integrity of transmitted or stored data. Cryptography involves the use of mathematical functions called algorithms and strings of seemingly random bits called keys to (1) encrypt a message or file so that it is unintelligible to those who do not have the secret key needed to decrypt it, thus keeping the contents of the message or file confidential; (2) provide an electronic signature that can be used to determine if any changes have been made to the related file, thus ensuring the file's integrity; or (3) link a message or document to a specific individual's or group's key, thus ensuring that the "signer" of the file can be identified. NIST guidance states that the use of encryption by organizations can reduce the probability of unauthorized disclosure of information. NIST also recommends that organizations employ cryptographic mechanisms to prevent unauthorized disclosure of information during transmission, encrypt passwords while being stored and transmitted, and establish a trusted communications path between users and security functions of information systems. However, SEC did not configure settings of the logging and database servers supporting key financial applications to use encryption when transmitting data. As a result, increased risk exists that transmitted data can be intercepted, viewed, and modified. Audit and monitoring involves the regular collection, review, and analysis of auditable events for indications of inappropriate or unusual activity, and the appropriate investigation and reporting of such activity. Automated mechanisms may be used to integrate audit monitoring, analysis, and reporting into an overall process for investigation of and response to suspicious activities. Audit and monitoring controls can help security professionals routinely assess computer security, perform investigations during and after an attack, and even recognize an ongoing attack. Audit and monitoring technologies include network and host-based intrusion detection systems, audit logging, security event correlation tools, and computer forensics. Network-based intrusion detection systems capture or "sniff" and analyze network traffic in various parts of a network. FISMA requires that each federal agency implement an information security program that includes procedures for detecting, reporting, and responding to security incidents. However, SEC had not consistently configured certain servers supporting a key financial system to maintain audit trails for all security-relevant events. For example, several of these network devices did not perform "failed access control lists access violation" logging. Also, while SEC had initiated deployment of tools to monitor its network infrastructure, critical systems' local logs were not sent to a centralized syslog server that logs security events. In addition, the syslog server was offline for more than 1 month. As a result, increased risk exists that SEC will be unable to determine (1) if certain malicious incidents have occurred and (2) who or what caused them. Physical security controls restrict physical access to computer resources and protect them from intentional or unintentional loss or impairment. Adequate physical security controls over computer facilities and resources should be established that are commensurate with the risks of physical damage or access. Physical security controls over the overall facility and areas housing sensitive information technology components include, among other things, policies and practices for granting and discontinuing access authorizations; controlling badges, ID cards, smartcards, and other entry devices; controlling entry during and after normal business hours; and controlling the entry and removal of computer resources (such as equipment and storage media) from the facility. Physical controls also include environmental controls, such as smoke detectors, fire alarms, extinguishers, and uninterruptible power supplies. While SEC improved physical security controls after relocating its primary data center to a secure location, SEC did not sufficiently control physical access to a key financial system's administrator area in headquarters. For example, system administrators' workstations were located in an open area that was accessible by all personnel with access to the SEC headquarters building. The insufficient physical access control over the system administrators' workstations reduces SEC's ability to protect the system from unauthorized access. Configuration management involves the identification and management of security features for all hardware, software, and firmware components of an information system at a given point and systematically controls changes to that configuration during the system's life cycle. FISMA requires each federal agency to have policies and procedures that ensure compliance with minimally acceptable system configuration requirements. Systems with secure configurations have less vulnerability and are better able to thwart network attacks. Effective configuration management provides reasonable assurance that systems are configured and operating securely and as intended. In addition to periodically looking for software vulnerabilities and fixing them, security software should be kept current by establishing effective programs for patch management, virus protection, and other emerging threats. Also, software releases should be adequately controlled to prevent the use of noncurrent software. Although it had configuration management related policies, plans and procedures in place, SEC did not configure a key financial system at its new data center according to SEC's secure configuration baseline. For example, the system's server ran multiple insecure services. In addition, while SEC had formed a patch vulnerability group to monitor vulnerabilities and evaluate the results of vulnerability scan reports, it did not routinely and consistently patch servers supporting key financial applications in a timely manner. Moreover, SEC used outdated versions of software and products that were no longer supported by their respective vendors. Consequently, increased risk exists that the system was exposed to vulnerabilities that could be exploited by attackers seeking to gain unauthorized access. To reduce the risk of error or fraud, duties and responsibilities for authorizing, processing, recording, and reviewing transactions should be separated to ensure that one individual does not control all critical stages of a process. Effective segregation of duties starts with effective entity- wide policies and procedures that are implemented at the system and application levels. Often, segregation of incompatible duties is achieved by dividing responsibilities among two or more organizational groups, which 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 other. Inadequate segregation of duties increases the risk that erroneous or fraudulent transactions could be processed, improper program changes implemented, and computer resources damaged or destroyed. According to NIST SP 800-53, revision 3, to prevent collusive malevolent activity, organizations should separate the duties of individuals as necessary and implement separation of duties through assigned information system access authorizations. During fiscal year 2013, SEC implemented segregation of duties controls for key information technology processes. For example, SEC had implemented segregation of duties for the administrative accounts tested. In addition, based on our inquiries, SEC employees from the Office of Information Technology Security, Office of Financial Management, and system operations understood their duties and responsibilities. However, production servers for the key financial system had active development user accounts. As a result, increased risk exists that unauthorized individuals from the development environment could pose a threat to the system's processes in the production environment. Losing the capability to process, retrieve, and protect electronically maintained information can significantly affect an agency's ability to accomplish its mission. If contingency and disaster recovery plans 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 information. Given these severe implications, it is important that an entity have in place (1) up-to- date procedures for protecting information resources and minimizing the risk of unplanned interruptions, (2) a tested plan to recover critical operations should interruptions occur, and (3) redundancy in critical systems. Although SEC had developed contingency and disaster recovery plans and implemented controls for this planning, it did not (1) update its contingency and disaster recovery plans to reflect its computing environment, (2) test disaster recovery procedures to ascertain recovery after the move to its newly built data center, and (3) ensure redundancy of a critical server for the key financial system. Consequently, SEC had limited assurance that financial information could be recovered and made available to meet agency priorities and requirements in the event of a failure at its primary data center. The information security weaknesses existed in the key financial system, in part, because SEC did not effectively oversee and manage the implementation of information security controls during the migration of the system to a new production environment. Specifically, SEC did not consistently provide adequate contractor oversight and implement an effective risk management process during the migration to the new production environment at its data center in June 2013. SEC relied on a contractor to migrate the key financial system to a new production environment, which included the completion of critical security- related tasks. The Office of Federal Procurement Policy's Guide to Best Practices for Contract Administration states that a good contract administration program is essential to improving contractor performance under federal contracts. It also states that those entrusted with the duty to ensure that the government gets all that it has bargained for must be competent in the practices of contract administration. In addition, NIST guidance states that the head of an agency should establish appropriate accountability for information security and provide active support and oversight of monitoring and improvement for the information security program. Moreover, SEC policy states that the agency is to monitor project development throughout the life cycle to ensure that security controls are incorporated and security project milestones are met. However, SEC did not adequately oversee the contractor's efforts related to the migration of the system from SEC's operation center to its data center in a different location. Specifically, SEC did not assign information security personnel to monitor and evaluate the contractor's performance in completing required security tasks. In addition, while the project plan included security-related tasks and milestones, SEC officials did not review the system's security and project migration plans to verify that security-related roles, resources, and responsibilities were identified. Further, SEC did not confirm that the contractor completed the security- related project tasks prior to the decision to go live, including (1) implementing the baseline security configuration on the system's servers, (2) testing the security of its servers, (3) building a monitoring capability inside its network environment, and (4) identifying and committing resources to perform security configuration and testing after the server build-out. SEC officials attributed this lack of rigorous oversight to their reliance on the ability of the contractor to adequately complete the effort. As a result, senior management officials were unaware that security- related project tasks had not been completed when the agency approved the system to go live. According to NIST SP 800-37,risks and, prior to placing information systems into operation, ensure that (1) information system-related security risks are being adequately addressed on an ongoing basis and (2) the authorizing official explicitly understands and accepts the risk to organizational operations and assets. In addition, the key financial system's security plan states that SEC is to monitor changes to the system and conduct security impact analyses to determine the effects of the changes. Prior to change implementation, and as part of the change approval process, the organization is to analyze changes to the system for potential security impacts. After the system is changed (including upgrades and modifications), the agencies are to identify and mitigate organization should check the security features to verify that the features are still functioning properly. To improve its information security risk management process, in February 2013 SEC established the Operational Risk Management Office to proactively identify operational risks in all division offices. As part of the agency's risk management process, the heads of business lines are responsible for identifying risks and controls. SEC also established a Risk Committee with the purpose of formalizing the risk framing process and creating an SEC-wide information security risk management strategy, based on decisions and priorities set by the Risk Committee. The risk decisions and risk priorities are to be used as guiding principles by management officials in implementing daily and operational IT tasks. However, SEC did not effectively manage risk associated with the migration of a key financial system to a new location. Specifically, (1) SEC's Information Security Risk Committee did not identify and convey risks related to the data center move (and to the system) to the agency's Operational Risk Management Program Office, which is responsible for developing and overseeing SEC's operational risk management and internal control program and evaluating the results of internal control reviews and information technology system reviews performed by the internal control divisions and offices; (2) SEC did not perform a security impact analysis after the system servers were rebuilt and major changes were made to the systems; and (3) SEC did not act to mitigate security- related risks identified and communicated in the system's weekly status reports by the contractor prior to the go-live date. Consequently, SEC did not have timely awareness of potential security vulnerabilities, which resulted in pervasive control weaknesses in the system when the new production environment went live. SEC resolved two of the seven previously reported information system control deficiencies in the areas of access controls and audit and For example, SEC disabled inactive administrator accounts monitoring.and enabled audit and monitoring capability on a server. However, five of the seven previously reported weaknesses still exist. These five remaining weaknesses encompassed SEC's financial and general support systems. For example, SEC did not always configure its remote host and network infrastructure devices to require the use of strong passwords; effectively enforce logical access controls, including controls in the user separation process across its IT systems at the network levels; and consistently apply patches or perform necessary system updates. SEC continues to make progress in improving information security controls over its key financial systems. However, information security control weaknesses in a key financial system's production environment may jeopardize the confidentiality, integrity, and availability of information residing in and processed by the system. These included deficiencies in SEC's controls over access control, configuration management, segregation of duties, and contingency and disaster recovery planning. In addition, SEC did not consistently provide adequate contractor oversight and implement an effective risk management process during the migration of an important financial system to its new location. Cumulatively, these weaknesses decreased assurance regarding the reliability of the data processed by the key financial system and increased the risk that unauthorized individuals could gain access to critical hardware or software and intentionally or inadvertently access, alter, or delete sensitive data or computer programs. Consequently, the combination of the continuing and new information security weaknesses existing as of September 30, 2013, considered collectively, represented a significant deficiency in SEC's internal control over financial reporting. Until SEC mitigates its control deficiencies and strengthens oversight of contractors performing security-related tasks as part of its information security program, it will continue to be at risk of ongoing deficiencies in the security controls over its financial and support systems and the information they contain. As part of fully implementing a comprehensive information security program, we recommend that the Chair direct the Chief Information Officer to take the following two actions: 1. Assign information security personnel to monitor and evaluate contractor performance in implementing information security controls in SEC's information technology projects. 2. Implement a risk management process to ensure that similar contract oversight weakness are not widespread that includes (1) identifying and conveying risks, (2) performing security impact analyses, and (3) mitigating identified risks as appropriate. In a separate report with limited distribution, we are also making 49 detailed recommendations consisting of actions to be taken to correct specific information security weaknesses related to access control, configuration management, segregation of duties, and contingency and disaster recovery plans. We provided a draft of this report to SEC for its review and comment. In its written comments (reproduced in app. II), SEC generally agreed with our recommendations. SEC acknowledged that the appropriate level of attention was not applied to contractor oversight during the migration of the financial system and stated that contractual, procedural, and corrective measures are taking place to prevent similar occurrences. In addition, SEC agreed with the specific points we made about the risk management process and stated that this process continues to be improved. This report contains recommendations to you. The head of a federal agency is required by 31 U.S.C. SS 720 to submit a written statement on the actions taken on the recommendations by the head of the agency. The statement must be submitted to the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform not later than 60 days from the date of this report. A written statement must also be sent to the House and Senate Committees on Appropriations with your agency's first request for appropriations made more than 60 days after the date of this report. We are also sending copies of this report to interested congressional parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. We acknowledge and appreciate the cooperation and assistance provided by SEC management and staff during our audit. If you have any questions about this report or need assistance in addressing these issues, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected] or Nabajyoti Barkakati at (202) 512-4499 or [email protected]. GAO staff who made significant contributions to this report are listed in appendix III. As part of our audit of the Securities and Exchange Commission's (SEC) fiscal years 2012 and 2013 financial statements, we assessed the commission's information security controls. The objective was to determine the effectiveness of SEC's information security controls for ensuring the confidentiality, integrity, and availability of its key financial systems and information. To do this, we identified and reviewed SEC information systems control policies and procedures, conducted tests of controls, and held interviews with key security representatives and management officials concerning whether information security controls were in place, adequately designed, and operating effectively. We evaluated controls based on our Federal Information System Controls Audit Manual (FISCAM), which contains guidance for reviewing information system controls that affect the confidentiality, integrity, and availability of computerized information; National Institute of Standards and Technology standards and special publications; SEC's plans, policies, and standards; and the National Security Agency's 60 Minute Network Security Guide. We assessed the effectiveness of both general and application controls by performing information system controls walkthroughs surrounding the observing technical controls implemented on selected systems; initiation, authorization, processing, recording, and reporting of financial data (via interviews, inquiries, observations, and inspections); reviewing systems security assessment and authorization documents; reviewing SEC policies and procedures; testing specific controls; and scanning and manually assessing SEC systems including general support systems and financial applications. We also evaluated the Statement on Standards for Attestation Engagements report and performed testing on key information technology controls on the following applications and systems: Delphi- Prism, FedInvest, and Federal Personnel and Payroll System/Quicktime. We selected which systems to evaluate based on a consideration of financial systems and service providers integral to SEC's financial statements. The evaluation and testing of SEC information system controls, including the evaluation of the status of SEC's corrective actions during fiscal year 2013 to address open recommendations from our prior years' reports, was performed jointly with the independent firm of Williams, Adley, & Company-DC, LLP. We agreed on the scope of the audit work, monitored the firm's progress, and reviewed the related audit documentation to determine that the firm's findings were adequately supported. To determine the status of SEC's actions to correct or mitigate previously reported information security weaknesses, we identified and reviewed its information security policies, procedures, practices, and guidance. We reviewed prior GAO reports to identify previously reported weaknesses and examined the commission's corrective action plans to determine which weaknesses it had reported were corrected. For those instances where SEC reported that it had completed corrective actions, we assessed the effectiveness of those actions by reviewing appropriate documents, including SEC-documented corrective actions, and interviewing the appropriate staffs, including system administrators. To assess the reliability of the data we analyzed, such as information system control settings, security assessment and authorization documents, and security policies and procedures, we corroborated them by interviewing SEC officials, programmatic personnel, and system administrators to determine whether the data obtained were consistent with system configurations in place at the time of our review. Based on this assessment, we determined the data were reliable for the purposes of this report. We performed our work in accordance with U.S. generally accepted government auditing standards. We believe that our audit provided a reasonable basis for our conclusions in this report. In addition to the contacts named above, GAO staff who made major contributions to this report are Michael W. Gilmore and Duc Ngo (Assistant Directors), Angela Bell, Lee McCracken, and Henry Sutanto.
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SEC is responsible for enforcing securities laws, issuing rules and regulations that protect investors, and helping to ensure that securities markets are fair and honest. In carrying out its mission, the commission relies extensively on computerized systems that collect and process financial and sensitive information. Accordingly, it is essential that SEC have effective information security controls in place to protect this information from misuse, fraudulent use, improper disclosure, manipulation, or destruction. As part of its audit of SEC's fiscal years 2013 and 2012 financial statements, GAO assessed the commission's information security controls. The objective was to determine the effectiveness of information security controls for protecting the confidentiality, integrity, and availability of SEC's key financial systems and information. To do this, GAO assessed security controls in key areas by reviewing SEC documents, testing selected systems, and interviewing relevant officials. Although the Securities and Exchange Commission (SEC) had implemented and made progress in strengthening information security controls, weaknesses limited their effectiveness in protecting the confidentiality, integrity, and availability of a key financial system. For this system's network, servers, applications, and databases, weaknesses in several controls were found, as the following examples illustrate: Access controls: SEC did not consistently protect its system boundary from possible intrusions; identify and authenticate users; authorize access to resources; encrypt sensitive data; audit and monitor actions taken on the commission's networks, systems, and databases; and restrict physical access to sensitive assets. Configuration and patch management: SEC did not securely configure the system at its new data center according to its configuration baseline requirements. In addition, it did not consistently apply software patches intended to fix vulnerabilities to servers and databases in a timely manner. Segregation of duties: SEC did not adequately segregate its development and production computing environments. For example, development user accounts were active on the system's production servers. Contingency and disaster recovery planning: Although SEC had developed contingency and disaster recovery plans, it did not ensure redundancy of a critical server. The information security weaknesses existed, in part, because SEC did not effectively oversee and manage the implementation of information security controls during the migration of this key financial system to a new location. Specifically, during the migration, SEC did not (1) consistently oversee the information security-related work performed by the contractor and (2) effectively manage risk. Until SEC mitigates control deficiencies and strengthens the implementation of its security program, its financial information and systems may be exposed to unauthorized disclosure, modification, use, and disruption. These weaknesses, considered collectively, contributed to GAO's determination that SEC had a significant deficiency in internal control over financial reporting for fiscal year 2013. GAO is recommending that SEC take two actions to (1) more effectively oversee contractors performing security-related tasks and (2) improve risk management. In a separate report for limited distribution, GAO is recommending that SEC take 49 specific actions to address weaknesses in security controls. In commenting on a draft of this report, SEC generally agreed with GAO's recommendations and described steps it is taking to address them.
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An unexplained increase in patient deaths occurred in one ward at the Harry S Truman Memorial Veterans Hospital (hereinafter referred to as Hospital) in Columbia, Missouri, during the spring and summer of 1992. In October 1992, based on information provided by a Missouri state legislator, the Federal Bureau of Investigation (FBI) and the VA OIG initiated a joint criminal investigation into the suspicious deaths. In February 1993, the OIG received specific allegations that the Hospital Director and the VA Central Region Chief of Staff had attempted to cover up the unexplained increase in patient deaths, including by not referring the matter to law enforcement authorities. In January 1995, the OIG initiated an administrative investigation (known as a Special Inquiry), which focused on management's response to the patient deaths. Subsequent to the start of the Special Inquiry, the VA OIG received a series of additional letters from the complainant alleging that the cover-up (1) involved not only Hospital and VA management but the VA OIG as well and (2) had continued even after the October 1992 start of the joint FBI and VA OIG investigation. The OIG issued the Special Inquiry report in September 1995. In its report, the OIG analyzed and criticized Hospital and VA management's response to the increase in deaths and noted that it had "found a dysfunctional top management team . . . in place." The OIG reported that while the evidence might indicate to some individuals that at least the appearance of a cover-up existed, management's actions could be attributed instead to bad judgment. The OIG further reported that it had found no conclusive proof of an intentional cover-up by Hospital and Central Region officials and no evidence of criminal conduct by top managers. As to its own role, the OIG stated that it had made mistakes but avowed that it had not participated in a cover-up. (A more extensive background is provided in app. I.) The title and text of the Special Inquiry report suggest that allegations of a cover-up had been investigated. We determined that the OIG did not plan or conduct its review or analysis in a way that could determine if a cover-up had occurred. Had the OIG conducted such a review, its documentation would have included an effort to link individual pieces of evidence that together suggest additional lines of inquiry--including elements of a cover-up. Further, both the Assistant IG and the analyst responsible for the Special Inquiry told us that the OIG did not review or investigate the allegations of cover-up. The Assistant IG told us that the Special Inquiry report overstates its conclusion regarding no evidence of a cover-up. Therefore, the Special Inquiry's conclusion was not supported by work done or evidence collected and is misleading. In the Special Inquiry report, the OIG represents that its review included the allegation of a cover-up on the part of the Hospital Director and the Central Region Chief of Staff. However, according to the lead analyst who conducted the review and the Assistant IG who wrote the final report, the issue of cover-up was "off the table" because, in their view, their "charge" from OIG management did not include looking at cover-up allegations. They defined cover-up as being related to criminal issues and added that neither of them was a criminal investigator. Prior to his retirement, the lead analyst responsible for the Special Inquiry completed the interviews and field work and wrote a draft report entitled Special Inquiry: Management Response to Unexplained Patient Deaths, Harry S. Truman VA Medical Center, Columbia, Missouri. The body of that draft report made no reference to allegations of a cover-up by the Hospital Director and Central Region Chief of Staff. In the draft report, only one issue was addressed--whether management officials complied with VA policy when responding to the revelation of the unexplained deaths. According to the Assistant IG who prepared the final report, he did not review the underlying evidence while preparing the final report, nor did he reconcile the stated facts in the report with the underlying evidence prior to issuing the report. He stated that in writing the final Special Inquiry report, he changed the original title and edited the report in an attempt to tie the text to the complainant's allegations. He characterized this as wordsmithing and added that he had no intent to mislead. He concluded that in hindsight he probably should not have changed the title and that the report probably overstated its case concerning no evidence of a cover-up, as the OIG did not investigate the cover-up allegations. Although the Assistant IG stated that there was no intent to mislead, the report title--Special Inquiry: Alleged Cover-up of an Unexplained Increase in Deaths, Harry S. Truman Memorial VA Medical Center, Columbia, Missouri--and two of the report's three major sections--"Alleged Cover-up by Medical Center and Central Region Officials Subsequent to the Criminal Investigation" and "Alleged Cover-up by the Office of Inspector General"--specifically refer to the cover-up allegations. Further, the OIG reported that it had found "no conclusive proof of an intentional cover-up by Medical Center and Central Region officials" and "no evidence of criminal conduct by top management." This language is misleading, because the OIG did not conduct its Special Inquiry so as to support its conclusion concerning an intentional cover-up. Instead, it addressed whether management had complied with VA and Hospital policy and procedures in its response to the increase in deaths. The then IG told us that he had intended for the Special Inquiry to investigate allegations of a cover-up and that, based on his reading of the report, it appeared that it had. He added that if the review did not include an investigation of the cover-up allegations, he believes that the report, as written, is misleading. We determined that the OIG did not plan or conduct its Special Inquiry in a manner to determine if improper acts pertaining to a cover-up had occurred. According to the Assistant IG, in preparing the report, he examined components of the complainant's allegation separately, rather than linking or relating the information gathered. He added that had the inquiry included investigation of a crime, it would have been appropriate to show whether a pattern of conduct existed. One method of establishing such a pattern, as is required by the OIG's Investigative Policy and Procedure Guide for special inquiries, is to create a chronology of events and actions. The OIG did not do this. Frequently a single act, taken by itself, is not sufficient to establish that the act was done willfully and intentionally with improper purpose. However, a series of acts considered collectively may suggest a pattern of conduct indicative of intentional impropriety rather than accident or error. For example, the following actions or alleged actions concerning the Hospital Director were not linked or followed up on by the OIG. If the OIG had done so, the linkage would have suggested a pattern of conduct requiring additional investigation and lines of inquiry by the OIG. The Hospital Director did not notify law enforcement authorities of the unexplained deaths despite the District Counsel's recommendation that he do so. The Hospital Director did not notify law enforcement authorities of a statistical relationship between a nurse and the unexplained deaths despite telling the staff physician who had developed the analysis that he would do so. The Hospital Director, after learning that a staff physician had accused the nurse in question of killing his patients, did not refer the matter to the OIG. The Hospital Director demoted the Hospital's Chief of Police reportedly because of the Chief's efforts to obtain information about the Hospital's response to the unexplained deaths. The Hospital Director did not provide the Peer Review Board examining the unexplained deaths with the statistical analysis that established a relationship between a nurse and the deaths. The Hospital Director's initial reaction to the FBI investigation was to attempt to obtain confidential information provided to the FBI, potentially to identify the source of that information. The Hospital Director, in an apparent attempt to impede an investigation, instructed the staff physician who prepared the statistical analysis to have no further contact with the FBI. The Hospital Director's son--the Chief of Human Resources at the Hospital--instructed the TQI Coordinator to determine from the FBI and the OIG whether they had had recent contact with the complainant. Our review of the OIG case files, interviews with individuals involved with the Special Inquiry, and statements from knowledgeable Hospital employees reflected that potential lines of inquiry were not pursued. For example, in the incident of a conference call between the VA Central Region Chief of Staff, the Hospital Director, the Hospital pathologist, and the TQI Coordinator, it was alleged that the Central Region Chief of Staff, in response to the issue of notifying law enforcement, stated that the last time law enforcement authorities had been called in, both the Chief of Staff and the Hospital Director were fired. The Special Inquiry analysts interviewed the pathologist and the TQI Coordinator. One individual recalled the statement being made; the other did not. However, the analysts never interviewed the Hospital Director or the Central Region Chief of Staff about this issue. Because of this, it was never verified that the conversation had taken place as alleged; and the OIG never attempted to resolve the conflicting testimony by questioning the person who had allegedly made the statement or the person to whom the statement had allegedly been made. Based on our review of relevant memorandums and tape recordings of interviews, we determined that the analysts questioned the Hospital Director and the Central Region Chief of Staff about compliance with VA policies. The analysts told us they accepted "I don't know" answers instead of asking follow-up questions. For example, the analysts accepted, without probing further, the Hospital Director's response that he did not recall the District Counsel's advice in August 1992 that he notify the FBI or OIG about the unexplained deaths. In another instance, the Hospital Director responded to the analysts that he could not recall the actions he had taken to monitor Hospital management's investigation of the deaths. At a minimum, the analysts should have provided the Hospital Director available information to refresh his recollection. In conducting the Special Inquiry, the OIG failed to follow its own policies concerning completeness and accuracy of its reports. As a result, the OIG's Special Inquiry report contained statements that were either inconsistent with or unsupported by the evidence contained in the OIG's files. We noted inaccuracies in the way the OIG (1) reported the Hospital Director's failure to notify law enforcement of the possible association of a particular nurse to an unexplained increase in deaths, (2) attributed remarks to the Hospital Director and the Central Region Chief of Staff about withholding statistical analysis information from a Peer Review Board, and (3) assessed the Hospital Director's instructions to the complainant that he refrain from making further contacts with the FBI and the OIG about the case. The Special Inquiry report stated that the Hospital Director had asked the Central Region Chief of Staff for his opinion on whether to report to authorities the unexplained deaths and the possible relationship of a particular nurse to the deaths. According to the report, the Central Region Chief of Staff responded that he "thought the situation warranted far more review before either relieved of patient care duties or notified law enforcement authorities advised the Hospital Director not to notify law enforcement authorities until the reviews were completed." The OIG report concluded that "[the Hospital Director] followed the advice of the Central Region Chief of Staff and did not report the issue to law enforcement." As written, the report leads one to believe that the Hospital Director followed the advice of the Central Region Chief of Staff not to report the situation to law enforcement authorities. However, we found insufficient documentation to support the OIG report's conclusion that the Central Region Chief of Staff had told the Hospital Director not to report the issue to law enforcement authorities. Our review of memorandums of interview and transcripts of recorded interviews found inconclusive evidence that the Central Region Chief of Staff and the Hospital Director discussed whether to report the issue. Further, when asked to do so, the OIG was unable to cite the evidence supporting its conclusion. On September 3, 1992, a Hospital Peer Review Board was convened to evaluate five August deaths on Ward 4 East at the Hospital; but the Board was not provided with a staff physician's statistical analysis that had reported a statistical relationship between the increase in deaths and a particular nurse. The Special Inquiry report concludes that "The Peer Review Board was not a 'sham' as alleged by the complainant, but was limited in scope and did not consider the statistics developed by [the staff physician]." According to the report, the Central Region Chief of Staff and the Hospital Director stated that they had withheld the statistical analysis from the Board members to allow them to take an objective look at the cases. However, documentation shows that the Central Region Chief of Staff told the OIG that he had never issued instructions to deny the Peer Review Board access to the data. According to the memorandum of interview prepared by the OIG, the Hospital Director told the OIG that he recalled no one asking him whether the Peer Review Board could look at the statistical data and that it did not occur to him to let the Board members have the data. "By making such a requirement, management is in effect stifling an employee's ability to discuss matters openly and freely with the investigators. The Director's action can be viewed as an effort to impede an official investigation by intimidating employees, and is clearly improper. However, from a practical standpoint, action to the best of our knowledge did not limit the OIG or the FBI in obtaining appropriate information from or other employees." (Emphasis added.) We found no documentation to support the Special Inquiry report's conclusion that the Hospital Director's action did not limit the OIG or the FBI in obtaining information from the complainant or other Hospital employees. Except for an OIG memorandum of interview with the Hospital Director, we found no evidence of an investigative effort in support of the report's conclusion. At a minimum, one would expect to find documentation that the OIG had talked to the complainant and the cognizant FBI and OIG criminal investigators before arriving at such a conclusion. The OIG received the complainant's allegations of a cover-up of patient deaths in February 1993, immediately acknowledged its receipt, provided a copy of the letter to the FBI in March 1993, and filed the complainant's letter without investigating the allegations. The OIG did not begin its inquiry until after the complainant discussed the allegations with the media in January 1995. The OIG's Special Inquiry report issued in September 1995, attributed the delay to administrative error. In February 1993, when the OIG received the complainant's allegations of a cover-up of patient deaths, it referred the allegations to its Office of Investigations. The OIG investigator told us that he had contacted the complainant to acknowledge receipt of the allegations and had advised him that all his assets were being expended on other matters. Further, he told us that in addition to a murder investigation, he was investigating a death threat and a sexual assault. Although the OIG criminal investigator and the Assistant IG for Investigations did not recall if they had sent a copy of the allegation letter to the FBI, we learned that a copy of the letter containing the allegations had been provided to the FBI in March 1993. The original letter was filed in the OIG's field office in Kansas City, Missouri; and no follow-up action was initiated. The Assistant IG for Investigations told us that when his office received the complainant's letter in February 1993, the criminal investigation with the FBI was ongoing and all resources were being devoted to that investigation. He said that it was a "collective decision" on the part of the Office of Investigations that no further investigation was necessary. Further, according to the Assistant IG, the FBI and OIG criminal investigation had not disclosed any evidence that VA officials were involved in a cover-up, and the complainant's letter contained no new information. He stated that the OIG's failure to follow up on the allegations was a failure of its process. The former IG told us that he was upset in January 1995 when he became aware, as a result of media inquiries, that the complainant's allegations had not yet been investigated. He further stated that when the OIG received the allegations in February 1993, the most important thing in his mind was the unexplained deaths. In response to our inquiries, the FBI told us that because the complainant's February 1993 letter primarily concerned "the issue of the administrative response" of VA managers, the allegations were not within the investigative jurisdiction of the FBI. Also, because the FBI found no evidence of criminal activity in connection with the unexplained deaths, the FBI criminal investigation did not inquire into the allegations of a cover-up on the part of VA management. Further, according to the FBI, had the FBI investigation developed evidence of criminal activity at the VA, it would have explored the potential culpability of any person--whether management, employee, or staff--before, during, and after the deaths, to include deliberate attempts to cover up. The Special Inquiry report stated that, due to administrative error, the OIG had waited too long to initiate the Special Inquiry. During the interval (February 1993 to January 1995), the Hospital Director retired and the Central Region Chief of Staff resigned from the VA. When the complainant sent his February 1993 letter to the OIG alleging cover-up by the Hospital Director and the Central Region Chief of Staff, he requested confidentiality. The Special Inquiry review looked at whether the OIG protected the complainant's right to confidentiality. In the Special Inquiry report, two instances were discussed in which the OIG had disclosed its contacts with the complainant to the Central Region and, ultimately, to the Hospital Director. The OIG report concluded that the OIG should have been more careful in protecting the complainant's confidentiality, and it attributed one of the confidentiality disclosures to an "error" and the other to an "honest mistake." We found a third instance in which the complainant's contact with the OIG was provided to Hospital management. All three disclosures were related to the March 1994 Hospital Director's letter to the complainant advising him not to have contact with the FBI or OIG. In March 1994, the OIG Office of Investigations received documents from the FBI that had been prepared by the complainant. In turn, the Office of Investigations passed the information to the District Counsel, who forwarded it to the Central Region and the Hospital Director. The complainant alleged that the ultimate disclosure to the Central Region indicates that the OIG was participating with the Central Region to suppress an inquiry of a cover-up. The Special Inquiry report, however, characterized what happened as an error, stating that the OIG had provided the documents to the Office of the District Counsel, which represents both the Hospital and the Central Region, without any restrictions on their dissemination. The complainant alleged that in March 1994, the Assistant IG for Healthcare Inspections gave Central Region officials a report of contact with the complainant as part of an OIG effort to suppress information about actions by Hospital and Central Region officials. The Special Inquiry report stated that (1) in this instance the OIG had an obligation not to release the complainant's identity to other VA officials without the complainant's consent and (2) controls to prevent such release were not properly applied. The Hospital Total Quality Improvement (TQI) Coordinator told us that on January 11, 1995, prior to the Special Inquiry, the Assistant IG for Healthcare Inspections telephoned her and requested information concerning the Hospital's original response to the unexplained deaths on Ward 4 East. During the conversation, the TQI Coordinator asked about OIG plans to investigate the complainant's obstruction-of-justice allegation. The Assistant IG acknowledged recent contact with the complainant and stated that the OIG had no plans to investigate the allegations unless it was forced to do so. The Special Inquiry did not identify this incident, which involved the same Assistant IG who had released the complainant's name once before to the Central Region. On the same day of this incident, the TQI Coordinator, at the request of the Hospital Chief of Human Resources and the Associate Director, contacted the FBI and the Kansas City OIG to determine if they had recently been in contact with the complainant. The FBI referred her to the Kansas City OIG. In contrast with the Assistant IG's previously discussed answer acknowledging contact with the complainant, the Kansas City OIG advised that it would have to consult with OIG Counsel prior to any discussions concerning the complainant. The Kansas City OIG later contacted the TQI Coordinator and stated that OIG Counsel had advised that it could not respond to the Hospital's inquiry. The Hospital Chief of Human Resources told us he was not sure why he and the Associate Director had the TQI Coordinator make the inquiries concerning contact with the complainant but thought it concerned a March 9, 1994, letter from the Hospital Director advising the complainant not to have any contact with the FBI or the OIG. Our review of the August 1995 revision of the OIG Policy and Procedure Guide, Part I, Chapter 12 - Hotline, indicates that the OIG's policies and procedures concerning Protection of Complainants (Section 5) mirror accepted standard hotline policies and procedures in federal agencies. Consistent adherence to and ongoing awareness of these policies by OIG personnel should result in effective protection of complainants. The Department of Veterans Affairs' Office of Inspector General provided written comments on a draft of this report. The IG disagreed with our report, stating that the OIG had found a number of errors in the findings and conclusions presented in the report and in the analyses offered to support the conclusions. The IG is of the opinion that there is no evidence to support our overall conclusion that the OIG Special Inquiry report was misleading. Mainly, the IG disagrees with (1) our statement that the OIG did not investigate the cover-up allegation, (2) one of the three statements in the Special Inquiry report--an OIG conclusion--that we cite in our report as being inaccurate and unsupported by evidence, and (3) the inclusion in our report of a finding--based on an alleged violation of confidentiality--that "lacks credibility." Concerning the first point, regardless of how the OIG characterizes its work, its review was not planned or executed in a manner that would support its conclusions. Neither did the OIG link or follow up on information it had available during its review. Concerning the second point, as we have shown, no underlying documentation supports the OIG's conclusion that the complainant's communication with law enforcement entities had not been limited. With regard to the third point, our discussion of an alleged breach of confidentiality is based on substantive documentation and testimonial evidence that the improper disclosure occurred. The fact that the media had disclosed the complainant's name did not relieve the OIG from its responsibility to maintain confidentiality. The OIG had an obligation not to release the complainant's identity without his authorization. An underlying theme of the IG's comments is that we took individuals' comments out of context or misrepresented facts. Also, according to his comments, some of the individuals that we interviewed either denied or did not recall discussing a particular matter with us. It is important to note that our findings and conclusions are based on in-depth analyses of documentation we obtained and interviews of witnesses that are documented in our reports of interview. We have included additional information in our report supporting our findings. The IG objected to a proposed recommendation regarding the adequacy of the OIG policies and procedures for protecting the privacy of complainants. He stated that the issue is compliance and training, not formulating or rewriting existing policy. We concur with the IG and have withdrawn the proposed recommendation. The IG's complete written comments, and our evaluation, are presented in appendix II. We conducted our review from April 1997 to March 1998 at the VA OIG headquarters in Washington, D.C., and the Harry S Truman Memorial Veterans Hospital in Columbia, Missouri. Initially, we reviewed the draft and final OIG Special Inquiry reports and related files and workpapers. We interviewed both current and former OIG officials and Hospital personnel involved with the review of the suspicious deaths. We also reviewed (1) all congressional testimony and related documents, (2) the OIG Investigative Policy and Procedure Guide, and (3) all transcripts and tapes of the recorded interviews conducted during the Special Inquiry. We transcribed all tapes that had not been transcribed by the OIG. We reviewed available files at the Hospital and documentation provided by individuals interviewed. In conducting our review, we also assessed the OIG's policies and procedures concerning confidentiality. As agreed with your office, unless you 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 the report to interested congressional committees; the Secretary of Veterans Affairs; and the Inspector General, Department of Veterans Affairs. We will also make copies available to others on request. If you have any questions concerning this report, please contact me at (202) 512-6722 or Assistant Director Robert E. Lippencott at (312) 220-7600. Major contributors to this report are listed in appendix III. From March 8, 1992, through August 23, 1992, when a certain registered nurse worked the night shift alone on Ward 4 East at the Harry S Truman Memorial Veterans Hospital, the number of deaths on the ward increased, with dramatic spikes in May, June, and July. The death rate returned to normal when the nurse was assigned to another unit. A statistical analysis conducted by a Hospital staff physician in September 1992 confirmed that a statistically significant relationship existed between increased deaths on Ward 4 East and the duty times of the nurse. The staff physician concluded in his original statistical analysis that the probability that no relationship existed between the deaths and the duty times of the nurse was less than 1 in 1,000 (in 1994, it was determined to be less than 1 in 1 million). The VA Central Region Chief of Staff requested in October 1992 that the OIG Office of Healthcare Inspections help resolve questions involved with the Hospital staff physician's study. The OIG Office of Healthcare Inspections issued a report in September 1994, confirming the results of the initial statistical study. In October 1992, based on information provided by a Missouri state legislator, the FBI and the OIG initiated a joint civil rights criminal investigation concerning the suspicious deaths at the Hospital. On February 2, 1998, the FBI issued a report to the Congress concluding that it had conducted an extensive investigation and that the federal statute of limitations had expired in August 1997 without any determination that a crime had, in fact, been committed. In a February 1993 letter, the staff physician who conducted the statistical study at the Hospital alleged to the OIG that both the Hospital and VA Central Region management had covered up the increase in patient deaths on Ward 4 East. In the letter, the staff physician requested confidentiality. The Inspector General referred the allegations of a cover-up to the OIG's Office of Investigations for investigation. The Office of Investigations determined that due to the priority of the investigation of the suspicious deaths, no immediate action would be taken on these allegations. The letter was placed in the investigative file, and a copy was provided to the FBI in March 1993. In January 1995, after the complainant went to the media, the IG instructed the Assistant IG for Departmental Reviews and Management Support to conduct an administrative review (known as a Special Inquiry) of the allegations that included a cover-up. In a series of letters that followed the start of the Special Inquiry, the complainant reiterated his allegations of a cover-up, not only by Hospital and VA management but by VA OIG as well. He also alleged that the cover-up had continued even after the start of the joint FBI/VA OIG investigation. In the Special Inquiry report issued in September 1995, the OIG concluded that the evidence pointed to bad management rather than to a deliberate plan to cover up or suppress information. A congressional hearing was held in October 1995, and VA healthcare and OIG officials testified about the Special Inquiry and other matters. In their testimony, VA and OIG officials agreed with the findings of VA OIG Special Inquiry report and stated that no evidence of a cover-up by management had been found. OIG officials admitted, however, that the OIG had taken too long in dealing with the complainant's allegations and attributed the 2-year delay to other priorities and administrative error. OIG officials concluded that even though no evidence of criminal misconduct had been found, they did find "a dysfunctional management team . . . in place" that had made significant judgmental errors in responding to the unexpected deaths. In its prepared statement, the OIG expressed concerns about its shortcomings in protecting the complainant's identity and stated that it had issued a written apology to the complainant. The following are GAO's comments on the Department of Veterans Affairs Office of Inspector General's letter dated April 24, 1998. 1.Despite how the OIG may characterize its work, we determined that its review was not planned or executed in a manner that would support the conclusion that it had found "no conclusive proof of an intentional cover-up" by Hospital and Central Region officials and "no evidence of criminal misconduct by top management." The work done, as described by those who did it and as reflected in the workpapers, did not include collecting and analyzing evidence to identify intentional cover-up efforts. 2.In addition to in-depth analyses of pertinent documentation, our findings and conclusions are based on extensive interviews of witnesses, including the Assistant IG and lead analyst. Further, these interviews were conducted without the presence of OIG management and the influence that may result from such presence. Information contained in our report was taken from documentation we examined and witnesses we interviewed. To help refresh their recollections and focus them on the issues, we provided the witnesses with copies of relevant sections of the OIG manual and supporting documentation for the Special Inquiry. We have also included additional information in our report to support our findings. 3.According to the VA OIG criminal investigator who conducted the criminal investigation with the FBI, he never read the Special Inquiry report that was issued in 1995. Further, he said he has no idea as to whether statements in the report were true or accurate. 4.Section A of the Special Inquiry report is the Hospital and Central Region management's response to the unexplained deaths. That section concludes that the OIG found "no conclusive proof of an intentional cover-up by Medical Center and Region officials" and "no evidence of criminal conduct by top management." No attempt was made to formally reconcile the final Special Inquiry report to the underlying evidence until we asked whether such a reconciliation had been done. Further, following our request in 1997, the analyst who was responsible for referencing the report told us that she was unable to reconcile some of the stated facts. 5. We have added to our report a discussion of the types of issues we believe the OIG should have probed further and examples of instances in which further probing could have elicited additional information. 6.We disagree that a conclusion needs no supporting evidence. Since conclusions represent review and analysis of evidence, it is essential to include documentation and its analysis in the workpapers. But the OIG had no evidence or analysis to support its conclusion. Further, contrary to the OIG's conclusion, documentation in the OIG file suggested that the Hospital Director's actions limited access. For example, according to a memorandum for the record prepared by the lead analyst, the criminal investigator told the analyst that he suspected that the Hospital Director had told Hospital staff not to talk to investigators. 7.We have added a reference to our report about the OIG's receipt of an additional allegation from the complainant. 8.We have clarified our report to show the source of our statement about the reason for the OIG's delaying action on the complainant's allegations. 9.While we did not interview the Assistant IG for Healthcare Inspections, the IG is incorrect in his assumption that the facts as stated in our report are based solely on the statements made to us by the TQI Coordinator. Rather, the reason that we interviewed the TQI Coordinator was to corroborate statements contained in a January 1995 contact memorandum that she had prepared--immediately following the contact--to document her telephone conversation with the Assistant IG. 10.We have revised our report to reflect that the TQI Coordinator contacted the FBI at the request of the Associate Director and the Chief of Human Resources. 11.The referenced footnote has nothing to do with the Hospital management's investigation of alleged nepotism concerning the appointment of the Director's son as Chief of Human Resources. Rather, the purpose of the footnote is to inform the reader that the person who requested the TQI Coordinator to make calls concerning the complainant is the son of the individual on whom the complainant focused his allegations. 12.The IG's characterization of its June 1993 Hotline policies as the most recent is incorrect. The current policy was issued in August 1995 as reflected in our report. The OIG's May 1, 1998, acknowledgement of this fact appears in the appended addendum. 13.We have withdrawn our proposed recommendation for revising the OIG's August 1995 policies and procedures for protecting the privacy of complainants. We concur with the IG that any corrective action would require training and compliance with policy, not formulating or rewriting policy. Accordingly, we have made the appropriate changes to our report. 14.We have considered these comments and made changes to the report where appropriate. Aldo A. Benejam, Senior Attorney 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. 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Pursuant to a congressional request, GAO reviewed the Department of Veterans Affairs (VA) Office of Inspector General's (OIG) Special Inquiry into the alleged cover-up of an unexplained increase in deaths at the Harry S Truman Memorial Veterans Medical Center, Columbia, Missouri, focusing on: (1) whether the Special Inquiry report represents the results of OIG's review; (2) whether OIG complied with its policies in conducting the Special Inquiry; (3) why a delay occurred between receipt of the cover-up allegations in February 1993 and the beginning of the Special Inquiry in January 1995; (4) whether OIG protected the confidentiality of the staff physician who made the allegations of a cover-up; and (5) if OIG processes and procedures are adequate for ensuring confidentiality. GAO noted that: (1) the VA OIG conducted the Special Inquiry as a management review to determine how hospital and VA Central Region management had responded to an out-of-norm situation regarding unexplained deaths at the Hospital; (2) GAO determined that OIG did not collect or analyze evidence in a manner that would identify intentional cover-up efforts; (3) thus, the Special Inquiry's conclusion that no evidence of an intentional cover-up had been found was not consistent with the inquiry conducted and was misleading; (4) OIG failed to comply with its own reporting policies concerning completeness and accuracy by presenting statements that were not supported by the evidence contained in OIG files, including reference to a discussion that the Special Inquiry never verified; (5) OIG attributed the delay in acting upon the cover-up allegations received in February 1993 to administrative error; (6) the confidentiality of the staff physician who had made the allegations of a cover-up was breached on at least three occasions; and (7) OIG's current policies and procedures on confidentiality are adequate.
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Studies published by the Institute of Medicine and others have indicated that fragmented, disorganized, and inaccessible clinical information adversely affects the quality of health care and compromises patient safety. In addition, long-standing problems with medical errors and inefficiencies increase costs for health care delivery in the United States. With health care spending in 2006 reaching almost $2.1 trillion, or 16 percent of the gross domestic product, concerns about the costs of health care continue, and many policy makers, industry experts, and medical practitioners contend that the U.S. health care system is in a crisis. Health IT offers promise for improving patient safety and reducing inefficiencies. The expanded use of health IT has great potential to improve the quality of care, bolster the preparedness of our public health infrastructure, and save money on administrative costs. For example, as we reported in 2003, a 1,951-bed teaching hospital reported that it had realized about $8.6 million in annual savings by replacing outpatient paper medical charts with electronic medical records. This hospital also reported saving more than $2.8 million annually by replacing its manual process for managing medical records with an electronic process to provide access to laboratory results and reports. Technologies such as electronic health records and bar coding of certain human drug and biological product labels have been shown to save money and reduce medical errors. Health care organizations also reported that IT contributed other benefits, such as shorter hospital stays, faster communication of test results, improved management of chronic diseases, and improved accuracy in capturing charges associated with diagnostic and procedure codes. However, according to HHS, only a small number of U.S. health care providers have fully adopted health IT due to significant financial, technical, cultural, and legal barriers, such as a lack of access to capital, a lack of data standards, and resistance from health care providers. According to the Institute of Medicine, the federal government, as a regulator, purchaser, health care provider, and sponsor of research, education, and training, has a central role in shaping nearly all aspects of the health care industry. According to the Centers for Medicare and Medicaid Services, several federal health care programs, such as Medicare and Medicaid, spent almost $450 billion on health services in 2006, accounting for 23 percent of the nation's health care expenditures that year. Given the level of the federal government's participation in providing health care, it has been urged to take a leadership role in driving change to improve the quality and effectiveness of medical care in the United States, including an expanded adoption of IT. In an effort to leverage the federal government's role in health care, the President called for the Secretary of Health and Human Services to appoint a National Coordinator for Health Information Technology. The Secretary appointed the first National Coordinator in May 2004. Two months later, HHS released a framework document as the first step toward the development of a national strategy; the framework described goals for achieving nationwide interoperability of health IT and actions to be taken by both the public and private sectors to implement a strategy for reaching these goals. In 2005, the Secretary formed the American Health Information Community, a federally chartered commission, to advise the department on achieving its goals in this area: in particular, developing interoperable health information exchange through a future Nationwide Health Information Network and providing most Americans with access to secure electronic health records by 2014. The community is made up of representatives from both the public and private health care sectors. In 2005, it identified components of health care that could potentially achieve measurable results in two to three years, including electronic health records. The community makes recommendations to the Secretary for advancing interoperability in these areas, along with recommendations directed toward the identification of health IT standards, the advancement of nationwide health information exchange, the protection of personal health information, and other related issues. Additionally, in furtherance of the federal government's initiative to achieve expanded health IT adoption, in August 2006 President Bush issued an executive order calling for federal health care programs and their providers, plans, and insurers to use IT interoperability standards recognized by HHS. From its establishment in 2004 through 2008, the Office of the National Coordinator has received about $200 million in funding to support new efforts to ensure the adoption of health IT nationwide through the development of data standards and the implementation of projects on priority areas identified by the American Health Information Community. For the first 2 years of its operation (fiscal years 2004 and 2005), funding was provided from departmental discretionary funds allocated by the Secretary of Health and Human Services, and in fiscal year 2005 the office received $20 million. In fiscal year 2006, the department began submitting budget requests for the office. Table 1 shows the department's requested and actual budget for the office for fiscal years 2006 through 2008 and the amount requested for fiscal year 2009. HHS's overall departmental budget request for health IT for fiscal year 2009 is almost $115 million for various new and continuing initiatives within multiple HHS divisions. Besides the $66 million for the initiatives of the Office of the National Coordinator, this amount includes * $3.8 million to fund the second year of a project at the Centers for Medicare and Medicaid Services that provides financial incentives to physician practices to adopt certified electronic health record systems, and * $45 million for the Agency for Healthcare Research and Quality to fund health IT investments aimed at enhancing patient safety. The budget request also supports the continuation of an electronic health record system for all direct health care sites of the Indian Health Service. Since the Office of the National Coordinator has been funded, congressional interest in the expansion of health IT has increased. According to the Healthcare Information Management Systems Society, 41 pieces of legislation related to health IT were introduced by the 109th Congress, and, so far, the 110th Congress has introduced about 12 bills, reports, and resolutions; subjects addressed include grants and financial assistance to help support the implementation of health IT, provisions for incentives to health care providers for IT implementation, standards for exchanging health information, and protection of privacy and security of electronic health information. Additionally, in his 2008 State of the Union address, President Bush called for the 110th Congress to expand the use of health IT. Since 2005, we have reported and testified on HHS's efforts to define a national strategy for achieving widespread implementation of health IT, including an approach for ensuring the protection of electronic personal health information. We reported that through the Office of the National Coordinator for Health IT, HHS has taken a number of actions to promote the acceleration of the use of IT in the health care industry. For example, in late 2005 the National Coordinator's Office awarded several contracts to address a range of activities important for expanding the implementation of health IT; these activities include * defining criteria and a process for certifying the interoperability of electronic health records to help increase the number of health care providers adopting electronic health records, * defining health information standards needed to ensure the interoperability of electronic health records and health IT systems, * defining requirements for exchanging health information throughout a nationwide health information network, and * defining privacy and security policies to ensure the protection of electronic personal health information. In our previous work, we reported that although HHS had made progress in these areas, it still lacked an overall implementation strategy, including the detailed plans, milestones, and performance measures needed to ensure that the outcomes of its efforts are integrated and that the President's goals for the implementation of nationwide health IT are met. In May 2005, we recommended that HHS establish detailed plans and milestones for the development of a national health IT strategy and take steps to ensure that its plans are followed and milestones are met. We reiterated this recommendation in March 2006 and again in September 2006. We have also reported on HHS's efforts to ensure the privacy of personal health information exchanged within health information exchange networks. According to our work, although HHS had initiated several activities to help ensure the protection of health information, it had not defined an overall approach for health information privacy or an implementation strategy that included key elements such as timelines and milestones for completing its privacy-related initiatives. We recommended that HHS define and implement an overall privacy approach that identifies milestones for integrating the outcomes of its initiatives, ensures that key privacy principles are fully addressed, and addresses challenges associated with the nationwide exchange of health information. HHS and the Office of the National Coordinator have been pursuing various efforts to implement health IT solutions. Among other activities, the department has been relying on recommendations of the American Health Information Community to assist the office's health IT initiatives in several key areas aimed at the expansion of electronic health records, identification of health IT standards, advancement of nationwide health information exchange, protection of personal health information, and other related issues. In this regard, HHS and the Office of the National Coordinator have taken actions in the areas of electronic health records, standardization, networking and information exchange, and health information privacy and security: Electronic health records. To help expand the implementation of electronic health records, among other actions, HHS issued a contract for the Compliance Certification Process for Health IT. This contract, awarded to the Certification Commission for Health IT, is to define criteria and a certification process to ensure that various electronic health records products can be exchanged among different systems in health information exchange networks. In May 2006, HHS finalized a process and criteria for certifying the interoperability of outpatient electronic health records and described criteria for future certification requirements. Certification criteria for inpatient electronic health records were finalized in June 2007. To date, the Certification Commission has certified about 100 products offering electronic health records. The results of this effort are intended to help encourage health care providers to implement electronic health records by providing assurance that they will be able to use electronic records effectively and exchange them with other health IT systems. Standardization. Through a contract for the Standards Harmonization Process for Health IT, HHS is promoting the implementation of standards required to enable the exchange of electronic health information in federal health care programs, as well as ensure the interoperability of electronic health records and IT systems. Such standards are essential for the development of a nationwide health information network. The contractor, in collaboration with the National Institute for Standards and Technology, selected initial standards to address specific areas identified by the American Health Information Community. These standards address, among other things, requirements for message and document formats, along with technical network requirements. According to the contractor, the Secretary announced the recognition of these standards in January 2008 after a year-long period of review and testing by healthcare providers, government agencies, consumers and other stakeholders. Federal agencies that administer or sponsor federal health programs are now required to implement these standards, in accordance with President Bush's August 2006 Executive Order. Networking and information exchange. The Office of the National Coordinator has taken steps to enable health care entities--such as providers, hospitals, and clinical labs--to exchange electronic health information on a nationwide basis. HHS has awarded Nationwide Health Information Network contracts that were designed to provide prototypes of national networks of health information exchanges. These exchanges are intended to connect providers and patients from different regions of the country and enable the sharing of electronic health information, such as health records and laboratory results. Together, these connections are intended to form the "network of networks" that is envisioned to be the Nationwide Health Information Network. According to HHS, in early 2007 its contractors delivered final prototypes that could form the foundation of a nationwide network for health information exchange. In October 2007, the Secretary of Health and Human Services announced the award of contracts totaling $22.3 million to nine regional and state health information exchanges to begin trial implementations of the Nationwide Health Information Network. At the end of the first contract year-- September 2008--HHS intends for the nine organizations and the federal agencies that provide health care services to test their ability to work together and to demonstrate real-time information exchange based upon nationwide health information exchange specifications that they define. HHS plans to place these specifications and related testing materials in the public domain, so that they can be used by other health information exchange organizations to guide their efforts to adopt interoperable health IT. Health information privacy and security. HHS has taken steps to further address privacy and security issues associated with the nationwide exchange of personal health information. In June 2007, HHS reported the outcomes of its privacy and security solutions contract based on the work of 34 states and territories that participated in the contract. A final summary report described variations among organization-level business practices, policies, and laws for protecting health information that could affect organizations' abilities to exchange data. As a result of this work, HHS developed and made available to the public a toolkit to guide health information exchange organizations in conducting assessments of business practices, policies, and state laws that govern the privacy and security of health information exchange. Additionally, in discussions with us in June 2007, the National Coordinator for Health IT agreed with the need for an overall approach to protect health information and stated that the department was initiating steps to address our recommendation that HHS define and implement an overall privacy approach. Such an approach should be part of a comprehensive national strategy for health IT and should include milestones for integrating the outcomes of HHS's various privacy-related initiatives, ensure that key privacy principles are fully addressed, and address challenges associated with the nationwide exchange of health information. However, our recommendation for protecting health information has not yet been implemented. Further, although HHS has initiated specific activities intended to meet the goals of its framework for strategic action, and it is continuing efforts to expand the nationwide implementation of health IT, it is undertaking these activities without a comprehensive national strategy that includes the detailed plans, milestones, and performance measures needed to ensure that the outcomes of its various initiatives are integrated and its goals are met. Given the many activities to be coordinated, such a national strategy is essential. The National Coordinator acknowledged in March 2006 that more detailed plans were needed for the office's various initiatives and told us that HHS intended to release a strategic plan with detailed plans and milestones in late 2006. Nonetheless, today the office still lacks the detailed plans, milestones, and performance measures that are needed. According to its fiscal year 2009 performance plans, the Office of the National Coordinator has prepared a draft health IT strategic plan, which it intends to release in the second quarter of 2008. If properly developed and implemented, this strategy should help ensure that HHS's various health IT initiatives are integrated and effectively support the goal of widespread adoption of interoperable electronic health records. In summary, Mr. Chairman, our work shows that the Office of the National Coordinator for Health Information Technology has been undertaking important work on specific activities supporting the goals of its framework for strategic action. However, HHS has not yet defined detailed plans and milestones for integrating the various initiatives, nor has it developed performance measures for tracking progress toward the President's goal for widespread adoption of interoperable electronic health records by 2014. To its credit, the office has taken steps to advance electronic health record adoption, identify interoperability standards, enable nationwide health information exchange, and protect personal health information. However, given the amount of work yet to be done and the complex task of integrating the outcomes of HHS's various initiatives, it is essential that a national strategy for health IT be defined that includes plans, milestones, and performance measures for ensuring progress toward the President's goals. Without such a strategy, it is difficult to gauge the amount of progress being made by HHS toward achieving widespread adoption of interoperable electronic health records by 2014. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other Members of the Committee may have. If you should have any questions about this statement, please contact me at (202) 512-6304 or by e-mail at [email protected]. Other individuals who made key contributions to this statement are Barbara S. Collier, Amanda C. Gill, Nancy E. Glover, M. Saad Khan, and Teresa F. Tucker. 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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Health information technology (IT) offers promise for improving patient safety and reducing inefficiencies. Given its role in providing health care in the United States, the federal government has been urged to take a leadership role to improve the quality and effectiveness of health care, including the adoption of IT. In April 2004, President Bush called for widespread adoption of interoperable electronic health records within 10 years and issued an executive order that established the position of the National Coordinator for Health Information Technology within the Department of Health and Human Services (HHS). The National Coordinator, appointed in May 2004, released a framework for strategic action two months later. In late 2005, HHS also awarded several contracts to address key areas of health IT. GAO has been reporting on the department's efforts toward nationwide implementation of health IT since 2005. In prior work, GAO recommended that HHS establish detailed plans and milestones for the development of a national health IT strategy and take steps to ensure that its plans are followed and milestones met. For this testimony, GAO was asked to describe HHS's efforts to advance the use of health IT. To do this, GAO reviewed prior reports and agency documents on the current status of relevant HHS activities. HHS and the Office of the National Coordinator have been pursuing various activities in key areas associated with the President's goal for nationwide implementation of health IT. In 2005, the department established the American Health Information Community, a federal advisory committee, to help define the future direction of a national strategy for health IT and to make recommendations to the Secretary of Health and Human Services for implementing interoperable health IT. The community has made recommendations directed toward key areas of health IT, including the expansion of electronic health records, the identification of standards, the advancement of nationwide health information exchange, the protection of personal health information, and other related issues. Even though HHS is undertaking these various activities, it has not yet developed a national strategy that defines plans, milestones, and performance measures for reaching the President's goal of interoperable electronic health records by 2014. In 2006, the National Coordinator for Health Information Technology agreed with GAO's recommendation that HHS define such a strategy; however, the department has not yet done so. Without an integrated national strategy, HHS will be challenged to ensure that the outcomes of its various health IT initiatives effectively support the President's goal for widespread adoption of interoperable electronic health records.
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Since 2000, we have identified problems ranging from significant cost and schedule overruns on major projects to ineffective oversight of safety and security at NNSA and EM sites, indicating that DOE and NNSA continue to face challenges in ensuring the effectiveness of their oversight efforts. Examples, in chronological order, of the problems on which we have reported and where ineffective oversight was identified as a cause include the following: 2004: a suspension--or stand-down--of operations at one NNSA laboratory to address systemic safety and security concerns identified after an undergraduate student was partially blinded in a laser accident and two classified computer disks were reported missing; 2006: the discovery of a large number of classified documents and electronic files that had been unlawfully removed from an NNSA laboratory as a result of a drug raid on a private residence; 2007: nearly 60 serious accidents or near misses including worker exposure to radiation, inhalation of toxic vapors, and electrical shocks at three nuclear weapons laboratories from 2000 through 2007; 2008: the identification of significant protective force weaknesses (i.e., 13 specific deficiencies) during an independent physical security evaluation of an NNSA laboratory that included a force-on-force exercise to simulate an attack on a sensitive facility; 2012: 11 public hearings held since 2002 to address concerns about DOE's safety practices by the Defense Nuclear Facilities Safety Board--an independent executive branch agency created by Congress to independently assess safety conditions and operations at defense nuclear facilities at DOE's sites, including NNSA and EM; 2012: a serious security breach at an NNSA production plant--the Y- 12 National Security Complex (Y-12) near Oak Ridge, Tennessee--in which three trespassers gained access to the protected area directly adjacent to one of the nation's most critically important nuclear weapon-related facilities before being interrupted by the security measures in place, resulting in the identification of multiple and unprecedented security system failures; and 2014: operations were shut down at WIPP following an underground fire involving a vehicle and, 9 days later, an unrelated radiological event occurred when a nuclear waste container breached underground at WIPP, contaminating a portion of the WIPP facility and releasing a small amount of contamination into the environment. DOE and NNSA policies and orders concerning oversight of M&O contractors have evolved over time and now require that each DOE M&O contractor--including those overseen by NNSA and EM--have a CAS. In April 2002, in an internal memorandum, DOE outlined an approach for improving contract performance and promoting greater contractor accountability by, among other things, moving from an oversight approach focused on compliance with requirements contained in DOE orders and directives to relying on contractor management information provided through CAS to establish accountability and drive improvement. In 2005, DOE issued DOE Policy 226.1, Department of Energy Oversight Policy, and followed it with an associated implementing order requiring that assurance systems be implemented by DOE M&O contractors, among others, to encompass all aspects of the activities designed to identify deficiencies and opportunities for improvement. The focus of this DOE policy and order was to drive continuous improvement through contractor self-assurance and effective federal oversight. In March 2010, the Deputy Secretary of Energy announced a reform effort to revise DOE's safety and security directives and modify the department's oversight approach to "provide contractors with the flexibility to tailor and implement safety without excessive federal oversight or overly prescriptive departmental requirements." In the memorandum announcing this effort, the Deputy Secretary noted that oversight of contractors' activities at DOE and NNSA sites had become excessive and that burdensome safety requirements were affecting the productivity of work at DOE's sites. The memorandum stated that reducing this burden on contractors would lead to measurable productivity improvement. In February 2011, NNSA issued a policy (NAP-21) with the purpose of providing further direction to NNSA officials and M&O contractors about the framework for the oversight model. Later in 2011, DOE issued Policy and Order 226.1B, which updated DOE's oversight policy. While the previous DOE oversight policy and order were focused on driving continuous improvement, the 2011 versions--which are still in use--focus on improving the efficiency and effectiveness of DOE oversight programs by leveraging the processes and outcomes of CAS to reduce direct, hands-on oversight, when appropriate. Under the oversight framework, federal overseers are to continue to give additional oversight emphasis to high-hazard and high-risk operations, but where it can be determined that risk is lower and contractor-generated information in CAS is reliable, federal oversight can rely more on information from CAS. NAP-21, which similarly focuses on the oversight efficiencies that can be gained by appropriately leveraging information from CAS, specifically applies to NNSA and its M&O contractors and elaborates on the more general DOE oversight policy and order by (1) developing an approach for federal officials to use in determining the appropriate mix of oversight activities for different contractor-performed functions and (2) by establishing a process by which NNSA would affirm the effectiveness of both CAS implementation by the contractor and the federal oversight approach at each site in the nuclear security enterprise. First, NAP-21 describes a spectrum of approaches that can be employed by NNSA officials to oversee M&O contractors. On one side of the spectrum is "transaction-based oversight," or direct, hands-on oversight activities to test or observe contractors' performance through such mechanisms as on-site reviews, facility inspections, and other actions that involve direct evaluation of contractor activities. On the other side of the spectrum is "systems-based oversight," where federal overseers rely on contractors' processes and information from their CAS. NAP-21 calls for NNSA to use a mix of systems-based and transaction-based oversight approaches in overseeing contractors' performance and provides a framework for determining the appropriate mix of these approaches based on the results of a three-pronged evaluation: (1) a risk assessment that analyzes the likelihood that an event will occur that adversely affects the achievement of mission or program objectives or harms human health or the environment; (2) a CAS maturity assessment that establishes the level of confidence NNSA officials have in the adequacy of performance information developed by the contractor and the ability of the contractor to effectively identify and address performance weaknesses; and (3) an assessment that considers the contractors' prior performance for a specific activity. NNSA's oversight framework allows for the oversight for any particular activity to range from primarily transaction-based oversight to primarily systems-based, or anywhere in between based on the outcome of these three assessments. Figure 1 shows the factors--as described in NAP-21--that should be considered by NNSA officials in determining an appropriate oversight approach. NAP-21 anticipates that, over time, as contractors' CAS mature, NNSA officials will use transaction-based oversight primarily for areas of highest risk and hazard, and systems-based oversight for lower risk and hazard activities where they can rely more heavily on a contractor's CAS. Second, NAP-21 includes a process, known as "affirmation," designed for a federal assessment review team--composed of staff from NNSA program offices and field offices--to review each field office's mix of oversight approaches and practices, as well as implementation of each M&O contractor's CAS. The goal of the review is to affirm that each contractor has a fully implemented and reliable CAS and that each field office's approach to oversight is appropriate. According to senior agency officials, these affirmation reviews were envisioned as a crucial element in ensuring the effectiveness of NNSA's overall approach to contractor oversight across the nuclear security enterprise. In addition, as the nation's only permanent disposal site for certain types of defense nuclear waste, key nuclear weapons missions depend on the availability of DOE's WIPP in order to continue their own operations. WIPP's operations were suspended in February 2014 following the underground vehicle fire and unrelated radiological event. In April 2015, DOE formally determined that the nuclear waste container that breached resulting in the radiological event at WIPP was packaged at NNSA's Los Alamos National Laboratory (LANL). At the time of the 2014 incident at WIPP, waste packaging operations at LANL, were overseen by NNSA's Los Alamos Field Office in coordination with EM's CBFO, which provided additional verification by certifying packaged radioactive waste containers to ensure they met criteria set by CBFO for disposal in WIPP. At WIPP itself, oversight of the M&O contractor is led by EM through the CBFO. In our May 2015 report, we found that NNSA has not fully established policy or guidance to support determining appropriate approaches to overseeing its M&O contractors, including for using information from CAS. Specifically, we found that NNSA does not have complete policy or guidance to support the assessments NAP-21 requires for determining an effective approach to overseeing M&O contractors at each site. NAP-21 outlines the three-pronged evaluation framework NNSA officials are responsible to carry out in determining an appropriate mix of oversight approaches based on assessments of risk, CAS maturity, and past performance. However, NAP-21 does not provide detailed or comprehensive guidance to NNSA officials on how to conduct these assessments, and NNSA headquarters has not issued any additional guidance for this purpose. We found that DOE and NNSA have some policies and guidance that are relevant to conducting risk assessments for security and safety and, in some cases, for large construction projects. We did not, however, identify any headquarters-level policy or guidance for assessing CAS maturity, for assessing contractors' past performance to inform an oversight approach, or for assessing risk in other areas. Without such policy or guidance, NNSA officials responsible for conducting assessments may do so inconsistently, and thus treat similar risks differently. Further, we found that NNSA did not complete a chapter of NAP-21, which appears in the policy's table of contents with the title Requirements Analysis Process, but the corresponding page in the document simply notes that the details of the chapter would be developed at a later date. NNSA officials told us the content of this chapter was intended to establish a process for NNSA to identify requirements in DOE and NNSA orders and directives essential to support safe and effective mission accomplishment and that this identification could assist M&O contractors in identifying key performance measures that could be tracked in CAS to help contractors ensure their compliance with requirements. As a result of our findings, we recommended that NNSA establish comprehensive oversight polices including for using information from CAS to conduct oversight of M&O contractors and describing how to conduct assessment of risk, CAS maturity, and the level of the contractor's past performance in determining an appropriate oversight approach. NNSA concurred with our recommendation and stated that it will cancel NAP-21 and instead issue a new corporate policy that will form a comprehensive framework for CAS in the context of ensuring safe, secure, and high- quality mission delivery. NNSA estimated it will complete this policy by September 30, 2015. In the absence of sufficiently detailed and comprehensive guidance from NNSA headquarters for determining an appropriate mix of oversight approaches, NNSA field offices responsible for day-to-day oversight of M&O contractors reported developing their own procedures for this purpose. As described in our May 2015 report, these officials reported that their field office procedures for assessing risk were complete, but that their procedures for assessing CAS maturity and past performance in determining an appropriate oversight approach were not always complete. In addition, we found substantial differences among the procedures field offices had that may affect NNSA's ability to ensure consistent oversight of its contractors. For example, the five field offices that reported having complete procedures for assessing CAS maturity used different processes and scales for rating maturity. While each of these procedures may be effective for each field office's purposes, these differences could affect the consistency with which NNSA's field offices are determining an appropriate mix of oversight approaches across the nuclear security enterprise. We recommended that NNSA work with field office managers to establish field office procedures consistent with headquarters policy and guidance to support assessment practices for determining appropriate oversight approaches. NNSA concurred with our recommendation and stated that field offices will develop new or modify existing procedures, as appropriate, to support the new requirements and estimated the completion date for these activities is September 2016. Furthermore, field office officials have raised concerns that staffing levels and the mix of staff skills may not be adequate to conduct appropriate oversight in the near future and that this may result in overreliance on information from CAS without the ability to ensure that this information is sufficiently reliable. For example, in response to our survey of field offices conducted for our May 2015 report, six of NNSA's seven field offices responded that having fewer staff to implement NAP-21's approach to oversight is a challenge. Furthermore, five of seven field offices noted that not having certain subject matter experts is a challenge for oversight that could be exacerbated in the future as senior field office staff are expected to become retirement eligible. In a January 2013 report to DOE's Federal Technical Capability Panel, one field office reported that its staffing levels were less than the number required to perform the oversight identified as necessary. This field office noted that staffing shortages were offset through support from other offices and increased reliance on contractor- generated information from CAS. The 2013 report did not indicate if the field office's increased reliance on information from CAS for oversight was supported by the field office's analysis of the risk of the activity, the maturity level of the contractor's CAS, and contractor performance in the area. We found that NNSA has not assessed whether it has sufficient, qualified personnel to implement the oversight framework described in NAP-21. We recommended that NNSA assess staffing needs to determine whether it has sufficient qualified personnel to conduct oversight activities consistent with comprehensive polices and guidance, including use of information for CAS. NNSA concurred with our recommendation and stated that it will assess staffing needs by December 2016, to allow for field level policies and procedures to be considered in the development of the staffing strategy. We also found that NNSA headquarters discontinued affirmation reviews (the process established by NAP-21 for reviewing the effectiveness of contractors' CAS implementation and field offices' oversight approaches) effectively eliminating the primary internal control activity that NAP-21 included for the agency to evaluate oversight effectiveness across the nuclear security enterprise. Prior to discontinuing this process, NNSA conducted affirmation reviews at three sites--Sandia National Laboratories, the Nevada National Security Site, and the Y-12 National Security Complex--and all three reviews resulted in affirmations of the effective implementation of the contractor's CAS and of the federal oversight approach. However, following the 2012 security incident at Y- 12--which occurred after NNSA affirmed the implementation and reliability of the contractor's CAS and the effectiveness of the Y-12 field office's mix of oversight approaches--NNSA discontinued its affirmation review process. According to NNSA officials, after investigating the root causes for the security lapse at Y-12, NNSA determined that its affirmation reviews focused too heavily on affirming that a CAS existed and covered the five required attributes of a CAS as outlined in NAP-21. According to NNSA officials, the affirmation reviews did not focus enough on evaluating the effectiveness of either the contractor's CAS or the field office's approach to determining the appropriate mix of systems- and transaction-based oversight. After discontinuing the affirmation reviews, NNSA initiated an Oversight Improvement Project to focus on evaluating the effectiveness of contractors' CAS and field offices' oversight approaches. However, a senior NNSA official told us the project was never completed, and NNSA has not developed another process in lieu of affirmation reviews. Discontinuing affirmation reviews without replacing them with another form of validation eliminates the internal control activity in NAP-21 to provide NNSA with assurance of oversight effectiveness across the nuclear security enterprise. Further, continuing a process to review the effectiveness of oversight approaches would have provided information allowing for oversight practices to be compared across field offices and for differences among them to be evaluated. According to NNSA headquarters and field officials, there is no current mechanism for this to occur. We recommended that NNSA reestablish a process for reviewing the effectiveness of field offices' oversight approaches, including their determinations for how and when to use information from CAS. NNSA concurred with our recommendation and stated that its new corporate policy and guidance will outline such an approach for validating the effectiveness of the field office oversight activities and estimated the completion for the effort to be March 2016. Our preliminary observations on NNSA's oversight of waste packaging activities at LANL parallel two of the findings from our recently released May 2015 report. Our preliminary observations are based on our review of specific sections of DOE's Phase II accident investigation board report on the radiological release. First, with regard to our finding that NNSA has not fully established policies or guidance for using information from CAS to conduct oversight of M&O contractors, the accident investigation board report on WIPP found that NNSA's Los Alamos Field Office was overreliant on CAS for environmental compliance oversight. The accident investigation board report also found that the field office did not adequately conduct transactional assessments of the contractor in areas such as environmental compliance and operations of the LANL facility where the TRU waste container that breached was processed and packaged. According to the accident investigation board report, the NNSA field office's overreliance on the contractor-generated information in CAS was not consistent with a 2011 NNSA review that observed CAS was still maturing and that a strong NNSA field office oversight presence should continue. Moreover, the accident investigation board identified specific deficiencies in CAS such as inadequate contractor self-assessments regarding waste processing and packaging and concluded that CAS was not effective in identifying weaknesses that contributed to the incident. Under the oversight framework, determining that a CAS is not fully mature would result in a heavier reliance on transactions-based approaches to overseeing LANL's waste packaging operations. Second, with respect to our finding that NNSA field office officials have raised concerns that staffing levels and the mix of staff skills may not be adequate to conduct appropriate oversight--which may result in overreliance on information from CAS--according to the accident investigation board report on WIPP Los Alamos Field Office officials attributed their overreliance on the information in CAS for environmental compliance oversight to a lack of resources to directly perform this oversight. The report also found that the field office did not have senior technical expertise, such as organic chemistry expertise, necessary for conducting adequate technical reviews related to the contractor's processing of the TRU wastes, which were the source of the radiological release at WIPP. Our preliminary observations on DOE's processes for overseeing the contractor responsible for managing and operating WIPP indicate that EM has not outlined an EM-specific policy framework for its field office officials to use in establishing and implementing effective oversight programs beyond the 2011 DOE oversight policy and order. However incomplete, NNSA developed NAP-21 in an effort to elaborate on DOE's policy and order by providing an NNSA-specific oversight policy framework that included a three-pronged evaluation framework for determining an appropriate oversight approach. EM headquarters officials told us that EM does not provide its field offices supplemental EM-specific policy or other formal direction on how to use the broad DOE oversight order but encourages them to use DOE's oversight guide focused on nuclear safety that provides suggested, not mandatory, approaches to designing and implementing field office oversight programs. For example, this guide describes site-specific conditions that field offices should consider in establishing oversight priorities and allocating oversight resources, including consideration of the types of nuclear facilities and their hazards and the status and effectiveness of the contractor's CAS. At this point in our ongoing review, we are not aware of examples of direction provided to EM field offices to oversee M&O contractors' performance in areas other than nuclear safety, such as business operations or safeguards and security. EM headquarters officials told us that EM provides field offices with evaluation guides that they can use to develop their evaluations of specific elements of a contractor's nuclear facility safety program, such as the WIPP's M&O contractor's CAS. We have not yet evaluated the DOE oversight guide, EM's reliance on it, or the evaluation guides EM has developed for its field offices, but we will do so as we complete our work. In conclusion, GAO has reported for years on the management challenges DOE faces, as well as specific safety and security incident such as the recent accident at WIPP. DOE's management and oversight reform efforts have sought to address the conditions underlying safety and security failures, but recent events at WIPP show that more work is needed. Our recently released report concludes that NNSA does not have complete standards against which to measure whether oversight approaches are effective, including how information from CAS is being used for oversight. This is because NNSA does not have complete policy or guidance to implement the oversight framework and has discontinued its reviews intended to evaluate the effectiveness of field offices' oversight approaches; also, in the absence of headquarters policy or guidance, its field offices have developed procedures that are not fully complete and differ. As a result, NNSA runs the risk of not using its oversight resources effectively, either by underutilizing information from CAS and missing opportunities for efficiency, or by overrelying on information from CAS and possibly missing contractor performance issues that put safety, security, or mission accomplishment at risk. With respect to the recent events at WIPP, these issues concern DOE as well. Chairman Murphy, Ranking Member DeGette, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to answer any questions that you may have at this time. If you or your staff members have any questions concerning this testimony, 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 statement. Other individuals who made key contributions include David Trimble, Director; Daniel Feehan, Assistant Director; David Bennett; Richard Burkard; John Delicath; Brian M. Friedman; Carly Gerbig; Christopher Pacheco; Eli Lewine; Rebecca Shea; Rajneesh Verma; and Kiki Theodoropoulos. 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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A 2005 DOE policy required the department's M&O contractors to implement assurance systems to drive continuous improvement through contractor self-assessment and effective federal oversight. A policy change in 2011 sought to improve the efficiency and effectiveness of DOE oversight programs by leveraging the contractor-generated information from CAS to reduce hands-on oversight, when appropriate. Also, in 2011, NNSA developed a framework for overseeing its M&O contractors, including a three-pronged evaluation for determining how and when to use information from CAS by evaluating the risk of contractors' activities, contractor's past performance, and the maturity of their CAS. Recent security and safety incidents at DOE and NNSA sites, including a 2014 nuclear waste accident, have caused some to question the extent to which information from CAS can be relied on for overseeing M&O contractors. This testimony discusses NNSA's policy and procedures for implementing the framework, including its use of information from CAS and its process for evaluating oversight effectiveness. Based mainly on GAO's May 2015 report ( GAO-15-216 ), it also discusses preliminary observations from ongoing work related to the 2014 accident for which GAO is analyzing NNSA and DOE policies and guidance on oversight and accident investigation reports completed by DOE and others In May 2015, GAO found that the Department of Energy's (DOE) National Nuclear Security Administration (NNSA) had not fully established policy or guidance for using information from contractor assurance systems (CAS) to conduct oversight of management and operating (M&O) contractors. NNSA did not provide comprehensive guidance to agency officials on how to conduct assessments required by its oversight framework. In particular, NNSA did not provide guidance for assessing the maturity of contractors' CAS to determine whether information from these systems is sufficiently reliable for oversight purposes. As a result, NNSA cannot ensure that it is appropriately relying on information from CAS in overseeing these contractors. NNSA agreed with GAO's recommendation to establish a comprehensive oversight policy, including for assessments to determine how to use information from CAS for oversight. In the absence of headquarters level policy or guidance, GAO found in May 2015 that NNSA field offices established their own procedures for determining appropriate oversight approaches, but these procedures were not always complete, and they differed. For example, five of NNSA's seven field offices reported having complete procedures for assessing CAS maturity, but these procedures described different processes and rating scales for conducting such assessments, which could affect the consistency of how field offices determine oversight approaches. NNSA agreed with GAO's recommendation for field offices to develop new or modify existing procedures consistent with new headquarters policy. NNSA's 2011 policy included a process for validating the effectiveness of field offices' oversight approaches, including the extent to which their approaches appropriately used information from CAS, but GAO found in May 2015 that NNSA discontinued this process after determining that it had not been effective. Discontinuing this process without replacing it eliminated NNSA's internal control for ensuring the effectiveness and consistency of oversight approaches. NNSA agreed with GAO's recommendation to reestablish such a process. Preliminary observations from GAO's ongoing work to evaluate the 2014 nuclear waste accident at DOE's Waste Isolation Pilot Plant in New Mexico parallel GAO's findings on NNSA's framework for contractor oversight. For example, DOE's accident investigation board reported that the NNSA field office responsible for overseeing waste packaging and processing overrelied on contractor-generated information from CAS instead of directly conducting assessments and that the decision to do so was inconsistent with a 2011 NNSA review, which concluded the contractor's CAS was still maturing. GAO made several recommendations in its May 2015 report with which NNSA concurred and for which it plans to take action.
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As is the case with each new Congress, we are beginning to have discussions with regard to many new requests for GAO's professional, objective, fact-based, nonpartisan, and non-ideological information, analysis, and recommendations. On November 17, 2006, I was pleased to offer three sets of recommendations for your consideration as part of the agenda of the 110th Congress. The first recommendation suggests targets for near-term oversight; the second proposes policies and programs in need of fundamental reform and re-engineering; the third lists governing issues. The proposals represent an effort to synthesize GAO's institutional knowledge and special expertise and suggest both the breadth and the depth of the issues facing the new Congress. We at GAO stand ready to assist the 110th Congress in meeting its constitutional responsibilities. To be effective, congressional hearings and other activities should offer opportunities to share best practices, facilitate governmentwide transformation, and promote accountability for delivering positive results. On January 9, 2007, we presented GAO's assessment of the key oversight issues related to Iraq for consideration in developing the oversight agenda of the 110th Congress and in analyzing the President's revised strategy for Iraq. This assessment was based on our ongoing work and the 67 Iraq- related reports and testimonies we have provided to the Congress since May 2003. Our work spans the security, political, economic, and reconstruction prongs of the U.S. national strategy in Iraq. The broad, crosscutting nature of this work helps minimize the possibility of overlap and duplication by any individual inspector general. Our work has focused on the U.S. strategy and costs of operating in Iraq, training and equipping the Iraqi security forces, governance and reconstruction issues, the readiness of U.S. military forces, and achieving desired acquisition outcomes. Our current work draws on our past work and regular site visits to Iraq and the surrounding region, such as Jordan and Kuwait. We plan to establish a presence in Iraq beginning later this fiscal year to provide additional oversight of issues deemed important to the Congress; subject to approval by the U.S. Department of State and adequate funding. We have requested supplemental fiscal year 2007 funds of $374,000 to support this effort. In January of this year, we also issued our High-Risk Series: An Update, which identifies federal areas and programs at risk of fraud, waste, abuse, and mismanagement and those in need of broad-based transformations. The issues affecting many of these areas and programs may take years to address, and the report will serve as a useful guide for the Congress's future programmatic deliberations and oversight activities. Issued to coincide with the start of each new Congress, our high-risk update, first issued in 1993, has helped Members of the Congress who are responsible for oversight and executive branch officials who are accountable for performance. Our high-risk program focuses on major government programs and operations that need urgent attention or transformation to ensure that our government functions in the most economical, efficient, and effective manner possible. Overall, our high-risk program has served to identify and help resolve a range of serious weaknesses that involve substantial resources and provide critical services to the public. Table 1 details our 2007 high-risk list. In February of this year, we issued a new publication entitled Fiscal Stewardship: A Critical Challenge Facing Our Nation that is designed to provide the Congress and the American public, in a relatively brief and understandable form, selected budget and financial information regarding our nation's current financial condition, long-term fiscal outlook, and possible ways forward. In the years ahead, our support to the Congress will likely prove even more critical because of the pressures created by our nation's current and projected budget deficit and growing long-term fiscal imbalance. Indeed, as the Congress considers those fiscal pressures, it will be grappling with tough choices about what government does, how it does business, and who will do the government's business. GAO is an invaluable tool for helping the Congress review, reprioritize, and revise existing mandatory and discretionary spending programs and tax policies. In addition, I have participated in a series of town hall forums around the nation to discuss the federal government's current financial condition and deteriorating long-term fiscal outlook, including the challenges posed by known long-term demographic trends and rising health care costs. These forums, popularly referred to as the "Fiscal Wake-up Tour," are led by the Concord Coalition and also include the Heritage Foundation, the Brookings Institution, and a range of "good government" groups. The Fiscal Wake-up Tour states the facts regarding the nation's current financial condition and long-term fiscal outlook in order to increase public awareness and accelerate actions by appropriate federal, state, and local officials. We anticipate that the funds requested for fiscal year 2008 will support efforts similar to those just completed in fiscal year 2006. The following discussions summarize that work. In fiscal year 2006, major events like the nation's recovery from natural disasters, ongoing military conflicts abroad, terrorist threats, and potential pandemics repeatedly focused the public eye on the federal government's ability to operate effectively and efficiently and provide services to Americans when needed. Our work during the year helped the Congress and the public judge how well the federal government performed its functions and consider alternative approaches for improving operations and laws when performance was less than adequate. For example, teams supporting all three of our external strategic goals performed work related to every facet of the Hurricane Katrina and Rita disasters--preparedness, response, recovery, long-term recovery, and mitigation. We developed a coordinated and integrated approach to ensure that the Congress's need for factual information about disaster preparedness, response, recovery, and reconstruction activities along the Gulf Coast was met. We examined how federal funds were used during and after the disaster and identified the disaster rescue, relief, and rebuilding processes that worked well and not so well throughout the effort. To do this, staff drawn from across the agency spent time in the hardest hit areas of Louisiana, Mississippi, Alabama, and Texas, collecting information from government officials at the federal, state, and local levels as well as from private organizations assisting with this emergency management effort. We briefed congressional staff on our preliminary observations early in fiscal year 2006 and subsequently issued over 30 reports and testimonies on Hurricanes Katrina and Rita by fiscal year end, focusing on, among other issues, minimizing fraud, waste, and abuse in disaster assistance and rebuilding the New Orleans hospital care system. The following tables provide summary information on GAO's fiscal year 2006 performance and the results achieved in support of the Congress and the American people. Additional information on our performance results can be found in Performance and Accountability Highlights Fiscal Year 2006 at www.gao.gov. Table 2 provides examples of how GAO assisted the nation in fiscal year 2006. During fiscal year 2006, we used 16 annual performance measures that capture the results of our work; the assistance we provided to the Congress; our ability to attract, retain, develop, and lead a highly professional workforce; and how well our internal administrative services help employees get their jobs done and improve their work life (see table 3). We generally exceeded the targets we set for all of our performance measures, which indicate our ability to produce results for the nation and serve the Congress. In fiscal year 2006, our work generated $51 billion in financial benefits, primarily from actions agencies and the Congress took in response to our recommendations. Of this amount, about $27 billion resulted from changes to laws or regulations, $10 billion resulted from agency actions based on our recommendations to improve services to the public, and $14 billion resulted from improvements to core business processes. See figure 2 for examples of our fiscal year 2006 financial benefits. Our fiscal year 2008 budget request seeks the resources necessary to allow GAO to rebuild and enhance its workforce, knowledge capacity, employee programs, and infrastructure. These items are critical to ensure that GAO can continue to provide congressional clients with timely, objective, and reliable information on how well government programs and policies are working and, when needed, recommendations for improvement. In the years ahead, our support to the Congress will likely prove even more critical because of the pressures created by our nation's current and projected budget deficit and growing long-term fiscal imbalance. GAO is an invaluable tool for helping the Congress review, reprioritize, and revise existing mandatory and discretionary spending programs and tax policies. Consistent with our strategic goal to be a model agency, we continuously assess our operations to ensure that GAO remains an effective, high- performing organization, providing timely, critical support to the Congress while being fiscally responsive. Our objective is to be an employer of choice; maintain skills/knowledge, performance-based, and market- oriented compensation systems; adopt best practices; benchmark service levels and costs against comparable entities; streamline our operations to achieve efficiencies; assess opportunities for cross-servicing, outsourcing, or business process re-engineering; and leverage technology to increase efficiency, productivity, and results. We also continue to partner within and across the legislative branch through the legislative branch Chief Administrative Officers, financial management, and procurement councils. Transformational change and innovation is essential for progress. Our fiscal year 2008 budget request includes funds to regain the momentum needed to achieve these goals. Our fiscal year 2008 budget request will allow GAO to address supply and demand imbalances in responding to congressional requests for studies in areas such as health care, homeland security, the global "war on terrorism," energy and natural resources, and forensic auditing; address our increasing bid protest workload; be more competitive in the labor markets where GAO competes for talent; address critical human capital components, such as knowledge capacity building, succession planning, and staff skills and competencies; enhance employee recruitment, retention, and development programs; restore program funding levels and regain our purchasing power; undertake critical initiatives necessary to continuously re-engineer processes geared to increasing our productivity and effectiveness and addressing identified management challenges; and pursue critical structural and infrastructure maintenance and improvements. Our fiscal year 2008 budget request represents an increase of $41.7 million (or 8.5 percent) over our fiscal year 2007 funding level and includes about $523 million in direct appropriations and authority to use about $7.5 million in offsetting collections as illustrated in table 5. This request reflects a reduction of nearly $5.4 million in nonrecurring fiscal year 2007 costs used to offset the fiscal year 2008 increase. Mandatory pay and uncontrollable cost increases. We are requesting $24.9 million to cover anticipated mandatory performance-based pay and uncontrollable inflationary increases resulting primarily from annual across-the-board and performance-based increases, annualization of prior fiscal year costs, and an increase in the number of compensable days in fiscal year 2008. These costs also include uncontrollable inflationary increases imposed by vendors as the cost of doing business. Rebuilding our capacity. Our fiscal year 2007 budget request sought funds to support an increase of 50 FTEs from 3,217 to 3,267. However, in order to manage within expected funding levels in fiscal year 2007, we will significantly curtail hiring by about 50 percent below the previous year, resulting in a projected FTE utilization of 3,159--well below our planned level. In fiscal years 2007 and 2008, we anticipate attrition of over 600 staff that will result in a significant drain on GAO's knowledge capacity or institutional memory. Further, almost 20 percent of all GAO staff will be eligible for retirement by the end of fiscal year 2008, including almost 45 percent of our senior executive service. Thus, in fiscal year 2008, we are seeking funds to rebuild our staff and knowledge capacity. In fiscal year 2008, we plan to hire about 490 staff-- the maximum that we could reasonably absorb--increasing our FTE utilization to 3,217. While we are tempering our immediate FTE request, increasingly higher demands are being placed on GAO. We are experiencing supply and demand imbalances in several areas of critical importance to the Congress (e.g., health care, homeland security, and energy and natural resources). We have also seen an increase in the number of bid protest filings. Also, to remain competitive in the labor markets, we need to increase employee benefits in areas such as student loan repayments and transit subsidies where funding constraints in fiscal year 2007 limit our flexibility. For example, effective in January 2007, the IRS increased the monthly benefit for transit subsidies for eligible employees who commute using public transportation. GAO, however, is unable to extend this increased benefit to staff. In addition, we need to ensure that staff have the appropriate tools and resources to perform effectively, including training and development, travel funds, and technology. And when our staff perform well, they should be appropriately rewarded. Undertake critical investments. We are requesting funds to undertake critical investments that would allow us to implement technology improvements and streamline and re-engineer work processes to enhance the productivity and effectiveness of our staff, conduct essential investments that have been deferred as the result of funding constraints and cannot continue to be deferred, and implement responses to changing federal conditions, such as smart card technology. Also, during recent years, we reduced, deferred, and slowed the pace of critical upgrades (e.g., engagement and administrative process upgrades) and deferred nonessential administrative activities. In fiscal year 2008, we would like to have sufficient funding to take action to protect our current investments and continue to be a model agency and lead by example. Legislative authority. We are requesting legislation to establish a Board of Contract Appeals at GAO to adjudicate contract claims involving contracts awarded by legislative branch agencies. GAO has performed this function on an ad hoc basis over the years for appeals of claims from decisions of the Architect of the Capitol on contracts that it awards. Recently we have agreed to handle claims arising under Government Printing Office contracts. The legislative proposal would promote efficiency and predictability in the resolution of contractor and agency claims by consolidating such work in an established and experienced adjudicative component of GAO and would permit GAO to recover its costs of providing such adjudicative services from legislative branch users of such services. We also plan to request legislation that will assist GAO in performing its mission work and enhance our human capital policies, including addressing certain compensation and benefits issues of interest to our employees. While there are a number of important provisions, today I will only discuss several of the significant ones. Regarding provisions concerned with mission work, we have identified a number of legislative mandates that are either no longer meeting the purpose intended or should be performed by an entity other than GAO. We are working with the cognizant entities and the appropriate authorization and oversight committees to discuss the potential impact of legislative relief for these issues. Another provision would update the existing authority of the Comptroller General to administer oaths when appropriate for an audit or investigation. The Comptroller General has long had the authority to "administer oaths to witnesses when auditing and settling accounts". Because of the variety of audits and investigations GAO now performs, we propose the deletion of "when auditing and settling accounts" so that in those limited circumstances where appropriate, the Comptroller General may authorize the administration of oaths to witnesses. To keep the Congress apprized of difficulties we have interviewing agency personnel and obtaining agency views on matters related to ongoing mission work, we will suggest new reporting requirements. When agencies or other entities ignore a request by the Comptroller General to have personnel provide information under oath, make personnel available for interviews, or provide written answers to questions, the Comptroller General would report to the Congress as soon as practicable and also include such information in the annual report to the Congress. In regard to GAO's human capital flexibilities, among other provisions, we are proposing a flexibility that allows us to better approximate market rates for professional positions by increasing our maximum pay for other than the Senior Executive Service and Senior Level from GS-15, step 10, to Executive Level III. Additionally, under our revised and contemporary merit pay system, certain portions of an employee's merit increase, below applicable market-based pay caps, are not permanent. Since this may impact an employee's high three for retirement purposes, another key provision of the bill would enable these nonpermanent payments to be included in the retirement calculation for all GAO employees, except senior executives and senior level personnel. In summary, I believe that you will find our budget request reasonable, responsible, and well-justified given the important role that GAO plays and the unparalleled return on investment that GAO generates. We are grateful for the Congress's continued support of our mutual effort to improve government and for providing the resources that allow us to be a world- class professional services organization. We are proud of our record performance and the positive impact we have been able to effect in government over the past year and believe an investment in GAO will continue to yield substantial returns for the Congress and the American people. Our nation will continue to face significant challenges in the years ahead. GAO's expertise and involvement in virtually every facet of government positions us to provide the Congress with the timely, objective, and reliable information it needs to discharge its constitutional responsibilities. Madam Chair and Members of the Subcommittee, this concludes my prepared statement. At this time, I would be pleased to answer any questions that you or other Members of the Subcommittee may have. GAO exists to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. Provide Timely, Quality Service to the Congress and the Provide Timely, Quality Service to the Congress and the Federal Government to . . . Federal Government to . . . . . .. . . Address Current and Emerging Challenges to the Well-Being Address Current and Emerging Challenges to the Well-Being and Financial Security of the American People related to . . . and Financial Security of the American Peoplerelated to . . . Natural resources use and environmental protection . . .. . . Respond to Changing Security Threats and the Challenges of Respond to Changing Security Threats and the Challenges of Global Interdependence involving . . . Global Interdependence involving . . . Key management challenges and program risks Fiscal position and financing of the government Maximize the Value of GAO by Being a Model Federal Agency and Maximize the Value of GAO by Being a Model Federal Agency and a World-Class Professional Services Organization in the areas of . . . a World-Class Professional Services Organization in the areas of . . . 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 is given in support of the fiscal year 2008 budget request for the U.S. Government Accountability Office (GAO) before the House Subcommittee on the Legislative Branch, Committee on Appropriations. The requested funding will help us continue our support of the Congress in meeting its constitutional responsibilities and will help improve the performance and ensure the accountability of the federal government for the benefit of the American people. GAO is especially appreciative of the Subcommittee's efforts to help us avoid a furlough of our staff during fiscal year 2007. Had we not received additional funds this year and not taken other cost minimization actions, GAO would have likely been forced to furlough most staff for up to 5 days without pay. At the same time, due to funding shortfalls, we were not able to make pay adjustments retroactive to January 7, 2007. Our testimony today focuses on key efforts that GAO has undertaken to support the Congress, our fiscal year 2006 performance results, our budget request for fiscal year 2008 to support the Congress and serve the American people, and proposed legislative changes. Our fiscal year 2008 budget request is designed to restore GAO's funding to more reasonable operating levels. Specifically, we are requesting fiscal year 2008 budget authority of $530 million, an 8.5 percent increase over our fiscal year 2007 funding level. The additional funds provided in fiscal year 2007 have helped reduce our requested increase for fiscal year 2008 from 9.4 percent to 8.5 percent. This funding level also represents a reduction below the request we submitted to the Office of Management and Budget (OMB) in January as a result of targeted adjustments to our planned fiscal year 2008 hiring plan. Our fiscal year 2008 budget request will allow us to achieve our performance goals to support the Congress as outlined in our strategic plan and rebuild our workforce capacity to allow us to better respond to supply and demand imbalances in responding to congressional requests. This funding will also help us address our caseload for bid protest filings, which have increased by more than 10 percent from fiscal years 2002 through 2006. Our workload for the first quarter of fiscal year 2007 suggests a continuation of this upward trend in bid protest fillings.
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The Air Force and the Navy plan to replace many of their current fighter aircraft with the Joint Strike Fighter, also called the F-35. DOD plans to buy a total of 2,443 F-35s--1,763 for the Air Force and 680 for the Department of the Navy--between 2008 and 2037. However, we have reported on F-35 issues since 2005 and found that the F-35 is still in development and the program has experienced significant delays and cost increases. For example, we reported that the F-35 program has experienced numerous delays in development and production, including program restructuring, which has increased time for development. Further, we reported that the F-35 program costs have increased 42 percent from the 2007 baseline and unit costs have doubled since the start of development in 2001. In addition, the DOD Fiscal Year 2011 Annual Report on Operational Test and Evaluation stated that the F-35 is not on track to meet operational effectiveness or operational suitability requirements and that testing identified structural and maintenance issues.first few production lots will need a significant number of modifications and upgrades in order to attain planned service life and capabilities. Due to delays in the F-35 program, the services have decided to extend the service life of some existing aircraft in order to maintain desired inventory levels. Further, the DOD report also stated that aircraft produced in the The upgrade and service-life extension programs will likely be costly and may be subject to further changes. Our prior work has found that a high- quality cost estimate is critical to the success of any program because it can provide the basis for informed investment decision making, realistic budget formulation, and proactive course correction when warranted. The March 2009 GAO Cost Estimating and Assessment Guide is a compilation of best practices that federal cost-estimating organizations and industry use to develop and maintain reliable cost estimates throughout the life of a program. The GAO cost guide reported that a high-quality cost estimate has four characteristics including comprehensive when it accounts for all life-cycle costs, is sufficiently detailed to ensure that costs are neither omitted nor double-counted, and identifies ground rules and assumptions; well-documented when supporting documentation explains the process, sources, and methods used to create the estimate; accurate when it is based on the assessment of the costs most likely to be incurred and adjusted for inflation; and credible when the level of confidence has been identified through a risk and uncertainty analysis, and a sensitivity analysis has been conducted that identified the effects on the estimate of changing key assumptions. Also, a cost estimate is credible when it has been cross- checked with an independent estimate. The GAO cost guide describes eight types of independent cost estimate reviews which vary in the depth of analysis, ranging from a document review-- merely assessing the estimate's documentation--to an independently developed cost estimate--conducted by an organization outside the acquisition or program office. The Air Force and Navy each have service cost-estimating agencies, which develop independent cost estimates for major acquisition programs and other programs when requested. The Air Force currently plans to upgrade and extend the service life of 300 F-16 aircraft at an estimated cost of $2.61 billion and the Navy plans to extend the service life of 150 F/A-18 aircraft at an estimated cost of $2.19 billion. Service officials have said that if the F-35 program experiences further delays, the services have the ability to expand the number of aircraft that are included in these programs. In 2009, DOD and the Air Force were directed by statute and a committee report to provide reports on force-structure plans including alternatives such as buying aircraft and upgrading and extending the service life of selected aircraft. The Air Force reported on assessments of seven alternatives, which included buying between 150 and 300 new F-15Es, F/A-18 E/Fs, and F-16s, and upgrading and extending the service life of selected F-16s. The Air Force concluded that the cost for upgrading and extending the service life of current F-16s by 2,000 hours each would be 10 to 15 percent of the cost of procuring new F-16s, F-15Es, or F/A-18s. Extending the life of existing aircraft would provide 6 to 8 years of additional service and, according to the Air Force, provide essentially the same capability over that period as buying new legacy aircraft. In reviewing these reports, GAO concluded in 2011 that the analyses done were limited in part by the absence of F-16 durability and viability data.Figure 1 below shows the Air Force's estimated costs for the current plans for capability upgrades and the service-life extension. The Air Force estimates to upgrade capabilities and extend the service life of selected F-16 aircraft included research, development, test and evaluation, and procurement costs. The capability upgrades, Air Force officials explained, are needed to maintain mission effectiveness and will include, for example, an improved radar and data-link enhancements. The service-life extension will add 2,000 flight hours, or about 6 to 8 years, depending on flying conditions, to each aircraft. Most of the $2.61 billion to upgrade and extend the service life--$1.88 billion or 72 percent--is planned to be incurred in fiscal years 2018 through 2022. The remaining $722 million is programmed in the fiscal year 2013-2017 Future Years Defense Program. Since the 2010 reports to Congress were completed, the Air Force has stated that without the service-life extension it would have to start gradually grounding some F-16s beginning in 2017. The Air Force is conducting tests to clarify the extent of the work required to extend the service life, and plans to begin work in fiscal year 2016. Also, the Air Force plans a milestone program review for the service-life extension in the first quarter of fiscal year 2013 and a milestone program review for the capability-upgrade program in the fourth quarter of fiscal year 2013. The Air Force plans to complete all the upgrade and service-life extension work by the early 2020s. Finally, Air Force officials said that they could expand these programs to include up to 650 aircraft if needed to attain desired inventory levels. In response to a statutory requirement, in May 2011, the Navy submitted the results of a cost-benefit analysis comparing extending the service life of existing F/A-18 aircraft with procuring additional F/A-18 E/F aircraft. The Navy assessed six alternatives, which included various combinations of extending the service life of up to 280 F/A-18 A-D aircraft and procuring up to an additional 70 F/A-18 E/Fs. The Navy concluded that extending the service life of 150 F/A-18 A-D aircraft and buying 41 new F/A-18E/F aircraft would provide an acceptable inventory at a manageable level of risk.year 2018. Figure 2 below shows the Navy's estimated cost for the service-life extension of selected F/A-18 aircraft. The Navy plans to complete the service-life extension work in fiscal The Navy's estimate includes procurement costs for materials and installation to extend the service life of 150 F/A-18s for an additional 1,400 hours each or about 5 years depending on flying conditions. Almost all the Navy's estimated $2.19 billion is programmed in the fiscal year 2013-2017 Future Years Defense Program. Finally, the Navy's analysis showed that the 150 aircraft selected for the service-life extension will individually be evaluated for capability upgrades--such as adding the ability to integrate with newer aircraft--as well as upgrades of other critical components reaching the end of their service life and becoming obsolete. After evaluating the aircraft, the Navy will decide whether to do this additional work. Finally, Navy officials said that they could expand their program if needed, to include up to 280 aircraft. Navy officials explained that they will review the service-life extension effort annually as part of an overall review of the F/A-18 program. The Air Force's and Navy's cost estimates to upgrade and extend the service life of selected F-16 and F/A-18 aircraft exhibit many cost- estimating characteristics and best practices of a high-quality cost estimate, but do not reflect all the potential total costs that may occur. We assessed the Air Force estimate for capability upgrades and the Air Force estimate for the service-life extension of selected F-16 aircraft, which were prepared for the fiscal year 2013 budget request; and the Navy estimate for the service-life extension of selected F/A-18 aircraft. Overall, we found that the Air Force and Navy followed many of the best practices that support the four characteristics of a high-quality estimate. However, both the Air Force and Navy estimates were not fully credible due to two shortcomings--the estimates did not show the range of potential costs that are likely to be incurred and were not validated by comparison with an independently developed estimate. As a result, decision-makers do not have visibility of how much the total costs will be and how they may increase if program quantities increase or additional work is required on some aircraft, which could hinder their ability to assess budgets and affordability. The Air Force's $1.79 billion estimate for capability upgrades and the $820 million estimate for service-life extension were well-documented, accurate, and mostly comprehensive. However, the estimates were not fully credible because the Air Force's analysis did not clearly show the potential range of total costs that would occur if more aircraft are included in the programs and the estimates were not compared to an independently developed estimate. In assessing the extent to which the Air Force's cost estimates exhibited the four characteristics of a high- quality estimate, we found the following: Comprehensive: The Air Force's estimates were substantially comprehensive because they included all the work planned for 300 aircraft, identified key cost-estimating ground rules and assumptions, and included development and procurement costs. Well-documented: Both estimates were well-documented because they identified the source of the data, included the work that is planned, documented the cost-estimating methodologies, showed how the calculations were made, and were reviewed by management. Accurate: Both estimates were accurate because they were adjusted for inflation, based on an assessment of most likely costs for 300 aircraft, and used data from comparable programs where appropriate. Credible: For both estimates, the Air Force cross-checked major cost elements to determine whether results were similar and conducted a risk and uncertainty analysis that included a list of the risks assessed. For example, the analysis assessed the risk that more work may be required to extend the service life than currently planned. Also, the Air Force identified some cost drivers, which are the items that have the greatest effect on the estimated cost, such as labor rates. While the Air Force estimates exhibited many characteristics of a high-quality estimate, they had two shortcomings that lessened the estimates' credibility. First, the analysis did not include an estimate of the total costs that may occur if more than 300 aircraft are included in the programs up to the potential maximum of 650 aircraft. Second, the estimates were not compared to an independently developed estimate. Regarding the first shortcoming, best practices state that a credible cost estimate should include an assessment of how the cost estimate may change in response to changes in key program assumptions. This is known as a sensitivity analysis. Such an analysis helps decision makers identify areas that could significantly affect a program's cost, such as changes in program quantities. According to Air Force officials, the service may choose to upgrade and extend the service life of additional aircraft if there are further delays in F-35 production. For example, in a written statement, Air Force leaders testified in March 2012 that the intent is to include 350 F-16 aircraft in the upgrade and life extension programs--50 more aircraft than originally planned. Air Force officials explained that they did not assess the range of costs that may result from expanding the number of aircraft in the program up to the maximum of 650 since the program is currently approved for only 300 aircraft. However, without an assessment of how much the total cost may increase as the aircraft quantity increases, the estimate lacks transparency on the full range of possible costs, which could be significant. For example, we calculated that the cost to upgrade and extend the service life of all 650 aircraft could total $5.53 billion. The second major shortcoming is that the Air Force did not compare the estimates to independently developed cost estimates. Having an independent estimate is considered one of the best and most reliable estimate validation methods since an independent estimate is an objective assessment of whether the program office estimate is reasonable and can be achieved. Further, our past work has shown that an independent estimate tends to be higher and more accurate than a program office estimate. Air Force officials explained that it is likely the Air Force Cost Analysis Agency will be requested to develop a formal independent cost estimate for upcoming program reviews, but the decision to require an independent estimate has not yet been made. Further, the program review for the capability-upgrade program will not be held for a year--it is currently scheduled for the fourth quarter of fiscal year 2013. Until the Air Force obtains an independent cost estimate, decision makers will not have the assurance that the programs' estimated cost can be relied upon for making budgeting and trade-off decisions. Furthermore, a program that has not been reconciled with an independent estimate has an increased risk of proceeding underfunded because an independent estimate provides an objective and unbiased assessment of whether the program estimate can be achieved. The Navy's $2.19 billion cost estimate for the service-life extension of F/A-18s was comprehensive, well-documented, and accurate. However, the estimate was not fully credible because it did not include an assessment of the costs for additional work on the aircraft that may be done at the same time as the service-life extension and the estimate was not compared to an independently developed estimate. Since the Navy will assess on an aircraft-by-aircraft basis whether to do this additional work, the costs would be in addition to the $2.19 billion for the service-life extension and most of these costs are not included in the Navy's spending plans through fiscal year 2017. In assessing the extent to which the Navy's cost estimate exhibited the four characteristics of a high- quality estimate, we found the following: Comprehensive: The Navy's estimate identified key cost-estimating ground rules and assumptions. Also, the Navy's estimate included the costs to buy and install the materials needed to repair the airframe so that it can fly the additional 1,400 hours. Finally, the Navy's analysis included assessing the costs for different quantities from 150 up to 280 aircraft. Well-documented: The estimate was well-documented since it described the methodology used and the calculations performed to develop the estimate so that a cost analyst unfamiliar with the program could replicate it. Also, the Navy's documentation included steps to ensure data reliability, and the estimate was reviewed by management. Accurate: The Navy's estimate was accurate since it was adjusted for inflation, not overly conservative or optimistic, and incorporated data from comparable programs where appropriate. Credible: Finally, the Navy's estimate was partially credible because the Navy followed some, but not all, of the best practices for this characteristic. For example, the Navy conducted a sensitivity analysis which identified cost drivers, such as materiel and labor costs. Also, the Navy conducted a risk and uncertainty analysis which accounted for some risks, such as the risk that the service-life extension may require more work than currently planned. However, the Navy did not assess the potential range of costs for all work that might be done and focused only on the costs associated with extending the life of the airframe, which officials described as consistent with Navy guidance. Specifically, the Navy told us it will assess on an aircraft-by-aircraft basis whether the F/A-18s also need capability upgrades to maintain mission effectiveness, such as adding the ability to integrate with newer aircraft. According to the Navy, such capability upgrades could cost an average of about $1.76 million per aircraft, but uncertainty exists about how many aircraft the Navy will actually decide to upgrade and therefore the total cost associated with these upgrades is uncertain. In addition, the Navy has determined that some of the F/A-18 aircraft may also require life extension or replacement of nonstructural parts or systems that are becoming obsolete. The Navy estimated that this work could average $5.64 million per aircraft. Navy officials explained that they will decide on an aircraft-by-aircraft basis whether to do this work when the aircraft is inspected just prior to beginning service-life extension. Navy officials told us that if an aircraft needs a lot of this type of work, the Navy may decide not to extend the service life of that particular aircraft, but rather substitute another one in its place. Given the uncertainties, the costs associated with this additional work are not included in the Navy's $2.19 billion estimate nor are they included in the Navy's spending plans through fiscal year 2017. The purpose of a sensitivity analysis is to identify the effects on the estimate of changing key factors and to show a resulting range of possible costs. Further analysis could show the likelihood of the Navy incurring some or all of the additional costs. Without an assessment of the effect on the total costs that would be incurred if some of the 150 aircraft need additional work at an additional cost, decision makers will not know the full range of potential costs. Finally, the Navy did not compare the estimate to an independently developed cost estimate such as one that could have been requested from the Naval Center for Cost Analysis. Navy officials stated that the estimate was reviewed extensively within the Navy and that an independent estimate was not required because the service-life extension is a modification of an existing aircraft and is not a separate acquisition program. Even if not required, Navy officials said that they could have requested the Naval Center for Cost Analysis to develop an independent estimate for this program. In our prior work, we have found that an independent cost estimate is considered to be one of the most reliable validation methods. If the Navy's estimate were validated by an independent cost estimate, decision-makers could place more credibility in the estimate. The Air Force and the Navy decided to upgrade and extend the service life of selected F-16 and F/A-18 aircraft to provide a capability and capacity "bridge" until the F-35 is available in sufficient numbers. The cost to do so is already estimated to total almost $5 billion and likely will increase due to slippage in the F-35 program and increases in program scope. In many respects, the Air Force and Navy cost estimates we evaluated were developed in accordance with some best practices. Specifically, we found the estimates to be well-documented and accurate and mostly comprehensive. However, the Air Force and Navy did not follow some important best practices and as a result did not clearly identify the potential total costs that may result as the programs evolve. For example, without an analysis that includes the potential for increases in the number of aircraft in the program or that clearly identifies the cost for additional work that may be required on some of the aircraft, decision makers are not aware of how much total costs could increase if these events occur. Further, unless the services reconcile the program cost estimate with an independent cost estimate, there is an increased risk that the actual costs will exceed the estimate. According to the GAO Cost Estimating and Assessment Guide, independent estimates are usually higher and more accurate than program estimates and therefore if a program estimate is close to an independently developed estimate, one can be more confident that the estimate is credible. The guide further explains that there are various types of independent cost estimate reviews that can be performed, including seeking an independent estimate. Since these are multibillion-dollar investments that are critical to maintaining fighter capacity, an independent review of service estimates or an independently-developed estimate--which could be performed by the respective service cost-estimating agencies--would provide assurance about the likely full costs. Without fully credible cost estimates, service and congressional decision-makers will not have reasonable confidence of knowing the potential range of costs to upgrade and extend the service life of selected F-16 and F/A-18 aircraft as they make resource and trade-off decisions, develop and review budget requests, and assess the programs' affordability. To improve future updates of Air Force and Navy cost estimates for upgrading and extending the service life of selected F-16s and F/A-18s and to improve the ability of decision-makers to assess the potential total costs, we recommend that the Secretary of Defense take the following four actions: Direct the Secretary of the Air Force to update its cost estimates, and in doing so: include in its sensitivity analysis an assessment of the range of possible costs if the capability-upgrade and service-life extension programs are expanded to more than 300 aircraft including up to the maximum of 650 aircraft, and obtain an independent review of the updated cost estimates. Direct the Secretary of the Navy to update its cost estimates and in doing so: include in its sensitivity analysis an assessment of the range of possible costs for extending the service life of other nonstructural components that are becoming obsolete and capability upgrades that may be required for some of the 150 aircraft, and obtain an independent review of the updated cost estimates. We provided a draft of this report to DOD for comment. In written comments on the draft of this report, DOD agreed with all four recommendations. DOD's comments are reprinted in their entirety in appendix III. DOD also provided technical comments, which we incorporated into the report as appropriate. Regarding the first recommendation for improving future updates of the Air Force cost estimates, DOD concurred, stating that the Air Force had updated planned force structure requirements to upgrade and extend the service life of 50 aircraft in addition to the original 300 aircraft and therefore estimated costs for 350 aircraft. Also, the department stated that while these programs could be expanded beyond 350 aircraft, further cost excursions are premature until F-35 production has matured. The department stated that it would update its cost estimates with another sensitivity analysis containing an assessment of the range of possible costs if force structure requirements change further. While we acknowledge that estimating costs for 350 aircraft is a step in the right direction, an assessment of how much the total cost may increase up to the maximum of 650 aircraft is needed to provide transparency on the full range of costs, which could be significant--potentially totaling up to $5.53 billion. DOD also noted that further cost excursions are premature until F- 16 structural testing is complete. However, Air Force officials explained during our review that data from testing are available throughout the testing period and that they could use this information to update cost estimates before testing is completed in 2016. Until the Air Force completes analyses to show the potential range of costs, decision makers will continue to lack crucial data on how much total costs could increase as they make resource and trade-off decisions. Regarding the second recommendation for improving future updates of the Air Force cost estimates by obtaining an independent review of the updated cost estimates, DOD agreed, stating that the Air Force Cost Analysis Agency had reviewed the estimates for the Air Force's fiscal year 2014 budget development process and that, if further cost assessments are warranted, the Air Force would submit the estimates for an independent review. An independent review of cost estimates is important because a program that has not been reconciled with an independent estimate has an increased risk of proceeding underfunded since an independent estimate provides an objective and unbiased assessment of whether the program estimate can be achieved. As the Air Force updates its cost estimates for these $2.61 billion programs, up- to-date, independently validated cost estimates would provide decision- makers assurance that the programs' estimated cost can be relied upon as they assess program affordability. Regarding the two recommendations for improving future updates of the Navy cost estimates, DOD concurred but did not explain when or what specific actions it intends to take to implement these recommendations. We are encouraged that the department agrees these are important, valid steps to take and further believe that it is important for the Navy to implement these recommendations in a timely manner to facilitate review and implementation of these programs since the programs are estimated to cost $2.19 billion and could increase an average of $5.64 million per aircraft. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Air Force, and the Secretary of the Navy. The report also is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (404) 679-1816 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 making key contributions to this report are listed in appendix IV. To describe the Air Force's and the Navy's plans to upgrade and extend the service life of selected F-16s and F/A-18s, we reviewed the services' documentation of the programs' purpose and scope including the underlying analysis of alternative approaches. To identify the Air Force's and the Navy's estimated costs to upgrade and extend the service life of F-16s and F/A-18s, we obtained the services' cost estimates for these programs and obtained any updates to these estimates. The Air Force updated its initial estimate to support development of the fiscal year 2013 budget. The Navy's cost estimate was reported to Congress in May 2011. All of the cost estimates from these sources were converted to fiscal year 2013 dollars using the indexes published by the Office of the Secretary of Defense (Comptroller) in the National Defense Budget Estimates for Fiscal Year 2013, commonly referred to as the "Green Book". To assess the extent to which the cost estimates exhibited characteristics of a high-quality cost estimate, we compared how the estimates were developed to the cost estimating best practices outlined in the GAO Cost Estimating and Assessment Guide. The guide is a compilation of best practices that federal cost-estimating organizations and industry use to develop and maintain reliable cost estimates that management can use for making informed decisions. The guide describes 19 best practices for developing a comprehensive, well-documented, accurate, and credible cost estimate--the four characteristics of a high-quality cost estimate. We analyzed the extent to which the Air Force and Navy cost estimates met each of these four characteristics and assigned each a rating of not met, The overall rating minimally met, partially met, substantially met, or met.for each characteristic was based on the average rating of the best practices for each characteristic. We also held detailed discussions with service officials and reviewed program documentation to identify key factors that could affect the potential total costs such as changes in aircraft quantities or additional work to maintain aircraft mission effectiveness that may not have been included in the estimates. We shared with program officials our cost guide, the criteria against which we evaluated the program's estimated cost, as well as our preliminary findings. When warranted, we updated our analyses on the basis of the agency response and additional documentation that was provided to us. Finally, we corroborated our analyses in interviews with service officials responsible for developing the cost estimates. We conducted our work at the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics; Office of the Chief of Staff of the Air Force, Directorate of Force Application; Ogden Air Logistics Center at Hill Air Force Base; F-16 System Program Office at Wright- Patterson Air Force Base; Air Combat Command; Air Force Cost Analysis Agency; Air Force Fleet Viability Board; Office of the Deputy Assistant Secretary of the Navy for Air Programs; Headquarters United States Marine Corps; Naval Air Systems Command; and the Naval Center for Cost Analysis. We conducted this performance audit from May 2011 to November 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. The Navy estimate was reported as a cost per aircraft in fiscal year 2011 dollars. Therefore, there is not comparable data for showing the Navy estimate in then-year dollars. In addition to the contact named above, the following staff members made key contributions to this report: Patricia W. Lentini, Assistant Director; Brenda M. Waterfield; Benjamin D. Thompson; Joseph M. Capuano; Ophelia Robinson; Karen A. Richey; Jennifer K. Echard; Charles W. Perdue; Michael D. Silver; Michael Shaughnessey; and Richard S. Powelson.
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Fighter aircraft are important to achieve and maintain air dominance during combat operations as well as to protect the homeland. DOD plans to replace many of its current fighter fleet with the F-35; however, the F-35 program has experienced numerous delays and cost increases. To maintain fighter capabilities and capacity, the Air Force and Navy have decided to upgrade and extend the service life of selected F-16 and F/A-18 aircraft. In this context, two subcommittees of the House Armed Services Committee asked GAO to (1) describe the Air Force and Navy plans to upgrade and extend the service life of selected F-16 and F/A-18 aircraft; and (2) assess the extent to which cost estimates for these upgrades and life extensions exhibit characteristics of a high-quality cost estimate. GAO obtained documentation of the plans and estimates, compared the estimates to best practices outlined in the GAO Cost Estimating Guide, and assessed factors that could affect total costs. The Air Force plans to upgrade and extend the service life of 300 F-16 aircraft and the Navy 150 F/A-18 aircraft, at a combined cost estimated at almost $5 billion in fiscal year 2013 dollars. The Air Force plans to extend the service life of selected F-16s by 2,000 flying hours each as well as install capability upgrades such as an improved radar. The Air Force estimates that it will complete this work by 2022 at a cost of $2.61 billion. About 28 percent of the projected costs are included in the Air Force's spending plans through 2017, with the remainder expected to be incurred in 2018-2022. The Navy plans to extend the service life of selected F/A-18s by 1,400 flying hours each and may install capability upgrades on some of the 150 aircraft--such as adding the ability to integrate with newer aircraft. The Navy projects that it will complete the life extension by 2018 at a cost of $2.19 billion, with most of these costs included in its spending plans through 2017, but costs associated with any upgrades are not included in the Navy estimate or in its spending plans. Air Force and Navy officials told GAO that they could ultimately extend the service life of up to 650 F-16s and 280 F/A-18s if needed to attain desired inventory levels. The Air Force's and Navy's cost estimates to upgrade and extend the service life of selected fighter aircraft exhibit some characteristics of a high-quality cost estimate but do not reflect all potential costs. The estimates were: well-documented since they identified data sources and methodologies; accurate since they accounted for inflation and were checked for errors; and mostly comprehensive since they included the work planned and identified key assumptions. However, the estimates were not fully credible in part because they did not assess the extent to which the total costs could change if additional work is done or more aircraft are included in the programs. Another factor affecting the credibility of the estimates is that they have not been compared to an independently developed estimate. GAO's past work has shown that such an independent cost estimate is one of the best validation methods since an independent cost estimate tends to be higher and more accurate than a program office estimate. Air Force and Navy officials told GAO that they use Department of Defense and military department guidance that allows for some variation in how the estimates are developed depending on the dollar value and maturity of the program. However, these programs--which are critical to maintain fighter capability and capacity as current inventory ages--total almost $5 billion and the costs will increase if program quantities and scope increase. Without fully credible cost estimates, including an analysis of how much total costs may increase, decision makers will not have visibility into the range of potential costs, which could hinder their ability to formulate realistic budgets and make informed investment decisions. GAO recommends that the Air Force and Navy follow all best practices to enhance the credibility of the cost estimates for the F-16 and F/A-18 upgrades and life extensions including an assessment of the potential range of costs and seeking independent cost estimates.
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GSA's Federal Technology Service is responsible for ensuring that federal agencies have access to the telecommunications services and solutions needed to meet mission requirements. Currently, GSA uses a series of contracts intended to meet agency needs for various services. Specifically, it awarded two large, governmentwide contracts for long-distance services--one to Sprint in December 1998 and one to MCI WorldCom in January 1999. Under the terms of these contracts, known together as FTS2001, each firm was guaranteed minimum revenues of $750 million over the life of the contracts, which run for four base years and have four 1-year extension options. If all contract options are exercised, those contracts will expire in December 2006 and January 2007, respectively. According to GSA, federal agencies spent approximately $614 million on FTS2001 services during fiscal year 2003. Related governmentwide telecommunications services are provided through other additional GSA contracts: the Federal Wireless Telecommunications Service contract and the FTS Satellite Service contracts. The wireless contract was awarded in 1996 to provide wireless telecommunications products and services to all federal agencies, authorized federal contractors, and other users. It is scheduled to expire in November of this year. Satellite services are provided through a series of contracts for a variety of commercial off-the-shelf satellite communications products and services, including mobile, fixed, and broadcast services. These contracts will expire in 2007. We have periodically reviewed the development and implementation of the FTS2001 program and assessed its progress. In March 2001 we reported to you on the delays encountered during the government's efforts to transition from the previous FTS2000 to the FTS2001 contracts, the reasons for those delays, and the effects of the delays on meeting FTS2001 program goals of maximizing competition for services and ensuring best service and price. We recommended that GSA take numerous actions to facilitate those transition efforts. In April 2001 testimony before you, we reiterated those recommendations and noted that the process of planning and managing future telecommunications service acquisition would benefit from an accurate and robust inventory of existing telecommunications services. Ultimately, GSA acted on our recommendations and the transitions were successfully completed. GSA is now planning its Networx acquisition to replace the contracts that are expiring. GSA has worked with representatives of federal agencies, the telecommunications industry, and other interested parties to lay the groundwork for the new program. Agencies work directly with GSA and through the Interagency Management Council (IMC), a group of senior federal information resource officials who advise GSA on issues related to telecommunications contracts. GSA and the IMC proposed eight goals for the Networx program, including an emphasis on ongoing support and performance-based contracts. The table lists each of the program goals. Program Goals Proposed for Networx Service Continuity: Contracts should include all services currently available under FTS2001 to facilitate a smooth transition. Competitive prices: Prices should be better than those available elsewhere in the telecommunications marketplace. High quality services: Contracts should ensure a high quality of service throughout the life of the contracts. Full service vendors: Vendors should be capable of providing a broad array of services to avoid duplication of administrative and contracting costs. Alternate sources: Agencies should be able to choose from a greater number of vendors and have access to emerging technologies. Operations Support: GSA should provide fully integrated ordering, billing, and inventory management. Transition assistance and support: Contracts should include provisions for transition support. Performance-based contracts: Contracts should be performance based and include service level agreements where possible. In October 2003, GSA released a RFI describing its initial strategy for the Networx program. In the RFI, GSA proposed two acquisitions--Networx Universal and Networx Select. The Universal acquisition was expected to satisfy requirements for a full range of national and international network services. According to GSA, this acquisition was intended to ensure the continuity of services and prices found under expiring contracts that provide broad-ranging service with global geographic coverage. Universal offerors were to provide a full range of voice and data network services, managed networking services and solutions, and network access, wireless, and satellite communications services. In addition, offerors were to provide these services at all locations across the United States. Consequently, this acquisition was expected to result in multiple contract awards to relatively few offerors because few were expected to be able to satisfy the geographic coverage and comprehensive service requirements. By contrast, GSA planned to award multiple contracts for a more geographically limited set of services under the Select acquisition. These contracts were to provide agencies with leading edge services and solutions with less extensive geographic and service coverage than that required by Universal. Awards under the Universal and Select acquisitions were to be staggered; the Select contracts were to be awarded 9 months after the Universal contracts. In February 2004, we testified on GSA's initial planning efforts in support of FTS Networx. After reviewing the RFI and the comments submitted in response, we identified four major challenges that GSA was likely to face as it proceeded: * structuring and scheduling the Networx contracts to ensure that federal agencies have available to them the competitively priced telecommunications services they need to support their mission objectives; initiating the implementation planning actions needed to ensure a smooth transition from current contracts to Networx; * ensuring that adequate inventory information is available to planners to provide an informed understanding of governmentwide requirements; and * establishing measures of success to aid acquisition decision making and enable effective program management. We noted that addressing these challenges would take solid leadership from GSA and stakeholder commitment. Without such actions, we concluded, the potential of Networx may not be realized. We have also previously reported on billing difficulties in GSA's telecommunications programs. For example, during the transition to FTS2001, we found that several agencies were billed at improper rates. Several agencies delayed their transition to the new contract because resources planned for the transition were redirected to deal with the billing errors. We recommended numerous actions to improve the transition process, which GSA successfully implemented. As we testified in February, the responses to the RFI identified a series of concerns about GSA's proposed acquisition strategy. Some respondents commented that only the traditional long-distance companies would be able to meet the requirements of the larger contract. Others were concerned that the 9-month lag between contracts would complicate decision making by asking agencies to decide on a vendor for the more comprehensive contract before being able to review the options available under the more limited contracts. GSA recently revised its contracting strategy in response to these concerns. GSA still intends to meet the proposed program goals through two sets of contracts. The first, known as Networx Universal, requires offerors to provide 39 services everywhere a federal office is locate, as well as anywhere else the company offers those services commercially. Required services include toll-free telecommunications, Internet services, and cellular services. Ten other services, including satellite communications and paging services, can be offered but are not required. The second, now known as Networx Enterprise, requires offerors to provide nine mandatory services in nearly 300 locations nationwide specified by GSA; another 42 services can be offered at the option of the company. The services required under the Enterprise contracts focus on Internet-based offerings and related security and management services. GSA intends to structure the contracts so that the Universal offering meets the program goals of service continuity and full service vendors, while the Enterprise contracts meet the goal of providing alternative sources. Both sets of contracts are intended to meet the other five goals, and each is planned to run for 4 years with three 2-year options. The main difference between its current strategy and the plan outlined in the RFI is that the geographic coverage requirements for the Universal contracts are less stringent. Instead of having to offer services in the entire country, service providers need only offer service where federal offices are located (as well as where the provider offers the service commercially) to qualify to compete for the contracts. This change resulted in a 76 percent reduction in the locations carriers must serve to be eligible to compete for the contracts. In turn, this increased the percentage of the anticipated service area that carriers could reach with their own networks. According to program officials, they discussed the changes with industry representatives, who are satisfied with the changes. In addition, industry representatives did not raise any questions about the new structure at the August industry forum. GSA has also addressed the concern over the time between contracts, by changing the proposed 9-month lag between the two types of contracts. GSA currently plans to issue the requests for proposal (RFP) for both the Universal and the Enterprise contracts simultaneously. This table lists the key dates from the old and new contract schedules. Current schedule (both contracts) Factors contributing to delays in that transition included a lack of data needed to accurately measure and effectively manage the transitions, inadequate resources, and other process and procedural issues. In testimony before you in April 2001 we stated that the value of that critical program to customer agencies would be improved through the application of identified lessons learned. Those in industry who commented on the Networx RFI also noted the need for strong and comprehensive program management to ensure a successful transition, including issues such as the availability of accurate inventories and well-defined contractor and government responsibilities. The IMC has established various subgroups to assist it in carrying out its responsibilities. One of these subgroups--the Transition Working Group--looked at transition issues from past transitions, and in April 2003 identified 22 lessons learned. Some of the lessons identified include the need for accurate inventory information and the need to be flexible in transition planning. The group also drafted a document intended to clearly define the responsibilities of GSA and the agencies for transition-related costs, with the goal of eliminating some of the confusion experienced in the past transition. However, GSA has not yet developed procedures to ensure that lessons from past transitions are applied, nor has it established a timeline of actions needed during the transition process. GSA released a request for quotations on August 16 to solicit contract help with developing a transition plan, including procedures intended to prevent the types of errors that happened in the previous transition. GSA expects to award a contract to the selected contractor by October. According to program officials, GSA will be able to make more progress on this issue when the contractor begins. They also agree that a transition timeline is an important management tool, and that they will begin developing such a timeline soon. GSA believes that with almost 2 years until agencies are scheduled to choose carriers under the new contracts, there is still time to plan for an effective transition. However, until GSA completes these planned actions, it risks repeating the transition problems experienced in the past. To prevent such an occurrence, and to ensure that transition plans are developed with adequate time to be implemented, we are recommending that GSA develop a transition timeline and procedures to prevent the reoccurrence of identified difficulties from previous transitions. We testified in February that it is important that GSA and its customer agencies have a clear understanding of agency service requirements in order to make properly informed acquisition planning decisions. According to our ongoing research on best practices in telecommunications acquisition and management, clear understanding comes at least in part from having an accurate baseline inventory of existing services and assets. More specifically, an inventory allows planners to make informed judgments based on an accurate analysis of current requirements and capabilities, emerging needs that must be considered, and the current cost of services. In addition, the FTS2001 transition lessons learned document identified the lack of a good starting inventory as the cause of problems in a number of areas and a contributor to the slow start on the FTS2001 transition. Specifically, the IMC's Transition Working Group identified accurate inventories as a requirement for conducting an efficient transition. GSA is addressing the need for inventory information in two ways. First, GSA developed an inventory of the services currently used by its customers by reviewing the existing contracts, modifications to them, and billing information. Agencies then verified this information to ensure the listed services meet their current and anticipated future needs. According to GSA officials, this inventory was used in acquisition planning, for example, to justify its decision on which services to include in the proposed Networx contracts and which to make mandatory. Second, GSA is planning to work with its customer agencies to develop more detailed inventories for transition purposes. For example, the transition inventory would not only identify which services are used, but it would also identify where those services are used and how much. According to program officials, GSA plans to provide agencies with initial information based on billing and ordering data in November. Agencies will then verify the GSA data using their own data sources. Because service changes are expected to continue to occur, GSA expects this process to continue until January 2006. Program officials also told us that once it is in place, the inventory process could be used as an ongoing management tool. Our research into recommended program and project measurement practices highlights the importance of establishing clear measures of success to aid acquisition decision making as well as to provide the foundation for accountable program management. As we testified earlier in the year, such internal measures define what must be done for a project to be acceptable to the stakeholders and users affected by it; these internal measures enable measurement of progress and effectiveness in meeting objectives. Further, in keeping with the principles of the Government Performance and Results Act (GPRA), programs can be more effectively measured if their goals and objectives are outcome-oriented (i.e., focused on results or impact) rather than output-oriented (i.e., focused on activities and processes). According to agency officials, GSA plans to measure its performance against each of the program's goals. For some of these goals, GSA has already determined how it will measure progress. For example, GSA will measure progress towards the goal of competitive prices using the same process it currently uses--a direct comparison of contract rates to market rates. For other goals, GSA officials stated that performance will be evident from the contract selections. For example, the outcome of the goal of using full-service providers will be known when the providers are selected. However, for some goals, GSA has not yet determined how it will measure progress. For the goals of high quality service and operations support, GSA officials stated that specific metrics are still in development as part of their efforts to develop service level agreements for vendors. While the approach described by program officials seems reasonable, GSA has not determined when it will finalize the measures still under development. In addition, GSA has not developed a strategy outlining how it will use key measures to monitor ongoing program performance. Until GSA develops a firm strategy, it lacks assurance that the required program measures will be in place at the appropriate time. As a result, its measures may have limited effect as a program management tool. We therefore recommend that GSA finalize its efforts to identify measures to evaluate progress towards program goals and develop a strategy for using those measures for ongoing program management. Clear, accurate, and complete billing records are an important internal control: they record the detail of each telecommunications transaction for later verification and management oversight. However, bills and billing systems have been a problem in the current generation of FTS programs and thus continue to be a concern for their proposed replacement. In addition to the previous experiences discussed earlier, both the telecommunications carriers and GSA's customer agencies have more recently raised concerns about billing. Carriers asked GSA to address inconsistent and sometimes conflicting billing requirements in different regions. Some also questioned whether the number of billing elements--the data fields tracked in the billing system--was excessive. Agencies commented that the way in which they currently receive billing information hampers their efforts to reconcile invoices and produces inaccurate and incomplete bills. A few agencies commented that billing difficulties have cost them hundreds of thousands of dollars. In response to industry's concern about the number of billing elements, GSA reduced the number of elements required under the Networx contracts. In its RFI, GSA proposed the use of 513 billing elements. Working in collaboration with the IMC and the Industry Advisory Council, GSA reduced the number of billing data elements to 196 (a reduction of 62 percent), with 54 elements being government specific. In response to the concerns about the accuracy of billing information, GSA plans to introduce service level agreements with the carriers to hold the carriers accountable for the accuracy of the billing data they provide. GSA has also begun examining potential alternatives to the way it currently consolidates carrier billing data and provides it to some agencies. The study is considering several options, including the option of contracting out bill consolidation, and the potential costs and benefits of the options. According to program officials, one of the goals of the study is to identify potential savings in administrative costs. However, GSA has not undertaken any similar efforts to identify the causes of agency difficulties in billing and address them. GSA officials attributed part of the uncertainty over future billing procedures to a lack of consensus among industry on how to improve the process. Regardless of the plans of industry, if GSA does not develop a billing process that better meets the needs of its customers, the agencies are likely to continue to experience difficulties in managing their telecommunications costs. To better address this challenge, we are recommending that GSA develop and implement a strategy for addressing the billing data issues raised by its customer agencies. Should you have any questions about this testimony, please contact me by e-mail at [email protected] or James Sweetman at [email protected]. We can also be reached at (202) 512-6240 and (202) 512-3347, respectively. Other major contributors to this testimony were Jamey Collins, Samuel Garman, and Nancy Glover.
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The General Services Administration (GSA) has begun planning for a governmentwide telecommunications program known as Networx. GSA issued a request for information in October 2003 that proposed two acquisitions: Networx Universal, which was to provide a full range of national and international network services across the United States, and Networx Select, which was to provide agencies with leading-edge services with less extensive geographic coverage. Contracts under the Select acquisition were to be awarded 9 months after the Universal In February, we testified on GSA's initial plans and identified four key challenges GSA faced in ensuring a successful outcome for the program: structure and scheduling, transition planning, service inventories, and performance measures. GAO assessed GSA's progress in addressing the challenges identified as well as GSA's efforts to address long-standing issues related to billing. GSA has addressed several of the significant challenges facing the Networx program. Work is either planned or underway on other challenges, but additional efforts will be necessary to fully address them. Specifically, GSA has addressed concerns about the structure and scheduling of the two acquisitions, now known as Universal and Enterprise. Instead of a 9-month lag between acquisitions that might complicate agency decision-making, GSA now plans to issue the requests for proposal (RFP) for the contracts simultaneously. In addition, the Universal contracts will now require that offerors provide services only where federal agencies are located, rather than in the entire country, to allow more potential industry participants to compete--a concern raised in prior comments. GSA has solicited for contractor support to assist with the development of plans to transition to the Networx contracts. However, GSA has not yet developed procedures to ensure that lessons from past transitions are applied, or established a transition strategy. GSA worked with agencies to develop a service-level inventory as input into the requirements for the new contracts. In addition, it plans to work with agencies to build a more detailed inventory of currently-used telecommunications services for use during transition. GSA plans to implement performance measures that evaluate progress against the program's goals. However, some of the measures are still under development, and it does not have a strategy for using the measures to monitor ongoing program performance. GSA has reduced the number of billing elements it will track and has begun a study designed to identify potential improvements in the billing process, but it lacks a strategy for addressing agency concerns about the usability of billing data. Until GSA develops and applies strategies for addressing the outstanding challenges facing Networx, it risks not being able to deliver all of the operations and cost improvements outlined in the program's goals.
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The HUBZone Act of 1997 (which established the HUBZone program) identified HUBZones as (1) qualified census tracts, which are determined generally by area poverty rate or household income; (2) qualified nonmetropolitan counties, which are determined generally by area unemployment rate or median household income; and (3) lands meeting certain criteria within the boundaries of an Indian reservation. Congress subsequently expanded the criteria for HUBZones to add former military bases and counties in difficult development areas outside the continental United States. The number of HUBZones increased from about 8,000 in 2000 to more than 14,000 in 2006. SBA generally updates HUBZone designations at least twice a year based on whether they meet statutory criteria (such as having certain income levels or poverty or unemployment rates). SBA generally uses data from other federal agencies to determine if areas still qualify for the HUBZone program. As a result of the updates, additional areas are designated for inclusion while other areas lose their designation. Census tracts and nonmetropolitan counties that lose their designation begin a 3- year "redesignation" period during which firms in those areas can continue to apply to and participate in the program and receive contracting preferences. For instance, about 3,400 HUBZones redesignated in 2012 lost their designations in 2015. Another approximately 2,500 census tracts and nonmetropolitan counties are scheduled to lose their designation by January 2020. After the 3 years, firms in these areas lose their certified status and the associated federal contracting award preferences. To be certified to participate in the HUBZone program, a firm must meet the following criteria: when combined with its affiliates, be small by SBA size standards; be at least 51 percent owned and controlled by U.S. citizens; have its principal office--the location where the greatest number of employees perform their work--in a HUBZone; and have at least 35 percent of its employees reside in a HUBZone. SBA recertifies firms (that is, determines that firms continue to meet HUBZone eligibility requirements to participate in the program) every 3 years. Since 2008, GAO has reported on weaknesses in the HUBZone program and SBA's efforts to address those vulnerabilities. GAO made 11 recommendations intended to address identified problems associated with the program's certification and recertification processes, communication with firms, and the program's susceptibility to fraud and abuse (see app. I for a summary and status of our recommendations). The following sections discuss the weaknesses we previously identified and the program revisions and improvements SBA subsequently implemented in response to our recommendations. We reported in June 2008 that, for its certification process, SBA relied on data that firms entered in the online application system and performed limited verification of the self-reported information. Although agency staff had the discretion to request additional supporting documentation, SBA did not have specific guidance or criteria for such requests. Consequently we recommended that SBA develop and implement guidance to more routinely and consistently obtain supporting documentation upon application. In response to that recommendation, SBA revised its certification process, and since 2009 has required firms to provide documentation, which SBA officials review to determine the firms' eligibility for the HUBZone program. SBA then performs a full-document review on all applications as part of its initial certification process to determine firms' eligibility for the program. However, we also found in 2015 that the revised process SBA implemented resulted in delays in processing applications--81 percent of the 4,809 initial applications submitted between fiscal year 2009 and 2013 that we reviewed exceeded SBA's processing goal of 90 days. Additional recommendations from our June 2008 report are discussed below. We previously found that SBA's challenges with its certification process made the HUBZone program vulnerable to fraud and abuse. For example, in July 2008 we testified that 10 HUBZone firms in the Washington, D.C., area had made fraudulent or inaccurate representations to get into or remain in the HUBZone program, and in a March 2009 report we found that another 19 firms in four other metropolitan areas had made fraudulent representations. We also reported in June 2010 that although SBA had increased documentation requirements for the application process, SBA still was not adequately authenticating self-reported information. We demonstrated this by obtaining HUBZone certification for three bogus firms using the addresses of the Alamo in Texas, a public storage facility in Florida, and a city hall in Texas as principal office locations. When we revisited this issue in 2015, SBA officials told us that the agency conducted site visits on 10 percent of its portfolio of certified firms annually to help address these vulnerabilities. SBA selects the firms to receive site visits based on established criteria (such as the amount of HUBZone contract awards the firm has received) or on an as-needed basis in connection with the review of an initial certification application or after receipt of a protest. In 2008 and 2015, we identified a number of concerns with SBA's HUBZone recertification process. Generally, SBA relied on self-reported information to make its recertification decisions and had a backlog of firms waiting to be recertified. As a result, SBA lacked reasonable assurance that only qualified firms were allowed to continue in the program and receive preferential contracting treatment. In February 2015, we reported that SBA relied on firms' attestations of continued eligibility and generally did not request supporting documentation as part of the recertification process. SBA only required firms to submit a notarized recertification form stating that their eligibility information was accurate. SBA officials did not believe they needed to request supporting documentation from recertifying firms because all firms in the program had undergone a full document review, either at initial application or during SBA's review of its legacy portfolio in fiscal years 2010-2012. However, as we found, the characteristics of firms and the status of HUBZone areas--the bases for program eligibility-- often can change and need to be monitored. As a result, we concluded that SBA lacked reasonable assurance that only qualified firms were allowed to continue in the HUBZone program and receive preferential contracting treatment. We recommended that SBA reassess the recertification process and implement additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information. In March 2016, we found that SBA had not yet implemented additional controls (such as guidance for when to request supporting documents) for the recertification process because SBA officials believed that any potential risk of fraud would be mitigated by site visits to firms. The officials also cited resource limitations. Based on data that SBA provided, the agency visited about 10 percent of certified firms each year during fiscal years 2013-2015. SBA's reliance on site visits alone would not mitigate the recertification weaknesses that were the basis for our recommendation. In recognition of SBA's resource constraints, we stated in our 2015 report and reiterated in 2016 that SBA could apply a risk- based approach to its recertification process to review and verify information from firms that appear to pose the most risk to the program. We concluded that a lack of risk-based criteria and guidance for staff to request and verify firm information during the recertification process increased the risk that ineligible firms could obtain HUBZone contracts. We also reiterated that the characteristics of firms and the status of HUBZone areas--the bases for program eligibility--often can change, and needed to be monitored. As of February 2017, SBA officials told us that the agency had begun implementing a technology-based solution to address some of the ongoing challenges with the recertification process. The officials expected that the new solution would help them better assess firms and implement risk-based controls by the end of calendar year 2017. In 2008 and again in 2015, we found that the recertification process was backlogged--that is, firms were not being recertified within the 3-year time frame. In 2015, we reported that as of September 2014, SBA was recertifying firms that had been first certified 4 years previously. While SBA initially eliminated the backlog following our 2008 report, according to SBA officials the backlog recurred due to limitations with the program's computer system and resource constraints. Consequently, in 2015 we again recommended that SBA take steps to ensure that significant backlogs would not recur. In response to the recommendation, SBA made some changes to its recertification process. For example, instead of manually identifying firms for recertification twice a year, SBA automated the notification process, enabling notices to be sent daily to firms (to respond to and attest that they continued to meet the eligibility requirements for the program). According to SBA officials, as of February 2017 this change has not yet eliminated the backlog. In 2008 and 2015, we reported on challenges some firms had faced or might have faced in understanding their eligibility status for the program. Generally, SBA relied on information posted on its website to communicate with interested parties about the HUBZone program. SBA's HUBZone website includes links to the HUBZone map, which firms can use to determine if an address or a particular area is designated as a HUBZone. In our June 2008 report, we found that SBA's HUBZone map contained ineligible areas and had not been updated to include currently eligible areas. As a result, ineligible small businesses had participated in the program, and eligible businesses had not been able to participate. Consequently, we recommended that SBA take steps to correct and update the map used to identify HUBZone areas and implement procedures to help ensure that the map would be updated with the most recently available data on a more frequent basis. In response to our recommendation, SBA subsequently contracted with its mapping vendor in 2008 to enable more frequent updating of the HUBZone map (at least annually). According to SBA officials, the accuracy of the map is checked twice after each upgrade, first by the mapping vendor and then by an SBA employee. We subsequently reported in February 2015 that while HUBZone designations can change with some frequency, SBA's communications to firms about programmatic changes (including redesignation) generally had not been targeted or specific to firms that would be affected by the changes. At that time SBA used a broadcast e-mail (which simultaneously sends the same message to multiple recipients) to distribute program information. In 2015, SBA's e-mail addressee list had not been updated to include firms certified since the list was created in 2013. While firms could sign up through SBA's website to receive the e- mails, not all certified firms may have done so. Consequently, we recommended that SBA establish a mechanism to better ensure that firms are notified of changes to HUBZone designations that may affect their participation in the program. This recommendation was intended to address communications to all certified firms, whether newly certified or in the program for years. In response to our recommendation, SBA improved its notifications to newly certified firms but not to other certified firms. For example, SBA's certification letter to firms with principal offices in a redesignated area specifically states that the firm is in a redesignated area, explains the implications of the designation, and notes when the redesignated status will expire. However, we found in March 2016 that SBA had not yet implemented changes to better ensure that all currently certified firms would be notified of changes that could affect their program eligibility. It is important that all certified firms potentially affected by such changes receive information about the changes or are made aware in a timely fashion of any effects on their program eligibility. As of February 2017, SBA had begun to improve its notifications to all firms. According to SBA officials, the agency has started sending program notices to all the firms in its portfolio. They told us that for its most recent notice in February 2017, the agency copied all the e-mail addresses in its HUBZone database and placed them in the e-mail distribution system. According to SBA officials, SBA intends to repeat this effort with subsequent notices. We will continue to monitor SBA's implementation of this activity. Our June 2008 and February 2015 reports demonstrated that economic distress (based on poverty and unemployment rate and median household income) has been more severe in designated HUBZone areas than in redesignated areas. For example, in June 2008, we found that approximately 60 percent of qualified metropolitan census tracts had a poverty rate of 30 percent or more, while approximately 4 percent of redesignated metropolitan census tracts had a poverty rate of 30 percent or more. Similarly, we found that about 46 percent of qualified nonmetropolitan counties had a poverty rate of 20 percent or more, while 21 percent of redesignated nonmetropolitan counties had a poverty rate of 20 percent or more. In our February 2015 report, we analyzed indicators (including poverty and unemployment rate and median household income as of 2012) to illustrate the differences in economic conditions among HUBZone areas (qualified and redesignated areas) and non-HUBZone areas (nonqualified tracts or areas). We found that indicators for redesignated areas on average fell below those of qualified areas, consistent with what we reported in June 2008. We also found that indicators for redesignated areas on average fell between those of qualified areas and nonqualified areas. For this statement, we updated our prior analysis of the economic conditions of such areas (to include not only data as of 2012 but also as of 2015, the most current available). Based on current analysis of poverty and unemployment rate data, indicators for redesignated areas on average again fell between those of qualified and non-qualified areas (see fig. 1). For example, for census tracts in 2015 qualified tracts had poverty and unemployment rates of 34 percent and 13 percent, respectively; redesignated tracts had rates of 23 percent and 11 percent, respectively; and nonqualified tracts had rates of 12 percent and 7 percent, respectively. A similar pattern existed for nonmetropolitan counties. Also, while the poverty and unemployment rates for qualified and non-HUBZone nonmetropolitan counties remained relatively unchanged between 2012 and 2015, the unemployment rate decreased in redesignated counties. We also updated our analysis that included indicators for household income and housing value for qualified, redesignated, and non-HUBZone areas (by census tract). As shown in table 1, in both 2012 and 2015 qualified areas on average, had higher poverty and unemployment rates and lower median household income and housing values then either redesignated or non-HUBZone areas. On average, redesignated areas had economic indicators between those of qualified and nonqualified areas. Between 2012 and 2015 the poverty rate increased in qualified census tracts while the average median housing income and housing values decreased. In contrast, the average median household income increased for both redesignated and non-HUBZone areas during that period. As we have stated since our June 2008 report, while allowing continued eligibility for firms located in redesignated areas can benefit firms and communities in such areas, allowing continued eligibility could also result in diffusion--decreased targeting of areas with greatest economic distress--by lessening the competitive advantage on which small businesses may rely to thrive in economically distressed communities. Therefore, while allowing redesignated areas to remain eligible can generate economic benefits for such areas, the inclusion of such areas in the HUBZone program could limit the benefits that qualified areas with more depressed economic conditions might realize. In taking into account the potential impacts of actions that can expand or reduce the number of HUBZones and redesignated areas, our June 2008 report included a recommendation to SBA to further develop measures and implement plans to assess the effectiveness of the HUBZone program that take into account factors such as the economic characteristics of the HUBZone area. Although SBA took initial steps to develop such an assessment, the agency has not implemented our recommendation. We plan to continue to evaluate elements of the HUBZone program. The Puerto Rico Oversight, Management, and Economic Stability Act contains a provision for us to evaluate the application and utilization of SBA contracting activities (including contracting activities relating to HUBZone firms) in Puerto Rico. Our work will include an analysis of the impact of SBA's June 2016 decision to remove a statutory cap on the number of qualified census tracts in metropolitan statistical areas in Puerto Rico (as well as nationwide). According to SBA, the removal of the cap resulted nationally in 2,015 additional census tracts qualifying as HUBZones at that time. We anticipate issuing the report in June 2017. Chairman Knight, Ranking Member Murphy, and members of the Subcommittee, this concludes my statement. I would be pleased to respond to any questions you may have. If you or your staff have any questions about this testimony, please contact William B. Shear, Director, Financial Markets and Community Investment, 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 statement. GAO staff who made key contributions to this testimony are Harry Medina (Assistant Director), Daniel Newman (Analyst in Charge), Pamela Davidson, John McGrail, John Mingus, and Barbara Roesmann. The following table summarizes the status of our recommendations from HUBZone performance audits and investigations as of February 2017. We classify each recommendation as partially implemented (the agency took steps to implement the recommendation but more work remains); open (the agency has not taken steps to implement the closed, not implemented (the agency decided not to take action to implement the recommendation). The recommendations are listed by report. GAO recommendations Small Business Contracting: Opportunities Exist to Further Improve HUBZone Oversight: GAO-15-234, February 12, 2015 Establish a mechanism to better ensure that firms are notified of changes to HUBZone designations that may affect their participation in the program, such as ensuring that all certified firms and newly certified firms are signed up for the broadcast e-mail system or including more specific information in certification letters about how location in a redesignated area can affect their participation in the program Conduct an assessment of the recertification process and implement additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information, allowing firms to initiate the recertification process, and ensuring that sufficient staff will be dedicated to the effort so that a significant backlog in recertifications does not recur. HUBZONE Program: Fraud and Abuse Identified in Four Metropolitan Areas: GAO-09-440, March 25, 2009 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. Closed-implemented GAO recommendations Small Business Administration: Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program Results: GAO-08-643, June 17, 2008 Take immediate steps to correct and update the map that is used to identify HUBZone areas and implement procedures to ensure that the map is updated with the most recently available data on a more frequent basis. Develop and implement guidance to more routinely and consistently obtain supporting documentation upon application and conduct more frequent site visits, as appropriate, to ensure that firms applying for certification are eligible. Establish a specific time frame for eliminating the backlog of recertifications and ensure that this goal is met, using either SBA or contract staff, and take the necessary steps to ensure that recertifications are completed in a more timely fashion in the future. Formalize and adhere to a specific time frame for processing firms proposed for decertification in the future. Closed-implemented Further develop measures and implement plans to assess the effectiveness of the HUBZone program that take into account factors such as (1) the economic characteristics of the HUBZone area and (2) contracts being counted under multiple socioeconomic subcategories. Closed - not Implemented 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 purpose of the HUBZone program is to stimulate economic development in economically distressed areas designated as HUBZones. SBA certifies small business firms located in HUBZones to participate in the HUBZone program--that is, determines they are eligible for federal contracting preferences under the program, such as awards of sole-source and set-aside contracts. HUBZone areas lose their designations when they no longer meet applicable criteria on economic conditions and enter a 3-year transitional period ("redesignation") during which HUBZone firms can continue to apply to and participate in the program. HUBZone firms had almost $6.6 billion in obligations on active federal contracts for calendar year 2015. This testimony discusses, among other things, areas of weaknesses that GAO previously identified in reviews and fraud investigations of the program, related recommendations, and SBA's actions to address them. This statement is based on GAO's body of work issued between June 2008 and September 2016. GAO also met with SBA officials in February 2017 to discuss the status of open recommendations. Since 2008, GAO has made 11 recommendations to improve the HUBZone program. SBA has implemented seven of these recommendations, not implemented two and is in the process of implementing the other two. The Small Business Administration (SBA) designates economically distressed areas as Historically Underutilized Business Zones (HUBZones), based on data such as unemployment and poverty rates. Since 2008, GAO has issued several products that identified weaknesses in the HUBZone program and made recommendations to SBA to address them. While weaknesses remain, SBA has taken some steps to enhance program processes to varying extents. For example, Certification process. In 2008, GAO found that SBA performed limited verification of the information firms reported on applications. In response to GAO's recommendation to develop and implement guidance for the certification process, SBA has taken steps to improve its processes to verify the eligibility of firms applying to the program. Since fiscal year 2009, SBA has required firms to provide supporting documentation for applications that the agency then reviews. Susceptibility to fraud and abuse. In 2008 and 2009, GAO's investigations found 29 HUBZone firms in five metropolitan areas made fraudulent or inaccurate representations, which allowed them to get into or remain in the program. In response to GAO's recommendations to address potential fraud, SBA increased its documentation requirements. But in 2010, GAO still was able to obtain HUBZone certification using bogus addresses. Subsequently, according to SBA officials, in fiscal year 2010 SBA began conducting site visits to 10 percent of certified firms. Recertification process. Firms wishing to remain in the program must recertify their continued eligibility to SBA every 3 years. However, in 2015, GAO found that SBA had not required firms seeking recertification to submit any information to verify continued eligibility and instead simply relied on their attestations of continued eligibility. GAO recommended that SBA reassess its recertification process and add additional controls. As of February 2017, SBA had not yet implemented this recommendation. Communications with firms about designations. GAO found in 2015 that SBA's communications to firms about programmatic changes (including redesignation) generally were not specific to affected firms and thus some firms might not have been informed they would lose eligibility. GAO recommended that SBA establish a better notification mechanism. In response, SBA revised its letters to newly certified firms to inform them of the consequences of redesignation, and as of February 2017, SBA was implementing additional steps to ensure that all currently certified firms would be notified of changes that could affect their program eligibility.
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FSA is USDA's primary federal agency charged with administering farm programs at the local level. FSA's fiscal year 1997 salary and expenses were $956 million. This amount provided funding for 17,269 federal and nonfederal employees at the national office, 50 state offices, and 2,440 county offices. In fiscal year 1997, more than 1.6 million farmers participated in USDA's farm support programs and received more than $7.4 billion in benefits. Most farm support programs are implemented at the county office level under the direction of a county committee of locally elected farmers. This county committee hires a county executive director, who manages the local county office staff. As a condition of participation in any USDA farm program, farmers generally visit their FSA county office in person to identify the particular tract of cropland that is being enrolled in a program. This information ties the individual to the tract of land in order to ensure compliance with various statutes dealing with program eligibility, payment limitations, and conservation requirements. FSA employees review program requirements with the participating farmer and complete most of the paperwork that the farmer signs. Much of the paperwork associated with farm programs consists of contractual agreements between the farmer and USDA. For example, the marketing assistance loan form is a legal agreement between USDA and the farmer in which the farmer agrees to repay the loan within a specified period of time. The current county-based delivery structure for farm program benefits originated in the 1930s, when the first agricultural acts established farm support programs. At that time, more than one-fourth of Americans were involved in farming, and the lack of an extensive communications and transportation network limited the geographic boundaries that could be effectively served by a single field office. Over the past several years, the Department has made a number of changes to the delivery structure that were recommended by us and others. USDA has collocated agencies; consolidated agencies; closed smaller, less efficient county offices; and streamlined some program requirements. However, despite advancements in technology and communications, farmers generally still deal with USDA in person at their local FSA office. See appendix I for more information on the recent changes USDA has made. Farmers who participated in USDA's commodity programs for major crops saw a reduction in their administrative requirements because of the program changes resulting from the 1996 act. The savings in time spent on paperwork are due mainly to farmers' not having to make decisions about program participation and planting alternatives. The reduction in the number of visits results from eliminating the requirements that farmers report the number of acres they plant, except for fruits and vegetables. For farm programs other than the commodity programs, we found no substantial change in the amount of time farmers spend on paperwork and the number of visits they make to county offices. The 1996 act significantly changed USDA's administrative requirements for the commodity programs. Farmers saw their time spent on paperwork reduced from a minimum of 1-1/2 hours to about 15 minutes annually and the number of office visits reduced from twice to once a year. Under the federal commodity programs in existence until 1995, USDA regulated agricultural production by controlling the crops that farmers could grow and the amount of acreage that they could plant. USDA provided annual payments to participating farmers that were based on annual calculations involving historical acreage and yields devoted to agricultural production, market prices for crops, and support prices set by the Congress and the Secretary of Agriculture. Signing up for the programs normally required that farmers visit the county office annually in order to determine the optimal planting option that they should follow for that year. More specifically, if farmers decided to participate in a commodity program, they selected from several available planting options, such as (1) idling a percentage of land, receiving benefits, and producing a commodity or (2) not planting anything and receiving 92 percent of the benefits. FSA staff completed participation worksheets and calculated benefits using different scenarios as many times as the farmers deemed necessary to determine which annual program provisions best met their needs. After the farmers selected an option, FSA staff generated the contract for their signature. Subsequently, the farmers returned to the office to report the acreage actually planted on the farm. The farmer reported the types of crops planted, the number of acres of each crop planted, and the number and location of acres that were not planted. Farmers could use FSA's aerial photographs to identify fields planted to program crops or idled. Because incorrect reporting could lead to the loss of benefits, farmers often requested measurement services from FSA to guarantee compliance. According to county office staff and participating farmers, these sign-up and acreage reporting visits took a minimum of 1-1/2 hours altogether and two visits to the county office. The 1996 act eliminated annual sign-ups for the commodity programs and allowed eligible farmers to enter cropland previously enrolled in USDA's commodity programs into 7-year production contracts. The new program is far less complicated than the commodity programs because once farmers chose to participate in the 7-year program, annual decisions on participation or planting alternatives were no longer necessary. Instead, farmers receive fixed annual payments that are based upon the enrolled land's previous crop production history. Furthermore, farmers are no longer required to report the acreage planted unless they plant fruits and vegetables. In some cases, farmers do not need to visit the county office during the duration of the 7-year contract. Farmers who own and operate their cropland could make payment designations for all 7 years of the contract during their initial visit. However, many farmers who lease land will visit the county office annually because payment designations can be made only for the length of the lease. Because most farmers lease cropland for one season (1 year) at a time, they are required to visit the county office annually to designate the cropland they will farm in order for FSA to determine the payments they are eligible for. According to the farmers and county office staff we interviewed, this process generally involves one visit of about 15 minutes. The 1996 act generally did not change administrative requirements for other farm support programs, such as the Conservation Reserve Program (CRP), direct farm loans, and the Noninsured Crop Disaster Assistance Program (NAP). Accordingly, the amount of paperwork associated with these programs generally did not change. The number of participants in these programs is relatively small in comparison with the number of participants in the commodity programs. For example, in 1996, 1.6 million farmers signed production contracts and 64,000 farmers participated in CRP. See appendix II for more information on the administrative requirements associated with these other farm support programs. FSA could use alternative methods--such as mail and telecommunications--to enroll farmers in programs and deliver program benefits more efficiently. However, shifting to alternative delivery methods would require FSA to change its long-standing tradition of providing personal service to farmers and would shift the burden of completing many administrative requirements to farmers. USDA could use a number of alternatives that could improve the efficiency of its program delivery. These could include greater use of the U.S. mail, telecommunications, and computer technologies. Generally, using these resources should allow USDA to operate with fewer staff and offices and could save millions of dollars annually. However, absent detailed study, the extent to which delivery efficiencies would be achieved is uncertain. We found no statutory or regulatory requirements that direct farmers to visit a county office in order to meet paperwork requirements. Furthermore, while it may be desirable for farmers to visit the county office to identify cropland and ownership when initially enrolling in USDA farm programs, once enrolled, farmers could obtain the forms they need and comply with program requirements by using alternative methods, such as the mail, telephone, or computers. During the course of our review, we talked to farmers who indicated that they had, or could have, used these alternatives to conduct business with FSA. Several farmers we talked with already conducted some of their business with FSA by mail, such as enrolling acreage coming out of CRP in a new production contract. However, most of the farmers stated that because the office was conveniently located, they preferred to conduct business in person. Our discussions with county executive directors and farmers also suggest that more opportunities exist to use these alternative methods to conduct business. For example, a participant could mail acreage reports to the county office, call the office to apply for assistance, and receive benefits (if qualified) electronically without ever visiting the county office. In the case of the direct loan program, a farmer could complete the loan application on a computer and send this information electronically to FSA for approval. Institutions such as the Farm Credit System--a commercial lender that provides credit to agricultural producers and cooperatives--now accept farm loan applications over the Internet. The use of alternatives such as these could reduce the number of visits farmers make to local offices but will not completely eliminate the need for FSA staff to visit farms to inspect and verify loan collateral and carry out compliance activities. Federal agencies and private companies with much larger customer bases than FSA already use some of these alternative delivery methods to reduce the need for customers to visit an office. For example, the Internal Revenue Service has used the U.S. mail for years and now allows individuals to file tax returns electronically or by telephone and deposits refunds directly into customers' bank accounts. The Social Security Administration has a free telephone service to answer questions and handle simple transactions, such as a change of address. Banks use automatic teller machines to conduct simple transactions, and individuals can apply for loans using the telephone. Similarly, FSA could make greater use of the mail and telecommunications to deliver farm programs to reduce the need for farmers to visit a county office. Using alternative delivery methods should allow USDA to operate with fewer staff and offices, which could reduce personnel expenses by millions of dollars. For every staff-year reduced, FSA could save more than $32,000 in personnel expenses. However, the actual efficiencies attained would depend largely on how USDA restructured its operations using alternative delivery methods. Changing the current delivery system, which is based on county offices, can only occur with a fundamental shift in the long-standing practices and relationships that FSA has with participating farmers. While farmers we talked to said that they could conduct business by mail, telephone, or computer, they generally prefer the personal service they receive at the county office. This is in part because many farmers rely on FSA staff to help them fill out forms for the program. FSA county offices have long provided a high level of personal service to farmers. Historically, this service has included reminding farmers 15 days prior to the ending date of a sign-up period that they had not enrolled in the current year's commodity program. Likewise, farmers have been able to walk into a county office without an appointment to receive service. Shifting to the use of alternative delivery methods may reduce FSA's costs of operation but would have several effects that could be considered undesirable. First, because farmers would receive less personal assistance from FSA staff, alternative delivery methods would place greater responsibility on farmers for knowing which programs are available and what the procedures are for enrolling in them. For example, if FSA consolidated its operations into fewer locations and made greater use of the mail, telephone, and computers, FSA staff could be reduced, and fewer staff would be available to meet face-to-face with farmers and complete their paperwork. The available FSA staff could still be used to carry out required functions, such as explaining program requirements, processing applications, and determining program eligibility. Second, the closure of county offices that could result from alternative delivery methods would increase USDA's distance from many farmers. This increase would probably have the biggest impact on farmers who are members of a minority and those with small farms, who generally have fewer alternative resources available to assist them and may have the greatest need for USDA's assistance. Minority farmers have criticized USDA recently for not providing adequate service to them. In addition farmers, who as a group are generally older, may not be able to drive greater distances in order to obtain whatever personal service is available. Third, alternative delivery methods could result in less local control. FSA officials told us that farmers who serve on local committees are a valuable resource because they know the farmers in their county and help monitor their compliance with program requirements. In addition to these consequences, many farmers may not have access to the technology needed to conduct business with alternative methods. According to a recent USDA survey, only 30 percent of farmers own a computer. In addition, because farmers are normally located in rural areas, local access to the Internet may not be available. The role of the county office and its relationship to farmers has not changed significantly since USDA began delivering programs at the local level in the 1930s. Even though improvements have been made in the transportation and communications infrastructure, and the number of farmers living in rural America has declined, USDA continues to provide the same kind of personalized service in the county office that it did 60 years ago. However, this service comes at a cost of almost $1 billion annually. While many farmers prefer this kind of service, some taxpayers may be unwilling to support its high cost over the long term. Using alternative delivery methods should allow USDA to operate with fewer staff and offices, which could reduce personnel expenses by millions of dollars. However, any changes in USDA's field office structure need to take into account the culture that has existed for decades at the county office level. Making significant changes to this structure to reduce government expenses and improve program efficiency could increase the administrative requirements for, and thereby the costs to, farmers who participate in farm programs. Although farmers prefer the current level of personalized service, continued pressure to reduce federal expenditures requires USDA to look for ways to deliver these services more efficiently. Accordingly, we recommend that the Secretary of Agriculture direct the Administrator of the Farm Service Agency, in coordination with the Natural Resources Conservation Service and the Rural Development mission area (the Farm Service Agency's Service Center partners), to study the costs and benefits of using alternative delivery methods to accomplish mission objectives. We provided USDA with a draft of this report for its review and comment. We met with departmental officials, including the Associate Administrator of the Farm Service Agency. USDA generally agreed with the information presented in the report. While the Department agreed with the intent of our recommendation, it stated that any study of alternative delivery methods should include the Natural Resources Conservation Service and the Rural Development mission area. We have expanded our recommendation in response to this comment. USDA also commented that while most farmers experienced reductions in their administrative requirements, some farmers participating in programs not substantially affected by the 1996 act, such as those for peanuts and tobacco, experienced no change or slightly increased administrative requirements. In addition, the Department noted that while alternative delivery methods may reduce government expenses, such changes could increase costs and administrative requirements for the farmers themselves. We provided additional language in the report to recognize these comments. USDA also provided technical and clarifying comments that were incorporated as appropriate. To determine the extent to which the changes in the farm programs resulting from the 1996 act have reduced farmers' administrative requirements, we discussed the administrative requirements for major farm programs prior to and after the 1996 act with USDA headquarters, state, and county officials. We reviewed the documentation that USDA submitted to the Office of Management and Budget to justify the need for the paperwork requirements for these programs, as well as the time associated with completing the forms. In considering changes in administrative requirements directed by the 1996 act, our analysis does not consider changes in requirements after 2002, when the current law expires. In looking at alternative delivery methods, we did not analyze the implications of changes in delivery methods on USDA's process for gathering the farm data used by other USDA agencies. We met with USDA headquarters, state, and county officials, as well as farmers, to obtain their views on whether USDA could use alternative methods to deliver farm support programs. We visited county offices located in California, Connecticut, Georgia, Illinois, Massachusetts, Missouri, Nebraska, North Carolina, and Washington State. In these offices, we met with the county executive director, the manager for agricultural credit, and farmers from the FSA county committee. In six of these states, we also met with the FSA state executive director, and in one state, we met with a member of the state FSA committee. We also called farmers across the nation who were enrolled in CRP, the direct loan program, and the commodity programs for major crops and who had participated in USDA's customer satisfaction survey to obtain first-hand information on their personal visits and time spent in FSA county offices before and after the 1996 act. We conducted our work from September 1997 through March 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Chairman, House Committee on Agriculture; other interested congressional committees; the Secretary of Agriculture; and the Director, Office of Management and Budget. We will also make copies available to others on request. Please call me at (202) 512-5138 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix III. The U.S. Department of Agriculture's (USDA) recent efforts to improve its delivery of farm programs include a wide range of efforts. These efforts are only incremental measures, however, that cut at the margins of existing operations. They do not address large-scale concerns affecting the Department's overall design, mission, and service delivery method. More specifically, since 1994, USDA has consolidated two of its former county-based agencies--the Agricultural Stabilization and Conservation Service, and the Farmers Home Administration--into the Farm Service Agency (FSA). USDA has also collocated these FSA offices with the Natural Resources Conservation Service (NRCS), and the Rural Development mission area into one-stop shopping centers for farmers. With this arrangement, farmers can get farm program information and complete necessary paperwork requirements at one location. In addition, FSA is reviewing its paperwork requirements for farm programs. The Paperwork Reduction Act of 1995 requires federal agencies, including USDA, to reduce their paperwork burden by 25 percent by 1999. USDA has established teams to review its paperwork requirements to determine how they can be streamlined. Furthermore, USDA is undertaking an effort to streamline its administrative activities at the state and national level. In December 1997, the Secretary of Agriculture approved an administrative convergence plan that will consolidate a number of administrative activities at headquarters and in state offices. The plan establishes a Support Services Bureau in headquarters and one state administrative support unit in each state. This organization will provide administrative services, including financial management, human resources, civil rights, information technology, and management services (including procurement), to field-based agencies. USDA also has contracted for an independent study to examine FSA, NRCS, and the Rural Development mission area for opportunities to improve overall customer service and the efficiency of the delivery system. Results of this study will be incorporated into the future iterations of FSA's strategic plan. The administrative processes and paperwork requirements for many of FSA's major farm programs--Conservation Reserve, Nonrecourse Marketing Assistance Loans, Peanuts, Tobacco, Direct Loans, and Noninsured Crop Disaster Assistance--are described below. The Conservation Reserve Program (CRP) makes annual rental payments to farmers to retire environmentally sensitive land from production, usually for 10 years. The 1996 act made several changes to CRP to extend, simplify, and refocus the program. We found that farmers spent three visits totaling a minimum of 1 hour to complete the paperwork requirements for CRP. Because there were two CRP signups in 1997, some farmers made more than three visits to an FSA office. On a farmer's first visit to enroll land in CRP, the farmer reviews an FSA map and indicates the tracts of land he or she is interested in enrolling in the program. FSA staff enter the tract identification information on a CRP worksheet, and the farmer certifies that this information is correct. If the land is determined to be eligible for CRP, the farmer returns to the FSA office to indicate the rental rate he or she will bid and signs a CRP contract, agreeing to the terms and conditions set forth in the appendix to the contract. FSA staff enter the bid amount on a CRP contract, which the farmer signs. FSA selects bids from across the country. The farmers whose bids are accepted return to the county office to review and sign a conservation plan prepared by NRCS. Marketing assistance loans provide farmers with interim financing, using the crop as collateral. These loans allow farmers to hold their crops for sale at a later date, when prices may be higher than they would have been at harvest. Farmers make two to three visits and spend a minimum of 1 hour in total to obtain and repay a marketing assistance loan. On the first visit to obtain a nonrecourse marketing assistance loan, the farmer files an acreage report, unless one has already been filed. Depending on the crop, the farmer brings warehouse receipts or bin measurements to the FSA office and signs a Commodity Credit Corporation Note and Security Agreement, which states that the farmer agrees to pay back the loan or forfeit the collateral, which is the crop. To satisfy the loan, the farmer can either sell the commodity and bring the check for FSA's signature to pay off the loan or forfeit the loan and arrange for delivery of the commodity to the government. The peanut program establishes annual poundage quotas to limit production as a way of supporting crop prices. The program requires FSA to keep a record of the acreage planted and the sales of this commodity to ensure that farmers stay within their quotas. Farmers generally make about five to six office visits and spend a minimum of 1 hour in total to complete paperwork and obtain marketing cards. In 1997, 25,000 farmers participated in the peanut program. On the first visit to participate in the peanut program, the farmer may request FSA's measurement services to accurately determine his or her peanut acreage. After planting, the farmer visits the FSA office to certify the acreage actually planted. The farmer then completes a Report of Seed Peanuts, which FSA uses to determine if the amount planted is reasonable for the acreage reported. On the basis of the acreage planted, FSA allocates a temporary seed quota to cover the producer's purchase of seed. After harvest, the farmer may visit the FSA office to obtain a Peanut Marketing Card. After selling the peanuts, the farmer must bring his or her Peanut Marketing Card to the FSA office and review a Poundage Sales summary, which reflects the sales of the farmer's peanuts in the marketplace. In addition, if the farmer has excess quota or needs additional quota, he or she will need to make one or more additional visits to the FSA office to complete a Temporary Lease and Transfer of Peanut Quota, which requires witnessed signatures. The tobacco program establishes annual marketing quotas to limit production as a way of supporting crop prices. The program requires FSA to keep a record of the acreage planted (except Burley tobacco) and the sale of this commodity to ensure that farmers stay within their quotas. Farmers generally make about five to six office visits and spend a minimum of 1 hour in total to complete paperwork and obtain marketing cards. In 1997, 330,000 farmers participated in the tobacco program. Farmers may visit the FSA county office to request measurement services to accurately determine their tobacco acreage. After planting, the farmer visits the FSA office to certify the acreage actually planted in tobacco, except for Burley tobacco. After harvest, the farmer visits the FSA office to obtain a Tobacco Marketing Card and sign the Certification of Eligibility to Receive Price Support on Tobacco. If the farmer has excess quota or needs additional quota, he or she will need to make one or more additional visits to the FSA office to complete a Temporary Lease and Transfer of Tobacco Quota, which requires witnessed signatures. At the end of the selling season, the farmer must return, either in person or by mail, the marketing cards and complete a Report of Unmarketed Tobacco. The direct loan program provides operating and ownership loans to farmers who cannot obtain credit elsewhere. There are statutory limitations on the size of these loans. Farmers visit their county office three to four times and spend a minimum of 3 hours in total completing paperwork to obtain a loan. To obtain a direct loan, a farmer generally visits the FSA county office to obtain a Farm Programs Application Package, which includes all of the forms a farmer must complete. A farmer may complete some of these forms during this visit or may gather documentation and complete some of the paperwork before returning to the county office. Credit managers indicated that they usually scheduled a visit to review the application. A complete application package generally includes a Request for Direct Loan Assistance; a Farm and Home Plan showing projected production, income, and expenses; financial records for the past 5 years; and various other documents that describe the applicant's operations. A farmer makes additional visits to provide more information and, if the loan is approved, to sign the loan agreement. After the loan is approved, a farmer may be required to visit the county office to get signatures on the checks that the farmer receives for selling commodities or to pay back the loan. The Noninsured Crop Disaster Assistance Program (NAP) protects the growers of many crops for which federal crop insurance is not available. FSA makes NAP payments to eligible farmers when an area's expected yield is less than 65 percent of the normal yield. Farmers who participate in NAP make at least one visit for a minimum of 15 minutes to the county office each year to file an acreage report. If they suffer a disaster, they will make two additional visits and spend a minimum of 30 minutes for these two visits to apply for assistance. To be eligible for NAP, a farmer must file an acreage report annually with the local FSA office. If a farmer suffers a disaster, that farmer can visit the FSA office to complete a Request for Acreage/Disaster Credit. After the area has been declared a disaster, the farmer signs the NAP Certification of Income Eligibility; provides production records, if needed; and signs a Crop Insurance Acreage Report and a Production Yield Report. Ronald E. Maxon, Jr., Assistant Director Fred Light Renee McGhee-Lenart Paul Pansini Carol Herrnstadt Shulman Janice Turner 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 examined the administrative requirements placed on farmers participating in the revamped farm programs, as well as the Department of Agriculture's (USDA) efficiency in delivering program services to farmers, focusing on the: (1) extent to which the changes to the farm programs resulting from the Federal Agriculture Improvement and Reform Act of 1996 have reduced farmers' administrative requirements; and (2) possibility of having USDA use alternative delivery methods to more efficiently administer farm programs. GAO noted that: (1) farmers are now generally spending less time on administrative requirements than they did before the 1996 act; (2) the number of required visits to county offices has declined, as has the amount of time spent completing paperwork for the farm programs; (3) the Farm Service Agency (FSA) could transact more with business farmers through the mail and by telephone and computer, thus increasing the efficiency of its operations; (4) using alternative delivery methods should allow USDA to operate with fewer staff and offices, which could reduce expenses by millions of dollars; (5) while GAO found no statutory or regulatory requirements that direct farmers to visit county offices, changing delivery methods to rely more on such approaches will require fundamental changes in the FSA's long-standing practices and relationships with farmers; and (6) in particular, such methods would reduce farmers' personal contact with county office staff and place greater administrative responsibility on farmers to ensure that required paperwork is completed and submitted in a timely fashion.
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In 1997 and 1998, the quality of service IRS provided to taxpayers was identified as a problem both in and outside IRS. The Vice President's National Performance Review looked within and across federal agencies at how existing programs could operate more efficiently and effectively and what activities the government should be doing. After hearing from citizens, legislators, and others that IRS needed to improve in meeting the needs of taxpayers, NPR commissioned a Customer Service Task Force. The Task Force made more than 200 recommendations for customer service improvements. The Senate Finance Committee held hearings during which taxpayers, IRS employees, and others testified about instances of taxpayer abuse and mistreatment. At the same time, a new Commissioner received thousands of improvement suggestions from meetings held with employees across the nation. The Commissioner was also formulating long-term plans for restructuring IRS according to the functional groups of taxpayers it serves (e.g., wage earners, small businesses, and large corporations) in accordance with the IRS Restructuring and Reform Act of 1998. A major information systems modernization was under way, as were efforts to make IRS' systems Year 2000 compliant. To meet our reporting objective, we reviewed our prior work and IRS documents and interviewed cognizant officials about the overall strategy for managing the customer service improvement efforts and about activities related to the implementation of the selected individual initiatives. We requested comments on a draft of this report from the Commissioner of Internal Revenue. We received written comments, which are discussed near the end of this letter and reprinted in appendix III. We did our work primarily at IRS headquarters in Washington, D.C., between April 1998 and January 1999, in accordance with generally accepted government auditing standards. (See app. I for more details on our scope and methodology.) IRS established a promising strategy for managing the implementation of the agency's customer service initiatives. The development and use of management information on costs and benefits, milestones and completion dates, and performance measures would strengthen its management strategy. IRS' basic management strategy was to establish a central office, TSI, in January 1998 to manage the overall implementation of customer service improvements that were being carried out by many different IRS and Treasury offices. The head of TSI was authorized to build a staff and create a strategy for the coordinated review and implementation of the more than 5,000 improvement initiatives IRS received. At the same time the Commissioner established TSI, he created an executive steering committee, with himself as chair, to oversee the implementation activities. The steering committee was to provide decisions on matters affecting the implementation of the recommended initiatives and was to ensure that initiatives being implemented were consistent with IRS' overall business strategy. We have found that this kind of centralized coordination of crosscutting programs is an effective management strategy. It can be used to identify program overlap, duplication, or fragmentation. Coordination also helps to ensure that program efforts are mutually reinforcing. By April 1998, the 12-person TSI staff had created a database of the initiatives and begun using it to categorize the initiatives on its agenda. TSI grouped the recommendations into functional areas, identified sources of suggestions, and linked similar suggestions from different sources together. The database also had fields for information on the priority level, impact, and cost of implementing initiatives--data that could potentially be used to monitor implementation and facilitate effective management and oversight of work on initiatives. According to TSI officials, however, this information was not routinely completed and updated by offices implementing the initiatives. Early actions to develop the database notwithstanding, TSI had problems in carrying out its responsibilities during its first months of operation. Officials said that the problems arose in large part from the sheer volume of improvement initiatives on its agenda. The TSI staff was not able to evaluate and prioritize the more than 5,000 mandates, recommendations, and suggestions that came from sources including Congress, task force groups, and individual employees and taxpayers. TSI officials said that efforts to determine accountability for work, especially when two or more offices shared responsibility, and to track the progress being made on individual initiatives were also hampered by the large volume of initiatives. As of January 1999, IRS had taken several actions to address its problems. Top IRS management established criteria for prioritization in September 1998. To determine what initiatives to implement in the short term, officials said that IRS criteria were that legislative mandates were top priorities and that all initiatives selected were to show taxpayers, employees, and external stakeholders (e.g., NPR and Congress) that IRS was changing. In January 1999, IRS leadership approved a list of 157 initiatives as primary customer service improvement actions, drastically reducing the number to be managed by TSI in the short term. The initiatives selected were organized under 19 strategic categories (e.g., protect taxpayer rights, improve and increase the use of education and delinquency prevention techniques, and create an IRS culture that values employees and rewards top-quality service). An "owner"--an IRS executive--was assigned as the official accountable for each strategic category and the initiatives being implemented within it. Each strategic category contributed to one of IRS' three strategic goals: (1) service to each taxpayer; (2) service to all taxpayers; or (3) productivity through a quality work environment. This prioritization process was a necessary first step to setting realistic goals for progress based on IRS' capacity to take on additional responsibilities. It reduced the number of improvement actions to a manageable level and established accountability for carrying out the work. It also made it feasible to expect that TSI could track the progress being made in implementing the priority initiatives. TSI also made improvements to its database that gave offices implementing the individual initiatives on-line access to information. This change was designed, in part, to make it easier and more efficient to track progress being made on individual initiatives. IRS' management strategy could be improved. As our review was being completed, TSI had requested that the owners of each primary initiative enter an "action plan" into the database with information on start and completion dates and milestones. As of March 1999, TSI was working with managers of individual initiatives to finalize the action plans. TSI officials said that they expected to use the action plans to monitor progress being made and to keep current on the status of the initiatives. However, IRS had not assessed the need for information on expected costs and benefits and how results of the initiatives were to be measured. TSI officials said that consideration of how to systematically collect standard information on costs and benefits of the initiatives and plans for measuring their results was in an early discussion stage. TSI had concentrated its efforts on prioritization and then developing information on initiatives' key milestones and completion dates. It had not developed plans to seek information on costs, benefits, or results for individual initiatives. As of January 1999, managers for a few of the 25 initiatives we reviewed had documented management information on costs and benefits, milestones and completion dates, and anticipated results. For 19 of the 25 initiatives we reviewed (see app. II), we asked for documentation of this management information. These 19 initiatives were in process and had progressed past the planning and design phases. We found that 11 of the 19 initiatives had written plans with milestone dates for reaching key points and an estimated final completion date. Cost- benefit analyses were done for eight initiatives, and written documentation of performance measures to gauge expected results were done in seven instances. Managers on individual initiatives provided a number of reasons why some types of management information were not developed. For example: The manager for an initiative to administer preemployment screening assessments to applicants for customer service positions said that IRS leadership wanted the screening assessments to be used for hiring for the 1999 filing season. She noted that there was not enough time to prepare formal project management documents before that hiring began in September 1998. The manager of an initiative to provide tax information to small start-up businesses jointly with the Small Business Administration said that it was not possible to track individual taxpayers who received the information to directly measure how receiving it improved their compliance with tax laws. The manager of an initiative to provide customer service training to all IRS employees said that since the commitment to this training was made by the Acting Commissioner to the Senate Finance Committee, a cost-benefit analysis was not necessary to decide whether the project should be completed. Our work evaluating the implementation of the Government Performance and Results Act has documented the difficulties that agencies face in developing management information, particularly measures of results. Extenuating circumstances, such as short time frames and difficulties identifying benefits and costs, may even preclude the development of management information in some instances. Moreover, factors such as scope and complexity can drive the level of detail necessary. For example, one would not expect to see as much detail in a plan to study why people hang up when they use an automated telephone menu as in a plan to begin using complex new call router technology. However, our work has also shown that public sector agencies can and do overcome obstacles to successfully implement strategic management principles and become more results-oriented. Such efforts have resulted in improved performance. For example, the National Oceanic and Atmospheric Administration began to measure the extent to which it could increase the advance notice it gave the public before severe weather events, instead of counting the number of forecasts it made. The emphasis is significant because having more time to prepare should lessen the loss of life and property. The Coast Guard's Office of Marine Safety, Security, and Environmental Protection improved its mission effectiveness with fewer people and at lower cost. It did so by giving field commanders greater authority and by investing in activities and processes that went most directly to the goal of reducing risks on the water. Measuring performance allows agencies to track the progress they are making toward their goals and gives managers crucial information on which to base their organizational and management decisions. No picture of what government is accomplishing with the taxpayers' money can be complete without management information on benefits and costs. It provides agencies with tools to determine whether they have used public resources economically, efficiently, and effectively to achieve the purposes for which they were appropriated. Viewing program performance in light of costs can be important on at least two levels. First, it can help Congress make informed decisions. Second, it can give taxpayers an accounting of what government is providing in return for their tax dollars. As of January 1999, IRS had established priorities, reduced the number of initiatives to a manageable level, aligned them with its strategic goals and objectives, and assigned accountability for individual initiatives. IRS also improved its ability to monitor and track individual initiatives by providing on-line access to its database and by asking managers responsible for work on individual initiatives to input information on milestones and completion dates. As IRS moves forward on its customer service improvements, we believe its strategy for managing the initiatives would be enhanced by having information on expected costs and benefits, milestones and completion dates, and performance measures. IRS has already linked the initiatives to its strategic goals and objectives and begun to collect information pertaining to timeliness. However, it has not determined how much the initiatives are likely to cost, what benefits are expected to be achieved, and how results will be measured. We recognize that the level of detail that might be needed likely would vary from initiative to initiative. The TSI database could serve as a tool not only to monitor implementation, but also to facilitate effective management and oversight. Consistent information--including cost, benefit, and performance results data, provided and kept current through on-line access--could be the link between project teams, IRS' leadership, and other stakeholders. We recommend that the Commissioner of Internal Revenue develop an approach and provide guidance to managers for determining the appropriate cost and benefit information for the customer service initiatives and for measuring the results of the initiatives in relation to IRS' customer service objectives. We also recommend that the Commissioner of Internal Revenue enhance the TSI database to include this management information for the use of IRS' project teams, leadership, and other stakeholders. We provided a draft of this report for comment to the Commissioner of Internal Revenue. The comments are summarized below and reproduced in appendix III. IRS said that our report was a fair and balanced assessment of its strategy for implementing customer service improvements--recognizing both the strengths of the strategy and how it could be improved. IRS noted that the report indicated our willingness to go beyond identifying problems and to collaborate in developing pragmatic solutions. IRS agreed that it needed to address the two recommendations we made for enhancing its customer service improvement strategy. It noted that some steps were already being taken to collect information on the expected costs and benefits of improvement initiatives, and it recognized that the design of relevant measures of results were also very important. We are sending copies of this report to Representative William J. Coyne, Ranking Minority Member of your Subcommittee; The Honorable Robert E. Rubin, Secretary of the Treasury; The Honorable Charles O. Rossotti, Commissioner of Internal Revenue; and other interested parties. We will also make copies available to others upon request. This report was prepared under the direction of Alton C. Harris, Assistant Director. Other major contributors are listed in appendix IV. If you have any questions, please call me on (202) 512-9110 or Mr. Harris on (404) 679- 1854. At the request of the Chairman of the House Subcommittee on Oversight, Committee on Ways and Means, we agreed to assess IRS' strategy for managing the implementation of its customer service initiatives--including whether IRS had developed information on expected costs and benefits, milestones and completion dates, and performance measures to gauge results. To provide some perspective on the type of work being done to improve customer service, we also agreed to provide information on the progress made on 25 initiatives. (See app. II.) To address this objective, we interviewed officials and reviewed documentation and our prior reports that addressed the importance of strategic planning in federal program management. We interviewed officials from TSI and the Customer Service Task Force at IRS headquarters. Using a standard set of questions, we also interviewed IRS officials responsible for implementing 25 of IRS' customer service initiatives. We asked them whether they developed and used selected project management information and what progress they were making in implementing the initiatives. At 3-month intervals over the course of our review, we requested updates of a TSI database that organized and categorized the customer service initiatives. We received database updates in April 1998 and July 1998. In October 1998 and January 1999, TSI officials advised us that no status reports were available because IRS had temporarily suspended follow-up activities on the individual initiatives to focus on the prioritization of all initiatives. We did not independently verify the TSI database, but we did examine its accuracy for the 25 improvement initiatives that we included in our review. We reviewed planning documents that had been prepared for 19 of the 25 initiatives. Work on these initiatives was in process and had progressed past the design and planning stages. We determined, and TSI officials agreed, that they were initiatives that would benefit from having management information on costs and benefits, milestones and completion dates, and performance measures to gauge results. The 25 initiatives we selected for detailed review were chosen before IRS had prioritized its initiatives, reducing the number of primary actions to 157. They were all recommendations of the IRS Customer Service Task Force and were chosen to reflect a cross section of the major customer improvement efforts. Several initiatives were included that addressed improvements in telephone assistance and employee training because more than 70 percent of IRS' $103 million in fiscal year 1999 appropriations to implement customer service improvements was targeted for these two areas. For each improvement area, we judgmentally selected initiatives to study based on their potential to have a positive impact on IRS' customer service. TSI officials agreed that all of the projects we selected were significant initiatives. (See app. II for a list of the initiatives we reviewed and information on the progress made in implementing them.) Our review of the 25 initiatives recommended by the Task Force was not intended to assess IRS' overall progress in improving customer service. Rather, the analysis was to provide information on some of the work being done on initiatives recommended by the Task Force. During our review, IRS approved a list of 157 initiatives as customer service improvements with the highest priority for implementation in the short term. We did not assess the prioritization criteria used. We did our work primarily at IRS headquarters in Washington, D.C. We also interviewed an official in the IRS Southeast Region in Atlanta, GA, and we attended a training conference in Arlington, VA, to prepare IRS trainers to deliver new customer service training to employees. On March 19, 1999, we provided a draft of this report for comment to the Commissioner of IRS. We received the Commissioner's written comments on April 12, 1999. They are reproduced in appendix III and discussed at the end of the letter. Table II.1 shows the results of our review of progress made on 25 customer service improvement initiatives. In selecting the initiatives to review, we determined and TSI officials agreed that they had great potential for improving customer service. Six of the 25 initiatives that we reviewed were closed as of January 1999. Sixteen initiatives were in process, and three had been deferred. Initiatives were classified as closed because officials believed that they had completed work on them or they did not need to complete them. For example, the initiative to expand telephone serve to 7 days a week, 24 hours a day by January 1, 1999, was classified as closed because IRS had taken this action. The initiative to create a plan for effective alternatives to serve customers before closing a walk-in office was classified as closed because IRS did not plan to close any walk-in offices; thus, no plan for alternatives was needed. Initiatives classified as in process included those in various stages of implementation. For example, an initiative in the early stages of implementation was the effort to improve the national distribution of information to IRS employees. An IRS official said that major improvements in the national distribution of information to IRS employees could not be achieved until all employees had access to computers and were on a standard computer network. While awaiting the required information systems upgrades, however, IRS started smaller scale projects to improve communication. These included issuing a newsletter containing information on IRS' modernization efforts to all employees. An initiative that was closer to full implementation was an initiative to assess the skills of IRS employees and train those with the most critical needs. Assessment instruments were developed and testing was underway for employees working in Customer Service, Collection, Examination, and Support Services. Some training had started to improve employees' skills as identified by the testing. Initiatives were deferred because IRS determined that other projects had higher priorities or because timing was not appropriate for implementation. For example, IRS decided not to attempt to standardize the format and content of its written responses to taxpayers until it had completed an initiative that was under way to rewrite all of its notices. Table II.1: Progress on 25 Customer Service Improvement Initiatives as of January 1999 Initiative Market Telefile aggressively to individual taxpayers. In 1999, begin using new call router technology to provide information that is geared to specific customer needs, such as the tax implications of the sale of a house, retirement, or job change. Before closing a walk-in office, create a plan for effective alternatives to serve customers. Establish a uniform set of leadership competencies for all levels of management. Description of work done Officials said that IRS' current practice of mailing Telefile information, rather than traditional tax filing packages, to taxpayers who are potentially eligible for Telefile is the most aggressive marketing strategy it could use. Officials said that the call router was implemented in December 1998, although IRS has plans for a number of enhancements to the system. By January 1, 1998, expand telephone service to 6 days a week, 16 hours a day. By January 1, 1999, expand telephone service to 7 days a week, 24 hours a day. In 1999, work to enable taxpayers to file paperless returns by eliminating the need for mailing in W-2s and other forms for paper signature in a way that does not jeopardize law enforcement. Use multiple strategies to reduce demand on the telephone lines, such as educating customers on when to expect refunds. Officials said that no further action was needed on this initiative because IRS does not plan to close any walk-in offices. Officials said that the Office of Personnel Management (OPM) revalidated a set of leadership competencies that federal agencies could use in their entirety or adapt as needed. IRS used the OPM model to develop its own model. It was used in1998 as part of the selection process for new executives. Officials said that IRS implemented these actions in January 1999. In February 1998, IRS started preparing a policy to guide its effort in this area, according to project officials. A pilot test is being conducted during the 1999 filing season on substitutes for signatures on electronically filed returns. Complete a study of why people hang up when they use the automated menu and recommend needed modifications to current plans. Assess the skills of IRS employees and train those with the most critical needs. IRS had several efforts under way to reduce demand on telephone lines. These included providing tax law assistance by electronic mail, improving the clarity of and reducing the number of notices, thereby reducing the need for taxpayers to call, and managing telephone calls away from live assistors and onto automated systems where possible. IRS had the study under contract, with an expected delivery in June 1999. Create a skills bank that identifies the skills of IRS employees. In 1998, have an intensive agencywide special training program to introduce employees to the new approach to customer service. Assessment instruments were developed and testing was under way for employees working in the Customer Service, Collection, Examination, and Support Services areas. Some training to improve employees' skills as identified by the testing had begun. Officials said that IRS developed databases of information on the results of assessments administered to measure employees' general competencies (e.g., communication and listening skills) and technical skills. Each of 22 field education branch offices managed a database and sent their data to a centralized database. When IRS' integrated personnel system is in place, these databases are to be integrated into it. IRS developed and piloted a course, but suspended it in late 1998 at the request of the National Treasury Employees Union (NTEU). The course was redesigned, and an official said that training was to resume in May 1999 and be completed by December 1999. Over the long term, change how IRS selects, trains, evaluates, rewards, and supports its employees so they can better serve customers. Work with NTEU to design and test a balanced scorecard to evaluate IRS and its employees in 1998. Improve national distribution of information to IRS employees. Separate projects addressed the selection, training, evaluation, rewards, and support portions of this broad recommendation. For example, a pilot test was done using assessment instruments to measure the skills and abilities of applicants for customer service positions. A team proposed several ways to redesign IRS' performance management system, including how employees were evaluated and rewarded, and was awaiting feedback from management. Another team offered ways to implement a range of options (e.g., pay for performance and a streamlined external competitive selection process) that IRS could use to motivate and reward employees. In 1998, IRS developed a measurement system that was intended to balance measures of business results with measures of customer and employee satisfaction. Implementation of the balanced measurement system in 1999 is to begin with new operational measurements for three key functions: customer service, examinations, and collections. IRS communications activities were integrated into a single office. While awaiting completion of information management systems upgrades that would make distribution of information to employees quicker and easier, the office was making improvements on a smaller scale. For example, it began producing a newsletter, New Directions, which informed employees about IRS' modernization efforts. According to officials, IRS organized and funded projects under three STAWRS initiatives: streamlined customer service, single- point filing, and simplified requirements. To give small businesses a single point for reporting tax and wage data to meet the requirements of IRS, Social Security Administration, Department of Labor, and state agencies, continue to work to support the Simplified Tax and Wage Reporting Systems (STAWRS) program. By the end of 1998, eliminate additional unnecessary notices. This will eliminate more than 45 million pieces of mail annually, almost one-third of the total number of notices that IRS has been sending to taxpayers. Seek to route telephone calls from small businesses to specific individuals who have training and the authority to answer business tax questions and resolve tax account problems. Give all locations the ability to input power-of- attorney authorizations and hold the person receiving the authorization responsible for ensuring the input. Track complaints, beginning immediately, using the Taxpayer Advocate's Problem Resolution Information System (PROMIS). By the end of 1998, IRS had eliminated 32 notices, which generated 22 million pieces of mail to taxpayers annually. Officials said that they are researching the possible elimination of five more notices that generate an additional 30 million pieces of mail. IRS officials said that this initiative is being partially addressed through the call routing system available to all taxpayers. Additionally, they had planned to pilot test the use of a separate toll free telephone number for business calls. However, this project was deferred. A regional advocate team examined this issue and reported on it in November 1998. The report was forwarded to the Taxpayer Advocate, National Accounts Section, and others for review. No decision had been made on whether to implement the initiative nationwide. As part of its test of a new customer feedback system, IRS was doing limited tracking of complaints. Beginning in 1998, team up with other federal agencies, financial institutions, tax preparers, state and local authorities, and others to provide tax information, training, and consultative services to small start-up businesses. The initiative is designed to make record-keeping, filing, and payment requirements as simple and easy as possible. Use a preemployment screening assessment tool, based on technical and behavioral skills, for all external applicants. Beginning in 1999, open additional temporary community-based locations during peak season to make publications and forms available in banks, libraries, shopping malls, and other locations. Analyze the costs and benefits of handling all federal tax deposit penalties in one centralized location. Reassign a case to the next higher management level when a complaint is unresolved after a reasonable period of time. Standardize the format and content of written responses, using appropriate commercial software. IRS had projects under way to address portions of this recommendation, including three projects with federal agencies to distribute tax information and a project with selected states to make obtaining federal identification numbers easier for new businesses. Preemployment screening assessments were done for applicants for customer service positions at four pilot sites for the 1999 filing season, according to an IRS official. IRS was opening additional locations in libraries, post offices, and copy centers for distributing forms and publications in 1999. 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 Internal Revenue Service's (IRS) efforts to improve customer service. GAO noted that: (1) IRS' strategy for managing the implementation of its customer service initiatives shows promise but could be improved; (2) IRS' basic approach was to establish a central office, the Taxpayer Service and Treatment Improvement Program (TSI), and form a high-level steering committee, chaired by the Commissioner, to oversee the implementation of improvement initiatives that were being carried out by many different IRS and Department of the Treasury offices; (3) TSI and the steering committee were established in January 1998; (4) in its early months, TSI had problems carrying out its responsibilities; (5) officials attributed most of the problems to the large number of potential initiatives on the agenda; (6) by January 1999, TSI and the steering committee had taken steps to: (a) prioritize the initiatives, reducing the number to 157 primary initiatives; (b) align these initiatives to IRS' newly established strategic goals and objectives; and (c) assign accountability for their completion to specific executives; (7) TSI provided offices involved in day-to-day implementation of individual initiatives with on-line access to the central information database it had developed to categorize and monitor progress on the initiatives; (8) IRS could further improve its customer service management strategy; (9) by January 1999, TSI had identified a need for information on milestones and completion dates for each primary initiative and asked offices implementing individual initiatives to input this information into its database; (10) however, TSI had not assessed the need for information on: (a) expected costs and benefits; and (b) performance measures; (11) managers in a few of the offices implementing initiatives GAO reviewed had documented all these types of information on their own, but this information was not being used by IRS' leadership; (12) as past GAO reports have shown, not only do high-performing, results-oriented organizations set priorities, align activities with mission-related goals and objectives, and assign accountability, but they also develop and use information to monitor progress and evaluate results; (13) information on costs, benefits, milestones and completion dates, and performance measures is critical to successfully managing for results; (14) although it can be difficult to develop, this information provides agencies with tools they can use to monitor and evaluate how efficiently and effectively programs are achieving their purposes; and (15) it is important to help determine whether public resources have been used to achieve the purposes for which they were appropriated.
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DOD stated in its May 1997 Report of the Quadrennial Defense Review (QDR) that a steady increase in investment in modern equipment to an annual level of $60 billion is required to fulfill the defense strategy. To achieve modernization goals, DOD plans to reduce the cost of its infrastructure, which includes central training. A focus of the QDR was to build a solid financial foundation for a modernization program that could reliably support future war-fighting capabilities. The key to that foundation was to stop the chronic diversion of procurement funds to pay for underestimated operating costs, unrealized savings, and new program demands by properly projecting and funding DOD's operating and support activities. To address the problem of the migration of these procurement funds to other activities, the QDR redirected resources to modernization through program adjustments that streamline infrastructure as well as reduce force structure and revise modernization plans. For example, the QDR proposed reducing active military personnel by 61,700 and reserve component personnel by 54,000. These QDR actions and initiatives were reflected in the fiscal year 1999 FYDP and caused some of the net decrease in central training funding. The services consider a number of factors in formulating their central training requirements. Factors include projected authorized end strength, losses in each occupational specialty/category by grade and years in grade, accessions, promotions, and reenlistments. Therefore, a change in end strength levels may not lead to a proportional change in training requirements. For example, lower-than-expected retention rates may necessitate increased training requirements even though personnel levels are lower. The services compile "training workload" to determine resources (people, funds, material, and facilities) required to conduct training. Training workload measures the output of the services' central training programs. DOD's 1998 FYDP projected a 1-percent increase in funding for central training between 1999 and 2003, while the 1999 FYDP projected a 2.5-percent decrease in funding for the same period. The total decrease in funding between the two FYDPs was $8.4 billion. Figure 1 compares the annual funding levels for the two FYDPs. Army funding changes account for $7.2 billion (86 percent) of this projected decline. The Air Force projected slightly lower funding levels in the 1999 FYDP. Although Navy funding in the 1999 FYDP shows an increase for 1999 and 2000, it too fell below projected 1998 FYDP levels in 2001 through 2003. Annual funding for the Marine Corps, which accounted for less than 9 percent of central training funding in 1999, was projected to decrease by less than 3 percent annually in the 1999 FYDP from the levels projected in the 1998 FYDP. Defense-wide training, which fell each year of the 1999 FYDP, accounted for less than 6 percent of central training funding in 1999. Figure 2 shows the funding changes by component between the 1998 and 1999 FYDPs. The 1998 FYDP projected that Army central training funding would remain relatively stable over the 1999-2003 period, while the 1999 FYDP projected a decline of $7.2 billion over the same period. The most significant reductions in the Army's budget were in four categories--training of new personnel, professional and skill training, aviation and flight training, and installation support for training. Most of the reductions were made to correct errors in the 1998 FYDP. Other contributing factors were personnel reductions as a result of the QDR, programmed reductions for planned efficiencies, shifts in programs from central training to other parts of the budget, and reduced funding for installation support and professional development training. Table 1 lists the amounts programmed for the four categories that changed the most between the two FYDPs. Funding for the training of new personnel in the 1999 FYDP was projected to be about $4.1 billion less in total than projected in the 1998 FYDP. Most of the decrease ($4 billion) was to correct an error in the Army's allocation of military salaries. During the development of the 1999 program, Army personnel found that they had been overestimating the salaries of enlisted trainees that were allocated to new personnel training and underestimating salary costs in other programs. An Army official stated that the error had no impact on the Army's budget requests for military personnel salaries and benefits. Moreover, there were funding reductions due to programmed personnel cuts from the QDR. According to Army training officials, instructors and training support staff will be reduced as a result of consolidating training functions and increased contractor support. According to Army training officials, the Army did not fully fund several training initiatives in the 1999 FYDP such as improvements in the Army's human relations training. Because these are high priorities for the Army, the Army officials expect that these initiatives will be fully funded in the 2000 FYDP, probably at the expense of other major commands. Further, Army training officials stated that the funding levels in the 1999 FYDP do not fully support a projected increased workload. The Army projected that workload for the training of new personnel would increase because of increased attrition and a 1-week extension of recruit and One-Station Unit Training. As a result, the Army's Training and Doctrine Command has already requested additional funds for the 1999 budget year and the Army will likely have to increase the funding levels for this training category in the 2000 FYDP. The 1999 FYDP programmed $1.2 billion less in total for this category than the 1998 FYDP. Several factors contributed to the lower projected funding. Programmed personnel reductions (a result of the QDR) contributed to a decrease in Army Reserve funding. In addition, as part of the implementation of the Total Army School System program, the Army Reserve reviewed its professional development training programs and cut its budget for students, instructors, and overhead. However, according to Army training officials, the Army Reserve underestimated its training requirements, and as a result, requested and received a $48-million increase in the fiscal year 1999 appropriations that offset the shortfall programmed in the 1999 FYDP. Army training officials stated that funding for Reserve professional and skill training in the 2000 FYDP will be increased. Changes in and programmed savings from the Army's Distance Learning Program also contributed to lower programmed funding for professional and skill training. In 1998, funding for the management of this program was moved from the central training infrastructure to another infrastructure category. In addition, funding was reduced beginning in 1999 to reflect both training load decreases and projected savings through the Army's ongoing investment in distance learning technology. These savings are to accrue as classroom training time is shortened and student travel and per diem costs are reduced. Army training officials informed us that the Army continues to fully implement its Distance Learning Program, so the service can achieve the savings planned from the program, but substantial savings are not projected to begin until 2004 because of the lengthy implementation process. The decline in Army funding would have appeared even greater if the Army had not received additional funding for its professional and skill training programs from Defense-wide central training activities. The Defense Reform Initiative directed the transfer of the National Defense University operation and maintenance funding from the Defense-wide accounts to the Army. This increased Army funding by $111 million in 1999. Total funding for aviation and flight training was projected to be about $1 billion lower in the 1999 FYDP than in the 1998 FYDP. This occurred primarily because planned procurement funding in the Army's undergraduate pilot training program was transferred to programs that are not included in central training. Army training and budget officials stated that the funding will be allocated to line units based on Army priorities, although training programs will still receive equipment that is excess to the line units' needs. According to Army training officials, the Army is experiencing high attrition rates for Apache helicopter pilots because of an increased pace of operations and more requirements for Apache battalions outside of the United States than inside the United States. As a result, the aviation and flight training workload will be even higher than projected in the 1999 budget to meet the increased demand for training new pilots. Increased workload may result in increased funding requirements for this training category in the 2000 FYDP. In an effort to increase pilot retention and reduce flight training requirements, the Army recently received approval for Apache pilot retention bonuses. Funding for installation support for training was projected to be about $435 million less in total in the 1999 FYDP than in the 1998 FYDP. The projected reduction is primarily due to planned efficiencies from DOD's reinvention initiatives. The efficiencies are projected to result from such efforts as the outsourcing and privatization of installation support functions, lower lease costs, the elimination of less energy-efficient structures, and the upgrade of existing utilities. The Army has assumed some risk by making these projections because it does not know whether the savings can be achieved. The Army is also assuming risk by delaying some real property maintenance to free up additional funds for modernization and readiness. Army training officials stated that the Army knowingly underfunded some training installation support programs, adding to the existing maintenance backlog. For example, the Army reduced funding for its barracks conversion program. The training officials noted that several commanders have stated that the real property maintenance shortfall is adversely affecting morale. Although both the 1998 and 1999 FYDPs projected a net decrease in Navy central training funding, there were some substantial changes within several training categories in the 1999 FYDP. The most significant changes between the two FYDPs were in four categories--professional and skill training, aviation and flight training, command managed training, and installation support for training. These changes were primarily due to personnel reductions, planned savings from training initiatives, deferred real property maintenance, planned savings from changes in the procurement profile for trainer aircraft, higher flying-hour costs, and planned savings from competitive sourcing and regionalization initiatives. Table 2 lists the amounts programmed for the four categories that changed the most between the two FYDPs. Projected total funding for professional and skill training shows a decrease of $135 million from the 1998 FYDP to the 1999 FYDP, with increases in the earlier years and decreases beginning in 2001. Beginning in 1999, the Navy has programmed savings due to QDR-directed personnel reductions and various initiatives. One such initiative, the Training Technology Initiative, plans to upgrade classrooms and produce interactive software to enhance instruction and reduce the overall cost and time of training. Until the initiatives are implemented, it is difficult to determine if and how much savings will accrue from the initiatives. The Navy projected reduced workload levels between 2001 and 2003 for professional and skill training as a result of force structure reductions and military personnel reductions identified in the QDR. The Navy is also reducing the numbers of professors and academic support personnel at the Naval Postgraduate School in conjunction with the reduced student levels. In September 1998, the Chief of Naval Operations testified before the Senate Committee on Armed Services that the Navy is experiencing shortfalls in its recruiting and retention rates. If enlisted retention rates continue to fall below the Navy's goals, additional recruits will be required, resulting in higher than projected surges in training. As in 1997 and 1998, the Navy may look to real property maintenance as a source of funds to pay for this additional training workload. Total funding levels for aviation and flight training were projected to be lower by $128 million in the 1999 FYDP than in the 1998 FYDP primarily due to changes in the procurement profile of the T-45 trainer aircraft. According to the Navy, Congress added three T-45 aircraft to the 1998 procurement plan and changed the acquisition program to a multiyear procurement contract, which added three aircraft per year through 2002. The number of aircraft planned for procurement in fiscal year 2003 dropped from six to four. Planned procurement funding in 2001 and 2002 is projected to be lower in the 1999 FYDP, even though the number of aircraft increased, because of projected savings from the multiyear procurement contract. Funding is projected to drop further in 2003 because of the procurement contract savings and the reduction in the number of aircraft to be purchased that year. The grounding of the T-2 trainer aircraft from April to November 1997 because of flight control problems caused a decrease in workload and associated funding for 1997 and 1998, but workload and funding were projected to increase for 1999 to make up some of the shortfall in pilot production in the previous 2 years. Total funding for command managed training was projected to be $267 million higher in the 1999 FYDP than in the 1998 FYDP. The higher funding projections were due to the increasing cost of flying aircraft. Actual flying-hour costs experienced in 1997 were higher than those projected in the 1998 FYDP. The funding levels were adjusted upwards in the 1999 FYDP to reflect these higher estimates. Total funding levels for installation support for training were projected to be lower by $154 million in the 1999 FYDP than in the 1998 FYDP primarily due to projected savings from Navy-wide competition sourcing and regionalization initiatives, the shifting of some funds for installation support activities from the training mission to the Naval Facilities Engineering Command, and the use of some installation support funds for skill training programs, a higher Navy priority. The Chief of Naval Education and Training is currently in the process of developing a regionalized base operating support organization and conducting a competitive sourcing analysis. Since these initiatives have not been fully implemented, there is risk that the savings may not materialize to the level programmed. Although both the 1998 and 1999 FYDPs projected an overall increase in Air Force central training funding over the 1999-2003 period and both projected about the same annual funding levels, there were significant funding shifts among three categories--professional and skill training, aviation and flight training, and installation support for training. The funding changes were primarily due to projected lower attrition, increases in pilot production, and increases in real property maintenance funds and the cost of outsourcing/privatizing studies. Table 3 lists the amounts programmed for the three categories that changed the most between the two FYDPs. Total funding for professional and skill training was projected to be $472 million lower in the 1999 FYDP than in the 1998 FYDP. The Air Force programmed lower funding because it estimated lower attrition rates. The Air Force testified before the Senate Committee on Armed Services in September 1998 that overall retention is a serious concern and that the retention of mid-level noncommissioned officers is of special concern because they are experienced and provide an important leadership base critical to force readiness. The Air Force has developed new programs to lower attrition, but these programs have not yet been approved and implemented, introducing risk into its central training program. If retention rates do not improve, the Air Force will need to increase accessions, which leads to higher costs for recruit, initial skills, and professional development training. For example, attrition rates increased more than the Air Force projected in 1998, requiring additional funding for recruit and professional and skill training. Air Force training officials stated that because 1999 recruit and professional and skill training programs are also underfunded due to lower than projected retention rates, the training officials requested additional funding for these programs and shifted funds from other training areas, such as installation support, to these programs. Total funding for aviation and flight training in the 1999 FYDP was projected to be $255 million more than that projected in the 1998 FYDP. The increases were for additional pilot production to alleviate the pilot shortage resulting from lower than expected retention rates. The Air Force expects pilot retention problems to continue for the foreseeable future. The Air Force plans to increase the number of pilots trained annually until it reaches a maximum training rate of 1,100 active duty pilots in fiscal year 2000, based on capacity constraints such as the number of training aircraft, runways, and instructor pilots. According to Air Force training officials, this rate of 1,100 pilots will not be sufficient to alleviate the Air Force's pilot shortage. Because of the overall shortage, the Air Force intends to forego filling some staff positions that the service says require rated pilots so that it can fill all operational, training, and joint positions. According to Air Force training officials, programmed funds in fiscal years 1998 and 1999 were lower than required to fund the planned increase in pilot production. The shortfalls in 1998 and 1999 were funded from transfers from other training activities, such as installation support. According to the officials, the 2000 FYDP, as currently planned, will have higher funding levels for this training category to fully fund the undergraduate pilot training program. Funding for installation support in the 1999 FYDP was projected to be $250 million more than that programmed in the 1998 FYDP. According to Air Force training officials, the Air Force increased programmed funds for real property maintenance at Air Education and Training Command bases, which funds maintenance and repair at minimum levels--only necessary repairs will be completed, no preventative maintenance will be done. According to the officials, the increase brings these bases up to the same level of maintenance as other Air Force Commands. Funding was also increased to pay for studies to determine if installation support functions should be performed under contract with commercial sources (outsource) or in-house using government facilities and personnel. The Air Force plans to begin studies for outsourcing base support functions for several bases over the 2000-2003 period. However, the Air Force programmed expected savings from these efforts using an almost 40-year old Air Force model. Even with the programmed savings, the one-time costs of the studies result in a net increase in funding for this training category over the 1999 FYDP period. If the savings do not materialize, and the Air Force wants to maintain installations at the level they programmed, the Air Force will need to look elsewhere for this funding. Air Force training officials believe that if additional funding is needed, it will come from reductions in its weapon system modernization programs. Funding for central training in the 1999 FYDP was projected to be considerably lower than that projected in the 1998 FYDP primarily because of the adjustments by the Army for previous errors. Other factors contributing to the programmed reductions were projected personnel reductions as a result of the QDR, optimistic personnel retention rates, projected savings from competitive sourcing of installation support activities and technological advances in training, and lower installation support funding. The services are accepting risk in their central training programs with this lowered funding level. If retention rates do not improve, savings and efficiencies are not fully realized, and real property maintenance can no longer be delayed, there will be little or no reduction in central training infrastructure and DOD will likely will require an increase in funds. Therefore, DOD will not be able to shift funds from this infrastructure category to modernization. In written comments on a draft of this report, DOD concurred with the report. DOD provided some technical comments, which we incorporated in the report where appropriate. DOD's comments are reprinted in their entirety in appendix II. To compare the funding levels for central training, we analyzed funding data from the 1998 and 1999 FYDPs for 1999-2003. We did not test DOD's management controls of the FYDP data. We adjusted the nominal dollars to constant 1999 dollars using 1999 DOD Comptroller inflation indexes. To identify trends in workload data, we used data contained in the Army's, the Navy's, and the Marine Corps' annual Operation and Maintenance Justification of Estimates budget books submitted to Congress for fiscal years 1998 and 1999. Because the Air Force was unable to provide workload data for several training categories from the fiscal year 1999 Justification of Estimates book, we obtained the Air Force's fiscal year 1998 and 1999 workload submissions for the annual DOD Military Manpower Training Report. The training programs analyzed were those that DOD categorized as central training infrastructure and Defense-wide support training mission. Essentially, we accepted DOD's allocation of central training infrastructure programs to the training categories. We assigned Defense-wide support training mission programs, including health personnel training, that were not already categorized as central training infrastructure to the most appropriate training categories. These Defense-wide support training mission programs accounted for less than 8 percent of the total value of central training in 1999. In cases where DOD recategorized program elements, we made adjustments to both the 1998 and 1999 data to ensure that all programs were placed in the same training categories to make accurate comparisons between the two FYDPs. To determine the causes for the changes in annual funding and workload trends for central training categories between the two FYDPs and the impact of the changes on future central training funding levels, we interviewed officials in the Office of the Secretary of Defense and in the Army, the Navy, the Marine Corps, and the Air Force headquarters training divisions. Additionally, we examined numerous DOD documents, including annual Military Manpower Training Reports, the Report of the Quadrennial Defense Review, the Defense Reform Initiative Report, and service budgets. We also reviewed reports that pertained to military training that had been issued by us and by other organizations. In addition, we provided each of the services with copies of our data analyses and questions about the changes between the two FYDPs. We have included their responses throughout the report, as appropriate. Our work was conducted from July 1998 to February 1999 in accordance with generally accepted government auditing standards. We are providing copies of this report to appropriate congressional committees; the Secretaries of Defense, the Air Force, the Army, and the Navy; the Commandant of the Marine Corps; and the Director, Office of Management and Budget. We will also provide copies to other interested parties upon request. If you have any questions concerning this report, please call Robert Pelletier on (202) 512-4032. Major contributors to this report are Edna Thea Falk and Gaines R. Hensley. Central training consists of programs that furnish funding, equipment, and personnel to provide nonunit, or central training of defense personnel. Central training activities provide for the training of new personnel, multiple types of skill and proficiency training, management of the central training systems, and support of central training installations. Administrative Support: includes management headquarters and visual information activities that support central training activities. Installation Support: includes base operations and support, real property maintenance activities, and base communications for central training infrastructure. Command Managed Training Programs: include nonunit training activities managed by the operational commands. These activities include transition training into new weapon systems, supplemental flying to maintain pilot proficiency, graduate flight training in operational aircraft, and specialized mission flight training. General Central Training Activities: include general support to the training establishment and training developments. These resources provide training aids for troop schools and training centers. Health Personnel Training: includes the education and training of health personnel at military and civilian training institutions, health professional scholarship programs, University of the Health Sciences, and other health personnel acquisition programs. Although the Department of Defense categorizes these programs as central medical infrastructure, we included them in central training because the Department considers health personnel training a segment of its central training mission. Training of New Personnel: includes recruit or accession training and One-Station Unit Training. Officer Training and Academies: include reserve officer training corps, other college commissioning programs, officer training schools, and the service academies. Aviation and Flight Training: includes flight screening, undergraduate pilot training, navigator training, North Atlantic Treaty Organization pilot training, and procurement of new training aircraft. Professional and Skill Training: includes academic and professional military education programs as well as multiple types of skill training. This category includes the Department's civilian training, education and development, language training, undergraduate space training, acquisition training, general skill training, and other professional education. 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 examined the significant differences in two Department of Defense training programs, focusing on the: (1) training categories and military services with the most significant funding changes from the 1998 to the 1999 Future Years Defense Program (FYDP); (2) bases for the changes; and (3) potential impact of the changes on the services' future training budgets. GAO noted that: (1) the total funding for central training was projected to be $8.4 billion less in the 1999 FYDP than the 1998 FYDP; (2) the categories with the most significant changes in each of the services were the Army's training of new personnel; and the Army's, the Navy's, and the Air Force's professional and skill training, aviation and flight training; (3) the majority of the $8.4 billion decrease was due to changes in the Army's central training program; (4) $4 billion of the decrease in Army funding was to correct for an error in the 1998 FYDP that overstated the cost of enlistees' student salaries; (5) another $1.1 billion of the decrease related to the realignment of Army aviation procurement out of central training; (6) the remaining $3.3 billion primarily came from projected savings from: (a) the Army, the Navy and the Air Force reducing the number of personnel projected to be trained; (b) all of the military services contracting some installation support functions with lower cost providers; and (c) the Army and the Navy implementing training initiatives that utilize technology and other cost savings measures; (7) additionally, some of the $3.3 billion came from cuts by the Army and the Navy in funding levels for installation support and underfunding by the Army of some of its training programs; (8) the Army, the Navy and the Air Force may not be able to accomplish their central training programs at the funding levels in the 1999 FYDP; (9) the services are experiencing lower-than-expected retention rates for enlisted personnel, which will require increased accessions and additional funds for new personnel and skill training; (10) the services projected savings in installation support and funded real property maintenance at minimum maintenance levels; (11) if the programmed savings do not materialize, the services will need additional funds to maintain the current levels of maintenance or add to the existing backlog of real property maintenance; (12) the Army did not fully fund training initiatives, but it plans to fully fund these initiatives in the future; (13) the Army already had to request supplemental funding for fiscal year 1999 for the Army reserve professional development training programs because it found that programmed reductions adversely affected the programs; (14) the Army's actual aviation training workloads are higher than those used to develop FYDP 1999; and (15) the Army and the Navy programmed savings from training initiatives that use technology to reduce training.
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FDA classifies each device type into one of three classes based on the level of risk it poses and the controls necessary to reasonably ensure its safety and effectiveness. Examples of types of devices in each class include the following: class I: tongue depressors, elastic bandages, reading glasses, and forceps; class II: electrocardiographs, powered bone drills, and mercury class III: pacemakers and replacement heart valves. Before medical devices may be legally marketed in the United States, they are generally subject to one of two types of FDA premarket review, unless exempt by FDA regulations. These reviews are: Premarket approval or PMA process: The manufacturer must submit evidence, typically including clinical data, providing reasonable assurance that the new device is safe and effective. The PMA process is the most stringent type of premarket review. A successful submission results in FDA's approval to market the device. Premarket notification or 510(k) process: Premarket notification is commonly called "510(k)" in reference to section 510(k) of the Federal Food, Drug, and Cosmetic Act, where the notification requirement is listed. The manufacturer must demonstrate to FDA that the new device is substantially equivalent to a device already legally on the market that does not require a PMA. For most 510(k) submissions, clinical data are not required and substantial equivalence will normally be determined based on comparative descriptions of intended device uses and technological characteristics, and may include performance data. A successful submission results in FDA's clearance to market the device. In general, class I and II device types subject to premarket review are required to obtain FDA clearance through the 510(k) process, and class III device types are required to obtain FDA approval through the more rigorous PMA process. With the enactment of the Medical Device Amendments of 1976, Congress imposed requirements under which all class III devices would be approved through the PMA process before being marketed in the United States. However, certain types of class III devices that were in commercial distribution in the United States before May 28, 1976, (called preamendment device types) and those determined to be substantially equivalent to them may be cleared through the less stringent 510(k) process until FDA publishes regulations requiring them to go through the PMA process or reclassifies them into a lower class. Between 1976 and 1990, FDA issued regulations requiring some class III device types to go through the PMA process, but many class III device types continued to be reviewed through the 510(k) process. The Safe Medical Devices Act of 1990 required FDA (1) to re-examine the preamendment class III device types for which PMAs were not yet required to determine if they should be reclassified to class I or II or remain in class III and (2) to establish a schedule to promulgate regulations requiring those preamendment device types that remain in class III to obtain FDA approval through the PMA process. Accordingly, all class III devices are eventually to be reviewed through the PMA process. In our January 2009 report, we found that although Congress envisioned that all class III devices would be approved through the more stringent PMA process, the agency's actions to make this the case were incomplete. We found that in fiscal years 2003 through 2007, FDA continued to clear submissions for class III devices through the less stringent 510(k) process--clearing 228 over the 5-year period. We recommended that FDA expeditiously take steps to issue regulations for each class III device type allowed to enter the market through the 510(k) process, including to (1) reclassify each device type into class I or class II, or requiring it to remain in class III, and (2) for those device types remaining in class III, require approval for marketing through the PMA process. FDA agreed with our recommendation when we issued our report, but did not specify time frames in which it would take action. Overseeing recalls is an important element of FDA's postmarket responsibilities. FDA defines a recall as a firm's removal or correction of a marketed product that FDA (1) considers to be in violation of the laws it administers, and (2) against which the agency would initiate legal actions. Nearly all medical device recalls are voluntarily initiated by a recalling firm, usually the manufacturer of the device. To initiate a voluntary recall, a firm notifies those who have received, purchased, or used the device. The firm may be asked to provide FDA with information such as the reason for the correction or removal of the device, an assessment of the health hazard associated with the device, and the volume of product in distribution and proposed strategy for conducting the recall. The strategy should contain details on the firm's plan for ensuring that its customers and device users correct or remove the device according to the firm's instructions. FDA's role is generally to oversee a firm's management of a recall. As part of its oversight, FDA reviews and recommends changes to the recall strategy and assigns one of three recall classifications--class I, II, or III--to indicate the relative degree of health hazard posed by the product being recalled. For a class I recall, FDA has determined that there is a reasonable probability that use of, or exposure to, the product could cause serious adverse health consequences or death. Class II recalls are those for which FDA has determined that the use of, or exposure to, the product could cause temporary or medically reversible adverse health consequences or that the probability of serious adverse health consequences is remote. For class III recalls, FDA has determined that use of, or exposure to, a device is not likely to cause adverse health consequences. FDA advises the recalling firm of the assigned recall classification; and posts information about the recall in its weekly enforcement report. It is important to note that FDA's device and recall classification schemes carry opposite designations. The potential degree of health risk associated with device classes is designated from class III (high) to class I (low), while the potential risk associated with recall classes is designated from class I (high) to class III (low). FDA also monitors the progress of a recall and verifies whether the recalling firm has effectively implemented the recall strategy. FDA requests that a recalling firm periodically provide the monitoring district with status reports that provide updates on the progress of recalls. FDA district staff also conduct audit checks to confirm that the recalling firm has properly corrected or removed devices from the market, in accordance with the recall strategy. Once the firm believes it has completed the recall--that is, done everything as outlined in the recall strategy--it should submit a recall termination request to the monitoring district office. As part of the termination decision, FDA should assess whether the firm has taken sufficient corrective actions to prevent a reoccurrence of the problem that led to the recall. For class I recalls, FDA district staff review a firm's request, and if they agree, send a recall termination request to headquarters. For class II and III recalls, FDA district staff make the final termination decision. According to FDA's procedures, FDA should terminate a recall within 3 months after the firm completes the recall. FDA has begun to take steps to address our 2009 recommendation about class III devices that are still allowed to enter the U.S. market through the less stringent 510(k) process, but progress has been limited. Concerns persist about the effectiveness of the 510(k) process in general, including its ability to provide adequate assurance that devices are safe and effective. In 2009, we recommended that FDA expeditiously take steps to address class III device types allowed to enter the market via the 510(k) process by issuing regulations requiring submission of PMAs or reclassifying them to a lower class. Since our report was issued, the agency has set strategic goals to address this matter, but has issued a final rule regarding the classification of only one device type. As of April 1, 2011, 26 additional class III device types could still enter the U.S. market through the less stringent 510(k) process. FDA has been taking steps to address the 26 class III device types-- including automated external defibrillators and implantable hip joints-- that can still enter the U.S. market through the 510(k) process. Specifically, FDA is following a 5-step process to require PMAs or to reclassify them to a lower device class. As shown in table 1, as of April 1, 2011, FDA was at step 2--assessing the risk and benefits--for 21 device types. FDA was at step 4--receiving and reviewing comments provided on proposed rules--for 5 other device types, but had not yet issued final rules requiring PMAs or reclassifying any of them. While FDA has taken essential initial steps toward implementing our recommendation, until the agency issues final regulations either reclassifying or requiring PMAs for class III device types that currently can be cleared through the less stringent 510(k) process, its actions remain incomplete. Thus, these 26 device types can still enter the U.S. market through the less stringent premarket review process. Since we issued our report in January 2009, FDA cleared at least 67 individual submissions that fall within 12 of these class III device types through the 510(k) process. Subsequent to the issuance of our 2009 report and in response to numerous concerns over the effectiveness of the 510(k) process, including its ability to provide adequate assurance that devices are safe and effective, FDA announced it would take additional actions to enhance premarket device safety. In 2009, FDA reported that it would conduct its own comprehensive internal assessment of the premarket medical device approval process and commissioned the Institute of Medicine to conduct an independent review to assess whether the 510(k) process sufficiently protects patients and promotes public health. The Institute of Medicine is expected to issue its report in mid-2011. Our preliminary findings suggest that shortcomings in FDA's oversight of the medical device recall process may limit the agency's ability to ensure that the highest-risk recalls are being implemented in an effective and timely manner. These shortcomings span the entire range of the agency's oversight activities--from the lack of a broad-based program to systematically assess trends in recalls, to inconsistencies in the way FDA ensures the effective completion of individual recalls. Although FDA's recall data system contains numerous data elements that would allow for analyses of recall data, our preliminary findings suggest that FDA is not using this system to effectively monitor and manage its recall program. This system contains information on, for example, the status of each recall (e.g., ongoing or terminated); the reason for the recall; the specific device being recalled; the recall classification level assigned based on FDA's assessment of risk; the dates the recalls were initiated, classified, and terminated; and the medical specialty--area of use--for each device subject to recall (e.g., cardiovascular or orthopedic). However, FDA has not routinely used these recall data as a surveillance tool or for examining broad trends of medical device recalls. Instead of using this information to conduct systemic analyses of the recall program, which would be consistent with the agency's strategic goal of improving the quality and safety of manufactured products in the supply chain, FDA has primarily been using data from its recall system for processing individual recalls. Our preliminary analysis showed that between January 1, 2005, and December 31, 2009, firms initiated 3,510 device recalls. Only a small percentage of these recalls--about 4 percent--were classified by FDA as class I recalls--those that pose a reasonable probability that the use of, or exposure to, these products will cause serious adverse health consequences or death. The vast majority--nearly 83 percent--were classified by FDA as class II recalls, meaning use of, or exposure to, these devices may cause temporary or medically reversible adverse health consequences or that the probability of serious adverse health consequences is remote; and about 14 percent were classified as class III recalls, which pose the lowest risk. Based on our preliminary analysis, we provided key summaries to FDA officials and asked them to comment on trends that we observed. Officials indicated that they have not fully analyzed these data and could not explain trends without extensive research of individual case files. For example, they could not explain why the majority of recalls are class II, why class I recalls more than doubled between 2008 and 2009, or why many recalls had been ongoing for 5 years. Officials also could not provide definitive answers when we asked them to comment on other related topics, such as: trends in the number of recalls over time; variation in the numbers of recalls by recall classification levels; types of devices and medical specialties of devices accounting for most recalls; and length of time needed to complete or terminate recalls. Although FDA has not been routinely analyzing recall data to assess the effectiveness of the recall process, officials indicated that they have used these data to support compliance and subsequent enforcement actions. For example, officials indicated that they use recall data to help identify which firms the agency should inspect for assessing compliance with laws and regulations. Our preliminary analysis revealed inconsistencies in FDA's assessments of the effectiveness of recalls. A key tool to making these assessments are FDA's "audit checks" in which investigators from FDA's district offices contact a percentage of customers or device users affected by the recall to determine whether they received the recall notice and followed the recalling firm's instructions for removing or correcting the device. However, we identified numerous inconsistencies in the way FDA's investigators implemented these audit checks, resulting in conflicting determinations about whether recalls were effectively conducted. Our analysis of 2,196 audit check forms associated with the class I recalls we reviewed found a variety of inconsistencies in how the audit checks were implemented and documented for nearly 90 percent of these recalls. For each of these recalls we found inconsistencies in how different investigators determined whether a recall was effective or ineffective when conducting their audit checks of recalls. We also identified inconsistencies in the level of detail provided in the audit check report and the level of effort undertaken by different investigators. These recalls covered a wide range of devices, including implantable pumps and automated external defibrillators. For example, when conducting audit checks, some investigators concluded that recalls were effective, despite noting problems (such as device users not following the firm's instructions), while other investigators concluded under similar circumstances that recalls were ineffective. In other recalls, some investigators noted actions they took when they discovered problems, such as providing the device users with a copy of the recall notice or instructing them on actions to take in order to implement a recall. In contrast, other investigators did not indicate whether they made any attempt to help the user implement the recall. FDA officials at both headquarters and the district offices we contacted acknowledged that there are no detailed instructions or requirements for conducting audit checks and that there can be inconsistencies in the process. They also agreed that this may be an area where enhanced guidance is needed. One of the gaps in FDA's recall process suggested by our preliminary work is that FDA lacks specific criteria for making decisions about whether recalling firms have effectively completed their recalls by taking adequate steps to correct or remove recalled devices. Our preliminary review of FDA's recall procedures found that the procedures do not contain any specific criteria or general guidelines governing the extent to which firms should be correcting or removing various types of devices--such as a benchmark recall rate--before a recall should be considered completed. FDA officials indicated they consider a recall complete when a firm has completed actions outlined in its recall strategy. In particular, they evaluate whether firms completed their assigned level of effectiveness checks, and have corrected or removed recalled devices in "an acceptable manner." However, FDA officials said that they do not have specific criteria or thresholds concerning the proportion of various types of devices that firms should be able to correct or remove. Our preliminary review shows that firms are not always able to correct or remove all unsafe medical devices from the market. Of the 53 class I recalls we reviewed, we found 10 were ongoing, 14 were completed-- meaning that FDA district office officials concluded that the firm had fulfilled its responsibilities for correcting or removing the devices--and 29 were terminated--meaning that FDA headquarters determined that recalling firms had taken sufficient corrective actions to prevent reoccurrence of the problems that led to the recalls. Of the 43 recalls in our sample that were either completed or terminated, we found that for 20, or 47 percent of these recalls, firms were able to correct or remove all products. However, we found that in the other 23 recalls, or 53 percent, firms were unable to correct or remove all products. These recalls ranged widely, in both volume of devices subject to recall and the types of devices being recalled. Some recalls involved hundreds of thousands of disposable products, while others involved a small number of life-sustaining implantable devices. Recalling firms were often unable to correct or remove all devices. This was because firms either could not locate some of the customers or device users, or these customers or device users could not locate the devices subject to recall. In other cases, devices could not be corrected or removed because they were sold at retail outlets (such as glucose test strips) to individuals who may not have known about the recall. For example, in a recall of tracheal tubes included in certain pediatric medical kits, 1,400 tubes had been distributed but only 200 were returned to the recalling firm. The firm said that the rest had likely been used. Our preliminary findings also suggest another gap in the recall process-- insufficient documentation justifying FDA's termination decisions. Without such documentation, we were unable to assess the extent to which FDA's termination process appropriately evaluated recalling firms' corrective actions. Although FDA requests that firms submit corrective and preventive action plans for review and approval before a recall can be terminated, we found little documentation regarding how FDA assessed whether such plans were sufficient when it terminated recalls. When we asked to review documentation justifying the decisions for the 29 terminated recalls in our sample, FDA officials indicated that they do not maintain extensive documentation justifying the basis for their termination decisions. They told us that creating documentation to support concurrence with the termination recommendation is not part of past or current termination procedures. This approach is inconsistent with internal control standards for the federal government, which indicate "that all transactions and other significant events need to be clearly documented," and stress the importance of "the creation and maintenance of related records which provide evidence of execution of these activities as well as appropriate documentation." Also, we found that FDA termination decisions were frequently not made in a timely manner--within 3 months of the completion of the recall-- increasing the risk that unsafe or defective devices remained available for use. Of the 53 recalls in our sample, 29 were terminated--meaning FDA headquarters agreed with an FDA district office that the firm did not need to take additional actions to prevent reoccurrence of problems that led to the recall. For 72 percent of the terminated recalls, FDA did not make its termination decision within 3 months of the recall's completion, as called for in FDA's regulatory procedures. Overall, termination decisions took on average 180 business days from the completion date, though they ranged from 10 days to 800 days after that date. We found at least one instance where FDA's failure to make a timely termination assessment allowed for a potentially unsafe product to be re- introduced into the market and used for surgical procedures. In this case, based on adverse event reports that screws in its spinal fixation system were becoming loose post-operatively, the firm decided to recall the device in December 2005. The firm implemented its recall, and removed all devices. The firm indicated that it developed a corrective action plan for the screw problem, and relaunched the device in April 2006. It then requested termination from FDA in May 2006. FDA followed up on this request by leaving three voice mail messages with the firm and received no response. The agency sent out a request for information a year later, in May 2007. In June 2007, the company again indicated that the recall was complete, and requested termination. In September 2007, FDA conducted an inspection of the company's manufacturing facility, and found that while the recall was complete, the corrective action was not adequate. Over the course of the next 2 years, the firm worked with FDA to get revisions to the device approved, but eventually agreed to a second recall for the revised device. This recall was initiated in May 2009. We identified five reports of adverse events related to continuing problems with the implanted device that were filed with FDA subsequent to the firm's relaunch of the device in April 2006. These reports were filed from December 2006 through March 2007, and revealed that in all cases, patients required surgical intervention to correct or remove the device. While FDA's recent actions to try to improve the premarket approval process are positive steps--such as commissioning the Institute of Medicine to conduct an independent review of the process--it remains to be seen whether these actions will help ensure that medical devices marketed in the United States receive appropriate premarket review. In addition, gaps in FDA's postmarket surveillance shows that unsafe and ineffective devices may continue to be used, despite being recalled. The agency faces a challenging balancing act. While it is important to allow devices on the market to treat patients who need them, it is also essential that FDA take necessary steps to provide a reasonable assurance that those medical devices that do enter the market are safe and effective. Likewise, it is vital that the agency's postmarket safety efforts are both vigorous and timely. Chairman Kohl and Ranking Member Corker, this completes my prepared statement. I would be happy to respond to any questions you or the other members of the committee may have at this time. For further information about this statement, 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 statement. Geraldine Redican-Bigott and Kim Yamane, Assistant Directors; Helen Desaulniers; Cathy Hamann; Eagan Kemp; Julian Klazkin; David Lichtenfeld; Christina C. Serna; and Katherine Wunderink made key contributions to this report. High Risk Series: An Update. GAO-11-278. February 2011. Food and Drug Administration: Overseas Offices Have Taken Steps to Help Ensure Import Safety, but More Long-Term Planning Is Needed. GAO-10-960. Washington, D.C.: September 30, 2010. Food and Drug Administration: Opportunities Exist to Better Address Management Challenges. GAO-10-279. Washington, D.C.: February 19, 2010. Food and Drug Administration: FDA Faces Challenges Meeting Its Growing Medical Product Responsibilities and Should Develop Complete Estimates of Its Resource Needs. GAO-09-581. Washington, D.C.: June 19, 2009. Medical Devices: Shortcomings in FDA's Premarket Review, Postmarket Surveillance, and Inspections of Device Manufacturing Establishments. GAO-09-370T. Washington, D.C.: June 18, 2009. Medical Devices: FDA Should Take Steps to Ensure That High-Risk Device Types Are Approved through the Most Stringent Premarket Review Process. GAO-09-190. Washington, D.C.: January 15, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Health-Care-Associated Infections in Hospitals: Number Associated with Medical Devices Unknown, but Experts Report Provider Practices as a Significant Factor. GAO-08-1091R. Washington, D.C.: September 26, 2008. Reprocessed Single-Use Medical Devices: FDA Oversight Has Increased, and Available Information Does Not Indicate That Use Presents an Elevated Health Risk. GAO-08-147. Washington, D.C.: January 31, 2008. Medical Devices: Challenges for FDA in Conducting Manufacturer Inspections. GAO-08-428T. Washington, D.C.: January 29, 2008. Food and Drug Administration: Methodologies for Identifying and Allocating Costs of Reviewing Medical Device Applications Are Consistent with Federal Cost Accounting Standards, and Staffing Levels for Reviews Have Generally Increased in Recent Years. GAO-07-882R. Washington, D.C.: June 25, 2007. Medical Devices: Status of FDA's Program for Inspections by Accredited Organizations. GAO-07-157. Washington, D.C.: January 5, 2007. 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 Food and Drug Administration (FDA) is responsible for overseeing medical devices sold in the United States. In general, new devices are subject to FDA review via either the 510(k) premarket notification process, which determines if a device is substantially equivalent to another legally marketed device, or the more stringent premarket approval (PMA) process, which requires the manufacturer to supply evidence providing reasonable assurance that the device is safe and effective. FDA also has broad responsibilities for postmarket surveillance of devices, including oversight of recalls. A recall involves the correction or removal of a product from the market and is an important remedial action that can mitigate the risks associated with a defective or unsafe medical device. In recent years, GAO has identified a wide variety of concerns related to FDA's ability to fulfill its mission of protecting the public health and added FDA's oversight of medical products, including devices, to its list of high-risk areas. This statement provides an update on FDA's actions in response to a recommendation made in GAO's report, Medical Devices: FDA Should Take Steps to Ensure That High-Risk Device Types Are Approved through the Most Stringent Premarket Review Process ( GAO-09-190 , January 15, 2009). It also contains preliminary information on FDA's oversight of medical device recalls. Because of the preliminary nature of this work, GAO is not making recommendations at this time. FDA has begun to take steps to address GAO's 2009 recommendation about high-risk devices that are allowed to enter the U.S. market through the less stringent 510(k) process, but progress has been limited. High-risk devices include those which are implantable or life sustaining. In 2009, GAO recommended that FDA expeditiously take steps to issue regulations for the device types classified as high risk that are currently allowed to enter the market via the 510(k) process. Since then, FDA has set strategic goals to address these device types, but has issued a final rule regarding the classification of only one device type. As of April 1, 2011, FDA's action on the 26 remaining types of high-risk devices was incomplete. Thus, these types of devices--such as automated external defibrillators and implantable hip joints--can still enter the U.S. market through the less stringent 510(k) process. GAO found that, since its report was issued in January 2009, FDA has cleared at least 67 510(k) submissions that fall within these high-risk device types. FDA has taken some additional steps to enhance premarket device safety since GAO's 2009 report was issued--for example, it commissioned the Institute of Medicine to conduct an independent review of the premarket review process--but it is too early to tell whether any forthcoming changes will enhance public health. GAO's preliminary analysis shows that, from 2005 through 2009, firms initiated 3,510 voluntary medical device recalls, an average of just over 700 per year. Although FDA maintains extensive information on each recall, it has not been routinely analyzing recall data that would allow it to explain trends in recalls over time, thus missing an opportunity to proactively identify and address the risks presented by unsafe devices. GAO's preliminary work also identified several gaps in the medical device recall process that limited recalling firms' and FDA's abilities to ensure that the highest-risk recalls were being implemented in an effective and timely manner. GAO found that firms frequently were unable to correct or remove all devices subject to the highest-risk recalls. GAO's preliminary findings indicate that FDA lacks clear guidance for overseeing recalls which has led to inconsistencies in FDA's assessments of whether individual recalls were implemented effectively. Consequently, FDA officials examining similar situations sometimes reached opposite conclusions regarding whether recalls were effective. In addition, FDA had not established thresholds for assessing whether firms effectively completed recalls by correcting or removing a sufficient number of recalled devices. Further, GAO determined that FDA's decisions to terminate completed recalls--that is assess whether firms had taken sufficient actions to prevent a reoccurrence of the problems that led to the recalls--were frequently not made within its prescribed time frames. Finally, GAO found that FDA did not document its justification for terminating recalls. Taken together, GAO's preliminary work suggests that the combined effect of these gaps may increase the risk that unsafe medical devices could remain on the market.
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Both FAA and ACI have estimated the costs of planned airport capital development. Our analysis indicates that recent funding levels would cover the costs estimated by FAA, but not all the costs estimated by ACI. Options for addressing the potential difference between funding and planned development estimates include increasing or reallocating Airport Improvement Program (AIP) grant funds and removing the current cap on passenger facility charges. The estimated costs of planned airport capital development vary depending on which projects are included in the estimates. According to FAA's estimate, which includes only projects that are eligible for AIP grants, the total cost of airport development will be about $46 billion, or over $9 billion per year, for 2001 through 2005. FAA's estimate is based on the agency's National Plan of Integrated Airport Systems, which FAA published in August 2002. ACI's estimate includes all of the projects in FAA's estimate, plus other planned airport capital projects that may or may not be eligible for AIP grants. ACI estimates a total cost of almost $75 billion, or nearly $15 billion per year, for 2002 through 2006. Projects that are eligible for AIP grants include runways, taxiways, and noise mitigation and noise reduction efforts; projects that are not eligible for AIP funding include parking garages, hangars, and expansions of commercial space in terminals. Both FAA's and ACI's estimates cover projects for every type of airport. As table 1 indicates, the estimates are identical for all but the large- and medium-hub airports, which are responsible for transporting about 90 percent of the traveling public. ACI's estimates are about twice as large as FAA's for these airports. According to FAA's analysis of the planned capital development for 2001 through 2005, airports will use (1) 61 percent of the $46 billion for capacity enhancement, reconstruction, and modifications to bring airports up to the agency's design standards and (2) 39 percent to fund safety, security, environmental, and other projects. See figure 1. Neither FAA's nor ACI's estimate includes funding for terminal modification projects that are needed to accommodate the new explosives detection systems. ACI estimates that terminal modifications will cost about $3 billion to $5 billion over the next 5 years. From 1999 through 2001, the 3,364 airports that make up the national airport system received an average of about $12 billion per year for planned capital development. The single largest source of these funds was bonds, followed by AIP grants and passenger facility charges. (See table 2.) It is important to note that the appropriated AIP funding for fiscal year 2002 totaled $3.2 billion and that the authorized AIP funding for fiscal year 2003 is $3.4 billion. However, because data for funding from other sources were not available for these years, we used the figures from 1999 through 2001, the most recent years for which consistent data were available. The amount and type of funding vary depending on the airport's size. For example, as shown in figure 2, the large- and medium-hub airports depend primarily on bonds, while the smaller airports rely principally on AIP grants. Passenger facility charges are a more important source of revenue for the large- and medium-hub airports because they have the majority of commercial service passengers. If the funding for airport capital development remains at about $12 billion a year over the next 5 years, it would cover all of the projects in FAA's estimate. However, it would be about $3 billion less per year than ACI's estimate. Figure 3 compares the average annual funding airports received from 1999 through 2001 with FAA's and ACI's annual planned development for 2001 through 2006. This difference is not an absolute predictor of future funding shortfalls; both funding and planned development may change in the future. However, it does provide a useful indication of where funding differences may be the greatest. The difference between past funding and planned development is proportionally greater for smaller airports than for large- and medium-hub airports. If the smaller airports were to continue to receive an average of about $2.4 billion per year, they would be able to fund about 73 percent of the estimated cost of their total planned development. In comparison, large- and medium-hub airports would be able to fund about $9.4 billion per year, or about 80 percent, of the estimated cost of their total planned development. It is important to note that while the airlines may be experiencing financial problems, most large airports have very solid credit ratings and could, if necessary, issue more debt without facing exorbitant interest rates. Figures 4 and 5 illustrate the differences between funding levels and estimated planned capital development at smaller and at large- and medium-hub airports. The primary reason that smaller airports would be able to fund 73 percent of their planned development, rather than the 52 percent reported we reported in 1998, is that they have benefited significantly from the increases in AIP grants, which is a larger source of funding for smaller airports than it is for larger airports. Of the $2.4 billion in AIP grant funds that airports received each year, on average, from 1999 through 2001, smaller airports received almost 63 percent, whereas large- and medium- hub airports received about 37 percent. Smaller airports have received an increasing share of AIP grants primarily because of statutorily required changes in the distribution of these funds. For example, in AIR-21, the Congress increased the funding for two categories that primarily or exclusively benefit small airports--the state apportionment fund and the small airport fund--and created general aviation entitlement grants, which also benefit smaller airports. Options are available to increase airport funding or to make better use of the existing funding. These options, some of which were authorized or implemented as part of AIR-21, include increasing the AIP grant funding for smaller airports, increasing passenger facility charges, and using innovative financing approaches. The various options would benefit different types of airports to varying degrees. To help address the difference between funding and planned development, AIR-21 provided that up to $150,000 a year in AIP grant funds be made available to all general aviation airports for up to 3 years for airfield capital projects such as runways, taxiways, and airfield construction and maintenance projects. In our report issued yesterday, we reported that since the program's inception in fiscal year 2001, general aviation airports have received a total of about $325 million, which they have used primarily to help build runways, purchase navigational aids, and maintain pavements and airfield lighting. Most of the state aviation officials and general aviation airport managers we surveyed said the grants were useful in meeting their needs, and some suggested that the $150,000 grant limit be increased so that general aviation airports could undertake larger projects. However, a number of state officials cautioned that an increase in the general aviation entitlement grant could cause a decrease in the state apportionment fund, which states use to address their aviation priorities. Another option would be to increase or eliminate the cap on passenger facility charges. This option would primarily benefit larger airports, because passenger facility charges are a function of the volume of passenger traffic. However, under AIP, airports that collect passenger facility charges must forfeit a certain percentage of their AIP formula funds. These funds are subsequently divided between the small airport fund, which is to receive 87.5 percent, and the discretionary fund, which is to receive 12.5 percent. Thus, smaller airports would benefit indirectly from any increase in passenger facility charges. In our 1999 report on passenger facility charges, we estimated that a small increase in passenger facility charges would have a modest effect on passenger traffic. At that time, we estimated that each $1 increase would reduce passenger levels by about 0.5 to 1.8 percent, with a midrange estimate of 0.85 percent. Since AIR-21 raised the cap on passenger facility charges from $3.00 to $4.50, the full effect of the increase has not been realized because only 17 of the 31 large-hub airports (55 percent) and 11 of the 37 medium- hub airports (30 percent) have increased their rates to $4.50. Additionally, 3 large-hub airports and 6 medium-hub airports do not charge a passenger facility fee. The reluctance to raise passenger facility charges is likely to be the result of several factors, including the views of airlines, which are opposed to any increase in passenger facility charges because an increase would raise passenger costs and reduce passenger traffic. Nonetheless, if all airports were to increase passenger facility charges to the current ceiling, additional revenue could be generated. FAA has introduced other mechanisms to make better use of existing funding sources, the most successful of which has been letters of intent, a tool that has effectively leveraged private sources of funding. A letter of intent represents a nonbinding commitment from FAA to provide multiyear funding to an airport beyond the current AIP authorization period. Thus, the letter allows the airport to proceed with a project without waiting for a future AIP grant because the airport and investors know that allowable costs are likely to be reimbursed. A letter of intent may also enable an airport to receive a more favorable interest rate on bonds that are sold to refinance a project because the federal government has indicated its support for the project. FAA has issued 64 letters of intent with a total commitment of about $3 billion; large- and medium-hub airports account for the majority of the total. Other approaches to making better use of existing funding resources were authorized under AIR-21. Specifically, the act authorized FAA to continue its innovative finance demonstration program, which is designed to test the ability of innovative financing approaches to make more efficient use of AIP funding. Under this program, FAA enabled airports to leverage additional funds or lower development costs by (1) permitting flexible local matching on some projects, (2) purchasing commercial bond insurance, (3) paying interest costs on debt, and (4) paying principal and interest debt service on terminal development costs incurred before the enactment of AIR-21. FAA has provided about $31 million for smaller airports to test these innovative uses of AIP funding. According to FAA officials, the results of the program have been mixed. The most popular option for airports has been flexible matching, which has resulted in several creative loan arrangements. Ensuring the efficient operation of the national airspace system is an important reauthorization issue that is vital to improving mobility and supporting economic growth. Despite the overall decline in air traffic since September 11, demand is gradually increasing, and at some airports, especially those in the Midwest, recovery is progressing more rapidly. To avoid the congestion and delays that plagued air traffic before September 11, FAA, airlines, and airports are continuing to pursue capacity-enhancing efforts, such as building new runways, making more efficient use of existing capacity, and better managing the acquisition of air traffic control technology. Figure 6 illustrates congestion at a major airport. In December 2002, FAA published the most recent version of its Operational Evolution Plan, a 10-year plan to increase the capacity and efficiency of the national airspace system, primarily by focusing on building runways. If successfully carried out, the plan would substantially increase capacity and improve efficiency. However, FAA faces several challenges in implementing the plan. First, the success of the plan depends on adequate funding and on the consensus of FAA's aviation industry partners. Yet according to the most recent version of the plan, the timing and implementation of some activities may be in jeopardy because of the current economic situation and the uncertain viability of some industry participants. For example, the plan calls for the airline industry to invest $11 billion in new equipment for aircraft. FAA is currently reviewing the ability of the airlines to make this investment. Second, as noted, the plan relies heavily on runway development to increase capacity, but the most recent version reports mixed results in building new runways. While the plan indicates that one new runway will be built, it points out that another runway has been cancelled and the construction of six additional runways has been delayed because of local situations. Furthermore, building new runways would be difficult at several of the most delay-prone airports, such as La Guardia, Newark, Kennedy, Los Angeles, and San Francisco, because these airports either are out of room or would face intense local opposition. Persistent delays at key airports such as these will continue to create "choke points" that slow air traffic throughout the system. In addition, AIR-21 requires the phaseout of slot restrictions at Chicago O'Hare by July 1, 2002, and at LaGuardia and John F. Kennedy airports by 2007. Because slot restrictions limit the number of gates at an airport, their phaseout could lead to an increase in air traffic. According to the Operational Evolution Plan, FAA is undertaking a number of efforts to address problems at choke points, such as rerouting aircraft and adding technology. Our work has found that airports face many of the same challenges and delays in building new runways that FAA reported in the Operational Evolution Plan. In January 2003, we reported that airports spent about 10 years planning and building recently completed runways and expect to spend about 14 years on runways that are not yet completed. Several external factors affect how much time is spent planning and building runways, and several airports with unfinished runway projects identified significant challenges that had delayed their projects' completions. While many airports believed that completing the environmental review phase was a significant challenge, they also described other phases of the runway development process as equally challenging. For example, airport officials in Los Angeles and Boston said that they faced significant challenges in reaching agreement with community interest groups during the planning phase. In Boston, differences with these groups have led to lengthy litigation. Other airports said that mitigating the potential impact of aircraft noise on the surrounding community continues to be a challenge because of heightened community concerns about noise. Although there may be no single solution to all of the issues involved in planning and building runways, the federal government and airport authorities have taken some actions. For example, a recent executive order is designed to streamline the environmental review of transportation infrastructure projects. In addition, FAA has taken several actions to increase communication and coordination and streamline the planning and environmental review of runway projects. Some airports said these actions could help airports resolve challenges more quickly; however, we believe it is too early to assess the impact of these actions on the runway development process. Our work has shown that airports have also tried to address the challenges in building runways by, for example, involving local stakeholders, such as community groups, at the beginning of the process and reaching early agreement on how to mitigate the adverse effects of runway projects. Airports said these efforts helped to facilitate the completion of their projects and could be useful for other airports considering runway projects. However, the variety of situations that airports described and the different levels of challenges they face make it difficult to generalize from one airport's experience to another's. Recognizing that building new runways is not always a practicable way to increase capacity at some airports, we identified three alternatives to building runways: Add capacity by using nearby airports that have available capacity or by building new airports. Find ways to manage and distribute demand within the system's existing capacity by, for example, limiting the number of takeoffs and landings during peak periods or limiting the ability of aircraft, other than those operated by airlines, to use especially crowded or sensitive airports (under current law, all aircraft have equal access to even the largest airports). Develop other modes of intercity travel, such as high-speed rail, where metropolitan areas are relatively close, to form an integrated, intermodal transportation network. These alternatives would require extensive change, could conflict with the interests of one or more key stakeholder groups, and would often be costly. Nevertheless, they may be essential to accommodate expected increases in the demand for efficient transportation services or to address security and other concerns prompted by the terrorist attacks. To facilitate their implementation, we believe that the federal government will need to assume a central role. Accordingly, we have recommended that the Department of Transportation (DOT) begin a more extensive evaluation of initiatives to address flight delays, including intermodal solutions and a dialogue with the aviation community and other transportation stakeholders as a basis for developing a comprehensive blueprint for addressing the nation's long-term transportation needs. DOT has recognized the need for more and better long-range planning on the potential use of such measures, but its efforts are in the beginning stages. The current hiatus in air traffic growth creates an opportunity for such planning to take place. To increase the safety, capacity, and efficiency of the national airspace system, FAA undertook a major effort in 1981 to modernize and replace aging air traffic control equipment. This effort has been plagued by cost overruns, schedule delays, and performance shortfalls. In 1995, we designated it as high risk, and we continue to designate it as such. Inefficiencies in the air traffic control system contributed to some of the delays in the system that peaked in 2000. At that time, FAA estimated that modernizing equipment along with other changes, such as redesigning the airspace, would increase capacity by 5 to 15 percent. Originally, FAA planned to complete its modernization in 10 years at a cost of $12 billion. Now, two decades and $35 billion later, FAA estimates that it will need nearly $16 billion more through fiscal year 2007 to complete key projects, including the Standard Terminal Automation Replacement System (STARS), the Wide Area Augmentation System (WAAS), the Next- Generation Air/Ground Communications (NEXCOM), the Local Area Augmentation System (LAAS), the Integrated Terminal Weather System (ITWS), and free flight initiatives, which FAA's Operational Evolution Plan recognizes as a new way of managing air traffic that is expected to help lower costs for the airlines and help the aviation system accommodate more flights. While FAA is making progress in managing the air traffic control modernization, key programs continue to experience cost, schedule, and performance problems. As a result, resources have not been spent cost- effectively and improvements in capacity and efficiency have been delayed. Table 3 shows the status of three major programs that we have been monitoring. DOT's Inspector General has noted similar problems with the Local Area Augmentation System--a new precision approach and landing system that is expected to boost airport arrival rates under all weather conditions-- and the Integrated Terminal Weather System--which provides enhanced weather information. FAA planned to begin operating the Local Area Augmentation System in 2004, but it will not meet that milestone because of additional development work, changing requirements, and unresolved safety certification issues. In addition, the estimated production costs for the Integrated Terminal Weather System, originally expected to be about $286 million, have tripled. Our work has also identified free flight implementation issues. Free flight is a new approach to air traffic management that replaces highly structured rules and procedures with a more flexible system based on collaboration between air traffic controllers and pilots. The use of new free flight technologies and procedures is expected to increase the efficiency and capacity of the airspace system and help to avoid gridlock by improving operations in various segments of flight. In 2001, we made several recommendations to improve the implementation of free flight, including improving training for air traffic controllers and establishing detailed tracking of costs, schedules, and benefits. FAA has begun to address our recommendations. However, several outstanding issues remain. For example, the airlines are not likely to voluntarily equip their fleets with new technologies to support free flight until their business improves. Since 1995, we have made over 30 recommendations to address the root causes of FAA's modernization problems. Although FAA has made progress in addressing these root causes, more remains to be done, including the following: Improve immature software capabilities. FAA has developed an integrated framework for improving its software acquisition, software development, and systems engineering processes. In addition, FAA has continued to increase the number of system development projects that use this integrated framework. However, FAA still does not require all systems to achieve a minimum level of progress within the framework before being funded. Improve cost-estimating and cost-accounting practices. FAA has developed a standard work breakdown structure and established an historical database for tracking systems' estimated costs and other information. Furthermore, FAA has made progress in implementing its cost-accounting system. However, the agency has not yet fully instituted rigorous cost-estimating practices--that is, FAA is not yet incorporating actual costs from related system development efforts in its processes for estimating the costs of new projects. Most recently, we reported that the cost estimates for the Standard Terminal Automation Replacement System are unreliable because FAA did not follow its own acquisition guidance. Change organizational culture. FAA issued an organizational culture framework in 1997 and is working to implement it. However, in 2000, the DOT Inspector General followed up on problems that we first identified in 1996 and reported that FAA's culture remains a barrier to successful acquisition project management and that integrated teams, a key mechanism to deliver more cost-effective and timely products, are not working well because FAA's culture continues to operate in vertical "stovepipes," which conflict with the horizontal structure of team operations. Our 2000 report on the Wide Area Augmentation System also found that the integrated teams were not working as intended. We found that competing priorities between two key organizations that are part of the system's integrated team negated the effectiveness of the team's approach for meeting FAA's goals for the system. As FAA moves forward with modernization in the current economic climate, it will be important for the agency to ensure that it is spending its resources on the projects that will provide the most return. This may require reprioritizing projects in the agency's investment portfolio, cooperating more closely with private industry to leverage federal dollars and share the risk of investments, and seeking other opportunities to reduce costs and operate more efficiently. Such activities would be under the purview of the Air Traffic Services Subcommittee and the chief operating officer, a position created by AIR-21 to oversee the air traffic control system and FAA's modernization program. However, FAA has not yet hired a chief operating officer to direct these efforts. As problems with the air traffic control modernization program mounted in the early 1990s, FAA attributed the delays in implementing air traffic control projects, at least in part, to burdensome governmentwide human capital rules and federal acquisition regulations that impeded its ability to hire, train, and deploy personnel and to acquire equipment and systems. In response to these claims, the Congress exempted FAA from many federal laws governing human capital and acquisitions, and the agency began implementing human capital and procurement reforms in 1996. As we reported last week, FAA has implemented the majority of its human capital reform initiatives, but it has not yet completed this effort. (Fig. 7 shows the status of several key initiatives.) For example, it has not implemented a new compensation system for about 20 percent of its 50,000 employees--those staff whose unions have not reached agreements with FAA. Among the factors affecting FAA's progress in implementing this initiative were the wide range of skills represented in FAA's workforce and the multiple unions representing FAA employees. FAA has not developed data to assess the effects of its human capital reforms. For example, it has not systematically surveyed managers and employees or analyzed their views on the new compensation system. Although FAA human capital officials cited positive effects of the system, nearly two-thirds (110 out of 176) of the managers and employees we interviewed disagreed or strongly disagreed that the new system is fair to all employees. The lack of data on the effects of its human capital reforms is an indication that FAA has not fully incorporated elements that are important to effective human capital management into its overall reform effort. These elements include data collection and analysis, performance goals and measures, and links between reform goals and program goals. Evaluations of FAA's human capital reforms have cited these shortcomings, but FAA has not developed specific steps and time frames for building the missing elements into its human capital management and for using these elements to evaluate the effects of its initiatives, make strategic improvements, and hold the agency's leadership accountable. Addressing these weaknesses and developing a more strategic approach to its human capital reforms is particularly important as FAA faces the likelihood of hiring thousands of air traffic controllers in the next decade to replace retiring controllers. While the exact number and timing of the controllers' departures is impossible to determine, FAA's and our analyses show that the attrition rate will grow substantially in the near and long term as thousands of controllers hired over a 3- to 4- year period in the 1980s become eligible to retire. In June 2002, we reported that FAA's strategy for replacing controllers was generally to hire new controllers only when current, experienced controllers leave--an approach that makes it challenging to ensure that well-qualified new controllers are available when needed. For example, we found that FAA's hiring process did not adequately take into account the time needed to fully train replacements, which could take up to 5 years; there was uncertainty about agency's tools for screening and testing the aptitude of applicants; and the agency had not addressed the resources that may be needed to train these replacements. We recommended, among other things, the development of a comprehensive workforce strategy to address FAA's impending controller needs. While FAA has made some changes in this area since our report appeared, it remains to be seen whether the agency's actions will be sufficient to ensure that qualified new controllers are available when needed. Figure 8 shows an air traffic controller monitoring and handling air traffic. As part of its procurement reforms, FAA introduced an acquisition management system to reduce the time and cost to deploy new products and services. In 1999, we found that while this was a good first step in establishing a structured investment management approach for selecting and controlling the agency's investments, the system had weaknesses in its selection, control, and evaluation phases that impeded FAA's ability to manage its investments effectively and make sound decisions about continuing, modifying, or canceling projects. We concluded that correcting these weaknesses would increase the likelihood that FAA's projects would meet established cost and schedule objectives and contribute to measurable improvements in the agency's mission performance, and we made several recommendations designed to improve the agency's selection, control, and evaluation of its information technology investments. Recently, we found that FAA has improved its investment management processes, but that more remains to be done. For example, FAA is now overseeing investment risks and capturing key information from the investment selection process in a management information system. FAA has also developed guidance for validating costs, benefits, and risks, and expects to finalize this guidance by early 2003. However, FAA has not yet implemented processes for evaluating projects after implementation in order to identify lessons learned and improve the investment management process. Because its procurement reform effort is not complete, major projects continue to face challenges that could affect their costs, schedule, and performance. Safety has always been and continues to be FAA's highest priority. FAA has taken a number of important steps to improve aviation safety; however, planning and implementation could be more effective in some cases. Reducing fatal aviation accidents is key to improving aviation safety. FAA's centerpiece for reaching this goal is Safer Skies, an initiative that dates back to 1998, when FAA and aviation industry representatives worked together to identify the major causes of fatal accidents and to design and implement preventive actions. Safer Skies is intended to reduce the fatal accident rate for commercial aviation by 80 percent and to reduce the number of fatal accidents for general aviation to 350 by 2007. Because many preventive actions have not yet been fully implemented, it may be too early to assess their effectiveness. Achieving the initiative's goals will require FAA to systematically implement these preventive actions and to maintain good data to monitor their progress and evaluate their effectiveness. As of last week, 44 preventive actions had been undertaken--of which 16 are completed and 28 are under way, according to FAA. Improving the effectiveness of FAA's inspections of airline operations is key to improving aviation safety. The FAA Administrator has noted that perhaps the greatest support the agency can provide to the industry is a robust safety oversight role that will not waver in difficult times. FAA's new inspection program, the Air Transportation Oversight System, is central to this oversight role. The program aims to ensure not only that airlines comply with FAA's safety requirements but also that they have operating systems to control risks and prevent accidents. We found that FAA had not completed many critical steps, such as developing guidance and creating usable databases to capture information, before implementing the new inspection system in 1998. As a result, the agency's ability to conduct effective inspections remains limited. FAA has begun to address some of these problems. However, according to a 2002 review by the DOT Inspector General, many of the problems persist, and the program's implementation remains inconsistent because FAA has not established strong oversight and accountability procedures. These problems limit FAA's ability to conduct more systematic, structured inspections; analyze the resulting data to identify safety trends; and target its resources to the greatest aviation safety risks. Finally, the Congress has endeavored to keep unsafe pilots out of the cockpits of commercial aircraft by requiring that carriers perform preemployment checks on pilot applicants. We found that carriers have increasingly requested the required records since the Pilot Records Improvement Act took effect in 1997. In 2000, nearly half of the nation's large commercial airlines reported deciding not to hire pilots because of this information. However, our data analyses and surveys of carriers showed that a few carriers did not request all required records. In a few cases, hiring carriers reported never receiving the records. Delays in providing the records can be costly for both carriers and pilots because the carrier is not allowed to use the pilot to fly passengers or cargo until the records have been received. In addition, because FAA did not update its guidance when the law was amended, carriers and pilots lack awareness of some provisions, and FAA inspectors are not prepared to review compliance. In response to our recommendations, FAA has updated its guidance and is taking additional steps to better inform carriers, pilots, and inspectors of the law's requirements. In conclusion, Mr. Chairman, the aviation industry and the national economy are still struggling to recover their health. Analysts nonetheless expect the demand for air travel to rebound, and the nation's aviation system must be ready to accommodate the projected growth safely and securely. Sustaining recent funding levels for planned capital development should allow the majority of airport capital improvements to move forward, but it will not address the costly terminal modifications needed to accommodate explosives detection systems. Options such as additional federal grant funding or increases in passenger facility charges could make more funding available for airport improvements; however, competition for federal budget dollars and concerns about the impact of higher charges on airline ticket sales may limit the practicality of these options. Enhancing the capacity and efficiency of the national airspace system through runway development and air traffic modernization is critical to preparing for the projected growth in demand for air travel. Today, we have a window of opportunity to prepare for this growth without the pressures of congestion and flight delays. Yet we also face public and private constraints on spending that require us to accomplish these improvements as efficiently as possible. Setting priorities among projects, identifying opportunities for streamlining the runway development process, and fully implementing human capital and procurement reforms should help to ensure efficiency. Finally, moving forward with aviation safety initiatives is essential to restore and maintain the public's confidence in air travel. To determine how much planned development would cost over the next 5 years, we obtained planned development data from FAA and ACI. ACI provided its estimate to us in January 2003, and we are still analyzing the data on which the estimate is based. To determine the sources of airport funding, we obtained capital funding data from FAA, the National Association of State Aviation Officials, Thomson Financial, and a survey we conducted of 400 general aviation and reliever airports. We obtained funding data from 1999 through 2001, because they were the most recent years for which consistent data were available. We screened the planned development and funding data for accuracy and compared funding streams across databases where possible. We also clarified ambiguous development or funding source information directly with airports. We did not, however, audit how the databases were compiled, except for our own survey. However, we have not finished analyzing our survey data, and the results presented in this testimony are still preliminary. We performed our work from May 2002 through February 2003 in accordance with generally accepted government auditing standards. This concludes my statement. I would be pleased to answer any questions you or other members of the Committee might have. For further information on this testimony, please contact Gerald Dillingham at (202) 512-2834. Individuals making key contributions to this testimony include Jon Altshul, Bonnie Beckett, Tammy Conquest, Howard Cott, Elizabeth Eisenstadt, James Geibel, Charles D. Ireland, Edward Laughlin, David Lehrer, Maren McAvoy, Matthew Sakrekoff, John W. Shumann, Teresa Spisak, Richard Swayze, Larry Thomas, and Alwynne Wilbur. Aviation Finance: Implementation of General Aviation Entitlement Grants. GAO-03-347. Washington, D.C.: February 11, 2003. Human Capital Management: FAA's Reform Effort Requires a More Strategic Approach. GAO-03-156. Washington, D.C.: February 3, 2003. National Airspace System: Better Cost Data Could Improve FAA's Management of the Standard Terminal Automation Replacement System. GAO-03-343. Washington, D.C.: January 31, 2003. Aviation Infrastructure: Challenges Related to Building Runways and Actions to Address Them. GAO-03-164. Washington, D.C.: January 30, 2003. High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 2003. Air Traffic Control: Impact of Revised Personnel Relocation Policies Is Uncertain. GAO-03-141. Washington, D.C.: October 31, 2002. Airport Finance: Using Airport Grant Funds for Security Projects Has Affected Some Development Projects. GAO-03-27. Washington, D.C.: October 15, 2002. National Airspace System: Status of FAA's Standard Terminal Automation Replacement System. GAO-02-1071. Washington, D.C.: September 17, 2002. Options to Enhance the Long-term Viability of the Essential Air Service Program. GAO-02-997R. Washington, D.C.: August 30, 2002. Aviation Safety: Better Guidance and Training Needed on Providing Files on Pilots' Background Information. GAO-02-722. Washington, D.C.: August 30, 2002. Air Traffic Control: FAA Needs to Better Prepare for Impending Wave of Controller Attrition. GAO-02-591. Washington, D.C.: June 14, 2002. Aviation Finance: Distribution of Airport Grant Funds Complied with Statutory Requirements. GAO-02-283. Washington, D.C.: April 30, 2002. Department of Transportation, Transportation Security Administration: Aviation Security Infrastructure Fees. GAO-02-484R. Washington, D.C.: March 11, 2002. Applying Agreed-Upon Procedures: Airport and Airway Trust Fund Excise Taxes. GAO-02-380R. Washington, D.C.: February 15, 2002. National Airspace System: Long-Term Capacity Planning Needed Despite Recent Reduction in Flight Delays. GAO-02-185. Washington, D.C.: December 14, 2001. Air Traffic Control: FAA Enhanced the Controller-in-Charge Program, but More Comprehensive Evaluation Is Needed. GAO-02-55. Washington, D.C.: October 31, 2001. National Airspace System: Free Flight Tools Show Promise, but Implementation Challenges Remain. GAO-01-932. Washington, D.C.: August 31, 2001. Air Traffic Control: Role of FAA's Modernization Program in Reducing Delays and Congestion. GAO-01-725T. Washington, D.C.: May 10, 2001. Aviation Safety: Safer Skies Initiative Has Taken Initial Steps to Reduce Accident Rates by 2007. GAO/RCED-00-111. Washington, D.C.: June 30, 2000. National Airspace System: Problems Plaguing the Wide Area Augmentation System and FAA's Actions to Address Them. GAO/T- RCED-00-229. Washington, D.C.: June 29, 2000. National Airspace System: Persistent Problems in FAA's New Navigation System Highlight Need for Periodic Reevaluation. GAO/RCED/AIMD-00-130. Washington, D.C.: June 12, 2000. Federal Aviation Administration: Challenges in Modernizing the Agency. GAO/T-RCED/AIMD-00-87. Washington, D.C.: February 3, 2000. Air Traffic Control: Status of FAA's Implementation of the Display System Replacement Project. GAO/T-RCED-00-19. Washington, D.C.: October 11, 1999.
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Much has changed since the Congress enacted the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21) 3 years ago--the downturn in the nation's economy and the terrorist attacks of September 11, 2001, have taken a heavy toll on aviation. Competition for federal funding has also grown. The reauthorization of AIR-21 provides an opportunity for the Congress and the Federal Aviation Administration (FAA) to focus on several challenges to improving the national airspace system. These challenges include (1) funding planned airport capital development, (2) increasing capacity and efficiency, (3) implementing human capital and procurement reforms, and (4) ensuring aviation safety. This testimony is based on ongoing and published GAO work. The information on funding and development, obtained from FAA and the Airport Council International (ACI), a key organization representing the airport industry, is preliminary and therefore subject to change. Funding planned airport development: Estimates vary as to the annual cost of planned airport capital development over the next 5 years, from FAA's estimate of about $9 billion to the airport industry's estimate of about $15 billion. If airports continue to receive about $12 billion a year for planned capital development--the average for 1999 through 2001--they would be able to fund all of the projects included in FAA's estimate, but would fall about $3 billion short of the industry's estimate. Increasing capacity and efficiency: Recently, airports have taken about 10 years to develop runways, and ongoing runway projects are expected to take even longer. The federal government and airports have taken actions to expedite runway development, but it is still too early to assess the impact of these actions. FAA's management of costly air traffic control acquisitions has improved, but cost, schedule, and performance problems remain. Implementing human capital and procurement reforms: FAA is making progress in implementing human capital and procurement reforms, but it has not fully implemented a new compensation system, in part because it has to negotiate with multiple unions, and it is not yet systematically evaluating the results of reforms in either area. Ensuring aviation safety: The Safer Skies program, which focuses on identifying and correcting the causes of aviation accidents, and FAA's redesigned program to inspect airline operations are two important aviation safety initiatives. While both programs have made good starts, some challenges remain. The Safer Skies program, which began in 1998, is not fully implemented, and the inspection system has encountered startup problems with inspector training and guidance.
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Despite their commitment to halve global hunger by 2015, efforts of host governments and donors, including the United States, to accelerate progress toward that goal have been insufficient, especially in sub-Saharan Africa. First, host governments have provided limited agricultural spending, with only eight meeting their 2003 pledge to direct 10 percent of government spending to agriculture. Second, multilateral and donor aid to African agriculture generally declined from the 1980s to around 2005. Third, U.S. efforts to reduce hunger, especially in sub-Saharan Africa, have been constrained by resource and scope limitations. Although African countries pledged in 2003 to direct 10 percent of government spending to agriculture, only 8 out of 38 governments had met this pledge as of 2007, according to the most current available data from the International Food Policy Research Institute. These data represent an increase of four additional countries that met the pledge between 2005 and 2007 (see fig.1.). The primary vehicle for addressing agricultural development in sub- Saharan Africa is the New Partnership for Africa's Development (NEPAD) and its Comprehensive Africa Agriculture Development Program (CAADP). The African Union (AU) established NEPAD in July 2001 as a strategic policy framework for the revitalization and development of Africa. In 2003, AU members endorsed the implementation of CAADP, a framework that is aimed to guide agricultural development efforts in African countries, and agreed to allocate 10 percent of government spending to agriculture by 2008. Subsequently, member states established a regionally supported, country-driven CAADP roundtable process, which defines the programs and policies that require increased investment and support by host governments; multilateral organizations, including international financial institutions; bilateral donors; and private foundations. According to USAID officials, the CAADP roundtable process is designed to increase productivity and market access for large numbers of smallholders and promote broad-based economic growth. At the country level, host governments are expected to lead the development of a strategy for the agricultural sector, the coordination of donor assistance, and the implementation of projects and programs, as appropriate. As of October 2009, according to a senior USAID official, nine countries had signed CAADP compacts, and five more countries were scheduled for a CAADP roundtable process, which defines programs that are to be financed by host governments and donors. Until recent years, donors had reduced the priority given to agriculture. As a result, the share of official development assistance (ODA) from both multilateral and bilateral donors to agriculture for Africa significantly declined, from about 15 percent in the 1980s to about 4 percent in 2006 (see fig. 2). The decline in donor support to agriculture in Africa over this period is due in part to competing priorities for funding and a lack of results from unsuccessful interventions. According to the 2008 World Development Report, many of the large-scale integrated rural development interventions promoted heavily by the World Bank suffered from mismanagement and weak governance and did not produce the claimed benefits. In the 1990s, donors started to prioritize social sectors, such as health and education, over agriculture. In recognition of the growing global food security problem, in July 2009, the United States and assembled leaders at the G8 Summit in L'Aquila, Italy, agreed to a $20 billion, 3-year commitment to reverse the declining trend in ODA funding for agriculture. U.S. assistance to address food insecurity has been constrained in funding and limited in scope, especially in sub-Saharan Africa. In recent years, the levels of USAID funding for development in sub-Saharan Africa have not changed significantly compared with the substantial increase in U.S. funding for emergencies. Funding for the emergency portion of Title II of Public Law 480--the largest U.S. food aid program--has increased significantly in recent years, while the funding level for nonemergencies has stagnated. In fact, the nonemergency portion accounted for 40 percent of Title II funding in 2002, but has declined, accounting for only 15 percent in 2008. While emergency food aid has been crucial in helping alleviate the growing number of food crises, it does not address the underlying factors that contributed to the recurrence and severity of these crises. Despite repeated attempts from 2003 to 2005, the former Administrator of USAID was unsuccessful in significantly increasing long-term agricultural development funding in the face of increased emergency needs and other priorities. Specifically, USAID and several other officials noted that budget restrictions and other priorities, such as health and education, have limited the U.S. government's ability to fund long-term agricultural development programs. Also, the United States, consistent with other multilateral and bilateral donors, has steadily reduced its ODA to agriculture for Africa since the late 1980s, from about $500 million in 1988 to less than $100 million in 2006. Launched in 2002, the Presidential Initiative to End Hunger in Africa (IEHA)--which represented the U.S. strategy to help fulfill the MDG goal of halving hunger by 2015--was constrained in funding and limited in scope. In 2005, USAID, the primary agency that implemented IEHA, committed to providing an estimated $200 million per year for 5 years through the initiative, using existing funds from Title II of Public Law 480 food for development and assorted USAID Development Assistance (DA) and other accounts. IEHA was intended to build an African-led partnership to cut hunger and poverty by investing in efforts to promote agricultural growth that is market-oriented and focused on small-scale farmers. IEHA was implemented in three regional missions in sub-Saharan Africa, as well as in eight bilateral missions: Kenya, Tanzania, and Uganda in East Africa; Malawi, Mozambique, and Zambia in southern Africa; and Ghana and Mali in West Africa. However, USAID officials acknowledged that IEHA lacks a political mandate to align the U.S. government food aid, emergency, and development agendas to address the root causes of food insecurity. Although it purported to be a governmentwide strategy, IEHA was limited to only some of USAID's agricultural development activities and did not integrate with other agencies in terms of plans, programs, resources, and activities to address food insecurity in sub-Saharan Africa. For example, at the time of our review, because only eight USAID missions had fully committed to IEHA, and the rest of the missions had not attributed funding to the initiative, USAID had been unable to leverage all of the agricultural development funding it provides to end hunger in sub-Saharan Africa. This lack of a comprehensive strategy likely led to missed opportunities to leverage expertise and minimize overlap and duplication. For example, both the Millennium Challenge Corporation (MCC) and USDA are making efforts to address agriculture and food insecurity in sub- Saharan Africa, but IEHA's decision-making process at the time of our review had not taken these efforts into consideration. In addition, IEHA had not leveraged the full extent of the U.S. assistance across all agencies to address food insecurity in sub-Saharan Africa. For example, one of the United States' top priorities for development assistance is the treatment, prevention, and care of HIV/AIDS through the President's Emergency Plan for AIDS Relief (PEPFAR), which is receiving billions of dollars every year. The new administration has committed to improving international food assistance by pledging U.S. leadership in developing a new global approach to hunger, and the Secretary of State has emphasized the importance of a comprehensive approach to sustainable systems of agriculture in rural areas worldwide. The U.S. share of the G8 commitment of $20 billion, or $3.35 billion, includes $1.36 billion for agriculture and related programming in fiscal year 2010 to establish food security, representing more than double the fiscal year 2009 budget request level. In our May 2008 report, we recommended that the Administrator of USAID (1) work in collaboration with the Secretaries of State, Agriculture, and the Treasury to develop an integrated governmentwide strategy that defines each agency's actions and resource commitments to achieve food security, particularly in sub-Saharan Africa, including improving collaboration with host governments and other donors and developing improved measures to monitor and evaluate progress toward the implementation of this strategy and (2) report on progress toward the implementation of the first recommendation as part of the annual U.S. International Food Assistance Report submitted to Congress. USAID concurred with the first recommendation but expressed concerns about the vehicle of the annual reporting. The Departments of Agriculture, State, and Treasury generally concurred with the findings. Consistent with our first recommendation, U.S. agencies have launched a global hunger and food security initiative and, as part of that initiative, are working to develop a governmentwide strategy to address global food insecurity. In April 2009, the new administration created the Interagency Policy Committee (IPC). In late September 2009, State issued a consultation document--a work in progress--that delineates a proposed comprehensive approach to food security based on country- and community-led planning and collaboration with U.S. partners. According to a senior State official, the consultation document was a product of an interagency working group. Although the document outlines broad objectives and principles, it is still a work in progress and should not be considered the integrated governmentwide strategy that we called for in our 2008 recommendation. A comprehensive strategy would define the actions with specific time frames and resource commitments that each agency undertakes to achieve food security, particularly in sub-Saharan Africa, including improving collaboration with host governments and other donors and developing improved measures to monitor and evaluate progress toward implementing the strategy. In prior products, we have identified six characteristics of an effective national strategy that may provide additional guidance to shape policies, programs, priorities, resource allocations, and standards to achieve the identified results. The consultation document outlines three key objectives: (1) to increase sustainable market-led growth across the entire food production and market chain; (2) to reduce undernutrition; and (3) to increase the impact of humanitarian food assistance. State has also identified five principles for advancing global food security strategy, as follows: comprehensively address the underlying causes of hunger and undernutrition, invest in country-led plans, strengthen strategic coordination, leverage the benefits of multilateral mechanisms to expand impacts, and deliver on sustained and accountable commitments. Regarding our second recommendation for annual reporting to Congress on an integrated governmentwide food security strategy, USAID suggested that, rather than the International Food Assistance Report (IFAR), a more appropriate report, such as the annual progress report on IEHA (which is not congressionally required), be used to report progress on the implementation of our first recommendation. USAID officials stated that they plan to update Congress on progress toward implementation of such a strategy as part of the agency's 2008 IEHA report, which is forthcoming in 2009. A summary of the 2008 IEHA report, released in September 2009, identified three food security pillars--(1) immediate humanitarian response, 2) urgent measures to address causes of the food crisis, and (3) related international polices and opportunities--used to respond to the 2007 and 2008 global food crisis. However, as we concluded in our 2008 report, IEHA neither comprehensively addresses the underlying causes of food insecurity nor leverages the full extent of U.S. assistance across all agencies to fulfill the MDG goal of halving hunger by 2015, especially in sub-Saharan Africa. Finally, in response to a request from Congresswoman Rosa DeLauro, Chair of the House Committee on Appropriations, Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies, we are currently conducting a review of U.S. efforts to address global food insecurity. Report issuance is planned for February 2010. At that time, we plan to report on (1) the nature and scope of U.S. food security programs and activities and (2) the status of U.S. agencies' ongoing efforts to develop and implement an integrated governmentwide strategy to address persistent food insecurity by using GAO criteria identified in prior products. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions you or other Members of the Subcommittee may have. For questions about this testimony, please contact Thomas Melito at (202) 512-9601 or [email protected]. Individuals who made key contributions to this testimony include Phillip J. Thomas (Assistant Director), Sada Aksartova, Carol Bray, Ming Chen, Debbie Chung, Lynn Cothern, Martin De Alteriis, Mark Dowling, Brian Egger, Etana Finkler, Kendall Helm, Joy Labez, Ulyana Panchishin, Lisa Reijula, and Julia Ann Roberts. International Food Assistance: Key Issues for Congressional Oversight. GAO-09-977SP. Washington, D.C.: September 30, 2009. International Food Assistance: USAID Is Taking Actions to Improve Monitoring and Evaluation of Nonemergency Food Aid, but Weaknesses in Planning Could Impede Efforts. GAO-09-980. Washington, D.C.: September 28, 2009. International Food Assistance: Local and Regional Procurement Provides Opportunities to Enhance U.S. Food Aid, but Challenges May Constrain Its Implementation. GAO-09-757T. Washington, D.C.: June 4, 2009. International Food Assistance: Local and Regional Procurement Can Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain Its Implementation. GAO-09-570. Washington, D.C.: May 29, 2009. International Food Security: Insufficient Efforts by Host Governments and Donors Threaten Progress to Halve Hunger in Sub-Saharan Africa by 2015. GAO-08-680. Washington, D.C.: May 29, 2008. Foreign Assistance: Various Challenges Limit the Efficiency and Effectiveness of U.S. Food Aid. GAO-07-905T. Washington, D.C.: May 24, 2007. Foreign Assistance: Various Challenges Impede the Efficiency and Effectiveness of U.S. Food Aid. GAO-07-560. Washington, D.C.: April 13, 2007. Foreign Assistance: U.S. Agencies Face Challenges to Improving the Efficiency and Effectiveness of Food Aid. GAO-07-616T. Washington, D.C.: March 21, 2007. Darfur Crisis: Progress in Aid and Peace Monitoring Threatened by Ongoing Violence and Operational Challenges. GAO-07-9. Washington, D.C.: November 9, 2006. Maritime Security Fleet: Many Factors Determine Impact of Potential Limits of Food Aid Shipments. GAO-04-1065. Washington, D.C.: September 13, 2004. United Nations: Observations on the Oil for Food Program and Iraq's Food Security. GAO-04-880T. Washington, D.C.: June 16, 2004. Foreign Assistance: Lack of Strategic Focus and Obstacles to Agricultural Recovery Threaten Afghanistan's Stability. GAO-03-607. Washington, D.C.: June 30, 2003. Foreign Assistance: Sustained Efforts Needed to Help Southern Africa Recover from Food Crisis. GAO-03-644. Washington, D.C.: June 25, 2003. Food Aid: Experience of U.S. Programs Suggest Opportunities for Improvement. GAO-02-801T. Washington, D.C.: June 4, 2002. Foreign Assistance: Global Food for Education Initiative Faces Challenges for Successful Implementation. GAO-02-328. Washington, D.C.: February 28, 2002. Foreign Assistance: U.S. Food Aid Program to Russia Had Weak Internal Controls. GAO/NSIAD/AIMD-00-329. Washington, D.C.: September 29, 2000. Foreign Assistance: U.S. Bilateral Food Assistance to North Korea Had Mixed Results. GAO/NSIAD-00-175. Washington, D.C.: June 15, 2000. Foreign Assistance: Donation of U.S. Planting Seed to Russia in 1999 Had Weaknesses. GAO/NSIAD-00-91. Washington, D.C.: March 9, 2000. Foreign Assistance: North Korea Restricts Food Aid Monitoring. GAO/NSIAD-00-35. Washington, D.C.: October 8, 1999. Food Security: Factors That Could Affect Progress toward Meeting World Food Summit Goals. GAO/NSIAD-99-15. Washington, D.C.: March 22, 1999. Food Security: Preparations for the 1996 World Food Summit. GAO/NSIAD-97-44. Washington, D.C.: November 7, 1996. 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The number of undernourished people worldwide now exceeds 1 billion, according to the United Nations (UN) Food and Agriculture Organization (FAO). Sub-Saharan Africa has the highest prevalence of food insecurity, with 1 out of every 3 people undernourished. Global targets were set at the 1996 World Food Summit and reaffirmed in 2000 with the Millennium Development Goals (MDG) when the United States and more than 180 nations pledged to halve the number and proportion of undernourished people by 2015. In a May 2008 report, GAO recommended that the Administrator of the U.S. Agency for International Development (USAID), in collaboration with the Secretaries of Agriculture, State, and the Treasury, (1) develop an integrated governmentwide U.S. strategy that defines actions with specific time frames and resource commitments, enhances collaboration, and improves measures to monitor progress and (2) report annually to Congress on the implementation of the first recommendation. USAID concurred with the first recommendation but expressed concerns about the vehicle of the annual reporting. The Departments of Agriculture, State, and Treasury generally concurred with the findings. In this testimony, based on prior reports and ongoing work, GAO discusses (1) host government and donor efforts to halve hunger, especially in sub-Saharan Africa, by 2015, and (2) the status of U.S. agencies' implementation of GAO's 2008 recommendations. Efforts of host governments and donors, including the United States, to achieve the goal of halving hunger in sub-Saharan Africa by 2015 have been insufficient due to a variety of reasons. First, host governments' agricultural spending levels remain low--the most current data available show that, as of 2007, only 8 of 38 countries had fulfilled a 2003 pledge to direct 10 percent of government spending to agriculture. Second, donor aid for agriculture in sub-Saharan Africa was generally declining as a share of overall official development assistance (ODA) until 2005. Third, U.S. efforts to reduce hunger in sub-Saharan Africa were constrained in funding and limited in scope. These efforts were primarily focused on emergency food aid and did not fully integrate U.S. and other donors' assistance to the region. To reverse the declining trend in ODA funding for agriculture, in July 2009, the Group of 8 (G8) agreed to a $20 billion, 3-year commitment. The U.S. share of this commitment, or $3.35 billion in fiscal year 2010, represents more than double the fiscal year 2009 budget request for agriculture and related programming. Consistent with GAO's first recommendation, U.S. agencies are in the process of developing a governmentwide strategy to achieve global food security. In September 2009, State issued a consultation document that delineates a proposed comprehensive approach to food security. Although the document outlines broad objectives and principles, it is still a work in progress and should not be considered the integrated governmentwide strategy that GAO recommended. It does not define the actions, time frames, and resource commitments each agency will undertake to achieve food security, including improved collaboration with host governments and other donors and measures to monitor and evaluate progress in implementing the strategy. Regarding GAO's second recommendation, USAID officials plan to update Congress on progress toward the implementation of such a strategy as part of the agency's Initiative to End Hunger in Africa 2008 report, which is forthcoming in 2009.
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Since the early 1990s, the explosion in computer interconnectivity, most notably growth in the use of the Internet, has revolutionized the way organizations conduct business, making communications faster and access to data easier. However, this widespread interconnectivity has increased the risks to computer systems and, more importantly, to the critical operations and infrastructures that these systems support, such as telecommunications, power distribution, national defense, and essential government services. Malicious attacks, in particular, are a growing concern. The National Security Agency has determined that foreign governments already have or are developing computer attack capabilities, and that potential adversaries are developing a body of knowledge about U.S. systems and methods to attack them. In addition, reported incidents have increased dramatically in recent years. Accordingly, there is a growing risk that terrorists or hostile foreign states could severely damage or disrupt national defense or vital public operations through computer-based attacks on the nation's critical infrastructures. Since 1997, in reports to the Congress, we have designated information security a governmentwide high-risk area. Our most recent report in this regard, issued in January, noted that, while efforts to address the problem have gained momentum, federal assets and operations continue to be highly vulnerable to computer-based attacks. To develop a strategy to reduce such risks, in 1996, the President established a Commission on Critical Infrastructure Protection. In October 1997, the commission issued its report, stating that a comprehensive effort was needed, including "a system of surveillance, assessment, early warning, and response mechanisms to mitigate the potential for cyber threats." The report said that the Federal Bureau of Investigation (FBI) had already begun to develop warning and threat analysis capabilities and urged it to continue in these efforts. In addition, the report noted that the FBI could serve as the preliminary national warning center for infrastructure attacks and provide law enforcement, intelligence, and other information needed to ensure the highest quality analysis possible. In May 1998, PDD 63 was issued in response to the commission's report. The directive called for a range of actions intended to improve federal agency security programs, establish a partnership between the government and the private sector, and improve the nation's ability to detect and respond to serious computer-based attacks. The directive established a National Coordinator for Security, Infrastructure Protection, and Counter-Terrorism under the Assistant to the President for National Security Affairs. Further, the directive designated lead agencies to work with private-sector entities in each of eight industry sectors and five special functions. For example, the Department of the Treasury is responsible for working with the banking and finance sector, and the Department of Energy is responsible for working with the electric power industry. PDD 63 also authorized the FBI to expand its NIPC, which had been originally established in February 1998. The directive specifically assigned the NIPC, within the FBI, responsibility for providing comprehensive analyses on threats, vulnerabilities, and attacks; issuing timely warnings on threats and attacks; facilitating and coordinating the government's response to cyber incidents; providing law enforcement investigation and response; monitoring reconstitution of minimum required capabilities after an infrastructure attack; and promoting outreach and information sharing. PDD 63 assigns the NIPC responsibility for developing analytical capabilities to provide comprehensive information on changes in threat conditions and newly identified system vulnerabilities as well as timely warnings of potential and actual attacks. This responsibility requires obtaining and analyzing intelligence, law enforcement, and other information to identify patterns that may signal that an attack is underway or imminent. Since its establishment in 1998, the NIPC has issued a variety of analytical products, most of which have been tactical analyses pertaining to individual incidents. These analyses have included (1) situation reports related to law enforcement investigations, including denial-of-service attacks that affected numerous Internet-based entities, such as eBay and Yahoo and (2) analytical support of a counterintelligence investigation. In addition, the NIPC has issued a variety of publications, most of which were compilations of information previously reported by others with some NIPC analysis. Strategic analysis to determine the potential broader implications of individual incidents has been limited. Such analysis looks beyond one specific incident to consider a broader set of incidents or implications that may indicate a potential threat of national importance. Identifying such threats assists in proactively managing risk, including evaluating the risks associated with possible future incidents and effectively mitigating the impact of such incidents. Three factors have hindered the NIPC's ability to develop strategic analytical capabilities. First, there is no generally accepted methodology for analyzing strategic cyber-based threats. For example, there is no standard terminology, no standard set of factors to consider, and no established thresholds for determining the sophistication of attack techniques. According to officials in the intelligence and national security community, developing such a methodology would require an intense interagency effort and dedication of resources. Second, the NIPC has sustained prolonged leadership vacancies and does not have adequate staff expertise, in part because other federal agencies have not provided the originally anticipated number of detailees. For example, as of the close of our review in February, the position of Chief of the Analysis and Warning Section, which was to be filled by the Central Intelligence Agency, had been vacant for about half of the NIPC's 3-year existence. In addition, the NIPC had been operating with only 13 of the 24 analysts that NIPC officials estimate are needed to develop analytical capabilities. Third, the NIPC did not have industry-specific data on factors such as critical system components, known vulnerabilities, and interdependencies. Under PDD 63, such information is to be developed for each of eight industry segments by industry representatives and the designated federal lead agencies. However, at the close of our work in February, only three industry assessments had been partially completed, and none had been provided to the NIPC. To provide a warning capability, the NIPC established a Watch and Warning Unit that monitors the Internet and other media 24 hours a day to identify reports of computer-based attacks. As of February, the unit had issued 81 warnings and related products since 1998, many of which were posted on the NIPC's Internet web site. While some warnings were issued in time to avert damage, most of the warnings, especially those related to viruses, pertained to attacks underway. The NIPC's ability to issue warnings promptly is impeded because of (1) a lack of a comprehensive governmentwide or nationwide framework for promptly obtaining and analyzing information on imminent attacks, (2) a shortage of skilled staff, (3) the need to ensure that the NIPC does not raise undue alarm for insignificant incidents, and (4) the need to ensure that sensitive information is protected, especially when such information pertains to law enforcement investigations underway. However, I want to emphasize a more fundamental impediment. Specifically, evaluating the NIPC's progress in developing analysis and warning capabilities is difficult because the federal government's strategy and related plans for protecting the nation's critical infrastructures from computer-based attacks, including the NIPC's role, are still evolving. The entities involved in the government's critical infrastructure protection efforts have not shared a common interpretation of the NIPC's roles and responsibilities. Further, the relationships between the NIPC, the FBI, and the National Coordinator for Security, Infrastructure Protection, and Counter-Terrorism at the National Security Council have been unclear regarding who has direct authority for setting NIPC priorities and procedures and providing NIPC oversight. In addition, the NIPC's own plans for further developing its analytical and warning capabilities were fragmented and incomplete. As a result, there were no specific priorities, milestones, or program performance measures to guide NIPC actions or provide a basis for evaluating its progress. The administration is currently reviewing the federal strategy for critical infrastructure protection that was originally outlined in PDD 63, including provisions related to developing analytical and warning capabilities that are currently assigned to the NIPC. On May 9, the White House issued a statement saying that it was working with federal agencies and private industry to prepare a new version of a "national plan for cyberspace security and critical infrastructure protection" and reviewing how the government is organized to deal with information security issues. In our report, we recommend that, as the administration proceeds, the Assistant to the President for National Security Affairs, in coordination with pertinent executive agencies, establish a capability for strategic analysis of computer-based threats, including developing related methodology, acquiring staff expertise, and obtaining infrastructure data; require development of a comprehensive data collection and analysis framework and ensure that national watch and warning operations for computer-based attacks are supported by sufficient staff and resources; and clearly define the role of the NIPC in relation to other government and private-sector entities. PDD 63 directed the NIPC to provide the principal means of facilitating and coordinating the federal government's response to computer-based incidents. In response the NIPC undertook efforts in two major areas: providing coordination and technical support to FBI investigations and establishing crisis management capabilities. First, the NIPC provided valuable coordination and technical support to FBI field offices, which established special squads and teams and one regional task force in its field offices to address the growing number of computer crime cases. The NIPC supported these investigative efforts by (1) coordinating investigations among FBI field offices, thereby bringing a national perspective to individual cases, (2) providing technical support in the form of analyses, expert assistance for interviews, and tools for analyzing and mitigating computer-based attacks, and (3) providing administrative support to NIPC field agents. For example, the NIPC produced over 250 written technical reports during 1999 and 2000, developed analytical tools to assist in investigating and mitigating computer-based attacks, and managed the procurement and installation of hardware and software tools for the NIPC field squads and teams. While these efforts benefited investigative efforts, FBI and NIPC officials told us that increased computer capacity and data transmission capabilities would improve their ability to promptly analyze the extremely large amounts of data that are associated with some cases. In addition, FBI field offices were not yet providing the NIPC with the comprehensive information that NIPC officials say is needed to facilitate prompt identification and response to cyber incidents. According to field office officials, some information on unusual or suspicious computer-based activity had not been reported because it did not merit opening a case and was deemed to be insignificant. To address this problem, the NIPC established new performance measures related to reporting. Second, the NIPC developed crisis management capabilities to support a multiagency response to the most serious incidents from the FBI's Washington, D.C., Strategic Information Operations Center. From 1998 through early 2001, seven crisis action teams had been activated to address potentially serious incidents and events, such as the Melissa virus in 1999 and the days surrounding the transition to the year 2000, and related procedures have been formalized. In addition, the NIPC coordinated development of an emergency law enforcement plan to guide the response of federal, state, and local entities. To help ensure an adequate response to the growing number of computer crimes, we recommend in our report that the Attorney General, the FBI Director, and the NIPC Director take steps to (1) ensure that the NIPC has access to needed computer and communications resources and (2) monitor implementation of new performance measures to ensure that field offices fully report information on potential computer crimes to the NIPC. Information sharing and coordination among private-sector and government organizations are essential for thoroughly understanding cyber threats and quickly identifying and mitigating attacks. However, as we testified in July 2000,establishing the trusted relationships and information-sharing protocols necessary to support such coordination can be difficult. NIPC success in this area has been mixed. For example, the InfraGard Program, which provides the FBI and the NIPC with a means of securely sharing information with individual companies, had grown to about 500 member organizations as of January 2001 and was viewed by the NIPC as an important element in building trust relationships with the private sector. NIPC officials recently told us that InfraGard membership has continued to increase. However, of the four information sharing and analysis centers that had been established as focal points for infrastructure sectors, a two-way, information-sharing partnership with the NIPC had developed with only one--the electric power industry. The NIPC's dealings with two of the other three centers primarily consisted of providing information to the centers without receiving any in return, and no procedures had been developed for more interactive information sharing. The NIPC's information-sharing relationship with the fourth center was not covered by our review because the center was not established until mid-January 2001, shortly before the close of our work. Similarly, the NIPC and the FBI have made only limited progress in developing a database of the most important components of the nation's critical infrastructures--an effort referred to as the Key Asset Initiative. While FBI field offices had identified over 5,000 key assets, at the time of our review, the entities that own or control the assets generally had not been involved in identifying them. As a result, the key assets recorded may not be the ones that infrastructure owners consider to be the most important. Further, the Key Asset Initiative was not being coordinated with other similar federal efforts at the Departments of Defense and Commerce. In addition, the NIPC and other government entities had not developed fully productive information-sharing and cooperative relationships. For example, federal agencies have not routinely reported incident information to the NIPC, at least in part because guidance provided by the federal Chief Information Officers Council, which is chaired by the Office of Management and Budget, directs agencies to report such information to the General Services Administration's Federal Computer Incident Response Capability. Further, NIPC and Defense officials agreed that their information-sharing procedures needed improvement, noting that protocols for reciprocal exchanges of information had not been established. In addition, the expertise of the U.S. Secret Service regarding computer crime had not been integrated into NIPC efforts. The NIPC has been more successful in providing training on investigating computer crime to government entities, which is an effort that it considers an important component of its outreach efforts. From 1998 through 2000, the NIPC trained about 300 individuals from federal, state, local, and international entities other than the FBI. In addition, the NIPC has advised several foreign governments that are establishing centers similar to the NIPC. To improve information sharing, we recommend in our report that the Assistant to the President for National Security Affairs direct federal agencies and encourage the private sector to better define the types of information necessary and appropriate to exchange in order to combat computer-based attacks and to develop procedures for performing such exchanges, initiate development of a strategy for identifying assets of national significance that includes coordinating efforts already underway, and resolve discrepancies in requirements regarding computer incident reporting by federal agencies. In our report, we also recommend that the Attorney General task the FBI Director to formalize information-sharing relationships between the NIPC and other federal entities and industry sectors and ensure that the Key Asset Initiative is integrated with other similar federal activities.
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The National Infrastructure Protection Center (NIPC) is an important element of the U.S.' strategy to protect the nation's infrastructures from hostile attacks, especially computer-based attacks. This testimony discusses the key findings of a GAO report on NIPC's progress in developing national capabilities for analyzing cyber threats and vulnerability data and issuing warnings, enhancing its capabilities for responding to cyber attacks, and establishing information-sharing relationships with governments and private-sector entities. GAO found that progress in developing the analysis, warning, and information-sharing capabilities has been mixed. NIPC began various critical infrastructure protection efforts that have laid the foundation for future governmentwide efforts. NIPC has also provided valuable support and coordination related to investigating and otherwise responding to attacks on computers. However, the analytical and information-sharing capabilities that are needed to protect the nation's critical infrastructures have not yet been achieved, and NIPC has developed only limited warning capabilities. An underlying contributor to the slow progress is that the NIPC's roles and responsibilities have not been fully defined and are not consistently interpreted by other entities involved in the government's broader critical infrastructure protection strategy. This report summarized an April report (GAO-01-323).
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Located in FAA's Office of Aviation Safety (Aviation Safety), the Aircraft Certification Service (Aircraft Certification) and Flight Standards Service (Flight Standards) issue certificates and approvals for new aviation products to be used in the national airspace system as well as for new operators in the system, such as air carriers, based on federal aviation regulations (see fig. 1 below). FAA inspectors and engineers interpret and implement these regulations governing certificates and approvals through FAA policies and guidance, including orders, notices, and advisory circulars. Additionally, FAA also has the authority to use private individuals and organizational entities, known as designees, to carry out many certification activities on behalf of the FAA Administrator in order to enable FAA to better concentrate its limited staff resources on safety- critical functions. In Aircraft Certification, approximately 880 engineers and inspectors issue certifications and approvals to the designers and manufacturers of new aircraft and aircraft engines, propellers, parts, and equipment, including the avionics and other equipment required for modernizing the air traffic control system under the Next Generation Air Transportation System (NextGen). Since 2005, Aircraft Certification has used a project sequencing system to nationally prioritize certification submissions on the basis of available resources. In fiscal year 2013, Aircraft Certification issued 3,496 design approvals, 57 production approvals, and 536 airworthiness certificates. In Flight Standards, approximately 4,000 inspectors issue certificates and approvals allowing individuals and entities to operate in the national airspace system. These include certificates to commercial air carriers, operators of smaller commercial aircraft, repair stations, and flight training schools and training centers. Flight Standards field office managers in over 100 field offices initiate certification projects within their offices on a first-come, first served basis. In fiscal year 2013, Flight Standards issued 259 air operator certificates and 159 air agency certificates. When FAA receives aviation industry submissions for certificates and approvals, it must determine whether or not resources are available to begin the project. According to FAA, the agency considers its highest priority to be overseeing the continued operational safety of the people and products already operating within the national airspace system. The same staff that provide this oversight are also tasked with other oversight activities, such as processing new certifications and approvals that FAA considers to be lower priority. FAA wait-lists new certification and approval projects when resources are not available to begin the work. Flight Standards, in particular, has historically had difficulty keeping up with its certification workload across its regions and offices, a problem that persists. FAA has considered ways to supplement its annual budget by expanding its sources of funding to deal with its increasing workload and staff shortages. However, FAA has limited options as it cannot levy fees on its customers for most of the services it provides to industry, including aviation product certifications and approvals. Attempts have been made to provide FAA with additional funding from industry stakeholders for processing certifications and approvals. In 2007, the administration submitted a reauthorization proposal to Congress that called for major changes to FAA's funding and budget structure. These changes were intended to provide a more stable, reliable basis for funding in the long term, in part by allowing FAA to impose fees on manufacturers for the various activities and costs related to aircraft certification and approval. Congress has previously authorized other agencies to charge these types of "user fees" for services rendered for processing product certification and approval. For example, the Medical Device User Fee and Modernization Act of 2002 authorized the Food and Drug Administration (FDA) to charge and retain a fee for providing services related to reviewing medical device products. However, this broad authority has not been granted to FAA. In May 2012, the Certification Process Committee made six recommendations to Aircraft Certification to streamline and reengineer the product certification and approval processes, improve efficiency and effectiveness within Aircraft Certification, and redirect resources for support of certification. The Certification Process Committee further recommended that FAA develop measures of effectiveness for its activities and a means of tracking its progress. In August 2012, FAA reported its plan to Congress for addressing the Certification Process Committee's recommendations, and, in July 2013, the agency issued an implementation plan with 14 initiatives. FAA updated this plan in January 2014 and plans to issue further updates on the status of the initiatives periodically. Since the January update, Aircraft Certification has continued its efforts to address the recommendations to improve its certification and approval processes and is implementing the 14 initiatives. These initiatives touch on various aspects of Aircraft Certification's work and, according to FAA several predate the committee's recommendations and were part of on- going continuous efforts to address long-standing certification issues and to improve the certification process. The initiatives range from developing a comprehensive road map for major change initiatives, to improving the project sequencing process, to reorganizing the small aircraft certification regulation. Figure 2, based on an interim May 2014 update that FAA provided to us, summarizes FAA's determination of the status of the 14 initiatives. According to the May 2014 update that FAA provided to us, 1 of the 14 initiatives has been completed, and 10 initiatives are on track for completion within planned time frames. FAA deployed a tracking system to monitor the implementation of the initiatives in June 2013, but the agency indicated it is still finalizing the mechanisms for authorizing staff with the appropriate level of review and approval rights in the system. Also, ten of the initiatives were on track for meeting their planned completion milestones. For example, the initiatives to expand the authority for approving aircraft emissions data and noise compliance under the organization designation authorization (ODA) program are on track to be completed in 2015. In addition, the initiative to expedite rulemaking by, among other things, adopting a rulemaking prioritization tool to update airworthiness standards for special conditions is scheduled to be completed in September of this year. Further, three of the initiatives were in danger of getting off track between 2011 and 2013 and are now back on schedule. Although most initiatives are on track, according to FAA's May 2014 interim update, 2 of the 14 initiatives will not meet planned milestones: Improve effectiveness of the ODA program: FAA and two aviation industry groups--the Aerospace Industries Association and General Aviation Manufacturers Association--developed a plan to improve the effectiveness of the ODA process, which is used to authorize organizations to act on behalf of FAA in conducting some safety certification work. In conjunction with the plan, FAA revised the order that outlines the new ODA procedures. However, this initiative was purposely delayed to provide industry with additional time to adapt to the changes in the ODA procedures. Representatives of three industry associations we interviewed for this testimony supported the use and expansion of ODA by FAA. In contrast, while the Professional Aviation Safety Specialists (PASS) agrees with the concept of ODA, it has concerns related to expanding the program because representatives contend that oversight of the program requires significant FAA resources. PASS also contends that due to current staffing shortages and increased workload, FAA does not have enough inspectors and engineers to provide the proper surveillance of the designees who would be granted this additional delegation authority. On May 14, 2014, the DOT OIG announced a review of FAA's oversight of the ODA program. The OIG plans to assess FAA's (1) process for determining staffing levels for ODA oversight and (2) oversight of delegated organizations' program controls. Update 14 C.F.R. Part 21: FAA chartered another aviation rulemaking committee in October 2012 to evaluate improvements to the effectiveness and efficiency of certification procedures for aircraft products and parts, along with incorporating new safety management system (SMS) concepts into the design and manufacturing environment. The committee submitted its report to FAA in July 2014. FAA indicated that the government shutdown in October 2013 delayed some of the actions that the agency had planned to move this effort into the rulemaking process, including submission of the application for rulemaking. According to FAA, however, this delay will have no effect on completion of the final rule, which is planned for 2017. According to FAA's May 2014 update, 1 of the 14 initiatives was at risk of not meeting planned milestones, which increases the risk that FAA will miss its established implementation time frames for the initiative for addressing its associated recommendation. Improve consistency of regulatory interpretations: The May 2014 interim update also indicated that the initiative for improving the consistency of regulatory interpretation is at risk of getting off track or off schedule. This initiative responds to the Regulatory Consistency Committee's recommendations for improving the consistency of regulatory interpretation within both Aircraft Certification and Flight Standards. However, Aircraft Certification is relying on Flight Standards to complete the implementation plan for addressing the recommendations. Therefore, Aircraft Certification has placed this initiative on hold. (The next section of this statement discusses in more detail FAA's response to the Regulatory Consistency Committee's recommendations.) As of May 2014, FAA had not developed metrics for measuring the effectiveness of 9 of the 14 initiatives it has undertaken, nor has it determined metrics to measure the effectiveness of its actions as a whole. According to FAA officials, they plan to develop these metrics in three phases. For the first phase, to be included in the July 2014 update of its implementation plan, FAA will include metrics to measure the progress of the implementation of the initiatives. For the second phase, FAA plans to subsequently develop metrics for measuring the outcomes of each initiative. For the third phase, working with the Aerospace Industries Association, FAA plans to develop metrics for measuring the global return on investment in implementing all of the initiatives, to the extent that such measurement is possible. We believe that this plan for establishing performance measures is reasonable. Unlike FAA's efforts to improve the certification process, although FAA has made some progress towards addressing the regulatory consistency recommendations, the details remain unclear about how FAA will structure its efforts. In November 2012, the Regulatory Consistency Committee made six recommendations to Aircraft Certification and Flight Standards to improve (1) the consistency in how regulations are applied and (2) communications between FAA and industry stakeholders. In July 2013, FAA reported to Congress on its plans for addressing the regulatory consistency recommendations, and included its preliminary plan for determining the feasibility of implementing these recommendations. The report also indicated that FAA would develop a detailed implementation plan that would include an implementation strategy, assign responsibilities to offices and staff, establish milestones, and measure effectiveness for tracking purposes. We found in February 2014 that FAA expected to publish such a detailed implementation plan by late June 2014, more than 6 months after its initial target date of December 2013. In June 2014, FAA officials told us that the implementation plan was under review within FAA and estimated that the agency would issue its detailed plan in August 2014. Until this detailed plan is released, the specific initiatives for addressing the recommendations are unknown; thus, we cannot analyze information on the status of any planned efforts similar to the information we provided above for the certification process initiatives. Further, FAA's July 2013 preliminary plan does not specify how FAA plans to measure the effectiveness of the initiatives. FAA indicated that "although there may not be any baseline for each recommendation against which to compare improvements, FAA intends to consider: (1) identifying metrics, (2) gathering and developing baseline data, and (3) periodically measuring any changes, positive or negative, in rates of completion." FAA officials provided the following information on how the agency is planning to respond to the six recommendations. The Regulatory Consistency Committee recommended that Aircraft Certification and Flight Standards (1) review all guidance documents and interpretations to identify and cancel outdated material and electronically link the remaining materials to its applicable rule, and (2) to consolidate Aircraft Certification's and Flight Standards' electronic guidance libraries into a master source guidance system, organized by rule, to allow FAA and industry users access to relevant rules and all active and superseded guidance material and related documents. This recommendation for creating the master source guidance system is the top priority of the Regulatory Consistency Committee. FAA officials indicated that establishing this system will require two main components: As a first step, for linking (mapping) all relevant guidance materials to the regulations, FAA plans to determine which "guidance" documents exist across regional and field offices--including orders, notices, and advisory circulars--outside FAA's electronic guidance libraries, which are being used to answer questions, interpret or analyze regulations, and provide guidance on regulatory matters. In December 2013, Flight Standards sent out a memorandum requesting that staff discontinue using any guidance documents outside those found in the guidance libraries, to be effective January 15, 2014. The memorandum also asked for the staff to submit any unofficial guidance worth preserving to FAA for review. Flight Standards then conducted a review to determine which of the unofficial guidance documents submitted should be added to the guidance libraries. Several members of the Regulatory Consistency Committee responded in an e-mail to FAA to express serious concerns about this approach and stated that the committee did not envision the cancellation of any guidance before FAA developed a methodology to include or exclude such guidance. The committee members further noted that FAA's memorandum provided no method to allow existing certificate holders to retain certifications that were based on any applied guidance that had been cancelled. Further, these members requested that FAA either withdraw the memorandum or address the issues they raised and extend the date for FAA staff to comply with the memorandum. However, two other Regulatory Consistency Committee members we interviewed considered FAA's actions to get staff to discontinue the use of unofficial guidance in the field to be an appropriate first step. Second, FAA plans to develop a master source guidance system with the capability to consolidate information from Aircraft Certification's and Flight Standards' electronic guidance libraries as well as legal interpretations from the Office of Chief Counsel into a master guidance system to allow FAA and industry users access. Specifically, the Regulatory Consistency Committee recommended that this system be searchable so that FAA and industry users can easily access relevant rules and find the relevant guidance for the rule. FAA officials assessed the possibility of using the existing Aviation Safety Information Management System, but determined that it is not adequate because (1) users cannot search for guidance by word and (2) it is not compatible with other FAA data systems. According to FAA officials, with about $750,000 in approved funding for this project, FAA's information technology division is in the process of developing a dynamic regulatory system that should provide the needed capabilities. Officials indicated that when users conduct a search for a particular topic in this system, the search results should bring up multiple entries for specific guidance. Initially, Flight Standards plans to use an Excel spreadsheet for storing the guidance and then transition to the new system once it is deployed. Flight Standards hopes to test out a first version of this system within calendar year 2014. However, the officials were unsure of the total cost of developing and deploying the system. Representatives from four of the committee stakeholders we interviewed for this testimony acknowledged that creating this system is a major effort for FAA because of the volume of FAA guidance that potentially exists across regional and field offices, some of which may not be in Aircraft Certification's and Flight Standards' electronic guidance libraries. Representatives of five industry stakeholders we interviewed provided insights on how FAA might devise a plan for creating and populating this system. Three of these noted that FAA will need to ensure that the various types of guidance--such as orders, notices, and advisory circulars--include links to the original federal aviation regulations. One of these stakeholders recommended that FAA develop the system to allow a user looking at FAA guidance to also see all relevant background information on related decisions, and the past actions related to the guidance in question and their relation to the original regulation. Because of the large volume of FAA guidance, some stakeholders also suggested that FAA begin by first choosing a starting date for which any new rules or other new guidance it issues would include links to the relevant original regulations. However, one stakeholder we interviewed noted that FAA should consider prioritizing its effort by first mapping the guidance materials for specific key regulations and then the guidance for less significant regulations. The Regulatory Consistency Committee noted multiple instances where FAA guidance appeared to have created inconsistent interpretation and application, and confusion; the Consistency Committee recommended that FAA develop a standardized decision-making methodology for the development of all policy and guidance material to ensure such documents are consistent with adopted regulations. In interviews for this testimony, FAA officials also provided some updates on how the agency will respond to the recommendation to develop instructional tools for its policy staff. FAA officials told us they had not initiated any efforts yet to address this recommendation, but would begin by focusing on developing instructions for policy staff to use for populating the master source guidance system. In August 2014, FAA plans to form an internal work group to establish a document management framework and work processes that can be used by Aircraft Certification's and Flight Standards' policy division staffs as they map existing guidance documents to applicable source regulations in the master source guidance system. The officials expected the work group would issue an internal directive for FAA personnel on work processes to be used in populating the guidance system by June of 2015. The Regulatory Consistency Committee recommended that FAA, in consultation with industry stakeholders, review and revise its regulatory training for applicable agency personnel and make the curriculum available to industry. FAA officials told us that FAA has begun to develop improved training for its field staff--the third recommendation of the Regulatory Consistency Committee--so that field inspector staffs are better equipped to answer routine compliance-related questions confidently and in a consistent manner. In addition, the officials told us starting in 2015, FAA plans to conduct a gap analysis of existing training for all FAA staff who are responsible for interpreting and applying certification and approval regulations. For this analysis, FAA plans to assess whether existing training can be modified to sufficiently address any gaps. FAA also plans to coordinate with industry to share the results of this review and analysis by the end of 2015. The Regulatory Consistency Committee made two similar recommendations for FAA to consider: (1) establish a Regulatory Consistency Communications Board comprising various FAA representatives that would provide clarification on questions from FAA and industry stakeholders related to the application of regulations and (2) determine the feasibility of establishing a full-time Regulatory Operations Communication Center as a centralized support center to provide real- time guidance to FAA personnel and industry certificate/approval holders and applicants. FAA officials also discussed the agency's conceptual approach and plans for establishing a board--likely by the end of calendar year 2014--to address these two recommendations. The purpose of the board would be to provide a neutral and centralized mechanism with a standardized process for addressing and resolving regulatory compliance issues between FAA and industry. According to the committee, this board would be comprised of representatives from the relevant headquarters policy divisions in FAA to help answer complex regulatory interpretation issues that arise between FAA inspectors and engineers, and industry during the certification and approval processes. FAA officials told us the board's process, once established, would use a modified version of the agency's current Consistency and Standardization Initiative (CSI), a process established as a means for industry to appeal FAA decisions and actions. As we found in 2010, resolution through the CSI can be a lengthy process, with the total length of the process depending on how many levels of appeal the industry stakeholder chooses. However, as we also found, industry stakeholders have generally been reluctant to use CSI for initiating appeals and raising concerns with the local field office for fear of retribution. FAA officials told us in interviews that the modified process would help address the retribution issue, because it would rely instead on multiple sources to raise issues--not just solely on industry--and would be the final arbiter for FAA and industry in disagreements on certification and approval decisions. According to FAA officials, the board could also serve the function of the proposed operations center recommended by the committee to be a resource for assisting FAA personnel and industry stakeholders with interpretation queries and establishing consistency in regulatory application. FAA officials indicated that the agency had decided not to establish the communications center because (1) the board could serve a similar function and (2) FAA has limited resources available to staff a communications center. Several industry stakeholders we spoke with told us they support FAA's preliminary plans to establish the board and modify the CSI process as part of this effort. For example, several stakeholders told us that they support FAA's plans to modify the current CSI process. One of these stakeholders noted that a modified process would be more effective if it allowed for industry stakeholders to raise issues anonymously. Also, another stakeholder noted the board would not be beneficial until after FAA has established the master source guidance system because the board should be able to refer to that guidance in demonstrating how it makes decisions. The Regulatory Consistency Committee recommended that FAA improve the clarity of its final rules by ensuring that each final rule contains a comprehensive explanation of the rule's purpose and how it will increase safety. FAA officials told us that this recommendation has been addressed through the work of the Aviation Rulemaking Advisory The officials told Committee's Rulemaking Prioritization Working Group.us that, as a result of this effort, all final rules, are now well-vetted across FAA. The industry representatives we interviewed had mixed opinions about whether FAA had addressed this recommendation as intended. For example, two stakeholders were in agreement with FAA that the agency had addressed it while two other stakeholders noted that FAA's new rules are still not as clear as they should be. Two stakeholders also said that it is often not the final rules but the guidance that accompanies or follows the final rules that is unclear and contributes to inconsistent interpretation and application among FAA staff. In our previous work on organizational transformations, we noted that implementing large-scale change management initiatives--like those the committees tasked FAA with--are not simple endeavors and require the concentrated efforts of both leadership and employees to realize intended synergies and accomplish new organizational goals. People are at the center of any serious change management initiative because people define the organization's culture, drive its performance, and embody its knowledge base. The best approach for these types of initiatives depends upon a variety of factors specific to each context, but there has been some general agreement on a number of key practices that have consistently been found at the center of successful change management initiatives. These include, among other things, securing organizational support at all levels, developing clear principles and priorities to help change the culture, communicating frequently with partners, and setting performance measures to evaluate progress. In this final section of this testimony, we discuss challenges for FAA in implementing the committees' certification and approval and regulatory consistency recommendations that relate to these key practices. FAA officials and industry representatives we spoke to noted that shifting priorities as well as declining resources may prohibit FAA from devoting the time and resources needed for completing the initiatives in the planned time frames. They agreed that a primary challenge for FAA will be having the dedicated resources that will be needed to successfully implement the committees' recommendations. We have previously found that successful organizational transformations and cultural changes require several years of focused attention from the agency's senior leadership. This lesson is consistent with our previous work on organizational transformation, which indicates that support from top leadership is indispensable for fundamental change. Top leadership's clear and personal involvement in the transformation represents stability for both the organization's employees and its external partners. Top leadership must set the direction, pace, and tone for the transformation. Additionally, buy-in and acceptance among the workforce will be critical to successful implementation of the initiatives to address the two committees' recommendations. Additionally, as we described in our 2010 report, FAA prioritizes ensuring the continued operational safety of the people and products already operating in the national airspace system over processing new certifications and approvals. We reported in the 2010 report that Flight Standards staff had little or no incentive to perform certification work under the system in which their pay grades are established and Other than inspectors involved with overseeing air carriers, maintained.Flight Standards inspectors are typically responsible for a variety of types of certificate holders. Each certificate is allocated a point value based on the complexity of the certificate or operation, and the combined point value for each inspector's oversight responsibilities must meet or exceed the points allocated for the inspector's grade. However, not all of the inspectors' duties--including certification work--receive points in this system, and inspectors are subject to a downgrade if entities in their portfolio relocate or go out of business. FAA and industry representatives also cited FAA's organizational culture as a primary challenge for FAA in successfully implementing these initiatives. They noted that many of the certification process and regulatory consistency initiatives FAA is attempting to implement represent cultural shifts for FAA staff in how regulations, policy, and guidance are applied, and ultimately how certification and approval decisions are made. As we have previously found, the implementation of recommendations that require a cultural shift for employees can be delayed if the workforce is reluctant in accepting such change. Further, industry representatives have identified the lack of communication with and involvement of stakeholders as a primary challenge for FAA in implementing the committees' recommendations, particularly the regulatory consistency recommendations. Successful agencies we have studied based their strategic planning, to a large extent, on the interests and expectations of their stakeholders, and stakeholder involvement is important to ensure agencies' efforts and resources are targeted at the highest priorities. However, representatives of two industry organizations we interviewed told us that FAA did not provide the opportunity for early input and that outreach is low regarding the certification process recommendations, and representatives of four industry organizations indicated that FAA has not sought their input in responding to the regulatory consistency recommendations. They reported that FAA had neither kept in contact with or advised them of its plans nor engaged the Regulatory Consistency Committee participants in the drafting of the detailed implementation plan that is expected to be published in August. As an example, as previously discussed, when Flight Standards published a memo in December 2013 calling for the cancellation of non-official guidance, several members of the Regulatory Consistency Committee were unaware of the change and expressed surprise and dissatisfaction with the action and offered their assistance. Representatives of one industry group noted that FAA sought their input on addressing the Certification Process Committee's recommendations for subsequent revisions of its implementation plan. FAA has not fully developed performance metrics to ensure that any initiatives it implements are achieving their intended outcomes. We have previously found that agencies that have been successful in assessing performance use measures that demonstrate results and provide useful information for decision making.that FAA had not completed developing performance measures for either the certification improvement or the regulatory consistency initiatives: Earlier in this testimony, we reported FAA had developed performance measures for 5 of the 14 certification process initiatives as of May 2014 and plans to further develop measures in three phases. In addition, most of the initiatives are scheduled to be implemented by 2017. Although we have assessed FAA's plan for developing these metrics as reasonable, the agency may miss an opportunity to gather early data for evaluating the effectiveness of its actions and making any needed corrections. There is no detailed plan for implementing initiatives addressing the consistency of regulatory interpretation recommendations and measuring their outcomes. In recent meetings, FAA officials told us they have had difficulty in determining how to measure the outcomes of its regulatory consistency initiatives and have not been able to determine what specific performance metrics could be used. Going forward, it is critically important that FAA develop outcome-based performance measures to determine what is actually being achieved through the current and future initiatives, thereby making it easier to determine the overall outcomes of each of the initiatives and to hold FAA's field and headquarters offices and employees accountable for the results. We are not making any new recommendations because the recommendation we made in 2010 for FAA to develop outcome-based performance measures and a continuous evaluative process continue to have merit related to this issue. To its credit, FAA has initiated some efforts and sound planning for addressing the committees' recommendations. However, it will be critical for FAA to follow through with its initiatives and plans for developing performance metrics to achieve the intended efficiencies and consistencies. As we noted in our October 2013 statement, however, some improvements to the certification and approval processes, will likely take years to implement and, therefore, will require a sustained commitment as well as congressional oversight. Chairman LoBiondo, Ranking Member Larsen, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions at this time. For further information on this testimony, please contact Gerald L. Dillingham, Ph.D., at (202) 512-2834 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 making key contributions to this testimony statement include Vashun Cole, Assistant Director; Andrew Von Ah, Assistant Director; Jessica Bryant-Bertail; Jim Geibel; Josh Ormond; Amy Rosewarne; and Pamela Vines. The following individuals made key contributions to the prior GAO work: Teresa Spisak, Assistant Director; Melissa Bodeau, Sharon Dyer, Bess Eisenstadt, Amy Frazier, Brandon Haller, Dave Hooper, Sara Ann Moessbauer, and Michael Silver. 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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Among its responsibilities for aviation safety, FAA issues certificates for new aircraft and parts, and grants approvals for changes to air operations and aircraft, based on federal aviation regulations. Various studies, GAO's prior work, and industry stakeholders have raised questions about the efficiency of FAA's certification and approval processes, as well as the consistency of its staff in interpreting aviation regulations. Over time, FAA has implemented efforts to address these issues, but they persist as FAA faces greater industry demand and its overall workload has increased. The 2012 FAA Modernization and Reform Act required FAA to work with industry to resolve these issues. In response, FAA chartered two committees--one to address certification and approval processes and another to address regulatory consistency--which recommended improvements in 2012. In 2013, FAA published an implementation plan for addressing the certification and approval process recommendations and promised to publish an implementation plan for addressing the regulatory consistency recommendations at a later date. This testimony provides information on FAA's progress in implementing the (1) certification and approval process recommendations and (2) regulatory consistency recommendations. It also discusses future challenges industry stakeholders believe FAA will face in implementing these recommendations. This testimony is based on GAO products issued from 2010 to 2014, updated in July 2014 through reviews of recent FAA and industry documents and interviews of FAA officials and industry representatives. The Federal Aviation Administration's (FAA) Aircraft Certification Service (Aircraft Certification) is responsible for addressing the certification and approval process recommendations, and has made progress. Aircraft Certification is implementing and has set milestones for completing 14 initiatives, several of which were originally begun as part of earlier certification process improvement efforts. The initiatives range from developing a comprehensive road map for major change initiatives, to improving Aircraft Certification's process for prioritizing requests for certifications and approvals (project sequencing), to reorganizing the small aircraft certification regulation. According to an update prepared by FAA in May 2014, one initiative has been completed and most are on track to be completed within 3 years. However, according to this update, two initiatives will not meet planned milestones, including the one for improving FAA's program for delegating authority to organizations to carry out some certification activities. Also, a third initiative for improving consistency of regulatory interpretation was at risk of not meeting planned milestones. Two additional initiatives, while on track for meeting planned milestones in May 2014, faced challenges because of opposition by FAA's labor unions, including one for improving Aircraft Certification's project sequencing process. GAO found in October 2013 that Aircraft Certification continued to lack performance measures for many of these initiatives, a condition that persists. In 2010, GAO had previously recommended that FAA develop a continuous evaluative process with performance goals and measures. FAA agreed but has not yet fully addressed the recommendation. Aircraft Certification officials discussed plans to develop metrics in three phases, beginning in July 2014 and in the future, for measuring (1) the progress of implementing the initiatives throughout FAA, (2) the outcomes of each initiative, and (3) the return on investment for FAA and the industry resulting from implementing the initiatives as a whole. FAA's Flight Standards Service (Flight Standards) is responsible for addressing the regulatory consistency recommendations, is finalizing plans to do so. FAA has not published a detailed plan with milestones and performance metrics, and officials told GAO that they intend to publish a plan by August 2014. Flight Standards officials said they were making progress in addressing the committee's top priority recommendation--mapping all FAA policy and guidance to relevant federal aviation regulations and developing an electronic system that maintains this information and that is accessible by FAA and industry users. As part of this effort, officials told GAO that Flight Standards has begun eliminating obsolete guidance and linking existing policy and guidance to the regulations. Going forward, Aircraft Certification's and Flight Standards' efforts may face challenges that could affect successful implementation of the committees' recommendations. Many of these recommendations represent a significant shift in how FAA normally conducts business, and if the workforce is reluctant to implement such changes, FAA's planned initiatives for addressing the recommendations could be delayed. Also, the fact that FAA has not yet implemented performance measures for most of the initiatives is a concern for both GAO and the industry. As GAO concluded in October 2013, without performance measures, FAA will be unable to gather the appropriate data to evaluate the success of current and future initiatives.
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There are certain statutory authorities under which the President may draw down articles and services from the inventory and resources of U.S. government agencies. Section 506(a)(1) of the Foreign Assistance Act of 1961, as amended, allows for drawdowns of defense articles from the stocks of DOD and defense services of DOD and for military education and training to foreign countries or international organizations in emergency situations. Before exercising this authority, the President must determine and report to Congress that an unforeseen emergency exists, requiring immediate military assistance that cannot be met under any other law. This special authority was more recently used in 2013 to provide airlift and refueling support for counterterrorism efforts in Mali; in 2014 to provide defense articles and services, as well as military education and training to assist the government of Iraq in combating the Islamic State of Iraq and Syria; and in 2015 to provide military assistance to Ukraine. (See fig. 1.) The maximum aggregate value of drawdowns under Section 506(a)(1) cannot exceed $100 million in any fiscal year. Section 506(a)(2) of the Foreign Assistance Act, as amended, authorizes the President to draw down articles and services from the inventory and resources of any U.S. government agency and military education and training from DOD and use them to assist foreign countries or international organizations in a number of nonemergency situations. Before exercising this authority, the President must first determine and report to Congress that any such drawdown is in the national interest of the United States. The maximum aggregate value of drawdowns under Section 506(a)(2) is $200 million in any fiscal year, with no more than $75 million provided from DOD inventory and resources. Section 552(c)(2) of the Foreign Assistance Act, as amended, authorizes the President to direct the drawdown of commodities and services from the inventory and resources of any U.S. government agency. In order to exercise this authority, the President must determine that an unforeseen emergency exists, that providing assistance in amounts in excess of funds otherwise available is important to the national interests of the United States, and that the unforeseen emergency requires the immediate provision of such assistance. The maximum aggregate value of drawdowns under Section 552(c)(2) in any fiscal year is $25 million. Since 2011, there have been 13 drawdowns of defense articles and services pursuant to the three authorities cited above (see table 1). None of these drawdowns used the Section 506(a)(2) authority. State and DOD are the government agencies primarily charged with planning and executing uses of drawdown authority. State officials said they typically begin the process by developing drawdown proposals under the above authorities when an international crisis arises. Since 2011, officials said they have used drawdowns in conflict situations, such as in Ukraine and Syria. State's Bureau of Political-Military Affairs along with DOD's Defense Security Cooperation Agency (DSCA), the National Security Council, the Executive Office of the President, and in some cases other executive branch agencies participate in an interagency process to develop a recommendation for articles and services that the U.S. government should provide under the drawdown authorities (see fig. 2). Based on the estimated value and availability of the articles and services, the agencies agree on the parameters of the drawdown to recommend to the President, and State prepares a justification package that includes the Presidential Determination for the President's signature, which is published in the Federal Register. The President may also delegate authority to make the determination to the Secretary of State, and documents this delegation in a memorandum that is published in the Federal Register. State notifies Congress of the President's intent to exercise his authority before the President signs the determination and then notifies Congress once the determination has been made. According to State, the steps described above can be completed in about 2 weeks but usually require about 2 months before the implementation of a drawdown can begin. DSCA officials said they execute drawdowns after the President signs the determination by working with the military services and other DOD entities to determine what specific assistance the military services will provide and which of the services will provide it. A DSCA country program director creates an execution order with a maximum number of the articles or services to be provided through the drawdown, which may be updated over time. The country program directors work directly with the military services to track the execution of the drawdown, and the military services are responsible for providing execution data to update an automated database. The military services provide the defense articles and services they have available in their existing inventories. The military services cover the costs of the drawdown from their existing funds and without new appropriations. State officials said that the authority for a drawdown does not expire, and that the drawdown can be used until the maximum authorized dollar amount established for it in the Presidential Determination is reached, or until the crisis has been dealt with or the foreign policy goal has been met. State did not have a means to readily access justification package documents related to presidential use of drawdown authority because it had not assigned responsibility or established a process for centrally managing these documents. Although State policy specifies that the Bureau of Political-Military Affairs, Office of Regional Security and Arms Transfers, leads State and interagency processes for presidential drawdowns, the bureau does not manage all of the key documents associated with the use of drawdown authority, nor is there a mechanism to centrally manage such documents. Standards for Internal Control in the Federal Government also indicates that all documentation and records should be properly managed and maintained, and that documentation should be readily available for examination. Consequently, it took several months for State to fully respond to our request for key documentation on drawdowns, which includes memorandums to the Secretary of State and Office of the President, and a memorandum of justification containing background information about the crisis a drawdown is intended to address. State officials had to contact individual bureaus that worked on the drawdowns in fiscal years 2011 to 2015 to recover the justification packages that contained background information and context for why the drawdowns were authorized. In addition, State officials initially were not able to readily provide documentation for several drawdowns, such as the 2011 drawdown to Libya, for which State produced documents over 4 months later. State produced documents for a drawdown to Iraq 8 months after our original request. State officials also confirmed that they do not maintain drawdown documents in one centralized place, but that individuals in each of State's six regional bureaus may maintain documents on drawdowns affecting countries within their purview. We found that there was no single point of contact responsible for consolidating all the drawdown documentation and no mechanism established to maintain key documents related to the President's drawdown. Without a mechanism to ensure that key documents relating to the use of drawdown authorities are readily available, State is unable to produce documentation on drawdowns in a timely manner, consistent with federal internal control standards. DOD has not closed and has not provided certain reports to Congress on the execution of drawdowns since 2011 despite congressional interest in receiving information regarding assistance provided through drawdowns. In particular, Section 506(b)(2) of the Foreign Assistance Act, as amended, requires that the President keep Congress fully and currently informed of all defense articles, defense services, and military education and training provided under Section 506, including providing a report to Congress detailing what was delivered. The requirement to provide a report does not specify a date by which the reports must be submitted, but instead states that these reports shall be provided upon delivery of such articles, or upon completion of the services or education and training. DOD has provided no Section 506 reports for the eight presidential drawdowns undertaken pursuant to this authority in fiscal years 2013 through 2015. From 2010 until the end of calendar year 2013, DOD was also responsible for providing an annual report to Congress on drawdowns under Section 1247 of the National Defense Authorization Act for Fiscal Year 2010. DOD provided reports to Congress in response to this requirement. Under DOD guidance, DSCA is primarily responsible for preparing Section 506 reports. DSCA practice has been that this reporting requirement arises when all articles, services, or both have been delivered, according to DSCA officials. DSCA officials noted that all of the drawdowns since 2011 are still being executed, meaning that there are still articles and services to be delivered. DSCA officials also noted that they work with State's Bureau of Political-Military Affairs to determine the best time to close a drawdown as completed, and noted that State has not determined to close out any drawdowns since 2011. State officials said that they do not have an active role in DSCA's reporting to Congress but that they would expect to review Section 506 reports before DOD submits them to Congress. According to DSCA's guidance, a termination date of not more than 18 months after the initial execution order will be stated in the execution order, unless otherwise directed by the country program director. DSCA officials stated that the termination date and the closure date that would trigger the reporting requirement are not the same. They also stated that if a particular drawdown reached its termination date with authority left (for example, only $10 million of the $25 million authorized has been used), DSCA would not terminate the drawdown if a crisis is still ongoing. For example, in December 2013 the President authorized $60 million in assistance to support African Union-led operations in the Central African Republic, and as of 2015, over $26 million remained undelivered, and the drawdown remains active more than 2 years later. In addition, DSCA officials stated that they may choose not to close a drawdown, even if all the available authority has been used, if a subsequent related drawdown is still active. For example, in 2013, the President authorized $50 million under Section 506(a)(1) to provide airlift support to Chad and France to assist in their operations in Mali. According to DSCA officials and documents, this drawdown has reached its authorization level but has not been closed because DSCA is waiting on subsequent drawdowns of the same nature to be completed before it reports to Congress. Although DOD has not submitted Section 506 reports, it submitted Section 1247 reports until this reporting requirement terminated at the end of calendar year 2013. The Section 1247 reports contain information about all the articles or services delivered, as well as the military service that is implementing the drawdown, the quantity of items delivered, and the value. They addressed elements related to those required under Section 506(b)(2) and included drawdowns that DOD still considers to be in an active status. As noted earlier, State also notifies Congress of the President's intent to exercise his authority before the President signs the determination and then notifies Congress once the determination has been made. These notifications, however, do not address the information required in Section 506 reports. Table 2 shows the status of notifications of and reports to Congress on presidential drawdowns of defense articles and services since 2011. Although State has consistently notified Congress of each drawdown in advance of the authority being used, without receiving Section 506 reports on the assistance delivered during the course of the drawdown, Congress is not receiving comprehensive and current information about the extent of the President's use of drawdown authority. Drawdowns give the President the flexibility to provide defense articles and services, and military education and training, to foreign countries and international organizations in a time of crisis without first seeking specific appropriations from Congress. Federal internal control standards note that documents should be readily available for examination. However, while State's Bureau of Political-Military Affairs leads State and interagency processes for presidential drawdowns, the bureau does not manage all of the key documents associated with the use of drawdown authority, nor is there a mechanism to centrally manage such documents. State's lack of a single point of contact or centralized mechanism for maintaining drawdown documents weakens its ability to make key documents associated with the justification for drawdowns readily available. Furthermore, in making the accommodation in the Foreign Assistance Act that allows drawdowns to occur without first seeking specific appropriation from Congress, Congress required in Section 506(b)(2) that the President keep it fully and currently informed on the use of Section 506 authority. While Congress prescribed no specific frequency for providing Section 506 reports, DSCA has not submitted any Section 506 reports since 2011 to Congress on drawdowns because, according to DSCA, the drawdowns have not yet been closed as completed. Without periodic reports to indicate the status of the drawdowns under this authority, Congress does not have detailed information on the extent of the President's use of drawdown authority. We are making the following two recommendations: To help ensure that key State documents and records on the presidential use of drawdowns are readily available, the Secretary of State should assign responsibility or develop a mechanism for maintaining State's justification package documents. To help ensure that Congress has the information it needs on the President's use of drawdown authority, the Secretary of Defense should direct DSCA to report more frequently to Congress on information outlined in Section 506(b)(2) of the Foreign Assistance Act, as amended, even if delivery of all the articles and services authorized has not been completed, or if the crisis is still ongoing. We provided a draft of this report to DOD and State for comment. DOD agreed with our recommendation, but State did not. DOD's and State's written comments are reprinted in appendices II and III, respectively. In its written comments, DOD concurred with our recommendation that it report more frequently to Congress on the information outlined in Section 506(b)(2) of the Foreign Assistance Act, as amended. DOD also provided us with technical comments, which we incorporated into the report as appropriate. In its written comments, State did not concur with our recommendation that the Secretary of State should assign responsibility or develop a mechanism for maintaining State's justification package documents. State noted that there are officials responsible for maintaining key drawdown documents. State also noted that the Office of Regional Security and Arms Transfers is the lead office for security related drawdowns and maintains the key drawdown documents. In our report, we do note that State's Bureau of Political-Military Affairs, Office of Regional Security and Arms Transfers, leads State and interagency processes for presidential drawdowns. However, we found that the bureau was unable to readily produce a complete list of uses of presidential drawdown authorities. We further noted that the bureau does not manage all the key documents within the office associated with the use of drawdown authority, nor is there a mechanism to centrally manage such documents. We based this information on multiple interviews with State officials, including those who confirmed on December 4, 2015, that they do not maintain a central drawdown repository or office dedicated to drawdowns. For example, an Office of Regional Security and Arms Transfers official said that she had knowledge of and documentation for only the specific drawdowns that she worked on. Other Bureau of Political-Military Affairs officials concurred with her statement. As such, there has been no one point of contact within the Bureau of Political- Military Affairs or State to consolidate all of the information and documentation regarding drawdowns. The State officials also said that State had to contact individuals who worked on the documents to make them available. State's written comments further state that it is more useful to have a single Regional Security and Arms Transfers officer responsible for leading the entirety of the response to an emergency, including any drawdowns and the documents related to them, rather than having a single officer responsible for all drawdowns. We believe it would be beneficial for State to ensure that key documentation for presidential drawdowns is centrally maintained. According to federal internal control standards, documentation provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors. By not implementing this standard and relying on individual officials to maintain drawdown documentation, State could not readily identify and provide us with documentation for drawdowns if those officials responsible for specific drawdowns were no longer with the bureau. The lack of a central office or official responsible for maintaining documents relevant to drawdowns apparently accounted, at least in part, for State's not providing us with a list of all drawdowns since 2002, or with documentation for drawdowns prior to 2011. State also disagreed with the amount of time it took to provide documents. However, we stand by our finding that it took State several months to fully respond for our request for key documents. Specifically, on July 29, 2015, we requested a list of all the uses of presidential drawdown authorities and associated documents. We followed up with another written request for these same documents on August 4, 2015. On September 8, 2015, State's Bureau of Political-Military Affairs provided documents for seven drawdowns, noted it had some additional classified documents related to the original seven drawdowns, and said that it had no additional documentation. At that time State still had not provided a complete list of its uses of drawdown authorities. We subsequently identified five other uses of drawdown authorities by examining Federal Register notices and sent requests for the documentation for these drawdowns. In one case (Libya) that we highlighted in the report, in November 2015 we again requested that State provide key documents related to this drawdown. State did not provide the key documents until January 2016--over 4 months after the original document request. Overall, it took State 8 months, from August 4, 2015--the date of our written request--until March 17, 2016, to provide the documents related to all 13 uses of drawdown authority since 2011. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Secretary of Defense, 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) 512-7331 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 members who made key contributions to this report are listed in appendix IV. This report examines, since 2011, (1) the U.S. government's process for planning and executing drawdowns; (2) Department of State (State) efforts to manage records related to decisions to use drawdown authorities; and (3) the status of drawdowns and Department of Defense (DOD) efforts to report to Congress on defense articles, defense services, and military education and training delivered through drawdowns to recipient countries or international organizations. To assess the U.S. government's process for planning and executing drawdowns, we interviewed officials from State and DOD, two agencies charged with planning and executing uses of drawdown authority, particularly with respect to defense drawdowns. We contacted the National Security Council to determine whether it had a listing of the uses of drawdown authority during the current administration, but the official who replied indicated that the agency did not have any such information. We reviewed the White House website on Presidential Actions and Presidential Memorandums for drawdowns and Delegation of Authority memorandums. We reviewed the Federal Register notices on drawdowns from fiscal years 2002 to 2015 as the source of publically available information on drawdowns. We chose 2002 because that was the date of publication of our prior report on drawdowns, but we found that there was a period from fiscal year 2007 to fiscal year 2010 when there were no uses of drawdown authority, so we focused this report on drawdowns in fiscal years 2011 to 2015. To assess the reliability of the data, we interviewed cognizant officials at State and DOD, and compared the data in the Federal Register to documents we obtained from DOD, and determined that they were sufficiently reliable for showing the drawdowns in fiscal years 2011 through 2015. To assess State efforts to manage records related to decisions to use drawdown authorities, we interviewed State officials and reviewed their available documentation on drawdowns. We also reviewed Federal Register notices on drawdowns to determine whether the documents State provided on drawdowns represented all drawdowns from 2011 through 2015. We also reviewed State's Foreign Affairs Manual and Foreign Affairs Handbook to determine who within State is responsible for presidential drawdowns and to review State's policies on records management. To assess the status of drawdowns and DOD efforts to report to Congress on defense articles, defense services, and military education and training delivered through drawdowns to recipient countries or international organizations, we requested copies of all Section 506 reports submitted to Congress, of which there were none, and of any other reports or information from 2011 through 2015. This included a review of DOD's Section 1247 reports to see which were submitted and what reporting elements they contained. We also interviewed DOD officials about how they collect and maintain data on drawdowns under presidential authorities and their rationale for not submitting any Section 506 reports. We reviewed DOD data on drawdowns from 2011 to 2015 to determine the status of drawdowns, including the termination date and the amount of authorization left on the drawdowns. To assess the reliability of these data, we interviewed cognizant DOD officials about how they collect and maintain data on drawdowns, and determined that the data were sufficiently reliable for reporting on the status of drawdowns. We reviewed a sample Section 506 report in the Defense Security Cooperation Agency's (DSCA) Handbook for Foreign Assistance Act (FAA) Drawdown of Defense Articles and Services to see what reporting elements it would contain if one were submitted. The handbook also provided information about DSCA's process for executing drawdowns, such as setting a termination date for drawdown execution orders and congressional reporting requirements. We conducted this performance audit from July 2015 to 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 contacts named above, Jeff Phillips (Assistant Director), Tom Gosling (Assistant Director), Leah DeWolf (analyst in charge), David Dayton, Martin de Alteriis, Susannah Hawthorne, Jeff Isaacs, Amie Lesser, Eddie Uyekawa, and Alex Welsh made key contributions to this report.
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The President has special legal authorities that allow him to direct the drawdown of defense articles, such as vehicles, food, or medical equipment, and services, such as airlift support, as well as military education and training, to provide assistance in response to an international crisis. Since 2011, there have been 13 drawdowns. The President may authorize up to $325 million each year in drawdowns. A House Armed Services Committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for GAO to conduct a review of drawdown authority. This report examines, since 2011, (1) the U.S. government's process for planning and executing drawdowns, (2) State efforts to manage records on decisions to use drawdown authorities, and (3) the status of drawdowns and DOD efforts to report to Congress on defense articles and services delivered through drawdowns to recipient countries or international organizations. GAO analyzed documents relevant to drawdowns and interviewed State and DOD officials. Drawdown proposals to provide U.S. assistance for an international crisis are typically developed through an interagency process led by the Departments of State (State) and Defense (DOD), and involving the National Security Council and the Executive Office of the President. State and DOD work with other agencies to determine whether to use a drawdown authority and identify the assistance to be provided. Based on the estimated value and availability of the articles and services, the agencies agree on the parameters of the drawdown. State prepares a justification package, and the President signs a Presidential Determination to authorize the drawdown. DOD then executes the drawdown by working with the military services to provide the articles and services. State policy specifies that the Bureau of Political-Military Affairs leads State and interagency processes for presidential drawdowns. Key documents for this process include a memorandum of justification containing background information about the drawdown. However, inconsistent with federal internal control standards, State lacked readily available documents related to drawdowns, and there is no central office or official responsible for maintaining key drawdown documents. As a result, it took several months for State to fully respond to our request for drawdown documents. For example, State officials initially did not provide documentation for the 2011 drawdown to Libya, but provided the documents over 4 months later. Without a mechanism to ensure that key documents relating to the use of drawdown authorities are readily available, State is unable to produce documents in a timely manner. DOD provided some reports to Congress on the execution of drawdowns in 2011 and 2013. However, DOD has not submitted certain reports to Congress since 2011 despite a legal requirement to keep Congress fully and currently informed regarding assistance provided through drawdowns under one specific authority. DOD officials said that they have not submitted these reports because they have not closed any of the 13 drawdowns since 2011-- articles and services are still to be delivered. Nevertheless, without periodic reports to indicate the status of drawdowns, Congress may not have detailed information about the extent of the President's use of drawdown authority. GAO recommends that (1) State should assign responsibility or establish a mechanism to maintain key drawdowns documents and (2) DOD report more frequently on defense articles and services provided through drawdowns. State did not concur with GAO's recommendation to establish a mechanism to maintain documents, but GAO stands by its recommendation, as discussed in the report. DOD agreed that it should report more frequently on drawdowns.
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DHS, DOE and FERC have taken various actions to address electromagnetic risks to the electric grid, and these actions generally fall into four categories: (1) standards, guidelines, tools and demonstration projects; (2) research reports; (3) strategy development and planning; and (4) training and outreach. Additionally, some of the actions DHS and DOE have taken generally aligned with recommendations made by the EMP Commission. Because federal agencies generally do not own electric grid infrastructure, federal actions to address GMD risks are more indirect through such things as developing standards and guidelines, and conducting research that could benefit electric grid owners and operators. Federal agencies have also been involved in strategy development and planning, as well as training and outreach efforts, as a means of preparing federal officials and others to respond to both EMP and GMD events, and enhancing knowledge about electromagnetic risks. For example, DHS's Science and Technology Directorate (S&T) led the design and development of a prototype transformer that can be more easily transported to another location to help restore electric power in a timelier manner. DHS has also participated in various training and outreach events to enhance understanding of EMP and GMD events. DOE's primary efforts include supporting research to enhance the understanding of the potential impacts to the electric grid from electromagnetic events. More detailed information on key federal agencies' actions taken since 2008 to address electromagnetic risks can be found in Appendix II of our March 2016 report. Although DHS and DOE did not report that any of their actions were taken in response to the EMP Commission recommendations, some actions taken by both agencies have aligned with some of the recommendations. Specifically, of the seven recommendations made by the EMP Commission related to the electric grid, some of the actions that DHS and DOE took aligned with four of them: conducting research to better understand the interdependencies of critical infrastructures, addressing the vulnerability of control systems to an EMP attack; identifying responsibilities for responding to an EMP attack; and utilizing industry and other governmental institutions to assure the most cost-effective outcomes. For example, with respect to the recommendation on conducting research to better understand interdependencies of critical infrastructures, DHS's Sector Resilience Report: Electric Power Delivery includes some assessment of how various critical infrastructures-- including the energy, communications, and transportation sectors, among others--are interdependent in maintaining operations. For more detailed information regarding how identified federal actions align with these seven EMP Commission recommendations, see Appendix III of our March 2016 report. In our March 2016 report, we found that DHS had not clearly identified internal roles and responsibilities for addressing electromagnetic risks to the electric grid or communicated these to external federal and industry partners. While multiple DHS components and offices, including the National Protection and Programs Directorate (NPPD), the Federal Emergency Management Agency (FEMA), and S&T, had each conducted independent activities addressing electromagnetic risks to the electric grid, none had been tasked with lead responsibility for coordinating related activities within the department or with federal and industry stakeholders. As a result, during the course of our review for our March 2016 report, we experienced ongoing challenges in identifying applicable DHS personnel and related departmental actions. For example, NPPD officials had difficulty identifying their specific roles and activities addressing electromagnetic risks to the electric grid, including efforts to collect or synthesize available risk information to provide input into department-wide risk assessments. Furthermore, industry representatives and other federal officials told us it is not clear who within DHS is responsible for addressing electromagnetic risks. The 2008 EMP Commission report recommended that DHS make clear its authority and responsibilities, as well as delineate the functioning interfaces with other governmental institutions, regarding EMP response efforts. We concluded that designating internal roles and responsibilities within DHS regarding electromagnetic risks and communicating these to federal and industry partners could provide additional awareness of related activities and help ensure more effective and coordinated engagement with other federal agencies and industry stakeholders, and could help reduce the risk of potential duplication, overlap, or fragmentation within the department or across federal agencies. In our March 2016 report, we recommended DHS designate roles and responsibilities within the department for addressing electromagnetic risks and communicate these to federal and industry partners. DHS concurred with our recommendation and reported that their Office of Policy is coordinating across the department to identify and document applicable roles and responsibilities regarding electromagnetic issues to ensure full mission coverage while minimizing potential overlap or redundancy and expects to complete this effort by December 2016. These actions, if implemented effectively, should address the intent of our recommendation. In our March 2016 report, we found that DHS and DOE had not taken actions to identify key electrical infrastructure assets as required given their respective critical infrastructure responsibilities under the NIPP. The NIPP explicitly states that to manage critical infrastructure risk effectively, partners must identify the assets, systems, and networks that are essential to their continued operation, considering associated dependencies and interdependencies of other infrastructure sectors. The 2008 EMP Commission report also recommended that DHS and DOE prioritize nodes that are critical for the rapid recovery of other key sectors that rely upon electricity to function, including those assets that must remain in service or be restored within hours of an EMP attack. Neither DHS nor DOE reported any specific actions taken to identify critical electrical infrastructure as part of risk management efforts for the energy sector, including any systematic review of a 2013 FERC analysis of critical substations, or any further collaboration to determine the key elements of criticality that they believe should be considered when evaluating the vast array of infrastructure assets constituting the U.S. electric grid. The extensive size and scope of the electric power system necessitates collaboration among partners to ensure all individual expertise is effectively leveraged. As a result, we recommended in our March 2016 report that DHS and DOE direct responsible officials to review FERC's electrical infrastructure analysis and collaborate to determine whether further assessment is needed to adequately identify critical electric infrastructure assets. DHS and DOE each concurred with our recommendation. DHS reported that NPPD is to collaborate with FERC to identify critical electrical infrastructure assets beginning with the evaluation of critical substations identified by FERC, and will explore elements of criticality that might not have been considered by FERC, in coordination with DOE. DOE stated that its Office of Electricity Delivery and Energy Reliability will review FERC's electrical infrastructure analysis and will work with FERC and DHS to identify any additional elements of criticality and determine if further assessment is needed. Both DHS and DOE expect to complete these efforts by March 2017. These actions should address the intent of our recommendation. We found in March 2016 that although DHS components had independently conducted some efforts to assess electromagnetic risks, the department had not fully leveraged available risk information or conducted a comprehensive analysis of these risks. Within the Office of Policy, there is recognition that "space weather" and "power grid failure" are significant risk events, which DHS officials have determined pose great risk to the security of the nation. However, DHS officials were unable to provide detailed information about the specific risk inputs-- namely threat, vulnerability, and consequence information--that were used to assess how electromagnetic events compared to other risk events, or how these inputs were used to inform DHS's applicable risk- management priorities. Further, officials within NPPD were unable to identify any specific actions taken or plans to systematically collect or analyze risk information regarding electromagnetic impacts to the electric grid as part of department-wide risk assessment efforts. According to the NIPP, to assess risk effectively, critical infrastructure partners--including owners and operators, sector councils, and government agencies--need timely, reliable, and actionable information regarding threats, vulnerabilities, and consequences. Additionally, the electric grid remains vulnerable to other potential threats, such as physical and cyberattacks. We concluded that better collection of threat, vulnerability, and consequence information through existing DHS programs and strengthened collaboration with federal partners could help DHS better assess the relative risk ranking of electromagnetic events versus other risks and help inform asset protection priorities. Moreover, according to subject-matter experts, the impact to the electric grid from electromagnetic threats may vary substantially by location, network and operating characteristics, and other factors. For example, key reports on GMD indicate that high-voltage transformers located at higher latitudes in the United States are likely subject to increased potential for adverse impacts from GMD events than those at lower latitudes. Further collection of information on sector interdependencies could also help DHS to assess the potential economic consequences associated with long-term power outages and provide information to help assess the cost- effectiveness of various mitigation strategies. In our March 2016 report, we recommended that DHS's NPPD and Office of Infrastructure Protection (IP) work with other federal and industry partners to collect and analyze key inputs on threat, vulnerability, and consequences related to electromagnetic risks. DHS concurred with our recommendation and reported that the department has initiated efforts to assess electromagnetic risk and help determine priorities. For example, DHS stated the Department has a joint study with DOE underway that will analyze the hazard environments, impacts, and consequences of different sources of EMP and GMD on the electric grid to determine events of concern and potential means of mitigation. DHS expects to implement these efforts by December 2016 and if implemented effectively, should address the intent of our recommendation. We also found in March 2016 that key federal agencies, including DHS and DOE, as well as industry partners had not established a fully coordinated approach to identifying and implementing risk management activities to address EMP risks. According to the NIPP Risk Management Framework, such activities include identifying and prioritizing research and development efforts, and evaluating potential mitigation options, including the cost-effectiveness of specific protective equipment. The publication of the National Space Weather Action Plan in October 2015 identified many key federal activities in these areas regarding the GMD risk; however, no similar efforts had been proposed regarding EMP risks to the electric grid. DHS officials stated an EMP attack generally remains a lower risk priority compared to other risk events with higher probability such as natural disasters or cyberattacks. DOE officials also noted resource limitations and competing priorities as the key driver for not pursuing additional risk management activities specifically related to EMP events. However, we found that even if an EMP attack is not determined to be among the highest resource priorities for DHS and DOE relative to other risk events, there are opportunities for enhanced collaboration among federal agencies and industry stakeholders to address identified gaps and help ensure that limited resources are more effectively coordinated and prioritized. For example, recent reports issued by DOE and a leading research organization for the electric industry identified gaps in the information available regarding likely EMP impacts to modern grid technologies and electronic control systems. They noted that such information remains important for developing applicable protective guidelines and equipment design specifications. In our March 2016 report, we recommended that DHS and DOE engage with federal partners and industry stakeholders to identify and implement key EMP research and development priorities, including opportunities for further testing and evaluation of potential EMP protection and mitigation options. DHS and DOE concurred with our recommendation and each identified actions to convene applicable stakeholders to jointly determine mitigation options and conduct further testing and evaluation. DHS stated S&T will work with DOE and the Electricity Subsector Coordinating Council to develop a joint government and industry approach to identify options for mitigating the consequences of an EMP event. DHS expects to implement this effort by September 2016. In addition, DOE stated it is working with the Electric Power Research Institute to develop an EMP Strategy that is scheduled for completion by August 31, 2016, and the strategy is to be followed by a more detailed action plan identifying research and development priorities and specific opportunities to test and evaluate EMP mitigation and protection measures. If implemented effectively, DHS and DOE's actions should address the intent of our recommendation. We will continue to monitor DHS and DOE actions taken to address our March 2016 recommendations and have also recently initiated two additional reviews. One is evaluating the electromagnetic event preparedness of U.S. electricity providers and the other is a technical assessment of protective equipment designed to mitigate the potential impacts of a GMD on electrical infrastructure. We expect these projects to be completed by mid-2017. Chairman Perry, Ranking Member Watson Coleman, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff members have any questions concerning this testimony, please contact Chris Currie, Director, Homeland Security and Justice at (404) 679-1875 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 include Dawn Hoff, Assistant Director; Chuck Bausell, Kendall Childers, Josh Diosomito, Ryan Lambert, Tom Lombardi, Steven Putansu, John Rastler, and Cody Raysinger. 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 summarizes the information contained in GAO's March 2016 report, entitled Critical Infrastructure Protection: Federal Agencies Have Taken Actions to Address Electromagnetic Risks, but Opportunities Exist to Further Assess Risks and Strengthen Collaboration , GAO-16-243 . Key federal agencies have taken various actions to address electromagnetic risks to the electric grid, and some actions align with the recommendations made in 2008 by the Commission to Assess the Threat to the United States from Electromagnetic Pulse Attack (EMP Commission). Since 2008, the Department of Homeland Security (DHS), the Department of Energy (DOE), and the Federal Energy Regulatory Commission (FERC) have taken actions such as establishing industry standards and federal guidelines, and completing EMP-related research reports. GAO found that their actions aligned with some of the EMP Commission recommendations related to the electric grid. For example, DHS developed EMP protection guidelines to help federal agencies and industry identify options for safeguarding critical communication equipment and control systems from an EMP attack. Further, agency actions and EMP Commission recommendations generally align with DHS and DOE critical infrastructure responsibilities, such as assessing risks and identifying key assets. Additional opportunities exist to enhance federal efforts to address electromagnetic risks to the electric grid. Specifically, DHS has not identified internal roles and responsibilities for addressing electromagnetic risks, which has led to limited awareness of related activities within the department and reduced opportunity for coordination with external partners. Doing so could provide additional awareness of related activities and help ensure more effective collaboration with other federal agencies and industry stakeholders. Moreover, although DHS components have independently conducted some efforts to assess electromagnetic risks, DHS has not fully leveraged opportunities to collect key risk inputs--namely threat, vulnerability, and consequence information--to inform comprehensive risk assessments of electromagnetic events. Within DHS, there is recognition that space weather and power grid failure are significant risk events, which DHS officials have determined pose great risk to the security of the nation. Better collection of risk inputs, including additional leveraging of information available from stakeholders, could help to further inform DHS assessment of these risks. DHS and DOE also did not report taking any actions to identify critical electrical infrastructure assets, as called for in the National Infrastructure Protection Plan. Although FERC conducted a related effort in 2013, DHS and DOE were not involved and have unique knowledge and expertise that could be utilized to better ensure that key assets are adequately identified and all applicable elements of criticality are considered. Finally, DHS and DOE, in conjunction with industry, have not established a coordinated approach to identifying and implementing key risk management activities to address EMP risks. Such activities include identifying and prioritizing key research and development efforts, and evaluating potential mitigation options, including the cost-effectiveness of specific protective equipment. Enhanced coordination to determine key research priorities could help address some identified research gaps and may help alleviate concerns voiced by industry regarding the costs and potential adverse consequences on grid reliability that may be caused by implementation of such equipment.
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For CBP round 1, we found problems with the bidding process, including poor timing and lack of clarity in bid submission information and CMS's inability to inform suppliers of missing financial documentation. In comparison with CBP round 1, CMS provided CBP round 1 rebid bidding information to suppliers earlier, and its financial documentation instructions were clearer and suppliers were notified of missing documentation. CMS also added program information about determining suppliers' capacity, and provided directories to inform suppliers about state licensure requirements. CMS had difficulty providing clear bidding information in CBP round 1. For example, CMS provided new bidding information several times after the bid window opened, such as announcing the 10 financial measures used to evaluate the financial viability of bidding suppliers; clarified CBP round 1's bidding information in response to supplier confusion, such as providing additional explanatory information concerning the request-for- bid instructions; and extended the bid window deadline. These changes in bidding information made it more difficult for suppliers to submit correct bids. CMS and Palmetto GBA acknowledged that during CBP round 1 suppliers did not always understand the request-for-bid instructions. The instructions were not available to suppliers until the day the bid window opened. During the first 2 months of the bid window, while suppliers were preparing their bid submissions, Palmetto GBA held informational bidder conference calls on how to submit bids and maintained audio recordings on the CBP Web site for a limited time. Questions also were not organized by subject matter, and while the Web site had a frequently asked questions section, it was difficult for suppliers to determine when questions had been added. CMS improved its communication with suppliers about bidding information for the CBP round 1 rebid. For example, CMS provided suppliers with bidding information before the bidding window opened on October 21, 2009, so that bid window extensions were not needed. Prior to the bid window opening, the rebid's request-for-bid instructions had been available to potential bidding suppliers for over 2 months, since August 3, 2009, and CMS had already held seven informational bidder conference calls. Transcripts, audio recordings, and PowerPoint presentations from the calls were available on the Palmetto GBA CBP Web site throughout the round 1 rebid. CMS made two minor clarifications to the CBP round 1 rebid instructions. First, on the day the bid window opened, CMS provided the actual bid submission deadlines, including the covered document review date, and provided further instructions on how a supplier needed to approve a bid in the online bidding system and would submit the required hard copy financial documents. Second, on November 17, 2009, CMS clarified that the financial statements for the last operating year that suppliers were required to submit as part of their bids could be for either calendar or fiscal years. For the CBP round 1 rebid, Palmetto GBA maintained suppliers' frequently asked questions on the CBP's Web site by topic. The questions were provided for three topics--Bidding Guidelines, Bidding Process, and Payment Policies--and dated in chronological order, unlike in CBP round 1, so suppliers could more easily determine when new ones were posted on the Web site. The Web site also has a "What's New" section to allow suppliers to find any new CBP information, for example, information for the suppliers that were offered contracts, such as the form to request that business locations be added or removed from their contracts. In our 2009 report, we found that financial documentation instructions were sometimes unclear in CBP round 1. CMS acknowledged that during CBP round 1 many suppliers had particular difficulty complying with the financial documentation requirements and that the statement of cash flow--described as a statement of changes in financial position--was the document most often missing. We found that CMS's CBP round 1 financial documentation instructions did not clearly address differences among supplier business types--for example, a sole proprietorship business versus a publicly traded national corporation--and among the financial documents needed to submit a bid for each type. Because business types could not easily be cross-referenced to the request-for-bid instructions, suppliers were at risk of submitting incomplete or inaccurate financial documentation. We also found that CMS's CBP round 1 request-for-bid instructions had inconsistent information about the requirements for the credit report and credit score submission. For example, the bid submission form stated that a credit rating and score--rather than using the term credit report--had to be submitted. Near the end of the bid window, Palmetto GBA then issued a "required document reminder" that all bidders had to submit both a credit report and a credit score. For the CBP round 1 rebid, CMS clarified financial documentation instructions by providing additional tools to guide suppliers through the bid submission process. The request-for-bid instructions included a chart--Required Financial Documents by Business Type--that more clearly explained which documents were to be submitted by business type. For example, the chart specified which portions of a supplier's tax return were required based on its business type such as a sole proprietorship. The chart also included a credit report column that stated bidders must submit a "Credit Report with numerical score completed within 90 days of bid submission," and the bid instructions included the same description. To further assist suppliers to provide the correct financial documents, the instructions included a Required Financial Documents appendix with sample documents and more specific explanations of the income statement, balance sheet, statement of cash flow, revenue and expense portion of the tax return, and the credit report, along with a Checklist of Required Hardcopy Documents for Bid Submission. For the CBP round 1 rebid, CMS officials told us they notified bidding suppliers that submitted their hard copy financial documents by the round's covered review date of any missing documents, as required by MIPPA. Once notified, suppliers had 10 business days to submit their missing documentation. CMS officials told us that 791 suppliers submitted their financial documentation by the CBP round 1 rebid covered document review date and 321 were notified that they had missing documentation. Fourteen suppliers did not subsequently submit the missing documents and their bids were disqualified. For this review, tax record documents were the most often missing financial documentation. In CBP round 1, questions were raised about the capacity of some suppliers to fulfill their awarded contracts on day one of the CBP's contract period, including whether they had experience providing the DME product category, had business locations in the competitive bidding areas, and could expand their businesses, if needed, to supply all Medicare beneficiaries in their competitive bidding areas. CMS officials told us that the CBP's Program Advisory and Oversight Committee (PAOC) raised concerns that suppliers new to a competitive bidding area, new to a DME product category, or that reported high capacity figures would not be able to increase reported capacity in time to meet the projected demand for the DME items in the competitive bidding areas. To address the concerns, CMS officials told us that the agency added a systematic method of reviewing suppliers' capacity and expansion plans for the CBP round 1 rebid. CMS developed a three-step method to determine whether a supplier new to a product category or a competitive bidding area or an experienced supplier that reported high capacity figures would be able to increase capacity to meet the projected demand for the DME items. The three steps were as follows: First, CMS determined whether the total capacity of all experienced suppliers in the competitive bidding area reporting modest growth projections and eligible for a competitive bidding program contract offer could meet the projected demand for items in the contract's first year. If the capacity from these experienced suppliers was sufficient to cover the item demand on day one of the program, then the capacity offered by any additional suppliers with expansion plans and eligible for a contract offer was considered surplus capacity and no further review was conducted. Second, if the total capacity of the experienced suppliers identified in step one did not meet the projected demand for the first year of the contract, then CMS reviewed the expansion plans provided by the new and high- growth or high-volume suppliers to verify their capacity to furnish the items. The expansion plan review involved an in-depth examination of the supplier's financial information, specifically to verify whether the supplier had the liquid assets and available credit needed to expand capacity. If the verified capacity from these suppliers with expansion plans was sufficient to meet demand, CMS determined that the suppliers eligible for a CBP contract offer had the ability to meet demand on day one of the program. Third, if the results of the first two steps indicated that more suppliers were needed to meet demand on day one of the program, CMS made more suppliers eligible for a CBP contract offer. As of September 10, 2010, CMS had not disclosed how many capacity evaluations were conducted during the CBP round 1 rebid. In 2009, we found that some suppliers that won CBP round 1 contracts were not yet licensed in states where they would be operating. For the CBP round 1 rebid, CMS further clarified the state licensure requirement, stating that suppliers must be licensed for the product category in the competitive bidding area in which they are bidding, and if a competitive bidding area covers more than one state, the supplier needs to obtain applicable licensure in all states. In order to better inform suppliers about these licensure requirements, CMS and Palmetto GBA provided licensure state directories for the 11 states included in the CBP round 1 rebid competitive bidding areas. The directories, which served only as guides for suppliers, provided a list of licenses required by each state for each product category for suppliers with a physical location in that state. Suppliers without a physical location in the state but that would be providing DME items and services to Medicare beneficiaries in the state were directed to consult the appropriate state licensing agency; contact information for those agencies was also provided. The suppliers were required to file copies of applicable state licenses with the National Supplier Clearinghouse--which processes Medicare enrollment applications by DME suppliers--prior to submitting a bid. CMS acknowledged that CBP round 1's competitive bid submission system--CBSS--had operational problems that affected suppliers' ability to submit their bids. These problems included, for example, loss of bid submission data caused by CBSS security features that automatically logged suppliers out after 2 hours and that timed out suppliers if there was no activity for 30 minutes, and cases when CBSS was unavailable because of unscheduled downtimes. Additionally, CBSS did not have a "cut and paste" function and manual data reentry was time-consuming and increased the risk of suppliers inputting incorrect data that could disqualify a bid. CMS officials also acknowledged that the CBSS user guide was not very detailed or user friendly. CMS developed a new electronic bid submission--DBidS--for the CBP round 1 rebid. DBidS was designed to address CBSS's specific deficiencies by being more user friendly and easier for suppliers to navigate and providing a logical flow of the requested data, as well as detailed bidding instructions in user-friendly language. Suppliers were provided a DBidS reference guide on the DMEPOS Competitive Bidding Program Web site that included screen shot explanations for the bid submission Forms A and B. It also has a "copy and paste" function for the transfer of certain data and many data-saving points to minimize loss of data. Suppliers could have more than one employee access DBidS at the same time, but to control data input DBidS will not allow more than one employee to input the same data at the same time. DBidS has status indicators to indicate whether the bidding forms are "complete," "incomplete," or "pending approval," and has links in the system to direct suppliers to the incomplete data. CMS officials told us that DBids did not have significant operational issues and only a few suppliers experienced minor problems. In CBP round 1, CMS sent notification letters to both the winning and losing suppliers before announcing the final winning suppliers that accepted contracts for the CBP. The letters sent to suppliers that had bids disqualified included an attachment using seven general reason codes to explain the grounds for the disqualifications. Disqualified bids were ineligible to compete on price and were not considered for a contract award. During CBP round 1, CMS also conducted a postbidding review process through which the agency considered concerns raised by losing suppliers and in some cases, reversed decisions to disqualify the bids of certain suppliers. We found that CMS had not effectively notified suppliers about the opportunity for this postbidding review process. To improve future rounds of the CBP, we recommended in our 2009 report that if CMS decides to conduct a review of disqualification decisions made during the CBP round 1 rebid and future rounds, CMS should notify all suppliers of any such process, give suppliers equal opportunity for such reviews, and clearly indicate how they can request a review. CMS agreed with our recommendation. For the CBP round 1 rebid, CMS sent notification letters to winning suppliers beginning in July 2010. CMS officials informed us that after the CBP round 1 rebid contracting process is completed, CMS plans to send letters to all disqualified suppliers with the reasons why their bids were disqualified. CMS officials said the letters will explain the process by which suppliers may ask questions and express concerns. CMS officials also stated that in the course of responding to such questions or concerns, if CMS determines an error was made, it is possible that a CBP contract may be offered to the supplier. As required by MIPPA, we will study the CBP round 1 rebid, including, for example, the program's impact on Medicare beneficiary access to items and services and on DME small business suppliers. Our study is to be completed no later than one year after the CBP round 1 rebid's Medicare competitively determined payments are first made, which become effective for covered items and services on January 1, 2011. In commenting on the information presented in this testimony, CMS officials stated they appreciated GAO noting the administrative improvements to the competitive bidding process the agency made for the round 1 rebid. The officials further stated that they believe that CMS made many improvements to the CBP. CMS also provided technical comments that we incorporated as appropriate. Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions you or other members of the subcommittee may have. For further information about this statement, please contact Kathleen M. King 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. In addition to the contact named above, key contributors to this testimony were Martin T. Gahart, and Christie Motley, Assistant Directors; Lori Achman; Kye Briesath; Krister Friday; Thomas Han; Erica Pereira; Hemi Tewarson; Opal Winebrenner; and Charles Youman. Medicare Fraud, Waste, and Abuse: Challenges and Strategies for Preventing Improper Payments. GAO-10-844T. Washington, D.C.: June 15, 2010. Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program. GAO-10-27. Washington, D.C.: November 6, 2009. Medicare: Covert Testing Exposes Weaknesses in the Durable Medical Equipment Supplier Screening Process. GAO-08-955. Washington, D.C.: July 3, 2008. Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical. GAO-08-767T. Washington, D.C.: May 6, 2008. Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: January 31, 2007. Medicare Payment: CMS Methodology Adequate to Estimate National Error Rate. GAO-06-300. Washington, D.C.: March 24, 2006. Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March 1, 2006. Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.: September 22, 2005. Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September 7, 2004. Medicare: CMS Did Not Control Rising Power Wheelchair Spending. GAO-04-716T. Washington, D.C.: April 28, 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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To reduce spending on durable medical equipment (DME) and related items, under federal law the Centers for Medicare & Medicaid Services (CMS) is phasing in, with several rounds of bidding, a competitive bidding program (CBP) for certain DME and other items. Because of numerous concerns, the Medicare Improvements for Patient and Providers Act of 2008 (MIPPA) terminated the CBP round 1 supplier contracts and required CMS to repeat the CBP round 1, the rebid that began in 2009. In November 2009, GAO issued the report Medicare: CMS Working to Address Problems from Round 1 of the Durable Medical Equipment Competitive Bidding Program (GAO-10-27) that documented problems in CMS's implementation of CBP round 1. This statement discusses some of the problems GAO identified and how CMS has or plans to address them in the ongoing CBP rebid bidding process, particularly (1) the bid submission information provided to suppliers, (2) the electronic bid submission system, and (3) the bid disqualification notification process. For the 2009 report, GAO reviewed data provided by CMS and relevant laws and regulations, and interviewed CMS officials. For this statement, GAO also obtained select information on how CMS addressed the CBP round 1 problems identified in GAO's report by reviewing agency documents and interviewing CMS officials in August and September 2010. In the November 2009 report on CBP round 1, GAO noted that problems with the bidding process included poor timing and lack of clarity in bid submission information and the inability to inform suppliers of missing financial documentation. Several times after the CBP round 1 bid window opened, CMS provided new bidding information and clarified other bidding information. The bid window was also extended beyond the initial deadline. These changes made it more difficult for suppliers to submit correct bids. CMS improved implementation of these steps in the bidding process for the CBP round 1 rebid. For example, for the CBP round 1 rebid, CMS provided bidding information to suppliers prior to the bid window opening, including the rebid's request-for-bid instructions, which were available to potential bidding suppliers for over 2 months before the bid window opening. CMS also provided clearer financial documentation instructions and additional financial documentation tools to guide suppliers in the CBP round 1 rebid. For example, the request-for-bid instructions included a chart that more clearly explained which documents were to be submitted by the supplier's business type, for example, a sole proprietorship. CMS also conducted a financial document review during the round 1 rebid, which informed suppliers whether their bid submission was missing required financial documents. Of the 321 suppliers that were notified they had missing documentation, only 14 did not subsequently submit the missing documents. As CMS acknowledged, suppliers had difficulty entering bidding information in the bid submission system used in CBP round 1 and its user guide was not sufficiently detailed. CMS developed a new electronic bid submission system for the CBP round 1 rebid. CMS officials told us that the new system did not have significant operational issues and only a few suppliers experienced minor problems. GAO found that CMS had not effectively notified all suppliers about the opportunity for a postbidding review process in CBP round 1. To address GAO's 2009 recommendation that the agency effectively notify all suppliers of all aspects of the CBP round 1 rebid and future rounds, including any process to review disqualifications, CMS officials stated that the agency plans to notify the losing suppliers of the disqualification reasons by sending each of these suppliers a letter that will explain the process for asking questions or expressing concerns. Officials also stated that in the course of responding to suppliers' questions or concerns, if CMS determines an error was made, it is possible that the supplier may be offered a contract. In commenting on the information presented in this testimony, CMS officials stated they appreciated GAO noting the administrative improvements to the competitive bidding process the agency made for the round 1 rebid. The officials further stated that they believe that CMS made many improvements to the CBP.
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In response to the Government Performance and Results Act of 1993 and the Vice-President's National Performance Review (NPR), the Secretary of Agriculture initiated a departmental reorganization to refocus and simplify the Department's headquarters structure, improve accountability and service to customers, reform the Department's field structure, and reduce costs. Several components of the Secretary's reorganization required enabling legislation, which the Congress provided in the Reorganization Act of 1994. In addition to granting USDA broad authority for streamlining and reorganization, the Reorganization Act of 1994 directed USDA to (1) reduce the number of full-time-equivalent staff by at least 7,500 by the end of fiscal year 1999, (2) reduce the number of staff so that the percentage of the reduction in headquarters is at least twice that in the field offices, (3) consolidate headquarters offices, and (4) combine field offices and have them share resources. By the end of fiscal year 1997, USDA had achieved most of the act's goals. It had reduced its overall staff-years by nearly 20,000, from about 129,500 in 1993 to about 110,000 by the end of 1997; 22 percent of the reductions occurred in headquarters, and about 13 percent occurred in field offices. In addition, the number of USDA agencies fell from 43 to 29, most of which are under seven mission areas. (App. I shows USDA's staff by mission area and agencies and headquarters staff offices.) Of the seven mission areas, five include more than one agency. In four of these five mission areas,USDA has designated one agency as the lead administrative agency for the mission area. (USDA's current administrative structure is shown in app. II.) Finally, USDA reduced the number of its county office locations by about 30 percent, from about 3,760 in 1994 to about 2,700 in 1997. The Farm Service Agency (FSA), Natural Resources Conservation Service (NRCS), and Rural Development (RD)--through the Rural Housing Service--operate three separate administrative structures to provide administrative support for seven field-based agencies in 50 states, two territories, and several Foreign Agricultural Service (FAS) overseas offices. These seven agencies employed about 37,900 staff, or about 35 percent of USDA's total staff, in 1997 and are located in headquarters, about 150 state offices, 5,800 county-based service centers, over 500 other support offices, and several consolidated operations centers, such as FSA's Management Office in Kansas City, Missouri; RD's Centralized Servicing Center in St. Louis, Missouri; and NRCS' National Science and Technology Consortium in Fort Worth, Texas. From fiscal year 1993 through fiscal year 1998, USDA reduced its departmentwide administrative staff by 15 percent, from about 10,300 to an estimated 8,800, in four areas identified by the NPR--human resources, budgeting, accounting and auditing, and acquisition. Administrative staff provide internal services for USDA's program delivery staff, such as payroll processing, financial management and reporting, and the purchasing of supplies and equipment. USDA plans to have about 8,550 administrative staff supporting a departmentwide program staff of approximately 98,500 by the end of fiscal year 1999. Figure 1 shows the changes in the number of administrative staff for each of the four administrative functions for fiscal years 1993 and 1998. (Administrative staffing is shown in app. III.) As of November 1998, USDA had not consolidated administrative functions for its field-based agencies at the state office level. However, in October 1998, a USDA team submitted a plan (known as the Administrative Convergence Plan) to the Secretary of Agriculture that will, upon approval, implement this consolidation by 2002. USDA officials explained that the plan, when fully implemented, is expected to reduce costs and improve customer service and operating efficiencies. In addition, they said the plan will require up to 4 years to implement because the Department will need to complete a number of time-consuming and complex actions--relocating offices, developing common policies and procedures, and instituting common computing systems. Even though these actions are expected to provide savings and efficiencies in the long term, the Department has not identified the costs it will incur in the short term to achieve these savings. Furthermore, USDA officials commented that these tasks are not likely to be accomplished in a timely and effective manner unless a strong leader is appointed to oversee them. USDA expects to begin consolidating administrative functions at the state level for its field-based agencies approximately 6 to 9 months following the Secretary's approval of the proposed October 1998 convergence plan. Under the plan, a new office headquartered in Washington, D.C.--the Support Services Bureau--will provide the administrative support now provided separately by FSA, NRCS, and RD for seven field-based agencies. (See fig. 2.) (as of Nov. 1998) In addition to its office in Washington, D.C., the bureau will have a single administrative support unit in each state and in each of its four consolidated operations centers to carry out combined administrative functions. The new state offices will receive policy guidance from the headquarters Support Services Bureau and will report to a board of directors composed of the state leaders of FSA, NRCS, and RD. While the NPR specifies only four administrative functions (personnel, budgeting, accountants and auditors, and acquisition), USDA's Administrative Convergence Plan includes additional functions and categorizes them differently. The plan's functions include financial management (excluding budgeting), human resources, civil rights, information technology, and management services (such as procurement and printing). By consolidating these functions into a single administrative support unit in each state or consolidated operations center, USDA expects to reduce the administrative staff for the seven field-based agencies by 45 percent from fiscal year 1993 through fiscal year 2002. However, by 1997, two-thirds of these reductions had already occurred. (See table 1.) (30.9%) (377) (33.3%) (38.6%) (380) (44.6%) (38.8%) (614) (60.3%) (22.7%) (796) (40.7%) (35.4%) (474) (80.3%) (30.6%) (2,551) (45.4%) According to USDA officials, they did not implement streamlining at the state office level earlier for two reasons. First, they were focused on implementing the Secretary's initiative to create consolidated county-based service centers. And second, they were unable to reach agreement among the affected agencies on how to achieve consolidation. USDA officials stated they must deal with several challenges to fully achieve the cost savings, benefits, and efficiencies expected to be realized as a result of implementing the administrative consolidation plan. These challenges include relocating offices, developing common policies and procedures, and adopting a common computing environment. In addition, USDA officials said that strong leadership will be needed to implement the plan and additional investments for collocating offices and modernizing business processes and information technology will be required. Currently, in 28 states, the state offices for each of the different field-based agencies are not located in the same facility (collocated), and in 19 of these states, the offices are not even located in the same city. USDA is planning to begin consolidating administrative functions before many of these state offices have collocated. In those instances, the agencies will continue to maintain staff in up to three separate offices. Consequently, in these states, the benefits of sharing resources--reducing staff and equipment and expanding staff expertise--will not be fully realized until the agencies' state offices are collocated. For example, in Kansas, the FSA, NRCS, and RD state offices are located from 50 to 100 miles apart in three separate cities. As a result, even though these agencies' administrative staff will be one organization on paper, they will continue to function in up to three separate locations until the offices are collocated, requiring USDA to retain more administrative staff and continue to pay for separate equipment and facilities. In addition, at least some of the 24 collocated state offices will need to be reorganized before they can operate efficiently under the Administrative Convergence Plan. For example, several collocated state offices have separate office suites for each agency's staff. Agency officials acknowledged that to combine administrative staff into functional work units under administrative convergence, it will be necessary to move staff within existing office space, reconfigure existing office space, or move agency operations to new facilities. In other cases, collocated offices are already designed to operate effectively under the planned administrative convergence. For example, the new state office for FSA, NRCS, and RD in Boise, Idaho--opened in February 1998--is expected to facilitate administrative convergence once the plan is implemented. When the three agencies planned the new office, they required that all employees in a functional area--such as human resources or information technology--share a common work space. In addition, the agencies share common mail rooms, printing equipment, and other office facilities. According to state officials, their location in a shared facility has already increased the efficiency of their operations by allowing them to have fewer staff, less space, and less equipment. USDA estimates that it will cost as much as $29 million to collocate offices in 24 of the 28 states where they are not currently collocated, including moving personnel and acquiring new space, and an undetermined amount to reconfigure existing space for collocated offices. Figure 3 shows the states with collocated offices, and those with noncollocated offices. (App. IV provides more detailed information on the noncollocated locations). While FSA, NRCS, and RD are subject to the same administrative regulations, each has developed a different approach to implementing them. As a result, there are slight to significant differences in the policies, procedures, and business processes that each agency follows. For example, NRCS and RD state offices have authority over personnel actions for employees up to the level of General Schedule-13 and are delegated authority to obligate funds for most categories of procurement. In contrast, FSA state offices have far less authority over personnel actions and procurement. For budgeting, NRCS provides each state with a single budget allocation for its program and administrative expenses. However, RD allocates specific budget line items to its state offices for their individual programs, salaries, and administrative expenses. FSA headquarters allocates the total number of staff that each state may have each fiscal year and retains control over certain state-level administrative expenses, such as office leasing and information technology. State office officials note that their agencies also need to develop common business processes to standardize their personnel and recordkeeping systems. Currently, the National Finance Center provides payroll processing for USDA employees. However, NRCS uses a different process than FSA and RD for entering personnel and payroll transactions transmitted to the center. To modernize and integrate the separate information systems currently used by the agencies undergoing administrative convergence, USDA plans to acquire a single, integrated information system--referred to as the common computing environment. The common computing environment, as part of USDA's effort to modernize its business processes and information technology, will consist of new computer hardware and software applications. This new integrated system may require as many as 38,000 new personal computers and 24,000 printers, which will be expected to operate in more than 3,000 locations nationwide. As we reported in August 1998, USDA estimates that the costs of implementing a common computing environment may exceed $2.6 billion over its expected 15-year life cycle. The effort to acquire and install this system will be significant, complex, time-consuming, and costly. Achieving a common computing environment requires these agencies to accomplish many activities, such as reengineering and creating a common set of business processes, designing common software, and determining the requirements for hardware. In addition, FSA, NRCS, and RD have 150 existing software applications, many of which must be modified. It is not clear when USDA will complete these tasks. Some planning documents show that the tasks may be completed by fiscal year 2002, while others show a completion date as late as fiscal year 2008. Until existing business applications are modified, USDA plans to maintain and operate both the old and new information systems. In our August 1998 report, we found several fundamental planning and management weaknesses in the Department's effort to modernize business processes and technology for the agencies undergoing administrative convergence. In light of these weaknesses, we suggested that the Congress consider limiting funding for information technology for these agencies' field offices to no more than the level needed to meet Year 2000 compliance requirements until appropriate action was taken to resolve these weaknesses. USDA started acquiring new hardware and software for its common computing environment at the end of fiscal year 1998, when it purchased over 16,000 personal computers. While this purchase was principally made to replace computers that are not Year 2000 compliant, USDA also expects this procurement to enable its field-based agencies to use common software applications that will support administrative convergence in such areas as human resources, procurement, and travel. USDA officials emphasized the need for the Secretary to move quickly to fill key leadership positions for the Support Services Bureau and charge the appointed officials with the responsibility to implement the Administrative Convergence Plan once it has been approved. According to the leader of the implementation planning team, assigning leadership responsibilities and providing the appropriate authority to carry out those responsibilities are critical to the plan's success, given the host of decisions to be made and actions to be taken in implementing the convergence plan. These decisions include determining how the new organization will be funded in the long term, how authority will be delegated within the organization, and how staff will be classified. Currently, three separate administrative structures provide support to seven agencies in 50 states, two territories, and several FAS overseas offices. As mentioned earlier, these agencies have developed different approaches to delivering administrative services to their customers. The administrators for these three structures are focused on the delivery of several programs in addition to administrative support. USDA officials said, and we agree, that unless the Secretary moves quickly to appoint the leaders to translate the plan into a workable operation, it is unlikely that substantial progress will be made. While USDA has estimated the savings it will achieve through staff reductions resulting from the administrative convergence, it has not estimated the costs associated with the convergence. USDA officials believe that administrative convergence will allow the Department to reduce the number of administrative staff by 45 percent from 1993 through 2002. However, they acknowledge that budgetary savings from staff reductions will be decreased in the next several years by the costs of collocating state offices, modernizing business processes, and acquiring and implementing a common computing environment. If the administrative convergence is fully implemented in 2002, the savings in administrative staff is projected to total about $144 million annually. However, these savings will be reduced by the approximately $29 million associated with merging offices in 24 of the 28 states that do not yet have collocated offices and by several million dollars annually for modernizing business processes and implementing a common computing environment. The Administrative Convergence Plan does not provide an estimate of these costs. USDA has not instituted, and has made no plans to develop, performance measures to determine the economies and efficiencies realized as a result of its departmentwide administrative streamlining. According to USDA officials, staff reductions should serve as a sufficient indicator of the Department's savings and efficiencies because employees' salary and benefit costs typically represent a majority--about 85 percent--of salary and administrative expenses. However, although it has developed savings estimates associated with staff-year reductions, these estimates do not include any offsetting expenses as a result of employee buyouts and reductions in force. While staff-year reductions are certainly one indicator of savings, absent other measures, USDA does not know the extent to which it has improved service delivery, efficiency, and quality--key objectives of the 1994 act and desired outcomes of the agencies' ongoing restructuring efforts. Additional outcome-oriented performance measures could help USDA determine when it is achieving the overall objectives of the Reorganization Act of 1994. For example, using the ratio of the number of employees served per personnel specialist as a broad measure of efficiency, we found that although USDA had reduced its personnel staff departmentwide by 17 percent from September 1993 to September 1997, the ratio decreased from 55 to 54 employees served by one personnel specialist, indicating that the personnel reductions had not increased efficiency. Other measures of effectiveness could include (1) financial measures, such as cost per employee hired; (2) customer satisfaction measures, such as those associated with responsiveness and quality; and (3) process effectiveness measures, such as the time it takes to complete specific administrative functions. USDA has made a number of organizational changes since 1994 to reduce its staff and streamline its operations. However, USDA does not plan to determine the extent to which its streamlining efforts have achieved the objectives of the Reorganization Act of 1994, other than determining the savings associated with staff reductions. The 1994 act also had as its objectives more efficient operations to better carry out the Department's missions. Without an assessment of the overall effects of its departmentwide streamlining efforts, USDA cannot know the extent to which its efforts have been successful in achieving all of the objectives mandated by the 1994 act. USDA's current reorganization task--the convergence of administrative functions at the state level for the field-based agencies--is complex and, even under the best of circumstances, will be difficult to implement effectively and efficiently. However, we believe that there are weaknesses in USDA's current plans for administrative convergence that could hinder its successful implementation. First, while the convergence is likely to save money in the long run, USDA has not calculated the costs associated with implementing the plan. As a result, USDA managers lack key cost information that could be used to evaluate the effectiveness of various actions that the Department has taken or will take in connection with administrative convergence. Second, USDA has not yet assigned leadership responsibilities for implementing the convergence plan. In our view, this is critical to establishing the accountability needed to help ensure the plan's successful implementation. To measure the economies and efficiencies gained by the departmentwide administrative streamlining, we recommend that the Secretary of Agriculture require the leaders for the seven mission areas, in consultation with the Assistant Secretary for Administration, the Chief Information Officer, and the Chief Financial Officer, to develop and implement performance measures for the Department's administrative operations that assess service delivery, efficiency, and quality. We further recommend that the Secretary direct the Undersecretaries for the Farm and Foreign Agricultural Services, Natural Resources and Environment, and Rural Development to develop cost estimates for the complete implementation of administrative convergence. Finally, to facilitate the effective implementation of the Administrative Convergence Plan, we recommend that the Secretary, after approving the implementation plan, move quickly to fill key leadership positions for the Support Services Bureau and charge the appointed officials with the responsibilities to carry out the plan. We provided USDA with a draft of this report for its review and comment. We met with the Deputy Assistant Secretary for Administration; Acting Director for Human Resources Management; and officials from the Office of Departmental Administration, the Office of Budget and Program Analysis, the Office of the Chief Financial Officer, the Office of Inspector General, the National Food and Agriculture Council, the Farm Service Agency, Rural Development, and the Natural Resources Conservation Service. USDA generally agreed with the report and our recommendations and noted that USDA's field-based agencies have made progress in developing certain common policies and administrative systems for areas such as employee recognition, evaluation of human resources management, merit promotion, telecommuting, and work scheduling. In addition, USDA noted that most of the savings associated with administrative consolidation will be achieved by merging the three agencies'--FSA's, NRCS', and RD's--administrative functions, not from collocating offices. Finally, USDA agreed with our recommendation to develop and implement performance measures to evaluate the efficiency and effectiveness of the Department's administrative operations. However, USDA noted that it would be difficult to develop historical baseline data for fiscal year 1993--the baseline date established by the National Performance Review and the Federal Workforce Restructuring Act of 1994--and therefore suggested that more recent baseline data be used to measure changes in administrative operations. While we recognize it would be difficult to develop baseline data for certain indicators that date back to fiscal year 1993, we continue to believe that USDA, to the extent practicable, should develop measures using baseline data for this time period to demonstrate the progress it has made in streamlining the Department since the passage of the Reorganization Act. USDA provided a number of technical changes and clarifications to the report, which we have incorporated as appropriate. To obtain information on USDA's progress in reducing administrative staff departmentwide, we interviewed administrative officials in Departmental Administration, the Office of Budget and Program Analysis, and each mission area and reviewed relevant documents. To understand USDA's plans for consolidating administrative functions, we interviewed the implementation team leader and reviewed relevant documents. To determine USDA's progress in consolidating state office administrative functions for FSA, NRCS, and RD, we interviewed headquarters officials in each agency and state office officials in five states where these agency offices are collocated and five states where the agency offices are not collocated. We also obtained relevant data and documentation. We also met with the appropriate officials in USDA agencies in Kansas City and St Louis to obtain data on the status of (1) FSA's, NRCS', and RD's efforts to collocate their state offices into single facilities; (2) the reduction of administrative staff that has occurred since 1993; (3) USDA's plans to implement administrative convergence, including the benefits the Department hopes to achieve and the problems associated with this action; and (4) USDA's attempts to quantify the savings associated with streamlining efforts, including administrative convergence. To determine USDA's progress in measuring the savings and efficiencies realized as a result of its departmentwide reorganization and streamlining, we interviewed Department and agency officials involved in reorganization and streamlining and reviewed documents pertaining to their performance measures. We conducted our review from May through November 1998 in accordance with generally accepted government auditing standards. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies of this report to appropriate congressional committees, Members of Congress, the Secretary of Agriculture, and other interested parties. We will also make copies available to others on request. If you have any questions, please call me at (202) 512-5138. Major contributors to this report are listed in appendix V. Farm Service Agency (FSA) (federal) Farm Service Agency (nonfederal) Alternative Agricultural Research and Commercialization Corporation Natural Resources and Environment Natural Resources Conservation Service (NRCS) Cooperative State Research, Education and Extension Service Office of Chief Financial Officer Office of Chief Information Officer (continued) Office of Budget and Program Analysis Office of the Chief Economist Office of the General Counsel 129,495 124,241 117,388 113,539 109,886 109,850 107,031 Offices included under the Assistant Secretary for Administration are the Office of Administrative Support, Board of Contract Appeals, Office of the Judicial Officer, Office of Administrative Law Judges, Office of Civil Rights, Office of Procurement and Property Management, Office of Operations, Office of Human Resources Management, Office of Small and Disadvantaged Business Utilization, and Office of Outreach. Agricultural Research Service Cooperative State Research, Education, and Extension Service Economics Research Service National Agricultural Statistics Service Other staff offices and activities(Table notes on next page) State offices less than 50 miles apart 949 East 36th Avenue Anchorage 3003 North Central Avenue Phoenix 77 East Thomas Road Phoenix 16 Professional Park Road Storrs 88 Day Hill Road Windsor 1201-03 College Park Drive Dover 5201 South DuPont Highway Camden Federal Building 210 Walnut Street Des Moines 10500 Buena Vista Court Des Moines 339 Busch's Frontage Road Annapolis 1045 South Harrison Road East Lansing 3001 Coolidge Road East Lansing Federal Building 100 West Capitol Street Jackson Federal Building 10 East Babcock Bozeman (continued) Federal Building 100 Centennial Mall Lincoln 1755 East Plumb Lane Reno 1390 South Curry Street Carson City Federal Building 2 Madbury Street Durham Mastoris Professional Plaza Route 130 Bordentown Tarnsfield Plaza 790 Woodlane Road Mt. Holly 101 Southwest Main Street Portland IBM Building 654 Munoz Rivera Avenue Hato Rey 1607 Ponce de Leon Avenue Santurce New San Juan Office Building 159 Carlos E. Chardon Street Hato Rey Strom Thurmond Federal Building 1835 Assembly Street Columbia (continued) Federal Building 300 Ala Moana Boulevard Honolulu Federal Building 154 Waianuenue Avenue Hilo 1817 South Neil Street Champaign 1200 Southwest Executive Drive Topeka 220 East Rosser Avenue Bismark (continued) Ronald E. Maxon Jr, Assistant Director John C. Smith, Evaluator-in-Charge Robert G. Hammons 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 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 Department of Agriculture's (USDA) progress in streamlining its administrative operations, focusing on USDA's efforts to: (1) reduce the number of administrative staff departmentwide; (2) consolidate and streamline administrative support structures for seven field-based agencies, particularly at the state office level; and (3) measure the savings and efficiencies realized as a result of its departmentwide reorganization and streamlining efforts. GAO noted that: (1) from fiscal year (FY) 1993 through FY 1998, USDA reduced its departmentwide administrative staff for four administrative functions--human resources, budgeting, accounting and auditing, and acquisition--from about 10,300 to an estimated 8,800, or by 15 percent; (2) USDA estimates that the number of administrative staff will decrease by an additional 250 by the end of FY 1999; (3) at that time, about 8,550 administrative staff will support approximately 98,500 program staff; (4) USDA has no estimates for further departmentwide reductions in administrative staffing beyond 1999; (5) as of November 1998, USDA had not begun to implement its plan to consolidate and streamline administrative functions at the state office level; (6) these new state offices will receive policy guidance from a newly created headquarters Support Service Bureau and report to a board of directors composed of the state leaders of the Farm Service Agency, Natural Resources Conservation Service, and Rural Development; (7) the plan, which is expected to be fully implemented by 2002, requires the completion of a number of time-consuming and potentially costly actions, including relocating offices, developing common policies and procedures, and instituting common computing systems; (8) furthermore, although it appears that administrative consolidation may provide long-term savings and efficiencies, USDA may incur additional costs to implement this consolidation in the short term; (9) USDA has no plans to develop performance measures to determine the economies and efficiencies realized as a result of its departmentwide streamlining actions; (10) USDA officials believe that a single measure--personnel reductions--serves as a sufficient indicator of the Department's overall performance; and (11) however, without additional performance measures, such as those that measure the quality of service delivery, USDA will not know the extent to which it has accomplished the 1994 act's overall objective of achieving greater efficiency, effectiveness, and economy in the organization and management of its programs and activities.
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Employers in both the public and private sectors have realized that offering work/life programs--such as alternative work schedules, child care, and health and wellness programs--have become an essential element in recruiting and retaining their workforces. The federal government, as a major employer, also recognizes that work/life policies, programs, and practices make good business sense. Congress has recognized the need to provide federal workers workplace flexibilities and has authorized numerous work/life programs for federal agencies to implement. In addition, the executive branch has recognized and supported the benefits of these programs by implementing a range of work/life programs, from flexible work arrangements to child care assistance. Table 1 lists some examples of work/life programs federal agencies provide their employees, as identified by OPM. OPM plays a key role in fostering and guiding improvements in all areas of strategic human capital management--including work/life programs--in the executive branch. As part of that role, OPM can assist in--and, as appropriate, require--building infrastructures within agencies to successfully implement and sustain human capital reforms and related initiatives. For example, OPM promotes human capital leading practices across federal agencies and conducts audits of human capital management within the federal government to ensure compliance with laws, regulations, and policies. To promote coordination among agencies outside of Washington, D.C., OPM works with Federal Executive Boards (FEB) to share guidance and leading practices and obtain feedback from federal agencies on human capital issues. OPM also coordinates its efforts through its involvement in the CHCO Council, which was established to advise and coordinate the human capital activities of its members' agencies. The CHCO Council has expressed its support of the strategic goals articulated in OPM's 2010-2015 strategic plan, such as governmentwide initiatives addressing veterans employment, hiring reform, labor-management relations, diversity, and other efforts to hire the best employees for federal service. Additionally, OPM advocates the use of its Human Capital Assessment and Accountability Framework (HCAAF), a set of tools and strategies available to federal agencies that assist officials in achieving results from their human capital programs. The framework guides the assessment of agency human capital efforts, while allowing enough flexibility for federal agencies to tailor their human capital efforts to their missions, plans, and budgets. We have previously recommended that OPM encourage continuous improvement and assist agencies' efforts in acquiring, developing, and retaining workforce talent. According to OPM officials, OPM fulfills this role in part by assisting federal agencies and serving as a clearinghouse of information for agencies in developing and implementing work/life programs. Within OPM, the office responsible for this mission is the Office of Work/Life/Wellness--a component of the Office of Agency and Veterans' Support. OPM's Office of Work/Life/Wellness provides leadership on work/life issues to the federal government by partnering with federal agencies to help them develop and manage work/life programs that meet the human capital needs of the federal workforce, and providing the policies and guidance that form the foundation of these programs. We have also previously reported on the need for OPM to continue its leadership role in identifying and helping agencies apply human capital flexibilities and the need for agencies to develop management infrastructure to make use of available flexibilities. Recently, we reported on the need for agencies to use the flexibilities available to them, including using these flexibilities to retain older and more experienced workers. In addition, in December 2002, we reported the views of agency human capital managers and employee union officers on the effectiveness of human capital flexibilities in managing federal agency workforces. These human capital managers and union officers frequently cited work/life programs as among the effective tools for workforce management. OPM officials describe OPM's Office of Work/Life/Wellness as a source of assistance, guidance, and information that agencies may use to develop their own work/life programs. For example, OPM provides various tools to assist agencies as they address work/life programs and issues, such as accessible points of contact, formal working groups, and training. OPM also provides guidance to agencies by promulgating regulations and providing informal guidance such as memoranda and bulletins. In addition OPM shares work/life program information through tools such as newsletters and reports--for example, reports on the status of telework and childcare. In its 2006-2010 strategic plan, OPM indicated that it would work with the federal executive boards to share guidance and leading practices across the federal government, and obtain feedback from federal agencies on human capital issues. In addition, one of OPM's 2010-2015 strategic goals focuses on providing "the training, benefits, and work/life balance necessary for federal employees to succeed, prosper, and advance in their careers." To meet this goal, OPM proposes to: assist agencies to evaluate and revise policies, and to address employee satisfaction with work/life programs; guide agencies in implementing these programs; and provide agencies with information and tools that promote work/life programs. Overall, our survey of CHCOs and work/life managers revealed that OPM has been helpful to agencies in implementing their work/life programs. As part of our survey, we asked agency officials to respond on behalf of their departments and/or agencies on how OPM's involvement helped or hindered their ability to implement work/life programs. As shown in figure 1, of the 33 agency officials who responded to our survey, 24 indicated that OPM's assistance, guidance, and information sharing greatly helped or helped somewhat in implementing work/life programs. Another six agency officials indicated that OPM's assistance, guidance, and information sharing helped in some cases and hindered in others. Although our survey provided an opportunity for respondents to elaborate on their responses or cite examples in support of their responses, none of the agency officials responding to our survey did so. OPM officials stated that the Office of Work/Life/Wellness provides various tools to assist federal agencies implement work/life programs. For example, OPM offers training to agency officials that, among other things, helps them develop action plans to address employee satisfaction concerns related to work/life programs. Also, OPM has designated points of contact who can assist agency officials to develop and implement work/life programs. In our survey, we asked agency officials to indicate how satisfied or dissatisfied they were with OPM's assistance in developing and implementing work/life programs (such as accessible OPM points of contact, formal working groups, informal mentoring, and OPM sponsored training). As seen in figure 2, most of the 33 agency officials responding to our survey were either very satisfied or somewhat satisfied with the timeliness (22), quality (21), accessibility (22), and sufficiency (23) of OPM's assistance. For example, one agency official stated that OPM officials respond quickly to requests for assistance on work/life policy matters, and another agency official stated that OPM's work/life staff is always very responsive and helpful. In addition to providing assistance to federal agencies, OPM also guides federal agencies by promulgating regulations for work/life programs and issuing programmatic guides and handbooks that explain the requirements for work/life programs such as employee assistance programs, part-time employment and job sharing, child care, and tobacco cessation. In our survey, we asked agency officials to indicate how satisfied or dissatisfied they were with this guidance. As seen in figure 3, most of the 33 agency officials responded that they were either very satisfied or somewhat satisfied with the timeliness (22), quality (24), accessibility (22), and sufficiency (22) of the guidance they received from OPM. For example, one official stated that OPM greatly assisted his/her agency as it expanded its health and wellness program by providing the agency guidance and by participating in a summit meeting with the agency. According to OPM officials, the agency also shares information with federal agencies on leading practices of work/life programs using various avenues such as posting information to its Web site and notifying federal agencies through interactive listservs. Our survey asked how satisfied or dissatisfied agency officials were with OPM's efforts to share information on leading practices in work/life programs. As seen in figure 4, most of the 33 agency officials indicated that they were either very satisfied or somewhat satisfied with the timeliness (22), quality (23), accessibility (23), and sufficiency (22) of the information they received from OPM. According to an official who responded to our survey, OPM has communicated the importance of these work/life programs and has provided practical suggestions to support agencies in defining goals and sharing best practices. Our prior work has indicated the need for federal agencies to track and use data that will allow them to measure a program's effectiveness including the changes in the program over time. Agencies need such measurements to help them determine if a particular human capital program--such as a work/life program--is worth the investment compared to other available human capital flexibilities targeted at employee recruitment and retention. We also have previously recommended that OPM disseminate federal agencies' leading practices in human capital programs to help agencies recruit and retain their workforces. Additionally, OMB's fiscal year 2012 budget guidance to federal agencies encourages agencies to: reconsider the basic design of their programs; incorporate the use of data in program design; foster innovation rooted in research; and finally, encourage the evaluation of the program. Also, as part of its 2010-2015 strategic plan, OPM proposes to help agencies collect information that would allow agencies to continually improve their efforts to provide employees with a work/life balance. OPM tracks and collects information for a few work/life programs, notably childcare, telework, and health and wellness programs. In July 2009, OPM surveyed federal agencies about their health and wellness programs and specifically requested information on the: (1) number of health and wellness programs offered by each agency; (2) number of employees with access to the programs; (3) number of employees using the programs/services; (4) cost of the programs; and (5) metrics gathered on the programs. OPM officials used this data to develop profiles of health and wellness programs across the federal government, and to help agencies formulate action plans for improving the health and wellness of federal employees. Using these program profiles, OPM developed an inventory of health and wellness programs across the federal government. In response to OPM's 2009 survey, however, agency officials reported that they either were unable to develop cost data or that the cost data could not be broken down into meaningful components such as services, facilities, and labor. Additionally, OPM officials stated that the cost data they received provided minimal insight. As a result, when OPM requested federal agencies to report on their health and wellness programs for 2010, the request excluded asking for cost data on agencies' programs. Instead, OPM requested agencies to report on whether they had developed metrics for measuring their health and wellness programs rather than asking for the specific metrics. OPM does not collect information on other programs such as alternative work schedules, leave programs, and employee assistance programs (e.g., stress management and smoking cessation). Agency officials responding to our survey indicated that their agencies track a variety of work/life programs beyond the programs tracked by OPM. As part of our survey, we asked these officials if their departments/agencies tracked (measured) the extent to which agency employees use these work/life programs. Of the 33 agency officials who responded to our survey, 29 indicated that they track either all or some of their work/life programs, as shown in figure 5. Our survey further asked agency officials to specify if their agencies tracked work/life programs in the following categories: (1) alternative work schedules; (2) leave programs; (3) volunteerism and community involvement; (4) care giving; (5) flexible spending; (6) employee assistance programs; and (7) health promotion. The survey results showed that agencies were tracking programs across multiple categories. Specifically, of the 29 officials who indicated that their agencies track their work/life programs, the majority (20) indicated that their agencies track programs in four or more of these seven program categories. While most of the agency officials surveyed indicated that they track their work/life programs, we asked the officials if their departments or agencies also evaluated (measured) the extent to which their work/life programs met their intended goals. These evaluations may be used to assess the programs' impact on the recruitment and/or retention of federal employees within the departments or agencies. Of the 33 agency officials responding to our survey, 21 indicated that they evaluated either all or some of their work/life programs, as shown in figure 6. Our survey also asked agency officials to specify if their agencies evaluated work/life programs in the seven categories listed above. The survey indicated that most agencies evaluated programs in at least one work/life program category. Of the 21 respondents who indicated that their agencies evaluated work/life programs, about one-half (10) indicated that their agencies evaluate programs in four or more of the seven program categories. As a result of the agencies' independent evaluations of their work/life programs, some agency officials are potentially in a position to determine: (1) the extent to which their programs improve their ability to recruit and retain their employees and (2) whether or not they need to implement, modify, or eliminate work/life programs. The federal government continues to recognize the need to implement and modify current work/life programs. A March 2010 report published by the President's Council of Economic Advisors presented an economic perspective on workplace policies and practices and their effect on work/life balance. The Council's report cited a survey of human resource managers that indicated work/life programs, such as family-supportive policies and flexible hours, were the single most important factor in private sector companies attracting and retaining employees. We also surveyed agency officials about the effects of their work/life programs on employee recruitment and retention. Agency officials responding to our survey indicated that work/life programs offered by their agencies affect their ability to recruit and retain agency employees. About half of the officials indicated that offering work/life programs had a very great or great effect on their ability to recruit and retain agency employees. About another third indicated that work/life programs have a moderate effect on their ability to recruit and retain agency employees. Agency officials may also use the evaluations of their work/life programs to modify, implement, or eliminate work/life programs. As shown in figure 7, 12 out of the 18 CHCOs responding to our survey indicated that they had modified their work/life programs based on the program data that they collected and evaluated. Ten of the 18 responding CHCOs had implemented new work/life programs based on the data they collected and evaluated. However, one of the agency officials responding to our survey indicated that current budget constraints affect an agency's ability to implement new programs. Most of the agency officials responding to our survey indicated that they track many of their work/life programs. In addition, according to OPM officials, some federal agencies independently provide OPM with data and evaluations on various work/life programs. OPM officials stated that they do not share this information across federal agencies because they lack the time and resources to maintain an inventory of these evaluations. OPM officials said that the recent addition of staff to the Office of Work/Life/Wellness will enable them to review reports they may receive in the future. At the time of this review, there were no staff or resources to track, review, or maintain an inventory of these evaluations. Offering agencies more information about which work/life programs are in place across the federal government and their impact on meeting agency- intended goals could be helpful in a budget-constrained environment. Agency CHCOs could play a valuable and central role in the selection and collection of information in or about work/life programs. Our prior work on federal agencies' human capital efforts demonstrated the benefits of consulting with the private sector on human capital practices. For example, federal agencies such as the Internal Revenue Service and the Veterans Health Administration have incorporated private sector practices for identifying the critical skills and training needs of their workforces. Also, in its strategic plan for 2010-2015, OPM defines as one of its goals having a suite of flexible work/life programs to promote a healthy work/life balance for federal employees. One of the strategies OPM proposed for achieving this goal is to evaluate the results of surveys from public and private sector organizations to identify leading practices across the sectors. The plan further indicates that OPM will provide federal agencies with these results to provide the agencies various options that they may use to compare their work/life programs with leading private sector practices. However, while OPM has developed a health and wellness pilot program based on discussions with private sector representatives, it has not yet shared information about private sector work/life programs with federal agencies. In May 2009, OPM participated in White House-sponsored meetings with representatives of large, privately-owned companies to discuss how health and wellness programs affect the private sector's workforce recruitment and retention. Also discussed during these meetings was the administration's WellCheck initiative, which is intended to improve federa health and wellness programs. These meetings prompted OPM to collect information about federal agencies' health and wellness programs in July 2009, as mentioned previously. Subsequently, in early 2010, OPM held two roundtables and several meetings with private sector company offi cials to obtain more information about private sector health and wellness programs. These meetings, according to an OPM official, helped the government representatives obtain a better understanding of models for workplace health programs and leading practices in workplace wellness. According to OPM officials, the meetings with private sector health and wellness representatives led to the development of an OPM pilot program designed to create a healthier and more pleasant work environment for employees at the headquarters buildings of OPM, the Department of the Interior, and the General Services Administration, which are located clo to each other. The pilot, known as WellnessWorks, seeks to develop a shared "work-life" campus by improving health and wellness facilities at the headquarters locations for each of the agencies. OPM has hired a wellness coordinator and is purchasing the services of a wellness service provider for the campus. The service provider will complement the existing services of the three agencies and increase the level of services across the campus to match leading practices in the private sector. WellnessWorks will offer the employees access to health and wellness services such as: an assessment that includes productivity and scientifically defined areas of well-being, in addition to physical health, mental health, and health behaviors; biometric testing, consisting of heigh t and weight measurement and blood testing for cholesterol levels; programs to encourage healthy behaviors, such as weight management agement; classes, exercise, tobacco cessation, and chronic disease man face-to-face and Web-based health education resources; and immunizations, allergy shots, and routine injections. OPM officials will evaluate the pilot program and they plan to provide details on developing this type of collaborat to federal agencies across the government. ive "shared work/life campus" Although OPM used information from the private sector to develop the WellnessWorks program with the goal of implementing it across the federal government, OPM has not shared with federal departments and agencies information about other health and wellness programs, or other work/life programs implemented in the private sector. Currently, OPM has not placed information on its Web site about private sector practices. Additionally, our work showed that none of the agency officials responding to our survey indicated that OPM provides them with this type of information. An OPM official told us that the agency has not considered providing this information because: (1) OPM officials have been focusing on other work/life programs such as telework and child care and (2) similar information is readily available through other sources (e.g., the Society for Human Resources Management). According to this official, OPM may consider providing agencies with the information collected from the private sector if the agencies express an interest in the information and the agencies understand that OPM is not endorsing or recommending any of the private sector programs. To identify useful information available to OPM and federal agencies concerning private sector work/life programs, we selected seven private sector companies that have been recognized by human capital associations and publications as providing their employees with quality work/life programs: (1) Deloitte; (2) Ernst & Young; (3) Marriott International; (4) MetLife; (5) General Mills; (6) SC Johnson & Son; and one company that requested anonymity (see appendix I for the private sector company selection methodology). These companies, representing various industries, generally offer work/life programs in the same categories and subcategories and for similar reasons as federal agencies. Table 2 lists examples of the types of programs private sector companies offer. The work/life private sector program managers informed us that they use various sources of information to determine future program needs, such as employee feedback and demographic analysis of the workforce. For example, officials from one company said that after concluding a study of working parents and their families, they decided to expand their parental leave program well beyond the industry average to help their employees balance the demands of family and career. Managers at four of the seven private sector companies told us that they compare work/life programs offered by their companies with those of other companies in the same industry or in the same geographic area to make sure they are competitive for attracting and retaining talent. Also, managers at two of the seven companies mentioned that they belong to professional human capital management organizations, which provide opportunities to share information about work/life program offerings. The work/life managers from the participating private sector companies told us that they evaluate their programs on a regular basis to determine whether the programs are enhancing workforce recruitment and retention. According to the managers, some programs can be tracked through usage data. However, they also told us that their companies do not judge the success or failure of a program based on how frequently it is used. One manager stated that his/her company encourages participation and seeks to overcome any barriers to program use, such as lack of awareness or lack of manager support. Private sector companies also reported tracking the use of their flexible work schedule programs by the number of flexibility agreements on record and by employee time and attendance records to determine the extent to which company employees are using the available flexibilities. For programs that do not have usage data, the company may rely on employee feedback through e-mail, Web site comments, or personal contact to determine (1) how much a program is being used and (2) how satisfied users are with the programs. Managers told us that through this process of tracking and evaluating, they were able to align the work/life programs they offer with their employees' needs and thus enhance recruitment and increase retention. For example, one manager stated the need to develop a business case for implementing his/her company's work schedule flexibilities by surveying employees to measure the effect of these flexibilities in attracting and retaining employees. More than 75 percent of the employees indicated that the flexibilities were of significant importance in deciding to remain with the company. Another manager told us that his/her company steadily tracks the impact of the work/life programs, and that since the current set of work/life programs were introduced, employees expressed that there was more balance between their careers and personal lives. Managers at four of the seven companies we spoke to indicated that the work/life programs instituted by their companies had had a great or very great effect on recruitment, retention, and productivity. One manager said that work/life programs were a key enabler of the corporate culture of flexibility and inclusion. Another told us that work/life programs had a very great effect on achieving the company's goals of enhancing retention and work satisfaction. Overall, agency officials indicated that they were satisfied with OPM's assistance, guidance, and information sharing as they developed and implemented work/life programs. However, OPM is potentially missing opportunities to provide federal agencies with additional information that may be useful to agencies in their efforts to develop and implement work/life programs. While OPM has limited its collection and evaluation of federal work/life programs to only a few, some federal agencies are independently tracking and collecting work/life program usage data on a wider range of programs such as alternative work schedules and employee assistance programs. The agencies are also using these data to conduct assessments of these programs and use the results to make programmatic changes. Sharing data among agencies on the effect of work/life programs on agency-intended goals could be helpful for agency decision making in a budget-constrained environment. OPM officials said that they did not track or maintain an inventory of these evaluations nor review these evaluations. OPM officials said that the recent addition of staff to the Office of Work/Life/Wellness will enable them to review reports they may receive in the future. OPM's Office of Work/Life/Wellness has met with private sector company representatives to examine private sector health and wellness programs and the leading practices used to implement those programs, however the office does not systematically collect information on other private sector work/life programs. A more systematic approach for examining how work/life programs have been implemented and evaluated in public and private sector organizations, as well as making this information more readily available, could benefit federal agencies' own efforts to establish work/life programs. In keeping with its mission to help federal agencies in their human capital management efforts, OPM can play a key role in the collection and dissemination of this type of information. Additionally, by adopting this role, OPM can make progress on its strategic goal of providing the agencies with various options that could be used to ensure that their agencies' work/life program offerings are aligned with leading practices identified in the public and private sector. We recommend that the Director of OPM, working with the CHCO Council, identify the resources, steps, and timetable necessary to complete the following three actions: (1) track on a more systematic basis information already being collected by individual federal agencies on their work/life programs, such as program usage data and evaluations; (2) evaluate the results of work/life program surveys conducted by leading private sector organizations, as stated in OPM's 2010-2015 strategic plan, that could help federal agencies as they implement their work/life programs; and (3) provide the information from both the public and private sectors, including other comprehensive evaluations produced by academic institutions, state entities, and other organizations, to agency officials--through available avenues such as the CHCO Council and federal executive boards--that could help them address work/life program issues and determine if the work/life programs are meeting their agencies' goals. We provided a draft of this report to the Director of OPM for review and comment. OPM provided written comments which are reproduced in appendix III. OPM generally concurred with our recommendations but requested small modifications to two recommendations that include private sector work/life programs. OPM also provided technical comments which we incorporated as appropriate. OPM concurred with our recommendation that OPM evaluate the results of work/life program surveys conducted by leading private sector organizations. However, OPM cautioned that there are enough differences between private and public sector motivations and cultures that a direct comparison of policies and practices may not provide federal agencies with a comprehensive set of "ready-to-use" solutions as they implement their work/life programs. Also, OPM does not want to appear to selectively endorse leading practices in the private sector as solutions for implementing federal work/life programs. We agree with OPM that some leading private sector practices may not be applicable to federal agencies and that OPM should not appear to selectively endorse leading private sector practices. However, we do believe that communicating these leading practices without endorsing them could provide federal agencies with additional information that federal agency officials could use in implementing their work/life programs. We revised the recommendation to reflect our agreement with OPM. OPM also concurred with our recommendation that OPM provide information from both the public and private sector to agency officials that could help the agency officials address work/life program issues and determine if these programs are meeting the agencies' goals. However, they asked that we add other evaluations of public and private work/life programs published by academic institutions, state entities, and other organizations such as the Sloan Foundation. We agree with OPM's assessment that other available evaluations of public and private sector work/life programs could provide information to federal agency officials as they implement work/life programs. We revised the recommendation to reflect our agreement with OPM. We are sending this report to other interested parties and to the Director of OPM. In addition, the report will be available free of charge at http://www.gao.gov. If you, or your staff, have any questions about this report, please contact me at (202) 512-6806 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 that made major contributions to this report are listed in appendix IV. This appendix details the objectives and scope of our report, and the methodology used to provide information to the requesters about the role of the Office of Personnel Management (OPM) in providing assistance, guidance, and oversight to federal agencies concerning work/life programs, and about private sector work/life programs. Our requesters asked us to determine the extent to which (1) OPM provides assistance and guidance to federal agencies for establishing and enhancing work/life programs; (2) OPM or the federal agencies track, evaluate, or refine work/life (3) OPM has identified leading practices in the private sectors for the implementation of work/life programs and shared this information with federal agencies. In order to address the first two objectives, we designed and administered a Web-based survey (see app. II for a copy of our questionnaire and survey results). The survey was conducted using a self-administered electronic questionnaire which was sent to a nonprobability sample consisting of 20 Chief Human Capital Officers (CHCO) at selected federal departments or agencies who also serve as members of the CHCO Council. The same Web-based survey was also sent to a separate nonprobability sample of 20 work/life program managers from subcomponents of these departments or agencies. The purpose of the survey was to obtain respondents' perceptions on behalf of their departments or agencies of OPM's assistance, guidance, and information sharing during a one-year period. Because a portion of the survey focused on agency perceptions of OPM's assistance, we excluded OPM's CHCO from our sample. Additionally, because we intended the survey respondents to speak on behalf of their department or agency, we excluded two CHCO Council members who serve as proxies for numerous federal agencies, specifically one member representing small federal agencies and another member representing federal national security and intelligence agencies. Also included in the survey questionnaire were questions designed to obtain information on how these agencies track, evaluate, and modify their own work/life programs. Table 3 lists the federal departments selected for our survey and the number of respondents who completed our survey. We pretested the survey instrument with representatives from two federal agencies during June and July 2010 and administered the survey to our selected respondents from July through September 2010. The practical difficulties of conducting any survey may introduce errors, commonly referred to as nonsampling errors. For example, difficulties in how a particular question is interpreted, in the sources of information that are available to respondents, or in how the survey data are analyzed can all introduce unwanted variability into survey results. To minimize such nonsampling errors, a social science survey specialist designed the questionnaire, in collaboration with GAO staff that had subject matter expertise. As indicated above, the questionnaire was pretested to ensure that the questions were relevant, clearly stated, and easy to comprehend. When data were analyzed, an independent analyst reviewed the computer program used for the analysis of the survey data. Since this was a Web- based survey, respondents entered their answers directly into the electronic questionnaire, thereby eliminating the need to have the data keyed into a database and avoiding data entry errors. The results of our survey are not generalizable to all agency officials or to all agencies because they are based on a nonprobability sample. Also, for those agency officials responding that their agencies evaluate their work/life programs, we did not independently determine whether or how well they actually evaluate their work/life programs. We reviewed past GAO human capital reports on issues dealing with work/life programs. We also interviewed OPM work/life officials to obtain OPM's description of its role in interacting with federal agencies as they develop and implement work/life programs. This included reviewing OPM's A New Day for Federal Service: Strategic Plan 2010-2015, its 2006-2010 strategic plan; past OPM reports on work/life programs; and available written policy, guidance, and directives. We also visited the agency's Web site to examine the material available to federal agencies and employees on work/life assistance, guidance, and identification of leading practices. In order to address our third objective on the identification of some leading practices in the private sector, we reviewed publicly available information sources to identify private sector companies that are leaders and award winners in providing work/life programs to their workforces. The awards are based on the types of work/life programs offered and the diversity of the company's workforce. Some of the awards include Fortune Magazine, "Best Places to Work"--includes separate awards for work/life balance, child care, telecommuting, and unusual perks (2009); AARP, "Best Employers" (2008); Working Mother's Magazine, "100 Best Companies" (2008); Alfred Sloan Awards for Business Excellence in Workplace Flexibility (2005, 2006); Latina Style, "50 Special Report" (2008); Black Enterprise, "40 Best Companies for Diversity" (2009); and Diversity Inc., Top 50 (2009). After reviewing these information sources, we identified 17 companies that received multiple awards from the sources we reviewed, based on a process of weighting the awards received. Out of the 17 companies that we reviewed, 7 agreed to be interviewed. The companies that we interviewed represented 6 of the 7 industry categories that we identified. Table 4 lists the participating private sector companies and the industries they represent. We developed a structured interview instrument that we administered to officials from the participating private sector companies to obtain information on the development and implementation of work/life programs within their companies. We also asked the officials to describe how their companies track, evaluate, and modify their work/life programs and how this information is used to make decisions about their work/life programs. Also, for those private sector company officials responding that their companies evaluate their work/life programs, we did not independently determine whether or how well they actually evaluate their work/life programs. However, these seven companies are not representative of all private sector companies and therefore, we cannot generalize the information these private sector officials provided about their work/life programs to other private sector companies. We conducted this performance audit from August 2009 through December 2010 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, Steven Lozano, Assistant Director; Steven J. Berke; Jeffrey Dawson; Karin Fangman; Stuart M. Kaufman; Melanie Papasian; Joseph L. Santiago; Megan Taylor; and Gregory H. Wilmoth made key contributions to this report. Human Capital: Sustained Attention to Strategic Human Capital Management Needed. GAO-09-632T. Washington, D.C.: April 22, 2009. Older Workers: Enhanced Communication Among Federal Agencies Could Improve Strategies for Hiring and Retaining Experienced Workers. GAO-09-206. Washington, D.C.: February 24, 2009. Human Capital: Transforming Federal Recruiting and Hiring Efforts. GAO-08-762T. Washington, D.C.: May 8, 2008. Older Workers: Federal Agencies Have Challenges, but Have Opportunities to Hire and Retain Experienced Employees. GAO-08-630T. Washington, D.C.: April 30, 2008. An Assessment of Dependent Care Needs of Federal Workers Using the Office of Personnel Management's Survey. GAO-07-437R. Washington, D.C.: March 30, 2007. Highlights of a GAO Forum: Engaging and Retraining Older Workers. GAO-07-438SP. Washington, D.C.: February 28, 2007. Older Workers: Some Best Practices and Strategies for Engaging and Retaining Older Workers. GAO-07-433T. Washington, D.C.: February 28, 2007. Office of Personnel Management: Key Lessons Learned to Date for Strengthening Capacity to Lead and Implement Human Capital Reforms. GAO-07-90. Washington, D.C.: January 19, 2007. Human Capital: Agencies Need Leadership and the Supporting Infrastructure to Take Advantage of New Flexibilities. GAO-05-616T. Washington, D.C.: April 21, 2005. Human Capital: OPM Can Better Assist Agencies in Using Personnel Flexibilities. GAO-03-428. Washington, D.C.: May 9, 2003. Major Management Challenges and Program Risks: Office of Personnel Management. GAO-03-115. Washington, D.C.: January 2003. Human Capital: Effective Use of Flexibilities Can Assist Agencies in Managing Their Workforces. GAO-03-2. Washington, D.C.: December 6, 2002.
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To improve its ability to recruit and retain federal employees, agencies have implemented a wide range of work/life programs, such as flexible work schedules, child care, and employee assistance programs. The Office of Personnel Management (OPM) plays a key role in guiding federal human capital initiatives, including the implementation of work/life programs. As requested, GAO determined the extent to which: (1) OPM provides assistance and guidance to federal agencies for establishing and enhancing work/life programs; (2) OPM or the federal agencies track, evaluate, or modify work/life programs; and (3) OPM has identified leading practices in the private sector for the implementation of work/life programs and shared this information with federal agencies. To do this, GAO reviewed OPM policy and guidance; surveyed 40 federal officials--20 Chief Human Capital Officers (CHCO) and 20 work/life managers; and interviewed officials from seven private sector companies recognized for the quality of their work/life programs. OPM's Office of Work/Life/Wellness is available to federal agencies to provide assistance, guidance, and information as agencies develop and implement work/life programs. For example, OPM has established formal working groups, sponsored training for agency officials, promulgated regulations to implement work/life programs, and provided informal guidance to agencies that address issues related to these programs. Of the 33 agency officials who responded to GAO's survey, 24 indicated that OPM's assistance, guidance, and information sharing greatly helped or helped somewhat in implementing work/life programs. Another six agency officials indicated that OPM's assistance, guidance, and information sharing helped in some cases and hindered in others. OPM tracks and collects information on a few work/life programs across the federal government, including health and wellness programs which it recently began tracking in response to a White House initiative. Some federal agencies independently provide OPM with evaluations on other work/life programs. However, when asked, OPM officials said that they did not track or maintain an inventory of these evaluations nor review these evaluations due to the lack of time and available resources. Tracking, analyzing, and sharing information among federal agencies on the effect of work/life programs on agency-intended goals could be helpful for individual agency decision making in a budget-constrained environment. To follow up on the White House health and wellness initiative, OPM held several meetings and conferences with representatives from private sector companies to discuss their health and wellness programs and the effect of these programs on recruitment and retention. Although OPM has developed a health and wellness pilot program based on some of the information obtained from these meetings and conferences, OPM has not systematically shared with federal agencies other information about the private sector's health and wellness programs or other work/life programs. GAO also interviewed officials from seven private sector companies recognized for the quality of their work/life programs to identify leading practices in implementing private sector work/life programs. Private sector officials from four of the seven companies that GAO interviewed indicated that their programs have been effective in increasing employee job satisfaction, resulting in improved recruitment, retention, and workforce productivity. Systematically collecting and disseminating information on the implementation and evaluation of private sector work/life programs could help federal agencies compare their work/life programs with leading practices in the private sector. GAO recommends that OPM assist agencies in implementing their work/life programs by more systematically tracking and evaluating data on the implementation and evaluation of work/life programs and sharing this information with federal agencies. OPM agreed with GAO's recommendations and suggested technical changes which GAO has incorporated as appropriate.
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The National Response Framework discusses several elements of effective response and response planning. The term response, as used in the National Response Framework, includes the immediate actions to save lives, protect property and the environment, and meet basic human needs. Response also includes the execution of emergency plans and actions to support short-term recovery. An effective, unified national response--including the response to any large-scale incident--requires layered, mutually supporting capabilities--governmental and nongovernmental. Indispensable to effective response is an effective unified command, which requires a clear understanding of the roles and responsibilities of each participating organization. The National Response Framework employs the following criteria to measure key aspects of response planning: Acceptability. A plan is acceptable if it can meet the requirements of anticipated scenarios, can be implemented within the costs and time frames that senior officials and the public can support, and is consistent with applicable laws. Adequacy. A plan is adequate if it complies with applicable planning guidance, planning assumptions are valid and relevant, and the concept of operations identifies and addresses critical tasks specific to the plan's objectives. Completeness. A plan is complete if it incorporates major actions, objectives, and tasks to be accomplished. The complete plan addresses the personnel and resources required and sound concepts for how those will be deployed, employed, sustained, and demobilized. It also addresses timelines and criteria for measuring success in achieving objectives and the desired end state. Including all those who could be affected in the planning process can help ensure that a plan is complete. Consistency and standardization of products. Standardized planning processes and products foster consistency, interoperability, and collaboration, therefore, emergency operations plans for disaster response should be consistent with all other related planning documents. Feasibility. A plan is considered feasible if the critical tasks can be accomplished with the resources available internally or through mutual aid, immediate need for additional resources from other sources (in the case of a local plan, from state or federal partners) are identified in detail and coordinated in advance, and procedures are in place to integrate and employ resources effectively from all potential providers. Flexibility. Flexibility and adaptability are promoted by decentralized decisionmaking and by accommodating all hazards ranging from smaller-scale incidents to wider national contingencies. Interoperability and collaboration. A plan is interoperable and collaborative if it identifies other stakeholders in the planning process with similar and complementary plans and objectives, and supports regular collaboration focused on integrating with those stakeholders' plans to optimize achievement of individual and collective goals and objectives in an incident. Under the Post-Katrina Emergency Management Reform Act, FEMA has responsibility for leading the nation in developing a national preparedness system. FEMA has developed standards--the Comprehensive Preparedness Guide 101--that call for validation, review, and testing of emergency operations plans (EOP),. According to the Comprehensive Preparedness Guide 101, plans should be reviewed for conformity to applicable regulatory requirements and the standards of federal or state agencies (as appropriate) and for their usefulness in practice. Exercises offer the best way, short of emergencies, to determine if an EOP is understood and "works." Further, conducting a "tabletop" exercise involving the key representatives of each tasked organization can serve as a practical and useful means to help validate the plan. FEMA's guidance also suggests that officials use functional and full-scale emergency management exercises to evaluate EOPs. Plan reviews by stakeholders also allow responsible agencies to suggest improvements in an EOP based on their accumulated experience. We also identified the need for validated operational planning in the aftermath of Hurricane Katrina, noting that to be effective, national response policies must be supported by robust operational plans. In September 2006, we recommended, among other things, that DHS take the lead in monitoring federal agencies' efforts to meet their responsibilities under the National Response Plan (now the National Response Framework) and the National Preparedness Goal (now the National Preparedness Guidelines), including the development, testing, and exercising of agency operational plans to implement their responsibilities. DHS concurred with our recommendation. The Post-Katrina Emergency Management Reform Act transferred preparedness responsibilities to FEMA, and we recommended in April 2009 that FEMA should improve its approach to developing policies and plans that define roles and responsibilities and planning processes by developing a program management plan, in coordination with DHS and other federal entities, to ensure the completion of the key national preparedness policies and plans called for in legislation, presidential directives, and existing policy and doctrine; to define roles and responsibilities and planning processes; as well as to fully integrate such policies and plans into other elements of the national preparedness system. FEMA concurred with our recommendation and is currently working to address this recommendation. Other national standards reflect these practices as well. For example, according to Emergency Management Accreditation Program (EMAP) standards, the development, coordination and implementation of operational plans and procedures are fundamental to effective disaster response and recovery. EOPs should identify and assign specific areas of responsibility for performing essential functions in response to an emergency or disaster. Areas of responsibility to be addressed in EOPs include such things as evacuation, mass care, sheltering, needs and damage assessment, mutual aid, and military support. EMAP standards call for a program of regularly scheduled drills, exercises, and appropriate follow-through activities--designed for assessment and evaluation of emergency plans and capabilities--as a critical component of a state, territorial, tribal or local emergency management program. The documented exercise program should regularly test the skills, abilities, and experience of emergency personnel as well as the plans, policies, procedures, equipment, and facilities of the jurisdiction. The exercise program should be tailored to the range of hazards that confronts the jurisdiction. We reported in April 2009 that FEMA lacked a comprehensive approach to managing the development of emergency preparedness policies and plans. Specifically, we reported that FEMA had completed many policy and planning documents, but a number of others were not yet completed. For example, while DHS, FEMA, and other federal entities with a role in national preparedness have taken action to develop and complete some plans that detail and operationalize roles and responsibilities for federal and nonfederal entities, these entities had not completed 68 percent of the plans required by existing legislation, presidential directives, and policy documents as of April 2009. Specifically, of the 72 plans we identified, 20 had been completed (28 percent), 3 had been partially completed (that is, an interim or draft plan has been produced--4 percent), and 49 (68 percent) had not been completed. Among the plans that have been completed, FEMA published the Pre-Scripted Mission Assignment Catalog in 2008, which defines roles and responsibilities for 236 mission assignment activities to be performed by federal government entities, at the direction of FEMA, to aid state and local jurisdictions during a response to a major disaster or an emergency. Among the 49 plans that had not been completed were the National Response Framework incident annexes for terrorism and cyberincidents as well as the National Response Framework's incident annex supplements for catastrophic disasters and mass evacuations. In addition, operational plans for responding to the consolidated national planning scenarios, as called for in Homeland Security Presidential Directive 8, Annex 1, remained outstanding. In February 2010, DHS's Office of Inspector General reviewed the status of these planning efforts and reported that the full set of plans for any single scenario had not yet been completed partly because of the time required to develop and implement the Integrated Planning System. The Integrated Planning System, required by Annex 1 to Homeland Security Presidential Directive 8 (December 2007), is intended to be a st comprehensive approach to national planning. The Directive calls for the Secretary of Homeland Security to lead the effort to develop, in coordination with the heads of federal agencies with a role in homeland security, the Integrated Planning System followed by a series of related andard and planning documents for each national planning scenario. The Homeland Security Council compressed the 15 National Planning Scenarios into 8 key scenario sets in October 2007 to integrate planning for like events and to conduct crosscutting capability development. The redacted version of the Inspector General's report noted that DHS had completed integrated operations planning for 1 of the 8 consolidated national planning scenarios--the terrorist use of explosives scenario. FEMA officials reported earlier this month that the agency's efforts to complete national preparedness planning will be significantly impacted by the administration's pending revision to Homeland Security Presidential Directive-8. Once the new directive is issued, agency officials plan to conduct a comprehensive review and update to FEMA's approach to national preparedness planning. In addition to FEMA's planning efforts, FEMA has assessed the status of catastrophic planning in all 50 States and the 75 largest urban areas as part of its Nationwide Plan Review. The 2010 Nationwide Plan Review was based on the 2006 Nationwide Plan Review, which responded to the need both by Congress and the President to ascertain the status of the nation's emergency preparedness planning in the aftermath of Hurricane Katrina. The 2010 Nationwide Plan Review compares the results of the 2006 review of states and urban areas' plans, functional appendices and hazard-specific annexes, on the basis of: Consistency with Comprehensive Preparedness Guide 101, Date of last plan update, Date of last exercise, and A self-evaluation of the jurisdiction's confidence in each planning document's adequacy, feasibility and completeness to manage a catastrophic event. FEMA reported in July 2010 that more than 75 percent of states and more than 80 percent of urban areas report confidence that their overall basic emergency operations plans are well-suited to meet the challenges presented during a large-scale or catastrophic event. Oil spills are a special case with regard to response. For most major disasters, such as floods or earthquakes, a major disaster declaration activates federal response activities under the provisions of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. However, for oil spills, federal agencies may have direct authority to respond under specific statutes. Response to an oil spill is generally carried out in accordance with the National Oil and Hazardous Substances Pollution Contingency Plan. The National Response Framework has 15 functional annexes, such as search and rescue, which provide the structure for coordinating federal interagency support for a federal response to an incident. Emergency Support Function #10, the Oil and Hazardous Materials Response Annex, governs oil spills. As described in Emergency Support Function #10, in general, the Environmental Protection Agency is the lead for incidents in the inland zone, and the U.S. Coast Guard, within DHS, is the lead for incidents in the coastal zone. The difference in responding to oil spills and the shared responsibility across multiple federal agencies underscores the importance of including clear roles, responsibilities, and legal authorities in developing operational response plans. In conclusion, Mr. Chairman, emergency preparedness is a never-ending effort as threats evolve and the capabilities needed to respond to those threats changes as well. Realistic, validated, and tested operational response plans are key to the effective response to a major disaster of whatever type. Conducting exercises of these plans as realistically as possible is a key component of response preparedness because exercises help to identify what "works" (validates and tests) and what does not. This concludes my statement. I will be pleased to respond to any questions you or other members of the committee may have. For further information on this statement, please contact William O. Jenkins, Jr. at (202) 512-8757 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 were Stephen Caldwell, Director, Chris Keisling, Assistant Director, John Vocino, Analyst-In-Charge, Linda Miller, Communications Analyst. 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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Among the lessons learned from the aftermath of Hurricane Katrina was that effective disaster response requires planning followed by the execution of training and exercises to validate those plans. The Federal Emergency Management Agency (FEMA) is responsible for disaster response planning. This testimony focuses on (1) criteria for effective disaster response planning established in FEMA's National Response Framework, (2) additional guidance for disaster planning, (3) the status of disaster planning efforts, and (4) special circumstances in planning for oil spills. This testimony is based on prior GAO work on emergency planning and response, including GAO's April 2009 report on the FEMA efforts to lead the development of a national preparedness system. GAO reviewed the policies and plans that form the basis of the preparedness system. GAO did not assess any criteria used or the operational planning for the Deepwater Horizon response. FEMA's National Response Framework identifies criteria for effective response and response planning, including (1) acceptability (meets the requirement of anticipated scenarios and is consistent with applicable laws); (2) adequacy (complies with applicable planning guidance); (3) completeness (incorporates major actions, objectives, and tasks); (4) consistency and standardization of products (consistent with other related documents); (5) feasibility (tasks accomplished with resources available); (6) flexibility (accommodating all hazards and contingencies); and (7) interoperability and collaboration (identifies stakeholders and integrates plans). In addition to the National Response Framework, FEMA has developed standards that call for validation, review, and testing of emergency operations plans. According to FEMA, exercises offer the best way, short of emergencies, to determine if such plans are understood and work. FEMA's guidance also suggests that officials use functional and full-scale emergency management exercises to evaluate plans. Other national standards reflect these practices as well. For example, the Emergency Management Accreditation Program standards call for a program of regularly scheduled drills, exercises, and appropriate follow-through activities, as a critical component of a state, territorial, tribal, or local emergency management program. GAO reported in April 2009 that FEMA lacked a comprehensive approach to managing the development of emergency preparedness policies and plans. Specifically, GAO reported that FEMA had completed many policy and planning documents, but a number of others were not yet completed. In February 2010, the Department of Homeland Security's (DHS) Office of Inspector General reviewed the status of these planning efforts and reported that the full set of plans for any single scenario had not yet been completed partly because of the time required to develop and implement the Integrated Planning System. The Integrated Planning System, required by Annex 1 to Homeland Security Presidential Directive 8 (December 2007), is intended to be a standard and comprehensive approach to national planning. Oil spills are a special case with regard to response. The National Response Framework has 15 functional annexes that provide the structure for coordinating federal interagency support for a federal response to an incident. Emergency Support Function #10--Oil and Hazardous Materials Response Annex--governs oil spills. Under this function, the Environmental Protection Agency is the lead for incidents in the inland zone, and the U.S. Coast Guard, within DHS, is the lead for incidents in the coastal zone. This difference underscores the importance of including clear roles, responsibilities, and legal authorities in developing operational response plans. GAO is not making any new recommendations in this testimony but has made recommendations to FEMA in previous reports to strengthen disaster response planning, including the development of a management plan to ensure the completion of key national policies and planning documents. FEMA concurred and is currently working to address this recommendation.
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The percentage of older workers--those age 55 and older--is growing faster than that of any other age group, and they are expected to live and work longer than past generations. Labor force participation for this cohort has grown from about 31 percent in 1998 to 38 percent in 2007. In contrast, labor force participation of workers under age 55 has declined slightly. (See fig. 1.) Many factors influence workers' retirement and employment decisions, including retirement eligibility rules and benefits, an individual's health status and occupation, the availability of health insurance, personal preference, and the employment status of a spouse. The availability of suitable employment, including part-time work or flexible work arrangements, may also affect the retirement and employment choices of older workers. As the government's human capital leader, OPM is responsible for helping agencies develop their human capital management systems and holding them accountable for effective human capital management practices. One such practice is strategic workforce planning, which 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 staff to achieve these goals. In developing these strategies, we have reported that leading organizations go beyond a succession-planning approach that focuses on simply replacing individuals. Rather they engage in broad, integrated succession planning and management efforts directed to strengthening both current and future organizational capacity. In implementing its personnel policies, the federal government is required to uphold federal merit system principles in recruiting, engaging, and retaining employees. Among other provisions, the merit system principles require agencies to recruit and select candidates based on fair and open competition, as well as treat employees fairly and equitably. Federal agencies can recruit skilled or experienced workers, many of whom tend to be older, to fill positions requiring demonstrated expertise. OPM is also responsible for administering retirement, health benefits, and other insurance services to government employees, annuitants, and beneficiaries. It develops implementing regulations when Congress makes new options available to federal employees and often takes the lead in advocating for new legislative options. We and others have highlighted the need to hire and retain older workers to address the challenges associated with an aging workforce. In so doing, we have called upon the federal government to assume a leadership role in developing strategies to recruit and retain older workers. At our recommendation, Labor convened a task force composed of senior representatives from nine federal agencies and issued its first report in February of this year. The report provides information on strategies to support the employment of older workers, strategies for businesses to use that leverage the skills of an aging labor pool, individual opportunities for employment of older workers, and legal and regulatory issues associated with work and retirement. While the task force's focus was the private sector, some of the strategies it identified are relevant for federal agencies as well, for example, providing flexible work arrangements and customized employment options that include alternative work schedules and part time work. As we and other organizations have previously reported, the federal workforce is aging, with an increasing number of employees eligible to retire. Many of the workers who are eligible to retire in the 24 CFO agencies are in executive and supervisory positions, as well as in mission- critical occupations. These trends point to the importance of strategic workforce planning to help agencies forecast, with greater precision, who might retire, when they might retire, and the impact of their retirement on an agency's mission, and, using this information, develop appropriate strategies to address workforce gaps. The percentage of older workers and workers nearing retirement eligibility varies across the federal government, with some agencies employing more such workers than others. For example, as shown in figure 2, the percentage of career federal employees in the 24 CFO agencies age 55 or older ranged from about 9 percent at the Department of Justice to about 38 percent at the Small Business Administration and Department of Housing and Urban Development in fiscal year 2007. Importantly, about than one-third of federal workers will be eligible to retire over the next 5 years. Thirty-three percent of federal career employees on board as of the end of fiscal year 2007 will be eligible to retire during fiscal years 2008 through 2012. In comparison, about 20 percent of federal career employees on board as of the end of fiscal year 1997 were projected to be retirement-eligible during fiscal years 1998 through 2002. Many workers projected to become retirement eligible by 2012 are concentrated in certain agencies. As figure 3 shows, the agency rates range from a low of 20 percent at the Department of Homeland Security (DHS) to a high of 46 percent at four agencies--the Agency for International Development (AID), the Department of Housing and Urban Development, the Small Business Administration (SBA), and the Department of Transportation (Transportation). Estimated retirement eligibility rates will also likely vary at the component level--that is, by bureau or unit. Thus, even those agencies that have relatively low overall percentages of retirement eligible employees may have components that have higher percentages of retirement-eligible staff, which, in turn could affect the accomplishment of mission tasks and strategic goals for agency components and for the agency as a whole. Certain occupations have particularly high rates of workers eligible to retire. As shown in figure 4, 50 percent or more of the workers in 24 of the 315 occupations with 500 or more staff we reviewed are eligible to retire by 2012. Several of these occupations, such as air traffic controllers, customs and border protection interdiction agents, and administrative law judges are considered mission critical. Federal law requires mandatory retirement at specified ages for some occupations, such as air traffic controllers who must retire at age 56. Retirement eligibility will be especially pronounced among the agencies' executives and supervisors (see fig. 5). Of the approximately 7,200 career executives as of the end of fiscal year 2007, 64 percent are projected to be retirement eligible by 2012, up from 41 percent in 2008. For supervisors who are not career executives, 45 percent will be eligible to retire by 2012. Although most federal employees do not retire immediately upon becoming eligible, the increasing number of employees becoming retirement eligible in the near future points to the need for agencies to examine how these trends will affect them. In so doing, agencies should take into account location, occupation, and grade level of potential retirees, and develop appropriate succession planning strategies, which may include retaining older, experienced workers, to address the likely impact. At the same time, it will be important for agencies to consider their organization's strategic goals and the critical skills and competencies needed to meet future program outcomes, and to develop strategies to address any gaps in the number, skills, and competencies needed to achieve those outcomes. Federal agencies have a range of flexibilities at their disposal to help them engage and retain mission critical staff, including older, experienced workers. SSA, an agency that stands to lose a relatively large proportion of its experienced workforce in the upcoming retirement wave, is using many of the available governmentwide flexibilities to address workforce shortages. Some other federal agencies have developed alternative approaches that facilitate hiring and retaining older workers to meet their workforce needs. Despite the availability of recruitment, retention, and other flexibilities, agencies still face human capital challenges. In our past work, we found that agencies are not always able to make full use of available flexibilities, in part because they did not fully understand them. As the government's human capital leader, OPM sets human capital policies for federal agencies. In many cases, OPM serves as the gatekeeper by approving or disapproving an agency's request to use some hiring authorities or other flexibilities. Other authorities do not require OPM's approval. While only one of the available flexibilities is largely focused on older workers--dual compensation waivers--many, such as flexible and part time work, are particularly appealing to older workers. OPM does not specifically target older workers in its policies. Instead, efforts are focused on workers who possess the right skills and experience to meet agencies' workforce needs, without regard to age. Governmentwide Hiring Authorities. Under existing rules and regulations, agencies have the authority to use a number of different approaches to hire workers, including older workers, without obtaining OPM approval. Among other approaches, they include using temporary appointments for short-term needs; temporary assignees from state and local governments, colleges and universities, Indian tribal governments, and qualified not-for-profit agencies under the Intergovernmental Personnel Act (IPA); commercial recruiting firms and nonprofit employment firms; consultants for temporary or intermittent employment; contractual arrangements: commercial temporary help for brief periods of time, and contracts for services, as long as the contracts follow federal procurement regulations. Agencies can also use additional hiring authorities by obtaining OPM's approval or by notifying OPM on a case-by-case basis of their intent. These include the following: Dual compensation waivers to rehire federal retirees--OPM may grant waivers allowing agencies to fill positions with rehired federal annuitants without offsetting the salaries by the amount of the annuities. Agencies can request waivers on a case-by-case basis for positions that are extremely difficult to fill or for emergencies or other unusual circumstances. Agencies can also request from OPM a delegation of authority to grant waivers for emergencies or other unusual circumstances. These waivers by their nature are largely for older workers; Special authority to hire for positions in contracting-- agencies can rehire federal annuitants to fill positions in contracting without being required to offset the salaries. Agencies are required only to notify and submit their hiring plans to OPM; On-the-spot hiring without competition--this may be used in circumstances where (1) public notice has been given and (2) OPM has determined there is a severe shortage of candidates or a critical hiring need, such as in certain medical or information security occupations, or occupations requiring fluency in Middle Eastern languages; Veterans' recruitment appointment--agencies may hire certain veterans without competition to fill positions up to the GS-11 level or for disabled veterans at any level; Enhanced annual leave computation--agencies may credit relevant private sector experience when computing annual leave amounts. Flexible Schedules and Workplaces. Flexible schedules and workplaces are often extremely important to older workers. For example, some research indicates older workers want to set their own hours and to be able to take time off to care for relatives when needed. In addition, older workers nearing retirement may prefer a part-time schedule, for example, as a means to retire gradually. Federal agencies have work schedule flexibilities that they can provide to their workers without prior approval from OPM. These include Part-time schedules--allow employees to work on a part-time basis; however, part-time work late in a career may result in a lower retirement annuity and may affect other benefits. Flexible work schedules--allow full-time or part-time employees to determine their hours of work within established parameters or modify the typical work schedule of 8 hours a day, 5 days per week by, for example, permitting schedules of 10 hours per day, 4 days per week. Alternative work sites--allow employees to work from home or outside the traditional office. Compensation Flexibilities. Agencies also have authority to provide additional compensation to employees. These include giving recruitment, relocation, and retention incentives to employees; raising the pay rate of critical positions in an agency (requires OPM approval after consultation with OMB); providing certain eligible physicians allowances of up to $30,000 per year. This flexibility requires OMB approval; and using special rates, premium pay, and other compensation flexibilities to recruit and retain specified health care employees, under a delegation agreement with OPM. One of the agencies we reviewed--the Social Security Administration (SSA)--is particularly at risk of losing a substantial portion of its workforce at a time when it will experience unprecedented growth in demand for its services. SSA faces looming shortages particularly in some mission critical positions, despite enhancing its human capital planning efforts. The agency is experiencing service delays, even at current staffing levels. For example, SSA had over 750,000 disability claims awaiting a decision at the hearing level at the end of January 2008, leading to an average waiting time in fiscal year 2008 of almost 500 days. These backlogs could increase in the future, given SSA's demographic profile. Indeed, according to SSA's data, about 40 percent of its current workforce will be eligible to retire by 2012, and by 2017 that proportion will grow to more than half. The prospects for hiring new employees to replace retirees over this timeframe remains unclear. According to SSA officials, while the fiscal year 2008 budget provided sufficient funding to allow SSA to replace all of the employees that leave--and to add additional employees in some areas--budgetary constraints have prevented the agency from hiring enough new workers in the past and future hiring will depend upon the resources available. Even when SSA can hire, the agency faces stiff competition from the private sector, especially for jobs in the accounting, legal, and information technology fields. The potential impact of retirements varies across the agency and will affect occupations SSA deems critical. By 2012, the proportion of those eligible to retire will generally range from 25 percent to 59 percent across such occupations. However, the proportion of administrative law judges eligible to retire is far higher--about 86 percent will be eligible by 2012 and nearly all by 2017. Moreover, SSA stands to lose a substantial portion of its leadership staff. Of its 138 Senior Executive Service (SES) members, 62 percent are now eligible to retire and nearly 80 percent will be eligible by 2012. Of the over 6,000 supervisors, nearly 39 percent are currently eligible to retire and 57 percent could retire by 2012. SSA has increasingly used information technology solutions in an effort to improve its human capital management. For example, to better understand where to place its human capital emphasis, SSA has developed an approach that uses historical data to project future retirements. The model projects who is likely to retire, and SSA uses these projections to estimate gaps in mission-critical positions and to identify regional and headquarters components most affected. With these estimates the agency develops action plans focused on recruiting and hiring, retention, and staff development. SSA has also developed user-friendly automated tools to help job applicants complete the applications process. This system keeps both applicants and managers advised of where the application is in the process. SSA has used a variety of strategies to hire and retain older workers, some of which include the human capital flexibilities available to all federal agencies. For example, SSA offers recruitment, relocation, and retention bonuses to individuals with needed skills and considers an employee's private sector experience when computing annual leave status. The agency also offers workplace flexibilities, such as alternative work sites and flexible work schedules, seminars on dependent care for elderly family members and children, and learning opportunities such as midcareer and pre-retirement seminars. In addition, SSA provides the options of a phased retirement program--allowing employees to work on a part time basis during the years immediately prior to retirement--and a trial retirement program--allowing workers to return to work within a year of retiring if they repay the annuity they've received. However, SSA officials told us that the programs have been rarely used because of the financial penalty workers would face. Under a delegation of authority from OPM, SSA has used dual compensation waivers to hire experienced retirees to fill staffing shortages in critical areas when these shortages constituted an emergency. From November 2000 through December 2006, SSA used this authority to rehire nearly 1,300 federal annuitants who were knowledgeable and proficient at processing complex, difficult workloads and who needed little or no training to fill mission critical workforce gaps. This waiver authority expired in 2006 and was not renewed. However, SSA has been granted a waiver to reemploy administrative law judges to help reduce the disability hearings backlog. In addition, SSA was granted a waiver to rehire federal annuitants to provide relief in areas affected by hurricanes Katrina and Rita. SSA officials reported that when they have been allowed to use dual compensation waivers, their experiences were extremely positive. Beyond using existing flexibilities, SSA has developed recruitment efforts that reach out to a broader pool of candidates, some of whom are older workers. For example, SSA began recruiting retired military and disabled veterans in 2002 because of its commitment to helping veterans. SSA is also beginning to reach out to older workers in order to achieve its diversity goal of attracting a multigenerational workforce. These steps have included developing recruiting material featuring images of older and younger workers. In addition to SSA, we interviewed officials in several other agencies and learned that some have developed their own approaches to hiring and engaging older workers. Identifying and recruiting retirees with critical skills by using technology. The Department of State has developed two databases to match interested Foreign Service and Civil Service retirees with short- term or intermittent job assignments that require their skill sets or experiences. One database--the Retirement Network, or RNet-- contains a variety of information, including individuals' job experiences, foreign language abilities, special skills, preferred work schedule, and favored job locations. To identify individuals with specific skill sets, officials match information from RNet with another database that organizes and reports all available and upcoming short- term job assignments. For instance, in 2004, the agency identified current and retired employees familiar with Sumatra's culture and language and sent many of them to Indonesia to help with the tsunami relief efforts. According to officials, this technology has allowed them to identify individuals with specialized skills and specific job experience within hours. Before these systems were in place, the search for specific individuals would have taken days or weeks, and even then, the list of individuals would have been incomplete. Because different personnel rules apply to Foreign Service and Civil Service positions, the agency typically brings Civil Service retirees on as contractors--nonfederal employees without any reduction to earnings or annuities--and may hire Foreign Service retirees as federal employees who may earn their full salaries and annuities. Hiring older workers through nonfederal approaches. The Environmental Protection Agency (EPA) has designed a program that places older workers (55 years and over) in administrative and technical support positions within EPA and other federal and state environmental agencies nationwide. Instead of hiring older workers directly into the government as federal employees, EPA has cooperative agreements with nonprofit organizations to recruit, hire, and pay older workers. Under these agreements, workers are considered program enrollees, not federal employees. EPA's Senior Environmental Employment (SEE) program started as a pilot project in the late 1970s, and was authorized by the Environmental Programs Assistance Act in 1984. According to EPA, many SEE enrollees come from long careers in business and government service, offer valuable knowledge, and often serve as mentors to younger coworkers. Depending on their skills and experience, program enrollees' wages vary, starting at $6.92 per hour and peaking at $17.29 per hour. Using the SEE program as a model, the Department of Agriculture's Natural Resources Conservation Service (NRCS) recently developed a pilot project called the Agriculture Conservation Enrollees/Seniors (ACES) program. Officials from both EPA and NRCS told us that their programs are crucial in helping agencies meet workload demands and providing older workers with valuable job opportunities. Partnering with private firms to hire retired workers. In partnership with IBM and the Partnership for Public Service, the Department of the Treasury is participating in a pilot project that aims to match the talent and interest of IBM retirees and employees nearing retirement with Treasury's mission-critical staffing needs. Working together, the three organizations are designing a program that intends to send specific Treasury job opportunities to IBM employees with matching skill sets and experience; help create streamlined hiring processes; provide career transition support, such as employee benefits counseling and networking events; and encourage flexible work arrangements. Officials are developing the pilot project within existing governmentwide flexibilities that do not require special authority from OPM. As one official suggested, designing such a project may reveal the extent to which existing federal flexibilities allow new ways of hiring older workers. Engaging older workers through mentoring. Three of the agencies we spoke with are in the beginning stages of formalizing mentoring programs, recognizing that mentoring relationships help pass down knowledge to less experienced workers as well as engage older workers. According to one official at NRC, fostering mentoring relationships is essential for his agency. Not only do these relationships help to transfer knowledge to less experienced workers, they also help senior-level staff build strong professional relationships with junior employees. Despite the availability of recruitment, retention, and other flexibilities, agencies still face human capital challenges. In our past work, we found that agencies were not always able to make full use of available flexibilities, in part because they did not fully understand the range of flexibilities at their disposal and did not always educate managers and employees on the availability and use of them. In addition, we found that inadequate funding and weak strategic human capital planning contributed to the limited use of these flexibilities. Moreover, OPM did not take full advantage of its ability to share information about when, where, and how the broad range of flexibilities are being used and should be used to help agencies meet their human capital management needs. Several federal hiring procedures can also pose challenges and make it difficult for the federal government to compete with private sector employers. Cumbersome federal hiring procedures can make it difficult for older workers, as well as all other applicants, to get a federal job. Recently, the Partnership for Public Service reported that older workers face a number of challenges to getting a federal job. Many of the issues they raise affect applicants of all age groups. For example, for many of the jobs open to the public, too little time was allowed between the time the job was announced and the deadline for submitting a complete application. For this and other reasons, a majority of older workers they surveyed thought that applying for a federal job is difficult. To address the cumbersome and complicated federal hiring process, the report recommended that federal agencies publicize federal jobs beyond the internet, make federal job announcements and the application process more user-friendly, and keep applicants informed of their application status. Furthermore, the dual compensation rule, which requires annuitants' salaries to be offset by the amount of the annuities they receive, can create a financial disincentive for retirees wishing to return to federal service. Unless federal agencies receive authority to grant waivers of this rule, retired federal workers--unlike private sector or military retirees--would be working for reduced rates of pay. Other rules make it difficult to use flexibilities. For example, federal employees close to retirement may face reductions in the monthly retirement benefit if they choose to work part- time--or use a phased retirement approach--near the end of their careers. Overall, the federal government is making progress toward becoming a model employer of older, experienced workers. Research has identified characteristics of work environments that older workers value that can serve as a model for federal agencies as they seek to hire and retain older workers. While there remain opportunities for improvement, OPM and Congress are taking action to minimize the challenges faced in hiring and retaining older, experienced workers. As we discussed earlier, individual agencies have strategies that they can use to address some challenges to employing older workers, but actions from OPM, as the government's human capital leader, and Congress play pivotal roles in changing the landscape of rules regarding federal employment. OPM has taken steps to provide agencies with guidance on how to use available flexibilities and authorities. For example, in the fall of 2005, OPM put a hiring flexibilities decision support tool online to assist agencies in assessing which flexibilities would best meet their needs. This Hiring Flexibilities Resource Center provides in-depth information on a variety of flexibilities, including Direct Hire and Excepted Service. In January 2008, OPM updated its handbook on federal flexibilities and authorities, also online, which provides more information on both recruiting and retention strategies agencies can use to promote the positive aspects of the federal government. Responding to past findings about the length of time it takes to hire new employees, OPM has established a strategic goal to improve recruitment and retention, including faster hiring, hiring more veterans, rehiring annuitants, and faster application processing. OPM has also encouraged federal agencies to consider a broad spectrum of employees as they seek to meet workforce needs. According to OPM, federal human capital managers are facing increasing competition in attracting and retaining talent. To meet this challenge, OPM has developed a new approach, called the Career Patterns initiative, for bringing the next generation of employees into federal positions. In its Career Patterns guidance to agencies, OPM identifies, among other things, scenarios that describe the particular characteristics of 10 types of individuals, including students, new professionals, experienced professionals, and retirees who could help broaden the pool of potential employees for federal jobs. OPM has also recently proposed legislation to Congress that would enhance agencies' ability to hire and retain older workers. One proposal would give agencies the authority to grant dual compensation waivers without having to obtain OPM approval. The proposal calls for a yearly and lifetime limitation on how many hours an individual can be reemployed. A second proposal would increase the ability of employees to work on a part time basis during their pre-retirement years by changing the way the CSRS annuities based on part time services are computed. Congress has taken action to address the retirement risks in selected occupations. For example, in 2006, Congress enacted legislation allowing federal agencies to hire federal retirees to fill acquisition-related positions without requiring annuity offset. The authority to use this provision expires on December 31, 2011. Agencies are required to consult with OPM and OMB in developing their plans for reemploying annuitants in acquisition-related positions and to submit their plans to OPM. OPM officials indicated that they have reviewed and approved 9 agencies' plans for consistency with the statutory criteria for reemploying annuitants in those positions. In addition, bills incorporating OPM's proposals related to dual compensation waivers and part time employment are currently pending in Congress. Although the availability of flexibilities generally varies by agency, agencies already have the authority to offer a number of the flexibilities and practices older workers find appealing in an employer. For example, AARP--one of the largest interest groups for individuals age 50 and older--developed criteria to evaluate an organization's performance in recruiting, engaging, and retaining this cohort and has, since 2001, used these criteria to identify the best employers for workers over 50. Features of these criteria, as described by AARP, overlap with many of the flexibilities that federal employment offers. Their availability and usage in the federal government are shown in table 1. One area where the government is particularly strong is the availability of health benefits. Federal agencies offer health benefits and pay a sizable portion of the cost. Health insurance may be an especially attractive recruitment and retention tool to older workers since employees generally need only 5 years of federal service with health insurance while employed to carry that benefit into retirement. The federal government also offers retirement benefits and life insurance, and provides the opportunity for employees to purchase long-term care insurance. In other areas, agencies generally have the authority to offer a particular practice, but their actual usage varies by agency depending on the agency's needs, the nature of the work and other factors. For example, with respect to alternative work arrangements, the federal government offers a number of programs that help employees balance their personal and professional responsibilities, including telecommuting, part time employment, and flexible schedules. A looming retirement wave could result in a possible "brain drain" for federal agencies unless they employ effective succession planning strategies--strategies that include hiring younger workers as well as retaining older workers who possess needed talents and skills and who can share these talents and skills with the next generation. Importantly, the government already has a number of tools in its human capital tool kit that provide agencies with flexibility they need to recruit and retain older workers. Moreover, federal employment offers a range of benefits and employment flexibilities, such as the availability of part-time employment that can make these jobs particularly attractive to older workers, as well as all demographic groups. Still, while the federal government is making progress toward becoming a model employer of older workers, opportunities for improvement remain. First, our demographic analysis shows that while the federal workforce is aging, and an increasing number of employees will become eligible for retirement in the coming years, these trends will have varying degrees of impact within particular agencies. As a result, it will be important for agencies to fully understand and forecast the implications of these trends so they can implement timely and appropriate succession strategies. Second, as certain federal agencies have developed alternative approaches to hire and engage older workers, it will be important for agencies to share lessons learned from these practices governmentwide. And third, despite the availability of employment flexibilities and practices that allow employees to balance their professional and personal responsibilities, individual agencies do not always take advantage of them. Consequently, it is incumbent upon OPM to continue to work with federal agencies to help ensure they have (1) the flexibilities they need to attract and retain a diverse workforce that includes older workers; (2) the awareness of these flexibilities, as well as guidance and technical assistance needed to implement them; and (3) mechanisms to share best practices and lessons learned in attracting and retaining older workers. Becoming a model employer is a shared responsibility and it will be important for agencies to, among other actions, take advantage of available flexibilities and guidance on their use and communicate this information throughout the agency. Collectively, these measures will help make federal agencies more competitive in the labor market for all demographic groups. Mr. Chairman, Ranking Member, and Members of the Committee, this concludes our prepared statement. We would be pleased to respond to any questions that you may have. For questions regarding this testimony, please call Barbara D. Bovbjerg, Director, Education, Workforce, and Income Security at 202-512-7215 or Robert N. Goldenkoff, Director, Strategic Issues at 202-512-6806. Other individuals making key contributions to this statement include Dianne J. M. Blank and Belva M. Martin, Assistant Directors; Nicholas Alexander; Jessica Botsford; Clifton G. Douglas, Jr.; Karin Fangman; Cheri L. Harrington; Isabella Johnson; Mary Y. Martin; Rachael C. Valliere; Kathleen D. White; and Greg Wilmoth. Our objectives were to describe (1) the age and retirement eligibility trends of the current federal workforce; (2) the strategies federal agencies are using to recruit, hire, and retain older workers; and (3) our observations on how these strategies position federal agencies to engage and retain older workers. To describe demographic trends relating to the retirement eligibility and aging of the federal workforce, we analyzed information on the 24 CFO agencies from OPM's human resource reporting system, the Central Personnel Data File (CPDF). We analyzed data on the age, retirement eligibility, occupations, projected retirement rates, and other characteristics of the career federal workforce. We used the following variables: agency, occupation, date of birth, service computation date, pay plan/grade, and supervisory status. All these variables were 97 percent or more reliable. Using the CPDF information, we analyzed the age distribution of career federal employees at CFO agencies by age groupings (under 40, 40-54, and 55 and over). We also analyzed the percentage of career federal employees on board at the end of fiscal year 2007, who would be eligible to retire from fiscal years 2008 to 2012, and the percentage of workers eligible to retire in occupations where the retirement rates exceeded the governmentwide average. As a proxy for those occupations that may be at risk due to high retirement eligibility rates, we selected occupations with 500 or more employees as of the end of fiscal year 2007 that exceeded the governmentwide rate of 33 percent by 50 percent or more. For this report, we defined older workers as those 55 and older. To address this objective, we reviewed strategies available to federal agencies to hire and retain older workers through governmentwide hiring authorities and other flexible arrangements, we interviewed officials at OPM and other selected federal agencies, including Labor, and we reviewed previous GAO work relating to older workers and federal human capital strategies. We also reviewed relevant laws, literature on hiring and retaining older workers, and documents on federal human capital flexibilities. As a case study, we selected the Social Security Administration (SSA), to describe the strategies that one federal agency has taken to hire and retain older workers. We selected SSA because it is at high risk of losing a large proportion of mission-critical employees and because it risks losing these employees at the same time the need for its services will peak. We interviewed human capital officers at selected agencies to collect such information as: the extent to which agency officials think they will be affected by retirements over the next decade; the information agencies have used and presently use to guide the identification of the probable effects of retirement and how agencies determine appropriate courses of action; strategies that have been taken or will be taken regarding recruiting, hiring, and retaining older workers; and characteristics and scope of these strategies, including human capital authorities or special legislation regarding flexibilities that are available to them. To identify and describe alternative strategies, we performed a literature search and conducted interviews with government and private sector experts. The strategies that we describe were developed by the Departments of Agriculture, HUD, and State, the Internal Revenue Service (IRS), Environmental Protection Agency (EPA), and Nuclear Regulatory Commission (NRC). We selected these strategies because they were developed internally to met specific agency needs but could be used elsewhere in the government. To address this objective, we reviewed previous GAO work and conducted interviews with federal officials at OPM and selected agencies and experts at AARP and other organizations that serve older individuals to determine how the federal government is progressing toward becoming a model employer. We chose the AARP criteria for selecting the best employers for workers over age 50 to compare to characteristics of federal employment because of its exclusive focus on older workers. We conducted our work from November 2007 to April 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. 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 federal workforce, like the nation's workforce as a whole, is aging. As experienced employees retire, they leave behind critical gaps in leadership and institutional knowledge, increasing the challenges government agencies face in maintaining a skilled workforce. We and others have emphasized the need to hire and retain older workers as one part of a comprehensive strategy to address expected labor shortages. The Office of Personnel Management (OPM), as the government's central personnel management agency, is responsible for helping agencies manage their human capital. The Chairman of the Senate Special Committee on Aging asked GAO to discuss (1) the age and retirement eligibility trends of the current federal workforce, (2) the strategies federal agencies are using to hire and retain older workers, and (3) our observations on how these strategies position federal agencies to engage and retain older workers. To address these objectives, we analyzed demographic data from OPM's Central Personnel Data File, and interviewed officials at OPM and selected federal agencies. OPM is taking action to address past recommendations related to better assisting agencies in using personnel flexibilities. GAO is making no new recommendations at this time. Governmentwide, about one-third of federal career employees on board at the end of fiscal year 2007 are eligible to retire between now and 2012. Many of these workers are concentrated in certain agencies. For example, nearly half of employees on board at the end of fiscal year 2007 at the Departments of Housing and Urban Development and Transportation, and at the Agency for International Development and the Small Business Administration, will be eligible to retire by 2012. The proportion of workers eligible to retire is also expected to be high in certain occupations, including those considered mission critical, such as air traffic controllers and customs and border protection agents, where more than half of the employees will be eligible at that time. Retirement eligibility will be especially pronounced among the agencies' executives and supervisors--over 60 percent of career executives are projected to be eligible by 2012. Federal agencies have a variety of flexibilities at their disposal to help them recruit and retain older workers, including using temporary hires to address short-term needs and rehiring retired federal workers. However, we found that agencies have not always been aware of the full range of available flexibilities. One agency we reviewed--the Social Security Administration--is particularly at risk of losing a substantial portion of its workforce to retirement and has used a variety of strategies to hire and retain older workers, including offering recruitment, retention, and relocation bonuses. Other agencies, such as the Environmental Protection Agency, have developed alternative approaches to attract experienced workers to meet their mission needs. Moreover, certain governmentwide flexibilities, such as flexible and part-time schedules, while not focused directly toward older workers, are particularly attractive to them. Overall, the federal government already has a number of characteristics that appeal to all employees and is making progress toward becoming a model employer of older, experienced workers. For example, federal employees can telecommute, work flexible hours, and receive health and retirement benefits that older workers find especially attractive. OPM and Congress are taking steps to minimize some challenges that agencies face, but opportunities for improvement remain. For example, OPM has developed online decision support tools to provide agencies with guidance on how to use available hiring flexibilities and retention strategies. Congress has legislation pending that incorporates OPM's proposals to enhance agencies' ability to hire and retain older workers by giving agencies the authority, without OPM approval, to rehire retirees without penalty. Agencies have a shared responsibility to pursue the full range of flexibilities and authorities available and to communicate this information within their own agencies. Collectively, these measures will help make federal agencies more competitive in the labor market for all demographic groups.
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States are responsible for developing licensing criteria and health and safety requirements and conducting enforcement activities to ensure providers comply with them and thereby protect the safety and health of children in child care settings. While the federal government's role is limited in this area, the states must certify that they have safety and health requirements in place and procedures to ensure providers comply with all applicable requirements to receive federal CCDF funds. The Department of Health and Human Services (HHS) oversees CCDF. In fiscal year 2003, the amount of federal funds appropriated for CCDF was $4.8 billion. The CCDF funds are provided to states through a block grant mechanism which allows states to set priorities, establish policies, and spend funds in ways that will help them achieve state child care goals. The Child Care and Development Block Grant statute that underlies the CCDF requires states to designate a lead agency and to establish state plans that commit to establishing and enforcing licensing requirements and health and safety standards for child care providers. The statute leaves it to the states to decide what requirements are to be applicable to specific categories of providers, but for health and safety it sets out three broad parameters that must apply to all providers receiving federal assistance: physical premises safety, staff training, and control of infectious diseases (including childhood immunizations). To qualify for a subsidy provided with funds from the CCDF, a provider must comply with these and any other applicable state requirements. To be eligible for CCDF subsidies, parents must be working, in training, or attending an educational program and have children less than 13 years of age. States can set income eligibility limits at or below 85 percent of the state median income level. States must use a significant portion of their CCDF funds for families receiving Temporary Assistance for Needy Families (TANF) or families who are at risk for becoming dependent upon public assistance. CCDF has five goals: (1) encouraging maximum flexibility in developing state child care programs; (2) promoting parental choice; (3) encouraging states to provide consumer education information to parents; (4) helping states provide child care to parents trying to become independent of public assistance; and (5) helping states implement health, safety, licensing, and registration standards established in state regulations. However, CCDF does not specify how the states should meet these goals and only requires them to be included as elements within the state child care plan. States can also determine which enforcement activities apply to different types of child care. Types of child care eligible to receive funding under TANF and the block grant are described in table 1. States regulate those providers over which they have authority by setting requirements, including those focusing on health and safety, that such child care providers must meet and by enforcing these requirements. State child care licensing offices are responsible for enforcing such health and safety requirements, and engage in different oversight activities for licensed providers and for regulated nonlicensed providers. Licensed providers are generally subject to standard oversight, which generally includes background checks, inspections, technical assistance and training, and the application of sanctions when providers are found to be out of compliance. Regulated nonlicensed providers receive less intense oversight. Such oversight can include self-certification that health and safety standards have been met, background checks, and sanctions. Providers who are legally exempt by state law from oversight are not regulated by state child care licensing offices. For example, in certain states, child care centers run by religious organizations may be exempt. In addition, under federal regulations, the states are not required to apply health and safety requirements to certain providers who only care for a child to whom they are related. Some states may conduct background checks and inspections of their legally exempt providers. States vary as to which types or subtypes of child care providers fall under each level of oversight. When establishing which providers will be required to obtain licenses, and hence be subject to standard oversight, and which will be required to comply with less intense requirements, states consider a number of factors. For example, states consider whether certain providers are subject to other health and safety regulating authorities, such as school- based programs that must conform to all health and safety requirements required for public schools and are overseen by the state education department. States also consider the staffing resources they would need to carry out the necessary licensing and enforcement activities in light of their budget, how to target resources toward the greatest number of children, and the impact that licensing activities could have on child care availability and parental choice. For example, some providers might pass the costs of conforming with licensing requirements on to parents, which could make such care too expensive for some parents. Currently, states are making choices about the extent to which they license certain providers and about which enforcement activities apply to different types of providers. There are no specified federal requirements for licensing and enforcement activities, so many states rely on recommendations made by professional organizations in developing their own standards. Professional organizations recommend standards for several critical licensing and enforcement activities, including background checks, monitoring visits, training for licensing staff, and caseload size. Table 2 outlines recommended practices for critical licensing and enforcement activities. In 2003, the median caseload size for inspectors decreased, but most licensing and enforcement activities for licensed providers remained about the same as those in 1999. Almost a quarter of the states maintained caseloads at recommend levels, and fewer states had caseloads levels over 150. Most states conducted compliance inspections at least once a year, which met or exceeded the recommended level for all types of providers. However, most states do not require the amount of training recommended by national professional organizations. Most states continued monitoring exempt providers by distributing information about health and safety requirements and asking these providers to certify that they complied with state requirements, although some states engaged in more intense monitoring practices for these providers. In 2003, almost a quarter of the states maintained caseloads at or below the recommended level of 75 facilities to one inspector, and the number doing so had increased by 1 since 1999. Specifically, in 1999, 11 states were meeting the recommended caseload levels, and that number increased to 11 states and the District of Columbia by 2003. The median number of facilities per inspector decreased during this time, from 118 facilities per inspector to 110 facilities per inspector, but the number of facilities per inspector was still well above the recommended level of 75 in 2003. In 1999, caseloads ranged from 52 in Missouri to 333 in Colorado, while in 2003, caseloads ranged from 35 per inspector in Hawaii to 600 per inspector in Iowa. Although the range was broader in 2003 than in 1999, more states decreased the size of their caseloads than increased them. Between 1999 and 2003, the caseload in 23 states and the District of Columbia decreased while the caseload in 16 states increased. The number of states with particularly high caseloads, over 150, dropped from 17 to 15, between 1999 and 2003. Among the states whose caseloads decreased were several states with the some of the highest caseloads in 1999. For example, Colorado's caseload went from 333 to 138 as its licensing budget nearly doubled. Figure 1 illustrates the ranges of caseload levels of licensing staff by state in 2003; see appendix II for a comparison of caseload by state in 1999 and 2003 and appendix III for comparisons of licensing budgets and staffing levels by state in 1999 and 2003. While state data showed 12 states maintaining caseloads at recommended levels, states reported that they were visiting facilities as often as recommended, and in 15 states, more often. States may be managing to visit facilities as often as recommended while maintaining caseloads higher than those recommended, in part because the caseload standard itself is not appropriate for some states. Experts note that this standard does not fully account for time-saving technology that might allow some states to operate effectively with larger than recommended caseloads. Further, licensing staff could be making trade-offs not captured in our survey. For example, staff could be maintaining their schedule for monitoring visits at the expense of performing other duties, including processing applications, providing technical assistance, or documenting inspection visits in a timely manner. According to the data reported through state surveys and NCCIC, one less state exempted family child care providers--sole caregivers who care for children in a private residence other than the child's--than were exempted from health and safety requirements in 1999. In 1999, 39 states exempted some family child care providers from regulation, and by 2003, 38 states were exempting some of these types of providers. In addition, fewer states required licensure for some types of centers in 2003 than had in 1999, including religious centers, federal centers, and recreation centers. See table 3. Many states set thresholds at which regulation begins according to the number of children served by different types of providers and exempt from regulation those providers falling below these thresholds. For example, states commonly determine which family child care providers will be regulated based on the number of children in care. Specifically, in a given state, providers caring for 7 or more children in their home might be regulated, while providers caring for 4 children in their home might be exempted from regulation. As figure 2 illustrates, these regulatory thresholds have changed very little since 1999. However, 18 states met or exceeded the recommended practice of regulating providers who cared for 2 or more unrelated children in 2003, whereas 13 were doing so in 1999. Although some changes had occurred since 1999, states continued to conduct compliance inspections in accordance with recommended practices of conducting compliance inspections at least once a year. However, the number of states that visited facilities at least twice a year dropped by about half for all types of settings. According to the data reported to us through our survey, 41 states inspected centers at least annually, and 32 states did so for group homes. Similarly, 28 states conducted inspection visits to family child care homes at least once a year. See figure 3 and appendix IV. The number of states requiring providers to pursue ongoing training increased from 26 in 1999 to 29 in 2003, and as in 1999, the same number of states (4) specifically followed the recommended practice by requiring at least 24 hours of training per year for center directors, and 3 states required this of center teachers. No states required this level of training for family child care providers. The same number of states (32) required licensing staff to have an academic degree in a related field in 1999 and 2003. Similarly, in 1999 and 2003, the same number of states (33) required licensing staff to have work experience in licensing or a related field before being assigned to licensing and enforcement activities. Finally, although very few states had required licensing staff to pass a test in 1999 (7), even fewer required this in 2004 (3). More states informed exempt, subsidized providers about the requirements under the federal grant by sending them a package of information about health and safety requirements in 2003 (32) as reported doing so in 1999 (28). In addition, 17 states reported informing providers by requiring them to attend a short briefing or orientation sessions. Of these, 13 states both sent them a package of information and required attendance at a briefing or orientation. In monitoring providers exempted from regulation who were receiving CCDF funds, states exercised the wide discretion given them by the grant in determining how, or whether, to enforce state and local safety and health requirements for such providers. Some states monitored such providers relatively intensely, while others did not have the authority to do so under state law. For example, some states conducted background checks on exempt providers or inspected such providers. The number of states conducting background checks and inspections for such providers increased since 1999. For 2003, 37 states reported conducting background checks on exempt providers, compared with 20 in 1999. Similarly, for 2003, 12 states reported conducting inspections for such providers compared with 6 in 1999. Finally, for 2003, 9 states reported conducting both background checks and inspections, while 4 states reported doing so in 1999. While 43 states assigned staff to a geographic location, those states using this broad method varied in the specifics of such assignments. Nineteen states also reported assigning staff based on specific job task, such as responding to complaints. Nineteen states reported assigning staff to inspect a particular type of child care facility, such as centers or family homes. Some states used multiple criteria to organize their staff; these states frequently first assigned staff based on geographic location and then relied on secondary criteria, such as type of child care facility. See figure 4. Forty-five states reported using technology to assist them with many aspects of licensing and enforcement activities. States used technology for tracking and monitoring subsidy use, inspecting facilities, making and reconciling payments to providers, linking state and local agencies, maintaining statistics on providers, maintaining statistics on families, and preparing reports to meet federal and state mandates. See figure 5. Technology to complete some of these tasks was available in only a limited number of locations, such as the state licensing office, while for other tasks the technology could be accessed anywhere in the state by authorized users. More states had the ability to maintain statistics on providers and families (24 states) and preparing reports to meet federal and state mandates (20 states) statewide than for any other tasks (tracing and monitoring subsidy use (18 states), making and reconciling payments (17 states), facility inspection checklist (16 states) or linking state and local agencies (12 states)). States we visited have adopted a number of promising practices to assist in their child care licensing and enforcement activities. First, some states used technology in ways that allowed them to streamline their licensing and enforcement processes and to manage parent and provider information particularly effectively. Second, the states we visited had paired frequent inspections with technical assistance to help ensure that child care providers would meet state health and safety regulations. Third, three states we visited had implemented rating systems that differentiate providers by the quality of care they provide. Such systems have helped parents choose child care providers by allowing them to compare the quality of different providers. In addition, these systems have helped states determine what training and technical assistance each provider needs and have offered providers incentives to improve and maintain the quality of their care. Fourth, all the states we visited encouraged partnerships with community organizations to improve the training and education of providers. For example, states partnered with community colleges to connect providers with educational opportunities and with resource and referral agencies to meet the ongoing training needs of providers. States we visited used technology to make licensing and enforcement information more readily available to providers and parents, save time and resources, and track payments and subsidy use. For example, Florida--the state with the most complete, integrated, and up-to-date technology system of the states we visited--used technology to create an online public information system for providers and parents. Providers can use this system to access online information about state policies and regulations, training requirements, how to start a center, and other information. This has helped providers increase professionalism and self- monitoring, according to state officials. Parents can use the system to access the compliance histories of each provider. In addition, some states have used technology to make critical licensing and enforcement activities more efficient. For example, Florida's Internet- based system allows providers to register for training online and access their transcripts and final examination results. Florida officials also told us that posting provider information online reduced the amount of time child care licensing staff had to spend answering questions from providers and consequently allowed them to spend more time on other enforcement activities. Two states we visited--Florida and North Carolina--have used laptops to make the enforcement process more efficient. Specifically, in these states inspectors were able to enter data into their laptops while conducting inspections rather than having to enter this information into the computer after returning to the office. In addition, inspectors in Florida were able to print a copy of the compliance report for providers while on-site to facilitate discussions of areas needing improvement. The laptops also saved inspectors time by allowing them to quickly access provider information, state child care regulations, noncompliance citations, and inspection forms. Officials in both Florida and North Carolina said that using laptop computers had helped inspectors spend less time on administrative duties and allowed them to spend more time providing on- site technical assistance to providers. The project coordinator in Florida said that this system which only covers child care licensing, was more affordable than other states' licensing systems, which are part of their larger statewide child welfare information systems. In another state, technology was used to make it easier for providers and parents to manage subsidy payments and reduced the likelihood of fraud or overpayment. Specifically, Oklahoma reported using an electronic benefits transfer (EBT) system to automatically calculate payment rates and to track subsidy use. Because Oklahoma reimburses providers at over 160 different rates depending upon the characteristics of the family and provider receiving a subsidy, the likelihood of error had been significantly higher before the system was implemented, when licensing staff were responsible for identifying the appropriate rate. According to state officials, this system has saved time processing paperwork. Further, the EBT system has allowed parents receiving a child care subsidy to document the time and attendance for their children using an EBT card issued by the state, and providers are automatically reimbursed at the appropriate rate. This automated system has also has also helped officials identify instances of child care fraud and payment abuse, according to state officials. We found that in the states we visited, only those that had recently invested in computer systems, such as Florida, had been able to take advantage of new technologies at an affordable price. In contrast, other states that had not recently invested in computer systems, such as Delaware, had been unable to adopt such promising practices. Specifically, although Delaware had been on the leading edge of using technology almost a decade ago, it had been unable to maintain this advantage. One state official said that it is costly to implement and maintain the technology necessary to support facilities inspection, particularly when the state's system is relatively old and needs to be updated. For example, Delaware's system was designed in 1995 to help staff investigate child abuse, but was being used in 2003 to track the licensing process. According to state officials, the system was difficult to use for management purposes. To upgrade the system to adopt promising practices such as entering data while conducting on-site inspections, the state would need to develop the system and obtain additional equipment, such as laptop computers. However, officials told us that despite the increases in the state licensing budget since 1999, the state does not have the funding to upgrade the system and purchase additional technological equipment because these funds had been for specific purposes, such as staffing and infant and toddler programs. Florida, North Carolina, and Oklahoma have implemented rating systems to tie the level of reimbursement to a provider's quality. These rating systems helped create a market system by giving parents more information about the quality of child care providers, and offered incentives to providers to obtain higher levels of education and improve quality in their facilities. In implementing rating systems, states set standards for different tiers of quality and assessed providers against these standards. The lowest tier included those providers who only met the state licensing criteria, while the highest tiers in Florida and Oklahoma included those providers who have achieved accreditation by national organizations. States differ in the number of tiers in their systems: North Carolina has five, Oklahoma has four, and Florida has two tiers. Ratings systems have helped parents choose child care providers by allowing them to compare the quality of different providers. While some parents might not have known whether national accreditation would mean higher-quality care, they can easily identify that a provider with five stars was considered to provide better quality than a provider with one star. Rating systems also offered providers incentives to improve and maintain the quality of their facilities by offering higher levels of reimbursement to higher-quality providers. For example, through the star rating systems in North Carolina and Oklahoma, providers with more stars received a higher rate of reimbursement than providers with one star. Similarly, in Florida high-quality providers also receive financial incentives such as a reimbursement rate for subsidized children that is 20 percent higher than the market rate, a tax break for high-quality providers whose clientele does not include subsidized families, and an exemption from sales tax on educational materials. Officials in Oklahoma said that the rating system has provided incentives to all providers to improve the quality of their care, even providers who do not serve subsidized children. Such providers use the star rating as a marketing tool for their facilities, according to state officials. Finally, the rating systems--and the standards and indicators of quality on which they are based--can help states focus their child care quality efforts. For example, North Carolina's five-star rating system forms the core of all its child care quality efforts, according to state officials. The Stars program provided the criteria for identifying areas in which individual centers needed to improve and the steps centers could take to obtain a higher rating, the basis for developing and providing full-day professional development and workshops throughout the year, and links with financial supports to encourage and reward participation in professional development that could lead to higher-quality child care. Training is an integral part of ensuring and upgrading the quality of early childhood education for all the states we visited. We found promising practices in training and information programs for providers and parents. Training and information for providers includes information on starting up a facility and program standards that may be available in information packages or on the Internet; orientation training; technical assistance; staff development courses; conferences, and model observation training sites. Parent information services includes providing information on what to look for when evaluating child care providers, as well as related information on vaccinations, screening and playground safety and where to access parent support services. Delaware, North Carolina, and Oklahoma were cited by experts as having notable training programs. What they have in common is that each training program is part of a total statewide system of interconnected partnerships between state and community agencies to ensure quality early childhood care. In these three states, licensing officials offered prelicensing training so that potential providers could get information on state requirements to avoid being out of compliance. In Delaware, staff from the Family & Workplace Connection, which is the umbrella organization that provides both training and resource and referral (R&R) services and offered a wide range of training opportunities that included some technical assistance, also attended new provider orientations given by the licensing office, to meet these providers and inform them of other services they supply, like the food program, which can furnish free food to providers, or grant opportunities. According to one official, these supports helped providers understand the health and safety requirements, which in turn helped facilitate compliance. In Delaware, inspectors also walked new providers through the health and safety regulations and addressed providers' questions or concerns on their first walk-through of the facility. The bulk of training for providers was provided by training organizations--community colleges, early education training centers, some R&R agencies, and universities--working in partnership with the licensing offices for ongoing staff development. Such training is designed to help providers meet ongoing training requirements and provide them with technical assistance so they can improve the quality of their care by engaging in training programs aligned with state standards and requirements. Oklahoma, North Carolina, and Delaware pursued different strategies to implement this alignment, and Florida demonstrated how a comprehensive Internet information system saves time for providers, training organizations, and state officials. Oklahoma's three-tiered training program comprehensively addresses all training needs from meeting minimal requirements for child care licensing to the most advanced professional development for early care and education workers and center directors. Tier I is short-term, job-related training that can be counted toward ongoing training requirements. Providers can pursue Tier I training by attending workshops or conferences related to their job, watching videos, and self-directed reading, and by participating in in-service training. Tier II is in-depth training that providers engage in by completing courses approved by the state's Center for Early Childhood Professional Development. Tier III training is advanced training, formal education through credit-bearing courses at accredited colleges, universities, and technology centers that transfer for credit to such schools, leading to the highest levels of the quality enhancement star system, the career development ladder, and the Oklahoma director's credential. North Carolina has woven its provider training into its comprehensive Smart Start program, which is a recognized national model of partnerships working together to meet the needs of young children. As part of this program, the education level of staff is one of three areas on which providers are evaluated when their quality rating is determined. Providers who meet higher standards for education and experience receive more stars because, according to state officials, child care teachers with more early childhood education and experience are prepared to provide children with a more enriching child care experience. Providers can improve their star rating by increasing staff education and experience levels and by employing more teachers with early childhood education credentials and experience. Providers can pursue such credentials by completing certificate or higher education programs offered at community colleges and universities. Such training activities are facilitated and coordinated by the North Carolina Institute for Early Childhood Professional Development. Delaware First, the career development program for early childhood professionals that is operated by the Family & Workplace Connection, has developed Core Curricula--Basic, Advanced, and Specialty--that can be used to fulfill training requirements and also to pursue a Child Development Associate degree or college credit. Florida and Delaware provided training information and administrative functions through the Internet. This has saved time for providers, inspectors, and training organizations by allowing providers to register online for courses offered at community colleges or other organizations offering child care training. In addition, providers and inspectors have been able to access providers' transcripts online. State officials say that this program has saved the state time and money, although no studies have been done to quantify these savings. Other state officials have noted that using an Internet system has promoted quality in child care by making the process transparent and easily accessible. In Florida, for example, families seeking quality child care can see the latest the inspection reports on a facility because they are immediately posted on the Internet. According to child care officials and the National Association for the Education of Young Children (NAEYC), training opportunities are maximized and retention rates for child care workers increased when rewards for training and higher quality child care are linked. For example, both North Carolina and Oklahoma offer incentives to providers to encourage them to pursue training. These incentives are offered through a program for college scholarships funded by state, federal, and private dollars (T.E.A.C.H. Early Childhood). Both North Carolina and Oklahoma have also adopted a salary supplement program called WAGE$ to reward increased education attainment. Parent training is provided by R&R organizations in each state, which provide information on the Internet and by telephone, as well as through written brochures, fact sheets, and newsletters. For example, Florida's R&R provides parents a database listing all legally operating child care and early childhood providers, available options for care, indicators of quality to look for when considering a provider, and what to consider when checking on a child's placement, that is, determining how well the placement will meet a child's needs. In Delaware, the R&R offered workshops throughout the year to parents on over 105 topics pertaining to children up to school age. In all four states we visited, the R&R agency provided a system to help parents locate child care--often known as a child care locator--as well as information about how to choose quality care and what training opportunities were available for parents. One expert we interviewed told us that it is important to educate parents because they are the ones who visit the child care facility every day and are most effective in helping to ensure provider compliance with state child care standards. By expanding who is covered by licensing requirements and parental knowledge, states have increased oversight on child care providers since 1999. However, some states have decreased the number of inspections per facility per year. At the same time, states are maintaining their flexibility in administering CCDF and providing parents with choice in the child care options available to them. States use inspections to oversee the child care provided in facilities with the greatest number of children and use less intensive methods like self-certification for other facilities they regulate. Self-certification affords less assurance that providers are meeting safety and health requirements, but in an era when caseload sizes already exceed recommended levels in many states and states find themselves challenged by increasing child care demand, it helps keep low-cost child care available. The use of technology has also increased in the states for state licensing staff, providers, and parents. Not only have the number of states using technology in the areas associated with state activities in new areas, providing information and training resources for parents licensing and enforcement increased, but technology has also expanded into new areas, providing information and training resources for parents, providers, and training organizations on a broad range of topics for a number of different functions. The obvious advantages of an up-to-date, Internet-based, integrated information system have been demonstrated by Florida. However, the size of the investment required for this type of system depends on whether or not the state chooses to create an independent licensing information system, or if the state wants its licensing system to be part of a larger statewide child care information system. Florida found it more affordable to do the former. We provided officials of the Administration for Children and Families (ACF), HHS, an opportunity to comment on a draft of this report. ACF was pleased with the findings and noted that the report will be especially helpful to ACF and the states because it compares state child care health and safety enforcement in 1999 and 2003. ACF's comments are reproduced in appendix VI. ACF also supplied technical comments that were incorporated as appropriate. Unless you publicly announce its contents earlier, we plan no further distribution until 30 days after the date of this letter. At that time we will send copies of this report to the Honorable Wade F. Horn, Assistant Secretary, Administration for Children and Families, HHS; 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 or your staff have any questions or wish to discuss this material further, please call me on (202) 512-7215. To perform our work, we conducted a mail survey in 2004 of state licensing officials in all 50 states and the District of Columbia about their licensing and enforcement policies and practices in 2003. Specifically, we asked states to report on the frequency of their compliance inspections, background checks, training programs and educational requirements for licensing staff, and caseload sizes. We achieved a response rate of 98 percent, with 49 states and the District of Columbia responding to our survey. Maine did not respond. In our 1999 survey, we achieved a 100 percent response rate. We compared our survey results with a mail survey we conducted in 1999 to identify any changes that had occurred within the past few years. Of the 30 substantive questions on our 2004 survey, 17 were identical to those in the 1999 survey, 1 was a version of another 1999 question, and 12 were new questions. To ensure their reliability, we pretested all new questions with current or former state licensing officials. Rather than using our survey data for the number of states exempting family child care providers' regulation, we used data from the National Child Care Information Center (NCCIC). The responses to question 16 of our survey (on the number of states exempting some family child care homes from state regulation) proved problematic, as it had in the 1999 survey. Callbacks to a sample of respondents whose survey responses differed from data produced by NCCIC showed that respondents misunderstood our question. The NCCIC information was based on published state standards of the regulation threshold point for the number of children served rather than survey data. Therefore we used the NCCIC data in this report to answer this question. Since this was similar to what we had done to compensate for the problems in responses to that question in the 1999 survey, the data for the 2 years are comparable. In addition, we conducted a literature search and interviewed child care licensing experts and state and federal officials to gather information about critical licensing and enforcement activities occurring within the states. The experts we interviewed included university research professors, representatives from public policy organizations, staff from organizations that deal with the policy and practice of providing child care services. With the information we gathered through these expert interviews, we identified and conducted site visits in four states--Delaware, Florida, North Carolina, and Oklahoma--to provide examples of promising practices in licensing and enforcement. We conducted our work between October 2003 and July 2004 in accordance with generally accepted government auditing standards. Data were not available. State that did not respond to this survey. Iowa only provided caseload data for centers. Most state licensing offices reported increases in budgets and the number of full-time equivalent (FTE) staff since1999, although an increase in one did not necessarily reflect an increase in the other. Some states could not provide us with FTE or budget information for particular years. Cannot express as a percentage change because 1999 was zero. Maine did not respond to the survey. Does the state conduct renewal visits? Does the state conduct renewal visits? Does the state conduct renewal visits? Does the state conduct renewal visits? Does the state conduct renewal visits? Does the state conduct renewal visits? Not inspected on a regular basis At least twice a year At least twice a year At least twice a year At least twice a year Less often than once every 2 years At least twice a year At least twice a year At least twice a year At least twice a year Family day care is provided by an individual provider in a private residence other than the child's home. Group homes provide care by two or more providers in a private residence other than the child's home. Centers are nonresidential facilities that provide care for children and include full- and part-time group programs, such as nursery and preschool programs. Maine did not respond to our survey. In addition to the person named above, Margaret Armen, Amy Buck, Patricia Bundy, Kara Kramer, Jerry Sandau, and Jay Smale also made major contributions to this report. Child Care: Recent State Policy Changes Affecting the Availability of Assistance for Low-Income Families. GAO-03-588, May 5, 2003. Child Care: States Exercise Flexibility in Setting Reimbursement Rates and Providing Access for Low-Income Children. GAO-02-894, September 18, 2002. Child Care: States Have Undertaken a Variety of Quality Improvement Initiatives, but More Evaluations of Effectiveness Are Needed. GAO-02-897, September 6, 2002. Child Care: States Increased Spending on Low-Income Families. GAO-01-293, February 2, 2001. Child Care: State Requirements for Background Checks. GAO/HEHS-00-66R, February 28, 2000. Child Care: State Efforts to Enforce Safety and Health Requirements. GAO/HEHS-00-28, January 24, 2000. Child Care: How Do Military and Civilian Center Costs Compare? GAO/HEHS-00-7, October 14, 1999. Welfare Reform: States' Efforts to Expand Child Care Programs. GAO/HEHS-98-27, January 13, 1998.
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The federal government requires states that receive funds from the Child Care and Development Fund to establish basic health and safety requirements. The federal government also requires states receiving federal funds for child care to have procedures in place to ensure that providers being paid with grant dollars comply with the applicable safety and health requirements. Because of the significant federal role in paying for child care services and congressional concerns about the way in which states ensure the safety and health of children in child care settings, we were asked to follow up on our prior report, Child Care: State Efforts to Enforce Safety and Health Requirements (GAO/HEHS-00-28, Jan. 24, 2000). This report (1) identifies changes in states' licensing and enforcement activities for various types of licensed and nonlicensed providers since 1999, (2) describes the ways child care licensing agencies organize inspection staff and use technology, and (3) provides examples of promising practices in state child care licensing and enforcement activities. To obtain data, we surveyed state licensing officials in 2004 about their 2003 activities, interviewed experts and made site visits to four states--Delaware, Florida, North Carolina and Oklahoma. State efforts in the licensing and oversight of child care facilities are generally about the same as they were in 1999, except that the median caseload of the number of facilities per inspector dropped from 118 to 110 in 2003. We found that in 2003, 38 states exempted all family child care providers from being regulated, compared with 39 states in 1999. Most states conducted compliance inspections at least once a year, meeting or exceeding the recommended level for all types of providers. Many states organized inspection staff by geography and used technology in many parts of the inspection process. Forty-three states reported assigning staff to geographic locations throughout the state. States also assigned staff based on specific job task and type of child care facility the staff would inspect. Many states used multiple criteria to assign staff. Forty-five states reported using technology to assist them with many aspects of licensing and enforcement functions, such as maintaining statistics on families and providers. States have adopted a number of promising practices to assist their child care licensing and enforcement activities. These practices include the use of technology to streamline licensing and enforcement processes and manage parent and provider information, rating systems to aid parents in selecting the appropriate child care for their child and to offer providers incentives to improve and maintain the quality of their care, and working with other organizations to train providers and parents.
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To advance CMS's efforts to prevent fraud, waste, and abuse in the Medicare fee-for service program, the Small Business Jobs Act of 2010 appropriated $100 million for CMS to implement a data analytic system. The law required CMS to implement a system that could analyze claims prior to payment to identify suspect claims and provider billing patterns and prevent payment of improper and potentially fraudulent claims, among other things. In April 2011, CMS awarded almost $77 million to a contractor to implement, operate, and maintain FPS and design analytic models for the system. CMS awarded about $13 million to a second contractor in July 2011 to develop additional analytic models for FPS. As the original FPS contract was set to end, CMS awarded a nearly $92 million contract in April 2016 for a new, upgraded FPS system--FPS 2.0. FPS 2.0 was fully implemented in March 2017. CMS's Center for Program Integrity (CPI)--which oversees the agency's Medicare program integrity efforts--employs FPS as a key component of its strategy to move beyond the "pay and chase" approach of recovering improper and potentially fraudulent payments to focusing on prevention. FPS screens fee-for-service claims prior to payment in order to help identify and prevent improper and potentially fraudulent payments by performing two primary functions: Develop leads for fraud investigations. FPS compares provider billing patterns and other data against models of potentially fraudulent behavior to identify providers with suspect billing patterns. For example, an FPS model identifies providers that bill for a disproportionate number of services in a single day relative to other providers. FPS simultaneously risk-scores providers identified by the models to prioritize them for potential investigation. In developing these leads, FPS is intended to help CMS prevent potentially fraudulent payments by furthering the agency's ability to more quickly identify and investigate suspect providers, and take more timely corrective actions. Execute automated prepayment edits. FPS edits deny certain improper payments, and some edits compare information from multiple claims to do so. For example, FPS may deny physician outpatient claims based on information from an inpatient claim associated with the same episode of care. CMS submitted three annual reports on FPS's implementation to Congress in response to requirements established by the Small Business Jobs Act of 2010. In these reports, CMS provided information on the corrective actions taken and savings achieved from FPS. In its most recent report, CMS reported that FPS had cumulatively helped prevent or identify nearly $1.5 billion in improper and potentially fraudulent payments from its implementation through the end of calendar year 2015. CMS uses contractors to support the agency's program integrity activities, including program integrity contractors to identify and investigate providers engaged in potential Medicare fee-for-service fraud. CMS is currently in the process of transitioning Medicare program integrity contracts from ZPICs to new contract entities, UPICs. ZPICs operated in seven geographical jurisdictions across the country. UPICs will operate in five jurisdictions and combine Medicare and Medicaid program integrity efforts under a single contracting entity (fig. 1 depicts the geographic jurisdictions of ZPIC and UPIC zones). As of May 2017, two of the five UPICs--the Midwestern and Northeastern--were operational. The program integrity contractors identify leads for provider investigations from three categories of sources: Referrals. A number of entities, including CMS, law enforcement agencies, and the MACs, refer leads about suspect providers to the program integrity contractors. The program integrity contractors also receive leads based on beneficiary and provider complaints and allegations. Program integrity contractor data analysis. Program integrity contractors use postpayment claims to conduct their own data analyses to identify providers with suspect billing patterns. FPS. FPS identifies providers with suspect billing patterns and prioritizes leads based on provider risk-scores. The program integrity contractors generally have a triage process to review leads and determine whether the leads are indicative of potential fraud (see fig. 2 for information on program integrity contractor investigation processes). Leads that are determined to be suspect become formal investigations, and the program integrity contractors perform a range of investigative activities to gather evidence and determine if providers are engaged in potential fraud. These activities include conducting beneficiary and provider interviews, site visits of provider facilities, and manual reviews of provider claims. Based on their investigations, the program integrity contractors may take corrective actions by referring providers engaged in potential fraud to law enforcement and initiating administrative actions. Specifically, if the program integrity contractors uncover evidence of potential fraud, they refer the investigation to the Department of Health and Human Services Office of Inspector General (HHS OIG) for further examination, which may lead to possible criminal or civil prosecution by the Department of Justice. The program integrity contractors may also recommend a range of administrative actions to CMS for approval and implementation. Such actions include revocation of providers' billing privileges and payment suspensions (table 1 describes the administrative actions the program integrity contractors may recommend against providers). CMS's claims processing systems apply prepayment edits to all Medicare fee-for-service claims in an effort to pay claims properly. Most of the prepayment edits are automated, meaning that if a claim does not meet the criteria of the edit, it is automatically denied. Other prepayment edits flag claims for manual review, in which trained clinicians and coders examine claims and associated medical records to ensure that the claims meet Medicare rules and requirements. Many improper and potentially fraudulent claims can be identified only by manually reviewing associated medical records and beneficiary claim histories, and exercising clinical judgment to determine whether services were reasonable and necessary. Whereas automated edits are applied to all claims, manual edits are applied to very few--less than 1 percent of claims undergo manual review. CMS contracts with the MACs to process and pay Medicare fee-for- service claims and implement prepayment edits in the Medicare claims processing systems. The claims processing systems consist of three systems--the MAC front-end systems, shared systems, and Common Working File--that carry out a variety of functions and execute prepayment edits (see fig. 3). When implementing FPS, CMS integrated FPS with the claims processing systems and claims are screened by FPS prior to payment. Unlike the claims processing systems, CPI maintains FPS. HFPP is a voluntary public-private partnership established by HHS and the Department of Justice to facilitate collaboration in addressing healthcare fraud. The membership includes Medicare- and Medicaid- related federal agencies and several state agencies, other federal agencies with responsibility for federal health care programs such as the Department of Defense and Department of Veterans Affairs, law enforcement agencies, private payers, and antifraud and other healthcare organizations. HFPP was established, in part, to help payers identify schemes and providers engaged in potential fraud that individual payers may not be able to identify alone. HFPP began in 2012 with 20 members and, as of June 2017, had grown to 79 members. As of the end of calendar year 2016, CMS had cumulatively spent $30.3 million on HFPP. ZPIC officials stated that FPS helps them identify suspect providers quickly. Because FPS analyzes claims prior to payment, providers with suspect billing patterns can be identified quickly relative to other sources of leads. In particular, several ZPIC officials stated that the leads they develop from their data analyses of postpayment claims are not as timely. Officials from two ZPICs estimated that the postpayment claims they use for their analyses may have been for services rendered 1 to 2 months prior, while the claims analyzed by FPS may have been for services recently rendered. ZPIC officials also said the information associated with FPS leads allows them to examine and triage those leads quickly to determine whether to initiate investigations. FPS leads provide specific information about the type of potential fraud identified, along with claims data and other supporting information. ZPIC officials further stated that they use information from FPS when triaging leads from other sources. In contrast to FPS leads, several ZPIC officials noted that reviewing and triaging leads based on referrals often necessitates additional time and resources. In particular, allegations associated with some referrals can be vague, which makes it difficult for ZPICs to identify the relevant provider claims data and other information needed to assess the validity of the allegations. However, once an investigation is initiated, officials stated that FPS has generally not sped up the process for investigating providers. Several ZPIC officials noted that investigations based on FPS leads are similar to those from other sources in that they require further investigation, such as manual claim reviews or site visits of provider facilities, to substantiate the leads and gather evidence of potential fraud. However, while ZPIC officials said that FPS does not speed up investigations, officials from several ZPICs noted that FPS can help improve the quality of beneficiary interviews. Since FPS leads are based on prepayment claims data, ZPICs can conduct beneficiary interviews shortly after the services have been rendered, when beneficiaries may be better able to recall details about their care. CMS has not tracked data to assess FPS's effect on the timeliness of investigation processes. CMS has lacked such timeliness data because of limitations with its IT system for managing and overseeing ZPICs. However, as of May 2017, CMS was in the process of implementing a new IT system that could be used to assess FPS's effect on the timeliness of program integrity contractor investigation processes. In transitioning to UPICs, CMS is implementing a new contractor workload management system that will capture data on the timeliness of UPIC investigation processes. For example, the system will be able to capture information on the amount of time it takes a UPIC to evaluate a lead or conduct an investigation. CMS officials said that the agency plans to use the information tracked by the system to monitor program performance, including assessing FPS's effect on UPIC investigation processes and the timeliness of corrective actions. The officials also stated that they may not be able to conduct such an assessment for several years as CMS is still in the process of transitioning to UPICs and implementing the new IT system. Further, the officials said that they subsequently would want to collect several years' worth of such data to ensure a reliable assessment. In fiscal years 2015 and 2016, about 20 percent of ZPIC investigations were initiated based on FPS leads, according to our analysis (see table 2). In both years, nearly half of ZPIC investigations were based on referrals. The proportion of investigations based on FPS leads is poised to increase as CMS changes program integrity contractor requirements for using FPS with the transition from ZPICs to UPICs. CMS has required the ZPICs to review all FPS leads that met high-risk thresholds. CMS is instead requiring that the UPICs derive 45 percent of new investigations from FPS. ZPIC officials stated that the new UPIC requirement should allow UPICs flexibility to focus their reviews on the FPS leads that are most applicable to their geographic region. For example, a UPIC with high levels of home health agency fraud within its jurisdiction can focus its reviews of FPS leads on those providers. For total actions, CMS tracked the number of investigations referred to law enforcement. For actions associated with FPS, CMS tracked the number of providers referred to law enforcement. These data are not directly comparable. In addition to tracking the corrective actions and savings associated with FPS, CMS also measures the extent to which investigations initiated from FPS leads result in actions against providers engaged in potential fraud. CMS reported that, in fiscal year 2015, 44 percent of FPS-initiated investigations resulted in administrative actions, which met the agency's fiscal year goal of 42 percent of investigations leading to administrative actions. In fiscal year 2016, 38 percent of FPS-initiated investigations resulted in administrative actions, which did not meet the agency's fiscal year goal of 45 percent. FPS prepayment edits screen individual claims to automatically deny payments that violate Medicare rules or policies. For example, some FPS edits deny claims that exceed coverage utilization limits for a service. FPS edits do not analyze individual claims to automatically deny payments based on risk alone or the likelihood that they are fraudulent. According to CMS officials, the agency does not have the authority to use FPS to automatically deny individual claims based on risk without further evidence confirming that the claims are potentially fraudulent. Although the prepayment edits in FPS are functionally similar to those in CMS's claims processing systems, the FPS edits specifically target payments associated with potential fraud schemes. Like edits executed elsewhere in the claims processing systems, FPS edits deny payments based on rules or policies. Unlike the edits in the claims processing systems, all of the edits in FPS are designed to address identified payment vulnerabilities associated with potential fraud, according to CMS officials. Payment vulnerabilities are service- or system-specific weaknesses that can lead to improper payments, including improper payments that may be due to fraud. For example, CMS implemented an FPS edit that denies physician claims that improperly increase payments by misidentifying the location that the service was rendered. The payments are denied based on the rule that physician claims must correctly identify the place of service. The edit helped address a payment vulnerability identified by HHS OIG that found millions of dollars in overpayments. According to CMS officials, the advantage of using FPS to implement prepayment edits is that the system allows CMS to prioritize edits intended to address payment vulnerabilities associated with potential fraud. Because CPI maintains FPS, CMS can quickly implement edits into FPS. In contrast, edits that are implemented in the claims processing systems are queued as part of quarterly system updates, and may need to compete with other claims processing system updates. CPI is not subject to such limitations when implementing edits in FPS, and officials said that edits can be developed and implemented in FPS more quickly compared to the claims processing systems. As of May 2017, CMS had implemented 24 edits in FPS. CMS reported that in fiscal year 2015, FPS edits denied nearly 169,000 claims and saved $11.3 million. In fiscal year 2016, the edits denied nearly 324,000 claims and saved $20.4 million. CMS officials stated that the number of prepayment edits implemented in FPS thus far has been limited, but that the agency is taking steps to address certain challenges that would allow the agency to develop and implement edits more quickly. For example, because of their role and expertise in processing claims, the MACs advise CPI and help develop and test FPS edits before they are implemented in the system to ensure they will work as intended. However, CPI has been limited in the amount of MAC resources that it can engage to help develop FPS edits under existing contracts. According to officials, CPI is planning to take steps to more directly involve the MACs in FPS edit development, which officials said should accelerate the edit implementation process. Additionally, CMS officials said that they plan to utilize FPS functionality to implement new edits by expanding existing edits to apply to other services. All of the 24 current FPS edits were developed from the ground up, a time and resource consuming process, according to CMS officials. In contrast, developing new edits by expanding existing edits will allow CMS to more quickly develop and implement new edits. HFPP participants we interviewed, including CMS officials, reported that sharing data and information within HFPP has been useful to their efforts to address health care fraud. The principal activity of HFPP is generating studies that pool and analyze multiple payers' claims data to identify providers with patterns of suspect billing across multiple payers. Study topics examine known fraud vulnerabilities important to the participating payers and are selected through a collaborative process. As an example, one study used pooled data to identify providers who were cumulatively billing multiple payers for more services than could reasonably be rendered in a single day. In another study, HFPP pooled payer information on billing codes that are frequently misused by providers engaged in potential fraud, such as codes commonly used to misrepresent non-covered services as covered. See table 4 for a description of HFPP's completed studies as of May 2017. Participants reported that HFPP's studies helped them to identify and take action against potentially fraudulent providers that would otherwise have gone unidentified. For instance, both public and private payers reported that HFPP's non-operational providers report uncovered providers that they had not previously identified as suspect. CMS officials and one private payer we interviewed said that they used information from this study to conduct site visits of reportedly non-operational providers. CMS officials told us that they revoked a number of the providers after confirming that they were indeed non-operational. CMS officials also said that they review the results of HFPP studies and provide information on potentially fraudulent providers to ZPICs when appropriate. The information may either serve as new leads or help support existing investigations. Participants also reported that study results have helped them uncover payment vulnerabilities of which they might not otherwise have been aware. For example, CMS officials stated that they used the HFFP report on misused procedure codes to evaluate several Medicare payment vulnerabilities and then implemented edits to address them. In instances where participants reported that HFPP studies revealed suspect providers or schemes that were known to them, participants stated that HFPP study results helped them to confirm suspicions, better assess potential exposure, and prioritize and develop internal investigations. Several participants we interviewed noted that even though HFPP study results can help them identify suspect providers, they may still face challenges using the information to take corrective actions. HFPP participation rules require payers to examine their internal data and claims to investigate and build cases against suspect providers before taking any corrective actions, partly in order to minimize the risk of payers taking action on false positive study results. For certain types of fraud schemes, however, the participants' internal information alone may not provide enough evidence of improper billing. For instance, although an HFPP study may reveal clear evidence that a provider is billing multiple payers for an unreasonable number of services in a single day, the provider may have only billed individual payers for a limited, reasonable number of services. Participants reported that HFPP has also facilitated both formal and informal information sharing among payers, and indicated that it has helped them learn about fraud vulnerabilities and strategies for effectively addressing them. Formal information sharing includes presentations at HFPP meetings and a whitepaper on how payers can help address beneficiary opioid abuse and reduce opioid-related fraud. HFPP also manages a web portal where participants can share individual best practices and post "fraud alerts" about emerging fraud schemes or suspect providers. Informal information sharing includes knowledge exchanged through the networking and collaboration that occurs among HFPP participants, both at in-person HFPP meetings and through collaboration that occurs via the web portal's participant directory. Although HFPP began operations in 2012, participants we interviewed stated that much of the initial work of the partnership involved negotiating the logistics for collecting and storing participants' claims data. CMS contracts with a trusted third party (TTP) entity to administer HFPP. The TTP consolidates, secures, and confidentially maintains the claims data shared by participants, and conducts studies that analyze the pooled data to identify potential fraud across payers. According to several participants we interviewed, some payers were initially reluctant to share claims data with the TTP because claims contain sensitive provider and beneficiary information and private payers may view them as proprietary. Accordingly, it took time for the TTP to demonstrate to payers its ability to securely store and use pooled claims data. Payers' reluctance resulted in an early time- and resource-intensive data sharing strategy that relied upon payers submitting a limited amount of claims data on a study-by- study basis, in a particular format, stripped of beneficiaries' personally identifiable information and protected health information. Recently, HFPP began to pursue a new data sharing strategy. According to the TTP and participants we interviewed, payers will send in generalized data, reducing the data sharing burden on payers and enabling HFPP to conduct new types of studies to combat fraud. The data can be submitted in various formats, relieving payers from the need to extract and clean study-specific data. All participant data will be pooled and stored, and multiple studies will be run on the data submitted. Payers may voluntarily submit data that includes beneficiaries' personally identifiable information and protected health information. According to CMS officials, collection of personally identifiable information and protected health information will allow HFPP to conduct studies that involve identifying beneficiaries across payers, such as studies examining fraud schemes in which multiple providers fraudulently bill for the same beneficiaries. Several HFPP participants we spoke with indicated their support of the new strategy and willingness to provide beneficiaries' personally identifiable information and protected health information for more in-depth HFPP studies. As of May 2017, 38 partners had signed data sharing agreements with the new TTP. However, not all payers that previously shared claims data have agreed to participate in the new data sharing strategy and those payers are still working with the TTP to formalize agreements regarding how their claims data will be stored and used. GAO provided a draft of this report to HHS. HHS provided technical comments, which GAO 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 to the Secretary of Health and Human Services, the Administrator of CMS, appropriate congressional requesters, 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 members have any questions about this report, please contact me at (202) 512-7114 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 that made key contributions to this report are listed in appendix I. In addition to the contact named above, Martin T. Gahart (Assistant Director), Michael Erhardt (Analyst-in-Charge), Muriel Brown, Cathleen Hamann, Colbie Holderness, and Jennifer Whitworth made key contributions to this report.
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CMS analyzes Medicare fee-for-service claims data to further its program integrity activities. In 2011, CMS implemented a data analytic system called FPS to develop leads for fraud investigations conducted by CMS program integrity contractors and to deny improper payments. In developing leads, FPS is intended to help CMS avoid improper payment costs by enabling quicker investigations and more timely corrective actions. Additionally, in 2012, CMS helped establish the HFPP to collaborate with other health care payers to address health care fraud. One of the key activities of the HFPP is to analyze claims data that are pooled from multiple payers, including private payers and Medicare. GAO was asked to review CMS's use of FPS and the activities of the HFPP. This report examines 1) CMS's use of FPS to identify and investigate providers suspected of potential fraud, 2) the types of payments that have been denied by FPS, and 3) HFPP efforts to further CMS's and payers' ability to address health care fraud. GAO reviewed CMS documents, including reports to Congress on FPS, contractor statements of work, and information technology system user guides, and obtained fiscal year 2015 and 2016 data on FPS fraud investigations and claim denials. GAO also interviewed CMS officials and CMS program integrity contractors regarding how they use FPS, and a non-generalizable selection of HFPP participants regarding information and data sharing practices, and anti-fraud collaboration efforts. Investigations initiated or supported by the Centers for Medicare & Medicaid Services' (CMS) Fraud Prevention System (FPS)--a data analytic system--led to corrective actions against providers and generated savings. For example, in fiscal year 2016, CMS reported that 90 providers had their payments suspended because of investigations initiated or supported by FPS, which resulted in an estimated $6.7 million in savings. In fiscal year 2016, 22 percent of Medicare fraud investigations conducted by CMS program integrity contractors were based on leads generated by FPS analysis of Medicare claims data. Officials representing Medicare's program integrity contractors told GAO that FPS helps speed up certain investigation processes, such as identifying and triaging suspect providers for investigation. However, the officials said that once an investigation is initiated, FPS has generally not sped up the process for investigating and gathering evidence against suspect providers. CMS has not tracked data to assess the extent to which FPS has affected the timeliness of contractor investigation processes. However, CMS is implementing a new information technology system that tracks such data, and officials said that they plan to use the data to assess FPS's effect on timeliness. FPS denies individual claims for payment that violate Medicare rules or policies through prepayment edits--automated controls that compare claims against Medicare requirements in order to approve or deny claims. FPS prepayment edits specifically target payments associated with potential fraud. For example, an FPS edit denies physician claims that improperly increase payments by misidentifying the place that the service was rendered, which helped address a payment vulnerability associated with millions in overpayments. FPS edits do not analyze individual claims to automatically deny them based on risk alone or the likelihood that they are fraudulent without further investigation. As of May 2017, CMS had implemented 24 edits in FPS. CMS reported that FPS edits denied nearly 324,000 claims and saved more than $20.4 million in fiscal year 2016. The Healthcare Fraud Prevention Partnership (HFPP) is a public-private partnership that began in 2012 with the aim of facilitating collaboration among health care payers to address health care fraud. The HFPP had 79 participants as of June 2017. Participants, including CMS officials, stated that sharing data and information within HFPP has been useful to their efforts to address health care fraud. HFPP conducts studies that pool and analyze multiple payers' claims data to identify providers with patterns of suspect billing across payers. Participants reported that HFPP's studies helped them to identify and take action against potentially fraudulent providers and payment vulnerabilities of which they might not otherwise have been aware. For example, one study identified providers who were cumulatively billing multiple payers for more services than could reasonably be rendered in a single day. Participants also stated that HFPP has fostered both formal and informal information sharing among payers. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.
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Consumer-directed health plans generally include three components: a health plan with a high deductible, a savings account--such as an HSA--to pay for health care expenses, and enrollee decision-support tools. An insurance plan with a high-deductible. HSA-eligible plans are required to meet certain statutory criteria. The plans must have a minimum deductible amount--$1,050 for single coverage and $2,100 for family coverage in 2006--and a maximum limit on enrollee out-of-pocket spending--$5,250 for single coverage and $10,500 for family coverage in 2006. Preventive care services may be exempted from the deductible requirement, but coverage of most other services, including prescription drugs, is subject to the deductible. After meeting the deductible, the HSA- eligible plan pays for most of the cost of covered services until the enrollee meets the out-of-pocket spending limit, at which point the plan pays 100 percent of the cost of covered services. A savings account to pay for health care expenses. There are several types of savings accounts that may be associated with consumer-directed health plans, with HSAs being among the most prominent. An HSA is a tax- advantaged savings account established for paying qualified medical expenses. Individuals are eligible to open an HSA if they are enrolled in an HSA-eligible plan and have no other health coverage, with limited exceptions. HSAs are owned by the account holder, and the accounts are portable--individuals may keep their accounts if they switch jobs or enroll in a non-HSA-eligible health plan. Both employers and individuals may contribute to HSAs, and individuals may claim a deduction on their federal income taxes for their HSA contributions. HSA balances can earn interest; roll over from year to year; and be invested in a variety of financial instruments, such as mutual funds. HSA-eligible plan enrollees who choose to pay for medical expenses from their HSA may access their account funds by check, by debit card, or by authorizing insurance carriers to allow providers to directly debit their account funds. HSAs are subject to annual contribution limits. In 2006, contributions were limited to 100 percent of the deductible, but not more than $2,700 for single coverage or $5,450 for family coverage. Contributions, earned interest, and withdrawals for qualified medical expenses are not subject to federal income taxation. A financial institution, such as a bank or insurance company, typically administers the account. Decision-support tools. HSA-eligible plans typically provide enrollee decision-support tools that include, to some extent, information on the cost of health care services and the quality of health care providers. Experts suggest that reliable information about the cost of particular health care services and the quality of specific health care providers would help enrollees become more actively engaged in making health care purchasing decisions. These tools may be provided by health insurance carriers to all health insurance plan enrollees, but are likely to be more important to enrollees of HSA-eligible plans who have a greater financial incentive to make informed decisions about the quality and costs of health care providers and services. HSA-eligible plans had lower premiums, higher deductibles, and higher out-of-pocket spending limits than traditional plans in 2005. Specifically, data from national employer health benefits surveys regarding plans offered in the group market indicate: Premiums for HSA-eligible plans averaged 35 percent less than employers' traditional plan premiums for single coverage and 29 percent less for family coverage in 2005. Annual deductibles for HSA-eligible plans averaged $1,901 for single coverage and $4,070 for family coverage in 2005--nearly six times greater than those of employers' traditional plans. The median annual out-of-pocket spending limit for HSA-eligible plans offered by large employers was $3,500 for single coverage in 2005, which was higher than the median out-of-pocket spending limit of $1,960 reported for traditional plans. The HSA-eligible and traditional plans we reviewed covered the same broad categories of services, including preventive services, and also used similar provider networks in 2005. Our illustration of enrollees' potential health care costs--including premiums, deductibles, and other out-of-pocket costs for covered services--for the three employers' 2005 health plans we reviewed showed that HSA-eligible plan enrollees would incur higher annual costs than PPO enrollees for extensive use of health care, but would incur lower annual costs than PPO enrollees for low to moderate use of health care. Specifically, we estimated that in the event of an illness or injury resulting in a hospitalization costing $20,000, the total costs incurred by the three employers' HSA-eligible plan enrollees would be 47 to 83 percent higher than those faced by the employers' PPO enrollees. In contrast, we estimated that the total costs paid by HSA-eligible plan enrollees who used low to moderate amounts of health care, visiting the doctor for illnesses or injuries six times in one year, would be 48 to 58 percent lower than the costs paid by the PPO enrollees. If HSA-eligible plan enrollees used tax- advantaged funds that they, or someone other than their employer, contributed to their HSA, their costs could have been lower than our estimates. HSA-eligible plan enrollees generally had higher incomes than comparison groups. The average adjusted gross income of the estimated 108,000 tax filers reporting HSA contributions in 2004 was about $133,000, compared with $51,000 for all tax filers under age 65, according to IRS data. Moreover, 51 percent of tax filers reporting HSA contributions had an adjusted gross income of $75,000 or more, compared with 18 percent of all tax filers under age 65. (See fig. 1.) We also found similar income differences between HSA-eligible plan and traditional plan enrollees when we examined other data sources from the group and individual markets. Among Federal Employees Health Benefits Program (FEHBP) enrollees actively employed by the federal government, 43 percent of HSA-eligible plan enrollees earned federal incomes of $75,000 or more, compared with 23 percent for all enrollees in 2005. Additionally, two of the three employers we reviewed and eHealthInsurance reported that HSA-eligible plan enrollees had higher incomes than did traditional plan enrollees in 2005. The data sources we examined did not conclusively indicate whether HSA- eligible plan enrollees were older or younger than comparison groups. IRS data suggest that the average age of tax filers who reported HSA contributions was about 9 years higher than the average age of all tax filers under age 65 in 2004. Similarly, eHealthInsurance reported that in the individual market the average age of its HSA-eligible plan enrollees was 5 years higher than that of its traditional plan enrollees in 2005. In contrast, data from FEHBP and the three employers we reviewed indicate that the average age of HSA-eligible plan enrollees, excluding retirees, was 2 to 6 years lower than that of comparison groups of enrollees. Just over half of HSA-eligible plan enrollees and most employers contributed to HSAs. About 55 percent of HSA-eligible plan enrollees reported HSA contributions in 2004, according to our analysis of data obtained from IRS and a publicly available survey. HSA-eligible plan enrollees from the employers we reviewed were more likely to contribute to an HSA when their employer also offered account contributions. Among tax filers who claimed a deduction for an HSA in 2004, the average deduction was about $2,100 and the average amount deducted increased with income. About two-thirds of employers offering HSA-eligible plans contributed to their employees' HSAs in 2005, according to two national employer health benefits surveys. In 2004, the average employer HSA contribution reported to IRS was about $1,064. Account holders used HSA funds to pay for medical care and to accumulate savings. About 45 percent of tax filers reporting an HSA contribution in 2004--made by themselves, their employers, or others on their behalf--also reported withdrawing funds in 2004. The average annual amount withdrawn by these tax filers was about $1,910. About 90 percent of these withdrawn funds were used to pay for expenses identified under the Internal Revenue Code as eligible medical expenses. IRS data show that about 40 percent of all funds contributed to HSAs in 2004 were withdrawn from the accounts by the end of the year. In addition to using HSAs for medical and other expenses, account holders appeared to use their HSA as a savings vehicle. About 55 percent of tax filers reporting HSA contributions in 2004 withdrew no money from their account in 2004. We could not determine whether HSA-eligible plan enrollees accumulated balances because they did not need to use their accounts (that is, they paid for care from out-of-pocket sources or did not need health care during the year) or because they reduced their health care spending as a result of financial incentives associated with the HSA-eligible plan and HSA. However, many focus group participants reported using their HSA as a tax-advantaged savings vehicle, accumulating HSA funds for future use. HSA-eligible plan enrollees who participated in our focus groups at the three employers we reviewed generally reported positive experiences with their plans. These focus group participants, who had voluntarily elected to enroll in HSA-eligible plans as one of several choices offered by their employers, cited the ability to accumulate savings, the tax advantages of having an HSA, and the ability to use an HSA debit card as positive aspects of HSAs. Participants reported few problems obtaining care, and when given a choice, many reported that they had reenrolled in the HSA-eligible plan. While focus group participants enrolled in HSA-eligible plans generally understood the key attributes of their plan, such as low premiums, high deductibles, and the mechanics of using the HSA, they were confused about certain other features. For example, many participants understood that certain preventive services were covered free of charge, but they also had trouble distinguishing between the preventive services and other services provided during a preventive office visit. Moreover, many participants were unsure what medical expenses qualified for payment using their HSA. Few participants researched the cost of hospital or physician services before obtaining care, although many participants researched the cost of prescription drugs. A few participants reported asking physicians about the cost of services, but others expressed discomfort with asking physicians about cost. For example, one participant said, "Americans don't negotiate. It's not polite to question the value of work." Participants of one focus group also reported not initially understanding the extent to which they needed to manage and take responsibility for their health care, including by asking questions about the cost of services and medications. Participants also reported that only limited information was available regarding key quality measures for hospitals and physicians, such as the volume of procedures performed and the outcomes of those procedures. The decision-support tools provided with consumer-directed health plans we previously reviewed were limited and did not provide sufficient information to allow enrollees to fully assess cost and quality trade-offs of health care purchasing decisions. Most participants reported that they would not recommend HSA-eligible plans to all consumers. Some participants said they enrolled in the HSA- eligible plan specifically because they did not anticipate getting sick, and many said they considered themselves and their families as being fairly healthy. Most participants would recommend the plans to healthy consumers, but not to those who use maintenance medication, have a chronic condition, have children, or may not have the funds to meet the high deductible. In closing, as more individuals face the choice of enrolling in HSA-eligible plans or other consumer-directed health plans, they will likely weigh the savings potential and financial risks associated with these plans in relation to their own health care needs and financial circumstances. Because healthier individuals who use little health care could incur lower costs under HSA-eligible plans than under traditional plans, when given a choice they may be more likely to select an HSA-eligible plan than will less healthy individuals who use greater amounts of health care. It will be important to monitor enrollment trends and assess their implications for the cost of health care coverage for all HSA-eligible and traditional plan enrollees. Few of the HSA-eligible plan enrollees who participated in our focus groups researched cost before obtaining health care services. This may be due in part to a reluctance of consumers to question health care providers about the cost of their services and the dearth of information provided by insurance carriers to their enrollees about the cost of health care services under their plans--a limitation that insurance carriers are beginning to address. According to proponents, an increase in such health care consumerism can help restrain health care spending increases under the plans. Such an increase will likely require time, education, and improved decision-support tools that provide enrollees with more information about the cost and quality of health care providers and services. Finally, while HSA-eligible plan enrollees we spoke with were generally satisfied with their plans, it is notable that these enrollees each had a choice of health plans and voluntarily selected the HSA-eligible plan. Their caution that HSA-eligible plans may not be appropriate for everyone suggests that satisfaction may be lower when employees are not given a choice or when employer contributions to premiums or accounts do not sufficiently offset the potentially greater costs faced by HSA-eligible plan enrollees. Mr. Chairman, this concludes my prepared remarks. I would be happy to answer any questions that you or other Members of the Subcommittee may have. For future contacts regarding this testimony, please contact John E. Dicken at (202) 512-7119 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Randy DiRosa, Assistant Director; Pamela N. Roberto; and Patricia Roy 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. 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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Health savings accounts (HSA) and the high-deductible health insurance plans that are eligible to be coupled with them are a new type of consumer-directed health plan attracting interest among employers and consumers. HSA-eligible plans constitute a small but growing share of the private insurance market, and the novel structure of the plans has raised questions about how they could affect enrollees' health care purchasing decisions and costs. This statement is based on GAO's August 2006 report entitled "Consumer-Directed Health Plans: Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans" (GAO-06-798). In this report, GAO reviewed (1) the financial features of HSA-eligible plans in comparison with those of traditional plans, such as preferred provider organizations (PPO); (2) the characteristics of HSA-eligible plan enrollees in comparison with those of traditional plan enrollees or others; (3) HSA funding and use; and (4) enrollees' experiences with HSA-eligible plans. HSA-eligible plans had lower premiums, higher deductibles, and higher out-of-pocket spending limits than did traditional plans in 2005, but both plan types covered similar services, including preventive services. For the three employers' health plans GAO reviewed to illustrate enrollees' potential health care costs, GAO estimated that HSA-eligible plan enrollees would incur higher annual costs than PPO enrollees for extensive use of health care, but would incur lower annual costs than PPO enrollees for low to moderate use of health care. HSA-eligible plan enrollees generally had higher incomes than comparison groups, but data on age differences were inconclusive. In 2004, 51 percent of tax filers reporting an HSA contribution had an adjusted gross income of $75,000 or more, compared with 18 percent of all tax filers under 65 years old. Two of the three employers GAO reviewed, the Federal Employees Health Benefits Program, and a national broker of health insurance also reported that HSA-eligible plan enrollees had higher incomes than traditional plan enrollees in 2005. Just over half of all HSA-eligible plan enrollees and most employers contributed to HSAs, and account holders used their HSA funds to pay for medical care and accumulate savings. About 55 percent of HSA-eligible plan enrollees reported HSA contributions to the Internal Revenue Service in 2004, and about two-thirds of employers offering HSA-eligible plans contributed to their employees' HSAs. About 45 percent of tax filers reporting 2004 HSA contributions also reported that they withdrew funds in that year, and 90 percent of these funds were withdrawn for qualified medical expenses. The other 55 percent of those reporting HSA contributions did not withdraw any funds from their HSA in 2004. HSA-eligible plan enrollees who participated in GAO's focus groups generally reported positive experiences, but most would not recommend the plans to all consumers. Few participants reported researching cost before obtaining health care services, although many researched the cost of prescription drugs. Most participants were satisfied with their HSA-eligible plans and would recommend them to healthy consumers, but not to those who use maintenance medication, have a chronic condition, have children, or may not have the funds to meet the high deductible.
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Many individuals suffering from advanced chronic obstructive pulmonary disease or certain other respiratory and cardiac conditions are unable to meet their bodies' oxygen needs through normal breathing. Supplemental oxygen has been clinically shown to assist many of these patients. Medicare's eligibility criteria for the home oxygen benefit are quite specific. Patients must have (1) an appropriate diagnosis, such as chronic obstructive pulmonary disease; (2) clinical tests documenting reduced levels of oxygen in the blood; and (3) a certificate of medical necessity, signed by a physician, prescribing the volume of supplemental oxygen required in liters per minute and documenting whether the patient needs a portable unit in addition to a home-based stationary unit. Physicians can prescribe a specific type of oxygen system on the certificate of medical necessity, or they can allow the oxygen supplier to decide which type of system best meets a patient's needs. Currently, there are three methods, or modalities, through which patients can obtain supplemental oxygen: compressed gas, which is available in various sized tanks, from large stationary cylinders to small portable cylinders; oxygen concentrators, which are electrically operated machines about the size of a dehumidifier that extract oxygen from room air; and liquid oxygen, which is available in large stationary reservoirs and portable units. For most patients, each of the three modalities--compressed gas, liquid oxygen, and oxygen concentrator--is clinically equally effective for use as a stationary unit. However, liquid oxygen is most often prescribed for the small proportion of patients that require a very high oxygen liter flow. As shown in table 1, over the past 10 years the use of oxygen concentrators has increased substantially, and the use of compressed gas as the primary, home-based unit is now negligible. At the time of our review, the monthly Medicare fee schedule allowance for a stationary oxygen system was about $285, and it is currently about $300. Medicare pays 80 percent of the allowance, and the patient is responsible for the remaining 20 percent. The Medicare allowance covers use of the equipment; all refills of gas or liquid oxygen; supplies such as tubing; a backup unit, if provided, for patients using a concentrator; and services such as patient assessments, equipment setup, training for patients and caregivers, periodic maintenance, and repairs. In addition to a stationary unit for use in the home, about 75 percent of Medicare home oxygen patients have portable units that allow them to perform activities away from their stationary unit and outside the home.The most common portable unit is a compressed gas tank set on a small cart that can be pulled by the user. Highly active individuals who spend a great deal of time outside the home may use a portable liquid oxygen cylinder or a lightweight gas cylinder, both of which can be carried in a backpack or shoulder bag. These units may be used with an oxygen conserving device to increase the amount of time a single cylinder can be used. The Medicare monthly allowance for portable equipment is currently about $48, regardless of the type of unit. For the period we reviewed, the allowance was about $45. The Balanced Budget Act of 1997 reduced Medicare reimbursement rates for home oxygen by 25 percent effective January 1, 1998, and by an additional 5 percent effective January 1, 1999. Thereafter, the Medicare rates are to be frozen through 2002. The act also requires the Secretary of HHS to undertake a 3-year competitive bidding demonstration project for home oxygen, to be completed by December 31, 2002. Medicare's monthly fee schedule allowances for home oxygen are much higher than the rates VA pays. As shown in table 2, during the first quarter of fiscal year 1996, Medicare's monthly fee schedule allowance averaged $320 per patient, including an allowance for a portable unit for the 75 percent of Medicare patients that obtain portables. VA's average monthly payment, based on all costs for a sample of 5,000 VA patients, was $155. After adding a 30-percent adjustment to VA payments to account for the higher costs associated with servicing Medicare patients, the average VA monthly payment was $200, or almost 38 percent less than Medicare's allowance of $320. In comparing Medicare and VA payments, we carefully considered all factors that could account for differences in the costs of servicing the two patient groups. Such factors could include clinical characteristics of each patient population as well as differences in how the two programs are administered. Regarding clinical differences, Medicare and VA patients with pulmonary insufficiency must meet the same medical eligibility criteria for home oxygen, and clinical experts and suppliers told us that the home oxygen needs of the two patient groups are essentially the same. We excluded from our analysis the small number of VA patients who were receiving home oxygen for conditions other than pulmonary insufficiency, such as cluster headaches. Utilization patterns for stationary equipment were remarkably similar. Of the 5,000 VA patients in our nationwide sample, about 84 percent used an oxygen concentrator, and 16 percent used stationary liquid oxygen systems. Among Medicare beneficiaries nationwide, 86 percent used oxygen concentrators. In contrast, program differences do affect the costs suppliers incur when serving VA patients, and our analysis included an adjustment to reflect those factors before we compared VA and Medicare's payment rates. The upcoming reductions in the modality-neutral Medicare payment rates have raised concerns that Medicare patients will have less access to (1) stationary liquid systems, from which patients can refill portables; (2) refills of gas or liquid portable units for patients that have concentrators; and (3) new lightweight, but more expensive, portable systems. In response to these concerns, some groups have proposed changes to Medicare's modality-neutral payment system. Although stationary liquid oxygen systems are more expensive than concentrators, they enable highly mobile patients to refill their portable liquid units from their stationary reservoirs. This provides these patients greater autonomy and requires suppliers to make fewer deliveries of replacement tanks than are needed for patients using concentrators along with portable compressed gas tanks. The Medicare fee schedule allowance is the same for both stationary liquid systems and concentrators--about $285 per month during the first quarter of fiscal year 1996. During the same period, monthly VA payments averaged about $125 for patients with concentrators and $315 for patients with stationary liquid systems. Yet about 15 percent of both Medicare and VA patients had liquid stationary systems, an indication that the Medicare modality-neutral rates then in effect did not restrict patient access to liquid systems. The upcoming reduction in Medicare payment rates, however, could lead some suppliers to shore up their profits by offering only oxygen concentrators for stationary systems, which would also reduce access to liquid portable refills from stationary units. Most Medicare suppliers now provide relatively few stationary liquid systems or none at all. Of about 6,500 Medicare home oxygen suppliers, about 82 percent obtained 5 percent or less of their Medicare revenues from stationary liquid oxygen systems. Furthermore, almost 25 percent of oxygen suppliers received virtually all of their Medicare revenue from oxygen concentrators. Providing only concentrators allows these suppliers to maximize their profits by avoiding the higher costs associated with stationary liquid as well as with portable units. (Medicare considers the monthly fee for the stationary unit to cover supplies and services for portable units, so providing portable units costs suppliers more.) Since VA acquires home oxygen services under a fee-for-service payment system, VA can ensure that its patients have access to stationary liquid oxygen systems by paying more for them. In addition, VA doctors prescribe the type of system that they feel is most appropriate for their patients. Physicians with Medicare patients can help ensure that they obtain access to the type of oxygen delivery system they need by specifying on the certificate of medical necessity the oxygen delivery system that should be supplied. However, some physicians allow the supplier to decide. Our study included an analysis of the number of Medicare and VA patients that were provided portable units. Even though Medicare paid higher monthly fees to oxygen suppliers than VA, only about 75 percent of Medicare beneficiaries using home oxygen had portable units, while about 97 percent of the VA patients in our sample had portable units. About 1,500 suppliers, or almost 25 percent of all Medicare home oxygen suppliers, provided portable units to no more than 10 percent of their Medicare patients--far below the portable utilization rate of about 75 percent among all Medicare home oxygen beneficiaries. Among patients using compressed gas portable systems, VA patients in our sample obtained about four cylinders per month, while Medicare beneficiaries whose records we reviewed received about two cylinders per month. On the basis of these data, we determined that the lower VA payment rates did not result in less access to portable units or refills. Pulmonary specialists frequently recommend that their patients get as much exercise as possible. Clinicians point out that an overall respiratory therapy regime that includes exercise may slow the deterioration associated with pulmonary insufficiency. According to some experts, an effective exercise program requires portable systems that are lighter and less cumbersome--but more expensive--than the common compressed gas E tanks that are pulled on a small cart. Currently available alternatives are portable liquid oxygen units, which can be refilled from stationary reservoirs at home, or lightweight aluminum gas cylinders, both of which may be used with an oxygen conserving device. Both of these portable systems are small and light enough to be carried in a backpack or shoulder bag, but they are more expensive than the traditional cart-mounted E tanks. Medicare claims data show that of the 363,000 Medicare patients with portable oxygen units in fiscal year 1996, almost 75,000, or about 21 percent, had portable liquid oxygen cylinders. Medicare claims do not identify how many patients with portable gas systems had the traditional E tank or the smaller, lightweight cylinders. Our review of about 550 Medicare patient records indicated that only about 8 percent had lightweight tanks. The National Association for Medical Direction of Respiratory Care has proposed retaining Medicare's modality-neutral payment for stationary systems but establishing two reimbursement rates for portable units--a lower rate for traditional E tanks and a higher rate for lightweight portable cylinders, which the Association describes as an ambulatory system. The Association proposes that prescribing physicians decide which type of portable system is most suitable for their patients. This approach has also been endorsed by the American Thoracic Society and the American Lung Association. In contrast, others have noted that Medicare's modality-neutral rate is designed to meet the needs of the entire home oxygen population: Some patients are more expensive to service than others, but the rate is designed so suppliers will make a profit overall. These supporters of the modality-neutral rate also believe that the lack of clinical criteria for deciding which patients need a lightweight ambulatory unit means far more patients will obtain such ambulatory units than will benefit from them. Also, once a patient obtains an ambulatory unit, a lack of adequate controls in the Medicare program could lead to continued payment for the more costly unit when it is no longer needed. Since chronic obstructive pulmonary disease is progressive, a patient's activity level and the need for a portable or ambulatory system can be expected to eventually decline. However, in our case record reviews, we could not identify any cases where monthly Medicare payments for a portable unit were discontinued for a patient receiving home oxygen. The Balanced Budget Act of 1997 allows HHS to establish separate payment rates and categories for different types of home oxygen equipment, as long as the adjustments are budget neutral. This provides HHS the flexibility to restructure reimbursements to ensure patient access to the equipment and services they need and to reflect market changes and new oxygen delivery technology, which continues to evolve. However, some suppliers, industry experts, and HCFA officials have expressed reservations about abandoning modality-neutral payments, citing the administrative complexity and oversupply of more expensive services that motivated creation of the modality-neutral system. Although Medicare payments for home oxygen include reimbursement for services, HCFA has not specified the type or frequency of services it expects home oxygen suppliers to provide. In contrast, VA encourages its medical centers to contract with suppliers that are accredited by JCAHO or comply with its standards. Even though VA's reimbursements are less generous than Medicare's, VA patients received more frequent service visits than the Medicare patients whose records we reviewed. To qualify as a Medicare home oxygen supplier, a company must obtain a supplier number from Medicare's National Supplier Clearinghouse and follow basic business practices, such as filling orders, delivering goods, honoring warranties, maintaining equipment, disclosing requested information, and accepting returns of substandard or inappropriate items from beneficiaries. Other than these requirements, Medicare has no standards specific to the needs of home oxygen patients. In contrast, VA has both broad accreditation standards and specific contract terms that often define the specific type and frequency of services VA home oxygen patients should receive. VA contracts frequently specify company and personnel qualifications; requirements for staff training, patient education, and development of a patient plan of care; the type and number of patient service visits necessary; required response time for emergencies; and procedures for addressing patient concerns. Many VA contracts also identify the type of equipment to be used, often specifying brand names or equivalents, and equipment repair requirements. To ensure that suppliers comply with the terms of the contract, VA schedules random home visits by VA staff for a minimum of 10 percent of VA patients receiving home oxygen each year. Records we reviewed at oxygen suppliers for about 550 Medicare patients showed that 49 percent of the patients had clinical assessments during a 3-month period, and 30 percent had visits to check and maintain equipment. For the remaining 20 percent, there was no evidence in the suppliers' records that the patient had been visited within the 3-month period for either a clinical assessment or an equipment check. Similarly, in 1994, the HHS Office of the Inspector General (OIG) reported on the services provided to Medicare home oxygen patients using oxygen concentrators.The OIG found that 17.5 percent of these Medicare patients did not receive an equipment check within a 3-month period, and over 60 percent did not receive any other patient services, such as a clinical assessment. In contrast, we found that 43 of the 46 VA medical centers in our review required the supplier to perform a clinical assessment, an equipment check, or both at least once every 3 months. Of these 43 medical centers, 36 required monthly clinical assessments or equipment checks, and 24 specified that these visits be conducted by respiratory therapists. The remaining three medical centers required that visits be conducted in accordance with oxygen equipment manufacturers' specifications or in compliance with standards established by JCAHO. VA officials stated that each of these three medical centers had assessments and checks conducted at least once every 3 months. The Balanced Budget Act of 1997 mandates that the Secretary of HHS establish service standards for home oxygen "as soon as practicable." The act also requires that peer review organizations evaluate access to, and quality of, home oxygen equipment provided to Medicare beneficiaries. Because no definitive national guidelines exist for the most appropriate level of patient support and equipment monitoring services, it is important that HCFA consult with the medical community and equipment manufacturers when developing standards to help ensure that those standards are based on the best available information. Medicare's reimbursement rates for home oxygen exceed the competitive marketplace rates paid by VA, even after inflating rates by 30 percent to adjust for differences between the two programs. Yet the higher monthly rates Medicare pays appear to purchase the same home oxygen benefits as VA's lower rates--or even fewer oxygen benefits. About 15 percent of both VA and Medicare patients received the more expensive stationary liquid oxygen systems, rather than concentrators. About 97 percent of VA patients received portable oxygen units, compared with about 75 percent of the Medicare patients. VA patients also received more refills of portable gas tanks and more frequent service visits. And, unlike Medicare patients, VA home oxygen patients benefit from specific home oxygen supplier standards to help ensure that they receive the equipment and services they need. The Balanced Budget Act of 1997 includes provisions that will bring Medicare's reimbursement rates more into line with the competitive marketplace rates paid by VA. The act also requires HHS to develop specific service standards for home oxygen suppliers that service Medicare patients as well as to monitor patient access to home oxygen equipment. Finally, the act gives HHS the flexibility to restructure the modality-neutral payment, if warranted, to ensure that Medicare patients obtain access to the equipment and services appropriate to their needs. We recommend that the Administrator of HCFA do the following: monitor trends in Medicare beneficiaries' use of and access to stationary liquid oxygen systems and liquid and gas portables; monitor the availability and costs of new and evolving oxygen delivery systems, including lightweight portable systems and oxygen conserving devices, and work with the medical community to (1) evaluate the clinical benefits associated with the use of such equipment, (2) identify the patient populations most likely to benefit from the use of such equipment, and (3) educate prescribing physicians about existing options in oxygen delivery systems and their right to prescribe the system that best meets their patients' needs; advise the Secretary of HHS whether a budget-neutral restructuring of the Medicare reimbursement system for home oxygen is needed to provide patient access to the more expensive home oxygen systems, and whether Medicare controls can be implemented to ensure that the use of such systems is limited to patients that can benefit from their use; and work with the medical community, the oxygen industry, patient advocacy groups, accreditation organizations, and VA officials to promptly finalize service standards for Medicare home oxygen suppliers. We provided a draft of this report to the Administrator of HCFA and the Secretary of VA. VA and HCFA officials suggested some technical changes, and we modified the text to reflect their comments. HCFA officials said that they are forming a work group that includes representatives of peer review organizations, the oxygen and health care industries, Medicare contractors, patient advocacy groups, and VA. This work group will develop the protocols for the peer review organizations to follow in their evaluation of access to, and quality of, home oxygen equipment. HCFA officials also stated that it would not be appropriate to establish a separate, higher reimbursement for a specific type of oxygen system, such as liquid portables, unless there were clear clinical criteria defining the medical need for such a system. As agreed with your office, unless you release its contents earlier, we plan no further distribution of this report for 2 days. At that time we will make copies available to other congressional committees and Members of Congress with an interest in this matter, the Secretary of Health and Human Services, and the Secretary of Veterans Affairs. This report was prepared by Frank Putallaz and Suzanne Rubins, under the direction of William Reis, Assistant Director. Please call Mr. Reis at (617) 565-7488 or me at (202) 512-7114 if you or your staff have any questions about the information in this report. To evaluate the appropriateness of Medicare's reimbursement rates for home oxygen, we considered comparing Medicare's rates to those paid by Medicaid, private insurance companies, managed care plans, and the Department of Veterans Affairs (VA). All such comparisons have some inherent limitations. After evaluating the alternatives, we decided to use VA's competitive contracting rates, with some adjustments, for our rate comparisons. We did not use Medicaid payment rates for our comparisons because each state has wide latitude in determining the benefits it covers and its reimbursement rates. Also, since Medicare is the largest single payer of home oxygen benefits, many states base their payment levels on Medicare's fee schedule. Similarly, we found that private insurance companies use a wide range of methods to establish payment rates. Some firms base their fees on Medicare's reimbursement levels, while others pay submitted charges or negotiate rates on a case-by-case basis. We found that some private insurers pay more than Medicare and others pay less. We were not able to identify any insurance company with a large number of beneficiaries on long-term home oxygen therapy whose rates could serve as the basis for a nationwide comparison with Medicare's rates. Nor could we identify any private insurer that had done a study to determine the appropriate reimbursement level for home oxygen services. Furthermore, the coverage criteria for home oxygen varied both from company to company and within the same company depending on the type of coverage purchased by an individual or a group health plan. Medicare managed care plans that we contacted were unwilling to provide us information on the rates they negotiate with oxygen suppliers because they consider that information to be proprietary. However, during our patient file reviews at oxygen suppliers, we identified two Medicare managed care plans that pay about $200 a month for services comparable to those provided to fee-for-service Medicare beneficiaries. Because the availability of these data was very limited, we could not use them for our analysis. benefits to 23,000 patients at a cost of almost $26.5 million. VA's medical criteria for using supplemental oxygen to treat pulmonary insufficiency are the same as Medicare's. Further, clinical experts and suppliers told us that the home oxygen service needs of VA and Medicare patients with pulmonary insufficiency are essentially the same. We analyzed claims and charge data compiled by the four Durable Medical Equipment Regional Carriers and the Statistical Analysis Durable Medical Equipment Regional Carrier. These data provided information on how the Medicare home oxygen benefit has grown and how suppliers structure their Medicare billing for the different types of home oxygen systems. The Statistical Analysis Durable Medical Equipment Regional Carrier began compiling national claims data for home oxygen in 1994, so we concentrated on data from the past 2 fiscal years. We supplemented the national Medicare claims data with information from home oxygen suppliers' records for about 550 Medicare patients. We obtained data on VA payments for home oxygen from original contractor invoices for a nationwide sample of about 5,000 VA patients, drawn from 46 of the 162 VA medical centers that have home oxygen contracts. These 46 VA medical centers included at least one VA medical center from each of VA's 22 Veterans' Integrated Service Networks. Since each contract differs, we reviewed the contracts at each of the medical centers in our sample. The invoices we used were for October, November, and December 1995, and they included the cost of equipment rental; oxygen refills; supplies; and services, including the cost of any portable systems and contents provided to the patient. After excluding the relatively small number of patients using stationary gas systems from both patient groups, we found that about 84 percent of VA patients in our study used an oxygen concentrator, and 16 percent used a stationary liquid oxygen system. Among Medicare beneficiaries nationwide, 86 percent used concentrators, and 14 percent used stationary liquid oxygen systems. oxygen refills on the basis of patient use. Other medical centers may incur additional charges for setup and service visits, for example, or for various types of supplies. Since Medicare pays one fee for everything, we "rebundled" the costs incurred by each VA center to compare the total per-patient cost with Medicare reimbursement rates. We excluded from our analysis cases in which VA medical centers provided the supplier with the equipment to be used and only paid the supplier a fee to maintain VA equipment. Further, we did not include the small number of VA patients in our analysis who used only compressed gas because this modality was likely to be used by patients to relieve cluster headaches, a condition not covered by Medicare's home oxygen benefit. Included in our sample were VA patients who were using an oxygen concentrator or a stationary liquid oxygen system for the treatment of pulmonary insufficiency and who were required to meet the same medical criteria as Medicare patients on home oxygen. To determine if there were any significant geographic differences in costs, we grouped the VA medical centers by the geographic areas served by each of Medicare's four Durable Medical Equipment Regional Carriers. We found that the average weighted cost for home oxygen for VA medical centers in three of the four geographic areas was within 10 percent of the $155 nationwide average. The average weighted cost for the VA medical centers in the fourth geographic area was 17 percent higher than the nationwide average. This region also had the highest percentage of patients on liquid oxygen, while the region with the lowest average cost had the highest percentage of patients on concentrators. We concluded that the modality mix within a region affected the average price more than geography did. Significant differences between the Medicare and VA programs may account for some of the variation in home oxygen payment rates between VA and Medicare. Most significantly, VA competitively procures oxygen supplies and services, and Medicare does not. Other differences between the programs can place a greater administrative burden on suppliers who service Medicare patients. For example, VA preapproves each patient for home oxygen services, while Medicare requires that oxygen suppliers furnish a certificate of medical necessity completed by a physician before paying the suppliers' claims. Also, VA patients are not responsible for any copayment; therefore, VA suppliers do not have to bill VA patients for copayments as they do for Medicare patients. In our meetings with home oxygen suppliers and industry representatives, we solicited their views and any data they could provide to quantify the differences in costs between serving VA and Medicare patients. One 1995 industry study estimated that the administrative requirements of Medicare could be accounted for by adding a 15-percent cost differential to the rates VA pays. In other words, the industry study estimated that the rates obtained by VA for home oxygen should be increased by 15 percent before they are compared with Medicare's rates. However, on the basis of our analysis of the differences between VA and Medicare programs, which are further discussed below, we concluded that a 30-percent adjustment to VA's payment rates more adequately reflects the higher costs suppliers incur when servicing Medicare beneficiaries. Each VA medical center is responsible for procuring its home oxygen through the competitive bidding process. VA central office policy encourages the medical centers to contract with a supplier that is either accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) or complies with its standards. Within certain guidelines, each center can structure its contract to reflect its own operating philosophy relating to financial management and patient care as well as the local market for home oxygen. Most of the contracts we reviewed were very specific regarding the services they required and even the type of equipment to be provided the patients. The competitive process allows each VA medical center to procure services from the supplier that can deliver the services required at the lowest cost to that medical center. VA's competitive contracting process is attractive to some suppliers because the volume of patients it can ensure allows for economies of scale. Suppliers have said there are other advantages associated with the local VA contract. For example, winning a VA contract enhances a firm's reputation and visibility in the local market. In addition, some firms hope to retain their VA patients if they become eligible for Medicare. By contrast, Medicare reimburses all qualifying suppliers for oxygen equipment provided to beneficiaries--it does not directly contract with suppliers; therefore, it cannot guarantee a fixed number of patients to any supplier. When a supplier under a VA contract is told by a VA medical center to provide home oxygen for a patient, the supplier knows that it will be paid for those services. For Medicare patients, the supplier is told by the prescribing doctor to provide oxygen services, generally arranged upon discharge from the hospital. However, it is only after the service is provided that the supplier knows for sure whether Medicare will pay for this service. The industry study noted above quantifies this risk as adding 5 percent to the cost of the VA rate in order for the VA program to serve a Medicare beneficiary. Our analysis of Medicare claims data showed that 18.7 percent of home oxygen claims in the first quarter of fiscal year 1996 were denied. However, most of these denials were for administrative reasons, such as duplicate claims or missing information. The actual denial rate for medical ineligibility was 2 percent. Medicare's criteria for eligibility are specific and clear cut, and suppliers told us they know if patients are going to qualify for coverage. We concluded that the risk of medically based claims denial is not a major factor in explaining the cost differential between VA and Medicare. However, because this factor results from the different ways home oxygen is authorized in the two programs, we considered it as part of our overall adjustment of VA payment rates. Industry representatives stated that the administrative burden of complying with Medicare requirements accounts for a major portion of the difference between VA and Medicare payment rates. One major burden they cited is the certificate of medical necessity, which must be completed by the prescribing physician before the claim can be submitted to Medicare for payment. Every supplier we interviewed complained about the difficulty in quickly obtaining this document. The industry study estimated that documenting patient eligibility represents 4 percent of the difference between VA and Medicare payment rates. requirements for this expensive, often lifelong benefit should be fairly stringent. Recent changes have reduced the administrative burden by allowing many patients to receive lifetime certification. Also, HCFA recently issued a draft revision of the certificate of medical necessity in an attempt to simplify the form and make it easier for doctors to complete. For example, the revised certificate no longer requires doctors to justify the portable unit. Our review of patient case records showed that, while most certificates are completed within 30 days of service setup, there is documentary support for the suppliers' contention that there are significant problems with this process. We found several examples of long delays and one case in which a patient died and the doctor refused to fill out the certificate, so the firm was not paid at all for its services. Most suppliers we talked with had developed strategies to facilitate the completion of these certificates. These strategies involved extra staff time and costs: for example, sending a representative to doctors' offices to request the certificate in person. For the records we reviewed, we found that 64 percent of the certificates were completed within 30 days of the supplier's starting service and 88 percent were done within 90 days. While obtaining the certificate of medical necessity represents a major start-up cost, the impact on the difference between the monthly VA and Medicare payment rates is less when that cost is amortized over the length of time that the certificate is valid. For most patients, eligibility must be renewed after the first year. At that time, the doctor may certify the patient for lifetime eligibility, and the patient never has to be recertified again. Once a patient's eligibility is established, Medicare billing is usually electronic and fairly straightforward. One VA contractor we visited noted that the electronic billing process for Medicare is far less cumbersome than submitting paper invoices each month to the local VA medical center. This indicates that the VA system is not entirely without processing costs, although when the medical eligibility documentation is included, Medicare's overall administrative burden on suppliers is greater. We concluded that the administrative burden for documenting medical eligibility and obtaining Medicare reimbursement is significantly greater than that associated with providing services under a VA medical center contract. Therefore, an adjustment to the VA rate is appropriate for comparison with the Medicare rate. The Medicare home oxygen benefit requires that beneficiaries pay an annual deductible and 20 percent of the allowed reimbursement amount every month. Industry representatives contend that the cost of billing and collecting this copayment adds to the cost of providing services to Medicare beneficiaries. In addition, they point out that a portion of the copayment owed to them may never be collected. The VA program, in contrast, pays 100 percent of the contract price. The industry estimate states that this accounts for 6 percent of the difference between the cost of the VA program and Medicare. Noncollection of copayments does represent a cost differential between VA and Medicare but can only justify a small amount of the difference in payment rates. Our review of case records at the suppliers we visited showed that 86 percent of the Medicare beneficiaries whose records we saw either had supplemental insurance or were covered by Medicaid. Of the 14 percent of beneficiaries with neither private supplemental insurance nor Medicaid coverage, we found that only 3 percent had financial hardship waivers in their records. Even if suppliers were not able to collect copayments from three times the number of patients with hardship waivers, the uncollected amount would represent only 2 percent of the total revenue suppliers receive for Medicare home oxygen. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a congressional request, GAO reviewed the appropriateness of Medicare's reimbursement rates for home oxygen, focusing on: (1) its comparison of Medicare and Department of Veterans' Affairs (VA) payment rates; (2) concerns about access to liquid oxygen systems and lightweight portable equipment for patients who are highly active; and (3) standards for the services associated with meeting patients' home oxygen needs. GAO noted that: (1) Medicare's fee schedule allowances for home oxygen exceeded GAO's adjusted estimate for the competitive marketplace rates paid by VA by almost 38 percent; (2) the rate reductions mandated by the Balanced Budget Act of 1997 will bring Medicare's fee schedule more into line with the competitive marketplace costs for home oxygen; (3) concerns have been raised that these reductions could reduce Medicare beneficiaries' access to portable units; (4) under Medicare's modality-neutral payment system, home-based liquid oxygen systems, which patients can use to refill portable units, do not offer suppliers the attractive profit margins associated with lower-cost oxygen concentrators; (5) lightweight, less cumbersome portable systems, which may increase patient mobility, are more expensive than traditional portable gas cylinders; (6) GAO's analysis shows that VA patients were receiving more portable units and refills than Medicare patients were, even though VA's payment rate, adjusted for comparability, was lower than Medicare's; (7) the upcoming reductions in Medicare allowances may lead some suppliers to provide Medicare patients with the least costly systems available, regardless of their patients' needs; (8) the Department of Health and Human Services (HHS) could use its authority under the recently enacted legislation to establish separate reimbursement rates for oxygen concentrators, liquid systems, regular portable units, and lightweight portable units, as long as the impact on overall Medicare costs is budget neutral; (9) the evolution in technology and costs of oxygen delivery systems--and the clinical indications for initiating and terminating the use of more expensive, lightweight portable units--warrant further examination by HHS and the Health Care Financing Administration (HCFA) before deciding whether Medicare's reimbursement system should be restructured; (10) HCFA has not established standards to ensure that home oxygen suppliers provide Medicare patients even basic support services; (11) oxygen suppliers who serve Medicare patients need only comply with basic registration and business requirements associated with obtaining a Medicare supplier number; (12) in contrast, VA encourages its medical centers to contract with suppliers who are accredited by the Joint Commission on Accreditation of Healthcare Organizations or comply with its standards; (13) VA patients typically received more frequent service visits than Medicare patients; and (14) the Balanced Budget Act requires HHS to establish service standards for Medicare home oxygen suppliers.
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Medicare payment policies for technical pathology services have changed over the years as new payment systems for hospital and physician services have been implemented and modified. Beginning with the implementation of the hospital inpatient PPS on October 1, 1983, through the implementation of the Medicare physician fee schedule (MPFS) on January 1, 1992, and the outpatient PPS on August 1, 2000, payment for technical pathology services changed as fixed, predetermined payment replaced reasonable cost or charge-based reimbursement for Medicare services. Under the inpatient PPS, each inpatient stay is classifed into a diagnosis- related group (DRG) based primarily on the patient's condition. Each DRG has a payment weight assigned to it that reflects the relative cost of inpatient treatment for a patient in that group compared with that for the average Medicare inpatient. Included in the costs of each DRG are nonphysician services provided to inpatients by the hospital and its outside suppliers. A hospital receives a DRG payment from Medicare and a deductible amount from a beneficiary for each inpatient benefit period.Each year, the DRG weights are recalibrated to account for changes in resource use, and the payment rate is adjusted by an update factor to account for changes in market conditions, practice patterns, and technology. Medicare separately pays physicians, including pathologists, and certain other professionals for the direct services they provide to inpatients. When developing the inpatient PPS in the early 1980s, HCFA determined that technical pathology services outsourced to laboratories were an integral part of the professional services provided by the laboratories' pathologists, not separate nonphysician services. Based on that determination, the payment for technical pathology services provided by laboratories was included in the larger payment to the laboratories and not included in the PPS payments. In 1992, HCFA implemented the MPFS, which created distinct payments for the professional and technical components of most diagnostic services, including pathology services. Although the MPFS included a distinct payment to laboratories for technical pathology services, HCFA did not revise its policy to prohibit laboratories from continuing to receive the separate Medicare payment for outsourced technical pathology services provided to inpatients. Under the MPFS, beneficiaries are responsible for a copayment equal to 20 percent of the payment for physician services, including technical pathology services. Thus, inpatient beneficiaries whose technical pathology services were outsourced by a hospital to a laboratory that received direct payment from Medicare were responsible for a copayment, while other inpatients were not. On July 22, 1999, HCFA proposed ending Medicare payments under the MPFS to laboratories for technical pathology services provided to hospital inpatients on or after January 1, 2000. Under the proposal, laboratories, like suppliers of other nonphysician services, would have to seek payment from hospitals for technical pathology services provided to hospital inpatients. HCFA's rationale for its proposed rule was that payment for technical pathology services provided to beneficiaries was already included in the inpatient PPS. When implementing the inpatient PPS, HCFA established separate payment rates for rural and urban hospitals based on data from hospitals' cost reports submitted to the agency. Hospitals that performed their own technical pathology services included such costs in their cost reports, while hospitals outsourcing these services did not. According to HCFA, urban hospitals generally performed such services, and in part, their higher rates reflected that. Consequently, in HCFA's view, when the separate rural rate was eliminated in 1995 and rural hospitals began receiving the higher rate paid to most urban hospitals, the cost of technical pathology services was included in that payment. Thus, HCFA concluded that when a laboratory received payment from Medicare for technical pathology services provided to a hospital inpatient, Medicare was paying twice for the same service--once to the hospital as part of the PPS payment and once to the laboratory through the MPFS. A second reason HCFA cited to support its proposed rule was concern that hospital outsourcing arrangements with laboratories to provide technical pathology services would proliferate if hospitals realized these arrangements would reduce their costs without any reduction in their inpatient PPS payments. After considering comments from the hospital industry and laboratories, which stated, in part, that they would need additional time to renegotiate their agreements, in the final rule, HCFA delayed implementation of the policy until January 1, 2001. In December 2000, the Congress enacted provisions in BIPA that stated that laboratories furnishing technical pathology services to hospital patients under agreements with hospitals as of the publication date of the HCFA proposed rule could continue to receive payment directly from Medicare for these services until January 1, 2003. Because the outpatient PPS was implemented in August 2000, the provisions applied to services provided to outpatients as well as inpatients. The outpatient PPS pays hospitals a predetermined amount per service similar to a fee schedule. All services paid under the outpatient PPS, including technical pathology services, are classified into groups called ambulatory payment classifications (APC). Like inpatient DRGs, the relative weights of the APCs are adjusted annually by recalibration and the payment rates by an update factor to account for changes in resource use, technology, practice cost, and service delivery. When the outpatient PPS was implemented, beneficiary copayments for a service were generally 20 percent of the hospitals' median charges for that service in 1996, updated to 1999. Therefore, the beneficiary cost-sharing obligation as a percentage of APC payment rates varies by service. Because the median charges were often higher than the APC payment rates implemented with the outpatient PPS, beneficiary copayments were frequently as high or higher than 50 percent of the total APC payment amount. The Balanced Budget Act of 1997 established a mechanism to gradually decrease the cost-sharing percentages for all APCs to 20 percent over time. The copayments that beneficiaries are responsible for paying under the outpatient PPS for technical pathology services that are furnished directly by hospitals are roughly comparable to the copayments that beneficiaries are responsible for paying laboratories under the MPFS when services are outsourced. The outpatient PPS payment rates for technical pathology services are significantly lower than the corresponding MPFS payment rates, but outpatient PPS copayments represent a higher percentage of the payment for technical pathology services than MPFS copayments. If the BIPA provisions are not reinstated and CMS terminates direct payments to laboratories, hospitals would have to negotiate payment amounts with laboratories to pay them directly for services delivered to inpatient and outpatient beneficiaries or begin to supply these services themselves. While the hospitals would not experience any direct adjustments to their inpatient DRG payments, over time, hospital costs of paying laboratories for technical pathology services would be reflected in the DRG weights, as the annual recalibration accounts for changes in the costs of delivering services. For services delivered to outpatients, hospitals would bill Medicare under the outpatient PPS for technical pathology services and, therefore, would recover additional revenue even if they continued to outsource these services to laboratories. Inpatient beneficiaries of hospitals that outsource technical pathology services would no longer be responsible for additional copayments to the laboratories. Outpatient beneficiaries would no longer be responsible for copayments to laboratories under the MPFS, but instead would be responsible for copayments to the hospitals where they received their services under the outpatient PPS. CAHs, which as of March 2003 constituted 15 percent of all hospitals and 31 percent of rural hospitals, would not be affected by the termination of direct laboratory payments. CAHs are not paid under the inpatient and outpatient PPS, but instead are paid based on their reasonable costs of providing services. Currently, CAHs receive no payment from Medicare for technical pathology services outsourced to laboratories that directly bill Medicare because CAHs incur no costs in the delivery of those services. If direct laboratory payments are terminated, CAHs would be reimbursed by Medicare for their costs of paying laboratories to perform technical pathology services, and outpatient beneficiaries who currently are responsible for paying 20 percent of the payment for their technical pathology services to the laboratories under the MPFS would instead be responsible for paying 20 percent of the CAHs' customary charges. See table 1 for a description of Medicare payments to outsourcing PPS hospitals and CAHs, and table 2 for a description of beneficiary cost- sharing obligations at outsourcing PPS hospitals and CAHs, under current policy and if direct payment to laboratories is terminated. We estimate that in 2001, 4,773 PPS hospitals and CAHs, representing 95 percent of all such facilities, outsourced at least some technical pathology services to laboratories that received direct payment from Medicare for those services (see table 3). However, most hospitals outsourced a small number of these services to laboratories. In 2001, approximately 1.4 million technical pathology services were outsourced, and the median number of outsourced services per hospital was 81. Approximately 68 percent of all hospitals outsourced 200 or fewer technical pathology services, and only 6 percent outsourced more than 1,000 services. Outsourcing hospitals consisted of 2,428 urban PPS facilities and 1,651 rural PPS facilities, representing 95 percent and 97 percent of urban and rural PPS hospitals in 2001, respectively, and 694 CAHs. Among hospitals outsourcing technical pathology services, urban hospitals, including CAHs, outsourced a median of 97 services and 64 percent of all services, and rural hospitals, including CAHs, outsourced a median of 61 services and 36 percent of all services. Almost twice as many services were delivered to outpatient beneficiaries compared to inpatient beneficiaries, as outpatient services accounted for approximately 64 percent of all outsourced services. If laboratories had not received direct payment for services for hospital patients, we estimate that Medicare spending would have been $42 million less in 2001, with $18 million and $24 million in savings for inpatient and outpatient services, respectively, and overall beneficiary cost sharing would have been reduced by $2 million. In 2001, payments to laboratories providing technical pathology services to beneficiaries who were hospital patients equaled over $63 million, including Medicare payments of about $51 million ($18 million for inpatient services and $33 million for outpatient services) and beneficiary copayments of almost $13 million ($5 million for inpatient services and $8 million for outpatient services). Paying laboratories to provide technical pathology services is unlikely to impose a large financial burden on most hospitals. However, the extent to which an individual hospital's costs and a laboratory's revenues would change if direct payment to laboratories is terminated would depend on the rates negotiated by that hospital and laboratory. If payment to the laboratory is made at the MPFS rate, a PPS hospital outsourcing the median number of technical pathology services would incur an additional cost of approximately $2,900. Additionally, there would be no financial impact on CAHs if direct laboratory payment is terminated because they would be reimbursed for their reasonable costs of outsourcing technical pathology services. In 2001, estimated payments to laboratories providing technical pathology services to hospital patients totaled over $63 million, including Medicare payments of about $51 million and beneficiary copayments of almost $13 million (see table 4). For services provided to inpatients, total laboratory payments equaled approximately $23 million, with $18 million from Medicare and $5 million from beneficiaries. For services provided to outpatients, total laboratory payments equaled approximately $41 million, including $33 million from Medicare and $8 million from beneficiaries. If laboratories had not received direct payment for services for hospital patients, we estimate that Medicare spending would have been $42 million less in 2001 (see table 5). The $18 million in inpatient savings would have resulted from Medicare discontinuing payments for technical pathology services to laboratories under the MPFS, while making no additional payments to PPS hospitals for inpatient services. For outpatient services, Medicare would not have paid laboratories directly, but would have paid PPS hospitals under the outpatient PPS. If direct payment to laboratories had been terminated, Medicare would have paid PPS hospitals an estimated $9 million under the outpatient PPS in 2001 for technical pathology services, thus saving $24 million. If laboratories had not received direct payment for services for hospital patients, Medicare beneficiaries would have been relieved of approximately $2 million in cost-sharing obligations (see table 6). In 2001, inpatients at hospitals that outsourced services were responsible for paying laboratories approximately $5 million in copayments under the MPFS. If direct payment to laboratories is terminated, inpatients would make no copayments to laboratories for technical pathology services. We estimate that the cost-sharing obligation of outpatients at PPS hospitals would have increased by $3 million to approximately $11 million under the outpatient PPS if laboratories had not received direct payment, compared to an estimated cost sharing of $8 million under the MPFS. However, outpatients' cost-sharing obligations for technical pathology services under the outpatient PPS gradually will decline, as mandated by the law. As the percentage declines, beneficiary copayments for technical pathology services under the outpatient PPS should become lower than under the MPFS, as long as payments for these services generally remain lower under the outpatient PPS than the MPFS. If outsourcing hospitals agree to pay laboratories the rates the laboratories currently receive under the MPFS for technical pathology services, these amounts are unlikely to impose a large financial burden on most hospitals. In 2001, a PPS hospital outsourcing the median number of services outsourced by PPS hospitals, 94, would have incurred additional costs of approximately $2,900 in paying a laboratory for technical pathology services, representing a small fraction of hospitals' annual Medicare revenues. A PPS hospital outsourcing 1,283 services annually--the 95th percentile of outsourced technical pathology service volume in our analysis--would have incurred an additional annual cost of just under $40,000. There would be no financial impact from terminating direct laboratory payments for rural hospitals that are or become CAHs, as CAHs would recover from Medicare their reasonable costs of outsourcing technical pathology services. The extent to which a hospital's costs and a laboratory's revenues would change if direct laboratory payments are terminated would depend on the rates negotiated between the two parties. Hospitals' costs would increase because they would begin paying the laboratories for technical pathology services; laboratories' revenues would decline if hospitals pay lower rates for the technical pathology services than Medicare currently pays laboratories under the MPFS. Because larger hospitals and those located in urban areas have more purchasing power and may have multiple laboratories from which to choose, these hospitals are likely to fare better than smaller hospitals and those in rural areas. Laboratory officials we spoke with voiced concern that some hospitals would insist that laboratories furnish technical pathology services at no charge or at extremely low rates in exchange for hospitals referring other business to the laboratories and their pathologists. However, these officials also indicated that their laboratories would not perform technical pathology services at no charge or for very low rates. Furthermore, hospitals might be deterred from requesting low rates because of concerns that such arrangements might violate applicable fraud and abuse laws. Although hospitals and laboratories would face new billing costs--both one-time and ongoing--if direct payments to laboratories are terminated, such changes generally would impose a modest additional cost. We spoke with officials from hospitals and laboratories that already have billing arrangements for these services, and they did not report to us that these costs were burdensome. Beneficiaries' Access Medicare beneficiaries' access to pathology services is unlikely to be Likely Would Be Unaffected disrupted if direct payments to laboratories are terminated because hospitals are unlikely to limit surgical services, including those requiring pathology services. In addition, hospitals would likely continue to outsource technical pathology services to laboratories because this would generally be less costly than performing these services themselves. Limiting Surgeries Unlikely Representatives of outsourcing hospitals with whom we spoke indicated that their hospitals would not eliminate or restrict surgical procedures if direct payment to laboratories is terminated. Because a large percentage of hospital-based surgeries require pathology services, hospitals would lose an important source of revenue if they restricted surgeries to those not requiring such services. Outsourcing hospitals stated that they could not afford this revenue loss. Rural hospitals, which are often the sole hospitals in their geographic areas, expressed the added concern that eliminating surgical procedures would reduce their communities' access to medical services. If direct payment to laboratories is terminated, representatives from hospitals that do not maintain pathology laboratories and outsource technical pathology services to laboratories said they would continue to outsource technical pathology services. Few such hospitals have a sufficiently large volume of technical pathology services to make it cost effective to perform such services themselves. For most hospitals, the equipment and personnel expenses associated with maintaining their own pathology laboratories would likely exceed the cost of outsourcing the technical pathology services to laboratories. Hospital officials also stated that they have had difficulty recruiting histotechnicians, and it therefore would be difficult to staff new, or expand existing, pathology laboratories. Termination of direct laboratory payments generally would reduce Medicare expenditures and beneficiary cost-sharing obligations for technical pathology services while having little effect on beneficiaries' access to these services. While termination of direct laboratory payments would impose a small financial burden on outsourcing PPS hospitals, this change would have no impact on CAHs. As the relative payment weights of services provided under the inpatient and outpatient PPS are adjusted annually, any increased costs hospitals incur to pay laboratories for technical pathology services will, over time, be reflected in the inpatient and outpatient PPS payments. Termination of direct laboratory payments also would eliminate the inequity between beneficiary cost-sharing obligations at different hospitals. In addition, continuing direct laboratory payments is an inappropriate means for providing financial assistance to hospitals. Hospitals, in receiving fixed payment amounts under a PPS and paying suppliers of nonphysician services provided to a Medicare patient from such fixed amounts, have an incentive to provide health care services efficiently. Permitting hospitals to outsource technical pathology services and have laboratories seek payment from Medicare eliminates the incentive for the efficient provision of these services and leads to potential Medicare double payments. We suggest that the Congress may wish to consider not reinstating the provisions that allow laboratories to receive direct payment from Medicare for providing technical pathology services to hospital patients. We recommend that the Administrator of CMS terminate the policy of permitting laboratories to receive payment from Medicare for technical pathology services provided to hospital patients. In commenting on a draft of this report, CMS stated that it is important that payment policy encourage efficiencies in the provision of technical pathology services. CMS stated that it would carefully consider our recommendation and noted that the Congress is currently considering this issue. CMS further stated that it would want to ensure that implementation of the recommendation does not adversely affect rural hospitals. As we noted in the draft report, permitting laboratories to receive payment directly from Medicare for technical pathology services is not an appropriate or efficient mechanism for providing financial assistance to hospitals, as it is contradictory to the objectives of a PPS. In addition, because the median number of technical pathology services annually outsourced by rural hospitals was low, we do not believe that paying laboratories directly for these services will place a significant financial burden on these hospitals. CMS's written comments are reprinted in appendix II. The agency also provided technical comments, which we incorporated where appropriate. We received oral comments on a draft of this report from the American Hospital Association (AHA), the College of American Pathologists (CAP), and the National Rural Health Association (NRHA). These organizations disagreed with our conclusions, matter for congressional consideration, and recommendation and suggested that direct laboratory payments should continue. Generally, all three organizations expressed concerns about rural hospitals. AHA and NRHA expressed the concern that termination of direct laboratory payments would place a financial burden on rural hospitals, and CAP expressed concern that hospitals, including CAHs, and laboratories would experience an increased administrative burden in changing their current billing practices. CAP also raised a question about whether hospitals and laboratories would be able to successfully negotiate new payment arrangements for outsourced technical pathology services; if not, in its view, beneficiaries' access to services could be jeopardized. As we noted in the draft report, hospital officials we spoke with, including those from rural hospitals, stated they would continue to offer technical pathology services as a part of their surgical services if they had to pay laboratories directly for technical pathology services. These officials stated that they would not consider eliminating surgeries if they had to enter new, or modify existing, arrangements with laboratories to provide technical pathology services. We acknowledge that modifying their billing practices will impose costs on hospitals and laboratories; however, officials from hospitals and laboratories that already have billing arrangements for technical pathology services did not report to us that these costs were burdensome. We are sending a copy of this report to the Administrator of CMS and appropriate congressional committees. The report is available at no charge on GAO's Web site at http://www.gao.gov. We will also make copies available to others on request. If you or your staffs have any questions, please call me at (202) 512-7119 or Nancy A. Edwards at (202) 512-3340. Other major contributors to this report include Beth Cameron Feldpush, Jessica Lind, and Paul M. Thomas. In conducting this study, we analyzed Medicare claims and provider data obtained from the Centers for Medicare & Medicaid Services (CMS). We interviewed officials at CMS, the Congressional Budget Office, and the Department of Health and Human Services Office of Inspector General. We also interviewed industry representatives from the American Hospital Association, College of American Pathologists, and National Rural Health Association, as well as representatives of individual hospitals and laboratories and a pathology practice management consulting company. Finally, we conducted a site visit of a laboratory and one of the rural hospitals to which it provides pathology services. As there is no list of covered hospitals and the laboratories to which they outsource technical pathology services, we used 2001 Medicare claims data, the most recent year for which data are available, for our analysis. We received the data files directly from CMS. These data reflect the set of claims submitted to and paid by CMS for services performed in 2001. We performed our own initial analyses to check the reliability of the data. We estimated the number of hospitals outsourcing technical pathology services to laboratories that directly billed Medicare and the volume of and payments for these services. To do so, we matched Medicare laboratory claims with claims submitted by prospective payment system (PPS) hospitals and critical access hospitals (CAH). We assumed that a laboratory's service was related to a hospital inpatient admission or outpatient encounter if the date of service on the laboratory's claim was (1) during an inpatient's stay at a hospital, within 3 days prior to the inpatient's admission, or after the inpatient's discharge or (2) on the day of or within 3 days after an outpatient surgical procedure at a hospital. We included in our list of total hospitals only those hospitals listed in the CMS Provider of Services (POS) file and characterized outsourcing hospitals as urban or rural according to their designation in the POS file. To identify hospitals outsourcing technical pathology services that have converted to CAHs, we matched each hospital's Medicare provider number to the list of CAHs maintained by the North Carolina Rural Health Research and Policy Analysis Center at the University of North Carolina as of March 2003. To estimate Medicare payments and beneficiary copayments to laboratories for technical pathology services in 2001, we first calculated the claims frequency for each type of technical pathology service in our file of matched laboratory and hospital claims. We estimated the Medicare payment amount for each type of technical pathology service as 80 percent of the Medicare physician fee schedule (MPFS) national standard payment rate for that service and beneficiary cost sharing as the remaining 20 percent, and then we multiplied the claims frequency by the estimated Medicare and beneficiary cost-sharing amounts to calculate total laboratory payments. We performed similar calculations to find payments for inpatient and outpatient claims exclusively. To estimate 2001 Medicare outpatient PPS payments and beneficiary cost sharing to PPS hospitals if laboratories had not received direct payments, we multiplied the 2001 outpatient PPS Medicare payment rate and beneficiary copayment amount for each type of technical pathology service by the frequency of each type of technical pathology service in the outpatient claims. To estimate the cost difference to PPS hospitals of paying laboratories to perform technical pathology services, we first calculated a weighted average payment rate for technical pathology services for 2001 by multiplying the 2001 national standard MPFS payment rate by the frequency percentage of each type of technical pathology service among PPS hospitals and summing the payments for all services. We multiplied the median and 95th percentile volume of services outsourced by PPS hospitals by the estimated weighted average laboratory payment. We then calculated a weighted outpatient PPS payment rate, including beneficiary copayments, for technical pathology services in 2001 as described above for calculating the weighted average MPFS payment rate. Because approximately 63 percent of technical pathology services provided to patients of PPS hospitals were provided to outpatients, we estimated the number of outpatient services by multiplying the median and 95th percentile volumes by 63 percent. We then multiplied the estimated number of outpatient services by the estimated weighted average outpatient PPS payment rate, and subtracted this amount from the weighted average laboratory payment. We interviewed representatives of four Medicare carriers and four state hospitals associations. In addition, we spoke with representatives from 19 hospitals and 13 laboratories from a sample of eight geographically diverse states--Colorado, Florida, Iowa, North Dakota, Pennsylvania, Tennessee, South Dakota, and Washington--and an additional 2 laboratories in Oklahoma. We selected several states in the South, Southeast, and Midwest where, according to CMS officials, outsourcing arrangements for technical pathology services were believed to be fairly common. We interviewed officials from urban and rural hospitals and hospitals and laboratories with different types of outsourcing arrangements, including a hospital that outsources only complex and infrequently performed services and a hospital that currently pays its laboratory for technical pathology services.
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In 1999, the Health Care Financing Administration, now called the Centers for Medicare & Medicaid Services (CMS), proposed terminating an exception to a payment rule that had permitted laboratories to receive direct payment from Medicare when providing technical pathology services that had been outsourced by certain hospitals. The Congress enacted provisions in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) to delay the termination. The BIPA provisions directed GAO to report on the number of outsourcing hospitals and their service volumes and the effect of the termination of direct laboratory payments on hospitals and laboratories, as well as on access to technical pathology services by Medicare beneficiaries. GAO analyzed Medicare inpatient and outpatient hospital and laboratory claims data from 2001 to develop its estimates. In 2001, approximately 95 percent of all Medicare prospective payment system (PPS) hospitals--hospitals that are paid predetermined fixed amounts for services--and critical access hospitals (CAH), which receive reimbursement from Medicare based on their reasonable costs, outsourced some technical pathology services to laboratories that received direct payment for those services. However, the median number of outsourced services per hospital was small--81. If laboratories had not received direct payments for services for hospital patients, GAO estimates that Medicare spending would have been $42 million less in 2001, and beneficiary cost sharing obligations for inpatient and outpatient services would have been reduced by $2 million. Most hospitals are unlikely to experience a financial burden from paying laboratories to provide technical pathology services. If payment to the laboratory is made at the current rate, a PPS hospital outsourcing the median number of technical pathology services outsourced by PPS hospitals, 94, would incur an additional annual cost of approximately $2,900. There would be no financial impact for the 31 percent of rural hospitals that are CAHs, as they would receive Medicare reimbursement for their additional costs. Medicare beneficiaries' access to pathology services would likely be unaffected if direct laboratory payments are terminated. Hospital officials stated they were unlikely to limit surgical services, including those requiring pathology services, because limiting these services would result in a loss of revenue and could restrict access to services for their communities.
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Interior lacks adequate assurance that it is receiving the full royalties it is owed because (1) neither BLM nor OMM is fully inspecting leases and meters as required by law and agency policies, and (2) MMS lacks adequate management systems and sufficient internal controls for verifying that royalty payment data are accurate and complete. With regard to inspecting oil and gas production, BLM is charged with inspecting approximately 20,000 producing onshore leases annually to ensure that oil and gas volumes are accurately measured. However, BLM's state Inspection and Enforcement Coordinators from Colorado, Montana, New Mexico, Utah, and Wyoming told us that only 8 of the 23 field offices in the 5 states completed both their (1) required annual inspections of wells and leases that are high-producing and those that have a history of violations and (2) inspections every third year on all remaining leases. According to the BLM state Inspection and Enforcement Coordinators, the number of completed production inspections varied greatly by field office. For example, while BLM inspectors were able to complete all of the production inspections in the Kemmerer, Wyoming, field office, inspectors in the Glenwood Springs, Colorado, field office were able to complete only about one-quarter of the required inspections. Officials in 3 of the 5 field offices in which we held detailed discussions with inspection staff told us that they had not been able to complete the production inspections because of competing priorities, including their focus on completing a growing number of drilling inspections for new oil and gas wells, and high inspection staff turnover. However, BLM officials from all 5 field offices told us that when they have conducted production inspections they have identified a number of violations. For example, BLM staff in 4 of the 5 field offices identified errors in the amounts of oil and gas production volumes reported by operators to MMS by comparing production reports with third-party source documents. Additionally, BLM staff from 1 field office we visited showed us a bypass built around a gas meter, allowing gas to flow around the meter without being measured. BLM staff ordered the company to remove the bypass. Staff from another field office told us of a case in which individuals illegally tapped into a gas line and routed gas to private residences. Finally, in one of the field offices we visited, BLM officials told us of an instance in which a company maintained two sets of conflicting production data--one used by the company and another reported to MMS. Moreover, OMM, which is responsible for inspecting offshore production facilities that include oil and gas meters, did not inspect all oil and gas royalty meters, as required by its policy, in 2007. For example, OMM officials responsible for meter inspections in the Gulf of Mexico told us that they completed about half of the required 2,700 inspections, but that they met OMM's goal for witnessing oil and gas meter calibrations. OMM officials told us that one reason they were unable to complete all the meter inspections was their focus on the remaining cleanup work from hurricanes Katrina and Rita. Meter inspections are an important aspect of the offshore production verification process because, according to officials, one of the most common violations identified during inspections is missing or broken meter seals. Meter seals are meant to prevent tampering with measurement equipment. When seals are missing or broken, it is not possible without closer inspection to determine whether the meter is correctly measuring oil or gas production. With regard to MMS's assurance that royalty data are being accurately reported by companies, MMS's systems and processes for collecting and verifying these data lack both capabilities and key internal controls, including those focused on data accuracy, integrity, and completeness. For example, MMS lacks an automated process to routinely and systematically reconcile all production data filed by payors (those responsible for paying the royalties) with production data filed by operators (those responsible for reporting production volumes). MMS officials told us that before they transitioned to the current financial management system in 2001, their system included an automated process that reconciled the production and royalty data on all transactions within approximately 6 months of the initial entry date. However, MMS's new system does not have that capability. As a result, such comparisons are not performed on all properties. Comparisons are made, if at all, 3 years or more after the initial entry date by the MMS compliance group for those properties selected for a compliance review or audit. In addition, MMS lacks a process to routinely and systematically reconcile all production data included by payors on their royalty reports or by operators on their production reports with production data available from third-party sources. OMM does compare a large part of the offshore operator-reported production data with third-party data from pipeline operators through both its oil and gas verification programs, but BLM compares only a relatively small percentage of reported onshore oil and gas production data with third-party pipeline data. When BLM and OMM do make comparisons and find discrepancies, they forward the information to MMS, which then takes steps to reconcile and correct these discrepancies by talking to operators. However, even when discrepancies are corrected and the operator-reported data and pipeline data have been reconciled, these newly reconciled data are not automatically and systematically compared with the reported sales volume in the royalty report, previously entered into the financial management database, to ensure the accuracy of the royalty payment. Such comparisons occur only if a royalty payor's property has been selected for an audit or compliance review. Furthermore, MMS's financial management system lacks internal controls over the integrity and accuracy of production and royalty-in-value data entered by companies. Companies may legally make changes to both royalty and production data in MMS's financial management system for up to 6 years after the reporting month, and these changes may necessitate changes in the royalty payment. However, when companies retroactively change the data they previously entered, these changes do not require prior approval by, or notification of, MMS. As a result of the companies' ability to unilaterally make these retroactive changes, the production data and required royalty payments can change over time, further complicating efforts by agency officials to reconcile production data and ensure that the proper amount of royalties was paid. Compounding this data reliability concern, changes made to the data do not necessarily trigger a review to determine their reasonableness or whether additional royalties are due. According to agency officials, these changes are not subject to review at the time a change is made and would be evaluated only if selected for an audit or compliance review. This is also problematic because companies may change production and royalty data after an audit or compliance review has been done, making it unclear whether these audited royalty payments remain accurate after they have been reviewed. Further, MMS officials recently examined data from September 2002 through July 2007 and identified over 81,000 adjustments made to data outside the allowable 6-year time frame. MMS is working to modify the system to automatically identify adjustments that have been made to data outside of the allowable 6-year time frame, but this effort does not address the need to identify adjustments made within the allowable time that might necessitate further adjustments to production data and royalty payments due. Finally, MMS's financial management system could not reliably detect when production data reports were missing until late 2004, and the system continues to lack the ability to automatically detect missing royalty reports. In 2004, MMS modified its financial management system to automatically detect missing production reports. As a result, MMS has identified a backlog of approximately 300,000 missing production reports that must be investigated and resolved. It is important that MMS have a complete set of accurate production reports so that BLM can prioritize production inspections, and its compliance group can easily reconcile royalty payments with production information. Importantly, MMS's financial management system continues to lack the ability to automatically detect cases in which an expected royalty report has not been filed. While not filing a royalty report may be justifiable under certain circumstances, such as when a company sells its lease, MMS's inability to detect missing royalty reports presents the risk that MMS will not identify instances in which it is owed royalties that are simply not being paid. Officials told us they are currently able to identify missing royalty reports in instances when they have no royalty report to match with funds deposited to Treasury. However, cases in which a company stops filing royalty reports and stops paying royalties would not be detected unless the payor or lease was selected for an audit or compliance review. MMS's increasing use of compliance reviews, which are more limited in scope than audits, has led to an inconsistent use of third-party data to verify that self-reported royalty data are correct, thereby placing accurate royalty collections at risk. Since 2001, MMS has increasingly used compliance reviews to achieve its performance goals of completing compliance activities--either full audits or compliance reviews--on a predetermined percentage of royalty payments. According to MMS, compliance reviews can be conducted much more quickly and require fewer resources than audits, largely because they represent a quicker, more limited reasonableness check of the accuracy and completeness of a company's self-reported data, and do not include a systematic examination of underlying source documentation. Audits, on the other hand, are more time- and resource-intensive, and they include the review of original source documents, such as sales revenue data, transportation and gas processing costs, and production volumes, to verify whether company- reported data are accurate and complete. When third-party data are readily available from OMM, MMS may use them when conducting a compliance review. For example, MMS may use available third-party data on oil and gas production volumes collected by OMM in its compliance reviews for offshore properties. In contrast, because BLM collects only a limited amount of third-party data for onshore production, and MMS does not request these data from the companies, MMS does not systematically use third-party data when conducting onshore compliance reviews. Despite conducting thousands of compliance reviews since 2001, MMS has only recently evaluated their effectiveness. For calendar year 2002, MMS compared the results of 100 of about 700 compliance reviews of offshore leases and companies with the results of audits conducted on those same leases or companies. However, while the compliance reviews covered, among other things, 12 months of production volumes on all products-- oil, gas, and retrograde, a liquid product that condenses out of gas under certain conditions--the audits covered only 1 month and one product. As a result of this evaluation comparing the results of compliance reviews with those of audits, MMS now plans to improve its compliance review process by, for example, ensuring that it includes a step to check that royalties are paid on all royalty-bearing products, including retrograde. To achieve its annual performance goals, MMS began using the compliance reviews along with audits. One of MMS's performance goals is to complete compliance activities--either audits or compliance reviews-- on a specified percentage of royalty payments within 3 years of the initial royalty payment. For example, in 2006 MMS reported that it had achieved this goal by confirming reasonable compliance on 72.5 percent of all calendar year 2003 royalties. To help meet this goal, MMS continues to rely heavily on compliance reviews, yet it is unable to state the extent to which this performance goal is accomplished through audits as opposed to compliance reviews. As a result, MMS does not have information available to determine the percentage of the goal that was achieved using third- party data and the percentage that did not systematically rely on third- party data. Moreover, to help meet its performance goal, MMS has historically conducted compliance reviews or audits on leases and companies that have generated the most royalties, with the result that the same leases and companies are reviewed year after year. Accordingly, many leases and companies have gone for years without ever having been reviewed or audited. In 2006, Interior's Inspector General (IG) reviewed MMS's compliance process and made a number of recommendations aimed at strengthening it. The IG recommended, among other things, that MMS examine 1 month of third-party source documentation as part of each compliance review to provide greater assurance that both the production and allowance data are accurate. The IG also recommended that MMS track the percentage of the annual performance goal that was accomplished through audits versus through compliance reviews, and that MMS move toward a risk-based compliance program and away from reviewing or auditing the same leases and companies each year. To address the IG's recommendations, MMS has recently revised its compliance review guidance to include suggested steps for reviewing third-party source production data when available for both offshore and onshore oil and gas, though the guidance falls short of making these steps a requirement. MMS has also agreed to start tracking compliance activity data in 2007 that will allow it to report the percentage of the performance goal that was achieved through audits versus through compliance reviews. Finally, MMS has initiated a risk-based compliance pilot project, whereby leases and companies are selected for compliance work according to MMS-defined risk criteria that include factors other than whether the leases or companies generate high royalty payments. According to MMS, during fiscal year 2008 it will further evaluate and refine the pilot as it moves toward fuller implementation. Finally, representatives from the states and tribes who are responsible for conducting compliance work under agreements with MMS have expressed concerns about the quality of self-reported production and royalty data they use in their reviews. As part our work, we sent questionnaires to all 11 states and seven tribes that conducted compliance work for MMS in fiscal year 2007. Of the nine state and five tribal representatives who responded, seven reported that they lack confidence in the accuracy of the royalty data. For example, several representatives reported that because of concerns with MMS's production and royalty data, they routinely look to other sources of corroborating data, such as production data from state oil and gas agencies and tax agencies. Finally, several respondents noted that companies frequently report production volumes to the wrong leases and that they must then devote their limited resources to correcting these reporting problems before beginning their compliance reviews and audits. Because MMS's royalty-in-kind program does not extend the same production verification processes used by its oil program to its gas program, it does not have adequate assurance that it is collecting the gas royalties it is owed. As noted, under the royalty-in-kind program, MMS collects royalties in the form of oil and gas and then sells these commodities in competitive sales. To ensure that the government obtains the fair value of these sales, MMS must make sure that it receives the volumes to which it is entitled. Because prices of these commodities fluctuate over time, it is also important that MMS receive the oil and gas at the time it is entitled to them. As part of its royalty-in-kind oversight effort, MMS identifies imbalances between the volume operators owe the federal government in royalties and the volume delivered and resolves these imbalances by adjusting future delivery requirements or cash payments. The methods that MMS uses to identify these imbalances differ for oil and gas. For oil, MMS obtains pipeline meter data from OMM's liquid verification system, which records oil volumes flowing through numerous metering points in the Gulf of Mexico region. MMS calculates its royalty share of oil by multiplying the total production volumes provided in these pipeline statements by the royalty rates for a given lease. MMS compares this calculation with the volume of royalty oil that the operators delivered as reported by pipeline operators. When the value of an imbalance cumulatively reaches $100,000, MMS conducts further research to resolve the discrepancy. Using pipeline statements to verify production volumes is a good check against companies' self-reporting of royalties due the federal government because companies have an incentive to not underreport their share of oil going into the pipeline because that is the amount they will have to sell at the other end of the pipeline. For gas, MMS relies on information contained in two operator-provided documents--monthly imbalance statements and production reports. Imbalance statements include the operator's total gas production for the month, the share of that production that the government is entitled to, and any differences between what the operator delivered and the government's royalty share. Production reports contain a large number of data elements, including production volumes for each gas well. MMS compares the production volumes contained in the imbalance statements with those in the production reports to verify production levels. MMS then calculates its royalty share based on these production figures and compares its royalty share with gas volumes the operators delivered as reported by pipeline operators. When the value of an imbalance cumulatively reaches $100,000, MMS conducts further research to resolve the discrepancy. MMS's ability to detect gas imbalances is weaker than for oil because it does not use third-party metering data to verify the operator-reported production numbers. Since 2004, OMM has collected data from gas pipeline companies through its gas verification system, which is similar to its liquid verification system in that the system records information from pipeline company-provided source documents. Our review of data from this program shows that these data could be a useful tool in verifying offshore gas production volumes. Specifically, our analysis of these pipeline data showed that for the months of January 2004, May 2005, July 2005, and June 2006, 25 percent of the pipeline metering points had an outstanding discrepancy between self-reported and pipeline data. These discrepancies are both positive and negative--that is, production volumes submitted to MMS by operators are at times either under- or overreported. Data from the gas verification system could be useful in validating production volumes and reducing discrepancies. However, to fully benefit from this opportunity, MMS needs to improve the timeliness and reliability of these data. After examining this issue, in December 2007, the Subcommittee on Royalty Management, a panel appointed by the Secretary of the Interior to examine MMS's royalty program, reported that OMM is not adequately staffed to conduct sufficient review of data from the gas verification system. We have not yet, nor has MMS, determined the net impact of these discrepancies on royalties owed the federal government. The methods and underlying assumptions MMS uses to compare the revenues it collects in kind with what it would have collected in cash do not account for all costs and do not sufficiently deal with uncertainties, raising doubts about the claimed financial benefits of the royalty-in-kind program. Specifically, MMS's calculation showing that MMS sold the royalty oil and gas for $74 million more than MMS would have received in cash payments did not appropriately account for uncertainty in estimates of cash payments. In addition, MMS's calculation that early royalty-in-kind payments yielded $5 million in interest was based on assumptions about payment dates and interest rates that could misstate the estimated interest benefit. Finally, MMS's calculation that the royalty-in-kind program cost about $8 million less to administer than an in-value program did not include significant costs that, if included, could change MMS's conclusions. MMS sold the oil and gas it collected during the 3 fiscal years 2004 through 2006 for $8.15 billion and calculated that this amount exceeded what MMS would have received in cash royalties by about $74 million--a net benefit of approximately 0.9 percent. MMS has recognized that its estimates of what it would have received in cash payments are subject to some degree of error but has not appropriately evaluated or reported how sensitive the net benefit calculations are to this error. This is important because even a 1 percent error in the estimates of cash payments would change the estimated benefit of the royalty-in-kind program from $74 million to anywhere from a loss of $6 million to a benefit of $155 million. Moreover, MMS's annual reports to the Congress present oil sales data in aggregate and therefore do not reflect the fact that, in many individual sales, MMS sold the oil it collected in kind for less than it estimates it would have collected in cash. Specifically, MMS estimates that, in fiscal year 2006, it sold 28 million barrels of oil, or 64 percent of all the oil it collected in kind, for less than it would have collected in cash. The government would have received an additional $6 million in revenue if it had taken these royalties in cash instead. These sales indicate that MMS has not always been able to achieve one of its central goals: to select, based on systematic economic analysis, which royalties to take in cash and which to take in kind in a way that maximizes revenues to the government. According to a senior MMS official, the federal government has several advantages when selling gas that it does not have when selling oil, a fact that helps to explain why MMS's gas sales have performed better than its oil sales. For example, MMS can bundle the natural gas production in the Gulf of Mexico from many different leases into large volumes that MMS can use to negotiate discounts for transporting gas from production sites to market centers. Because purchasers receive these discounts when they buy gas from MMS, they may be willing to pay more for gas from MMS than from the original owners. Opportunities for bundling are less prevalent in the oil market. Because MMS generally does not have this, or other, advantages when selling oil, purchasers often pay MMS about what they would pay other producers for oil, and sometimes less. Indeed, MMS's policies allow it to sell oil for up to 7.7 cents less per barrel than MMS estimates it would collect if it took the royalties in cash. MMS told us that the other financial benefits of the royalty-in-kind program, including interest payments and reduced administrative costs, justify selling oil for less than the estimated cash payments because once these additional revenues are factored in, the net benefit to the government is still positive. However, as discussed below, we have found that there are significant questions and uncertainties about the other financial benefits as well. Revenues from the sale of royalty-in-kind oil are due 10 days earlier than cash payments, and revenues from the sale of in-kind gas are due 5 days earlier. MMS calculates that the government earned about $5 million in interest from fiscal years 2004 through 2006 from these early payments that it would not have received had it taken royalties in cash. We found two weaknesses in the way MMS calculates this interest. First, the payment dates used to calculate the interest revenue have the potential to over- or underestimate its value. MMS calculates the interest on the basis of the time between the actual date that Treasury received a royalty-in- kind payment and the theoretical latest date that Treasury would have received a cash payment under the royalty-in-value program. However, MMS officials told us that cash payments can, and sometimes do, arrive before their due date. As a result, MMS might be overstating the value of the early royalty-in-kind payments. Second, the interest rate used to calculate the interest revenue may either over- or understate its value because the rate is not linked to any market rate. From fiscal year 2004 through 2007, MMS used a 3 percent interest rate to calculate the time value of these early payments. However, during this time, actual market interest rates at which the federal government borrowed fluctuated. For example, 4-week Treasury bill rates ranged from a low of 0.72 percent to a high of 5.18 percent during this same period. Therefore, during some fiscal years, MMS likely overstated or understated the value of these early payments. MMS has developed procedures to capture the administrative costs of the royalty-in-kind and cash royalty programs and includes in its administrative cost comparison primarily the variable costs for the federal offshore oil and gas activities--that is, costs that fluctuate based on the volume of oil or gas received by MMS, such as labor costs. Although MMS also includes some department-level fixed costs, it excludes some fixed costs that it does not incur on a predictable basis (largely information technology costs). According to MMS, if it included these IT and other such costs, there would be a high potential of skewing the unit price used to determine the administrative cost savings. However, by excluding such fixed costs from the administrative cost comparison, MMS is not including all the necessary cost information to evaluate the efficacy of the royalty-in- kind program. MMS's administrative cost analysis compares a bundle of royalty-in-kind program administrative costs divided by the number of barrels of oil equivalent realized by the royalty-in-kind program during a year, with a bundle of cash royalty program administrative costs divided by the number of barrels of oil equivalent realized by that program. The difference between these amounts represents the difference in cost to administer a barrel of oil equivalent under each program. MMS then multiplies the difference in cost to administer a barrel of oil equivalent under the two programs by the number of barrels of oil equivalent realized by the royalty-in-kind program to determine the administrative cost savings. However, MMS's calculations excluded some fixed costs that are not incurred on a regular or predictable basis from the analysis. For example, in fiscal year 2006, royalty-in-kind IT costs of $3.4 million were excluded from the comparison. Moreover, additional IT costs of approximately $29.4 million--some of which may have been incurred for either the royalty-in-kind or the cash royalty program--were also excluded. Including and assigning these IT costs to the programs supported by those costs would provide a more complete accounting of the respective costs of the royalty-in-kind and royalty-in-value programs, and would likely impact the results of MMS's administrative cost analysis. Ultimately the system used by Interior to ensure taxpayers receive appropriate value for oil and gas produced from federal lands and waters is more of an honor system than we are comfortable with. Despite the heavy scrutiny that Interior has faced in its oversight of royalty management, we and others continue to identify persistent weaknesses in royalty collections. Given both the long-term fiscal challenges the government faces and the increased demand for the nation's oil and gas resources, it is imperative that we have a royalty collection system going forward that can assure the American public that the government is receiving proper royalty payments. Our work on this issue is continuing along several avenues, including comparing the royalties taken in kind with the value of royalties taken in cash, assessing the rate of oil and gas development on federal lands, comparing the amount of money the U.S. government receives with what foreign countries receive for allowing companies to develop and produce oil and gas, and examining further the accuracy of MMS's production and royalty data. We plan to make recommendations to address the weaknesses we identified in our final reports on these issues. We look forward to further work and to helping this subcommittee and the Congress as a whole to exercise oversight on this important issue. Mr. Chairman, this concludes our prepared statement. We 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 either Frank Rusco, at 202-512-3841, or [email protected], or Jeanette Franzel, at 202-512- 9406, or [email protected]. Contact points for our Congressional Relations and Public Affairs may be found on the last page of this statement. Contributors to this testimony include Ron Belak, Ben Bolitzer, Lisa Brownson, Melinda Cordero, Nancy Crothers, Glenn C. Fischer, Cindy Gilbert, Tom Hackney, Chase Huntley, Heather Hill, Barbara Kelly, Sandra Kerr, Paul Kinney, Jennifer Leone, Jon Ludwigson, Tim Minelli, Michelle Munn, G. Greg Peterson, Barbara Timmerman, and Mary Welch. 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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Companies that develop and produce federal oil and gas resources do so under leases administered by the Department of the Interior (Interior). Interior's Bureau of Land Management (BLM) and Offshore Minerals Management (OMM) are responsible for overseeing oil and gas operations on federal leases. Companies are required to self- report their production volumes and other data to Interior's Minerals Management Service (MMS) and to pay royalties either "in value" (payments made in cash), or "in kind" (payments made in oil or gas). GAO's testimony will focus on whether (1) Interior has adequate assurance that it is receiving full compensation for oil and gas produced from federal lands and waters, (2) MMS's compliance efforts provide a check on industry's self-reported data, (3) MMS has reasonable assurance that it is collecting the right amounts of royalty-in-kind oil and gas, and (4) the benefits of the royalty-in-kind program that MMS has reported are reliable. This testimony is based on ongoing work. When this work is complete, we expect to make recommendations to address these and other findings. To address these issues GAO analyzed MMS data, reviewed MMS, and other agency policies and procedures, and interviewed officials at Interior. In commenting on a draft of this testimony, Interior provided GAO technical comments which were incorporated where appropriate. Interior lacks adequate assurance that it is receiving full compensation for oil and gas produced from federal lands and waters because Interior's Bureau of Land Management (BLM) and Offshore Minerals Management (OMM) are not fully conducting production inspections as required by law and agency policies and because MMS's financial management systems are inadequate and lack key internal controls. Officials at BLM told us that only 8 of the 23 field offices in five key states we sampled completed their required production inspections in fiscal year 2007. Similarly, officials at OMM told us that they completed about half of the required production inspections in calendar year 2007 in the Gulf of Mexico. In addition, MMS's financial management system lacks an automated process for routinely and systematically reconciling production data with royalty payments. MMS's compliance efforts do not consistently examine third-party source documents to verify whether self-reported industry royalty-in-value payment data are complete and accurate, putting full collection of royalties at risk. In 2001, to help meet its annual performance goals, MMS moved from conducting audits, which compare self-reported data against source documents, toward compliance reviews, which provide a more limited check of a company's self-reported data and do not include systematic comparison to source documentation. MMS could not tell us what percentage of its annual performance goal was achieved through audits as opposed to compliance reviews. Because the production verification processes MMS uses for royalty-in-kind gas are not as rigorous as those applied to royalty-in-kind oil, MMS cannot be certain it is collecting the gas royalties it is due. MMS compares companies' self-reported oil production data with pipeline meter data from OMM's oil verification system, which records oil volumes flowing through metering points. While analogous data are available from OMM's gas verification system, MMS has not chosen to use these third-party data to verify the company-reported production numbers. The financial benefits of the royalty-in-kind program are uncertain due to questions and uncertainties surrounding the underlying assumptions and methods MMS used to compare the revenues it collected in kind with what it would have collected in cash. Specifically, questions and uncertainties exist regarding MMS's methods to calculate the net revenues from in-kind oil and gas sales, interest payments, and administrative cost savings.
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The Air Force and the Navy plan to use the JPATS aircraft to train entry level Air Force and Navy student pilots in primary flying to a level of proficiency from which they can transition into advanced pilot training. The JPATS aircraft is designed to replace the Air Force's T-37B and the Navy's T-34C primary trainer aircraft and other training devices and courseware. It is expected to have a life expectancy of 24 years and provide better performance and improved safety, reliability, and maintainability than existing primary trainers. For example, the JPATS aircraft is expected to overcome certain safety issues with existing trainers by adding an improved ejection seat and a pressurized cockpit. The JPATS aircraft is expected to be more reliable than existing trainers, experiencing fewer in-flight engine shutdowns and other equipment failures. It is also expected to be easier to maintain because it is to use more standard tools, and common fasteners. To calculate the number of JPATS aircraft required, the Air Force and the Navy in 1993, used a formula that considered such factors as the aircraft utilization rate, annual flying hours, mission capable rate, attrition rate, sortie length, working days, and turnaround time. The Air Force calculated a need for 372 JPATS aircraft, and the Navy calculated a need for 339, for a total combined requirement of 711 JPATS aircraft. In December 1996, the two services reviewed these requirements. At that time, the Navy approved an increase of 29 aircraft, increasing its total to 368 aircraft. This increased total requirements from 711 to 740 JPATS aircraft. The Air Force's Air Education and Training Command--responsible for pilot training--determined that the Air Force would need 441 aircraft instead of 372 aircraft. However, the Air Force did not approve this increase. The JPATS aircraft shown in figure 1, the T-6A Texan II, is to be a derivative of the Pilatus PC-9 commercial aircraft. Raytheon Aircraft Company, the contractor, plans to produce the aircraft in Wichita, Kansas, under a licensing agreement with Pilatus, the Swiss manufacturer of the PC-9. The JPATS aircraft will undergo limited modification to incorporate several improvements and features that are not found in the commercial version of the aircraft, but are required by the Air Force and the Navy. Modifications involve (1) improved ejection seats, (2) improved birdstrike protection, (3) a pressurized cockpit, (4) an elevated rear (instructor) seat, and (5) flexibility to accommodate a wider range of male and female pilot candidates. These modifications are currently being tested during the qualification test and evaluation phase, which is scheduled to be completed in November 1998. Initial operational capability is planned for fiscal year 2001 for the Air Force and fiscal year 2003 for the Navy. The Air Force and the Navy competitively selected an existing commercial aircraft design to satisfy their primary trainer requirements instead of developing a new trainer aircraft. This competitive acquisition strategy, according to Air Force officials, resulted in original program estimates of about $7 billion being reduced to about $4 billion upon contract award. The Air Force, as executive agent for the program, awarded a contract to Raytheon in February 1996 to develop and produce between 102 and 170 JPATS aircraft with the target quantity of 140, along with simulators and associated ground based training system devices, a training management system, and instructional courseware. The contract included seven production options. Through fiscal year 1997, the Air Force has exercised the first four options, acquiring 1 aircraft for engineering and manufacturing development and 23 production aircraft. A separate contract was awarded to Raytheon for logistics support, with options for future years' activities. Production is scheduled to continue through 2014. In 1996, the Air Force and the Navy calculated the number of JPATS aircraft required using several factors, including projections of JPATS mission capable rates and projected attrition rates based on historical experience. However, the data they used in their calculations contained various inconsistencies. For example, the projections of JPATS aircraft mission capable rates of 91 percent and 80 percent used by the Air Force and the Navy, respectively, to calculate the requirements differed substantially from each other and from the 94-percent rate included in the contract for procurement of the aircraft. The result of using lower mission capable rates to calculate aircraft quantities is that more aircraft would be needed to achieve annual flying hour requirements for training than if higher rates were used. Furthermore, the Air Force's projected attrition rates were not consistent with historical attrition experience with its existing primary trainer, and the Navy used a rate that differs from the rate that DOD now says is accurate. Until these inconsistencies are resolved, it is unclear how many JPATS aircraft should be procured. Although the Air Force and the Navy are procuring the same JPATS aircraft to train entry level pilots and the aircraft will be operated in a joint training program, they used different mission capable rates to calculate aircraft requirements. Specifically, the Air Force used a 91-percent mission capable rate and the Navy used an 80-percent rate. Neither of these rates is consistent with the JPATS contract that requires Raytheon to build an aircraft that meets or exceeds a 94-percent mission capable rate. Therefore, we recalculated the Air Force and the Navy total JPATS aircraft requirements using the same formula as the Air Force and the Navy, and substituting the 94-percent contract mission capable rate in place of the rates used by the Air Force and the Navy. Table 1 shows how higher mission capable rates could decrease JPATS aircraft quantity requirements by as many as 60 aircraft--10 for the Air Force and 50 for the Navy. The attrition rate used by the Air Force to calculate the number of JPATS aircraft needed was more than twice the attrition rate of its current primary trainer that was placed in service in the late 1950s. The Air Force estimated that 1.5 JPATS aircraft would be lost or damaged beyond repair for every 100,000 flying hours. However, the historic attrition rate for the current primary trainer is 0.7 per 100,000 flying hours. Although DOD advised us that single-engine trainers such as JPATS are expected to have higher attrition rates than two-engine trainers such as the T-37B, we note that important JPATS features are increases in safety and reliability, including fewer in-flight engine shutdowns and other equipment failures. In addition, use of an advanced ground based training system, being acquired as part of the JPATS program, is expected to result in greater pilot familiarity with the aircraft's operation prior to actual flights. Data provided by the Navy and DOD regarding attrition rates are conflicting. For example, the Navy's calculations in 1996 used an attrition rate of 1.5 aircraft per 100,000 flight hours to calculate the required quantity of JPATS aircraft. To derive this rate, the Navy factored in the attrition experience of the existing T-34C trainer, using a lifetime attrition rate of 0.4 per 100,000 flight hours. However, in commenting on a draft of this report, DOD stated that the lifetime attrition rate for the T-34C is 2.1 aircraft per 100,000 flying hours and the Navy provided data that it believed supported this rate. However, our analysis showed that the data supported a rate of 3.6 aircraft per 100,0000 flying hours, which differs from both the Navy and DOD figure. The JPATS aircraft procurement plan does not take advantage of the most favorable prices provided by the contract. The contract includes annual options with predetermined prices for aircraft orders of variable quantities. Procurement of fewer than the target quantity can result in a unit price increase from 1 to 52 percent. Procurement above the target quantity, or at the maximum quantity, however, provides very little additional price reduction. The contract contains unit price charts for the variation in quantities specified in lots II through VIII. The charts contain pricing factors for various production lot quantity sizes that are used in calculating unit prices based on previous aircraft purchases. The charts are designed so that the unit price increases if the number of aircraft procured are fewer than target quantities and decreases if quantities procured are more than target quantities. As shown in table 2, lots II through IV have been exercised at the maximum quantities of 2 (plus 1 developmental aircraft), 6, and 15. According to the procurement plan, 18 aircraft are to be procured during fiscal year 1998 and 12 aircraft during fiscal year 1999, resulting in a total of 30 aircraft. All of these aircraft are being procured by the Air Force. In fiscal year 2000, the Navy is scheduled to begin procuring JPATS aircraft. Our analysis shows that DOD can make better use of the price advantages that are included in the JPATS contract. For example, as shown in table 3, 30 aircraft can be procured more economically if 16, rather than 18, aircraft are procured in fiscal year 1998 and 14, rather than 12, aircraft are procured in fiscal year 1999. If as few as 16 aircraft were procured in fiscal year 1998, they could be acquired at the same unit price as currently planned because the unit price would not increase until fewer than 16 JPATS aircraft were procured in fiscal year 1998. Deferring 2 aircraft from fiscal year 1998 to fiscal year 1999 would increase the quantity in fiscal year 1999 from 12 to 14, resulting in a reduction of the unit price for fiscal year 1999, from $2.905 million to $2.785 million. This deferral would not only save $1.360 million over the 2 years but also reduce the risk of buying aircraft before the completion of operational testing by delaying the purchase of two aircraft and permitting more testing to be completed. DOD could also save money if it altered its plans to procure 26 aircraft in fiscal year 2000, which is a quantity lower than the target of 32 aircraft. The unit price could be reduced by $104,212, or 4 percent, if DOD procured the target quantity. In addition, once the JPATS aircraft successfully completes operational test and evaluation, the aircraft could be procured at the more economical, or target, rates. Our analysis demonstrates that maintaining yearly production rates at least within the target range is more economical than production rates in the minimum range. As we previously reported, economical procurement of tested systems has often been hindered because DOD did not provide them with high enough priority. The JPATS cockpit is expected to meet DOD's requirement that it accommodate at least 80 percent of the eligible female pilot population. Pilot size, as defined by the JPATS anthropometric characteristics, determines the percentage of pilots that can be accommodated in the JPATS cockpit. JPATS program officials estimate that the planned cockpit dimensions will accommodate approximately 97 percent of the eligible female population anthropometrically. The minimum design weight of the JPATS ejection seat (116 pounds) will accommodate 80 percent of the eligible female population. Because concerns have been raised about the ability of JPATS aircraft to accommodate female pilots, Congress directed DOD to conduct studies to determine the appropriate percentage of male and female pilots that could be accommodated in the cockpit. A DOD triservice working group studied the issue and concluded that a 32.8-inch minimum sitting height, instead of 34 inches, is one of several variables that would allow for accommodation of at least 80 percent of the eligible female population. The DOD working group determined that this change in sitting height would not require major development or significantly increase program risk. Thus, the Office of the Secretary of Defense established 32.8 inches as the new JPATS minimum sitting height requirement. In addition, the minimum weight requirement for the JPATS ejection seat was lowered from 135 pounds to 116 pounds to accommodate 80 percent of the eligible female population. Another study is being conducted to investigate the potential, at minimum additional cost, for an ejection seat with a lighter minimum weight limit that might accommodate more than 80 percent of the female pilot trainee population. Phase one of that study is scheduled to be completed in the fall of 1997. DOD is proceeding with plans to procure a fleet of JPATS aircraft that may exceed the quantity needed to meet training requirements. Until inconsistencies in the data used to calculate JPATS requirements are resolved, it is unclear how many aircraft should be procured. Furthermore, DOD's schedule for procuring the aircraft does not take advantage of the most economical approach that would allow it to save money and permit more time for operational testing. We, therefore, recommend that the Secretary of Defense determine the appropriate attrition rates and mission capable rates to calculate JPATS requirements, taking into account the planned improvements in JPATS safety, reliability, and maintainability, and recalculate the requirements as appropriate and direct the Air Force to revise the JPATS procurement plan to take better advantage of price advantages in the contract, and upon successful completion of operational test and evaluation, acquire JPATS aircraft at the most economical target quantity unit prices provided by the contract. In commenting on a draft of this report, DOD did not agree with our conclusion that DOD overstated JPATS requirements or with our recommendation that the Secretary of Defense direct the Air Force and the Navy to recalculate aircraft requirements. DOD partially concurred with our recommendation to buy JPATS aircraft at the most economical target unit prices provided in the contract. DOD believed that the Air Force and the Navy used appropriate attrition rates and mission capable rates to calculate JPATS requirements and that these rates accounted for improvements in technology and mechanical reliability. It noted that we had incorrectly identified the T-34C aircraft attrition rate as 0.4 aircraft per 100,000 flying hours rather than 2.1 aircraft per 100,000 flying hours. The Navy provided data that it believed supported DOD's position, but our analysis showed that this data supported an attrition rate that differed from both the Navy and DOD rate. Furthermore, DOD stated that the 94-percent mission capable rate cited in the JPATS contract is achievable only under optimal conditions and that the lower mission capable rates used by the Air Force and the Navy are based on the maximum possible aircraft use at the training sites. Although DOD stated that the Navy used a mission capable rate of 87 percent, our analysis showed that the Navy used a rate of 80 percent. Because of the inconsistencies and conflicts in the attrition and mission capable rate data between DOD and the services, we revised our conclusion to state that, until these discrepancies are resolved, it is unclear how many aircraft should be procured and revised our recommendation to call for the Secretary of Defense to determine the appropriate rates and recalculate JPATS requirements as appropriate. DOD agreed that procuring aircraft at the most economical price is desirable and stated that it will endeavor to follow this approach in future JPATS procurement. It, however, noted that competing budget requirements significantly affect procurement rates of all DOD systems and that limited resources generally make procurement at the most economical rates unachievable. DOD's written comments are reprinted in appendix I. To review service calculations of JPATS requirements, DOD's procurement schedule for the aircraft, and efforts to design the JPATS cockpit to accommodate female pilots, we interviewed knowledgeable officials and reviewed relevant documentation at the Office of the Under Secretary of Defense (Acquisition and Technology) and the Office of the Secretary of the Air Force, Washington D.C.; the Training Systems Program Office, Wright-Patterson Air Force Base, Ohio; the Air Force Air Education and Training Command, Randolph Air Force Base, Texas; the Navy Chief of Naval Air Training Office, Corpus Christi, Texas; and the Raytheon Aircraft Company, Wichita, Kansas. We examined Air Force and Navy justifications for using specific attrition rates, mission capable rates, and flying hour numbers in determining aircraft quantities. We also analyzed the variation in quantity unit price charts in the procurement contract to determine the most economical way to procure JPATS aircraft. In addition, we reviewed congressional language on cockpit accommodation requirements and current program estimates of compliance with that requirement. This review was conducted from September 1996 to July 1997 in accordance with generally accepted government auditing standards. As the head of a federal agency, you are required under 31 U.S.C. 720 to submit a written statement on actions taken on our recommendations to the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight no later than 60 days after the date of this report. A written statement must also be submitted to the Senate and House Committees on Appropriations with an agency's first request for appropriations made more than 60 days after the date of this report. We are sending copies of this report to the Secretaries of the Navy and the Air Force and to interested congressional committees. We will also make copies available to others upon request. Please contact me at (202) 521-4587 if you or your staff have any questions concerning this report. The major contributors to this report were Robert D. Murphy, Myra A. Watts, and Don M. Springman. The following are GAO's comments on the Department of Defense's (DOD) letter dated July 17, 1997. 1. The Navy, in deriving the projected attrition rate of 1.5 aircraft losses per 100,000 flying hours for Joint Primary Aircraft Training System (JPATS) aircraft, used a 0.4-lifetime attrition rate for the T-34C in determining total aircraft requirements. DOD, in its response to our draft of this report, stated that the actual lifetime attrition rate for the T-34C is 2.1; however, the data provided to support that rate indicated an attrition rate of 3.6 aircraft per 100,000 flying hours. Because the attrition rate figures provided to us for the Navy's T-34 differ substantially, the Air Force's estimated attrition for JPATS aircraft is twice the rate experienced on the T-37, and the Air Force's Air Education and Training Command has revised its calculations of requirements, we believe reassessment of requirements for JPATS aircraft is needed. 2. The JPATS production contract specifies the aircraft shall meet or exceed a 94-percent mission capable rate for the total hours the aircraft is in the inventory and does not specify the severity of conditions. Although the Navy now maintains that its requirement was for a primary trainer aircraft with an 87-percent mission capable rate, the Navy used, and continues to use, an 80-percent mission capable rate in calculating JPATS aircraft quantity requirements. The latest JPATS Operational Requirements Document, issued December 1996, shows an 80-percent mission capable rate for the Navy, not 87 percent as indicated in DOD's response to our draft report. 3. We recognize that limited resources and competing budget requirements affect production rates; however, the point we made was that DOD's procurement plan (the future years defense plan) for acquisition of JPATS aircraft did not make the best use of the limited resources that had already been assigned to the JPATS program. Our report, on page 6, illustrates how, with fewer resources, the Air Force could have acquired the same number of aircraft over a 2-year period. The illustration is valid, in that it shows that the DOD procurement plan was not the most effective and that it should be reassessed. Indeed, the procurement quantities in the plan for fiscal years 1999 and 2000 continue to include insufficient quantities for DOD to take advantage of the most favorable prices in the contract, and without a reassessment and a change to the plan, Congress may need to ensure that resources are used most effectively. 4. DOD did not provide us information to show how historical data for single-engine trainer aircraft were used to predict the JPATS rate of 1.5 losses per 100,000 flight hours. We believe that a predicted attrition rate for JPATS aircraft that is twice that of 40-year old T-37 trainers does not account for improvements that are to be incorporated in JPATS aircraft. 5. We do not believe it is premature at this time to reassess JPATS requirements. We believe reassessment is needed now because the Navy has provided several different attrition rates, all of which are intended to represent T-34 historical experience; the proposed JPATS attrition rate is twice the historical rate of the Air Force T-37; and the Air Force and the Navy continue to project different mission capable rates for JPATS aircraft that are lower than the rate the aircraft is required to demonstrate under the contract. We agree that, as experience is gained with the JPATS aircraft, the quantities should also be reassessed periodically. 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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GAO reviewed: (1) the Air Force's and Navy's calculations of the quantity of Joint Primary Aircraft Training System (JPATS) aircraft needed to meet training requirements; (2) the impact of the Department of Defense's (DOD) procurement schedule on the aircraft's unit price; and (3) service efforts to design the JPATS cockpit to accommodate female pilots. GAO noted that: (1) the Air Force and the Navy used inconsistent data to calculate the number of JPATS aircraft required for primary pilot training; (2) the Air Force used an attrition rate that was twice as high as the historical attrition rate for its existing primary trainer and the Navy used an attrition rate that differs from the rate that DOD now cites as accurate; (3) until inconsistencies in the mission capable rates and attrition rates are resolved, it is unclear how many JPATS aircraft should be procured; (4) DOD's procurement plan for acquiring JPATS aircraft does not take full advantage of the most favorable prices available in the contract; (5) for example, the plan schedules 18 aircraft to be procured during fiscal year (FY) 1998 and 12 aircraft during FY 1999, a total of 30 aircraft; (6) however, GAO found that these 30 aircraft could be procured more economically if 16 rather than 18 aircraft are procured in FY 1998 and 14 rather than 12 aircraft are procured in FY 1999; (7) this approach would save $1.36 million over the 2 fiscal years and permit more operational testing and evaluation to be completed; (8) furthermore, the procurement plan does not schedule a sufficient number of JPATS aircraft for procurement in fiscal year 2000 to achieve lower prices that are available under the terms of the contract; (9) because concerns had been raised about the ability of JPATS aircraft to accommodate female pilots, Congress directed DOD to study and determine the appropriate percentage of the female pilot population that the aircraft should physically accommodate; (10) based on its studies, DOD established the requirement that the JPATS aircraft be able to accommodate 80 percent of the eligible female pilot population; (11) pilot size determines the percentage of pilots that can be accommodated in the JPATS cockpit; (12) planned cockpit dimensions are expected to accommodate about 97 percent of the eligible female pilot population; and (13) to permit safe ejection from the aircraft, the ejection seat minimum pilot weight is 116 pounds, which is expected to accommodate 80 percent of the eligible female pilot population.
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Established in 1994 to serve as the UN's main oversight body, OIOS operated with a budget of $63.9 million in fiscal biennium 2004-2005 and employs a workforce of 256 staff in 20 locations around the world. OIOS was established to assist the Secretary-General in fulfilling internal oversight responsibilities over UN resources and staff. The stated mission of OIOS is "to provide internal oversight for the United Nations that adds value to the organization through independent, professional, and timely internal audit, monitoring, inspection, evaluation, management consulting, and investigation activities and to be an agent of change that promotes responsible administration of resources, a culture of accountability and transparency, and improved program performance." The office is headed by an Under Secretary-General who is appointed by the Secretary-General for a 5-year fixed term with no possibility of renewal. The Under Secretary-General may be removed by the Secretary-General only for cause and with General Assembly approval. OIOS's authority spans all UN activities under the Secretary-General, namely the UN Secretariat in New York, Geneva, Nairobi, and Vienna; the five regional commissions for Africa, Asia and the Pacific, West Asia, Europe, and Latin America and the Caribbean; peacekeeping missions and humanitarian operations in various parts of the world; and numerous UN funds and programs, such as the United Nations Environment Program (UNEP), United Nations Human Settlements Program (UN-HABITAT), and the Office of the United Nations High Commissioner for Refugees (UNHCR). The UN Procurement Service is located within the UN Secretariat's Department of Management, at the UN headquarters in New York City. As of August 2005, the Procurement Service had a staff of 71 personnel that included 21 procurement officers, 5 associate procurement officers, and 24 procurement assistants. The Procurement Service manages procurement for the UN Secretariat headquarters and procures air services and items costing more than $200,000 for the Secretariat's peacekeeping and other field missions. While it also provides procurement guidance and support to UN personnel who procure goods and services in the Secretariat's peacekeeping and other field missions, it does not directly supervise them. Overall Secretariat procurement spending tripled between 1994 and 2004 as the number of UN peacekeepers in the field increased. Past reviews of the UN's procurement system have identified problems in each of the six commonly identified characteristics that define an effective procurement system. In 1999, we found that the United Nations had yet to fully address these problems. The United Nations has retained a consulting firm to assess the Procurement Service's financial and internal controls, following the decision of a former procurement official to plead guilty to federal charges involving his receipt of funds from firms seeking UN contracts. The Procurement Service is currently under interim management. The ability of OIOS to carry out independent, effective oversight is impeded by the UN's budgeting processes for the regular budget and funds from the assessed peacekeeping budget and voluntary contributions from funds and programs subject to OIOS's oversight, which are known as extrabudgetary resources. The Secretariat's budget office--over which OIOS has oversight authority--exercises control over OIOS's regular budget, which may result in potential conflicts of interest. UN budgeting processes make it difficult for OIOS to shift resources among OIOS locations or divisions to meet changing priorities. In addition, OIOS lacks control over extrabudgetary resources from UN funds and programs. OIOS negotiates its terms of work and payment for services with the manager of the program it intends to examine. However, if the entity does not agree to an OIOS examination or does not provide requested funding for OIOS to perform its work, OIOS cannot adequately perform its oversight responsibilities. These regular budget and extrabudgetary processes have impeded OIOS in its ability to complete some of its identified oversight priorities and raise serious questions about OIOS's independence. OIOS's ability to carry out independent, effective oversight is hindered by the UN's budgeting processes for its regular budget. A General Assembly resolution in the creation of OIOS stated that the new internal oversight body shall exercise operational independence and that the Secretary- General, when preparing the budget proposal for OIOS, should take into account the independence of the office. OIOS receives its funding from two sources, the UN's regular budget and funds from the assessed peacekeeping budget and voluntary contributions from funds and programs subject to OIOS's oversight--known as extrabudgetary resources. UN rules and regulations preclude the movement of funds between the regular budget and extrabudgetary resources. From 1996-1997 through 2004-2005, the number of staff funded by the regular budget has been relatively flat while the number funded by extrabudgetary resources has increased steadily. During that same period, OIOS's regular budget increased from about $15 million to about $24 million; its extrabudgetary resources grew from about $7 million to about $40 million. OIOS officials stated that the increase in extrabudgetary resources has been largely due to growth in oversight for UN peacekeeping (see fig. 1). The Secretariat's budget office--over which OIOS has oversight authority--exercises control over OIOS's regular budget, which infringes on the office's independence. In developing the biennium budget, the Under Secretary-General of OIOS sends its biennial budget request to the Secretariat's budget office for review. While OIOS can negotiate with the budget office on suggested changes to its budget proposal, it has limited recourse regarding the budget office's decisions. This process limits OIOS's ability to independently request from the General Assembly the resources it has determined it needs to provide effective oversight and also poses a conflict of interest. UN budgeting processes make it difficult for OIOS to reallocate its regular budget resources among OIOS locations worldwide or among its three divisions--internal audit; investigations; and monitoring, evaluation, and consulting services--to meet changing priorities. For example, OIOS officials requested a reallocation of 11 investigative posts from New York to Vienna to save travel funds and be closer to the entities that they investigate. This change was approved only after repeated requests by OIOS over a number of years. In addition, although OIOS officials stated that they routinely identify high-risk and high-priority audits and investigations after the biennial budget has been determined, it is difficult to mobilize the resources required to carry out the work. OIOS officials have stated that the office is under resourced, but they do not have a mechanism in place to determine appropriate staffing levels or to justify budget requests, except for peacekeeping oversight services. Officials provided us with several examples of work funded through the regular budget that they were unable to undertake due to resource constraints. For example, although the Board of Auditors recommended on several occasions that OIOS develop the capacity to perform more information technology audits, OIOS officials said that they lack the financial and human resources to do so. We found that OIOS does not have a mechanism in place to determine its overall staffing requirements, which would help justify requests for additional resources. On the other hand, for peacekeeping audit services, OIOS has a metric--endorsed by the General Assembly--that provides one professional auditor per $100 million annual peacekeeping budget. Although OIOS has succeeded in justifying increases for peacekeeping oversight services consistent with the large increase in the peacekeeping budget since 1994, it has been difficult to support staff increases in oversight areas that lack a comparable metric. OIOS lacks control over the extrabudgetary resources funded by UN funds and programs. OIOS's reliance on extrabudgetary resources has been steadily increasing over the years--from 30 percent in fiscal biennium 1996-1997 to 62 percent in the last fiscal biennium, 2004-2005 (see fig. 1). According to OIOS officials, the growth in the office's budget is primarily due to extrabudgetary resources for audits and investigations of peacekeeping. OIOS is dependent on UN funds and programs and other UN entities for resources, access, and reimbursement for the services it provides. Heads of these entities have the right to approve or deny funding for oversight work proposed by OIOS. By denying OIOS funding, UN entities could avoid OIOS audits, and high-risk areas could potentially be excluded from adequate examination. For example, we have previously testified that the UN Office of the Iraq Program refused to fund an OIOS risk assessment of its program management division. UN funds and programs limit OIOS's ability to independently set its work priorities in that they exercise the power to decide and negotiate whether to fund OIOS oversight activities and at what level. OIOS officials stated that because of OIOS's budgetary structure, some high-priority work has not been undertaken. For example, according to a senior OIOS official, the office has not been able to adequately oversee the extrabudgetary activities of many entities, particularly those based in Geneva. In addition, the office also has not been able to oversee the UN Framework Convention on Climate Change or the UN Convention to Combat Desertification. OIOS reports that if funding is not forthcoming, OIOS may have no choice but to discontinue auditing certain extrabudgetary activities as of January 2006. In addition, in some cases, the fund and program managers have disputed the fees OIOS charges for its services. For example, 40 percent of the $2 million billed by OIOS after it completed its work are currently in dispute, and since 2001, less than half of the entities have paid OIOS in full for investigative services it has provided. If the funds and programs fail to pay or pay late, this also adversely affects OIOS's resources. The United Nations has improved the clarity of its procurement manual, which now provides procurement staff with clearer guidance on UN procurement regulations and policies. However, the United Nations has yet to fully address several problems affecting the openness and professionalism of its procurement system. Specifically, concerns remain relating to an independent bid protest system, staff training and professional certification, and ethics regulations. The UN Procurement Service has improved the clarity of its procurement manual. The manual guides UN staff in their conduct of procurement actions worldwide. The Procurement Service is responsible for ensuring that the manual reflects financial rules and regulations and relevant Secretary-General bulletins and administrative instructions. An open and effective procurement system requires the establishment of processes that are available to and understood by vendors and procurement officers alike. In 1999, we reported that the manual did not provide detailed discussions of procedures and policies. The United Nations has addressed these concerns in the current manual, which was endorsed by a group of outside experts. The manual now has detailed step-by-step instructions of the procurement process for both field and headquarters staff, including illustrative flow charts. It also includes more guidance that addresses headquarters and field procurement concerns, such as delegations of procurement authority, more specific descriptions of short- and long-term acquisition planning, and the evaluation of requests for proposals valued at more than $200,000. However, the United Nations has yet to add a section addressing renovation construction to the manual. The United Nations has not heeded a 1994 recommendation by a group of independent experts to establish an independent vendor bid protest process as soon as possible. As a result, UN vendors cannot protest the Procurement Service's handling of their bids to an independent official or office. We reported in 1999 that such a process is an important aspect of an open procurement system. A process that allows complaints to be adjudicated by an independent office could promote the openness and integrity of the process and help alert senior UN officials to the failure of procurement staff to comply with stated procedures. The current UN bid protest process is not independent of the Procurement Service. Vendors are directed to file protests through a complaints ladder process that begins with the acting Chief of the Procurement Service and moves through his immediate supervisor, currently the Secretariat Controller. The Chief of the Procurement Service at the time of our audit stated that there is no vendor demand for an independent process. In contrast to the UN's approach to bid protest, the U.S. government provides vendors with an agency-level bid protest process. In addition, it also provides vendors with two independent bid protest forums. Vendors dissatisfied by a U.S. agency's handling of their bids may protest to the U.S. Court of Federal Claims or to the GAO. The GAO receives more than 1,100 such protests annually. Several other countries provide vendors with independent bid protest processes. Moreover, the United Nations has endorsed the use of similar independent bid protest mechanisms by other member nations. In 1994, the General Assembly approved a model procurement law that incorporates independent bid protest. In its comments on the law it drafted for the General Assembly, the UN Commission on International Trade Law stressed that a bid protest review body should be independent of the procuring entity. The United Nations has not fully addressed longstanding concerns regarding the qualifications of its procurement staff. Although the Procurement Service is developing new training curricula and has initiated a certification program, most Procurement Service staff at headquarters have not been professionally certified. In addition, it has yet to determine the extent to which its training budget may need to increase to pay for these new programs. A June 2005 report by a UN contractor indicated that most UN headquarters Procurement Service officers and assistants have not been certified as to the level of their procurement experience and education. The report indicated that only 3 of the 20 procurement officers and 21 procurement assistants responding to a survey had been certified by a recognized procurement certification body. The contractor informed us that the UN's level of certification was low compared with the level at other organizations. Their report concluded that it was imperative that more UN procurement staff be certified. Although the experts did not address the qualifications of field procurement staff, UN headquarters officials informed us that field procurement staff are also in need of more training. Concerns regarding the qualifications of UN procurement staff are longstanding. Since 1994, international procurement experts reported that UN procurement staff were largely ill-trained or inexperienced and very few had any recognized procurement qualifications. In 1998, OIOS reported that the majority of the 20 professional headquarters procurement staff had procurement-related experience and were qualified. However, OIOS also stated that field procurement staff had limited procurement-related experience. In addition, OIOS reported that field-level procurement practices were at high risk due to continuing problems in training peacekeeping procurement staff in the field. In 1999, we reported that the UN Secretariat procurement training program did not constitute a comprehensive curriculum to provide a continuum of basic to advanced skills for the development of procurement officers. The UN Procurement Service has acknowledged that more needs to be done to train and certify procurement staff. It has developed basic and advanced training curricula and provided training to staff at headquarters and in the field during 2004 and 2005. However, although the training curriculum covers several key topics in procurement, it does not provide in-depth or comprehensive coverage of some topics. For example, the training material does not include in-depth information on procurement negotiation, which is of particular importance in light of UN plans to renovate its headquarters complex. UN data indicates that 1-week basic procurement training courses are being provided to some field staff and that advanced procurement training courses are being provided to some headquarters and field staff. However, it is not clear whether all procurement staff have received training in both the basic and advanced curricula. The Procurement Service has also begun developing a mandatory certification program. Procurement officials stated that their goal is to secure certification of all staff within 5 years. As part of this certification program, UN officials will train procurement staff to serve as trainers. According to UN officials, the curriculum for the trainers has been finalized and the UN has trained some staff as trainers. However, these staff have yet to receive the certification they need before they can train UN procurement staff. Other uncertainties relating to the certification program exist, including the number of staff who will require certification training and the type of certification they will receive. Current budget levels for procurement training may not be adequate to support the new training efforts. A June 2005 report by the National Institute of Governmental Purchasing, advised the Procurement Service that its training budget was not sufficient to maintain the levels of training needed to ensure fair, open, and ethical procurement operations. It recommended that the Procurement Service seek a larger budget. However, the budget's adequacy cannot be assessed because the Procurement Service has not yet developed training profiles for each staff member. Without assessments of individual training needs, the Procurement Service cannot accurately determine the funds it requires to address those needs. The United Nations has not yet acted on several proposals forwarded by the UN Procurement Service to clarify ethics regulations for procurement staff. Although the United Nations has established general ethics rules and regulations for all UN staff, the Secretary-General has directed that additional rules be developed for procurement officers concerning their status, rights, and obligations. The General Assembly also has asked the Secretary-General to issue ethics guidelines for procurement staff without delay. Several draft rules and regulations specifically addressing procurement ethics are waiting internal review or approval; no firm dates have been set for their promulgation. If approved, the documents would emphasize that all procurement activities in the Secretariat are conducted in the sole interest of the United Nations. They include a declaration of ethics responsibilities for procurement staff, a code of conduct for vendors, and an outline of the policies in current rules and regulations as they relate to procurement staff. The proposed policies would also address ethics standards on conflict of interest and acceptance of gifts for procurement staff, and outline UN rules, regulations, and procedures for suppliers of goods and services to the United Nations. Mr. Chairman, this completes my prepared statement. I will be happy to address any questions you may have. For further information, please contact Thomas Melito at (202) 512-9601. Individuals making key contributions to this testimony included Assistant Director Phyllis Anderson, Jaime Allentuck, Jeffrey Baldwin-Bott, Richard Boudreau, Lynn Cothern, Timothy DiNapoli, Etana Finkler, Jackson Hufnagle, Kristy Kennedy, Clarette Kim, John Krump, Joy Labez, Jim Michels, Valerie Nowak, Barbara Shields, and Pierre Toureille. United Nations: Sustained Oversight Is Needed for Reforms to Achieve Lasting Results, GAO-05-392T (Washington, D.C.: Mar. 2, 2005). United Nations: Oil for Food Program Audits, GAO-05-346T (Washington, D.C.: Feb. 15, 2005). United Nations: Reforms Progressing, but Comprehensive Assessments Needed to Measure Impact, GAO-04-339 (Washington, D.C.: Feb. 13, 2004). United Nations: Progress of Procurement Reforms, GAO/NSIAD-99-71 (Washington, D.C., Apr. 15, 1999). (320394) 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 internal oversight and procurement in the United Nations (UN). The findings of the Independent Inquiry Committee into the UN's Oil for Food Program have rekindled long-standing concerns about internal oversight and procurement at the United Nations. In addition, the UN's 2005 World Summit called for a host of reforms, from human rights, terrorism, and peace-building to economic development and management reform. Specifically, this testimony conveys our preliminary observations on the UN's budgeting processes as it relates to the ability of the UN's Office of Internal Oversight Services (OIOS) to perform independent and effective oversight. We will also discuss some of the UN's efforts to address problems affecting the openness and professionalism of its procurement system. We would like to emphasize that our comments reflect the preliminary results of two ongoing GAO engagements examining the UN's internal oversight and procurement services. We will issue reports covering a wide range of issues in both areas early next year. OIOS's ability to carry out independent, effective oversight over UN organizations is hindered by the UN's budgeting processes for its regular and extrabudgetary resources. In establishing OIOS in 1994, the General Assembly passed a resolution stating that OIOS should exercise operational independence in carrying out its oversight responsibilities and that the Secretary-General should take into account the independence of the office in preparing its budget. The Secretariat's budget office--over which OIOS has oversight authority--exercises control over OIOS's regular budget, which may result in conflicts of interest and infringe on OIOS's independence. In addition, UN budgeting processes make it difficult for OIOS to reallocate its regular budget resources among OIOS locations worldwide or among its three oversight divisions--internal audit; investigations; and monitoring, evaluation, and consulting services--to meet changing priorities. OIOS officials provided us with several examples of work funded through the regular budget that they were unable to undertake due to resource constraints. In addition, OIOS does not have a mechanism in place to identify or justify OIOS-wide staffing needs, except for peacekeeping oversight services. OIOS also lacks control over its extrabudgetary resources, which comprise 62 percent of its overall budget in fiscal biennium 2004-2005. The UN funds and programs that OIOS oversees maintain control over some of these resources since OIOS negotiates its terms of work and payment for services with the managers of the programs it intends to examine. If the entity does not agree to an OIOS examination or does not provide sufficient funding for OIOS to carry out its work, OIOS cannot adequately perform its oversight responsibilities. The United Nations has made progress in improving the clarity of its procurement manual but has yet to fully address previously identified concerns affecting the lack of openness and professionalism of its procurement system. Specifically, concerns remain relating to an independent bid protest system, staff training and professional certification, and ethics regulations. In 2002, the United Nations revised its procurement manual, which now provides staff with clearer guidance on UN procurement regulations and policies, including more detailed step-by-step instructions of the procurement process than it had when we reported in 1999. However, the Secretariat has yet to enhance the openness of the procurement system by heeding a 1994 recommendation by outside experts that it establish an independent bid protest process. At present, vendors cannot file complaints with an independent official or office if they believe that the UN Procurement Service has not handled their bids appropriately. As a result, senior UN officials may not be made aware of problems in the procurement process. In addition, the United Nations has not fully addressed longstanding concerns affecting the professional qualifications of its procurement workforce. The Procurement Service is developing a new training curriculum and a professional certification program. It has trained some procurement staff as instructors but has yet to complete training curricula. In addition, the United Nations still needs to develop the individual training profiles necessary to determine the extent of its training requirements. A June 2005 report by an independent contractor indicated that most headquarters procurement officers and procurement assistants do not possess professional procurement certifications. According to the contractor, the level of certification was low in comparison to other organizations. Further, the United Nations has yet to adopt several internal proposals to clarify UN ethics regulations for procurement staff and vendors, such as a code of conduct.
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In 1968, Congress created NFIP to address the increasing cost of federal disaster assistance by providing flood insurance to property owners in flood-prone areas, where such insurance was either not available or prohibitively expensive. The 1968 law also authorized premium subsidies to encourage property owner participation. To participate in the program, communities must adopt and agree to enforce floodplain management regulations to reduce future flood damage. In exchange, federally backed flood insurance is offered to residents in those communities. NFIP was subsequently modified by various amendments to strengthen certain aspects of the program. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for properties in special flood hazard areas--areas that are at high risk for flooding--that are security for loans from federally regulated lenders and located in NFIP participating communities. This requirement expanded the overall number of insured properties, including those that qualified for subsidized premiums. The National Flood Insurance Reform Act of 1994 expanded the purchase requirement for federally backed mortgages on properties located in special flood hazard areas. Congress has passed two key pieces of legislation designed to reform NFIP. The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert- Waters Act), enacted in July 2012, instituted provisions to help strengthen NFIP's future financial solvency and administrative efficiency. For example, it required FEMA to phase out almost all discounted insurance premiums and establish a reserve fund. As implementation proceeded, however, affected communities raised concerns about some Biggert- Waters Act requirements. The Homeowner Flood Insurance Affordability Act of 2014 was enacted in March 2014 and sought largely to address affordability concerns by repealing or altering some Biggert-Waters Act requirements. In this context, HFIAA included provisions that FEMA produce a study and submit a report that assess and recommend options, methods, and strategies for making voluntary CBFI available through NFIP. According to FEMA, as of March 2016 there were more than 5 million NFIP policies in force, which were spread across more than 22,000 communities throughout the United States and its territories (see figs. 1 and 2). FEMA defines a community as a political entity that has the authority to adopt and enforce floodplain ordinances for the area under its jurisdiction which is--in most cases--an incorporated city, town, township, borough, village, or an unincorporated area of a county or parish. While FEMA could potentially modify this definition to include other types of communities for a CBFI option, using the number of communities currently participating in NFIP provides one measure of how many communities could hypothetically pursue a CBFI option. In 2007, we identified four broad policy goals for federal involvement in natural catastrophe insurance: (1) charging premium rates that fully reflect actual risks; (2) encouraging private markets to provide natural catastrophe insurance; (3) encouraging broad participation in natural catastrophe insurance programs; and (4) limiting costs to taxpayers before and after a disaster. We identified these goals by drawing insights from a variety of sources: past GAO work, legislative histories of laws that changed the roles of state governments and the federal government after disasters, bills considered by Congress, interviews with public and private sector officials, and articles written by experts in insurance economics. We believe that the four goals we identified accurately capture the essential concerns of the federal government. We have previously used these policy goals to evaluate potential changes to NFIP. We believe that they are still relevant and could also be used to evaluate a CBFI option. We determined that the CBFI study objectives and methodology agreed upon by FEMA and NAS were reasonable. The objectives were clearly stated and designed to provide relevant, high-level considerations that could help FEMA decide whether CBFI should be implemented before determining how it should be implemented, which FEMA officials said was an important step. The methodology was consistent with the study's objectives and was reasonable given the limitations identified by FEMA: short time frames, the need to obtain informed opinions, and unavailable data. As a result, the study included findings that helped FEMA draw conclusions about whether and how to implement CBFI, if it chose to do so. FEMA and NAS took several steps to design the objectives and methodology of the CBFI study. FEMA initially provided NAS with documents that included background information on the purpose of the study and proposed a methodology and objectives. Then, NAS officials responded with minor modifications that reflected what NAS could do to meet FEMA's needs. FEMA and NAS officials told us that they held two meetings and communicated via email before agreeing to the methodology, objectives, and time frames (see fig. 3). According to FEMA and NAS officials, FEMA and NAS agreed that the study's objectives were to examine future prospects for CBFI by identifying and discussing issues that would require further evaluation in order for FEMA and others to better evaluate CBFI's strengths and weaknesses. According to FEMA officials, the agreed-upon objectives met their needs. To execute the CBFI study, NAS convened an expert committee to produce a report using a consensus report process. The committee was composed of 12 members that represented academia, the private sector, and state and federal government. The committee met twice: the January 2015 meeting featured guest presentations, and the March 2015 meeting was convened in a workshop-type format with multiple panels of external speakers. Following these meetings, the NAS study director, committee chair, and other committee members developed sections of the study and all committee members signed off on the full study. Prior to publication, NAS conducted an independent external peer review by experts who NAS recruited based on their technical expertise and breadth of perspectives. NAS and FEMA officials explained that they decided to use the consensus report process because it offered several benefits and did not face the same limitations that other methodologies would have faced. According to NAS officials, because consensus reports modulate different perspectives and identify new concepts and approaches, this approach was appropriate to meet the study's objectives. FEMA officials explained that they requested a consensus report methodology because it would provide independent, creative, and unbiased ideas from experts who already had a deep contextual knowledge of NFIP. Further, FEMA officials said that alternative approaches they considered would have faced various limitations. They stated that community-based surveys or listening sessions, for example, would have taken more time and might not have reached audiences that could provide well-informed opinions. Data analysis was not considered a viable option because FEMA does not have the data it would need to determine hypothetical costs for participating communities, homeowners, and FEMA. For example, as we have previously reported, FEMA does not collect all information necessary to determine flood risk, which is a key factor for determining NFIP premiums for individual policyholders or, potentially, communities. We determined that FEMA's study provided relevant information for evaluating the advisability of implementing CBFI. The study identified and discussed seven main areas for further consideration in designing a CBFI option for potential implementation. Risk bearing and sharing--A CBFI option could conceivably shift risk- bearing to communities, private insurers, or individuals depending on how it is structured. Responsibilities for writing policies and loss adjustments-- Participating insurance agents write policies and collect premiums under NFIP, but CBFI policies could be written at the community level. Coverage limits, standards, and compliance--Movement to a CBFI policy option could provide a community with an opportunity to reconsider flood exposures, such as extending the exposure beyond individual homes to public infrastructure. Underwriting, pricing, and allocation of premium costs--Several complex considerations could fall under this topic, including methods used in setting premiums, the extent to which catastrophic losses would be reflected, and the allocation of premium costs among homeowners. Administrative capabilities--Communities would likely not have expertise for undertaking the administration of CBFI policies, but depending on how a community is defined, it could have the means for collecting funds to pay for CBFI premiums. Confirming compliance with mandatory purchase requirements--A community-based policy might have to maintain some aspect of individual property coverage in order to satisfy mandatory flood insurance purchase requirements, which could be administratively burdensome. Pricing expertise, including valuation of mitigation measures--Pricing of CBFI policies would need to account for the risk underwritten and the savings expected from mitigation measures. The study also provided other relevant information related to CBFI, such as discussion of potential benefits and challenges, a conceptual rationale for identifying cases in which CBFI may or may not be a good option, and considerations for defining "community" in the context of CBFI. For example, the study reports that benefits could include reduced administrative and transaction costs, increased take-up rates, and promotion of mitigation efforts and floodplain management. The study also reports that challenges could include lack of community interest; limited implementation capability; likely need to create many approaches given variation in population size, geography, and authority to regulate land use and collect revenue; and political obstacles. Additionally, the study developed a conceptual rationale for identifying cases in which CBFI may or may not be desirable, and also identified several factors that could make CBFI more or less desirable than individual flood insurance policies. In addition, the study notes that FEMA may want to consider broadening the current definition of "community" because it may be too narrow in the context of CBFI. Specifically, the study noted that while a town or city would clearly be considered as a community under FEMA's current definition, the status of areas such as business districts or gated communities would be unclear and, as a result, it is difficult to say whether or not these kinds of areas would be eligible to purchase CBFI policies. To further assess FEMA's study, we evaluated relevant elements of its findings against the four public policy goals for federal involvement in natural catastrophe insurance that we have previously identified. The public policy goals, along with examples of elements from the study, follow. 1. Charging premium rates that fully reflect actual risks. Our prior work has shown that charging rates that do not fully reflect actual risks makes it difficult for FEMA to maintain the financial stability of NFIP, sends policyholders inaccurate price signals about their chances of incurring losses, and reduces incentives for policyholders to undertake mitigation efforts. FEMA's study identified areas for further consideration, including several related to charging premium rates that fully reflect risks; responsibility for bearing and sharing risk; responsibility for writing policies and loss adjustments; underwriting, pricing, and allocation of premium costs; and pricing expertise, including valuation of mitigation measures. The study also outlined concepts for innovative uses of CBFI that could help NFIP charge full- risk rates, such as requiring communities interested in CBFI to provide comprehensive analysis of flood risk in their communities, which would enhance NFIP's knowledge of flood risk at the community level. 2. Encouraging private markets to provide natural catastrophe insurance. Our prior work has shown that covering flood-related losses through NFIP involves significant federal expense, and Congress has shown interest in reducing the federal government's role in flood insurance by transferring its exposure to the private sector. While the private sector has not historically been willing to participate in the flood insurance market, facilitating certain conditions could help increase private sector involvement. FEMA's study discusses ways in which CBFI could encourage or discourage private market participation in flood insurance markets. For example, the study suggests that CBFI could encourage private sector involvement if NFIP offered it in either of two forms. First, CBFI could be offered as a way to insure all properties at a base level of coverage, providing the private sector with an opportunity to offer supplementary insurance above this base level of coverage. Second, CBFI could be offered as coverage for residual risk properties--the highest-risk properties that the private sector would not want to insure--allowing the private sector to insure all other properties. However, the study also suggests several challenges that may outweigh these potential benefits. For example, private insurers would need to acquire the information and expertise to price CBFI policies in line with actuarial standards and would have difficulty diversifying their risk pool--issues we have previously identified as key private sector concerns about offering flood insurance. Additionally, CBFI may discourage private sector participation because servicing CBFI policies after a disaster could be difficult, as the damage would be concentrated in a set geographic area. 3. Encouraging broad participation in natural catastrophe insurance programs. Our prior work has shown that nationwide flood insurance penetration rates are estimated to be low and information on compliance with the mandatory purchase requirement is limited. The study provided some discussion of how potential benefits and challenges of CBFI could relate to increasing NFIP participation. For example, the study notes that CBFI could help increase take-up rates and encourage compliance with mandatory purchase requirements, but it also noted that there may be challenges related to requiring all community members to participate in CBFI and some communities would not be able to oversee compliance with mandatory purchase requirements (unless that responsibility remained with the lender). 4. Limiting costs to taxpayers before and after a disaster. Our prior work has shown that the losses already generated by NFIP, as well as the potential for future losses, have created substantial financial exposure for the federal government and NFIP likely will not generate sufficient premium revenue to repay the billions of dollars borrowed from Treasury. The study provided some discussion of how CBFI could potentially limit costs to taxpayers by encouraging communities to pursue mitigation options that reduce risk of flood damage and result in lower premiums, or by potentially reducing administrative and transaction costs. However, the study also said that--given administrative costs required to design and set up the program-- these cost savings could be limited if few communities decide to enroll. Finally, FEMA officials said that the CBFI study's findings met their needs. According to the officials, the study's broad discussion of areas for further research as well as potential benefits and challenges of CBFI informed their opinion on the prospects for CBFI. The FEMA report, which included the study, provides a brief set of related conclusions from FEMA, including that FEMA should not implement CBFI. FEMA officials explained that, after reviewing the results of the study, they concluded that FEMA should not conduct further related research or implement CBFI for several reasons: The challenges outlined in the study--such as administrative burden on communities and FEMA, unavailable data, unclear cost distribution among community members, and potential legislative requirements-- are significant and likely outweigh the benefits. A limited number of communities would be likely to participate in a CBFI option, as only one community expressed positive interest in CBFI after FEMA presented the idea during previous NFIP reform listening sessions. Dedicating FEMA's resources to other potential NFIP reforms and strengthening existing programs would be a better use of these resources. Based on the factors cited by FEMA officials and our prior work, we agree that FEMA's conclusion that it was not advisable to implement CBFI at this time was reasonable. We have previously reported on how some of the challenges that the CBFI study outlined apply to NFIP more broadly. For example, we have previously reported that FEMA's resource constraints may jeopardize potential NFIP reform efforts. In 2008, we reported that implementing a combined federal flood and wind program could make addressing existing management challenges even more difficult, given the resources that would be required to administer and oversee a new program. In 2015 we reported that while FEMA had begun taking some actions to improve its capacity to administer NFIP, it was unclear whether FEMA had the resources required to complete its efforts to implement both the Biggert-Waters Act and HFIAA reforms. Also, starting in 2013, we have stated in multiple reports that FEMA does not collect some data necessary to determine flood risk--a key factor for determining NFIP premiums for individual policyholders or, potentially, communities. In addition, we have reported that some communities may face challenges administering NFIP and flood mitigation programs. In 2013, we reported that communities such as Indian tribes may lack the resources and administrative capacity needed to administer NFIP requirements, and in 2014 we reported that experts claim that some communities--especially rural ones--may lack the expertise and administrative capabilities to apply for and administer grants for mitigation activities. We provided a draft of this report to FEMA for its review. FEMA did not provide formal comments, and did not have any technical comments. If you or your staff have any questions concerning 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. GAO staff who made major contributions to this report are listed in appendix I. Alicia Puente Cackley, (202) 512-8678 or [email protected]. In addition to the contact named above, Patrick Ward (Assistant Director); Chloe Brown and Tarik Carter (Analysts-in-Charge); Namita Bhatia- Sabharwal; and Jennifer Schwartz made key contributions to this report. Also contributing to this report were David Dornisch; Jessica Sandler; and Jena Sinkfield.
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Floods are the most common and destructive natural disaster in the United States. The National Flood Insurance Program, which FEMA administers, has struggled financially to both pay for flood losses and keep rates affordable. To address these and other challenges, Congress has passed legislation including the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). HFIAA included provisions for FEMA to conduct a study and submit a report that assesses and recommends options, methods, and strategies for making CBFI available through NFIP. FEMA presented the study and related report to Congress in March 2016. HFIAA also includes a provision for GAO to review the FEMA report, which is to include the study and submit a related report to Congress. To review the study and report FEMA submitted to Congress, GAO analyzed the FEMA study's objectives, methodology, and findings, and evaluated the FEMA report's conclusions. GAO analyzed the appropriateness of the objectives, the reasonableness of the methodology, and the extent to which the conclusions were supported by the findings. GAO also evaluated relevant study findings against public policy goals for federal involvement in catastrophe insurance previously identified by GAO, and interviewed FEMA and NAS officials. GAO is not making recommendations in this report. The Federal Emergency Management Agency (FEMA) used reasonable objectives and methodology for its study on community-based flood insurance (CBFI)--flood insurance that a community would purchase to cover all properties located within it. FEMA contracted with the National Academy of Sciences (NAS) to conduct the study, and worked with NAS to design a study that would provide a high-level, independent discussion of issues related to CBFI. According to FEMA officials, such a study would help FEMA decide whether CBFI should be implemented, an important step before developing any plans to implement CBFI. Once the study was designed, NAS conducted the study independently, using input obtained from an expert committee that met twice in early 2015. The members of the committee represented academia, the private sector, and state and federal government. GAO determined that the study objectives were designed to meet FEMA's needs, the methodology supported the objectives, and alternative methodologies that were considered would have faced various limitations. In its report submitted to Congress, which contained the study, FEMA concluded that it should not conduct further related research or implement CBFI. Specifically, it concluded that the challenges outlined in the study outweigh any potential benefit when considered against limited community interest. FEMA officials further cited the need to dedicate FEMA's resources to effective National Flood Insurance Program (NFIP) reform. Based on the factors cited by FEMA officials, and the consistency of these factors with findings in prior GAO reports on NFIP, GAO determined that FEMA's conclusion was reasonable. For example, prior GAO work has highlighted challenges FEMA faces in balancing reform efforts with limited resources. In prior work, GAO identified four public policy goals for federal involvement in natural catastrophe insurance and used them to evaluate changes to NFIP. While the FEMA study did not use these goals, as part of its assessment GAO evaluated relevant elements of the study against them. For example, one of these goals is charging premium rates that fully reflect actual risk, and the study discussed innovative uses of CBFI that could help NFIP charge such rates. Another goal is encouraging private markets to provide natural catastrophe insurance, and the study discusses ways in which CBFI could encourage private market participation in flood insurance markets, as well as challenges that CBFI would pose to private insurers.
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Interior oversees and manages the nation's publicly owned natural resources, including parks, wildlife habitat, and crude oil and natural gas resources on over 500 million acres onshore and in the waters of the Outer Continental Shelf (OCS). In this capacity, Interior is authorized to lease federal fossil and renewable energy resources and to collect the royalties associated with their production. These substantial revenues are disbursed to 38 States, 41 Indian Tribes, Interior's Office of Trust Funds Management on behalf of some 30,000 individual Indian royalty owners, and to U.S. Treasury accounts. Royalties paid for fossil and renewable resources extracted from leased lands represent the principal source of the $12.6 billion in revenues managed by MMS--$10.7 billion, more than 85 percent of revenues received in fiscal year 2006. Of these, oil and natural gas leases are the most significant component of royalties, composing on average nearly 90 percent of the royalties received over the past five years. For oil and gas, production royalties are paid either in value or in kind. The OCS Lands Act of 1953, as amended, and the Mineral Leasing Act of 1920, as amended, authorize the collection of production royalties either in value or in kind for federal lands leased for development onshore and on the OCS. Furthermore, according to MMS, the terms of virtually all federal oil and gas leases provide for royalties to be paid in value or in kind at the discretion of the lessor. The Energy Policy Act of 2005 provides additional statutory requirements to support the operation and funding of a program for managing federal oil and gas royalties in kind. Additionally, MMS also collects revenue generated by exploration and development of geothermal energy resources commonly used to generate electricity. Until recently, the Geothermal Steam Act of 1970, as amended, directed MMS to disburse royalties collected from geothermal energy development such that 50 percent of geothermal royalties be retained by the federal government and the other 50 percent be disbursed to the states in which the federal leases are located. A provision of the Energy Policy Act of 2005 changed the distribution of the royalties collected from geothermal resources. While 50 percent of federal geothermal royalties must still be disbursed to the states in which the federal leases are located, an additional 25 percent must be disbursed to the counties in which the leases are located, leaving only 25 percent to the federal government. As Assistant Secretary Allred of Interior recently testified before the Congress, the absence of price thresholds in leases issued in 1998 and 1999 has already cost the government almost $1 billion and MMS has estimated a range of potential future foregone revenue for these leases of between $6.4 billion and $9.8 billion. MMS calculated these estimates under a range of assumptions about oil and natural gas prices and future production levels. We reviewed MMS's assumptions and methodology for estimating the potential foregone revenue from 1998 and 1999 leases and found them to be reasonable. However, because there is considerable uncertainty about future oil and natural gas prices and production levels, actual foregone royalties could end up being higher or lower than MMS's estimates. MMS is currently negotiating with oil and gas companies to apply price thresholds to future production from the 1998 and 1999 leases. If successful, this approach would partially undo the omission of price thresholds for future production, thereby implementing the royalty relief as though price thresholds had been included in the leases. However, the results of the negotiation have been mixed so far--as of late February 2007, only 6 of 45 companies have agreed to terms, and a current legal challenge to Interior's authority to set price thresholds on any DWRRA leases may further deter or complicate a negotiated settlement. In addition to forgone royalty revenues from leases issued in 1998 and 1999, royalty revenues on leases issued under DWRRA in 1996, 1997, and 2000 are also threatened pending the outcome of a legal challenge regarding price thresholds. Specifically, Kerr-McGee filed suit against the Department of the Interior in early 2006, challenging its authority to place price thresholds on any of the leases issued under the DWRRA. In effect, this suit seeks to remove price thresholds from the leases in question. In June 2006, Kerr-McGee agreed to enter into mediation with Interior in an attempt to resolve the issue; however, the mediation was unsuccessful and litigation has resumed. As of March 2007, the leases in question have generated approximately $1 billion in royalties. If the government loses this legal challenge, it may be required to refund these royalties--perhaps with interest penalties--and to forego any future royalties on these leases, and perhaps any lease issued during 1996, 1997, and 2000. As a result, the government could stand to lose billions of additional dollars. We reviewed the RIK pilot program for this committee in two separate reports in 2003 and 2004 and found that MMS did not collect the necessary information to effectively monitor and evaluate the program. This information includes the administrative costs of the RIK program and the revenue impacts of all sales. We found that MMS lacked this information largely because it had not developed information systems to rapidly and efficiently collect this information. We made several recommendations in our 2003 and 2004 reports to address the shortcomings we identified. Specifically, to further the development of management controls for MMS's RIK program, we recommended that the Secretary of the Interior instruct the appropriate managers within MMS to identify and acquire key information needed to monitor and evaluate performance prior to expanding the RIK program. We specified that such information should include the revenue impacts of all RIK sales, administrative costs of the RIK program, and expected savings in auditing revenues. We also recommended that MMS clarify the RIK program's strategic objectives to explicitly state that the goals of RIK include obtaining fair market value and collecting at least as much revenue as MMS would have collected in cash royalty payments. MMS agreed with both recommendations and has taken several steps to address these shortcomings. We acknowledge the agency's efforts and, within the context of the program's scope at the time of our report, consider our recommendations implemented by the agency. However, the expansion of use of RIK since our last review raises an additional concern. The RIK program has actively expanded the scope of its operations as MMS has increasingly opted to take royalties in kind rather than in cash. As MMS reported in its September 2006 Report to Congress, today's RIK operation manages a significant portfolio of the nation's oil and gas royalty assets collected primarily from federal leases in the Gulf of Mexico. This portfolio has expanded more than three-fold from 1999 to present--some 82 million barrels of oil equivalent were exchanged in kind in fiscal year 2005--and is expected to continue to grow for the foreseeable future. The Energy Policy Act of 2005 permanently established an RIK operation with administrative and business costs to be paid from royalty revenues generated by RIK sales, effectively transitioning the program from pilot status to a steady-state business operation and potentially enabling a further expansion of the RIK program. The Act restricts the use of RIK to those situations where the benefit is determined to equal or exceed the benefit from royalties in value prior to the sale. However, the larger scale of the RIK program at present makes it unclear that MMS can effectively and accurately make this determination going forward. Noting this issue, we are undertaking work for the Congress. Specifically, we have several ongoing reviews assessing, among other things, MMS's ability to quantify and compare administrative costs and revenues of the RIK and royalties in value programs; the effectiveness of the systems used to collect, account for, and disburse royalties; and the accuracy of royalty revenue collection, including evaluating whether the value of RIK payments equal or exceed the value of royalties that would have been received in value for oil and gas as required by statute. In a 2006 report on geothermal royalties, we found that MMS had erroneous and missing historical geothermal electricity revenue data and did not collect sufficient data from royalty payors to accurately asses whether MMS was collecting the amount of royalties required by statute. Specifically, about 40 percent of the royalty revenue data for royalty payors was either missing or erroneous in the projects we reviewed. In addition, MMS did not have sufficient historical gross revenue data for geothermal electricity sales. MMS is charged with collecting and distributing royalties collected from the development of geothermal resources used to generate electricity. The Energy Policy Act of 2005 included provisions that significantly changed how geothermal royalties are calculated but also instructed the Secretary of the Interior to seek to maintain the same level of royalties over the next ten years that would have been collected prior to the Act's passage. We found that to meet the statutory requirements, MMS will need to calculate the percentage of gross sales revenues that lessees will pay in future royalties from electricity sales and compare this to what lessees would have paid prior to the Act. In order to compare royalties collected under the provisions of the Act with what would have been collected under the old system would require historical data on gross revenues from geothermal electricity sales as well as accurate royalty data on those sales. As a result of the insufficient gross revenue data and missing or erroneous royalty revenue data, MMS is unable to determine if it is collecting the amount of royalties on geothermal electricity production as required in statute. In our report we recommended that the Secretary of the Interior direct MMS to correct these deficiencies and the agency agreed with our findings and recommendations. We will continue to monitor the agency's efforts to address these shortcomings. As seen by all the attention royalties management has received in the Congress and the media, Interior's performance in managing this effort is a cause for concern. Billions of dollars have been lost already and potentially billions more are at risk. In a time of dire long-term national fiscal challenges it is urgent that this problem be fixed and the confidence of the American public that the sale of its national resources is generating a fair return be restored. Our work on this issue is continuing on multiple levels, including comparing the value of royalties taken in kind to the value of royalties taken as cash, reviewing the diligence of resource development, and evaluating the accuracy of the agency's cost, revenue, and production data. We look forward to this continued work, and to helping this committee and the Congress as a whole exercise oversight of this important issue. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other members of the Committee may have at this time. For further information about this testimony, please contact me, Mark Gaffigan, 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 statement. Contributors to this testimony include Frank Rusco, Assistant Director; Robert Baney; Ron Belak; Philip Farah; Doreen Feldman; Glenn Fischer; Dan Haas; Chase Huntley; Dawn Shorey; Barbara Timmerman; Maria Vargas; and Jacqueline Wade. 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). Suggested Areas for Oversight for the 110th Congress, GAO-07-235R (Washington, D.C.: Nov. 17, 2006). Department of Interior: Royalty-in-Kind Oil and Gas Preferences, B-307767 (Washington, D.C.: Nov. 13, 2006). Royalty Revenues: Total Revenues Have Not Increased at the Same Pace as Rising Natural Gas Prices due to Decreasing Production Sold, GAO-06-786BR (Washington, D.C.: June 21, 2006). Renewable Energy: Increased Geothermal Development Will Depend on Overcoming Many Challenges, GAO-06-629 (Washington, D.C.: May 24, 2006). 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). Mineral Revenues: A More Systematic Evaluation of the Royalty-in-Kind Pilots is Needed, GAO-03-296 (Washington, D.C.: Jan. 9, 2003). 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 the Interior's Minerals Management Service (MMS) is charged with collecting and administering royalties paid by companies developing fossil and renewable energy resources on federal lands and within federal waters. To promote development of oil and natural gas, fossil resources vital to meeting the nation's energy needs, the federal government at times has provided "royalty relief" waiving or reducing the royalties that companies must pay. In these cases, relief is typically applicable only if prices remain below certain threshold levels. Oil and gas royalties can be taken at MMS's discretion either "in value" as cash or "in kind" as a share of the product itself. Additionally, MMS also collects royalties on the development of geothermal energy resources--a renewable source of heat and electricity--on federal lands. This statement provides (1) an update of our work regarding the fiscal impacts of royalty relief for leases issued under the Deep Water Royalty Relief Act of 1995; (2) a description of our recent work on the administration of the royalties in kind program, as well as ongoing work on related issues; and (3) information on the challenges to collecting geothermal royalties identified in our recent work. To address these issues we relied on recent GAO reports on oil, gas, and geothermal royalty collection systems. We are also reviewing key MMS estimates and data. The absence of price thresholds in oil and gas leases issued by MMS in 1998 and 1999 has already cost the government about $1 billion and the agency has recently estimated that future foregone royalties would be $6.4 billion to $9.8 billion over the lives of the leases. Precise estimates of the actual foregone royalties, however, are not possible at this time because future projections are sensitive to price and production levels, both of which are subject to change. MMS is currently negotiating with oil and gas companies to apply price thresholds to future production from these leases, with mixed results--only 6 of the 45 companies involved have agreed to terms. Moreover, a pending legal challenge to Interior's authority to include price thresholds on any leases issued under the Deep Water Royalty Relief Act could, if successful, cost the government billions more in refunded and foregone revenue. In our most recent review of the royalty in kind (RIK) program, conducted in 2004, we found that MMS was unable to determine whether the revenues received from its sales of oil taken in kind were equivalent to receiving royalties in value, largely because it had not developed systems to rapidly and efficiently collect this information. We made recommendations that the agency has implemented that have improved the administration of the program as it existed at the time of our report. However, the continued expansion of the program raises a new question about the adequacy of the agency's overall management practices and internal controls to meet the increasing demands placed on the RIK program. Accordingly, we are undertaking follow-on reviews assessing, among other things, the agency's ability to quantify and compare administrative costs and revenues of the RIK and royalties in value programs and the extent to which the revenues collected under the RIK program are equal to or greater than what would have been received had they been taken in value. In a 2006 report on geothermal royalties, we found that missing and erroneous historical data, as well as insufficient data on electricity sales, meant that MMS is unable to accurately determine whether it was collecting royalties as directed by statute. The Energy Policy Act of 2005 included provisions that significantly changed how geothermal royalties are calculated but also directed Interior to maintain the same level of royalties over the next ten years that would have been collected prior to the Act's passage. We found that making this determination requires historical data on sales of electricity produced from geothermal resources as well as accurate royalty data. However, MMS did not have sufficient historical gross revenue data with which to establish a baseline for past royalties paid as a percentage of electricity revenues. Further, about 40 percent of MMS's royalty data was either missing or erroneous for the projects we reviewed. We recommended that MMS correct these deficiencies and the agency agreed. We are continuing to monitor the agency's efforts.
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USDA is, by law, charged with leading and coordinating federal rural development assistance. USDA Rural Development administers the greatest number of development programs for rural communities and directs the highest average amount of federal program funds to these communities. Most of Rural Development's programs and activities provide assistance in the form of loans, loan guarantees, and grants. Three offices are primarily responsible for carrying out this mission: the Rural Business-Cooperative Service (RBS), Rural Housing Service (RHS), and Rural Utilities Service (RUS). RBS administers programs that provide financial, business planning, and technical assistance to rural businesses and cooperatives that receive Rural Development financial assistance. It also helps fund projects that create or preserve jobs in rural areas. RHS administers community facilities and housing programs that help finance new or improved housing for moderate-, low-, and very low-income families. RUS administers electric, telecommunications, and water programs that help finance the infrastructure necessary to improve the quality of life and promote economic development in rural areas. Since its beginning in 1953, SBA has steadily increased the amount of total assistance it provides to small businesses, including those in rural areas, and expanded its array of programs for these businesses. SBA's programs now include business and disaster relief loans, loan guarantees, investment capital, contract procurement and management assistance, and specialized outreach. SBA's loan programs include its 7(a) loan guarantee program, which guarantees loans made by commercial lenders to small businesses for working capital and other general business purposes, and its 504 loan program, which provides long-term, fixed-rate financing for major fixed assets, such as land and buildings. These loans are generally provided through participating lenders, up to a maximum loan amount of $2 million. SBA also administers the Small Business Investment Company (SBIC) program--a program that provides long-term loans and venture capital to small firms. In September 2007, SBA announced a new loan initiative designed to stimulate economic growth in rural areas. The Rural Lender Advantage program, a part of SBA's 7 (a) loan program, is aimed at encouraging rural lenders to finance small businesses. It is part of a broader initiative to boost economies in regions that face unique challenges due to factors such as declining population or high unemployment. Generally speaking, collaboration involves any joint activity that is intended to produce more public value than could be produced when the agencies act alone. Collaboration efforts are often aimed at establishing approaches to working together; clarifying priorities, roles and responsibilities; and aligning resources to accomplish common outcomes. On the federal level, collaboration efforts tend to occur through interagency agreements, partnerships with state and local governments and communities, and informal methods (e.g. networking activities, meetings, conferences, or other discussions on specific projects or initiatives). Agencies use a number of different mechanisms to collaborate with each other, including MOUs, procurement and other contractual agreements, and various legal authorities. Both SBA and USDA have used the authority provided by the Economy Act to facilitate collaboration. The Economy Act is a general statutory provision that permits federal agencies to enter into mutual agreements with other federal agencies to purchase goods or services and take advantage of specialized experience or expertise. It is the most commonly used authority for interagency agreements, allowing agencies to work together to obtain items or services from each other that cannot be obtained as conveniently or economically from a private source. SBA has also used contractual work agreements to collaborate with other federal agencies. For example, SBA has an agreement with the Farm Credit Administration (FCA) to examine SBA's Small Business Lending Companies (SBLC). SBA oversees SBLCs, which are nondepository lending institutions that it licenses and that play a significant role in SBA's 7(a) Loan Guaranty Program. However, SBLCs are not generally regulated or examined by financial institution regulators. SBA entered into a contractual agreement with the FCA in 1999 that tasked FCA with conducting safety and soundness examinations of SBA's SBLCs. Under the agreement, FCA examined 14 SBLCs during a 1-year period. The exams were conducted on a full cost recovery basis and gave both agencies the option to terminate or extend the agreement after a year. The agreement allowed SBA to take advantage of FCA's expertise in examining specialized financial institutions and offered FCA the opportunity to broaden its experience through exposure to a different lending environment. Additionally, using the disaster provisions under its traditional multifamily and single- family rural housing programs, Rural Development collaborated with FEMA in providing assistance to hurricane victims. Through this collaborative effort, Rural Development assisted victims of Katrina by (1) making multifamily rental units available nationwide; (2) providing grants and loans for home repair and replacement; and (3) providing mortgage relief through a foreclosure moratorium and mortgage payment forbearance. Rural Development also shared information with FEMA on USDA-owned homes for lease, developed an Internet presence to inform victims of available housing, and made resources available at Rural Development state offices to assist in these efforts. While SBA and Rural Development are not currently involved in a collaborative working relationship, both agencies have some experience collaborating with each other on issues involving rural development. Specifically, on February 22, 1977, SBA and Rural Development established an MOU for the purpose of coordinating and cooperating in the use of their respective loan-making authorities. Under the general guidelines of the agreement, appropriate SBA and Rural Development officials were to establish a liaison and periodically coordinate their activities to (1) define areas of cooperation, (2) assure that intended recipients received assistance, (3) enable both agencies to provide expeditious service, and (4) provide maximum utilization of resources. Again on March 30, 1988, SBA and Rural Development agreed to enter into a cooperative relationship designed to encourage and maximize effectiveness in promoting rural development. The MOU outlined each agency's responsibilities to (1) coordinate program delivery services and (2) cooperate with other private sector and federal, state, and local agencies to ensure that all available resources worked together to promote rural development. SBA and Rural Development officials told us that the 1977 and 1988 agreements had elapsed and had not been renewed. Finally, in creating the RBIP in 2002, Congress authorized Rural Development and SBA to enter into an interagency agreement to create rural business investment companies. Under the program, the investment companies would leverage capital raised from private investors, including rural residents, into investments in rural small businesses. The legislation recommended that Rural Development manage the RBIP with the assistance of SBA because of SBA's investment expertise and experience and because the program was modeled after SBA's SBIC program. The legislation provided funding to cover SBA's costs of providing such assistance. A total of $10 million was available for the RBIP in fiscal years 2005 and 2006. Rural Development and SBA conditionally elected to fund three rural business investment companies. However, according to SBA officials only one of these companies has been formed because of challenges in finding investment companies that can undertake such investments. Section 1403 of the Deficit Reduction Act of 2005 rescinded funding for the program at the end of fiscal year 2006. In March 2007, Rural Development began the process of exploring ways to continue the RBIP, despite the rescission. Both SBA and Rural Development have field offices in locations across the United States. However, Rural Development has more state and local field offices and is a more recognized presence in rural areas than SBA. Prior to its 1994 reorganization, which resulted in a more centralized structure, USDA had field staff in almost every rural county. Consistent with its reorganization, and as we reported in September 2000, USDA closed or consolidated about 1,500 county offices into USDA service centers and transferred over 600 Rural Development field positions to the St. Louis Centralized Servicing Center. What resulted was a Rural Development field office structure that consisted of about 50 state offices, 145 area offices, and 670 local offices. As part of the reorganization, state Rural Development offices were given the authority to develop their own program delivery systems. Some states did not change, believing that they needed to maintain a county-based structure with a fixed local presence to deliver one-on-one services to rural areas. Other states consolidated their local offices to form district offices. For example, when we performed our audit work in 2000 we found that Mississippi, which maintains a county- based field structure, had more staff and field offices than any other state. Today, Mississippi still maintains that structure and has a large number of field offices, including 2 area offices, 24 local offices and 3 sub-area offices. The Maine Rural Development office changed its operational structure, moving from 28 offices before the reorganization to 15 afterward. In 2000, it operated out of 3 district offices and currently has 4 area offices. SBA currently has 68 district offices, many of which are not located in rural communities or are not readily accessible to rural small businesses. For several years, SBA has been centralizing some of the functions of its district offices to improve efficiency and consistency in approving, servicing, and liquidating loans. Concurrently, SBA has also been moving more toward partnering with outside entities such as private sector lenders to provide services. SBA's district offices were initially created to be the local delivery system for SBA's programs, but as SBA has centralized functions and placed more responsibilities on its lending partners, the district offices' responsibilities have changed. For example, the processing and servicing of a majority of SBA's loans--work once handled largely by district office staff--have been moved from district offices to service centers. Moreover, as we reported in October 2001, there has been confusion over the mission of the district offices, with SBA headquarters officials believing the district office's key customers are small businesses and district office staff believing that their key customers are the lenders who make the loans. Currently, SBA is continuing its workforce transformation efforts to, among other things, better define the district office role to focus on marketing and outreach to small businesses. We plan to evaluate the extent to which Rural Development offices may be able to help market SBA programs and services by making information available through their district offices. It appears that Rural Development has an extensive physical infrastructure in rural areas and expertise in working with rural lenders and small businesses. Our ongoing work will explore these issues in more depth, including looking at any incentives that exist for Rural Development and SBA to collaborate with each other. You requested that we conduct a review of the potential for increased collaboration between SBA and Rural Development, and we have recently begun this work. In general, the major objectives of our review are to determine: 1. The differences and similarities between SBA loan programs and Rural 2. The kind of cooperation that is already taking place between SBA and Rural Development offices, and 3. Any opportunities or barriers that may exist to cooperation and collaboration between SBA and Rural Development. To assess the differences and similarities between SBA loan programs and Rural Development business programs, we will review relevant SBA and Rural Development documents describing their loan and business programs. We will examine relevant laws, regulations, policies, and program rules, including eligibility requirements and types of assistance, funding levels, and eligible use of program funds. We will obtain data on both agencies' loan processes and procedures, including any agency goals for awarding loans, documentation requirements, and loan processing times. To determine what cooperation has taken place between SBA and Rural Development, we will examine previous collaboration efforts and cooperation between the agencies in providing programs and services. We will also review documents such as MOUs, informal interagency agreements, and other documentation and will conduct interviews with SBA and Rural Development staff at headquarters and field offices to obtain a fuller understanding of these initiatives. To determine what opportunities or barriers exist to cooperation and collaboration between SBA and Rural Development, we will review relevant laws, regulations, and policies. We will review data from SBA and Rural Development on each agency's field structure, including office space and personnel, and interview relevant parties on the advantages and disadvantages to co-locating offices. We plan to interview headquarters and field office staff at each agency about past collaboration efforts and any plans to work collaboratively in the future. We also plan to obtain the perspectives of select lenders that participate in SBA loan programs and Rural Development business programs. We reported previously in March 2007 and October 2005 that effective collaboration can occur between agencies if they take a more systematic approach to agreeing on roles and responsibilities and establishing compatible goals, policies, and procedures on how to use available resources as efficiently as possible. In doing so, we identified certain key practices that agencies such as SBA and USDA could use to help enhance and sustain their efforts to work collaboratively. These practices include (1) defining and articulating a common outcome; (2) establishing mutually reinforcing or joint strategies; (3) identifying and addressing needs by leveraging resources; (4) agreeing on roles and responsibilities; (5) establishing compatible policies, procedures, and other means of operating across agency boundaries; (6) developing mechanisms to monitor, evaluate, and report on results; (7) reinforcing agency accountability for collaborative efforts; and (8) reinforcing individual accountability for collaborative efforts. As part of our ongoing work, we plan to review the extent to which the eight key practices relate to possible opportunities for SBA to increase collaboration with Rural Development. For example, we plan to explore the extent to which these practices are necessary elements for SBA to have a collaborative relationship with Rural Development. We are continuing to design the scope and methodology for our work, and we expect to complete this design phase by February 2008. At that time, we will provide details of our approach as well as a committed issuance date for our final report. Mr. Chairman, Ranking Member Fortenberry, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions that you may have. For additional information about this testimony, please contact William B. Shear at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Affairs and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony included Paul Schmidt, Assistant Director; Michelle Bowsky; Tania Calhoun; Emily Chalmers; and Ronald Ito. 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 Small Business Administration (SBA) and Department of Agriculture (USDA) Rural Development offices share a mission of attending to underserved markets, promoting economic development, and improving the quality of life in America through the promotion of entrepreneurship and community development. In the past, these agencies have had cooperative working relationships to help manage their respective rural loan and economic development programs. At this subcommittee's request, GAO has undertaken a review of potential opportunities for SBA to seek increased collaboration and cooperation with USDA Rural Development (Rural Development), particularly given Rural Development's large and recognizable presence in rural communities. In this testimony, GAO provides preliminary views on (1) mechanisms that SBA and USDA have used to facilitate collaboration with other federal agencies and with each other; (2) the organization of SBA and USDA Rural Development field offices; and (3) the planned approach for GAO's recently initiated evaluation on collaboration between SBA and Rural Development. GAO discussed the contents of this testimony with SBA and USDA officials. While SBA and Rural Development are not currently involved in a collaborative working relationship, SBA and Rural Development have used a number of different mechanisms, both formal and informal, to collaborate with other agencies and each other. For example, both agencies have used the Economy Act--a general statutory provision that permits federal agencies, under certain circumstances, to enter into mutual agreements with other federal agencies to purchase goods or services and take advantage of specialized experience or expertise. SBA and USDA used the act to enter into an interagency agreement to create rural business investment companies to provide equity investments to rural small businesses. For this initiative, Congress also authorized USDA and SBA to administer the Rural Business Investment Program to create these investment companies. However, funding for this program was rescinded at the end of fiscal year 2006. SBA and Rural Development have also used other mechanisms to collaborate, including memorandums of understanding (MOU), contractual agreements, and other legal authorities. For instance, Rural Development has collaborated with the Federal Emergency Management Agency in providing assistance to the victims of Hurricane Katrina using the disaster provisions under its multifamily and single-family rural housing programs. To collaborate with each other, in the past SBA and Rural Development have established MOUs to ensure coordination of programs and activities between the two agencies and improve effectiveness in promoting rural development. Both SBA and Rural Development have undergone restructuring that has resulted in downsizing and greater centralization of each agency's field operations. Currently, SBA's 68 field offices--many of them in urban centers--are still undergoing the transformation to a more centralized structure. Rural Development has largely completed the transformation and continues to have a large presence in rural areas through a network of hundreds of field offices. The program's recognized presence in rural areas and expertise in the issues and challenges facing rural lenders and small businesses may make these offices appropriate partners to help deliver SBA services. GAO has recently begun a review of the potential for increased collaboration between SBA and Rural Development. In general, the major objectives are to examine the differences and similarities between SBA loan programs and Rural Development business programs, any cooperation that is already taking place between SBA and Rural Development, and any opportunities for or barriers to collaboration.
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Lobbying registrations and reports are required under the Lobbying Disclosure Act of 1995 (the Act) as amended by the Honest Leadership and Open Government Act of 2007 (HLOGA) to disclose the identities of people attempting to influence the government, the subject matters of their attempts, and the amounts of money they spend to accomplish their goals. The Act requires that lobbyists register with the Secretary of the Senate and the Clerk of the House and file periodic reports disclosing their activities. The Act was amended by HLOGA to make those reports due quarterly (they had previously been due semiannually). HLOGA requires lobbyists to disclose whether they held an official covered position in the past 20 years (rather than the 2 years the Act had previously required), whether the client is a state or local government, and whether any members of a coalition or association actively participated in the lobbying activities. Under HLOGA, lobbyists are required to file these registrations and reports electronically with Congress through a single entry point (as opposed to separately with the Secretary of the Senate and the Clerk of the House as was done prior to HLOGA). The Act, as amended by HLOGA, also provides that registrations and reports must be available in downloadable, searchable databases from the Secretary of the Senate and the Clerk of the House. The Act defines "lobbyists" and "lobbying activities" and imposes requirements on the reporting of those activities. Under the Act, a lobbyist can be an individual, a lobbying firm, or an organization that has employees lobbying on its own behalf, depending on the circumstances. Lobbyists are required to file a registration with the Secretary of the Senate and the Clerk of the House for each client on whose behalf a lobbying contact is made if a minimum dollar threshold is passed. The registration must list the name of the organization, lobbying firm, or self- employed individual lobbying on that client's behalf. In addition, the registration and subsequent reports must list the individuals who acted as lobbyists on behalf of the client during the reporting period. For reporting purposes, a lobbyist is defined as a person who has made two or more lobbying contacts and whose lobbying activities represent at least 20 percent of the time that he or she spends on behalf of the client during any quarter. Registrations and reports must also identify any covered official positions a lobbyist held in the previous 20 years. The registration and subsequent quarterly reports must also disclose the name of and further information about the client. The lobbyist is required to disclose any foreign entities with interest in the client. The lobbyist must report if the client is a state or local government. When the client is a coalition or association, the lobbyist must identify any constituent organization that contributes more than $5,000 for lobbying in a quarter and actively participates in the planning, supervision, or control of lobbying activities. The registration and subsequent reports may either list each organization or make the list available on the coalition's or association's Web site and disclose the Web address in the report. Lobbying registrations and reports must include lobbying activity details such as the general issue area and the specific lobbying issues. The lobbyist must also disclose which federal agencies and house(s) of Congress the lobbyist contacted on behalf of the client during the reporting period. Finally, the registrant must report the amount of money that was spent on lobbying for the client during the reporting period. The lobbying income or expenses disclosed on the reports are to be rounded to the nearest $10,000. A lobbying firm, or any other organization that is hired to lobby on behalf of an entity other than itself, must report the amount of income related to lobbying activities received from the client during the quarter. An organization that has employees who lobby on its behalf must report the expenses incurred in relation to lobbying activities during the quarter. Organizations may use one of three accounting methods to determine their expenses: the Act's definitions of lobbying expenses; the Internal Revenue Code definitions for non-deductible business expenses; or, if they are a 501(c) nonprofit organization, the definitions under that portion of the Internal Revenue Code. We estimate that lobbyists could provide accurate supporting information--in either written or verbal form--on income or expenses for at least 95 percent of all first quarter reports filed that required this information. Neither the Act nor lobbying guidance specifies any standards or requirements for lobbyists to maintain records or documentation to support information disclosed in their reports. Nonetheless, lobbyists were able to provide written or oral support for all required elements of individual reports we examined. However, the extent to which lobbyists could provide written documentation varied for different aspects of the reports. The extent to which lobbyists could provide written documentation to support elements of their filings was quite high for some elements such as income or expenses, but notably lower for other elements such as the individuals who acted as lobbyists. The Act requires lobbyists to make a good faith estimate of either all income received from the client or total expenses of lobbying activities. Although the Act does not contain any special record-keeping provisions, guidance from both the Secretary of the Senate and Clerk of the House recommends that lobbyists retain copies of their filings and supporting documentation for at least 6 years after reports are filed. We estimate that lobbyists have written documentation to support income or expenses for approximately 91 percent of first quarter reports that required this information. We also estimate that lobbyists could provide written support for issues lobbied for approximately 58 percent of reports and for 47 percent of report information on which house of Congress or agencies were lobbied. Lobbyists had written documentation to support information about the individuals who acted as a lobbyist for 35 percent of reports. Sample sizes for affiliated organizations, foreign entity interests, and the names of individuals no longer acting as lobbyists were too small to provide reliable estimates of levels of written documentation and verbal explanations in support of first quarter reports that required this information. Our estimates of the levels of lobbyists' documentation are based on our review of 100 reports, which included 93 reports of lobbying activity and 7 "no activity" reports. Table 1 provides the actual numbers from our sample that formed the basis for our estimates. In our meetings with lobbyists, the types of documentation we were provided and processes to track lobbying activity to support filings varied widely among lobbyists, with some of the lobbyists in our sample providing comprehensive written documentation supporting information in the reports they filed and others providing less or no documentation, often adding verbal explanations. Most lobbyists supported their reported information on lobbying income with billing statements, invoices, or contracts. Some lobbyists supported their reported information on lobbying contacts and issues using e-mails or summaries of meetings with Congress or federal agencies. Lobbyists who had little or no written documentation provided verbal explanations to support the reported information. Our sample also showed that just one of the disclosure reports did not match the information provided for one of the specific elements we examined during our review. In this case, the lobbyists we visited realized that the lobbying expenses dollar amount had been reported incorrectly. That lobbyist subsequently filed an amended report to correct the amount of expenses disclosed. Although the legislation and guidance do not require lobbyists to maintain records or documentation to support information disclosed in their reports, several of the lobbyists we spoke to during our review expressed interest in obtaining advice or information on documentation that would best support their filings. Some lobbyists, for example, told us they would like information from other firms on how to set up tracking and compliance systems before filing deadlines. Some felt that a checklist of useful information and documentation to consider when filing would be helpful. Lobbyists had systems to track lobbying contacts and the amount of time spent on lobbying activities for an estimated 49 percent of first quarter reports. Some lobbyists had detailed tracking and accounting systems. One large lobbying firm, for example, provided us with a demonstration of a database system that they developed to track their lobbying activity in detail. The system captured data provided by the firm's many lobbyists about their contacts, time charges, issues lobbied, and clients and generated monthly e-mail reports for lobbyist so that they could verify the information and report any discrepancies. Other firms used lobbying activity tracking systems that were integrated with their billing systems. Of these, some told us that they had recently augmented their billing codes to better track lobbying activity to report under HLOGA. In contrast, the other lobbyists we spoke to did not have detailed tracking or accounting systems for lobbying activity. These lobbyists estimated elements of their lobbying activity as necessary in preparing their reports. Lobbyists who lobbied and performed non-lobbying consulting services for clients for the same monthly retainer estimated the amount of time spent lobbying versus providing consulting services in preparing their reports. In addition, a number of firms reported they were uncertain of whether to track the time and involvement of volunteers or members of their boards of directors. Six of the lobbyists within our sample reported some aspects of lobbying activity that did not take place. Some lobbyists told us that they reported individuals as lobbyists even though the individuals were not involved in any lobbying activities for the client in question during the reporting period; reported that they had lobbied certain federal agencies even though they indicated during our visits that such activity did not take place during the reporting period; and filed reports but stated that they actually had not engaged in any lobbying activity for the client in question during the reporting period. In addition, three lobbyists rounded the amount of their lobbying income up to the next $10,000, rather than to the nearest $10,000 as instructed. A few of the lobbyists cited unclear and vague law and guidance as a reason for reporting more information than their lobbying activity required. But other lobbyists told us that they added information as part of a cautious approach to the filing process, to lessen the chances that they would fail to fully report. Another reason for reporting additional data was that lobbyists did not want to edit their reports each quarter to reflect what they perceived to be minor changes--such as changes in the names of individuals acting as lobbyists on specific issues or in lists of federal agencies lobbied--and chose to leave this kind of information in their report in case it should become applicable again for a future reporting period. Lobbyists who registered in the first quarter of 2008 largely filed disclosure reports for the reporting period as required. To determine whether new registrants were meeting the requirement to file, we matched newly filed registrations from the House Lobbyists Disclosure Database to their corresponding first quarter disclosure reports using an electronic matching algorithm that allowed for misspelling and other minor inconsistencies between the registrations and reports. Our analysis of the 1,460 new registrations showed that the majority (1,358) had a clearly corresponding disclosure report on file, indicating that the requirement for these lobbyists to file reports for specific clients was generally met. However, we could not identify corresponding first quarter reports of lobbying activity for 102 (approximately 7 percent) of the 1460 new registrations. We brought this matter to the attention of the Secretary of the Senate and Clerk of the House so that they could follow up with the lobbyists to resolve any potential compliance issues. Staff of the Secretary of the Senate and Clerk of the House told us that while the newly registered lobbyists for whom we could not identify corresponding reports may not have filed a report, it is possible that they filed reports with information that did not fully match their registrations. For example, if a client's name did not precisely match the name listed on the lobbyist's registration, it would be difficult to match the registrants to their corresponding reports. Figure 1 below illustrates the number of registrations for which we were unable to find a corresponding report. Some lobbyists identified certain challenges to their compliance with the Act, including uncertainty about how to report various pieces of information about their organizations and lobbying activity. Our random sample of 100 quarterly reports included 86 separate lobbyists (some lobbyists had reports for more than one client in our sample). About half (41 out of 86) of these lobbyists said that they needed further information specific to their own situations, in addition to the law and the guidance provided by the Secretary of the Senate and the Clerk of the House. Many lobbyists told us that when they had questions or needed clarification regarding the law and associated guidance, the staffs of the Secretary of the Senate and the Clerk of the House were helpful at providing needed assistance. For example, some lobbyists told us: They were confused about whether and under what circumstances members of a trade association had to be listed under the requirement to report certain affiliated organizations. They did not know how to report foreign entity interest in the client if the client is a U.S. corporation with an international parent company. The issue area codes used to indicate types of lobbying activity are not well defined and may overlap, requiring them to use their judgment to choose between codes that were not entirely applicable to their individual situations. They were not sure which of their activities constituted "lobbying activity" as defined in the Act. They did not know how much detail they needed to provide on the specific lobbying issues for each client. Some lobbyists also cited certain administrative constraints as challenges to their compliance with the Act. Under HLOGA, the deadline for filing disclosure reports is 20 days after each reporting period, or the first business day after the 20th day if the 20th day is not a business day. Prior to HLOGA, the deadline for filing disclosure reports was 45 days after the end of each reporting period. Some lobbyists told us: The new 20-day deadline was difficult to meet because of limitations of their own internal billing or record-keeping systems. The increased frequency of reporting presented an administrative burden. They found the increased frequency of reporting to be beneficial for their own record-keeping. Some lobbyists told us they took added steps to help ensure their compliance with the new requirements of HLOGA. These actions included conducting internal training sessions for their staff, hiring outside counsel to give presentations and provide training, and attending training seminars and workshops offered by other lobbying organizations, law firms, and membership organizations in the lobbying community. In this regard, a vehicle for lobbying organizations to share information may assist some lobbyists in better ensuring the accuracy and completeness of information in their lobbying disclosure reports. HLOGA includes the sense of Congress that the lobbying community should develop proposals for multiple organizations that could provide a number of programs to assist compliance with lobbying disclosure, such as creating standards for the organizations appropriate to the type of lobbying and individuals to be served and providing training and educational materials on reporting and disclosure requirements. The creation of such organizations may assist the lobbying community with minimizing confusion and clarifying the information needed to comply with the Act. Officials from the United States Attorney's Office for the District of Columbia (the Office) informed us that resources are assigned to lobbying compliance issues based on competing priorities within the Office. In addition to responding to referred cases of lobbyist noncompliance, the Office is responsible for prosecuting all criminal cases in the District of Columbia including cases that would be otherwise prosecuted by state authorities in other jurisdictions. The Office also prosecutes and defends all civil cases in the District of Columbia in which the United States is a party, and initiates legal process to collect debts owed to the federal government. It is the largest U.S. Attorney's Office with more than 350 Assistant U.S. Attorneys and more than 350 support personnel for carrying out the multitude of the Office's responsibilities. Officials from the Office stated that most tasks on referred lobbying compliance cases are administrative, such as researching and responding to referrals and sending notices to the lobbyists requesting that they file reports or correct reported information. The Office has five staff members who work on lobbying noncompliance issues in addition to other duties: a deputy chief, three assistant U.S. Attorneys, and an investigator. Officials stated that the Office's other resources in its civil work are dedicated to higher priority activities with a higher return to the taxpayer, such as health care fraud. If the Office decides to pursue a case against a referred lobbyist, penalties may be imposed on lobbyists who intentionally fail to (1) remedy a defective filing within 60 days after notice of such a defect by the Senate Secretary or House Clerk's Office and the U.S. Attorney's Office or (2) comply with any other provision of the Act. Penalties, recently increased by HLOGA for offenses committed after January 1, 2008, involve a civil fine of not more than $200,000 and criminal penalties of not more than 5 years in prison. Criminal penalties may be imposed against lobbyists who knowingly and corruptly fail to comply with the Act. Officials from the Office stated that they have sufficient civil and criminal statutory authorities to enforce the Act. The Office receives referrals of noncompliance from the Secretary of the Senate and Clerk of the House. The Secretary of the Senate and Clerk of the House send referrals after they have twice contacted the lobbyists by letter to inform them of the need to remedy an error or file a missing report. Extended periods of time may lapse between when the Secretary of the Senate and the Clerk of the House send the first contact letter and when they make referrals to the U.S. Attorney's Office. For example, the most recent referrals were received in April 2008 for the filing period that ended in 2006. According to the Office, lobbyists often respond to a contact letter from the Secretary of the Senate and Clerk of the House after referrals have been received by the Office. Before the Office sends out its own letters requesting compliance to lobbyists once referrals are received, its staff first reviews the Secretary of the Senate and Clerk of the House databases to determine if that lobbyist has already resolved the compliance issue. Once this has been done, the Office will send a letter to each lobbyist informing the lobbyist of the need to correct the problem or file reports. The Office attempts to verify the lobbyist's address where letters were returned or no response was received after 60 days. Thereafter, the Office makes a determination whether to pursue a case of noncompliance with HLOGA. Office officials told us that the work involved in this entire process takes a considerable amount of time and resources. For an overview of the referral process, see figure 2. Referrals have increased in recent years, and as a result, the Office's workload relative to lobbying disclosure has increased. The Secretary and Clerk automated their referral process in 2004, and began transmitting referrals to the Office electronically in 2006. According to Office officials, the automation of the referral process likely contributed to a significant increase in the number of referrals. Since 2004, the Office has received more than 4,000 referrals from the Secretary of the Senate and Clerk of the House. Because of a lack of consistent records in past years, the Office was unable to provide complete and accurate data for each reporting period prior to 2006 to indicate the number of letters it sent to lobbyists asking them to comply with the Act, and the number of lobbyists who complied after the referral was received. Office officials indicated that such information would be useful to help them better track their workload and make resource decisions. The Office has not received referrals for the 2007 reporting period. The Office received more than 1,000 for the 2003, 2004, and 2005 reporting periods. In September 2007, the Office received 449 referrals for the mid- year 2006 reporting period. The most recent set of referrals was sent by the Secretary of the Senate in April 2008 and totaled approximately 330 referrals, all of which were for the 2006 year-end reporting period. Office officials provided additional information on these referrals, and explained that they consolidated the 2006 year-end referrals for lobbyists that have more than one report that is noncompliant, leaving 268 lobbyists with one or more filings. Officials researched the Senate database and determined that 16 of the 268 lobbyists filed a report after the Office received the referrals from the Senate. As a result, the Office has recently sent 252 letters to lobbyists asking them to comply with the Act by promptly filing a report or an amendment to correct an issue that has been identified. The Office does not have a formal, structured approach that enables them to readily prioritize matters that should be the focus of its resources. For example, it does not identify those lobbyists who continually fail to file or otherwise do not comply with requirements of the Act. In commenting on a draft of this report, Office officials stated they have recently begun to redesign their computer database to more accurately track referrals and identify trends in past compliance matters in order to create a more structured approach for assigning its resources. Office officials believe that once this is accomplished it should provide a foundation that will allow the Office to better focus its lobbying compliance efforts. Such a structured approach becomes increasingly important in light of the Office's growing workload. The Office has been primarily focused on sending letters to lobbyists who have potentially violated the Act, requesting that they comply with the law and promptly file the appropriate disclosure documents. Resolution typically involves the lobbyists coming into compliance. Office officials told us that since the Act was passed in 1995, they have settled with three lobbyists and collected civil penalties totaling about $47,000. All of the settled cases involved a failure to file. Under HLOGA, DOJ is required to file an enforcement report with Congress after each semiannual period beginning on January 1 and July 1, detailing the aggregate number of enforcement actions taken by DOJ under the Act during the semiannual period and, by case, any sentences imposed. On September 18, 2008, DOJ filed its first report for the semiannual period ending June 30, 2008. Most registered lobbyists could provide support for their filings and newly registered lobbyists largely met the reporting requirements. However, several lobbyists in our sample reported some lobbying activity that did not occur, a circumstance that diminishes the value of information reported to Congress. In addition to a lack of clarity in the available guidance, the absence of documentation requirements and the fact that some lobbyists estimate amounts to be included in their reports may have resulted in some inaccurate information reported to Congress. Based on these observations, we believe that the lobbying community could benefit from creating an organization to share examples of best practices of the types of records maintained to support filings and use this information gathered over an initial period to formulate minimum standards for recordkeeping; provide training for the lobbying community on reporting and disclosure requirements, intended to help the community comply with the Act; and report annually to the Secretary of the Senate and the Clerk of the House on opportunities to clarify existing guidance and ways to minimize sources of potential confusion for the lobbying community. The recent increase in public and congressional attention on lobbyists and their interactions with government officials and the increase in disclosure requirements indicate the importance of enforcing the Act. To better address potential issues of noncompliance, the Department of Justice and the U.S. Attorney's Office's limited resources need to be targeted toward the most significant and repeated cases of noncompliance. Without a structured approach, the Office does not have the assurance that it is investing its limited resources in the most useful manner. Office officials believe that the recently initiated effort under way to redesign its computer database to more accurately track referrals should provide a structured approach to address problem filers. We recommend the U.S. Attorney for the District of Columbia Complete efforts to develop plans for a structured approach to focus limited resources on those lobbyists that continually fail to file as required or are otherwise not in compliance. Such an approach should require the Office to track the referrals when they are made, record reasons for the referrals, record the actions taken to resolve them, and assess the results of actions taken. We provided a draft of this report to the Attorney General for the Department of Justice (DOJ) for review and comment. On behalf of the DOJ, the U.S. Attorney for the District of Columbia provided us with written comments (see app. III). The U.S. Attorney for the District of Columbia concurred with our recommendation and stated that the office has devoted appropriate attention to enforcing the Act and plans to continue to develop an approach to focus limited resources on lobbyists that continually fail to file as required or otherwise fail to comply with the Act. The U.S. Attorney noted that his office is taking or planning to take actions that should allow the office to develop a more structured approach as we recommended. Specifically, the U.S. Attorney indicated that the office plans to enhance its database to improve tracking and has assigned an additional staff member to assist with lobbying compliance matters. The Office of the U.S. Attorney also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the Attorney General, Secretary of the U.S. Senate, Clerk of the U.S. House of Representatives, and other interested congressional committees and members. Copies of this report will be made available to others upon request. In addition, this report is available at no charge on the GAO Web site at http://www.gao.gov. Please contact George Stalcup at (202) 512-9490 or [email protected] if you or your staffs 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. GAO staff who made major contributions to this report are listed in appendix IV. Consistent with the requirements of the Honest Leadership and Open Government Act (HLOGA), our objectives were to determine the extent to which lobbyists can demonstrate compliance by providing support for information on registrations and reports filed in response to requirements of the amended Lobbying Disclosure Act (the Act); identify the challenges lobbyists cite in complying with the Act and suggestions for improving compliance; and describe the process of referring noncompliance cases to the Department of Justice (DOJ) and the resources and authorities available to DOJ in its role in enforcing compliance with the Act. To respond to the requirements of HLOGA, we used information in disclosure databases maintained by the Secretary of the Senate and the Clerk of the House of Representatives. To assess whether these disclosure data were sufficiently reliable for the purposes of this report, we reviewed relevant documentation and spoke to officials responsible for maintaining the data. Although registrations and reports are filed through a single Web portal, each chamber subsequently receives copies of the data and follows different data cleaning, processing, and editing procedures before storing the data in either individual files (in the House) or databases (in the Senate). Currently, there is no means of reconciling discrepancies between the two databases that result from chamber differences in data processing; however, we do not have reason to believe that the content of the two systems would vary substantially. While we determined that the both the House and Senate disclosure data were sufficiently reliable for identifying a sample of first quarter reports and for assessing whether newly filed registrants also filed required reports, we chose to use data from the Clerk of the House for ease of processing. We did not evaluate the Offices of the Secretary of the Senate or the Clerk of the House--both of which have key roles in the lobbying disclosure process--although we met with officials from each office, and they provided us with general background information at our request. To assess the extent to which lobbyists' could provide evidence of their compliance with reporting requirements, we examined a random sample of 100 of the 19,861 first quarter reports filed by the April 21 deadline and available in the House database as of our download date of May 12, 2008. We later determined that a portion of the reports in the database were amendments or test cases, and thus 17,801 first quarter reports were in scope for our sample. Our sample is based on random selection, and it is only one of a large number of samples that we might have drawn. Because each sample could have provided different estimates, we express our confidence in the precision of our particular sample's results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples that we could have drawn. All percentage estimates in this report have 95 percent confidence intervals of within plus or minus 11 percentage points of the estimate itself, unless otherwise noted. We contacted each lobbyist in our sample and asked them to provide support for eight key elements in their reports, including the amount of money received for lobbying activities; the amount of money spent on lobbying activities; the specific issues on which they lobbied; the houses of Congress and federal agencies which they lobbied; the names of individuals who acted as lobbyists for the client listed on the report; the names of foreign entities with interest in the client; the names of individuals no longer acting as a lobbyist for the client; and the names of any member organizations of a coalition or association that actively participated in lobbying activities on behalf of the client. Our work to examine lobbyists' compliance was limited to reviewing support provided by the lobbyists, which included both documentation and oral explanations. Neither the law nor guidance currently specifies any documentation requirements in relation to information reported under the Act. To determine if the Act's requirement for registrants to file a report in the quarter of registration was met during the first quarter of 2008, we matched the 1460 records in the House's first quarter registration file as of May 13, 2008, to those in the first quarter report filings using House ID, Senate ID, and text matching procedures. We examined all first quarter registrations filed and signed on March 31, 2008, or before. We deleted 31 duplications of multiple registrations and selected only the most recent registration each lobbyist filed for each particular client. We electronically matched registrations with reports using House and Senate identification numbers, lobbyist organization name, and client name. We identified 94 perfect matches, then relaxed our criteria to allow for minor typos and missing identification codes, and identified an additional 1233 registrations with corresponding reports in the first quarter filings. We could not readily identify matches in the report database for the remaining 102 registrations. We obtained views from lobbyists included in our sample of reports on any challenges to compliance and how the challenges might be addressed. To describe the process used in referring cases to the Department of Justice and provide information on the resources and authorities used by the department in its role in enforcing compliance with HLOGA, we interviewed department officials, obtained information from those involved in the referral process, and obtained data on the number of cases referred, pending, and resolved. Our objectives did not include identifying lobbyists that failed to register and report in accordance with HLOGA requirements, or whether for those lobbyists that did register and report, all lobbying activity was disclosed. We conducted this performance audit from March 2008 through September 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 random sample of lobbying disclosure reports we selected was based on client names. In addition to the contacts named above, Robert Cramer, Associate General Counsel; Bill Reinsberg, Assistant Director; Michael Volpe, Assistant General Counsel; Katrina Taylor, Analyst-in-Charge; Christopher Backley; Ellen Grady; Anna Maria Ortiz; Melanie Papasian; Sabrina Streagle; and Greg Wilmoth made key contributions to this report. Assisting with lobbyist's file reviews and interviews were Stephen Ander, Amy Bowser, Dewi Djunaidy, Daniel Dunn, Karin Fangman, Melanie Helser, Ashleigh Kades, Olivia Leonard, Andrea Levine, Ryan Little, Mary Martin, Jeff McDermott, Jackie Pontious, Wes Sholtes, A.J. Stephens, and Tammy Stenzel.
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The Honest Leadership and Open Government Act (HLOGA) of 2007 amends the Lobbying Disclosure Act of 1995 by doubling the frequency of lobbyists' reporting and increasing criminal and civil penalties. This is GAO's first report in response to the Act's requirement for GAO to annually (1) determine the extent to which lobbyists can demonstrate compliance with the Act by providing support for information on their registrations and reports, (2) describe challenges identified by lobbyists to complying with the Act, and (3) identify the process for referring cases to the Department of Justice and the resources and authorities available to effectively enforce the Act. GAO reviewed a random sample of 100 reports filed by lobbyists during the first quarter of calendar year 2008. This methodology allowed GAO to generalize to the population of 17,801 reports filed. GAO also met with lobbyists regarding their filings and with Department of Justice officials regarding resources and authorities GAO estimates that lobbyists could provide accurate supporting information--in either written or verbal form--on income or expenses for at least 95 percent of all first quarter reports filed requiring this information. The legislation and guidance do not contain requirements for lobbyists to create or maintain documentation in support of the registrations or reports they file. Nonetheless, lobbyists were able to provide written or oral support for all required elements of individual reports GAO examined. However, the extent to which lobbyists could provide written documentation varied for different aspects of the reports. GAO estimates that lobbyists have written documentation to support income or expenses for approximately 91 percent of first quarter reports that required this information. In contrast, for a separate element listing the person who acted as a lobbyist, GAO estimates that lobbyists have written documentation for 35 percent of reports that required this information. Also, the majority of lobbyists newly registered with the Secretary of the Senate and Clerk of the House in the first quarter of 2008 also filed required disclosure reports for the period. However, for about 7 percent of the registrants, GAO could not identify a clear, corresponding report on file for their lobbying activity, likely because a report was not filed or because of a mismatch of information in reports that were filed. While a number of lobbyists felt that existing guidance for filing required registrations and reports was sufficient, others believed additional clarifications, such as on issue area activity codes and on how to report various pieces of information about their organizations and lobbying activity, were needed. Several lobbyists also expressed uncertainty about what constitutes reportable lobbying activity under the law and how much detail they needed to provide on the specific lobbying issues for each client. The Act included the sense of Congress that the lobbying community should create an organization to develop training and standards for lobbying. GAO's work reinforces that such an organization would be beneficial and could share best practices and provide training on the types of records to support filings and report annually on opportunities to clarify existing guidance. The United States Attorney's Office for the District of Columbia assigns its resources for lobbying compliance issues based on competing priorities within the Office. The Office has five staff members, including a Deputy Chief, three assistant U.S. attorneys, and one investigator who perform lobbying non-compliance follow-up, among other duties. Officials from the Office told us they have sufficient civil and criminal statutory authorities to enforce the Act. The department's lobbying compliance workload has increased in recent years. However, it currently lacks a structured approach for targeting its resources to the most significant noncompliance cases. Such an approach will require the Office to track the referrals when they are made, record reasons for the referrals, record the actions taken to resolve them, and assess the results of actions taken. The Office has recently begun to redesign its computer database to more accurately track referrals received in past years to identify trends in past compliance matters.
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The Air Force began development of the B-2A in 1981 and reported on June 30, 1997, after 16 years, that the development and the initial operational test and evaluation had been completed. The Air Force reports of the initial operational tests were completed in November 1997. In 1986, the Air Force estimated that B-2A development could be completed for $14.5 billion, including a 4-year, 3,600-hour flight test program scheduled at that time to end in 1993. The flight test program ended June 30, 1997, and the estimated cost of the development program had grown to over $24 billion and the flight test program to about 5,000 flight test hours over 8 years. The development and testing programs were extended because of Air Force changes in the B-2 requirements and various technical problems. Major changes and problems contributing to the delays included (1) making the B-2A's primary mission conventional rather than nuclear; (2) redesigning the aircraft to satisfy an added requirement to penetrate adversary air space at low altitudes; (3) difficulty in manufacturing test aircraft, resulting in late delivery of partially complete test aircraft; (4) difficulties achieving acceptable radar cross-section readings on test aircraft, which resulted in significant redesigning and retesting of certain components; and (5) correction of deficiencies in the aft deck structure because of the unanticipated effects of engine exhaust. Even though numerous problems hindered the scheduled completion of B-2A development, production began with no flight testing having been completed. This resulted in substantial overlap of development and production. Test and production aircraft were delivered that did not fully meet the Air Force requirements, and a 5-year post-delivery modification program was initiated to update all aircraft to the block 30 configuration. Since production began in 1986, the planned number of B-2As was reduced from 133 to 21 aircraft and both the total development and the average unit procurement costs increased. Table 1 shows the change in estimated total and unit cost from 1986 to 1998. The last two of the 21 B-2As were delivered to the Air Force in the block 30 configuration. The major effort remaining in the B-2A acquisition program is modification of the other 19 B-2As to the block 30 configuration, scheduled for completion in July 2000. Through April 1998, six B-2As have been delivered in, or modified to, the block 30 configuration and were operational at Whiteman Air Force Base, Missouri. Ultimately, the Air Force plans to have 21 B-2As, of which 16 will be available for missions (2 squadrons of 8 aircraft), and 5 will be in various maintenance and repair cycles. To test the operational performance of the B-2A, the Air Force measured B-2A performance against five broad operational objectives that were derived from documented Air Force operational requirements and concepts related to nuclear and conventional missions. Figure 1 identifies these operational objectives and the key elements of each that were included in the operational testing. Although test results indicate that B-2As generally met operational objectives, four deficiencies were identified during testing that will limit or, under some circumstances, change the planned concepts for using the B-2As and slow its operational pace. These relate to mission planning, defensive avionics, low observable materials, and deployment. As the B-2A matures, numerous minor problems identified in the test reports are scheduled to be corrected or improved based on their relative priorities. These include corrections of minor software and hardware deficiencies, improvements to make crew operations easier or faster, improvements of selected radar modes, and relocation of certain buttons or displays. The corrections and improvements involve flight operation as well as maintenance and support of the aircraft. Ground mission planning, which is still in development, is important to the successful employment of the B-2A because very precise mission routes must be planned to maximize the benefits of the aircraft's low observable features. Mission planning for the B-2A, done with the automated Air Force Mission Support System (AFMSS), currently takes more time than planned. This will limit the Air Force's ability to rapidly strike targets and sustain operations. The goal of the AFMSS development program is to produce a mission planning system that can provide specific B-2A mission plans in 8 hours. Testing as of June 30, 1997, concluded that the system frequently malfunctioned, was not flexible or user friendly, and was complex and time consuming to use. Air Force operators at Whiteman Air Force Base told us that the developmental version of AFMSS had so many failures that they estimated it would take 60 hours to plan a conventional mission and 192 hours to plan a nuclear mission. AFMSS is an acquisition program separate from the B-2A and is being developed to support all Air Force combat aircraft. Interface of AFMSS with the B-2A began in 1994. According to the operational test report, AFMSS is a complex system made up of separate subsystems developed by different contractors. The Air Force has received various developmental versions of AFMSS subsystems, and additional upgrades to software and hardware are planned in fiscal years 1998 and 1999. The Air Force expects these upgrades to support preparation of mission plans in 8 hours by the third quarter of fiscal year 1999. The Air Force spent over $740 million to develop the defensive system for the B-2A; however, test reports concluded that this system is unsatisfactory. The lack of an effective defensive avionics system could affect the B-2A's survivability in selected situations because it is supposed to provide B-2A crews with information on the location of threats, both known and unknown that they may encounter during a mission. Limited funds and time are available to correct all the deficiencies in the defensive system. The Air Force plans some software upgrades that are intended to provide the defensive system with a limited but useful capability. Air Force officials said the cost of making the defensive system meet originally planned capability is unaffordable at this time. Air Force officials told us that all the functions originally planned for the system are not required to successfully carry out the planned B-2A missions. The operational test report further stated that, although the defensive system is rated unsatisfactory, the system's deficiencies do not prevent planning and executing B-2A missions. The test report indicated that the B-2A's low observability to adversary threat systems permits use of other effective tactics that could ensure its effective employment. The defensive system is supposed to provide the crew information on enemy threat systems to enhance B-2A survivability. Known threat locations are included in computer files prior to the mission. The system is to correlate these with the actual threats as the B-2A flies its mission, but it is also to identify and locate unknown threats that pop-up during a mission. However, this system does not work as planned, limiting the utility of information provided the crew during critical portions of expected B-2 missions. For example, test reports indicate that the defensive system provided inaccurate or cluttered information to the crew and had unacceptably high workloads for the operators. The number and significance of problems with the defensive system were not identified until near the end of the flight test program, leaving Air Force program managers little time to correct problems. Flight testing, where most of the problems were discovered, did not begin for the defensive system until February 1993, almost 4 years after the flight test program started in July 1989 and almost 2 years after other avionics began flight testing in June 1991. According to Air Force officials and an independent review team, several issues contributed to the deficiencies and their discovery late in the developmental and test processes. These reasons included (1) development and testing began late, (2) successful early laboratory tests could not be repeated in flight tests, (3) test results from flight tests were not completely analyzed before tests were continued, (4) the contract provided incentives to move ahead with development rather than correct problems, (5) there was too much confidence that upgrades to computer software would solve the problems, and (6) there were inadequate engineering controls to prevent the overoptimistic view and approach to this development effort. The Air Force's cost estimate does not include the cost of correcting all deficiencies but does cover some improvements in the defensive system. The Air Force plans to develop software changes that are scheduled to be available for use by 2000, if tests demonstrate the changes are effective in providing a useful capability. Air Force officials indicated some changes have been tested by operational crews with good success. These software changes are intended to provide capabilities that are useful but less than were expected in the original defensive system design. The Air Force believes these changes will meet their requirements. To achieve the original design would require more costly upgrades, including new computer processors. Expensive hardware upgrades are not included in current Air Force plans to enhance the B-2A. Historically, defensive avionics have experienced significant problems during development. The B-1B bomber had serious deficiencies with its defensive avionics and the Air Force is still working to provide an effective defensive capability for the B-1B. Other defensive avionics programs, like the Air Force's ALQ-135 jammer and the Navy's Airborne Self-Protection Jammer, also experienced costly development problems. Low observable materials and features on the B-2A frequently fail, requiring high amounts of maintenance. They also have time-consuming and environmentally controlled repair processes and long cure times for the materials repaired. This reduces the time aircraft are available for operational use, which keeps mission capable rates below the Air Force requirement. These problems increase the amount of time it takes to prepare a B-2A for its next combat flight, potentially reducing the number of sorties that could be flown in a given period of time. During operational testing, low observable materials and features accounted for 40 percent of unscheduled maintenance and 31 percent of the maintenance hours to repair the aircraft. Aircraft operating at Whiteman Air Force Base experienced results similar to those in the operational test. During a visit to Whiteman Air Force Base, we observed a block 20 B-2A aircraft after a 10-hour flight. The aircraft had damaged tape, caulk, paint, and heat tiles, all low observable materials. In addition, we observed hydraulic fluid leaks beneath the aircraft that further damaged tape and caulk. The Air Force is incorporating some new low observable tape materials into the block 30 aircraft, which should reduce some maintenance; however, according to Air Force officials, this improvement will not be adequate to achieve the operational pace currently planned for the aircraft. In addition to the frequent failure of these materials, the processes to repair them are time consuming and require an environmentally controlled repair facility. Cure times on some of the low observable tapes and caulks, items that most frequently fail, can be as long as 72 hours, but most materials require 24 or more hours. The poor durability and extensive maintenance required of low observable materials is an important factor keeping the B-2As from achieving desired mission capable rates--the Air Force measure of an aircraft fleet's availability to perform its assigned missions. At maturity, the Air Force goal for a mission capable rate is 77 percent. On average, the mission capable rate in calendar year 1997, when including the effects of low observable features, was 36 percent, less than half the goal. The Air Force has prepared a comprehensive plan to develop, test, and install new and improved low observable materials, and to improve repair processes, reduce cure times, and develop new diagnostic tools that should allow the B-2A to meet operational requirements. The plan extends through 2005 and shows that funds required for research and development, procurement, and operations and maintenance could total about $190 million, of which $144 million is not in the current cost estimate. The operational test report states that the block 30 B-2A aircraft must be sheltered to protect it from weather and provide a suitable environment in which to maintain low observables. The Air Force is studying options for providing shelters, including the purchase of portable shelters and use of existing facilities. The Air Force plans to buy a portable deployment shelter as a test article to determine if the portable shelters will be adequate to protect and maintain the B-2A's low observable features. If the Air Force buys the shelters, at a minimum it will require 17--1 training shelter and 1 operational shelter for each of the 16 primary mission aircraft. Air Force officials stated they are dedicated to buying the deployment shelters but have not determined how many shelters are needed to support B-2A deployments or the shelter configuration. In addition, they said funding sources have not been identified, but the shelters will likely cost a total of between $15 and $25 million, depending upon the quantity purchased. Air Force officials said they have begun to practice deploying the B-2A and it is likely additional requirements will be identified when this happens. The Air Force completed one exercise, deploying two B-2As to Guam, in March 1998, and plans two more in 1998. Air Force officials advised us that the B-2As performed well in the March 1998 deployment, but an official report has not been issued on the results as of April 1998. The fiscal year 1999 B-2A cost estimate indicates it will cost $44.3 billion then-year dollars to complete development, procurement, and modification. However, the Air Force will incur additional costs if it plans to correct the deficiencies identified during testing and achieve the full operational capability originally planned for the B-2A. At this time, there is no comprehensive plan that identifies the efforts required to achieve the full B-2A capability, the likely cost of these efforts, or a funding plan. Further, the Air Force has not yet determined all requirements needed to achieve some capabilities. The fiscal year 1999 B-2A cost estimate indicates the cost to complete development, procurement, and modification of the B-2A program is $44.3 billion then-year dollars. Through fiscal year 1998, the Air Force has been appropriated $43.3 billion, or 98 percent. Air Force estimates show the funding required from fiscal years 1999 to 2003 to complete development is $446.7 million and to complete procurement and modifications from fiscal years 1999 to 2005 is $599.4 million. Table 2 shows the major elements of costs for which funding is to be requested in fiscal years 1999 and beyond. As discussed above, testing identified four deficiencies that will require additional costs if the Air Force plans to fully correct all deficiencies. In addition to the cost increases needed for defensive avionics, low observable materials, and support needed for deployment, the Air Force will also incur costs to procure spares to support the nuclear mission of the B-2A. Table 3 shows estimated costs to fix deficiencies that are not in the current cost estimate as well as areas of other potential cost increases not yet fully defined by the Air Force. The Air Force program to upgrade 19 B-2A aircraft to the block 30 configuration is falling behind schedule and further delays are possible. In addition, modified aircraft have been delivered with significant numbers of deficiencies. Air Force officials said Northrop Grumman has not been able to hire adequate numbers of workers; therefore, modifications have been delayed. Both the Air Force and Northrop Grumman were trying to complete modifications based on schedules that were 3 to 6 months ahead of the contract schedule. Because of delays and problems, these accelerated schedules have been discarded. As of April 1998, Northrop Grumman had delivered three modified aircraft later than, and one modified aircraft earlier than, the contract schedule. The Air Force is assessing schedule performance and studying the funding implications of a schedule slip. At this time, the Air Force believes adequate funds are available to complete the modifications. The Air Force is also assessing a planned schedule change that could significantly delay the modification program for one aircraft. This change would be to accommodate the need to provide an aircraft for flight testing planned upgrades. Until the assessment is complete, Air Force officials said it is not possible to determine if there will be a cost impact on the modification program. All four block 30 aircraft delivered from the modification line have a significant number of deficiencies. Air Force officials stated that some of these deficiencies are not operationally critical and will be corrected during regular scheduled maintenance activities. They said a team will be located at Whiteman Air Force Base, Missouri, to correct some of the deficiencies, and others will be corrected during normal aircraft maintenance cycles to maintain the aircraft in active operational service. The four aircraft have from 30 to 46 deficiencies each and, to ensure corrections are made, the Air Force has withheld contractor payments totaling $24.5 million for two of the delivered aircraft. DOD should determine the nature and cost of those efforts that remain to be accomplished to bring the B-2A into compliance with operational requirements established by the Air Force. This report identifies various deficiencies that are unresolved and indicates the Air Force is still identifying other requirements that may require further effort and funding. We recommend that the Secretary of Defense direct the Secretary of the Air Force to identify remaining efforts to achieve full operational capability, the costs to complete these efforts, and the fiscal year funding requirements not currently in the fiscal year 1999 President's Budget for the B-2A program. We further recommend that this information be provided to Congress with the fiscal year 2000 President's Budget in the form of a comprehensive plan to complete the B-2A program. In commenting on a draft of this report, DOD partially concurred with the recommendations. DOD stated the B-2A is projected to meet full operational capability by the third quarter of fiscal year 1999 as a "baseline program" within currently programmed funding. DOD, therefore, states no additional reporting is required on baseline requirements. DOD defines the baseline program as being a block 30 aircraft. The DOD position assumes all operational problems discussed in this report will be resolved without additional cost, but, until these deficiencies have been proven to be corrected, some cost uncertainty remains. In addition, as this report points out, the Air Force has accepted the block 30 aircraft with less performance in some areas than originally planned in the baseline program. DOD agreed there is a need to identify to Congress future efforts and funding requirements to upgrade current B-2As. DOD said it is developing a long-range plan for upgrades to the bomber force and that funding requirements will be included in the normal budgeting process. This action is consistent with our recommendations. DOD's comments are presented in their entirety in appendix I. DOD provided additional technical comments, which have been incorporated in this report, as appropriate. To identify deficiencies with the operational performance of the B-2A, we reviewed key test reports and summaries prepared by the B-2A Combined Test Force, which conducted the developmental test and evaluations, and the Air Force Operational Test and Evaluation Command, which conducted the initial operational test and evaluations. We also reviewed assessments of the B-2A operational testing prepared by the Office of the Secretary of Defense, Operational Test and Evaluation, and we reviewed various program management and engineering reports that summarized performance and testing efforts being conducted on the B-2A program. We interviewed Air Force engineers, test managers, and program management officials to determine the nature and extent of problems that were identified. We also discussed deficiencies identified during testing and current operational experience and performance of operational B-2As with Air Force officials at Whiteman Air Force Base, Missouri. To identify cost issues and plans to correct deficiencies, we reviewed the available planning documents that identified corrective plans and funding requirements for selected deficiencies. We reviewed the B-2A's program office annual cost and budgetary estimates, financial and management reports, contract cost reports, program schedules and plans, and other documents. We also interviewed Air Force officials in the B-2A program and at Air Combat Command to determine cost and funding plans to correct deficiencies and complete efforts necessary to provide fully operational B-2A aircraft. To identify the status of the block 30 modification schedule, we reviewed the contract and planning schedules for the block 30 modification process, delivery documents identifying the delivery date and number of deficiencies on the delivered aircraft, and reports showing planned and actual manning at the contractor's modification facility. We also discussed with Air Force managers of the modification process, the reasons for delayed deliveries, changing schedules, and the plans to correct remaining deficiencies. We performed our review from September 1997 to May 1998 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretaries of Defense and the Air Force, the Director of Office of Management and Budget, and other interested parties. We will make copies available to others upon request. Please contact me on (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix II. B-2 Bomber: Cost and Operational Issues (GAO/NSIAD-97-181, Aug. 14, 1997). B-2 Bomber: Status of Efforts to Acquire 21 Operational Aircraft (GAO/NSIAD-97-11, Oct. 22, 1996). B-2 Bomber: Status of Cost, Development, and Production (GAO/NSIAD-95-164, Aug. 4, 1995). B-2 Bomber: Cost to Complete 20 Aircraft Is Uncertain (GAO/NSIAD-94-217, Sept. 8, 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 legislative requirement, GAO reviewed the total acquisition costs of the B-2A bomber, focusing on: (1) deficiencies that must be corrected to achieve Air Force objectives for the B-2A; (2) additional costs to correct the deficiencies; and (3) the B-2A modification schedule. GAO noted that: (1) the Air Force evaluated the B-2A capability to meet several broad objectives--strike rapidly, sustaining operations, deploy to forward locations, survive in hostile environments, and accurately deliver weapons; (2) the November 1997 operational test reports concluded that B-2As, in the block 30 configuration, are operationally effective, but with several important deficiencies that limit the aircraft's ability to fully meet those objectives as planned; (3) the test reports identify four deficiencies: (a) incomplete development of the automated ground mission planning system, which is needed to rapidly plan and carry out B-2A strike missions; (b) unsatisfactory performance of the defensive avionics system, which is used to provide enemy threat information to the crews and increase their survivability in certain situations; (c) inadequate reliability and maintainability of low observable materials and structures, reducing the ability to sustain the defined pace of operations while maintaining a high degree of survivability for conventional B-2A missions; and (d) lack of environmental shelters to maintain low observable materials and to protect the aircraft from certain weather conditions during deployment; (4) the fiscal year 1999 B-2A cost estimate identifies the cost to complete the B-2A program for the block 30 configuration at $44.3 billion then-year dollars; (5) included in this figure is funding to correct or improve some, but not all, of the deficiencies listed above; (6) for example, the estimate does not include the additional costs that would be incurred if defensive avionics were to be required to achieve the originally planned capability, which Department of Defense officials said is no longer required at this time; (7) however, it does include funding for software upgrades to improve the system performance, which meets current operational objectives; (8) further, it does not include the cost to improve low observable materials, which are needed to sustain the pace of B-2A operations, and to provide for a sufficient number of deployment shelters to accommodate repairs to B-2As; (9) the estimate also excludes costs to buy spare parts that are being identified to support the B-2A's nuclear mission; (10) modifications of B-2As to the block 30 configuration have not been accomplished on schedule; (11) four modified aircraft were delivered as of April 1998--three later than scheduled and one ahead of schedule; and (12) according to the Air Force, the contractor has had difficulty hiring enough personnel to achieve the schedule.
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With the passage of ATSA in November 2001, TSA assumed from the Federal Aviation Administration (FAA) the majority of the responsibility for securing the commercial aviation system. Under ATSA, TSA is responsible for ensuring that all baggage is properly screened for explosives at airports in the United States where screening is required, and for the procurement, installation, and maintenance of explosive detection systems used to screen checked baggage for explosives. ATSA required that TSA screen 100 percent of checked baggage using explosive detection systems by December 31, 2002. As it became apparent that certain airports would not meet the December 2002 deadline to screen 100 percent of checked baggage for explosives, the Homeland Security Act of 2002 in effect extended the deadline to December 31, 2003, for noncompliant airports. Prior to the passage of ATSA in November 2001, only limited screening of checked baggage for explosives occurred. When this screening took place, air carriers had operational responsibility for conducting the screening, while FAA maintained oversight responsibility. With the passage of ATSA, TSA assumed operational responsibility from air carriers for screening checked baggage for explosives. Airport operators and air carriers continued to be responsible for processing and transporting passenger checked baggage from the check-in counter to the airplane. Explosive detection systems include EDS and ETD machines. EDS machines, which cost approximately $1 million each, use computer-aided tomography X-rays adapted from the medical field to automatically recognize the characteristic signatures of threat explosives. By taking the equivalent of hundreds of X-ray pictures of a bag from different angles, the EDS machine examines the objects inside of the baggage to identify characteristic signatures of threat explosives. TSA certified, procured, and deployed EDS machines manufactured by two companies, and has recently certified a smaller, less costly EDS machine, which is currently being operationally tested. ETD machines, which cost approximately $40,000 each, work by detecting vapors and residues of explosives. Because human operators collect samples by rubbing bags with swabs, which are then chemically analyzed in the ETD machines to identify any traces of explosive materials, the use of ETD is more labor-intensive and subject to more human error than the automated process of using EDS machines. ETD is used both for primary, or the initial, screening of checked baggage, as well as secondary screening, which resolves alarms from EDS machines that indicate the possible presence of explosives inside a bag. TSA has certified, procured, and deployed ETD machines from three manufacturers. As we reported in February 2004, to initially deploy EDS and ETD equipment to screen 100 percent of checked baggage for explosives, TSA implemented interim airport lobby solutions and in-line EDS baggage screening systems. The interim lobby solutions involved placing stand- alone EDS and ETD machines in the nation's airports, most often in airport lobbies or baggage makeup areas where baggage is sorted for loading onto aircraft. For EDS in a stand-alone mode (not integrated with airport's or air carrier's baggage conveyor system) and ETD, TSA screeners are responsible for obtaining the passengers' checked baggage from either the passenger or the air carrier, lifting the bags onto and off of EDS machines or ETD tables, using TSA protocols to appropriately screen the bags, and returning the cleared bags to the air carriers to be loaded onto departing aircraft. In addition to installing stand-alone EDS and ETD machines in airport lobbies and baggage makeup areas, TSA collaborated with some airport operators and air carriers to install integrated in-line EDS baggage screening systems within their baggage conveyor systems. Since its inception in November 2001 through September 2004, TSA used its funds to procure and install about 1,200 EDS machines and about 6,000 ETD machines to screen checked baggage for explosives at over 400 airports and to modify airport facilities to accommodate this equipment. For the most part, TSA deployed EDS machines at larger airports and ETD machines at smaller airports, resulting in primary screening being conducted solely with ETD machines at over 300 airports. Table 1 summarizes the location of EDS and ETD equipment at the nation's airports by airport category, based on a June 2004 TSA inventory listing. The number of machines shown in table 1 includes EDS and ETD machines procured by both TSA and FAA prior to and during the establishment of TSA. Although TSA made significant progress in fielding this equipment, TSA used most of its fiscal years 2002 through 2004 funds for its checked baggage screening program to design, develop, and deploy interim lobby screening solutions rather than install more permanent in-line EDS baggage screening systems. During our site visits to 22 category X, I, and II airports, we observed that in most cases, TSA used stand-alone EDS machines and ETD machines as the primary method for screening checked baggage. Generally, this equipment was located in airport lobbies and in baggage makeup areas. In addition, in our survey of 155 federal security directors, we asked the directors to estimate, for the 263 airports included in the survey, the approximate percentage of checked baggage that was screened on or around February 29, 2004, using EDS, ETD, or other approved alternatives for screening baggage such as positive passenger bag match or canine searches. As shown in table 2, the directors reported that for 130 large to medium-sized airports in our survey (21, 60, and 49 category X, I, and II airports, respectively), most of the checked baggage was screened using stand-alone EDS or ETD machines. The average percentage of checked baggage reported as screened using EDS machines at airports with partial or full in-line EDS capability ranged from 4 percent for category II airports to 11 percent for category X airports. In addition, the directors reported that ETD machines were used to screen checked baggage 93 to 99 percent of the time at category III and IV airports, respectively. Stand-alone EDS and ETD machines are both labor- and time-intensive to operate since each bag must be physically carried to an EDS or ETD machine for screening and then moved back to the baggage conveyor system prior to being loaded onto an aircraft. With an in-line EDS system, checked baggage is screened within an airport's baggage conveyor system, eliminating the need for a baggage screener or other personnel to physically transport the baggage from the check-in point to the EDS machine for screening and then to the airport baggage conveyor system. Further, according to TSA officials, ETD machines and stand-alone EDS machines are less efficient in the number of checked bags that can be screened per hour per machine than are EDS machines that are integrated in-line with the airport baggage conveyor systems. As shown in table 3, as of October 2003, TSA estimated that the number of checked bags screened per hour could more than double when EDS machines were placed in-line versus being used in a stand-alone mode. In January 2004, TSA, in support of its planning, budgeting, and acquisition of security screening equipment, reported to the Office of Management and Budget (OMB) that the efficiency benefits of in-line rather than stand- alone EDS are significant, particularly with regard to bags per hour screened and the number of TSA screeners required to operate the equipment. According to TSA officials, at that time, a typical lobby-based screening unit consisting of a stand-alone EDS machine with three ETD machines had a baggage throughput of 376 bags per hour with a staffing requirement of 19 screeners. In contrast, TSA estimated that approximately 425 bags per hour could be screened by in-line EDS machines with a staffing requirement of 4.25 screeners. In order to achieve the higher throughput rates and reduce the number of screener staff needed to operate in-line baggage screening systems, TSA (1) uses a screening procedure known as "on-screen alarm resolution" and (2) networks multiple in-line EDS machines together, referred to as "multiplexing," so that the computer-generated images of bags from these machines are sent to a central location where TSA screeners can monitor the images of suspect bags centrally from several machines using the on- screen alarm resolution procedure. When an EDS machine alarms, indicating the possibility that explosive material may be contained in the bag, the on-screen alarm resolution procedure allows screeners to examine computer-generated images of the inside of a bag to determine if suspect items identified by the EDS machines are in fact suspicious. If a screener, by viewing these images, is able to determine that the suspect item or items identified by the EDS machine are in fact harmless, the screener is allowed to clear the bag, and it is sent to the airline baggage makeup area for loading onto the aircraft. If the screener is not able to make the determination that the bag does not contain suspicious objects, the bag is sent to a secondary screening room where the bag is further examined by a screener. In secondary screening, the screener opens the bag and examines the suspect item or items, and usually swabs the items to collect a sample for analysis using an ETD machine. TSA also uses this on-screen alarm resolution procedure with stand-alone EDS machines. A TSA official estimated that the on-screen alarm resolution procedure with in-line EDS baggage screening systems will enable TSA to reduce by 40 to 60 percent the number of bags requiring the more labor-intensive secondary screening using ETD machines. In estimating the potential savings in staffing requirements, TSA officials stated that they expect to achieve a 20 to 25 percent savings because of reductions in the number of staff needed to screen bags using ETD to resolve alarms from in-line EDS machines. TSA also reported that because procedures for using stand-alone EDS and ETD machines require screeners to lift heavy baggage onto and off of the machines, the interim lobby screening solutions used by TSA led to significant numbers of on-the-job injuries. In addition, in responding to our survey about 263 airports, numerous federal security directors reported that on-the-job injuries related to lifting heavy baggage onto or off the EDS and ETD machines were a significant concern at the airports for which they were responsible. Specifically, these federal security directors reported that on-the-job injuries caused by lifting heavy bags onto and off of EDS machines were a significant concern at 65 airports, and were a significant concern with the use of ETD machines at 110 airports. To reduce on-the-job injuries, TSA has provided training to screeners on proper lifting procedures. However, according to TSA officials, in-line EDS screening systems would significantly reduce the need for screeners to handle baggage, thus further reducing the number of on-the-job injuries being experienced by TSA baggage screeners. In addition, during our site visits to 22 large and medium-sized airports, several TSA, airport, and airline officials expressed concern regarding the security risks caused by overcrowding due to ETD and stand-alone EDS machines being located in airport lobbies. The location of the equipment resulted in less space available to accommodate passenger movement and caused congestion due to passengers having to wait in lines in public areas to have their checked baggage screened. TSA headquarters officials also reported that large groups of people congregating in crowded airport lobbies increases security risks by creating a potential target for terrorists. The TSA officials noted that crowded airport lobbies have been the scenes of terrorist attacks in the past. For example, in December 1985, four terrorists walked to the El Al ticket counter at Rome's Leonardo DaVinci Airport and opened fire with assault rifles and grenades, killing 13 and wounding 75. On that same day, three terrorists killed three people and wounded 30 others at Vienna International Airport. Airport operators and TSA are taking actions to install in-line EDS baggage screening systems because of the expected benefits of these systems. Our survey of federal security directors and interviews with airport officials revealed that 86 of 130 category X, I, and II airports (66 percent) included in our survey either have, are planning to have, or are considering installing in-line EDS baggage screening systems throughout or at a portion of their airports. As of July 2004, 12 airports had operational in-line systems airportwide or at a particular terminal or terminals, and an additional 45 airports were actively planning or constructing in-line systems. Our survey of federal security directors further revealed that an additional 33 of the 130 category X, I, and II airports we surveyed were considering developing in-line systems. While in-line EDS baggage screening systems have a number of potential benefits, the total cost to install these systems is unknown, and limited federal resources have been made available to fund these systems on a large-scale basis. In-line baggage screening systems are capital-intensive because they often require significant airport modifications, including terminal reconfigurations, new conveyor belt systems, and electrical upgrades. TSA has not determined the total cost of installing in-line EDS baggage screening systems at airports that it had determined need these systems to maintain compliance with the congressional mandate to screen all checked baggage for explosives using explosive detection systems, or to achieve more efficient and streamlined checked baggage screening operations. However, TSA and airport industry association officials have estimated that the total cost of installing in-line systems is--a rough order- of-magnitude estimate--from $3 billion to more than $5 billion. TSA officials stated that they have not conducted a detailed analysis of the costs required to install in-line EDS systems at airports because most of their efforts have been focused on deploying and maintaining a sufficient number of EDS and ETD machines to screen all checked baggage for explosives. TSA officials further stated that the estimated costs to install in-line baggage screening systems would vary greatly from airport to airport depending on the size of the airport and the extent of airport modifications that would be required to install the system. While we did not independently verify the estimates, officials from the Airports Council International-North America and American Association of Airport Executives estimated that project costs for in-line systems could range from about $2 million for a category III airport to $250 million for a category X airport. TSA and airport operators are relying on LOI agreements as their principal method for funding the modification of airport facilities to incorporate in- line baggage screening systems. As of January 2005, TSA had issued eight LOIs to reimburse nine airports for the installation of in-line EDS baggage screening systems for a total cost of $957.1 million to the federal government over 4 years. In addition, TSA officials stated that as of July 2004, they had identified 27 additional airports that they believe would benefit from receiving LOIs for in-line systems because such systems are needed to screen an increasing number of bags due to current or projected growth in passenger traffic. TSA officials stated that without such systems, these airports would not remain in compliance with the congressional mandate to screen all checked baggage using EDS and ETD. However, because TSA would not identify these 27 airports, we were unable to determine whether these airports are among the 45 airports we identified as in the process of planning or constructing in-line systems. TSA officials stated that they also use other transaction agreements as an administrative vehicle to directly fund, with no long-term commitments, airport operators for smaller in-line airport modification projects. Under these agreements, as implemented by TSA, the airport operator also provides a portion of the funding required for the modification. As of September 30, 2004, TSA had negotiated arrangements with eight airports to fund small permanent in-line projects or portions of large permanent in- line projects using other transaction agreements. These other transaction agreements range from about $640,000 to help fund the conceptual design of an in-line system for one terminal at the Dallas Fort-Worth airport to $37.5 million to help fund the design and construction of in-line systems and modification of the baggage handling systems for two terminals at the Chicago O'Hare International Airport. TSA officials stated that they would continue to use other transaction agreements to help fund smaller in-line projects. Airport operators also used the FAA's Airport Improvement Program-- grants to maintain safe and efficient airports--in fiscal years 2002 and 2003 to help fund facility modifications needed to accommodate installing in-line systems. Twenty-eight of 53 airports that reported either having constructed or planning to construct in-line systems relied on the Airport Improvement Program as their sole source of federal funding. Airport officials at over half of the 45 airports that we identified are in the process of planning or constructing in-line systems stated that they will require federal funding in order to complete the planning and construction of these in-line systems. TSA officials also reported that additional airports will require in-line systems to maintain compliance with the congressional mandate to screen 100 percent of checked baggage for explosives. Despite this reported need, TSA officials stated that they do not have sufficient resources in their budget to fund additional LOIs beyond the eight LOIs that have already been issued. The Vision 100--Century of Aviation Reauthorization Act (Vision 100) provided for the creation of the Aviation Security Capital Fund to help pay for, among other things, placing EDS machines in line with airport baggage handling systems. However, according to OMB officials, the President's fiscal year 2005 budget request, which included the Aviation Security Capital Fund's mandatory appropriation of $250 million, only supported continued funding for the eight LOIs that have already been issued and did not provide resources to support new LOIs for funding the installation of in-line systems at additional airports. Further, while the fiscal year 2005 Department of Homeland Security (DHS) Appropriations Act provided $45 million for installing explosive detection systems in addition to the $250 million from the Aviation Security Capital Fund, Congress directed, in the accompanying conference report, that the $45 million be used to assist in the continued funding of the existing eight LOIs. Further, the President's fiscal year 2006 budget request for TSA provides approximately $240.5 million for the continued funding of the eight existing LOIs and does not allocate any funding for new LOI agreements for in-line system integration activities. The fiscal year 2006 Department of Homeland Security appropriations bill passed by the House on May 17, 2005, and the appropriations bill pending before the Senate include, among other things $75 million and $14 million for installation of checked baggage explosive detection systems, respectively. The committee reports accompanying the House and Senate appropriations bills state that the amounts included for installation are in addition to the $250 million mandatory appropriation of the Aviation Security Capital Fund but do not earmark these funds specifically for the installation of in-line EDS systems. In addition, perspectives differ regarding the appropriate role of the federal government, airport operators, and air carriers in funding these capital-intensive in-line EDS systems. Airport operators and TSA have shared in the total costs--25 percent and 75 percent respectively under LOI agreements, which have been TSA's primary method for funding in- line EDS systems. A 75 percent federal cost-share will apply to any project under an LOI for fiscal year 2005. Further, the President's fiscal year 2006 budget request for TSA requests to maintain the 75 percent federal government cost share for projects funded by LOIs at large and medium airports. For fiscal year 2006 appropriations for DHS, both the Senate, in its pending appropriations bill, and the House, in its committee report, also propose to maintain the 75 percent federal cost share for LOIs. However, in testimony before Congress, an aviation industry official expressed a different perspective regarding the cost sharing between the federal government and the aviation industry for installing in-line checked baggage screening systems. Testifying in July 2004, the official said that airports contend that the cost of installing in-line systems should be met entirely by the federal government, given its direct responsibility for screening checked baggage, as established by law, in light of the national security imperative for doing so, and because of the economic efficiencies of this strategy. Although the official stated that airports have agreed to provide a local match of 10 percent of the cost of installing in-line systems at medium and large airports, as stipulated by Vision 100, he expressed opposition to the administration's proposal, which was subsequently adopted by Congress for fiscal year 2005, to reestablish the airport's cost- share at 25 percent. In July 2004, the National Commission on Terrorist Attacks upon the United States (the 9/11 Commission) also addressed the issue of the federal government/airport cost-share for installing EDS in-line baggage screening systems. Specifically, the commission recommended that TSA expedite the installation of in-line systems and that the aviation industry should pay its fair share of the costs associated with installing these systems, since the industry will derive many benefits from the systems. Although the 9/11 Commission recommended that the aviation industry should pay its fair share of the costs of installing in-line systems, the commission did not report what it believed the fair share to be. At the time of our March 2005 report, TSA has not completed a systematic, prospective analysis of individual airports or groups of airports to determine at which airports installing in-line EDS systems would be cost-effective in terms of reducing long-term screening costs for the government and would improve security. Such an analysis would enable TSA to determine at which airports it would be most beneficial to invest limited federal resources for in-line systems rather than continue to rely on the stand-alone EDS and ETD machines to screen checked baggage for explosives, and it would be consistent with best practices for preparing benefit-cost analysis of government programs or projects called for by OMB Circular A-94. TSA officials stated that they had not conducted the analyses related to the installation of in-line systems at individual airports or groups of airports because they have used available staff and funding to ensure all airports have a sufficient number of EDS or ETD machines to meet the congressional mandate to screen all checked baggage with explosive detection systems. During the course of our review, in September 2004, TSA contracted for services to develop methodologies and criteria for assessing the effectiveness and suitability of airport screening solutions requiring significant capital investment, such as those projects associated with the LOI program. In July 2005, TSA officials stated that TSA and DHS are reviewing a draft report from the study. According to these officials, the study will provide TSA with a strategic plan for its checked baggage screening program, including the best screening solution for airports processing most of the airlines' baggage volume, and the capital costs and staffing requirements for each solution. Although TSA had not conducted a systematic analysis of cost savings and other benefits that could be derived from the installation of in-line baggage screening systems, TSA's limited, retrospective cost-benefit analysis of in- line projects at the nine airports with signed LOI agreements found that significant savings and other benefits may be achieved through the installation of these systems. This analysis was conducted in May 2004-- after the eight LOI agreements for the nine airports were signed in July and September 2003 and February 2004--to estimate potential future cost savings and other benefits that could be achieved from installing in-line systems instead of using stand-alone EDS systems. TSA estimated that in- line baggage screening systems at these airports would save the federal government about $1 billion compared with stand-alone EDS systems and that TSA would recover its initial investment in a little over 1 year. TSA's analysis also provided data to estimate the cost savings for each airport over the 7-year period. According to TSA's data, federal cost savings varied from about $50 million to over $250 million at eight of the nine airports, while at one airport, there was an estimated $90 million loss. According to TSA's analysis of the nine LOI airports, in-line cost savings critically depend on how much an airport's facilities have to be modified to accommodate the in-line configuration. Savings also depend on TSA's costs to buy, install, and network the EDS machines; subsequent maintenance cost; and the number of screeners needed to operate the machines in-line instead of using stand-alone EDS systems. In its analysis, TSA also found that a key factor driving many of these costs is throughput--how many bags an in-line EDS system can screen per hour compared with the rate for a stand-alone system. TSA used this factor to determine how many stand-alone EDS machines could be replaced by a single in-line EDS machine while achieving the same throughput. According to TSA's analysis, in-line EDS would reduce by 78 percent the number of TSA baggage screeners and supervisors required to screen checked baggage at these nine airports, from 6,645 to 1,477 screeners and supervisors. However, the actual number of TSA screeners and supervisor positions that could be eliminated would be dependent on the individual design and operating conditions at each airport. TSA also reported that aside from increased efficiency and lower overall costs, there were a number of qualitative benefits that in-line systems would provide over stand-alone systems, including: fewer on-the-job injuries, since there is less lifting of baggage when EDS machines are integrated into the airport's baggage conveyor system; less lobby disruption because the stand-alone EDS and ETD machines would be removed from airport lobbies; and unbroken chain of custody of baggage because in-line systems are more secure, since the baggage handling is performed away from passengers. TSA's retrospective analysis of these nine airports indicates the potential for cost savings through the installation of in-line EDS baggage screening systems at other airports, and it provides insights about key factors likely to influence potential cost savings from using in-line systems at other airports. This analysis also indicates the merit of conducting prospective analyses of other airports to provide information for future federal government funding decisions as required by the OMB guidance on cost- benefit analyses. This guidance describes best practices for preparing benefit-cost analysis of government programs or projects, one of which involves analyzing uncertainty. Given the diversity of airport designs and operations, TSA's analysis could be modified to account for uncertainties in the values of some of the key factors, such as how much it will cost to modify an airport to install an in-line system. Analyzing uncertainty in this manner is consistent with OMB guidance. TSA also has not systematically analyzed which airports could benefit from the implementation of additional stand-alone EDS systems in lieu of labor-intensive ETD systems at more than 300 airports that rely on ETD machines, and where in-line EDS systems may not be appropriate or cost- effective. More specifically, TSA has not prepared a plan that prioritizes which airports should receive EDS machines (including machines that become surplus because of the installation of in-line systems) to balance short-term installation costs with future operational savings. Furthermore, TSA has not yet determined the potential long-term operating cost savings and the short-term costs of installing the systems, which are important factors to consider in conducting analyses to determine whether airports would benefit from the installation of EDS machines. TSA officials said that they had not yet had the opportunity to develop such analyses or plans, and they did not believe that such an exercise would necessarily be an efficient use of their resources, given the fluidity of baggage screening at various airports. There is potential for TSA to benefit from the introduction of smaller stand-alone EDS machines--in terms of labor savings and added efficiencies--at some of the more than 300 airports where TSA relies on the use of ETD machines to screen checked baggage. Stand-alone EDS machines are able to screen a greater number of bags in an hour than the ETD used for primary screening while lessening reliance on screeners during the screening process. For example, TSA's analysis showed that an ETD machine can screen 36 bags per hour, while the stand-alone EDS machines can screen 120 to 180 bags per hour. As a result, it would take three to five ETD machines to screen the same number of bags that one stand-alone EDS machine could process. In addition, greater use of the stand-alone EDS machines could reduce staffing requirements. For example, one stand-alone EDS machine would potentially require 6 to 14 fewer screeners than would be required to screen the same number of bags at a screening station with three to five ETD machines. This calculation is based on TSA estimates that 4.1 screeners are required to support each primary screening ETD machine, while one stand-alone EDS machine requires 6.75 screeners--including staff needed to operate ETD machines required to provide secondary screening. Without a plan for installing in-line EDS baggage screening systems, and for using additional stand-alone EDS systems in place of ETD machines at the nation's airports, it is unclear how TSA will make use of new technologies for screening checked baggage for explosives, such as the smaller and faster EDS machines that may become available through TSA's research and development programs. For example, TSA is working with private sector firms to enhance existing EDS systems and develop new screening technologies through its research and development (R&D) efforts. As part of these efforts, in fiscal year 2003, TSA spent almost $2.4 million to develop a new computer-aided tomography explosives detection system that is smaller and lighter than systems currently deployed in airport lobbies. The new system is intended to replace systems currently in use, including larger and heavier EDS machines and ETD equipment. The smaller size of the system creates opportunities for TSA to transfer screening operations to other locations such as airport check-in counters. TSA certified this equipment in December 2004 and is operationally testing the machine at three airports to evaluate its operational efficiency. GAO, Transportation Security R&D: TSA and DHS Are Researching and Developing Technologies, but Need to Improve R&D Management, GAO-04-890 (Washington, D.C.: Sept. 30, 2004). GAO, Homeland Security: Key Elements of a Risk Management Approach, GAO-02-150T (Washington, D.C.: Oct. 12, 2001). development, the agency had not estimated deployment dates, without which managers do not have information needed to plan, budget, and track the progress of projects. We also found that TSA and DHS did not have adequate databases to monitor and manage the spending of the hundreds of millions of dollars that Congress had appropriated for R&D. In moving forward, it will be important for DHS to resolve the these challenges to help ensure that limited R&D recourses are focused on the areas of greatest need. TSA has made substantial progress in installing EDS and ETD systems at the nation's airports--mainly as part of interim lobby screening solutions--to provide the capability to screen all checked baggage for explosives, as mandated by Congress. With the objective of initially fielding this equipment largely accomplished, TSA needs to shift its focus from equipping airports with interim screening solutions to systematically planning for the more optimal deployment of checked baggage screening systems. Part of such planning should include analyzing which airports should receive federal support for in-line EDS baggage screening systems based on cost savings that could be achieved from more effective and efficient baggage screening operations and on other factors, including enhanced security. Also, for airports, where in-line systems may not be economically justified because of high investment costs, a cost effectiveness analysis could be used to determine the benefits of additional stand-alone EDS machines to screen checked baggage in place of the more labor-intensive ETD machines that are currently being used at the more than 300 airports. In addition, TSA should consider the costs and benefits of the new technologies being developed through its research and development efforts, which could provide smaller EDS machines that have the potential to reduce the costs associated with installing in-line EDS baggage screening systems or to replace ETD machines currently used as the primary method for screening. An analysis of airport baggage screening needs would also help enable TSA to determine whether expected reduced staffing costs, higher baggage throughput, and increased security would justify the significant up-front investment required to install in-line baggage screening. TSA's retrospective analysis of nine airports installing in-line baggage screening systems with LOI funds, while limited, demonstrated that cost savings could be achieved through reduced staffing requirements for screeners and increased baggage throughput. In fact, the analysis showed that using in-line systems instead of stand-alone systems at these nine airports would save the federal government about $1 billion over 7 years and that TSA's initial investment would be recovered in a little over 1 year. However, this analysis also showed that a cost savings may not be achieved for all airports. In considering airports for in-line baggage screening systems or the continued use of stand-alone EDS and ETD machines, a systematic analysis of the costs and benefits of these systems would help TSA justify the appropriate screening for a particular airport, and such planning would help support funding requests by demonstrating enhanced security, improved operational efficiencies, and cost savings to both TSA and the affected airport. To assist TSA in planning for the optimal deployment of checked baggage screening systems, we recommended in our March 2005 report that TSA systematically evaluate baggage screening needs at airports, including the costs and benefits of installing in-line baggage screening systems at airports that do not yet have in-line systems installed. DHS agreed with our recommendation, stating that TSA has initiated an analysis of deploying in- line EDS machines and is in the process of formulating criteria to identify those airports that would benefit from an in-line EDS system. DHS also stated that TSA has begun conducting an analysis of the airports that rely heavily on ETD machines as the primary checked baggage screening technology to identify those airports that would benefit from augmenting ETDs with stand-alone EDS equipment. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the Subcommittee have. For further information on this testimony, please contact Cathleen A. Berrick at (202) 512-3404. Individuals making key contributions to this testimony included Charles Bausell, Amy Bernstein, Kevin Copping, Christine Fossett, David Hooper, Noel Lance, Thomas Lombardi, and Alper Tunca. 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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Mandated to screen all checked baggage using explosive detection systems at airports by December 31, 2003, the Transportation Security Administration (TSA) deployed two types of screening equipment: explosives detection systems (EDS), which use computer-aided tomography X-rays to recognize the characteristics of explosives, and explosives trace detection (ETD) systems, which use chemical analysis to detect traces of explosive material vapors or residues. This testimony discusses (1) TSA's deployment of EDS and ETD systems and the impact of initially deploying these systems, (2) TSA and airport actions to install EDS machines in-line with baggage conveyor systems, and the federal resources made available for this purpose, and (3) actions taken by TSA to optimally deploy checked baggage screening systems. TSA has made substantial progress in installing EDS and ETD systems at the nation's more than 400 airports to provide the capability to screen all checked baggage using explosive detection systems, as mandated by Congress. However, in initially deploying EDS and ETD equipment, TSA placed stand-alone ETD and the minivan-sized EDS machines--mainly in airport lobbies--that were not integrated in-line with airport baggage conveyor systems. TSA officials stated that the agency's ability to initially install in-line systems was limited because of the high costs and the time required for airport modifications. These interim lobby solutions resulted in operational inefficiencies, including requiring a greater number of screeners, as compared with using EDS machines in-line with baggage conveyor systems. TSA and airport operators are taking actions to install in-line baggage screening systems to streamline airport and TSA operations, reduce screening costs, and enhance security. Eighty-six of the 130 airports we surveyed either have, are planning to have, or are considering installing full or partial in-line systems. However, resources have not been made available to fund these capital-intensive systems on a large-scale basis. Also, the overall costs of installing in-line baggage screening systems at each airport are unknown, the availability of future federal funding is uncertain, and perspectives differ regarding the appropriate role of the federal government, airport operators, and air carriers in funding these systems. TSA has not conducted a systematic, prospective analysis to determine at which airports it could achieve long-term savings and enhanced efficiencies and security by installing in-line systems or, where in-line systems may not be economically justified, by making greater use of stand-alone EDS systems rather than relying on the labor-intensive and less efficient ETD screening process. However, at nine airports where TSA has agreed to help fund the installation of in-line baggage screening systems, TSA conducted a retrospective cost-benefit analysis which showed that these in-line systems could save the federal government about $1 billion over 7 years. TSA further estimated that it could recover its initial investment in the in-line systems at these airports in a little over 1 year.
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No single hotline or database captures the universe of identity theft victims. Some individuals do not even know that they have been victimized until months after the fact, and some known victims may not know to report or may choose not to report to the police, credit bureaus, or established hotlines. Thus, it is difficult to fully or accurately measure the prevalence of identity theft. Some of the often-quoted estimates of prevalence range from one-quarter to three-quarters of a million victims annually. Generally speaking, the higher the estimate of identity theft prevalence, the greater the (1) number of victims who are assumed not to report the crime and (2) number of hotline callers who are assumed to be victims rather than "preventative" callers. However, we found no information to confirm the extent to which these assumptions are valid. Nevertheless, although it is difficult to specifically or comprehensively quantify identity theft, a number of data sources can be used as proxies or indicators for gauging the prevalence of such crime. These sources include the three national consumer reporting agencies that have call-in centers for reporting identity fraud or theft; the Federal Trade Commission (FTC), which maintains a database of complaints concerning identity theft; the SSA/OIG, which operates a hotline to receive allegations of SSN misuse and program fraud; and federal law enforcement agencies--Department of Justice components, Department of the Treasury components, and the Postal Inspection Service--responsible for investigating and prosecuting identity theft- related cases. Each of these various sources or measures seems to indicate that the prevalence of identity theft is growing. According to the three national consumer reporting agencies, the most reliable indicator of the incidence of identity theft is the number of long- term (generally 7 years) fraud alerts placed on consumer credit files. Fraud alerts constitute a warning that someone may be using the consumer's personal information to fraudulently obtain credit. Thus, a purpose of the alert is to advise credit grantors to conduct additional identity verification or contact the consumer directly before granting credit. One of the three consumer reporting agencies estimated that its 7- year fraud alerts involving identity theft increased 36 percent over 2 recent years--from about 65,600 in 1999 to 89,000 in 2000. A second agency reported that its 7-year fraud alerts increased about 53 percent in recent comparative 12-month periods; that is, the number increased from 19,347 during one 12-month period (July 1999 through June 2000) to 29,593 during the more recent period (July 2000 through June 2001). The third agency reported about 92,000 fraud alerts for 2000 but was unable to provide information for any earlier year. The federal Identity Theft Act (P.L. 105-318) required the FTC to "log and acknowledge the receipt of complaints by individuals who certify that they have a reasonable belief" that one or more of their means of identification have been assumed, stolen, or otherwise unlawfully acquired. In response to this requirement, on November 1, 1999, FTC established a toll-free telephone hotline (1-877-ID-THEFT) for consumers to report identity theft. Information from complainants is accumulated in a central database (the Identity Theft Data Clearinghouse) for use as an aid in law enforcement and prevention of identity theft. From its establishment in November 1999 through September 2001, FTC's Identity Theft Data Clearinghouse received a total of 94,100 complaints from victims, including 16,784 complaints transferred to the FTC from the SSA/OIG. In the first month of operation, the Clearinghouse answered an average of 445 calls per week. By March 2001, the average number of calls answered had increased to over 2,000 per week. In December 2001, the weekly average was about 3,000 answered calls. However, FTC staff noted that identity theft-related statistics may, in part, reflect enhanced consumer awareness and reporting. SSA/OIG operates a fraud hotline to receive allegations of fraud, waste, and abuse. In recent years, SSA/OIG has reported a substantial increase in calls related to identity theft. For example, allegations involving SSN misuse increased more than fivefold, from about 11,000 in fiscal year 1998 to about 65,000 in fiscal year 2001. A review performed by SSA/OIG of a sample of 400 allegations of SSN misuse indicate that up to 81 percent of all allegations of SSN misuse related directly to identity theft. "... our office has investigated numerous cases where individuals apply for benefits under erroneous SSNs. Additionally, we have uncovered situations where individuals counterfeit SSN cards for sale on America's streets. From time to time, we have even encountered SSA employees who sell legitimate SSNs for hundreds of dollars. Finally, we have seen examples where SSA's vulnerabilities in its enumeration business process [i.e., the process for issuing SSNs] adds to the pool of SSNs available for criminal fictitious identities." Although federal law enforcement agencies do not have information systems that specifically track identity theft cases, the agencies provided us with statistics for identity theft-related crimes. Regarding bank fraud, for instance, the FBI reported that its arrests increased from 579 in 1998 to 645 in 2000--and was even higher (691) in 1999. The Secret Service reported that, for recent years, it has redirected its identity theft-related efforts to focus on high-dollar, community-impact cases. Thus, even though the total number of identity theft-related cases closed by the Secret Service decreased from 8,498 in fiscal year 1998 to 7,071 in 2000, the amount of fraud losses prevented in these cases increased from a reported average of about $73,000 in 1998 to an average of about $218,000 in 2000. The Postal Inspection Service, in its fiscal year 2000 annual report, noted that identity theft is a growing trend and that the agency's investigations of such crime had "increased by 67 percent since last year." "The availability of information on the Internet, in combination with the advances in computer hardware and software, makes it easier for the criminal to assume the identity of another for the purposes of committing fraud. For example, there are web-sites that offer novelty identification cards (including the hologram). After downloading the format, fonts, art work, and hologram images, the information can be easily modified to resemble a state- issued driver's license. In addition to drivers' licenses, there are web-sites that offer birth certificates, law enforcement credentials (including the FBI), and Internal Revenue Service forms." Similarly, the SSA/OIG has noted that, "The ever-increasing number of identity theft incidents has exploded as the Internet has offered new and easier ways for individuals to obtain false identification documents, including Social Security cards." Aliens and others have used identity theft or other forms of identity fraud to create fraudulent documents that might enable individuals to enter the country and seek job opportunities. With nearly 200 countries using unique passports, official stamps, seals, and visas, the potential for immigration document fraud is great. In addition, more than 8,000 state or local offices issue birth certificates, driver's licenses, and other documents aliens can use to establish residency or identity. This further increases the number of documents that can be fraudulently used by aliens to gain entry into the United States, obtain asylum or relief from deportation, or receive such other immigration benefits as work permits or permanent residency status. Reportedly, large-scale counterfeiting has made employment eligibility documents widely available. For example, in May 1998, INS seized more than 24,000 counterfeit Social Security cards in Los Angeles after undercover agents purchased 10,000 counterfeit INS permanent resident cards from a counterfeit document ring. Generally, when a person attempts to enter the United States at a port of entry, INS inspectors require the individual to show one of several documents that would prove identity and/or authorize entry. These documents include border crossing cards, alien registration cards, nonimmigrant visas, U.S. passports or other citizenship documents, foreign passports or citizenship documents, reentry permits, refugee travel documents, and immigrant visas. At ports of entry, INS inspectors annually intercept tens of thousands of fraudulent documents presented by aliens attempting to enter the United States. As table 1 shows, INS inspectors intercepted over 100,000 fraudulent documents annually in fiscal years 1999 through 2001. Generally, about one-half of all the intercepted documents were border crossing cards and alien registration cards. The availability of jobs is one of the primary magnets attracting illegal aliens to the United States. Immigration experts believe that as long as opportunities for employment exist, the incentive to enter the United States illegally will persist and efforts at the U.S. borders to prevent illegal entry will be undermined. The Immigration Reform and Control Act (IRCA) of 1986 made it illegal for employers to knowingly hire unauthorized aliens. IRCA requires employers to comply with an employment verification process intended to provide employers with a means to avoid hiring unauthorized aliens. The process requires newly hired employees to present documentation establishing their identity and eligibility to work. From a list of 27 acceptable documents, employees have the choice of presenting 1 document establishing both identity and eligibility to work (e.g., an INS permanent resident card) or 1 document establishing identity (e.g., a driver's license) and 1 establishing eligibility to work (e.g., a Social Security card). Generally, employers cannot require the employees to present a specific document. Employers are to review the document or documents that an employee presents and complete an Employment Eligibility Form, INS Form I-9. On the form, employers are to certify that they have reviewed the documents and that the documents appear genuine and relate to the individual. Employers are expected to judge whether the documents are obviously fraudulent. INS is responsible for checking employer compliance with IRCA's verification requirements. Significant numbers of aliens unauthorized to work in the United States have used fraudulent documents to circumvent the employment verification process designed to prevent employers from hiring them. For example, INS data showed that about 50,000 unauthorized aliens were found to have used 78,000 fraudulent documents to obtain employment over the 20-month period from October 1996 through May 1998. About 60 percent of the fraudulent documents used were INS documents; 36 percent were Social Security cards, and 4 percent were other documents, such as driver's licenses. Also, we noted that counterfeit employment eligibility documents were widely available. For instance, in November 1998 in Los Angeles, INS seized nearly 2 million counterfeit documents, such as INS permanent resident cards and Social Security cards, which were headed for distribution points around the country. Aliens have also attempted to use fraudulent documents or other illegal means to obtain other immigration benefits, such as naturalization or permanent residency. Document fraud encompasses the counterfeiting, sale, or use of false documents, such as birth certificates, passports, or visas, to circumvent U.S. immigration laws and may be part of some benefit application fraud cases. Such fraud threatens the integrity of the legal immigration system. Although INS has not quantified the extent of immigration benefit fraud, agency officials told us that the problem was pervasive and would increase. In one case, for example, an immigration consulting business filed 22,000 applications for aliens to qualify under a legalization program. Nearly 5,500 of the aliens' claims were fraudulent and 4,400 were suspected of being fraudulent. In another example, according to an INS Miami District Office official, during the month of January 2001 its investigative unit received 205 leads, of which 84 were facilitator cases (e.g., cases involving individuals or entities who prepare fraudulent benefit applications or who arrange marriages for a fee for the purpose of fraudulently enabling an alien to remain in the United States). In both of these examples, fraudulent documents played a role in the attempts to obtain immigration benefits. "In addition to the credit card and financial fraud crimes often committed, identity theft is a major facilitator of international terrorism. Terrorists have used stolen identities in connection with planned terrorist attacks. An Algerian national facing U.S. charges of identity theft, for example, allegedly stole the identities of 21 members of a health club in Cambridge, Massachusetts, and transferred the identities to one of the individuals convicted in the failed 1999 plot to bomb the Los Angeles International Airport." The events of September 11, 2001, have increased the urgency of being able to effectively authenticate the identity of individuals. In addition to using identity theft or identity fraud to enter the United States illegally and seek job opportunities, some aliens have used fraudulent documents in connection with serious crimes, such as narcotics trafficking and terrorism. For instance, according to INS, although most aliens are smuggled into the United States to pursue employment opportunities, some are smuggled as part of a criminal or terrorist enterprise. INS believes that its increased enforcement efforts along the southwest border have prompted greater reliance on alien smugglers and that alien smuggling is becoming more sophisticated, complex, organized, and flexible. In a fiscal year 2000 threat assessment, INS predicted that fraud in obtaining immigration benefits would continue to rise as the volume of petitions for benefits grows and as smugglers search for other methods to introduce illegal aliens into the United States. Also, INS believes organized crime groups will increasingly use smugglers to facilitate illegal entry of individuals into the United States to engage in criminal activities. Alien smugglers are expected to increasingly use fraudulent documents to introduce aliens into the United States. "One of the conspirators in the World Trade Center bombing entered the country on a photo-substituted Swedish passport in September 1992. The suspect used a Swedish passport 'expecting to pass unchallenged through the INS inspection area at New York's Kennedy Airport--since an individual bearing a valid Swedish passport does not even need a visa to enter the United States.' When the terrorist arrived at John F. Kennedy International Airport (JFK), an INS inspector suspected that the passport had been altered. A search of his luggage revealed instructional materials for making bombs; the subject was detained and sentenced to six months' imprisonment for passport fraud. In March 1994 he was convicted for his role in the World Trade Center bombing and sentenced to 240 years in prison and a $500,000 fine." Furthermore, regarding this terrorist incident, a United States Sentencing Commission report noted that, "The World Trade Center defendant used, and was in possession of, numerous false identification documents, such as photographs, bank documents, medical histories, and education records from which numerous false identities could have been created." "Terrorist financing methods range from the highly sophisticated to the most basic. There is virtually no financing method that has not at some level been utilized by terrorists and terrorist groups. Traditionally, their efforts have been aided considerably by the use of correspondent bank accounts, private banking accounts, offshore shell banks, ... bulk cash smuggling, identity theft, credit card fraud, and other criminal operations such as illegal drug trafficking. (Emphasis added.) "There often is a nexus between terrorism and organized crime, including drug trafficking. ... Both groups make use of fraudulent documents, including passports and other identification and customs documents to smuggle goods and weapons." "Under the direction of the U.S. Department of Justice (DOJ), investigators subpoenaed records for all 9,000 airport employees with security badges to identify instances of SSN misuse. They identified 61 individuals with the highest-level security badges and 125 individuals with lower level badges who misused SSN's. A Federal grand jury indicted 69 individuals for Social Security and INS violations. Sixty-one of the 69 individuals arrested had an SSN misuse charge by the U.S. Attorney. On December 11, 2001, SSA's OIG agents and other members of the Operation Safe Travel Task Force arrested 50 individuals. To date, more than 20 have been sentenced after pleading guilty to violations cited in the indictments. Many are now involved in deportation proceedings. There were other similar airport operations after the Salt Lake City Operation, and more are underway." In the May 2002 report, the SSA Inspector General noted that identity theft begins, in most cases, with the misuse of an SSN. In this regard, the Inspector General emphasized the importance of protecting the integrity of the SSN, especially given that this "de facto" national identifier is the "key to social, legal, and financial assimilation in this country" and is a "link in our homeland security goal." In its 1999 study of identity theft, the United States Sentencing Commission reported that SSNs and driver's licenses are the identification means most frequently used to generate or "breed" other fraudulent identifiers. Also, in early 1999, following passage of the federal Identity Theft Act, the U.S. Attorney General's Council on White Collar Crime established the Subcommittee on Identity Theft to foster coordination of investigative and prosecutorial strategies. Subcommittee leadership is vested in the Fraud Section of the Department of Justice's Criminal Division, and membership includes various federal law enforcement and regulatory agencies, as well state and local law enforcement representation. The subcommittee chairman told us that, since the terrorist incidents of September 11, 2001, the subcommittee has begun to focus more on prevention. For example, the chairman noted that the American Association of Motor Vehicle Administrators attended a recent subcommittee meeting to discuss ways to protect against counterfeit or fake driver's licenses. The May 2002 SSA/OIG report, cited previously, stated that, "while the ability to punish identity theft is important, the ability to prevent it is even more critical." In this regard, the Inspector General noted that effective protections to prevent SSN misuse must be put in place at three stages-- before issuance of the SSN, during the life of the number holder, and upon that individual's death. Other prevention efforts designed to enhance technologies in support of identification and verification functions include the following: The Enhanced Border Security and Visa Entry Reform Act of 2002 (P.L. 107-173), signed by the President on May 14, 2002, requires that all travel and entry documents (including visas) issued by the United States to aliens be machine-readable and tamper-resistant and include standard biometric identifiers by October 26, 2004. Also, the act requires the Attorney General to install machine readers and scanners at all U.S. ports of entry by this date so as to allow biometric comparison and authentication of all U.S. travel and entry documents and of all passports issued by visa waiver countries.
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Identity theft involves "stealing" another person's personal identifying information, such as their Social Security number, date of birth, or mother's maiden name, and using that information to fraudulently establish credit, run up debt, or take over existing financial accounts. Another pervasive category is the use of fraudulent identity documents by aliens to enter the United States illegally to obtain employment and other benefits. The prevalence of identity theft appears to be growing. Moreover, identity theft is not typically a stand-alone crime; rather identity theft is usually a component of one or more white-collar or financial crimes. According to Immigration and Naturalization Service (INS) officials, the use of fraudulent documents by aliens is extensive, with INS inspectors intercepting tens of thousands of fraudulent documents at ports of entry in each of the last few years. These documents were presented by aliens attempting to enter the United States to seek employment or obtain naturalization or permanent residency status. Federal investigations have shown that some aliens use fraudulent documents in connection with more serious illegal activities, such as narcotics trafficking and terrorism. Efforts to combat identity fraud in its many forms likely will command continued attention for policymakers and law enforcement to include investigating and prosecuting perpetrators, as well as focusing on prevention measures to make key identification documents and information less susceptible to being counterfeited or otherwise used fraudulently.
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CBP's SBI program is responsible for identifying and deploying an appropriate mix of technology, known as SBInet (e.g., sensors, cameras, radars, communications systems, and mounted laptop computers for agent vehicles); tactical infrastructure (e.g., pedestrian and vehicle fencing, roads, and lighting); and personnel (e.g., program staff and Border Patrol agents) that are intended to enable CBP agents and officers to gain effective control of U.S. borders. SBInet technology is also intended to include the development and deployment of a common operating picture (COP) that provides uniform data through a command center environment to Border Patrol agents in the field and all DHS agencies and to be interoperable with stakeholders external to DHS, such as local law enforcement. The current focus of SBI is on the southwest border areas between the ports of entry that CBP has designated as having the highest need for enhanced border security because of serious vulnerabilities. The SBI program office and its offices of tactical infrastructure and SBInet are responsible for overall program implementation and oversight. Figure 1 is a map of the southwest border and the Border Patrol sectors. In September 2006, CBP awarded a prime contract to the Boeing Company for 3 years, with three additional 1-year options. As the prime contractor, Boeing is responsible for acquiring, deploying, and sustaining selected SBI technology and tactical infrastructure projects. In this way, Boeing has extensive involvement in the SBI program requirements development, design, production, integration, testing, and maintenance and support of SBI projects. Moreover, Boeing is responsible for selecting and managing a team of subcontractors that provide individual components for Boeing to integrate into the SBInet system. The SBInet contract is largely performance-based--that is, CBP has set requirements for the project and Boeing and CBP coordinate and collaborate to develop solutions to meet these requirements--and designed to maximize the use of commercial off- the-shelf technology. CBP's SBI program office oversees the Boeing-led SBI contractor team. CBP is executing part of SBI's activities through a series of task orders to Boeing for individual projects. As of February 15, 2008, CBP had awarded eight task orders to Boeing. Table 1 is a summary of the task orders awarded to Boeing for SBI projects. In addition to deploying technology across the southwest border, the SBI program office plans to deploy 370 miles of single-layer pedestrian fencing and 300 miles of vehicle fencing by December 31, 2008. Pedestrian fencing is designed to prevent people on foot from crossing the border and vehicle fencing is physical barriers meant to stop the entry of vehicles. The SBI program office, through the tactical infrastructure program, is using the U.S. Army Corps of Engineers (USACE) to contract for fencing and supporting infrastructure (such as lights and roads), complete required environmental assessments, and acquire necessary real estate. In addition, in January 2008, CBP issued Boeing a supply and supply chain management task order for the purchase of construction items, such as steel. In December 2006, DHS estimated that the total cost for completing the deployment along the southwest border will be $7.6 billion from fiscal years 2007 through 2011. DHS has not yet reported the estimated life cycle cost for the SBI program, which is the total cost to the government for a program over its full life, consisting of research and development, operations, maintenance, and disposal costs. Since fiscal year 2007, Congress has appropriated about $2.5 billion for SBI. DHS has requested an additional $775 million for SBI for fiscal year 2009. DHS announced its final acceptance of Project 28 from Boeing on February 22, 2008, completing its first efforts at implementing SBInet, and is now gathering lessons learned from the project that it plans to use for future technology development. The scope of the project, as described in the task order between Boeing and DHS, was to provide a system with the detection, identification, and classification capabilities required to control the border, at a minimum, along 28 miles within the Tucson sector. To do so, Boeing was to provide, among other things, mobile towers equipped with radar, cameras, and other features, a COP that communicates comprehensive situational awareness, and secure-mounted laptop computers retrofitted in vehicles to provide agents in the field with COP information. As we previously reported, Boeing delivered and deployed the individual technology components of Project 28--such as the towers, cameras and radars--on schedule. See figures 2 and 3 below for photographs of SBInet technology along the southwest border. However, Boeing's inability to integrate these components with the COP software delayed the implementation of Project 28 over 5 months after the planned June 13, 2007, milestone when Border Patrol agents were to begin using Project 28 technology to support their activities. Specifically, SBI program office officials said that the software that Boeing selected for the COP was intended to be used as a law enforcement dispatch system and was not designed to process and distribute the type of information being collected by the cameras, radars, and sensors. However, SBI officials told us that Boeing selected the system based on initial conversations with Border Patrol officials, but when deployed to the field, Boeing found limitations with the system. As we reported in October 2007, among other technical problems reported were that it was taking too long for radar information to display in command centers and newly deployed radars were being activated by rain or other environmental factors, making the system unusable. According to officials from the SBI program office, Boeing worked to correct these problems from July through November 2007. As one example of improvement, Border Patrol officials reported that Boeing added an auto focus mechanism on the cameras located on the nine towers. However, SBInet and Border Patrol identified issues that remain unresolved. For example, the Border Patrol reported that as of February 2008 problems remained with the resolution of the camera image at distances over 5 kilometers, while expectations were that the cameras would work at about twice that distance. From June 26 through November 19, 2007, Boeing submitted three corrective action plans, documents that defined Boeing's technical approach for correcting the problems associated with Project 28 and the steps that needed to occur for DHS to conditionally accept the system. As we reported in October, DHS officially notified Boeing in August 2007 that it would not accept Project 28 until certain problems were corrected. DHS conditionally accepted Project 28 on December 7, 2007, but included a requirement for Boeing to analyze the quality of the project's video signals, radar data, and the timing of all components by January 11, 2008. Upon conditional acceptance, the government began operating Project 28, and SBI program office and Border Patrol officials told us that plans were under way to conduct additional testing of the system capabilities-- including operational testing, which is used to determine that the system performs in the environment in which it is to operate. This testing was not scheduled to take place until after final acceptance of Project 28. According to SBI program office and Border Patrol officials, the results of this testing will not be used to make changes to Project 28, but will instead be used to guide future SBInet development. In addition, DHS announced its final acceptance of Project 28 on February 22, 2008 noting that Boeing met its contractual requirements. However, according to SBI program officials, the outcomes of future SBInet development will define the equipment that will replace most of Project 28 system components. Both SBI program office and Border Patrol officials stated that although Project 28 did not fully meet their expectations, they are gathering lessons learned and are ready to move forward with developing SBInet technologies that will better meet their needs. Table 2 summarizes key events for Project 28. The SBI program office reported that it is moving forward with SBInet development beyond Project 28; however, it has revised its approach and timeline for doing so. As noted earlier in this statement, in addition to the $20.6 million task order awarded for Project 28, Boeing has also received other task orders as part of its overall contract with CBP. For example, in August 2007 DHS awarded a $69 million task order to Boeing to design the technical, engineering, and management services it would perform to plan and deploy SBInet system components within the Border Patrol's Tucson, Yuma, and El Paso sectors. In addition, the SBI program office reported that on December 7, 2007, DHS awarded a 14-month task order worth approximately $64.5 million to Boeing to design, develop, and test, among other things, an upgraded COP software system for CBP command centers and agent vehicles, known as COP version 0.5. According to the SBI program office, planned SBInet development, such as the work being conducted by Boeing under these task orders, will eventually replace and improve upon Project 28. These officials stated that in light of the difficulties that DHS encountered during Boeing's deployment of Project 28, the Secretary requested and CBP has proposed a revised strategy that is more deliberative. As two SBInet program managers put it, they want to develop SBInet "right, not fast". We reported in October 2007 that SBI program office officials expected to complete all of the first phase of technology projects by the end of calendar year 2008. However, in February 2008, the SBI program office estimated that the first planned deployment of technology--including components linked to the updated COP--will occur in two geographic areas within the Tucson sector by the end of calendar year 2008, with the remainder of the deployments to the Tucson, Yuma, and El Paso sectors completed by the end of calendar year 2011. Officials from the SBI program office said that the Project 28 location is one of the two areas where the planned first deployments will occur. An official from the SBI program office noted that this schedule reflects DHS's revised approach to developing SBInet technology and that meeting this timeline depends, in part, on the availability of funding. At this time, the SBI program office is still in the process of defining life cycle costs for SBInet development. SBI program office and Border Patrol officials told us they have learned lessons during the development of Project 28 that will influence future SBInet development, including the technology that is planned to be deployed along the southwest border. For example, testing to ensure the components--such as radar and cameras--were integrated correctly before being deployed to the field at the Tucson sector did not occur given the constraints of the original 8-month timeline of the firm-fixed-price task order with Boeing, according to officials from the SBI program office. As a result, incompatibilities between individual components were not discovered in time to be corrected by the planned Project 28 deployment deadline. To address this issue moving forward with SBInet development, Boeing has established a network of laboratories to test how well the integration of the system works, and according to the SBI program office, deployment will not occur until the technology meets specific performance specifications. Another lesson learned involved how the Project 28 system requirements were developed by Boeing. SBI program office and Border Patrol officials told us that the requirements for how the Project 28 system was to operate were designed and developed by Boeing with minimal input from the intended operators of the system, including Border Patrol agents. Instead, Boeing based the requirements for how Project 28 was to be designed and developed on information in the contract task order. The lack of user involvement resulted in a system that does not fully address or satisfy user needs. In February 2008, SBI program officials reported that Project 28 was designed to be a demonstration project, rather than a fully operating system, and there was not enough time built into the contract to obtain feedback from all of the intended users of the system during its design and development. While Border Patrol agents in the Tucson sector agreed with Boeing's conceptual design of Project 28, they said the final system might have been more useful if they and others had been given an opportunity to provide feedback throughout the process. For example, Border Patrol agents told us they would have found the laptops mounted into agent vehicles safer and easier to use if they were larger and manipulated by a touch screen rather than with a pencil-shaped stylus, as using a stylus to manipulate the screen while driving is impractical. In addition, the laptops were not mounted securely enough to prevent significant rattling when driving on rough terrain, making the laptops difficult to use and prone to needing repair. While user feedback was limited for Project 28, SBI program office officials have recognized the need to involve the intended operators when defining requirements and have efforts underway to do so for future SBInet development. For example, officials from the Border Patrol, CBP Air and Marine, and the CBP Office of Field Operations reported that representatives from their offices were involved in the development of requirements for SBInet technology as early as October 2006 and on an ongoing basis since then. Specifically, SBI program officials stated that Border Patrol users participated in requirements workshops with Boeing held in October 2006 at CBP headquarters and then at various field locations from December 2006 through June 2007, from which the SBInet operational requirements were derived (a process separate from Project 28). According to the SBI program office, users from other CBP offices such as the Office of Field Operations and Air and Marine have been involved in meetings as the SBI program office updates these requirements in preparation for the next development efforts. Additionally, SBI program officials stated that Boeing held meetings in January and February 2008 specifically designed to integrate user input to the development of the COP version 0.5. Since DHS conditionally accepted the task order from Boeing on December 7, 2007, those Border Patrol agents in the Tucson sector that have received updated training on Project 28 have been using the technologies as they conduct their border security activities. Border Patrol agents reported that they would have liked to have been involved sooner with the design and development of Project 28, since they are the ones who operate the system. Border Patrol officials stated that it is not an optimal system. Border Patrol agents from the Tucson sector provided examples of Project 28 capabilities that do not adequately support Border Patrol operations because of their design. As noted earlier in this statement, Border Patrol agents have had difficulties using the laptops mounted into agent vehicles to provide them with COP information. However, according to Border Patrol agents, Project 28 has provided them with improved capabilities over their previous equipment, which included items such as cameras and unattended ground sensors that were only linked to nearby Border Patrol units, not into a centralized command and control center. In addition, Border Patrol officials we spoke with at the Tucson sector noted that Project 28 has helped its agents become more familiar with the types of technological capabilities they are integrating into their operations now and in the future. As we reported in October 2007, the Border Patrol's Tucson sector was developing a plan to integrate SBInet into its operating procedures. However, in February 2008 a senior official from the Border Patrol's Tucson sector told us that the plan is still in draft form because of the delays in the deployment of Project 28. In October 2007 we reported that the 22 trainers and 333 operators who were initially trained on the Project 28 system were to be retrained with revised curriculum because of deployment delays and changes to the COP software. As of January 2008, 312 Border Patrol operators and 18 trainers had been retrained on Project 28. According to Border Patrol agents we spoke with at the Tucson sector, a group of Border Patrol agents provided significant input into the revisions that the Boeing subcontractor made to the Project 28 training curriculum. Officials from the SBInet Training Division and Border Patrol agents reported that originally there were plans to train 728 Border Patrol operators located in the Project 28 area by January 2008. However, now no additional training will be conducted on Project 28, as they are expecting that future SBInet development will eventually replace Project 28. For example, according to the SBInet Training Division, the COP version 0.5 currently under development by Boeing will replace the Project 28 COP, and this will require new training. Deployment of tactical infrastructure projects along the southwest border is on schedule, but meeting the SBI program office's goal to have 370 miles of pedestrian fence and 300 miles of vehicle fencing in place by December 31, 2008, will be challenging and total costs are not yet known. As of February 21, 2008, the SBI program office reported that it had constructed 168 miles of pedestrian fence and 135 miles of vehicle fence (see table 3). According to SBI program office officials, the deployment of tactical infrastructure projects is on schedule, but these officials reported that keeping on schedule will be challenging because of various factors, including difficulties in acquiring rights to border lands. Unlike prior fencing projects that were primarily located on federal land, approximately 54 percent of planned projects are scheduled to be constructed on private property. We previously reported that as of July 2007, CBP anticipated community resistance to deployment for 130 of its 370 miles of pedestrian fencing miles. CBP officials told us that, of 480 owners of private property along the relevant segments of the border, all but 148 gave CBP access to survey their land prior to December 2007. In December, CBP, working in conjunction with the Department of Justice (DOJ), sent letters to most of the 148 remaining land owners reiterating the request for access and notifying them of the government's intent to pursue court-ordered access if necessary. As of February 16, 2008, approximately 50 percent of the land owners who received these letters had given CBP access to their land to do surveys. In some cases where access has not been granted, DOJ has begun the legal process known as "eminent domain" to obtain court-ordered access to the property. SBI program office officials state that they are working to acquire rights to border lands; however, until the land access issues are resolved, this factor will continue to pose a risk to meeting the deployment targets. SBI program office officials are unable to estimate the total cost of pedestrian and vehicle fencing because they do not yet know the type of terrain where the fencing is to be constructed, the materials to be used, or the cost to acquire the land. In addition, in October 2007, we reported that to minimize one of the many factors that add to the cost, CBP has previously drawn upon its Border Patrol agents and Department of Defense military personnel to assist in such efforts. However, SBI program office officials reported that they plan to use more costly commercial labor for future infrastructure projects to meet their deadlines. In February 2008, SBI program office officials told us that they estimate construction costs for pedestrian fencing will be about $4 million per mile and vehicle fencing costs will be about $2 million per mile. However, total costs will be higher because this estimate does not include other expenses, such as contract management, contract incentives to meet an expedited schedule, higher-than-expected property acquisition costs, and unforeseen costs associated with working in remote areas. As the SBI program office moves forward with tactical infrastructure construction, it is making modifications based on lessons learned from previous fencing efforts. For example, for future fencing projects, the SBI program office plans to buy construction items, such as steel, in bulk; use approved fence designs; and contract out the maintenance and repair of the tactical infrastructure. SBI program office officials estimate that buying essential items in bulk will make fencing deployment more economical and will reduce the likelihood of shortages and delays of critical equipment. SBI program office officials also believe that using pre- approved and tested fence designs (see fig. 4) will expedite preconstruction planning and will allow for more efficient maintenance and repair. In addition, the SBI program office plans to award a contract to maintain and service all initial, current, and future tactical infrastructure deployed through SBI because it believes that it will be more efficient than relying on Border Patrol agents and military personnel who also have other duties. The SBI program office established a staffing goal of 470 employees for fiscal year 2008, made progress toward meeting this goal and published a human capital plan in December 2007; however, the SBI program office is in the early stages of implementing this plan. As of February 1, 2008, the SBI program office reported having 142 government staff and 163 contractor support staff for a total of 305 employees, up from 247 staff on September 30, 2007. In addition, SBI program office officials reported that they had selected an additional 39 staff that the program office is in the process of bringing onboard. These officials also told us that they believe they will be able to meet their staffing goal by the end of September 2008 and will have 261 government staff and 209 contractor support staff on board (see table 4). In addition, according to SBI program office officials, they would like to bring the ratio of government employees to contractor staff closer to 1:1 because their office has determined that that ratio provides the right mix of personnel with the skills necessary to ensure appropriate government oversight. The targeted ratio, based on the staffing goal for fiscal year 2008, would result in a better than 1:1 ratio of government to contract support staff. In December 2007, the SBI program office published the first version of its Strategic Human Capital Management Plan and is now in the early implementation phase. As we have previously reported, a strategic human capital plan is a key component used to define the critical skills and competencies that will be needed to achieve programmatic goals and outline ways an organization can fill gaps in knowledge, skills, and abilities. The SBI program office's plan outlines seven main goals for the office and includes planned activities to accomplish those goals, which align with federal government best practices. However, the activities are in the early stages of implementation. We have previously reported that a properly designed and implemented human capital program can contribute to achieving an agency's mission and strategic goals. Until the SBI program office fully implements its plan, it will lack a baseline and metrics by which to judge the program. Table 5 summarizes the seven human capital goals, the SBI program office's planned activities and steps taken to accomplish these activities, as of February 20, 2008. Securing the nation's borders is a daunting task. Project 28, an early technology project, resulted in a product that did not fully meet user needs and the project's design will not be used as the basis for future SBInet development. To ensure that future SBInet development efforts deliver an operational capability that meets user needs and delivers technology that can be used in additional projects, it is important that the lessons learned on Project 28 continue to be applied and that user input continues to be sought so that future technology projects are successful. In the tactical infrastructure area, although fencing projects are currently on schedule, meeting future deadlines will be challenging because of various factors, including difficulties in acquiring rights to border land. Furthermore, future tactical infrastructure costs are not yet known because issues regarding land acquisition have not been resolved and other decisions, such as the materials to be used, have not been made. These issues underscore Congress' need to stay closely attuned to DHS's progress in the SBI program to make sure that performance, schedule, and cost estimates are achieved and the nation's border security needs are fully addressed. This concludes my prepared testimony. I would be happy to respond to any questions that members of the subcommittees may have. For questions regarding this testimony, please call Richard M. Stana at (202) 512-8777 or [email protected]. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other key contributors to this statement were Susan Quinlan, Assistant Director; Deborah Davis, Assistant Director; Jeanette Espinola; Karen Febey; Michael Parr; Jamelyn Payan; David Perkins; Jeremy Rothgerber; and Leslie Sarapu. 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 2005, the Department of Homeland Security (DHS) established the Secure Border Initiative (SBI), a multiyear, multibillion-dollar program to secure U.S. borders. One element of SBI is the U.S. Customs and Border Protection's (CBP) SBI program, which is responsible for developing a comprehensive border protection system through a mix of security infrastructure (e.g., fencing) and surveillance and communication technologies (e.g., radars, sensors, cameras, and satellite phones). GAO was asked to monitor DHS progress in implementing CBP's SBI program. This testimony provides GAO's observations on (1) technology implementation; (2) the extent to which Border Patrol agents have been trained and are using SBI technology; (3) infrastructure implementation; and (4) how the CBP SBI program office has defined its human capital goals and the progress it has made to achieve these goals. GAO's observations are based on analysis of DHS documentation, such as program schedules, contracts, status, and reports. GAO also conducted interviews with DHS officials and contractors, and visits to sites in the southwest border where SBI deployment is under way. GAO performed the work from November 2007 through February 2008. DHS generally agreed with GAO's findings. On February 22, 2008, DHS announced final acceptance of Project 28, a $20.6 million project to secure 28 miles along the southwest border, and is now gathering lessons learned to use in future technology development. The scope of the project, as described in the task order DHS issued to Boeing--the prime contractor DHS selected to acquire, deploy, and sustain systems of technology across the U.S. borders--was to provide a system with the capabilities required to control 28 miles of border in Arizona. CBP officials responsible for the program said that although Project 28 will not be replicated, they have learned lessons from their experience that they plan to integrate into future technology development. CBP has extended its timeline and approach for future projects and does not expect all of the first phase of its next technology project to be completed before the end of calendar year 2011. Border Patrol agents began using Project 28 technologies in December 2007, and as of January 2008, 312 agents in the area had received updated training. According to Border Patrol agents, while Project 28 is not an optimal system to support their operations, it has provided greater technological capabilities than did their previous equipment. Not all of the Border Patrol agents in the Tucson sector have been trained on Project 28 because the system will be replaced with newer technologies. Deployment of fencing along the southwest border is on schedule, but meeting CBP's goal to have 370 miles of pedestrian fence and 300 miles of vehicle fence in place by December 31, 2008, will be challenging and total costs are not yet known. As of February 21, 2008, the SBI program office reported that it had constructed 168 miles of pedestrian fence and 135 miles of vehicle fence. CBP officials reported that meeting deadlines has been difficult because of various factors including difficulties in acquiring rights to border lands. Moreover, CBP officials are unable to estimate the total cost of pedestrian and vehicle fencing because they do not yet know the type of terrain where the fencing is to be constructed, the materials to be used, and the cost to acquire the land. As CBP moves forward with construction, it is making modifications based on lessons learned from previous efforts. For example, CBP plans to buy construction items, such as steel, in bulk; use approved fence designs; and contract out the maintenance and repair. CBP's SBI program office established a staffing goal of 470 employees for fiscal year 2008, made progress toward meeting this goal and published its human capital plan in December 2007; however, it is in the early stages of implementing the plan. As of February 1, 2008, the office reported having a total of 305 employees. SBI program officials said that they believe they will be able to meet their staffing goal of 470 staff by the end of the fiscal year. In December 2007, the SBI office published the first version of its Strategic Human Capital Management Plan and is now in the early implementation phase. The plan outlines seven main goals for the office and activities to accomplish those goals, which align with federal government best practices.
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FAA has made progress in several areas to improve its implementation of NextGen. FAA has set performance goals for NextGen through 2018, including goals to improve the throughput of air traffic at key airports by 12 percent over 2009 levels, reduce delays by 27 percent from 2009 levels, and achieve a 5 percent reduction in average taxi-time at key airports. The setting of NextGen performance goals is a positive step, but much work remains in identifying measurable and reasonable performance metrics and targets for specific NextGen activities. FAA has undertaken a number of NextGen initiatives to improve system efficiency. For example, FAA has begun work to streamline its procedure approval processes--including its environmental reviews of new procedures--and has expanded its capacity to develop new performance- based navigation routes and procedures. In 2010, FAA produced over 200 performance-based navigation routes and procedures, exceeding its goal of 112. FAA reports thousands of gallons of fuel savings from the performance-based navigation routes in operation at Atlanta and the continuous descents being used into Los Angeles and San Francisco. However, aircraft operators have complained that FAA has not produced the most useful or beneficial routes and procedures to date. To address these concerns, FAA has undertaken thorough reviews in a number of areas. FAA has completed initial work to identify improvements needed in the airspace in Washington, D.C.; North Texas; Charlotte, North Carolina; Northern California; and Houston, Texas--focusing on routes and procedures that will produce benefits for operators. While the specific benefits from this work are not yet fully known, FAA expects to achieve measurable reductions in miles flown, fuel burn, and emissions from these actions. In addition, airport surface management capabilities--such as shared surface surveillance data and new techniques to manage the movement of aircraft on the ground--installed in Boston and New York have saved thousands of gallons of fuel and thousands of hours of taxi- out time, according to FAA. With respect to the continuing implementation of NextGen systems and capabilities, our ongoing work has preliminarily found that some key NextGen-related programs are generally proceeding on time and on budget (see table 1). Some key acquisitions may soon encounter delays, which can increase overall acquisition costs, as well as costs to maintain current systems. For example, delays in implementing the ERAM program is projected to increase costs by $330 million, as well as an estimated $7 to $10 million per month in additional costs to continue maintaining the system that ERAM was meant to replace. Moreover, due to the integrated nature of NextGen, many of its component systems are mutually dependent on one or more other systems. For example, ERAM is critical to the delivery of ADS-B because ADS-B requires the use of some ERAM functions. ERAM is also pivotal to the on-time implementation of two other key NextGen acquisitions--Data Communications and SWIM. In part due to ERAM's delay, FAA pushed the Data Communications program's start date from September 2011 to February 2012, plans to revise the original SWIM- segment 1 cost and schedule plan, and delayed the SWIM-segment 2 start date from 2010 to December 2012. The long-term result of this decision is not yet known but it could delay certain SWIM capabilities and hinder the progress of other capabilities that depend, in turn, on the system integration that SWIM is intended to provide. Thus, looking more broadly, the implementation of NextGen--both in the midterm (through 2018) and in the long term (beyond 2018)--will be affected by how well FAA manages program interdependencies. Delays in program implementation, as described above, and budget constraints have also affected FAA's capital budget planning. The Administration has proposed reducing FAA's capital budget by a total of $2.8 billion, or 20 percent, for fiscal years 2012 through 2015 largely due to governmentwide budget constraints. Most of this proposed reduction is on NextGen and NextGen-related spending, as reflected in FAA's revised 5-year Capital Investment Plan for fiscal years 2012 through 2016. Congress has not completed FAA's appropriation for fiscal year 2012, but current House and Senate appropriation bills propose to fund the agency near or above 2011 levels. FAA will have to balance its priorities to ensure that NextGen implementation stays on course while also sustaining the current infrastructure--which is needed to prevent failures and maintain the reliability and efficiency of current operations. To maintain credibility with aircraft operators that NextGen will be implemented, FAA must deliver systems and capabilities on time so that operators have incentives to invest in the avionics that will enable NextGen to operate as planned. As we have previously reported, a past FAA program's cancellation contributed to skepticism about FAA's commitment to follow through with its plans. That industry skepticism, which we have found lingers today, could delay the time when significant NextGen benefits--such as increased capacity and more direct, fuel- saving routing--are realized. A number of NextGen benefits depend upon having a critical mass of properly equipped aircraft. Reaching that critical mass is a significant challenge because the first aircraft operators to equip will not obtain a return on their investment until many other operators also equip. Stakeholders have proposed various equipage incentives. For example, one such proposal is for a private equity fund, backed by federal guarantees, to provide loans or other financial assistance to operators to help them equip, with payback of the loans dependent on FAA meeting its schedule commitments to implement capabilities that will produce benefits for operators. In addition, the NextGen Advisory Committee has begun to identify the specific avionics requirements for particular NextGen capabilities through the midterm, as well as identifying who--in terms of which parts of the fleet operating in which regions--should be targeted for additional incentives to equip. Our past and ongoing work examining aspects of NextGen have highlighted several other challenges facing FAA in achieving timely and successful implementation. For this statement, we would like to highlight a few specific areas: the potential effect of program delays on international harmonization efforts, the need for FAA to ensure that it addresses human factors and workforce training issues to successfully transition to a new air transportation system, the need for FAA to continue to address potential environmental impacts, and the need for FAA to improve the management and governance of NextGen. Effect of delays on FAA's ability to collaborate with Europe. Delays to NextGen programs, and potential reductions in the budget for NextGen activities, could delay the schedule for harmonization with Europe's air traffic management modernization efforts and the realization of these benefits. FAA officials indicated that the need to address funding reductions takes precedence over previously agreed upon schedules, including those previously coordinated with Europe. For example, FAA officials responsible for navigation systems told us that FAA is restructuring plans for its ground-based augmentation system (GBAS) because of potential funding reductions. While final investment decisions concerning GBAS have yet to be made, these officials said that FAA might have to stop its work on GBAS while Europe continues its GBAS development, with the result that Europe may have an operational GBAS, while FAA does not. A delay in implementing GBAS would require FAA to continue using the current instrument landing system which does not provide the benefits of GBAS, according to these officials. Such a situation could again fuel stakeholder skepticism about whether FAA will follow through with its commitment to implementing NextGen, and in turn, increase airlines' hesitancy to equip with NextGen technologies. Need to address human factors and training issues. Under NextGen, pilots and air traffic controllers will rely to a greater extent on automation, which will change their roles and responsibilities in ways that will necessitate an understanding of the human factors issues involved and require that training be provided on the new automated systems. FAA and the National Aeronautics and Space Administration (NASA)--the primary agencies responsible for integrating human factors issues into NextGen--must ensure that human factors issues are addressed so that controllers, pilots, and others will operate NextGen components in a safe and efficient manner. Failure to do so could delay implementation of NextGen. We recently reported that FAA has not fully integrated human factors into the development of some aviation systems. For example, we noted that controllers involved in the initial operations capabilities tests of ERAM at an air traffic control center in Salt Lake City found using the system cumbersome, confusing, and difficult to navigate, thus indicating that FAA did not adequately involve controllers who operate the system in the system's early development. In response to our recommendations in that report, FAA has created a cross-agency coordination plan in cooperation with NASA that establishes focus areas for human factors research, inventories existing facilities for research, and capitalizes on past and current research of all NextGen issues. In addition to integrating human factors research into NextGen systems, FAA and NASA will have to identify and develop the training necessary to address controllers' and pilots' changing roles, and have this training in place before NextGen is fully realized (when some aircraft will be equipped with NextGen systems and others will not). Need to address environmental impacts of NextGen. Another challenge to implementing NextGen is expediting environmental reviews and developing strategies to address the environmental impacts of NextGen. As we stated in our recent report on environmental impacts at airports, with the changes in aircraft flight paths that will accompany NextGen efforts, some communities that were previously unaffected or minimally affected by aircraft noise will be exposed to increased noise levels. These levels could trigger the need for environmental reviews, as well as raise community concerns. Our report found that addressing environmental impacts can delay the implementation of operational changes, and indicated that a systematic approach to addressing these impacts and the resulting community concerns may help reduce such delays. To its credit, FAA has been working to develop procedures for streamlining environmental review processes that affect NextGen activities. Need to improve management and governance. FAA has embarked on an initiative to restructure a number of organizations within the agency. We have previously reported on problems with FAA's management and oversight of NextGen acquisitions and implementation. Specifically, FAA plans to abolish and merge a number of committees to improve decision making and reduce time requirements of senior FAA executives. It also plans to make the NextGen organization the responsibility of the Deputy Administrator and to create a new head of program management for NextGen- related programs to ensure improved oversight of NextGen implementation. Further, the Air Traffic Organization will be divided into two branches: operations and NextGen program management. Operations will focus on the day-to-day management of the national air space and the program management branch will be responsible for developing and implementing programs while working with operations to ensure proper integration. While elimination of duplicative committees and focus on accountability for NextGen implementation is a positive step, it remains to be seen whether this latest reorganization will produce the desired results. Chairman Petri, Ranking Member Costello, 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 testimony, please contact Gerald L. Dillingham, Ph.D. at (202) 512-2834 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 making key contributions to this testimony include Paul Aussendorf, Maria Edelstein, Heather Krause, Ed Laughlin, and Andrew Von Ah (Assistant Directors); Colin Fallon, Bert Japikse, Ed Menoche, and Dominic Nadarski. 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 current progress toward implementing the Next Generation Air Transportation System (NextGen). NextGen will impact nearly every aspect of air transportation and will transform the way in which the air transportation system operates today. It will do so, in part, by (1) using satellite-based surveillance as opposed to ground-based radars, (2) using performance-based navigation instead of cumbersome step-by-step procedures, (3) replacing routine voice communications with data transmissions, and (4) organizing and merging the disjointed data that pilots, controllers, airports, airlines, and others currently rely on to operate the system. The Federal Aviation Administration (FAA) has been planning and developing NextGen since 2003, and is now implementing near-term (through 2012) and mid-term (through 2018) capabilities. Over the years, concerns have been raised by the Congress and other stakeholders that despite years of effort and billions of dollars spent, FAA has not made sufficient progress in deploying systems and producing benefits. In past reports, we have made a number of recommendations to FAA to address delays in development and acquisitions, improve its processes, and focus on accountability and performance. Others have also made recommendations to FAA to improve its implementation of NextGen. For example, the Department of Transportation's Office of the Inspector General recently made recommendations regarding specific NextGen programs, and the NextGen Midterm Implementation Task Force--whose creation was requested by FAA--resulted in consensus recommendations from industry on specific capabilities FAA should prioritize. Over the last 2 years, FAA has taken several steps and instituted many changes to address several of these issues. This statement today discusses (1) the results of NextGen programs and improvements to date and (2) ongoing issues that will affect NextGen implementation. This statement today is based on our NextGen-related reports and testimonies over the last 2 years; ongoing work for this subcommittee that includes our analysis of selected NextGen acquisitions and our analysis of FAA's efforts to harmonize NextGen with air traffic control modernization efforts in Europe; our review of FAA's 2025 Strategic Plan, 2011 NextGen Implementation Plan, 2012 Budget Submission, and other documents; and selected program updates from FAA officials. In summary, FAA has improved its efforts to implement NextGen and is continuing its work to address critical issues that we, stakeholders, and others have identified over the years. In some areas, FAA has implemented NextGen capabilities that have demonstrated measurable benefits for system users, such as fuel savings. FAA has also made progress in streamlining its processes, improving its capacity to develop new flight procedures, and focusing its efforts on specific procedures that are needed in key metropolitan areas. Furthermore, we found that several NextGen-related acquisitions are generally on time and on budget. However, some acquisitions have been delayed, which has impacted the timelines of other dependent systems, and the potential exists for other acquisitions to also encounter delays. These delays have resulted in increased costs and reduced benefits. Going forward, FAA must focus on delivering systems and capabilities in a timely fashion to maintain its credibility with industry stakeholders, whose adoption of key technologies is crucial to NextGen's success. FAA must also continue to monitor how delays will affect international harmonization issues, focus on human factors issues, streamline environmental approvals, mitigate environmental impacts, and focus on improving management and governance.
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The Summer Food Service Program is a federal entitlement program that provides funds for program sponsors to serve free nutritious meals to children in low-income areas when school is not in session. It is administered by USDA's Food and Nutrition Service, which provides money to state agencies to operate the program and to reimburse local eligible sponsors for meals served to children at designated locations. Eligible sponsoring organizations include (1) public or private nonprofit schools; (2) units of local, municipal, county, or state governments, such as county or city recreation programs; (3) private nonprofit groups, such as Boys and Girls Clubs or churches; (4) residential camps; and (5) National Youth Sports Programs. In fiscal year 1997, sponsors served over 128 million meals at a total federal cost of about $258 million. Local program sponsors can qualify to be reimbursed for the free meals served to all children 18 or younger by operating a site in an eligible area. Eligible areas are those in which at least 50 percent of the local children are from households with an income at or below the eligibility level for free and reduced-price school meals--185 percent of the federal poverty guidelines ($29,693 for a family of four in the summer of 1997). Sponsors can also qualify for reimbursements for free meals served to all children at sites not located in eligible areas if at least 50 percent of the children enrolled at such sites are eligible for free or reduced-price school meals. Finally, camps may be reimbursed only for meals that are served to children who have been individually determined to be eligible because of their household income. The meals that sponsors provide must meet the program's nutritional requirements. Most sponsors can receive federal subsidies for only two meals per child per day. However, camps and programs primarily serving migrant children can receive subsidies for up to three meals each day for each child. This three-meal allowance is a change in the program made by the Welfare Reform Act. Previously, these sponsors could receive reimbursements for up to four meals per day. Sponsors are reimbursed in two different categories for their costs of preparing and serving free meals. One category covers the administrative costs incurred in the management of the Summer Food Service Program, such as office expenses, the support staff's salaries, insurance, and some financial management costs. The second category covers the operating costs for purchasing, preparing, transporting, and serving the food; supporting program activities, paying salaries for the staff supervising the children; and providing transportation in rural areas. Sponsors must maintain records to document all costs and the number of meals they claim for reimbursements. Sponsors' reimbursements are based on the lesser of (1) the number of approved meals served multiplied by the established rate for each type of meal or (2) the actual costs reported. The reimbursement rates for both administrative and operating costs are set by law and adjusted each year to reflect changes in the Consumer Price Index. Sponsors with costs that exceed the federal reimbursements must find other sources of funding to pay their additional costs. Some sponsors anticipate that program costs will exceed the federal reimbursements, and these sponsors offset their excess costs with other sources of funds. Other sponsors inadvertently exceed the federal reimbursements by small amounts because it is difficult to budget the program exactly. Because sponsors can claim reimbursements only for meals that are served to eligible children, their costs would exceed reimbursements if they have low attendance or prepare too many meals that cannot be claimed for reimbursements. The Welfare Reform Act reduced the operating subsidies for meals and snacks served under the Summer Food Service Program, effective for the 1997 summer. It did not reduce subsidies for administrative costs. Table 1 highlights the changes in the reimbursement rates for meals since 1996. While the 1997 and 1998 rates reflect increases to account for inflation, they are still lower than the rates established for 1996. Since the reduced reimbursements went into effect in 1997, the number of sponsors participating in the program has increased by 8 percent overall. Although there were some changes in sponsors from one year to the next, the characteristics of these sponsors--by the type of organization, number of sites operated, and number of meals and children served--remained about the same. Of those sponsors leaving the program, fewer than 10 percent left in each of the 2 years, and of these sponsors, few left because of the rate reduction, according to state officials. USDA and some states took actions following the rate reduction aimed at enrolling new sponsors and/or encouraging current sponsors to expand their programs. Since the reduced reimbursements have gone into effect, the total number of sponsors has increased by about 8 percent. According to the data provided by state officials, the total number of sponsors participating in the program rose from 3,753 in fiscal year 1996 to 3,875 in 1997, and to 4,046 in 1998. While some sponsors left the program, the number of sponsors joining it exceeded the number leaving. This overall increase in the number of sponsors occurred after virtually no increase from 1995 through 1996, according to USDA's data. However, this overall increase is lower than the increases that occurred from 1991 through 1994, when the number of sponsors grew each year by about 8 to 10 percent. According to USDA officials, no growth occurred from 1995 to 1996 because of uncertainty stemming from the public policy debates over the future of the Summer Food Service Program and other child nutrition programs. Figure 1 shows the rate of change in the number of sponsors each year from 1991 through 1998. The types of organizations serving as program sponsors were similar in fiscal years 1996 and 1997. In both years, schools represented the largest group of sponsors (about 45 percent), followed by camps (19 percent), government agencies (about 17 percent), private nonprofit organizations (about 16 percent), and National Youth Sports Programs (3 percent). School sponsors can serve meals to children at school buildings as well as at other types of locations, such as parks and churches. Similarly, the rate reduction did not have a significant effect on the number of sites operated by sponsors. For example, in both fiscal years, half of the sponsors (51 percent) operated 1 site, and 6 percent operated 25 or more sites. In addition, between fiscal years 1996 and 1997, the total number of sites increased by 5 percent, from 29,220 to 30,587. As tables 2 and 3 show, the 1997 reduction in meal reimbursements did not appear to cause sponsors to change the size of their programs. There was little change in the size of sponsors--in terms of the number of meals and children served--between fiscal years 1996 and 1997. However, the number of meals and children served by individual sponsors varied greatly in each year. For example, one of the smallest nonprofit sponsors served 92 meals in 1997, while the largest--the New York City Board of Education--served over 8.8 million meals. In both years, a small percentage of the sponsors provided most of the meals. Only 5 percent of the sponsors served 62 percent of children participating in July of each year, 1996 and 1997. Similarly, 5 percent of the sponsors served 58 percent and 59 percent of all meals in 1996 and 1997, respectively. After the first year's experience with the reduced reimbursements, both USDA and some state officials expressed concern that more sponsors would drop out of the program in the future than did in 1997 because of the reduced rates. USDA officials believed that some sponsors chose to continue participating in the program in 1997 to test their ability to manage the program financially with the reduced reimbursements and to determine whether they would continue in 1998. However, an increase in dropouts did not occur in 1998. According to the states' information, a total of 675 sponsors have stopped participating in the Summer Food Service Program since the reimbursements were reduced. Of those that participated in fiscal year 1996, 370, or 9.9 percent, did not return in 1997; and 305, or 7.9 percent, of those that participated in 1997 did not return in 1998. According to state officials, few of the sponsors that dropped out of the program left specifically because of the reduced reimbursements. State officials identified the reduced reimbursements as the major reason for dropping out for only 37 (5.5 percent) of the 675 sponsors that left in fiscal years 1997 and 1998. For an additional 182 sponsors, state officials were unable to identify the major reason for dropping out. For some of these sponsors, the reduction may have been the reason they dropped out. The remaining 456 sponsors left for a variety of other reasons, such as the loss of personnel or lower participation than anticipated. Table 4 shows the number and percentage of sponsors leaving the program for various reasons since the rate reduction. According to our nationwide data, small sponsors were more likely to drop out of the Summer Food Service Program than large sponsors, and private nonprofit sponsors were more likely to drop out than other types of sponsors. This was also true for the sponsors that state officials identified as leaving the program because of the reduced reimbursements. For example, the sponsors that left the program in fiscal year 1997 because of the decrease had served an average of 207 children in July 1996, while the sponsors that remained in the program in 1997 had served an average of 809 children in July 1996. (App. II provides information on the dropout rates for various types of sponsors.) Some states and USDA took actions following the reduced reimbursements for meals served to enroll new sponsors and/or encourage current sponsors to expand their programs. These actions may have mitigated the impact of the rate reduction. For example, officials from several states said that they expanded outreach efforts to enroll more new sponsors. Some states' Summer Food Service Programs--such as those in Minnesota, New York, Vermont, and Washington--received state funds to offset the loss of federal funds in fiscal years 1997 and 1998. In addition, in 1998, USDA began an initiative to encourage sponsors' participation by conducting outreach and reducing the administrative burden on sponsors. To encourage participation in 1998, USDA provided program information to the American School Food Service Journal, the National Conference of Mayors, and the National Recreation and Park Associations for distribution to schools, local governments, and private nonprofit organizations. USDA also provided materials to the states for their own outreach efforts. Furthermore, the Department issued 13 policy memorandums to the states revising and clarifying policies to improve the program's operations and reduce its administrative burden. Despite the actions by USDA and the states to encourage new organizations to participate, one state official reported that the reduced reimbursement rates discouraged some organizations from entering the program. The total number of children participating in the program continued to increase in 1997 after the reduced reimbursements, as it had in all but one of the previous 6 years. However, some of the children served by sponsors in 1996 lost access to the program in 1997 when those sponsors left the program. The number of meals served also increased in 1997, as in the prior 6 years, even though welfare reform limited the number of meals that some sponsors could claim for reimbursements. In the year following the implementation of the reduced rates, the number of children participating in the program increased overall, as it did in all but one of the prior 6 years. According to the latest available USDA data, the average number of children served daily in July for the entire program increased by 2.3 percent, from 2,215,625 in 1996 to 2,266,319 in 1997.Figure 2 shows the rate of change in children's participation from 1991 to 1997. When we used the states' data to determine which types of sponsors contributed to the growth in the number of children served after the rate decrease in 1997, we found that existing sponsors had expanded their programs while new sponsors in 1997 were smaller than the sponsors that left the program after 1996. Sponsors that participated in both fiscal years 1996 and 1997 served 8 percent more children, on average, in 1997 than in 1996. On the other hand, new 1997 sponsors did not serve as many children, on average, as sponsors that left the program after 1996. Specifically, new 1997 sponsors served 19 percent fewer children, on average, in 1997, than were served in 1996 by sponsors that left the program. Despite the overall increase in the number of children served between 1996 and 1997, some children lost access to program benefits because the sponsors serving them dropped out, and the children were not served by other sponsors. These fluctuations in sponsors' participation and in children's access to the program occur even in years when the program's rules and reimbursements do not change, according to USDA officials. The 370 sponsors that participated in 1996 and did not return in 1997 served approximately 118,224 children per day in July 1996. According to our analysis of the information provided by state officials, at least 17,238, or about 15 percent, of these children lost access to the program in 1997. Sponsors that dropped out of the program specifically because of the reduction had served approximately 4,559 children in July 1996. At least 823, or 18 percent, of these children did not have access to the program in 1997. These 823 children represented about .03 percent of all children who participated in the program in 1996. (See app. II.) Other children may have lost access when continuing sponsors reduced the number of sites they operated because of the rate reduction. In fiscal year 1998, following the loss of 305 sponsors, at least 17,983 children, or 31 percent of the 58,562 children that had been served by these sponsors, lost access to the program. Of the 2,926 children served by sponsors that left the program specifically because of the reduction, at least 780 (27 percent) did not have access to the program through another sponsor in 1998. These children represent about .03 percent of all children who participated in the program in 1997. Appendix III provides more detailed information on our estimates of the number of children who had been served by sponsors that dropped out of the program and who were served by other sponsors the following year. The number of meals served by sponsors increased by over 2 percent--from over 125 million meals in fiscal year 1996 to over 128 million meals in 1997--the year after the reimbursements were reduced. The number of meals had increased during each of the previous 6 years reviewed. The increase in meals served in fiscal year 1997 would probably have been larger without the welfare reform change that affected camps and sponsors that primarily serve migrant children. As mentioned earlier, the 1996 act decreased the number of meals that these groups could claim for reimbursements from four to three. According to many state officials, if these sponsors had previously submitted four meals for reimbursements--breakfast, lunch, supper, and a snack--they did not submit the snack for reimbursement in 1997 because it has the lowest reimbursement rate. Our analysis of USDA's data supports this conclusion. From 1996 to 1997, the number of meals for which sponsors requested reimbursements increased by only 2.4 percent. However, excluding snacks, the number of meals for which sponsors requested reimbursements increased by 4.7 percent. Figure 3 compares the rate of change for total meals and meals not including snacks for fiscal years 1991 to 1997. Because sponsors received lower federal reimbursements for their Summer Food Service Programs in 1997 and 1998, some adjusted their programs to lower their costs, according to many officials interviewed in our nationwide survey and the sponsors we visited. Frequently reported changes were to lower meal, labor, and/or location costs. Nevertheless, more sponsors reported operating costs that exceeded their reimbursements in 1997 than in 1996. In our telephone survey, officials in 24 states reported that there were program changes resulting from the loss of federal funds that were not related to the number of sponsors and children participating in the program. Some sponsors also told us that they made changes to mitigate the effects of the reduction. Following are frequently mentioned changes and examples of how these changes were implemented: Meal changes. The Maine program director reported that sponsors in his state had to select their food more cautiously, favoring less costly items. Wisconsin officials said sponsors provided more prepackaged juices in place of fruit and vegetables to decrease labor and food costs. In Hawaii, where the Department of Education prepares the food for sponsors to distribute, an official said that while the Department did not change the entree or fruit/vegetable servings, it did serve smaller bread and dessert portions to save money. The Georgia director said that sponsors served less fresh fruit and did not offer additional foods, such as desserts and chips, as often as in the past. Staff adjustments. Several sponsors we visited reported decreasing their labor costs in 1997 and/or 1998. For example, a school sponsor in South Carolina decreased its workers' salaries from $7.25 per hour to $6.25 per hour. A school in Texas did not pay cafeteria personnel the cost-of-living adjustments that they had received during the school year. A school in Oregon hired fewer, less experienced staff and reduced their hours. Fewer meal sites. According to Pennsylvania officials, sponsors had to close or consolidate sites that were too expensive to operate. The small sites that served only 15 to 20 children could not afford to provide meals at the reduced rate. California officials also reported that some sponsors closed sites they could no longer afford to operate. For example, one school sponsor closed three of its six sites because it could no longer afford the labor costs. One of the largest sponsors in Texas, a school district, closed almost all the sites that served fewer than 50 children a day in 1997, and almost all the sites that served fewer than 100 children a day in 1998. However, the total number of children served by the sponsor has increased since 1996. More sponsors submitted operating costs that exceeded their federal reimbursements in fiscal year 1997 than in 1996. This means that more sponsors are covering some of the cost of operating the program with other funds. In 1996, prior to the rate decrease, 30 percent (1,084) of sponsors were reimbursed for all their reported program costs because these costs were equal to or lower than the maximum reimbursements (total meals multiplied by the reimbursement rates). The remaining 70 percent, or 2,565 sponsors, reported costs exceeding their federal reimbursements. In 1997, fewer sponsors--25 percent (966)--were reimbursed for their reported costs, while more sponsors--75 percent (2,831)--reported costs that exceeded their reimbursements. These totals include sponsors that dropped out of the program after 1996 and new sponsors in 1997. The limited impact on the number of sponsors, children, and meals served that has been observed to date is due in part to sponsors' continuing to contribute funds to offset the decreased reimbursements. Appendix IV provides more details on the type of sponsors that reported operating costs in excess of their reimbursements. We provided USDA with copies of a draft of this report for review and comment. We met with Food and Nutrition Service officials, including the Branch Chief for Program Analysis and Monitoring Branch, Child Nutrition Division, who generally agreed with the report's findings and provided us wih a number of technical comments that we incorporated into the report as appropriate. We are sending copies of this report to appropriate congressional committees, interested Members of Congress, the Secretary of Agriculture, and other interested parties. We will also make copies available upon request. If you have any questions about this report, please call me at (202) 512-5138. Major contributors to this report are listed in appendix V. Because of questions raised about the impact that the reduction in the meal reimbursement rate might have had on the Summer Food Service Program, the Chairman of the House Committee on Education and the Workforce asked us to report on (1) the number and characteristics of sponsors participating in and dropping out of the program before and after the decrease in reimbursements, (2) the number of children and meals served by the program before and after the reduction, and (3) the changes sponsors made to their program as a result of the reduced reimbursements. To address these objectives, we conducted three nationwide surveys with officials from the 50 states. First, we conducted a telephone survey to gather information and views on the impact of the rate reduction on sponsors, children, and meals. Second, we sent a mail survey to officials in the 50 states to collect detailed fiscal year 1996 and 1997 data on their sponsors. The survey covered the number of meals, sites, July's average daily attendance, and reported operating costs and reimbursements. State officials were also asked to identify (1) sponsors that dropped out of the program after 1996, (2) the major reason for dropping out, (3) the number of sites picked up by another sponsor, and (4) the portion of the children served by a new sponsor. For states that did not identify the sponsors that dropped out, we identified these sponsors by using financial and other data provided by the states. Two states did not provide average daily attendance for both years, and several provided different measures for attendance. In March 1998, we testified on the preliminary results of these surveys. Third, we sent a mail survey to the 50 states to collect their 1998 data. This third survey was aimed primarily at collecting information on the (1) number of sponsors that dropped out of the program after 1997, (2) reasons they dropped out, and (3) number of children who lost access to the program. To estimate the number of children who lost access to the program, we assigned percentages to the various response categories. For example, if state officials reported that "all or almost all" of participants were picked up by another sponsor, then we estimated that 95 percent of the participants had program access through another sponsor and 5 percent lost access to the program. We combined the 1996, 1997, and 1998 data provided by the states to provide a picture of welfare reform to date. For example, we determined the percentage of sponsors that reported costs higher than their reimbursements prior to and after the rate reductions. Although we did not verify the accuracy of all the data provided by the states for each of the over 4,000 sponsors, we did conduct a variety of tests to verify the data's internal consistency. For example, we ensured that for sponsors categorized as dropping out after fiscal year 1996 there were no 1997 reimbursement data. We also identified any sponsors for which the data provided were outside of expected ranges. Where possible, we contacted the states to correct obvious errors. For a small percentage of sponsors, the state-provided information suggests the sponsors may have been overpaid. For example, some sponsors received reimbursements in excess of the costs they reported. A listing of these sponsors and their data will be provided to USDA for further review. We also compared our state data on the number of meals served in 1996 and 1997 with USDA's data on the number of meals served for 1996 and 1997. Our total was generally within 5 percent of USDA's total. To determine the changes sponsors made to their program because of the reduced rates, we selected 20 sponsors to study in greater detail. These sponsors--in California, Illinois, Oregon, Pennsylvania, South Carolina, and Texas--were selected to represent a variety of sponsor sizes and types (e.g., school, nonprofit, and government) in both rural and urban areas. We conducted in-depth, in-person interviews with these sponsors to determine the changes they had made to their programs in response to rate reductions. We observed the operation of the program--including meals being prepared by vendors, transported to sites, and eaten by children at 17 sites. In addition to conducting these in-depth studies and three surveys, we interviewed officials from USDA's Food and Nutrition Service, the American School Food Service Association, and the Food Research and Action Center. We also reviewed related legislation, USDA documents--such as program guidance and budget data--and studies conducted by associations and states. We conducted our review from October 1997 through October 1998 in accordance with generally accepted government auditing standards. This appendix provides information for 1996 and 1997 on the total number of sponsors and the percent of sponsors that dropped out of the program in terms of the (1) number of children served, (2) number of meals served, and (3) type of sponsor. This appendix provides information on the number of children served by sponsors that dropped out of the program who did and did not have access to the program through other sponsors. Did not have access to the These other known reasons include low participation, personnel loss, and construction. For each sponsor that dropped out, state officials provided an estimate of the portion of participants served by the sponsor who were served by other sponsors in the next year. We assigned the following percentages to the various response categories: (1) "all or almost all"--95 percent had access and 5 percent did not; (2) "more than half"--75 percent had access and 25 percent did not; (3)"about half"--50 percent had access and 50 percent did not; (4) "less than half"--25 percent had access and 75 percent did not; and (5) "few, if any"--5 percent had access and 95 percent did not. In 1996, 38 of the dropouts did not operate in July. An additional 19 sponsors were in New Jersey or Arkansas, which did not provide data on the number of children served. These 57 sponsors served 336,744 meals in 1996, or 6 percent of all meals served by dropouts. Two of the 24 sponsors that left because of the rate reduction did not operate in July. Did not have access to the These other reasons include low participation, personnel loss and construction. For each sponsor that dropped out, state officials provided an estimate of the portion of participants served by the sponsor that was served by other sponsors in the next year. We assigned the following percentages to the various response categories: (1) "all or almost all"-95 percent had access and 5 percent did not; (2) "more than half"-75 percent had access and 25 percent did not; (3)"about half"--50 percent had access and 50 percent did not; (4) "less than half"--25 percent had access and 75 percent did not; and (5) "few, if any"--5 percent had access and 95 percent did not. Some programs did not operate in July and are not included in this table. In 1997, 42 of the total drop-outs did not operate in July. An additional four sponsors were in New Jersey, which did not provide data on the number of children served. These 46 sponsors served 152,038 meals in 1997 or 5 percent of all meals served by drop-outs. All sponsors that left due to the rate reduction operated in July. This appendix provides information, for fiscal years 1996 and 1997, on sponsors reporting costs that exceeded the maximum federal reimbursements, by participation category and by type of sponsor. Thomas Slomba, Assistant Director Leigh McCaskill White, Evaluator-in-Charge Peter Bramble, Senior Evaluator Fran Featherston, Senior Social Science Analyst Alice Feldesman, Supervisory Social Science Analyst Beverly Peterson, Senior Evaluator Carol Herrnstadt Shulman, Communications Analyst John W. Shumann, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) Summer Food Service Program and the impacts the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 had on the program, focusing on the: (1) number and characteristics of sponsors participating in and dropping out of the program before and after the decrease in the reimbursements; (2) number of children and meals served by the program before and after the reduction; and (3) changes sponsors made to their programs as a result of the reduced reimbursements. GAO noted that: (1) the reduction in meal reimbursements that resulted from the 1996 Welfare Reform Act had a minimal impact on the number and characteristics of the sponsors of the Summer Food Service Program; (2) since the reduction went into effect in 1997, the number of sponsors participating in the program increased by 8 percent overall, from 3,753 to 4,046; (3) the characteristics of the sponsors providing meals remained about the same between 1996 and 1997; (4) in both years, a relatively small percentage of sponsors--5 percent--served most of the children in the program; (5) most sponsors continued to be schools and camps; (6) in terms of the sponsors that dropped out after the welfare reform changes, fewer than 10 percent left the program in each of the 2 years since the reduced reimbursements have been in effect; (7) however, only a small percentage of these dropouts left because of the reduction, according to officials in the 50 states; (8) after the reduced reimbursements were mandated, USDA and some states took actions to maintain the level of participation of sponsors and children; (9) the number of children and meals served in fiscal year (FY) 1997 was greater than in previous years; (10) the total number of children participating in the program increased by over 2 percent after the reimbursements were reduced, to almost 2.3 million, in 1997; (11) the number of meals served rose by 2 percent, to over 128 million, despite a new restriction on the number of meals for which some sponsors could receive reimbursements; (12) state officials identified a small number of sponsors that left the program because of the reduced reimbursements; (13) over 820 children lost access to the program in FY 1997 because sponsors that had served them in 1996 did not participate in 1997 as a result of the reduction, and no other sponsor was available; (14) at least 780 children lost access in FY 1998; (15) other children may have lost access when continuing sponsors reduced the number of sites they operated because of the rate reduction; (16) in response to the reduced meal reimbursements, some sponsors reported making changes to their program operations; (17) even with the changes, more sponsors reported that their operating costs exceeded the amount they received in federal reimbursements in FY 1997 than in 1996; and (18) the limited impact on the number of sponsors, children, and meals served that has been observed to date is due in part to sponsors' continuing to contribute funds to offset the decreased reimbursements.
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From the 1950s through 2001, U.S. bilateral economic assistance to the Middle East and North Africa focused primarily on promoting regional stability by providing funding for large bilateral military and economic programs, chiefly in Egypt, Israel, and Jordan, and by fostering development. In December 2002, the State Department announced the creation of MEPI, which has expanded U.S. assistance to other countries in the region and includes programs focused on democracy and reform. Figure 1 shows MEPI's area of operation. According to the administration, MEPI comprises a new approach to foreign assistance for the region, aimed at linking Arab, U.S., and global private-sector businesses, NGOs, civil society elements, and governments to develop innovative policies and programs that support reform in the region. MEPI is also an important element of the administration's counterterrorism and public diplomacy strategies. MEPI projects are organized under its four reform pillars (see fig. 2). MEPI's budget of $293 million for fiscal years 2002-2005 was derived from supplemental appropriations and annual foreign operations legislation. Figure 3 shows MEPI's budget for fiscal years 2002-2005. The Office of Regional Affairs within State's Bureau of Near Eastern Affairs (NEA) in Washington, D.C., administered MEPI activities during MEPI's first 6 months. The office worked with USAID, which managed the long-standing bilateral economic assistance programs in the Middle East and North Africa, to implement most of its initial projects. The office also worked with the embassies in the region to implement projects funded through small grants. In June 2003, State established the Office of the Middle East Partnership Initiative within NEA to manage MEPI policy and projects and work closely with agencies across the U.S. government. The Deputy Secretary of State serves as Coordinator for MEPI. In August 2004, MEPI set up two regional offices in Tunisia and the United Arab Emirates. (See app. II for more details of MEPI's organizational structure as of May 2005.) In fiscal years 2002-2004, State and USAID formally reviewed existing bilateral economic assistance programs in the Middle East and North Africa. From June 2002 to May 2003, State and USAID jointly conducted an in- depth review of U.S. bilateral assistance to Egypt, one of USAID's largest programs, including assessing the programmatic and financial data for the seven strategic objectives in USAID/Egypt's program. From September to December 2003, State and USAID conducted an abbreviated review of USAID's program in West Bank and Gaza. In 2003, State participated in USAID's periodic strategy reviews of its programs in Jordan, Morocco, and Yemen. In 2003 and 2004, State also considered information from U.S. embassies and from other U.S. government agencies with programs in the region to identify areas where MEPI could provide assistance. During this period, MEPI staff responsible for each of MEPI's four reform pillars organized meetings with the other U.S. government agencies. In addition, State relied on several secondary sources to supplement the information received from formal reviews of USAID programs and input from embassies and other U.S. government agencies. Finally, State officials met with donors such as the World Bank and the European Union to learn about their activities in the region. State and USAID have used the reviews of existing U.S. bilateral economic assistance programs, as well as information obtained from other U.S. entities providing assistance in the region, to realign many existing programs, strategic plans, and coordination mechanisms to conform to the new U.S. policy of promoting democracy and reform in the Middle East and North Africa. In fiscal years 2002-2003, MEPI and its administrative partners--U.S. embassies, USAID/Washington, and USAID missions--oversaw MEPI projects. MEPI and its administrative partners also obligated MEPI funds, with MEPI obligating about 45 percent of its fiscal years 2002-2003 funding and its administrative partners obligating the remainder. MEPI oversaw some of its projects directly in fiscal years 2002-2003 and partnered with U.S. embassies, USAID/Washington, and USAID missions to oversee other projects. (See fig. 4.) MEPI and its administrative partners negotiated agreements with NGOs, the private sector, and other U.S. government entities to implement more than 100 projects. MEPI and its administrative partners have obligated the $129 million that MEPI received for fiscal years 2002 and 2003. MEPI has directly obligated about 45 percent of the funds; MEPI's administrative partners have obligated the remainder (see fig. 5). MEPI: MEPI has obligated about 45 percent ($58 million) of its 2002-2003 funds directly to NGOs, the private sector, and U.S. government entities. NGOs and the private sector: MEPI has obligated 33 percent ($42.8 million) of the funds in various grants directly to American or locally based NGOs or private companies. According to MEPI, these grants are intended to support innovative ideas that can be implemented quickly to produce concrete results, such as increasing women's political participation. MEPI officials say that they would like to obligate more MEPI resources directly, but they acknowledge that such a shift would require MEPI staff to shoulder a significant administrative burden in monitoring these projects. U.S. government implementers: Through interagency acquisition agreements, MEPI has obligated about 12 percent ($15.2 million) of its 2002-2003 funds to U.S. government entities with specific expertise in the areas of reform that MEPI supports. These entities implement projects, such as the Department of the Treasury's technical assistance project to develop expertise in surplus and debt management in Algeria. U.S. embassies: Embassies have obligated about 1 percent ($1.4 million, or $100,000 per country) of MEPI's 2002-2003 funds through its small-grants program. A central objective of the program is to build the capacity of local organizations, such as the Ibn Khaldun Center, which, among other things, introduces concepts of economic opportunity to young women in two of Egypt's rural and urban areas to enable them to improve their living conditions. The embassies use the funds to award local organizations small, short-term grants of up to approximately $25,000. The MEPI office approves all small-grant decisions, and embassy staff perform grant administration. USAID/Washington: USAID/Washington has obligated about 40 percent ($50.8 million) of MEPI's fiscal years 2002-2003 funds, including funding for many of MEPI's largest projects. According to USAID and MEPI officials, many of these projects have been implemented through preexisting cooperative or contractual agreements between the U.S. government and U.S. NGOs or contractors. USAID missions: USAID missions have obligated about 15 percent ($18.7 million) of MEPI's 2002-2003 funds, according to budget data provided by USAID and MEPI. These funds have been used to complement USAID's existing efforts, such as civil society capacity building and local political party training. Figure 6 shows the obligation of MEPI funds to Middle Eastern and North African countries and West Bank and Gaza in fiscal years 2002-2003. According to State, the reviews of U.S. bilateral economic assistance have been used to (1) identify new reform areas that were not previously addressed and (2) develop a results-based strategy for implementing and evaluating the performance of MEPI activities. Responding to the reviews of U.S. bilateral economic assistance in the region, as well as information provided by other U.S. entities, MEPI has initiated reform activities that were not being addressed by U.S. agencies in the region, including countries where USAID does not operate. For example: Political reform: The reviews found that in many countries where MEPI operates, little progress had been made in political reform, including women's political involvement. In response, MEPI has provided funds to help increase the number of women candidates and assist them through activities such as improving their media presentation techniques. Economic reform: The reviews revealed that although limited assistance was being provided to increase trade capacity within the region, U.S. agencies were not addressing the need to increase the access and capacity of small and medium-sized enterprises in countries such as Morocco. Regionally, MEPI has supported a program that aims to, among other things, increase managerial and entrepreneurial skills in several countries. MEPI also funds efforts to teach business people and managers of small and medium-sized enterprises how to take immediate advantage of U.S. bilateral free trade agreements by initiating export sales, acquiring new technology, and developing joint ventures and other strategic alliances with U.S. firms (see fig. 7). Educational reform: U.S. agencies operating in the region identified gaps in education for the impoverished and for students in primary and secondary grade levels. MEPI funds implementers that provide Arabic books for elementary school children in Jordan, Lebanon, and Bahrain and teach Bahraini mothers and preschool-age children living in poverty. (See fig. 8.) Women's empowerment: U.S. agencies identified the lack of gender equity as an impediment to reform in the region. To create more opportunities for women, MEPI funds projects that provide young women from the Middle East and North Africa unique opportunities to learn management and business skills in the classroom and while working for U.S. companies. (See fig. 9.) The 2002 and 2003 reviews of U.S. bilateral economic assistance in the Middle East and North Africa have significantly influenced MEPI officials' development of MEPI's results-based strategy, including the objective of providing close monitoring of MEPI projects. In particular, according to State, the comprehensive USAID/Egypt review cited weaknesses in USAID/Egypt's mission performance monitoring system that limited the mission's ability to strategically reallocate resources away from programs that were not achieving their objectives. According to one of the review's principal authors, USAID/Egypt did not monitor its projects closely or frequently enough to obtain the performance information needed. State recommended that USAID make changes to the performance monitoring system, including engaging consultants and producing more rigorous, succinct, and integrated qualitative and quantitative measurements of performance at all levels of activity. MEPI officials told us that these observations made MEPI management aware of the need to monitor projects' short-term performance and hold project implementers accountable for results. MEPI's September 2004 project monitoring and management plan indicates that all project agreements should include benchmarks and performance goals that reflect the results MEPI hopes to attain, based on pillar-specific objectives. The plan also states that, to prevent negative impacts on project outcomes, staff should ensure that project implementers are on the right track at all stages of project development and implementation. However, neither MEPI's general strategy nor its monitoring and management plan provides specific guidance regarding project monitoring. MEPI's ability to monitor the performance of its projects and measure results has been limited by (1) unclear communication of monitoring roles and responsibilities and (2) a lack of complete project information. MEPI has not clearly communicated roles and responsibilities for project monitoring in accordance with federal standards for management control, and as a result, not all projects have received the level of monitoring needed to measure results. According to MEPI officials, MEPI project monitoring responsibilities generally would include participation in project activities, regular review and assessment of implementer performance reports, and regular feedback to implementers on project performance. However, we found that some MEPI administrative partners, particularly those overseas, have been confused about their roles and responsibilities for project monitoring and that some MEPI activities have been monitored sporadically or not at all. Officials from 9 of the 14 U.S. embassies supporting MEPI projects stated that they were uncertain of their roles and responsibilities for monitoring MEPI projects and that MEPI had not yet specified their monitoring duties. USAID/Washington officials told us that USAID mission staff were expected to assist USAID/Washington in monitoring MEPI projects that it administers. However, USAID mission officials in Rabat, Morocco, told us that MEPI projects administered by USAID/Washington were not being monitored and that they had not received instructions for monitoring these projects. Officials at USAID/Washington acknowledged that it had not performed many of its monitoring duties in the field and stated that USAID/Washington is currently working to ensure better communication and provide instructions to the missions regarding their support of project monitoring. In addition, MEPI and USAID officials in Washington, D.C., as well as MEPI regional office, embassy, and USAID mission office staff, said that they were uncertain of the role that the MEPI regional offices would play in monitoring MEPI projects. Although MEPI officials generally expect that regional office staff will lead the monitoring of projects that MEPI directly administers, currently only one of MEPI's two regional offices has a monitoring specialist on staff. In April 2004, the Department of State's Office of Inspector General (OIG) expressed concern that MEPI was communicating inconsistent priorities and causing confusion among a number of embassies. MEPI and USAID officials in Washington, D.C., acknowledged that confusion exists regarding roles and responsibilities for project monitoring. MEPI officials stated that they were still defining, and working toward agreement with USAID and other parties regarding, MEPI and its administrative partners' respective roles and responsibilities. MEPI officials also stated that on July 14, 2005, they signed an addendum to an October 2004 memorandum of agreement (MOA), establishing a framework for project management roles and responsibilities--including monitoring--of MEPI and USAID officials in Washington and in the Middle East and North Africa. MEPI's monitoring of project performance, in accordance with federal standards for management control, has been limited by (1) a lack of baseline information, (2) inconsistency among projects' performance reporting requirements, (3) unverified project information, (4) inconsistent communication of project information, (5) incomplete project records, and (6) lack of access to project information. Lack of baseline information: Our examination of a selected sample of MEPI project documents showed that for most of these projects, MEPI lacked baseline information against which to measure their performance. According to MEPI's strategy, baseline data are necessary for measuring future progress on its projects, and MEPI officials told us that it was important to establish these measurements at the beginning of each project as the basis for determining project performance. However, of the project agreements we received from MEPI and USAID for the 25 projects in our selected sample, only three project agreements contained a requirement to establish a baseline, and none of the projects reported baseline measurements. MEPI officials told us that they were aware that they had not required baseline measurement in all of their project agreements but said that they planned to do so in future agreements. Inconsistent reporting requirements: MEPI project agreements do not consistently require that implementers report on quantitative, measurable performance indicators. As a result, some implementing organizations report general project information instead of the measurable indicators of performance that MEPI has stated are needed to manage a results-based program. According to one MEPI official, some of the reports are therefore too vague to be useful in monitoring project performance. In our selected sample of 25 projects, a substantial majority of the performance indicators required in project agreements were qualitative in nature rather than the quantitative indicators of project performance that MEPI has stated are necessary for managing MEPI as a results-based program. Further, a February 2005 report by USAID's OIG reported that 6 of 17 USAID/Morocco MEPI projects did not have indicators to measure project performance. One MEPI official told us that they sometimes negotiate requirements for additional indicators informally over the telephone and in e-mail after signing a project agreement. However, these informally negotiated requirements are not formally documented, readily available, or tracked by MEPI or the implementers. MEPI officials said that they are seeking to acquire grant-tracking software that would facilitate the documenting of agreed-on indicators and closer monitoring of implementers' reporting on these indicators. Unverified project information: MEPI's ability to verify the information reported in implementers' quarterly reports and to provide detailed performance feedback to implementers has been limited, because MEPI and its administrative partners have not consistently observed project activities. In the sample we analyzed, only 8 of the 19 implementers we interviewed said that MEPI and its administrative partners had made on- site visits to discuss and observe project activities. According to embassy, MEPI, and USAID mission staff, they often do not have time to monitor MEPI projects, including visiting or observing project activities, because of conflicting demands on staff time. USAID OIG's February 2005 report stated that, primarily because of limited resources, the USAID/Morocco mission had not validated the performance data reported by implementers. Inconsistent communication of project information: MEPI has inconsistently communicated project information, particularly to embassies and USAID missions overseas. Overseas embassy and USAID officials stated that MEPI had not always informed them of important project information, including when new projects were to begin in their country of operation. USAID'S OIG February 2005 report noted that MEPI and USAID/Washington had not always notified USAID/Morocco when they awarded regional activities taking place within the country. As a result, in some cases, embassy officials have had little or no knowledge of some of the implementer's activities. Officials from two embassies and one USAID mission told us that MEPI project implementers had arrived in country expecting embassy and USAID assistance, although the embassies and USAID missions had received little or no prior notice of the projects' start or the implementers' needs. In another example, in one country we visited, we arrived expecting to meet with a particular project implementer but found that embassy officials there were unaware of the project or the implementer's operations in country. Further, when embassies have communicated with MEPI, MEPI has not always been responsive. Three embassies stated that, since MEPI's inception, MEPI had provided no response or guidance in response to their regular reports on MEPI activities. However, according to MEPI officials, embassies have not always responded to MEPI's communications. For example, according to one senior MEPI official, after the summer 2003 awarding of small grants through the embassies, the majority of embassies administering MEPI projects did not respond to December 2003 requests from MEPI for basic evaluative descriptions of the projects the embassies were administering. According to this senior official, the embassies' failure to respond to MEPI resulted, in some cases, in MEPI's lacking records of actual activities conducted and descriptions of successes and lessons learned. Incomplete project records: MEPI and USAID have not maintained complete records for all of the projects that they administer, which has limited their ability to monitor project performance. We found gaps in records that the MEPI office in Washington, D.C., maintained for the projects that it administered. For example, in our selected sample of 25 projects, MEPI's files for fiscal year 2003 projects that it administered directly contained 44 percent of quarterly reports that project implementers were to have submitted. MEPI officials said that the grant- tracking software they sought to acquire would enable them to track the submission of implementers' quarterly reports. Without such software, the MEPI office has managed project data on Excel spreadsheets and office calendars, using the incomplete copies of quarterly reports that it has maintained since the program's inception. MEPI officials in the past have asked implementers to provide copies of records missing from their files. In addition, we found that USAID had incomplete records for the projects that it administers for MEPI. For example, in our selected sample, USAID's files for the fiscal year 2003 projects that it administered contained 63 percent of MEPI project agreements with implementers and 62 percent of the quarterly reports that project implementers were to have submitted. USAID officials stated that their records were scattered in many locations--in the various bureaus in Washington, D.C., that administer MEPI projects and at USAID missions in the Middle East and North Africa. In other cases, USAID has had to obtain copies of the records from the implementing organizations themselves. Lack of access to project information: MEPI has lacked ready access to information on USAID-administered MEPI projects, which has limited its ability to monitor those projects' performance. According to MEPI's strategy and officials, MEPI is responsible for ensuring the performance of all projects that it funds, including those administered by USAID. However, MEPI and USAID have maintained separate performance and financial records, and MEPI and USAID officials stated that prior to the July 2005 signing of the MOA addendum regarding monitoring roles and responsibilities, they had not reached agreement on the sharing of these records. Further, USAID officials stated that USAID has not maintained records for MEPI projects separately from its records for non-MEPI- funded projects. Some USAID implementers responsible for implementing MEPI projects have included MEPI performance reporting in their general reporting on the region, making USAID's extraction of information on MEPI projects more difficult and time consuming. MEPI and USAID officials said that they expected the recently signed addendum to the 2004 MOA to facilitate the sharing of performance and financial information. In accordance with the U.S. foreign policy of promoting democracy and reform in the Middle East and North Africa , State established MEPI to design and fund projects supporting political, economic, and educational reform and the empowerment of women. However, despite MEPI's strategic emphasis on monitoring projects' performance, a failure to clearly communicate roles and responsibilities and a lack of complete project information have hampered MEPI's monitoring of its projects. In July 2005, subsequent to receiving our preliminary findings regarding the need to communicate project monitoring roles and responsibilities to its administrative partners, State finalized an agreement with USAID that establishes a framework for roles and responsibilities and coordination between the agencies. Although these guidelines represent progress in clarifying roles and responsibilities, it remains essential that specific monitoring duties be established for, and communicated to, all parties involved in each MEPI project. Without the ability to evaluate its projects' performance with certainty, and lacking access to complete information, MEPI's capacity to meet its strategic goals of producing tangible results and making results-based decisions is limited. To bolster MEPI's ability to monitor and evaluate project performance, and to help ensure that MEPI achieves its goals of producing tangible results and making results-based decisions, we are making three recommendations to the Secretary of State. We recommend that the Secretary of State ensure that MEPI managers clearly delineate, document, and communicate roles and responsibilities systematically obtain, maintain, and communicate complete information regarding all MEPI projects, including performance and financial data; and regularly assess MEPI's progress in communicating roles and responsibilities and obtaining, maintaining, and communicating key information. We provided a draft of this report to the Secretary of State and the Administrator of USAID for their review and comment. Both officials provided written responses, which we have printed in appendixes III and IV. State and USAID also provided technical comments that we incorporated as appropriate. Although State and USAID agreed with our recommendations, State disagreed with the extent of our finding that it could not with certainty evaluate its projects' performance; however, it did not point out specific aspects of that finding with which it disagreed. State's comments acknowledged our recommendations regarding bolstering its ability to monitor and evaluate project performance. In its comments, State said that its July 2005 agreement with USAID regarding project management should improve the management, information flow, documentation, and monitoring of USAID-administered MEPI projects. In addition, State said that it would implement a monitoring and evaluation timetable for every project, identify projects that require on-site monitoring in the next year and assign responsibility to the appropriate MEPI action offices. State's comments also laid out other general steps that, if taken, would help ensure more comprehensive project monitoring, including two steps to guarantee complete and accurate project information: (1) ensuring that files on every project are complete and (2) implementing an integrated grants and project management database system. In addition, State said that it would provide ongoing training in grants and project management for staff both in MEPI Washington and at MEPI regional offices and engage outside consultants to provide project monitoring support where necessary. State did not comment on our recommendation that it monitor progress on clearly delineating, documenting, and communicating roles and responsibilities for monitoring and systematically obtaining, maintaining, and communicating complete information about all MEPI projects. 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 date of this letter. At that time, we will send copies of this report to interested congressional committees and to the Secretary of the State and the Administrator of USAID. 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 your staff have any questions about this report, please contact me at 202-512-4128 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 this report, we (1) describe MEPI's structure for administering projects and obligating funds, (2) examine MEPI's uses of the reviews of U.S. bilateral economic assistance in the region, and (3) evaluate MEPI's monitoring of its projects. To describe the administration of MEPI projects and obligation of MEPI funding, we examined budget and programmatic documentation provided by State and USAID. This documentation included information on funding levels and project administration for fiscal year 2002 and 2003 projects. We also interviewed State and USAID officials familiar with MEPI budget and project administration, in particular for fiscal years 2002 and 2003. Although our audit generally covered MEPI activities from December 2002 through May 2005, in reviewing MEPI's budget information and project monitoring, we focused on data for fiscal years 2002-2003, because they were the most complete data that MEPI could provide. To describe MEPI's uses of the 2002-2004 reviews of U.S. bilateral economic assistance to the region, we examined (1) State's and USAID's joint reviews of programs in Egypt and West Bank and Gaza; (2) USAID's reviews of democracy and governance for Algeria, Bahrain, Jordan, Morocco, Tunisia, and Yemen; and (3) other supplemental information provided by U.S. embassies and USAID missions in the region, including mission performance plans and USAID country strategies. We also conducted interviews with officials at State and USAID headquarters in Washington, D.C.; officials representing embassies and USAID missions in 9 of the 14 MEPI countries; and officials administering MEPI programs in the territories of West Bank and Gaza. To assess MEPI's mechanisms for monitoring its activities, we obtained information from MEPI on all of its fiscal year 2003 projects, including information on each project's pillar, MEPI partner, implementing organization, funding level, project location, and project type (country- specific or regionwide). From this information, we selected a nonprobability sample of 25, or approximately 34 percent, of the 73 MEPI projects funded in fiscal year 2003. This sample also represented about 63 percent of MEPI's $100 million in fiscal year 2003 project funding. We used the sample to examine project monitoring performed by MEPI and its administrative partners and reports provided by project implementers. Our sample included regionwide projects and projects from the countries we would be visiting, projects with the highest funding levels for fiscal year 2003, projects administered both by MEPI and USAID, and projects from each of the four MEPI pillars. The documentation that we reviewed included project proposals, project agreements, scopes of work and work plans, and quarterly reports for the 25 projects. Our analysis of these documents clarified the nature of MEPI's monitoring and reporting requirements and supplemented and validated information that we obtained through interviews. We developed a structured interview instrument to systematically collect data on the 25 projects, which included questions on implementer reporting requirements, the use of performance baselines and indicators, and feedback and verification by MEPI and its administrative partners. We analyzed the interview data by developing categories for each relevant response, using the categories to code the data, and tallying the codes to obtain the number of projects to which each response was applicable. We also interviewed officials from MEPI, USAID, U.S. embassies, and implementing organizations in the United States, Bahrain, Egypt, and Morocco regarding MEPI project monitoring. We selected these MEPI- participating countries because (1) Bahrain is a high-income country and does not have a traditional U.S. bilateral assistance program; (2) Egypt, a lower-middle-income country, is one of the largest recipients of U.S. bilateral development funding; and (3) Morocco, a lower-middle-income country, was the largest recipient of fiscal year 2003 MEPI funding. We also traveled to Germany during a MEPI regional conference, where we met with embassy and USAID officials responsible for project monitoring in 8 of the 14 MEPI countries and in the West Bank and Gaza. In addition, we used U.S. government internal control standards to assess relevant areas of MEPI's management control system that affected project monitoring, including (1) roles and responsibilities of MEPI staff and administrative partners in Washington, D.C., and overseas and (2) information flow. We conducted our fieldwork in Washington, D.C., and in Bahrain, Egypt, Germany, and Morocco from July 2004 to May 2005 in accordance with generally accepted government auditing standards. Manager (Grants) Manager (Grants) The following are our comments on the Department of State's letter dated July 22, 2005. 1. State commented that it agreed with GAO's conclusion that the Department of State has effectively launched MEPI reform programs. However, GAO did not audit the effectiveness of MEPI projects and did not present such a conclusion in this report. 2. State commented that our report recognized that MEPI had established effective partnerships with other bureaus at State, with other U.S. government agencies, and with a wide range of nongovernmental organizations (NGOs), including the private sector. However, our report did not present such a conclusion. Our report describes rather than assesses the relationships between MEPI and other U.S. government and nongovernment entities. 3. State said that it disagreed with the extent of our finding that MEPI cannot with certainty evaluate its projects' performance, but it did not specify aspects of that finding with which it disagreed. State's comments acknowledged our recommendations regarding bolstering its ability to monitor and evaluate project performance and laid out general steps that, if taken, would help ensure more comprehensive project monitoring. For example, State said that it would ensure the completion of every project's files, to allow for periodic reviews of activity status and project outcomes and shortcomings; engage outside consultants to provide project monitoring and evaluation support, where necessary; and implement an integrated grants and program management database system. In addition, State pointed out that, subsequent to receiving our preliminary findings in May, it finalized, on July 14, 2005, an addendum to an October 2004 memorandum of agreement (MOA) with USAID on USAID's administration of MEPI projects. This MOA addendum establishes a framework for roles and responsibilities and coordination between State and USAID. In its comments, State said that this agreement should improve the management, information flow, documentation, and monitoring of USAID-administered MEPI projects. In addition to the individual named above, Zina Merritt (Assistant Director) as well as David Dornisch, Suzanne Dove, Reid Lowe, Grace Lui, and Addison Ricks made key contributions to this report.
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In December 2002, the U.S. Department of State (State) established the Middle East Partnership Initiative (MEPI) to promote democracy in the Middle East and North Africa. MEPI provides assistance for political, economic, and educational reform and women's empowerment. In fiscal years 2002-2004, State and the U.S. Agency for International Development (USAID) reviewed U.S. bilateral economic assistance programs in the region to ensure they were aligned with the new U.S. policy focus on promoting democracy and reform. In this report, GAO (1) describes MEPI's structure for managing projects and allocating funding, (2) examines MEPI's uses of the reviews, and (3) evaluates MEPI's project monitoring. MEPI has worked with U.S. embassies, USAID headquarters in Washington, D.C., and USAID missions overseas to manage projects and obligate funding. In turn, MEPI and its partners have negotiated agreements with nongovernmental organizations, the private sector, and other U.S. agencies to implement the projects. MEPI has obligated about 45 percent of the $129 million that it received for fiscal years 2002-2003, and its partners have obligated the remainder. MEPI used the State and USAID reviews of existing U.S. bilateral economic assistance programs in the Middle East and North Africa in two ways. First, in response to the reviews, MEPI targeted reform activities in the Middle East and North Africa that were not being addressed by other U.S. agencies. For example, responding to the reviews' finding that little progress had been made in supporting women's political involvement, MEPI provided funds to assist women candidates. Second, MEPI shaped its strategy in response to the reviews, particularly regarding the need to monitor projects' short-term results and hold project implementers accountable for project performance. Despite its strategic emphasis on monitoring projects' performance, MEPI's monitoring has been limited by unclear communication of roles and responsibilities and a lack of complete project information. MEPI has acknowledged these deficiencies and begun to address them; in July 2005, State and USAID agreed on a framework for project monitoring roles and responsibilities. Without the ability to evaluate its projects' performance with certainty and access to complete information, MEPI's capacity to meet its strategic goals of producing tangible results and making results-based decisions is limited.
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Nationwide implementation of E911 by local wireline telephone companies began in the 1970s; today, 99 percent of the population is covered by wireline 911 service. With wireline E911 service, emergency calls are automatically routed to the appropriate PSAP and the call taker receives the telephone number and street address of the caller. In 1996, FCC responded to the rising number of mobile telephone subscribers and the resulting increase in wireless 911 calls by adopting rules for wireless E911 that established a two-phase implementation approach for the wireless carriers and set deadlines for wireless carriers regarding their part in E911 deployment. FCC required that (1) by April 1998, or within 6 months of a request from a PSAP, wireless carriers be prepared to provide the PSAP with the wireless phone number of the caller and the location of the cell site receiving the 911 call (Phase I information); and (2) by October 2001, or within 6 months of receiving a request from a PSAP, wireless carriers be prepared to provide the PSAP with the geographic coordinates of the caller's location with greater precision, generally within 50 to 300 meters (Phase II information). As shown in figure 1, the wireless carriers, local exchange carriers (LECs), and PSAPs must have appropriate equipment and interconnections for wireless E911 calls to be sent to and received by PSAPs with the caller's location information. For example, wireless carriers must finance the implementation of a caller location solution and test their equipment to verify its accuracy. Local exchange carriers are generally responsible for ensuring that all the necessary connections between wireless carriers, PSAPs, and databases have been installed and are operating correctly. The original E911 system was designed to carry only the caller's telephone number with the call, and the associated fixed address was obtained from an established database. Wireless E911, however, requires more data items, and the mobile caller's location must be obtained during the call and delivered to the PSAP separately using additional data delivery capabilities. In order to translate the latitude and longitude location information into a street address, PSAPs usually must acquire and install mapping software. PSAPs may also need to acquire new computers to receive and display this information. Getting PSAPs the technology needed to receive wireless E911 location information is primarily a state and local responsibility because PSAPs serve an emergency response function that has traditionally fallen under state or local jurisdiction. FCC has no authority to set deadlines for the PSAPs' readiness. The ENHANCE 911 Act of 2004 was enacted to coordinate 911 and E911 services at the federal, state, and local level; and to ensure that the taxes, fees, or charges imposed for enhancing 911 services are used only for the purposes for which the funds are collected. The act called for the creation of an E911 Implementation Coordination Office to improve E911 coordination and communication. This office will be operated jointly by the National Highway Traffic Safety Administration (NHTSA) and the National Telecommunications and Information Administration (NTIA), and will be housed at NHTSA. Although the office had not received an appropriation as of January 2006, a DOT official told us that NHTSA and NTIA are working together to delineate their respective responsibilities. The act also authorized matching federal grants for eligible state, local, and tribal entities for the deployment and operation of Phase II E911 services. The act requires applicants for a matching federal grant to certify that no portion of any designated state and local E911 funds are being obligated or expended for any purpose other than the purposes for which the funds are designated. The act authorized $250 million per year for matching grants for fiscal years 2005 through 2009. However, no funds were appropriated for these grants in 2005. Significant progress has been made in implementing wireless E911 services since our last report on this topic in November 2003. At that time, using data from NENA, we reported that nearly 65 percent of PSAPs nationwide had implemented Phase I wireless E911 services and 18 percent of PSAPs had implemented Phase II wireless E911 with at least one wireless carrier. Since that time, there has been a marked increase in both of these percentages. As of January 2006, NENA reports that nearly 80 percent of PSAPs nationwide had implemented Phase I wireless E911 services and 57 percent had implemented Phase II with at least one wireless carrier. At the county level, NENA reports that approximately 70 percent of counties nationwide have implemented Phase I wireless E911 services and 44 percent of the counties have implemented Phase II with at least one wireless carrier. According to NENA, many of the PSAPs that have implemented Phase I and Phase II are in areas that cover higher concentrations of people, and as a result, approximately 85 percent of the U.S. population is now covered by Phase I and nearly 69 percent by Phase II with at least one wireless carrier. See figure 2 for nationwide deployment of Phase I and II based on population coverage by state. Wash. Mont. N.Dk. Ore. Minn. Vt. S.Dk. Wi. N.Y. N.H. Mass. Wyo. Mich. P. Ner. R.I. Conn. N.J. Nev. Ill. Ind. Del. Clif. Colo. W.V. K. V. Mo. Ky. Md. D.C. N.C. Tenn. Ariz. Okl. N.Mex. Ark. S.C. Miss. Al. G. Tex. L. Fl. Wash. Mont. N.Dk. Ore. Minn. Vt. S.Dk. Wi. N.Y. N.H. Mass. Wyo. Mich. Ner. P. R.I. Conn. N.J. Nev. Ill. Ind. Del. Clif. Colo. W.V. K. V. Mo. Ky. Md. D.C. N.C. Tenn. Ariz. N.Mex. Okl. Ark. S.C. Miss. Al. G. Tex. L. Fl. While progress is being made in wireless E911 implementation, the estimates from state contacts indicate that no clear picture is emerging on when Phase II will be fully deployed nationwide. As noted earlier, FCC has no authority to set deadlines for PSAPs to implement wireless E911 services. As a result, there is no federal requirement for full wireless E911 implementation and states may or may not have set their own deadlines for implementation. In our survey of state E911 contacts, we asked respondents to provide us with an estimate of when they believed their state would have wireless Phase II service fully in place with at least one wireless carrier per PSAP. We found that state E911 contacts offered a wide range of estimated Phase II completion dates. As shown in figure 3, 10 of 44 state contacts who responded to our survey indicated that Phase II was already in place throughout their state. Eight state contacts noted that they would have Phase II in place for all of their PSAPs with at least one wireless carrier within a year. Thirteen state contacts provided a range of 1 to 5 years for Phase II to be implemented, with three state contacts responding that it would take more than 5 years. Furthermore, five state contacts noted that their state might never be 100 percent complete for Phase II service. For example, one state contact noted that four rural counties opted not to apply for state funding to implement wireless E911 and two of these counties have only decided to implement wireline E911. Contacts in five states had no basis to judge when Phase II would be in place in their states. Based on our survey results and NENA data, we found most states obtain E911 funds through state-mandated surcharges collected by wireless carriers from the carriers' wireless subscribers. States have the discretion to determine how these funds will be managed and distributed. Some states allocate funds using a formula based approach, while others distribute the funds based on PSAP requests. According to our survey results, 35 states had established written criteria on the allowable uses of E911 funds. Examples of allowable uses for the funds included the purchase of equipment upgrades, software packages, and training of personnel. At present, state and local governments determine how to pay for PSAP wireless E911 upgrades. We found, based on our survey results and NENA data, that 48 states and the District of Columbia collect surcharges to cover the costs of implementing wireless E911 (see fig. 4). For these states, funds are collected by wireless carriers from their subscribers. The other two states do not impose surcharges on wireless subscribers, but still have a wireless E911 funding mechanism in place. Specifically, the state E911 contact for Missouri told us that the state uses funds from the local general revenue, local 911 taxes, and wireline funds for E911 implementation; and the Vermont state E911 contact said the state uses funds from the state's Universal Service Fund, which supports various telecommunications programs. For states that impose surcharges, the surcharge amount is usually established in state law. Responses to our survey indicated that the per-subscriber surcharges varied from state to state and ranged from $0.20 to $3.00 per month. We also found the surcharge amount could vary within a state. For example, one state has a maximum monthly surcharge amount of $1.50, and although most of the counties collect the maximum amount, several counties collect less than the maximum. Based on the responses to our survey, several states indicated that insufficient funding collected for wireless E911 was impeding the state's ability to implement this service. We heard from one state that relies on funds collected from both the wireline and wireless surcharges to fund E911 that due to Hurricane Katrina, the state expected to see a drop in wireline funding over the next 2 to 3 years. A county official from that state said that because many residents and businesses impacted by the storm have not reestablished telephone service, the state is not receiving telephone fees from those residents. Another state reported that one of the biggest issues in implementing wireless E911 is the inability to collect funds from seasonal populations in many of the state's resort areas. Small towns in the state experience a large influx of tourists during various times of the year. However, because the state collects funds based on the billing address of the subscriber, counties in the state are limited in their ability to cover the costs of E911 services that out-of-state tourists expect while visiting local resort areas. States and local governments have the authority to determine how they will manage and disburse their E911 funds. Of the 31 states that answered our question pertaining to the management of E911 funds, 23 indicated that the funds are managed at the state level, 6 said funds are managed locally, and 2 others indicated that the funds are managed by a mix of state and local entities. We found that various state-level entities can have authority to manage the funds collected for wireless E911 implementation, including the public utility commission, the treasury office, and state-level boards. In one state, for example, a state-level board comprised of members from municipal organizations, PSAPs, state and local law enforcement agencies, local exchange service providers, and the wireless carriers industry established the criteria and guidelines for administering the funds. Of the seven states indicating that the local government manages the funds, one state said that the governing boards of 54 local 911 jurisdictions (51 counties and 3 cities) have the ultimate authority over the expenditure of wireless E911 funds. Methods of disbursement also varied. Some states use formulas based on various criteria to determine the amount of funds distributed to different localities. For example, a number of states allocate the funds to localities based on criteria such as the volume of 911 calls made in the jurisdiction or the number of wireless subscribers. Other states allocate funds based on PSAP requests. One state reported that it reimburses county governments and providers for the costs they have incurred to implement wireless E911 services. Alternatively, the PSAPs in another state must first request funding from the state, which a state-level office must then approve. As part of our survey, we asked the state E911 contacts if their states had established written criteria on the allowable uses of funds collected for the purposes of wireless E911 implementation. Of the 38 state contacts who responded to this question, 35 reported that their state had established written criteria, while the other 3 indicated that written criteria had not been established. Examples of allowable uses of funding include the purchase of equipment upgrades or software, personnel costs directly attributable to the delivery of 911 service, and costs related to the maintenance of Phase I and II services. For example, according to one state, its law permits wireless E911 funds to cover the salaries, benefits, and uniforms of 911 service employees such as call takers, dispatchers, and supervisors. We also asked the state E911 contacts if the state had any kind of oversight procedures to control the use of E911 funds. Of the 38 state contacts who responded to this question, 33 reported that their state had established oversight procedures to control the use of E911 funds, 3 others indicated no oversight procedures had been established, and 2 contacts did not know. According to our survey results, audits were the most common approach used to oversee the use of E911 funds. For example, one state reported that the wireless E911 fund and the state's wireless E911 services board is audited annually by the state's Auditor of Public Accounts and that the reports are available to the public online. Based on the responses of the 44 state E911 contacts who completed our survey, four states that collected funds for the purposes of wireless E911 implementation made those funds available or used them for purposes unrelated to E911 during 2005. For the six states and the District of Columbia that did not respond to our survey, we do not know whether they used any of their E911 funds for unrelated purposes. Four other states were unsure if their wireless E911 funds have been used for unrelated purposes because the funds are collected and maintained at the local level. See figure 5 for a complete breakout by state of their use of E911 funds during 2005, along with their progress in implementing E911 in their counties. For the four states that reported E911 funds were made available or used for purposes not related to E911 during 2005, the state contacts reported that the E911 funds were transferred to their state's general fund. For example, the E911 contact for North Carolina reported that E911 funds were transferred to the general fund to help balance the state budget. According to the E911 contact for Virginia, funds were transferred to both the general fund and to the state police, which responds to emergency calls in some areas of the state. One of these four states, Rhode Island, has implemented Phase II services in all of its counties and Virginia has implemented Phase II for 83 percent of its counties. For the remaining two states, Illinois has implemented Phase II in 47 percent of its counties and North Carolina for 71 percent of its counties. One state responded to our survey that, while E911 funds have not been made available for other purposes, approximately $72 million in state wireline and wireless E911 fees collected have not been appropriated to the state 911 program. In other words, the funds remain in dedicated E911 accounts, but are "frozen" and are not being used to deploy or maintain E911 services. We heard from four other states that because funds for wireless E911 are collected and managed by local jurisdictions without any state involvement, the state is unsure if wireless E911 funds have been used for purposes other than wireless E911 implementation. For example, one state E911 contact told us that the state currently has no mechanism to monitor the use of wireless E911 funds at the local level. However, this contact further said that if a federal grant program for wireless E911 is funded, the state could establish a mechanism to validate that local jurisdictions were using wireless E911 funds only for allowable purposes. We provided FCC with a draft of this report for their review and comment. In response, FCC provided technical comments that we incorporated where appropriate. We are sending copies of this report to interested congressional committees and the Chairman, FCC. We will make copies available to others upon request. The report is available at no charge on GAO's Web site at http://www.gao.gov. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. If you or your staff have any questions concerning this report, please contact me on (202) 512-2834 or [email protected]. Key contributors to this report were John Finedore, Assistant Director; Kimberly Berry, Andy Clinton, Stuart Kaufman, Sally Moino, Josh Ormond, Jay Smale, and Mindi Weisenbloom. The ENHANCE 911 Act of 2004 required us to review the imposition and use of taxes, fees, or other charges by states or localities that are designated to improve emergency communications services, including "enhanced 911" (E911). As such, we are reporting on (1) the progress made in implementing wireless E911 services throughout the country, (2) the states and localities that have established taxes, fees, or charges for wireless E911 implementation, and (3) the states or localities that have used funds collected for the purposes of wireless E911 for unrelated purposes. To obtain general information on wireless E911 implementation, we interviewed officials from the National Emergency Number Association (NENA), the National Association of State 9-1-1 Administrators, and the Federal Communications Commission (FCC). We also met with officials from the Department of Transportation to learn the status of the E911 Implementation Coordination Office. To obtain information pertaining to the collection, management, and use of wireless E911 funds at the state and local level, we developed and administered a Web-based survey to state- level E911 contacts. The state E911 contacts are listed on FCC's Web site as the point of contact for emergency communications in their states and were provided by the governor of each state in response to a request from FCC. From September 21, 2005, through September 28, 2005, we conducted a series of "pretests" with state E911 contacts to help further refine our questions, clarify any ambiguous portions of the survey, and identify any potentially biased questions. Upon completion of the pretests and development of the final survey questions and format, we sent an announcement of the upcoming survey to the state E911 contacts (including the District of Columbia) on October 4, 2005. They were notified that the survey was available online on October 6, 2005. We sent follow-up e-mail messages to non-respondents as of October 30, 2005, and then attempted several times to contact those who had not completed the survey. The survey was available online until January 20, 2006. Of the population of 51 state E911 contacts who were asked to participate in our survey, we received 44 completed questionnaires for an overall response rate of 86 percent. Although the individual listed as the Wyoming state E911 contact was unable to answer the questionnaire, a representative at the county level completed it. We did not receive completed questionnaires from Alaska, Colorado, the District of Columbia, Nevada, New York, Oklahoma, and South Dakota. We administered the survey between October 2005 and January 2006. To view selected results of the survey, go to http://www.gao.gov/cgi-bin/getrpt?GAO-06-400sp. The practical difficulties of conducting surveys may introduce errors commonly referred to as "nonsampling error." For example, differences in how a particular question is interpreted or the sources of information available to respondents may introduce error. To minimize nonsampling error, we worked with a social science survey specialist to develop the questionnaire and conducted three pretests. In addition, steps were taken during the data analysis to minimize error further, such as performing computer analyses to identify inconsistencies and completing a review of data analysis by an independent reviewer. We contacted state budget officials for the four states that reported using funds collected for the purpose of E911 implementation for unrelated purposes to verify the information we received in response to our survey. Other than this, we did not independently verify the survey results. To provide information on the progress made in deploying wireless E911, in addition to the survey, we used NENA data current as of January 2006. To assess the reliability of NENA's data regarding the number of public safety answering points receiving Phase II data, we interviewed knowledgeable officials from NENA about their data collection methods and reviewed any existing documentation relating to the data sources. We determined that the data were sufficiently reliable for the purposes of this report. We conducted our review between February 2005 and January 2006 in accordance with generally accepted government auditing standards.
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"Enhanced 911" (E911) service refers to the capability of public safety answering points to automatically receive an emergency caller's location information. An industry association estimates that nearly 82 million 911 calls are placed each year by callers using mobile phones. Wireless E911 technology provides emergency responders with the location and callback number of a person calling 911 from a mobile phone. The ENHANCE 911 Act of 2004 called for GAO to study state and local use of funds collected for the purpose of wireless E911 implementation. We are reporting on (1) the progress made in implementing wireless E911 services throughout the country, (2) the states and localities that have established taxes, fees, or charges for wireless E911 implementation, and (3) the states or localities that have used funds collected for the purposes of wireless E911 for unrelated purposes. To address these issues, we surveyed state-level E911 contacts on the collection and use of E911 funds. Of the 51 state E911 contacts (including the District of Columbia) who were asked to participate in our survey, we received 44 responses. We provided the Federal Communications Commission (FCC) with a draft of this report and FCC provided technical comments that we incorporated. Significant progress has been made towards implementing wireless E911 throughout the country since our November 2003 report. Deployment of wireless E911 usually proceeds through two phases: Phase I provides general location information by identifying the cell tower or cell site that is receiving the wireless call. Phase II provides more precise caller-location information, within 50 to 300 meters in most cases. We reported in November 2003, that nearly 65 percent of the more than 6,000 public safety answering points nationwide were capable of receiving Phase I information with wireless 911 calls and 18 percent had implemented Phase II wireless E911 with at least one wireless carrier. Currently, according to the National Emergency Number Association (NENA), nearly 80 percent of public safety answering points are capable of receiving Phase I location information and 57 percent have implemented Phase II for at least one wireless carrier. However, based on our survey results, full implementation is still several years away in many states. In response to our survey, three state E911 contacts reported that it will take more than 5 years to have wireless E911 completely implemented in their states, and five others said that the technology might never be fully implemented in their states. Based on our survey results and NENA data, we found that nearly all states--48 states and the District of Columbia--require the wireless carriers to collect surcharges from their subscribers to cover the costs associated with implementing wireless E911. Responses to our survey showed the per-subscriber surcharges ranged from $0.20 to $3.00 per month. The two states that do not impose surcharges fund E911 through general revenue or the state's Universal Service Fund, which was established to support various telecommunications programs. States have the discretion to determine how they will manage and distribute the funds and we found the management of the funds and methods of disbursement varied. According to our survey results, many of the states that responded have written criteria on the allowable uses of E911 funds. Allowable uses of the E911 funds include purchasing equipment upgrades and software packages. Four state E911 contacts responded to our survey that their states did not use all of the funds collected for E911 on E911 implementation purposes during 2005. Six states, and the District of Columbia, did not respond to our survey so we do not know whether those states used E911 funds or made them available for other purposes. Four other states reported that they were unsure if all E911 funds were used solely for E911 purposes because the funds are collected and managed at the local level. The four states that reported that E911 funds were made available or used for purposes not related to E911 indicated that the E911 funds were transferred to their state's general fund. For example, one state told us that E911 funds were transferred to the general fund to help balance the state budget. Another state reported that some E911 funds were transferred to the state police since they answer emergency calls in some areas of the state.
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Geography and geospatial or location-based technologies are ubiquitous in daily life, from the navigation units in cars to applications on smart phones. These technologies, which include global positioning systems (GPS) and geographic information systems (GIS), are used in a myriad of ways, from crisis mapping in Haitian earthquake relief efforts to deciding where to locate supermarkets in underserved communities in Philadelphia (see sidebar). According to the Department of Labor, employment of specialists in geography, or geographers, is projected to grow 29 percent from 2012 to 2022--much faster than the average 11 percent growth for all occupations. As we recently reported, the federal government collects, maintains, and uses technology that depends on geography to support national security, law enforcement, health care, environmental protection, and natural resources conservation. Among the many activities that can depend on analysis of geospatial data are maintaining roads and other critical transportation infrastructures, quickly responding to natural disasters, such as floods, hurricanes, and fires, and tracking endangered species (see fig. 1). According to The National Geographic Society, the subject of geography can include a disproportionate focus on dates, events, and individuals. However, geography--the study of places and the relationship between people and their environment--is an integral tool used to understand and make informed decisions about global problems. Currently in elementary and middle grades, geography content is often combined and taught with history, civics, and economics, under the umbrella of "social studies." High schools can offer geography as a separate course or within the social studies curriculum. High schools can also offer the advanced placement exam in Human Geography to students in grades 9 through 12. Although geography is taught as a part of social studies in most U.S. schools, it is an integrated discipline that can be taught with other subjects, such as science, technology, engineering, and mathematics (STEM). Some stakeholder groups have stated that aspects of the discipline are, in fact, STEM-related, and several federal agencies include geography, GIS, or cartography as STEM disciplines. The Office of Science and Technology Policy, which coordinates federal investments in STEM education programs, also includes geographic sciences/geography and geographic technologies as part of the STEM disciplines. Although some STEM education programs may have components that support K- 12 geography education, according to the Office of Science and Technology Policy there are no federal STEM education programs that directly support K-12 geography education. The National Center for Education Statistics (NCES) in Education tracks what students know and how well they understand and apply geography concepts as part of the National Assessment of Educational Progress (NAEP), a nationally-representative student assessment in various subject areas taken in grades 4, 8, and 12. The NAEP geography assessment is built around a "geography framework" that determines the content assessed. The geography framework melds key physical science and social science aspects of geography, and contains a content dimension and a cognitive (or thinking) dimension (see fig. 2). The framework also includes achievement levels that describe what students should know and be able to do to reach basic, proficient, and advanced levels of achievement. NAEP defines three achievement levels applicable to each grade assessed in geography. "Basic" denotes partial mastery of the knowledge and thinking skills to perform adequate work in grades 4, 8, and 12. "Proficient" represents solid academic performance and competency over challenging subject matter. "Advanced" represents performance that is equal to that expected of top students in other industrialized nations. The National Assessment Governing Board (Governing Board), established by law to set policy for NAEP, believes, however, that all students should reach the proficient level; the basic level is not the desired goal, but rather represents partial mastery that is a step toward proficient. NCES is required by law to conduct national assessments in reading and mathematics at least once every two years in grades 4 and 8, and at "regularly scheduled intervals" in grade 12. To the extent that time and resources allow, Education may conduct assessments in grades 4, 8, and 12 at regularly scheduled intervals in additional subjects, including writing, science, history, geography, civics, economics, foreign language, and arts. The Governing Board is responsible for determining the subjects and grades to be tested, in accordance with provisions in the NAEP statute. Geography is one of 10 core academic subjects as defined in the Elementary and Secondary Education Act of 1965 (ESEA), but is not identified as a subject that states must test under the Act. ESEA requires states to demonstrate progress toward the goal of all students meeting academic achievement standards while closing achievement gaps among various groups of students, such as economically disadvantaged students. To enable states to show progress, the law contains testing and reporting requirements for reading/language arts, math, and science. However, states may still require assessments in other subject areas, such as geography. In addition, ESEA contains requirements related to NAEP. For example, in order to receive a subgrant under Title I, Part A of ESEA, a school district must have a plan on file with a state educational agency that includes, among other things, an assurance by the school district that the district will participate, if selected, in the NAEP fourth and eighth grade reading and math assessments. Most eighth grade students--about three-quarters--in 2014 scored below the proficient level, indicating partial or less than partial mastery in geography, according to our analysis of Education's nationally representative NAEP data (see fig. 3). This finding was consistent with fourth and 12th grade geography proficiency levels in prior assessments, according to Education's 2010 publication on NAEP. For example, in 2010, only 21 percent of fourth graders and 20 percent of 12th graders performed at or above the proficient level. In 2014, certain groups of eighth grade students outperformed others. For example, students who were not eligible for the federal free or reduced-price lunch scored, on average, higher than students who were eligible, while students in private schools slightly outperformed students in public schools. However, average test scores for all of these student groups were below the proficient level. Since the geography assessment using the current framework was first administered in 1994, the average test scores among eighth grade students have shown no change, with average scores for all students nationwide remaining below proficient for 20 years. However, certain student groups made modest gains in achievement. For example, average test scores in geography increased for White, Black, and Hispanic students since 1994 (see fig. 4). Further, average test scores appeared to have increased among Asian/Pacific Islander students, but unlike the increases for the other groups, these increases were not statistically significant. Additionally, the gap in average test scores between both White and Black students and White and Hispanic students narrowed slightly since the test was first administered. Data on student access to geography education showed that a small portion of instruction time is spent on the subject. Our analysis of 2014 teacher survey data, a component of the NAEP geography assessment, showed that 50 percent of eighth grade teachers reported spending 3 to 5 hours per week of classroom instruction time on social studies--the vehicle through which geography is taught. Of those teachers spending 3 to 5 hours per week of classroom instruction time on social studies, more than half reported that "10 percent or less" of their social studies time was spent on geography. In addition, half of all eighth grade students in 2014 reported learning about geography "a few times a year" or "hardly ever." Further, NAEP's data collection methodologies allow for analyses of geography instruction time by race/ethnicity, gender, school lunch program eligibility, and attendance at private or public school; generally we observed no significant differences in these areas among teachers who reported spending "10 percent or less" of their social studies time on geography (see fig. 5). We also found that instruction time spent on geography has remained largely the same since 2010. As part of the 2014 NAEP teacher survey, teachers nationwide also reported varying degrees of frequency when teaching geography skills to eighth grade students and using technology. Teachers more often reported teaching geography skills--such as spatial dynamics and connections, use of maps and globes, and other countries and cultures-- once or twice a month than more frequent intervals. In addition, as part of the 2014 NAEP survey, teachers reported using technology to teach geography to varying degrees. For example, when teaching geography, over half of teachers reported using computers to a "moderate or large extent" and one-third of teachers reported using computers to a "small extent" or "not at all." Variations in state requirements in geography can limit student access to geography education. According to one university research center's 2013 survey of states' geography education requirements, most states did not require geography courses in middle school and high school. According to this survey, only 17 states required a geography course in middle school and 10 states required a geography course for students to graduate from high school. (See fig. 6) As found in our previous work, states, schools, and teachers continue to focus instruction time on subjects other than geography. Specifically, as schools spend more time improving students' reading, math, and science skills to meet federal accountability requirements, there are concerns that other subjects might be reduced or eliminated. Similarly, prior studies from Education show that instruction time in reading/English and math has increased over past decades, while instruction time in social studies--the vehicle through which geography is generally taught--has declined. Officials from national organizations we interviewed also expressed concern that geography education has not been given the same national priority as reading, math, and science--subjects associated with federal testing requirements under Title I, Part A of ESEA. State education officials and K-12 teachers we interviewed echoed this sentiment, stating that allocating resources for geography education was challenging in the face of greater national and state focus on tested subjects. Officials from all four state educational agencies with which we conducted interviews told us they faced challenges in ensuring that geography standards remained an integral part of the state curriculum. For example, one state official told us how the state had eliminated geography from the curriculum for over a decade, and only recently added geography courses back amid concerns from the community that students were lacking essential geography skills. Similarly, all 10 teachers we spoke with reported that geography instruction has decreased in recent years due to a greater emphasis on teaching math and reading. Half of the 10 teachers described pressures to improve student test scores in reading and math, which hindered their ability to devote time to social studies and geography--subjects that generally do not have required tests. Among the 10 teachers we interviewed, almost all described not having sufficient time to teach geography as the top challenge to providing students with a geography education. Five of the 10 teachers also reported that teaching geography was not viewed as important in their district or school. For example, one teacher said she was told that her students' test scores in geography did not "count" and two of the geography teachers expressed concern about losing their jobs because geography and social studies courses were likely being removed from the curriculum. As shown in figure 7, officials and stakeholders we interviewed, as well as key reports on the subject, cited other challenges to providing geography education. Perception of Geography - There is a common misconception about what geography entails, according to officials we interviewed and relevant reports we reviewed. Even key education stakeholders such as teachers, principals, and parents mistakenly think geography education involves fact-based memorization, according to officials we interviewed from three of our selected national geography organizations. According to one report, this view has likely persisted because it was the stakeholders' personal experience when they were students. Officials we interviewed from the three geography organizations reported that this limited view of geography has made the subject easier to dismiss or ignore. In addition, among the state officials and teachers we interviewed, several confirmed that this public perception of geography makes obtaining support and resources more difficult. Teacher Preparation - Many teachers who teach geography do not have an educational background in the subject and take few, if any, geography courses in college, according to a 2013 geography education report. Teachers and state education officials we interviewed similarly stated that not enough professional development is devoted to the subject, and many teachers are not comfortable teaching geography. Our analysis of Education's 2014 NAEP data shows variation in the amount and types of professional development activities that teachers reported participating in during the previous two years related to the teaching of civics, geography, history, or social studies. Instructional Materials - Geography instructional materials do not often showcase the depth and breadth of the subject or offer hands- on learning opportunities for students, according to officials from national groups we interviewed. One report noted that K-12 geography instructional materials--which largely consist of textbooks, atlases, and ancillary materials, such as workbooks or teacher PowerPoint presentations--must move beyond activities that require students to solely label maps. However, all of the state officials we interviewed said many districts do not have the resources to upgrade their instructional materials in geography. In addition, among the 10 K- 12 teachers we interviewed, seven reported they do not have time to search for better lessons and materials in geography, although they acknowledged that there are many resources and materials available online at low or no cost. The report also noted that when teachers are not well-prepared to teach geography, instructional materials become especially important. Technology - While technology can present opportunities to better engage students, using technology to teach geography can also present challenges. Our analysis of Education's NAEP data show that in 2014 more teachers reported using technology-based geography instruction than in 2010. One report notes that there are a growing number of K-12 geography lessons using geospatial technologies, such as GIS and remote sensing; however, geography classrooms still largely depend on textbooks and lecture-based instruction. Further, officials we interviewed from three of our selected states described wide variation in the use of technology across districts and schools and expressed concern that many teachers did not receive training on how to incorporate the technology into their lessons. Among the 10 teachers we interviewed, seven reported frustrations with using technology to teach geography, such as outdated software, lack of technical support at their school, and poor internet connections. Other Challenges - State officials and teachers we interviewed also identified other challenges. For example, obtaining support from parents, state and local education leaders, and other external parties can prove difficult when revising geography standards or dedicating resources, according to officials we interviewed from two of our selected states. Five of the teachers we interviewed also described challenges trying to acquire resources for geography education, such as classroom materials, field trips, or technology. Education's role with respect to geography education primarily involves assessing student performance in the subject, and providing data and the results of its analysis to the public. Education's National Center for Education Statistics (NCES) periodically administers the NAEP geography assessment. NCES communicates the findings of NAEP to the public by publishing the Nation's Report Card, which provides summary information on how well students are performing in geography based on a common test. NCES also provides restricted-use and public-use NAEP data and tools for running statistical analyses, and guidance on how researchers and other stakeholders can use these data for their own analyses. Along with the Nation's Report Card, the NAEP frameworks, as developed by the National Assessment Governing Board, outline the content and skills assessed in each NAEP subject. These NAEP frameworks are available to the public and can serve as guidelines for planning other assessments or revising curricula. Officials we interviewed from two of our four selected states reported looking at the NAEP geography frameworks when revising state geography standards and curricula. However, since its development in 1994, the NAEP geography assessment has not been administered as regularly as reading and mathematics because assessing achievement in geography is not required by law. Specifically, the NAEP geography assessment has been conducted in 1994, 2001, 2010, and 2014. As a result of budget constraints, the 2014 NAEP geography assessment tested eighth grade students but not fourth and 12th grade students, as had been the case for previous assessments (see fig. 8). According to NCES officials we interviewed, the eighth grade was chosen because most students would have exposure to geography by that grade level. Officials said there was a risk that fourth graders may not have been exposed to geography and insufficient funding precluded them from assessing students in the 12th grade. Officials we interviewed from four of our selected national geography organizations reported that not assessing fourth and 12th grade students in geography will hinder research efforts related to K-12 geography education by making trend analyses for these grade levels impossible. The Governing Board and NCES officials told us there are plans to bolster the 2018 NAEP in geography, contingent on funding. NCES plans to test 12th grade students in the next geography assessment, and officials told us it is important to assess the geography skills students have upon leaving high school. In addition, officials said if funding allows, that the 2018 geography NAEP will be digitally based and administered on tablets. NCES officials told us the geography assessment, and content in particular, can benefit from the digital format by allowing the use of more interactive maps and geographic technology. Other than NAEP, Education has no initiatives or programs specific to K- 12 geography education. Officials told us that although the agency previously supported some activities related to geography through a program focused on civics, funding for this program is no longer available. Similarly, Education funded a research grant involving the use of software in social studies and geography classrooms, but this project ended in 2011. In addition, Education's technology initiatives do not incorporate or include information about geography education or geographic technology in K-12 classrooms. As part of the President's ConnectED Initiative, Education's Office of Technology provides general guidance to states, school districts, and schools on how existing federal funds can support digital learning. However, this office does not provide guidance specific to geographic technologies in the classroom. Further, Education officials said they sometimes receive requests from external parties, including teachers and school districts, asking about resources for geography. In the absence of dedicated program funding for geography education, agency staff responds to such requests themselves and sometimes directs the parties to national geography groups, like the National Geographic Society. We provided a draft of this report to the Department of Education for review and comment. Education provided technical comments, which we incorporated as appropriate. We are sending copies to the Secretary of Education and appropriate congressional committees. The report will also be available at no charge on the GAO website at www.gao.gov. If you or your staff members have any questions, please contact me at (617) 788-0580 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 II. This appendix discusses in detail our methodology for addressing three research questions for geography education: (1) To what extent do K-12 students have proficiency in and access to geography education? (2) What challenges do selected school officials and teachers face in providing geography education? and (3) What role does the Department of Education have with respect to geography education? To address these questions, we relied on multiple methodologies. We reviewed relevant federal laws, policies, and guidance. We analyzed nationally representative Education data on student proficiency in and access to geography education. We determined that the data were sufficiently reliable for the purposes of this report by testing it for accuracy and completeness, reviewing documentation about systems used to produce the data, and interviewing agency officials. We conducted outreach with four states, which were selected to provide variation in geography requirements. In addition, we reviewed selected studies and research reports, including a report with results from a 50-state survey of geography requirements. We also conducted interviews with officials from the Department of Education, state officials, and a nonrepresentative group of K-12 social studies and geography teachers. To determine the federal role with respect to geography education, we reviewed relevant federal laws, including the most recent reauthorization of the Elementary and Secondary Education Act of 1965 and the National Assessment of Educational Progress Authorization Act. We also reviewed relevant federal policies and guidance related to geography education. To address the extent to which K-12 students are proficient in and have access to geography education, we analyzed Department of Education data from nationally representative samples of public and nonpublic school students in grades 4, 8, and 12 from the National Assessment of Educational Progress (NAEP) in geography for 1994, 2001, 2010, and 2014--the years in which the NAEP assessments in geography were administered. In this report, we presented data on eighth grade students as it was the only grade for which data were available from 1994 through 2014, the most recent NAEP assessment in geography. We compared differences in proficiency in and access to geography education across student demographics, including race, gender, and poverty measures. Our analysis was based on reported proficiency as determined by the national NAEP geography assessment scores as well as data collected from the NAEP student, teacher, and school survey questionnaires. Eighty-five percent of teachers who responded to the 2014 NAEP teacher questionnaire only taught social studies, while the remaining taught all or most subjects or taught in teams. To provide information on students' access to geography education, we analyzed and reported on access as measured by (1) teacher and student-reported instruction time spent on geography in the classroom as well as (2) exposure to other geography- related skills and topics, such as spatial dynamics and using maps and globes, as reported by teachers. To gather more in-depth information on the challenges school officials face in providing geography education and state-level geography education requirements, we conducted interviews with officials in four states--Arkansas, California, Florida, and Virginia. States were selected to provide variation in geography education standards, curricula, and requirements at the K-12 level. For each of these states, we gathered information from officials at state departments of education. In addition, we reviewed key documents related to state K-12 education requirements, curricula, and standards in geography. Our findings associated with our outreach to these selected states cannot be generalized to all states' K-12 education population; rather, they provide insight into a range of views and experiences with K-12 geography education. To supplement our analysis of nationally representative K-12 data on student proficiency in and access to geography education, we reviewed key reports, studies, and research related to K-12 geography education. These reports and studies were identified through online searches of relevant material and through recommendations from stakeholders who we interviewed. In addition, we also reviewed the results of several Education surveys on changes in access, or instruction time, across different subjects. These surveys were recommended by National Center for Education Statistics officials and included the Schools and Staffing Survey, a system of related questionnaires that provides descriptive data on the context of elementary and secondary education, and the National Longitudinal Study of No Child Left Behind, which collected nationally- representative data on changes in instruction time among elementary school teachers. To gain a national picture of K-12 geography standards and requirements, we analyzed state-level information from a 2013 survey conducted by Texas State University's Gilbert M. Grosvenor Center for Geographic Education. This survey collected self-reported information from 50 states and the District of Columbia on middle school and high school geography requirements. We reviewed the survey instrument and study methodology and interviewed officials responsible for administering the survey. We determined that these data were sufficiently reliable for the purposes of this report. To further understand the role the Department of Education plays with respect to geography education, we interviewed Education officials as well as relevant national groups. At Education, we interviewed officials from the Office of Elementary and Secondary Education, the Office of Educational Technology, the National Assessment Governing Board, and the National Center for Education Statistics. We also coordinated with officials from the Office of Science and Technology Policy to identify any science, technology, engineering, or mathematics initiatives that include geography education. Further, to describe the challenges school officials face in providing geography education, we conducted interviews with 10 K-12 social studies and geography teachers. These teachers were identified with assistance from the National Council for Social Studies--an organization with a membership of approximately 15,000 teachers of history, civics, geography, and related subjects. In response to our request, staff at the National Council for Social Studies sent an interview request, prepared by GAO, to 1,150 of their members. These members received an email, at random, with equal proportions falling in the elementary, middle, and high school levels. We conducted a total of 10 interviews with teachers who responded to this email request. While teachers self-selected for our interviews provide some insight into the views and experiences of teachers, their responses are not generalizable to all teachers of geography. We also coordinated with or interviewed representatives from a broad range of national groups in K-12 geography education and K-12 education, including: National Geographic Society, Association of American Geographers, National Council for Geographic Education, American Geographic Society, National Council for Social Studies, National Science Teachers Association, Council of Chief State School Officers, Grosvenor Center for Geographic Education, RAND, and ESRI. We conducted this performance audit from December 2014 to October 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. In addition to the contact named above, Sherri Doughty (Assistant Director), Alison Gerry Grantham (Analyst-in-Charge), Claudine Pauselli, and Josiah Williams made key contributions to this report. Also contributing to this report were James Ashley, Nabajyoti Barkakati, Deborah Bland, Holly Dye, Kirsten Lauber, John Mingus, Tom Moscovitch, Mimi Nguyen, Karen O'Conor, Gloria Proa, and James Rebbe.
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Geography--the study of places and the relationship between people and their environment--is present across many facets of modern life, from tracking lost cell phones to monitoring disease outbreaks like Ebola. The growing use of geographic information and location-based technology across multiple sectors of the American economy has prompted questions about whether K-12 students' skills and exposure to geography are adequate for current and future workforce needs. Senate Report 113-71 included a provision for GAO to report on the status of geography education and challenges elementary and secondary schools face in providing geography education with limited resources. In this report, GAO examined (1) the extent that eighth grade students are proficient in geography; (2) the challenges selected school officials and teachers face in providing geography education; and (3) the role of the Department of Education with respect to geography education. GAO reviewed relevant federal laws; analyzed nationally representative Education data on student proficiency and instruction time in geography; interviewed education officials in four states selected, in part, for varying K-12 geography requirements; reviewed key studies and research reports, including a 50-state 2013 survey of geography requirements; and interviewed agency officials and researchers. We also leveraged a professional association to identify and interview 10 K-12 teachers. GAO is not making recommendations in this report. Education provided technical comments, which we incorporated as appropriate. About three-quarters of eighth grade students--the only grade for which trend data are available--were not "proficient" in geography in 2014, according to GAO's analysis of nationally representative data from the Department of Education (Education). Specifically, these students had not demonstrated solid competence in the subject, and the proficiency levels of eighth grade students have shown no improvement since 1994 (see figure). Geography is generally taught as part of social studies, but data show that more than half of eighth grade teachers reported spending a small portion (10 percent or less) of their social studies instruction time on geography. Further, according to a study by an academic organization, a majority of states do not require geography courses in middle school or high school. A key challenge to providing geography education is the increased focus on other subjects, according to officials in selected states and K-12 teachers GAO interviewed. These officials and teachers said spending time and resources on geography education is difficult due to national and state focus on the tested subjects of reading, math, and science. GAO's interviews and review of relevant reports identified a range of other challenges, as well, including: misconceptions about what geography education entails; lack of teacher preparation and professional development in geography; poor quality of geography instructional materials; and limited use of geographic technology in the classroom. Education's role with respect to geography education primarily involves assessing student performance in the subject, and providing data and the results of its analyses to the public. Education periodically assesses student achievement in geography, and other areas, but not with the same regularity as other subjects it is required by law to assess. Beyond assessments, Education officials said that absent funding specifically for geography-focused programs, the agency is hindered in its ability to support geography education.
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The F-22 is an air superiority aircraft with the capability to deliver air-to-ground weapons. The most significant advanced technology features include supercruise, the ability to fly efficiently at supersonic speeds without using fuel-consuming afterburners; low observability to adversary systems; and integrated avionics to significantly improve the pilot's situational awareness. The objectives of the F-22 EMD program, begun in 1991, are to (1) design, fabricate, test, and deliver 9 F-22 flight test vehicles, 2 ground test articles, and 26 flight qualified engines; (2) design, fabricate, integrate, and test the avionics suite; and (3) design, develop, and test the F-22 system support and training systems. In June 1996, because of indications of potential cost growth on the F-22 program, the Assistant Secretary of the Air Force for Acquisition chartered a Joint Estimating Team (JET) consisting of personnel from the Air Force, the Department of Defense (DOD), and private industry. The objectives of the JET were to estimate the most probable cost of the F-22 program and to identify realistic initiatives that could be implemented to lower program costs. In January 1997, the JET estimated the F-22 EMD program would cost $18.688 billion, an increase of about $1.45 billion over the previous Air Force estimate. The JET also reported that additional time would be required to complete the EMD program and recommended changes to the EMD schedule. The Air Force and Under Secretary of Defense for Acquisition and Technology adopted the JET's recommendations, including its cost estimate for the EMD program. Other JET recommendations included slowing the manufacturing of the EMD aircraft to ensure an efficient transition from development to low-rate initial production and increasing the time available to develop and integrate avionics software. In August and September 1997, the Air Force negotiated changes with the prime contractors to more closely align the cost-plus-award-fee contracts with the JET cost estimate and revised schedule. However, as of January 1998, many substantial planned changes recommended by the JET had not been incorporated into the Lockheed Martin contract, such as changes to the avionics estimated to cost $221 million. The National Defense Authorization Act for Fiscal Year 1998, enacted on November 18, 1997, imposed cost limitations of $18.688 billion on the F-22 EMD program and $43.4 billion on the production program. The limitation on production cost did not specify a quantity of aircraft to be procured. The act instructed the Secretary of the Air Force to adjust the cost limitations for (1) the amounts of increases or decreases in costs attributable to economic inflation after September 30, 1997, and (2) the amounts of increases or decreases in costs attributable to compliance with changes in federal, state, or local laws enacted after September 30, 1997. Conferees for the Department of Defense Appropriations Act, 1998, enacted October 8, 1997, provided direction to the Secretary of the Air Force regarding out-of-production parts on the F-22 program. Because it is not economical for some component manufacturers to keep production lines open to produce old technology parts with low demand, they have discontinued making parts, some of which are used on the F-22 EMD aircraft, and will discontinue making others. To minimize cost and schedule impacts on the F-22 EMD and production programs, the Air Force plans to redesign these out-of-production parts or buy sufficient quantities of them for the first five lots of production aircraft. The appropriations conferees directed the Secretary of the Air Force to fund the cost of redesigning out-of-production parts from the Research, Development, Test and Evaluation appropriation. The effect of following that direction would be to add that effort, expected by the Air Force to cost $353 million, to the EMD program. In January 1998, the Air Force notified the Congress that it increased the EMD cost limitation by $353 million, to respond to direction from the conferees, and decreased the production cost limitation by the same amount. As adjusted, the EMD cost limitation increased to $19.041 billion. In addition, the Air Force plans to adjust the cost limitation downward by $102 million to $18.939 billion, to recognize revisions to inflation assumptions by the Office of the Secretary of Defense. In the fiscal year 1999 President's budget, the Air Force's estimate to complete the EMD program was $18.884 billion. The estimated cost to complete EMD includes the negotiated prices of the major prime contracts, estimated costs of significant planned contract modifications, other government costs, and a margin to accommodate future cost growth. Although contractor reports through December 1997 project that the efforts on contract are expected to be completed within the negotiated contract prices, manufacturing problems with the wings and the aft fuselage could change those projections for Lockheed Martin. The Air Force contracts with Lockheed Martin and Pratt & Whitney, after being restructured, had negotiated prices of $16.003 billion. The Air Force, as of December 1997, planned to add modifications to the contracts totaling about $1.546 billion. The Air Force's estimated costs for F-22 EMD are shown in table 1. Air Force officials provided us a list of planned and budgeted modifications that will increase the contract prices. The list is consistent with the JET findings. Modifications planned relate to efforts directed by the conferees on the Department of Defense Appropriations Act, 1998, to redesign out-of-production parts ($353 million); award fees to be paid to the contractor based on evaluations of contractor performance ($262 million); extending the time period for F-22 testing ($230 million); addition of changes (Block IV) to the avionics, including interface capability with the newly developed AIM-9X air-to-air missile ($221 million); extending the time period for keeping an active laboratory infrastructure ($158 million); efforts to provide the capability to perform air combat simulation and ground testing of avionics prior to its delivery ($65 million); provision for contractor resources to conduct initial operational test and evaluation ($60 million); efforts to test and approve the F-22 for supersonic launch of external missiles ($51 million); implementation of aircraft battle damage repair capability ($29 million); and other changes ($117 million). Since the contracts were restructured in August and September 1997, limited experience has been accumulated to indicate the extent to which contractors are completing scheduled work at the planned cost. Contractor reports reflecting experience through December 1997, however, indicate the contractors are predicting they will be able to complete efforts now covered by the contract within the negotiated costs. Lockheed Martin and Pratt & Whitney report to the Air Force monthly concerning their progress compared to contract costs and schedules. These reports define the cost and schedule variances from the contract plans. When the contracts were restructured, the contractors rebaselined their cost control systems that measure the cost and schedule progress and calculate how the actual costs and schedules vary from the goals. Prior to restructuring the contracts, the Lockheed Martin and Pratt & Whitney reports indicated unfavorable variances at completion of EMD totaling about $1.2 billion. Both Pratt & Whitney and Lockheed Martin reports showed variances of less than 1 percent from the negotiated contract cost and planned schedule through December 1997. The most significant variance identified in the contractor reports was about a $54 million unfavorable schedule variance for Lockheed Martin. The contractors' reports showed that the negotiated costs include about $194 million for management reserves. Management reserves are amounts set aside to react to cost increases due to unplanned efforts or cost growth in planned efforts. Lockheed Martin and Pratt & Whitney December 1997 reports indicate they plan to complete the contract efforts within the negotiated costs. However, the impact of delays in the delivery of wing and aft fuselage assemblies and the flight test program have not been reflected in those reports. Lockheed Martin has advised the Air Force that it can execute the revised schedule caused by the late deliveries at no increased cost to the EMD contract. At the time of our review, the Air Force was assessing the impact of these delays and whether it agrees that the changes can be accomplished with no cost increase to the EMD contract. In January 1998, the F-22 program was not meeting its schedule goals. The first flight of an F-22 did not occur on time and resumption of its flight test program will be delayed by at least 2 to 3 weeks to correct a problem discovered in the horizontal tail of the aircraft. Also, the late delivery of aft fuselage assemblies and wing assemblies is expected to cause delays in delivery of other EMD aircraft. These problems will also delay the progress of the flight test program. The Air Force has revised its schedule to reflect the late first flight. However, it had not determined how the late deliveries of aft fuselage assemblies and wing assemblies will impact the overall F-22 EMD schedule. The Air Force planned to complete its evaluation of the impact on the schedule by the end of February 1998. Because of a number of technical problems with the aircraft, the first flight of the first F-22 EMD aircraft was delayed over 3 months, until September 7, 1997. According to the Air Force, the problems were not caused by the design of the aircraft but involved a fuel tank leak, failure of an auxiliary power unit resulting from faulty installation, a software defect, incorrect installation of the electrical connector to a fuel tank probe, and foreign object damage from debris being ingested into an engine. After making two flights, the aircraft flight test program was suspended to accomplish planned ground tests and minor structural additions to the airframe. Resumption of the flight test program, planned for March 1998, is expected to be delayed until at least April 17, 1998, because materials in the horizontal tail of the aircraft became disbonded, or separated. Air Force officials said a solution to this problem has been identified and it will not impact other EMD aircraft schedules. The flight test schedule was updated in May 1997 based on the review of the program by the JET, with first flight planned to occur in late May 1997. However, because first flight did not occur as scheduled, the beginning of the flight test program was delayed. Flight tests are also expected to be delayed because of problems with manufacturing wings and aft fuselages and expected late delivery of the third through sixth EMD flight test aircraft. Because of the delay in first flight and expected delays in delivery of several later EMD aircraft, a number of flight test hours planned for fiscal years 1998 and 1999 have been deferred until later in the test program. About 55 percent (120 of 217 hours) of the flight test hours planned for fiscal year 1998 and about 11 percent (51 of 449 hours) of the flight test hours planned for fiscal year 1999 have been deferred until later in the test program. Although test hours planned for the early stages of the flight test program are now planned to be accumulated more slowly, Air Force officials said the total number of flight test hours planned, the number of flight test months planned, and the completion date for the F-22 EMD program remain about the same. Wing deliveries are behind schedule because of problems with the development and manufacturing of large titanium wing castings, the foundation upon which the wing is built. As of January 1998, the contractor and the Air Force were still working to resolve the casting problem. The wings for the next four flight test aircraft and the two ground test articles are expected to be delivered about 2 weeks to over 4 months late to Lockheed Martin. Delivery of the F-22 aft fuselage--the rear aircraft body section--is expected to be late for the next four flight test aircraft and the two ground test articles because of late parts deliveries and difficulties with the welding process caused by tight tolerances when fitting the many pieces of the fuselage together. An Air Force and contractor team has been formed to evaluate potential cost, schedule, testing, and production impacts associated with this problem. This team plans to complete its assessment by the end of February 1998. As a result of the late deliveries of the wings and aft fuselages, the first flights of the third through the sixth EMD aircraft are expected to be from about 2 weeks to over 5 months late. Air Force officials said first flight of the second EMD aircraft is expected to occur on schedule because the time available between production of the first and second EMD aircraft is expected to be sufficient to allow the manufacturing problems to be corrected. Since there was significantly less time scheduled between the second EMD aircraft and subsequent EMD aircraft, first flight of later EMD aircraft will be delayed. Table 2 compares the May 1997 scheduled first flights to the expected dates of first flights as of January 1998. The Air Force estimates that the F-22 will meet or exceed the goals for the major performance parameters. These include 10 parameters for which the Air Force reports regularly to DOD, and two additional performance features GAO reviewed that relate to other critical characteristics of the F-22 aircraft. The Air Force estimates how performance is expected to compare to specific goals for each parameter by estimating and summarizing the performance of relevant subparameters. The estimates are engineering judgments based on computer and other models, tests of some components in flying test beds, ground tests, analyses, and, to a limited extent, flight tests. The goal for each parameter is based on the EMD contract specifications. Goals for the many subparameters (about 160) are established to ensure that the goal for each parameter can be met. Although the Air Force has not included them in the 10 parameters for regular reporting, we identified and reviewed two additional features--situational awareness and low observability--that are an integral part of the F-22 being able to operate as intended. The F-22 sensors, advanced aircraft electronics, and cockpit display screens are required to provide the pilot improved situational awareness of potential enemy threats and targets. This increased awareness is to improve pilot response time to the threats, thus increasing the lethality and survivability of the aircraft. The aircraft's low observable or "stealthy" features allow it to evade detection by enemy aircraft and surface-to-air missiles. We believe the situational awareness and low observability features are critical to the success of the F-22 program and, therefore, we reviewed them and are reporting on the Air Force's progress in achieving them along with the 10 parameters the Air Force established. The Air Force's 10 parameters and the 2 additional features we identified and reviewed are described in appendix I. As of January 1998, the Air Force estimated that, at the end of the EMD program, the F-22's performance will meet or exceed the goals for all 10 established parameters. Table 3 shows the goal (contract specification) for each parameter; the estimated performance achieved for each parameter based on computer models, analyses, or testing; and the Air Force's current estimate of the performance each parameter is expected to achieve by the end of EMD. Most of the goals and related performance information are classified and are therefore shown as percentages instead of actual numbers. To interpret the table, it is constructed so that estimated performance greater than the goal is better than the goal, except for airlift support where using fewer assets is better. Table 3 also shows the two additional features that we included (situational awareness and aircraft low observability) because of their importance to the success of the F-22 program. We evaluated the basis for the Air Force's current performance estimates by reviewing and analyzing performance information and estimates for subparameters that are the components of each parameter. We reviewed selected analyses, test reports, and plans the Air Force used to formulate its estimated performance achieved to date and projected estimates for the end of EMD. As of January 1998, estimated performance concerning two subparameters, aircraft weight and fuel usage, was not expected to achieve goals established for those subparameters. However, the Air Force's analysis indicates that failure to achieve those goals will not cause the associated parameters to fail to meet their established goals. For example, aircraft empty weight is a subparameter that affects the supercruise, acceleration, maneuverability, and combat radius performance parameters. Although the aircraft's empty weight is currently expected to be 2 percent higher than the established goal for that subparameter, Air Force analyses indicate that the increased weight is not significant enough to cause the estimates for the affected parameters to not meet their goals. A more extensive discussion of our analysis and a chart listing the major performance subparameters are included in appendix II. The Air Force's estimate to complete F-22 EMD is $18.884 billion, $55 million less than the EMD cost limitation that will be adjusted to $18.939 billion. However, issues have emerged concerning production and delivery of wings and fuselages for the EMD aircraft, and test schedules have consequently been delayed. The Air Force is further assessing the impact of these issues on EMD cost, the schedule upon which test data is produced, and the schedule upon which the EMD program is to be completed. The Air Force is estimating that the F-22 will meet or exceed its performance goals. However, less flight test data have been accumulated through January 1998 than were expected because the flight test program was delayed and flight tests have been suspended to accomplish planned ground tests and minor structural additions to the test aircraft airframe. Delayed tests reduce the amount of actual F-22 performance information that will be available to support Air Force plans to begin production in fiscal year 1999. In commenting on a draft of this report, DOD generally concurred with it and advised us the Air Force has notified the Congress about changing the EMD and production cost limitations to recognize direction from the conferees on the fiscal year 1998 Defense Appropriations Act. As a result of this additional information, we have removed a matter for congressional consideration that had been included in the draft report. DOD's comments are included in appendix III to this report. We performed our review between July 1997 and February 1998 in accordance with generally accepted government auditing standards. A description of our objectives, scope, and methodology is included in appendix II. We are sending copies of this report to the Secretaries of Defense and the Air Force; the Director, Office of Management and Budget; and other interested parties. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix IV. Supercruise means the aircraft can sustain supersonic or mach speed without using its afterburners. Supercruise saves fuel and helps reduce the aircraft's infrared signature by not using afterburners that produce a high infrared signature. A reduced infrared signature, in turn, helps make the F-22 low observable and harder for enemy aircraft and missiles to detect. The measurement used for supercruise is the highest mach obtainable in a stable, level flight at 40,000 feet altitude. The Air Force estimated the F-22 will exceed the supercruise goal by about 14 percent. This estimate was determined by analysis of computer models using the latest data available on aspects such as the engines' thrust and fuel flow characteristics. Propulsion flight testing is scheduled to begin in the first quarter of 1998 and end in the second quarter of 2000. Acceleration is a key parameter because the F-22 must be able to outrun enemy aircraft and exit an area after it employs air-to-air or air-to-ground munitions. The acceleration parameter refers to the amount of time it takes the aircraft to go from 0.8 mach to 1.5 mach at 30,000 feet altitude. The Air Force estimated that the F-22 will be faster than the acceleration goal. This estimate was determined by analysis of computer models and ground test data using the latest data available on the major subparameters affecting acceleration. Propulsion flight testing is scheduled to begin in the first quarter of 1998 and end in the second quarter of 2000 and flight performance testing is scheduled to begin in the fourth quarter of 1998 and end in the third quarter of 2001. The maneuverability parameter is a measurement of the maximum force the aircraft can generate during a turn at 0.9 mach at 30,000 feet altitude without losing speed or altitude. Many additional measures that relate to the maneuverability of an aircraft exist, but the Air Force has determined that this measurement is the most appropriate to demonstrate the general F-22 maneuverability at key flight conditions. The Air Force estimated the F-22 will meet its maneuverability goal. The Air Force estimate was determined by analysis of computer models using the latest data available on the major subparameters affecting maneuverability. Flight performance testing is scheduled to begin in the fourth quarter of 1998 and end in the third quarter of 2001. This parameter measures the number of C-141B transport aircraft equivalents required to deploy and maintain a squadron of 24 F-22 aircraft for 30 days without resupply. The goal is to be able to provide this support with eight C-141 equivalents, thereby reducing the assets needed to deploy and the cost of deployment. The Air Force estimated it will require less than eight C-141 equivalents to transport a squadron of 24 F-22s. This estimate was based on a recent study. A mobility demonstration to verify the estimate, which cannot be done until a full squadron of 24 F-22 aircraft is activated, is scheduled for 2004 upon delivery of the 24th production aircraft. A squadron of 24 F-15s requires 19 C-141 equivalents. Sortie generation rate is defined as the average number of sorties or missions flown per aircraft per day for the first 6 days of a potential conflict. This parameter measures the degree to which the F-22 will be available during the first few days of a potential conflict to achieve and maintain air superiority. The Air Force estimated the F-22 will exceed the sortie generation rate goal. This estimate was based on the results of a 6-day surge analysis done on a computer model using many statistics such as maintenance characteristics, support equipment and resource availability, and aircraft maintenance policy. F-22 maintainability demonstrations are scheduled to be accomplished by 2002 to verify the sortie generation rate estimates. The radar cross section (RCS) parameter essentially refers to how large the F-22 should appear to enemy radar. The smaller an aircraft's RCS, the harder it is for enemy radar to detect and track. A small RCS, along with several other factors, contributes to an aircraft's low observability or "stealthy" nature. This particular parameter is called front sector RCS, which means it is the RCS when the F-22 is viewed from the front by enemy radar. While there are over 200 F-22 RCS measurement points, the Air Force considers the front sector RCS the most important measure of the aircraft's ability to avoid detection by an enemy. The Air Force estimated the F-22's front sector RCS will be smaller or better than its goal. Air Force RCS estimates were based on component models that predict the RCS of major components, such as engine inlets and wings, and then use this data to predict the RCS of an entire aircraft. There are 27 major subparameters of this RCS parameter. RCS design validation and specification compliance are also being conducted with a full-scale F-22 mounted on a pole enabling testers to take RCS measurements. This testing will continue into 1999. In-flight RCS measurements will begin in 1999 and continue into 2002. Mean time between maintenance is a measure of aircraft reliability defined as the total number of aircraft flight hours divided by the total number of aircraft maintenance actions in the same period. The F-22 goal is 3 flight hours between maintenance actions by the time the F-22 reaches system maturity. The Air Force estimated that by the time the F-22 reaches system maturity (100,000 flight hours, or about year 2008), the F-22 will only require maintenance every 3.1 flight hours. A reliability computer model was used to develop this estimate by using factors like the design of systems on the aircraft and scheduled maintenance activities. Throughout development and operational flight testing, maintenance data is to be collected from the 500th through the 5,000th hour of flight testing to update the maintenance estimate. Data will continue to be collected about operational usage of the aircraft through system maturity to verify requirements. The payload parameter is the number of air-to-air missiles, medium and short range, the F-22 is to carry when conducting an air superiority mission and not attacking enemy ground targets. Payload is a key parameter because the F-22 is designed to carry missiles in its internal weapons bay, not externally. Carrying weapons externally increases an aircraft's radar cross section and can allow easier detection by enemy radar. The Air Force estimated that the F-22 will meet the payload goal of carrying six AIM-120C medium-range missiles and two AIM-9X short-range missiles internally. Weapons bay testing is scheduled for mid-2000 to determine how well the missiles can exit the weapons bay when launched. The combat radius parameter refers to the nautical miles the F-22 is required to fly to achieve its primary mission of air superiority. This mission requires the F-22 to be able to fly a certain distance subsonically and a certain distance supersonically to achieve the mission. The Air Force estimated the F-22 will exceed its combat radius goal by 23 percent. Unfavorable estimates for two of three major subparameters--fuel usage and aircraft weight--are not unfavorable enough to prevent the F-22 from meeting its combat radius goal. Performance flight testing to help compute the aircraft's combat radius performance, as well as other aerodynamic capabilities, is scheduled to begin in late 1998 and end the third quarter of 2001. The radar detection range parameter refers to the number of nautical miles at which the F-22 radar should be able to detect enemy threats or potential targets. The radar needs to be able to detect enemy targets with small radar signatures at sufficient distance to ensure the F-22 can engage the enemy first. The Air Force estimated that the F-22 radar will exceed the established radar goal by 17 percent. This estimate was based primarily on digital simulations and models used to develop confidence in the tactical functions of radar search and detection capabilities. Radar detection performance is scheduled to be verified against the simulations and models in an aviation electronics laboratory from the first quarter of 1998 to the third quarter of 1999. Actual flight testing of the radar in F-22 EMD aircraft is scheduled to begin in the third quarter of 1999 and continue to at least the second quarter of 2001. The situational awareness parameter refers to the extent the F-22 sensors and aviation electronics systems are able to make pilots aware of the situation around them. The planned integration of the many aviation electronics systems and sensors is meant to (1) minimize pilot workload of managing and interpreting sensors and (2) provide previously unmatched awareness of potential F-22 threats and targets. Air Force data indicated the F-22 will meet the pilot situational awareness goal based on its performance estimates of the major aviation electronics subparameters affecting situational awareness including the radar system, the electronic warfare systems, and the communications, navigation, and identification systems. Sixty-three major aviation electronics functions contribute to these three major subparameters. Development of the integrated aviation electronics, however, is in the early stages. For example, the Air Force provided us information on 10 major milestones that must be completed before integrated avionics development will be complete and the first milestone is not scheduled until October 1998. The last of these milestones is scheduled for November 2001. The low observability parameter refers to the aircraft's "stealthy" nature or ability to evade detection by enemy radar long enough for it to detect the enemy and shoot first. Five features of an aircraft contribute to its degree of low observability or "stealthiness" including radar cross section, infrared signature, electromagnetic signature, visual signature, and acoustic signature. However, the F-22 does not have a requirement for an acoustic signature. Air Force information indicated it expects the F-22 to meet the performance goals established for the various aspects of low observability. Specification compliance on the most critical feature, radar cross section, is being checked with a full-scale F-22 mounted on a pole and will continue into 1999. In-flight radar cross section measurements will begin in 1999 and continue into 2002. Flight testing to help predict the F-22 infrared signature, another critical aspect of low observability, is scheduled for the third quarter of 1999. Our objective was to determine whether the F-22 EMD program can be completed within the cost limitation established by the Congress. We also reviewed the extent to which the F-22 EMD program was achieving cost, schedule, and performance goals, including major modifications. To determine whether the program was expected to meet the cost limitation, we obtained the current cost estimate, which served as a basis for the fiscal year 1999 budget request. We compared that estimate to the estimate supporting the cost limitation and discussed the reasons for the differences with F-22 financial management officials. We made several analyses, including comparing the estimated cost at completion for the prime contracts with planned amounts, and evaluating cost variances identified in the earned value management system. We obtained and reviewed information on the cost and schedule goals for the F-22 EMD program established by the JET during its review of the F-22 program. Since the JET did not revise F-22 performance requirements, we defined the performance goals as those performance requirements on contract at the time the JET reviewed the program. To assist us in determining the goals, we also reviewed overall program documents such as Selected Acquisition Reports, Monthly Acquisition Reports, Defense Acquisition Executive Summaries, Program Management Reviews, contracts with the prime contractors, Test and Evaluation Master Plans, and Program Management Directives. To determine whether the program was expected to meet schedule goals, we obtained the current approved program schedule, which incorporated the latest restructured plans for the F-22 EMD program. We discussed the schedule and potential changes to it with F-22 program officials. We also reviewed the planned flight test schedule and the changes to it as a result of the late first flight of the first EMD aircraft. In addition, we discussed technical problems in assembling subsequent EMD aircraft. We evaluated schedule variances in the earned value management system and compared planned milestone accomplishment dates with actual dates of accomplishments. We also assessed the impact the late first flight may have on the overall EMD schedule. To determine whether the program was expected to meet the F-22 performance goals, we analyzed information on the performance of key performance parameters and of those important subparameters that are measured. We compared the Air Force's current estimate for these parameters to previous estimates to determine whether estimated performance had changed. We determined whether the current estimates were based on actual tests, engineering models, or engineering judgment. We discussed each of the key performance parameters with program officials and determined the basis for the current estimates. We also reviewed past program documentation to determine the basis for the required performance and discussed the reasons for differences between required performance and estimated performance. To evaluate the bases for the Air Force's current performance estimates, we collected information on the goals established for the major performance subparameters that are critical components of the performance parameters. We collected and analyzed information on Air Force estimates, as of January 1998, toward meeting the goals of these subparameters to determine whether the Air Force estimates seemed reasonable. For example, the major subparameters of the airlift support parameter are the number of aircraft support equipment items, the airlift loads necessary to transport aircraft support equipment items, and the maintenance manpower required for a squadron of F-22s. Each of these subparameters has a performance goal just as the overall parameter has a performance goal. The performance parameters and their associated major subparameters are shown in table II.1. Number of support equipment items Airlift loads required to deploy support equipment Number of support equipment items (27 individual subparameters) (No subparameters) To determine the status of contract modifications expected to have a significant effect on F-22 cost or performance, we reviewed the Air Force's process for receiving, reviewing, approving, and monitoring engineering change proposals. We obtained a list of the proposals received and determined which had been approved. For those proposals that were approved, we reviewed the related documentation to determine their status and their estimated impact on aircraft performance and on the cost of the EMD program. To be able to certify whether we had access to sufficient data to make informed judgments on the matters covered in our report, we maintained a log of our requests and the Air Force responses. We numbered and tracked each request we made for documents and for meetings to determine how long it took to receive responses from the Air Force. As a result of this tracking, we were able to certify that we had access to sufficient information to make informed judgements on the cost, schedule, and performance matters covered in this report. The following is GAO's comment on the Department of Defense's letter dated February 12, 1998. 1. Our draft report was submitted to DOD for comment at about the same time as the Air Force notified the Congress that the EMD cost limitation was being increased and the production cost limitation was being decreased to recognize direction from the conferees on the Department of Defense Appropriations Act, 1998. Although direction from the conferees is technically not a change in federal, state, or local law defined as a criteria for changing the cost limitations, we believe the intent of the conferees' direction is clear and that the types of adjustments the Air Force made to the cost limitations are appropriate. Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program (GAO/NSIAD-97-156, June 4, 1997). Defense Aircraft Investments: Major Program Commitments Based on Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997). F-22 Restructuring (GAO/NSIAD-97-100R, Feb. 28, 1997). Tactical Aircraft: Concurrency in Development and Production of F-22 Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995). Air Force F-22 Embedded Computers (GAO/AIMD-94-177R, Sept. 20, 1994). Tactical Aircraft: F-15 Replacement Issues (GAO/T-NSIAD-94-176, May 5, 1994). Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned (GAO/NSIAD-94-118, Mar. 25, 1994). Aircraft Development: Reasons for Recent Cost Growth in the Advanced Tactical Fighter Program (GAO/NSIAD-91-138, Feb. 1, 1991). Aircraft Development: Navy's Participation in Air Force's Advanced Tactical Fighter Program (GAO/NSIAD-90-54, Mar. 7, 1990). Aircraft Development: The Advanced Tactical Fighter's Costs, Schedule, and Performance Goals (GAO/NSIAD-88-76, Jan. 13, 1988). Aircraft Procurement: Status and Cost of Air Force Fighter Procurement (GAO/NSIAD-87-121, Apr. 14, 1987). DOD Acquisition: Case Study of the Air Force Advanced Tactical Fighter Program (GAO/NSIAD-86-45S-12, Aug. 25, 1986). 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 legislative requirement, GAO reviewed the Air Force's F-22 engineering and manufacturing development (EMD) program. GAO noted that: (1) the Air Force's estimate to complete F-22 EMD is $18.884 billion, $55 million less than the EMD cost limitation that will be adjusted to $18.939 billion; (2) however, the F-22 EMD program is not meeting schedule goals established in response to the Joint Estimating Team review; (3) the first flight of the F-22 was about 3 months late, issues have emerged concerning production and delivery of wings and fuselages for the EMD aircraft, and test schedules have consequently been delayed; (4) Lockheed Martin has indicated that negotiated costs should not be exceeded because of these issues; (5) the Air Force, however, is further assessing the impact of these issues on EMD cost, the schedule upon which test data is produced, and the schedule upon which the EMD program is to be completed; (6) the Air Force expects to complete this assessment at the end of February 1998; (7) the Air Force is estimating that the F-22 will meet or exceed its performance goals; (8) however, less flight test data have been accumulated through January 1998 than were expected because the beginning of the flight test program was delayed from May 1997 to September 1997 and flight tests have been suspended to accomplish planned ground tests and minor structural additions to the airframe; (9) flight testing will not resume until April 1998; and (10) delayed tests reduce the amount of actual F-22 performance information that will be available to support Air Force plans to begin production in fiscal year 1999.
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Before discussing these issues in detail, it is important to recognize that a large amount of federal paperwork is necessary and serves a useful purpose. Information collection is one way that agencies carry out their missions. For example, IRS needs to collect information from taxpayers and their employers to know the amount of taxes owed. The Bureau of the Census collects information that was used to reapportion congressional representation and is being used for a myriad of other purposes. The events of September 11 have demonstrated the importance of accurate, timely information. On several occasions, we have recommended that agencies collect certain data to improve operations and evaluate their effectiveness. However, under the PRA, federal agencies are required to minimize the paperwork burden they impose. The original PRA of 1980 established the Office of Information and Regulatory Affairs (OIRA) within OMB to provide central agency leadership and oversight of governmentwide efforts to reduce unnecessary paperwork and improve the management of information resources. Currently, the act requires OIRA to develop and maintain a governmentwide strategic information resources management (IRM) plan, and in recent years OIRA has designated the Chief Information Officers Council's strategic plan as the principal means of meeting this requirement. In February of this year we issued a report concluding that this document does not constitute an effective and comprehensive strategic vision. Specifically, we said that the goals in the plan were not linked to expected improvements in agency and program performance, and did not address such issues as records management or the collection and control of paperwork. Other documents that OIRA provided also did not, either individually or collectively, meet the PRA's requirement for a governmentwide strategic IRM plan. However, the president's budget for 2003, released in February of this year, contains many (but not all) of the required elements, and therefore represents credible progress toward developing a governmentwide IRM plan. OIRA also has overall responsibility for determining whether agencies' proposals for collecting information comply with the act. Agencies must receive OIRA approval for each information collection request before it is implemented. Section 3514(a) of the PRA requires OIRA to keep Congress "fully and currently informed" of the major activities under the act, and must submit a report to Congress at least annually on those activities. The report must include, among other things, a list of all PRA violations and a list of any increases in burden. To satisfy this reporting requirement, OIRA develops an Information Collection Budget (ICB) by gathering data from executive branch agencies. In October 2001, the OMB director sent a bulletin to the heads of executive departments and agencies requesting information to be used in preparation for the fiscal year 2002 ICB (reporting on actions during fiscal year 2001). However, that bulletin differed from its predecessors in several respects. For example, the agencies that the director asked to provide information did not include 12 noncabinet-level agencies and organizations that had previously provided ICB information (e.g., the Federal Communications Commission, the Federal Trade Commission, the Social Security Administration, and the Securities and Exchange Commission). The only independent agency asked to provide information to OMB was the Environmental Protection Agency (EPA). Also, the covered agencies were asked to provide less information than before. For example, the agencies were asked to provide detailed information only for "significant" burden reductions and increases, not on each change in burden estimates. The OMB director said in the October 2001 bulletin that the amount of information requested had been significantly reduced "in the interest of reducing burden on the agencies." OIRA published its ICB for fiscal year 2001 (showing changes in agencies' burden-hour estimates during fiscal year 2000) in August 2001. OIRA officials told us that they did not expect to publish the ICB for fiscal year 2002 until today's hearing. Therefore, we obtained unpublished data from OIRA to identify changes in governmentwide and agency-specific "burden- hour" estimates during fiscal year 2001. However, because the OIRA data does not include burden-hour estimates from any independent agencies other than EPA, we also obtained data from the Regulatory Information Service Center (RISC) for the independent agencies that OIRA did not cover. We then compared both the OIRA and the RISC data to agencies' burden-hour estimates in previous ICBs to determine changes in those estimates over time. "Burden hours" has been the principal unit of measure of paperwork burden for more than 50 years and has been accepted by agencies and the public because it is a clear, easy-to-understand concept. However, it is important to recognize that these estimates have limitations. Estimating the amount of time it will take for an individual to collect and provide information or how many individuals an information collection will affect is not a simple matter. Therefore, the degree to which agency burden-hour estimates reflect real burden is unclear. Nevertheless, these are the best indicators of paperwork burden available, and we believe they can be useful as long as their limitations are kept in mind. Federal agencies estimated that their information collections imposed about 7 billion burden hours on the public at the end of fiscal year 1995-- just before the PRA of 1995 took effect. The PRA made several changes in federal paperwork reduction requirements. One such change required OIRA to set a goal of at least a 10-percent reduction in the governmentwide burden-hour estimate for each of fiscal years 1996 and 1997, a 5 percent governmentwide burden reduction goal in each of the next 4 fiscal years, and annual agency goals that reduce burden to the "maximum practicable opportunity." Therefore, if federal agencies had been able to meet each of these goals, the 7-billion burden-hour estimate in 1995 would have fallen to about 4.6 billion hours by September 30, 2001. However, as figure 1 shows, this anticipated reduction in paperwork burden did not occur. In fact, the data we obtained from OIRA show that the governmentwide burden-hour estimate increased by about 9 percent during this period and stood at more than 7.6 billion hours as of September 30, 2001. During fiscal year 2001 alone, the governmentwide estimate increased by nearly 290 million hours--the largest 1-year increase since the PRA was amended and recodified in 1995. It is also important to understand how the most recent estimate of federal paperwork is allocated by the purpose of the collections, by type of respondent, and by agency. As figure 2 shows, RISC data indicates that almost 95 percent of the more than 7.6 billion hours of estimated paperwork burden in place governmentwide as of September 30, 2001, was being collected primarily for the purpose of regulatory compliance. Less than 5 percent was being collected as part of applications for benefits, and about 1 percent was collected for other purposes. Figure 3 shows that almost two-thirds of the governmentwide burden estimate was primarily directed toward businesses. Slightly less than one- third of the burden was primarily on individuals, and less than 3 percent was on state, local, or tribal governments. As figure 4 shows, as of September 30, 2001, IRS accounted for about 83 percent of the governmentwide burden-hour estimate (up from about 75 percent in September 1995). Other agencies with burden-hour estimates of 100 million hours or more as of that date were the departments of Labor (DOL) and Health and Human Services (HHS), EPA, and the Securities and Exchange Commission (SEC). Because IRS constitutes such a significant portion of the governmentwide burden-hour estimate, changes in IRS' estimate can have a significant--and even determinative--effect on the governmentwide estimate. Department of Labor (DOL) Department of Health and Human Services (HHS) As table 1 shows, some agencies' paperwork burden estimates decreased sharply during fiscal year 2001, most notably those of the departments of Commerce and Transportation (DOT). However, other agencies (e.g., the department of the Treasury and the SEC) indicated that their paperwork burdens had increased. The reasons behind some of these changes are clear. For example, the sharp decrease in the Department of Commerce's estimate (from more than 38 million hours to about 10 million hours) appears to be almost entirely attributable to the completion of the decennial census. The reasons for other changes are less immediately apparent. As I will discuss later, the sharp decrease in the DOT estimate was caused by the expiration (and subsequent PRA violation) of a single information collection. However, changes in agencies' bottom-line burden-hour estimates do not tell the whole story, and can be misleading. It is also important to understand how the agencies accomplished these results. OIRA classifies modifications in agencies' burden-hour estimates as either "program changes" or "adjustments." Program changes are the result of deliberate federal government action (e.g., the addition or deletion of questions on a form), and can occur as a result of new statutory requirements, agency- initiated actions, or through the expiration or reinstatement of OIRA- approved collections. Adjustments are not the result of deliberate federal government action, but rather are caused by factors such as changes in the population responding to a requirement or agency reestimates of the burden associated with a collection of information. For example, if the economy declines and more people complete applications for food stamps, the resultant increase in the Department of Agriculture's (USDA) paperwork estimate is considered an adjustment because it is not the result of deliberate federal action. In recent ICBs, OIRA has indicated whether fluctuations in agencies' burden-hour estimates were caused by program changes or adjustments. The fiscal year 2001 burden estimates that we obtained from OIRA and RISC in preparation for this hearing also contained those two categories and are presented in table 1. Analysis of those data helps explain what drove the changes in agencies' bottom-line burden-hour estimates. For example, almost all of the marked decline in the Department of State's estimate was due to adjustments. Also, the more than 40 million burden- hour increase in the SEC estimate was primarily driven by adjustments. Therefore, the Department of State cannot claim credit for having proactively reduced the paperwork burden that it imposes on the public, and the SEC may not be responsible for the increase that it reported. In contrast, table 1 shows that the more than 37 million burden-hour decrease in DOT's bottom-line paperwork estimate was entirely driven by a more than 40 million-hour program change reduction. However, the table does not indicate what specific type of action precipitated this or any other program change--new statutes, agency actions, or reinstated/expired collections. Although DOT's ICB submission did not provide further clarification, OIRA staff told us that the reduction was caused by the expiration (and subsequent PRA violation) of the agency's "hours of service" information collection. Last year, the data that OIRA obtained from the agencies allowed us to separate the program changes in our table into the new statutes, agency actions, and reinstate/expired subcategories. However, as I noted previously, OIRA did not request such detailed data from the agencies for the fiscal year 2002 ICB except for certain "significant" collections. Therefore, our table this year does not break down the program changes into these subcategories. For the past 2 years, OIRA indicated in separate columns of the ICB summary table whether the program changes made during each fiscal year were due to agency action or new statutes. OIRA officials told us that the ICB that the agency was releasing today would present both statutory and agency action-based program changes during fiscal year 2001 in one column. As a result, they said, Congress and the public could calculate the amount of program change that was attributable to violations or reinstatements by subtracting the amount of the new statutes/agency actions from the total program changes. We believe that this approach has at least two problems. First, combining the statutory and agency-initiated program changes into one column prevents Congress and the public from knowing why the agencies' paperwork estimates changed. Presentation of this information in separate columns--as has been done in previous years--allows the public to know whether Congress or the agencies are responsible for increases or decreases in an agency's paperwork estimate. Second, not providing this information and requiring Congress and the public to calculate the amount of change in burden caused by violations or the reinstatement of violations seems to run counter to the administrator's stated goal of increasing the transparency of OIRA's operations. OIRA has such data, for it listed expirations and reinstatements were separately listed in the raw data provided to us in preparation for this hearing, and OIRA used the data to calculate the amount of the program changes that were due to agency actions or new statutes. As I mentioned previously, the PRA requires OIRA to keep Congress and congressional committees "fully and currently informed" of the major activities under the act. It specifically says that OIRA's annual report must identify "any increase in the collection of information burden." We do not believe that the information OIRA is releasing today fully satisfies this PRA requirement in that it includes only some of the agencies with estimated burden-hour increases and substantial information collection requirements. In fact, some of the independent agencies that OIRA indicated that it planned to exclude from this year's ICB (e.g., the SEC, the Federal Trade Commission, and the Federal Communication Commission) had higher estimated burden than some of the cabinet departments for which information was provided (e.g., the departments of Energy, Interior, and Veterans Affairs). Also, to facilitate transparency and increase Congress' and the public's understanding of paperwork burden, we believe that OIRA should separately identify each of the specific types of program changes in the ICB--changes due to agency action, changes due to new statutes, changes due to violations, and changes due to reinstatements. Although changes in non-IRS departments and agencies' burden-hour estimates are notable and important, they pale in comparison to the size of the changes at IRS. The increase in the IRS burden-hour estimate during fiscal year 2001 (about 250 million burden hours) was more than six times as much as the rest of the government combined. Therefore, although all agencies must ensure that their information collections impose the least amount of burden possible, it is clear that the key to controlling federal paperwork governmentwide lies in understanding and controlling the increases at IRS. As table 1 shows, more than 80 percent of the 259 million burden-hour increase in the Department of the Treasury paperwork estimate during fiscal year 2001was attributed to program changes. IRS accounted for about 250 million (about 97 percent) of the departmental increase. In the Department of the Treasury's ICB submission to OMB describing changes during fiscal year 2001, IRS identified a number of significant program change increases that it said were a function of the underlying statutes. For example, IRS said that it added nearly 28 million burden hours to its estimate because the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 added a section to the Internal Revenue Code, resulting in a new Form 8873. However, about two-thirds of the program change increases that IRS identified in the ICB submission for fiscal year 2001 involved changes made at the initiation of the agency--not because of new statutes. For example: IRS said that 14 lines and 23 Code sections were added to Form 1065 ("U.S. Return of Partnership Income"), and accompanying schedules and instructions at the request of the agency, resulting in an estimated increase of more than 75 million burden hours. IRS said that changes made at the agency's request to Form 1120S ("U.S. Income Tax Return for an S Corporation") and accompanying schedules and instructions resulted in an estimated increase of more than 22 million burden hours. IRS said that changes at the request of the agency to Form 1120 ("U.S. Corporation Income Tax Return") and related schedules and instructions resulted in a more than 7 million-hour increase in the form's estimated burden. Because IRS attributed most of the increase in its burden-hour estimate during fiscal year 2001 to program changes, and because most of the program changes during that period were made at the agency's initiative, IRS cannot claim (as it has in the past) that statutory changes primarily caused the increase in its burden-hour estimates. IRS also indicated in the ICB submission that it had taken a number of actions intended to reduce paperwork burden. For example, IRS said it (1) had conducted a series of focus groups consisting of taxpayers who file Schedule D to explore their preferences for presenting and reporting information to compute gains and losses and any tax due, (2) was working with a contractor to redesign Form 941, "Employer's Quarterly Federal Tax Return," and the accompanying instructions, and (3) was continuing its initiative to encourage taxpayers to file the simplest tax return for their tax situation. With regard to small corporations, IRS said it had proposed that corporate filers with assets of less than $250,000 be exempted from certain reporting requirements, which would--if implemented--save 39 million burden hours. In summary, the agencies' information collection estimates for the ICB being released today indicate that federal paperwork continues to increase, and that changes initiated by IRS accounted for most of the record 1-year increase during fiscal year 2001. As we indicated in our February report on information resources management, OIRA and the agencies lack a unifying vision for how those resources will facilitate the government's agenda. Also, the risk is increased that duplicative initiatives will be undertaken, and that opportunities for data sharing will be missed. The PRA requires that OIRA develop such a plan, one element of which must be a proposal for reducing information burdens. Also, because IRS constitutes such a significant portion of the governmentwide burden-hour estimate, another strategy to address increases in federal paperwork could be to focus OIRA's burden-reduction efforts on that agency. Just as increases in IRS's burden estimates have had a determinative effect on the governmentwide estimates, reduction in the IRS estimates can have an equally determinative effect. I would now like to turn to the other main topic you asked us to address-- PRA violations. The PRA prohibits an agency from conducting or sponsoring a collection of information unless (1) the agency has submitted the proposed collection and other documents to OIRA, (2) OIRA has approved the proposed collection, and (3) the agency displays an OMB control number on the collection. The act also requires agencies to establish a process to ensure that each information collection is in compliance with these clearance requirements. OIRA is required to submit an annual report to Congress that includes a list of all violations. The PRA says no one can be penalized for failing to comply with a collection of information subject to the act if the collection does not display a valid OMB control number. OIRA may not approve a collection of information for more than 3 years, and there are about 7,000 approved collections at any one time. In the ICB for fiscal year 1999, OIRA identified a total of 872 violations of the PRA during fiscal year 1998. In our testimony before this Committee 3 years ago, we noted that some agencies--USDA, HHS, and the Department of Veterans Affairs (VA)--had each identified more than 100 violations.We also said that OIRA had taken little action to address those violations and suggested a number of ways that OIRA could improve its performance. For example, we said that OIRA could use its database to identify information collections for which authorizations had expired, contact the collecting agency, and determine whether the agency was continuing to collect the information. We also said that OIRA could publicly announce that the agency is out of compliance with the PRA in meetings of the Chief Information Officers Council and the President's Management Council. During the past 2 years, the number of violations that OMB reported has declined steadily. Two years ago we testified that the number of violations had declined from 872 during fiscal year 1998 to 710 during fiscal year 1999. Last year, we testified that the number of violations had declined even further--from 710 to 487 during fiscal year 2000. Each year, a few agencies--most consistently USDA and HUD, but occasionally the Department of Justice and VA--have accounted for a disproportionate share of the violations. Each year we concluded that, although OIRA had taken several actions to address PRA violations, the OMB and the agencies responsible for the collections could do more to ensure compliance. Table 2 shows the number of violations that the covered agencies reported (and that OIRA agreed were violations) during fiscal year 2001. As noted previously, noncabinet-level agencies other than EPA were not required to report this information to OIRA in preparation for this year's ICB, so we could not provide information for those agencies in our table. Therefore, comparison of the total number of violations during fiscal year 2001 to previous years can be done only for those agencies reporting in all relevant time frames. The cabinet departments and EPA reported 648 PRA violations during fiscal year 1999 and 423 violations during fiscal year 2000. Those agencies identified a total of 402 violations during fiscal year 2001--only slightly fewer than the year before. Therefore, the substantial decline in the number of PRA violations that has occurred in these agencies appears to have stopped. As was the case in previous years, HUD, USDA, and VA reported the most violations during fiscal year 2001--112, 67, and 64, respectively. The number of violations at USDA decreased between fiscal years 2000 and 2001 (from 96 to 67), but the numbers at HUD and VA went up (from 99 to 112, and from 40 to 64, respectively). Overall, the number of violations decreased in 8 of the 15 agencies reporting data in both years, increased in 6 agencies, and stayed the same in 1 agency. Many of the 402 violations that occurred during fiscal year 2001 were new and had been resolved by the end of the fiscal year. However, about 40 percent of the violations were listed in last year's ICB, and many had been occurring for years. For example, as of the end of fiscal year 2001, USDA indicated that 13 of its collections had been in violation for more than 2 years, and 10 had been in violation for at least 3 years, HUD indicated that 10 of its collections had been in violation for at least 2 years, and 6 had been in violation for at least 4 years, the Department of the Interior indicated that 9 collections had been in violation for at least 2 years, and 4 had been in violation for at least 7 years, and VA indicated that 25 of its collections had been in violation for at least 2 years, and 15 had been in violation for at least 4 years. In our testimony in previous years, we provided an estimate of the monetary cost associated with certain PRA violations. To estimate that cost, we multiplied the number of burden hours associated with the violations by an OMB estimate of the "opportunity costs" associated with each hour of IRS paperwork. Although the ICBs list the information collections that were in violation during the previous year, and the dates of expiration and any reinstatement, they do not provide information on the number of burden hours associated with each of the violations. Therefore, we obtained data from OIRA on the estimated number of burden hours for 340 of the 402 information collections that were in violation of the PRA during fiscal year 2001. As in previous years, the data suggest that these PRA violations may constitute significant opportunity costs for those required to provide the related information. We estimate that the 340 violations involved about 58 million burden hours of paperwork, or about $1.6 billion in opportunity costs. A small percentage of the collections accounted for the bulk of those costs. For example, 60 of the collections involved estimated opportunity costs of at least $1 million each, for a total of more than $1.5 billion. Just three of the collections (two from USDA and one from VA) accounted for more than $1 billion in estimated opportunity costs. Many of the information collections that were in violation of the PRA were being administered for regulatory purposes, so if the respondents knew the collections were not valid they might not have completed the required forms. However, other violations involved collections in which individuals or businesses were applying for benefits such as loans or subsidies. Therefore, it is not clear whether these individuals and businesses would have refused to complete the required forms if they knew that the collections were being conducted in violation of the PRA. As I indicated earlier, OIRA has taken some steps to encourage agencies to comply with the PRA, and those steps previously appeared to have been paying off in terms of fewer reported violations overall and within particular agencies. However, particularly because the number of violations did not decline during fiscal year 2001, we believe that OIRA can do more. For example, 2 years ago OIRA added information to its Internet home page about information collections that expired in the previous month. As a result, potential respondents are able to review the list of recent expirations and inform the collecting agency, OIRA, and Congress of the need for the agency to either obtain reinstatement of OIRA approval or discontinue the collection. Although notifying the public about unauthorized information collections is a step in the right direction, OIRA's approach places the burden of responsibility to detect unauthorized collections on the public. It is OIRA, not the public, which has the statutory responsibility to review and approve agencies' collections of information and identify all PRA violations. Therefore, we believe that OIRA should not simply rely on the public to identify these violations. For example, OIRA desk officers could use the agency's database to identify information collections for which authorizations had expired, contact the collecting agency, and determine whether the agency is continuing to collect the information. The desk officers could also use the database to identify information collection authorizations that are about to expire, and therefore perhaps prevent violations of the act. At a minimum, OIRA could post on its Internet home page the complete list of collections that it believes are in violation of the PRA--not just those collections that expired during the previous month and that may or may not constitute violations. OIRA officials and staff previously told us that they have no authority to do much more than publish the list of violations in the ICB and inform the agencies directly that they are out of compliance with the act. We do not agree that OIRA is as powerless as this explanation would suggest. First of all, OIRA could publish the number of violations for all of the agencies covered by the PRA in the ICB. Section 3514(a) of the act specifically requires OIRA to include in its annual report a "list of all violations," not just the cabinet departments plus EPA. Therefore, we do not believe that the information that OIRA is releasing today fully satisfies this requirement. Also, if an agency does not respond to an OIRA notice that one of its information collections is out of compliance with the PRA, the administrator could take any number of actions to encourage compliance, including any or all of the following: Publicly announce that the agency is out of compliance with the PRA in meetings of the Chief Information Officers Council. Notify the "budget" side of OMB that the agency is collecting information in violation of the PRA and encourage the appropriate resource management office to use its influence to bring the agency into compliance.
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This testimony discusses the implementation of the Paperwork Reduction Act of 1995 and information collection authorizations from the Office of Management and Budget (OMB) that either expired or were otherwise inconsistent with the act. GAO found that federal paperwork rose by 290 million burden hours during fiscal year 2001--the largest one-year increase since the act was amended and recodified in 1995. This occurred largely because the Internal Revenue Service (IRS) increased its paperwork estimate by about 250 million burden hours during the year. Most of the paperwork increase at IRS resulted from changes made by the agency--not because of new statutes. Federal agencies providing information to OMB identified more than 400 violations of the act during fiscal year 2001. Some of these violations have been going on for years, and they collectively represent substantial opportunity costs.
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FSA, established by the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 103-354, Oct. 13, 1994), provides, among other things, direct government-funded loans to farmers and ranchers who are unable to obtain financing elsewhere at reasonable rates and terms. For example, direct farm ownership loans are made for buying farm real estate and making capital improvements. Direct farm operating loans are made for purposes such as buying feed, seed, fertilizer, livestock, and farm equipment and paying family living expenses. Additionally, emergency disaster loans are made to farmers and ranchers whose operations have been substantially damaged by adverse weather or other natural disasters. When a borrower does not repay his or her loans, FSA has various tools to resolve the delinquency, such as (1) restructuring the loans, which may include reducing debt; (2) allowing a borrower who does not qualify for restructuring to make a payment for less than the amount owed, which results in FSA's forgiving the balance; and (3) reaching a final resolution of the debt that may or may not include a payment by the borrower, which also results in debt forgiveness. The Consolidated Farm and Rural Development Act, as amended (P.L. 87-128, Aug. 8, 1961), which is referred to as the Con Act, is the basic authority for the farm loan programs. Table 1 shows that as of September 30, 1997, about 110,000 borrowers owed FSA about $9.7 billion on active direct farm loans; these figures represent 9.5 percent fewer borrowers and 14.8 percent less debt compared with those of September 1995. About 18,600 borrowers were delinquent at the end of September 1997; these borrowers owed about $2.7 billion, or 28.2 percent of the total outstanding principal. This delinquency rate is an improvement from the delinquency rates in September 1996 and 1995, which were 34.2 percent and 40.7 percent, respectively. Table 1 also shows that borrowers with larger amounts of debt had higher delinquency rates than borrowers owing smaller amounts. In 1997, for example, about 72 percent of the principal held by borrowers with loans totaling $500,000 or more was held by delinquent borrowers, whereas about 25 percent of the principal held by borrowers with loans totaling less than $500,000 was held by delinquent borrowers. Borrowers in a small number of states accounted for a disproportionate share of the total delinquent debt in FSA's farm loan portfolio. For example, borrowers in five states owed slightly over 40 percent of the total delinquent debt at the end of fiscal year 1997. This compares with about 36 percent and 34 percent at the end of fiscal years 1996 and 1995, respectively. Appendix I provides information on the five states with the most delinquent debt in each of these 3 fiscal years. FSA incurs losses when it writes off the direct farm loans of delinquent borrowers through its debt settlement process, which essentially represents the agency's final resolution of unpaid loans and generally occurs after loan-security property has been liquidated. In fiscal year 1997, FSA wrote off about $380 million through debt settlements, which is down from the more than $860 million written off in fiscal year 1996 and $780 million written off in fiscal year 1995. In total, about 7,600 borrowers had slightly more than $2 billion written off during this 3-year period. FSA has the following four options for resolving debts in its debt settlement process: Adjustment. A borrower agrees to make, at some time in the future, one payment, or a series of payments, that is less than the amount owed. Compromise. The debt is satisfied when a borrower makes an immediate single lump-sum payment that is less than the amount owed. Cancellation. The debt is written off without any payment made, and the borrower is released from further liability because FSA believes that the borrower has insufficient potential to make additional payments. Charge-off. The debt is written off without any payment made, and FSA ends collection activity, but the borrower is not released from liability for the amount owed. Table 2 summarizes the amount of debt written off during the fiscal year 1995-97 period through each of the four debt settlement options. As the table shows, a comparatively small number of borrowers who had a large amount of debt written off accounted for a substantial portion of the write-offs. In 1997, for example, 182 borrowers, or about 9 percent of those whose debts were written off, had $500,000 or more forgiven; these borrowers received about 48 percent of the total debt forgiveness. Borrowers in a small number of states accounted for a disproportionate share of the write-offs. Specifically, borrowers in the five states with the most write-offs each year received about 48 percent of the total write-offs during this 3-year period. Appendix II provides information on the five states with the most write-offs during each of these 3 fiscal years. Three statutory provisions were enacted in the mid-1990s that provide FSA with discretionary authority to contract for loan-servicing assistance. These provisions authorize, but do not require, contracting with (1) private attorneys to obtain legal assistance in resolving delinquent farm loan accounts, (2) private lenders to obtain assistance in servicing farm loan borrowers' accounts, and (3) private collection agencies to obtain assistance in collecting delinquent farm loans. FSA has made little use of these authorities: It has contracted with private attorneys in only two states; it has not contracted with private lenders or with private collection agencies and is not actively considering doing so. The Farmers Home Administration Improvement Act of 1994 (P.L. 103-248, May 11, 1994) gave FSA discretionary authority to contract with private attorneys to assist in resolving delinquent farm loan accounts. The process for using the new contracting authority generally starts with a request for legal assistance from an FSA state office to FSA's Farm Credit Programs at headquarters. Farm Credit Programs then refers the request to USDA's Office of General Counsel (OGC), which after its review may refer the matter to the Department of Justice. Justice, in consultation with FSA and USDA's OGC, reviews the situation to see if (1) the farm loan cases can be handled by the U.S. Attorney's office that has jurisdiction for the area, (2) the cases can be referred to a private attorney under contract with Justice, or (3) FSA should use its authority to contract with a private attorney. FSA is required to obtain the approval of both OGC and Justice before it can enter into a contract with a private attorney. Once OGC and Justice have approved FSA's request for contracting, FSA's state office solicits bids and subsequently enters into contracts, with OGC providing legal advice to the contracting office. To date, FSA has contracted with private attorneys to obtain assistance in resolving delinquent farm loan accounts in only two states--Louisiana and New Jersey--and has no plans to expand its use in other states. Specifically, following the process described above, FSA's Louisiana state office entered into contracts with nine law firms to handle foreclosure cases in October 1995. As of February 1998, two of the nine firms were no longer under contract. According to FSA's state officials, the agency canceled one contract at the law firm's request and the other because of noncompliance with the terms of the contract. Through February 10, 1998, FSA had referred a total of 156 foreclosure cases to the law firms. Sixty-four of these cases had been settled, with collections totaling $2.2 million; borrowers in another nine cases had filed for bankruptcy; and the remaining cases were ongoing. The cost of legal services was about $58,000, excluding the attorneys' reimbursable expenses, such as court filing fees. Concerning New Jersey, USDA officials told us that FSA's New Jersey state office contracted with a law firm after approval by the U.S. Attorney's office with jurisdiction there. No farm loan cases in New Jersey had been referred to the private law firm, and the USDA officials said they anticipate that none will be. Little consideration has been given within USDA for additional contracting by FSA because its needs for legal assistance are being satisfied by Justice. In two states, Justice has been referring problem farm loan cases to private attorneys that it has under contract. Specifically, according to a Justice official, the Department has referred such cases in the middle district of Florida since March 1993 and the southern district since January 1994--both before FSA received its contracting authority. The Justice official also told us that farm loan foreclosure cases in the northern district of New York are being handled by private attorneys under contract with Justice. FSA and OGC officials said that FSA has additional legal needs in New York, which will probably also be met by referring cases to private attorneys under contract with Justice. The OGC official also said that USDA discussed FSA's legal needs in Idaho with Justice, and, as a result, the U.S. Attorney's office has increased legal action on farm loan cases in that state. Finally, state law can have a considerable bearing on FSA's legal needs involving problem farm loan cases. Specifically, when state law provides for nonjudicial foreclosure--that is, when judicial process is not needed for a lender to foreclose the loan-security property of a delinquent borrower--FSA has less need for legal assistance than when state law requires judicial process in foreclosure cases. According to USDA officials, about half of all states allow nonjudicial foreclosure. The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 (P.L. 104-127, Apr. 4, 1996) gave FSA discretionary authority to contract with private lenders to assist in servicing outstanding loans, including contracting for one or more pilot projects to test the concept. To date, FSA has not used this authority and is not actively considering its use. Agency officials told us that the new contracting authority is not needed for three reasons. First, they stated that USDA's recent reorganization of various farm program functions and offices has resulted in an increased number of field staff available to service farm loan borrowers. While this may be true, we note that FSA continues to have problems in servicing farm loans. Specifically, our review of FSA's internal control reviews during fiscal year 1997 found that the agency's field officials do not always follow FSA's own loan-servicing standards. For example, as table 3 shows, FSA's rates of noncompliance on four key loan-servicing standards ranged from about 17 to 29 percent. The problems identified in FSA's fiscal year 1997 internal control reviews were not unique. For example, FSA's internal control reviews in fiscal years 1995 and 1996 showed a total 20.6-percent rate of noncompliance with the requirement that field staff analyze borrowers' operations and assist in planning, a 20.3-percent rate of noncompliance with the requirement that annual chattel inspections be performed to ensure that security property is being maintained, and a 16.8-percent rate of noncompliance with the requirement that office and field visits with borrowers be documented to reflect adequate supervision. FSA's officials acknowledged that the agency has a problem with loan servicing. They said that the agency's field staffs, which now include people who had previously worked on USDA's farm payment programs but not on the farm loan programs, need to be specifically assigned to work on farm loans and trained in credit matters. They anticipate that these actions will be taken in the future. The second reason cited by FSA's farm loan officials for not contracting with private lenders is because they use other discretionary authority to contract with entities besides lenders for some servicing of farm loans, such as with local management consulting firms and accounting firms to review borrowers' operations and financial reports and with local appraisal companies to appraise property used as security for loans. We confirmed that FSA has employed such contractors for some loan-servicing activities. Finally, FSA's farm loan officials said they have not contracted with private lenders because such contracting would increase their cost of operating the farm loan programs. FSA has not, however, estimated either the cost or potential benefits of loan-servicing assistance. The statutory provision authorizing contracting with private lenders required USDA to report to the Congress by September 30, 1997, on its experience in using contracts. USDA did not file this report because it did not contract with any private lenders for loan-servicing assistance. The FAIR Act also gave FSA discretionary authority to contract with private collection agencies to assist in collecting on unpaid accounts. However, as of March 1998, FSA had not contracted with private collection agencies for assistance, and FSA's officials are not actively considering such contracting. The officials said they are not using this authority because, before FSA can contract with private collection agencies, it must complete the Con Act's servicing requirements, as discussed below, that apply to borrowers with delinquent loans. However, because this process often takes more than 180 days, FSA is required to transfer delinquent accounts to the Department of the Treasury for collection action, which precludes FSA from contracting for the services itself. This transfer is in accordance with the Debt Collection Improvement Act of 1996 (DCIA)--section 31001 of P.L. 104-134, Apr. 26, 1996--which was enacted shortly after FSA was given its authority to contract with private collection agencies. When a borrower misses a loan payment, the Con Act's requirements and FSA's implementing regulations provide the following process for servicing the delinquent loan. Specifically, when a borrower is 90 days past due on a scheduled payment, FSA is to formally notify the borrower of its available loan-servicing options, such as the possibility of restructuring the outstanding loans. Generally, the delinquent borrower has 60 days to apply for servicing. If the borrower applies for restructuring, FSA has 90 days to process the application and to notify the borrower if he or she qualifies for restructuring. After notification, FSA has 45 days to offer to restructure the borrower's debts. If the borrower did not qualify for restructuring, the borrower has 90 days to make a buyout payment to FSA that is based on the value of property used as security for the loan. When the borrower does not apply for servicing or when the borrower does apply but restructuring or a buyout does not occur, FSA will demand full repayment of the debt. If the payment is not made, FSA starts the liquidation phase of its servicing, which may include foreclosure action, and then debt settlement. FSA's farm loan officials told us that the agency needs to complete its loan servicing for borrowers, including debt settlement, before it could consider private collection services. Furthermore, in debt settlement, only delinquent borrowers whose debts are charged off by FSA remain liable for the unpaid amounts of their loans and would be subject to debt collection action. However, because of the time required for servicing delinquent accounts, most of these borrowers have been delinquent for at least 180 days. As a result, under the DCIA, FSA is required to transfer the accounts to Treasury for collection action. Once the accounts are transferred, Treasury may refer these borrowers to one of the private collection agencies that it has contracted with for collection action. USDA officials also said that Treasury officials have told them to forward any accounts that are less than 180 days delinquent, after the loan security has been liquidated, for referral to one of Treasury's collection contractors. At the time of our review, none of FSA's farm loan accounts had been or were ready to be transferred to Treasury, nor was Treasury ready to receive delinquent accounts. FSA officials told us that the agency has to complete two tasks before any accounts can be transferred. First, FSA has to modify the format of its automated farm loan record system because the current format does not meet Treasury's requirements. Second, each borrower whose debt was charged off has to be reviewed by FSA's field offices to ensure that the account qualifies to be transferred--for example, the borrower is not in litigation, foreclosure, or bankruptcy, and the statute of limitations on pursing collections has not expired. FSA officials estimated that both the modification of their automated system and the review of the borrowers would be completed by September 1998. We provided a draft of this report to USDA and met with Department officials to obtain their comments. These officials included the Farm Service Agency's Deputy Administrator for Farm Credit Programs and the Director of the Loan Servicing and Property Management Division and the Office of General Counsel's Associate General Counsel for Rural Development. The USDA officials generally agreed with the material contained in the report and offered technical corrections and suggestions for clarifying the report. We made these corrections and incorporated their suggestions as appropriate. We performed our work from January through April 1998 in accordance with generally accepted government auditing standards. Our scope and methodology are discussed in appendix III. As agreed, unless you publicly announce its contents earlier, we plan no further distribution of this report until 14 days from the date of this letter. At that time, we will send copies of this report to the appropriate Senate and House committees; interested Members of Congress; the Secretary of Agriculture; the Administrator of FSA; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. Please call me at (202) 512-5138 if you or your staff have any questions. Major contributors to this report are listed in appendix IV. This appendix provides information on the Farm Service Agency's (FSA) active direct farm loans in the five states with the highest amounts of delinquent debt. Tables I.1, I.2, and I.3 show the total amount of outstanding principal and the portion owed by delinquent borrowers at the end of fiscal years 1997, 1996, and 1995, respectively. The tables also provide this information for borrowers in two ranges of outstanding principal--those owing less than $500,000 and those who owe $500,000 or more. This appendix provides information on write-offs of direct farm loans by FSA in settling delinquent borrowers' debts through the debt settlement process in the five states with the highest amounts of write-offs. Tables II.1, II.2, and II.3 show the total amount of debt written off for borrowers who have undergone debt settlements during fiscal years 1997, 1996, and 1995, respectively. The tables also provide this information for borrowers by two ranges of write-offs--those who received less than $500,000 and those who received $500,000 or more in debt forgiveness. As requested, our objectives were to assess (1) the levels of outstanding principal on active direct farm loans at the end of fiscal years 1995 through 1997, including the amounts owed by delinquent borrowers; (2) the amount of debt written off by FSA through the debt settlement process in fiscal years 1995 through 1997; and (3) FSA's use of three statutory provisions enacted in the mid-1990s that authorize FSA to contract with private attorneys for legal assistance in resolving delinquent farm loan accounts, private lenders for assistance in servicing farm loan borrowers' accounts, and private collection agencies for assistance in collecting delinquent farm loans. To address the first two objectives, we obtained and analyzed information in the computerized databases in FSA's St. Louis Finance Office and in the agency's various financial reports on the farm loan portfolio. As requested, this effort included compiling information on borrowers who owe less than $500,000 and those who owe $500,000 or more, the five states with the highest amounts of delinquent debt, borrowers who received write-offs of less than $500,000 and those who received write-offs of $500,000 or more, and the five states with the highest amounts of write-offs. We did not verify the accuracy of the information contained in these databases or reports. To address the third objective, we reviewed the three statutory provisions and their legislative histories. We interviewed FSA's officials, including the Deputy Administrator for Farm Credit Programs, the Director of the Loan Servicing and Property Management Division, and the Director of the Financial Management Division; and the U.S. Department of Agriculture's (USDA) Associate General Counsel for Rural Development. Additionally, concerning the authority to contract with private attorneys, we discussed contracting by the Department of Justice with its Director of Debt Collection Management; and we reviewed the executive memorandum for USDA and Justice on FSA's contracting, USDA's and FSA's operating documentation, and statistical information we obtained from FSA's Louisiana state office. On contracting with private collection agencies, we reviewed the requirements of the Debt Collection Improvement Act of 1996 concerning the transfer of delinquent accounts to the Department of the Treasury and guidance issued by Treasury on using the private collection agencies that it has under contract. Our work was performed from January through April 1998 in accordance with generally accepted government auditing standards. Charles M. Adams, Assistant Director Oliver H. Easterwood Jerry D. Hall Patrick J. Sweeney Larry D. Van Sickle 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: (1) the levels of outstanding principal on active direct farm loans at the end of fiscal years (FY) 1995 through 1997, including the amounts owed by delinquent borrowers and the amount of debt written off by the Farm Service Agency (FSA) through the debt settlement process in each of these fiscal years; and (2) FSA's use of three statutory provisions enacted in the mid-1990s that authorize FSA to contract with the private sector to resolve delinquent loans. GAO noted that: (1) the size of the Farm Service Agency's direct farm loan portfolio has decreased in recent years; (2) the outstanding principal on active farm loans totalled about $11.4 billion in September 1995, $10.5 billion in September 1996, and $9.7 billion in September 1997; (3) the percentage of the portfolio held by delinquent borrowers--those who were at least 30 days past due on loan repayment--also decreased; (4) in September 1995, delinquent borrowers held 40.7 percent of the outstanding principal on direct farm loans; the delinquency rates for 1996 and 1997 were 34.2 percent and 28.2 percent, respectively; (5) FSA wrote off about $380 million for almost 2,000 borrowers in fiscal year (FY) 1997 through its debt settlement process, which essentially represents the agency's final resolution of unpaid loans and generally occurs after loan-security property has been liquidated; (6) previously, the agency has written off about $860 million and $780 million in (FY) 1996 and 1995, respectively; (7) of the more than $2 billion that was written off during the 1995-1997 period, most--81.5 percent--was written off with no payments to the agency by the borrowers at the time of debt settlement; (8) the extent of these write-offs underscores the high risks associated with the agency's farm loans; (9) to date, FSA has made only limited use of one of the three new loan-servicing authorities it was given in the mid-1990s; (10) specifically, it has contracted with private attorneys to obtain legal assistance in resolving delinquent farm loan accounts in two states and has no plans to expand its use in other states; (11) in regard to the other two authorities, FSA has not contracted with private lenders or with private collection agencies and is not actively considering such contracting; and (12) agency officials said they have not used these new contracting authorities more extensively because, among other things, they can obtain assistance from the Department of Justice and the Department of the Treasury or they can perform the servicing functions with their own personnel.
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SOCOM and the Army are purchasing two separate active infrared countermeasure systems to protect U.S. aircraft. They plan to spend a total of approximately $2.74 billion, including about $2.475 billion for 815 ATIRCM systems and associated common missile warning systems and about $261 million for 60 DIRCM systems and its own unique missile warning system. In addition, there are many other potential customers for an active infrared countermeasure system, such as Air Force, Navy, and Marine Corps aircraft that have not yet been committed to either ATIRCM or DIRCM. SOCOM and the Army both have a need for an effective integrated infrared countermeasure system capable of defeating infrared guided weapon systems. The Army considers this capability especially critical to counter newer, more sophisticated, infrared guided missiles. Likewise, SOCOM has established an urgent need for a near-term directional infrared countermeasure system capable of countering currently deployed infrared guided missiles. To meet its urgent need, SOCOM plans to exercise its first production option for 15 DIRCM systems in July 1998 and procure 45 additional systems during fiscal years 1998 and 1999. The Army expects to begin ATIRCM production in April 2001. Two generations of infrared missiles are currently deployed. First generation missiles can be defeated by current countermeasures, such as flares. Second generation infrared guided missiles are more difficult to defeat. More advanced infrared guided missiles are being developed that will have even greater capabilities against current countermeasures. To defeat infrared guided missiles, the ATIRCM and DIRCM systems will emit directed energy to decoy or jam the missile's seeker. Both systems are composed of a missile approach warning system, a computer processor, a power supply, and energy transmitters housed in a pointing turret. After a missile is detected, the computer is to rotate the turret and point the transmitters at the missile. The transmitters are to then emit the directed energy. Congress and DOD have a long-standing interest in reducing proliferation of electronic warfare systems. By urging development of common systems, Congress expected to reduce the costly proliferation of duplicative systems and achieve cost savings in program development, production, and logistics. DOD agrees on the need for commonality, and its policy statements reflect congressional concerns about electronic warfare system proliferation. DOD policy states that prior to initiating a new acquisition program, the services must consider using or modifying an existing system or initiate a new joint-service development program. DOD policy also requires the services to consider commonality alternatives at various points in the acquisition process. Joint electronic warfare programs and increased commonality among the services' systems results in economy of scale savings. Buying larger quantities for common use among the services usually results in lower procurement costs. Similarly, lower support costs result from a more simplified logistics system providing common repair parts, maintenance, test equipment, and training. For example, under Army leadership, a common radar warning receiver was acquired for helicopters and other special purpose aircraft of the Army, Marine Corps, and Air Force. In addition, a follow-on radar warning system for certain Army and Marine Corps special purpose aircraft and helicopters was jointly acquired with savings estimated by Army officials of $187.7 million attributable to commonality benefits. The ATIRCM and DIRCM systems will initially have one key difference in technological capability. The DIRCM system will rely on existing flash lamp technology to defeat all currently deployed first and second generation threat missiles. (A flash lamp emits a beam of light energy to confuse the missile's seeker.) The Army's ATIRCM system will also be fielded with a flash lamp but it will also have a laser. According to SOCOM officials, after the flash lamp-equipped DIRCM is fielded, they plan to upgrade the DIRCM system with a laser that has completed development and is already in production. As described later in this report, the upgraded DIRCM system could be available around the same time as the ATIRCM system. Furthermore, the DIRCM laser could be the same as the one used in ATIRCM, according to DOD officials. The Army's cost and effectiveness analysis used to justify the ATIRCM system indicates that with a laser upgrade, DIRCM could provide capability equal to the ATIRCM. The two systems will have a total of three different size turrets. According to DOD and contractor officials, the size of the turret matters because larger aircraft present larger targets and must apply more energy to decoy an incoming missile's seeker. A larger turret can direct more of the flash lamp's energy. The larger the amount of directed energy, the greater the likelihood the missile will become confused as to the actual location of the target aircraft. The DIRCM turret, to be used on SOCOM C-130s, is the largest of the three. The United Kingdom intends to use the larger DIRCM turret on its larger aircraft and a smaller turret for its helicopters and smaller aircraft. The ATIRCM turret is between the two DIRCM turrets in size. Since the ATIRCM turret will also have a laser, however, DOD acquisition officials believe it will ultimately be more effective than any system equipped only with a flash lamp. Both the DIRCM and ATIRCM programs are experiencing delays that have moved their projected availability dates significantly closer together. However, DOD has not yet taken advantage of the schedule changes to determine if one system will be more cost-effective than the other and if it can achieve significant savings by procuring only one system to protect all its aircraft. SOCOM plans to exercise the first of three production options and buy 15 DIRCM systems in July 1998. These systems will not be equipped with lasers. Production funds are projected to be included in the fiscal year 2001 budget for the DIRCM laser upgrade. Production of ATIRCM is to begin in April 2001. SOCOM officials maintain that because of their urgent need they cannot wait for the laser-equipped ATIRCM. However, the difference in the time frames for beginning production can be misleading. DIRCM is scheduled to go into production before operational testing begins, while the ATIRCM is not scheduled to begin production until operational testing is completed. If both DIRCM and ATIRCM production begin immediately after their respective operational tests, DIRCM's production is delayed until April 2000 and ATIRCM is moved up to January 2001. As a result, the systems will start production within 9 months of each other. Additionally, DIRCM, with a laser upgrade, is projected to be available in 2001, about the same time as ATIRCM with a laser. The Army is developing ATIRCM and the United Kingdom with SOCOM is developing DIRCM to work on a variety of aircraft, including some that are the same or similar. (See table 1.) For example, the United Kingdom plans to use the DIRCM system on the CH-47 Chinook helicopter while the Army plans to use ATIRCM on the Chinook. By varying the size of the turret, the United Kingdom intends to use DIRCM on aircraft of a wide range of sizes, from its very large, fixed-wing C-130s to small rotary wing aircraft such as the Lynx. Although the Army currently has no plans to install ATIRCM on fixed-wing aircraft the size of C-130s, it too will be placing its system on a wide range of aircraft from the very large CH-47 heavy lift helicopter, to the small OH-58D helicopter. If development of both systems is successful, therefore, the Army and the United Kingdom will prove that ATIRCM and DIRCM provide redundant capability for many aircraft. In addition to those SOCOM and Army aircraft identified as platforms for DIRCM or ATIRCM, there are many potential Air Force, Navy, and Marine Corps aircraft that are not yet committed to either system. These include large fixed-wing aircraft of the Air Force, as well as 425 future Marine Corps V-22 aircraft and the Navy's SH-60 helicopters. DOD's plans to acquire infrared countermeasure capability may not represent the most cost-effective approach. While we recognize SOCOM's urgent need for a countermeasure capability in the near term, we believe that DOD can satisfy this need and meet the Army's needs without procuring two separate systems. Specifically, proceeding with procurement of the first 15 DIRCM systems beginning in July 1998 appears warranted. However, continued production of DIRCM may not be the most cost-effective option for DOD since the Army is developing the ATIRCM system, which will have the same technology, be available at about the same time, and is being developed for the same or similar aircraft. We, therefore, recommend that the Secretary of Defense (1) direct that the appropriate tests and analyses be conducted to determine whether DIRCM or ATIRCM will provide the most cost-effective means to protect U.S. aircraft and (2) procure that system for U.S. aircraft that have a requirement for similar Infrared Countermeasure capabilities. Until that decision can be made, we further recommend that the Secretary of Defense limit DIRCM system procurement to the first production option of 15 systems to allow a limited number for SOCOM's urgent deployment needs. In written comments on a draft of this report, DOD concurred with our recommendation that the appropriate tests and analyses be conducted to determine whether ATIRCM or DIRCM will provide the most cost-effective protection for U.S. aircraft. According to DOD, the results of such analyses were completed in 1994 and 1995 and showed that both systems were the most cost-effective: DIRCM for large, fixed-wing C-130 aircraft and ATIRCM for smaller, rotary wing aircraft. However, as a result of events that have occurred in both programs since the analyses were conducted in 1994 and 1995, DOD's earlier conclusions as to cost-effectiveness are no longer necessarily valid and a new analysis needs to be conducted as we recommended. For example, the 1994 cost- and operational effectiveness analysis conducted for SOCOM's C-130s concluded that DIRCM should be selected because it was to be available significantly sooner than ATIRCM. As our report states, the DIRCM schedule has slipped significantly, and by the time the planned laser upgrade for DIRCM is available, ATIRCM is also scheduled to be available. Furthermore, the 1994 analysis justifying DIRCM concluded that ATIRCM would be a less expensive option and did not conclude that DIRCM would be more effective than ATIRCM. Thus, the question of which system would be most cost-effective for SOCOM's C-130s is a legitimate issue that should be addressed by DOD in a new cost-effectiveness analysis before SOCOM commits fully to DIRCM. In addition, the Army's 1995 cost- and operational effectiveness analysis justifying ATIRCM also concluded DIRCM could meet the Army's rotary wing requirement if DIRCM's effectiveness were to be improved by adding a laser. As our report notes, DOD now plans to acquire a laser as an upgrade for DIRCM. Thus, whether DIRCM or ATIRCM would be most cost-effective for the Army's rotary wing aircraft remains a legitimate and viable question that DOD should reconsider. Further, in 1994 and 1995, when DOD conducted the prior cost-effectiveness analyses, effectiveness levels for DIRCM and ATIRCM had to be assumed from simulations because no operational test results were available at that time. Operational testing, including live missile shots against the DIRCM system, is scheduled to begin in the summer of 1998 and ATIRCM testing is scheduled for 1999. In the near future, then, DOD may be in a better position to know conclusively how effective DIRCM or ATIRCM will be and this should be taken into consideration in a new cost-effectiveness analysis. DOD did not concur with a recommendation in a draft of this report that one system be procured for all U.S. aircraft, arguing that one system cannot meet all aircraft requirements. We have clarified our recommendation by eliminating the word "all". Our intent was to focus this recommendation on U.S. aircraft having a requirement for advanced infrared countermeasure protection, such as that to be provided by DIRCM or ATIRCM. For those aircraft that have an advanced infrared countermeasure requirement, we reiterate that the United Kingdom plans to use the DIRCM system on a wide variety of fixed- and rotary wing aircraft of many shapes and sizes, and the Army plans to use ATIRCM on a wide variety of rotary wing aircraft, as well as the fixed-wing CV-22. Thus, DOD should reconsider whether DIRCM or ATIRCM could provide the advanced infrared countermeasure protection necessary to meet the multiple U.S. aircraft requirements. In commenting further on its belief that one system cannot meet all U.S. aircraft requirements, DOD also stated that (1) the SOCOM DIRCM is too heavy for Army helicopters, (2) ATIRCM's smaller turret drive motors are not designed for the increased wind in SOCOM C-130 applications, and (3) ATIRCM will not emit enough Band I and II jamming energy to protect SOCOM's C-130s. We agree that the SOCOM DIRCM is too heavy for Army helicopters, but point out that the DIRCM contractor is designing a smaller DIRCM turret for the United Kingdom's helicopters that would not be too heavy for the Army's helicopters. DOD has never planned for DIRCM or ATIRCM to be the only means of protection for its aircraft from infrared guided missiles. Other systems are available to DOD to help protect against threat missiles, including those in Bands I and II, and these alternatives should be considered for use in conjunction with DIRCM or ATIRCM as DOD tries to determine how to protect its aircraft in the most cost-effective manner. DOD also did not concur with our recommendation that it limit initial DIRCM production to the first 15 units to begin filling its urgent need and to provide units to be used for testing and analysis before committing SOCOM's entire fleet of 59 C-130s to the DIRCM program. DOD maintained that SOCOM's remaining C-130s would remain vulnerable to missile threats such as the one that shot down a SOCOM AC-130 during Operation Desert Storm if any production decisions were delayed. We continue to believe that the additional analysis needs to be conducted before any DIRCM production decisions beyond the first one are made. More than 7 years have passed since the unfortunate loss of the SOCOM AC-130 and its crew in 1991. During that time, DOD delayed the first DIRCM production decision several times. The resolution of the technical problems causing these schedule slips can only be known through successful testing and implementation of our recommendation would allow units to be produced for testing. Finally, we agree with DOD that SOCOM's need is urgent and believe that the best way to begin fulfilling the urgent need while determining whether DIRCM or ATIRCM is the more cost-effective system for C-130s is to limit DIRCM production to only the first 15 systems. To develop information for this report, we compared and examined the Army's and the SOCOM's respective plans and proposed schedules for acquiring the ATIRCM and DIRCM systems. We obtained acquisition and testing plans and the proposed schedule for acquiring and fielding the systems. We compared these plans to legislative and DOD acquisition guidance and to the results of past DOD procurements. We discussed the programs with officials of the ATIRCM Project Office, St. Louis, Missouri, and the DIRCM Project Office, Tampa, Florida. Also, we visited with Lockheed-Sanders, the ATIRCM contractor, and Northrop-Grumman, the DIRCM contractor, and discussed their respective programs. We conducted our review from August 1996 to December 1997 in accordance with generally accepted government auditing standards. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written statement on actions taken on our recommendations to the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight not later than 60 days after the date of the report. A written statement must also be submitted to the Senate and House Committees on Appropriations with an agency's first request for appropriations made more than 60 days after the date of the report. We are sending copies of this report to appropriate congressional committees, the Under Secretary of Defense for Acquisition and Technology, the Secretary of the Army, the Director of the Office of Management and Budget, and the Commander of the U.S. Special Operations Command. We will also make copies available to others on request. Please contact me at (202) 512-4841 if you or your staff have any questions concerning this report. Major contributors to this report were Danny Owens, Wendy Smythe, Charles Ward, and Mark Lambert. 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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GAO reviewed the Army's Advanced Threat Infrared Countermeasure system (ATIRCM) and the U.S. Special Operations Command's (SOCOM) Directional Infrared Countermeasure (DIRCM) system to determine whether the Department of Defense (DOD) is justified in acquiring both systems. GAO noted that: (1) DOD may be able to achieve sizable savings by procuring, supporting, and maintaining only one active infrared countermeasure system to protect its aircraft from infrared guided missiles; (2) despite congressional emphasis on, and DOD's stated commitment to, commonality, SOCOM and the Army are acquiring two separate countermeasure systems that eventually will have the same laser effect technology; (3) DOD should determine which system is more cost-effective and procure that one to protect its aircraft; (4) if DIRCM is determined to be more cost-effective, the ATIRCM program should be terminated; and (5) if ATIRCM is determined to be more cost-effective, no additional DIRCM systems should be procured beyond those planned to be procured in July 1998 to meet SOCOM's urgent need.
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The CSRS features that differ by employee group are discussed in the following sections. Members of Congress can retire at younger ages and with fewer years of service than can general employees and congressional staff. General employees and congressional staff are eligible for optional retirement at age 55 with 30 years of service, at age 60 with 20 years, or at age 62 with 5 years. Members can retire at the same age and service combinations but may also retire at age 50 with 20 years and at any age with 25 years. Additionally, Members may retire at age 60 with 10 years of Member service and at age 50 with service in 9 Congresses. Law enforcement officers and firefighters may retire at age 50 with 20 years of service as a law enforcement officer or firefighter. Air traffic controllers can retire at age 50 with 20 years of air traffic controller service or at any age with 25 years of air traffic controller service. The CSRS statute specifies the formulas that will be used in calculating benefit amounts for the various groups. For Members of Congress and congressional staff who have 5 or more years of congressional service, the formula is 2.5 percent of the average annual salaries they earned during their 3 consecutive highest-paid years (known as the "high 3") for each year of congressional service. The same benefit formula applies to employees who are federal Claims Court judges, bankruptcy judges, U.S. Magistrates, or judges of the U.S. Court of Military Appeals. For example, the formula provides a benefit of 75 percent of high-3 salary to a Member or congressional staff with 30 years of congressional service. In comparison, the formula for general employees is 1.5 percent of high-3 for each of the first 5 years of service, 1.75 percent for each of the next 5 years of service, and 2 percent for each year of service greater than 10 years. The general employee formula provides a benefit of 56.25 percent of high 3 after 30 years of service. The benefit formula for law enforcement officers and firefighters is 2.5 percent of high 3 for each of the first 20 years of service and 2 percent for each year of service greater than 20. Thus, a law enforcement officer or firefighter who retires at age 50 with 20 years of service would receive 50 percent of high 3. After 30 years of service, the benefit would be 70 percent of high 3. Air traffic controllers are covered by the general employee benefit formula, but they are guaranteed to receive no less than 50 percent of their high 3 at retirement. To illustrate this point, a controller who retires at age 50 with 20 years of service receives 50 percent of his or her high 3 because the general employee formula would provide only 36.25 percent of high 3 after 20 years of service. At 25 years of service, a controller would still receive 50 percent of high 3 because the general employee formula would provide 46.25 percent. The "break-even" point occurs at just under 27 years of service when the general employee formula provides about 50 percent of high 3. When Members of Congress retire before age 60, their accrued benefits are reduced. The reduction is one-twelfth of 1 percent for each month (1 percent a year) they are between ages 55 and 60 and one-sixth of 1 percent for each month (2 percent a year) they are younger than age 55. There is no age reduction for any of the other groups covered by CSRS when they meet the optional retirement eligibility requirements. However, the reduction for Members younger than age 60 does not eliminate the overall advantages of their higher benefit formula compared with most other employees. A Member who retires at age 55 with 30 years of service receives a benefit equal to 71.25 percent of high 3 rather than the 75 percent he or she would otherwise receive without the age reduction (1 percent of accrued benefits for each of the 5 years the retiree is younger than age 60). General employees receive 56.25 percent of high 3 at age 55 and 30 years of service. Since the age reduction does not apply to congressional staff, they would receive 75 percent. Several groups, including law enforcement officers, firefighters, customs inspectors, and Veteran's Affairs' physicians, receive an additional advantage in their benefit calculations that is not afforded to other employee groups. Their high-3 salaries include certain types of premium pay. For example, the high 3 of law enforcement officers includes pay they receive for administratively uncontrollable overtime or availability pay.The high-3 amounts for other groups are limited to basic salaries and do not include any overtime they may have received. In certain circumstances, employees may retire before attaining the requirements for optional retirement or before they intended to retire. For example, general employees might be unable to continue in federal employment because their jobs were abolished or congressional staff might retire involuntarily if the Members of Congress who employ them are not reelected. Also, employees (except congressional staff) might be given the opportunity to voluntarily retire early to save the jobs of younger employees when their agencies are downsizing or transferring functions to other locations. CSRS does not include any separate early retirement provisions for Members of Congress. The optional retirement provisions apply if a Member loses an election. However, some of the age and service eligibility requirements available to Members for optional retirement are the same as the early retirement eligibility requirements for other employees under CSRS. General employees and congressional staff may retire early if they are age 50 with 20 years of service or any age with 25 years of service. Benefit amounts are reduced by one-sixth of 1 percent for each month (2 percent a year) they are younger than age 55. As discussed previously, Members may retire optionally at age 50 with 20 years of service, at any age with 25 years, or at age 50 with service in 9 Congresses (18 years). Similar to general employees, when Members retire under these provisions, their benefits are reduced by 2 percent for each year they are younger than age 55. However, unlike other employees, Members' benefits are also reduced by 1 percent for each year they are between ages 55 and 60. Members who resign or are expelled from Congress cannot receive immediate benefits unless they are at least age 55 with 30 years of service, age 62 with 5 years of service, or age 60 with 10 years of Member service. There are no special provisions for law enforcement officers, firefighters, or air traffic controllers to retire before meeting their age and service requirements for optional retirement. In situations where law enforcement officers, firefighters, or air traffic controllers might voluntarily retire early or might be separated involuntarily, the early retirement provisions (including the benefit formula) used for general employees are applied to these groups. Many employees do not continue in their federal jobs long enough to meet the age and service requirements for immediate retirement benefits. Employees who quit their jobs before completing 5 years of service receive no retirement benefits. Their contributions to the system are refunded upon request. Employees who stay longer than 5 years but leave before retirement eligibility may elect to leave their contributions in the retirement fund and receive their earned benefits later under the system's deferred retirement provisions. The deferred retirement provisions of CSRS are more generous for Members of Congress than for any other group. Deferred benefits for all employees, other than Members, are payable at age 62. Members may receive deferred benefits at age 62 if they had at least 5 years of federal service, but they are also eligible for deferred benefits at age 60 if they had at least 10 years of Member service or at age 50 if they had 20 years of federal service of which at least 10 were Member service (with the same benefit reductions as applied to Member optional retirements before age 60). Members of Congress receive another advantage under the deferred retirement provisions that is not available to any other employee group. CSRS provides benefits to the survivors of former Members who die in the interim between their separation from federal service and the age at which their deferred annuities would have commenced. Other former employees do not have this survivor protection. If they die before deferred benefit payments begin, their survivors are not eligible for survivor benefits. Rather, the former employees' contributions to the retirement fund are refunded to the survivors and no further benefits are payable. The maximum benefit allowed under CSRS for general employees and congressional staff is 80 percent of high 3. For general employees, about 41 years and 11 months of service are necessary to accrue benefits equal to 80 percent of high 3. Congressional staff benefits reach 80 percent after 32 years of congressional service. The same maximum benefit applies to law enforcement officers, firefighters, and air traffic controllers, but, because of their mandatory retirement requirements (see pp. 8-9), these employees generally cannot work long enough to earn benefits of 80 percent of high 3. Maximum benefits for Members of Congress are determined somewhat differently, and this difference is more favorable to Members. Their maximum benefit (reached after 32 years of service) is 80 percent of the greater of their high 3 or final salary as a Member of Congress. If a Member leaves Congress to accept an appointive position, the final salary of that position is used as the basis for the maximum benefit if it is greater than the former Member's high-3 salary or final salary as a Member. In some cases, retirees are reemployed by the government. The CSRS provisions covering reemployment of retired Members of Congress are significantly different from the provisions covering the reemployment of other retirees. In general, retirees (other than retired Members of Congress) who are reemployed by the government continue to receive their annuities, but their salaries are reduced by the amount of the annuity. A reemployed annuitant does not contribute to the retirement fund unless the individual chooses to have such deductions withheld. Reemployment for less than a year does not earn additional retirement benefits. However, annuitants reemployed for a year or more in positions subject to the retirement system are entitled to a supplemental annuity upon subsequent separation if they make retroactive contributions or already had deductions withheld. The supplemental annuity is based on the salary received during the reemployment period. Reemployed annuitants who serve for 5 years or more may, upon separation, elect to pay their retirement contributions retroactively (if they had not elected to have them withheld from pay) and have their annuities recomputed using their total service and new high-3 salary. When retired Members of Congress are reemployed in either elective or appointive positions, their annuities are suspended, and they again become covered by the system as if they had not retired. Reemployed Member retirees make contributions in the amount required for the positions they hold. Upon separation, they receive either (1) reinstated annuities increased by the cost-of-living adjustments that occurred during reemployment or (2) recomputed annuities with credit for their additional service, regardless of the length of the reemployment. In recognition of the differing retirement provisions for the various groups, the CSRS statute requires most groups with preferential benefits to make greater contributions to the retirement fund than general employees. General employees and air traffic controllers contribute 7 percent of their salaries. Members of Congress contribute 8 percent, and congressional staff, law enforcement officers, and firefighters contribute 7.5 percent. Any employee who has a premium pay included in the high-3 salary average must also make contributions from his/her premium pay. For example, law enforcement officers must contribute 7.5 percent of their administratively uncontrollable overtime or availability pay because these premium payments are included in their high-3 salary averages. General employees, law enforcement officers, firefighters, and air traffic controllers receive service credit in their benefit calculations for any full months of unused sick leave they have accumulated at the time of retirement. Sick leave is not used in determining retirement eligibility or high 3. For example, the benefit amount for a general employee at age 55 with 30 years of service and 1 year of unused sick leave would be calculated as if the employee had 31 years of service. The CSRS statute allows the sick leave credit only for employees who are covered by a formal leave system. Since Members of Congress and most congressional staff are not under a formal leave system, they cannot receive the sick leave credit. Of all the employee groups covered by CSRS, only law enforcement officers, firefighters, and air traffic controllers are subject to mandatory retirement provisions. Law enforcement officers must retire by age 57 or as soon thereafter as they complete 20 years of service. Firefighters must retire by age 55 or as soon thereafter as they complete 20 years of service. Individual employees in both groups can be retained to age 60 if their agency heads determine it is in the public interest for them to stay. The mandatory retirement age for air traffic controllers is age 56, regardless of their years of service, and they can be retained to age 61 when the agency head determines it is in the public interest. The basic design of FERS is much different from CSRS. In addition to a pension plan, FERS provides Social Security coverage to all employee groups and includes a Thrift Savings Plan in which all groups may participate. The Social Security and thrift plan provisions do not vary by employee group. The FERS pension plan continued the CSRS practice of providing preferential benefits to Members of Congress, congressional staff, law enforcement officers, firefighters, and air traffic controllers. However, some of the differing benefits under CSRS do not exist in the FERS pension plan. FERS eliminated the benefit reduction under CSRS that applies to Members of Congress who retire before age 60. FERS has no maximum benefit provision. Thus, the higher maximum benefits available to Members of Congress under CSRS do not exist in FERS. FERS provides benefits to the survivors of all employees and Members who have completed at least 10 years of service and die in the interim between their separation from federal service and the age at which their deferred annuities would have commenced. CSRS makes this benefit available only to Members of Congress. FERS does not grant service credit for unused sick leave to any employees, thereby not following the CSRS practice of providing a sick leave credit for all employee groups other than Members of Congress and most congressional staff. FERS eliminated CSRS' preferential treatment of retired Members of Congress who become reemployed by the government. It requires that annuities for all reemployed retirees, including Members, be continued during the reemployment period but deducted from the retirees' salaries. Any reemployed annuitant, including Members, must be reemployed at least 1 year before a supplemental annuity is payable and must be reemployed at least 5 years before the annuity can be recomputed. The features of the FERS pension plan that differ by employee group are discussed in the next section. The FERS pension plan raised the retirement age for general employees and congressional staff. It adopted a Minimum Retirement Age (MRA) concept that gradually increases, from age 55 to age 57, the earliest age at which general employees and congressional staff are eligible for optional retirement. However, FERS continued the CSRS practice of allowing Members of Congress to retire at younger ages and with fewer years of service than general employees and congressional staff. General employees and congressional staff are eligible to retire at the MRA with 30 years of service, at age 60 with 20 years, and at age 62 with 5 years. Members of Congress are eligible to retire at the same age and service combinations but may also retire at age 50 with 20 years of service or at any age with 25 years. FERS allows law enforcement officers, firefighters, and air traffic controllers to retire at age 50 with 20 years of service or at any age with 25 years. In this manner, the eligibility requirements for all three groups were made the same under FERS. (Under CSRS, eligibility to retire at any age with 25 years of service is available to air traffic controllers only.) FERS also continued the mandatory retirement requirements and associated provisions in CSRS for law enforcement officers, firefighters, and air traffic controllers. FERS added a provision not included in CSRS that allows Members of Congress, congressional staff, and general employees to retire at the MRA with 10 years of service. However, the accrued benefits for persons who retire under this provision are reduced by five-twelfths of 1 percent for each month (5 percent a year) they are younger than age 62. The benefit formulas for Members of Congress, congressional staff, law enforcement officers, firefighters, and air traffic controllers are all the same under the FERS pension plan. They receive 1.7 percent of their high-3 salaries for each of the first 20 years of service and 1 percent of high 3 for each year of service over 20 years. The FERS benefit formula for general employees is considerably less beneficial than the formula for the other groups. Benefits for general employees who retire before age 62 are calculated at 1 percent of high 3 for each year of service. To encourage later retirements, FERS uses a more generous benefit formula for general employees who retire at age 62 or older with at least 20 years of service. These employees' benefits are calculated at 1.1 percent of high 3 for each year of service. To illustrate the effect of the different benefit formulas under the FERS pension plan, Members of Congress, congressional staff, law enforcement officers, firefighters, and air traffic controllers would all receive 44 percent of their high-3 salaries after 30 years of service. General employees would receive 30 percent if they were younger than age 62 and 33 percent if they were age 62 or older. Like CSRS, the FERS pension plan allows general employees and congressional staff to retire before attaining the age and service requirements for optional retirement. The age and service requirements for early retirement and the conditions under which early retirement may be granted are the same as those under CSRS. Also like CSRS, FERS does not include any separate early retirement provisions for Members of Congress, although some of the age and service requirements available to Members for optional retirement are the same as the early retirement requirements applicable to general employees and congressional staff. FERS also continued the CSRS practice of not allowing law enforcement officers, firefighters, and air traffic controllers to retire before meeting their age and service requirements for optional retirement unless they qualify for early retirement by adding service in other federal occupations. In such cases, the general employee provisions apply. A major difference between the CSRS and FERS provisions on early retirement is that FERS does not require reductions in earned benefits for employees who retire before attaining optional retirement eligibility. While CSRS requires benefits to be reduced by 2 percent for each year a retiree is younger than age 55, there is no such reduction in the FERS pension plan. The deferred retirement provisions under the FERS pension plan are considerably different from CSRS. The earliest age at which deferred benefits are available under CSRS, other than for Members of Congress, is age 62. However, FERS makes deferred benefits available to general employees and congressional staff when they would have qualified for optional retirement if they had not left the government. Under FERS, unreduced deferred benefits are paid to these employees at the MRA if they had at least 30 years of service, at age 60 if they had at least 20 years, and at age 62 with at least 5 years. To illustrate this point, an employee who resigns his job at age 52 after completing 30 years of service is eligible for deferred benefits at his MRA (age 55 to 57, depending on date of birth). Under CSRS, the employee must wait until age 62 for the deferred benefits to begin. The FERS pension plan allows Members of Congress, law enforcement officers, firefighters, and air traffic controllers to receive deferred benefits at the same ages and years of service as general employees if they were not eligible for optional retirement at the time of separation. Deferred benefits for law enforcement officers, firefighters, and air traffic controllers under these circumstances are calculated under the general employee formula, but Members of Congress and congressional staff retain their special benefit formula. The FERS pension plan also provides deferred benefits to all groups at the MRA if they had completed at least 10 years of service. Deferred benefit amounts paid in these circumstances are reduced by 5 percent for each year the former employees are younger than age 62. Like CSRS, the FERS pension plan requires the groups with preferential benefits to make greater contributions to the retirement fund than general employees. General employees are required to contribute 7 percent of their salaries less the Social Security tax rate (now 6.2 percent), exclusive of Medicare. The current general employee contribution rate to the FERS pension plan is 0.8 percent of salary. Members of Congress, congressional staff, law enforcement officers, firefighters, and air traffic controllers must contribute 7.5 percent of salary less their Social Security taxes. Their current contribution rate to the FERS pension plan is 1.3 percent of salary. We requested comments on a draft of this report from the Director of OPM or his designee. On May 8, 1995, we met with the Chief of the Retirement Policy Division to discuss the report. He agreed that the report accurately portrayed the major features of CSRS and FERS. He also suggested certain wording changes that he felt would better describe the differing provisions for the various employee groups. In general, we incorporated the suggested changes. A copy of this report is being sent to Congressman Dan Miller, who also asked us for information on congressional retirement. Copies of the report are also being sent to the Director of OPM and other parties interested in federal retirement matters and will be made available to others on request. Assistant Director Robert E. Shelton and Senior Evaluator Laura G. Shumway developed the information for this report. Please contact me on (202) 512-5074 if you or your staffs have any questions about this report. This appendix lists CSRS provisions that differ for the various employee groups they cover. Not only do the provisions vary by employee group, but they also vary by the type of retirement. The types of retirement shown in table I.1 include: optional retirement in which employees may opt to retire and receive an early retirement in which employees may retire and receive an immediate annuity before attaining the age and service requirements for optional retirement. The circumstances include (1) involuntary separations such as loss of employment through job abolishment or reduction-in-force and (2) voluntary separations occurring when an agency is undergoing a major reorganization, a major reduction-in-force, or a major transfer of function where a significant percentage of employees will be separated or have their salary grades reduced; and deferred retirement in which employees leave federal service before qualifying for optional or early retirement, i.e., before qualifying for an annuity that can begin immediately. Their annuities are deferred until they reach a specified age. Age 62, 5 years Age 55, 30 years (with reduction) Age 50, 20 years (with reduction) Any age, 25 years (with reduction) Age 50, service in nine Congresses (with reduction) None at age 60 and older Annuity reduced by one-twelfth of 1% for each month Member is between ages 55 and 60 (1% a year) and by one-sixth of 1% for each month Member is under age 55 (2% a year) 80% of high 3, excluding credit for unused sick leave 80% of high 3 80% of the greater of: - final basic pay of the Member, - high 3 of the Member, or - final basic pay of the appointive position of a former Member (continued) Age 50, 20 years Any age, 25 years (with reduction if under age 55) Same as optional retirement formula with reduction if under age 55 Annuity reduced by one-sixth of 1% for each month the employee is under age 55 (2% a year) None. See optional and deferred retirement provisions (with reduction if under age 55) Annuity payable when former Member reaches: - age 62 with at least 5 years of service - age 60 with at least 10 years of Member service - age 50 with at least 20 years of federal service, including at least 10 years Member service (with reduction) Air traffic controllers must retire at age 56, regardless of years of service(continued) Annuity continues upon reemployment, but the salary is reduced by the amount of the annuity as long as required contributions are made an individual employed: - at least one year can receive a supplemental annuity upon separation, and - at least five years can have the annuity recomputed based on total service and a new high 3 Annuity suspended upon reemployment and Member again makes required contributions Upon separation, the annuity recommences and is either (1) recomputed with credit for additional service regardless of how long the Member was reemployed or (2) reinstated with the cost-of-living adjustments that occurred during reemployment Members cannot receive an annuity under these age and service requirements if they resign or are expelled from Congress. The high 3 for law enforcement officers includes availability pay or pay for administratively uncontrollable overtime. Law enforcement officers and firefighters may be retained to age 60 when the agency head believes the public interest requires that they stay. This appendix lists FERS provisions that differ for the various employee groups they cover. Not only do the provisions vary by employee group, but they also vary by the type of retirement. The types of retirement shown in table II.1 include: optional retirement in which employees may opt to retire and receive an early retirement in which employees may retire and receive an immediate annuity before attaining the age and service requirements for optional retirement. The circumstances include (1) involuntary separations such as loss of employment through job abolishment or reduction-in-force and (2) voluntary separations occurring when an agency is undergoing a major reorganization, a major reduction-in-force, or a major transfer of function where a significant percentage of employees will be separated or have their salary grades reduced; and deferred retirement in which employees leave federal service before qualifying for optional or early retirement, i.e., before qualifying for an annuity that can begin immediately. Their annuities are deferred until they reach a specified age. Age 60, 20 years Age 62, 5 years MRA, 10 years (with reduction) Formula for determining the annuity amount 1.1% of high 3 for each year of service if age 62 or older with 20 years 1% of high-3 for each year of service if under age 62, or age 62 or older with less than 20 years None at ages MRA and 30 years, age 60 and 20 years, or age 62 and 5 years For employee retiring at MRA and 10 years, annuity reduced by five-twelfths of 1% for each month employee is under age 62 (5% a year) Age 62, 5 years Age 50, 20 yearsAny age, 25 yearsMRA, 10 years (with reduction) If 5 or more years of congressional service: 1.7% of high-3 for each of first 20 years of congressional service 1% of high-3 for each year over 20 years of congressional service and any other federal service (including military service) None at ages MRA and 30 years, age 60 and 20 years, age 62 and 5 years, age 50 and 20 years, or any age and 25 years For Member retiring at MRA and 10 years, annuity reduced by five-twelfths of 1% for each month Member is under age 62 (5% a year) Same as optional retirement formula (continued) Annuity payable when former employee reaches the age requirement for optional retirement: - MRA with at least 30 years - age 60 with at least 20 years - age 62 with at least 5 years - MRA with at least 10 years (with reduction) Same as optional retirement formula None at age 62, age 60 and 20 years, or MRA and 30 years For MRA and 10 years, annuity reduced by five-twelfths of 1% for each month the former employee is under age 62 (5% a year) If at least 10 years of service, annuity begins on the day after the former employee would have been - age 62, if less than 20 years service - age 60, if 20 through 29 years service - MRA, if 30 or more years service Alternatively, annuity can begin the day after death, but annuity computed actuarially equivalent to waiting for above age and service combinations Currently 0.8% of salary (7% of salary less the Social Security tax rate, other than Medicare) Air traffic controllers must retire at age 56 or as soon thereafter as they complete 20 years of service(continued) Annuity continues upon reemployment, but the salary is reduced by the amount of the annuity As long as required contributions are made, an individual employed: - at least one year can receive a supplemental annuity upon separation, and - at least five years can have the annuity recomputed based on total service and a new high 3 upon separation The high 3 for law enforcement officers includes availability pay or pay for administratively uncontrollable overtime. Law enforcement officers and firefighters may be retained to age 60 when the agency head believes the public interest requires that they stay. Figure III.1: Maximum CSRS Annuities Immediately Available to Employee Groups Under the Optional Retirement Provisions Law enforcement officers and firefighters Note 1: The CSRS optional retirement provisions are described in appendix I. Under these provisions an individual may voluntarily retire with an immediate annuity, which may be unreduced or reduced depending on his/her age and years of service at the time of retirement. Special early out voluntary retirements, disability retirements, and involuntary retirements are not considered optional. Note 2: These bars represent the maximum percentage of high-3 that is available at the years of service shown. The ages required to obtain these maximum percentages vary by group. Note 3: The percentages shown above the bars are rounded. For example, the 56 percent shown for general federal employees and air traffic controllers at 30 years of service is actually 56.25 percent. Law enforcement officers and firefighters Note 1: A missing bar means the employee group cannot retire at that age and years of service under the optional retirement provisions. Note 2: The percentages shown above the bars are rounded. For example, the 56 percent shown for air traffic controllers at 30 years of service is actually 56.25 percent. Law enforcement officers and firefighters Note 1: A missing bar means the employee group cannot retire at that age and years of service under the optional retirement provisions. Note 2: The percentages shown above the bars are rounded. For example, the 56 percent shown for general federal employees and air traffic controllers at 30 years of service is actually 56.25 percent. Note 1: A missing bar means the employee group cannot retire at that age and years of service under the optional retirement provisions. Note 2: The percentages shown above the bars are rounded. For example, the 56 percent shown for general federal employees at 30 years of service is actually 56.25 percent. Note 3: Law enforcement officers, firefighters, and air traffic controllers are not shown in this figure. In most cases, they have already retired because of their mandatory retirement ages. Note 1: The percentages shown above the bars are rounded. For example, the 56 percent shown for general federal employees at 30 years of service is actually 56.25 percent. Note 2: Law enforcement officers, firefighters, and air traffic controllers are not shown in this figure. In most cases, they have already retired because of their mandatory retirement ages. Figure IV.1: Maximum FERS Annuities Immediately Available to Employee Groups Under the Optional Retirement Provisions Law enforcement officers and firefighters (Figure notes on next page) Note 1: The FERS optional retirement provisions are described in appendix II. Under these provisions an individual may voluntarily retire with an immediate annuity, which may be unreduced or reduced depending on his/her age and years of service at the time of retirement. Special early out voluntary retirements, disability retirements, and involuntary retirements are not considered optional. Note 2: These bars represent the maximum percentage of high-3 that is available at the years of service shown. The ages required to obtain these maximum percentages vary by group. Note 3: The percentages shown above the bars are rounded. For example, the 9 percent shown for Members of Congress at 5 years of service is actually 8.5 percent. Note 4: If a general federal employee is age 62 with at least 20 years of service, the percentages are 22 percent with 20 years, 27.5 percent with 25 years, 33 percent with 30 years, and 38.5 percent with 35 years, because the multiplier increases from 1 percent for each year of service to 1.1 percent for each year of service.
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Pursuant to a congressional request, GAO compared the retirement benefits available to members of Congress and congressional staff with those available to other employees under the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). GAO found that: (1) CSRS provisions for congressional members are generally more generous than those for general employees; (2) Members of Congress, law enforcement officers, firefighters, and air traffic controllers may retire at a younger age and with fewer years of service than general and congressional employees; (3) Members, congressional staff, law enforcement officers, firefighters, and court judges enjoy a higher benefit formula than general employees; (4) air traffic controllers are covered by the general employee benefit formula, but they are guaranteed a minimum 50-percent pension; (5) general employees and Members are subject to having their pensions reduced if they retire early; (6) some special employee groups have their premium pay included in their benefit formulas; (7) employees who receive preferential benefits are required to make greater payroll contributions; (8) the FERS pension plan has many of the CSRS advantages for Members, congressional staff, law enforcement officers, firefighters, and air traffic controllers and has eliminated or changed some CSRS provisions; and (9) under FERS, law enforcement officers, firefighters, and air traffic controllers enjoy provisions similar to those for Members of Congress.
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The Department of Defense's budget is the product of a complex process designed to develop an effective defense strategy that supports U.S. national security objectives. For munitions, the department generally does not have the combatant commands submit separate budgets, but relies on the military services' budget submissions. Thus, the military services are largely responsible for determining requirements for the types and quantities of munitions that are bought. The Department of Defense Inspector General and GAO have issued numerous reports dating back to 1994 identifying systemic problems--such as questionable and inconsistently applied data, inconsistent processes among and between services, and unclear guidance--that have inflated the services' requirements for certain categories of munitions and understated requirements for other categories. (For a listing of these reports, see app. II.) In 1997, as one step toward addressing these concerns, the Department of Defense issued Instruction 3000.4, which sets forth policies, roles and responsibilities, time frames, and procedures to guide the services as they develop their munitions requirements. This instruction is referred to as the capabilities-based munitions requirements process and is the responsibility of the Under Secretary of Defense for Acquisition, Technology, and Logistics. The instruction describes a multi-phased analytical process that begins when the Under Secretary of Defense for Policy develops--in consultation with the Chairman of the Joint Chiefs of Staff, the military services, and the combatant commands--policy for the Defense Planning Guidance. The Defense Intelligence Agency uses the Defense Planning Guidance and its accompanying scenarios, as well as other intelligence information, to develop a threat assessment. This assessment contains estimates and facts about the potential threats that the United States and allied forces could expect to meet in war scenarios. The combatant commanders (who are responsible for the theaters of war scenarios), in coordination with the Joint Chiefs of Staff, use the threat assessment to allocate each service a share of the identified targets by phases of the war. The services then develop their combat requirements using battle simulation models and scenarios to determine the number and mix of munitions needed to meet the combatant commanders' specific objectives. Despite the department's efforts to standardize the process and generate consistent requirements, many questions have continued to be raised about the accuracy or reliability of the munitions requirements determination process. In April 2001, we reported continuing problems with the capabilities-based munitions requirements determination process because the department (1) had yet to complete a database providing detailed descriptions of the types of targets on large enemy installations that would likely be encountered, based on warfighting scenarios; (2) had not set a time frame for completing its munitions effectiveness database; and (3) was debating whether to include greater specificity in its warfighting scenarios and to rate the warfighting scenarios by the probability of their occurrence. These process components significantly affect the numbers and types of munitions needed to meet the warfighting combatant command's objectives. The department acknowledged these weaknesses and recognized that inaccurate requirements can negatively affect munitions planning, programming, and budget decisions, as well as assessments of the size and composition of the industrial production base. In responding to our report's recommendations, the department has taken a number of actions to correct the problems we identified. Our review of the requirements process and related documentation showed that the Department of Defense corrected the previously identified systemic problems in its process for determining munitions requirements, but the reliability of the process continues to be uncertain because of the department's failure to link the near-term munitions needs of the combatant commands and the purchases made by the military services based on computations derived from the department's munitions requirements determination process. Because of differences in how requirements are determined, asking a question about the quantities of munitions that are needed can result in one answer from the combatant commanders and differing answers from the military services. For this reason, the combatant commands may report shortages of munitions they need to carry out warfighting scenarios. We believe--and the department's assessment of its munitions requirements process recognizes--that munitions requirements and purchase decisions made by the military services should be more closely linked to the needs of the combatant commanders. The main issue that the department still needs to address is engaging the combatant commands in the requirements determination process, budgeting processes, and related purchasing decisions to minimize the occurrence of reported shortages. Because of the present gap between the combatant commands' munitions needs and department's requirements determination process, which helps shape the services' purchasing decisions, munitions requirements are not consistently stated, and thus the amount of funding needed to alleviate possible shortages is not always fully understood. In April 2001, we reported that key components of the requirements determination process either had not been completed or had not been decided upon. At that time, the department had not completed a database listing detailed target characteristics for large enemy installations based on warfighting scenarios and had not developed new munitions effectiveness data to address deficiencies identified by the services and the combatant commanders. Additionally, the department had not determined whether to create more detailed warfighting scenarios in the Defense Planning Guidance or to rate scenarios in terms of their probability. We concluded that until these tasks were completed and incorporated into the process, questions would likely remain regarding the accuracy of the munitions requirements process as well as the department's ability to identify the munitions most appropriate to defeat potential threats. In response to our report, the department took actions during fiscal years 2001 and 2002 to resolve the following three key issues affecting the reliability of the munitions requirements process: List of targets--The department lacked a common picture of the number and types of targets on large enemy installations as identified in the warfighting scenarios, and, as a result, each of the services had been identifying targets on enemy installations differently. To resolve this issue, the Joint Chiefs instructed the Defense Intelligence Agency, in coordination with the combatant commanders, to develop target templates that would provide a common picture of the types of potential targets on enemy installations. In August 2001, the department revised its capabilities-based requirements instruction to incorporate the target templates developed by the Defense Intelligence Agency as the authoritative threat estimate for developing munitions requirements. Munitions effectiveness data--The department was using outdated information to determine the effectiveness of a munition against a target and to predict the number of munitions necessary to defeat it. The department recognized that munitions effectiveness data is a critical component for requirements planning and that outdated information could over- or understate munitions requirements. To address this shortfall, the department updated its joint munitions effectiveness manual with up-to-date munitions effectiveness data for use by the services in their battle simulation models. Warfighting scenarios--The Defense Planning Guidance contains warfighting scenarios that detail conditions that may exist during the conduct of war; these scenarios are developed with input from several sources, including the Defense Intelligence Agency, the Joint Chiefs of Staff, and the services. This guidance should provide a common baseline from which the combatant commands and the services determine their munitions requirements. However, when the department adopted the capabilities-based munitions requirements instruction, details were eliminated in favor of broader guidance. To ensure that the combatant commanders and the services plan for the most likely warfighting scenario and do not use unlikely events to support certain munitions, the department revised the Defense Planning Guidance to provide fewer warfighting scenarios and more detail on each. The department expected that these actions to improve the munitions requirements process would correct over- or understated requirements and provide the combatant commands with needed munitions. However, despite the department's efforts to enhance the requirements determination process, one problem area remains--inadequate linkage between the near-term munitions needs of the combatant commands and the purchases made by the military services based on computations derived from the department's munitions requirements determination process. Various actions taken to address this issue have not been successful. The disjunction between the department's requirements determination processes and combatant commanders' needs is rooted in separate assessments done at different times. The services, as part of their budgeting processes, develop the department's munitions requirements using targets provided by the combatant commands (based on the Defense Intelligence Agency's threat report), battle simulation models, and scenarios to determine the number and mix of munitions needed to meet the combatant commanders' objectives in each war scenario. To develop these requirements, the services draw upon and integrate data and assumptions from the Defense Planning Guidance, warfighting scenarios, and target allocations, as well as estimates of repair and return rates for enemy targets and projected assessments of damage to enemy targets and installations. Other munitions requirements are also determined, and include munitions needed (1) for forces not committed to support combat operations, (2) for forward presence and current operations, (3) to provide a post-theater of war combat capability, and (4) to train the forces, support service programs, and support peacetime operations. These requirements, in addition to the combat requirement, comprise the services' total munitions requirement. The total munitions requirement is then compared to available inventory and appropriated funds to determine how many of each munition the services will procure within their specified funding limits and is used to develop the services' Program Objectives Memorandum and their budget submissions to the President. Periodically the combatant commanders prepare reports of their readiness status, including the availability of sufficient types and quantities of munitions needed to meet the combatant commanders' warfighting objectives, but these munitions needs are not tied to the services' munitions requirements or to the budgeting process. In determining readiness, the combatant commanders develop their munitions needs using their own battle simulation models, scenarios, and targets and give emphasis to the munitions they prefer to use or need for unique war scenarios to determine the number and mix of munitions they require to meet their warfighting objectives. The combatant commanders calculate their needs in various ways--unconstrained and constrained and over various time periods (e.g., 30 days and 180 days). Unconstrained calculations are based on the combatant commanders' assessment of munitions needs, assuming that all needed munitions are available. Constrained calculations represent the combatant commanders' assessment of munitions needs to fight wars under certain rules of engagement that limit collateral damage and civilian and U.S. military casualties. Because the combatant commanders' battle simulation models and scenarios differ from those used by the military services, their munitions needs are different, which can result in reports of munitions shortages. In contrast, the U.S. Special Operations Command develops its combat requirements for the number and mix of munitions needed to meet its warfighting objectives using the same battle simulation models and scenarios that the services used and provides these requirements to the services, rather than providing only potential targets to the services as other commands do. This permits the U.S. Special Operations Command to more directly influence the assumptions about specific weapons systems and munitions to be used. As a result of working together, the Command's and the services' requirements are the same. In an effort to close the gap between the combatant commanders' needs and the department's munitions requirements determination process, a 1999 pilot project was initiated by the department to bridge this gap by better aligning the combatant commanders' near-term objectives (which generally cover a 2-year period) and the services' long-term planning horizon (which is generally 6 years). Another benefit of the pilot was that the Joint Chiefs of Staff could validate the department's munitions requirements by matching requirements to target allocations. However, the Army, the Navy, and a warfighting combatant commander objected to the pilot's results because it allocated significantly more targets to the Air Force and fewer targets to the Army. Army officials objected that the pilot's methodology did not adequately address land warfare, which is significantly different from air warfare. The Navy did not concur with the results, citing the lack of recognition for the advanced capabilities of future munitions. U.S. Central Command officials disagreed with the results, stating that a change in methodology should not in and of itself cause the allocation to shift. In July 2000, citing substantial concerns about the pilot, the Under Secretary of Defense for Acquisition, Technology, and Logistics suspended the target allocation for fiscal year 2000 and directed the services to use the same allocations applied to the fiscal year 2002 to the 2007 Program Objectives Memorandum. In August 2000, the Joint Chiefs of Staff made another attempt to address the need for better linkage between the department's munitions requirements process and the combatant commanders' munitions needs. The combatant commanders were to prepare a near-term target allocation using a methodology developed by the Joint Chiefs of Staff. Each warfighting combatant commander developed two allocations--one for strike (air services) forces and one for engagement (land troops) forces for his area of responsibility. The first allocated specific targets to strike forces under the assumption that the air services can eliminate the majority of enemy targets. The second allocation assumed that less than perfect conditions exist (such as bad weather), which would limit the air services' ability to destroy their assigned targets and require that the engagement force complete the mission. The combatant commanders did not assign specific targets to the engagement forces, but they estimated the size of the expected remaining enemy land force. The Army and the Marines then were expected to arm themselves to defeat those enemy forces. The Joint Chiefs of Staff used the combatant commanders' near- year threat distribution and extrapolated that information to the last year of the Program Objectives Memorandum for the purpose of the services' munitions requirements planning. The department expected that these modifications would correct over- or understated requirements and bridge the gap between the warfighting combatant commanders' near-term interests and objectives and the services' longer planning horizon. However, inadequate linkage remains between the near-term munitions needs of the combatant commands and the department's munitions requirements determinations and purchases made by the military services. This is sometimes referred to as a difference between the combatant commanders' near-term focus (generally 2 years) and the services longer- term planning horizon (generally 6 years). However, we believe that there is a more fundamental reason for the disconnect; it occurs because the department's munitions requirements determination process does not fully consider the combatant commanders' preferences for munitions and weapon systems to be used against targets identified in projected scenarios. On June 18, 2002, the department contracted with TRW Inc. to assess its munitions requirements process and develop a process that will include a determination of the near-year and out-year munitions requirements. The assessment, which will build upon the capabilities-based munitions requirements process, is also expected to quantify risk associated with any quantity differential associated between requirements and inventory and achieve a balance between inventory, production, and consumption. A final report on this assessment is due in March 2003. The department's munitions requirements process provides varying answers for current munitions acquisitions because of the inadequate linkage between the near-term munitions needs of the combatant commands and the munitions requirements computed by the military services. As a result, the services are purchasing some critically needed munitions based on available funding and the contractors' production capacity. For example, in December 2001, both the services and the combatant commanders identified shortages for joint direct attack munitions (a munition preferred by each of the combatant commanders). According to various Department of Defense officials, these amounts differed and exceeded previously planned acquisition quantities. Therefore, the department entered into an agreement to purchase the maximum quantities that it could fund the contractor to manufacture and paid the contractor to increase its production capacity. In such cases, the department could purchase too much or too little, depending upon the quantities of munitions ultimately needed. While this approach may be needed in the short term, it raises questions whether over the long term it would position the services to make the most efficient use of appropriated funds and whether the needs of combatant commands to carry out their missions will be met. Until the department establishes a more direct link between the combatant commanders' needs, the department's requirements determinations, and the services' purchasing decisions, the department will be unable to determine with certainty the quantities and types of munitions the combatant commanders need to accomplish their missions. As a result, the amount of munitions funds needed will remain uncertain, and assessments of the size and composition of the industrial production base will be negatively affected. Unless this issue is resolved, the severity of the situation will again be apparent when munitions funding returns to normal levels and shortages of munitions are identified by the combatant commands. We recommend that the Secretary of Defense establish a direct link between the munitions needs of the combatant commands--recognizing the impact of weapons systems and munitions preferred or expected to be employed--and the munitions requirements determinations and purchasing decisions made by the military services. 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 Government Affairs and the House Committee on Government Reform not later than 60 days after the date of this report. A written statement must also be sent 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. The Director of the Office of the Under Secretary of Defense's Strategic and Tactical Systems provided written comments on a draft of this report. They are included in appendix III. The Department of Defense concurred with the recommended linkage of munitions requirements and combatant commanders' needs. The Director stated that the department, through a munitions requirements study directed by the fiscal year 2004 Defense Planning Guidance, has identified this link as a problem and has established a solution that will be documented in the next update of Instruction 3000.4 in fiscal year 2003. The department also provided technical comments, which we incorporated in the report as appropriate. We are sending copies of this report to the appropriate congressional committees and to the Director, Office of Management and Budget. The report is also available on GAO's Web site at http://www.gao.gov. The scope and methodology of our work is presented in appendix I. If you or your staff have any questions on the matters discussed in this letter, please contact me at (202) 512-4300. Key contributors to this letter were Ron Berteotti, Roger Tomlinson, Tommy Baril, and Nelsie Alcoser. To determine the extent to which improvements had been made to the Department of Defense's requirements determination process, we reviewed the Department's Instruction 3000.4, Capabilities-Based Munitions Requirements (to ascertain roles and oversight responsibilities and to identify required inputs into the process); 17 Department of Defense Inspector General reports and 4 General Accounting Office reports relating to the department's munitions requirements determination process (to identify reported weaknesses in the requirements determination process); and reviewed requirements determinations and related documentation and interviewed officials (to identify actions taken to correct weaknesses in the requirements determination process) from the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, Washington, D.C.; Joint Chiefs of Staff (Operations, Logistics, Force Structure, Resources and Assessment), Washington, D.C.; and Army, Navy, and Air Force officials responsible for budgeting, buying, and allocating munitions. To determine whether the munitions requirements determination process was being used to guide current munitions acquisitions, we met with the services' headquarters officials (to determine how each service develops its munitions requirements, to obtain data on the assumptions and inputs that go into its simulation models, to see how each service reviews the outcome of its munitions requirement process, and to determine the basis for recent munitions purchases) and interviewed officials at U.S. Central Command and U.S. Special Operations Command, MacDill Air Force Base, Florida; U.S. Southern Command, Miami, Florida; U.S. Pacific Command; Headquarters Pacific Air Forces; U.S. Army Pacific; Marine Forces Pacific; U.S. Pacific Fleet, Oahu, Hawaii; U.S. Forces Korea; Eighth U.S. Army, Seoul, Korea; and 7th Air Force, Osan, Korea (to determine whether the munitions needed by the warfighters are available). We performed our review from March 2002 through July 2002 in accordance with generally accepted government auditing standards. Defense Logistics: Unfinished Actions Limit Reliability of the Munition Requirements Determination Process. GAO-01-18. Washington, D.C.: April 2001. Summary of the DOD Process for Developing Quantitative Munitions Requirements. Department of Defense Inspector General. Washington, D.C.: February 24, 2000. Air Force Munitions Requirements. Department of Defense Inspector General. Washington, D.C.: September 3, 1999. Defense Acquisitions: Reduced Threat Not Reflected in Antiarmor Weapon Acquisitions. GAO/NSIAD-99-105. Washington, D.C.: July 22, 1999. U.S. Special Operations Command Munitions Requirements. Department of Defense Inspector General. Washington, D.C.: May 10, 1999. Marine Corps Quantitative Munitions Requirements Process. Department of Defense Inspector General. Washington, D.C.: December 10, 1998. Weapons Acquisitions: Guided Weapon Plans Need to be Reassessed. GAO/NSIAD-99-32. Washington, D.C.: December 9, 1998. Navy Quantitative Requirements for Munitions. Department of Defense Inspector General. Washington, D.C.: December 3, 1998. Army Quantitative Requirements for Munitions. Department of Defense Inspector General. Washington, D.C.: June 26, 1998. Management Oversight of the Capabilities-Based Munitions Requirements Process. Department of Defense Inspector General. Washington, D.C.: June 22, 1998. Threat Distributions for Requirements Planning at U.S. Central Command and U.S. Forces Korea. Department of Defense Inspector General. Washington, D.C.: May 20, 1998. Army's and Marine Corps' Quantitative Requirements for Blocks I and II Stinger Missiles. Department of Defense Inspector General. Washington, D.C.: June 25, 1996. U.S. Combat Air Power-Reassessing Plans to Modernize Interdiction Capabilities Could Save Billions. Department of Defense Inspector General. Washington, D.C.: May 13, 1996. Summary Report on the Audits of the Anti-Armor Weapon System and Associated Munitions. Department of Defense Inspector General. Washington, D.C.: June 29, 1995. Weapons Acquisition: Precision Guided Munitions in Inventory, Production, and Development. GAO/NSIAD-95-95. Washington, D.C.: June 23, 1995. Acquisition Objectives for Antisubmarine Munitions and Requirements for Shallow Water Oceanography. Department of Defense Inspector General. Washington, D.C.: May 15, 1995. Army's Processes for Determining Quantitative Requirements for Anti-Armor Systems and Munitions. Department of Defense Inspector General. Washington, D.C.: March 29, 1995. The Marine Corps' Process for Determining Quantitative Requirements for Anti-Armor Munitions for Ground Forces. Department of Defense Inspector General. Washington, D.C.: October 24, 1994. The Navy's Process for Determining Quantitative Requirements for Anti-Armor Munitions. Department of Defense Inspector General. Washington, D.C.: October 11, 1994. The Air Force's Process for Determining Quantitative Requirements for Anti-Armor Munitions. Department of Defense Inspector General. Washington, D.C.: June 17, 1994. Coordination of Quantitative Requirements for Anti-Armor Munitions. Department of Defense Inspector General. Washington, D.C.: June 14, 1994.
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The Department of Defense (DOD) planned to spend $7.9 billion on acquiring munitions in fiscal year 2002. Ongoing military operations associated with the global war on terrorism have heightened concerns about the unified combatant commands having sufficient quantities of munitions. Since 1994, the DOD Inspector General and GAO have issued numerous reports identifying weaknesses and expressing concerns about the accuracy of the process used by the department to determine munitions requirements. DOD has improved its munitions requirements process by eliminating most of the systematic problems--correcting questionable and inconsistently applied data, completing target templates, and resolving issues involving the level of detail that should be included in planning guidance. However, a fundamental problem remains unaddressed--inadequate linkage between the near-term munitions needs of the combatant commands and the purchases made by the military services based on computations derived from the department's munitions requirement determination process. The department's munitions requirements process provides varied answers for current munitions acquisitions questions because of the aforementioned disjunction. As a result, the services, in the short term, are purchasing some critically needed munitions based on available funding and contractors' production capacity. Although this approach may be necessary in the short term, it raises questions as to whether over the long term it would position the services to make the most efficient use of appropriated funds and whether the needs of combatant commands to carry out their missions will be met.
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When providers at VAMCs determine that a veteran needs outpatient specialty care, they request and manage consults using VHA's clinical consult process. Clinical consults include requests by physicians or other providers for both clinical consultations and procedures. A clinical consultation is a request seeking an opinion, advice, or expertise regarding evaluation or management of a patient's specific clinical concern, whereas a procedure is a request for a specialty procedure such as a colonoscopy. Clinical consults are typically requested by a veteran's primary care provider using VHA's electronic consult system. Once a provider sends a request, VHA requires specialty care providers to review it within 7 days and determine whether to accept the consult. If the specialty care provider accepts the consult--determines the consult is needed and is appropriate--an appointment is made for the patient to receive the consultation or procedure. In some cases, a provider may discontinue a consult for several reasons, including that the care is not needed, the patient refuses care, or the patient is deceased. In other cases the specialty care provider may determine that additional information is needed, and will send the consult back to the requesting provider, who can resubmit the consult with the needed information. Once the appointment is held, VHA's policy requires the specialty care provider to appropriately document the results of the consult, which would then close out the consult as completed in the electronic system. VHA's current guideline is that consults should be completed within 90 days of the request.they were unable to complete the consult. If an appointment is not held, staff are to document why In 2012, VHA created a database to capture all consults systemwide and, after reviewing these data, determined that the data were inadequate for monitoring consults. One issue identified was the lack of standard processes and uses of the electronic consult system across VHA. For example, in addition to requesting consults for clinical concerns, the system was also being used to request and manage a variety of administrative tasks, such as requesting patient travel to appointments. Additionally, VHA could not accurately determine whether patients actually received the care they needed or if they received the care in a timely fashion. According to VHA officials, approximately 2 million consults (both clinical and administrative consults) were unresolved for more than 90 days. Subsequently, VA's Under Secretary for Health convened a task force to address these and other issues regarding VHA's consult system, among other things. In response to task force recommendations, in May 2013, VHA launched the Consult Management Business Rules Initiative to standardize aspects of the consult process, with the goal of developing consistent and reliable information on consults across all VAMCs. This initiative requires VAMCs to complete four specific tasks between July 1, 2013, and May 1, 2014: Review and properly assign codes to consistently record consult requests in the consult system; Assign distinct identifiers in the electronic consult system to differentiate between clinical and administrative consults; Develop and implement strategies for requesting and managing requests for consults that are not needed within 90 days--known as "future care" consults; and Conduct a clinical review as warranted, and as appropriate, close all unresolved consults--those open more than 90 days. At the time of our December 2012 review, VHA measured outpatient medical appointment wait times as the number of days elapsed from the patient's or provider's desired date, as recorded in the VistA scheduling system by VAMCs' schedulers. In fiscal year 2012, VHA had a goal of completing new and established patient specialty care appointments within 14 days of the desired date. VHA established this goal based on its performance reported in previous years. To facilitate accountability for achieving its wait time goals, VHA includes wait time measures--referred to as performance measures--in its VISN directors' and VAMC directors' performance contracts, and VA includes measures in its budget submissions and performance reports to Congress and stakeholders. The performance measures, like wait time goals, have changed over time. Officials at VHA's central office, VISNs, and VAMCs all have oversight responsibilities for the implementation of VHA's scheduling policy. For example, each VAMC director, or designee, is responsible for ensuring that clinics' scheduling of medical appointments complies with VHA's scheduling policy and for ensuring that any staff who can schedule medical appointments in the VistA scheduling system have completed the required VHA scheduler training. In addition to the scheduling policy, VHA has a separate directive that establishes policy on the provision of telephone service related to clinical care, including facilitating telephone access for medical appointment management. As we reported in our April 9, 2014, testimony statement, our preliminary work identified examples of delays in veterans receiving requested VAMC officials outpatient specialty care at the five VAMCs we reviewed.cited increased demand for services, and patient no-shows and cancelled appointments, among the factors that hinder their ability to meet VHA's guideline for completing consults within 90 days. Specifically, several VAMC officials discussed a growing demand for both gastroenterology procedures, such as colonoscopies, as well as consultations for physical therapy evaluations. Additionally, officials noted that due to difficulty in hiring and retaining specialists for these two clinical areas, they have developed periodic backlogs in providing services. Officials at these facilities indicated that they try to mitigate backlogs by referring veterans for care with non-VA providers. However, this strategy does not always prevent delays in veterans receiving timely care. For example, officials from two VAMCs told us that non-VA providers are not always available. Examples of consults that were not completed in 90 days include: For 3 of 10 gastroenterology consults we reviewed for one VAMC, we found that between 140 and 210 days elapsed from the dates the consults were requested to when the patient received care. For the consult that took 210 days, an appointment was not available and the patient was placed on a waiting list before having a screening colonoscopy. For 4 of the 10 physical therapy consults we reviewed for one VAMC, we found that between 108 and 152 days elapsed, with no apparent actions taken to schedule an appointment for the veteran. The patients' files indicated that due to resource constraints, the clinic was not accepting consults for non-service-connected physical therapy evaluations. In 1 of these cases, several months passed before the veteran was referred to non-VA care, and he was seen 252 days after the initial consult request. In the other 3 cases, the physical therapy clinic sent the consults back to the requesting provider, and the veterans did not receive care for that consult. For all 10 of the cardiology consults we reviewed for one VAMC, we found that staff initially scheduled patients for appointments between 33 and 90 days after the request, but medical files indicated that patients either cancelled or did not show for their initial appointments. In several instances patients cancelled multiple times. In 4 of the cases VAMC staff closed the consults without the patients being seen; in the other 6 cases VAMC staff rescheduled the appointments for times that exceeded the 90-day timeframe. As we also reported, our preliminary work identified variation in how the five VAMCs we reviewed have implemented key aspects of VHA's business rules, which limits the usefulness of the data in monitoring and overseeing consults systemwide. As previously noted, VHA's business rules were designed to standardize aspects of the consult process, thus creating consistency in VAMCs' management of consults. However, VAMCs have reported variation in how they are implementing certain tasks required by the business rules. For example, VAMCs have developed different strategies for managing future care consults-- requests for specialty care appointments that are not clinically needed for more than 90 days. At one VAMC, officials reported that specialty care providers have been instructed to discontinue consults for appointments that are not needed within 90 days and requesting providers are to track these consults outside of the electronic consult system and resubmit them closer to the date the appointment is needed. These consults would not appear in VHA's systemwide data once they have been discontinued. At another VAMC, officials stated that appointments for specialty care consults are scheduled regardless of whether the appointments are needed beyond 90 days. These future care consults would appear in VHA consult data and would eventually appear on a timeliness report as consults open greater than 90 days. Officials from this VAMC stated that they continually have to explain to VISN officials who monitor the VAMC's consult timeliness that these open consults do not necessarily mean that care has been delayed. Officials from another VAMC reported piloting a strategy in its gastroenterology clinic where future care consults are entered in an electronic system separate from the consult and appointment scheduling systems. Approximately 30 to 60 days before the care is needed the requesting provider is notified to enter the consult request in the electronic consult system for the specialty care provider to complete. In addition, oversight of the implementation of VHA's business rules has been limited and has not included independent verification of VAMC actions. VAMCs were required to self-certify completion of each of the four tasks outlined in the business rules. VISNs were not required to independently verify that VAMCs appropriately completed the tasks. Without independent verification, VHA cannot be assured that VAMCs implemented the tasks correctly. Furthermore, VHA did not require that VAMCs document how they addressed unresolved consults that were open greater than 90 days, and none of the five VAMCs in our review were able to provide us with specific documentation in this regard. VHA officials estimated that as of April 2014, about 450,000 of the approximately 2 million consults (both clinical and administrative consults) remained unresolved systemwide. VAMC officials noted several reasons that consults were either completed or discontinued in this process of addressing unresolved consults, including improper recording of consult notes, patient cancellations, and patient deaths. At one of the VAMCs we reviewed, a specialty care clinic discontinued 18 consults the same day that a task for addressing unresolved consults was due. Three of these 18 consults were part of our random sample, and our review found no indication that a clinical review was conducted prior to the consults being discontinued. Ultimately, the lack of independent verification and documentation of how VAMCs addressed these unresolved consults may have resulted in VHA consult data that inaccurately reflected whether patients received the care needed or received it in a timely manner. Although VHA's business rules were intended to create consistency in VAMCs' consult data, our preliminary work identified variation in managing key aspects of consult management that are not addressed by the business rules. For example, there are no detailed systemwide VHA policies on how to handle patient no-shows and cancelled appointments, particularly when patients repeatedly miss appointments, which may make VAMCs' consult data difficult to assess. For example, if a patient cancels multiple specialty care appointments, the associated consult would remain open and could inappropriately suggest delays in care. To manage this type of situation, one VAMC developed a local consult policy referred to as the "1-1-30" rule. The rule states that a patient must receive at least 1 letter and 1 phone call, and be granted 30 days to contact the VAMC to schedule a specialty care appointment. If the patient fails to do so within this time frame, the specialty care provider may discontinue the consult. According to VAMC officials, several of the consults we reviewed would have been discontinued before reaching the 90-day threshold if the 1-1-30 rule had been in place at the time. Three VAMCs included in our review also noted some type of policy addressing patient no-shows and cancelled appointments, each of which varied in its requirements. Without a standard policy across VHA addressing patient no-shows and cancelled appointments, VHA consult data may reflect numerous variations of how VAMCs handle patient no-shows and cancelled appointments. In December 2012, we reported that VHA's reported outpatient medical appointment wait times were unreliable and that inconsistent implementation of VHA's scheduling policy may have resulted in increased wait times or delays in scheduling timely outpatient medical appointments. Specifically, we found that VHA's reported wait times were unreliable because of problems with recording the appointment desired date in the scheduling system. Since, at the time of our review, VHA measured medical appointment wait times as the number of days elapsed from the desired date, the reliability of reported wait time performance was dependent on the consistency with which VAMC schedulers recorded the desired date in the VistA scheduling system. However, VHA's scheduling policy and training documents were unclear and did not ensure consistent use of the desired date. Some schedulers at VAMCs that we visited did not record the desired date correctly. For example, the desired date was recorded based on appointment availability, which would have resulted in a reported wait time that was shorter than the patient actually experienced. At each of the four VAMCs we visited, we also found inconsistent implementation of VHA's scheduling policy, which impeded scheduling of timely medical appointments. For example, we found the electronic wait list was not always used to track new patients that needed medical appointments as required by VHA scheduling policy, putting these patients at risk for delays in care. Furthermore, VAMCs' oversight of compliance with VHA's scheduling policy, such as ensuring the completion of required scheduler training, was inconsistent across facilities. VAMCs also described other problems with scheduling timely medical appointments, including VHA's outdated and inefficient scheduling system, gaps in scheduler and provider staffing, and issues with telephone access. For example, officials at all VAMCs we visited reported that high call volumes and a lack of staff dedicated to answering the telephones affected their ability to schedule timely medical appointments. VA concurred with the four recommendations included in our December 2012 report and reported continuing actions to address them. First, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to improve the reliability of its outpatient medical appointment wait time measures. In response, VHA officials stated that they implemented more reliable measures of patient wait times for primary and specialty care. In fiscal years 2013 and 2014, primary and specialty care appointments for new patients have been measured using time stamps from the VistA scheduling system to report the time elapsed between the date the appointment was created--instead of the desired date--and the date the appointment was completed. VHA officials stated that they made the change from using desired date to creation date based on a study that showed a significant association between new patient wait times using the date the appointment was created and self-reported patient satisfaction with the timeliness of VHA appointments. VA, in its FY 2013 Performance and Accountability Report, reported that VHA completed 40 percent of new patient specialty care appointments within 14 days of the date the appointment was created in fiscal year 2013; in contrast, VHA completed 90 percent of new patient specialty care appointments within 14 days of the desired date in fiscal year 2012. VHA also modified its measurement of wait times for established patients, keeping the appointment desired date as the starting point, and using the date of the pending scheduled appointment, instead of the date of the completed appointment, as the end date for both primary and specialty care. VHA officials stated that they decided to use the pending appointment date instead of the completed appointment date because the pending appointment date does not include the time accrued by patient no-shows and cancelled appointments. Second, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to ensure VAMCs consistently implement VHA's scheduling policy and ensure that all staff complete required training. In response, VHA officials stated that the department is in the process of revising the VHA scheduling policy to include changes, such as the new methodology for measuring wait times, and improvements and standardization of the use of the electronic wait list. In the interim, VHA distributed guidance, via memo, to VAMCs in March 2013 describing this information and also offered webinars to VHA staff on eight dates in April and May of 2013. To assist VISNs and VAMCs in the task of verifying that all staff have completed required scheduler training, VHA has developed a database that will allow a VAMC to identify all staff who have scheduled appointments and the volume of appointments scheduled by each; VAMC staff can then compare this information to the list of staff that have completed the required training. However, VHA officials have not established a target date for when this database would be made available for use by VAMCs. Third, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to require VAMCs to routinely assess scheduling needs for purposes of allocation of staffing resources. VHA officials stated that they are continuing to work on identifying the best methodology to carry out this recommendation, but stated that the database that tracks the volume of appointments scheduled by individual staff also may prove to be a viable tool to assess staffing needs and the allocation of resources. VHA officials stated that they needed to discuss further how VAMCs could use this tool, and that they had not established a targeted completion date for actions to address this recommendation. Finally, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to ensure that VAMCs provide oversight of telephone access, and implement best practices to improve telephone access for clinical care. In response, VHA required each VISN director to require VAMCs to assess their current telephone service against the VHA telephone improvement guide and to electronically post an improvement plan with quarterly updates. VAMCs are required to routinely update progress on the improvement plan. VHA officials cited improvement in telephone response and call abandonment rates since VAMCs were required to implement improvement plans. Additionally, VHA officials said that the department has also contracted with an outside vendor to assess VHA's telephone infrastructure and business process. In April 2014, VHA officials stated that they expected to receive the first report in approximately 2 months. Although VA has initiated actions to address our recommendations, we believe that continued work is needed to ensure these actions are fully implemented in a timely fashion. Furthermore, it is important that VA assess the extent to which these actions are achieving improvements in medical appointment wait times and scheduling oversight as intended. Ultimately, VHA's ability to ensure and accurately monitor access to timely medical appointments is critical to ensuring quality health care to veterans, who may have medical conditions that worsen if access is delayed. Chairman Sanders, Ranking Member Burr, and Members of the Committee, this concludes my statement. I would be pleased to respond to any questions you may have. For further information about this statement, please contact Debra A. Draper 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. Key contributors to this statement were Bonnie Anderson, Assistant Director; Janina Austin, Assistant Director; Rebecca Abela; Jennie Apter; Jacquelyn Hamilton; David Lichtenfeld; Brienne Tierney; and Ann Tynan. 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 timely medical appointments is critical to ensuring that veterans obtain needed medical care. Over the past few years, there have been numerous reports of VAMCs failing to provide timely care to patients, including specialty care, and in some cases, these delays have resulted in harm to patients. In December 2012, GAO reported that improvements were needed in the reliability of VHA's reported medical appointment wait times, as well as oversight of the appointment scheduling process. Also in 2012, VHA found that systemwide consult data could not be adequately used to determine the extent to which veterans experienced delays in receiving outpatient specialty care. In May 2013, VHA launched the Consult Management Business Rules Initiative with the aim of standardizing aspects of the consults process. This statement highlights (1) preliminary observations GAO made in an April 9, 2014, testimony statement regarding VHA's management of outpatient specialty care consults, and (2) concerns GAO raised in its December 2012 report regarding VHA's outpatient medical appointment scheduling, and progress made implementing GAO's recommendations. To conduct this work, GAO reviewed documents and interviewed officials from VHA's central office. Additionally, GAO interviewed officials from five VAMCs for the consults work and four VAMCs for the scheduling work that varied based on size, complexity, and location. As GAO previously reported in its testimony on April 9, 2014, its preliminary work examining the Department of Veterans Affairs' (VA), Veterans Health Administration's (VHA) management of outpatient specialty care consults identified examples of delays in veterans receiving outpatient specialty care, as well as limitations in the implementation of new consult business rules designed to standardize aspects of the clinical consult process. For example, for 4 of the 10 physical therapy consults GAO reviewed for one VA medical center (VAMC), between 108 and 152 days elapsed with no apparent actions taken to schedule an appointment for the veteran. For 1 of these consults, several months passed before the veteran was referred for care to a non-VA health care facility. VAMC officials cited increased demand for services, and patient no-shows and cancelled appointments among the factors that lead to delays and hinder their ability to meet VHA's guideline of completing consults within 90 days of being requested. GAO's preliminary work also identified variation in how the five VAMCs reviewed have implemented key aspects of VHA's business rules, such as strategies for managing future care consults--requests for specialty care appointments that are not clinically needed for more than 90 days. Such variation may limit the usefulness of VHA's data in monitoring and overseeing consults systemwide. Furthermore, oversight of the implementation of the business rules has been limited and has not included independent verification of VAMC actions. Because of the preliminary nature of this work, GAO is not making recommendations on VHA's consult process at this time. In its December 2012 report, GAO found that VHA's outpatient medical appointment wait times were unreliable. The reliability of reported wait time performance measures was dependent in part on the consistency with which schedulers recorded desired date--defined as the date on which the patient or health care provider wants the patient to be seen--in the scheduling system. However, VHA's scheduling policy and training documents were unclear and did not ensure consistent use of the desired date. GAO also found that inconsistent implementation of VHA's scheduling policy may have resulted in increased wait times or delays in scheduling timely medical appointments. For example, GAO identified clinics that did not use the electronic wait list to track new patients in need of medical appointments as required by VHA policy, putting these patients at risk for not receiving timely care. VA concurred with the four recommendations included in the report and, in April 2014, reported continued actions to address them. For example, in response to GAO's recommendation for VA to take actions to improve the reliability of its medical appointment wait time measures, officials stated the department has implemented new patient wait time measures that no longer rely on desired date recorded by a scheduler. VHA officials stated that the department also is continuing to address GAO's three additional recommendations. Although VA has initiated actions to address GAO's recommendations, continued work is needed to ensure these actions are fully implemented in a timely fashion. Ultimately, VHA's ability to ensure and accurately monitor access to timely medical appointments is critical to ensuring quality health care to veterans, who may have medical conditions that worsen if access is delayed.
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The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) reformed the way Medicare pays for physician services in the traditional fee-for- service (FFS) program. OBRA 1989 required the establishment of a physician fee schedule and a system of spending growth targets, known as MVPS, that became effective in 1992. In 1998, the SGR system of spending targets replaced MVPS. Both spending target systems were designed to moderate growth in the volume and intensity of services provided to beneficiaries. Prior to the establishment of the fee schedule, Medicare payment rates for physician services were based on historical charges for these services. The establishment of a fee schedule was an attempt to break the link between physicians' charges and Medicare payments. The fee schedule was not designed to reduce spending levels overall but to redistribute payments for services based on the relative resources used by physicians to provide different types of care. Under the fee schedule, Medicare pays for more than 7,000 physician services. To arrive at Medicare's fee, the service's relative value is multiplied by a dollar conversion factor. Currently, under SGR, the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, uses the dollar conversion factor to calculate Medicare fees and updates the conversion factor each calendar year to account for the change in the cost of providing physician services (as measured by the Medicare Economic Index (MEI)), adjusted for the extent to which actual spending aligns with spending targets. Fee updates represent the aggregate of increases and decreases across all services; the fees for specific services may rise or fall each year. In 1980, Medicare spending for physician services totaled $7.5 billion. (See fig. 1.) By 2003, Medicare spending on these services totaled $47.9 billion. During much of this period, increases in both the volume and intensity of services physicians provided to each beneficiary were an important factor in spending growth. Before the physician fee schedule was implemented, Medicare payments for physician services were largely based on historical charges. Experience in the 1980s repeated the experience of the prior decade: the Congress froze fees or limited fee increases, but spending continued to rise. From 1980 through 1991, for example, Medicare spending per beneficiary for physician services grew at an average annual rate of about 11.6 percent. (See fig. 2.) Total Medicare spending for physician services depends on the fee paid for each service, the number of beneficiaries served, the number of services provided to each beneficiary (volume), and the mix of those services--that is, the combination of more and less expensive services (intensity). Of these factors, physicians directly influence only the volume and intensity of services provided to beneficiaries. Much of the spending growth resulted from increases in the volume and intensity of services. For example, from 1986 until 1992, physician payment rates grew by less than 2 percent annually, while the volume and intensity of services rose, on average, by almost 8 percent per year. In 1986, the Congressional Budget Office stated that "oth the price and the volume of services must be controlled to constrain costs...." In 1989, citing the need for spending targets to limit spending growth for physician services, the Secretary of Health and Human Services (HHS) testified that "Medicare physician spending has increased at compound annual rates of 16 percent over the past 10 years. And in spite of our best efforts to control volume and rein in expenditures, Medicare physician spending is currently out of control.... An expenditure target...sets an acceptable level of growth in the volume and intensity of physician services." Annual spending growth during the 1990s was far lower than in the preceding 10 years. Beginning in 1992, the Congress introduced spending targets for physician services to help constrain the rise in Medicare spending for physician services. Unlike prior attempts to control spending, spending target systems sought to limit the growth in the volume and intensity of services each year. From 1992 until 1999, the growth in the volume and intensity of physician services per Medicare beneficiary moderated. (See fig. 3.) During this time period, the average annual increase in Medicare spending due to changes in volume and intensity of services per beneficiary was about 1 percent, in contrast with the average annual growth of about 7 percent in the period from 1985 through 1991. The moderation of volume and intensity growth slowed the rate of increase in spending on physician services. This spending grew from $25.6 billion in 1992 to $36.9 billion in 2000an average annual rate of 4.7 percent. In contrast, from 1985 through 1991, total spending increased at an average annual rate of about 10.8 percent. Beginning in 2000, the growth in volume and intensity of services per Medicare beneficiary began to rise, although the average annual rate of growth remained substantially below that experienced before spending targets were introduced. From 2000 to 2003, volume and intensity rose at an average annual rate of 5 percent. CMS actuaries project an average annual growth in volume and intensity of 3 percent from 2004 through 2013. Total spending on physician services is projected to grow by an average of 8 percent a year from 2000 through 2005. A target for spending on physician services serves as a budgetary control by automatically lowering fee updates in response to excess volume and intensity growth. Under Medicare's SGR spending target system and its MVPS predecessor, physician fees are adjusted annually to help bring actual spending in line with spending targets. Projected increases in volume and intensity, beyond what the current SGR targets allow, are expected to contribute to annual fee reductions for several years as the system tries to align spending with targets. The SGR system evolved from the MVPS system of spending targets, which was introduced with the physician fee schedule in 1992. The goal of MVPS was to provide an incentive for physicians to reduce volume and intensity growth and thus slow the high annual rate of increase in expenditures. Under MVPS, if a year's actual spending growth exceeded the target, future payment rates would be reduced, relative to what they would have been if actual spending had equaled the target, to offset the excess spending. If a year's actual spending growth fell short of the target, future payment rates would be increased. Concerns about the MVPS spending target prompted the Congress to create SGR's system of spending targets. In its 1996 report to Congress, the Physician Payment Review Commission noted that, under MVPS, physician fees would fall over time unless there were continual declines in the volume and intensity of services provided. In response to the system's perceived shortcomings, the Congress took action in 1997 to replace it with the SGR system. The SGR system was created in the Balanced Budget Act of 1997 (BBA) and revised by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) and, most recently, by MMA. Similar to MVPS, SGR sets spending targets for physician services and updates fees to bring spending in line with those targets. Under the SGR system, if spending exceeds the target, future fee updates are reduced. If spending falls short of the target, future fee updates are increased. By adjusting fees when prior-year spending has deviated from the target, SGR attempts to moderate the growth in total Medicare outlays for physician services. Specifically, the SGR formula establishes expenditure targets as follows: from a base year--1996--the targets are updated each year to account for four factors: (1) changes in the number of Medicare beneficiaries in traditional fee-for-service; (2) growth in the costs of providing physician services, laboratory tests, and Medicare-covered outpatient prescription drugs; (3) growth in the overall economy, as measured by changes in real per capita gross domestic product (GDP); and (4) changes in expenditures that result from changes in laws or regulations. Spending and targets are estimated from data available in the fall, when CMS sets physician fees for the next calendar year. Because SGR spending targets are cumulative, the target set for a specific year is affected by the targets set in all prior years. BBRA required CMS, in calculating each year's SGR spending target and fee update, to revise the targets set for the two previous years using the most recent available data. SGR differs from MVPS in two key ways. The first relates to volume and intensity growth limits. MVPS relied, in part, on historical trends in volume and intensity growth to set new targets each year, whereas SGR ties allowable volume and intensity increases to the growth in real GDP per capita. Under SGR, real spending per beneficiary--that is, spending adjusted for the underlying cost of providing physician services--is allowed to grow at the same rate that the national economy grows over time on a per-capita basis--currently projected to be about 2 percent annually. If volume and intensity grow faster, the annual increase in physician fees will be less than the estimated increase in the cost of providing services. Conversely, if volume and intensity grow more slowly than 2 percent annually, the SGR system permits physicians to benefit from fee increases that exceed the increased cost of providing services. To reduce the effect of business cycles on physician fees, economic growth is measured as the 10-year moving average change in real per capita GDP. This measure is projected to range from 2.1 percent to 2.5 percent during the 2005 through 2014 period. A second difference is that MVPS compared target and actual expenditures in a single year, whereas SGR compares targets and actual expenditures cumulatively from a base year. The cumulative nature of SGR's spending targets increases the potential volatility of physician fee updates because the system requires that excess spending in any year be recouped in future years. Conceptually, this means that if spending has exceeded the SGR targets, fee updates in future years must be lowered sufficiently to offset the excess spending. Conversely, the system also requires that if spending has fallen short of the targets, fees must be increased to boost future spending. SGR limits how much fees can be adjusted when spending has missed the target. SGR's performance adjustment may decrease fees by as much as 7 percentage points below the percentage change in MEI when spending has exceeded the target and may increase fees by as much as 3 percentage points above the percentage change in MEI when spending has fallen short of the target. SGR adjustments to the fees are determined by how much the cumulative amount of spending on physician services since 1996 differs from the cumulative spending target since that base year. Since the introduction of the fee schedule in 1992 through 2001, physicians generally experienced real increases in their fees--that is, fees increased more than the increase in the cost of providing physician services, as measured by MEI. Specifically, during that period, fees increased by 39.7 percent, whereas MEI increased by 25.9 percent. In 2002, however, SGR reduced fees by 4.8 percent, despite an estimated 2.6 percent increase in the costs of providing physician services. (See fig. 4.) SGR reduced fees in 2002 because estimated spending for physician services--cumulative since 1996--exceeded the target by approximately $8.9 billion, or 13 percent of projected 2002 spending. In part, the fee reduction occurred because CMS revised upward its estimates of previous years' actual spending. Specifically, CMS found that its previous estimates had omitted a portion of actual spending for 1998, 1999, and 2000. In addition, in 2002 CMS lowered the 2 previous years' spending targets based on revised GDP data from the Department of Commerce. Based on the new higher spending estimates and lower targets, CMS determined that fees had been too high in 2000 and 2001. In setting the 2002 physician fees, the SGR system reduced fees to recoup previous excess spending. The update would have been about negative 9 percent if the SGR system had not limited its decrease to 7 percentage points below MEI. Because the previous overpayments were not fully recouped in 2002, and because of volume and intensity increases, by 2003, physicians were facing several more years of fee reductions to bring cumulative Medicare spending on physician services in line with cumulative targets. However, CMS had determined that its authority to revise previous spending targets was limited. In 2002 CMS noted that the 1998 and 1999 spending targets had been based on estimated growth rates for beneficiary fee-for-service enrollment and real per capita GDP that actual experience had shown to be too low. If the estimates could have been revised, the targets for those and subsequent years would have been increased. However, at the time that CMS acknowledged these errors, the agency concluded that it was not allowed to revise these estimates. Without such revisions, the cumulative spending targets remained lower than if errors had not been made. In late 2002, the estimate of SGR called for a negative 4.4 percent fee update in 2003. With the passage of the Consolidated Appropriations Resolution of 2003, CMS determined that it was authorized to correct the 1998 and 1999 spending targets. Because SGR targets are cumulative measures, these corrections resulted in an average 1.4 percent increase in physician fees for services for 2003. In 2003, MMA averted additional fee reductions projected for 2004 and 2005 by specifying an update to physician fees of no less than 1.5 percent for 2004 and 2005. The MMA increases replaced SGR fee reductions of 4.5 percent in 2004 and an estimated 3.6 percent in 2005. Because MMA did not make corresponding revisions to SGR's spending targets, SGR will reduce fees beginning in 2006, to offset the additional spending caused by MMA's fee increases. In addition, recent growth in volume and intensity, which has been larger than SGR targets allow, will further compound the problem of excess spending that needs to be recouped. The 2004 Medicare Trustees Report announced that the projected physician update would be about negative 5 percent for 7 consecutive years beginning in 2006; the result is a cumulative reduction in physician fees of more than 31 percent from 2005 to 2012, while physicians' costs of providing services, as measured by MEI, are projected to rise by 19 percent. To a large extent, the physician fee cuts projected by Medicare's Trustees are required under SGR's system of cumulative spending targets to make up for excess spending in earlier years. MMA added to the excess spending by specifying minimum fee updates for 2004 and 2005 without resetting the spending targets for those years. As a result, physician fee cuts were postponed, not avoided. In considering the projected fee cuts, however, it is important to recall that Congress originally established Medicare spending targets for physician services in response to runaway spending in the 1980s. The recent increase in volume and intensity growth suggests that Medicare faces a fundamental physician spending growth problem even if the SGR slate of missed spending targets were somehow wiped clean. Currently, projected Medicare spending for physician services exceeds what policymakers have specified--through the parameters of the SGR system--is the appropriate amount to spend. Because of expected increases in the volume and intensity of services provided by physicians, real spending per beneficiary is projected to grow by more than 3 percent per year. SGR, designed to promote fiscal discipline, allows such spending to grow by just over 2 percent per year. If the growth in real spending per beneficiary is not lowered through other means, SGR will mechanically reduce fee updates in an attempt to impose fiscal discipline and moderate total spending increases. Although this mechanical response may be desirable from a budgetary perspective, any consequences for physicians and their patients are uncertain. Mr. Chairman, this concludes my prepared statement. I will be happy to answer questions you or other Subcommittee Members may have. For further information regarding this testimony, please contact A. Bruce Steinwald at (202) 512-7101. James Cosgrove, Jessica Farb, Hannah Fein, and Jennifer Podulka contributed to this statement. 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 Sustainable Growth Rate (SGR) system, implemented in 1998 and subsequently revised, is used to update Medicare's physician fees and moderate the growth in Medicare spending for physician services. SGR, and a predecessor system implemented in 1992, were designed to reduce physician fee updates if spending growth exceeded a specified target. Although spending growth slowed substantially under both systems, concerns about SGR arose when the system caused fees to decline by 5.4 percent in 2002. GAO was asked to discuss (1) Medicare physician spending trends both before and after the implementation of spending targets and (2) the evolution and mechanics of the SGR system. This statement is largely based on GAO's previous work on Medicare spending trends and the SGR system. Medicare spending on physician services grew rapidly through the 1980s, at an average annual rate of 13.4 percent, even though physician fee increases were subject to some limits. The spending growth was driven by increases in the number of services provided to each beneficiary--referred to as volume--and an increase in the average complexity and costliness of those services--referred to as intensity. Recognizing that expenditure growth of this magnitude was not sustainable, the Congress attempted to impose fiscal discipline by establishing a system of spending targets for Medicare physician services along with a fee schedule beginning in 1992. Following the introduction of spending targets, volume and intensity growth slowed substantially during the 1990s. In recent years, under the SGR system, volume and intensity growth has increased, but not by the rates experienced during the 1980s before spending targets were in place. SGR, the current system of spending targets, evolved from the target system that went into effect in 1992. Under the SGR system, physician fees are adjusted up or down, depending on whether actual spending has fallen below or has exceeded the target. Fees increase at least as fast as the costs of providing physician services as long as volume and intensity growth remains below a specified rate--currently, a little more than 2 percent a year. If volume and intensity grows faster than the specified rate, SGR lowers fee increases or causes fees to fall. Physicians raised concerns about SGR when fees dropped significantly in 2002, a decline that was, in part, a correction for fees that had been set too high in prior years because of errors in forecast estimates and other data. Congressional action averted fee reductions, and projected fee reductions, for 2003 through 2005. However, beginning in 2006, fees are projected to resume falling for several years, partly to recoup the excess spending accumulated from averted cuts in previous years and partly because real per beneficiary spending on physician services is projected to grow faster than allowed under SGR. A dilemma for policymakers posed by projected fee reductions is that while SGR's automatic responses work as intended from a budgetary perspective, the consequences for physicians and their patients are uncertain.
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To answer the three questions, we analyzed information provided by the District of Columbia on past, current, and projected borrowing and met with District officials to discuss the District's debt. We also analyzed applicable laws that authorize borrowing and impose limitations on that borrowing. We obtained information on other jurisdictions debt limitations, debt ratios, and bond ratings from Moody's Investors Service, Standard & Poor's Corporation, and Fitch Investors Service, Inc. and discussed this information with officials of those organizations. We did not independently verify the information provided by the investor service organizations on other jurisdictions. We conducted our work from August 1994 to October 1994 in accordance with generally accepted government auditing standards. The District of Columbia provided comments on a draft of this report. These comments are discussed in the "Agency Comments and Our Evaluation" section. We have incorporated agency views where appropriate. The Home Rule Act authorizes and sets limits on various types of short- and long-term debt that is backed by the full faith and credit of the District. The limits have not been revised since enactment of the provisions in the Home Rule Act that authorized the various types of debt. The District also is authorized to issue revenue bonds that are not backed by the full faith and credit of the District. Finally, the District is authorized to borrow from the U.S. Treasury to meet the District's general expenses. The District can issue Tax Revenue Anticipation Notes (TRANS) to compensate for expected cash shortfalls related to delays in receipt of projected tax revenue. Although TRANS are renewable, they must be repaid no later than the last day of the fiscal year in which the notes were issued. The total amount of outstanding TRANS at any time is limited to 20 percent of the District's total anticipated revenue for the fiscal year. The amount of TRANS borrowing is discussed later in this letter. The District can also issue short-term general obligation notes to meet appropriation requirements when budgeted grants and private contributions are not realized. Similar to TRANS, these notes are renewable. However, they must be repaid no later than the last day of the fiscal year following the year in which they were issued. The amount of general obligation notes issued during a fiscal year is limited to 2 percent of the District's total appropriations or approximately $70 million for fiscal year 1994. District officials said they have never issued this type of note. In lieu of these short-term borrowing vehicles, the District has borrowed moneys from its capital projects fund. The District's annual appropriation specifically states that "the Mayor shall not expend any moneys borrowed for capital projects for operating expenses of the District of Columbia government." The District's Corporation Counsel has concluded that the District does not violate the appropriation act restriction as long as borrowings from the Capital Projects Fund are repaid before the end of the fiscal year in which the borrowing is made. The District borrowed $140 million from the Capital Projects Fund in fiscal year 1993 to finance seasonal cash flow needs. These funds were repaid before the end of the fiscal year. In fiscal year 1994, the District again borrowed from the Capital Projects Fund to compensate for cash flow shortages due to a delay in the receipt of the Federal Payment. The District borrowed $40 million in October 1993 and repaid it shortly thereafter; and, the District borrowed $40 million from the Capital Projects Fund in early September 1994 and repaid it before the end of the month. The District also has the authority to issue long-term debt. Long-term debt generally takes the form of general obligation bonds. The District can issue general obligation bonds to refund (that is, refinance) existing debt or to finance capital projects. In fiscal year 1991, the District also received authority to eliminate the general fund's existing accumulated deficit by issuing general obligation bonds. The Home Rule Act restricts the District from issuing long-term general obligation bonds if total debt service in a fiscal year will exceed 14 percent of the District's estimated revenues for the year the bonds are issued. This debt limitation is calculated by the Treasurer's Office when the District requests new general obligation borrowing. At that time, the highest projected cost of debt service (including debt service from both general obligation bonds as well as long-term U.S. Treasury debt) for any fiscal year including debt service on the projected borrowing cannot exceed 14 percent of the District's estimated revenues for the fiscal year the bonds will be issued. Revenues for this calculation do not include court fees and any fees or revenues directed to servicing revenue bonds, retirement contributions, revenues from retirement systems, revenues from Treasury loans, and the sale of general obligation or revenue bonds. This debt service calculation does not include refinancing costs of previous bonds and any obligations associated with the Redevelopment Land Agency, the National Capital Housing Authority, or obligations pursuant to the authority contained in the District of Columbia Stadium Act of 1957. The specific amount of long-term borrowing is discussed later in this letter. The District may also borrow funds from the U.S. Treasury to finance its general expenses. Between 1939 and 1983, the District routinely borrowed from the U.S. Treasury under this provision. It has not borrowed from the U.S. Treasury since then. Under this provision, which originated before the enactment of the Home Rule Act, the Mayor of the District of Columbia may requisition the Secretary of the Treasury for "such sums as may be necessary, from time to time, to meet the general expenses of said District, as authorized by Congress, and such amounts so advanced shall be reimbursed by the said Mayor to the Treasury out of taxes and revenue collected for the support of the government of the said District of Columbia." The interest rate to be applied, if any, and the term of these borrowings are not specified. These borrowings are not subject to the 14-percent limitation on long-term debt. All general obligation and TRANS offering documents refer to this section of the D.C. Code and specify that the Mayor shall request funds from the U.S. Treasury as may be necessary to pay the principal and interest on the bonds when due. In addition, the District previously had authority to borrow funds from the U.S. Treasury to finance capital projects. While the authority for new U.S. Treasury borrowing for capital projects was terminated by 1983, the District had $71.8 million and the District's Water and Sewer Authority had $15.1 million outstanding debt issued under this authority at September 30, 1994. The District's $71.8 million U.S. Treasury debt is scheduled to be repaid by 2003, and the Water and Sewer Authority's U.S. Treasury debt is scheduled to be repaid by 2014. As previously noted, the debt service on U.S. Treasury long-term capital projects debt is included in the 14-percent limitation calculation described in the previous section of this report under long-term borrowing. The District of Columbia also is authorized to issue revenue bonds, notes, or other obligations to finance or refinance undertakings in the areas of (1) housing, (2) facilities for health, transit, utility, recreation, college, university, or pollution control, (3) college or university student loan programs, and (4) industrial and commercial development. Such revenue obligations are not general obligations or debt of the District backed by the full faith and credit or the taxing power of the District. Instead, they are payable from earnings of the respective projects and may be secured by mortgages on real property or creation of a security interest in other assets. In addition to the current types of financing allowed, the District is proposing to partly finance the construction of a new convention center and sports arena by authorizing District enterprises to issue revenue bonds that would include as security a pledge of dedicated taxes. This proposed method of financing requires amending the Home Rule Act. Specifically, the Home Rule Act would need to be revised to authorize the District (1) to issue such revenue bonds and (2) to delegate authority to District enterprises to issue the bonds and to receive and expend the dedicated revenues. Under this proposal these bonds would not be subject to the 14-percent long-term debt service ceiling. The District's primary borrowing involves short-term tax revenue anticipation notes and long-term general obligation bonds. In May 1994 the District borrowed $200 million in short-term Tax Revenue Anticipation Notes which were paid in September by the end of fiscal year 1994. The District anticipates that in fiscal year 1995 it will need $250 million in short-term Tax Revenue Anticipation Notes ($125 million in February 1995 and $125 million in June 1995). These notes will be due in September 1995. The fiscal year 1994 short-term debt represented 6.0 percent of total anticipated revenues, and the fiscal year 1995 short-term debt represented 7.2 percent of total anticipated revenues--considerably below the 20-percent limitation on TRANS borrowing discussed earlier in this report. The District does not make short-term borrowing projections beyond the year for which a budget has been submitted to the District of Columbia Council. Also on September 30, 1994, the District had $3.65 billion in long-term debt (both general obligation and U.S. Treasury debt). As calculated by the District Treasurer's Office, total debt service for these long-term obligations is expected to be $409 million in fiscal year 1998, the highest projected year, or 11.42 percent of total expected fiscal year 1994 revenues. This debt service percent is projected to grow in the future. The Budget Office estimates that capital borrowing will be $250 million annually from fiscal years 1995 through 1998 and $190 million in each of fiscal years 1999 and 2000. Based on these estimates of future general obligation borrowing and Budget Office projections of revenues, we estimate that the debt service percent will rise to 13.84 percent by 2000. Figure 1 shows the debt service percents for fiscal years 1989 through 2000. More details of the assumptions and calculations for the data contained in figure 1 are provided in appendix I. When analyzing the projected debt service percents, two additional factors need to be considered. First, the projections in the chart are based on revenue estimates. As we noted in our June 1994 report, the District has overestimated some revenues in the past. Lower than expected revenues would increase the debt service percent. And, as discussed in our June 1994 report, the District plans to limit general obligation bond borrowing below what is needed for capital projects. Capital funds requirements are particularly significant for the D.C. Public Schools and the Water and Sewer Authority. Various debt indicators are available to compare debt characteristics of jurisdictions. For example, investment services provide ratings of bonds which assess the amount of risk associated with borrowing. Moody's Investors Service ratings range from Aaa (best quality) to C (lowest quality). Tables 1 and 2 show the long-term bond ratings of the 20 largest cities and all 50 states. As can be seen from tables 1 and 2, the District's bond rating of Baa is lower than any state and all but two of the cities listed. According to Moody's Investors Service analysts, this rating reflects the District's long history of financial pressures and budget-balancing difficulties. This rating has been the same since the District first issued general obligation bonds in 1984. Other comparisons of the District's debt with other jurisdictions are more problematic. For example, comparing the District's 14-percent debt service limitation with other jurisdictions is difficult because the type of limits vary. In fact, a Moody's Investors Service official told us that no state imposes a limit on cities and counties based on a percentage of total revenues like the District's limitation. A May 1994 Moody's Investors Service report that outlined debt restrictions imposed on cities and counties by their states notes that almost all states imposed general obligation debt volume limits on cities and counties. In most states the limit is based on a percentage of the local jurisdictions's taxable real property. Although the limits imposed by states on cities and counties most often are related to property values, the way these limits are calculated varies widely. For example, some limits are based on the full property value and others on an adjusted value. In other states, limits exclude some types of borrowing; for example, enterprise fund borrowing or public school borrowing. Because the limits of other jurisdictions vary widely, we did not specifically determine how close other jurisdictions are to their legal limits. Other indices are routinely used by investment services to compare the extent of borrowing among jurisdictions. Two of these indices are per capita debt and the amount of debt compared with the value of real property subject to tax. Table 3 shows the median, high, and low values for these indices for various population categories of cities, counties, and states. The District of Columbia's overall net debt per capita was $6,315, and the ratio of net debt to taxable real property was 8.1 percent. Although both ratios are high when compared with other cities, counties, or states, comparing the District's debt limitations and amount of debt with other jurisdictions is problematic because of the unique nature of the District. For example, debt limits for state, counties, and cities would only affect the debts incurred to finance the functions carried out by the specific jurisdiction. In contrast, the District has a single debt limit applicable to carry out all its governmental functions, whether these functions are representative of those carried out by states, counties, or cities. Thus, comparing the District's ratios to state, county, or city debt ratios may not be a meaningful comparison to the extent the District's debt is used to finance functions that may overlap functions financed by state, county, and city debt. For example, the District's debt would include debt related to typical city functions (for example, police and fire protection) as well as debt associated with typical state and county functions (for example, motor vehicle and driver licensing). District officials also pointed out that other unique factors make comparing the District to other jurisdictions difficult. They noted that unlike most cities and counties, sales and income tax provide a substantial portion of the District's tax revenue. Therefore, the debt/taxable real property ratio is not meaningful to compare the District to other jurisdictions. As discussed earlier in this letter, the general obligation debt limitation calculations are made by the Treasurer's Office at the time the District issues new general obligation bonds and are included in the bond prospectus. These debt service percent calculations are done in accordance with the methodology outlined in the Home Rule Act as described earlier in this letter. Information on the debt service percent is also included in the District's multi-year plans and annual financial reports, but this information is not consistent with the Home Rule Act methodology. The estimates in the multi-year plans do not use the methodology required by the Home Rule Act, which is the same methodology that is used to determine whether the District may issue new general obligation bonds.Instead of calculating the debt service percent by using the highest fiscal year debt service divided by the estimated revenue for the fiscal year the bonds will be issued--as is done in the bond prospectus--the debt service percent information in the multi-year plan is calculated by dividing the current year debt service by the current year revenue. The result is that the debt service percent information contained in the multi-year plans is less than what the percent would be if the Home Rule Act methodology were used. For example, for fiscal year 1994, information in the bond offering documents indicated that the debt service percent was 11.42 percent, while the debt service percent included in the multi-year plan for fiscal year 1994 was 10.14 percent. Although the fiscal year 1994 revenue estimates for each calculation were slightly different, the primary reason for the difference was the amount of debt service. The bond offering documents used the highest debt service for any fiscal year ($409.1 million which will occur in fiscal year 1998) and the multi-year plan used the fiscal year 1994 debt service of $362.2 million. The Home Rule Act not only specifies the methodology to be used in the multi-year plan, but the information in the current multi-year plans understates the debt service percentage in relation to the District's debt limit. District managers need accurate information as they outline the various options needed to deal with the financial crisis. Table 4 outlines the differences between the debt service percents contained in the multi-year plan and our calculations using the Home Rule Act methodology. Information on the debt service percent contained in the annual financial reports also is not consistent with information in the bond offering documents. The methodology for calculating the debt service percentage in the financial statements is not specified in law. Like the debt service percent information contained in the multi-year plan, the debt service percent included in the financial statements is calculated by dividing fiscal year debt service by fiscal year revenues rather than the highest debt service for any fiscal year. The financial statements include the debt service information in an exhibit entitled "Computation of Legal Debt Limitation". Even though portrayed as the legal calculation, the information is not consistent with the methodology stipulated in the Home Rule Act. Table 5 outlines the differences in the debt service percentage that are currently contained in the annual financial statements and the debt service percentage using the Home Rule Act methodology. Specifically, our calculations use the highest projected annual debt service divided by the actual annual revenues. As we noted in our June report, the District is faced with both unresolved long-term financial issues and continual short-term financial crises. The District's high level of general obligation debt is approaching the 14-percent debt service ceiling. Although information on the debt service percent in the bond offering documents is calculated using the methodology required in the Home Rule Act, information on the debt service percent included in the District's financial statements and multi-year plan does not use that methodology. As a result, the debt service percent amounts shown in the financial statements and multi-year plan are less than if the Home Rule Act methodology were used. As such, the current financial statements representation of the debt service percentage and the multi-year plan debt service information could mislead users of such information. Because the District's long-term debt is approaching the legal limit, it is critical that District managers and other District stakeholders have accurate information as they make decisions about how meet the District's financing needs. We recommend that the Mayor of the District of Columbia direct that (1) the multi-year plans contain debt service percentage information in the manner required by the Home Rule Act, and (2) the financial statements contain information on the debt service percentage that is calculated using the Home Rule Act methodology by dividing the maximum estimated annual debt service by the actual revenues. We provided a draft of this report to officials of the District of Columbia for their comment. In general, District officials agreed with the information contained in the report and supported the recommendations. They emphasized that comparing the District to other jurisdictions is difficult because of a variety of unique factors, including the high percentage of District property that is not subject to property tax. We believe the report sufficiently outlines the unique factors that make the comparison of the District to other jurisdictions problematic. District officials provided two additional reasons for the relatively low bond rating: the District's unfunded pension liability and lack of state sovereignty. They also noted that part of the reason the District is approaching the debt limit was the issuance of $331 million in 12-year bonds in 1991 to eliminate a deficit in the General Fund. They explained that these bonds were of shorter duration than typical general obligation bonds that are used to finance capital projects and that this increased the amount of debt service. We agree that these bonds contributed to the debt service, but regardless of the term or the purpose of the bonds the fact remains that the amount of District debt is nearing the legal limit. District officials also said they are considering reducing the amount of future borrowing for capital needs. Although reduced future borrowing would lower the debt service percentage, such reductions need to be weighed against the District's major capital needs. District officials also made some technical comments which have been incorporated in the report where appropriate. We are sending copies of this report to the Mayor of the District of Columbia; the Chairman of the City Council; the Chairmen and Ranking Minority Members of the Subcommittee on the District of Columbia, Senate Committee on Appropriations, and the Senate Committee on Governmental Affairs; interested congressional committees; and other interested parties. Copies will also be made available to others upon request. Please contact me at (202) 512-8549 if you or your staffs have any questions concerning this report. Major contributors to this report are listed in appendix II. The year of maximum debt service for borrowing year is in bold print. Amount(millions) Rate(percent) Richard T. Cambosos, Senior Attorney 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 provided information on the District of Columbia's debt, focusing on: (1) the types of debt that are available to the District and the limitations on that debt; (2) the total District debt and its estimated future borrowings; and (3) how the District's debt compares with other jurisdictions' debt. GAO found that: (1) the Home Rule Act authorizes and limits the District's short- and long-term debt; (2) the District's debt limits have not been revised since enactment of the Home Rule Act; (3) the District is authorized to issue revenue bonds to finance capital projects that are not backed by the full faith and credit of the District and to borrow from the U.S. Treasury to meet its general expenses; (4) as of September 30, 1994, the District's long-term general obligation debt totalled $3.65 billion; (5) total debt service for these long-term obligations is expected to be $409 million in fiscal year 1998; (6) by 2000, the District's projected debt service percentage is expected to be close to the statutory limitation of 14 percent; (7) as of September 30, 1994, the District's general obligation bond rating was at its lowest and was below that of most states and large cities; (8) the District's bond rating has not changed since it began issuing general obligation bonds in 1984; (9) the District's debt level is higher than other jurisdictions, in terms of debt per capita and debt as a percentage of real property; (10) the District's debt cannot be adequately compared with other jurisdictions because its service responsibilities include both city and state governments; and (11) debt service calculations in the District's multiyear plans and annual financial statements are not consistent with the methodology required by the Home Rule Act.
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FAA is responsible for ensuring a safe, secure, and efficient airspace system that contributes to national security and the promotion of U.S. airspace. To fulfill these key missions, FAA administers a wide range of aviation-related programs, such as those to certify the airworthiness of new commercial aircraft designs, to inspect airline operations, to maintain airport security, and to control commercial and general aviation flights. Integral to executing each of FAA's programs are extensive information processing and communications technologies. For example, each of FAA's 20 en route air traffic control facilities, which controls aircraft at the higher altitudes between airports, depends on about 50 interrelated computer systems to safely guide and direct aircraft. Similarly, each of FAA's almost 100 flight standards offices, responsible for inspecting and certifying various sectors of the aviation industry (e.g., commercial aircraft, repair stations, mechanics, pilot training schools, maintenance schools, pilots, and general aviation aircraft), are supported by over 30 mission-related safety database and analysis systems. Because of the complexity of the systems supporting FAA's mission, most of these systems are unique to FAA and not off-the-shelf systems that can be easily maintained by system vendors. FAA also has numerous, complex information processing interactions with various external organizations, including airlines, aircraft manufacturers, general aviation pilots, and other government agencies, such as the National Weather Service (NWS) and the Department of Defense. Over the years, these organizations and FAA have built vast networks of interrelated systems. For example, airlines' flight planning systems are linked to FAA's Enhanced Traffic Management System, which monitors flight plans nationwide, controls high traffic situations, and alerts airlines and airports to bring in more staff when there is extra traffic. As another example, FAA facilities rely on weather information from NWS ground sensors, radars, and satellites to control and route aircraft. FAA is headed by an administrator, who is supported by the chief counsel, assistant administrators responsible for each of its five staff offices, and associate administrators responsible for each of its seven lines of business. The chief counsel and five staff offices handle crosscutting management functions (e.g., system safety), while the seven lines of business are dedicated to specific services (e.g., airport funding). For the purpose of Year 2000 program planning, FAA refers to all of these 13 organizations as "lines of business". Figure 1 provides a visual summary of FAA's management structure, highlighting the 13 lines of business. In assessing actions taken by FAA to address the Year 2000 problem, our objective was to determine the effectiveness of FAA's Year 2000 program, including the reliability of FAA's Year 2000 cost estimate. To satisfy this objective, we reviewed and analyzed key FAA documents, including (1) Year 2000 guidance and draft performance plan documents, (2) Year 2000 memorandums and cost estimation worksheets, (3) minutes of FAA's Year 2000 steering committee, and (4) the lines of businesses' Year 2000 project plans, monthly status reports, and systems assessment documentation. We also reviewed the agency's Internet Web sites for Year 2000 information and newsletter articles, plus FAA's documentation of various Year 2000 briefings. We used our Year 2000 assessment guide to assess FAA's readiness to achieve Year 2000 compliance. To supplement the analyses noted above, we interviewed FAA's Year 2000 product team members, the Year 2000 program manager, FAA's deputy chief information officer, and representatives from each of FAA's 13 lines of business. We performed our work at the Federal Aviation Administration in Washington, D.C., the Mike Monroney Aeronautical Center in Oklahoma City, Oklahoma, and the William J. Hughes Technical Center in Atlantic City, New Jersey. Our work was performed from February through November 1997, in accordance with generally accepted government auditing standards. We requested comments on a draft of this product from the Secretary of Transportation or his designee. On January 6, 1998, we obtained oral comments from Transportation and FAA officials, including representatives from the Office of the Secretary of Transportation and FAA's Chief Information Officer. Their comments are discussed in the "Agency Comments and Our Evaluation" section of this report. On January 1, 2000, computer systems worldwide could malfunction or produce inaccurate information simply because the date has changed. Unless corrected, such failures could have a costly, widespread impact. The problem is rooted in how dates are recorded and computed. For the past several decades, systems have typically used two digits to represent the year--such as "97" for 1997--to save electronic storage space and reduce operating costs. In such a format, however, 2000 is indistinguishable from 1900. Software and systems experts nationwide are concerned that this ambiguity could cause systems to malfunction in unforeseen ways, or to fail completely. Correcting this problem will not be easy or inexpensive, and must be done while such systems continue to operate. Many of the government's computer systems were developed 20 to 25 years ago, use a wide array of computer languages, and lack full documentation. Systems may contain up to several million lines of software code that must be examined for potential date-format problems. The enormous challenge involved in correcting these systems is not primarily technical, however, it is managerial. Agencies' success or failure will largely be determined by the quality of their program management and executive leadership. Top agency officials must understand the importance and urgency of this undertaking, and communicate this to all employees. The outcome of these efforts will also depend on the extent to which agencies have institutionalized key systems-development and program-management practices, and on their experience with such large-scale software development or conversion projects. Accordingly, agencies must first assess their information resources management capabilities and, where necessary, upgrade them. In so doing, they should consider soliciting the assistance of other organizations experienced in these endeavors. To assist agencies with these tasks, we have prepared a guide that discusses the scope of the challenge and offers a structured, step-by-step approach for reviewing and assessing an agency's readiness to handle the Year 2000 problem. The guide describes in detail the following five phases, each of which represents a major Year 2000 program activity or segment: Awareness. This phase entails defining the Year 2000 problem, gaining executive level support and sponsorship, and ensuring that everyone in the organization is fully aware of the issue. Also, during this phase, a Year 2000 program team is established and an overall strategy is developed. Assessment. This phase entails assessing the Year 2000 impact on the enterprise, identifying core business areas, inventorying and analyzing the systems supporting the core business areas, and prioritizing their conversion or replacement. Also, during this phase, contingency planning is initiated and the necessary resources are identified and secured. Renovation. This phase deals with converting, replacing, or eliminating selected systems and applications. In so doing, it is important to consider the complex interdependencies among the systems and applications. Validation. This phase deals with testing, verifying, and validating all converted or replaced systems and applications and ensuring that they perform as expected. This entails testing the performance, functionality, and integration of converted or replaced systems, applications, databases, and interfaces in an operational environment. Implementation. This phase entails deploying and implementing Year 2000 compliant systems and components. Also, during this phase, data exchange contingency plans are implemented, if necessary. Institutional Year 2000 awareness is the first step in effectively addressing the Year 2000 problem. FAA has initiated awareness activities, including conducting a Year 2000 problem awareness campaign, drafting a Year 2000 agencywide plan, issuing a Year 2000 guidance document for project-level plan development, and establishing a program management organization. However, FAA fell behind in other key awareness activities, such as finalizing the agency's Year 2000 strategy, in part due to its late designation of a program manager. FAA recognizes that the upcoming change of century poses significant challenges to the agency. It began Year 2000 problem awareness activities in May 1996, and during the ensuing 3 months established a Year 2000 product team and designated it as the focal point for Year 2000 issues within FAA. Also, FAA established a Year 2000 steering committee. Since then, the Year 2000 product team and steering committee have (1) sponsored an awareness day and held assessment and testing practices workshops, (2) set up Web pages and published a newsletter article to provide information on the Year 2000 problem, and (3) briefed FAA's management on the agency's Year 2000 problem. In addition, in September 1996, the product team issued the FAA Guidance Document for Year 2000 Date Conversion. This guide was intended to assist the lines of businesses within FAA in planning for the conversion of their computer systems to handle processing of dates in the year 2000 and beyond. It is essential that agencies appoint a Year 2000 program manager and establish an agency-level program office to manage and coordinate Year 2000 program activities. The problem and solutions involve a wide range of dependencies among information systems: the need to (1) centrally develop or acquire conversion and validation standards, inspection, conversion, and testing tools, (2) coordinate the conversion of crosscutting information systems and their components, (3) establish priorities, and (4) reallocate resources as needed. However, FAA did not establish a program manager who had responsibility for Year 2000 program management until July 1997. This contributed to key awareness activities being delayed. Specifically, FAA experienced delays in establishing the agencywide Year 2000 plan needed for timely initiation and effective execution of the key awareness and assessment phase activities. Because FAA was slow to designate a program manager, it is only now finalizing its agencywide plan for achieving Year 2000 compliance. The September 1997 draft of this document outlines the FAA strategy and management approach to address the Year 2000 century date change. Specifically, it defines the Year 2000 program management structure and responsibilities; adopts the five-phase management process, including the awareness, assessment, renovation, validation, and implementation phases that are being used throughout the government to manage and measure agencies' Year 2000 programs; calls for awareness and assessment activities to be completed provides for completion of the three remaining program phases--renovation, validation, and implementation; and establishes performance indicators and reporting requirements. FAA's Year 2000 project manager provided a draft of this plan to the Administrator on December 1, 1997, but does not have any estimate as to when this document will be signed by the Administrator and made final. Without an official agencywide Year 2000 strategy, FAA's executive management is without a road map for achieving Year 2000 compliance. Further, the lack of an approved strategy means that FAA's program manager lacks the authority to enforce Year 2000 policies. As a result, each line of business will have to decide if, when, and how to address its Year 2000 conversion, irrespective of agency priorities and standards. This reinforces our existing concerns with FAA's CIO not being in the proper place in the organization to develop, maintain, and enforce information technology initiatives. We have repeatedly recommended that FAA adopt a management structure similar to that of the department-level CIOs as prescribed in the Clinger-Cohen Act. The Department of Transportation (DOT) and FAA have disagreed with this recommendation because they believe that the current location of the CIO, within the research and acquisition line of business, is effective. We disagree. FAA's CIO does not report directly to the Administrator and thus does not have organizational or budgetary authority over those who develop air traffic control systems or the units that maintain them. Further, the agency's long history of problems in managing information technology projects reflects the need for change. FAA has not completed key assessment activities, placing it at enormous risk of not achieving Year 2000 compliance by January 1 of that year. Specifically, FAA has not (1) assessed the severity of its Year 2000 problem and (2) completed the inventory and assessment of its information systems and their components. Also, while FAA has initiated other key assessment phase activities on individual projects, it has not completed determining priorities for system conversion and replacement, developing plans for addressing identified date dependencies, developing validation and test plans for all converted or replaced systems, addressing interface and data exchange issues among internal and external systems, and initiating the development of business continuity plans in case systems are not corrected in time. FAA states that it expects to complete assessment phase activities by the end of January 1998. Developing and publishing a high-level assessment of the severity of the Year 2000 issue provides executive management and staff with a broad overview of the potential impact the century change could have on the agency. Such an assessment provides management with valuable information on which to rank the agency's Year 2000 activities, as well as a means of obtaining and publicizing management commitment and support for necessary Year 2000 initiatives. Unfortunately, FAA has only begun to assess the severity of the impact of Year 2000-induced failures. The Year 2000 Financial Oversight Team, established in October 1997, has been tasked with identifying the impact of Year 2000 failures on FAA's operations, programs, and priorities. This assessment will be focused primarily on key mission critical systems and is to be provided to FAA management in February 1998. On the basis of our discussions with FAA personnel, it is clear that FAA's ability to ensure the safety of the National Airspace System and to avoid the grounding of planes could be compromised if systems are not changed. For example, the Host Computer System, the centerpiece information processing system in FAA's en route centers, relies on the date to determine which day of the week it is when the system is initialized. This information triggers the use of different prescheduled flight plans. That is, carriers use different flight plans and times on a Monday than they do on a Saturday. Because January 1, 2000, is a Saturday, and January 1, 1900, was a Monday, uncorrected date dependencies could lead to the Host using incorrect flight plans. This could result in delayed flights. While FAA officials stated that they believe this problem has been solved, they acknowledged that other unforeseen problems may exist because they have not yet completed assessments of the impact of the Year 2000 problem. External organizations are also concerned about the impact of FAA's Year 2000 status on their operations. FAA recently met with representatives from airlines, aircraft manufacturers, airports, fuel suppliers, telecommunications providers, and industry associations to discuss the Year 2000 issue. At this meeting, participants raised the concern that their own Year 2000 compliance was irrelevant if FAA was not compliant because of the many system interdependencies. Airline representatives further explained that flights could not even get off the ground on January 1, 2000, unless FAA is substantially Year 2000 compliant--and that would be an economic disaster. Because of these types of concerns, FAA has now agreed to meet regularly with industry representatives to coordinate the safety and technical implications of shared data and interfaces. An agencywide inventory and assessment of information systems and their components provides the necessary foundation for detailed Year 2000 program planning. A thorough inventory ensures that all systems are identified and linked to a specific business area or process, and that all agencywide, crosscutting systems are considered while detailed assessments determine (1) the criticality of the various systems and (2) how they should be handled (through conversion, replacement, retirement, or no remedial action). According to FAA's April 1997 Year 2000 guidance document, it expected to have completed inventories of its computer systems and components by May 31, 1997. However, FAA still had not finished them when we completed audit work in November 1997. This inventory did not contain all systems, support software, firmware, telecommunications equipment, and desktop computers. According to FAA's November 15, 1997, quarterly Year 2000 report to DOT, its inventory included 619 systems. These systems comprise approximately 18,000 subsystems and 65 million lines of software code. In commenting on a draft of this report, a Year 2000 program official told us that the inventory of systems was completed on December 29, 1997, with other inventory items expected to be completed later. In addition, FAA has not completed assessing (1) the criticality of the computer systems in its inventory or (2) how the systems should be handled. Of the 619 systems in its inventory when it reported to DOT on November 15, FAA identified 329 as mission-critical, 278 as nonmission-critical, and 12 as undetermined, meaning that they have not yet been categorized as mission-critical or nonmission-critical. These numbers will likely continue to grow as the inventory nears completion. In mid-November, FAA provided data to DOT on the number of mission critical systems it had assessed and whether it had determined that they should be replaced, retired, left alone, or converted to Year 2000 compliancy. DOT requested validation of these assessments and refined these numbers for its November quarterly report to the Office of Management and Budget (OMB). In that report, DOT stated that FAA had completed assessments of only 84, or about 25 percent, of its 329 mission-critical systems. That is, FAA had not determined how to handle its remaining 245 mission critical systems. Of the 84 completed assessments, DOT reported that 34 are Year 2000 compliant, 8 are to be replaced with new compliant applications, 2 are being retired, and 32 are being repaired. The remaining 8 systems are in the process of being certified compliant. Figure 2 summarizes the completed assessments' results. FAA reported that assessment of the remaining mission-critical systems will continue through the end of January 1998. Other key assessment phase activities include determining priorities for system conversion and replacement, developing plans for addressing identified date dependencies, developing validation and test plans for all converted or replaced systems, addressing interface and data exchange issues among systems, and developing contingency plans for continuing operations in case systems are not corrected in time. FAA has just begun these activities. In October 1997, FAA established a Year 2000 Financial Oversight Team with responsibilities for determining priorities for system conversion and replacement, and recommending sources for funding Year 2000 activities to FAA management. At the conclusion of our audit work, Year 2000 program officials told us that they provided preliminary recommendations to FAA management in December 1997, with final recommendations to follow in February 1998. Also, FAA's draft Year 2000 plan calls for each of the 13 lines of business to (1) develop plans for addressing identified date dependencies, (2) develop plans for validating and testing all converted or replaced systems, (3) address interface and data exchange issues among systems, and (4) develop a realistic contingency plan, including establishing manual or contract procedures, to ensure the continuity of core processes. To date, most of the lines of business have developed plans for addressing identified date dependencies. Some of these plans include requirements for testing converted or replaced systems, addressing interface and date exchange issues, and developing contingency plans; other plans, however, do not address these items. Regardless, not all of these plans have been finalized. The program manager told us that she was working with the responsible organizations and planned to finalize their plans by the end of December 1997. At the conclusion of our review, these plans had still not been finalized. Renovation, validation, and implementation activities are the three critical final phases in correcting Year 2000 vulnerabilities. FAA has started the renovation process for some of the systems with completed assessments. However, because of the agency's delays in completing its awareness and assessment activities, time is running out for FAA to renovate its systems, validate these conversions or replacements, and implement its converted or replaced systems. FAA's delays are further magnified by the agency's poor history in delivering promised system capabilities on time and within budget. FAA's weaknesses in managing software acquisition will also hamper its renovation, validation, and implementation efforts. Given the many hurdles FAA faces and the limited amount of time left, planning for business continuity becomes ever more urgent for FAA so that its mission-critical business processes and supporting systems continue to function through the millennium. Such business continuity planning defines the assumptions and risk scenarios, business service objectives, time frames, priorities, tasks, activities, procedures, resources, responsibilities, and the specific steps and detailed actions for re-establishing functional capability for mission critical business processes in the event of prolonged disruption, failure, or disaster. Reliable program cost estimates require a thorough and complete definition of a program's scope and components. However, FAA has yet to completely define the scope of its Year 2000 program. As noted above, FAA has not yet completed its inventory of systems or its assessment of which systems are critical and how to handle them. As a result, the current Year 2000 program cost estimate of $246 million will likely change once FAA has a better handle on its inventory and determines how to handle the various systems. FAA acknowledges the uncertainty of its current cost estimate due to incomplete inventory and assessment information. Even after assessments are completed and estimates finalized, FAA's cost estimates could still be of questionable reliability. We have previously reported on FAA's weaknesses in reliably estimating the cost of its software-intensive Air Traffic Control projects and recommended that FAA correct its weak cost estimating practices by institutionalizing defined estimating processes. FAA agreed with our recommendation and has initiated efforts to improve its processes. Regardless of the eventual cost estimate, uncertainty surrounds funding of FAA's Year 2000 activities. For example, only $18 million of the $246 million is currently in the fiscal year 1998 budget. At the same time, however, OMB has stated that, because of DOT's disappointing progress on the Year 2000 issue, it has established a rebuttable presumption that it will not fund any DOT requests for information technology investments in the fiscal year 1999 budget unless they are directly related to fixing the Year 2000 problem. Further, according to a December 4, 1997, briefing to the Administrator, FAA has been directed by OMB to reprogram existing funds from lower priority projects to its Year 2000 program. Should the pace at which FAA addresses its Year 2000 issues not quicken, and critical FAA systems not be Year 2000 compliant and therefore not be ready for reliable operation on January 1 of that year, the agency's capability in several essential areas--including the monitoring and controlling of air traffic--could be severely compromised. This could result in the temporary grounding of flights until safe aircraft control can be assured. Avoiding such emergency measures will require strong, active oversight. Yet an approved strategy containing detailed plans, milestones, and valid cost estimates--all vital considerations--is still lacking. This is due, at least in part, to incomplete assessment of agency vulnerabilities. Such incomplete assessment is cause for concern. It means that FAA has no way of knowing at this time how serious its Year 2000 date software-coding problem is--or what it will cost to address it. FAA's delays to date are very troubling. Given the rapidly approaching millennium, such delays are no longer acceptable. Until all inventorying and assessments have been completed--set for the end of January 1998--FAA will not be able to effectively or efficiently marshal the available resources, both human and financial, that will be needed to do the job. Once the degree of vulnerability has been determined, a structured approach--such as that provided in our assessment guide--can offer a road map as to the effective use of such resources. Unless critical renovation, validation, and implementation activities are completed in time, and sound contingency plans are available, FAA risks not successfully navigating the change to the new millennium. Urgent action is imperative to improve the management effectiveness of FAA's Year 2000 program and thus the likelihood of its success. Accordingly, we recommend that the Secretary of Transportation direct that the Administrator of FAA, take the actions necessary to expedite the completion of overdue awareness and assessment activities. At a minimum, the Administrator should finalize an agencywide plan which provides the Year 2000 program manager the authority to enforce Year 2000 policies and outlines FAA's strategy for addressing the Year 2000 date change; assess how its major business lines and the aviation industry would be affected if the Year 2000 problem were not corrected in time, and use the results of this assessment to help rank the agency's Year 2000 activities, as well as a means of obtaining and publicizing management commitment and support for necessary Year 2000 initiatives; by January 30, 1998, complete inventories of all information systems and their components, including data interfaces; by January 30, 1998, finish assessments of all systems in FAA's inventory to determine each one's criticality and to decide whether each system should be converted, replaced, or retired; determine priorities for system conversion and replacement based on establish plans for addressing identified date dependencies; develop validation and test plans for all converted or replaced systems; craft Year 2000 contingency plans for all business lines to ensure continuity of critical operations; and make a reliable cost estimate based on a comprehensive inventory and completed assessments of the various systems' criticality and handling needs. DOT and FAA officials provided oral comments on a draft of this report. These officials generally concurred with the report's findings, conclusions, and recommendations. FAA's Chief Information Officer (CIO) stated that FAA recognizes the importance of addressing the Year 2000 issue and plans to implement our recommendations. The CIO stated that FAA's administrator had not yet signed the agencywide Year 2000 plan and that its Year 2000 program manager retired at the end of December 1997. FAA plans to hire a new acting program manager from outside the agency. Given the limited amount of time left to address Year 2000 issues, delays in finalizing the agencywide plan and the turnover of senior management further risk FAA's chance of success. Representatives from the Air Traffic Services (ATS) line of business, the organization responsible for operational air traffic control systems, commented that their organization has made significant progress in addressing the Year 2000 problem and that they do not have the problems that FAA has overall. ATS officials stated that they have in place a Year 2000 project plan, repair process and standards, and a quality assurance plan for system renovations. While we acknowledge these steps by ATS, the pace of progress must increase if ATS and FAA are to address the Year 2000 problem in time. FAA officials also offered some specific comments directed to particular language in the draft report. These comments have been incorporated into the report where appropriate. As agreed with your offices, unless you publicly 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 of this report to the Chairmen and Ranking Minority Members of the House and Senate Committees on Appropriations, and their Subcommittees on Transportation; the Subcommittee on Aviation, Senate Committee on Commerce, Science and Transportation; and the Subcommittee on Aviation, House Committee on Transportation and Infrastructure. We are also sending copies to the Secretary of Transportation, the Administrator of the Federal Aviation Administration, and other interested congressional committees and subcommittees. Copies will also be made available to others upon request. Please contact me at (202) 512-6253 or by e-mail at [email protected] if you have any questions concerning this report. Major contributors to the report are listed in appendix I. Glenda C. Wright, Senior Information Systems Analyst 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 effectiveness of the Federal Aviation Administration's (FAA) year 2000 program, including the reliability of its year 2000 cost estimate. GAO noted that: (1) FAA's progress in making its systems ready for the year 2000 has been too slow; (2) at its current pace, it will not make it in time; (3) the agency has been severely behind schedule in completing basic awareness activities, a critical first phase in an effective year 2000 program; (4) for example, FAA appointed its initial program manager with responsibility for the year 2000 only 6 months ago, and its overall year 2000 strategy is not yet final; (5) FAA also does not know the extent of its year 2000 problem because it has not completed most key assessment phase activities, the second critical phase in an effective year 2000 program; (6) it has yet to analyze the impact of systems' not being year 2000 date compliant, inventory and assess all of its systems for date dependencies, develop plans for addressing identified date dependencies, or develop plans for continuing operations in case systems are not corrected in time; (7) FAA currently estimates it will complete its assessment activities by the end of January 1998; (8) until these activities are completed, FAA cannot know the extent to which it can trust its systems to operate safely after 1999; (9) the potential serious consequences include degraded safety, grounded or delayed flights, increased airline costs, and customer inconvenience; (10) delays in completing awareness and assessment activities also leave FAA little time for critical renovation, validation, and implementation activities--the final three phases in an effective year 2000 program; (11) with 2 years left, FAA is quickly running out of time, making contingency planning for continuity of operations even more critical; (12) FAA's inventory and assessment actions will define the scope and magnitude of its year 2000 problem; since they are incomplete, FAA lacks the information it needs to develop reliable year 2000 cost estimates; and (13) FAA's year 2000 project manager currently estimates that the entire program will cost $246 million based on early estimates from managers throughout the agency.
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Rule of law reform must take place within China's legal and political system, and any assessment of rule of law development should be judged in the context of Chinese institutions. China's current legal system is relatively new and is based, to a great extent, on the civil law codes of Germany as adopted by Japan, and, to some extent on the legal institutions of the former Soviet Union and China's traditional legal system. Two important characteristics of Chinese legal development since 1949 have been the subordination of law to Communist Party policy and the lack of independence of the courts. Another characteristic is the large number of legal measures used to implement a law, including administrative regulations, rules, circulars, guidance, Supreme People's Court interpretations, and similar local government legal measures. China's central government laws, regulations, and other measures generally apply throughout China. Although local governments enact laws and regulations, these must be consistent with central government measures. In 1996, a number of China's top leaders emphasized the principle of administering the country in accordance with law. Several years later, China amended its constitution to incorporate this principle. A substantial number of the many commitments that China has made to the WTO can be characterized as related to developing rule of law practices. In a broad sense, China's WTO commitments suggest that in its commercial relations China is on the way to becoming a more rules-based society, contingent on the faithful implementation of its WTO accession agreement. This agreement is highly detailed and complicated, running to over 800 pages including annexes and schedules. It is the most comprehensive accession package for any WTO member. As part of this package, China agreed to ensure that its legal measures would be consistent with its WTO obligations. About 10 percent of the more than 600 commitments that we identified in China's accession package specifically obligate China to enact, repeal, or modify trade-related laws and regulations. These commitments cover such trade policy areas as agricultural tariff-rate quotas, export and import regulation, technical barriers to trade, intellectual property rights, and nondiscrimination. In addition, by becoming a WTO member, China has agreed to abide by the underlying WTO agreements, such as the General Agreement on Tariffs and Trade, the General Agreement on Trade in Services, the Agreement on Trade-Related Aspects of Intellectual Property Rights and the Understanding on the Rules and Procedures Governing the Settlement of Disputes. China also has made a substantial number of important, specific commitments in the rule of law-related areas of transparency, judicial review, uniform enforcement of legal measures, and nondiscrimination in its commercial policy. In the area of transparency, China has agreed to designate an official journal for publishing trade-related laws and regulations and to provide a reasonable period for public comment before implementing them. China has also agreed to designate an enquiry point where individuals, business enterprises, and WTO members can request information relating to these published laws and regulations. Transparency requirements and commitments to report information to the WTO together represent about a quarter of the commitments we identified in China's accession package. In the area of judicial review, China has agreed to establish or designate tribunals to promptly review trade-related actions of administrative agencies. These tribunals are required to be impartial and independent of the administrative agencies taking these actions. In the area of uniform enforcement, China has agreed that all trade-related laws and regulations shall be applied uniformly throughout China and that China will establish a mechanism by which individuals and enterprises can bring complaints to China's national authorities about cases of nonuniform application of the trade regime. Finally, in the area of nondiscrimination, China agreed that it would provide the same treatment to foreign enterprises and individuals in China as is provided to Chinese enterprises. China also agreed to eliminate dual pricing practices as well as differences in treatment provided to goods produced for sale in China and those produced for export. (See the appendix for examples of rule of law-related commitments included in China's WTO accession agreement.) Chinese government officials have stated their commitment to make WTO- related reforms that would strengthen the rule of law. Furthermore, China's plans for reform go beyond conforming its laws and regulations to China's WTO commitments and include a broad legal review, as well as reforms of judicial and administrative procedures. Chinese officials with whom we spoke discussed the numerous challenges they face in these areas and said that these reforms will take time to implement. They also stated their need for outside assistance to help them with their reform efforts. First, Chinese government officials are in the midst of a comprehensive, nationwide review of laws, regulations, and practices at both the central and provincial levels. This review is to lead to repeals, changes, or new laws. According to one report, Chinese officials have identified more than 170 national laws and regulations and more than 2,500 ministry regulations as being WTO related. Officials whom we interviewed from the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) contend that generally China has done a good job of implementing its WTO obligations to date. MOFTEC officials said that complete implementation will take time and that part of their role is to teach other ministries how to achieve reform according to WTO commitments. They noted the importance of their efforts to coordinate WTO-related reforms with other ministries because Chinese laws tend not to be very detailed and, as a result, it is difficult to incorporate the language of specific WTO commitments into Chinese laws. Officials said that, consequently, Chinese laws will sometimes use general, open-ended phrases that refer to WTO commitments, such as the services annexes, while the detail is set forth in the implementing regulations . Provincial authorities are still reviewing their laws and regulations to see if they are consistent with national laws. Provincial-level officials told us that in some cases they were still waiting for the national government to finish its legislative and regulatory processes. This process will guide their own review of laws and regulations at their level. Prior to their enforcement, provincial-level laws, regulations, and other regulatory measures that implement the central government's legal measures are submitted to the central government for review. Chinese officials told us that they have found many provincial regulations that did not conform to national laws and regulations. MOFTEC officials estimated that it would take a year or two to complete this entire reform process, while some provincial officials estimated 2-3 years. Second, China is undertaking reform of its judicial processes to ensure that they are compatible with its WTO commitments. The Supreme People's Court informed us that since China's accession it has been revising hundreds of judicial interpretations about laws that do not conform to WTO rules. It has also instructed the judiciary throughout the country to follow the revised interpretations and to undertake similar work at their respective levels. Officials told us that the court is also involved in reforms related to the WTO areas of judicial independence and uniform application of legal measures. For example, with regard to judicial independence, in February of this year the court issued new regulations to improve the adjudication of civil and commercial cases involving foreign parties. Under these regulations, mid-level and high-level courts, in contrast to the basic-level courts, will directly adjudicate cases involving, among other subjects, international trade, commercial contracts, letters of credit, and enforcement of international arbitration awards and foreign judgments. Furthermore, China recently amended its Judges Law to require that new judges pass a qualifying exam before being appointed to a judicial position. Third, China is reforming its administrative procedures and incorporating the rule of law into decision-making. About one third of the commitments we identified in China's WTO accession agreement relate to guidance about how a particular commitment should be carried out. Officials told us that they are attempting to reduce the number of layers necessary to approve commercial activities and to make these processes more transparent. These actions can help implement rule of law practices at the day-to-day level. These reforms are also still underway at the central and provincial levels. For example, State Economic and Trade Commission (SETC) officials told us that they have identified 122 administrative procedures that must be changed to conform to WTO rules but that 40 percent of these must still be changed. In Shanghai, officials said that they have eliminated 40 percent of government approvals under their jurisdiction and that they are working to make the remaining 60 percent more efficient. Some Chinese officials with whom we spoke acknowledged challenges in completing all these reforms in a timely manner. These challenges include insufficient resources, limited knowledge of WTO requirements, and concerns about the effects on the economy of carrying out particular WTO commitments. For example, Chinese officials said that the effects of the changes needed to conform their tariff-rate quota administration process to WTO requirements were so difficult that they were unable to allocate the quota and issue certificates in time to meet the deadlines set forth in China's WTO commitments. A number of Chinese officials also indicated that it has been very difficult to fulfill a WTO transparency commitment that requires China to translate all its trade laws, regulations, and other measures into an official WTO language--English, French, or Spanish. This difficulty is due in part to the abundance of the materials to be translated and the highly technical quality of many legal measures. Many Chinese officials we interviewed emphasized the importance of the steps they had taken at both the national and subnational levels to increase the training of government officials about WTO rules. For example, the State Economic and Trade Commission and the General Administration of Customs said they have been holding training sessions for over a year at the national, provincial, and municipal levels on general WTO rules and China's WTO obligations. In addition, the National Judges College plans to train 1,000 judges from local courts across the country and send others for training abroad. Furthermore, governments in Shanghai, Guangzhou, and Shenzhen have established WTO affairs consultation centers that organize training and international exchange programs for midlevel Chinese officials on implementing WTO reforms. Despite these efforts, Chinese officials acknowledged that their understanding of WTO rules remains limited and that more training is needed. According to several Chinese government officials we interviewed, China continues to lack the expertise and the capacity to provide all the training necessary to implement WTO rules and, therefore, it has asked for technical assistance both multilaterally and bilaterally from outside China. As a result, the WTO secretariat, the European Union, the United States, and other WTO member countries have either given or plan to give training assistance to China in numerous areas, including rule of law-related programs. For its part, the U.S. government has provided limited training on a range of WTO-related topics, including standards, services, antidumping requirements, and intellectual property rights. The U.S. private sector also has provided technical assistance. In our interviews of U.S. businesses in China, almost one third of respondents said that they had given some assistance to China that related to implementation of China's WTO commitments. Preliminary data from our written survey indicate that China's WTO commitments related to rule of law reforms are some of the most important for U.S. businesses with a presence in China. For example, more than 90 percent of businesses that have responded to date indicated that the following reform commitments were important or somewhat important to their companies: consistent application of laws, regulations, and practices (within and among national, provincial & local levels); transparency of laws, regulations, and practices; enforcement of contracts and judgments/settlement of disputes; and enforcement of intellectual property rights. When asked to identify the three commitments that were most important to their companies, two WTO rule of law-related areas received the greatest number of responses in our written survey -- consistent application of laws, regulations, and practices; and enforcement of intellectual property rights. We will include a more complete analysis of these and other issues considered in our business survey in a report to be released this fall. A majority of businesses answering our survey expected these rule of law commitments to be difficult for China to implement relative to its other WTO commitments. Businesses cited a number of reasons for this relative difficulty, including (1) the cultural "sea change" required to increase transparency; (2) a reluctance to crack down on intellectual property right violations stemming from a fear of destabilizing the labor force; and (3) the challenge of implementing laws, rules, and regulations consistently among provinces and within and among ministries. Similarly, in our interviews, company officials noted the magnitude of WTO-related reforms, including those that would strengthen the rule of law. They said that successful implementation would require long-term effort. Commensurate with the expected difficulty in carrying out reforms, we heard numerous specific individual complaints from U.S. companies, including concerns about vague laws and regulations that create uncertainty for foreign businesses; lack of transparency, which denied foreign companies the ability to comment on particular draft laws or regulations or to respond to administrative decisions; conflicting and inconsistent interpretations of existing laws and regulations from Chinese officials; unfair treatment by, and conflicts of interest, of Chinese regulators; and uneven or ineffective enforcement of court judgments. Nevertheless, U.S. businesses in China believe that the Chinese leadership is strongly committed to reform and that the leadership has communicated this commitment publicly. Several private sector officials noted a more open, receptive, and helpful attitude on the part of the government officials with whom they had contact. Other private sector officials noted more specific positive actions. For example, officials noted improvements in intellectual property right protections including crackdowns against counterfeiters in Shanghai, and a case where a U.S. company won a judgment against a counterfeiter in a Chinese court that included an order to cease the operations of the copycat company. First, it is very clear that China has shown considerable determination in enacting the numerous laws, regulations, and other measures to ensure that its legal system and institutions, on paper, are WTO compatible. Nevertheless, the real test of China's movement toward a more rule of law- based commercial system is how China actually implements its laws and regulations in fulfilling its WTO commitments. At this point, it is still too early for us to make any definitive judgments about China's actual implementation. Second, as you know, it has been the hope of U.S. government officials and others that China's accession to the WTO would constitute a significant step forward in China's development toward becoming a more rule of law-oriented society. It is worth noting that China's reform efforts, which have been ongoing for more than 20 years, have included substantial legal developments that could be described as rule of law related. These include the enactment of numerous laws, regulations, and other measures that apply to many aspects of Chinese society beyond the WTO, the recent proliferation of law schools and legal training, and the recognition of the need for judicial reform. It is still too early to know where this process will lead, but there is hope that the many rules-based commitments that China made to become a WTO member will influence legal developments in other areas. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Commission may have at this time. For future contacts regarding this testimony, please call Susan Westin at (202) 512-4128. Adam Cowles, Richard Seldin, Michelle Sager, Matthew Helm, Simin Ho, Rona Mendelsohn also made key contributions to this testimony.
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This testimony describes China's development of rule of law practices related to the commitments China made to the World Trade Organization (WTO), which it joined in November 2001. When China joined the WTO, it agreed that its legal measures would be consistent with its WTO obligations. GAO found 60 commitments that specifically obligate China to enact, repeal, or modify trade-related laws or regulations. In addition, China has made a substantial number of other WTO commitments related to the rule of law in transparency, judicial review, uniform enforcement of laws, and nondiscriminatory treatment. Chinese government officials described how their efforts for reform go beyond China's WTO commitments and include broad reforms of laws and regulations at the national and provincial levels, as well as reforms of judicial and administrative procedures. However, Chinese officials acknowledged the challenges they face in completing the necessary reforms and identified the need for outside training assistance. According to GAO's survey, U.S. businesses in China consider rule of law-related WTO commitments to be important, especially the consistent application of laws, regulations, and practices in China, and enforcement of intellectual property rights. However, a majority of businesses answering the survey anticipated that these rule of law commitments would be difficult for the Chinese to implement, and they identified some concerns over specific implementation issues.
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The number of biosafety level (BSL)-3 and BSL-4 laboratories (high- containment laboratories) began to rise in the late 1990s, accelerating after the anthrax attacks throughout the United States. The laboratories expanded across federal, state, academic, and private sectors. Information about their number, location, activities, and ownership is available for high-containment laboratories registered with CDC's Division of Select Agent and Toxins (DSAT) or the U.S. Department of Agriculture's (USDA) Animal and Plant Health Inspection Service (APHIS) as part of the Federal Select Agent Program. These entities register laboratories that work with select agents that have specific potential human, animal, or plant health risks. Other high-containment laboratories work with other pathogens that may also be dangerous but are not identified as "select agents" and therefore these laboratories are not required to register with DSAT or APHIS. We reported in 2009 that information about these non-select agent laboratories is not known. Our work has found that expansion of high-containment laboratories was not based on a government-wide coordinated strategy. The expansion was based on the perceptions of individual agencies about the capacity required for their individual missions and the high-containment laboratory activities needed to meet those missions, as well as the availability of congressionally approved funding. Decisions to fund the construction of high-containment laboratories were made by multiple federal agencies (e.g., Department of Health and Human Services (HHS), Department of Defense, USDA), in multiple budget cycles. Federal and state agencies, academia, and the private sector (such as drug companies) considered their individual requirements, but as we have previously reported a robust assessment of national needs was lacking. Since each agency or organization has a different mission, an assessment of needs, by definition, was at the discretion of the agency or organization. We have not found any national research agenda linking all these agencies, even at the federal level, that would allow for a national needs assessment, strategic plan, or coordinated oversight. As we last reported in 2013, after more than 12 years, we have not been able to find any detailed projections based on a government-wide strategic evaluation of research requirements based on public health or national security needs. Without this information, there is little assurance of having facilities with the right capacity to meet our national needs. This deficiency may be more critical today than 5 years ago when we first reported on this concern because current budget constraints make prioritization essential. Our work on this issue has found a continued lack of national standards for designing, constructing, commissioning, and operating high- containment laboratories. These laboratories are expensive to build, operate, and maintain. For example, we noted in our 2009 report that the absence of national standards means that the laboratories may vary from place to place because of differences in local building requirements or standards for safe operations. In 2007, while investigating a power outage at one of its recently constructed BSL-4 laboratory, CDC determined that construction workers digging at an adjacent site had some time earlier cut a critical grounding cable buried outside the building. CDC facility managers had not noticed that cutting the grounding cable had compromised the electrical system of the facility that housed the BSL-4 laboratory. It became apparent that the building's integrity as it related to the adjacent construction had not been adequately supervised. In 2009, CDC officials told us that standard procedures under local building codes did not require monitoring of the new BSL-4 facility's electrical grounding. This incident highlighted the risk of relying on local building codes to ensure the safety of high-containment laboratories in the absence of national standards or testing procedures specific to those laboratories. Some guidance exists about designing, constructing, and operating high- containment laboratories. The Biosafety in Microbiological and Biomedical Laboratories guidance, often referred to as BMBL recommends various design, construction and operations standards, but our work has found it is not universally followed. of whether the suggested design, construction, and operations standards are achieved. As we have recommended, national standards would be valuable for not only new laboratory construction but also periodic upgrades. Such standards need not be constrained in a "one-size fits all" model but could help specify the levels of facility performance that should be achieved. Department of Health and Human Services (Washington, D.C., 2007), Biosafety in Microbiological and Biomedical Laboratories, 5th ed. HHS has developed and provided biosafety guidelines outlined in this manual. developed by the funding or regulatory agencies. In 2013, we reported that another challenge of this fragmented oversight is the potential duplication and overlap of inspection activities in the regulation of high- containment laboratories. We recommended that CDC and APHIS work with the internal inspectors for Department of Defense and Department of Homeland Security to coordinate inspections and ensure the application of consistent inspection standards. According to most experts that we have spoken to in the course of our work, a baseline risk is associated with any high-containment laboratory. Although technology and improved scientific practice guidance have reduced the risk in high-containment laboratories, the risk is not zero (as illustrated by the recent incidents and others during the past decade). According to CDC officials, the risks from accidental exposure or release can never be completely eliminated and even laboratories within sophisticated biological research programs--including those most extensively regulated--has and will continue to have safety failures. Many experts agree that as the number of high-containment laboratories has increased, so the overall risk of an accidental or deliberate release of a dangerous pathogen will also increase. Oversight is critical in improving biosafety and ensuring that high- containment laboratories comply with regulations. However, our work has found that aspects of the current oversight programs provided by DSAT and APHIS depend on entities' monitoring themselves and reporting incidents to the regulators. For example, with respect to a certification that a select agent had been rendered sterile (that is, noninfectious), DSAT officials told us, citing the June 2014 updated guidance, that "the burden of validating non-viability and non-functionality remains on the individual or entity possessing the select agent, toxin, or regulated nucleic acid." While DSAT does not approve each entity's scientific procedure, DSAT strongly recommends that "an entity maintain information on file in support of the method used for rendering a select agent non-viable . . . so that the entity is able to demonstrate that the agent . . . is no longer subject to the select agent regulations." Biosafety select agent regulations and oversight critically rely on laboratories promptly reporting any incidents that may expose employees or the public to infectious pathogens. Although laboratories have been reasonably conscientious about reporting such incidents, there is evidence that not all have been reported promptly. The June 2014 incident in which live anthrax bacteria were transferred from a BSL-3 contained environment to lower-level (BSL-2) containment laboratories at CDC in Atlanta resulted in the potential exposure of tens of workers to the highly virulent Ames strain of anthrax. According to CDC's report, on June 5, a laboratory scientist in the BSL-3 Bioterrorism Rapid Response and Advanced Technology (BRRAT) laboratory prepared protein extracts from eight bacterial select agents, including Bacillus anthracis, under high-containment (BSL-3) conditions.were being prepared for analysis by matrix-assisted laser desorption/ionization time-of-flight (MALDI-TOF) mass spectrometry, a relatively new technology that can be used for rapid bacterial species identification. Also, according to CDC officials that we spoke to this protein extraction procedure was being evaluated in a preliminary assessment of whether MALDI-TOF mass spectrometry could provide a cheaper and faster way to detect a range of pathogenic agents, including anthrax, compared to conventional methods and thus could be used by emergency response laboratories. According to CDC officials, the researchers intended to use the data collected in this experiment to submit a joint proposal to CDC's Office of Public Health Preparedness and Response to fund further evaluation of the MALDI TOF method These samples because MALDI TOF is increasingly being used by clinical and hospital laboratories for infectious disease diagnostics. The protein extraction procedure was chemically based and intended to render the pathogens noninfectious, which alternative extraction procedures would have done using heat, radiation, or other chemical treatments that took longer. The procedure that was used to extract the proteins was not based on a standard operating procedure that had been documented as appropriate for all the pathogens in the experiment and reviewed by more senior scientific or management officials. Rather, the scientists used a procedure identified by the MALDI TOF equipment manufacturer that had not been tested for effectiveness, in particular, for rendering spore-forming organisms such as anthrax noninfectious. Following that procedure, the eight pathogens were exposed to chemical treatment for 10 minutes and then plated (spread on plates to test for sterility or noninfectious status) and incubated for 24 hours. According to CDC, on June 6, when no growth was observed on sterility plates after 24 hours, the remaining samples, which had been held in the chemical solution for 24 hours, were moved to CDC BSL-2 laboratories for testing using the MALDI TOF technology. Importantly, the plates containing the original sterility samples were left in the incubation chamber rather than destroyed as would normally occur because of technical problems with the autoclave that would have been used for destruction. According to CDC officials, on June 13, a laboratory scientist in the BRRAT laboratory observed unexpected growth on the anthrax sterility plate, possibly indicating that the sample was still infectious. (All the other pathogen protein samples showed no evidence of growth.) That scientist and a colleague immediately reported the discovery to the CDC Select Agent Responsible Official (RO) in accordance with the BRRAT Laboratory Incident Response Plan. That report triggered a response that immediately recovered the samples that had been sent to the BSL-2 laboratories and returned them to BSL-3 containment, and a response effort that lasted a number of days was implemented to identify any CDC employees who might have been affected by exposure to live anthrax spores. (The details of the subsequent actions and CDC's lessons learned and proposed actions are described in CDC's July 11, 2014, Report on Potential Exposure to Anthrax. That report indicates that none of the potentially affected employees experienced anthrax-related adverse medical symptoms.) Our preliminary analysis indicates that the BRRAT laboratory was using a MALDI-TOF MS method that had been designed for protein extraction but not for the inactivation of pathogens and that it did not have a standard operating procedure (SOP) or protocol on inactivation. We did not find a complete set of SOPs for removing agents from a BSL-3 laboratory in a safe manner. Further, neither the preparing (BRRAT BSL-3) laboratory nor the receiving laboratory (BRRAT BSL-2) laboratory conducted sterility testing. Moreover, the BRRAT laboratory did not have a kill curve based on multiple concentration levels. When we visited CDC on July 8, it became apparent to us, that a major cause of this incident was the implementation of an experiment to prepare protein extractions for testing using the MALDI TOF technology that was not based on a validated standard operating procedure. acknowledged that significant and relevant studies in the scientific literature about chemical procedures studied for preparing protein samples for use in the MALDI TOF technology, were successful in rendering tested pathogens noninfectious, except for anthrax. The literature clearly recommends an additional filtering step before concluding that the anthrax samples are not infectious. Our preliminary work indicates that this step was not followed for all the materials in this incident. Validating a procedure or method provides a defined level of statistical confidence in the results of the procedure or method. staff did not perform sterility testing on the suspension received in March 2004. CDC's 2004 report further stated that "Research laboratory workers should assume that all inactivated B. anthracis suspension materials are infectious until inactivation is adequately confirmed [using BSL-2 laboratory procedures]." These recommendations are relevant to the June 2014 incident in Atlanta but were not followed. The laboratories receiving the protein extractions were BSL-2 laboratories, but the activities associated with testing with the MALDI TOF technology were conducted on open laboratory benches, not using biocontainment cabinets otherwise available in such laboratories. CDC's July 11, 2014, Report on the Potential Exposure to Anthrax describes a number of actions that CDC plans to take within its responsibilities to avoid another incident like the one in June. However, we continue to believe that a national strategy is warranted that would evaluate the requirements for high-containment laboratories, set and maintain national standards for such laboratories' construction and operation, and maintain a national strategy for the oversight of laboratories that conduct important research on highly infectious pathogens. This completes my formal statement, Chairman Murphy, Ranking Member DeGette and members of the committee. I am happy to answer any questions you may have. For future contacts regarding this statement, please contact Nancy Kingsbury at (202) 512-2700 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. Sushil Sharma, Ph.D., Dr.PH, Assistant Director; and Elaine L. Vaurio also made key contributions to this statement. High-Containment Laboratories: Assessment of the Nation's Need Is Missing. GAO-13-466R. Washington, D.C.: February 25, 2013. Biological Laboratories: Design and Implementation Considerations for Safety Reporting Systems. GAO-10-850. Washington, D.C.: September 10, 2010. High-Containment Laboratories: National Strategy for Oversight Is Needed. GAO-09-1045T. Washington, D.C.: September 22, 2009. High-Containment Laboratories: National Strategy for Oversight Is Needed. GAO-09-1036T. Washington, D.C.: September 22, 2009. High-Containment Laboratories: National Strategy for Oversight Is Needed. GAO-09-574. Washington, D.C.: September 21, 2009. Biological Research: Observations on DHS's Analyses Concerning Whether FMD Research Can Be Done as Safely on the Mainland as on Plum Island. GAO-09-747. Washington, D.C.: July 30, 2009. High-Containment Biosafety Laboratories: DHS Lacks Evidence to Conclude That Foot-and-Mouth Disease Research Can Be Done Safely on the U.S. Mainland. GAO-08-821T. Washington, D.C.: May 22, 2008. High-Containment Biosafety Laboratories: Preliminary Observations on the Oversight of the Proliferation of BSL-3 and BSL-4 Laboratories in the United States. GAO-08-108T. Washington, D.C.: October 4, 2007. Biological Research Laboratories: Issues Associated with the Expansion of Laboratories Funded by the National Institute of Allergy and Infectious Diseases. GAO-07-333R. Washington, D.C.: February 22, 2007. Homeland Security: CDC's Oversight of the Select Agent Program GAO-03-315R. Washington, D.C.: November 22, 2002. 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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Recent biosecurity incidents--such as the June 5, 2014, potential exposure of staff in Atlanta laboratories at the Centers for Disease Control and Prevention (CDC) to live spores of a strain of anthrax--highlight the importance of maintaining biosafety and biosecurity protocols at high-containment laboratories. This statement summarizes the results of GAO's past work on the oversight of high-containment laboratories, those designed for handling dangerous pathogens and emerging infectious diseases. Specifically, this statement addresses (1) the need for governmentwide strategic planning for the requirements for high-containment laboratories, including assessment of their risks; (2) the need for national standards for designing, constructing, commissioning, operating, and maintaining such laboratories; and (3) the oversight of biosafety and biosecurity at high-containment laboratories. In addition, it provides GAO's preliminary observations on the potential exposure of CDC staff to anthrax. For this preliminary work, GAO reviewed agency documents, including a report on the potential exposure, and scientific literature; and interviewed CDC officials. No federal entity is responsible for strategic planning and oversight of high-containment laboratories. Since the 1990s, the number of high-containment laboratories has risen; however, the expansion of high-containment laboratories was not based on a government-wide coordinated strategy. Instead, the expansion was based on the perceptions of individual agencies about the capacity required for their individual missions and the high-containment laboratory activities needed to meet those missions, as well as the availability of congressionally approved funding. Consequent to this mode of expansion, there was no research agenda linking all these agencies, even at the federal level, that would allow for a national needs assessment, strategic plan, or coordinated oversight. As GAO last reported in 2013, after more than 12 years, GAO has not been able to find any detailed projections based on a government-wide strategic evaluation of research requirements based on public health or national security needs. Without this information, there is little assurance of having facilities with the right capacity to meet the nation's needs. GAO's past work has found a continued lack of national standards for designing, constructing, commissioning, and operating high-containment laboratories. As noted in a 2009 report, the absence of national standards means that the laboratories may vary from place to place because of differences in local building requirements or standards for safe operations. Some guidance exists about designing, constructing, and operating high-containment laboratories. Specifically, the Biosafety in Microbiological and Biomedical Laboratories guidance recommends various design, construction, and operations standards, but GAO's work has found it is not universally followed. The guidance also does not recommend an assessment of whether the suggested design, construction, and operational standards are achieved. As GAO has reported, national standards are valuable not only in relation to new laboratory construction but also in ensuring compliance for periodic upgrades. No one agency is responsible for determining the aggregate or cumulative risks associated with the continued expansion of high-containment laboratories; according to experts and federal officials GAO interviewed for prior work, the oversight of these laboratories is fragmented and largely self-policing. On July 11, 2014, the Centers for Disease Control and Prevention (CDC) released a report on the potential exposure to anthrax that described a number of actions that CDC plans to take within its responsibilities to avoid another incident like the one in June. The incident in June was caused when a laboratory scientist inadvertently failed to sterilize plates containing samples of anthrax, derived with a new method, and transferred them to a facility with lower biosecurity protocols. This incident and the inherent risks of biosecurity highlight the need for a national strategy to evaluate the requirements for high-containment laboratories, set and maintain national standards for such laboratories' construction and operation, and maintain a national strategy for the oversight of laboratories that conduct important work on highly infectious pathogens. This testimony contains no new recommendations, but GAO has made recommendations in prior reports to responsible agencies.
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As discussed in our June 2010 report, both the Propane and Oilheat Acts specify three areas as mandatory functions and priorities for PERC's and NORA's programs and projects.follows: The three mandatory areas are as Research and development: The Propane Act requires PERC to develop programs that provide for research and development of clean and efficient propane utilization equipment. The Oilheat Act directs similar oilheat-related research and development and directs NORA to fund projects in the demonstration stage of development. According to our analysis of PERC's audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, of the about $350.6 million collected from assessments for 1998 to 2008, PERC and its affiliated state propane associations spent $28.1 million for research and development (8 percent). According to our analysis of NORA's audited financial statements, annual reports, and other financial information, of the more than $107.4 million NORA collected from assessments for 2001 to 2008, NORA and the affiliated state associations spent $6.2 million (5.8 percent) on research and development. Safety and training/education and training: Both the Propane Act and the Oilheat Act require development of programs to enhance consumer and employee safety and training. PERC refers to this program area as "safety and training," and NORA refers to it as "education and training." Projects that fall into this spending category include developing employee training materials and conducting training courses for industry personnel. According to our analysis of PERC's and NORA's audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, from 1998 to 2008, PERC and its affiliated state propane associations spent $50.7 million for safety and training (14.5 percent), and from 2001 to 2008, NORA and the affiliated state associations spent $17.8 million (16.5 percent) on education and training. Public/consumer education: The Propane Act directs PERC to develop projects to inform and educate the public about safety and other issues associated with the use of propane. Similarly, the Oilheat Act directs NORA to develop programs that provide information to assist consumers and other persons in making evaluations and decisions regarding oilheat. Such activities have included the development of radio, television, and print advertising directed at consumers and industry professionals. According to our analysis of PERC's and NORA's audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, from 1998 through 2008, PERC spent about $178.6 million for consumer education (50.9 percent), and from 2001 through 2008, NORA spent $68.4 million for consumer education (63.7 percent). To fund their operations, PERC and NORA assess each gallon of propane or heating oil, respectively. Specifically, to fund PERC operations, each gallon of odorized propane gas sold is assessed $0.004. To fund NORA operations, each gallon of heating oil sold is assessed $0.002. While the Propane and Oilheat Acts contain certain restrictions on the types of activities PERC and NORA can undertake, the acts generally do not prohibit PERC and NORA from conducting programs or projects beyond these mandatory areas identified above, and both organizations have carried out additional activities. PERC, for example, has spent funds on agriculture and engine fuel programs. In addition, to coordinate its activities with other parties, as required by the Propane Act, PERC has established an industry programs area to provide support, data, and other services to the propane industry and maximize its impact. Likewise, in 2004 and 2005, NORA funded an oil tank training and education program for tank installers, inspectors, and insurers to address concerns about storage tanks, which NORA officials stated spanned all three mandatory areas in the statute. In our June 2010 report, we found that some PERC and NORA activities appeared to meet the requirements of the acts, but certain other activities, such as some activities involving Congress or politically affiliated entities, raised issues as to whether they were covered by the Propane and Oilheat Acts' specific lobbying restrictions. Even when we assumed that these activities were permitted, issues remained about whether Congress anticipated that assessment funds would be used for these types of activities. We also found issues concerning PERC's funding of consumer education activities after spending restrictions were triggered and NORA's monitoring of the expenditures of its funds by state associations. The Propane Act prohibits the use of PERC assessment funds for certain "lobbying" activities, specifically for "influencing legislation or elections," except for recommending to the Secretary of Energy any changes in the act or other statutes that would further the act's purposes. At the time of our June 2010 review, the Oilheat Act contained similar provisions, some of which were amended in 2014.NORA's activities--particularly communications and expenditures related to Congress or to politically affiliated entities--raised issues as to whether they were covered under the acts' lobbying restrictions. However, some of PERC's and In our June 2010 report, we found, for example, that PERC paid for a grantee to attend activities associated with the Republican and Democratic national conventions, for a grantee to contribute thousands of dollars to several politically active organizations, and for a grantee to spend thousands of dollars to host Senate and House receptions. We also found that minutes of an August 2008 NORA executive committee meeting indicated that the NORA President said he was seeking state senators' support for NORA reauthorization and that a December 2008 NORA-qualified Massachusetts state association newsletter indicated that the NORA President traveled to Washington to urge both Massachusetts senators to support NORA reauthorization. We found that neither the Propane Act nor the Oilheat Act provided guidance on what constitutes "influencing legislation or elections;" there was little pertinent legislative history; no court had addressed what this language means as used in these statutes; and other federal laws containing similar language had been interpreted in different ways. As such, it was not clear whether or not the Propane Act's or the Oilheat Act's prohibitions covered those types of activities. Even when we assumed PERC's and NORA's activities were permitted, issues remained about whether Congress anticipated that the assessment funds would be used for these activities, particularly when PERC and NORA had classified this spending as "consumer education," one of the functions that the acts require PERC and NORA to carry out. Specifically, issues remained about whether they qualified as "consumer education" under the acts. Issues also remained about whether Congress anticipated that such a high proportion of the groups' funding would go to consumer education activities (i.e., more than half), in comparison to the relatively little support given to research and development (i.e., 8 percent for PERC and less than 6 percent for NORA), which had been a key area of congressional interest as the laws were debated prior to enactment. Because PERC's and NORA's authorizing statutes did not provide for a particular funding level for specific activities or indicate a ranking among the activities designated as priorities, they afforded PERC and NORA wide latitude in deciding how and in what amounts they spent assessments collected. Since the legislative history of both statutes indicated that a need for research and development funding was a key factor driving the legislation, PERC's and NORA's decisions to spend over half of their funding on consumer education raised issues about whether these funds were being used as Congress anticipated. Furthermore, while some PERC and NORA activities appeared to meet statutory requirements, the lack of specificity in the language of the statutes raised issues about what activities were covered under certain we suggested that as provisions of the acts. In our June 2010 report,Congress considers whether to reauthorize NORA or amend PERC's authorizing statute, it consider imposing greater specificity on the requirements it has established and to establish mechanisms to enhance compliance with those requirements. Specifically, we suggested that Congress should consider specifying any prioritization of activities it wants to be undertaken and detailing more specifically which activities are prohibited (such as some of those involving lobbying) and subjecting PERC's and NORA's activities to review, interpretation and approval by an independent, designated entity and specifying a federal oversight role by requiring DOE to monitor and oversee the expenditure of PERC and NORA funds. In our June 2010 report, we also found that PERC initially designated certain activities as "consumer education" but, when price-based restrictions on consumer education programs were triggered in 2009, it redesignated and continued the activities as "residential and commercial" matters. The Propane Act specified that if the 5-year average rolling price index of consumer grade propane exceeds a particular price threshold, PERC's activities must be restricted to research and development, training, and safety. Commerce notified PERC in August 2009 that this price composite index threshold had been exceeded. We found that, after the August notification, PERC approved three grants, including a no-cost change order to a previously approved grant. These grants initially had been proposed and approved as consumer education grants, which would be prohibited under the restriction, and PERC amended their designation to a new program area called "residential and commercial" matters. The Propane Act did not specifically define the scope of activities permitted under the price restriction or the activities that must cease. We concluded that the resulting lack of a precise statutory line between permitted and prohibited activities created difficulty in assessing compliance with the restriction. In our June 2010 report, we also found issues concerning NORA's monitoring of state oilheat associations. It was unclear during our review whether NORA's monitoring procedures were adequate to detect noncompliance among its state grantees if it occurred. The Oilheat Act required NORA to monitor the use of funds it provides to state associations and impose any terms and conditions it considers necessary The Oilheat Act also required NORA to ensure compliance with the act.to establish policies and procedures that conform to generally accepted accounting principles (GAAP) for auditing compliance with the act. According to NORA's President, monitoring of state associations included, among other things, policies and procedures to review state grants and disbursements and requirements in grant agreements with the state associations that specify the authorized and unauthorized use of NORA assessment funds. However, based on our review of general ledger entries, financial statements, and certain other reports and information prepared by selected state associations for our June 2010 report, we were unable to determine whether spending by state associations of NORA funds met the requirements of the Oilheat Act. For example, based on our review of the general ledger expenditures entries for 2006 to 2008, we found that hundreds of entries indicated only that a purchase was made, with no details as to the type of or reason for the purchase. We suggested that Congress consider requiring NORA funds granted to qualified state associations be segregated in separate accounts, apart from other funds collected and used by those associations. Consistent with this suggestion, in NORA's 2014 reauthorization, the Oilheat Act was amended so that as a condition of receiving funds from NORA, each state association is to deposit the funds in an account that is separate from other funds of the qualified state association. In our June 2010 report, we found that the federal oversight of PERC and NORA was limited, which was in contrast to the routine federal oversight of agriculture check-off programs that had existed. DOE did not exercise its oversight authority for either PERC or NORA, and DOE officials told us that they believed that the department had no oversight role regarding either one. DOE, however, is empowered to review both organizations' annual budgets; to recommend activities and programs it deems appropriate; and, in PERC's case, to require submission of reports on compliance, violations, and complaints regarding implementation of the Propane Act. We found that although DOE is authorized to be reimbursed by PERC for the department's PERC-related oversight costs (up to the average salary of two DOE employees), DOE officials told us the department never requested reimbursement because it did not incur any oversight costs. This lack of oversight is part of a long-standing pattern. For example, in a June 2003 report, we found that DOE's oversight of PERC was lacking and recommended that the department take corrective action.Commerce rather than DOE had oversight responsibility and, therefore, DOE did not act on our recommendation. In June 2010, we found that DOE's position regarding PERC remained unchanged. In its response to our June 2003 report, DOE stated that Importantly, as neither the Propane nor the Oilheat Act contained a specific enforcement mechanism for any potential PERC or NORA violations, in June 2010 we concluded that any oversight program implemented by a federal agency would be hampered. As a result, in our we suggested that as Congress considers whether to June 2010 report,reauthorize NORA or amend PERC's authorizing statute, it may wish to impose greater specificity on the requirements it has established and to establish mechanisms to enhance compliance with those requirements. Specifically, we suggested that Congress should consider establishing a specific enforcement mechanism, and expressly authorizing DOE to refer any potential violations of law to appropriate enforcement authorities. Consistent with our suggestion, when Congress reauthorized NORA in 2014, it amended the Oilheat Act to, among other things, provide that in the event of a violation of the act, the Secretary of Energy is to notify Congress of the noncompliance and provide notice of the noncompliance With respect to PERC, although Congress made on NORA's website.technical clarifications to the Propane Act in 2014 as noted above, it did not address this suggestion we made in 2010. As discussed earlier, Congress has authorized check-off programs for agriculture commodities, such as beef, blueberries, cotton, dairy products, eggs, peanuts, popcorn, pork, and potatoes, and USDA has mandated oversight activities over these programs. advertising campaigns, and investment plans, the AMS, among other things, ensures that the collection, accounting, auditing, and expenditure of promotion funds is consistent with the enabling legislation and department orders. Chairman Burgess, Ranking Member Schakowsky, and Members of the Committee, this completes my prepared statement. I would be pleased to answer any questions that you may have at this time. If you or your staff members have any questions about this testimony, please contact me at (202) 512-3841 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 statement. Marya Link, Alison O'Neill, Kiki Theodoropoulos, Susan Sawtelle, and Barbara Timmerman 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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Congressionally authorized research and promotion programs, also known as check-off programs, may be established under federal law at the request of their industries. These programs are designed to increase the success of businesses that produce and sell certain commodities, such as milk and beef. To fund such programs, producers set aside a fraction of the wholesale cost of a product and deposit the monies into a common fund. In June 2010, GAO reported on two such programs, PERC and NORA, for the propane and oilheat industries (GAO-10-583). Legislation is currently being considered for a check-off program for the concrete and masonry industry. For this testimony, GAO focused on (1) mandatory functions and priorities for PERC and NORA programs and projects, (2) whether PERC and NORA activities were covered by certain legal requirements, and (3) federal oversight of PERC and NORA. For the 2010 report, GAO reviewed relevant laws, financial statements, annual reports, meeting minutes, and other reports. GAO also interviewed officials from the departments of Energy and Commerce and the private sector. GAO updated legislative information in July 2015. GAO's June 2010 report suggested that Congress consider clarifying certain requirements and specifying priority ranking, expenditures, and a DOE oversight role. When Congress reauthorized NORA in 2014, it amended the Oilheat Act by, among other things, taking actions on GAO's suggestions. As GAO reported in June 2010, the Propane Education and Research Act of 1996 (the Propane Act) and the National Oilheat Research Alliance Act of 2000 (the Oilheat Act), which authorized the establishment of the Propane Education and Research Council (PERC) and National Oilheat Research Alliance (NORA), specified the following areas as mandatory functions and priorities: Research and development : The Propane Act requires PERC to develop programs for research and development of clean and efficient propane utilization equipment. The Oilheat Act directs similar oilheat-related research and development and directs NORA to fund demonstration projects. Safety and training/education and training : Both acts require development of programs to enhance consumer and employee safety and training. PERC refers to this area as "safety and training," and NORA refers to it as "education and training." Public/consumer education : The Propane Act directs PERC to develop projects to inform and educate the public about safety and other issues associated with the use of propane. Similarly, the Oilheat Act directs NORA to develop programs that provide information to assist consumers and other persons in making evaluations and decisions regarding oilheat. Such activities have included developing radio, television, and print advertising. To fund their operations, the acts require PERC and NORA to assess each gallon of odorized propane gas or heating oil sold at $0.004 and $0.002, respectively. GAO found that some PERC and NORA activities appeared to meet the requirements of the acts, but certain other activities raised issues. For example, activities involving Congress or politically affiliated entities raised issues about whether they were covered by the acts' specific lobbying restrictions. Even if these activities were permitted, issues remained about whether Congress anticipated that assessment funds would be used to fund them, particularly when PERC and NORA classified this spending as "consumer education"--one of the functions required by the acts. Other issues GAO identified related to whether Congress anticipated that PERC and NORA would allocate the majority of their funding to education activities over the past decade (more than half), while allocating relatively little financial support to research and development (8 percent for PERC and less than 6 percent for NORA). When the laws were debated and before they were enacted, research and development had been a key area of congressional interest and ultimately was reflected as both a mandatory "function" and a high-focus "priority" in the final version passed by Congress GAO found limited federal oversight of PERC and NORA. As of June 2010, the Department of Energy had not used the oversight authority granted by the Propane and Oilheat acts, such as by reviewing budgets or making recommendations to PERC and NORA, as authorized by law. This lack of oversight was long-standing. For example, in a 2003 report GAO had found that DOE's oversight of PERC was lacking and recommended corrective action.
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Within DOD's Office of the Assistant Secretary of Defense for Health Affairs, the office of Force Health Protection & Readiness provides support for all medically related DOD policies, programs, and activities. This includes responsibility for the development of most deployment- related health policies, including those related to OEHS. The service component commands include U.S. Army Central (USARCENT), U.S. Air Force Central Command, and U.S. Naval Forces Central Command. that unit. As of February 1, 2015, there was one preventive medicine unit available to conduct OEHS activities in Iraq and one in Afghanistan, which reported to USARCENT and U.S. Forces-Afghanistan, respectively. Each of the military services has a public health surveillance center that provides support and technical guidance on reporting on potential environmental risks to combatant commands and their subordinate commands. These public health surveillance centers include the U.S. Army Public Health Command, the U.S. Air Force School of Aerospace Medicine, and the Navy & Marine Corps Public Health Center. In addition, these centers provide technical expertise and support for the subordinate commands' preventive medicine units in theater. These surveillance centers have also developed and adapted military exposure guidelines for deployment using existing U.S. national standards for human health exposure limits and technical monitoring procedures (e.g., standards of the U.S. Environmental Protection Agency and the National Institute for Occupational Safety and Health). As part of DOD's health surveillance framework, Force Health Protection & Readiness deployment health policies require the preventive medicine units to regularly collect and report a variety of data during deployments to identify and respond to health threats that servicemembers may have encountered. Health surveillance during deployments includes identifying the deployed population at risk, recognizing and assessing potentially hazardous health exposures and conditions, employing specific preventive countermeasures, daily monitoring of real-time health outcomes, and reporting of disease and injury data. DOD collects and stores three types of data during deployments: (1) daily individual servicemember location data--such as the duty station--which is stored by DOD's Defense Manpower Data Center; (2) medical data-- including data on health outcomes acquired from servicemember medical records--which is stored by DOD's Armed Forces Health Surveillance Center; and (3) OEHS data, including ambient air, water, and soil samples. Once collected, DOD currently uses two separate IT systems for the storage of OEHS data--MESL and DOEHRS: MESL, originally implemented in 2003, contains both classified and unclassified documents that have been scanned and uploaded into the system. Officials can use MESL for submitting OEHS documents, conducting searches based on key words, and downloading OEHS documents. DOD subsequently began implementing DOEHRS in 2006. Unlike MESL, DOEHRS is a database that incorporates additional functionalities including OEHS data collection, management, and assessment--including the ability to query data--in a single system. It allows users in theatre to capture field data, such as air, water, and soil samples; compare sample results with exposure guidelines; report sampling data; and view laboratory data instantly once data are loaded into the system. Unlike MESL, DOEHRS only contains unclassified data. While there are some departmental requirements for some OEHS reports for deployment sites--such as an initial assessment--the total number of OEHS reports for each deployment site varies because these reports reflect the specific occupational and environmental circumstances unique to each location. VA is comprised of three administrations, two of which focus on benefits for veterans: VBA and VHA. VBA processes veterans' claims for monthly compensation for service-connected disabilities. VBA determines eligibility criteria for disability compensation, which can include identifying specific health conditions, like those associated with occupational and environmental hazards in Iraq and Afghanistan, and determining whether these conditions are service-connected. VHA operates the VA health care system, which provides health care to veterans through its various facilities, including outpatient clinics and medical centers. VHA also may provide health coverage to spouses, survivors, and children of veterans who are permanently and totally disabled from a service-connected disability, or who died in the line of duty or from a service-connected disability. VHA also conducts or sponsors research on veterans' illnesses related to military occupational and environmental exposures. Inconsistencies between DOD and military service-specific policies regarding OEHS data storage has led to fragmentation and duplication of OEHS data between the department's two systems--MESL and DOEHRS. Officials with Force Health Protection & Readiness told us that DOD is transitioning from the use of MESL to DOEHRS, which has greater functionality. However, the departmental policy developed by this office--updated in 2011--states that all classified and unclassified OEHS data should be stored in MESL even though DOEHRS was implemented in 2006. Officials from the U.S. Army Public Health Command--the office that maintains MESL and has technical expertise in DOEHRS-- confirmed the department's intent to transition from MESL to DOEHRS, and told us that this transition would eventually include the transfer of all unclassified documents currently in MESL to DOEHRS (once DOEHRS had been sufficiently upgraded) while classified data would remain in MESL. However, these same officials told us that resources have not been obtained to complete this task, and that the upgrades are time- and resource-intensive. Force Health Protection & Readiness officials explained that DOD's current policy does not reflect the potential transition from MESL to DOEHRS because developing the functionality of DOEHRS in archiving data from deployments was still under way when the policy was last updated in 2011--about 5 years after DOEHRS was implemented.being revised to require the storage of unclassified OEHS data in DOEHRS, and they expect the updated policy to be released in 2016. However, these officials told us that the policy is currently Further, when we reviewed all of DOD's relevant OEHS policies as well as corresponding policies developed by each of the military services--all dated after 2006--we identified inconsistencies about which system should be used to store OEHS data. Only 3 of the 14 policies we reviewed instruct officials to store OEHS data in DOEHRS, while 4 policies instruct officials to store OEHS data in MESL. Six of the policies instruct the use of both systems as appropriate, depending on the type of document being submitted and the availability of DOEHRS during a deployment. Further, one of the policies does not list either system, as it says that databases are necessary for OEHS data storage but does not specifically mention DOEHRS or MESL. See Table 1 for the list of 14 policies related to OEHS data storage. Inconsistent policies are contrary to federal standards for internal control, which state that management should have policies in place that are both appropriate and clear. MESL and DOEHRS store similar types of unclassified OEHS data, such as environmental sample data (e.g., water and soil samples) and risk assessments for deployment sites. (See table 2.) Our prior work has found that inefficiencies can occur when there is fragmentation and duplication, such as when more than one system offers the same services.store unclassified OEHS data, officials' efforts to store these data are inefficient and have resulted in both fragmentation and duplication. This has occurred because, in some cases, similar types of unclassified OEHS Without consistent policies on which system should be used to data have been submitted to both MESL and DOEHRS, and in other cases, identical OEHS data has been submitted to both systems. However, neither system serves as a central repository for these data. As a result, it is difficult to identify complete and comprehensive data sets for specific types of OEHS data, which may lead to problems when officials attempt to use these data in the future. A U.S. Army Public Health Command official who has technical expertise in both systems confirmed that there is duplication of OEHS data storage, but stated that there is no reasonable way to determine the extent because only DOEHRS has specific data level querying capabilities. Therefore, this could only be determined by comparing individual documents, which is not feasible because there are thousands of records in each system. DOD's department-wide policy that governs the collection and storage of OEHS data during deployments does not specifically address quality assurance for OEHS data. As a result, the military services lack specific and consistent guidance on performing quality assurance reviews, which may impact the reliability of these data. According to military service officials, quality assurance reviews of OEHS data collected at deployment sites are generally performed once the data have been submitted to DOEHRS. As a result, it is not always feasible to verify the accuracy of the samples, and the quality assurance reviews are focused more on the completeness and reasonableness of data entry. Officials may perform these quality assurance checks while at a deployment site. However, the services' public health surveillance centers in the United States may also conduct these reviews. According to officials, quality assurance reviews are limited to OEHS data that have been submitted to DOEHRS because MESL only contains uploaded documents that cannot be edited or modified. Data in DOEHRS can be reviewed for quality assurance purposes after it has been submitted, and the system has the capability of documenting that a quality assurance process has occurred. A Force Health Protection & Readiness official told us that the department's deployment health policy was focused on monitoring the implementation of the policy as a whole and did not specifically address quality assurance for OEHS data in DOEHRS. As a result, some of the military services developed their own guidance, which has resulted in inconsistent approaches and levels of effort. The Army's policy that discusses quality assurance for OEHS data states that data should be collected to ensure reliability and completeness, but does not discuss how these data should be reviewed. U.S. Army Public Health Command officials told us that they check OEHS data submissions in DOEHRS for completion in all relevant data fields and for general reasonableness of the data. The Air Force's policy that addresses quality assurance for OEHS data states that procedures for quality assurance should be developed, but does not give any specifics as to how this should be done. Officials from the Air Force Medical Support Agency--an entity that provides guidance for U.S. Air Force Central Command on how to execute Air Force policy--told us that they did not think that quality assurance of OEHS data in DOEHRS collected by the Air Force was occurring to any large extent. A Navy & Marine Corps Public Health Center official told us that the Navy and Marine Corps do not have policies on quality assurance for OEHS data. Despite having no policy, however, Navy & Marine Corps Public Health Center officials told us that they check for completion and general reasonableness of the data. These inconsistent quality assurance processes reduce DOD's ability to be confident about the reliability of OEHS data--especially because these reviews do not always occur--and potentially limit the usefulness of these data for monitoring the health of servicemembers and veterans. This runs counter to federal standards for internal control, which state that management should continually monitor information captured and maintained for several factors, including its reliability. The military services use site assessments to identify and address potential occupational and environmental health risks at deployment locations. In 2007, DOD established the Occupational and Environmental Health Site Assessment (OEHSA) as the standardized process for assessing and reporting occupational and environmental health site conditions at deployment sites. While the OEHSA is DOD's primary and most comprehensive process for assessing risks, other methods may also be used, as needed. OEHSAs are completed by preventive medicine units and generally include the initial evaluation of the following conditions with continued surveillance as deemed necessary: ambient air, soil, water, radiological surveys, noise, occupational health hazards, waste OEHSAs also may contain location-specific disposal, and sanitation.findings and can include recommended countermeasures for mitigating these potential occupational and environmental health threats. These recommendations may include a wide range of activities, such as specifying any necessary education for servicemembers on how to identify potential health threats, the use of personal protective equipment to minimize exposure, or the need for new or continued testing of ambient air or water. In our review of 50 OEHSAs for sites in Iraq or Afghanistan, we found that almost all (46 of 50 OEHSAs) contained recommendations for mitigating potential health risks for servicemembers in these locations. For example, a 2011 OEHSA for a site in Afghanistan found that particulate matter concentrations exceeded military guidelines, and consequently, air quality was at moderate risk for a significant health concern. As a result, the OEHSA recommended, among other things, that personal protective equipment be worn during periods when conditions were very dusty and that methods to suppress dust be instituted, such as using large rocks and gravel in high-traffic areas within a deployment site. In another example, a 2011 OEHSA for a site in Iraq noted that burn-pit exposure posed a moderate risk. As a result, the OEHSA recommended additional burn-pit air monitoring during the next assessment and that servicemembers fueling the burn pit wear respiratory personal protective equipment. Officials from USARCENT and U.S. Forces-Afghanistan told us that their respective Force Health Protection Officers ensure that OEHSAs are being completed--as required by CENTCOM policy--and perform quality assurance reviews for completion and reasonableness.USARCENT's Force Health Protection Officer told us that they check OEHSAs for completeness and reasonableness by reviewing relevant historical data documented in DOEHRS and by using their subject matter expertise. U.S. Forces-Afghanistan officials told us that their Force Health Protection Officer uses similar methods to monitor the completion of OEHSAs. In addition, the CENTCOM official responsible for OEHS has recently begun holding and documenting monthly meetings with the For example, service component commands to further monitor OEHS activities, including the completion of OEHSAs for deployment sites. Although OEHSAs identify recommended countermeasures to mitigate some potential occupational and environmental health risks, the extent to which these recommendations are being implemented is unclear due to a lack of documentation and monitoring. According to CENTCOM policy, base commanders are responsible for using completed OEHSAs to make decisions about local deployment health activities. This could include, for example, whether and how to implement recommendations to mitigate identified risks. However, this policy does not require that base commanders document their decisions in these instances, and as a result, USARCENT and U.S. Forces-Afghanistan officials told us that they could not readily identify whether documentation of these decisions exists. In contrast, DOD's policy for its safety and occupational health program requires that the department's components, including the combatant commands, establish procedures to ensure that decisions related to risk management are documented, archived, and reevaluated on a recurring basis. Furthermore, clear and appropriate documentation is a key component of internal controls, according to the federal standards for internal control. Without such documentation, it is difficult to determine whether and how recommendations identified in site assessments are being implemented. USARCENT and U.S. Forces- Afghanistan officials told us that they are not monitoring the implementation of these recommendations, and instead rely on preventive medicine units to elevate any concerns about implementing these recommendations through the chain of command, as necessary. Nonetheless, CENTCOM is ultimately responsible for overseeing the coordination of force health protection programs and compliance with all DOD requirements within its area of responsibility. CENTCOM officials also told us that they are not monitoring the implementation of recommendations contained in OEHSAs because they, too, rely on preventive medicine units to elevate concerns as needed. However, CENTCOM's policy on risk management requires the implementation of internal controls and, subsequently, the supervision and evaluation of the effectiveness of these controls. Similarly, federal standards for internal control note that once an agency has identified areas of risk, it should determine how to manage the risk and what actions should be taken. Without relevant documentation on whether OEHSAs' recommendations are being implemented, neither the combatant command nor the subordinate commands can readily determine the extent to which potential health risks for deployed servicemembers are being mitigated in Iraq or Afghanistan. Despite the ongoing collection of OEHS data, both DOD and VA have used OEHS data to a limited extent to address post-deployment health conditions. Force Health Protection & Readiness officials told us that the primary limitation with OEHS data collected during deployments continues to be the inability to capture individual servicemembers' exposures--an issue that we reported on in 2012. These officials told us that this limitation has impeded the department's ability to evaluate or treat some servicemembers who have been exposed to occupational or environmental hazards. To address this issue, DOD officials have been conducting research on the use of dosimeters--sensor devices that individuals wear to monitor real-time exposure to hazardous materials-- which would allow the collection of individual exposure data. However, the logistics of using dosimeters during deployments is complicated because current technology allows for a dosimeter to be used for a single known hazard, and in deployed settings, servicemembers may be exposed to multiple hazards and unknown exposures. U.S. Army Public Health Command officials also told us that the type of dosimeter used depends on the type of hazard that the servicemember would be exposed to and the method of exposure. During deployments, these factors are often unknown; therefore it is difficult to determine the type of dosimeter that should be used. Additionally, it may not always be feasible to have servicemembers wear dosimeters while performing deployment duties, and the resources needed for monitoring may not always be available, according to these officials. DOD also creates Periodic Occupational and Environmental Monitoring Summaries (POEMS), which summarize historical environmental health surveillance monitoring efforts and identify possible short- and long-term health risks at deployed locations. While these summaries do not represent confirmed exposures or individual exposure levels, they are an indication of possible exposures, which can inform diagnosis, treatment, and the determination of disability benefits. According to U.S. Army Public Health Command officials, POEMS are made available to medical providers to help inform diagnosis and treatment of servicemembers. However, these officials said that providers' use of POEMS may be limited because they do not provide information on the types of illnesses that may result from an exposure. VBA officials told us that they have access to unclassified POEMS through a MESL website. A VBA official told us that disability officials have been made aware of this website through a newsletter distributed to benefit managers throughout the country. However, this official could not tell us the extent to which POEMS are used in making disability determinations. In September 2014, DOD implemented a new review process for the completion of POEMS, which includes making these records publicly available via a MESL As of March 2015, 23 of the approximately 40 POEMS from website.Iraq and Afghanistan have been made available. DOD officials told us that they intend to promote the website once all completed POEMS have been posted, although officials could not provide a timeline for this effort. VA also uses OEHS data to supplement information used to educate veterans on specific deployment issues, although its use of these data is limited. Specifically, VA's Office of Public Health developed a website to help veterans learn about potential occupational and environmental In doing hazards during deployments and their potential health effects.so, VA's Office of Public Health officials told us they develop the content of the website through environmental hazard information obtained from several sources, including the U.S. Environmental Protection Agency. These officials told us they may also use OEHS data about a specific incident to supplement their information. For example, the website includes detailed information about Gulf War veterans' unexplained illnesses, including available benefits and links to relevant research. VA supplements this information with OEHS data about potential types of occupational hazards that Gulf War veterans may have experienced, such as exposures to industrial solvents and radiation. The Millennium Cohort Study is the largest prospective study designed to assess the long-term health effects of military service both during and after deployment. As part of this study, DOD and VA conducted another study that found that, among other things, a servicemember located within 3 miles of a documented burn pit was not significantly associated with increased risk for respiratory symptoms or conditions compared to those servicemembers located greater than 3 miles from a burn pit. See Smith et al., "The Effects of Exposure to Documented Open-Air Burn Pits on Respiratory Health Among Deployers of the Millennium Cohort," Journal of Environmental Medicine, vol. 54, no. 6 (2012): 708-716. deployment to Iraq and Kuwait and the development of respiratory conditions post-deployment. However, neither study was able to identify a causal link between exposures to burn pits and respiratory conditions. Additionally, in its 2011 report, the Institute of Medicine was unable to determine whether certain long-term health effects are likely to result from exposure to burn pits during deployments because the studies it reviewed lacked the support to conclude the absence or existence of an association. As a result, it recommended that additional studies of health effects in veterans deployed to Iraq or Afghanistan were needed. Both VA and DOD have begun additional research as a result of this recommendation. Since 2003, DOD and VA have collaborated through the DHWG on deployment health issues related to occupational and environmental hazards. For example, the DHWG sponsored an initiative related to DOD's work on the individual longitudinal exposure record (ILER), the intention of which is to provide linkages between different types of data-- environmental monitoring, biomarkers of exposure, and troop locations and activity--and an individual's medical records. As a result, the ILER would create a complete record of servicemembers' exposures over the course of their careers, which could support disability benefits claims, as well as retrospective studies. In April and May 2014, DOD outlined the users of the data, the sources of the data, guidance on developing a system to meet the needs of those who would use an ILER, and its intended functions. DOD officials told us that the project is currently in the second phase of its pilot program, and they are 6 to 8 years away from completing its development. In 2013, the DHWG helped develop a data transfer agreement that was intended to facilitate the exchange of data identified to assist both departments in several ways, including making clinical decisions for care. One aspect of the agreement specifies that DOD is to transfer to VA lists of servicemembers or veterans determined by DOD to have had an actual or potential environmental, occupational, or military-related exposure that has the potential for adverse long-term health effects. According to VA officials, DOD has not been proactively providing these lists. However, a VA official told us that the department considers all deployed servicemembers to have had potential exposures, and as a result, they have been requesting lists of all servicemembers deployed to an area with a burn pit. Further, VA officials said that when they learn of an exposure incident and request data, DOD has generally fulfilled that request. In addition, VA officials told us that DOD sends data on servicemembers' and veterans' deployment status as requested by VA to verify eligibility of those who have signed up for its Burn Pit Registry. In August 2014, DOD officials established the Exposure Related Data Transfer Agreement Subgroup to improve the department's efforts in proactively meeting the data transfer requirements. Specifically, the workgroup met in January 2015 to finalize its objectives, which are to determine the appropriateness and timeliness of sharing specific exposure-related data and information with VA and to develop recommendations for any medically relevant follow-up actions for servicemembers or veterans exposed to occupational and environmental health hazards. DOD officials did not have a time frame for when this work would be completed. In the wake of veterans' unexplained illnesses such as from the Persian Gulf War, the collection of OEHS data has become increasingly important because of its critical role in helping to identify exposures and determine the causes of post-deployment health issues. Servicemembers deployed to Iraq and Afghanistan have continued to express concerns about health conditions they attribute to exposures during their deployment, and their eligibility to obtain certain benefits is based on whether these conditions can be connected to their military service. However, problems with the storage and quality assurance for OEHS data compromise the departments' ability to use them in determining service-connections for specific health conditions, or in conducting other important research. Specifically, fragmentation and duplication in the storage of unclassified OEHS data--due to inconsistent policies across DOD and the military services--hinder the use of these data, as there is no single repository from which to retrieve them. Moreover, the reliability of OEHS data is also potentially problematic as the military services have developed varying approaches for quality assurance reviews in the absence of departmental guidance. Of additional concern, DOD does not know the extent to which recommended countermeasures for mitigating exposures to occupational and environmental health hazards are being implemented at deployment sites because CENTCOM does not require the documentation of these decisions. Consequently, CENTCOM and its subordinate commands-- USARCENT and U.S. Forces-Afghanistan--do not proactively monitor the extent to which base commanders are mitigating potential health risks in Iraq or Afghanistan. The approach instead is to wait for concerns to be elevated--potentially putting servicemembers at risk for harmful exposures. While the health and well-being of our servicemembers and veterans is paramount, DOD's and VA's ability to prevent, diagnose, and study post-deployment health conditions is compromised without accessible and reliable information about risk mitigation activities and OEHS data. To eliminate the fragmentation and duplication in the storage of unclassified OEHS data we recommend that the Secretary of Defense determine which IT system--DOEHRS or MESL--should be used to store specific types of unclassified OEHS data, clarify the department's policy accordingly, and require all other departmental and military-service- specific policies to be likewise amended and implemented to ensure consistency. To ensure the reliability of OEHS data, we recommend that the Secretary of Defense establish clear policies and procedures for performing quality assurance reviews of the OEHS data collected during deployment, to include verifying the completeness and the reasonableness of these data, and require that all other related military-service-specific policies be amended and implemented to ensure consistency. To ensure that potential occupational and environmental health risks are mitigated for servicemembers deployed to Iraq and Afghanistan, we recommend that the Secretary of Defense require CENTCOM to revise its policy to ensure that base commanders' decisions on whether to implement risk mitigation recommendations identified in OEHSAs are adequately documented and consistently monitored by the appropriate command. We requested comments on a draft of this report from DOD and VA. Both departments provided written comments that are reprinted in appendixes I and II. DOD also provided technical comments that we incorporated as appropriate. In commenting on this draft, DOD concurred with all of our recommendations, and VA generally agreed with our conclusions. DOD also provided the following responses to each of our recommendations: In responding to the first recommendation to clarify the department's policy on which IT system (DOEHRS or MESL) should be used to store specific types of unclassified OEHS data, DOD noted that it will clarify DOD Instruction 6490.03 in a subsequent revision and will issue appropriate guidance on the use of DOEHRS and MESL. DOD also noted that we identified fragmentation and duplication, but that our only evidence was the use of two systems to store data. However, our evidence of fragmentation and duplication was based on the storage of OEHS data, which results from the inconsistent use of two systems. Specifically, as stated in our report, in some cases, similar types of unclassified OEHS data have been submitted to both MESL and DOEHRS, which would result in fragmentation of data storage. In other cases, identical OEHS data has been submitted to both systems, resulting in duplicate data storage. Additionally, in response to our recommendation that DOD require all other departmental and military-service-specific policies to be likewise amended, DOD stated that once a new policy is published, the entire department, including the military services, revises related policies accordingly. As stated in our report, the other departmental and military service policies that are linked to the main DOD Instruction are inconsistent in identifying which system to use for storing OEHS data. Therefore, we believe that it is important for the department to ensure that the appropriate revisions are made to all related policies. In responding to the second recommendation to establish clear policies and procedures for performing quality assurance reviews of OEHS data collected during deployment, DOD noted that the implementation of such a process would be complex, in that it would need to include definitions of completeness and reasonableness, among other items. DOD also noted this would require additional resources. While we appreciate DOD's comments, an appropriate level of quality assurance needs to be performed to ensure the reliability of the OEHS data being collected. Otherwise, these data will not be useful for the intended purposes. In responding to the third recommendation to require CENTCOM to revise its policy to ensure that base commanders' decisions on whether to implement risk-mitigation recommendations are documented and consistently monitored, DOD noted that DOD Instruction 6055.01 already requires this. Specifically, DOD noted that the Instruction requires that the DOD Components must establish procedures to ensure these decisions are documented, archived, and reevaluated on a recurring basis. However, as stated in our report, current CENTCOM policy does not require documentation of risk- mitigation decisions, as is required by DOD Instruction 6055.01. Further, CENTCOM officials told us that they are not monitoring the implementation of these recommendations. Therefore, we continue to believe that CENTCOM should revise its policy to align with Instruction 6055.01. 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 and the Secretaries of Defense and Veterans Affairs. In addition, the report will be available at no charge on GAO's website at http://www.gao.gov. If you or your staff members 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 members who made key contributions to this report are listed in appendix III. In addition to the contact named above, Bonnie Anderson, Assistant Director; Amy Andresen; Jennie Apter; LaKendra Beard; Danielle Bernstein; Muriel Brown; Jacquelyn Hamilton; and Jeffrey Mayhew made key contributions to this report.
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OEHS is the regular collection and reporting of occupational and environmental health hazard data that can be used to help prevent, treat, or control disease or injury. In 2005, GAO reported that DOD needed to make improvements with OEHS during deployments to address immediate and long-term health issues. GAO was asked to assess DOD's current OEHS efforts. This report examines (1) the extent to which the military services centrally store OEHS data and verify its reliability; (2) how, if at all, DOD identifies potential occupational and environmental health risks for sites in Iraq and Afghanistan, and to what extent these risks are mitigated; and (3) the extent to which DOD and VA use OEHS data to address post-deployment health conditions. GAO reviewed and analyzed DOD and military service policies on OEHS data storage and quality assurance, as well as policies related to conducting and monitoring assessments for deployment sites. GAO also interviewed DOD, military service, and VA officials, as well as groups representing servicemembers and veterans. Inconsistencies between Department of Defense (DOD) and military service-specific policies regarding occupational and environmental health surveillance (OEHS) data storage have contributed to fragmentation and duplication of OEHS data between two information technology systems--the Military Exposure Surveillance Library (MESL) and the Defense Occupational and Environmental Health Readiness System (DOEHRS). Not having consistent policies for which system should be used to store OEHS data is contrary to federal standards for internal control. As a result, officials' efforts to store these data have resulted in both fragmentation and duplication, which GAO's prior work has shown may result in inefficiencies. Correspondingly, in some cases, similar types of unclassified OEHS data are being submitted to both MESL and DOEHRS, and in other cases, identical OEHS data are being submitted to both systems. However, neither system serves as a central repository for these data, and as a result, it is difficult to identify complete and comprehensive OEHS data sets, which may lead to problems when officials attempt to use these data in the future. Additionally, DOD's policy for OEHS data does not specifically address quality assurance. Consequently, some of the military services have developed their own guidance, resulting in inconsistent approaches and levels of effort, which has reduced DOD's ability to be confident that the data are sufficiently reliable. Federal standards for internal control state that management should continually monitor information captured and maintained for several factors, including reliability. The military services use site assessments to identify and address potential occupational and environmental health risks at a deployment site. These assessments may include recommended countermeasures, such as the use of personal protective equipment. However, the extent to which these recommendations are being implemented is unclear because U.S. Central Command (CENTCOM)--the combatant command responsible for military operations in the geographic area that includes Iraq and Afghanistan--does not require base commanders to document their decisions on implementing them. Officials also said they are not monitoring these recommendations, and instead rely on others to elevate concerns, as necessary. In contrast, DOD's policy for its safety and occupational health program requires the department's components, including the combatant commands, to ensure that risk management decisions are documented and reevaluated. Federal standards for internal control also note that appropriate documentation is a key internal control activity and that agencies should monitor their activities for managing identified risks. Both DOD and the Department of Veterans Affairs (VA) have used OEHS data to a limited extent to address post-deployment health conditions. For example, DOD officials said that the primary limitation with OEHS data collected during deployments continues to be the inability to capture exposure data at the individual servicemember level, although a method to do so is currently being explored. Additionally, DOD and VA use OEHS data to conduct research that may help determine service connections for post-deployment health conditions, but it has been difficult for researchers to establish a causal link between exposures and specific health conditions. GAO recommends that DOD clarify its policies for the storage and quality assurance of OEHS data, and require other related policies to be amended accordingly. GAO also recommends that CENTCOM revise its policy to require adequate documentation and consistent monitoring of deployment risk mitigation activities. In commenting on the report, DOD concurred with GAO's recommendations, and VA generally agreed with the conclusions.
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Under the Clean Water Act, EPA is responsible for publishing water quality criteria that establish thresholds at which contamination-- including waterborne pathogens--may threaten human health. States are required to develop standards, or legal limits, for these pathogens by either adopting EPA's recommended water quality criteria or other criteria that EPA determines are equally protective of human health. The states then use these pathogen standards to assess water quality at their recreational beaches. The BEACH Act amended the Clean Water Act to require the 35 eligible states and territories to update their recreational water quality standards using EPA's 1986 criteria for pathogen indicators. In addition, the BEACH Act required EPA to (1) complete studies on pathogens in coastal recreational waters and how they affect human health, including developing rapid methods of detecting pathogens by October 2003, and (2) publish new or revised water quality criteria by October 2005, to be reviewed and revised as necessary every 5 years thereafter. The BEACH Act also authorized EPA to award grants to states, localities, and tribes to develop comprehensive beach monitoring and public notification programs for their recreational beaches. To be eligible for BEACH Act grants, states are required to (1) identify their recreational beaches, (2) prioritize their recreational beaches for monitoring based on their use by the public and the risk to human health, and (3) establish a public notification program. EPA grant criteria give states some flexibility on the frequency of monitoring, methods of monitoring, and processes for notifying the public when pathogen indicators exceed state standards, including whether to issue health advisories or close beaches. Although the BEACH Act authorized EPA to provide $30 million in grants annually for fiscal years 2001 through 2005, since fiscal year 2001, congressional conference reports accompanying EPA's appropriations acts have directed about $10 million annually for BEACH Act grants and EPA has followed this congressional direction when allocating funds to the program. EPA has made progress implementing the BEACH Act's provisions but has missed statutory deadlines for two critical requirements. Of the nine actions required by the BEACH Act, EPA has taken action on the following seven: Propose water quality standards and criteria--The BEACH Act required each state with coastal recreation waters to incorporate EPA's published criteria for pathogens or pathogen indicators, or criteria EPA considers equally protective of human health, into their state water quality standards by April 10, 2004. The BEACH Act also required EPA to propose regulations setting forth federal water quality standards for those states that did not meet the deadline. On November 16, 2004, EPA published in the Federal Register a final rule promulgating its 1986 water quality standards for E. coli and enterococci for the 21 states and territories that had not adopted water quality criteria that were as protective of human health as EPA's approved water quality criteria. According to EPA, all 35 states with coastal recreational waters are now using EPA's 1986 criteria, compared with the 11 states that were using these criteria in 2000. Provide BEACH Act grants--The BEACH Act authorized EPA to distribute annual grants to states, territories, tribes and, in certain situations, local governments to develop and implement beach monitoring and notification programs. Since 2001, EPA has awarded approximately $51 million in development and implementation grants for beach monitoring and notification programs to all 35 states. Alaska is the only eligible state that has not yet received a BEACH Act implementation grant because it is still in the process of developing a monitoring and public notification program consistent with EPA's grant performance criteria. EPA expects to distribute approximately $10 million for the 2007 beach season subject to the availability of funds. Publish beach monitoring guidance and performance criteria for grants--The BEACH Act required EPA to develop guidance and performance criteria for beach monitoring and assessment for states receiving BEACH Act grants by April 2002. After a year of consultations with coastal states and organizations, EPA responded to this requirement in 2002 by issuing its National Beach Guidance and Required Performance Criteria for Grants. To be eligible for BEACH Act grants, EPA requires recipients to develop (1) a list of beaches evaluated and ranked according to risk, (2) methods for monitoring water quality at their beaches, such as when and where to conduct sampling, and (3) plans for notifying the public of the risk from pathogen contamination at beaches, among other requirements. Develop a list of coastal recreational waters--The BEACH Act required EPA to identify and maintain a publicly available list of coastal recreational waters adjacent to beaches or other publicly accessible areas, with information on whether or not each is subject to monitoring and public notification. In March 2004, EPA published its first comprehensive National List of Beaches based on information that the states had provided as a condition for receiving BEACH Act grants. The list identified 6,099 coastal recreational beaches, of which 3,472, or 57 percent, were being monitored. The BEACH Act also requires EPA to periodically update its initial list and publish revisions in the Federal Register. However, EPA has not yet published a revised list, in part because some states have not provided updated information. Develop a water pollution database--The BEACH Act required EPA to establish, maintain, and make available to the public an electronic national water pollution database. In May 2005, EPA unveiled "eBeaches," a collection of data pulled from multiple databases on the location of beaches, water quality monitoring, and public notifications of beach closures and advisories. This information has been made available to the public through an online tool called BEACON (Beach Advisory and Closing Online Notification). EPA officials acknowledge that eBeaches has had some implementation problems, including periods of downtime when states were unable to submit their data, and states have had difficulty compiling the data and getting it into EPA's desired format. EPA is working to centralize its databases so that states can more easily submit information and expects the data reporting will become easier for states as they further develop their system. Provide technical assistance on floatable materials--The BEACH Act required EPA to provide technical assistance to help states, tribes, and localities develop their own assessment and monitoring procedures for floatable debris in coastal recreational waters. EPA responded by publishing guidance titled Assessing and Monitoring Floatable Debris in August 2002. The guidance provided examples of monitoring and assessment programs that have addressed the impact of floatable debris and examples of mitigation activities to address floatable debris. Provide a report to Congress on status of BEACH Act implementation-- The BEACH Act required EPA to report to Congress 4 years after enactment of the act and every 4 years thereafter on the status of implementation. EPA completed its first report for Congress, Implementing the BEACH Act of 2000: Report to Congress in October 2006, which was 2 years after the October 2004 deadline. EPA officials noted that they missed the deadline because they needed additional time to include updates on current research and states' BEACH Act implementation activities and to complete both internal and external reviews. EPA has not yet completed the following two BEACH Act requirements: Conduct epidemiological studies--The BEACH Act required EPA to publish new epidemiological studies concerning pathogens and the protection of human health for marine and freshwater by April 10, 2002, and to complete the studies by October 10, 2003. The studies were to: (1) assess potential human health risks resulting from exposure to pathogens in coastal waters; (2) identify appropriate and effective pathogen indicator(s) to improve the timely detection of pathogens in coastal waters; (3) identify appropriate, accurate, expeditious, and cost-effective methods for detecting the presence of pathogens; and (4) provide guidance for state application of the criteria. EPA initiated its multiyear National Epidemiological and Environmental Assessment of Recreational Water Study in 2001 in collaboration with the Centers for Disease Control and Prevention. The first component of this study was to develop faster pathogen indicator testing procedures. The second component was to further clarify the health risk of swimming in contaminated water, as measured by these faster pathogen indicator testing procedures. While EPA completed these studies for freshwater-- showing a promising relationship between a faster pathogen indicator and possible adverse health effects from bacterial contamination--it has not completed the studies for marine water. EPA initiated marine studies in Biloxi, Mississippi, in the summer of 2005, 3 years past the statutory deadline for beginning this work, but the work was interrupted by Hurricane Katrina. EPA initiated two additional marine water studies in the summer of 2007. Publish new pathogen criteria--The BEACH Act required EPA to use the results of its epidemiological studies to identify new pathogen indicators with associated criteria, as well as new pathogen testing measures by October 2005. However, since EPA has not completed the studies on which these criteria were to be based, this task has been delayed. In the absence of new criteria for pathogens and pathogen indicators, states continue to use EPA's 1986 criteria to monitor their beaches. An EPA official told us that EPA has not established a time line for completing these two remaining provisions of the BEACH Act but estimates it may take an additional 4-5 years. One EPA official told us that the initial time frames in the act may not have been realistic. EPA's failure to complete studies on the health effects of pathogens for marine waters and failure to publish revised water quality criteria for pathogens and pathogen indicators prompted the Natural Resources Defense Council to file suit against EPA on August 2, 2006, for failing to comply with the statutory obligations of the BEACH Act. To ensure that EPA complies with the requirements laid out in the BEACH Act, we recommended that it establish a definitive time line for completing the studies on pathogens and their effects on human health, and for publishing new or revised water quality criteria for pathogens and pathogen indicators. While EPA distributed approximately $51 million in BEACH Act grants between 2001 and 2006 to the 35 eligible states and territories, its grant distribution formula does not adequately account for states' widely varied beach monitoring needs. When Congress passed the BEACH Act in 2000, it authorized $30 million in grants annually, but the act did not specify how EPA should distribute grants to eligible states. EPA determined that initially $2 million would be distributed equally to all eligible states to cover the base cost of developing water quality monitoring and notification programs. EPA then developed a distribution formula for future annual grants that reflected the BEACH Act's emphasis on beach use and risk to human health. EPA's funding formula includes the following three factors: Length of beach season--EPA selected beach season length as a factor because states with longer beach seasons would require more monitoring. Beach use--EPA selected beach use as a factor because more heavily used beaches would expose a larger number of people to pathogens, increasing the public health risk and thus requiring more monitoring. EPA used coastal population as a proxy for beach use because information on the number of beach visitors was not consistently available across all the states. Beach miles--EPA selected beach miles because states with longer shorelines would require more monitoring. EPA used shoreline miles, which may include industrial and other nonpublicly accessible areas, as a proxy for beach miles because verifiable data for beach miles was not available. Once EPA determined which funding formula factors to use, EPA officials weighted the factors. EPA intended that the beach season factor would provide the base funding and would be augmented by the beach use and beach mile factors. EPA established a series of fixed amounts that correspond to states' varying lengths of beach seasons to cover the general expenses associated with a beach monitoring program. For example, EPA estimated that a beach season of 3 or fewer months would require approximately two full-time employees costing $150,000, while states with beach seasons greater than 6 months would require $300,000. Once the allotments for beach season length were distributed, EPA determined that 50 percent of the remaining funds would be distributed according to states' beach use, and the other 50 percent would be distributed according to states' beach miles, as shown in table 1. EPA officials told us that, using the distribution formula above and assuming a $30 million authorization, the factors were to have received relatively equal weight in calculating states' grants and would have resulted in the following allocation: beach season--27 percent (about $8 million); beach use--37 percent (about $11 million); and beach miles--37 percent (about $11 million). However, because funding levels for BEACH Act grants have been about $10 million each year, once the approximately $8 million, of the total available for grants, was allotted for beach season length, this left only $2 million, instead of nearly $22 million, to be distributed equally between the beach use and beach miles factors. This resulted in the following allocation: beach season--82 percent (about $8 million); beach use--9 percent (about $1 million); and beach miles--9 percent (about $1 million). Because beach use and beach miles vary widely among the states, but account for a much smaller portion of the distribution formula, BEACH Act grant amounts may vary little between states that have significantly different shorelines or coastal populations. For example, across the Great Lakes, there is significant variation in coastal populations and in miles of shoreline, but current BEACH Act grant allocations are relatively flat. As a result, Indiana, which has 45 miles of shoreline and a coastal population of 741,468, received about $205,800 in 2006, while Michigan, which has 3,224 miles of shoreline and a coastal population of 4,842,023, received about $278,450 in 2006. Similarly, the current formula gives localities that have a longer beach season and significantly smaller coastal populations an advantage over localities that have a shorter beach season but significantly greater population. For example, Guam and American Samoa with 12 month beach seasons and coastal populations of less than 200,000 each receive larger grants than Maryland and Virginia, with 4 month beach seasons and coastal populations of 3.6 and 4.4 million, respectively. If EPA reweighted the factors so that they were still roughly equal given the $10 million allocation, we believe that BEACH Act grants to the states would better reflect their needs. Consequently, we recommended that if current funding levels remain the same, that the agency should revise the formula for distributing BEACH Act grants to better reflect the states' varied monitoring needs by reevaluating the formula factors to determine if the weight of the beach season factor should be reduced and if the weight of the other factors, such as beach use and beach miles should be increased. States' use of BEACH Act grants to develop and implement beach monitoring and public notification programs has increased the number of beaches being monitored and the frequency of monitoring. However, states vary considerably in the frequency in which they monitor beaches, the monitoring methods used, and the means by which they notify the public of health risks. Specifically, 34 of the 35 eligible states have used BEACH Act grants to develop beach monitoring and public notification programs; and the remaining state, Alaska, is in the process of setting up its program. However, these programs have been implemented somewhat inconsistently by the states which could lead to inconsistent levels of public health protection at beaches in the United States. In addition, while the Great Lakes and other eligible states have been able to increase their understanding of the scope of contamination as a result of BEACH Act grants, the underlying causes of this contamination usually remain unresolved, primarily due to a lack of funding. For example, EPA reports that nationwide when beaches are found to have high levels of contamination, the most frequent source of contamination listed as the cause is "unknown". BEACH Act officials from six of the eight Great Lakes states that we reviewed--Illinois, Michigan, Minnesota, New York, Ohio, and Wisconsin--reported that the number of beaches being monitored in their state has increased since the passage of the BEACH Act in 2000. For example, in Minnesota, state officials reported that only one beach was being monitored prior to the BEACH Act, and there are now 39 beaches being monitored in three counties. In addition, EPA data show that, in 1999, the number of beaches identified in the Great Lakes was about 330, with about 250 being monitored. In 2005, the most recent year for which data are available, the Great Lakes states identified almost 900 beaches of which about 550 were being monitored. In addition to an increase in the number of beaches being monitored, the frequency of monitoring at many of the beaches in the Great Lakes has increased. We estimated that 45 percent of Great Lakes beaches increased the frequency of their monitoring since the passage of the BEACH Act. For example, Indiana officials told us that prior to the BEACH Act, monitoring was done a few times per week at their beaches but now monitoring is done 5-7 days per week. Similarly, local officials in one Ohio county reported that they used to test some beaches along Lake Erie twice a month prior to the BEACH Act but now they test these beaches once a week. States outside of the Great Lakes region have reported similar benefits of receiving BEACH Act grants. For example, state officials from Connecticut, Florida, and Washington reported increases in the number of beaches they are now able to monitor or the frequency of the monitoring they are now able to conduct. Because of the information available from BEACH Act monitoring activities, state and local beach officials are now better able to determine which of their beaches are more likely to be contaminated, which are relatively clean, and which may require additional monitoring resources to help them better understand the levels of contamination that may be present. For example, state BEACH Act officials reported that they now know which beaches are regularly contaminated or are being regularly tested for elevated levels of contamination. We determined that officials at 54 percent of Great Lakes beaches we surveyed believe that their ability to make advisory and closure decisions has increased or greatly increased since they initiated BEACH Act water quality monitoring programs. However, because EPA's grant criteria and the BEACH Act give states and localities some flexibility in implementing their programs we also identified significant variability among the Great Lakes states beach monitoring and notification programs. We believe that this variability is most likely also occurring in other states as well because of the lack of specificity in EPA's guidance. Specifically, we identified the following differences in how the Great Lake states have implemented their programs. Frequency of monitoring. Some Great Lakes states are monitoring their high-priority beaches almost daily, while other states monitor their high- priority beaches as little as one to two times per week. The variation in monitoring frequency in the Great Lakes states is due in part to the availability of funding. For example, state officials in Michigan and Wisconsin reported insufficient funding for monitoring. Methods of sampling. Most of the Great Lakes states and localities use similar sampling methods to monitor water quality at local beaches. For example, officials at 79 percent of the beaches we surveyed reported that they collected water samples during the morning, and 78 percent reported that they always collected water samples from the same location. Collecting data at the same time of day and from the same site ensures more consistent water quality data. However, we found significant variations in the depth at which local officials in the Great Lakes states were taking water samples. According to EPA, depth is a key determinant of microbial indicator levels. EPA's guidance recommends that beach officials sample at the same depth--knee depth, or approximately 3-feet deep--for all beaches to ensure consistency and comparability among samples. Great Lakes states varied considerably in the depths at which they sampled water, with some sampling occurring at 1-6 inches and other sampling at 37-48 inches. Public notification. Local officials in the Great Lakes differ in the information they use to decide whether to issue health advisories or close beaches when water contamination exceeds EPA criteria and in how to notify the public of their decision. These differences reflect states' varied standards for triggering an advisory, closure, or both. Also, we found that states' and localities' means of notifying the public of health advisories or beach closures vary across the Great Lakes. Some states post water quality monitoring results on signs at beaches; some provide results on the Internet or on telephone hotlines; and some distribute the information to local media. To address this variability in how the states are implementing their BEACH Act grant funded monitoring and notification programs, we recommended that EPA provide states and localities with specific guidance on monitoring frequency and methods and public notification. Further, even though BEACH Act funds have increased the level of monitoring being undertaken by the states, the specific sources of contamination at most beaches are not known. For example, we determined that local officials at 67 percent of Great Lakes' beaches did not know the sources of bacterial contamination causing water quality standards to be exceeded during the 2006 beach season and EPA officials confirmed that the primary source of contamination at beaches nationwide is reported by state officials as "unknown." For example, because state and local officials in the Great Lakes states do not have enough information on the specific sources of contamination and generally lack funds for remediation, most of the sources of contamination at beaches have not been addressed. Local officials from these states indicated that they had taken actions to address the sources of contamination at an estimated 14 percent of the monitored beaches. EPA has concluded that BEACH Act grant funds generally may be used only for monitoring and notification purposes. While none of the eight Great Lakes state officials suggested that the BEACH Act was intended to help remediate the sources of contamination, several state officials believe that it may be more beneficial to use BEACH Act grants to identify and remediate sources of contamination rather than just continue to monitor water quality at beaches and notify the public when contamination occurs. Local officials also reported a need for funding to identify and address sources of contamination. Furthermore, at EPA's National Beaches Conference in October 2006, a panel of federal and academic researchers recommended that EPA provide the states with more freedom on how they spend their BEACH Act funding. To address this issue, we recommended that as the Congress considers reauthorization of the BEACH Act, that it should consider providing EPA some flexibility in awarding BEACH Act grants to allow states to undertake limited research to identify specific sources of contamination at monitored beaches and certain actions to mitigate these problems, as specified by EPA. _ _ _ _ _ In conclusion, Madam Chairwoman, EPA has made progress in implementing many of the BEACH Act's requirements but it may still be several years before EPA completes the pathogen studies and develops the new water quality criteria required by the act. Until these actions are completed, states will have to continue to use existing outdated methods. In addition, the formula EPA developed to distribute BEACH Act grants to the states was based on the assumption that the program would receive its fully authorized allocation of $30 million. Because the program has not received full funding and EPA has not adjusted the formula to reflect reduced funding levels, the current distribution of grants fails to adequately take into account the varied monitoring needs of the states. Finally, as evidenced by the experience of the Great Lakes states, the BEACH Act has helped states increase their level of monitoring and their knowledge about the scope of contamination at area beaches. However, the variability in how the states are conducting their monitoring, how they are notifying the public, and their lack of funding to address the source of contamination continues to raise concerns about the adequacy of protection that is being provided to beachgoers. This concludes our prepared statement, we would be happy to respond to any questions you may have. If you have any questions about this statement, please contact Anu K. Mittal @ (202) 512-3841 or [email protected]. Other key contributors to this statement include Ed Zadjura (Assistant Director), Eric Bachhuber, Omari Norman, and Sherry McDonald. 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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Waterborne pathogens can contaminate water and sand at beaches and threaten human health. Under the Beaches Environmental Assessment and Coastal Health (BEACH) Act, the Environmental Protection Agency (EPA) provides grants to states to develop water quality monitoring and public notification programs. This statement summarizes the key findings of GAO's May 2007 report, Great Lakes: EPA and States Have Made Progress in Implementing the BEACH Act, but Additional Actions Could Improve Public Health Protection. In this report GAO assessed (1) the extent to which EPA has implemented the Act's provisions, (2) concerns about EPA's BEACH Act grant allocation formula, and (3) described the experiences of the Great Lakes states in developing and implementing beach monitoring and notification programs using their grant funds. EPA has taken steps to implement most BEACH Act provisions but has missed statutory deadlines for two critical requirements. While EPA has developed a national list of beaches and improved the uniformity of state water quality standards, it has not (1) completed the pathogen and human health studies required by 2003 or (2) published the new or revised water quality criteria for pathogens required by 2005. EPA stated that the required studies are ongoing, and although some studies were initiated in the summer of 2005, the work was interrupted by Hurricane Katrina. EPA subsequently initiated two additional water studies in the summer of 2007. According to EPA, completion of the studies and development of the new criteria may take an additional 4 to 5 years. Further, although EPA has distributed approximately $51 million in BEACH Act grants from 2001-2006, the formula EPA uses to make the grants does not accurately reflect the monitoring needs of the states. This occurs because the formula emphasizes the length of the beach season more than the other factors in the formula--beach miles and beach use. These other factors vary widely among the states, can greatly influence the amount of monitoring a state needs to undertake, and can increase the public health risk. Thirty-four of the 35 eligible states have used BEACH Act grants to develop beach monitoring and public notification programs. Alaska is still in the process of developing its program. However, because state programs vary they may not provide consistent levels of public health protection nationwide. GAO found that the states' monitoring and notification programs varied considerably in the frequency with which beaches were monitored, the monitoring methods used, and how the public was notified of potential health risks. For example, some Great Lakes states monitor their high-priority beaches as little as one or two times per week, while others monitor their high-priority beaches daily. In addition, when local officials review similar water quality results, some may choose to only issue a health advisory while others may choose to close the beach. According to state and local officials, these inconsistencies are in part due to the lack of adequate funding for their beach monitoring and notification programs. The frequency of water quality monitoring has increased nationwide since passage of the Act, helping states and localities to identify the scope of contamination. However, in most cases, the underlying causes of contamination remain unknown. Some localities report that they do not have the funds to investigate the source of the contamination or take actions to mitigate the problem, and EPA has concluded that BEACH Act grants generally may not be used for these purposes. For example, local officials at 67 percent of Great Lakes beaches reported that, when results of water quality testing indicated contamination at levels exceeding the applicable standards during the 2006 beach season, they did not know the source of the contamination, and only 14 percent reported that they had taken actions to address the sources of contamination.
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Antibiotics are drugs used to treat bacterial infections; antibiotic resistance is the result of changes in bacteria that reduce or eliminate the effectiveness of antibiotics to treat infection. Experts have raised concerns about the lack of new antibiotics being developed to replace antibiotics that have become ineffective because of resistance. This lack of development has been attributed to various challenges. For example, the development of new drugs, including antibiotics, is often a costly and lengthy process. To obtain FDA's approval to market a new drug, a drug sponsor must conduct extensive research in order to demonstrate that the drug is both safe and effective. Although high costs and failure rates make drug development risky for drug sponsors, creating a safe and effective new drug can be financially rewarding for the drug sponsor and beneficial to the public. However, antibiotics are often less profitable than other drugs because they are generally designed to work quickly and are typically administered for only a brief time. FDA oversees the drug development process and the approval of new drugs for marketing in the United States. FDA generally reviews drug sponsors' plans for conducting clinical trials and assesses drug sponsors' applications for the approval of new antibiotics. FDA also releases guidance for industry as a way to communicate its current thinking on a particular topic with the purpose of assisting drug sponsors in the development of drugs. For example, FDA has released several guidance documents to assist drug sponsors with the development of antibiotics, including information on designing clinical trials and measures to demonstrate a drug's effectiveness. The GAIN provisions required FDA to take certain steps to encourage drug sponsors to develop antibiotics, particularly those that treat serious or life-threatening infections. Specifically, FDA was required each year to review, and revise as appropriate, at least three guidance documents related to the development of antibiotics. FDA was also required to finalize a guidance document on the development of antibacterial drugs for serious or life-threatening infections, particularly in areas of unmet medical need. The GAIN provisions also established the QIDP designation and made incentives available to sponsors of QIDPs--fast track designation, priority review designation, and 5 years of additional market exclusivity. Fast track designation may expedite FDA's review of an application by allowing drug sponsors to have increased communication with FDA and by allowing FDA to review portions of the application as they come in rather than waiting for a complete application. Although drug sponsors that receive QIDP designation are also entitled to receive fast track designation, drug sponsors must still request this designation and typically do so prior to submitting their application to FDA for review. Priority review has been automatically granted to applications with the QIDP designation. It reduces FDA's goal time for the review of an application from 10 months to 6 months. Market exclusivity is a statutory provision for exclusive marketing rights for certain periods upon approval of a drug application, if certain statutory requirements are met. Market exclusivity periods last different lengths of time and have different scopes. For example, drugs designated for treatment of rare diseases or conditions may be eligible for orphan drug exclusivity, which lasts for 7 years for the specified conditions. New chemical entity exclusivity provides 5 years of market exclusivity if a drug includes a new active moiety that has not been previously approved by FDA. QIDP-related market exclusivity adds an additional 5 years of exclusivity to certain qualifying drugs. For example, a drug receiving orphan drug exclusivity receives 7 years of exclusivity. If that drug's application also received a QIDP designation, then the drug may receive an additional 5 years of exclusivity, for a total of 12 years of market exclusivity. Table 1 provides more information on the different incentives associated with the QIDP designation. In 2012, FDA created an internal group called the Antibacterial Drug Development Task Force (Task Force) to coordinate the release of guidance documents for antibiotics as part of its role to promote the development of these types of drugs. The GAIN provisions required FDA to review and revise each year, as appropriate, at least three guidance documents related to antibiotics, in part to ensure the documents reflected scientific developments. FDA officials also reviewed the list of available guidance documents and released guidance on new topics, where needed. Established after the passage of the GAIN provisions, the Task Force is a multidisciplinary group that comprises scientists and clinicians who participate in FDA's oversight of the drug development process. Members of this Task Force work with experts, such as those from academia, industry, and professional societies, and with patient advocacy groups, to promote the development of new antibiotics. As of August 2016, FDA and the Task Force had coordinated the release of 14 updated or new guidance documents related to the development of antibiotics, although half of these documents remain in draft form. Table 2 lists guidance documents for antibiotics that FDA released in accordance with the GAIN provisions. Half of these 14 documents were finalized versions of prior draft guidance documents, such as FDA's 2015 guidance on uncomplicated gonorrhea. FDA released the remaining guidance documents in draft form--specifically, the guidance either updated a prior draft guidance or was a brand new draft guidance for a new topic. For example, FDA's most recent draft guidance on bacterial vaginosis, released in July 2016, is an update to prior draft guidance from July 1998, while FDA's draft guidance on pulmonary tuberculosis, released in November 2013, is the first guidance on this topic FDA has released. FDA made these draft guidance documents publicly available on its website, in keeping with the agency's good guidance practices. According to FDA, these draft guidance documents are made available to encourage public comment. Further, the draft guidance documents on developing antibiotics we examined indicated on the title page and on subsequent pages that they were intended for comment purposes only, not for implementation, and would represent the agency's current thinking "when finalized." Thus, because the draft documents on the FDA website for public comment have not been finalized, drug sponsors are left without written guidance indicating FDA's current thinking on a given issue until the agency finalizes the guidance. As of January 2017, FDA had not responded to questions we provided in June 2016 about why some guidance documents remain in draft form or whether drug sponsors should rely on draft guidance documents while developing their drugs. FDA informed us that its responses were in agency clearance. FDA also had previously received a similar request from Congress and told us it would provide responses to us and to Congress simultaneously when the responses are finalized. FDA did not indicate when those responses would be finalized and provided to us. According to FDA officials, they selected the antibiotic-related guidance to review, and potentially revise, for various reasons, such as the emergence of new scientific information. Officials said that they also coordinate with external stakeholders on identifying and addressing challenges to antibiotic development, such as consulting with them about any changes they make to guidance documents. For example, FDA participated in meetings with the Foundation for the National Institutes of Health and worked with the Clinical Trials Transformation Initiative when it revised two of its guidance documents on developing drugs to treat acute bacterial skin and skin structure infections (ABSSSI) and on drug development for hospital-acquired and ventilator-associated bacterial pneumonia (HABP/VABP). In 2013, FDA finalized its revision of a 2010 draft guidance document on developing drugs to treat ABSSSI based, in part, on work on clinical endpoints conducted by the Foundation for the National Institutes of Health. Differences between the finalized 2013 document and the draft 2010 document included changes in the minimum number of clinical trials FDA recommended that a drug sponsor conduct and the clinical endpoints FDA recommended that a sponsor use to assess the effectiveness of a drug. The 2010 guidance document recommended that drug sponsors conduct at least two adequate and well-controlled trials. When FDA released the finalized guidance in 2013, the agency noted that drug sponsors could also provide evidence from a single adequate and well-controlled clinical trial supported by independent evidence, such as data from another trial for a treatment of a different type of infection. Also, the recommended primary clinical endpoint was redefined as a reduction in lesion size of at least 20 percent compared to the lesion size of those patients that did not receive treatment at 48 to 72 hours. FDA made similar changes to its draft 2010 guidance on HABP/VABP based, in part, on work resulting from its coordination with both the Foundation for the National Institutes of Health and the Clinical Trials Transformation Initiative. Industry stakeholders expressed concerns about this 2010 guidance document that included the agency's use of all-cause mortality (i.e., death from any cause) as the only clinical endpoint recommended to measure the effectiveness of a drug. Stakeholders also raised concerns about the restrictive inclusion criteria that were used to determine which patients could be enrolled in clinical trials. In 2014, FDA released a revised draft HABP/VABP guidance document that included changes aimed at addressing these concerns. Specifically, FDA's recommendations included endpoints besides all-cause mortality and modified the criteria for clinical trial enrollment. Making the criteria for enrollment less restrictive could make it easier to enroll more patients into clinical trials. Enrolling patients into clinical trials is a particular challenge noted by most of the drug sponsors included in our study. The GAIN provisions included another requirement for FDA to release a draft guidance document on unmet medical need by the end of June 2013, and a final version of this guidance by the end of 2014. In July 2013, FDA released its draft guidance--Guidance for Industry Antibacterial Therapies for Patients with Unmet Medical Need for the Treatment of Serious Bacterial Diseases. According to FDA, the agency did not meet the statutory deadline for publishing finalized guidance because of concerns that release of such guidance could create confusion within the industry while Congress considers draft legislation for a potential limited population antibacterial drug approval pathway. In October 2016, FDA told us that the agency intended to release the final guidance later that year, once the legislative disposition of this limited population approval pathway was clear. However, as of January 2017, this guidance document remained in draft form, and FDA had not released a finalized version. FDA recently told us that the agency plans to release finalized guidance "soon." Although it is too soon to determine if GAIN has actually stimulated the development of new antibiotics, FDA has taken steps to implement the GAIN provision related to the QIDP designation and the incentives associated with the approval of a QIDP drug. Since 2012, FDA has granted 101 requests for the designation. Six drugs with the designation have been approved, but they were in the later stages of the drug development process than the other drugs for which the designation was requested when they received this designation. FDA data from July 9, 2012, (when the QIDP designation was created) through December 31, 2015, showed that FDA granted almost all of the requests that it received for the QIDP designation. Specifically, drug sponsors submitted more than 100 requests to FDA for QIDP designation during this time, of which FDA granted more than 90 percent. (See table 3.) Drug sponsors whose products received the QIDP designation are also eligible to receive fast track designation. From July 2012 through December 2015, FDA granted fast track designation to all of the drug sponsors whose applications received QIDP designation and also requested fast track designation. (See table 4.) However, not all drug sponsors that requested the QIDP designation also requested fast track designation. For example, in fiscal year 2015 (the most recent year for which a full year of data are available), FDA granted 25 requests from drug sponsors for the QIDP designation, making them also eligible for fast track designation. While FDA granted 11 requests from sponsors for fast track designation, sponsors could have requested fast track designation in 14 additional instances, but they did not do so. According to FDA officials, this is likely the case for one of three reasons: (1) a drug sponsor has chosen not to request fast track designation, (2) a drug sponsor has not yet requested fast track designation but may intend to; or (3) the drug sponsor received fast track designation prior to the creation of the QIDP designation in 2012, and this is not reflected in the counts. As of October 2016, FDA had approved applications for six drugs that received the QIDP designation for marketing in the United States, though these drugs were in the later stages of their development program when the designation was created in July 2012. (See table 5.) Four of the six approved drug applications also had fast track designation, and all of them received priority review. FDA did not grant fast track designation to two of these applications because, according to the sponsors, they did not apply for it. To date, FDA has determined that five of these six drugs are eligible for 5 years of additional market exclusivity because each drug were eligible for at least one other type of market exclusivity and the statutory requirements for the 5 additional years were met. All 10 of the drug sponsors in our study said that increased communication with FDA or the expedited review of their QIDP- designated drug applications due to GAIN were beneficial to their drug development processes. Five drug sponsors said that the QIDP designation was particularly helpful to smaller sponsors. This was confirmed by 3 of the smaller drug sponsors in our study that said the QIDP designation helped continue their respective development programs for antibiotics. Research indicates that as of May 2016, over 80 percent of the antibiotic products in development were being developed by small drug sponsors. Eight of the drug sponsors in our study attributed this increase in communication with FDA, typically associated with the fast track designation, to the agency's implementation of the GAIN provisions and general commitment to supporting the development of new antibiotics. For example, 2 of the 10 sponsors specifically noted that they had not experienced this level of access to FDA officials during the review of their other, non-QIDP-designated drug applications. Five of the 10 sponsors said that FDA was receptive to considering new approaches to the design of their clinical trials. For example, one drug sponsor stated that FDA officials worked with sponsors to find innovative ways to design antibiotic clinical trials allowing them to more quickly advance their drugs through the development process. All of the four drug sponsors in our study whose drugs were approved with a QIDP designation also received priority review designation, which helped to advance their applications more quickly through the FDA review process. FDA data showed that these drugs had an average total review time of about 8 months, which is consistent with FDA's priority review goal time for new molecular entities. Five drug sponsors told us that priority review, for which QIDP-designated drugs have automatically qualified, was a particularly valuable incentive associated with the QIDP designation and GAIN provisions. According to FDA, the agency did not typically provide priority review to antibiotic drug applications before the GAIN provisions were enacted because these drugs generally do not meet the criteria to receive this designation. Several of the drug sponsors in our study expressed concern about how much they could rely on FDA's draft guidance documents or the lack of guidance describing the QIDP designation and its requirements. FDA released half of the guidance documents it revised in accordance with the GAIN provisions in draft form, and several of these documents were updates to prior draft guidance. Although these guidance documents were in draft form, FDA made them publicly available on its website and offered them as examples of guidance they had revised to encourage antibiotic development in response to GAIN. According to FDA, guidance documents represent FDA's current thinking on a topic and serve as a way for the agency to communicate with drug sponsors for the purpose of assisting them in developing drugs. However, the FDA draft guidance documents on developing antibiotics that we examined indicated on the title page and on subsequent pages that they were intended for comment purposes only, not for implementation, and would represent the agency's current thinking "when finalized." Thus, while these draft guidance documents can include updated information, it is unclear if the new information represents FDA's current thinking on a topic or if the purpose of the draft guidance is limited to generating public comment. Three of the 10 drug sponsors expressed concern about the role of FDA's draft guidance. For example, a drug sponsor called some of FDA's guidance "dated" and noted that FDA's guidance documents have remained in draft form for a long time. Another drug sponsor said it would rather rely on final guidance not directly applicable to its work than on draft guidance that was directly applicable. A third drug sponsor noted FDA's draft unmet need guidance was issued in 2013, and said that it would be helpful if FDA finalized it. Further, five sponsors in our study said that elements of the QIDP designation were unclear and that written guidance from FDA related to the QIDP designation and its incentives would help them to better understand the requirements and associated benefits. For example, one of these five drug sponsors told us that guidance about the eligibility requirements and process for obtaining a fast track designation for sponsors' QIDP-designated drug applications would be helpful. Our review of FDA data showed that from July 2012 through December 2015, drug sponsors that were eligible for fast track designation because they had received QIDP designation for their drug applications could have made 40 additional requests for fast track designation, but did not. Further, we found that the number of requests for fast track designation for eligible QIDP-designated drugs decreased from 20 in fiscal year 2014 to 11 in fiscal year 2015 (the two most recent years for which a full year of data were available). This same drug sponsor told us that the sponsors who did not request a fast track designation might have been unsure about what information to include in their request or could have been unsure if their applications qualified for the designation. These five drug sponsors also said that elements associated with the market exclusivity incentive for which a QIDP-designated drug application might qualify were also unclear. For example, a drug sponsor we spoke with said that uncertainty about how FDA was implementing the additional years of market exclusivity associated with this designation could affect a drug sponsor's long-term planning for drug development. FDA did not provide us with answers to our questions about why some QIDP-related guidance documents remain in draft form or whether drug sponsors should rely on draft guidance when developing antibiotics, FDA officials did agree that guidance related to the QIDP designation might be helpful to drug sponsors. FDA officials said the agency frequently receives questions about the QIDP designation and application process, but did not provide an explanation for why they have not yet developed QIDP guidance. They said they consider a range of factors when determining which guidance documents to develop, such as new scientific developments. Federal internal control standards on information and communication state that sharing quality information with external parties is necessary to achieving an entity's objectives. FDA uses its guidance documents to communicate its current thinking on a topic to drug sponsors with the purpose of assisting them as they develop new drugs, including antibiotics. FDA also implements other expedited programs and has developed written guidance that details their features and the criteria a drug sponsor must meet to take advantage of them. However, a lack of clarity on the role of draft guidance documents for and a lack of guidance on the QIDP designation could create uncertainty for drug sponsors about how much reliance they should place on these draft documents and could diminish the likelihood that some drug sponsors apply for the designation because they do not fully understand its requirements and benefits. As a result, drug sponsors that are working to develop new antibiotics could be doing so without the benefit of clear current guidance and the likelihood that the QIDP designation will encourage the development of new antibiotics may be diminished. Amid growing concern about antibiotic resistance to existing drugs and a steady decline in the number of new antibiotics under development, the QIDP designation is a tool for FDA to encourage drug sponsors to develop new antibiotics by facilitating the review of applications for these drugs prior to their approval. FDA revised guidance documents related to antibiotic development in accordance with GAIN, but then released many of them in draft form with language suggesting that the guidance is for discussion purposes only. Several of the drug sponsors with whom we spoke expressed concern about the agency's use of draft guidance and how much reliance they could place upon it. Although FDA has granted 101 requests for the QIDP designation since being implemented in 2012, half of the sponsors that we spoke with said they were unclear about how to apply for fast track designation if QIDP designation has been granted and about how FDA is interpreting and applying the market exclusivity incentive. Moreover, FDA has not produced written guidance that describes the requirements and benefits of the QIDP designation. Without a clear understanding of the role of draft guidance documents for and the requirements and benefits of the QIDP designation, drug sponsors' antibiotic development programs might not be based on FDA's most current thinking and sponsors might not take advantage of the designation. Therefore, the likelihood that revised guidance on antibiotic development and the QIDP designation will encourage the development of new antibiotics may be diminished. In order for drug sponsors to benefit from FDA's revised guidance on antibiotic development and take full advantage of the QIDP designation, we recommend that FDA clarify how drug sponsors should utilize draft guidance documents that were released in accordance with GAIN, and develop and make available written guidance on the QIDP designation that includes information about the process a drug sponsor must undertake to request the fast track designation and how the agency is applying the market exclusivity incentive. We provided a draft of this report to HHS for its review and comment. HHS provided written comments, which are reprinted in appendix III. In its written comments, HHS agreed to consider our first recommendation and to implement our second recommendation. With regard to our first recommendation, which calls for FDA to clarify how drug sponsors should utilize the draft GAIN guidance documents, HHS stated that these documents are provided to enable public comment on ideas FDA is considering. HHS noted that they are not binding and that drug sponsors can use an alternative approach, if the approach satisfies the requirements of applicable statutes. We appreciate FDA's consideration of this recommendation, and firmly believe this clarification is warranted. GAIN called for FDA to issue draft guidance documents and to review and revise them, as appropriate, to reflect scientific developments. FDA's practice of releasing guidance that remains in draft form for years has created uncertainty for drug sponsors in this area. This approach leaves sponsors to plan their antibiotic drug development programs and determine how to meet statutory requirements without the benefit of written guidance representing FDA's most current thinking. Therefore, we believe our recommendation that FDA clarify how drug sponsors should use these draft documents is appropriate and well- supported. HHS agreed with our second recommendation that FDA develop and issue written guidance on the QIDP designation. HHS said that FDA intends to proceed promptly with this task and that it will include information about the process for requesting the fast track designation and the criteria for determining whether an application qualifies for the 5 additional years of QIDP market exclusivity. HHS 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 to the appropriate congressional committees, the Secretary of HHS, 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) 512-7114 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. FDA has other efforts related to antimicrobial resistance beyond the steps taken to implement the Generating Antibiotic Incentives Now provisions described in this report. The following describes some of the agency's activities outside of the Center for Drug Evaluation and Research and the Antibiotic Drug Development Task Force. According to FDA, the FDA Antimicrobial Resistance Task Force comprises principle subject matter experts from across the agency. Members include the Center for Drug Evaluation and Research, the Center for Biologics Evaluation and Research, and the Center for Devices and Radiological Health. According to FDA, this Task Force is intended to foster dialogue between the Centers and to ensure that senior staff are apprised of major activities and developments related to antimicrobial resistance across the agency. In addition to coordinating activities within FDA, the Antimicrobial Resistance Task Force coordinates with external stakeholders, such as the Biomedical Advanced Research and Development Authority on developing a network of sites for clinical trials for antibiotics. It also serves as the agency's primary lead on other efforts, such as the President's Combating Antibiotic-Resistant Bacteria initiative. The Center for Biologics Evaluation and Research within FDA regulates biological products for human use, including nontraditional therapies that have the potential to be marketed as alternatives to antibiotics. According to officials, there are three types of nontraditional therapies under development--phage therapy, probiotics, and fecal microbiota. Lytic bacteriophage (phage) therapy involves the use of viruses to destroy the cell membrane of bacteria. Interest in this type of therapy has become relevant, in part, because of the growing global threat of antimicrobial resistance. This type of therapy has been reported to have been used in Eastern Europe; however, use in the United States has only been investigational. Probiotics, also referred to as live biotherapeutic products, are products that contain live organisms, such as bacteria, that are found naturally in humans. Proposed uses include the prevention or treatment of diarrhea associated with infections by certain bacteria or with use of antibiotics. Fecal microbiota for transplantation refers to a procedure in which fecal matter or bacteria from the stool of healthy individuals are administered to a patient to treat a disease. Infection by certain bad bacteria can result in debilitating and sometimes fatal diarrhea. The Center for Devices and Radiological Health is the Center within FDA that is responsible for overseeing the safety and effectiveness of medical devices sold in the United States, including in vitro diagnostics. In vitro diagnostics include antimicrobial susceptibility testing devices, which are used by laboratories to assess whether a particular bacterium is susceptible or resistant to single or multiple antibiotics. These tests are based on antibiotic breakpoints, which are the antibiotic concentrations used to determine bacterial susceptibility. Officials said they work with the Center for Drug Evaluation and Research to jointly publish guidance related to antimicrobial susceptibility testing devices. According to officials, the challenges to the development of antimicrobial susceptibility testing devices are mostly scientific. For example, they said it is inherently challenging to develop a diagnostic test that quickly and accurately identifies if a patient's symptoms are caused by a bacteria or virus, and for bacterial infections, whether the bacterium is resistant to standard therapies. The guidance documents listed below were released by the Food and Drug Administration in relation to the Generating Antibiotic Incentives Now statute as of August 2016. Department of Health and Human Services. Food and Drug Administration. Bacterial Vaginosis: Developing Drugs for Treatment Guidance for Industry (Draft). Silver Spring, Md.: 2016. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM510948.pdf Department of Health and Human Services. Food and Drug Administration. Vulvovaginal Candidiasis: Developing Drugs for Treatment Guidance for Industry (Draft). Silver Spring, Md.: 2016. http://www.fda.gov/ucm/groups/fdagov-public/@fdagov-drugs- gen/documents/document/ucm509411.pdf Department of Health and Human Services. Food and Drug Administration. Anthrax: Developing Drugs for Prophylaxis of Inhalational Anthrax Guidance for Industry (Draft). Silver Spring, Md.: 2016. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM070986.pdf Department of Health and Human Services. Food and Drug Administration. Uncomplicated Gonorrhea: Developing Drugs for Treatment Guidance for Industry. Silver Spring, Md.: 2015. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM401620.pdf. Department of Health and Human Services. Food and Drug Administration. Complicated Urinary Tract Infections: Developing Drugs for Treatment Guidance for Industry. Silver Spring, Md.: 2015. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM070981.pdf. Department of Health and Human Services. Food and Drug Administration. Complicated Intra-Abdominal Infections: Developing Drugs for Treatment Guidance for Industry. Silver Spring, Md.: 2015. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM321390.pdf. Department of Health and Human Services. Food and Drug Administration. Guidance for Industry Hospital-Acquired Bacterial Pneumonia and Ventilator-Associated Bacterial Pneumonia: Developing Drugs for Treatment (Draft). Silver Spring, Md.: 2014. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM234907.pdf. Department of Health and Human Services. Food and Drug Administration. Guidance for Industry Community-Acquired Bacterial Pneumonia: Developing Drugs for Treatment. Silver Spring, Md.: 2014. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM123686.pdf. Department of Health and Human Services. Food and Drug Administration. Guidance for Industry Pulmonary Tuberculosis: Developing Drugs for Treatment (Draft). Silver Spring, Md.: 2013. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM373580.pdf. Department of Health and Human Services. Food and Drug Administration. Guidance for Industry Acute Bacterial Skin and Skin Structure Infections: Developing Drugs for Treatment. Silver Spring, Md.: 2013. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/ucm071185.pdf Department of Health and Human Services. Food and Drug Administration. Guidance for Industry Antibacterial Therapies for Patients with Unmet Medical Need for the Treatment of Serious Bacterial Diseases (Draft). Silver Spring, Md.: 2013. http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInfo rmation/Guidances/UCM359184.pdf. In addition to the contact named above, Tom Conahan, Assistant Director; Gay Hee Lee, Analyst-in-Charge; George Bogart; Laurie Pachter; Sarah M. Sheehan; and Katherine A. Singh made key contributions to this report.
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Antibiotics have long played a key role in treating infections, but this role is threatened by growing resistance to existing antibiotics and the decline in the development of new drugs. FDA oversees the approval of drugs for the U.S. market. The GAIN provisions created the QIDP designation and its associated incentives to encourage the development of new drugs to treat serious or life-threatening infections. While it is too soon to tell if GAIN has stimulated the development of new drugs, GAO was asked to provide information on FDA's efforts to implement GAIN. This report examines (1) steps FDA has taken to encourage the development of antibiotics since GAIN, and (2) drug sponsors' perspectives on FDA's efforts. GAO analyzed FDA data on requests for the QIDP designation from July 2012 through December 2015 (the most recent data available at the time of GAO's review), and on drugs approved with this designation during the same time frame. GAO reviewed relevant FDA guidance documents and internal controls. GAO interviewed FDA officials and obtained information from a nongeneralizable selection of 10 drug sponsors about FDA efforts. The Food and Drug Administration (FDA) released updated or new guidance for antibiotic development, and used the qualified infectious disease products (QIDP) designation to encourage the development of new antibiotics. As of August 2016, FDA, an agency within the Department of Health and Human Services (HHS), had coordinated the release of 14 updated or new guidance documents on antibiotic development, in compliance with Generating Antibiotic Incentives Now (GAIN) provisions of the Food and Drug Administration Safety and Innovation Act of 2012. However, half of these guidance documents remain in draft form. The GAIN provisions required FDA to review and, as appropriate, revise guidance documents related to antibiotics, in part to ensure that they reflected scientific developments. FDA used the QIDP designation and its incentives, created under the GAIN provisions, to encourage drug sponsors to develop new antibiotics. Incentives available under the QIDP designation include eligibility for fast track designation--which allows drug sponsors to have increased interaction with FDA and allows FDA to review portions of sponsors' applications as they come in rather than waiting for a complete application. FDA granted 101 out of 109 requests for the QIDP designation from July 2012, when the designation was created, through December 2015. FDA also approved six drugs with the QIDP designation for market in the United States. The 10 drug sponsors in GAO's study said that GAIN has facilitated FDA's review of their drug applications, and 8 said they experienced increased communication with FDA due to the agency's implementation of GAIN and general commitment to supporting the development of new antibiotics. However, several were uncertain whether they could rely on FDA's draft guidance or were concerned about the lack of guidance describing the QIDP designation and its requirements. For example, 2 drug sponsors expressed concern about the role of FDA's draft guidance. A third sponsor said it would be helpful if certain draft guidance was finalized. Five additional drug sponsors in GAO's study stated that written guidance from FDA related to the QIDP designation and its incentives, such as the process for obtaining fast track designation for a QIDP-designated application, would help them to better understand the requirements and its associated benefits. FDA released some of its updated guidance documents in draft form on its website, in response to GAIN, which indicated that they were intended for comment purposes only, not for implementation, and would represent the agency's current thinking "when finalized." While these draft guidance documents can include updated information, it is unclear if the new information represents FDA's current thinking on a topic or if the purpose of the draft guidance is limited to generating public comment. Internal control standards for the federal government on information and communication state that sharing quality information with external parties is necessary to achieving an entity's objectives. The lack of clarity on the role of draft guidance for and the lack of written guidance on the QIDP designation create uncertainty for drug sponsors about how much reliance they should place on these draft documents and could diminish the likelihood that drug sponsors apply for the designation because they do not fully understand its requirements and benefits. GAO recommends that FDA clarify the role of draft guidance for and develop written guidance on the QIDP designation to help drug sponsors better understand the designation and its associated incentives. HHS said it would consider GAO's first recommendation and agreed with the second. GAO believes the first recommendation should also be adopted.
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The Social Security Act requires that payments to MA plans be adjusted for variation in the cost of providing health care to beneficiaries on the basis of various risk factors, including health status. For most MA beneficiaries, CMS uses its CMS-Hierarchical Condition Categories (CMS-HCC) model to risk-adjust payments to MA plans. HCCs, which represent major medical conditions, are groups of medical diagnoses where related groups of diagnoses are ranked on the basis of disease severity and cost. The CMS-HCC risk adjustment model uses enrollment and claims data from Medicare FFS. The model uses beneficiary characteristic and diagnostic data from a base year to calculate the expected health care expenditures under Medicare FFS for the following year.demographic data for 2009 to determine the risk scores used to adjust payments to MA plans in 2010. For example, CMS used MA beneficiary diagnostic and The Social Security Act further directs CMS to ensure that adjustments to payments for health status reflect changes in treatment and coding practices in Medicare FFS and differences in coding patterns between MA plans and providers under Medicare Parts A and B to the extent differences are identified. To ensure payment accuracy, the act requires CMS to conduct an annual analysis of these coding differences in time to incorporate the results into the risk scores for each year. In conducting such an analysis, CMS is required to use data submitted with respect to 2004 and subsequent years as such data are available. CMS is required to continue adjusting risk scores for coding differences until the time it is able to implement risk adjustment using MA diagnostic, cost, and use data. Beginning with 2014, the diagnostic coding adjustments are subject to a statutory minimum, which was recently amended by the American Taxpayer Relief Act of 2012. Specifically, the Social Security Act, as amended, requires CMS to reduce MA risk scores by at least 1.5 percentage points more than the 2010 adjustment (a total of 4.9 percent) for 2014 and increases the annual minimum percentage reduction to not less than 5.9 percent for 2019 and subsequent years. CMS did not adjust MA risk scores in 2008 or 2009, the first years for which a diagnostic coding adjustment was required under the Deficit Reduction Act of 2005. However, for 2010 CMS estimated that 3.4 percent of MA beneficiary risk scores were attributable to differences in diagnostic coding over the previous 3 years and reduced MA beneficiaries' 2010 risk scores by 3.4 percent. To calculate this percentage, CMS estimated the annual difference in disease score growth between MA and Medicare FFS beneficiaries for three different groups of beneficiaries who were either enrolled in the same MA plan or in Medicare FFS from 2004 to 2005, 2005 to 2006, and 2006 to 2007. CMS accounted for differences in age and mortality when estimating the difference in disease score growth between MA and Medicare FFS beneficiaries for each period. Then, CMS calculated the average of the three estimates. To apply this average estimate to 2010 MA beneficiaries, CMS multiplied the average annual difference in risk score growth by its estimate of the average length of time that 2010 MA beneficiaries had been continuously enrolled in the same MA plans over the previous 3 years, and CMS multiplied this result by 81.8 percent, its estimate of the percentage of 2010 MA beneficiaries who were enrolled in an MA plan in 2009 and therefore were previously exposed to MA coding practices. CMS applied the same 3.4 percent adjustment to risk scores it used in 2010 to risk scores in 2011 and 2012. CMS's risk score adjustment for diagnostic coding differences for 2010 through 2012 was too low. Specifically, we estimated that the cumulative impact of coding differences on risk scores increased from 2010 through 2012 and was greater than CMS's risk score adjustment of 3.4 percent for each of the 3 years. In updating our analysis from the January 2012 report, we estimated that cumulative risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled continuously in FFS. Using the methodology described earlier, we estimated that differences in diagnostic coding resulted in 2011 risk scores that were 4.6 to 5.3 percent higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. This upward trend continued for 2012, with estimated risk scores 4.9 to 6.4 percent higher (see fig. 1). Because CMS's adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, we estimated that MA plans received excess payments of between $3.2 billion and $5.1 billion over the 3-year period. CMS's annual 3.4 percent reduction in risk scores is equivalent to reducing total payments to MA plans by an estimated $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to our estimates, the amount of the excess payments to MA plans after accounting for CMS's adjustments was $0.6 billion in 2010, $1.1 billion to $1.6 billion in 2011, and $1.5 billion to $2.9 billion in 2012. (See fig. 2.) According to CMS officials, the agency used the same methodology to determine the 2013 risk score adjustment as it used in 2011 and 2012, resulting in a risk score adjustment of 3.4 percent for 2013. CMS conducted a data-based analysis of coding differences for 2013 and considered the results, along with other factors, in determining the adjustment provided for in the Social Security Act. To conduct its data- based analysis, CMS officials reported that they used the same methodology they used to calculate the 3.4 percent adjustment for 2010, but incorporated more recent data. In addition to the results of their data-based analysis, CMS officials told us that they took into account other factors when determining the 2013 risk score adjustment, such as payment changes made to the MA program under the Patient Protection and Affordable Care Act, the stability of the MA program, and the maintenance of benefits for seniors. CMS's risk score adjustment of 3.4 percent for 2013 is the same that it used in 2010, 2011, and 2012. The Social Security Act does not prescribe the methodology that CMS is to use in adjusting for differences in diagnostic coding and, in this regard, it provides the agency with discretion in designing and conducting its analysis of coding differences. However, the express purpose of the requirements to conduct and incorporate a data-based analysis of coding differences into the risk scores is to ensure payment accuracy. The statute does not provide for factors other than the results of the analysis to be incorporated into the adjustment, suggesting that accuracy would be achieved through the incorporation of these analytical results by themselves. In response to our inquiries, CMS officials told us that they reviewed a range of options when determining an adjustment for 2013, but did not explain whether these options were derived from the agency's data-based analysis. CMS officials did not identify the specific source of their authority to consider factors other than the required data-based analysis when determining the adjustment amount, but stated that they believed that there was policy discretion with respect to the most appropriate adjustment factor for the payment year. While CMS did not change its risk score adjustment methodology for 2013, agency officials said they may revisit their methodology for future years. While diagnostic coding adjustments are subject to a statutory minimum beginning in 2014, CMS may implement a diagnostic coding adjustment that is greater than the statutory minimum if they determine the minimum is too low. Risk adjustment is important to ensure that payments to MA plans adequately account for differences in beneficiaries' health status and to maintain plans' financial incentive to enroll and care for beneficiaries regardless of their health status. Our work confirms that differences in diagnostic coding caused risk scores for MA beneficiaries to be higher than those for comparable beneficiaries in Medicare FFS in 2010, 2011, and 2012. CMS's decision to use a 3.4 percent adjustment to risk scores for 2010 through 2012 instead of the higher adjustments called for by our analysis resulted in excess payments to MA plans. The existence of such excess payments indicates that CMS's adjustment does not accurately account for differences in treatment and diagnostic coding between MA plans and Medicare FFS--the stated goal of the statute that required CMS to develop a diagnostic coding adjustment. In our January 2012 report, we recommended that CMS take steps to improve the accuracy of the adjustment to account for excess payments due to differences in diagnostic coding. We noted that CMS could, for example, account for additional beneficiary characteristics, include the most recent data available, identify and account for all the years of coding differences that could affect the payment year for which an adjustment is made, and incorporate the trend of the impact of coding differences on risk scores. CMS's adjustment for 2013 is the same as it used in 2010, 2011, and 2012. However, given our finding that this adjustment was too low and resulted in estimated excess payments to MA plans of at least $3.2 billion, we continue to believe that it is important for CMS to implement our recommendation that it update its methodology to more accurately account for differences in diagnostic coding. We provided a draft of this report to CMS for comment. CMS did not have any general comments. The agency provided one technical comment, which we incorporated. 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 Secretary of Health and Human Services, interested congressional committees, and others. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has 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 major contributions to this report are listed in appendix II. This appendix describes the scope and methodology that we used to address our objective to determine the extent to which differences, if any, in diagnostic coding between Medicare Advantage (MA) plans and Medicare fee-for-service (FFS) affected risk scores and payments to MA plans in 2010, 2011, and 2012. This methodology includes enhancements from the methodology we used in our January 2012 report. To determine the extent to which differences, if any, in diagnostic coding between MA plans and Medicare FFS affected MA risk scores in 2010, 2011, and 2012, we compared actual risk score growth for beneficiaries in our MA study population with the estimated risk score growth these beneficiaries would have had if they had been enrolled in Medicare FFS. For our estimates, we assumed MA plans and Medicare FFS had equivalent coding patterns in 2006--the year of coding upon which 2007 risk scores were based--and therefore calculated the cumulative effect of coding differences starting with risk score data from 2007. Because 2010 risk score data were the most current data available at the time of our analysis, we projected the extent of coding differences in 2011 and 2012 on the basis of trends from 2005 through 2010. To do these analyses, we used Centers for Medicare & Medicaid Services (CMS) enrollment and risk score data from 2004 through 2011. Risk scores for a given calendar year are generally based on beneficiaries' diagnoses in the previous year, so we identified our study population on the basis of enrollment data for 2004 through 2009 and analyzed risk scores for that population for 2005 through 2010. Our MA study population consisted of a retrospective cohort of 2010 MA beneficiaries who were enrolled in MA for all of 2009 and either MA or FFS in 2008, and we followed them back for the length of their continuous enrollment to 2004. Beneficiaries remained in our cohort for as many years as they were continuously enrolled in MA, plus (if applicable) the year of Medicare FFS enrollment immediately preceding their MA enrollment. We calculated disease scores using the 2010 version of the CMS-HCC risk adjustment community model (used for payment in 2010), and summed the appropriate coefficients for each of the HCC variables. We normalized disease scores for each year to 2005 by using the FFS normalization factor that CMS used to normalize risk scores in 2010. Normalization keeps the average Medicare FFS risk score constant at 1.0 over time and is necessary to compare disease scores across years. change in disease scores that would have occurred if those MA beneficiaries had been continuously enrolled in FFS. We then compared these estimates of disease score growth under FFS to the MA beneficiaries' actual disease score growth and, because the regression model accounted for other relevant factors affecting disease score growth, we identified the difference as attributable to coding differences between MA and FFS. To calculate the cumulative impact of coding differences on 2010 MA risk scores, we summed the 2007 to 2008, 2008 to 2009, and 2009 to 2010 impact estimates for our retrospective MA cohort, weighting each impact estimate by the percentage of 2010 MA beneficiaries that could have experienced risk score growth due to coding differences during that period. To convert the cumulative impact of coding differences on 2010 MA risk scores into a percentage, we divided by the average MA risk score in 2010. To calculate the cumulative impact of coding differences on 2011 and 2012 MA risk scores, we used a similar methodology, except that we had to estimate the risk score growth due to coding differences for 2010 to 2011 and 2011 to 2012. To estimate the risk score growth due to coding differences for 2010 to 2011 and 2011 to 2012, we used the estimates based on our 2010 retrospective cohorts for five time periods--2005 to 2006, 2006 to 2007, 2007 to 2008, 2008 to 2009, and 2009 to 2010--and made two different projection assumptions. One projection, which we used to calculate our high cumulative impact estimate, assumed that the trend over 2005 to We also provided a more conservative 2010 continued through 2012.estimate that assumed the annual growth trend in coding differences from 2010 to 2012 stabilized at the same level as 2009-2010. We provided this lower estimate to account for the possibility that the growth rate will flatten as MA plans improve their systems for comprehensively coding diagnoses. Our updated methodology includes two major enhancements to the methodology used for our January 2012 report. First, we altered our methodology to make a more conservative assumption of the risk score growth due to coding differences for beneficiaries that recently enrolled in MA without any prior Medicare FFS enrollment. These beneficiaries are new to the Medicare program and tend to be healthier than other beneficiaries. Therefore, they may have less contact with their health plan physicians and less information in their medical records that plans could use to adjust risk scores. As a result, for MA beneficiaries that had a risk score based on MA coding for the second year of the period but did not have a risk score based on either MA or FFS coding for the first year of the period, we altered our methodology to assume that these beneficiaries had zero risk score growth due to coding differences during the period. For the January 2012 report, we had assumed that these beneficiaries experienced the same risk score growth due to coding differences, on average, as did those beneficiaries for which we could measure risk score growth due to coding differences. Second, we adjusted our cumulative impact estimates for 2011 and 2012 to account for the effect of beneficiaries who died after June 30, 2010, or otherwise left MA since 2010. We determined an adjustment was needed after observing that the impacts of coding differences for the time periods 2005-2006, 2006-2007, and 2007-2008 were smaller for the 2010 retrospective cohort used for this study than for the 2008 retrospective cohort used for our January 2012 report. We attributed these differences to beneficiaries who were in our 2008 cohort but not our 2010 cohort as having, on average, greater differences between their actual and estimated disease scores than those beneficiaries who remained in MA. It is possible this is due to sicker beneficiaries with greater coding differences relative to Medicare FFS leaving the study cohort as they aged, either because of death or to rejoin Medicare FFS. We expect that beneficiaries who leave MA or die after 2010 would have a similar effect on our 2011 and 2012 projections. To address this, we adjusted our estimates of the impact of coding differences on the basis of the magnitude of differences in the impact of coding differences for our 2008 and 2010 retrospective cohorts during each period. We applied these adjustments relative to the projection year (i.e., half of the differences between the 2008 and 2010 cohorts for periods 2005-2010 were applied to 2006-2011 for our 2011 projection and the full difference between the cohorts was applied to 2007-2012 for our 2012 projection). To quantify the impact of both our and CMS's estimates of coding differences on payments to MA plans in 2010, 2011, and 2012, we used data on MA plan bids--plans' proposed reimbursement rates for the average beneficiary--which are used to determine payments to MA plans and information on MA plan enrollment. We analyzed monthly MA enrollment for 2010 and 2011, and because enrollment data for 2012 was incomplete, we used the annual trend for these 2 years in conjunction with actual enrollment for the first 9 months of 2012 to estimate total 2012 MA enrollment. We used these data to calculate total risk-adjusted payments for each MA plan before and after applying a coding adjustment, and then used the differences between these payment levels to estimate the percentage reduction in total projected payments to MA plans resulting from adjustments for coding differences in 2010, 2011, and 2012.associated with each adjustment to the estimated total payments to MA plans--$114.8 billion in 2010, $122.9 billion in 2011, and $133.5 billion in 2012--and accounted for reduced Medicare Part B premium payments Then we applied the percentage reduction in payments received by CMS, which offset the reduction in MA payments (see table 1). We analyzed data from CMS on Medicare beneficiaries, including data collected from Medicare providers and MA plans. We assessed the reliability of the CMS data we used by interviewing officials responsible for using these data to determine MA payments, reviewing relevant documentation, and examining the data for obvious errors. We determined that the data were sufficiently reliable for the purposes of our study. In addition to the contact named above, Christine Brudevold, Assistant Director; Alison Binkowski; William A. Crafton; Gregory Giusto; Andrew Johnson; Richard Lipinski; Elizabeth Morrison; and Jennifer Whitworth made key contributions to this report.
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CMS pays plans in MA--the private plan alternative to FFS--a predetermined amount per beneficiary adjusted for health status. To make this adjustment, CMS calculates a risk score, a relative measure of expected health care for each beneficiary. Risk scores should be the same among all beneficiaries with the same health conditions and demographic characteristics. Differences in diagnostic coding between MA plans and Medicare FFS led to inappropriately high MA risk scores and payments to MA plans, and CMS adjusted for coding differences in 2010. In January 2012, GAO reported that CMS's adjustments to risk scores did not sufficiently correct for coding differences, resulting in excess payments to MA plans. Since completing the analysis for the January 2012 report, risk score data for two additional years have become available. GAO (1) determined the extent to which differences, if any, in diagnostic coding between MA plans and Medicare FFS affected MA risk scores and payments to MA plans in 2010, 2011, and 2012; and (2) identified what changes, if any, CMS made to its risk score adjustment methodology for 2013 and intends to make for future years. To do this, GAO compared risk score growth for MA beneficiaries with an estimate of what risk score growth would have been for those beneficiaries if they were in Medicare FFS for 2010 and projected the growth to 2011 and 2012, and determined if there were changes to CMS's methodology by reviewing agency documentation and interviewing agency officials. GAO found that the cumulative impact of coding differences on risk scores increased from 2010 through 2012 and was greater than the Centers for Medicare & Medicaid Services' (CMS) risk score adjustment of 3.4 percent for each of the 3 years. In updating the analysis from its January 2012 report, GAO estimated that cumulative Medicare Advantage (MA) risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled continuously in Medicare fee-for-service (FFS). For 2011, GAO estimated that differences in diagnostic coding resulted in risk scores that were 4.6 to 5.3 percent higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. This upward trend continued for 2012, with estimated risk scores 4.9 to 6.4 percent higher. CMS's adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, resulting in estimated excess payments to MA plans of at least $3.2 billion. CMS's annual 3.4 percent reduction in risk scores is equivalent to $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to GAO's estimates, the amount of the excess payments to MA plans after accounting for CMS's adjustments was $0.6 billion in 2010, between $1.1 billion and $1.6 billion in 2011, and between $1.5 billion and $2.9 billion in 2012. Cumulatively across the 3 years, this equals excess payments of between $3.2 billion and $5.1 billion. For 2013, CMS continues to use the risk score adjustment of 3.4 percent it used in 2010, 2011, and 2012. To conduct its data-based analysis, CMS officials reported that they used the same methodology used in 2010, but they incorporated more recent data. CMS officials told us that, in addition to the results of the data analysis, they incorporated additional factors such as recent payment changes made to the MA program under the Patient Protection and Affordable Care Act and the maintenance of benefits for seniors. The Social Security Act does not prescribe CMS's methodology for adjusting for differences in diagnostic coding. However, the express purpose of the requirements to conduct and incorporate into the risk scores a data-based analysis of coding differences is to ensure payment accuracy. The act does not provide for factors other than the results of the analysis to be incorporated into the adjustment, suggesting that accuracy would be ensured solely through the incorporation of analytical results. CMS officials stated that they believed there was policy discretion with respect to the most appropriate adjustment factor but did not identify the specific source of their authority to consider factors other than the required data analysis when determining the adjustment amount. While CMS did not change its risk score adjustment methodology for 2013, agency officials said they may revisit their methodology for future years. GAO's findings underscore the importance for CMS to implement the recommendation from GAO's January 2012 report that the agency improve the accuracy of its MA risk score adjustments by taking steps such as using the most current data available and incorporating adjustments for additional beneficiary characteristics. CMS reviewed a draft of this report and stated that it had no comments.
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Under the existing, or "legacy" system, the military's disability evaluation process begins at a military treatment facility when a physician identifies a condition that may interfere with a servicemember's ability to perform his or her duties. On the basis of medical examinations and the servicemember's medical records, a medical evaluation board (MEB) identifies and documents any conditions that may limit a servicemember's ability to serve in the military. The servicemember's case is then evaluated by a physical evaluation board (PEB) to make a determination of fitness or unfitness for duty. If the servicemember is found to be unfit due to medical conditions incurred in the line of duty, the PEB assigns the servicemember a combined percentage rating for those unfit conditions, and the servicemember is discharged. Depending on the overall disability rating and number of years of active duty or equivalent service, the servicemember found unfit with compensable conditions is entitled to either monthly disability retirement benefits or lump sum disability severance pay. In addition to receiving disability benefits from DOD, veterans with service-connected disabilities may receive compensation from VA for lost earnings capacity. VA's disability compensation claims process starts when a veteran submits a claim listing the medical conditions that he or she believes are service-connected. In contrast to DOD's disability evaluation system, which evaluates only medical conditions affecting servicemembers' fitness for duty, VA evaluates all medical conditions claimed by the veteran, whether or not they were previously evaluated in DOD's disability evaluation process. For each claimed condition, VA must determine if there is credible evidence to support the veteran's contention of a service connection. Such evidence may include the veteran's military service records and treatment records from VA medical facilities and private medical service providers. Also, if necessary for reaching a decision on a claim, VA arranges for the veteran to receive a medical examination. Medical examiners are clinicians (including physicians, nurse practitioners, or physician assistants) certified to perform the exams under VA's Compensation and Pension program. Once a claim has all of the necessary evidence, a VA rating specialist determines whether the claimant is eligible for benefits. If so, the rating specialist assigns a percentage rating. If VA finds that a veteran has one or more service- connected disabilities with a combined rating of at least 10 percent, the agency will pay monthly compensation. In November 2007, DOD and VA began piloting the IDES. The IDES merges DOD and VA processes, so that servicemembers begin their VA disability claim while they undergo their DOD disability evaluation, rather than sequentially, making it possible for them to receive VA disability benefits shortly after leaving military service. Specifically, the IDES: Merges DOD and VA's separate exam processes into a single exam process conducted to VA standards. This single exam (which may involve more than one medical examination, for example, by different specialists), in conjunction with the servicemembers' medical records, is used by military service PEBs to make a determination of servicemembers' fitness for continued military service, and by VA as evidence of service-connected disabilities. The exam may be performed by medical staff working for VA, DOD, or a private provider contracted with either agency. Consolidates DOD and VA's separate rating phases into one VA rating phase. If the PEB has determined that a servicemember is unfit for duty, VA rating specialists prepare two ratings--one for the conditions that DOD determined made a servicemember unfit for duty, which DOD uses to provide military disability benefits, and the other for all service-connected disabilities, which VA uses to determine VA disability benefits. Provides VA case managers to perform outreach and nonclinical case management and explain VA results and processes to servicemembers. In August 2010, DOD and VA officials issued an interim report to Congress summarizing the results of their evaluation of the IDES pilot as of early 2010 and indicating overall positive results. In that report, the agencies concluded that, as of February 2010, servicemembers who went through the IDES pilot were more satisfied than those who went through the legacy system, and that the IDES process met the agencies' goals of delivering VA benefits to active duty servicemembers within 295 days and to reserve component servicemembers within 305 days. Furthermore, they concluded that the IDES pilot has achieved a faster processing time than the legacy system, which they estimated to be 540 days. Although DOD and VA's evaluation results indicated promise for the IDES, the extent to which they represented an improvement over the legacy system could not be known because of limitations in the legacy data. DOD and VA's estimate of 540 days for the legacy system was based on a small, nonrepresentative sample of cases. Officials planned to use a broader sample of legacy cases to compare against pilot cases with respect to processing times and appeal rates; however inconsistencies in how military services tracked information and missing VA information (i.e., on the date VA benefits were delivered) for legacy cases, precluded such comparisons. While our review of DOD and VA's data and reports generally confirmed DOD and VA's findings as of early 2010, we found that not all of the service branches were achieving the same results, case processing times increased between February and August 2010, and other agency goals are not being met. Since our December report, processing times have worsened further and the agencies have adjusted some goals downward. Servicemember satisfaction: Our reviews of the survey data as of early 2010 indicated that, on average, servicemembers in the IDES pilot had higher satisfaction levels than those who went through the legacy process. However, Air Force members--who represented a small proportion (7 percent) of pilot cases--were less satisfied. Currently, DOD and VA have an 80-percent IDES satisfaction goal, which has not been met. For example, 67 percent of servicemembers surveyed in March 2011 were satisfied with the IDES. Satisfaction by service ranged from 54 percent for the Marine Corps to 72 percent for the Army. Average case processing times: Although the agencies were generally meeting their 295-day and 305-day timeliness goals through February 2010, the average case processing time for active duty servicemembers increased from 274 to 296 days between February and August 2010. Among the military service branches, only the Army was meeting the agencies' timeliness goals as of August, while average processing times for each of the other services exceeded 330 days. Since August 2010, timeliness has worsened significantly. For example, active component cases completed in March 2011 took an average of 394 days--99 days over the 295-day target. By service, averages ranged from 367 days for the Army to 455 days for the Marine Corps. Meanwhile, Reserve cases took an average of 383 days, 78 days more than the 305-day target, while Guard cases took an average of 354 days, 49 days more than the target. Goals to process 80 percent of cases in targeted time frames: DOD and VA had indicated in their planning documents that they had goals to deliver VA benefits to 80 percent of servicemembers within the 295-day (active component) and 305-day (reserve component) targets. For both active and reserve component cases at the time of our review, about 60 percent were meeting the targeted time frames. DOD and VA have since lowered their goals for cases completed on time, from 80 percent to 50 percent. Based on monthly data for 6 months through March 2011, the new, lower goal was not met during any month for active component cases. For completed Reserve cases, the lower goal was met during one of the 6 months and for Guard cases, it was met in 2 months. The strongest performance was in October 2010 when 63 percent of Reserve cases were processed within the 305-day target. Based on our prior work, we found that--as DOD and VA tested the IDES at different facilities and added cases to the pilot--they encountered several challenges that led to delays in certain phases of the process. Staffing: Most significantly, most of the sites we visited reported experiencing staffing shortages and related delays to some extent, in part due to workloads exceeding the agencies' initial estimates. The IDES involves several different types of staff across several different DOD and VA offices, some of which have specific caseload ratios set by the agencies, and we learned about insufficient staff in many key positions. With regard to VA positions, officials cited shortages in examiners for the single exam, rating staff, and case managers. With regard to DOD positions, officials cited shortages of physicians who serve on the MEBs, PEB adjudicators, and DOD case managers. In addition to shortages cited at pilot sites, DOD data indicated that 19 of the 27 pilot sites did not meet DOD's caseload target of 30 cases per manager. Local DOD and VA officials attributed staffing shortages to higher than anticipated caseloads and difficulty finding qualified staff, particularly physicians, in rural areas. These staffing shortages contributed to delays in the IDES process. Two of the sites we visited--Fort Carson and Fort Stewart--were particularly challenged to provide staff in response to surges in caseload that occurred when Army units were preparing to deploy to combat zones. Through the Army's predeployment medical assessment process, large numbers of servicemembers were determined to be unable to deploy due to a medical condition and were referred to the IDES within a short period of time, overwhelming the staff. These two sites were unable to quickly increase staffing levels, particularly of examiners. As a result, at Fort Carson, it took 140 days on average to complete the single exam for active duty servicemembers, as of August 2010--much longer than the agencies' goal to complete the exams in 45 days. More recently, Fort Carson was still struggling to meet goals, as of March 2011. For example, about half of Fort Carson's active component cases (558 of 1033 cases) were in the MEB phase, and the average number of days spent in the MEB phase by active component cases completed in March 2011 was 197 days, compared to a goal of 35 days. Exam summaries: Issues related to the completeness and clarity of single exam summaries were an additional cause of delays in the VA rating phase of the IDES process. Officials from VA rating offices said that some exam summaries did not contain information necessary to determine a rating. As a result, VA rating office staff must ask the examiner to clarify these summaries and, in some cases, redo the exam. VA officials attributed the problems with exam summaries to several factors, including the complexity of IDES pilot cases, the volume of exams, and examiners not receiving records of servicemembers' medical history in time. The extent to which insufficient exam summaries caused delays in the IDES process is unknown because DOD and VA's case tracking system for the IDES does not track whether an exam summary has to be returned to the examiner or whether it has been resolved. Medical diagnoses: While the single exam in the IDES eliminates duplicative exams performed by DOD and VA in the legacy system, it raises the potential for there to be disagreements about diagnoses of servicemembers' conditions. For example, officials at Army pilot sites informed us about cases in which a DOD physician had treated members for mental disorders, such as major depression. However, when the members went to see the VA examiners for their single exam, the examiners diagnosed them with posttraumatic stress disorder (PTSD). Officials told us that attempting to resolve such differences added time to the process and sometimes led to disagreements between DOD's PEBs and VA's rating offices about what the rating should be for purposes of determining DOD disability benefits. Although the Army developed guidance to help resolve diagnostic differences, other services have not. Moreover, PEB officials we spoke with noted that there is no guidance on how disagreements about servicemembers' ratings between DOD and VA should be resolved beyond the PEBs informally requesting that the VA rating office reconsider the case. While DOD and VA officials cited several potential causes for diagnostic disagreements, the number of cases with disagreements about diagnoses and the extent to which they have increased processing time are unknown because the agencies' case tracking system does not track when a case has had such disagreements. Logistical challenges integrating VA staff at military treatment facilities: DOD and VA officials at some pilot sites we visited said that they experienced logistical challenges integrating VA staff at the military facilities. At a few sites, it took time for VA staff to receive common access cards needed to access the military facilities and to use the facilities' computer systems, and for VA physicians to be credentialed. DOD and VA staff also noted several difficulties using the agencies' multiple information technology (IT) systems to process cases, including redundant data entry and a lack of integration between systems. Housing and other challenges posed by extended time in the military disability evaluation process: Although many DOD and VA officials we interviewed at central offices and pilot sites felt that the IDES process expedited the delivery of VA benefits to servicemembers, several also indicated that it may increase the amount of time servicemembers are in the military's disability evaluation process. Therefore, some DOD officials noted that servicemembers must be cared for, managed, and housed for a longer period. The military services may move some servicemembers to temporary medical units or to special medical units such as Warrior Transition Units in the Army or Wounded Warrior Regiments in the Marine Corps, but at a few pilot sites we visited, these units were either full or members in the IDES did not meet their admission criteria. In addition, officials at two sites said that members who are not gainfully employed by their units and left idle are more likely to be discharged due to misconduct and forfeit their disability benefits. However, DOD officials also noted that servicemembers benefit from continuing to receive their salaries and benefits while their case undergoes scrutiny by two agencies, though some also acknowledged that these additional salaries and benefits create costs for DOD. DOD and VA are deploying the IDES to military facilities worldwide on an ambitious timetable--expecting deployment to be completed at a total of about 140 sites by the end of fiscal year 2011. As of March 2011, the IDES was operating at 73 sites, covering about 66 percent of all military disability evaluation cases. In preparing for IDES expansion militarywide, DOD and VA had many efforts under way to address challenges experienced at the 27 pilot sites. For example, the agencies completed a significant revision of their site assessment matrix--a checklist used by local DOD and VA officials to ascertain their readiness to begin the pilot--to address areas where prior IDES sites had experienced challenges. In addition, local senior-level DOD and VA officials will be expected to sign the site assessment matrix to certify that a site is ready for IDES implementation. This differs from the pilot phase where, according to DOD and VA officials, some sites implemented the IDES without having been fully prepared. Through the new site assessment matrix and other initiatives, DOD and VA planned to address several of the challenges identified in the pilot phase. Ensuring sufficient staff: With regard to VA staff, VA planned to increase the number of examiners by awarding a new contract through which sites can acquire additional examiners. To increase rating staff, VA filled vacant rating specialist positions and anticipates hiring a small number of additional staff. With regard to DOD staff, Air Force and Navy officials told us they added adjudicators for their PEBs or planned to do so. Both DOD and VA indicated they plan to increase their numbers of case managers. Meanwhile, sites are being asked in the assessment matrix to provide longer and more detailed histories of their caseloads, as opposed to the 1-year history that DOD and VA had based their staffing decisions on during the pilot phase. The matrix also asks sites to anticipate any surges in caseloads and to provide a written contingency plan for dealing with them. Ensuring the sufficiency of single exams: VA has been revising its exam templates to better ensure that examiners include the information needed for a VA disability rating decision and to enable them to complete their exam reports in less time. VA is also examining whether it can add capabilities to the IDES case tracking system that would enable staff to identify where problems with exams have occurred and track the progress of their resolution. Ensuring adequate logistics at IDES sites: The site assessment matrix asks sites whether they have the logistical arrangements needed to implement the IDES. In terms of information technology, DOD and VA were developing a general memorandum of agreement intended to enable DOD and VA staff access to each other's IT systems. DOD officials also said that they are developing two new IT solutions--one intended to help military treatment facilities better manage their cases, another intended to reduce multiple data entry. However, in some areas, DOD and VA's efforts to prepare for IDES expansion did not fully address some challenges or are not yet complete. For these areas, we recommended additional action that the agencies could take, with which the agencies generally concurred. Ensuring sufficient DOD MEB physician staffing: DOD does not yet have strategies or plans to address potential shortages of physicians to serve on MEBs. For example, the site assessment matrix does not include a question about the sufficiency of military providers to handle expected numbers of MEB cases at the site, or ask sites to identify strategies for ensuring sufficient MEB physicians if there is a caseload surge or staff turnover. We recommended that, prior to implementing IDES at MTFs, DOD direct military services to conduct thorough assessments of the adequacy of military physician staffing for completing MEB determinations and develop contingency plans to address potential shortfalls, e.g. due to staff turnover or caseload surges. Ensuring sufficient housing and organizational oversight for IDES participants: Although the site assessment matrix asks sites whether they will have sufficient temporary housing available for servicemembers going through the IDES, the matrix requires only a yes or no response and does not ensure that sites will have conducted a thorough review of their housing capacity. In addition, the site assessment matrix does not address plans for ensuring that IDES participants are gainfully employed or sufficiently supported by their organizational units. We recommended that prior to implementing the IDES at MTFs, DOD ensure thorough assessments are conducted on the availability of housing for servicemembers and on the capacity of organizational units to absorb servicemembers undergoing the disability evaluation; alternative housing options are identified when sites lack adequate capacity; and plans are in place for ensuring that servicemembers are appropriately and constructively engaged. Addressing differences in diagnoses: According to agency officials, DOD is currently developing guidance on how staff should address differences in diagnoses. However, since the new guidance and procedures are still being developed, we cannot determine whether they will aid in resolving discrepancies or disagreements. Significantly, DOD and VA do not have a mechanism for tracking when and where disagreements about diagnoses and ratings occur and, consequently, may not be able to determine whether the guidance sufficiently addresses the discrepancies. Therefore, we recommended that DOD and VA conduct a study to assess the prevalence and causes of such disagreements and establish a mechanism to continuously monitor diagnostic disagreements. VA has since indicated it plans to conduct such a study and make a determination by July 2011 regarding what, if any, mechanisms are needed. Further, despite regular reporting of data on caseloads, processing times, and servicemember satisfaction, and preparation of an annual report on challenges in the IDES, we determined that DOD and VA did not have a systemwide monitoring mechanism to help ensure that steps they took to address challenges are sufficient and to identify problems in a more timely basis. For example, they did not collect data centrally on staffing levels at each site relative to caseload. As a result, DOD and VA may be delayed in taking corrective action since it takes time to assess what types of staff are needed at a site and to hire or reassign staff. DOD and VA also lacked mechanisms or forums for systematically sharing information on challenges, as well as best practices between and among sites. For example, DOD and VA have not established a process for local sites to systematically report challenges to DOD and VA management and for lessons learned to be systematically shared systemwide. During the pilot phase, VA surveyed pilot sites on a monthly basis about challenges they faced in completing single exams. Such a practice has the potential to provide useful feedback if extended to other IDES challenges. To identify challenges as they arise in all DOD and VA facilities and offices involved in the IDES and thereby enable early remedial action, we recommended that DOD and VA develop a systemwide monitoring mechanism. This system could include continuous collection and analysis of data on DOD and VA staffing levels, sufficiency of exam summaries, and diagnostic disagreements; monitoring of available data on caseloads and case processing time by individual VA rating office and PEB; and a formal mechanism for agency officials at local DOD and VA facilities to communicate challenges and best practices to DOD and VA headquarters. VA noted several steps it plans to take to improve its monitoring of IDES workloads, site performance and challenges--some targeted to be implemented by July 2011--which we have not reviewed. By merging two duplicative disability evaluation systems, the IDES has shown promise for expediting the delivery of VA benefits to servicemembers leaving the military due to a disability. However, we identified significant challenges at pilot sites that require careful management attention and oversight. We noted a number of steps that DOD and VA were undertaking or planned to undertake that may mitigate these challenges. However, the agencies' deployment schedule is ambitious in light of substantial management challenges and additional evidence of deteriorating case processing times. As such, it is unclear whether these steps will be sufficiently timely or effective to support militarywide deployment. Deployment time frame notwithstanding, we continue to believe that the success or failure of the IDES will depend on DOD and VA's ability to quickly and effectively address resource needs and resolve challenges as they arise, not only at the initiation of the transition to IDES, but also on an ongoing, long-term basis. We continue to believe that DOD and VA cannot achieve this without a robust mechanism for routinely monitoring staffing and other risk factors. Chairman Chaffetz and Ranking Member Tierney, this concludes my prepared 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 Daniel Bertoni 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 testimony. In addition to the individual named above, key contributors to this testimony include Michele Grgich, Greg Whitney, and Daniel Concepcion. Key advisors included Bonnie Anderson, Mark Bird, Sheila McCoy, Patricia Owens, Roger Thomas, Walter Vance, and Randall Williamson. Military and Veterans Disability System: Pilot Has Achieved Some Goals, but Further Planning and Monitoring Needed. GAO-11-69. Washington, D.C.: December 6, 2010. Military and Veterans Disability System: Preliminary Observations on Evaluation and Planned Expansion of DOD/VA Pilot. GAO-11-191T. Washington, D.C.: November 18, 2010. Veterans' Disability Benefits: Further Evaluation of Ongoing Initiatives Could Help Identify Effective Approaches for Improving Claims Processing. GAO-10-213. Washington, D.C.: January 29, 2010. Recovering Servicemembers: DOD and VA Have Jointly Developed the Majority of Required Policies but Challenges Remain. GAO-09-728. Washington, D.C.: July 8, 2009. Recovering Servicemembers: DOD and VA Have Made Progress to Jointly Develop Required Policies but Additional Challenges Remain. GAO-09-540T. Washington, D.C.: April 29, 2009. Military Disability System: Increased Supports for Servicemembers and Better Pilot Planning Could Improve the Disability Evaluation Process. GAO-08-1137. Washington, D.C.: September 24, 2008. DOD and VA: Preliminary Observations on Efforts to Improve Care Management and Disability Evaluations for Servicemembers. GAO-08-514T. Washington, D.C.: February 27, 2008. DOD and VA: Preliminary Observations on Efforts to Improve Health Care and Disability Evaluations for Returning Servicemembers. GAO-07-1256T Washington, D.C.: September 26, 2007. Military Disability System: Improved Oversight Needed to Ensure Consistent and Timely Outcomes for Reserve and Active Duty Service Members. GAO-06-362. Washington, D.C.: March 31, 2006. 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This testimony discusses the efforts by the Departments of Defense (DOD) and Veterans Affairs (VA) to integrate their disability evaluation systems. Wounded warriors unable to continue their military service must navigate DOD's and VA's disability evaluation systems to be assessed for eligibility for disability compensation from the two agencies. GAO and others have found problems with these systems, including long delays, duplication in DOD and VA processes, confusion among servicemembers, and distrust of systems regarded as adversarial by servicemembers and veterans. To address these problems, DOD and VA have designed an integrated disability evaluation system (IDES), with the goal of expediting the delivery of VA benefits to servicemembers. After pilot testing the IDES at an increasing number of military treatment facilities (MTF)--from 3 to 27 sites--DOD and VA are in the process of deploying it worldwide. As of March 2011, the IDES has been deployed at 73 MTFs--representing about 66 percent of all military disability evaluation cases--and worldwide deployment is scheduled for completion in September 2011. This testimony summarizes and updates our December 2010 report on the IDES and addresses the following points: (1) the results of DOD and VA's evaluation of their pilot of the IDES, including updated data as of March 2011 from IDES monthly reports, where possible; (2) challenges in implementing the piloted system to date; and (3) DOD and VA's plans to expand the piloted system and whether those plans adequately address potential challenges. In summary, DOD and VA concluded that, based on their evaluation of the pilot as of February 2010, the pilot had (1) improved servicemember satisfaction relative to the existing "legacy" system and (2) met their established goal of delivering VA benefits to active duty and reserve component servicemembers within 295 and 305 days, respectively, on average. However, 1 year after this evaluation, average case processing times have increased significantly, such that active component servicemembers' cases completed in March 2011 took an average of 394 days to complete--99 days more than the 295-day goal. In our prior work, we identified several implementation challenges that had already contributed to delays in the process. The most significant challenge was insufficient staffing by DOD and VA. Staffing shortages and process delays were particularly severe at two pilot sites we visited where the agencies did not anticipate caseload surges. The single exam posed other challenges that contributed to delays, such as disagreements between DOD and VA medical staff about diagnoses for servicemembers' medical conditions that often required further attention, adding time to the process. Pilot sites also experienced logistical challenges, such as incorporating VA staff at military facilities and housing and managing personnel going through the process. DOD and VA were taking or planning to take steps to address a number of these challenges. For example, to address staffing shortages, VA is developing a contract for additional medical examiners, and DOD and VA are requiring local staff to develop written contingency plans for handling caseload surges. Given increased processing times, the efficacy of these efforts at this time is unclear. We recommended additional steps the agencies could take to address known challenges--such as establishing a comprehensive monitoring plan for identifying problems as they occur in order to take remedial actions as early as possible--with which DOD and VA generally concurred.
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According to the fiscal year 2013 President's Budget, DOD accounts for about 57 percent of the discretionary federal budget authority. (See figure 1.) For fiscal year 2011, of the 24 agencies covered by the Chief Financial Officers Act of 1990 (CFO Act), DOD was the only agency to receive a disclaimer of opinion on all of its financial statements.Inspector General (IG) reported that the department's fiscal year 2011 financial statements would not substantially conform to generally accepted accounting principles; DOD's financial management and feeder systems were unable to adequately support material amounts on the financial statements; and long-standing material internal control weaknesses identified in prior audits continued to exist, including material weaknesses in areas such as financial management systems, Fund Balance with Treasury, Accounts Receivable, and General Property, Plant, and Equipment. In 2005, the DOD Comptroller first prepared the Financial Improvement and Audit Readiness (FIAR) Plan for improving the department's business processes. The FIAR Plan is DOD's strategic plan and management tool for guiding, monitoring, and reporting on the department's financial management improvement efforts. As such, the plan communicates progress in addressing the department's financial management weaknesses and achieving financial statement auditability. In accordance with the NDAA for Fiscal Year 2010, DOD provides reports to relevant congressional committees on the status of DOD's implementation of the FIAR Plan twice a year--no later than May 15 and November 15. The NDAA for Fiscal Year 2010 also mandated that the FIAR Plan include the specific actions to be taken to correct the financial management deficiencies that impair the department's ability to prepare timely, reliable, and complete financial management information. 2010, the DOD Comptroller issued the FIAR Guidance to implement the FIAR Plan. The FIAR Guidance provides a standardized methodology for DOD components to follow for achieving financial management improvements and auditability. The FIAR Guidance requires DOD components to identify and prioritize their business processes into assessable units, and then prepare a Financial Improvement Plan (FIP) for each assessable unit in accordance with the FIAR Guidance. Many of the procedures required by the FIAR Guidance are consistent with selected procedures for conducting a financial audit, such as testing internal controls and information system controls. In September 2010, we reported that the department needed to focus on implementing its FIAR Plan and that the key to successful implementation would be the efforts of the DOD military components and the quality of their individual FIPs. Pub. L. No.111-84, SS1003(a)(2). components, such as the Army, Navy, and Air Force, are expected to develop and implement FIPs in accordance with the FIAR Guidance. The steps required for these plans include assessing processes, controls, and systems; identifying and correcting weaknesses; assessing, validating, and sustaining corrective actions; and ultimately achieving audit readiness. After a component's management determines that an assessable unit is ready for audit, both the DOD Comptroller and the DOD Inspector General (IG) review the related FIP documentation to determine if they agree with management's conclusion of audit readiness. DOD intends to progress toward achieving financial statement auditability by executing the FIAR Guidance methodology for groups of assessable units across four waves. Under the FIAR Plan, successful execution of the FIAR Guidance methodology for groups of assessable units across these waves is intended to result in the audit readiness of various components' financial statements through fiscal year 2017. The first two waves of the FIAR Plan focus on achieving the DOD Comptroller's interim budgetary priorities, which DOD believes should lead to an auditable SBR. The third wave focuses on accountability for DOD's mission-critical assets, and the fourth wave focuses on the remaining assessable units constituting DOD's complete set of financial statements. As mentioned earlier, the Secretary of Defense directed the department to achieve audit readiness for the SBR for General Fund activities by the end of fiscal year 2014. The NDAA for Fiscal Year 2012 reinforced this directive by requiring that the next FIAR Plan Status Report--to be issued in May 2012--include a plan, with interim objectives and milestones for each military department and the defense agencies, to support the goal of SBR audit readiness by 2014. The NDAA for Fiscal Year 2012 also requires the plan to include process and control improvements and business systems modernization efforts necessary for the department to consistently prepare timely, reliable, and complete financial management information. The SBR is the only financial statement predominantly derived from an entity's budgetary accounts in accordance with budgetary accounting rules, which are incorporated into generally accepted accounting principles (GAAP) for the federal government. The SBR is designed to provide information on authorized budgeted spending authority reported in the Budget of the United States Government (President's Budget), including budgetary resources, availability of budgetary resources, and how obligated resources have been used. In November 1990, DOD created the Defense Finance and Accounting Service (DFAS) as its accounting agency to consolidate, standardize, and integrate finance and accounting requirements, functions, procedures, operations, and systems. The military services continue to perform certain finance and accounting activities at each military installation. These activities vary by military service depending on what the services retained and the number of personnel they transferred to DFAS. As DOD's accounting agency, DFAS is critical to DOD auditability as it records transactions in the accounting records, prepares thousands of reports used by managers throughout DOD and by the Congress, and prepares DOD-wide and service-specific financial statements. The military services play a vital role in that they authorize most of DOD's expenditures and are the source of most of the financial information that DFAS uses to make payroll and contractor payments. The military services also have responsibility for most of DOD's assets and the related information needed by DFAS to prepare annual financial statements required under the CFO Act. To support its operations, DOD performs an assortment of interrelated and interdependent business functions, such as logistics, procurement, health care, and financial management. As we have previously reported, the DOD systems environment that supports these business functions has been overly complex, decentralized, and error prone, characterized by (1) little standardization across the department, (2) multiple systems performing the same tasks and storing the same data, and (3) the need for data to be entered manually into multiple systems. For fiscal year 2012, the department requested about $17.3 billion to operate, maintain, and modernize its business systems. DOD has reported that it relies on 2,258 business systems, including 335 financial management systems, 709 human resource management systems, 645 logistics systems, 243 real property and installation systems, and 281 weapon acquisition management systems. For decades, DOD has been challenged in modernizing its timeworn business systems. Since 1995, GAO has designated DOD's business systems modernization program as high risk. In June 2011, we reported that the modernization program had spent hundreds of millions of dollars on an enterprise architecture and investment management structures that had limited value. As our research on public and private sector organizations has shown, two essential ingredients to a successful systems modernization program are an effective institutional approach to managing information technology (IT) investments and a well defined enterprise architecture. For its business systems modernization, DOD is developing and using a federated business enterprise architecture, which is a coherent family of parent and subsidiary architectures, to help modernize its nonintegrated and duplicative business operations and the systems that support them. Section 1072 of the NDAA for Fiscal Year 2010 requires that programs submitted for approval under DOD's business system investment approach be assessed to determine whether or not appropriate business process reengineering efforts have been undertaken. The act further states that these efforts should ensure that the business process to be supported by the defense business system modernization will be as streamlined and efficient as practicable and the need to tailor commercial off-the-shelf systems to meet unique requirements or incorporate unique interfaces has been eliminated or reduced to the maximum extent practicable. GAO's recent work highlights the types of challenges facing DOD as it strives to attain audit readiness and reengineer its business processes and systems. DOD leadership has committed DOD to the goal of auditable financial statements and has developed FIAR Guidance to provide specific instructions for DOD components to follow for achieving auditability incrementally. The department and its components also established interim milestones for achieving audit readiness for various parts (or assessable units) of the financial statements. These efforts are an important step forward. The urgency in addressing these challenges has been increased by the recent efforts to accelerate audit readiness time frames, in particular attaining audit readiness for the department's SBR by fiscal year 2014. Our September 2011 report highlights the types of challenges DOD may continue to face as it strives to attain audit readiness, including instances in which DOD components prematurely asserted audit readiness and missed interim milestones. Also, DOD's efforts over the past couple of years to achieve audit readiness for some significant SBR assessable units have not been successful. However, these experiences can serve to provide lessons for DOD and its components to consider in addressing the department's auditability challenges. DOD's ability to achieve departmentwide audit readiness is highly dependent on its military components' ability to effectively develop and implement FIPs in compliance with DOD's FIAR Guidance. However, in our September 2011 report, we identified several instances in which the components did not prepare FIPs that fully complied with the FIAR Guidance, resulting in premature assertions of audit readiness. Specifically, as we reported in September 2011, the FIAR Guidance provides a reasonable methodology for the DOD components to follow in developing and implementing their FIPs.responsibilities of the DOD components, and prescribes a standard, systematic approach that components should follow to assess processes, controls, and systems, and identify and correct weaknesses in order to achieve auditability. When DOD components determine that sufficient financial improvement efforts have been completed for an assessable unit in accordance with the FIAR Guidance and that the assessable unit is ready for audit, the FIP documentation is used to support the conclusion of audit readiness. Thus, complying with the FIAR Guidance can provide a consistent, systematic means for DOD components to achieve and verify audit readiness incrementally. It details the roles and We found that when DOD components did not prepare FIPs that fully complied with the FIAR Guidance, they made assertions of audit readiness prematurely and did not achieve interim milestones. While the components initially appeared to meet some milestones by asserting audit readiness in a timely manner, reviews of supporting documentation for the FIPs of two assessable units and attempts to audit the Marine Corps' SBR revealed that the milestones had not been met because the assessable units were not actually ready for audit. For example, the Navy asserted audit readiness for its civilian pay in March 2010 and the Air Force asserted audit readiness for its military equipment in December 2010. However, we reported that neither component had adequately developed and implemented their FIPs for these assessable units in accordance with the FIAR Guidance and were therefore not ready for audit. The Marine Corps first asserted financial audit readiness for its General Fund SBR on September 15, 2008. The DOD IG reviewed the Marine Corps' assertion package and on April 10, 2009, reported that the assertion of audit readiness was not accurate, and that its documentation supporting the assertion was not complete. GAO has made prior recommendations to address these issues. DOD has generally agreed with these recommendations and is taking corrective actions in response. The Secretary of Defense's direction to achieve audit readiness for the SBR by the end of 2014 necessitated that DOD's components revise some of their plans and put more focus on short-term efforts to develop accurate data for the SBR in order to achieve this new accelerated goal. In August 2011, DOD's military components achieved one milestone toward SBR auditability when they all received validation by an independent public accounting firm that their Appropriations Receipt and Distribution--a section of the SBR--was ready for audit. In addition, the November 2011 FIAR Plan Status Report indicated that the Air Force achieved audit readiness for its Fund Balance with Treasury (FBWT). Further, in a February 2012 briefing on its accelerated plans, DOD indicated that 7 of 24 material general fund Defense Agencies and Other Defense Organizations are either already sustaining SBR audits or are ready to have their SBRs audited. These accomplishments represent important positive steps. Nevertheless, achieving audit readiness for the military components' SBRs is likely to pose significant challenges based on the long-standing financial management weaknesses and audit issues affecting key SBR assessable units. Our recent reports highlight some of the difficulties that the components have experienced recently related to achieving an auditable SBR, including the Army's inability to locate and provide supporting documentation for its military pay; the Navy's and the Marine Corps' inability to reconcile their Fund Balance with Treasury accounts; and the Marine Corps' inability to provide sufficient documentation to auditors of its SBR. To achieve SBR audit readiness by 2014, DOD and its components need accelerated, yet feasible, well-developed plans for identifying and correcting weaknesses in the myriad processes involved in producing the data needed for the SBR. While DOD has developed an accelerated FIAR Plan to provide an overall view of the department's approach for meeting the 2014 goal, most of the work must be carried out at the component level. The Army's active duty military payroll, reported at $46.1 billion for fiscal year 2010, made up about 20 percent of its reported net outlays for that year. As such, it is significant to both Army and DOD efforts for achieving auditability for the SBR. For years, we and others have reported continuing deficiencies in the Army's military payroll processes and controls. Moreover, other military components such as the Air Force and the Navy share some of these same military payroll deficiencies. In March 2012, we reported that the Army could not readily identify a DOD's complete population of its payroll accounts for fiscal year 2010. FIAR Guidance states that identifying the population of transactions is a key task essential to achieving audit readiness. However, the Army and DFAS-Indianapolis (DFAS-IN), which is responsible for accounting, disbursing, and reporting for the Army's military personnel costs, did not have an effective, repeatable process for identifying the population of active duty payroll records. For example, it took 3 months and repeated attempts before DFAS-IN could provide a population of service members who received active duty Army military pay in fiscal year 2010. Further, because the Army does not have an integrated military personnel and payroll system, it was necessary to compare the payroll file to active Army personnel records. However, DOD's central repository for information on DOD-affiliated personnel did not have an effective process for comparing military pay account files with military personnel files to identify a valid population of military payroll transactions. In addition, the Army and DFAS-IN were unable to provide documentation to support the validity and accuracy of a sample of fiscal year 2010 payroll transactions we selected for review. For example, DFAS-IN had difficulty retrieving and providing usable Leave and Earnings Statement files and the Army was unable to locate or provide supporting personnel documents for a statistical sample of fiscal year 2010 Army military pay accounts. At the end of September 2011, 6 months after we had provided them with our sample of 250 items, the Army and DFAS-IN were able to provide complete documentation for only 2 of the sample items and provided only partial documentation for another 3 items; they were unable to provide any documentation for the remaining 245 sample items. At of the time of our report, the Army had several military pay audit readiness efforts planned or under way. Timely and effective implementation of these efforts could help reduce the risk of DOD not achieving the SBR audit readiness goal of 2014. However, most of these actions are in the early planning stages. Moreover, these initiatives, while important, do not address (1) establishing effective processes and systems for identifying a valid population of military payroll records, (2) ensuring Leave and Earnings Statement files and supporting personnel documents are readily available for verifying the accuracy of payroll records, (3) ensuring key personnel and other pay-related documents that support military payroll transactions are centrally located, retained in service member Official Military Personnel Files, or are otherwise readily accessible, and (4) requiring the Army's Human Resources Command to periodically review and confirm that service members' Official Military Personnel File records are consistent and complete to support annual financial audit requirements. GAO has made prior recommendations to address these issues. DOD has agreed with these recommendations and is taking corrective actions in response. A successful audit of the SBR is dependent on the ability to reconcile an agency's Fund Balance with Treasury (FBWT) with the Treasury records. FBWT is an account that reflects an agency's available budget spending authority by tracking its collections and disbursements. Reconciling a FBWT account with Treasury records is a process similar in concept to reconciling a check book with a bank statement. In December 2011, we reported that neither the Navy nor the Marine Corps had implemented effective processes for reconciling their FBWT. The Navy and the Marine Corps rely on the DFAS location in Cleveland (DFAS-CL) to perform their FBWT reconciliations. We found numerous deficiencies in DFAS processes that impair the Navy's and the Marine Corps' ability to effectively reconcile their FBWT with Treasury records, including the following. There are significant data reliability issues with the Defense Cash Accountability System (DCAS), which records daily collections and disbursements activity. The Navy and Marine Corps rely on DCAS to reconcile their FBWT to Treasury records. DFAS-CL did not maintain adequate documentation for the sample items we tested to enable an independent evaluation of its efforts to research and resolve differences. DFAS-CL recorded unsupported entries (plugs) to force Navy and Marine Corps appropriation balances to agree with those reported by Treasury instead of investigating and resolving differences between these two services' appropriation balances and those maintained by Treasury. Navy, Marine Corps, and DFAS-CL officials acknowledged that existing FBWT policies and procedures were inadequate. Navy and DFAS-CL officials stated that the base realignment and closure changes from 2006 through 2008 resulted in loss of experienced DFAS-CL personnel and that remaining staff have not received the needed training. In response to our recommendations, the Navy developed a plan of action and milestones (POAM) intended to address the Navy's audit readiness weaknesses, including FBWT required reconciliations. The Marine Corps received disclaimers of opinion from its auditors on its fiscal year 2010 and 2011 SBRs because it could not provide supporting documentation in a timely manner, and support for transactions was missing or incomplete. Further, the Marine Corps had not resolved significant accounting and information technology (IT) system weaknesses identified in the fiscal year 2010 SBR audit effort. The auditors also reported that the Marine Corps did not have adequate processes and controls, including systems controls, for accounting and reporting on the use of budgetary resources. Further, the Marine Corps could not provide evidence that reconciliations for key accounts (such as FBWT) and processes were being performed on a monthly basis. The auditors also identified ineffective controls in key IT systems used by the Marine Corps to process financial data. During fiscal year 2011, however, the Marine Corps was able to demonstrate progress toward auditability. For example, its auditors confirmed that as of October 2011, the Marine Corps had fully implemented 32 out of 139 fiscal year 2010 audit recommendations. The results of the audit for fiscal year 2010 provided valuable lessons on preparing for a first-time financial statement audit. In our September 2011 report, we identified five fundamental lessons that are critical to success. Specifically, the Marine Corps' experience demonstrated that prior to asserting financial statement audit readiness, DOD components must (1) confirm completeness of populations of transactions and address any abnormal transactions and balances, (2) test beginning balances, (3) perform key reconciliations, (4) provide timely and complete responses to audit documentation requests, and (5) verify that key IT systems are compliant with the Federal Financial Management Improvement Act of 1996 and are auditable. GAO has made prior recommendations to address these issues. DOD has generally agreed with these recommendations and is taking corrective actions in response. These issues are addressed in GAO's Standards for Internal Control in the Federal Government and DOD's FIAR Guidance. During our audit, Navy, Army, and Air Force FIP officials stated that they were aware of the Marine Corps lessons and were planning to, or had, incorporated them to varying degrees into their audit readiness plans. In its November 2011 FIAR Plan, DOD provided an overall view of its accelerated FIAR Plan for achieving audit readiness of its SBR by the end of fiscal year 2014. In its February 2012 briefing, DOD recognized key factors that are needed to achieve auditability such as the consistent involvement of senior leadership as well as the buy-in of field commanders who ultimately must implement many of the changes needed. The plan also provided interim milestones for DOD components such as the Army, Navy, Air Force, Defense Logistics Agency, and other defense agencies. Acceleration substantially compresses the time allotted for achieving some of these milestones. For example, the May 2011 FIAR Plan Status Report indicated that the Air Force had planned to validate its audit readiness for many SBR-related assessable units in fiscal year 2016 and that its full SBR would not be ready for audit until 2017. However, the February 2012 briefing on the accelerated plans indicated that most of the Air Force's SBR assessable units will be audit-ready in fiscal years 2013 or 2014. These revised dates reflect the need to meet the expedited audit readiness goal of 2014. (See figure 2.) As discussed earlier, the key to audit readiness is for DOD components to effectively develop and implement FIPs for SBR assessable units, and to meet interim milestones as they work toward the 2014 goal. According to Navy officials, the Navy plans to prepare a FIP for each of several assessable units that make up the SBR. For example, for its SBR, Navy officials told us they have identified assessable units for appropriations received, and for various types of expenditures for which funds are first obligated and then disbursed, such as military pay, civilian pay, contracts, and transportation of people. The Air Force will prepare FIPs for assessable units similar to those of the Navy. Army officials told us they are taking a different approach from the Navy. They said that instead of developing FIPs for discrete assessable units constituting the SBR, they are preparing only one FIP for one audit readiness date for the Army's entire SBR, an approach similar to that of the Marine Corps. For years, DOD has been developing and implementing enterprise resource planning (ERP) systems, which are intended to be the backbone to improved financial management. DOD considers the successful implementation of these ERP systems critical to transforming its business operations and addressing long-standing weaknesses in areas such as financial and supply-chain management and business systems modernization. DOD officials have also stated that these systems are critical to ensuring the department meets its mandated September 30, 2017, goal to have auditable departmentwide financial statements. However, as we recently reported, six of these ERP systems are not scheduled to be fully deployed until either fiscal year 2017 or the end of fiscal year 2016. The DOD IG reported that the Navy developed and approved deployment of the Navy ERP System without ensuring that the system complied with DOD's Standard Financial Information Structure (SFIS) and the U.S. Government Standard General Ledger. The DOD IG further stated that as a result, the Navy ERP System, which is expected to manage 54 percent of the Navy's obligation authority when fully deployed, might not produce accurate and reliable financial information. DOD Inspector General, Navy Enterprise Resource Planning System Does Not Comply With the Standard Financial Information Structure and U.S. Government Standard General Ledger, DODIG-2012-051 (Arlington, Va.: Feb. 13, 2012). Two ERP systems--the Army's General Fund Enterprise Business System (GFEBS) and the Air Force's Defense Enterprise Accounting and Management System (DEAMS)--are general ledger systems intended to support a wide range of financial management and accounting functions. However, DFAS users of these systems told us that they were having difficulties using the systems to perform their daily operations. Problems identified by DFAS users included interoperability deficiencies between legacy systems and the new ERP systems, lack of query and ad hoc reporting capabilities, and reduced visibility for tracing transactions to resolve accounting differences. For example: Approximately two-thirds of invoice and receipt data must be manually entered into GFEBS from the invoicing and receiving system due to interface problems. Army officials explained that the primary cause of the problem was that the interface specification that GFEBS is required by DOD to use did not provide the same level of functionality as the interface specification used by the legacy systems. At the time of our review, Army officials stated that they are working with DOD to resolve the problem, but no time frame for resolution had been established. DEAMS did not provide the capability--which existed in the legacy systems--to produce ad hoc query reports that could be used to perform data analysis needed for day-to-day operations. DFAS officials noted that when DEAMS did produce requested reports, the accuracy of those reports was questionable. According to DFAS officials, they are currently working with DEAMS financial management to design the type of reports that DFAS needs. While we were told that as of February 2012, the Army and the Air Force had corrective actions under way to address identified deficiencies, specific timelines had not been developed so that progress could be monitored. In February 2012, we reported that independent assessments of four ERPs--the Army's GFEBS and Global Combat Support System (GCSS- Army), and the Air Force's DEAMS and Expeditionary Combat Support System (ECSS)--identified operational problems, such as deficiencies in data accuracy, inability to generate auditable financial reports, the need for manual workarounds, and training. DOD oversight authority limited the deployment of GFEBS and DEAMS on the basis of the results of the independent assessments. However, in June 2011, DOD authorized continued deployment of GFEBS and delegated further GFEBS deployment decisions to the Under Secretary of the Army. In addition to functional issues, we found that training was inadequate. According to DFAS personnel as of February 2012, the training they received for GFEBS and DEAMS did not fully meet their needs. DFAS personnel informed us that the training focused on an overview of GFEBS and DEAMS and how the systems were supposed to operate. While this was beneficial in identifying how GFEBS and DEAMS were different from the existing legacy systems, the training focused too much on concepts rather than the skills needed for DFAS users to perform their day-to-day operations. GAO has made prior recommendations to address these issues. DOD has generally agreed with these recommendations and is taking corrective actions in response. Improving the department's business environment through efforts such as DOD's business enterprise architecture and improved business systems management is an important part of helping DOD achieve auditability. In June 2011, we reported that DOD had continued to make progress in implementing a comprehensive business enterprise architecture, transition plan, and improved investment control processes. However, we also reported that long-standing challenges had yet to be addressed. Specifically, we reported that while DOD continued to release updates to its corporate enterprise architecture, the architecture had yet to be augmented by a coherent family of related subsidiary architectures.example, we reported that while each of the military departments had developed aspects of a business architecture and transition plan, none of them had fully developed a well-defined business enterprise architecture For and transition plan to guide and constrain business transformation initiatives. We also reported in June 2011 that DOD continued to improve its business system investment management processes, but that much remained to be accomplished to align these processes with investment management practices associated with individual projects and with portfolios of projects. military departments all had documented policies and procedures for identifying and collecting information about IT projects and systems to support their business system investment management processes. However, neither DOD nor the military departments had fully documented policies and procedures for selecting a new investment, reselecting ongoing investments, integrating funding with investment selection, or management oversight of IT projects and systems. With regard to portfolios of projects, DOD and the Departments of the Air Force and Navy had assigned responsibility for managing the development and modification of IT portfolio selection criteria. However, neither DOD nor the military departments had fully documented policies and procedures for creating and modifying IT portfolio selection criteria; analyzing, selecting, and maintaining their investment portfolios; reviewing, evaluating, and improving the performance of their portfolios; or conducting post implementation reviews. In addition, while DOD largely followed its certification and oversight processes, we reported that key steps were not performed. For example, as part of the certification process, DOD assessed investment alignment with the business enterprise architecture, but did not validate the results of this assessment, thus increasing the risk that decisions regarding certification would be based on inaccurate and unreliable information. These best practices are identified in GAO IT investment management guidance. See GAO, Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity, GAO-04-394G (Washington, D.C.: Mar. 2004). management.and is taking corrective actions in response. It is essential that DOD implement our recommendations aimed at addressing these long- standing challenges, as doing so is critical to the department's ability to establish the full range of institutional management controls needed for its financial management as well as its overall business systems modernization high-risk program. We have ongoing work to evaluate the department's efforts to comply with the NDAA for Fiscal Year 2012, as amended, including updating our evaluations of DOD's comprehensive business enterprise architecture and transition plan and improved investment control processes. Section 1072 of the NDAA for Fiscal Year 2010 requires that new DOD programs be assessed to determine whether or not appropriate business- process reengineering efforts have been undertaken. The act further states that these efforts should ensure that (1) the business process to be supported by the defense business system modernization will be as streamlined and efficient as practicable and (2) the need to tailor commercial-off-the-shelf systems to meet unique requirements or incorporate unique interfaces has been eliminated or reduced to the maximum extent practicable.investments we reviewed, DOD and the military departments used DOD's Business Process Reengineering Guidance (dated April 2011) to assess In June 2011, we reported that, for those whether the investments complied with the business-process reengineering requirement. Consistent with the guidance, DOD and the military departments completed questionnaires to help them identify and develop approaches to streamlining and improving existing business processes. Once these assessments had been completed, the appropriate authorities asserted that business-process reengineering assessments had been performed. We also reported in June 2011 that while DOD and the military departments largely followed DOD's guidance, they did not perform the key step of validating the results of these reengineering assessments to ensure that they, among other things, accurately assessed process weaknesses and identified opportunities to streamline and improve affected processes. The reason DOD did not follow key aspects of the certification process--primarily not validating assessment results--was attributed in part to unclear roles and responsibilities. According to military department officials responsible for the investments we reviewed, validation activities did not occur because DOD policy and guidance did not explicitly require them to be performed. In addition, there was no guidance that specified how assessments should be validated. According to DOD officials, the oversight and designated approval authorities did not validate the DOD level assessments and assertions because DOD policy and guidance had not yet been revised to require these authorities to do so. We have work underway to evaluate DOD's efforts to improve its business system investment process, including its efforts to address the act's business process reengineering requirement. GAO has made prior recommendations to address these issues. DOD has agreed with these recommendations and is taking corrective actions in response. In closing, DOD has demonstrated leadership and sustained commitment since the first issuance of its FIAR Plan in 2005 and through improvements and responsiveness to our recommendations since then. DOD has made progress through the FIAR Guidance, with the development of a methodology for implementing the FIAR strategy. Full compliance with the guidance can provide a consistent, systematic process to help DOD components achieve and verify audit readiness. Without full compliance, as we have seen in our work, components may assert audit readiness while process deficiencies prevent validation, require corrective actions, and delay an audit for another fiscal year. Automated information systems are essential for modern accounting and recordkeeping. DOD is developing its ERP systems as the backbone of its financial management improvement and they are critical for transforming its business operations. To be fully successful, implementation of ERP systems should be consistent with an effective corporate enterprise architecture and the development of streamlined business processes. DOD officials have stated that these systems are critical to ensuring that the department meets its mandated September 30, 2017, goal to have auditable departmentwide financial statements. However, implementation has been delayed by deficiencies in performance and the need for remedial corrective actions. DOD components will evaluate cost-effective modifications to legacy systems and implement any necessary changes. According to DOD officials, for the ERP systems that will not be fully deployed prior to the audit readiness goals, the DOD components will need to identify effective workaround processes or modifications to legacy systems that will enable audit readiness. DOD faces considerable implementation challenges and has much work to do if it is to meet the goals of an auditable SBR by fiscal year 2014 and a complete set of auditable financial statements by fiscal year 2017. It is critical that DOD continue to build on its current initiatives. Oversight and monitoring will also play a key role in making sure that DOD's plans are implemented as intended and that lessons learned are identified and effectively disseminated and addressed. Absent continued momentum and necessary future investments, the current initiatives may falter, similar to previous well-intended, but ultimately failed, efforts. We will continue to monitor the progress and provide feedback on the status of DOD's financial management improvement efforts. We currently have work in progress to assess (1) the FIAR Plan's risk management process for identifying, assessing, and addressing risks that may impede DOD's ability to achieve the 2017 financial audit readiness goal; (2) DOD's funds control in relation to the reliability of its financial statements; (3) the schedule and cost of Army's GCSS; (4) components' efforts to prepare for SBR and full financial statement audits; and (5) DOD's actions in response to our recommendations. As a final point, I want to emphasize the value of sustained congressional interest in the department's financial management improvement efforts, as demonstrated by this subcommittee's leadership. Chairman McCaskill, Ranking Member Ayotte, and members of the subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff have any questions about this testimony please contact me at (202) 512-9869 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. GAO staff who made key contributions to this testimony include Valerie Melvin, Director; Cindy Brown Barnes, Assistant Director; Mark Bird, Assistant Director; Kristi Karls; Michael Holland, Chris Yfantis, and Maxine Hattery. 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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Over the years, the Department of Defense (DOD) has initiated several efforts intended to improve its financial management operations and ultimately achieve an unqualified (clean) opinion on its financial statements. These efforts have fallen short of sustained improvement in financial management and financial statement auditability. In this statement, GAO provides its assessment of DOD's progress toward: (1) producing an auditable Statement of Budgetary Resources (SBR) by fiscal year 2014 and a complete set of auditable financial statements by fiscal year 2017, including the development of interim milestones for both aforementioned audit readiness goals; (2) acquiring and implementing new enterprise resource programs and other critical financial management systems; (3) reengineering business processes and instituting needed controls; and (4) implementing a comprehensive business enterprise architecture and transition plan, and improved investment control processes. This statement is primarily based on GAO's prior work related to the department's efforts to achieve audit readiness, implement modern business systems, and reengineer its business processes. GAO also obtained and compared key milestones in a February 2012 DOD briefing on its updated plans to accelerate achieving SBR auditability with the May 2011 Financial Improvement and Audit Readiness plan but did not independently verify the updated information in the February 2012 briefing. GAO's recent work highlights the types of challenges facing the Department of Defense (DOD) as it strives to attain audit readiness and reengineer its business processes and systems. The urgency in addressing these challenges has been increased by the goals of an auditable DOD Statement of Budgetary Resources (SBR) by the end of fiscal year 2014 and a complete set of auditable financial statements by the end of fiscal year 2017. For example, GAO's 2011 reporting highlights difficulties the DOD components experienced in attempting to achieve an auditable SBR. These include: tthe Navy's and the Air Force's premature assertions of audit readiness and missed interim milestones; the Army's inability to locate and provide supporting documentation for its military pay; the Navy's and Marine Corps' inability to reconcile their Fund Balance with Treasury (FBWT) accounts; and the Marine Corps' inability to receive an opinion on both its fiscal years 2010 and 2011 SBRs because it could not provide supporting documentation in a timely manner, and support for transactions was missing or incomplete. In a February 2012 briefing on its updated plans, DOD accelerated milestones for its components --in some cases, significantly--to accomplish the 2014 SBR goal. For example, the Air Force had planned to validate its audit readiness for many SBR-related items in fiscal year 2016; however, the department's February 2012 accelerated plans show that most of the Air Force's SBR line items will be audit-ready in fiscal years 2013 or 2014. Also, in its February 2012 update DOD shows that 7 of 24 material general fund Defense Agencies and Other Defense Organizations have either already had SBR audits or are ready to have their SBRs audited, which represent important positive steps. DOD has stated it considers the successful implementation of its enterprise resource planning (ERP) systems critical to transforming its business operations, addressing long-standing weaknesses, and ensuring the department meets its mandated September 30, 2017 auditability goals. However, in 2011, GAO reported that independent assessments of two of these systems--the Army's and Air Force's new general ledger systems--identified operational problems, gaps in capabilities that required manual workarounds, and training that was not focused on system operation. Moreover, users of these systems had difficulties using these systems to perform daily operations. GAO also reported in 2011 on numerous weaknesses in DOD's enterprise architecture and business processes that affect DOD's auditability. For example, while DOD continued to update its corporate enterprise architecture, it had not yet augmented its corporate architecture with complete, coherent subsidiary architectures for DOD components such as the military departments. Also, while DOD and the military departments largely followed DOD's Business Process Reengineering Guidance to assess business system investments, they had not yet performed the key step of validating assessment results. GAO has made prior recommendations to address these issues. DOD has generally agreed with these recommendations and is taking corrective actions in response. GAO has work underway to evaluate DOD's continuing efforts in these areas.
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The Army's conversion to a modular force encompasses the Army's total force--active Army, Army National Guard, and Army Reserve--and directly affects not only the Army's combat units, but related command and support organizations. A key to the Army's new modular force design is embedding within combat brigades battalion-sized, reconnaissance, logistics, and other support units that previously made up parts of division-level and higher-level command and support organizations, allowing the brigades to operate independently. Restructuring these units is a major undertaking because it requires more than just the movement of personnel or equipment from one unit to another. The Army's new modular units are designed, equipped, and staffed differently than the units they replace; therefore successful implementation of this initiative will require changes such as new equipment and a different mix of skills and occupational specialties among Army personnel. By 2011, the Army plans to have reconfigured its total force--to include active and reserve components and headquarters, combat, and support units--into the modular design. The foundation of the modular force is the creation of modular brigade combat teams--combat maneuver brigades that will have a common organizational design and will increase the rotational pool of ready units. Modular combat brigades will have one of three standard designs--heavy brigade combat team, infantry brigade combat team, and Stryker brigade combat team. Until it revised its plans in March 2006, the Army had planned to have a total of 77 active component and National Guard modular combat brigades by expanding the existing 33 combat brigades in the active component into 43 modular combat brigades by 2007, and by creating 34 modular combat brigades in the National Guard by 2010 from existing brigades and divisions that have historically been equipped well below requirements. To rebalance joint ground force capabilities the 2006 QDR determined the Army should have a total of 70 modular combat brigades--42 active brigades and 28 National Guard brigades. Also in March 2006, the Army was in the process of revising its modular combat brigade conversion schedule; it now plans to convert its active component brigades by fiscal year 2010 instead of 2007 as previously planned, and convert National Guard brigades by fiscal year 2008 instead of 2010. As of March 2006 the Army had completed the conversion of 19 active component brigades to the modular design and was in the process of converting 2 active and 7 National Guard brigades. Table 1 shows the Army's schedule as of March 2006 for creating active component and National Guard modular combat brigades. According to the Army, this larger pool of available combat units will enable it to generate both active and reserve component forces in a rotational manner that will support 2 years at home following each deployed year for active forces. To do this, the Army has created a rotational force generation model in which units rotate through a structured progression of increased unit readiness over time. Units will progress through three phases of operational readiness cycles, culminating in full mission readiness and availability to deploy. The Army's objective is for the new modular combat brigades, which will include about 3,000 to 4,000 personnel, to have at least the same combat capability as a brigade under the current division-based force, which range from 3,000 to 5,000 personnel. Since there will be more combat brigades in the force, the Army believes its overall combat capability will be increased as a result of the restructuring, providing added value to combatant commanders. Although somewhat smaller in size, the new modular combat brigades are expected to be as capable as the Army's existing brigades because they will have different equipment, such as advanced communications and surveillance equipment, and a different mix of personnel and support assets. The Army's organizational designs for the modular brigades have been tested by its Training and Doctrine Command's Analysis Center against a variety of scenarios, and the Army has found the new designs to be as capable as the existing division-based brigades in modeling and simulations. The Army's cost estimate for modularity has continued to evolve since our September 2005 report. As we reported, the Army's cost estimate for transforming its force through fiscal year 2011 increased from $28 billion in the summer of 2004 to $48 billion in the spring of 2005. The latter estimate addressed some of the shortcomings of the initial rough order of magnitude estimate and included lessons learned from operations in Iraq. For example, it included costs of restructuring the entire force, to include 77 brigade combat teams, as well as the creation of support and command units. However, it excluded some known costs. For example, the $48 billion estimate did not include $4.5 billion in construction costs the Army plans to fund through business process engineering efficiencies, which historically have been difficult to achieve. The Army added these costs when it revised its cost estimate in March 2006, bringing the most recent total to $52.5 billion. As shown in table 2, most of the planned funding for modularity--$41 billion, or about 78 percent--will be used to procure equipment, with the remaining funds divided between military construction and facilities and sustainment and training. In addition, Army leaders have recently stated they may seek additional funds after 2011 to procure additional equipment for modular restructuring. In our September report, we highlighted uncertainties related to force design, equipment, facilities, and personnel that could drive costs higher. Some of these uncertainties have been clarified. For example, we noted that costs in equipment and facilities would increase significantly if the Secretary of Defense decided to add 5 brigades to the Army's active component to create a total of 48 brigade combat teams--a decision that was scheduled to be made in fiscal year 2006. The decision about the number of brigades was made based on the QDR. Instead of a 5 brigade combat team increase, the report stated that the Army would create a total of 42 such brigades in the active component, a 1 brigade combat team reduction from the Army's plan. In addition, the number of National Guard brigade combat teams was reduced from 34 to 28. In sum, the QDR decisions reduced the number of planned brigade combat teams from 77 to 70. However, Army officials stated that the Army plans to fully staff and equip these units. Moreover, Army officials told us that the Army plans to use resources freed up by this decision to increase support units in the reserve component and to fund additional special operations capability in the active component. We also noted in our September 2005 report that the Army had not completed designs for all the support units at the time the estimate was set. According to Army officials, these designs have been finalized. Despite these refinements to the design and changes to the planned number of combat and support brigades, the Army has not made revisions to its $52.5 billion cost estimate or funding plan based on these changes. Moreover, as I will discuss shortly, uncertainty remains in the Army's evolving strategy for equipping its modular combat brigades. As a result, based on discussions with Army officials, it remains unclear to what extent the $41 billion will enable the Army to equip units to levels in the Army's tested design. In addition, it is not clear how the Army will distinguish between modularity, costs associated with restoring equipment used in operations, or modernizing equipment. In estimating its equipment costs for modularity, the Army assumed that some equipment from ongoing operations would remain in operational condition for redistribution to new and restructured modular units. To the extent equipment is not returned from operations at assumed rates, it is not clear how this will affect equipping levels of modular units or how the Army would pay for such equipment. As a result, the Secretary of Defense and Congress may not be in a sound position to weigh competing demands for funding and assess whether the Army will be able to fully achieve planned capabilities for the modular force by 2011 within the planned funding level. The Army has made progress in creating active component modular combat brigades, but it is not meeting its equipping goals for these brigades and is still developing its overall equipping strategy, which raises concerns about the extent to which brigades will be equipped in the near and longer term. While active brigades are receiving significant amounts of new equipment, Army officials indicated that they may seek additional funding for equipment beyond 2011. Moreover, brigades will initially lack key equipment, including items that provide enhanced intelligence, situational awareness, and network capabilities needed to help the Army achieve its planned capabilities of creating a more mobile, rapidly deployable, joint, expeditionary force. In addition, because of existing equipment shortages, the Army National Guard will likely face even greater challenges providing the same types of equipment for its 28 planned modular combat brigades. To mitigate equipment shortages, the Army plans to provide priority for equipment to deploying active component and National Guard units but allocate lesser levels of remaining equipment to other nondeploying units based on their movement through training and readiness cycles. However, the Army has not yet determined the levels of equipment it needs to support this strategy, assessed the operational risk of not fully equipping all units, or provided to Congress detailed information about these plans so it can assess the Army's current and long-term equipment requirements and funding plans. The Army faces challenges meeting its equipping goals for its modular brigades both in the near and longer term. As of February 2006, the Army had converted 19 modular combat brigades in the active force. According to the Army Campaign Plan, which established time frames and goals for the modular force conversions, each of these units individually is expected to have on hand at least 90 percent of its required major equipment items within 180 days after its new equipment requirements become effective. We reviewed data from several brigades that had reached the effective date for their new equipment requirements by February 2006, and found that all of these brigades reported significant shortages of equipment 180 days after the effective date of their new equipment requirements, falling well below the equipment goals the Army established in its Campaign Plan. Additionally, the Army is having difficulty providing equipment to units undergoing their modular conversion in time for training prior to operational deployments, and deploying units often do not receive some of their equipment until after their arrival in theater. At the time of our visits, officials from three Army divisions undergoing modular conversion expressed concern over the lack of key equipment needed for training prior to deployment. The Army already faced equipment shortages before it began its modular force transformation and is wearing out significant quantities in Iraq, which could complicate plans for fully equipping new modular units. By creating modular combat brigades with standardized designs and equipment requirements, the Army believed that it could utilize more of its total force, thereby increasing the pool of available and ready forces to meet the demands of sustained rotations and better respond to an expected state of continuous operations. Also, by comparably equipping all of these units across the active component and National Guard, the Army further believes it will be able to discontinue its practice of allocating limited resources, including equipment, based on a system of tiered readiness, which resulted in lower-priority units in both active and reserve components having significantly lower levels of equipment and readiness than the higher priority units. However, because of the need to establish a larger pool of available forces to meet the current high pace of operational commitments, the Army's modular combat brigade conversion schedule is outpacing the planned acquisition or funding for some equipment requirements. The Army has acknowledged that funding does not match its modular conversion schedule and that some units will face equipment shortages in the early years of transformation. The Army says it will manage these shortfalls; however, according to Army officials, the Army may continue to seek modular force equipment funding beyond 2011 and may exceed its $52.5 billion modularity cost estimate. Active modular combat brigades will initially lack required numbers of some of the key equipment that Army force design analyses determined essential for achieving their planned capabilities. Army force designers identified a number of key organizational, personnel, and equipment enablers they determined must be present for the modular combat brigades to be as lethal as the division-based brigades they are replacing, achieve their expected capabilities, and function as designed. Essential among these is the equipment that will enable the modular combat brigades to function as stand-alone, self-sufficient tactical forces, capable of conducting and sustaining operations on their own if required without also deploying large numbers of support forces. They include battle command systems to provide modular combat brigades the latest command and control technology for improved situational awareness; advanced digital communications systems to provide secure high-speed communications links; and advanced sensors, providing modular combat brigades their own intelligence-gathering, reconnaissance, and target acquisition capabilities. We reviewed several command and control, communications, and reconnaissance systems to determine the Army's plans and timelines for providing active modular combat brigades some of the key equipment they need to achieve their planned capabilities and function as designed. According to Army officials responsible for managing the distribution and fielding of equipment, in 2007 when 38 of 42 active component modular combat brigades are to complete their modular conversions, the Army will not have all of this equipment onhand to meet the new modular force design requirements. These shortfalls are due to a range of reasons, but primarily because the modular conversion schedule is outpacing the planned acquisition or funding. For example, the Army does not expect to meet until at least 2012 its modular combat brigade requirements for Long- Range Advanced Scout Surveillance Systems, an advanced visual sensor that provides long-range surveillance capability to detect, recognize, and identify distant targets. In addition, because of an Army funding decision, the Army only plans to meet 85 percent of its requirements across the force for Single Channel Ground and Airborne Radio Systems, a command and control network radio system that provides voice and data communications capability in support of command and control operations. Finally, a recent DOD decision could set back the Army's schedule for the acquisition of Joint Network Node, a key communications system that provides secure high-speed computer network connection for data transmission down to the battalion level, including voice, video, and e- mail. According to Army officials, DOD recently decided to require the Army to have Joint Network Node undergo developmental and operational testing prior to further acquisition, which could delay equipping active and National Guard modular combat brigades. In addition to the challenges the Army faces in providing active component modular combat brigades the equipment necessary for meeting expected capabilities, the Army will face greater challenges meeting its equipping requirements for its 28 planned National Guard combat brigades. The Army's modular force concept is intended to transform the National Guard from a strategic standby force to a force that is to be organized, staffed, and equipped comparable to active units for involvement in the full range of overseas operations. As such, Guard combat units will enter into the Army's new force rotational model in which, according to the Army's plans, Guard units would be available for deployment 1 year out of 6 years. However, Guard units have previously been equipped at less than wartime readiness levels (often at 65 to 75 percent of requirements) under the assumption that there would be sufficient time for Guard forces to obtain additional equipment prior to deployment. Moreover, as of July 2005, the Army National Guard had transferred more than 101,000 pieces of equipment from nondeploying units to support Guard units' deployments overseas. As we noted in our report last year on National Guard equipment readiness, National Guard Bureau officials estimated that the Guard's nondeployed units had only about 34 percent of their essential warfighting equipment as of July 2005 and had exhausted inventories of 220 critical items. Although the Army says it plans to invest $21 billion into equipping and modernizing the Guard through 2011, Guard units will start their modular conversions with less and much older equipment than most active units. This will add to the challenge the Army faces in achieving its plans and timelines for equipping Guard units at comparable levels to active units and fully meeting the equipping needs across both components. Moreover, the Army National Guard believes that even after the Army's planned investment, the Army National Guard will have to accept risk in certain equipment, such as tactical wheeled vehicles, aircraft, and force protection equipment. Because the Army realized that it would not have enough equipment in the near term to simultaneously equip modular combat brigades at 100 percent of their requirements, the Army is developing a new equipping strategy as part of its force rotation model; however, it has not yet determined equipping requirements for this new strategy. Under the force rotation model, the Army would provide increasing amounts of equipment to units as they move through training phases and near readiness for potential deployment so they would be ready to respond quickly if needed with fully equipped forces. The Army believes that over time, equipping units in a rotational manner will enable it to better allocate available equipment and help manage risk associated with specific equipment shortages. Under this strategy, brigades will have three types of equipment sets--a baseline set, a training set, and a deployment set. The baseline set would vary by unit type and assigned mission and the equipment it includes could be significantly reduced from the amount called for in the modular brigade design. Training sets would include more of the equipment units will need to be ready for deployment, but units would share the equipment that would be located at training sites throughout the country. The deployment set would include all equipment needed for deployment, including theater- specific equipment, high-priority items provided through operational needs statements, and equipment from Army prepositioned stock. With this cyclical equipping approach, the Army believes it can have from 12 to 16 active combat brigades and from 3 to 4 Army National Guard combat brigades equipped and mission ready at any given time. However, the Army has not yet determined equipping requirements for units as they progress through the rotational cycles. While the Army has developed a general proposal to equip both active and Army National Guard units according to the readiness requirements of each phase of the rotational force model, it has not yet detailed the types and quantities of items required in each phase. We noted in our October 2005 report on Army National Guard equipment readiness that at the time of the report, the Army was still developing the proposals for what would be included in the three equipment sets and planned to publish the final requirements in December 2005. However, as of March 2006 the Army had not decided on specific equipping plans for units in the various phases of its force rotation model. Because the Army is early in the development of its rotational equipping strategy and has not yet defined specific equipping plans for units as they progress through rotational cycles, the levels of equipment the deploying and nondeploying units would receive are currently not clear. Therefore, it is difficult to assess the risk associated with decreasing nondeploying units' readiness to perform other missions or the ability of units in the earlier stages of the rotational cycle to respond to an unforeseen crisis if required. The Army has made some progress meeting modular personnel requirements in the active component by shifting positions from its noncombat force to its operational combat force but faces significant challenges reducing its overall end strength while increasing the size of its modular combat force. The Army plans to reduce its current end strength of 512,400, based upon a temporary authorized increase, to 482,400 soldiers by 2011 in order to help fund the Army's priority acquisition programs. Simultaneously, the Army plans to increase the number of soldiers in its combat force from approximately 315,000 to 355,000 in order to meet the increased personnel requirements of its new larger modular force structure. The Army plans to utilize several initiatives to reduce and realign the Army with the aim of meeting these planned manpower levels. For example, the Army has experienced some success in converting nonoperational military positions into civilian positions, thereby freeing up soldiers to fill modular combat brigades' requirements. During fiscal year 2005, the Army converted approximately 8,000 military positions to civilian-staffed positions within the Army's institutional force. However, officials believe additional conversions will be more challenging to achieve. In addition to its success with the military-to-civilian conversions, the Army has been given statutory authority to reduce active personnel support to the National Guard and Reserves by 1,500. However, the Army must still eliminate additional positions, utilizing these and other initiatives, so it can reduce its overall end strength while filling requirements for modular units. While the Army is attempting to reduce end strength and realign positions to the combat force via several initiatives, it may have difficulty meeting its expectations for some initiatives. For example, the Army expected that the Base Realignment and Closure (BRAC) decisions of 2005 could free up approximately 2,000 to 3,000 positions in the institutional Army, but the Army is revisiting this assumption based upon updated manpower levels at the commands and installations approved for closure and consolidation. Army officials believe they will be able to realign some positions from BRAC, but it is not clear whether the reductions will free up 2,000 to 3,000 military personnel. In the same vein, Army officials expected to see reductions of several hundred base support staff resulting from restationing forces currently overseas back to garrisons within the United States. However, Army officials are still attempting to determine if the actual savings will meet the original assumptions. In addition, the Army's new modular force structure increases requirements for military intelligence specialists, but according to Army officials the Army will not be able to fully meet these requirements. The modular force requires the Army to adjust the skill mix of its operational force by adding 8,400 active component intelligence specialist positions to support its information superiority capability--considered a key enabler of modular force capabilities. However, the Army plans to fill only about 57 percent of these positions by 2013 in part because of efforts to reduce overall end strength. According to Army officials, despite these shortfalls, intelligence capability has improved over that of the previous force; however, shortfalls in filling intelligence requirements have stressed intelligence specialists with a high tempo of deployments. However, since intelligence was considered a key enabler of the modular design--a component of the new design's improved situational awareness--it is unclear how this shortage in planned intelligence capacity will affect the overall capability of modular combat brigades. If the Army is unable to transfer enough active personnel to its combat forces while simultaneously reducing its overall end strength, it will be faced with a difficult choice. The Army could accept increased risk to its operational units or nonoperational units that provide critical support, such as training. Alternatively, the Army could ask DOD to seek an end strength increase and identify funds to pay for additional personnel. However, DOD is seeking to reduce end strength in all the services to limit its personnel costs and provide funds for other priorities. The Army lacks a comprehensive and transparent approach to effectively measure its progress against stated modularity objectives, assess the need for further changes to its modular unit designs, and monitor implementation plans. GAO and DOD, among others, have identified the importance of establishing objectives that can be translated into measurable, results- oriented metrics, which in turn provide accountability for results. In a 2003 report we found that the adoption of a results-oriented framework that clearly establishes performance goals and measures progress toward those goals was a key practice for implementing a successful transformation. DOD has also recognized the need to develop or refine metrics so it can measure efforts to implement the defense strategy and provide useful information to senior leadership. The Army considers the Army Campaign Plan to be a key document guiding the modular restructuring. The plan provides broad guidelines for modularity and other program tasks across the entire Army. However, modularity-related metrics within the plan are limited to a schedule for creating modular units and an associated metric of achieving unit readiness goals for equipment training and personnel by certain dates after unit creation. Moreover, a 2005 assessment by the Office of Management and Budget identified the total number of brigades created as the only metric the Army has developed for measuring the success of its modularity initiative. Another key planning document, the 2005 Army Strategic Planning Guidance, identified several major expected advantages of modularity, including an increase in the combat power of the active component force by at least 30 percent, an increase in the rotational pool of ready units by at least 50 percent, the creation of a deployable joint- capable headquarters, a force design upon which the future network- centric developments can be readily applied, and reduced stress on the force through a more predictable deployment cycle. However, these goals have not translated into outcome-related metrics that are reported to provide decision makers a clear status of the modular restructuring as a whole. Army officials stated that unit creation schedules and readiness levels are the best available metrics for assessing modularity progress because modularity is a reorganization encompassing hundreds of individual procurement programs that would be difficult to collectively assess in a modularity context. While we recognize the complexity of the modular restructuring, we also note that without clear definitions of metrics, and periodic communication of performance against these metrics, the Secretary of Defense and Congress will have difficulty assessing the impact of refinements and enhancements to the modular design, such as changes in the number of modular combat and support brigades reported in the QDR and any changes in resource requirements that may occur as a result of these changes. In fiscal year 2004, TRADOC's Analysis Center concluded that the modular brigade combat team designs would be more capable than division-based units based on an integrated and iterative analysis employing computer- assisted exercises, subject matter experts, and senior observers. This analysis culminated in the approval of modular brigade-based designs for the Army. The assessment employed performance metrics such as mission accomplishment, units' organic lethality, and survivability, and compared the performance of variations on modular unit designs against the existing division-based designs. The report emphasized that the Chief of Staff of the Army had asked for "good enough" prototype designs that could be quickly implemented, and the modular organizations assessed were not the end of the development effort. Since these initial design assessments, the Army has been assessing implementation and making further adjustments in designs and implementation plans through a number of venues, to include unit readiness reporting on personnel, equipment, and training; modular force coordination cells to assist units in the conversion process; modular force observation teams to collect lessons during training; and collection and analysis teams to assess units' effectiveness during deployment. TRADOC has approved some design change recommendations and has not approved others. For example, TRADOC analyzed a Department of the Army proposal to reduce the number of Long-Range Advanced Scout Surveillance Systems, but recommended retaining the higher number in the existing design in part because of decreases in units' assessed lethality and survivability with the reduced number of surveillance systems. Army officials maintain that ongoing assessments provide sufficient validation that the modularity concept works in practice. However, these assessments do not provide a comprehensive evaluation of the modular design as a whole. Further, the Army does not plan to conduct a similar overarching analysis to assess the modular force capabilities to perform operations across the full spectrum of potential conflict. In November 2005, we reported that methodically testing, exercising, and evaluating new doctrines and concepts is an important and established practice throughout the military, and that particularly large and complex issues may require long-term testing and evaluation that is guided by study plans. We believe the evolving nature of the design highlights the importance of planning for broad-based evaluations of the modular force to ensure the Army is achieving the capabilities it intended, and to provide an opportunity to make course corrections if needed. For example, one controversial element of the design was the decision to include two maneuver battalions instead of three in the brigade combat teams. TRADOC's 2004 analysis noted that the brigade designs with the two maneuver battalion organization had reduced versatility compared to the three maneuver battalion design, and cited this as one of the most significant areas of risk in the modular combat brigade design. Some defense experts, to include a current division commander and several retired Army generals, have expressed concerns about this aspect of the modular design. In addition, some of these experts have expressed concerns about whether the current designs have been sufficiently tested and whether they provide the best mix of capabilities to conduct full- spectrum operations. In addition, the Army has recently completed designs for support units and headquarters units. Once the Army gets more operational experience with the new modular units, it may find it needs to make further adjustments to its designs. Without another broad-based evaluation, the Secretary of Defense and congressional leadership will lack visibility into the capabilities of the brigade combat teams as they are being organized, staffed, and equipped. The fast pace, broad scope, and cost of the Army's restructuring to a modular force present considerable challenges for the Army, particularly as it continues to be heavily involved in fighting the Global War on Terrorism. These factors pose challenges to Congress as well to provide adequate oversight of the progress being made on achieving modularity goals and of funds being appropriated for this purpose. In this challenging environment, it is important for the Army to clearly establish and communicate its funding priorities and equipment and personnel requirements and assess the risks associated with its plans. Moreover, it is important for the Army to clearly establish a comprehensive long-term approach for its modular restructuring that reports not only a schedule of creating modular units, but measures of its progress toward meeting its goal of creating a more rapidly deployable, joint, expeditionary force. Without such an approach, the Secretary of Defense and Congress will not have the information needed to weigh competing funding priorities and monitor the Army's progress in its over $52 billion effort to transform its force. Mr. Chairman and members of the subcommittee, this concludes my prepared remarks. I would be happy to answer any questions you may have. For future questions about this statement, please contact Janet St. Laurent at (202) 512-4402. Other individuals making key contributions to this statement include Gwendolyn Jaffe, Assistant Director; Margaret Best; Alissa Czyz; Christopher Forys; Kevin Handley; Joah Iannotta; Harry Jobes; David Mayfield; Sharon Pickup; Jason Venner; and J. Andrew Walker. 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 Army considers its modular force transformation the most extensive restructuring it has undertaken since World War II. Restructuring the Army from a division-based force to a modular brigade-based force will require extensive investments in equipment and retraining of personnel. The foundation of the modular force is the creation of standardized modular combat brigades designed to be stand-alone, self-sufficient units that are more rapidly deployable and better able to conduct joint operations than their larger division-based predecessors. GAO was asked to testify on the status of the Army's modularity effort. This testimony addresses (1) the Army's cost estimate for restructuring to a modular force, (2) progress and plans for equipping modular brigade combat teams, (3) progress made and challenges to meeting personnel requirements, and (4) the extent to which the Army has developed an approach for assessing modularity results and the need for further adjusting designs or implementation plans. This testimony is based on previous and ongoing GAO work examining Army modularity plans and cost. GAO's work has been primarily focused on the Army's active forces. GAO has suggested that Congress consider requiring the Secretary of Defense to provide a plan for overseeing spending of funds for modularity. Although the Army is making progress creating modular units, it faces significant challenges in managing costs and meeting equipment and personnel requirements associated with modular restructuring in the active component and National Guard. Moreover, the Army has not provided sufficient information for the Department of Defense and congressional decision makers to assess the capabilities, costs, affordability, and risks of the Army's modular force implementation plans. The Army's cost estimate for completing modular force restructuring by 2011 has grown from an initial rough order of magnitude of $28 billion in 2004 to $52.5 billion currently. Although the Army's most recent estimate addresses some shortcomings of its earlier estimate, it is not clear to what extent the Army can achieve expected capabilities within its cost estimate and planned time frames for completing unit conversions. Moreover, according to senior Army officials, the Army may request additional funds for modularity beyond 2011. Although modular conversions are under way, the Army is not meeting its near-term equipping goals for its active modular combat brigades, and units are likely to have shortfalls of some key equipment until at least 2012. The Army plans to mitigate risk in the near term by providing priority for equipping deployed units and maintaining other units at lower readiness levels. However, it has not yet defined specific equipping plans for units in various phases of its force rotation model. As a result, it is unclear what level of equipment units will have and how well units with low priority for equipment will be able to respond to unforeseen crises. In addition, the Army faces significant challenges in implementing its plan to reduce overall active component end strength from 512,400 to 482,400 soldiers by fiscal year 2011 while increasing the size of its modular combat force from 315,000 to 355,000. This will require the Army to eliminate or realign many positions in its noncombat force. The Army has made some progress in reducing military personnel in noncombat positions through military civilian conversions and other initiatives, but some of its goals for these initiatives may be difficult to meet and could lead to difficult trade-offs. Already the Army does not fully plan to fill some key intelligence positions required by its new modular force structure. Finally, the Army does not have a comprehensive and transparent approach to measure progress against stated modularity objectives and assess the need for further changes to modular designs. The Army has not established outcome-related metrics linked to many of its modularity objectives. Further, although the Army is analyzing lessons learned from Iraq and training events, the Army does not have a long-term, comprehensive plan for further analysis and testing of the designs and fielded capabilities. Without performance metrics and a comprehensive testing plan, neither the Secretary of Defense nor congressional leaders will have full visibility into the capabilities of the modular force as it is currently organized, staffed, and equipped.
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Our past work has found that program performance cannot be accurately assessed without valid baseline requirements established at the program start. Without the development, review, and approval of key acquisition documents, such as the mission need statement, agencies are at risk of having poorly defined requirements that can negatively affect program performance and contribute to increased costs. We have also identified technologies that DHS has deployed that have not met key performance requirements. For example, in June 2010, we reported that over half of the 15 DHS programs we reviewed awarded contracts to initiate acquisition activities without component or department approval of documents essential to planning acquisitions, setting operational requirements, and establishing acquisition program baselines. We made a number of recommendations to help address these issues as discussed below. DHS has generally agreed with these recommendations and, to varying degrees, has taken actions to address them. In addition, our past work has found that DHS faces challenges in identifying and meeting program requirements in a number of its programs. For example: In July 2011, we reported that TSA revised its explosive detection system (EDS) requirements to better address current threats and plans to implement these requirements in a phased approach. However, we reported that only some of the EDSs in TSA's fleet are configured to detect explosives at the levels established in the 2005 requirements. The remaining EDSs are configured to detect explosives at 1998 levels. When TSA established the 2005 requirements, it did not have a plan with the appropriate time frames needed to deploy EDSs to meet the requirements. To help ensure that EDSs are operating most effectively, we recommended that TSA develop a plan to deploy and operate EDSs to meet the most recent requirements to ensure new and currently deployed EDSs are operated at the levels in established requirements. DHS concurred with our recommendation. In September 2010, we reported that the Domestic Nuclear Detection Office (DNDO) was simultaneously engaged in the research and development phase while planning for the acquisition phase of its cargo advanced automated radiography system to detect certain nuclear materials in vehicles and containers at ports. DNDO pursued the deployment of the cargo advanced automated radiography system without fully understanding the physical requirements of incorporating the system in existing inspection lanes at ports of entry. We reported that this occurred because, during the first year or more of the program, DNDO and CBP had few discussions about operating requirements for primary inspection lanes at ports of entry. DHS spent $113 million on the program since 2005 and canceled the development phase of the program in 2007. In May 2010, we reported that not all of the Secure Border Initiative Network (SBInet) operational requirements that pertain to Block 1 were achievable, verifiable, unambiguous, and complete. For example, a November 2007 DHS assessment found problems with 19 operational requirements, which form the basis for the lower-level requirements used to design and build the system. As a result, we recommended that the Block 1 requirements, including key performance parameters, be independently validated as complete, verifiable, and affordable and any limitations found in the requirements be addressed. DHS agreed with these recommendations and CBP program officials told us that they recognized the difficulties they experienced with requirements development practices with the SBInet program. In January 2011, the Secretary of Homeland Security announced her decision to end the program as originally conceived because it did not meet cost- effectiveness and viability standards. In October 2009, we reported that TSA passenger screening checkpoint technologies were delayed because TSA had not consistently communicated clear requirements for testing the technologies. We recommended that TSA evaluate whether current passenger screening procedures should be revised to require the use of appropriate screening procedures until TSA determined that existing emerging technologies meet its functional requirements in an operational environment. TSA agreed with this recommendation and reported taking actions to address it. Our prior work has also identified that failure to resolve problems discovered during testing can sometimes lead to costly redesign and rework at a later date and that addressing such problems during the testing and evaluation phase before moving to the acquisition phase can help agencies avoid future cost overruns. Specifically: In March 2011, we reported that the independent testing and evaluation of SBInet's Block 1 capability to determine its operational effectiveness and suitability was not complete at the time DHS reached its decision regarding the future of SBInet or requested fiscal year 2012 funding to deploy the new Alternative (Southwest) Border Technology. We reported that because the Alternative (Southwest) Border Technology incorporates a mix of technology, including an Integrated Fixed Tower surveillance system similar to that currently used in SBInet, the testing and evaluation could have informed DHS's decision about moving forward with the new technology deployment. In September 2010, we reported that S&T's plans for conducting operational testing of container security technologies did not reflect all of the operational scenarios that CBP was considering for implementation. We reported that until the container security technologies are tested and evaluated consistent with all of the operational scenarios, S&T cannot provide reasonable assurance that the technologies will function as intended. For example, S&T did not include certain scenarios necessary to test how a cargo container would be transported throughout the maritime supply chain. We recommended that DHS test and evaluate the container security technologies consistent with all the operational scenarios DHS identified for potential implementation. DHS concurred with our recommendation. In October 2009, we reported that TSA deployed explosives trace portals, a technology for detecting traces of explosives on passengers at airport checkpoints, even though TSA officials were aware that tests conducted during 2004 and 2005 on earlier models of the portals suggested the portals did not demonstrate reliable performance in an airport environment. TSA also lacked assurance that the portals would meet functional requirements in airports within estimated costs and the machines were more expensive to install and maintain than expected. In June 2006, TSA halted deployment of the explosives trace portals because of performance problems and high installation costs. We recommended that to the extent feasible, TSA ensure that tests are completed before deploying checkpoint screening technologies to airports. DHS concurred with the recommendation and has taken action to address it, such as requiring more-recent technologies to complete both laboratory and operational tests prior to deployment. Our prior work has shown that cost-benefit analyses help congressional and agency decision makers assess and prioritize resource investments and consider potentially more cost-effective alternatives and that without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. For example, we have reported that DHS has not consistently included these analyses in its acquisition decision making. Specifically: In March 2011, we reported that the decision by the Secretary of Homeland Security to end the SBInet program was informed by, among other things, an independent analysis of cost-effectiveness. However, it was not clear how DHS used the results to determine the appropriate technology plans and budget decisions, especially since the results of SBInet's operational effectiveness were not complete at the time of the Secretary's decision to end the program. Furthermore, the cost analysis was limited in scope and did not consider all technology solutions because of the need to complete the first phase of the analysis in 6 weeks. It also did not assess the technology approaches based on the incremental effectiveness provided above the baseline technology assets in the geographic areas evaluated. As we reported, for a program of this importance and cost, the process used to assess and select technology needs to be more robust. In October 2009, we reported that TSA had not yet completed a cost- benefit analysis to prioritize and fund its technology investments for screening passengers at airport checkpoints. One reason that TSA had difficulty developing a cost-benefit analysis was that it had not yet developed life-cycle cost estimates for its various screening technologies. We reported that this information was important because it would help decision makers determine, given the cost of various technologies, which technology provided the greatest mitigation of risk for the resources that were available. We recommended that TSA develop a cost-benefit analysis. TSA agreed with this recommendation and has completed a life-cycle cost estimate and collected information for its checkpoint technologies, but has not yet completed a cost-benefit analysis. In June 2009, we reported that DHS's cost analysis of the Advanced Spectroscopic Portal (ASP) program did not provide a sound analytical basis for DHS's decision to deploy the portals. We also reported that an updated cost-benefit analysis might show that DNDO'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. At that time, DNDO officials stated that they planned to update the cost-benefit analysis. After spending more than $200 million on the program, in February 2010 DHS announced that it was scaling back its plans for development and use of the portals technology. Since DHS's inception in 2003, we have designated implementing and transforming DHS as high risk because DHS had to transform 22 agencies--several with major management challenges--into one department. This high-risk area includes challenges in strengthening DHS's management functions, including acquisitions; the impact of those challenges on DHS's mission implementation; and challenges in integrating management functions within and across the department and its components. Failure to effectively address DHS's management and mission risks could have serious consequences for U.S. national and economic security. In part because of the problems we have highlighted in DHS's acquisition process, implementing and transforming DHS has remained on our high- risk list. DHS currently has several plans and efforts underway to address the high-risk designation as well as the more specific challenges related to acquisition and program implementation that we have previously identified. In June 2011, DHS reported to us that it is taking steps to strengthen its investment and acquisition management processes across the department by implementing a decision-making process at critical phases throughout the investment life cycle. For example, DHS reported that it plans to establish a new model for managing departmentwide investments across their life cycles. Under this plan, S&T would be involved in each phase of the investment life cycle and participate in new councils and boards DHS is planning to create to help ensure that test and evaluation methods are appropriately considered as part of DHS's overall research and development investment strategies. In addition, DHS reported that the new councils and boards it is planning to establish to strengthen management of the department's acquisition and investment review process would be responsible for, among other things, making decisions on research and development initiatives based on factors such as viability and affordability and overseeing key acquisition decisions for major programs using baseline and actual data. According to DHS, S&T will help ensure that new technologies are properly scoped, developed, and tested before being implemented. DHS also reports that it is working with components to improve the quality and accuracy of cost estimates and has increased its staff during fiscal year 2011 to develop independent cost estimates, a GAO best practice, to ensure the accuracy and credibility of program costs. DHS reports that four cost estimates for level 1 programs have been validated to date. The actions DHS reports taking or has under way to address the management of its acquisitions and the development of new technologies are positive steps and, if implemented effectively, could help the department address many of these challenges. However, showing demonstrable progress in implementing these plans is key. In the past, DHS has not effectively implemented its acquisition policies, in part because it lacked the oversight capacity necessary to manage its growing portfolio of major acquisition programs. Since DHS has only recently initiated these actions, it is too early to fully assess their impact on the challenges that we have identified in our past work. Going forward, we believe DHS will need to demonstrate measurable, sustainable progress in effectively implementing these actions. Chairman McCaul, Ranking Member Keating, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you or other members of the subcommittee 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 Chris Currie, Assistant Director; Bintou Njie; and Michael Kniss. John Hutton; Katherine Trimble; Nate Tranquilli; and Richard Hung also made contributions to this statement. Key contributors for the previous work that this testimony is based on are listed within each individual product. Aviation Security: TSA Has Enhanced Its Explosives Detection Requirements for Checked Baggage, but Additional Screening Actions Are Needed. GAO-11-740. (Washington, D.C.: July 11, 2011). Homeland Security: Improvements in Managing Research and Development Could Help Reduce Inefficiencies and Costs. GAO-11-464T. (Washington D.C.: March. 15, 2011). Border Security: Preliminary Observations on the Status of Key Southwest Border Technology Programs. GAO-11-448T. (Washington D.C.: March 15, 2011). High-Risk Series: An Update. GAO-11-278. (Washington D.C.: February 16, 2011). Supply Chain Security: DHS Should Test and Evaluate Container Security Technologies Consistent with All Identified Operational Scenarios To Ensure the Technologies Will Function as Intended. GAO-10-887. (Washington D.C.: September 29, 2010). Combating Nuclear Smuggling: Inadequate Communication and Oversight Hampered DHS Efforts to Develop an Advanced Radiography System to Detect Nuclear Materials. GAO-10-1041T. (Washington D.C.: September 15, 2010). Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. (Washington, D.C.: June 30, 2010). Secure Border Initiative, DHS Needs to Reconsider Its Proposed Investment in Key Technology Program. GAO-10-340. (Washington, D.C.: May 5, 2010). Secure Border Initiative: DHS Needs to Address Testing and Performance Limitations That Place Key Technology Program at Risk. GAO-10-158. (Washington, D.C.: January 29, 2010). Aviation Security: DHS and TSA Have Researched, Developed, and Begun Deploying Passenger Checkpoint Screening Technologies, but Continue to Face Challenges. GAO-10-128. (Washington, D.C.: October 7, 2009). Combating Nuclear Smuggling: Lessons Learned from DHS Testing of Advanced Radiation Detection Portal Monitors. GAO-09-804T. (Washington, D.C.: June 25, 2009). Combating Nuclear Smuggling: DHS Improved Testing of Advanced Radiation Detection Portal Monitors, but Preliminary Results Show Limits of the New Technology. GAO-09-655. (Washington, D.C.: May 21, 2009). 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 our past work examining the Department of Homeland Security's (DHS) progress and challenges in developing and acquiring new technologies to address homeland security needs. DHS acquisition programs represent hundreds of billions of dollars in life-cycle costs and support a wide range of missions and investments including border surveillance and screening equipment, nuclear detection equipment, and technologies used to screen airline passengers and baggage for explosives, among others. Since its creation in 2003, DHS has spent billions of dollars developing and procuring technologies and other countermeasures to address various threats and to conduct its missions. Within DHS, the Science and Technology Directorate (S&T) conducts general research and development and oversees the testing and evaluation efforts of DHS components, which are responsible for developing, testing, and acquiring their own technologies. This testimony focuses on the findings of our prior work related to DHS's efforts to acquire and deploy new technologies to address homeland security needs. Our past work has identified three key challenges: (1) developing technology program requirements, (2) conducting and completing testing and evaluation of technologies and (3) incorporating information on costs and benefits in making technology acquisition decisions. This statement will also discuss recent DHS efforts to strengthen its investment and acquisition processes. We have identified technologies that DHS has deployed that have not met key performance requirements. For example, in June 2010, we reported that over half of the 15 DHS programs we reviewed awarded contracts to initiate acquisition activities without component or department approval of documents essential to planning acquisitions, setting operational requirements, and establishing acquisition program baselines. Our prior work has also identified that failure to resolve problems discovered during testing can sometimes lead to costly redesign and rework at a later date and that addressing such problems during the testing and evaluation phase before moving to the acquisition phase can help agencies avoid future cost overruns. Specifically: (1) In March 2011, we reported that the independent testing and evaluation of SBInet's Block 1 capability to determine its operational effectiveness and suitability was not complete at the time DHS reached its decision regarding the future of SBInet or requested fiscal year 2012 funding to deploy the new Alternative (Southwest) Border Technology. (2) In September 2010, we reported that S&T's plans for conducting operational testing of container security technologies did not reflect all of the operational scenarios that CBP was considering for implementation. (3) In October 2009, we reported that TSA deployed explosives trace portals, a technology for detecting traces of explosives on passengers at airport checkpoints, even though TSA officials were aware that tests conducted during 2004 and 2005 on earlier models of the portals suggested the portals did not demonstrate reliable performance in an airport environment. TSA also lacked assurance that the portals would meet functional requirements in airports within estimated costs and the machines were more expensive to install and maintain than expected. In June 2006, TSA halted deployment of the explosives trace portals because of performance problems and high installation costs. Our prior work has shown that cost-benefit analyses help congressional and agency decision makers assess and prioritize resource investments and consider potentially more cost-effective alternatives and that without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. For example, we have reported that DHS has not consistently included these analyses in its acquisition decision making. Specifically: (1) In March 2011, we reported that the decision by the Secretary of Homeland Security to end the SBInet program was informed by, among other things, an independent analysis of cost-effectiveness. However, it was not clear how DHS used the results to determine the appropriate technology plans and budget decisions, especially since the results of SBInet's operational effectiveness were not complete at the time of the Secretary's decision to end the program. Furthermore, the cost analysis was limited in scope and did not consider all technology solutions because of the need to complete the first phase of the analysis in 6 weeks. (2) In October 2009, we reported that TSA had not yet completed a cost-benefit analysis to prioritize and fund its technology investments for screening passengers at airport checkpoints. One reason that TSA had difficulty developing a cost-benefit analysis was that it had not yet developed life-cycle cost estimates for its various screening technologies. (3) In June 2009, we reported that DHS's cost analysis of the Advanced Spectroscopic Portal (ASP) program did not provide a sound analytical basis for DHS's decision to deploy the portals.
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NPS manages the National Park System--over 80 million acres of land in the nation--comprising a network of natural, historic, and cultural treasures. NPS' lands are contained in 388 units that include a diverse array of national parks, military parks, national monuments, national historic sites, recreation areas, and other designations. Of the 388 units in the National Park System, 19 are located in the District. As the system's federal manager, NPS is charged with preserving and protecting these public lands for future generations. NPS' National Capital Regional Office manages the 19 units in the District as well as other units in surrounding areas in Maryland and Virginia. The National Capital Region has six management units, referred to by NPS as superintendencies, that manages properties in the District. These management units are (1) National Capital Parks-Central (Central), (2) National Capital Parks-East (East), (3) Rock Creek Park (Rock Creek), (4) White House-President's Park (White House), (5) George Washington Memorial Parkway (GW Parkway), and (6) Chesapeake & Ohio Canal National Historic Park (C&O Canal)--each with a superintendent/director who is responsible for managing properties within his/her jurisdiction. Figure 1 depicts examples of NPS-managed properties in the District, and figure 2 depicts the geographic areas covered by the National Capital Region management units. For the last several decades, GAO, the Department of the Interior's Inspector General, and Interior itself has reported that NPS did not have an accurate inventory of existing assets, or a reliable estimate of deferred maintenance costs for these assets. In an effort to more effectively manage its assets NPS has developed a new asset management process to enable the agency to have a reliable inventory of its assets and process for reporting on the condition of those assets. The cornerstone of the new asset management process is the Facility Management Software System (FMSS) that allows park, regional office, or NPS headquarters managers to track when, what, and how much maintenance and related costs has been directed at each specific asset. When fully developed and implemented, the new system will, for the first time, enable the agency to have a (1) reliable inventory of its assets, (2) process for reporting on the condition of the assets in its inventory, and (3) consistent, system-wide methodology for estimating the deferred maintenance costs for its assets. Depending on the extent of deferred maintenance required, NPS ranks the assets in FMSS as being in good, fair, poor, or serious condition. Essentially, the lower the estimated deferred maintenance costs, the better the condition of the assets, including properties. In addition, NPS develops general management plans for its units for the purpose of making proactive decisions that address future opportunities at NPS properties, including planning for visitor use, managing the natural and cultural resources on properties, and developing properties. Accordingly, these plans may identify new or expanded recreational opportunities to enhance visitors' experience. NPS has developed four general management plans--two final and two draft--that encompass some of the properties it manages in the District. However, if it is determined that federal ownership or management of the assets would be better served elsewhere, either the Congress or NPS can take the necessary action, for example, by transferring title or jurisdiction, or through memoranda of agreement, cooperative agreements, or leases. NPS manages 356 federally owned properties in the District covering about 6,735 acres. These properties vary by type and size. Properties in the circles, squares, and triangles category represent the greatest number of NPS-managed properties. Properties in the parks and parkways category comprise the greatest number of the total acres, about 93 percent, managed by NPS. The majority of all NPS-managed properties in the District, however, are less than 1 acre. Appendix II provides additional descriptive information on the 356 NPS-managed properties in the District. NPS manages a diverse array of properties in the District that vary by types and include properties, such as parks, parkways, and triangles. The properties also vary in size, ranging from less than 1 acre to about 1,750 acres. NPS does not classify the properties it manages by categories, nor does it use a standard definition for the types of properties it manages. Nevertheless, NPS typically uses terms that are descriptive of the properties. For example, NPS refers to a triangular-shaped property as a "triangle" and a circular-shaped property as a "circle." For ease in reporting, we grouped NPS-managed properties into the following four categories: (1) park and parkways; (2) circles, squares, and triangles; (3) Mall/Washington Monument and grounds; and (4) other. Table 1 shows the number of properties in the four categories. The majority of the 356 NPS-managed properties in the District are in the circles, squares, and triangles category, representing about 60 percent of the total properties that NPS manages in the District. Circles, squares, and triangles range in size from 0.01 acres to about 7 acres, with an average size of 0.3 acres. Triangles represent the largest number of properties (178 of the 200 properties) in this category and are managed by the Central, East, and Rock Creek management units. The remaining properties consist of 15 circles and 7 squares. A recent National Capital Planning Commission report refers to the circles, squares, and triangles as designed landscape parks that include fountains, monuments, memorials, and other civic art features. Examples include Dupont Circle, Thomas Circle, Logan Circle, Farragut Square, McPherson Square, and Bolivar Triangle. Figure 3 shows the percent of NPS-managed properties by category. Figure 4 shows the number of properties by component of the circles, squares, and triangles category. Appendix III provides additional information on properties in the circles, squares, and triangles category. There are 95 properties in the parks and parkways category, which contain about 6,246, or 93 percent, of the total acres of NPS-managed property in the District. Figure 5 shows the percentage of the NPS-managed property acres, by category. Three properties--Rock Creek Park, Piney Branch Parkway, and Anacostia Park--contain about 50 percent of the acres associated with properties in this category. The Central, East, and Rock Creek management units manage about 99 percent of the properties and 93 percent of the total acreage in the parks and parkways category. Figure 6 shows the acreage of properties in the parks and parkways category managed by the National Capital Region management units. The majority of the NPS-managed properties are less than 1 acre in size. Of the 356 properties in the District, 242, or about 68 percent, are less than 1 acre in size. Of these, 108 properties are less than one-tenth of an acre. Most of the properties less than 1 acre are managed by the Central and East management units. The most common types of properties less than 1 acre are triangles, center parking, and curb parking. Figure 7 shows the percentage and number of NPS-managed properties by size. The majority of NPS-managed properties in the District have some type of recreational facilities, including sports facilities. To identify what recreational facilities are available on the 356 NPS-managed properties in the District, we asked NPS officials to identify the (1) types of recreational facilities on the properties, such as park benches, outdoor grills, playgrounds, and picnic tables, or shelters and (2) sports-related facilities, such as basketball and tennis courts and baseball and softball fields. NPS officials reported that 202 properties had some type of recreational facility, including 25 properties that had 205 sports facilities. The remaining 154 (of the 356) properties did not have either of the above type facilities. Regardless of whether they have facilities, NPS officials believe that the properties they manage provide some form of recreation. Appendix IV provides information on the properties without either type of recreation facilities. About 60 percent of the NPS-managed properties in the District have some type of recreational facility, including sports facilities. Of the 356 properties, 22 had both sports facilities and other types of recreational facilities, 177 had recreational facilities, exclusive of sports facilities, and 3 had sports facilities only. Table 2 shows the number of properties with the specific type of recreational facilities, exclusive of sports facilities. Twenty-five of the 356 properties have a total of 205 sports facilities, such as tennis courts or softball and baseball fields. About 92 percent of the sports facilities are located on properties in the parks and parkways category, about 6 percent in the Mall/Washington Monument and grounds category, and about 1 percent each in the circles, squares, and triangles and other categories. Figure 8 shows by category, the number of properties containing sports facilities and the total number of sports facilities on those properties. As table 3 shows, 109, or 53 percent, of the 205 sports facilities are tennis and racquetball courts and multiple-use fields. Multiple-use fields are generally areas that can be used to play various sports, such as soccer, football, softball, and baseball. Tennis and racquetball courts total 73, or 36 percent, of the sports facilities, whereas multiple-use fields total 36, or 18 percent. The tennis and racquetball courts are located at 7 different NPS- managed properties while the multiple-use fields are found at 14 different properties. Most of the sports facilities are managed by NPS' Central, East, and Rock Creek management units. Together these management units managed approximately 98 percent of the total sport facilities. Appendix V provides additional information on properties with sports facilities. According to NPS assessments and information reported in its FMSS database, most NPS-managed properties with sports facilities are in good or fair condition. Information on the condition of each sports facility is generally not identifiable in FMSS and NPS does not have clear criteria to systematically assess sports facility condition. However, during visual inspections, while most properties seem to be well maintained, we identified some sports facilities with deficiencies that pose a potential safety hazard. We asked NPS to provide us with condition assessments recorded in FMSS for each of the 25 properties with sports facilities. FMSS did not provide an assessment of one property's condition due to security issues. Furthermore, some properties were grouped together into one assessment and other properties received more than one assessment. As a result, NPS provided 22 assessments covering the remaining 24 properties. Figure 9 shows the number of assessments and condition for properties with sports facilities. Appendix VI provides additional information on the condition assessments of properties with sports facilities. We reviewed the documentation supporting the deferred maintenance associated with each of the 24 properties for which we were provided assessments to ascertain if it provided data that could be used to identify the condition of each sports facility. However, this information was of limited use in identifying sports facilities' conditions. For example, the information, for the most part, discussed such deferred maintenance as repairing or refurbishing landscapes and structures; replacing pavement, concrete curbing, picnic tables, and seawalls; and repainting fences, posts, and benches. This information was not descriptive enough to determine whether the maintenance pertained to the sports facilities or other parts of the property. However, NPS collectively assessed the athletic fields at West Potomac Park, which comprise 8 multiple-use fields, 11 volleyball courts, and 13 baseball fields, to be in poor condition. According to NPS officials, the poor condition assigned to the athletic field's was due primarily to the deferred maintenance needed for the park's volleyball courts and multiple- use fields, and not the baseball fields, which are in good condition. NPS identified about $1 million in deferred maintenance costs for refurbishing the volleyball courts, reseeding and sodding the fields, pruning trees, painting fencing, repairing backstops, replacing sidewalk pavement, and upgrading the sewage system. Even in this case, the condition of each sports facility could not be determined, since the assessment was done for the collective group of athletic fields. In reviewing each property's deferred maintenance documentation, we also determined that the condition of the property or section of property may not be indicative of the condition of any sports facility on the property. For example, while NPS assessed the Fort Reno Park property as being in good condition, 84 percent of the total deferred maintenance needs for this property were directly related to refurbishing the multiple-use athletic fields thereon. Because such a large percentage of the deferred maintenance costs involve refurbishing the athletic fields, it is likely that the condition of the fields is worse than what the assessment showed for the property overall. It should also be noted that NPS assessments do not include determining the condition of structures, such as boat ramps, horse stables, ice and roller skating rinks, and roadways because criteria to assess these structures have not been finalized for use by the park units. As previously identified in table 3, several of the sports facilities on the NPS-managed properties have these structures, again supporting the fact that limited information is available on the condition of sports facilities. We did not have criteria to judge the condition of the sports facilities. However, since the NPS' information was of limited value in determining their condition, we visually inspected each of the 205 sports facilities to look for obvious deficiencies, such as cracks in the surface of tennis and basketball courts, fallen or missing basketball posts and baskets, and broken backstops around baseball/softball fields. We did note some of these deficiencies, but for the most part, the facilities did not have these conditions and appeared to be well maintained. Figure 10 shows an example of properties that appear to be well maintained. In contrast, figure 11 shows an example of a facility with a cracked surface area. In addition, we identified some conditions at some sports facilities, primarily in Anacostia Park, that posed potential safety hazards to users. See figures 12 through 17 for some examples of these safety hazards. Current NPS general management plans identify opportunities for some expanded recreational uses, such as improving visitor experience by increasing the number and scope of exhibits; creating a regional sports complex; rehabilitating selected baseball/softball fields and basketball and tennis courts; and creating new hiking trails. NPS has developed four general management plans--two final and two drafts--that encompass 37 of the 356 properties and 4,196 of the 6,735 acres it manages in the District. Appendix VII shows additional information on the properties covered by the four general management plans. The two finalized general management plans are for properties that encompass the Fort Circle Parks and the Mary McLeod Bethune Council House National Historic Site. The following are the new or expanded recreational opportunities identified in the final plans: Fort Circle Parks: The primary new recreational opportunity is the creation of a new walking trail that connects most of the forts encompassing the Fort Circle Parks system. These include Forts Dupont, Totten, Stevens, Stanton, Davis, and Reno. The plan also calls for developing a small year- round visitor contact facility near Fort Stevens--where the only battle of the Civil War was fought in the District--to provide a focal point for the Fort Circle Parks system. The facility will offer orientation and interpretation and serve as the start of a driving tour of the forts. In terms of improving existing facilities, the plan calls for rehabilitating selected baseball/softball fields, basketball and tennis courts, picnic areas, and other facilities. In addition, the activity center at Fort Dupont would be developed into an education center to focus on school and community groups offering cultural, historical, natural, and environmental programming. Mary McLeod Bethune Council House National Historic Site: The Mary McLeod Bethune Council House National Historic Site's plan focuses solely on developing interpretive exhibits on the house and the life of Mary McLeod Bethune, who founded the National Council of Negro Women. The two draft plans are for properties in (1) Rock Creek Park and the Rock Creek and Potomac Parkways and (2) Anacostia Park. The following are the new or expanded recreational opportunities identified in the final plans and the plan's preferred alternative, if so designated: Rock Creek Park and the Rock Creek and Potomac Parkway: The 2003 draft Rock Creek Park and the Rock Creek and Potomac Parkway's plan considers closing off the upper part of Beach Drive--a major thoroughfare through the park--during nonrush hours to make it available for nonmotorized recreational uses such as biking, rollerblading, jogging, and walking. The plan also proposes upgrades of existing foot and bridal trails to enhance the visitor's experience while biking, jogging, walking, or horseback riding through designated areas of the park. NPS estimates that this plan will be finalized in the spring of 2005. Anacostia Park: The Anacostia Park plan contains two alternatives, neither of which was identified as the preferred alternative. The first alternative focuses on enhancement and expansion of current sports facilities, with an emphasis on neighborhood recreation. This alternative proposes a small area at Poplar Point to be designated as a grand waterfront park area. The second alternative proposes enhancements to current sports facilities and natural resources and emphasizes large-scale sports facilities to support regional sporting events. Both alternatives propose access to and additional boating facilities on the Anacostia waterfront. NPS hopes to release this plan to the public for comment in the summer of 2005. There are a number of ways for NPS property to be made available to the District for recreational purposes, including through a transfer of title, transfer of jurisdiction, memoranda of agreement or cooperative agreements, partnerships of public and private entities, and leases. As discussed below, some of these options may be implemented by NPS and the District under existing legislation; others would require enactment of new legislation. In general, title to property allows the owner to possess, control, and assert all rights over that property. Legislation could be enacted, transferring title or requiring such transfer of NPS property to the District. For example, at least two federal laws specifically direct the Department of the Interior to transfer title to land, under NPS jurisdiction, from the federal government to the District. Public Law No. 99-581, enacted in 1986, directed the Secretary of the Interior to convey title to the Robert F. Kennedy Memorial Stadium building to the District. Also, in accordance with the law, the underlying land and associated parking facilities were leased to the District government. The National Children's Island Act of 1995 directed the Secretary of the Interior to transfer title to portions of two islands in Anacostia Park (Heritage Island and the southern portion of Kingman Island) to the District. The purpose was to facilitate the construction, development, and operation of National Children's Island, envisioned as a cultural, educational, and family-oriented park. Under a transfer of jurisdiction between the federal government and the District, the transferor retains ownership of the property while the transferee may be given authority to administer and maintain (manage) the property. The federal government has general statutory authority to transfer jurisdiction over park properties that it owns in the District to the District government. Prior to enactment of this authority in 1932, congressional action was required for each transfer between the federal government and the District. According to a report of the House Committee on Public Buildings and Grounds, the purpose of the law was to obviate the need for the Congress to approve each exchange between the federal government and the District, thereby lessening the work of the Congress and resulting in a savings of public funds. Before NPS transfers jurisdiction over a District property, the transfer must be recommended by the National Capital Planning Commission (Commission)--the central federal planning agency for the federal government in the National Capital. The Commission may examine a number of factors in determining whether to recommend a transfer-- including whether the proposal is generally reasonable and justified, consistent with the Commission's Comprehensive Plan, and/or raises any environmental, historical preservation, or other impact concerns. The Commission may also examine public comments prior to its final decision, which may result in approval, approval with stipulations, or disapproval. After a transfer is approved and completed, District authorities are required to report the transfer and associated agreements to the Congress. Official city maps may be changed and records updated after an official exchange of letters of transfer and acceptance between the parties. Some examples of jurisdictional transfers from the federal government to the District government include properties used or to be used for the following: correctional facilities, performing arts. Memoranda of agreement or cooperative agreements are legal instruments that establish a relationship between a federal agency and a state or local government, or other recipient. They are used to transfer a thing of value in carrying out a public purpose of support or stimulation. Substantial involvement is expected between the parties. A 1949 agreement between NPS and the District of Columbia Recreation Board implements authority provided in Public Law No. 77-534 (1942) for making federal lands and recreational facilities located in the District, including those of NPS, available to the District of Columbia Recreation Board to conduct its recreation programs. The agreement lists a number of parks or park areas that may be used by the District of Columbia Recreation Board to carry out various recreation activities, through concession contracts or otherwise, including golf courses in Anacostia Park and Rock Creek Park, tennis courts in East Potomac Park and Rock Creek Park, and boating at West Potomac Park, East Potomac Park, and Columbia Island. NPS is authorized by several statutes to enter into cooperative agreements with the District for management of federal parks. For example, where a federal park is located adjacent to or near a state or local park, and cooperative management would be more efficient, NPS may enter into a cooperative agreement with the state or local government agency in order to cooperatively manage the parks and provide or acquire goods and services. NPS would continue to retain administrative responsibilities over the park, as the law prohibits the transfer of these responsibilities. Another provision of law authorizes NPS to enter into cooperative agreements with and transfer appropriated funds to state and local governments, among other entities, for the public purpose of carrying out NPS programs. A lease is a written contract through which use and possession of property is granted to a person for a specified period of time. NPS has authority to lease certain federally owned or administered property located within the boundaries of park areas. For example, NPS issued a lease to the Friends of Fort Dupont to manage an ice rink at Fort Dupont Park, a federally owned park located in the District. Regulations implementing NPS leasing authority are set out at 36 C.F.R. part 18. The regulations describe, among other things, the determinations NPS must make before leasing property, procedures for awarding leases, and required lease terms and conditions. Unless otherwise authorized by law, a lease may not authorize the lessee to engage in activities that must be authorized through a concession contract, commercial use authorization, or similar instrument. Proposed lease activities are subject to authorization under a concession contract or commercial use authorization if the director of NPS determines, in accordance with regulations and guidance, that the proposed activities meet applicable requirements for issuance of such instruments. A partnership is usually defined as a type of cooperative business relationship; however, cooperative efforts in a public project may also be referred to as a partnership and can be established through legislation. For example, in an effort to coordinate government and private sector activities in the development and implementation of an integrated resource management plan for certain Boston Harbor islands, Congress established the Boston Harbor Islands National Recreation Area, administered by a partnership including representatives from NPS, the U.S. Coast Guard, state and local government offices, and various private sector organizations. The law established the framework for administration of the area, parameters for operation of and membership in the partnership, minimum requirements for the management plan to be submitted to Interior, and establishment of an advisory council to represent interested groups and make recommendations to the partnership. Similarly, NPS properties in the District may be identified with recreational potential that could be maximized through such partnerships. We provided the Department of the Interior with a draft of this report for review and comment. The department provided written comments that are included in appendix VIII. The department provided us with some comments with technical clarifications, which we have incorporated as appropriate. In addressing the condition of properties, the department stated that NPS is diligently implementing an asset management plan that addresses deficiencies and that needed repair and rehabilitation of properties are evaluated and prioritized against the needs of the entire national park system. Projects of greatest need are undertaken in priority order, focusing on critical health and safety and resource protection issues. In addition, the department said that NPS does not have the authority to enter into a lease that allows erection of a structure on such property. While we agree that the agency's authority is limited, NPS regulations authorize a lease to include a provision allowing for the construction of minor additions, buildings, and other structures as long as it is (1) necessary for the support of authorized lease activities, (2) otherwise consistent with the protection and purposes of the park area, and (3) approved by the director. We will send copies of this report to interested congressional committees; the Secretary of the Interior; and other interested 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. If you or your staff have any questions, please call me or Roy Judy at (202) 512-3841. Key contributors to this report are listed in appendix IX. Our study included all federally owned properties that were managed by the National Park Service (NPS) in Washington, D.C., (the District). These properties are under the jurisdiction of NPS' National Capital Region. To determine the universe of properties managed by NPS in the District, we obtained an electronic file from the National Capital Region that contained all of the properties (reservations) that it manages. Working with NPS officials, we excluded properties outside of the District. This resulted in identifying a universe of 356 properties. To facilitate our analysis and reporting, we grouped the NPS-managed properties into four categories, primarily based on their description as provided on NPS' Reservation List. (NPS does not have a list of the types of properties under its jurisdiction, nor does it have standard definitions for the properties it manages.) The four categories we used were park and parkways; circles, squares, and triangles; Mall/Washington Monument and grounds; and other. The park and parkways category consists of properties described on NPS' Reservation List as park, parkway, or combination thereof. Also in this category are several forts and batteries, which are components of Fort Circle Parks. Similarly, the circles, squares, and triangles category includes properties referred to on the Reservation List as physical structures, i.e., circles, squares, or triangles. The Mall and Washington Monument and grounds contain properties identified on the Reservation List as being connected with the Mall, the Washington Monument, or its grounds. Finally, the "other" category consists of various properties described on the Reservation List, as curb/center parking, cemeteries, islands, hills, historical sites, plazas, memorials, annexes, and fountains. We also included in this category Ford's Theatre and the Mary McLeod Bethune Council House. Appendix II provides a complete listing of the NPS- managed properties in the District and their respective categories. To identify the recreational and sports-related facilities on NPS-managed properties, we developed a data collection instrument (DCI) that we distributed to NPS National Capital Region officials. The DCI contained questions about the existence of recreation facilities, including the number of sports-related facilities; plans for future facilities; and other information about each of the NPS-managed properties. To ensure that data gathered from the DCI were valid and reliable, we performed a number of steps. First, we conducted pretests with National Capital Region officials in two of its management units and revised the DCI in accordance with these pretest results. We next asked the region's six management units (superintendencies or directors) that have management responsibility for their respective properties to complete one DCI for each of the 356 properties under their respective jurisdiction. We received completed DCIs for 100 percent of the properties. We then reviewed the completed DCIs for obvious errors, such as missing responses to questions and inconsistencies in the answers provided. We also compared the responses with the knowledge we gained from visiting or researching the properties. In addition, we conducted follow-up interviews with region officials to clarify or correct any errors. The data from the hard copy DCIs were key-punched into an electronic data file and checked for accuracy. We used this data file for our analysis. We performed all analysis presented in this report through programming in statistical software, and both the programming and the results were checked for accuracy. We identified various types of recreational facilities, including sports facilities, on the properties. To verify the accuracy of the NPS-reported data, we visited each of the properties that NPS identified as having sports facilities or a combination of sports facilities and other facilities. During these visits, we determined if the property contained the facilities reported to us in the DCI. For the most part, we found that the reported number of facilities on these 25 properties was comparable. However, we found four tennis courts that had not been reported to us--one on a property in East Potomac Park and three in Rock Creek Park. NPS officials acknowledged that they had made a mistake in not reporting these facilities on the DCI. Accordingly, we revised our database to include these four facilities. To determine the condition of the properties with sports facilities as well as the condition of the sports facilities themselves, we relied on information in NPS' Facility Management Software System (FMSS) and interviews with NPS officials. FMSS is a system that identifies the condition of assets, including properties, based on the asset's deferred maintenance costs relative to its replacement value. Thus, the higher the deferred maintenance costs, the worse the condition of the asset. Based on NPS criteria, the condition of properties are assessed as good, fair, poor, or serious. We asked NPS to provide FMSS data for each of the 25 properties with sports facilities. NPS provided assessments on the condition of 24 of the 25 properties. It did not provide information on one property due to security issues. We then collected the records in support of the estimated deferred maintenance costs for each of the 24 properties to ascertain if the records contained specific information relative to the condition of the sports facilities on the properties. On the basis of our review, we determined that the maintenance records did not provide sufficient detail to determine the condition of the sports facilities. Since FMSS did not provide sufficient information to determine the condition of the sports facilities, we inspected these facilities to identify any deficiencies, such as cracks in the surface of tennis and basketball courts. For the most part, these facilities appeared to be well maintained. However, we did find some facilities that required maintenance to prevent potential safety hazards. To determine any new or expanded recreational use proposed for NPS- managed properties in general management plans, we asked NPS to identify the plans it had developed for properties that it manages in the District. We were provided final general management plans for Mary McLeod Bethune Council House National Historic Site, the Fort Circle Parks and draft management plans for (1) Rock Creek Park and the Rock Creek Park and Potomac Parkway and (2) Anacostia Park. We reviewed each of these plans to ascertain the specifics regarding new or expanded recreational uses for the properties. We also spoke with NPS officials to identify the properties covered under each plan and to obtain information regarding any updates to these plans and their respective completion dates. We were also provided a general plan for the Chesapeake and Ohio Canal National Historical Park. However, this plan was developed in 1976 and prior to the guidance for what is to be included in a general management plan. Further, it was outdated per NPS' guidance that general management plans should not exceed 15 years. Thus, we did not include this plan in our analysis. Finally, to identify methods for conveying management responsibility of NPS-managed properties to the District, we reviewed legislation, regulations, legislative histories, and other documents in addition to interviewing NPS officials in the Department of the Interior's Solicitor's Office and NPS' National Capital Region. This appendix provides information on the 356 NPS-managed properties in the District. Table 4 shows the properties by National Capital Region management unit, location description, and property size in acres. This appendix provides information on the 200 NPS-managed properties in the District that are in the circles, squares, and triangles category. Table 5 shows, by National Capital Region management unit, the properties by property number, location description, category type, and size (in acres) associated with each property. This appendix provides information on the 154 NPS-managed properties in the District that do not contain any recreational facilities, including sports facilities. In summary, 116 (75 percent) of these properties were in the circles, squares, and triangles category, but accounted for only about 16 (4 percent) of the 450 total acres. Sixteen of the 154 properties were in the park and parkways category and accounted for 398 (88 percent) of the total acres. The remaining 22 properties were in the "other" category and accounted for 36 of the total acres. Table 6 shows, by National Capital Region management unit, property number, location description, type of property, and size (in acres) associated with each property. This appendix provides information on the 25 NPS-managed properties in the District that contain the sports facilities identified in table 3 of this report. Table 7 shows the properties with sports facilities by National Capital Region management unit, location description, property size (in acres), and the number and types of sports facilities on each property. This appendix provides information on the condition of properties with sports facilities. Each year NPS assesses the condition of the grounds, landscapes, and associated features of federal properties it manages. NPS conducts these condition assessments on a location basis, which may encompass several properties. NPS provided assessments covering 24 of the 25 properties with sports facilities. An assessment was not provided for one property due to security reasons. Table 8 provides information on the results of these assessments. This appendix provides information on the properties covered in general management plans. Table 9 shows the property number, size (in acres), and location associated with properties covered in the Anacostia, Fort Circle Parks, Mary McLeod Bethune, and Rock Creek Park and the Rock Creek and Potomac Parkway general management plans. The following are GAO's comments on the Department of the Interior's letter dated April 13, 2005. 1. Fort Circle Parks, Rock Creek Park, Piney Branch Parkway, and Anacostia Park are already included in the "park and parkways" category. A more detailed description concerning the composition of the park and parkways category can be found in appendix I. 2. When formatted, the captions track with their perspective photos. 3. We removed the reference to boat rentals and included information that identifies the specific property so that it could be more readily identified. 4. We clarified the caption at the bottom of the photos to explain that the recreational facilities have not been in use since the property has been closed to the public. In addition to those named above, Diana Cheng, John Delicath, Doreen Feldman, John Johnson, Julian Klazkin, Roselyn McCarthy, and Peter Oswald made key contributions to this report. Mark Braza, Kim Raheb, and Jena Sinkfield made important methodological and graphic contributions to the report.
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In recent years, several challenges have emerged concerning future recreational opportunities in the nation's capital. These challenges include ensuring that an adequate supply of parkland and open space is available to meet the needs of an increasing resident population and the estimated 20 million annual visitors to the District of Columbia's cultural institutions, historic sites, parks, and open spaces. GAO identified (1) the universe of federal property in the District of Columbia (the District) managed by the National Park Service (NPS); (2) what recreational facilities, including those that are sports related, exist on these properties; (3) the condition of the properties with sports facilities and the sports facilities thereon; (4) new or expanded recreational uses discussed in NPS general management plans; and (5) the methods that could be used to convey management responsibility for NPS-managed properties to the District government. Commenting on the draft report, Interior stated that NPS is addressing properties in the greatest need of repair or rehabilitation in priority order. It also said that it did not have authority to enter into a lease that allows the erection of a structure on its property. However, GAO believes that existing authority allows the NPS director to approve such leases under certain circumstances. NPS manages 356 federal properties in the District, covering about 6,735 acres of land. Most of the properties are what NPS refers to as circles, squares, and triangles, and are less than 1 acre in size. The second largest total number of properties are parks and parkways, which represent about 93 percent of the total acreage for the 356 properties. NPS officials reported to GAO that 202 properties it manages in the District had various recreational facilities such as park benches, outdoor grills, and picnic tables or shelters. Of the 202 properties, 25 had 205 sports facilities, such as basketball and tennis courts and baseball and softball fields. Most of the properties with sports facilities were in good or fair condition, according to NPS deferred maintenance records, but information on the condition of individual sports facilities is limited. While we did not have criteria to determine the condition of sports facilities, we inspected each of the 205 sports facilities to identify obvious deficiencies, such as cracks in the surface area of tennis and basketball courts. Based on our observations, most of the facilities appeared to be well maintained, but we found some sports facilities had conditions that posed a potential safety risk. NPS has developed four general management plans--two finalized and two in draft. These plans identify some opportunities for new or expanded recreation, such as rehabilitating selected baseball and softball fields and basketball and tennis courts; creating a regional sports complex; and developing new hiking trails. For example, one of the plans calls for the creation of a new trail that connects Forts Dupont, Totten, Stevens, Reno, and others as part of the Fort Circle Parks system. Options available for transferring management responsibilities for NPS properties located in the District to the District city government include transfer of title, transfer of jurisdiction, memoranda of agreement or cooperative agreements, leases, and partnerships with public or private entities. Some of the options would require enacting new legislation while others may be exercised by NPS and the District under existing legislation.
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Medicare began contracting with managed care plans on a cost- reimbursement basis in the 1970s. In 1982, Congress passed the Tax Equity and Fiscal Responsibility Act (TEFRA), which created the first Medicare risk contracting program for managed care plans beginning in 1985. The Medicare risk program evolved into today's MA program. TEFRA also retained and authorized Medicare cost plans as an option if an organization did not have the capacity to bear the risk of potential losses, had an insufficient number of members to be eligible for a risk-sharing contract, or the organization elected to offer a cost plan rather than a risk plan. Enrollment in the Medicare risk program grew from nearly 498,000 in 1985 to about 5.2 million beneficiaries by 1997, primarily concentrated in urban counties. The Balanced Budget Act of 1997 (BBA) phased out the existing risk program and created a new risk program called Medicare+Choice (M+C). Under the M+C program, the method used to pay participating plans was revised significantly, and, due in part to these payment changes, by 2000 many health plans began to withdraw from the program. Enrollment fell from 6.3 million in 1999 to 4.6 million by 2003. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) renamed the M+C program Medicare Advantage and provided increases to MA plan payment rates and other program changes. MA enrollment increased steadily from 2003 to 2009. The MA program includes several types of plans: Local coordinated care plans (CCP) consist of: Health maintenance organizations (HMO), which have defined provider networks and primary care gatekeepers. Beneficiaries enrolled in HMOs generally are required to obtain services from hospitals and doctors in the plan's network, but some HMOs offer a point-of-service option under which a beneficiary may elect to obtain services from a non-network provider, though at a higher out-of-pocket cost. Preferred provider organizations (PPO), which have defined provider networks and no requirement that beneficiaries obtain referrals for care. Beneficiaries enrolled in PPOs can use non-network providers, but at a higher out-of-pocket cost than in-network providers. Provider sponsored organizations (PSO), which doctors, hospitals, or other Medicare providers operate rather than a health insurance company. The providers that operate the PSO furnish the majority of the health care and share in the financial risk of providing the health care to the beneficiaries enrolled in the plan. Regional PPOs, which have a service area comprising 1 or more of 26 state-level or multistate-level CMS-defined regions. Regional PPOs are also CCPs. Special needs plans exclusively or disproportionately enroll special needs individuals. Special needs individuals are beneficiaries who are institutionalized, eligible for both Medicare and Medicaid, or have a disability or chronic condition. Special needs plans can be any type of CCP. Private fee-for-service (PFFS) plans, which are local plans that are not required to have a contracted provider network as long as they pay willing providers at least the Medicare FFS rate. MA benefit packages may include Medicare Part D coverage; however, all CCPs must offer at least one benefit package with Part D coverage. CMS pays cost plans the reasonable cost of the Medicare-covered services they furnish directly to, or arrange for, Medicare beneficiaries enrolled in their plan, less the value of the deductible and coinsurance. In addition to the costs directly related to the provision of health services, CMS also pays reasonable costs associated with operating a health plan, such as marketing, enrollment, and membership expenses. Cost plans receive an advance interim payment per member per month based on the cost plan's estimated reimbursable costs. CMS and the cost plans make adjustments after the contract period to align the payments with the actual costs incurred following the plan's submission of an independently certified cost report that details cost, utilization, and enrollment data for the entire contract period. As of December 2009, 18 organizations operated 22 cost plans, with enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were open to enrollment. Nonprofit organizations operated 17 of the 22 cost plans. (See app. I for a list of the organizations that offer cost plans.) Eight cost plans offered Part D coverage in 2009. Cost plans served at least one county in 16 states and the District of Columbia in 2009. Cost plans were most prevalent in Minnesota, where 3 cost plans operated across most of the state. (See fig. 1.) Congress acted to curtail the expansion of cost plans multiple times. The BBA provided that upon enactment, with few exceptions, the Secretary of Health and Human Services could not enter into any new cost plan contracts and could not extend or renew a cost plan contract beyond December 31, 2002. Subsequent laws modified the circumstances under which existing cost plans could continue to operate. The MMA, for example, allowed existing cost plans to be extended indefinitely, with the exception that, beginning January 1, 2008, the Secretary could no longer renew or extend contracts for cost plans serving an area that for the previous year was also served by two or more regional CCPs or two or more local CCPs and that also met specified enrollment thresholds. A cost plan would only be required to leave the counties within its service area that were also served by the CCPs. Most recently, MIPPA extended the exception provision to January 1, 2010, meaning cost plans affected by this provision would close at the beginning of calendar year 2011. MIPPA also requires that the qualifying CCPs used to determine whether the cost plan must close must be offered by more than one organization (see fig. 2). Separately, CMS requires organizations operating cost plans to close their cost plans to new enrollment if they open an MA plan in the same service area. Based on 2009 enrollment information through December, CMS's preliminary estimates were that 7 of the 22 cost plans would need to withdraw from some or all of their 2009 service area in 2011. Three of the 7 cost plans would need to withdraw from their entire service area. All 3 of these plans already were closed to new enrollment in 2009. In total, CMS estimated that approximately 8,000 beneficiaries enrolled in cost plans, or about 3 percent of total cost plan enrollment, are in counties where their cost plan must discontinue service in 2011. (See app. II for a list of the cost plans that would likely be affected by the MIPPA provision.) All beneficiaries enrolled in cost plans had multiple MA options available to them. Nearly 100 percent of beneficiaries enrolled in cost plans had at least 5 MA plans serving their county in June 2009, and more than 57 percent had a choice of 15 or more MA plans (see fig. 3). About 10 percent of beneficiaries enrolled in cost plans had no local CCPs in their county, which is the MA plan type with the highest enrollment. Two cost plans, located in Colorado and Texas, enrolled about 90 percent of the beneficiaries without a local CCP plan option. About 10 percent of beneficiaries in cost plans were in counties without an HMO, about 62 percent were in counties without a local PPO, and about 8 percent were in counties without a regional PPO. Approximately 42 percent of beneficiaries enrolled in a cost plan were in counties with five or more MA HMOs. All beneficiaries enrolled in a cost plan could enroll in a PFFS plan in June 2009. (See table 1.) Some of the differences between cost plans and MA plans that affect beneficiaries involve out-of-network coverage, enrollment periods, and prescription drug coverage. Cost plans generally scored higher than competing MA plans on the quality scores CMS reports, and their estimated out-of-pocket costs compared to competing MA plans and FFS varied by health status. Cost plans differ structurally from MA plans and Medicare FFS in several ways, including enrollment periods, out-of-network coverage, and prescription drug coverage. For example, cost plans that are open to enrollment must have an open enrollment period of at least 30 consecutive days annually, and some cost plans choose to allow new enrollment all year. Beneficiaries enrolled in cost plans may disenroll at any time. In contrast, beneficiaries enrolled in an MA plan can join, switch, or drop plans, or join FFS, only during certain specified enrollment periods. Beneficiaries enrolled in cost plans who receive Medicare-covered services out of network are covered by Medicare FFS. These services are therefore subject to Medicare FFS coinsurance and deductibles. Out-of- network coverage varies among MA plans according to plan type, but if offered, it is covered by the MA plan, not Medicare FFS. Medicare FFS beneficiaries can receive services from any provider that accepts Medicare. Beneficiaries enrolled in cost plans may obtain Medicare prescription drug coverage by enrolling in any stand-alone Part D plan or a Part D plan offered by the cost plan sponsor. Beneficiaries enrolled in MA plans must choose a Part D plan offered by the MA plan sponsor. Beneficiaries enrolled in PFFS plans also must choose a Part D plan offered by the PFFS sponsor, unless the sponsor does not offer one, in which case beneficiaries can choose any Part D Plan. Beneficiaries enrolled in FFS may choose any Part D plan. For additional information about structural differences between cost plans, MA plans, and Medicare FFS, see appendix III. Our analysis of CMS quality scores found that cost plans' quality scores, on average, were higher than the average of competing MA plans. All 12 of the cost plans with plan summary scores, based on a scale of 1 (poor quality) to 5 (excellent quality), were rated higher than or the same as their MA competitors in the county with the cost plan's highest enrollment. These 12 cost plans enrolled about 202,500 beneficiaries, or about 70 percent of the total cost plan enrollment nationwide. (See fig. 4.) The majority of cost plans had higher scores than their MA competitors in each of the five quality dimensions that make up the plan summary score. For example, 15 of the 18 cost plans with a score for the dimension "Ratings of Health Plans Responsiveness and Care," which includes ratings of beneficiary satisfaction with the plan, were rated higher than their MA competitors. Similarly, 17 of the 20 cost plans with a score for the dimension "Staying Healthy," which includes how often beneficiaries got various screening tests, vaccines, and other check-ups, were rated higher than their competitors. The majority of cost plans also rated higher than their competitors in the other three quality dimensions reported by CMS. (See fig. 5.) In 2009, estimated average out-of-pocket costs in cost plans, MA plans, and Medicare FFS varied by the health status of beneficiaries. In general, beneficiaries 80 to 84 years old reporting poor health had lower estimated average out-of-pocket costs in cost plans compared to competitor MA plans and Medicare FFS, while beneficiaries in the same age group in cost plans reporting good or excellent health had higher estimated average out- of-pocket costs. Specifically, we found estimated out-of-pocket costs for beneficiaries reporting poor health in 11 of the 12 cost plans without drug coverage to be lower than other MA options, on average, ranging from 69 to 99 percent of the competitor MA plans. Similarly, beneficiaries reporting poor health in all of the cost plans without drug coverage had out-of-pocket costs that ranged from 67 to 92 percent of Medicare FFS. We also found out-of-pocket costs to be lower by similar amounts for beneficiaries in poor health in 4 of the 8 cost plans with drug coverage compared to other MA plans with drug coverage. (See fig. 6.) For 80- to 84-year-old beneficiaries reporting good and excellent health in 8 of the 12 cost plans without drug coverage, we found estimated out-of- pocket costs, on average, that were 5 to 37 percent higher than in competing MA plans without drug coverage. Beneficiaries in the same age category reporting good health in 6 of the 12 cost plans without drug coverage had, on average, higher out-of-pocket costs than FFS, and beneficiaries reporting excellent health in 11 of the 12 cost plans had higher estimated out-of-pocket costs than FFS. Similarly, for beneficiaries reporting good and excellent health in 7 of the 8 cost plans with drug coverage, the estimated out-of-pocket costs were 6 to 36 percent higher than competitor MA plans with drug coverage. In June 2009, 9 of the 18 organizations offering cost plans also offered MA plans in some or all of their cost plans' service area, which demonstrates that these organizations were capable of bearing financial risk. (See table 2.) These 9 organizations operated a total of 12 cost plans. The combined enrollment in these 12 cost plans in June 2009 was 124,467, or 43 percent of all beneficiaries in cost plans. Seven of the 12 cost plans enrolled fewer than 2,000 beneficiaries, and 2 of the plans enrolled more than 30,000 beneficiaries. Of the 9 organizations that offered both cost plans and MA plans, 1 organization's only MA plan was a special needs plan. Special needs plans exclusively or disproportionately enroll special needs individuals, so these plans may not be an appropriate option for the beneficiaries enrolled in this organization's cost plan. All eight organizations offering both cost plans and MA plans that were not special needs plans operated at least one MA plan in some or all of their cost plan's service area. Seven operated at least one MA plan in their cost plan's entire service area and one operated at least one MA plan in part of their cost plan's service area. CMS requires that organizations that offer an MA plan in the same service area as their cost plan close the cost plan to new enrollment. However, officials from CMS stated that there are some exceptions to this requirement. For instance, some organizations were able to keep their cost plan open to enrollment because the units of the organization that contracted with CMS were two distinct entities. The officials stated that they may inspect these organizations to ensure that they do not share beneficiary information across companies and do not route certain beneficiaries into different plans to maximize their profits. The Medicare managed care enrollment composition for the eight organizations that operated both a cost plan and an MA plan that were not special needs plans varied. All eight of these organizations had a total enrollment, including both their cost plan enrollment and MA enrollment, of at least 3,000 beneficiaries. Four of the eight organizations enrolled more than 95 percent of their total Medicare managed care enrollment in their MA plans. Another organization's Medicare managed care enrollment was fairly evenly split between its MA plan and cost plan. The remaining three organizations had more than 75 percent of their Medicare managed care enrollment in their cost plan. Six of the 11 MA plans offered by organizations that offered both cost plans and MA plans were local HMOs (see table 3). Officials from organizations that offered cost plans cited potential future changes to MA payments and difficulty assuming financial risk as concerns about converting cost plans to MA plans. Officials also expressed concerns about the potential disruption to beneficiaries that could be caused by transferring beneficiaries in cost plans to an MA plan. Officials from organizations that offered cost plans reported that potential changes to MA payments were a significant concern in their decision about whether to convert their cost plans to MA plans. Officials from 13 of the 18 organizations that offered cost plans identified past payment changes in the Medicare risk programs and the potential for future payment changes in the MA program as making the decision to convert difficult, though 6 of these organizations offered an MA plan in some or all of their cost plan's service area in 2009. For instance, officials from one organization who told us that they would prefer to convert their cost plan to an MA plan, said they have not done so because of concerns future MA payment changes may then necessitate closing the plan. Recent congressional and administration proposals have called for slowing the increase in or reducing MA payments. Officials from some organizations said that the size of their enrollment was insufficient to manage the financial risk associated with the MA program. Officials from 5 of the 18 organizations that offered cost plans stated that their enrollment was too low to spread financial risk. For example, an official from 1 of these 5 organizations stated that, because of the plan's location in a rural area, its enrollment would never be large, and its cost plan could not take on the financial risk. This official told us that a few high-cost beneficiaries would consume the payments the plan would receive from CMS. In June 2009, the cost plan enrollment levels for these 5 organizations ranged from fewer than 500 beneficiaries to about 37,000 beneficiaries. Despite the concerns of these 5 organizations, we found that plans of equivalent size were able to operate in the MA program. Nationwide, 130 MA plans, or about 21 percent of all MA plans, enrolled fewer than 500 beneficiaries, and 69 percent of MA plans enrolled from 501 to 37,000 beneficiaries. Eleven percent of MA plans enrolled more than 37,000 beneficiaries. According to CMS officials, after 3 years of operation, MA organizations should be able to meet the agency's enrollment threshold of 1,500 in rural areas and 5,000 in urban areas. However, these officials noted that the total enrollment can include enrollment from other lines of business if the enrollment is with the same legal entity that holds the contract with CMS. Officials from 3 of the 18 organizations that offered cost plans expressed concern about meeting risk-based capital (RBC) requirements, should they be required to convert to an MA plan. An official from the Medicare Cost Contractors Alliance also expressed concern about the ability of some organizations that offered cost plans to raise RBC in the event of a required conversion to an MA plan. The official noted that nonprofit organizations operate most cost plans, and some of these organizations have reservations about their ability to raise additional capital. NAIC officials confirmed that if an organization converted a cost plan to an MA plan, thus assuming more financial risk, the organization would probably need to raise more capital, though the extent of capital needed would depend on the size of the organization and how much of the organization's business was dependent on Medicare enrollment. Two of the three organizations that reported concerns about RBC did not have an MA plan in June 2009. The third organization operated at least one MA plan, but nearly 85 percent of the organization's Medicare managed care enrollment was in its cost plan. Officials from more than half of the 18 organizations with cost plans stated they were concerned about the potential disruption to beneficiaries if they were required to convert to a MA plan. Some of these officials noted that the beneficiaries enrolled in their cost plan(s) would not understand the process and would default to Medicare FFS. Officials from two organizations with closed cost plans stated that they have tried in the past to transfer the beneficiaries enrolled in their cost plan into the organization's MA plan, but had trouble convincing beneficiaries to change plans. In general, if an organization decided to convert a cost plan to an MA plan, the organization would need to close the cost plan and open a new MA plan, if the organization did not already have one. Beneficiaries who wish to enroll in an MA plan offered by the organization that offered their cost plan must affirmatively enroll in the organization's MA plan. Those who do not choose a plan--whether unintentionally or by design--will be enrolled by default in Medicare FFS. CMS does have a standard process in place to alert beneficiaries when their MA or cost plan discontinues serving the beneficiaries' area. CMS requires cost plans that discontinue serving an area to notify each Medicare beneficiary enrolled in the plan by mail at least 60 days prior to the end of the contract period and notify the general public at least 30 days prior to the end of the contract period. CMS stated that they would strongly suggest that the cost plans adhere to the more stringent MA requirements regarding plan closures, which require the organization offering the plan to notify each Medicare beneficiary enrolled in the plan at least 90 days before it stops operating by sending a CMS-approved notice to beneficiaries describing available alternatives for obtaining Medicare services within the service area, including MA plans and Medicare FFS. The organization also must publish a notice in one or more local newspapers at least 90 days before the end of the calendar year to alert the public. We provided a draft of this report to CMS and the Medicare Cost Contractors Alliance. CMS provided us with technical comments, which we have incorporated as appropriate, and representatives from the Medicare Cost Contractors Alliance provided us with oral comments. Officials from the Medicare Cost Contractors Alliance stated that it was important to know whether cost plans were open or closed to enrollment in our discussion of competitors and the discussion of organizations offering both cost plans and MA plans. Information on the enrollment status of cost plans is provided in appendices I and II. The Medicare Cost Contractors Alliance officials also stated that cost plans have been in the Medicare managed care market significantly longer than most MA plans and it is this experience that has led the organizations to be weary of potential payment changes to the MA program. In addition, the Medicare Cost Contractors Alliance officials provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Administrator of CMS and other interested parties. In addition, this 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. GAO staff who made major contributions to this report are listed in appendix IV. As of December 2009, 18 organizations operated 22 cost plans, with enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were open to enrollment. Nonprofit organizations operated 17 of the 22 cost plans. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) provides that, the Secretary of Health and Human Services would not extend or renew cost plan contracts for service areas where, during the entire previous year, two or more regional coordinated care plans (CCP) or two or more local CCPs were offered by different organizations, if the MA plans met specified enrollment thresholds. Private fee-for-service plans are not CCPs. Appendix III: Structural Differences among Cost Plans, MA Plans, and Medicare FFS for Beneficiaries Medicare Advantage (MA) Preferred Provider Organization (PPO) (Local & Regional) MA Health Maintenance Organization (HMO) Medicare Fee-For- Service (FFS) Enrollment period Cost plans that are open to enrollment must have an open enrollment period of at least 30 consecutive days annually. When beneficiary becomes eligible for Medicare, during the Annual Election Period (AEP), the MA Open Enrollment Period (MA OEP), or a Special Enrollment Period (SEP). When beneficiary becomes eligible for Medicare, during the AEP, the MA OEP, or a SEP. When beneficiary becomes eligible for Medicare, during the AEP, the MA OEP, or a SEP. When beneficiary becomes eligible for Medicare, during the general enrollment period of January 1st to March 31st of each year, or during a SEP. Beneficiary may disenroll at any time and return to FFS. In most cases, beneficiary must stay enrolled for the calendar year in which coverage begins. In most cases, beneficiary must stay enrolled for the calendar year in which coverage begins. In most cases, beneficiary must stay enrolled for the calendar year in which coverage begins. In most cases, beneficiary must stay enrolled until next AEP or MA- OEP. Through Medicare FFS; beneficiary is responsible for FFS coinsurance and deductibles. Services received out of network will generally cost more, but they are covered by the plan. Beneficiary generally responsible for full cost of out-of- network services, however some plans may cover certain services out of network at a higher cost. Any Medicare- approved provider that accepts the plan's terms. Any provider that accepts Medicare. Any stand-alone Medicare Prescription Drug Plan (PDP) or PDP offered by the cost plan organization. A Part D plan offered by the MA organization. A Part D plan offered by the MA organization. A PDP offered by the PFFS organization. If the organization does not offer a PDP plan, beneficiaries can choose any PDP. Any PDP. Subject to MA plan's internal appeal process. Subject to MA plan's internal appeal process. Subject to MA plan's internal appeal process. Subject to Medicare appeals process. The Annual Election Period (AEP) is from November 15th to December 1st, the MA Open Enrollment Period (MA OEP) is from January 1st to March 1st, and Special Enrollment Periods (SEP) apply whenever a beneficiary meets certain criteria, such as moving out of their current plan's service area. Beneficiaries have the right to appeal coverage decisions. This chart relates to the first of the five levels of appeals. In addition to the contact above, Christine Brudevold, Assistant Director; Lori Achman; Julianne Flowers; Hannah Marston; Sarah Marshall; Elizabeth T. Morrison; and Amanda Pusey made key contributions to this report.
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Medicare cost plans--managed care plans paid based on the reasonable costs of delivering Medicare-covered services--enroll a small number of beneficiaries compared to Medicare Advantage (MA), Medicare's managed care program in which the plans accept financial risk if their costs exceed fixed payments received for each enrolled beneficiary. Despite the small enrollment, industry representatives stated that cost plans provide a managed care option in areas that traditionally had few or no MA plans. Current law allows existing cost plans to continue operating unless specific MA plans of sufficient enrollment serve the same area. In such cases, the cost plan must discontinue serving that area beginning in 2011. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required the Government Accountability Office (GAO) to examine issues related to the conversion of Medicare cost plans to MA plans. In response, GAO (1) determined the MA options available to beneficiaries in cost plans, (2) described key differences for beneficiaries between cost plans, MA plans, and Medicare fee-for-service (FFS); (3) determined the extent to which organizations offering cost plans also offer MA plans; and (4) described concerns cost plans have about converting to MA plans. GAO analyzed data from the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare. GAO also reviewed requirements for Medicare managed care plans and interviewed officials from all Medicare cost plans and CMS. All Medicare beneficiaries enrolled in the 22 cost plans had multiple MA options available to them. Nearly all beneficiaries enrolled in cost plans had at least 5 MA plans serving their county in June 2009, and more than 57 percent had a choice of 15 or more MA plans. Some of the differences between cost plans and MA plans that affect beneficiaries are out-of-network coverage, enrollment periods, and prescription drug coverage. Cost plans' quality scores, on average, were higher than the average of competing MA plans' scores in the county with the cost plan's highest enrollment. Estimated out-of-pocket costs varied between cost plans and other options depending on the self-reported health status of the beneficiary. In general, beneficiaries reporting poor health had lower estimated average out-of-pocket costs in most cost plans compared to competitor MA plans and FFS, while beneficiaries reporting good or excellent health had relatively higher estimated costs in most cost plans compared to MA plans and FFS. Half of the 18 organizations offering cost plans also offered at least one MA plan in some or all of their cost plans' service area. These 9 organizations operated a total of 12 cost plans. In general, organizations that offer cost plans and MA plans in the same service area must close their cost plan to enrollment. Officials from organizations that offered cost plans cited potential future changes to MA payments and difficulty assuming financial risk as concerns about converting cost plans to MA plans. Unlike cost plans, MA plans assume financial risk if payments from CMS do not cover their costs. Officials from 13 of the 18 organizations offering cost plans identified past and the potential for future payment changes in the MA program as reasons the decision to convert was difficult, though 6 of these organizations offered an MA plan in some or all of their cost plan's service area in 2009. Additionally, officials from 5 organizations said that their enrollment was insufficient to manage the financial risk plans would need to accept in the MA program. Officials from more than half of the organizations that offered cost plans also expressed concerns about the potential disruption to beneficiaries caused by transferring beneficiaries from cost plans to MA plans. GAO provided a draft of this report to CMS. CMS provided GAO with technical comments, which were incorporated as appropriate.
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Information security is a critical consideration for any organization that depends on information systems and computer networks to carry out its mission or business and is especially important for government agencies, where maintaining the public's trust is essential. While the dramatic expansion in computer interconnectivity and the rapid increase in the use of the Internet have enabled corporations such as FDIC to better achieve its mission and provide information to the public, the changes also expose federal networks and systems to various threats. For example, the Federal Bureau of Investigation has identified multiple sources of cyber threats, including foreign nation states engaged in information warfare, domestic criminals, hackers, virus writers, and disgruntled employees working within an organization. According to a May 2005 report by the U.S. Secret Service and the Computer Emergency Response Team (CERT) Coordination Center, "insiders pose a substantial threat by virtue of their knowledge of, and access to, employer systems and/or databases." These concerns are well-founded for a number of reasons, including the dramatic increase in reports of security incidents, the ease of obtaining and using hacking tools, and steady advances in the sophistication and effectiveness of attack technology. For example, the number of incidents reported by federal agencies to the United States Computer Emergency Readiness Team (US-CERT) has increased dramatically over the past 3 years, increasing from 3,634 incidents reported in fiscal year 2005 to 13,029 incidents in fiscal year 2007 (about a 259 percent increase). Without proper safeguards, systems are vulnerable to individuals and groups with malicious intent who can intrude and use their access to obtain or manipulate sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. Our previous reports, and those by inspectors general, describe persistent information security weaknesses that place federal agencies at risk of disruption, fraud, or inappropriate disclosure of sensitive information. Accordingly, we have designated information security as a governmentwide high-risk area since 1997, a designation that remains in force today. Recognizing the importance of securing federal agencies' information systems, Congress enacted the Federal Information Security Management Act (FISMA) in December 2002 to strengthen the security of information and systems within federal agencies. FISMA requires each agency to develop, document, and implement an agencywide information security program to provide information security for the information and systems that support the operations and assets of the agency, using a risk- based approach to information security management. FDIC is an independent agency created by Congress that maintains the stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships. Congress created FDIC in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The corporation identifies, monitors, and addresses risks to the deposit insurance funds when a bank or thrift institution fails. The Bank Insurance Fund and the Savings Association Insurance Fund were established as FDIC responsibilities under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which sought to reform, recapitalize, and consolidate the federal deposit insurance system. The act also designated FDIC as the administrator of the Federal Savings & Loan Insurance Corporation Resolution Fund, which was created to complete the affairs of the former Federal Savings & Loan Insurance Corporation and liquidate the assets and liabilities transferred from the former Resolution Trust Corporation. The Bank Insurance Fund and the Savings Association Insurance Fund merged into the Deposit Insurance Fund on February 8, 2006, as a result of the President signing the Federal Deposit Insurance Reform Act of 2005 into law. With the congressional approval of the Federal Deposit Insurance Reform Act of 2005, FDIC was required to ensure that approximately 7,400 eligible member institutions received a one-time assessment credit totaling $4.7 billion. FDIC insures deposits in excess of $4 trillion for its 8,571 member institutions. It had a budget of about $1.1 billion for calendar year 2007 to support its activities in managing the funds. For that year, it processed almost 16.4 million financial transactions. FDIC relies extensively on computerized systems to support its financial operations and store the sensitive information that it collects. Its local and wide area networks interconnect these systems. To support its financial management functions, the corporation relies on many systems including the NFE, a corporate-wide effort focused on implementing an enterprisewide, integrated software system. In addition, the corporation relies on the AIMS II to calculate and collect FDIC deposit insurance premiums and Financing Corporation bond principal and interest amounts from insured financial institutions. FDIC financial systems also process and track financial transactions such as disbursements made to support operations. Under FISMA, the Chairman is responsible for, among other things, (1) providing 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 systems and information; (2) ensuring that senior agency officials provide information security for the information and information systems that support the operations and assets under their control; and (3) delegating to the corporation's CIO the authority to ensure compliance with the requirements imposed on the agency under FISMA. Two deputies to the Chairman--the Chief Financial Officer and Chief Operating Officer--have information security responsibilities. The Chief Financial Officer has information security responsibilities insofar as he is part of a senior management group that oversees the NFE and AIMS II security team. He is also responsible for the preparation of financial statements and ensures that they are fairly presented and demonstrate discipline and accountability. In addition, the Chief Operating Officer has information security responsibilities. He supervises the CIO, who is responsible for developing and maintaining a corporate-wide information security program and for developing and maintaining information security policies, procedures, and control techniques that address all applicable requirements. The CIO also serves as the authorizing official with the authority to approve the operation of the information system at an acceptable level of risk to the enterprise. The CIO supervises the Chief Information Security Officer, who is in charge of information security at the corporation. The Chief Information Security Officer serves as the CIO's designated representative responsible for the overall support of the certification and accreditation activities. FDIC has made significant progress in mitigating previously reported information security weaknesses. Specifically, it has corrected or mitigated 16 of the 21 weaknesses that we had previously reported as unresolved at the completion of the 2006 audit (see app. II). For example, FDIC has enhanced physical security controls, instructed personnel to use more secure e-mail methods to protect the integrity of certain accounting data transferred over an internal communication network, updated the NFE security plan to clearly identify all common security controls, developed procedures to report computer security incidents, and updated the NFE contingency plan. While the corporation has made significant progress in resolving known weaknesses, it has not completed actions to mitigate the remaining five weaknesses. Specifically FDIC has not effectively generated NFE audit reports; maintained a complete listing of all NFE configuration items, including application software, data files, software development tools, hardware, and documentation; properly segregated incompatible system-related functions, duties, and capacities for an individual associated with the NFE; effectively implemented or accurately reported the status of its remedial properly updated the NFE risk assessment. FDIC stated it has initiated and completed some actions to mitigate the remaining five prior year weaknesses. However, we have not verified that these actions have been completed. Not addressing these actions could leave the corporation's financial data vulnerable to an increased risk of unauthorized access and manipulation. Appendix II describes the previously reported weaknesses in information security controls that were unresolved at the time of our prior review and the status of the corporation's corrective actions. Although FDIC has made significant progress improving its information system controls, old and new weaknesses could limit the corporation's ability to effectively protect the confidentiality, integrity, and availability of its financial systems and information. In addition to the five previously reported weaknesses that remain unresolved, newly identified weaknesses in access controls and configuration management controls introduce risk to two key financial systems. A key reason for these weaknesses is that FDIC did not always fully implement key information security program activities. As a result, increased risk exists of unauthorized disclosure or modification of financial information. A basic management objective for any organization is to protect the resources that support its critical operations and assets from unauthorized access. Organizations accomplish this objective by designing and implementing controls that are intended to prevent, limit, and detect unauthorized access to computer resources (data, programs, equipment, and facilities), thereby protecting them from unauthorized disclosure, modification, and loss. FDIC developed policies and procedures on access control which, among other things, stated that login ID and password combinations should not be shared, access to application source code should be restricted unless users have a legitimate business need for access, and passwords should be adequately encrypted. However, FDIC did not always implement certain access controls, as the following examples show: Multiple FDIC users in a production control unit in one division and multiple users in another division share the same NFE logon ID and password. As a result, increased risk exists that individual accountability for authorized, as well as unauthorized system activity could be lost. All users of the AIMS II application have full access to the application production code although their job responsibilities do not require such access. As a result, increased risk exists that individuals could circumvent security controls and deliberately or inadvertently read, modify, or delete critical source code. One database connection could be compromised because the password is not adequately encrypted with a Federal Information Processing Standards 140-2 compliant algorithm. As a result, increased risk exists that the database could be compromised by unauthorized individuals who could then potentially change, add, or delete information. Our Federal Information System Controls Audit Manual states that configuration management involves the identification and management of security features for all hardware and software components of an information system at a given point and systematically controls changes to that configuration during the system's life cycle. An effective configuration management process consists of four primary areas, each of which should be described in a configuration management plan and implemented according to the plan. The four are as follows: Configuration identification: procedures for identifying, documenting, and assigning unique identifiers (for example, serial number and name) to requirements, design documents, and the system's hardware and software component parts, generally referred to as configuration items; Configuration control: procedures for evaluating and deciding whether to approve changes to a system's baseline configuration; decision makers such as a Configuration Control Board evaluate proposed changes on the basis of costs, benefits, and risks, and decide whether to permit a change; Configuration status accounting: procedures for documenting the status of configuration items as a system evolves; and Configuration auditing: procedures for determining traceability between the actual system and the documentation describing it (such as requirements documentation), thereby ensuring that the documentation used to support decision making is complete and correct. Configuration audits are performed when a significant system change is introduced and help to ensure that only authorized changes are being made and that systems are operating securely and as intended. FDIC has made progress in implementing each of the four configuration management areas. Specifically, for configuration identification, FDIC has documented procedures for identifying and assigning unique identifiers and naming configuration items. For configuration control, it has documented procedures for requesting changes to configuration items, established configuration management plans that document employee roles and responsibilities, developed a Change Control Board that reviews changes to configuration items, and implemented configuration management tools. In addition, for configuration status accounting, FDIC has developed configuration management status accounting reports. Further, for configuration auditing, it has conducted testing and evaluation of releases. However, FDIC has not executed adequate controls over the configuration management of the NFE and AIMS II information system components. Specifically, it did not adequately (1) maintain a full and complete baseline for system requirements; (2) assign unique identifiers to configuration items; (3) authorize, document, and report all configuration changes; and (4) perform configuration audits. As a result, increased risk exists that functional requirements for these system components were not adequately implemented, managed, or maintained. In addition, increased risk exists that inconsistencies among requirements were not identified, and documents were not correctly associated with the correct releases. An entity should maintain current configuration information in a formal configuration baseline that contains the configuration information formally designated at a specific time during a product's or product component's life. The Software Engineering Institute's Capability Maturity Model®️ Integration (CMMI) defines a baseline as a set of specifications or work products that has been formally reviewed and agreed on, which thereafter serves as the basis for further development or delivery, and that can be changed only through change control procedures. The NFE configuration management plan states that a baseline is a set of configuration items and their corresponding changes. The plan also states that changes to the requirements baseline should be controlled as part of configuration management throughout the life of the product. FDIC did not maintain a full and complete requirements baseline for NFE and AIMS II. For example, it could not provide a complete history of all approved requirements and changes to those requirements for NFE. Furthermore, although FDIC officials have stated that RequisitePro is the system of record for requirements, not all requirements for NFE or AIMS II were in RequisitePro. For example, requirements that were documented in the Software Requirement Specification (SRS) and architecture design documents were not included in RequisitePro. As a result, increased risk exists that requirements for these two systems were not adequately implemented, managed, or maintained and that the system may not function as intended. Software Engineering Institute's CMMI and the FDIC configuration management plan state that configuration items should have unique identifiers and naming conventions. Identifying items that fall under configuration management control is a key step in the configuration management process. A consistent naming convention for configuration items is important to ensure that requirements are consistently and uniquely identified, verifiable, and traceable. When the requirements have unique identifiers and are managed well, traceability can be established from the source requirement to its lower level requirements and from the lower level requirements back to the source. Such bidirectional traceability through unique identifiers helps determine that all source requirements have been completely addressed and that all lower level requirements can be traced to a valid source. FDIC did not consistently assign or use unique identifiers to identify or trace NFE and AIMS II configuration items such as requirements. Specifically, FDIC assigned multiple identifiers for the same requirement and did not always use the assigned identifiers to identify requirements in certain documents. For example, as illustrated in table 1 as follows: NFE used "SR numbers" to identify requirements in the implementation report, test plan, test summary, and RequisitePro traceability matrix report but not in the SRS and the design document. The NFE requirement numbers on the implementation report and the RequisitePro traceability matrix report were different compared with those identified on the test plan and test summary for the same requirement. For example, the configuration item identifier for change request 4739 was "SR36" on the implementation report and the RequisitePro traceability matrix, but was "SR7" on the test plan and test summary. FDIC also did not consistently assign or use unique identifiers to identify or trace AIMS II requirements. For example, the following illustrates this also in table 2: AIMS II uses "paragraph numbers" to identify requirements in the SRS, test plan, and RequisitePro traceability matrix report but not in the architecture design document or some instances in the test summary. The SRS paragraph number for one particular requirement is described as located at 3.1.1.6; however, the RequisitePro traceability matrix report points to the wrong paragraph number 3.1.1.2 and introduces another identifier "REQS2." As a result of the lack of consistency in assigning and using unique identifiers for requirements, FDIC had many problems in tracing requirements. For example, our review of the AIMS II release 10.0 SRS, Software Architecture Document, test summary, and RequisitePro reports showed several misalignments in 96 requirements numbers described in the RequisitePro traceability matrix. The following are examples: Requirements 3.1.2.7 to 3.1.2.26 are documented in the test summary document but do not appear in the RequisitePro report. Requirements 3.1.4.15 through 3.1.4.26 were missing from the SRS and test summary, though they were documented in the RequisitePro report. A requirement is also traced to SRS 3.1.1.19 when there is no SRS paragraph 3.1.1.19. Table 3 illustrates an example of a misaligned AIMS II requirement (3.1.1.8). In this example, "high priority" requirement REQS 8 on the RequisitePro traceability matrix is linked to a requirement in the SRS described as paragraph 3.1.1.8. As can be seen, the requirement has the same number, but the requirement is not the same. Consequently, traceability cannot be adequately established from the source requirement to its lower level requirements and from the lower level requirements back to the source to ensure that all source requirements have been completely addressed. The Software Engineering Institute's CMMI and the FDIC configuration management plan state that an entity should properly control all configuration changes. This covers a wide range of activities to include the following: a change control board should authorize and approve all configuration changes, change requests should be adequately documented, and status accounting reports should allow users to see baselines, trace requirements throughout the release, and be accurate. However, FDIC did not adequately authorize, document, and report all configuration changes. The FDIC Change Control Board did not authorize and approve all configuration changes for NFE and AIMS II. For example, PeopleSoft access control changes were not made through the Change Control Board. Change requests were not adequately documented. For example, implementation date and version number were left out on all change requests for NFE and AIMS II. Status accounting reports neither showed baselines, traced requirements throughout the release, nor were accurate. For example, FDIC could not generate a complete requirements baseline report for NFE or AIMS II. In addition, it could not produce configuration management reports of all PeopleSoft configuration items. Furthermore, traceability reports were manually generated and had many errors. As a result, increased risk exists that unauthorized changes could be made or introduced to FDIC's systems. Software Engineering Institute's CMMI and the FDIC configuration management plans state that configuration audits should be conducted to verify that the teams are following the configuration management process and to ensure all approved items are built. These audits consist of a physical and functional configuration audit. The physical audit consists of validating and verifying that all items are under configuration management control, configuration items are identified, and team members are following the configuration management process. Another type of configuration audit that must be conducted is the functional configuration audit. A functional configuration audit consists of tracing configuration items from requirements and design to the final delivered release baseline. FDIC performed limited configuration auditing of NFE and AIMS II. For example, both NFE and AIMS II had developed auditing check lists and made sure independent testing was conducted. However, FDIC did not adequately ensure that configuration audits verified and validated the configuration management process and ensured that all approved items were built. For example, FDIC did not verify and validate in a physical audit that all items are under configuration management control since changes were being made without the Configuration Control Board's approval. In addition, teams were not assigning unique identifiers as required by the configuration management plans. Furthermore, FDIC did not verify and validate in a functional audit that adequate traceability existed since requirements could not be traced backward and forward from design to the final delivered release baseline. As a result, the risk exists that the configuration audits did not adequately verify and validate that functional requirements were adequately implemented, managed, and maintained. FDIC has made important progress in implementing the corporation's information security program; however, a key reason for these information security weaknesses is that FDIC did not always fully implement key information security program activities. FDIC requires its components to implement information security program activities in accordance with FISMA requirements, Office of Management and Budget (OMB) policies, and applicable National Institute of Standards and Technology (NIST) guidance. Among other things, FISMA requires agencies to develop, document, and implement periodic assessments of the risk and magnitude of harm that could result from the unauthorized access, use, disclosure, disruption, modification, or destruction of information or information systems; plans for providing adequate information security for networks, facilities, security awareness training to inform personnel of information security risks and of their responsibilities in complying with agency policies and procedures, as well as training personnel with significant security responsibilities for information security; periodic testing and evaluation of the effectiveness of information security policies, procedures, and practices, performed with a frequency depending on risk, but no less than annually, and that includes testing of management, operational, and technical controls for every system identified in the agency's required inventory of major information systems; a process for planning, implementing, evaluating, and documenting remedial actions to address any deficiencies in information security policies, procedures, and practices of the agency; procedures for detecting, reporting, and responding to security incidents; plans and procedures to ensure continuity of operations for information systems that support the operations and assets of the agency. FDIC has taken several actions to implement elements of its information security program. For example, FDIC has included nonmajor applications in major systems security plans and developed a new security plan template; implemented a risk assessment process that identified possible threats and vulnerabilities to its systems and information, as well as the controls needed to mitigate potential vulnerabilities; implemented a test and evaluation process to assess the effectiveness of information security policies, procedures, and practices; ensured that vulnerabilities identified during its tests and evaluations are addressed in its remedial action plans; established a system for documenting and tracking corrective actions; recognized that NFE users are not physically or logically separated in terms of what they are allowed to access within NFE; implemented an incident handling program, including establishing a team and associated procedures for detecting, responding to, and reporting computer security incidents; developed an incident response policy to review events related to data loss, disclose, inappropriate access and loss of equipment in the Division of Finance to determine whether the events are computer security incidents; and developed the corporation's business continuity of operations, updated the contingency plans and business impact analyses, and assessed the effectiveness of the plans through testing at a disaster recovery site. However, FDIC did not always fully implement key information security program activities for NFE and AIMS II. For example, it did not adequately conduct configuration control testing or complete remedial action plans in a timely manner to include key information. Until FDIC fully performs key information security program activities, its risk is increased because it may not be able to maintain adequate control over its financial systems and information. A key element of an information security program is testing and evaluating system configuration controls to ensure that they are appropriate, effective, and comply with policies. According to NIST, the organization should (1) develop, document, and maintain a current baseline configuration of the information system and update the baseline configuration of the information system and (2) assess the degree of consistency between system documentation and its implementation in security tests, to include tests of configuration management controls. FDIC did not adequately test NFE configuration management controls. We found that the depth of FDIC's system testing and evaluation for configuration management controls were insufficient since we identified vulnerabilities in the configuration management process during our testing that FDIC did not. Specifically, the NFE system test and evaluation report stated that FDIC developed, documented, and maintained a current baseline configuration; however, as we have previously stated in the report, we found that FDIC did not maintain a full and complete requirements baseline for NFE. In addition, the NFE system test and evaluation stated that FDIC authorizes and controls changes to the information system; however, as we have previously stated in the report, we found that some configuration changes were not being authorized and controlled by the Configuration Control Board. Furthermore, the NFE system test and evaluation stated that configuration items were uniquely identified and stored in configuration management libraries, yet we found FDIC had problems assigning unique identifiers to configuration items for NFE. As a result, without adequate tests and evaluations of configuration management controls, FDIC has limited assurance that the nature of configuration controls are being effectively tested and reported. A remedial action plan is a key component described in FISMA. Such a plan assists agencies in identifying, assessing, prioritizing, and monitoring progress in correcting security weaknesses that are found in information systems. In its annual FISMA guidance to agencies, OMB requires that agencies' remedial action plans (also known as plan of action and milestones) include the resources necessary to correct an identified weakness. According to FDIC policy, the agency should document weaknesses found during security assessments. The policy further requires that FDIC track the status of resolution of all weaknesses and verify that each weakness is corrected. The NFE remedial action plan was not completed in a timely manner and did not include necessary and key information. FDIC performed a system test and evaluation of NFE in November 2007 and developed a plan of action and milestones to correct any identified weaknesses. However, the plan of action and milestones report did not contain necessary and key information such as the contact that will be responsible for the corrective action, when the action will be closed, and status of the action. For example, the plan of action and milestones document included problems with the PeopleSoft security roles and functions; however, it did not state how FDIC would address these issues. FDIC officials stated that they were in the process of completing the plan of action and milestones with the required information but had not established a milestone date for doing so. Until the plan contains necessary and key information, FDIC's assurance is reduced that the proper resources will be applied to known vulnerabilities or that those vulnerabilities will be properly mitigated. FDIC has made significant progress in correcting previously reported weaknesses and has taken steps to improve information security. Although five weaknesses from prior reports remain unresolved and new control weaknesses related to access control and configuration management were identified, the remaining unresolved weaknesses previously reported and the newly identified weaknesses did not pose significant risk of material misstatements in the corporation's financial statements for calendar year 2007. However, these weaknesses increase preventable risk to the corporation's financial and sensitive systems and information and warrant management's immediate attention. A key reason for these weaknesses is that FDIC did not always fully implement key information security program activities. Continued management commitment to mitigating known information security weaknesses in access controls and configuration management and fully implementing its information security program will be essential to ensure that the corporation's financial information will be adequately protected from unauthorized disclosure, modification, or destruction, and its management decisions may be based on reliable and accurate information. In order to sustain progress to its program, we recommend that the Chief Operating Officer direct the CIO to take the following 10 actions: Improve access controls by ensuring that NFE users do not share login ID and password accounts; AIMS II users do not have full access to application source code, unless they have a legitimate business need; and the database connection is adequately encrypted with passwords that comply with FIPS 140-2. Improve NFE and AIMS II configuration management by ensuring that full and complete requirement baselines are developed and implemented; configuration items have unique identifiers; configuration changes are properly authorized, documented, and reported; physical configuration audits verify and validate that all items are under configuration management control, all changes made are approved by the configuration control board, and that teams are assigning unique identifiers to configuration items; and functional configuration audits verify and validate that requirements have bidirectional traceability and can be traced from various documents. Improve the security management of NFE and AIMS II by ensuring that users adequately test configuration management controls as part of the system test and evaluation process and develop in a timely manner a detailed plan of action and milestones to include who will be responsible for the corrective action, when the action will be closed, and status of the action for NFE. We received written comments on a draft of this report from FDIC's Deputy to the Chairman and Chief Financial Officer (which are reprinted in app. III). The Deputy stated that FDIC concurred with one recommendation and partially concurred with the remaining nine. He added that, in general, FDIC found the issues to be more limited than presented in the draft report, yet FDIC has taken action or will take action to improve configuration management and information security. We believe that the issues we presented in the report are accurately presented and can increase the risk of unauthorized disclosure, modification, or destruction of the corporation's financial information and that management decisions may be based on unreliable or inaccurate information. Regarding the nine recommendations to which FDIC partially concurred, the Deputy stated that the corporation has developed or implemented plans to adequately address the underlying risks that prompted these nine recommendations, and in some instances, pursued alternative corrective actions. If the corporation effectively implements the alternative corrective actions to reduce risk, it will satisfy the intent of the recommendations. In addition, the Deputy provided technical comments, which we incorporated into the report as appropriate. We are sending copies of this report to the Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs; the Chairman and Ranking Member of the House Committee on Financial Services; members of the FDIC Audit Committee; officials in FDIC's divisions of information resources management, administration, finance; the FDIC inspector general; and other interested parties. We also will 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. If you have any questions regarding this report, please contact Gregory C. Wilshusen at (202) 512-6244 or Dr. Nabajyoti Barkakati at (202) 512-4499. We can also be reached by e-mail at [email protected] and [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. The objectives of our review were to assess (1) the progress the Federal Deposit Insurance Corporation (FDIC) has made in mitigating previously reported information security weaknesses and (2) the effectiveness of FDIC's controls in protecting the confidentiality, integrity, and availability of its financial systems and information. An integral part of our objectives was to support the opinion on internal control in GAO's 2007 financial statement audit by assessing the controls over systems that support financial management and the generation of the FDIC funds' financial statements. To determine the status of FDIC's actions to correct or mitigate previously reported information security weaknesses, we identified and reviewed its information security policies, procedures, and guidance. We reviewed prior GAO reports to identify previously reported weaknesses and examined FDIC's corrective action plans to determine which weaknesses FDIC had reported were corrected. For those instances where FDIC reported it had completed corrective actions, we assessed the effectiveness of those actions. To determine whether controls over key financial systems were effective, we tested the effectiveness of information security and information technology-based internal controls. We concentrated our evaluation primarily on the controls for financial applications, enterprise database applications, and network infrastructure associated with the New Financial Environment (NFE) release 1.43 and the Assessment Information Management System II (AIMS II) release 10.0 applications. Our evaluation was based on our Federal Information System Controls Audit Manual, which contains guidance for reviewing information system controls that affect the confidentiality, integrity, and availability of computerized information. Using NIST standards and guidance, and FDIC's policies, procedures, practices, and standards, we evaluated controls by observing methods for providing secure data transmissions across the network to determine whether sensitive data was being encrypted; testing and observing physical access controls to determine if computer facilities and resources were being protected from espionage, sabotage, damage, and theft; evaluated the control configurations of selected servers and database inspecting key servers and workstations to determine whether critical patches had been installed or were up-to-date; examining access responsibilities to determine whether incompatible functions were segregated among different individuals; and, observing end-user activity pertaining to the process of preparing FDIC financial statements. Using the requirements of the Federal Information Security Management Act (FISMA), which establishes key elements for an effective agencywide information security program, we evaluated FDIC's implementation of its security program by reviewing FDIC's risk assessment process and risk assessments for two key FDIC systems that support the preparation of financial statements to determine whether risks and threats were documented consistent with federal guidance; analyzing FDIC's policies, procedures, practices, and standards to determine their effectiveness in providing guidance to personnel responsible for securing information and information systems; analyzing security plans to determine if management, operational, and technical controls were in place or planned and that security plans were updated; examining training records for personnel with significant security responsibilities to determine if they received training commensurate with those responsibilities; analyzing configuration management plans and procedures to determine if configurations are being managed appropriately; analyzing security testing and evaluation results for two key FDIC systems to determine whether management, operational, and technical controls were tested at least annually and based on risk; examining remedial action plans to determine whether they addressed vulnerabilities identified in the FDIC's security testing and evaluations; and examining contingency plans for two key FDIC systems to determine whether those plans had been tested or updated. We also discussed with key security representatives and management officials, whether information security controls were in place, adequately designed, and operating effectively. We conducted this audit work from October 2007 to May 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. This appendix describes the status of the information security weaknesses we reported last year. It also includes the status of weaknesses from previous reports that were not fully implemented during the time of our last review. 1. FDIC did not effectively limit network access to sensitive personally identifiable and business proprietary information. Audit and monitoring of security-related events 2. FDIC did not effectively generate NFE audit reports or review them. 3. FDIC did not use secure e-mail methods to protect the integrity of certain accounting data transferred over an internal communication network. 4. FDIC did not adequately control physical access to the Virginia Square computer processing facility. 5. FDIC did not apply physical security controls for some instances. For example, an unauthorized visitor was able to enter a key FDIC facility without providing proof of identity, signing a visitor log, obtaining a visitor's badge, or being escorted. 6. FDIC did not apply physical security controls for some instances. For example, a workstation that had access to a payroll system was located in an unsecured office. Configuration management (formerly application change control) 7. Procedures have not been consistently followed for authorizing, documenting, and reviewing all application software changes. 8. FDIC did not consistently implement configuration management controls for NFE. Specifically, the corporation did not develop and maintain a complete listing of all configuration items and a baseline configuration for NFE, including application software, data files, software development tools, hardware, and documentation. 9. FDIC did not ensure that all significant system changes, such as parameter changes, go through a change control process. 10. FDIC did not apply comprehensive patches to system software in a timely manner. 11. FDIC did not review status accounting reports, or perform complete functional and physical configuration audits. 12. FDIC did not update or control documents to reflect the current state of the environment and to ensure consistency with related documents. 13. FDIC did not properly segregate incompatible system-related functions, duties, and capacities for an individual associated with NFE. Security management (formerly information security program) 14. FDIC has documented various policies for establishing effective information security controls; however, the corporation has not consistently implemented them. 15. FDIC did not integrate the security plans or requirements for certain nonmajor applications into the security plan for the general support system. Two of FDIC's nonmajor applications, the corporation's human resources and time and attendance systems, are not included in FDIC general support systems security plans. 16. FDIC did not effectively implement or accurately report the status of its remedial actions. 17. FDIC did not update its business impact analysis to reflect the significant changes resulting from the implementation of NFE. 18. The risk assessment for FDIC's NFE was not properly updated. 19. The corporation did not update the system security plan for NFE. 20. The corporation did not always review events occurring in NFE to determine whether the events were computer security incidents or not. 21. FDIC's NFE contingency plan was not updated to reflect the new disaster recovery site. In addition, the plan identified servers that were not in use. In addition to the individuals named above, William F. Wadsworth (Assistant Director), Angela M. Bell, Neil J. Doherty, Patrick R. Dugan, Mickie E. Gray, David B. Hayes, Tammi L. Nguyen, Eugene E. Stevens IV, Amos A. Tevelow, and Jayne L. Wilson made key contributions to this report.
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The Federal Deposit Insurance Corporation (FDIC) has a demanding responsibility enforcing banking laws, regulating financial institutions, and protecting depositors. Effective information security controls are essential to ensure that FDIC systems and information are adequately protected from inadvertent misuse, fraudulent, or improper disclosure. As part of its audit of FDIC's 2007 financial statements, GAO assessed (1) the progress FDIC has made in mitigating previously reported information security weaknesses and (2) the effectiveness of FDIC's controls in protecting the confidentiality, integrity, and availability of its financial systems and information. To do this, GAO examined security policies, procedures, reports, and other documents; observed controls over key financial applications; and interviewed key FDIC personnel. FDIC has made significant progress in mitigating previously reported information security weaknesses. Specifically, it has corrected or mitigated 16 of the 21 weaknesses that GAO had previously reported as unresolved at the completion of the 2006 audit. For example, FDIC has improved physical security controls over access to its Virginia Square computer processing facility, instructed personnel to use more secure e-mail methods to protect the integrity of certain accounting data transferred over an internal communication network, and updated the security plan and contingency plan of a key financial system. In addition, FDIC stated it has initiated and completed some actions to mitigate the remaining five prior weaknesses. However, we have not verified that these actions have been completed. Although FDIC has made significant progress improving its information system controls, old and new weaknesses could limit the corporation's ability to effectively protect the confidentiality, integrity, and availability of its financial systems and information. In addition to the five previously reported weaknesses that remain unresolved, newly identified weaknesses in access controls and configuration management controls introduce risk to two key financial systems. For example, FDIC did not always implement adequate access controls. Specifically, multiple FDIC users shared the same login ID and password, had unrestricted access to application source code, and used passwords that were not adequately encrypted. In addition, FDIC did not adequately (1) maintain a full and complete baseline for system requirements; (2) assign unique identifiers to configuration items; (3) authorize, document, and report all configuration changes; and (4) perform configuration audits. Although these weaknesses do not pose significant risk of misstatement of the corporation's financial statements, they do increase preventable risk to the corporation's financial systems and information. A key reason for these weaknesses is that FDIC did not always fully implement key information security program activities. For example, it did not adequately conduct configuration control testing or complete the remedial action plan in a timely manner and did not include necessary and key information. Until FDIC fully performs key information security program activities, its ability to maintain adequate control over its financial systems and information will be limited.
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Collecting information is one way that federal agencies carry out their missions. For example, IRS needs to collect information from taxpayers and their employers to know the correct amount of taxes owed. The U.S. Census Bureau collects information used to apportion congressional representation and for many other purposes. When new circumstances or needs arise, agencies may need to collect new information. We recognize, therefore, that a large portion of federal paperwork is necessary and serves a useful purpose. Nonetheless, besides ensuring that information collections have public benefit and utility, federal agencies are required by the PRA to minimize the paperwork burden that they impose. Among the provisions of the act aimed at this purpose are requirements for the review of information collections by OMB and by agency CIOs. Under PRA, federal agencies may not conduct or sponsor the collection of information unless approved by OMB. OMB is required to determine that the agency collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility. Consistent with the act's requirements, OMB has established a process to review all proposals by executive branch agencies (including independent regulatory agencies) to collect information from 10 or more persons, whether the collections are voluntary or mandatory. In addition, the act as amended in 1995 requires every agency to establish a process under the official responsible for the act's implementation (now the agency's CIO) to review program offices' proposed collections. This official is to be sufficiently independent of program responsibility to evaluate fairly whether information collections should be approved. Under the law, the CIO is to review each collection of information before submission to OMB, including reviewing the program office's evaluation of the need for the collection and its plan for the efficient and effective management and use of the information to be collected, including necessary resources. As part of that review, the agency CIO must ensure that each information collection instrument (form, survey, or questionnaire) complies with the act. The CIO is also to certify that the collection meets 10 standards (see table 1) and to provide support for these certifications. The paperwork clearance process currently takes place in two stages. The first stage is CIO review. During this review, the agency is to publish a notice of the collection in the Federal Register. The public must be given a 60-day period in which to submit comments, and the agency is to otherwise consult with interested or affected parties about the proposed collection. At the conclusion of the agency review, the CIO submits the proposal to OMB for review. The agency submissions to OMB typically include a copy of the data collection instrument (e.g., a form or survey) and an OMB submission form providing information (with supporting documentation) about the proposed information collection, including why the collection is necessary, whether it is new or an extension of a currently approved collection, whether it is voluntary or mandatory, and the estimated burden hours. Included in the submission is the certification by the CIO or the CIO's designee that the collection satisfies the 10 standards. The OMB review is the second stage in the clearance process. This review may involve consultation between OMB and agency staff. During the review, a second notice is published in the Federal Register, this time with a 30-day period for soliciting public comment. At the end of this period, OMB makes its decision and informs the agency. OMB maintains on its Web site a list of all approved collections and their currently valid control numbers, including the form numbers approved under each collection. The 1995 PRA amendments also require OMB to set specific goals for reducing burden from the level it had reached in 1995: at least a 10 percent reduction in the governmentwide burden-hour estimate for each of fiscal years 1996 and 1997, a 5 percent governmentwide burden reduction goal in each of the next 4 fiscal years, and annual agency goals that reduce burden to the "maximum practicable opportunity." At the end of fiscal year 1995, federal agencies estimated that their information collections imposed about 7 billion burden hours on the public. Thus, for these reduction goals to be met, the burden-hour estimate would have had to decrease by about 35 percent, to about 4.6 billion hours, by September 30, 2001. In fact, on that date, the federal paperwork estimate had increased by about 9 percent, to 7.6 billion burden hours. As of March 2006, OMB's estimate for governmentwide burden is about 10.5 billion hours-- about 2.5 billion hours more than the estimate of 7.971 billion hours at the end of fiscal year 2004. Over the years, we have reported on the implementation of PRA many times. In a succession of reports and testimonies, we noted that federal paperwork burden estimates generally continued to increase, rather than decrease as envisioned by the burden reduction goals in PRA. Further, we reported that some burden reduction claims were overstated. For example, although some reported paperwork reductions reflected substantive program changes, others were revisions to agencies' previous burden estimates and, therefore, would have no effect on the paperwork burden felt by the public. In our previous work, we also repeatedly pointed out ways that OMB and agencies could do more to ensure compliance with PRA. In particular, we have often recommended that OMB and agencies take actions to improve the paperwork clearance process. Governmentwide, agency CIOs generally reviewed information collections before they were submitted to OMB and certified that the 10 standards in the act were met. However, in our 12 case studies, CIOs provided these certifications despite often missing or partial support from the program offices sponsoring the collections. Further, although the law requires CIOs to provide support for certifications, agency files contained little evidence that CIO reviewers had made efforts to get program offices to improve the support that they offered. Numerous factors have contributed to these conditions, including a lack of management support and weaknesses in OMB guidance. Without appropriate support and public consultation, agencies have reduced assurance that collections satisfy the standards in the act. Among the PRA provisions intended to help achieve the goals of minimizing burden while maximizing utility are the requirements for CIO review and certification of information collections. The 1995 amendments required agencies to establish centralized processes for reviewing proposed information collections within the CIO's office. Among other things, the CIO's office is to certify, for each collection, that the 10 standards in the act have been met, and the CIO is to provide a record supporting these certifications. The four agencies in our review all had written directives that implemented the review requirements in the act, including the requirement for CIOs to certify that the 10 standards in the act were met. The estimated certification rate ranged from 100 percent at IRS and HUD to 92 percent at VA. Governmentwide, agencies certified that the act's 10 standards had been met on an estimated 98 percent of the 8,211 collections. However, in the 12 case studies that we reviewed, this CIO certification occurred despite a lack of rigorous support that all standards were met. Specifically, the support for certification was missing or partial on 65 percent (66 of 101) of the certifications. Table 4 shows the result of our analysis of the case studies. For example, under the act, CIOs are required to certify that each information collection is not unnecessarily duplicative. According to OMB instructions, agencies are to (1) describe efforts to identify duplication and (2) show specifically why any similar information already available cannot be used or modified for the purpose described. Program reviews were conducted to identify potential areas of duplication; however, none were found to exist. There is no known Department or Agency which maintains the necessary information, nor is it available from other sources within our Department. is a new, nationwide service that does not duplicate any single existing service that attempts to match employers with providers who refer job candidates with disabilities. While similar job-referral services exist at the state level, and some nation-wide disability organizations offer similar services to people with certain disabilities, we are not aware of any existing survey that would duplicate the scope or content of the proposed data collection. Furthermore, because this information collection involves only providers and employers interested in participating in the EARN service, and because this is a new service, a duplicate data set does not exist. While this example shows that the agency attempted to identify duplicative sources, it does not discuss why information from state and other disability organizations could not be aggregated and used, at least in part, to satisfy the needs of this collection. We have attempted to eliminate duplication within the agency wherever possible. This assertion provides no information on what efforts were made to identify duplication or perspective on why similar information, if any, could not be used. Further, the files contained no evidence that the CIO reviewers challenged the adequacy of this support or provided support of their own to justify their certification. A second example is provided by the standard requiring each information collection to reduce burden on the public, including small entities, to the extent practicable and appropriate. OMB guidance emphasizes that agencies are to demonstrate that they have taken every reasonable step to ensure that the collection of information is the least burdensome necessary for the proper performance of agency functions. In addition, OMB instructions and guidance direct agencies to provide specific information and justifications: (1) estimates of the hour and cost burden of the collections and (2) justifications for any collection that requires respondents to report more often than quarterly, respond in fewer than 30 days, or provide more than an original and two copies of documentation. With regard to small entities, OMB guidance states that the standard emphasizes such entities because these often have limited resources to comply with information collections. The act cites various techniques for reducing burden on these small entities, and the guidance includes techniques that might be used to simplify requirements for small entities, such as asking fewer questions, taking smaller samples than for larger entities, and requiring small entities to provide information less frequently. Our review of the case examples found that for the first part of the certification, which focuses on reducing burden on the public, the files generally contained the specific information and justifications called for in the guidance. However, none of the case examples contained support that addressed how the agency ensured that the collection was the least burdensome necessary. According to agency CIO officials, the primary cause for this absence of support is that OMB instructions and guidance do not direct agencies to provide this information explicitly as part of the approval package. For the part of the certification that focuses on small businesses, our governmentwide sample included examples of various agency activities that are consistent with this standard. For instance, Labor officials exempted 6 million small businesses from filing an annual report; telephoned small businesses and other small entities to assist them in completing a questionnaire; reduced the number of small businesses surveyed; and scheduled fewer compliance evaluations on small contractors. For four of our case studies, however, complete information that would support certification of this part of the standard was not available. Seven of the 12 case studies involved collections that were reported to impact businesses or other for-profit entities, but for 4 of the 7, the files did not explain either * why small businesses were not affected or * even though such businesses were affected, that burden could or could not be reduced. Referring to methods used to minimize burden on small business, the files included statements such as "not applicable." These statements do not inform the reviewer whether there was an effort made to reduce burden on small entities or not. When we asked agencies about these four cases, they indicated that the collections did, in fact, affect small business. OMB's instructions to agencies on this part of the certification require agencies to describe any methods used to reduce burden only if the collection of information has a "significant economic impact on a substantial number of small entities." This does not appropriately reflect the act's requirements concerning small business: the act requires that the CIO certify that the information collection reduces burden on small entities in general, to the extent practical and appropriate, and provides no thresholds for the level of economic impact or the number of small entities affected. OMB officials acknowledged that their instruction is an "artifact" from a previous form and more properly focuses on rulemaking rather than the information collection process. The lack of support for these certifications appears to be influenced by a variety of factors. In some cases, as described above, OMB guidance and instructions are not comprehensive or entirely accurate. In the case of the duplication standard specifically, IRS officials said that the agency does not need to further justify that its collections are not duplicative because (1) tax data are not collected by other agencies, so there is no need for the agency to contact them about proposed collections, and (2) IRS has an effective internal process for coordinating proposed forms among the agency's various organizations that may have similar information. Nonetheless, the law and instructions require support for these certifications, which was not provided. In addition, agency reviewers told us that management assigns a relatively low priority and few resources to reviewing information collections. Further, program offices have little knowledge of and appreciation for the requirements of the PRA. As a result of these conditions and a lack of detailed program knowledge, reviewers often have insufficient leverage with program offices to encourage them to improve their justifications. When support for the PRA certifications is missing or inadequate, OMB, the agency, and the public have reduced assurance that the standards in the act, such as those on avoiding duplication and minimizing burden, have been consistently met. IRS and EPA have supplemented the standard PRA review process with additional processes aimed at reducing burden while maximizing utility. These agencies' missions require them both to deal extensively with information collections, and their management has made reduction of burden a priority. In January 2002, the IRS Commissioner established an Office of Taxpayer Burden Reduction, which includes both permanently assigned staff and staff temporarily detailed from program offices that are responsible for particular information collections. This office chooses a few forms each year that are judged to have the greatest potential for burden reduction (these forms have already been reviewed and approved through the CIO process). The office evaluates and prioritizes burden reduction initiatives by * determining the number of taxpayers impacted; * quantifying the total time and out-of-pocket savings for taxpayers; * evaluating any adverse impact on IRS's voluntary compliance * assessing the feasibility of the initiative, given IRS resource * tying the initiative into IRS objectives. Once the forms are chosen, the office performs highly detailed, in- depth analyses, including extensive outreach to the public affected, the users of the information within and outside the agency, and other stakeholders. This analysis includes an examination of the need for each data element requested. In addition, the office thoroughly reviews form design. The office's Director heads a Taxpayer Burden Reduction Council, which serves as a forum for achieving taxpayer burden reduction throughout IRS. IRS reports that as many as 100 staff across IRS and other agencies can be involved in burden reduction initiatives, including other federal agencies, state agencies, tax practitioner groups, taxpayer advocacy panels, and groups representing the small business community. The council directs its efforts in five major areas: * simplifying forms and publications; * streamlining internal policies, processes, and procedures; * promoting consideration of burden reductions in rulings, regulations, and laws; * assisting in the development of burden reduction measurement * partnering with internal and external stakeholders to identify areas of potential burden reduction. IRS reports that this targeted, resource-intensive process has achieved significant reductions in burden: over 200 million burden hours since 2002. For example, it reports that about 95 million hours of taxpayer burden were reduced through increases in the income- reporting threshold on various IRS schedules. Another burden reduction initiative includes a review of the forms that 15 million taxpayers use to request an extension to the date for filing their tax returns. Similarly, EPA officials stated that they have established processes for reviewing information collections that supplement the standard PRA review process. These processes are highly detailed and evaluative, with a focus on burden reduction, avoiding duplication, and ensuring compliance with PRA. According to EPA officials, the impetus for establishing these processes was the high visibility of the agency's information collections and the recognition, among other things, that the success of EPA's enforcement mission depended on information collections being properly justified and approved: in the words of one official, information collections are the "life blood" of the agency. According to these officials, the CIO staff are not generally closely involved in burden reduction initiatives, because they do not have sufficient technical program expertise and cannot devote the extensive time required. Instead, these officials said that the CIO staff's focus is on fostering high awareness within the agency of the requirements associated with information collections, educating and training the program office staff on the need to minimize burden and the impact on respondents, providing an agencywide perspective on information collections to help avoid duplication, managing the clearance process for agency information collections, and acting as liaison between program offices and OMB during the clearance process. To help program offices consider PRA requirements such as burden reduction and avoiding duplication as they are developing new information collections or working on reauthorizing existing collections, the CIO staff also developed a handbook to help program staff understand what they need to do to comply with PRA and gain OMB approval. In addition, program offices at EPA have taken on burden reduction initiatives that are highly detailed and lengthy (sometimes lasting years) and that involve extensive consultation with stakeholders (including entities that supply the information, citizens groups, information users and technical experts in the agency and elsewhere, and state and local governments). For example, EPA reports that it amended its regulations to reduce the paperwork burden imposed under the Resource Conservation and Recovery Act. One burden reduction method EPA used was to establish higher thresholds for small businesses to report information required under the act. EPA estimates that the initiative will reduce burden by 350,000 hours and save $22 million annually. Another EPA program office reports that it is proposing a significant reduction in burden for its Toxic Release Inventory program. Both the EPA and IRS programs involve extensive outreach to stakeholders, including the public. This outreach is particularly significant in view of the relatively low levels of public consultation that occur under the standard review process. As we reported in May 2005, public consultation on information collections is often limited to publication of notices in the Federal Register. As a means of public consultation, however, these notices are not effective, as they elicit few responses. An estimated 7 percent of the 60-day notices of collections in the Federal Register received one or more comments. According to our sample of all collections at the four agencies reviewed, the number of notices receiving at least one comment ranged from an estimated 15 percent at Labor to an estimated 6 percent at IRS. In contrast, according to EPA and IRS, their efforts at public consultation are key to their burden reduction efforts and an important factor in their success. Overall, EPA and IRS reported that their targeted processes produced significant reductions in burden by making a commitment to this goal and dedicating resources to it. In contrast, for the 12 information collections we examined, the CIO review process resulted in no reduction in burden. Further, the Department of Labor reported that its PRA reviews of 175 proposed collections over nearly 2 years did not reduce burden. Similarly, both IRS and EPA addressed information collections that had undergone CIO review and received OMB approval and nonetheless found significant opportunities to reduce burden. In our 2005 report, we concluded that the CIO review process was not working as Congress intended: It did not result in a rigorous examination of the burden imposed by information collections, and it did not lead to reductions in burden. In light of these findings, we recommended (among other things) that agencies strengthen the support provided for CIO certifications and that OMB update its guidance to clarify and emphasize this requirement. Since our report was issued, the four agencies have reported taking steps to strengthen their support for CIO certifications: * According to the HUD CIO, the department established a senior- level PRA compliance officer in each major program office, and it has revised its certification process to require that before collections are submitted for review, they be approved at a higher management level within program offices. * The Treasury CIO established an Information Management Sub- Council under the Treasury CIO Council and added resources to the review process. * According to the VA's 2007 budget submission, the department obtained additional resources to help review and analyze its information collection requests. * According to the Office of the CIO at the Department of Labor, the department intends to provide guidance to components regarding the need to provide strong support for clearance requests and has met with component staff to discuss these issues. OMB reported that its guidance to agencies will be updated through a planned automated system, which is expected to be operational by the end of this year. According to the acting head of OMB's Office of Information and Regulatory Affairs, the new system will permit agencies to submit clearance requests electronically, and the instructions will provide clear guidance on the requirements for these submissions, including the support required. This official stated that OMB has worked with agency representatives with direct knowledge of the PRA clearance process in order to ensure that the system and its instructions clearly reflect the requirements of the process. If this system is implemented as described and OMB withholds clearance from submissions that lack adequate support, it could lead agencies to strengthen the support provided for their certifications. In considering PRA reauthorization, the Congress has the opportunity to take into account ideas that were developed by the various experts at the PRA forum that we organized in 2005. These experts noted, as we have here, that the burden reduction goals in the act have not been met, and that in fact burden has been going up. They suggested first that the goal of reducing burden by 5 percent is not realistic, and also that such numerical goals do not appropriately recognize that some burden is necessary. The important point, in their view, is to reduce unnecessary burden while still ensuring maximum utility. Forum participants also questioned the level of attention that OMB devotes to the process of clearing collections on what they called a "retail" basis, focusing on individual collections rather than looking across numerous collections. In their view, some of this attention would be better devoted to broader oversight questions. In their discussion, participants mentioned that the clearance process informs OMB with respect to its other information resource management functions, but that this had not led to high-level integration and coordination. It was suggested that the volume of collections to be individually reviewed could impede such integration. Participants made a number of suggestions regarding ways to reduce the volume of collections that OMB reviews, with the goal of freeing OMB resources so that it could address more substantive, wide-ranging paperwork issues. Options that they suggested including limiting OMB review to significant and selected collections, rather than all collections. This would entail shifting more responsibility for review to the agencies, which they stated was one of the avowed purposes of the 1995 amendments: to increase agencies' attention to properly clearing information collection requests. One way to shift this responsibility, the forum suggested, would be for OMB to be more creative in its use of the delegation authority that the act provides. (Under the act, OMB has the authority to delegate to agencies the authority to approve collections in various circumstances.) Also, participants mentioned the possibility of modifying the clearance process by, for example, extending beyond 3 years the length of time that OMB approvals are valid, particularly for the routine types of collections. This suggestion was paired with the idea that the review process itself should be more rigorous; as the panel put it, "now it's a rather pro forma process." They also observed that two Federal Register notices seemed excessive in most cases. To reduce the number of collections that require OMB review, another possibility suggested was to revise the PRA's definition of an information collection. For example, the current definition includes all collections that contact 10 or more persons; the panel suggested that this threshold could be raised, pointing out that this low threshold makes it hard for agencies to perform targeted outreach to the public regarding burden and other issues (such as through customer satisfaction questionnaires or focus groups). However, they had no specific recommendation on what the number should be. Alternatively, they suggested that OMB could be given authority to categorize types of information collections that did not require clearance (for example, OMB could exempt collections for which the response is purely voluntary). Finally, the forum questioned giving agency CIOs the responsibility for reviewing information collections. According to the forum, CIOs have tended to be more associated with information technology issues than with high level information policy. Our previous work has not addressed every topic raised by the forum, so we cannot argue for or against all these suggestions. However, the work in our May 2005 report is consistent with the forum's observations in some areas, including the lack of rigor in the review process and the questionable need for two Federal Register notices. I would like to turn here, Madam Chairman, to the matters for congressional consideration that we included in that report. We observed that to achieve burden reduction, the targeted approaches used by IRS and EPA were a promising alternative. However, the agencies' experiences also suggest that to make such approaches successful requires top-level executive commitment, extensive involvement of program office staff with appropriate expertise, and aggressive outreach to stakeholders. Indications are that such an approach would also be more resource-intensive than the current process. Moreover, such an approach may not be warranted at all agencies, since not al agencies have the level of paperwork issues that face IRS and similar agencies. On the basis of the conclusions in our May 2005 report, we suggested that the Congress consider mandating the development of pilot projects to test and review the value of approaches to burden reduction similar to those used by IRS and EPA. OMB would issue guidance to agencies on implementing such pilots, including criteria for assessing collections along the lines of the process currently employed by IRS. According to our suggestion, agencies participating in such pilots would submit to OMB and publish on their Web sites (or through other means) an annual plan on the collections targeted for review, specific burden reduction goals for those collections, and a report on reductions achieved to date. We also suggested that in view of the limited effectiveness of the 60-day notice in the Federal Register in eliciting public comment, this requirement could be eliminated. Under a pilot project approach, an agency would develop a process to examine its information collections for opportunities to reduce burden. The experiences at IRS and EPA show that targeted burden reduction efforts depend on tapping the expertise of program staff, who are generally closely involved in the effort. That is, finding opportunities to reduce burden requires strong familiarity with the programs involved. Pilot projects would be expected to build on the lessons learned at IRS and EPA. For example, these agencies have used a variety of approaches to reducing burden, such as * sharing information--for example, by facilitating cross-agency * standardizing data for multiple uses ("collect once--use multiple integrating data to avoid duplication; and * re-engineering work flows. Pilot projects would be most appropriate for agencies for which information collections are a significant aspect of the mission. As the results and lessons from the pilots become available, OMB may choose to apply them at other agencies by approving further pilots. Lessons learned from the mandated pilots could thus be applied more broadly. In developing processes to involve program offices in burden reduction, agencies would not have to impose a particular organizational structure for the burden reduction effort. For instance, the burden reduction effort might not necessarily be performed by the CIO. For example, at IRS, the Office of Burden Reduction is not connected to the CIO, whereas at EPA, CIO staff are involved in promoting burden reduction through staff education and outreach. However, the EPA CIO depends on program offices to undertake specific initiatives. Under a mandate for pilot projects, agencies would be encouraged to determine the approach that works best in their own situations. Finally, both IRS and EPA engaged in extensive outreach to the public and stakeholders. In many cases, this outreach involves contacts with professional and industry organizations, which are particularly valuable because they allow the agencies to get feedback without the need to design an information collection for the purpose (which would entail its own review process, burden estimate, and so on). According to agency officials, the need to obtain OMB approval for an information collection if they contact more than nine people often inhibits agencies' use of questionnaires and similar types of active outreach to the public. Agencies are free, however, to collect comments on information posted on Web sites. OMB could also choose to delegate to pilot project agencies the authority to approve collections that are undertaken as part of public outreach for burden reduction projects. The work we reported in May and June 2005 strongly suggested that despite the importance of public consultation to burden reduction, the current approach is often ineffective. Federal Register notices elicit such low response that we questioned the need for two such notices (the 60-day notice during the agency review and the 30-day notice during the OMB review). Eliminating the first notice, in our view, is thus not likely to decrease public consultation in any significant way. Instead, our intent was for agencies, through pilot projects, to explore ways to perform outreach to information collection stakeholders, including the public, that will be more effective in eliciting useful comments and achieving real reductions in burden. In summary, Madam Chairman, the information collection review process appeared to have little effect on paperwork burden. As our review showed, the CIO review process, as currently implemented, tended to lack rigor, allowing agencies to focus on clearing an administrative hurdle rather than on performing substantive analysis. Going further, the expert forum characterized the whole clearance process as "pro forma." The forum also made various suggestions for improving the clearance process; many of these were aimed at finding ways to reduce its absorption of OMB resources, such as by changing the definition of an information collection. Both we and the forum suggested removing one of the current administrative hurdles (the 60-day Federal Register notice). Although these suggestions refer to specific process improvements, the main point is not just to tweak the process. Instead, the intent is to remove administrative impediments, with the ultimate aim of refocusing agency and OMB attention away from the current concentration on administrative procedures and toward the goals of the act--minimizing burden while maximizing utility. To that end, we suggested that the Congress mandate pilot projects that are specifically targeted at reducing burden. Such projects could help to move toward the outcomes that the Congress intended in enacting PRA. Madam Chairman, this completes my prepared statement. I would be pleased to answer any questions. For future information regarding this testimony, please contact Linda Koontz, Director, Information Management, at (202) 512-6420, or [email protected]. Other individuals who made key contributions to this testimony were Timothy Bober, Barbara Collier, David Plocher, Elizabeth Powell, J. Michael Resser, and Alan Stapleton. Associate Executive Director Association of Research Libraries Princeton University; formerly National Opinion Research Center Founder and Executive Director, OMB Watch Administrative Law & Information Policy; formerly OMB and IRS Privacy Officer Vice President, SRA International; formerly OMB Director, Center for Technology in Government, University at Albany, State University of New York Partner, Guerra, Kiviat, Flyzik and Associates; formerly Department of Treasury and Secret Service Privacy & Information Policy Consultant; formerly counsel to the House of Representatives' Subcommittee on Information, Justice, Transportation and Agriculture Editor of Access Reports, FOIA Journal Independent Consultant; formerly OMB Professor and Independent Consultant; formerly OMB Manager, Regulatory Policy National Federation of Independent Business Director, Public Policy, Software & Information Industry Association Senior Scientist, Computer Science and Telecommunications Board, The National Academies Fellow in Law and Government, American University, Washington College of Law; formerly Administrative Conference of the U.S. At the forum, others attending included GAO staff and a number of other observers: Deputy Administrator, Office of Information and Regulatory Affairs Minority Senior Legislative Counsel, House Committee on Government Reform Minority Counsel, House Committee on Government Reform Policy Analyst, Office of Information and Regulatory Affairs Director of Energy and Environment, U.S. Chamber of Commerce Senior Policy Analyst, Office of Management and Budget Policy Analyst, Office of Management and Budget Minority Professional Staff Member, House Committee on Government Reform Counsel, House Committee on Government Reform Policy Analyst, Office of Management and Budget Office of Information and Regulatory Affairs Senior Professional Staff Member, House Committee on Government Reform House Committee on Government Reform Branch Chief, Statistics Branch, Office of Information and Regulatory Affairs In addition, staff of the National Academies' National Research Council, Computer Science and Telecommunications Board, helped to develop and facilitate the forum: Charles Brownstein, Director; Kristen Batch, Research Associate; and Margaret Huynh, Senior Program Assistant. Paperwork Reduction Act: Subcommittee Questions Concerning the Act's Information Collection Provisions. GAO-05-909R. Washington, D.C.: July 19, 2005. Paperwork Reduction Act: Burden Reduction May Require a New Approach. GAO-05-778T. Washington, D.C.: June 14, 2005. Paperwork Reduction Act: New Approach May Be Needed to Reduce Government Burden on Public. GAO-05-424. Washington, D.C.: May 20, 2005. Paperwork Reduction Act: Agencies' Paperwork Burden Estimates Due to Federal Actions Continue to Increase. GAO-04-676T. Washington, D.C.: April 20, 2004. Paperwork Reduction Act: Record Increase in Agencies' Burden Estimates. GAO-03-619T. Washington, D.C.: April 11, 2003. Paperwork Reduction Act: Changes Needed to Annual Report. GAO-02-651R. Washington, D.C.: April 29, 2002. Paperwork Reduction Act: Burden Increases and Violations Persist. GAO-02-598T. Washington, D.C.: April 11, 2002. Information Resources Management: Comprehensive Strategic Plan Needed to Address Mounting Challenges. GAO-02-292. Washington, D.C.: February 22, 2002. Paperwork Reduction Act: Burden Estimates Continue to Increase. GAO-01-648T. Washington, D.C.: April 24, 2001. Electronic Government: Government Paperwork Elimination Act Presents Challenges for Agencies. GAO/AIMD-00-282. Washington, D.C.: September 15, 2000. Tax Administration: IRS Is Working to Improve Its Estimates of Compliance Burden. GAO/GGD-00-11. Washington, D.C.: May 22, 2000. Paperwork Reduction Act: Burden Increases at IRS and Other Agencies. GAO/T-GGD-00-114. Washington, D.C.: April 12, 2000. EPA Paperwork: Burden Estimate Increasing Despite Reduction Claims. GAO/GGD-00-59. Washington, D.C.: March 16, 2000. Federal Paperwork: General Purpose Statistics and Research Surveys of Businesses. GAO/GGD-99-169. Washington, D.C.: September 20, 1999. Paperwork Reduction Act: Burden Increases and Unauthorized Information Collections. GAO/T-GGD-99-78. Washington, D.C.: April 15, 1999. Paperwork Reduction Act: Implementation at IRS. GAO/GGD-99-4. Washington, D.C.: November 16, 1998. Regulatory Management: Implementation of Selected OMB Responsibilities Under the Paperwork Reduction Act. GAO/GGD- 98-120. Washington, D.C.: July 9, 1998. Paperwork Reduction: Information on OMB's and Agencies' Actions. GAO/GGD-97-143R. Washington, D.C.: June 25, 1997. Paperwork Reduction: Governmentwide Goals Unlikely to Be Met. GAO/T-GGD-97-114. Washington, D.C.: June 4, 1997. Paperwork Reduction: Burden Reduction Goal Unlikely to Be Met. GAO/T-GGD/RCED-96-186. Washington, D.C.: June 5, 1996. Environmental Protection: Assessing EPA's Progress in Paperwork Reduction. GAO/T-RCED-96-107. Washington, D.C.: March 21, 1996. Paperwork Reduction: Burden Hour Increases Reflect New Estimates, Not Actual Changes. GAO/PEMD-94-3. Washington, D.C.: December 6, 1993. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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Americans spend billions of hours each year providing information to federal agencies by filling out forms, surveys, or questionnaires. A major aim of the Paperwork Reduction Act (PRA) is to minimize the burden that these information collections impose on the public, while maximizing their public benefit. Under the act, the Office of Management and Budget (OMB) is to approve all such collections. In addition, agency Chief Information Officers (CIO) are to review information collections before they are submitted to OMB for approval and certify that these meet certain standards set forth in the act. GAO was asked to testify on the implementation of the act's provisions regarding the review and approval of information collections. For its testimony, GAO reviewed previous work in this area, including the results of an expert forum on information resources management and the PRA, which was held in February 2005 under the auspices of the National Research Council. GAO also drew on its earlier study of CIO review processes (GAO-05-424) and alternative processes that two agencies have used to minimize burden. For this study, GAO reviewed a governmentwide sample of collections, reviewed processes and collections at four agencies that account for a large proportion of burden, and performed case studies of 12 approved collections. Among the PRA provisions aimed at helping to achieve the goals of minimizing burden while maximizing utility is the requirement for CIO review and certification of information collections. GAO's review of 12 case studies showed that CIOs provided these certifications despite often missing or inadequate support from the program offices sponsoring the collections. Further, although the law requires that support be provided for certifications, agency files contained little evidence that CIO reviewers had made efforts to get program offices to improve the support they offered. Numerous factors have contributed to these problems, including a lack of management support and weaknesses in OMB guidance. Because these reviews were not rigorous, OMB, the agency, and the public had reduced assurance that the standards in the act--such as minimizing burden--were consistently met. To address the issues raised by its review, GAO made recommendations to the agencies and OMB aimed at strengthening the CIO review process and clarifying guidance. OMB and the agencies report making plans and taking steps to address GAO's recommendations. Beyond the collection review process, the Internal Revenue Service (IRS) and the Environmental Protection Agency (EPA) have set up processes that are specifically focused on reducing burden. These agencies, whose missions involve numerous information collections, have devoted significant resources to targeted burden reduction efforts that involve extensive public outreach. According to the two agencies, these efforts led to significant reductions in burden. For example, each year, IRS subjects a few forms to highly detailed, in-depth analyses, reviewing all data requested, redesigning forms, and involving stakeholders (both the information users and the public affected). IRS reports that this process--performed on forms that have undergone CIO review and received OMB approval--has reduced burden by over 200 million hours since 2002. In contrast, for the 12 case studies, the CIO review process did not reduce burden. When it considers PRA reauthorization, the Congress has the opportunity to promote new approaches, including alternatives suggested by the expert forum and by GAO. Forum participants made a range of suggestions on information collections and their review. For example, they suggested that OMB's focus should be on broad oversight rather than on reviewing each individual collection and observed that the current clearance process appeared to be "pro forma." They also observed that it seemed excessive to require notices of collections to be published twice in the Federal Register, as they are now. GAO similarly observed that publishing two notices in the Federal Register did not seem to be effective, and suggested eliminating one of these notices. GAO also suggested that the Congress mandate pilot projects to target some collections for rigorous analysis along the lines of the IRS and EPA approaches. Such projects would permit agencies to build on the lessons learned by the IRS and EPA and potentially contribute to true burden reduction.
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Federal grants use various sources of population counts in their funding formulas. First, the Bureau conducts the decennial census, which provides population counts once every 10 years, and also estimates the population for the years between censuses--known as postcensal estimates. For example, the SSBG allocation formula uses the most recent postcensal population estimates to distribute funds. Second, the Bureau's American Community Survey provides detailed annual data on socioeconomic characteristics for the nation's communities and is used to allocate federal funds for such programs as the Section 8 housing voucher program, an effort aimed at increasing affordable housing choices for very low-income households. In addition, the Current Population Survey conducted by the Bureau for the Bureau of Labor Statistics provides monthly data and is used to allocate funds for programs under the Workforce Investment Act of 1998, which provides workforce development services to employers and workers. Among funding formulas that rely on population data, the degree of reliance varies. On the one hand, the SSBG formula allocates funding based on a state's population relative to the total U.S. population. On the other hand, some formulas use population plus one or more other variables to determine funding levels. Medicaid, for example, uses population counts and income to determine the federal reimbursement rate. The Medicaid formula is based on the ratio of a state's aggregate personal income to the same state's population relative to aggregate U.S. per capita personal income. Other grant programs, such as CDBG, are driven by multiple factors in addition to population such as poverty, housing overcrowding, and the age of the housing. Population plays a more limited role in other programs. Federal assistance under one part of the CARE Act does not use census population counts in its funding formula. Rather, census population counts are used in this part as criteria for program eligibility--CARE Act funds under this part are awarded to urbanized areas, which are determined in part by census population counts. The actual amount of federal assistance is based on the counts of people with HIV/AIDS. On the basis of simulations we conducted of formula grant allocations, we found that changes in population counts can affect, albeit modestly, the allocations of federal funds for the programs analyzed. Note that these simulations were for illustrative purposes only--to demonstrate the effect that alternative population estimates could have on selected federal grant programs. In two prior reports, we simulated the reallocations that would have resulted from using alternative population counts for Medicaid allocations. In our 2003 report, based on population estimates that differed from the 2000 Census count by about 3.2 percent across the U.S. and varying state by state, we found that of the $110.9 billion total federal Medicaid spending in 2002, 18 states would have shared an additional $377.0 million in Medicaid funding, 21 states would have lost a collective $363.2 million, and 11 states and the District of Columbia would have had their funding unchanged. In our 2006 report, based on population estimates that differed from the 2000 Census count by about 0.5 percent across the U.S. and varying state by state, we found that of the $159.7 billion total federal Medicaid funding in 2004, 22 states would have shared an additional $208.5 million in Medicaid funding, 17 states would have lost a total of $368 million, and 11 states and the District of Columbia would have had their funding unchanged. In total, 0.2 percent of Medicaid funds would have shifted as a result of the simulation. In our 2006 report, we also simulated the reallocations of SSBG funding and found that of the $1.7 billion in SSBG allocations, 27 states and the District of Columbia would have shared a gain of $4.2 million and 23 states would have shared a loss of $4.2 million. In total 0.2 percent of SSBG funds would have shifted as a result of the simulation. Since the completeness and accuracy of population data can modestly affect grant funding streams and other applications of census data, the Bureau has used a variety of programs to address possible errors in population counts and estimates. Not all of these programs are completed by December 31 of the decennial year--the date on which population data are to be sent to the President for purposes of congressional apportionment. Corrections made after this date may be reflected in the population counts made available for redistricting or the allocation of federal funds. Demographic Full Count Review: For the 2000 Census, analysts were hired under contract by the Bureau to identify, investigate, and document suspected data discrepancies in order to clear census data files and products for subsequent processing or public release. Bureau reviewers were to determine whether and how to correct the data by weighing quality improvements against time and budget constraints. Bureau officials told us that they expect to implement something similar to the 2000 program, but they have not made a final decision for 2010. Count Question Resolution (CQR): In addition, for the 2000 Census the Bureau implemented the CQR program to provide a mechanism for state, local, and tribal governments, as well as Bureau personnel, to correct the counts of housing units and other types of dwellings and their associated populations. Governmental entities could use the updated information when applying for federal assistance that uses census data as part of the allocation formula. Between the program's initiation in June 2001 and its completion in September 2003, the CQR program corrected data affecting over 1,180 of the nation's more than 39,000 governmental units. Although the national- and state-level revisions were relatively small, in some cases the corrections at the local level were substantial. For example, the Bureau added almost 1,500 persons to the population count of Cameron, Missouri, when CQR found that a prison's population was erroneously omitted. Bureau officials told us that they expect to implement something similar to the 2000 program, but they have not made a final decision for 2010. Census Challenge Program: Further, to permit challenges to population estimates prepared by the Bureau, the Bureau administers a program whereby governmental units--including states, counties, and tribal and local governments--may file informal challenges within a designated period of time after the estimate is released by the Bureau. In the event that the challenge cannot be resolved informally, the governmental unit may proceed with a formal challenge where the state or local government unit has a right to a hearing. Using such documentation as new construction permits, and data from water and electrical utilities, localities can ask the Bureau to review and update their population counts. Between 2001 and 2007, 259 challenges led to adjustments in census population estimates. Coverage Measurement: Beginning with the 1980 Census, the Bureau has had procedures in place to measure the accuracy of the census (or "coverage") by relying on additional information obtained from an independent sample survey of the population. However, due to concerns over the quality of the data and other factors, the Bureau has never used the results of its coverage measurement efforts to adjust the census population count. For the 2010 Census, the Bureau plans to measure coverage error for various demographic groups and geographic areas, but does not plan to use the results to adjust the final population counts. Although accurate population counts and estimates play an important role in allocating federal assistance, various other factors related to the design of federal grant programs may mitigate or increase the effect that population changes can have on the distribution of federal funds. These factors include floors on matching rates, floors for small states, hold- harmless provisions, complex formula structures, lags in data, and whether funding for a specific program is from a fixed pool or open ended. I will describe each in greater detail. Floors on Matching Rates: Some grant programs employ floors in order to mitigate the outcome that would result if a particular grant allocation were determined by the funding formula alone. For example, the Medicaid statute provides for a 50 percent floor. In our 2003 report on federal formula grant funding, we found that for certain states the Medicaid matching provisions mitigated the effect of the Medicaid funding formula, which has a population component. In 2002, under the statutory formula, which is based on personal income relative to state's population, Connecticut--a state with a high per-capita income--would have received a 15 percent federal matching rate. Because of the statutory floor, Connecticut instead received a 50 percent federal match. Floors for Small States: To ensure at least a minimum level of funding for all states, program formula allocations with formulas that rely on population data can include floors for small states. The VR formula employs a floor allocation that overrides the population-based allocations. The least-populated states receive a higher allocation than they would have otherwise received under the formula. Hold-Harmless Provisions: In order to prevent funding losses from a formula change, programs can include hold-harmless provisions guaranteeing a level of funding that is based on a prior year's funding. For example, one part of the CARE Act contains hold-harmless provisions whereby some recipients are guaranteed they will receive at least as much funding as in the previous year. Complex Formula Structures: Many formulas include measures other than population to distribute funds. VR allocations depend upon three factors: the state's 1978 allocation, population, and per capita income. As a result, the effect of increases in population may be mitigated by their 1978 allocations and changes to the state's per capita income. CDBG allocations are based on a complex dual formula structure using statistical factors reflecting several broad dimensions of need. Each metropolitan city and urban county is entitled to receive an amount equaling the greater of the amounts calculated under two formulas. The factors involved in the first formula are population, extent of poverty, and extent of overcrowded housing, weighted 0.25, 0.50, and 0.25, respectively. The factors involved in the second formula are population growth lag, poverty, and age of housing, weighted 0.20, 0.30, and 0.50, respectively. In these formulas, the inclusion of population moderates the targeting impact of the other formula factors. We previously reported that complex approaches such as this can result in widely different payments to communities with similar needs. Lags in Data Used to Allocate Funds: Statutes that require formulas to use specific sources of data can introduce lags in the data being used when those data are not immediately available. Lags inherent in the collection and publication of data by statistical agencies that gather and process data can result in a formula relying on data that are several years old. For example, the Medicaid statute generally specifies that matching rates for Medicaid be calculated 1 year before the fiscal year in which they are effective, using a 3-year average of the most recently available per capita income data reported by the Department of Commerce. For fiscal year 2007, matching rates were calculated at the beginning of fiscal year 2006 using 3-year average data for 2002 through 2004--the latest then available. Where recipients have been affected by recent changes to their population, the recipient may view such allocations as slow to respond to these changes in population. Fixed Pool versus Open Ended Funding: Most programs have a finite or fixed pool of funds to distribute, while others do not. In a fixed pool program, such as SSBG, when a population change results in an increased allocation for one state, the increase is offset by decreases in allocations to one or more other states. In open-ended programs, such as Medicaid, states can receive more funding when states spend more from their own source of revenue, without a corresponding decrease to other states. In conclusion, while population data play an important role in allocating federal assistance through formula grant programs, other grant-specific features--several of which I have discussed today--can also play a role in funding allocations, and in some cases can mitigate or entirely mute the impact of a change in population. Importantly, not all grants work the same, and an increase or decrease in population size may not have a proportional impact on ultimate funding levels. Nevertheless, given the importance of census data as a baseline for postcensal estimates used for grant programs, as well as for congressional apportionment and redistricting, counting the nation's population once, only once, and in the right location in 2010 is an essential first step. Mr. Chairman, this concludes my remarks. I will be glad to answer any questions that you or other Subcommittee members may have. For further information regarding this statement, please contact Robert Goldenkoff, Director, Strategic Issues, on (202) 512-2757 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals making key contributions to this statement included Ty Mitchell, Assistant Director; Sarah Cornetto; Erin Dexter; Robert Dinkelmeyer; Gregory Dybalski; Amber G. Edwards; Amanda Harris; and Tamara F. Stenzel. Ryan White CARE Act: Estimated Effect of Proposed Stop-Loss Provision on Urban Areas. GAO-09-472R. Washington, D.C.: March 6, 2009. 2010 Census: Population Measures Are Important for Federal Allocations. GAO-08-230T. Washington, D.C.: October 27, 2007. Ryan White CARE Act: Impact of Legislative Funding Proposal on Urban Areas. GAO-08-137R. Washington, D.C.: October 5, 2007. Vocational Rehabilitation: Improved Information and Practices May Enhance State Agency Earnings Outcomes for SSA Beneficiaries. GAO-07-521. Washington, D.C.: May 23, 2007. Medicaid: Strategies to Help States Address Increased Expenditures during Economic Downturns. GAO-07-97. Washington, D.C.: October 18, 2006. Community Development Block Grants: Program Offers Recipients Flexibility but Oversight Can Be Improved. GAO-06-732. Washington, D.C.: July 28, 2006. Community Development Block Grant Formula: Options for Improving the Targeting of Funds. GAO-06-904T. Washington, D.C.: June 27, 2006. Federal Assistance: Illustrative Simulations of Using Statistical Population Estimates for Reallocating Certain Federal Funding. GAO-06-567. Washington, D.C.: June 22, 2006. Data Quality: Improvements to Count Correction Efforts Could Produce More Accurate Census Data. GAO-05-463. Washington, D.C.: June 20, 2005. Grants Management: Additional Actions Needed to Streamline and Simply Processes. GAO-05-335. Washington, D.C.: April 18, 2005. Medicaid Formula: Differences in Funding Ability among States Often Are Widened. GAO-03-620. Washington, D.C.: July 10, 2003. Formula Grants: 2000 Census Redistributes Federal Funding Among States. GAO-03-178. Washington, D.C.: February 24, 2003. 2000 Census: Coverage Measurement Programs' Results, Costs, and Lessons Learned. GAO-03-287. Washington, D.C.: January 29, 2003. Formula Grants: Effects of Adjusted Population Counts on Federal Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999. 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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In past years, the federal government has annually distributed over $300 billion in federal assistance through grant programs using formulas driven in part by census population data. Of the more than $580 billion in additional federal spending, the American Recovery and Reinvestment Act of 2009 will obligate an estimated additional $161 billion to federal grant programs for fiscal year 2009. The U.S. Census Bureau (Bureau) puts forth tremendous effort to conduct an accurate count of the nation's population, yet some error in the form of persons missed or counted more than once is inevitable. Because many federal grant programs rely to some degree on population measures, shifts in population, inaccuracies in census counts, and methodological problems with population estimates can all affect the allocation of funds. This testimony discusses (1) how census data are used in the allocation of federal formula grant funds and (2) how the structure of the formulas and other factors can affect those allocations. This is based primarily on GAO's issued work on various formula grant programs and the allocation of federal funds. Federal grants use various sources of population counts in their funding formulas. They include the decennial census, which provides population counts once every10 years, and also serves as the baseline for estimates of the population for the years between censuses--known as postcensal estimates. Other sources of population data include the Bureau's American Community Survey and the Current Population Survey conducted by the Bureau for the Bureau of Labor Statistics, which provides monthly data. The degree of reliance on population in funding formulas varies. For example, the Social Services Block Grant formula allocates funding based solely on a state's population relative to the total U.S. population. Other programs use population plus one or more variables to determine funding levels. Medicaid, for example, uses population counts and income to determine its federal reimbursement rate. On the basis of simulations GAO conducted of federal grant allocations by selected federal grant programs--for illustrative purposes only--we found that changes in population counts can affect, albeit modestly, the allocations of federal funds across the states. For example, in 2006 we found that compared to the $159.7 billion total federal Medicaid funding in 2004, 22 states would have shared an additional $208.5 million in Medicaid funding, 17 states would have lost a total of $368 million, and 11 states and the District of Columbia would have had their funding unchanged. In total 0.2 percent of Medicaid funds would have shifted as a result of the simulation. In addition to population data, various other factors related to the design of federal grant programs may mitigate the effect that population changes can have on the distribution of federal funds. For example, in order to prevent funding losses from a formula change, several programs include hold-harmless provisions guaranteeing that each recipient entity will receive a specified proportion of the prior year's amount or share regardless of population changes.
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Since the September 11, 2001, terrorist attacks there has been concern that certain radioactive material could be used in the construction of a radiological dispersion device (RDD). An RDD disperses radioactive material over a particular target area, which could be accomplished using explosives or by other means. The major purpose of an RDD would be to create terror and disruption, not death or destruction. Depending on the type, form, amount, and concentration of radioactive material used, direct radiation exposure from an RDD could cause health effects to individuals in proximity to the material for an extended time; for those exposed for shorter periods and at lower levels, it could potentially increase the long- term risks of cancer. In addition, the evacuation and cleanup of contaminated areas after dispersal could lead to panic and serious economic costs on the affected population. In 2003, a joint NRC/Department of Energy (DOE) interagency working group identified several radioactive materials (including Americium-241 and Cesium-137) as materials at higher risk of being used in an RDD, describing these as "materials of greatest concern." In its risk-based approach to securing radioactive sources, NRC has made a commitment to work toward implementing the provisions of IAEA's Code of Conduct. This document provides a framework that categorizes the relative risk associated with radioactive sources. While NRC has recently focused on upgrading its capacity to track, monitor, and secure category 1 and 2 sources, which are considered high risk, category 3 sources are not a primary focus of NRC regulatory efforts. Category 3 sources include byproduct material, which is radioactive material generated by a nuclear reactor, and can be found in equipment that has medical, academic, and industrial applications. For example, a standard type of moisture gauge used by many construction companies contains small amounts of Americium-241 and Cesium-137. According to NRC, it would take 16 curies of Americium-241 to constitute a high-risk category 2 quantity, and 1.6 curies of Americium-241 is considered a category 3 quantity. In October and November 2006, using fictitious names, our investigators created two bogus companies--one in an agreement state and one in a non-agreement state. After the bogus businesses were incorporated, our investigators prepared and submitted applications for a byproduct materials license to both NRC and the department of the environment for the selected agreement state. The applications, mailed in February 2007, were identical except for minor differences resulting from variations in the application forms. Using fictitious identities, one investigator represented himself as the company president in the applications, and another investigator represented himself as the radiation safety officer. The license applications stated that our company intended to purchase machines with sealed radioactive sources. According to NRC guidance finalized in November 2006 and sent to agreement states in December 2006, both NRC and agreement state license examiners should consider 12 screening criteria to verify that radioactive materials will be used as intended by a new applicant. For example, one criterion suggests that the license examiner perform an Internet search using common search engines to confirm that an applicant company appears to be a legitimate business that would require a specific license. Another screening technique calls for the license examiner to contact a state agency to confirm that the applicant has been registered as a legitimate business entity in that state. If the examiner believes there is no reason to be suspicious, he or she is not required to take the steps suggested in the screening criteria and may indicate "no" or "not applicable" for each criteria. If the license examiner takes additional steps to evaluate a criterion, he or she should indicate what publicly available information was considered. If there is concern for a potential security risk, the guidance instructs license examiners to note the basis for that concern. Nine days after mailing their application form to NRC, our investigators received a call from an NRC license examiner. The NRC license examiner stated that the application was deficient in some areas and explained the necessary corrections. For example, the license examiner asked our investigators to certify that the machines containing sealed radioactive source material, which are typically used at construction sites, would be returned to the company office before being transported to a new construction site. The license examiner explained that this was a standard security precaution. Even though we did not have a company office or a construction site, our investigators nevertheless certified their intent to bring the machines back to their office before sending them to a new location. They made this certification via a letter faxed to NRC. Four days after our final correction to the license application, NRC approved our application and mailed the license to the bogus business in the non- agreement state. It took a total of 4 weeks to obtain the license. See figure 1 for the first page of the transmittal letter we received from NRC with our license. The NRC license is printed on standard 8-1/2 x 11 inch paper and contains a color NRC seal for a watermark. It does not appear to have any features that would prevent physical counterfeiting. We therefore concluded that we could alter the license without raising the suspicion of a supplier. We altered the license so that it appeared our bogus company could purchase an unrestricted quantity of sealed source materials rather than the small amounts of Americium-241 and Cesium-137 listed on the original license. We determined the proper language for the license by reviewing publicly available information. Next, we contacted two U.S. suppliers of the machines specified in our license. We requested price quotes and faxed the altered license to the suppliers as proof that we were certified to purchase the machines. Both suppliers offered to sell us the machines and provided us price quotes. One of these suppliers offered to provide twice as many machines as we requested and offered a discount for volume purchases. In a later telephone call to one of the suppliers, a representative of the supplier told us that his company does not check with NRC to confirm the terms listed on the licenses that potential customers fax them. He said that his company checks to see whether a copy of the front page of the license is faxed with the intent to purchase and whether the requested order exceeds the maximum allowable quantity a licensee is allowed to possess at any one time. Although we had no legitimate use for the machines, our investigators received, within days of obtaining a license from NRC, price quotes and terms of payment that would have allowed us to purchase numerous machines containing sealed radioactive source materials. These purchases would have substantially exceeded the limit that NRC approved for our bogus company. If these radioactive materials were unsealed and aggregated together, the machines would yield an amount of Americium-241 that exceeds the threshold for category 3 materials. As discussed previously, according to IAEA, category 3 sources are dangerous if not safely managed or securely protected and "could cause permanent injury to a person who handled them, or was otherwise in contact with them, for some hours. It could possibly--although it is unlikely--be fatal to be close to this amount of unshielded radioactive material for a period of days to weeks." Importantly, with patience and the proper financial resources, we could have accumulated, from other suppliers, substantially more radioactive source material than what the two suppliers initially agreed to ship to us--potentially enough to reach category 2. According to IAEA, category 2 sources, if not safely managed or securely protected, "could cause permanent injury to a person for a short time (minutes to hours), and it could possibly be fatal to be close to this amount of unshielded material for a period of hours to days." Ten days after mailing their application form to the agreement state's department of environment, our investigators received a call from a department license examiner. The license examiner stated that the application was deficient in some areas and said that she would send us a letter outlining what additional information the state required before approving the license. The examiner further stated that before the license was granted, she would conduct a site visit to inspect the company office and storage facilities cited in our application. Our investigators subsequently decided not to pursue the license in this state and requested that their application be withdrawn. According to an official in the department of environment for this state, the license examiner followed the required state procedure in requesting a site visit. The official told us that as a matter of long-standing state policy, license examiners in this state conduct site visits and interview company management (especially radiation safety officers) before granting new licenses for radioactive materials. This state policy is more stringent than the guidance NRC provided agreement states in December 2006. The NRC guidance identified a site visit as one possible screening criterion to use in evaluating a new license application, but, as discussed above, a site visit is not required under the NRC guidance. On June 1, 2007, we contacted NRC and discussed the results of our work. An NRC official indicated that NRC would take immediate action to address the weaknesses we identified. After this meeting, we learned that NRC suspended its licensing program for specific licenses until it could determine what corrective actions were necessary to resolve the weaknesses. NRC also held a teleconference with a majority of the 34 agreement states to discuss our work. On June 12, 2007, NRC issued supplemental interim guidance with additional screening criteria. These criteria are intended to help a license examiner determine whether a site visit or face-to-face meeting with new license applicants is required. NRC told us that it planned to convene a working group to develop improved guidance addressing the weaknesses we identified. NRC's goal is to provide licenses to only those entities that can demonstrate that they have legitimate uses for radioactive materials. However, our work shows that there continues to be weaknesses in the process NRC uses to approve license applications. In our view, a routine visit by NRC staff to the site of our bogus business would have been enough to reveal our lack of facilities and equipment. Furthermore, if NRC license examiners had conducted even a minimal amount of screening-- such as performing common Web searches or making telephone calls to local government or business offices--they would have developed serious doubts about our application. Once we received our license, the ease with which we were able to alter the license and obtain price quotes and commitments to ship from suppliers of radioactive materials is also cause for concern. Accordingly, we are making the following three recommendations to the Chairman of the NRC: First, to avoid inadvertently allowing a malevolent individual or group to obtain a license for radioactive materials, NRC should develop improved guidance for examining NRC license applications. In developing improved screening criteria, NRC should consider whether site visits to new licensees should be mandatory. These improved screening criteria will allow NRC to provide reasonable assurance that licenses for radioactive materials will only be issued to those with legitimate uses. Second, NRC should conduct periodic oversight of license application examiners so that NRC will be assured that any new guidance is being appropriately applied. Third, NRC should explore options to prevent individuals from counterfeiting NRC licenses, especially if this allows the purchase of more radioactive materials than they are approved for under the terms of the original license. Mr. Chairman, this concludes our statement. We 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 Gregory D. Kutz at (202) 512-7455 or [email protected] or Gene Aloise at (202) 512-3841 or [email protected]. Contacts points for our Offices of Congressional Relations and Public Affairs may be found on the last page of 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) regulates domestic medical, industrial, and research uses of sealed radioactive sources. Organizations or individuals attempting to purchase a sealed source must apply for a license and gain the approval of either NRC or an "agreement state." To become an agreement state, a state must demonstrate to NRC that its regulatory program is compatible with NRC regulations and is effective in protecting public health and safety. NRC then transfers portions of its authority to the agreement state. In 2003, GAO reported that weaknesses in NRC's licensing program could allow terrorists to obtain radioactive materials. NRC took some steps to respond to the GAO report, including issuing guidance to license examiners. To determine whether NRC actions to address GAO recommendations were sufficient, the Subcommittee asked GAO to test the licensing program using covert investigative methods. By using the name of a bogus business that existed only on paper, GAO investigators were able to obtain a genuine radioactive materials license from NRC. Aside from traveling to a non-agreement state to pick up and send mail, GAO investigators did not need to leave their office in Washington, D.C., to obtain the license from NRC. Further, other than obtaining radiation safety officer training, investigators gathered all the information they needed for the license from the NRC Web site. After obtaining a license from NRC, GAO investigators altered the license so it appeared that the bogus company could purchase an unrestricted quantity of radioactive sealed sources rather than the maximum listed on the approved license. GAO then sought to purchase, from two U.S. suppliers, machines containing sealed radioactive material. Letters of intent to purchase, which included the altered NRC license as an attachment, were accepted by the two suppliers. These suppliers gave GAO price quotes and commitments to ship the machines containing radioactive materials. The amount of radioactive material we could have acquired from these two suppliers was sufficient to reach the International Atomic Energy Agency's (IAEA) definition of category 3. According to IAEA, category 3 sources are dangerous if not safely managed or securely protected. Importantly, with patience and the proper financial resources, we could have accumulated substantially more radioactive source material. GAO also attempted to obtain a license from an agreement state, but withdrew the application after state license examiners indicated they would visit the bogus company office before granting the license. An official with the licensing program told GAO that conducting a site visit is a standard required procedure before radioactive materials license applications are approved in that state. As a result of this investigation, NRC suspended its licensing program until it could determine what corrective actions were necessary to resolve the weaknesses GAO identified. On June 12, 2007, NRC issued supplemental interim guidance with additional screening criteria. These criteria are intended to help a license examiner determine whether a site visit or face-to-face meeting with new license applicants is required.
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Both DOE and DOD have established offices, designated staff, and promulgated policies to provide a framework for the OUO and FOUO programs. However, their policies lack sufficient clarity in important areas, which could result in inconsistencies and errors. DOE policy clearly identifies the office responsible for the OUO program and establishes a mechanism to mark the FOIA exemption used as the basis for the OUO designation on a document. However, our analysis of DOD's FOUO policies shows that it is unclear which DOD office is responsible for the FOUO program, and whether personnel designating a document as FOUO should note the FOIA exemption used as the basis for the designation on the document. Also, both DOE's and DOD's policies are unclear regarding at what point a document should be marked as OUO or FOUO, and what would be an inappropriate use of the OUO or FOUO designation. In our view, this lack of clarity exists in both DOE and DOD because the agencies have put greater emphasis on managing classified information, which is more sensitive than OUO or FOUO information. DOE's Office of Security issued an order, a manual, and a guide in April 2003 to detail the requirements and responsibilities for DOE's OUO program and to provide instructions for identifying, marking, and protecting OUO information. DOE's order established the OUO program and laid out, in general terms, how sensitive information should be identified and marked, and who is responsible for doing so. The guide and the manual supplement the order. The guide provides more detailed information on the applicable FOIA exemptions to help staff decide whether exemption(s) may apply, which exemption(s) may apply, or both. The manual provides specific instructions for managing OUO information, such as mandatory procedures and processes for properly identifying and marking this information. For example, the employee marking a document is required to place on the front page of the document an OUO stamp that has a space for the employee to identify which FOIA exemption is believed to apply; the employee's name and organization; the date; and, if applicable, any guidance the employee may have used in making this determination. According to one senior DOE official, requiring the employee to cite a reason why a document is designated as OUO is one of the purposes of the stamp, and one means by which DOE's Office of Classification encourages practices consistent with the order, guide, and manual throughout DOE. Figure 1 shows the DOE OUO stamp. With regard to DOD, its regulations are unclear regarding which DOD office controls the FOUO program. Although responsibility for the FOUO program shifted from the Director for Administration and Management to the Office of the Assistant Secretary of Defense, Command, Control, Communications, and Intelligence (now the Under Secretary of Defense, Intelligence) in October 1998, this shift is not reflected in current regulations. Guidance for DOD's FOUO program continues to be included in regulations issued by both offices. As a result, which DOD office has primary responsibility for the FOUO program is unclear. According to a DOD official, on occasion this lack of clarity causes personnel who have FOUO questions to contact the wrong office. A DOD official said that the department began coordination of a revised Information Security regulation covering the FOUO program at the end of January 2006. The new regulation will reflect the change in responsibilities and place greater emphasis on the management of the FOUO program. DOD currently has two regulations, issued by each of the offices described above, containing similar guidance that addresses how unclassified but sensitive information should be identified, marked, handled, and stored. Once information in a document has been identified as for official use only, it is to be marked FOUO. However, unlike DOE, DOD has no departmentwide requirement to indicate which FOIA exemption may apply to the information, except when it has been determined to be releasable to a federal governmental entity outside of DOD. We found, however, that one of the Army's subordinate commands does train its personnel to put an exemption on any documents that are marked as FOUO, but does not have this step as a requirement in any policy. In our view, if DOD were to require employees to take the extra step of marking the exemption that may be the reason for the FOUO designation at the time of document creation, it would help assure that the employee marking the document had at least considered the exemptions and made a thoughtful determination that the information fit within the framework of the FOUO designation. Including the FOIA exemption on the document at the time it is marked would also facilitate better agency oversight of the FOUO program, since it would provide any reviewer/inspector with an indication of the basis for the marking. In addition, both DOE's and DOD's policies are unclear as to the point at which the OUO or FOUO designation should actually be affixed to a document. If a document might contain information that is OUO or FOUO but it is not so marked when it is first created, the risk that the document could be mishandled increases. DOE policy is vague about the appropriate time to apply a marking. DOE officials in the Office of Classification stated that their policy does not provide specific guidance about at what point to mark a document because such decisions are highly situational. Instead, according to these officials, the DOE policy relies on the "good judgment" of DOE personnel in deciding the appropriate time to mark a document. Similarly, DOD's current Information Security regulation addressing the FOUO program does not identify at what point a document should be marked. In contrast, DOD's September 1998 FOIA regulation, in a chapter on FOUO, states that "the marking of records at the time of their creation provides notice of FOUO content and facilitates review when a record is requested under the FOIA." In our view, a policy can provide flexibility to address highly situational circumstances and also provide specific guidance and examples of how to properly exercise this flexibility. In addition, we found that both DOE's and DOD's OUO and FOUO programs lack clear language identifying examples of inappropriate usage of OUO or FOUO markings. Without such language, DOE and DOD cannot be confident that their personnel will not use these markings to conceal mismanagement, inefficiencies, or administrative errors, or to prevent embarrassment to themselves or their agency. While both DOE and DOD offer training to staff on managing OUO and FOUO information, neither agency requires any training of its employees before they are allowed to identify and mark information as OUO or FOUO, although some staff will eventually take OUO or FOUO training as part of other mandatory training. In addition, neither agency has implemented an oversight program to determine the extent to which employees are complying with established policies and procedures. While many DOE units offer training on DOE's OUO policy, DOE does not have a departmentwide policy that requires OUO training before an employee is allowed to designate a document as OUO. As a result, some DOE employees may be identifying and marking documents for restriction from dissemination to the public or persons who do not need to know the information to perform their jobs, and yet may not be fully informed as to when it is appropriate to do so. At DOE, the level of training that employees receive is not systematic and varies considerably by unit, with some requiring OUO training at some point as a component of other periodic employee training, and others having no requirements at all. DOD similarly has no departmentwide training requirements before staff are authorized to identify, mark, and protect information as FOUO. The department relies on the individual services and field activities within DOD to determine the extent of training that employees receive. When training is provided, it is usually included as part of a unit's overall security training, which is required for many but not all employees. There is no requirement to track which employees received FOUO training, nor is there a requirement for periodic refresher training. Some DOD components, however, do provide FOUO training for employees as part of their security awareness training. Neither DOE nor DOD knows the level of compliance with OUO and FOUO program policies and procedures because neither agency conducts any oversight to determine whether the OUO and FOUO programs are being managed well. According to a senior manager in DOE's Office of Classification, the agency does not review OUO documents to assess whether they are properly identified and marked. This condition appears to contradict the DOE policy requiring the agency's senior officials to assure that the OUO programs, policies, and procedures are effectively implemented. Similarly, DOD does not routinely conduct oversight of its FOUO program to assure that it is properly managed. Without oversight, neither DOE nor DOD can assure that staff are complying with agency policies. We are aware of at least one recent case in which DOE's OUO policies were not followed. In 2005, several stories appeared in the news about revised estimates of the cost and length of the cleanup of high-level radioactive waste at DOE's Hanford Site in southeastern Washington. This information was controversial because this multibillion-dollar project has a history of delays and cost overruns, and DOE was restricting a key document containing recently revised cost and time estimates from being released to the public. This document, which was produced by the U.S. Army Corps of Engineers for DOE, was marked Business Sensitive by DOE. However, according to a senior official in the DOE Office of Classification, Business Sensitive is not a recognized marking in DOE. Therefore, there is no DOE policy or guidance on how to handle or protect documents marked with this designation. This official said that if information in this document needed to be restricted from release to the public, then the document should have been stamped OUO and the appropriate FOIA exemption should have been marked on the document. In closing, the lack of clear policies, effective training, and oversight in DOE's and DOD's OUO and FOUO programs could result in both over- and underprotection of unclassified yet sensitive government documents. Having clear policies and procedures in place can mitigate the risk of program mismanagement and can help DOE and DOD management assure that OUO or FOUO information is appropriately marked and handled. DOE and DOD have no systemic procedures in place to assure that staff are adequately trained before designating documents OUO or FOUO, nor do they have any means of knowing the extent to which established policies and procedures for making these designations are being complied with. These issues are important because they affect DOE's and DOD's ability to assure that the OUO and FOUO programs are identifying, marking, and safeguarding documents that truly need to be protected in order to prevent potential damage to governmental, commercial, or private interests. Mr. Chairman, this concludes GAO's prepared statement. We would be happy to respond to any questions that you or Members of the Subcommittee may have. For further information on this testimony, please contact either Davi M. D'Agostino at (202) 512-5431 or [email protected], or Gene Aloise 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 statement. Individuals making key contributions to this testimony included Ann Borseth, David Keefer, Kevin Tarmann, and Ned Woodward. Routine internal personnel matters such as performance standards and leave practices; internal matters the disclosure of which would risk the circumvention of a statute or agency regulation, such as law enforcement manuals 3. Specifically exempted from disclosure by federal statute Nuclear weapons design (Atomic Energy Act); tax return information (Internal Revenue Code) Scientific and manufacturing processes (trade secrets); sales statistics, customer and supplier lists, profit and loss data, and overhead and operating costs (commercial/financial information) Memoranda and other documents that contain advice, opinions, or recommendations on decisions and policies (deliberative process); documents prepared by an attorney in contemplation of litigation (attorney work-product); confidential communications between an attorney and a client (attorney-client)
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In the interest of national security and personal privacy and for other reasons, federal agencies place dissemination restrictions on information that is unclassified yet still sensitive. The Department of Energy (DOE) and the Department of Defense (DOD) have both issued policy guidance on how and when to protect sensitive information. DOE marks documents with this information as Official Use Only (OUO) while DOD uses the designation For Official Use Only (FOUO). GAO was asked to (1) identify and assess the policies, procedures, and criteria DOE and DOD employ to manage OUO and FOUO information; and (2) determine the extent to which DOE's and DOD's training and oversight programs assure that information is identified, marked, and protected according to established criteria. As GAO reported earlier this month, both DOE and DOD base their programs on the premise that information designated as OUO or FOUO must (1) have the potential to cause foreseeable harm to governmental, commercial, or private interests if disseminated to the public or persons who do not need the information to perform their jobs; and (2) fall under at least one of eight Freedom of Information Act (FOIA) exemptions. While DOE and DOD have policies in place to manage their OUO or FOUO programs, our analysis of these policies showed a lack of clarity in key areas that could allow inconsistencies and errors to occur. For example, it is unclear which DOD office is responsible for the FOUO program, and whether personnel designating a document as FOUO should note the FOIA exemption used as the basis for the designation on the document. Also, both DOE's and DOD's policies are unclear regarding at what point a document should be marked as OUO or FOUO and what would be an inappropriate use of the OUO or FOUO designation. For example, OUO or FOUO designations should not be used to conceal agency mismanagement. In our view, this lack of clarity exists in both DOE and DOD because the agencies have put greater emphasis on managing classified information, which is more sensitive than OUO or FOUO. In addition, while both DOE and DOD offer training on their OUO and FOUO policies, neither DOE nor DOD has an agencywide requirement that employees be trained before they designate documents as OUO or FOUO. Moreover, neither agency conducts oversight to assure that information is appropriately identified and marked as OUO or FOUO. DOE and DOD officials told us that limited resources, and in the case of DOE, the newness of the program, have contributed to the lack of training requirements and oversight. Nonetheless, the lack of training requirements and oversight of the OUO and FOUO programs leaves DOE and DOD officials unable to assure that OUO and FOUO documents are marked and handled in a manner consistent with agency policies and may result in inconsistencies and errors in the application of the programs.
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