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Beginning in 1930, the Congress established the first transportation discretionary program under which the executive branch could select specific transportation projects for federal funding, thus providing the executive branch with some latitude in allocating federal funds to the states. In that year, the Public Lands Program was established to pay for road work on the nation's public lands. In 1978, the Congress set up the Discretionary Bridge and Discretionary Interstate programs. The Discretionary Bridge Program was established to replace or rehabilitate high-cost bridges while the Discretionary Interstate Program aimed to accelerate the construction of the Interstate Highway System. When the Interstate 4R Discretionary Program was begun in 1982, its goal was to resurface, restore, rehabilitate, and reconstruct the Interstate Highway System. Finally, the Ferry Boats and Facilities Program, begun in 1991, was intended to construct ferry boats and ferry terminal facilities. (See apps. I-V for additional information on ISTEA's provisions and eligibility requirements for each of the discretionary programs discussed in this report.) The Secretary of Transportation is responsible for selecting projects under the discretionary programs. The Secretary has delegated this responsibility to the FHWA Administrator. FHWA's Office of Engineering administers the programs, solicits applications from states, and compiles the applications and information for selection. States submit applications to FHWA's division offices, which either send the applications to FHWA's regional offices for compilation with other states' applications or to FHWA's headquarters, as they do for Interstate Discretionary and 4R programs. Regional offices then send the applications to FHWA's Washington, D.C., headquarters. As table 1 shows, since fiscal year 1992, the five discretionary programs we reviewed received over $2.7 billion in federal funds--ranging from about $99 million provided for the Ferry Boats and Facilities Program to almost $1.6 billion provided for the Interstate Discretionary Program. The states' requests for discretionary funds have generally exceeded the amounts available for funding. For example, in fiscal year 1997, the states submitted almost $682 million in requests for about $61 million in discretionary bridge funds. Similarly, the states submitted nearly $1.3 billion in requests for about $66 million available in fiscal year 1997 from Interstate 4R funds. Although the states have been able to build specific transportation projects and facilities through discretionary funding, the amounts available through these five programs represent only a small portion of the highway funds that the states receive annually. For example, in fiscal year 1997, FHWA's Office of the Administrator provided the states with $213.7 million in discretionary funding for the five programs we reviewed--about 1 percent of the estimated $20 billion that FHWA provided the states with for that year. FHWA uses a two-phase selection process involving both program staff and the Office of the Administrator. As displayed in figure 1, the first phase begins when program staff in the Office of Engineering send a solicitation notice out to FHWA's regions calling for project candidates from the states. Project candidates are compiled by the regions and divisions and forwarded to the headquarters staff offices. The headquarters staff with specific expertise in the various discretionary program areas compile the regional submissions and review and analyze each candidate. By applying program-specific statutory and administrative criteria, program staff screen and prioritize project applications for each discretionary program. FHWA program staff use both statutory and administrative criteria and other factors to identify and prioritize projects for each discretionary program. As displayed in table 2, the criteria are program specific and differ among the five discretionary programs. For example, by using data to determine the physical condition of a bridge, Discretionary Bridge Program staff calculate a numerical score or rating factor for each candidate project. The rating factor allows FHWA to prioritize the projects eligible for funding. In contrast, Public Lands Program staff use factors, such as whether a project is located in a state with 3 percent or more of the nation's public lands, to screen and prioritize projects. Interstate Discretionary and 4R Program staff consider whether other sources of funding, such as unobligated Interstate Construction and National Highway System funds, are available for projects, while Ferry Boats and Facilities Program staff evaluate factors, such as a project's benefits and the ability of federal funds to leverage private funds, when they prioritize the candidate projects. After applying the criteria, program staff identify ineligible projects and group the eligible projects into four priority categories--most promising, promising, qualified, and not qualified. The second phase of the selection process begins after FHWA's Office of Engineering provides the Office of the Administrator with a report for each discretionary program that lists the eligible projects and includes other information, such as what funding the states received in prior years through the discretionary programs and any congressional interest or support for specific projects. The Office of the Administrator receives the reports for all of the programs simultaneously--generally in the fall--and begins the final selection process at that time. Using the discretion granted to the Administrator under each of the programs, the Office of the Administrator can apply additional considerations to the information received from the program staff before making final selections. For example, according to FHWA's acting Deputy Administrator, the Office of the Administrator may try to spread the discretionary funds among as many states as possible to ensure geographic equity. As a result, the final selections could differ from the staffs' groupings if these groupings provided the bulk of funding for only a few states in a given program. The official also said that the Office of the Administrator, in consultation with the Secretary, also pays close attention to requests from Members of Congress in making the final project selections. In addition, congressional legislation, in the form of earmarks, may require the Secretary to fund a particular project through a discretionary program. Other considerations may include whether the requesters would be willing to accept partial funding, whether conditions pertaining to the project have changed since the state originally requested funding, and other factors, such as whether states have received an equitable share of funding over time. The process is concluded when the Office of the Administrator sends out the list of its selections. The two phases differ in the extent of documentation available to explain how decisions are made--that is, how program staff apply the criteria to group the projects and how the Office of the Administrator makes the final selections. Specifically, program staff provide written documentation of the statutory and administrative criteria used to screen candidate projects, as well as the project's descriptions, the amounts of funding requested, prior allocations to states, and congressional interest. In contrast, officials in the Office of the Administrator could verbally describe the additional factors they have considered in making the final project selections but could not provide any written documentation that either explained the additional selection factors they used or how they applied these factors to each candidate project. In addition, the final selection list that the Office of the Administrator issues at the conclusion of the selection process does not explain or justify why each project was selected. The current process to select projects under the discretionary programs has been in place since fiscal year 1995. In general, under the current process, the Office of the Administrator relies more on its discretion in making the selections than it did under an earlier process that relied almost entirely on program staffs' analyses and recommendations. We found that under the current process, there were differences in the projects selected by the Office of the Administrator and those given higher priority by the FHWA staff responsible for evaluating and prioritizing the projects. Our analysis of the discretionary program's selection process revealed that two distinct processes existed during our review time frames. During fiscal years 1992-94, program staff for each of the discretionary programs we reviewed recommended specific projects and funding amounts after ranking projects in order of priority. As displayed in figure 2, the Office of the Administrator selected over 98 percent of all the projects that the program staff recommended in fiscal years 1992-94 (180 projects selected from 183 staff recommendations). For example, the Office of the Administrator selected 15 of the 17 public lands projects recommended by FHWA program staff in fiscal year 1992. Similarly, the Office of the Administrator selected all of the six Interstate 4R projects recommended by FHWA program staff for funding in fiscal year 1992. The high level of consistency between the staffs' recommendations and the Office of the Administrator's selections changed after fiscal year 1994. For the fiscal year 1995 funding cycle, the Office of the Administrator directed the program staff to group the projects into four categories--most promising, promising, qualified, and not qualified--rather than provide specific project and funding recommendations. According to FHWA's Acting Deputy Administrator, the Office of the Administrator found it difficult to make equitable decisions using the rank order lists and thus made the change to the groupings. The official also said that the process did not give the Office of the Administrator enough flexibility to take into account other equally important considerations, such as the geographic distribution of funding. As figure 2 shows, beginning in fiscal year 1995, the Office of the Administrator selected a declining proportion of projects from the higher-priority categories. In fiscal year 1995, 92 percent of the projects that the Office of the Administrator selected were projects that staff had categorized as "promising" or "most promising"; 69 percent in fiscal 1996; and 59 percent in fiscal 1997--about 73 percent overall for the 3-year period. This tendency was particularly evident in comparing the staffs' groupings and the final project selections in three of the five programs we reviewed--Public Lands, Interstate 4R, and Discretionary Bridge. For example, in fiscal year 1997, while the Office of the Administrator selected 9 of the 36 public lands projects categorized as "most promising," it also selected 16 of 59 projects categorized as "qualified"--the lowest-priority category for the public lands program that year. Half of all public lands projects that the Office of the Administrator selected that year came from the qualified category. In the Ferry Boats and Facilities Program there was an initial decline from 100 to 80 percent for fiscal year 1995, but the selection of most promising and promising projects remained around 80 percent for fiscal 1996-97. For the other discretionary program we reviewed--Interstate Discretionary--the projects that the program staff categorized as "higher priority" were the ones selected by the Office of the Administrator. The results occurred under the selection procedures in place during fiscal years 1992-97. The Office of the Administrator selected 100 percent of the projects recommended by the program staff during fiscal years 1992-94 and 100 percent of those that the staff placed in the most promising category during fiscal 1995-97. The change in the selection process did not affect the Interstate Discretionary Program because the funds available for the program during fiscal years 1993-97 exceeded the requests; all eligible candidate projects were selected for full funding. (Details on the Office of the Administrator's selections for fiscal years 1992-97 are provided in apps. I-V for the five programs we reviewed.) FHWA officials stated that the selection of projects in lower-priority categories did not mean that the Office of the Administrator was making poor transportation investments. FHWA officials stated that most of the states' project submissions could be considered good projects, given the tremendous Interstate infrastructure needs and tight federal-aid funding. Therefore, they believed it would be unlikely that the Office of the Administrator could select a poor project for funding. In addition, our analyses revealed no instance where the Office of the Administrator selected a project that staff had classified as statutorily ineligible project during fiscal years 1995-97. We provided DOT with draft copies of this report for review and comment. We met with DOT officials--including the FHWA Acting Administrator, Acting Deputy Administrator, and Associate Administrator for Program Development--to discuss their comments. DOT did not have any comments on the report's overall findings but requested that the report be modified to address two general areas of concern. First, the Department indicated that it wanted us to broaden our discussion of the additional factors that the Office of the Administrator uses to make final project selections. Second, the Department suggested that we modify our analysis of the project selection statistics to account for the financial limitations of the programs. DOT said that because several of the discretionary requests greatly exceeded the available funding, the promising and most promising categories contained more projects than could be selected. DOT noted that because our analyses did not take this funding limitation into account, our analyses implied that the Office of the Administrator chose many projects from the lower-priority categories. In response to DOT's comments, we included additional information on the factors that the Office of the Administrator considers in making project selections in the body of the report. We revised our analysis of the projects the Office of the Administrator selected for funding in fiscal years 1995-97 to address DOT's second concern. We also included additional information in the appendixes on the funds allocated to projects in each category for fiscal years 1995-97. Other editorial comments provided by the Department have been incorporated where appropriate. To identify the criteria and selection process that DOT used to select projects for discretionary funding, we obtained from FHWA officials information that documented the process followed for each program during fiscal years 1992-97. The information from FHWA described the number and dollar amount of projects submitted for funding, the statutory and administrative criteria for eligibility and selection, and the Office of the Administrator's final project selections. Some of the documents also included information about congressional interest and whether the Congress had earmarked any of the program dollars. We discussed the programs with officials in FHWA's Office of Engineering who had knowledge of each program, as well as with FHWA's Acting Deputy Administrator, who summarized the factors used by the Office of the Administrator to determine which projects would receive funding. We also met with officials in one FHWA regional office to discuss their role in the discretionary programs. To determine how changes in the process have affected which projects DOT selects for discretionary funding, we examined the staffs' analysis of the projects submitted for funding in each program, as well as the Office of the Administrator's subsequent project selections. We then compared the project selections resulting from the process that the Department currently uses with the project selections resulting from the process used during fiscal years 1992-94. We performed our review from July through September 1997 in accordance with generally accepted government auditing standards. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies of this report to the Secretary of Transportation, the Acting Administrator, FHWA; cognizant congressional committees; and other interested parties. We will 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 VI. Public Lands Highways. The Public Lands Program was initially established in 1930. The Federal-Aid Highway Act of 1970 changed the funding source for the program from the general fund to the Highway Trust fund, effective in fiscal year 1972. The funding level for public lands highways was $16 million per year during fiscal years 1972-82. The Surface Transportation Assistance Act of 1982 (1982 STAA, P.L. 97-424) increased the annual authorization level to $50 million for fiscal years 1983-86, but the Surface Transportation and Uniform Relocation Assistance Act of 1987 (1987 STURAA, P.L. 100-17) reduced this amount to $40 million for fiscal 1987-91. The program funds projects that are within, adjacent to, or provide access to the areas served by public lands highways--such as roads in national parks, forests, or Indian reservations. Public Lands Highways funds may be used on eligible public lands highways, defined by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) (P.L. 102-240) as (1) a forest road or (2) any highway through unappropriated or unreserved public lands; nontaxable Indian lands; or other federal reservations that are under the jurisdiction of and maintained by a public authority and open to public travel. A variety of activities are eligible, including planning, research, engineering, and construction. Projects ranging from reconstructing a road to adding parking facilities are eligible. One hundred percent. ISTEA authorized the following funding levels for the Public Land Highways Program: fiscal year 1992--$48.62 million; fiscal 1993--$58.14 million; fiscal 1994--$58.14 million; fiscal 1995--$58.14 million; fiscal 1996--$58.48 million; and fiscal 1997--$58.48 million. Funds remain available for the fiscal year allocated plus 3 years. See table I.1. During fiscal years 1992-97, the top five recipient states received about 37 percent of all Public Lands Highway allocations. (See table I.2.) During fiscal years 1992-94, FHWA's Office of the Administrator selected 97 percent of the projects that the FHWA staff recommended for funding. (See table I.3.) During fiscal years 1995-97, FHWA's Office of the Administrator selected a declining percentage of projects grouped in the most promising and promising categories. (See table I.4.) During fiscal years 1995-97, the Office of the Administrator allocated a declining proportion of dollars to projects the staff categorized as "most promising" or "promising." (See table I.5.) Discretionary Bridge. The Discretionary Bridge Program was established by the Surface Transportation Assistance Act of 1978 (1978 STAA, P.L. 95-599). The 1978 legislation required that $200 million be withheld from the Highway Bridge Replacement and Rehabilitation Program apportionment for each of fiscal years 1979-82 to be used by the Secretary of Transportation as a discretionary fund to replace or rehabilitate bridges that cost more than $10 million each or twice the state's apportionment. The Surface Transportation Assistance Act of 1982 continued the program at the same funding level through fiscal year 1986. The act also provided that the Federal Highway Administration (FHWA) establish a formal process to rank and select discretionary bridge projects for funding. The act also decreed that discretionary bridge projects be on a federal-aid highway system. The Surface Transportation and Uniform Relocation Assistance Act of 1987 increased the discretionary set-aside to $225 million for each fiscal year during 1987-91. Eligible projects are bridge rehabilitation or replacement projects that cost more than $10 million or at least twice the amount of Highway Bridge Replacement and Rehabilitation Program funds apportioned to the state in which the bridge is located. The discretionary bridge projects must be on a federal-aid system. Candidate bridges must have a rating factor of 100 or less to be eligible, unless they were selected prior to November 1983. Eighty percent. Bridge projects that are on the Interstate Highway System and have been selected for discretionary bridge funding will receive funding at 50 percent of the requested amount primarily because other Interstate discretionary funds are available. ISTEA continued the program and authorized that $349.5 million be set aside over the 6-year period fiscal 1992-97--$49 million for fiscal 1992, $59.5 million each for fiscal 1993-94, and $60.5 million each for fiscal 1995-97. See table II.1. During fiscal years 1992-97, the top five recipient states received about 69 percent of all Discretionary Bridge allocations. (See table II.2.) During fiscal years 1992-94, the Office of the Administrator selected 100 percent of the projects that the FHWA program staff recommended for funding. (See table II.3.) During fiscal years 1995-97, FHWA's Office of the Administrator selected a declining percentage of the projects the program staff had categorized as "most promising" and "promising." (See table II.4.) During fiscal years 1995-97, the Office of the Administrator allocated about $126 million to projects the staff had categorized as either "most promising" or "promising." (See table II.5.) Interstate Discretionary Program. Originally created by section 115(a) of the Surface Transportation Assistance Act of 1978 in order to accelerate construction of the Interstate Highway System. The Surface Transportation Assistance Act of 1982 and the Surface Transportation and Uniform Relocation and Assistance Act of 1987 both continued and modified the Interstate Discretionary Program. Interstate Discretionary funds may be used for the same purpose as Interstate Construction funds--initial construction of remaining portions of the Interstate System. However, only work eligible under the provisions of the Federal-Aid Highway Act of 1981 and included in the 1981 Interstate Cost Estimate is eligible for Interstate Discretionary funding. Ninety percent; 80 percent for projects that provide additional capacity, unless added capacity is High Occupancy Vehicle or auxiliary lane (also 90-percent federal share). Section 1020 of ISTEA revised 23 U.S.C. 118(b), (c) & (d) and authorized a $100 million per year set-aside from the Interstate Construction Program for the Interstate Discretionary Program annually for fiscal years 1992-96.FHWA also provided Interstate Discretionary funds from lapsed Interstate Construction funds that had reached the end of their availability period. The funds are available until expended. Currently, there is a balance of approximately $61 million available for future Interstate Discretionary allocations. See table III.1. During fiscal years 1992-97, the top five recipient states received about 72 percent of all Interstate Discretionary allocations. (See table III.2.) During fiscal years 1992-94, FHWA's Office of the Administrator selected 100 percent of the projects that FHWA staff recommended for funding. (See table III.3.) During fiscal years 1995-97, FHWA's Office of the Administrator also selected all of the eligible projects for full funding, since the amount available for allocation exceeded the amount requested. (See table III.4.) During fiscal years 1995-97, the staff categorized all eligible projects as "most promising," and all eligible projects were funded. (See table III.5.) Interstate 4R Discretionary Program. Originally created by section 115 (a) of the Surface Transportation Assistance Act of 1982. Funds were provided for the program from lapsed Interstate 4R apportionments, with additional criteria. The Surface Transportation and Uniform Relocation and Assistance Act of 1987 provided for a $200 million set-aside for each of the fiscal years 1988-92 from the Interstate 4R authorization for the continuation of the Interstate 4R discretionary fund and provided criteria/factors to be used in the distribution of funds. Interstate 4R discretionary funds may be used for resurfacing, restoring, rehabilitating, and reconstructing the Interstate System, including providing additional capacity. Ninety percent. The federal share may be increased up to 95 percent in states with large areas of public lands and up to 100 percent for safety, traffic control, and car/vanpool projects. Section 1020 of ISTEA amended 23 U.S.C. 118 (c)(2) and set aside $54 million for fiscal year 1992, $64 million each year for fiscal 1993-96, and $65 million for fiscal 1997. Of the amounts set aside, ISTEA required that $16 million for fiscal year 1992 and $17 million for each of fiscal 1993 and 1994 be used for improvements on the Kennedy Expressway in Chicago, Illinois. ISTEA terminated the apportioned Interstate 4R Fund Program and provided that the Interstate 4R set-aside come from the National Highway System program. See table IV.1. During fiscal years 1992-97, the top five recipient states received about 70 percent of all Interstate 4R Discretionary allocations. (See table IV.2.) During fiscal years 1992-94, FHWA's Office of the Administrator selected 94 percent of the projects that FHWA staff recommended for funding. (See table IV.3.) During fiscal years 1995-97, about 76 percent of the projects that FHWA's Office of the Administrator selected for funding were those the staff grouped in the most promising and promising categories. (See table IV.4.) During fiscal years 1995-97, the Office of the Administrator allocated $173 million to projects that the staff had categorized as "most promising" or "promising." (See table IV.5.) Ferry Boats and Ferry Terminal Facilities. In 1991, ISTEA created a discretionary funding program for the construction of ferry boats and ferry terminal facilities and authorized funding from the Highway Trust Fund. Ferry boats and facilities must be publicly owned. The operation of the ferry facilities must be on a route classified as a public road, except an Interstate route. Eighty percent. ISTEA authorized $100 million--$14 million in fiscal year 1992, $17 million each year for fiscal 1993-96, and $18 million for fiscal 1997. Funds are available until expended. See table V.1. During fiscal years 1992-97, the top five recipient states received about 50 percent of all Ferry Boats and Facilities allocations. (See table V.2.) During fiscal years 1992-94, FHWA's Office of the Administrator selected 100 percent of the projects that FHWA staff recommended for funding. (See table V.3.) During fiscal years 1995-97, about 81 percent of the projects that FHWA's Office of the Administrator selected were those that the staff had grouped in the most promising and promising categories. (See table V.4.) During fiscal years 1995-97, the FHWA Office of the Administrator allocated about $40 million to projects the staff had categorized as "most promising" or "promising." (See table V.5.) Joseph A. Christoff Bonnie Pignatiello Leer David I. Lichtenfeld Gail F. Marnik Jonathan Pingle Phyllis F. Scheinberg The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the Department of Transportation's (DOT) project selection process for five federal discretionary programs, focusing on: (1) the selection process and criteria DOT uses to fund projects under its discretionary highway programs; and (2) how DOT's process has changed and how the changes may have affected which projects DOT selects for discretionary funding. GAO noted that: (1) DOT uses a two-phase process for selecting and funding transportation projects for the five discretionary programs GAO reviewed; (2) in the first phase, Federal Highway Administration (FHwA) program staff in the field and headquarters compile and evaluate the applications that states submit for discretionary funding; (3) program staff screen the applications by applying eligibility criteria established by statute or administratively; (4) on the basis of written criteria, program staff group the projects into four categories that range in priority from most promising to not qualified and submit the groupings to the Office of the Administrator; (5) the submission to the Office of the Administrator provides information on each candidate project, data on discretionary funds that each state received during prior years, and the current level of congressional interest; (6) in the second phase, the Office of the Administrator uses the information submitted by the program staff, as well as other factors, to evaluate the projects and make the final selections; (7) according to FHwA's Acting Deputy Administrator, the Office of the Administrator has tried to ensure that the dollars are spread fairly among all the states and that the interests of members of Congress are addressed; (8) in contrast to the analyses that the program staff complete in the first phase, the Office of the Administrator does not document the factors it uses to select the final projects or its rationale for making the final selections; (9) DOT is authorized to establish procedures for reviewing and selecting transportation projects under its discretionary programs; (10) GAO's review of the selection process revealed that under the current process, in place during fiscal years 1995-1997, the Office of the Administrator relied more on its discretion and less on the program staff's input and analyses than it did under an earlier process used during fiscal years 1992-1994; (11) under this new process, which was designed to provide the Office of the Administrator with more flexibility in taking into account items such as the geographic distribution of funding, 73 percent of the projects that the Office of the Administrator selected were categorized as "most promising" or "promising"; (12) the Office of the Administrator selected a declining portion of projects from these categories over the 3-year period; and (13) during fiscal years 1992-94, when staff ranked projects in order of priority and recommended specific projects and funding amounts, the Office of the Administrator selected over 98 percent of all projects that the program staff recommended.
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The Schedules of Federal Debt including the accompanying notes present fairly, in all material respects, in conformity with U.S. generally accepted accounting principles, the balances as of September 30, 2004, 2003, and 2002, for Federal Debt Managed by BPD; the related Accrued Interest Payables and Net Unamortized Premiums and Discounts; and the related increases and decreases for the fiscal years ended September 30, 2004 and 2003. BPD maintained, in all material respects, effective internal control relevant to the Schedule of Federal Debt related to financial reporting and compliance with applicable laws and regulations as of September 30, 2004, that provided reasonable assurance that misstatements, losses, or noncompliance material in relation to the Schedule of Federal Debt would be prevented or detected on a timely basis. Our opinion is based on criteria established under 31 U.S.C. SS 3512 (c), (d) (commonly referred to as the Federal Managers' Financial Integrity Act) and the Office of Management and Budget (OMB) Circular A-123, revised June 21, 1995, Management Accountability and Control. We found matters involving information security controls that we do not consider to be reportable conditions. We will communicate these matters to BPD's management, along with our recommendations for improvement, in a separate letter to be issued at a later date. Our tests for compliance in fiscal year 2004 with the statutory debt limit disclosed no instances of noncompliance that would be reportable under U.S. generally accepted government auditing standards or OMB audit guidance. However, the objective of our audit of the Schedule of Federal Debt for the fiscal year ended September 30, 2004, was not to provide an opinion on overall compliance with laws and regulations. Accordingly, we do not express such an opinion. BPD's Overview on Federal Debt Managed by the Bureau of the Public Debt contains information, some of which is not directly related to the Schedules of Federal Debt. We do not express an opinion on this information. However, we compared this information for consistency with the schedules and discussed the methods of measurement and presentation with BPD officials. Based on this limited work, we found no material inconsistencies with the schedules. Management is responsible for the following: preparing the Schedules of Federal Debt in conformity with U.S. generally accepted accounting principles; establishing, maintaining, and assessing internal control to provide reasonable assurance that the broad control objectives of the Federal Managers' Financial Integrity Act are met; and complying with applicable laws and regulations. We are responsible for obtaining reasonable assurance about whether (1) the Schedules of Federal Debt are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles and (2) management maintained effective related internal control as of September 30, 2004, the objectives of which are the following: Financial reporting: Transactions are properly recorded, processed, and summarized to permit the preparation of the Schedule of Federal Debt for the fiscal year ended September 30, 2004, in conformity with U.S. generally accepted accounting principles. Compliance with laws and regulations: Transactions related to the Schedule of Federal Debt for the fiscal year ended September 30, 2004, are executed in accordance with laws governing the use of budget authority and with other laws and regulations that could have a direct and material effect on the Schedule of Federal Debt. We are also responsible for testing compliance with selected provisions of laws and regulations that have a direct and material effect on the Schedule of Federal Debt. Further, we are responsible for performing limited procedures with respect to certain other information appearing with the Schedules of Federal Debt. In order to fulfill these responsibilities, we examined, on a test basis, evidence supporting the amounts and disclosures in the Schedules of Federal Debt; assessed the accounting principles used and any significant estimates evaluated the overall presentation of the Schedules of Federal Debt; obtained an understanding of internal control relevant to the Schedule of Federal Debt as of September 30, 2004, related to financial reporting and compliance with laws and regulations (including execution of transactions in accordance with budget authority); tested relevant internal controls over financial reporting and compliance, and evaluated the design and operating effectiveness of internal control related to the Schedule of Federal Debt as of September 30, 2004; considered the process for evaluating and reporting on internal control and financial management systems under the Federal Managers' Financial Integrity Act; and tested compliance in fiscal year 2004 with the statutory debt limit (31 U.S.C. SS 3101(b), as amended by Pub. L. No. 107-199, SS 1, 116 Stat. 734 (2002) and Pub. L. No. 108-24, 117 Stat. 710 (2003)). We did not evaluate all internal controls relevant to operating objectives as broadly described by the Federal Managers' Financial Integrity Act, such as those controls relevant to preparing statistical reports and ensuring efficient operations. We limited our internal control testing to controls over financial reporting and compliance. Because of inherent limitations in internal control, misstatements due to error or fraud, losses, or noncompliance may nevertheless occur and not be detected. We also caution that projecting our evaluation to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with controls may deteriorate. We did not test compliance with all laws and regulations applicable to BPD. We limited our tests of compliance to a selected provision of a law that has a direct and material effect on the Schedule of Federal Debt for the fiscal year ended September 30, 2004. We caution that noncompliance may occur and not be detected by these tests and that such testing may not be sufficient for other purposes. We performed our work in accordance with U.S. generally accepted government auditing standards and applicable OMB audit guidance. In commenting on a draft of this report, BPD concurred with the facts and conclusions in our report. The comments are reprinted in appendix I. Federal debt managed by the Bureau of the Public Debt comprises debt held by the public and debt held by certain federal government accounts, the latter of which is referred to as intragovernmental debt holdings. As of September 30, 2004 and 2003, outstanding gross federal debt managed by the bureau totaled $7,379 and $6,783 billion, respectively. The increase in gross federal debt of $596 billion during fiscal year 2004 was due to an increase in gross intragovernmental debt holdings of $213 billion and an increase in gross debt held by the public of $383 billion. As Figure 1 illustrates, intragovernmental debt holdings have steadily increased since fiscal year 2000 and debt held by the public decreased in fiscal year 2001, but increased in fiscal years 2002 through 2004. The primary reason for the increases in intragovernmental debt holdings is the annual surpluses in the Federal Old-Age and Survivors Insurance Trust Fund, Civil Service Retirement and Disability Trust Fund, Federal Hospital Insurance Trust Fund, Federal Disability Insurance Trust Fund, and Military Retirement Fund. The fiscal years 2002 through 2004 increases in debt held by the public are due primarily to total federal spending exceeding total federal revenues. As of September 30, 2004, gross debt held by the public totaled $4,307 billion and gross intragovernmental debt holdings totaled $3,072 billion. Total Gross Federal Debt Outstanding (in billions) Interest expense incurred during fiscal year 2004 consists of (1) interest accrued and paid on debt held by the public or credited to accounts holding intragovernmental debt during the fiscal year, (2) interest accrued during the fiscal year, but not yet paid on debt held by the public or credited to accounts holding intragovernmental debt, and (3) net amortization of premiums and discounts. The primary components of interest expense are interest paid on the debt held by the public and interest credited to federal government trust funds and other federal government accounts that hold Treasury securities. The interest paid on the debt held by the public affects the current spending of the federal government and represents the burden in servicing its debt (i.e., payments to outside creditors). Interest credited to federal government trust funds and other federal government accounts, on the other hand, does not result in an immediate outlay of the federal government because one part of the government pays the interest and another part receives it. However, this interest represents a claim on future budgetary resources and hence an obligation on future taxpayers. This interest, when reinvested by the trust funds and other federal government accounts, is included in the programs' excess funds not currently needed in operations, which are invested in federal securities. During fiscal year 2004, interest expense incurred totaled $322 billion, interest expense on debt held by the public was $158 billion, and $164 billion was interest incurred for intragovernmental debt holdings. As Figure 2 illustrates, total interest expense decreased each year from fiscal year 2001 through 2003, but increased in fiscal year 2004. Average interest rates on principal balances outstanding as of fiscal year end are disclosed in the Notes to the Schedules of Federal Debt. (in billions) Debt held by the public reflects how much of the nation's wealth has been absorbed by the federal government to finance prior federal spending in excess of total federal revenues. As of September 30, 2004 and 2003, gross debt held by the public totaled $4,307 billion and $3,924 billion, respectively (see Figure 1), an increase of $383 billion. The borrowings and repayments of debt held by the public increased from fiscal year 2003 to 2004 primarily due to Treasury's decision to finance current operations using more short-term securities. As of September 30, 2004, $3,846 billion, or 89 percent, of the securities that constitute debt held by the public were marketable, meaning that once the government issues them, they can be resold by whoever owns them. Marketable debt is made up of Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation-Protected Securities (TIPS) with maturity dates ranging from less than 1 year out to 30 years. Of the marketable securities currently held by the public as of September 30, 2004, $2,576 billion or 67 percent will mature within the next 4 years (see Figure 3). As of September 30, 2004 and 2003, notes and TIPS held by the public maturing within the next 10 years totaled $2,274 billion and $1,919 billion, respectively, an increase of $355 billion. The government also issues to the public, state and local governments, and foreign governments and central banks nonmarketable securities, which cannot be resold, and have maturity dates from on demand to more than 10 years. As of September 30, 2004, nonmarketable securities totaled $461 billion, or 11 percent of debt held by the public. As of that date, nonmarketable securities primarily consisted of savings securities totaling $204 billion and special securities for state and local governments totaling $158 billion. Intragovernmental debt holdings represent balances of Treasury securities held by over 200 individual federal government accounts with either the authority or the requirement to invest excess receipts in special U.S. Treasury securities that are guaranteed for principal and interest by the full faith and credit of the U.S. Government. Intragovernmental debt holdings primarily consist of balances in the Social Security, Medicare, Military Retirement, and Civil Service Retirement and Disability trust funds. As of September 30, 2004, such funds accounted for $2,726 billion, or 89 percent, of the $3,072 billion intragovernmental debt holdings balances (see Figure 4). As of September 30, 2004 and 2003, gross intragovernmental debt holdings totaled $3,072 billion and $2,859 billion, respectively (see Figure 1), an increase of $213 The majority of intragovernmental debt holdings are Government Account Series (GAS) securities. GAS securities consist of par value securities and market-based securities, with terms ranging from on demand out to 30 years. Par value securities are issued and redeemed at par (100 percent of the face value), regardless of current market conditions. Market-based securities, however, can be issued at a premium or discount and are redeemed at par value on the maturity date or at market value if redeemed before the maturity date. Significant Events in FY 2004 Increased Issuance of Treasury Inflation-Protected Securities (TIPS) During fiscal year 2004, Treasury increased the issuances of inflation-indexed securities known as Treasury Inflation-Protected Securities (TIPS). In the May 5, 2004, Quarterly Refunding Statement, Treasury introduced both a 5-year TIPS and a 20-year TIPS. Each security will be issued semiannually with the 5-year TIPS issued in April and October and the 20-year TIPS issued in January and July. A 10-year TIPS will continue to be issued in January, April, July and October. The first 20-year TIPS was issued on July 30, 2004, in the amount of $11 billion and will be reopened in January 2005 and July 2005. Similarly, the 5-year TIPS will be issued in late October 2004, and will be reissued in April 2005 and October 2005. In the February 2004 Quarterly Refunding Statement, Treasury announced its intentions to compute price awards in auctions to six decimal places per hundred. Calculating prices to six decimals ensures price uniqueness for all discount rates or yields bid in all marketable Treasury securities auctions. This change also makes Treasury's pricing practice consistent with secondary market practices. In addition, the August 2004 Quarterly Refunding Statement announced that the limit on non-competitive Treasury auction awards will be $5 million for all auctions. The previous limit on non-competitive awards, in effect since 1991, was $1 million for bill auctions and $5 million for coupon auctions. These changes were effective on September 20, The Uniform Offering Circular (UOC), in conjunction with the announcement for each auction, provides the terms and conditions for the auction and issuance of marketable Treasury securities to the public. Treasury has rewritten the UOC in plain language because the wide variety of bidders in our securities auctions - broker-dealers, depository institutions, non- financial firms, individuals, etc. - have widely different levels of experience in dealing with federal regulations in general and with securities-related concepts and regulations in particular. On July 28, 2004, the rewritten UOC was published in the Federal Register. Treasury believes that a better understanding of the auction rules may increase direct participation in our auctions and improve the auction process overall, resulting in lower borrowing costs. Significant Events in FY 2004, cont. Series HH Savings Bonds Discontinued As announced on February 18, 2004, the final Series HH Savings Bonds were issued to the public on August 31, 2004. These bonds are current-income securities that pay interest to their owners semiannually. Series HH Savings Bonds issued through August 2004 will continue to earn interest until they reach final maturity 20 years after issue. Treasury withdrew the offering of HH bonds due to the high cost in relation to the relatively small value of transactions. These bonds were initially issued in 1980 and were available in exchange for Series E or EE Savings Bonds. After August 31, 2004, holders of eligible E and/or EE bonds may choose to accept the proceeds of maturing issues or invest them in marketable bills, notes, or TIPS at auction, or they may choose to purchase Series EE or I Savings Bonds. EasySaver Program To Be Discontinued EasySaver was introduced in November 1998 to encourage savings and broaden access to Treasury securities. Customers enrolled in EasySaver could buy U.S. Savings Bonds through authorized debits to their bank accounts thus allowing employees of smaller businesses to have access to a regular savings plan like the millions of Americans who buy bonds through payroll savings plans at work. Since some of the same EasySaver features and even more features are available in TreasuryDirect (www.treasurydirect.gov), the Bureau of the Public Debt stopped accepting EasySaver enrollments on December 31, 2003. All existing automatic EasySaver debits will be discontinued in March 2005. Customers are encouraged to enroll in TreasuryDirect to buy, manage, and redeem their securities online. TreasuryDirect represents a direct relationship between customers -- individuals and financial professionals alike -- and the U.S. Treasury. The TreasuryDirect website (www.treasurydirect.gov) provides complete information for people who want to buy securities directly from the Treasury -- in a way that's easy for everyone to understand. Electronic purchasers can use TreasuryDirect to schedule electronic Series EE and I Savings Bond purchases. TreasuryDirect enhanced its Internet website capability during fiscal year 2004. One new feature offered is a payroll deduction option to purchase a Zero-Percent Certificate of Indebtedness (C of I). While these securities do not earn any interest, they can be used as a source of funds to purchase savings bonds within a TreasuryDirect account after accumulating a minimum of $25 in the C of I or by scheduling a purchase in advance. Customers may purchase electronic Series EE and I Savings Bonds ranging in value from $25 - $30,000 in increments as low as $0.01. There is a $30,000 annual limit per series per person. Customers may redeem a bond one year after purchase, or hold the bond to maturity. Significant Events in FY 2004, cont. Depositary Compensation Securities Redeemed, Replaced By Appropriation In July 2003, Treasury began issuing Depositary Compensation Securities (DCS), a non-marketable security, to compensate those financial institutions serving as financial agents of the United States for essential banking services provided to the Government. These securities were issued to financial agents in an amount sufficient to generate interest payments equal to the monthly expenses for financial agent services provided to Treasury. As part of the fiscal year 2004 Treasury appropriation, a permanent and indefinite appropriation was enacted to reimburse financial institutions serving as financial agents for the United States. As a result, more than $16 billion of DCS were called on February 29, 2004. Statutory Debt Limit Being Evaluated As a consequence of the changes in the government's financing needs, resulting in part from the current economic environment, Treasury Secretary John Snow urged the Congress on August 2, 2004, to raise the debt limit. Delays in raising the current debt limit of $7,384 billion have forced Treasury to enter into a debt issuance suspension period (DISP) that involves Treasury's departure from its normal investment and redemption procedures for certain federal government accounts. Consistent with legal authorities available to the Secretary, on October 14, 2004, Treasury suspended sales of State and Local Government series (SLGS) nonmarketable securities and was unable to fully invest contributions in the Government Securities Investment Fund (G-Fund) of the federal employee 401(k) retirement plan. Federal debt outstanding is one of the largest legally binding obligations of the federal government. Nearly all the federal debt has been issued by the Treasury with a small portion being issued by other federal government agencies. Treasury issues debt securities for two principal reasons, (1) to borrow needed funds to finance the current operations of the federal government and (2) to provide an investment and accounting mechanism for certain federal government accounts' excess receipts, primarily trust funds. Total gross federal debt outstanding has dramatically increased over the past 25 years from $827 billion as of September 30, 1979 to $7,379 billion as of September 30, 2004 (see Figure 5). Large budget deficits emerged during the 1980's due to tax policy decisions and increased outlays for defense and domestic programs. Through fiscal year 1997, annual federal deficits continued to be large and debt continued to grow at a rapid pace. As a result, total federal debt increased more than five fold between 1980 and 1997. Historical Perspective, cont. However, by fiscal year 1998, federal debt held by the public was beginning to decline. In fiscal years 1998 through 2001, the amount of debt held by the public fell by $476 billion, from $3,815 billion to $3,339 billion. As a consequence of the changes in the federal government's financing needs, resulting from increased federal outlays, tax policy decisions, and the deterioration of overall economic performance, from fiscal year 2001 to 2004 debt held by the public rose by $968 billion, from $3,339 billion to $4,307 billion. Even in those years where debt held by the public declined, total federal debt increased because of increases in intragovernmental debt holdings. Over the past 4 fiscal years, intragovernmental debt holdings increased by $852 billion, from $2,220 billion as of September 30, 2000, to $3,072 billion as of September 30, 2004. By law, trust funds have the authority or are required to invest surpluses in federal securities. As a result, the intragovernmental debt holdings balances primarily represent the cumulative surplus of funds due to the trust funds' cumulative annual excess of tax receipts, interest credited, and other collections compared to spending. As shown in Figure 6, interest rates have fluctuated over the past 25 years. The average interest rates reflected here represent the original issue weighted effective yield on securities outstanding at the end of the fiscal year. Average Interest Rates of Federal Debt Outstanding (Unaudited) Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 (Note 2) (Note 3) (Discounts) (Discounts) (39,945) (10,362) Accrued Interest (Note 4) (10,362) Net Amortization (Note 4) (13,461) (13,461) (36,846) (312) (10,667) Accrued Interest (Note 4) (10,667) Net Amortization (Note 4) (12,735) (12,735) ($34,778) ($589) The accompanying notes are an integral part of these schedules. Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 Note 1. Significant Accounting Policies The Schedules of Federal Debt Managed by the Bureau of the Public Debt (BPD) have been prepared to report fiscal year 2004 and 2003 balances and activity relating to monies borrowed from the public and certain federal government accounts to fund the U.S. government's operations. Permanent, indefinite appropriations are available for the payment of interest on the federal debt and the redemption of Treasury securities. The Constitution empowers the Congress to borrow money on the credit of the United States. The Congress has authorized the Secretary of the Treasury to borrow monies to operate the federal government within a statutory debt limit. Title 31 U.S.C. authorizes Treasury to prescribe the debt instruments and otherwise limit and restrict the amount and composition of the debt. BPD, an organizational entity within the Fiscal Service of the Department of the Treasury, is responsible for issuing Treasury securities in accordance with such authority and to account for the resulting debt. In addition, BPD has been given the responsibility to issue Treasury securities to trust funds for trust fund receipts not needed for current benefits and expenses. BPD issues and redeems Treasury securities for the trust funds based on data provided by program agencies and other Treasury entities. The schedules were prepared in conformity with U.S. generally accepted accounting principles and from BPD's automated accounting system, Public Debt Accounting and Reporting System. Interest costs are recorded as expenses when incurred, instead of when paid. Certain Treasury securities are issued at a discount or premium. These discounts and premiums are amortized over the term of the security using an interest method for all long term securities and the straight line method for short term securities. The Department of the Treasury also issues Treasury Inflation-Protected Securities (TIPS). The principal for TIPS is adjusted over the life of the security based on the Consumer Price Index for all Urban Consumers. Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 Note 2. Federal Debt Held by the Public As of September 30, 2004 and 2003, Federal Debt Held by the Public consisted of the following: Total Federal Debt Held by the Public Treasury issues marketable bills at a discount and pays the par amount of the security upon maturity. The average interest rate on Treasury bills represents the original issue effective yield on securities outstanding as of September 30, 2004 and 2003, respectively. Treasury bills are issued with a term of one year or less. Treasury issues marketable notes and bonds as long-term securities that pay semi-annual interest based on the securities' stated interest rate. These securities are issued at either par value or at an amount that reflects a discount or a premium. The average interest rate on marketable notes and bonds represents the stated interest rate adjusted by any discount or premium on securities outstanding as of September 30, 2004 and 2003. Treasury notes are issued with a term of 2 - 10 years and Treasury bonds are issued with a term of more than 10 years. Treasury also issues TIPS that have interest and redemption payments, which are tied to the Consumer Price Index, the leading measurement of inflation. TIPS are issued with a term of more than 5 years. At maturity, TIPS are redeemed at the inflation-adjusted principal amount, or the original par value, whichever is greater. TIPS pay a semi-annual fixed rate of interest applied to the inflation-adjusted principal. Inflation-indexed securities, TIPS, were previously included with Treasury notes and bonds. The fiscal year 2003 amounts and average interest rates have been reclassified to conform with the presentation adopted in fiscal year 2004. Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 Note 2. Federal Debt Held by the Public (continued) As of September 30, 2004, nonmarketable securities primarily consisted of $204,246 million in U.S. Savings Securities, $158,214 million in securities issued to State and Local Governments, $5,881 million in Foreign Series Securities, and $29,995 million in Domestic Series Securities. As of September 30, 2003, nonmarketable securities primarily consisted of $201,606 million in U.S. Savings Securities, $148,366 million in securities issued to State and Local Governments, $11,007 million in Foreign Series Securities, $29,995 million in Domestic Series Securities, and $14,991 million in Depositary Compensation Securities. Treasury issues nonmarketable securities at either par value or at an amount that reflects a discount or a premium. The average interest rate on the nonmarketable securities represents the original issue weighted effective yield on securities outstanding as of September 30, 2004 and 2003. Nonmarketable securities are issued with a term of on demand to more than 10 Government Account Series (GAS) securities are nonmarketable securities issued to federal government accounts. Federal Debt Held by the Public includes GAS securities issued to certain federal government accounts. One example is the GAS securities held by the Government Securities Investment Fund (G-Fund) of the federal employees' Thrift Savings Plan. Federal employees and retirees who have individual accounts own the GAS securities held by the fund. For this reason, these securities are considered part of the Federal Debt Held by the Public rather than Intragovernmental Debt Holdings. The GAS securities held by the G-Fund consist of overnight investments redeemed one business day after their issue. The net increase in amounts borrowed from the fund during fiscal years 2004 and 2003 are included in the respective Borrowings from the Public amounts reported on the Schedules of Federal Debt. Federal Debt Held by the Public includes federal debt held outside of the U. S. government by individuals, corporations, Federal Reserve Banks (FRB), state and local governments, and foreign governments and central banks. The FRB owned $698 billion and $654 billion of Federal Debt Held by the Public as of September 30, 2004 and 2003, respectively. These securities are held in the FRB System Open Market Account (SOMA) for the purpose of conducting monetary policy. Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 Note 3. Intragovernmental Debt Holdings As of September 30, 2004 and 2003, Intragovernmental Debt Holdings are owed to the following: Federal Old-Age and Survivors Insurance Trust Fund Civil Service Retirement and Disability Fund Federal Hospital Insurance Trust Fund Federal Disability Insurance Trust Fund Employees' Life Insurance Fund Federal Supplementary Medical Insurance Trust Fund Pension Benefit Guaranty Corporation Fund Foreign Service Retirement & Disability Fund Savings Association Insurance Fund (SAIF) Treasury: Exchange Stabilization Fund Airport & Airway Trust Fund These amounts include marketable Treasury securities as well as GAS securities as follows: As of September 30, 2004: Civil Service Retirement and Disability Fund Federal Disability Insurance Trust Fund As of September 30, 2003: Civil Service Retirement and Disability Fund Federal Disability Insurance Trust Fund Social Security Administration (SSA); Office of Personnel Management (OPM); Department of Health and Human Services (HHS); Department of Defense (DOD); Department of Labor (DOL); Federal Deposit Insurance Corporation (FDIC); Department of Energy (DOE); Department of Housing and Urban Development (HUD); Department of Transportation (DOT); Department of State (DOS); Department of Veterans Affairs (VA); Department of the Treasury (Treasury). Notes to the Schedules of Federal Debt Managed by the Bureau of the Public Debt For the Fiscal Years Ended September 30, 2004 and 2003 Note 3. Intragovernmental Debt Holdings (continued) Intragovernmental Debt Holdings primarily consist of GAS securities. Treasury issues GAS securities at either par value or at an amount that reflects a discount or a premium. The average interest rates for fiscal years 2004 and 2003 were 5.4 percent and 5.5 percent, respectively. The average interest rate represents the original issue weighted effective yield on securities outstanding as of September 30, 2004 and 2003. GAS securities are issued with a term of on demand to 30 years. Note 4. Interest Expense Interest expense on Federal Debt Managed by BPD for fiscal years 2004 and 2003 consisted of Federal Debt Held by the Public Net Amortization of Premiums and Discounts Total Interest Expense on Federal Debt Held by the Public Net Amortization of Premiums and Discounts (3,717) (6,670) Total Interest Expense on Intragovernmental Debt Total Interest Expense on Federal Debt Managed by BPD Note 5. Fund Balance With Treasury The Fund Balance with Treasury, a non-entity, intragovernmental account, is not included on the Schedules of Federal Debt and is presented for informational purposes. In addition to the individual named above, Erik A. Braun, Dean D. Carpenter, Dennis L. Clarke, Chau L. Dinh, Mickie E. Gray, Jennifer L. Hall, Jay McTigue, Lori B. Ryza, Kathryn J. Peterson, and Jason O. Strange made key contributions to this report.
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GAO is required to audit the consolidated financial statements of the U.S. government. Due to the significance of the federal debt held by the public to the governmentwide financial statements, GAO has also been auditing the Bureau of the Public Debt's (BPD) Schedules of Federal Debt annually. The audit of these schedules is done to determine whether, in all material respects, (1) the schedules prepared are reliable, (2) BPD management maintained effective internal control relevant to the Schedule of Federal Debt, and (3) BPD complies with selected provisions of significant laws related to the Schedule of Federal Debt. Federal debt managed by BPD consists of Treasury securities held by the public and by certain federal government accounts, referred to as intragovernmental debt holdings. The level of debt held by the public reflects how much of the nation's wealth has been absorbed by the federal government to finance prior federal spending in excess of total federal revenues. Intragovernmental debt holdings represent balances of Treasury securities held by federal government accounts, primarily federal trust funds such as Social Security, that typically have an obligation to invest their excess annual receipts over disbursements in federal securities. In GAO's opinion, BPD's Schedules of Federal Debt for fiscal years 2004 and 2003 were fairly presented in all material respects and BPD maintained effective internal control related to the Schedule of Federal Debt as of September 30, 2004. GAO also found no instances of noncompliance in fiscal year 2004 with the statutory debt limit. A s of September 30, 2004 and 2003, federal debt managed by BPD totaled about $7,379 billion and $6,783 billion, respectively. At the end of fiscal year 2004, debt held by the public as a percentage of the U.S. economy is estimated at 37.5 percent, up from 33.1 percent at the end of fiscal year 2001. Further, certain trust funds (e.g., Social Security) continue to run surpluses, resulting in increased intragovernmental debt holdings. These debt holdings are backed by the full faith and credit of the U.S. government and represent a priority call on future budgetary resources. Gross federal debt has increased 27 percent between the end of fiscal years 2001 and 2004. As a result of the increasing federal debt, on October 14, 2004, Treasury entered into a debt issuance suspension period to avoid exceeding the current $7,384 billion statutory debt limit and requested the Congress take action to raise the debt limit by mid- November 2004. The total federal debt increased over each of the last 4 fiscal years. Debt held by the public decreased as a result of cash surpluses for fiscal year 2001, but increased during fiscal years 2002 through 2004, with the return of annual unified budget deficits. Intragovernmental debt holdings steadily increased during this 4-year period primarily due to excess receipts over disbursements in federal trust funds.
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Thousands of emergency departments operate in the United States, seeing millions of patients each year. In our 2003 report on emergency department crowding, we reported on the extent of crowding in metropolitan areas. Researchers have used three indicators--diversion, wait times, and boarding--in examining emergency department crowding. Between 2001 and 2006, according to NCHS estimates, the number of emergency departments operating in the United States ranged from about 4,600 to about 4,900. During the same period, the estimated number of visits to U.S. emergency departments exceeded 107 million visits each year, ranging from about 107 million visits in 2001 to about 119 million visits in 2006. (See table 1.) Most hospitals with emergency departments are located in metropolitan areas, and the majority of emergency department visits occurred in metropolitan areas of the United States. In 2006, about two-thirds of hospitals with emergency departments were located in metropolitan areas compared to about one-third in nonmetropolitan areas. In the same year, about 101 million (85 percent) of the approximately 119 million emergency department visits occurred in metropolitan areas compared to about 18 million (15 percent) visits in nonmetropolitan areas. (See fig. 1.) Patients come to the emergency department with illnesses or injuries of varying severity, referred to as acuity level. Each acuity level corresponds to a recommended time frame for being seen by a physician--for example, patients with immediate conditions should be seen within 1 minute and patients with emergent conditions should be seen within 1 to 14 minutes. In 2006, urgent patients--patients who are recommended to be seen by a physician within 15 to 60 minutes--accounted for the highest percentage of visits to the emergency department. (See fig. 2.) The expected sources of payment reported for patients receiving emergency department services also vary. For example, from 2001 through 2006 patients with private insurance accounted for the highest number and percentage of visits to the emergency department. During the same period, the percentage of uninsured patients seeking care in emergency departments ranged between 15 and 17 percent of total visits, and the percentage of patients visiting emergency departments with Medicare ranged between 14 and 16 percent. See appendix II for additional data on expected sources of payment and emergency department utilization. In 2003, using three indicators that point to situations in which crowding is likely occurring--diversion, patients leaving before a medical evaluation, and boarding--we reported that emergency department crowding varied nationwide. We also reported that crowding was more pronounced in certain types of communities, and that crowding occurred more frequently in hospitals located in metropolitan areas with larger populations, higher population growth, and higher levels of uninsurance. We reported that crowding was more evident in certain types of hospitals, such as in hospitals with higher numbers of staffed beds, teaching hospitals, public hospitals, and hospitals designated as certified trauma centers. In terms of factors that contribute to crowding, we reported that crowding is a complex issue and no single factor tends to explain why crowding occurs. However, we found that one key factor contributing to crowding was the availability of inpatient beds for patients admitted to the hospital from the emergency department. Reasons given by hospital officials and researchers we interviewed for not always having enough inpatient beds to meet demand from emergency patients included economic factors that influence hospitals' capability to meet periodic spikes in demand and emergency department admissions competing with other admissions for inpatient beds. Other additional factors cited by researchers and hospital officials as contributing to crowding included the lack of availability of physicians and other community services--such as psychiatric services-- and the fact that emergency patients are older, have more complex conditions, and have more treatment and tests provided in the emergency department than in prior years. Further, we reported that hospitals and communities had conducted a wide range of activities to manage crowding in emergency departments, but that problems with crowding persisted in spite of these efforts. These activities included efforts to expand capacity and increase efficiency in hospitals, and community activities to implement systems and rules to manage diversion. These efforts were unable to reverse crowding trends at hospital emergency departments, and we found that studies assessing the effect of these efforts were limited. Researchers use the indicators we reported on in 2003 to point to situations in which crowding is likely occurring in emergency departments. These indicators can point to when crowding is likely occurring but they also have limitations. For example, patients boarding in the emergency department can indicate that the department's capacity to treat additional patients is diminished, but it is possible for several patients to be boarding while the emergency department has available treatment spaces to see additional patients. Table 2 provides the definition of the three indicators of emergency department crowding we reviewed in this report--diversion, wait times, and boarding--and lists the usefulness and limitations of using these indicators to gauge crowding. Regarding wait times, in our 2003 report, we used "left before a medical evaluation" as an indicator of crowding related to long wait times in an emergency department. Since we issued our report in 2003, researchers have used intervals of wait times--including the length of time to see a physician and the total length of time a patient is in the emergency department--to indicate when an emergency department is crowded. As a result, for this report, we examined wait times more broadly, including data on the time for patients to see a physician, length of stay in the emergency department, and visits in which the patient left before a medical evaluation. Researchers have developed a conceptual model to analyze the factors that contribute to emergency department crowding and develop potential solutions. This model partitions emergency department crowding into three interdependent components: input, throughput, and output. Although factors in many different parts of the health care system may contribute to emergency department crowding, the model focuses on crowding from the perspective of the emergency department. (See fig. 3.) Researchers have used the input-throughput-output model to explain the connection between factors that contribute to emergency department crowding and indicators of crowding. The three indicators of emergency department crowding--diversion, wait times, and boarding--are most directly related to the input, throughput, and output components, respectively, of the model; but the causes of these indicators can relate to other components. For example, a hospital emergency department might experience long wait times--an indicator associated with the throughput component--because of delays in patients receiving laboratory results (related to throughput) or because staff are busy caring for patients boarding in the emergency department due to a lack of access to inpatient beds (related to output). Similarly, an emergency department may divert ambulances (related to input) because the emergency department is full due to the inability of hospital staff to move admitted patients to hospital inpatient beds (related to output). We found that ambulance diversions continue, wait times have increased, and reports of boarding in hospital emergency departments persist. Articles we reviewed also reported on the effect of crowding on quality of care and on strategies proposed to address crowding. National data show that the diversion of ambulances continues to occur, but that the percentage of hospitals that go on diversion and the average number of hours hospitals spend on diversion varied by year. According to NCHS estimates, in 2003, 45 percent of U.S. hospitals reported going on diversion, and in 2004 through 2006, between 25 and 27 percent reported doing so. Of hospitals that reported going on diversion, the average number of hours they reported spending on diversion varied with an average of 276 hours in 2003 and an average of 473 hours in 2006. (See table 3.) NCHS officials provided the percentage of missing diversion data for each year, which ranged from 3.75 percent in 2003 to 29.1 percent in 2005. NCHS officials, however, were unable to provide an explanation for the variation of the percentage of hospitals going on diversion in the United States and average hours U.S. hospitals reported spending on diversion for these years. NCHS reported that hospitals in metropolitan areas spent more time on diversion than hospitals in nonmetroplitan areas in 2003 through 2004: almost half of hospitals in metropolitan areas NCHS surveyed reported spending more than 1 percent of their total operating time on diversion in 2003 through 2004, compared to 1 in 10 hospitals in nonmetropolitan areas. Some hospitals, however, reported that their state or local laws prohibit diversion. Other articles that reported on results from surveys also indicated that diversion has continued to occur in some hospitals. In 2006 and 2007, the American Hospital Association conducted surveys of community hospital chief executive officers that asked how much time hospitals spent on diversion in the previous year. The results from these surveys show that some hospitals reported going on diversion. In both American Hospital Association surveys, urban hospitals more often reported diversion hours than rural hospitals. For example, among hospitals responding to the 2006 American Hospital Association survey, about 64 percent of respondents from urban hospitals reported going on diversion, compared to about 17 percent of respondents from rural hospitals. In addition, articles reporting on emergency department crowding in California and Maryland also found that diversion continues to occur and that the time hospitals spent on diversion varied. National data from NCHS indicate that wait times in the emergency department have increased and in some cases exceeded recommended time frames. For example, the average wait time to see a physician increased from 46 minutes in 2003 to 56 minutes in 2006. Average wait times also increased for patients in some acuity levels. (See fig. 4.) For emergent patients, the average wait time to see a physician increased from 23 minutes to 37 minutes, more than twice as long as recommended for their level of acuity. For immediate, emergent, urgent, and semiurgent patients, NCHS estimates show that some patients were not seen within the recommended time frames for their acuity level. The average wait time to see a physician increased in emergency departments in metropolitan areas, and wait times were longer in emergency departments in metropolitan areas than in nonmetropolitan areas in 2006. In metropolitan-area emergency departments, the average wait time to see a physician increased from 51 minutes in 2003 to 60 minutes in 2006. In nonmetropolitan-area emergency departments, the average wait time to see a physician was estimated to be about 26 minutes in 2003 and 33 minutes in 2006. According to NCHS data, the average length of stay in the emergency department and the percentage of visits in which patients left before a medical evaluation also increased. (See table 4.) See appendix IV for additional information about wait times in the emergency department. More than 25 percent of the 197 articles we reviewed discuss the practice of boarding patients in emergency departments, and officials we interviewed noted that the practice of boarding continues. For example, in 2006 IOM reported that boarding continues to occur and has become a typical practice in hospitals nationwide, with the most boarding occurring at large urban hospitals. One article published in a peer-reviewed journal reported that it is not unusual for critically ill patients to board in the emergency department. In addition, officials we interviewed noted that the practice of boarding patients in emergency departments persists. In particular, officials from the Center for Studying Health System Change noted that boarding still occurs in emergency departments and continues to be one of the main indicators of emergency department crowding. Officials from ACEP noted that boarding continues to occur in emergency departments nationwide and remains a concern for emergency physicians and their patients. National data on the boarding of patients in the emergency department, however, have been limited. In 2006, IOM reported that hospital data systems do not adequately monitor or measure patient flow, and therefore may be limited in their ability to capture data on boarding. For example, few systems distinguish between when a patient is ready to move to another location for care and when that move actually takes place. In addition, from 2001 to 2006, NCHS did not collect data on boarding because, according to NCHS officials, data on boarding were not easily obtained from patient records. A question about emergency department boarding was added to NCHS's NHAMCS questionnaire in 2007; however, data from this survey were not available at the time we conducted our analysis. Other articles that reported on results of surveys conducted by professional associations supported officials' statements that boarding has been widespread. For example, in an article reporting on a 2005 ACEP survey of emergency department directors with a 30 percent response rate, 996 of the 1,328 respondents reported that they boarded patients for at least 4 hours on a daily basis and more than 200 respondents reported that they did so for more than 10 patients per day on average. Ten of the articles we reviewed and officials from ACEP and the Society for Academic Emergency Medicine whom we interviewed raised concerns about the adverse effect of diversion, wait times, or boarding on the quality of patient care, but quantitative evidence of this effect has been limited. Officials from ACEP reported that research has begun to analyze the effect of crowding on patient quality of care, and that anecdotal reports indicate patients are being harmed. Ten of the articles we reviewed discussed the effect of diversion, wait times, or boarding on quality of care. One of these articles, the 2006 IOM report, noted that ambulance diversion could lead to catastrophic delays in treatment for seriously ill or injured patients and that boarding may enhance the potential for errors, delays in treatment, and diminished quality of care. Other articles--some of which were published in peer-reviewed journals--also discussed the effect of crowding on the quality of patient care, including the following: An examination of the relationship between trauma death rates and hospital diversion, which suggested that death rates for trauma patients at two hospitals may be correlated with diversion at these hospitals. A review of 24 hospital emergency departments that suggested when an emergency department experienced an increase in the number of patients leaving before a medical evaluation, fewer patients with pneumonia at the emergency department received antibiotics within the recommended 4 hours. Information from a database of 90 hospitals that showed patients who were boarded in the emergency department for more than 6 hours before being transferred to the hospital's intensive care unit had an almost 5 percent higher in-hospital mortality rate than those who were boarded for less than 6 hours. Five other articles reported potential associations between diversion, boarding, and wait times and decreased quality of patient care, including articles on the effect of increasing wait times for nonurgent patients in the emergency department and delayed treatment time for those patients who left before a medical evaluation. While these studies support the widely held assertion that emergency department crowding adversely affects the quality of patient care, a 2006 National Health Policy Forum report stated that the consequences of crowded emergency departments on quality of care have not been studied comprehensively and therefore little quantitative evidence is available to confirm this assumption. Officials from the Society for Academic Emergency Medicine reported that diversion, wait times, and boarding can contribute to reduced quality of care and worse patient outcomes. In addition, officials from both ACEP and the Society for Academic Emergency Medicine noted that additional studies about the effects of diversion, wait times, and boarding on quality of care are needed. Articles we reviewed, and officials and an expert we interviewed, discussed a number of strategies that have been proposed, and in some cases tested, that could decrease emergency department crowding. These strategies relate to the three interdependent components--input, throughput, and output--of the model of emergency department crowding developed by researchers. While several of these strategies have been tested, the assessment of their effects has generally been limited to one or a few hospitals and we found no research assessing these strategies on a state or national level. Table 5 outlines some strategies to address emergency department crowding and, to the extent they have been tested, the assessment of their effects on the indicators of crowding. Available information suggests that a lack of access to inpatient beds is the main factor contributing to emergency department crowding. Additionally, other factors--a lack of access to primary care, a shortage of available on- call specialists, and difficulties transferring, admitting, or discharging psychiatric patients--have also been reported as contributing to crowding. Of the 77 articles we reviewed that discussed factors contributing to crowding, 45 articles reported a lack of access to inpatient beds as a factor contributing to emergency department crowding, with 13 of these articles reporting it was the main factor contributing to crowding. (See table 6.) In addition, two individual subject-matter experts we interviewed also reported a lack of access to inpatient beds as the main factor that contributes to emergency department crowding. When inpatient beds are not available for ill and injured patients who require hospital admission, the emergency department may board them, and these patients take up extra treatment spaces and emergency department resources, leaving fewer resources available for other patients. One of the reasons that emergency departments are unable to move admitted patients to inpatient beds may be due to competition between emergency department admissions and scheduled hospital admissions-- for example, for elective surgical procedures--which we also reported on in 2003. This reason was reported by 9 articles we reviewed and by officials from ACEP, the Society for Academic Emergency Medicine, the Center for Studying Health System Change, and three individual subject- matter experts whom we interviewed. In 2006, IOM reported that hospitals might prefer scheduled admissions over admissions from the emergency department because emergency department admissions are considered to be less profitable. One reason that admissions from the emergency department are considered to be less profitable is because these admissions tend to be for medical conditions, such as heart failure and pneumonia, rather than surgical procedures, such as joint replacement surgeries and scheduled cardiovascular procedures. Available data from AHRQ's 2006 Healthcare Cost and Utilization Project show all 20 of the most-prevalent diagnosis-related groups (DRG) associated with admissions from the emergency department in 2006 were for medical conditions rather than surgical procedures. In contrast, 7 of the 20 most- prevalent DRGs for nonemergency department admissions in 2006 were for surgical conditions. Officials from the Society for Academic Emergency Medicine told us that because treating surgical conditions is considered more profitable for a hospital than treating emergency medical conditions, hospitals had an incentive to reserve beds for scheduled surgical admissions rather than to give them to patients admitted from the emergency department. Available information suggests that other factors also contribute to emergency department crowding including a lack of access to primary care, a shortage of available on-call specialists, and difficulties transferring, admitting, or discharging psychiatric patients. Twenty-two articles we reviewed reported a lack of access to primary care as a factor contributing to emergency department crowding. For example, one of these articles reported that difficulty in receiving care from a primary care provider was associated with an increase in nonurgent emergency department use. Another article described a study in New Jersey that indicated that almost one-half of all emergency department visits within the state that did not result in hospital admission could have been avoided with improved access to primary care services. Additionally, officials from the Center for Studying Health System Change and the Society for Academic Emergency Medicine mentioned a lack of access to primary care as a factor contributing to emergency department crowding. When patients do not have a primary care physician, or cannot obtain an appointment with a primary care physician, they may go to the emergency department to seek primary care services. In addition, patients who do not have access to primary care may defer care until their condition has worsened, potentially increasing the emergency department resources needed to treat the patient's condition. These situations involve patients that could have been treated outside of the emergency department and may add to the number of patients seeking care at the emergency department. Articles we reviewed provided conflicting information on the effect of increasing numbers of uninsured patients on emergency department crowding. Five of the 22 articles that mentioned a lack of access to primary care as a factor also reported that increasing numbers of uninsured patients also contributed to emergency department crowding. For example, 1 article indicated that a reason for longer wait times at 30 California hospitals in lower-income areas was that these hospitals treat a disproportionate number of uninsured patients who may lack access to primary care. Two other articles we reviewed, however, suggested that increasing numbers of uninsured patients is not a factor contributing to crowding. For example, the Center for Studying Health System Change reported that contrary to the popular belief that uninsured people are the major cause of increased emergency department use, insured Americans accounted for most of the 16 percent increase in visits between 1996 through 1997 and 2000 through 2001. In addition, officials from AHRQ noted that a larger proportion of patients using the emergency department are insured than uninsured. Seven articles and officials from the Center for Studying Health System Change, ACEP, the American Hospital Association, and the American Medical Association whom we interviewed reported that a shortage of on- call specialists available to emergency departments is a factor that contributes to emergency department crowding. Hospitals often employ on-call specialists, meaning specialists such as neurosurgeons or orthopedic surgeons who only travel to the hospital or emergency department when needed and called. When patients wait for long periods in the emergency department for an on-call specialist who is not immediately available--for example, busy covering other hospitals or in surgery--these patients might not receive timely and appropriate care. In addition, these patients may utilize treatment spaces and resources that could be used to treat other patients, potentially crowding the emergency department. In 2006 IOM reported that over the preceding several years, hospitals had found it increasingly difficult to secure specialists for their emergency department patients. Additionally, another article reported the results of a 2007 American Hospital Association survey of hospital chief executive officers that asked about maintaining on-call specialist coverage for the emergency department. While this survey had a low response rate, it indicates that hundreds of emergency departments reported experiencing difficulty in maintaining on-call coverage for certain specialists. For example, of those chief executive officers that responded to the survey (840 chief executive officers; 17 percent of those surveyed), 44 and 43 percent noted difficulty in maintaining emergency department on-call coverage for orthopedic surgeons and neurosurgeons, respectively. Additionally, officials from the Center for Studying Health System Change told us that delays in obtaining specialty services may contribute to crowding. None of the articles we reviewed, nor officials or individual subject-matter experts we interviewed, quantitatively assessed the relationship between the availability of on-call specialists and emergency department crowding. Three articles we reviewed and officials from NCHS, ACEP, and the Center for Studying Health System Change whom we interviewed reported difficulties transferring, admitting, or discharging psychiatric patients from the emergency department as a factor contributing to emergency department crowding. One of these articles reported the results of a national ACEP survey of emergency physicians that asked about psychiatric patients in the emergency department. Of the physicians responding to the survey (328 physicians; approximately 23 percent of those surveyed), about 40 percent reported that, on average, psychiatric patients waited in the emergency department for an inpatient bed longer than 8 hours after the decision to admit them had been made, including about 9 percent who reported that psychiatric patients waited more than 24 hours. Medical patients in the emergency department--those diagnosed with nonpsychiatric conditions--generally waited less time for an inpatient bed: 7 percent of responding physicians reported that, on average, medical patients waited longer than 8 hours after the decision to admit them had been made; slightly less than 1 percent reported that the medical patients waited more than 24 hours. In addition, the survey respondents indicated psychiatric patients waiting to be transferred or discharged added to the burden of an already crowded emergency department and affected access for all patients requiring care. Also, officials from NCHS said that psychiatric patients in the emergency department are a national concern because they are frequent visitors to the emergency department and they may spend more than 24 hours in an emergency department. National data from NCHS show that, in 2006, psychiatric patients constituted a small percentage of emergency department visits but had a longer average length of stay in the emergency department. Almost 3 percent of emergency department visits in 2006 were by patients presenting with a complaint of a psychological or mental disorder and these patients had an average length of stay in the emergency department that was longer than the average length of stay for all other visits (397 minutes, compared to 194 minutes for all other visits). Emergency department patients with psychiatric disorders may need to be isolated from other patients and may require resources that are not available in many hospitals. Hospital emergency departments often have limited or no specialized psychiatric facilities and emergency department staff may experience difficulties transferring such patients to other facilities, admitting them to the hospital, or discharging them from the emergency department. Additionally, emergency department staff may spend a disproportionate amount of time and resources caring for psychiatric patients while these patients wait for transfer, admission, or discharge. Our literature review identified five other factors that may contribute to emergency department crowding. For example, in 2006 IOM reported these five factors--an aging population, increasing acuity of patients, staff shortages, hospital processes, and financial factors--as possible factors that might contribute to emergency department crowding, and these five factors were also mentioned in 14 other articles we reviewed. However, during our interviews with officials and individual subject-matter experts, there was little mentioned about these factors and how they contribute to crowding. HHS provided comments on a draft of this report, which are included in appendix V. In its comments, HHS noted that the report demonstrates that emergency department wait times continue to increase and frequently exceed national standards. HHS also commented that strengths of the report include its clarity, focus, and tone. In addition, HHS commented on the scope of the report and limitations of the indicators used in it. HHS suggested that the information provided in the report would be strengthened by inclusion of articles published prior to 2003 and articles reporting on studies conducted outside of the United States. We focused our literature review on articles published since 2003 to review information made available since we issued our 2003 report. And while articles reporting on studies conducted outside of the United States may include valuable information regarding aspects of emergency department crowding as it occurs in other countries, we reviewed articles reporting on studies conducted in the United States because our focus was on the U.S. health care system. HHS also commented that the indicators of crowding that we used had limitations. As we noted both in our 2003 report and in this report, these indicators have limitations but, in the absence of a widely accepted standard measure of crowding, they are used by researchers to point to situations in which crowding is likely occurring. HHS also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services and other interested parties. 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 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 major contributions to this report are listed in appendix VI. To examine national data made available since 2003 on emergency department diversion and wait times, we obtained and reviewed data collected by the National Center for Health Statistics (NCHS) through its National Hospital Ambulatory Medical Care Survey (NHAMCS). We analyzed available NCHS data for 2001 through 2006 on diversion and wait times to determine what changes, if any, have occurred over time. We analyzed wait time data by patient acuity level and hospital characteristics, such as hospital ownership, metropolitan or nonmetropolitan area location, and geographic region. We analyzed wait times in the emergency department using NCHS's data on recommended time for a patient to see a physician based on patient acuity levels. Further, to determine the average length of stay in the emergency department for patients who presented with a psychological or mental disorder, we analyzed emergency department length of stay by the type of patient complaint at time of the visit. We also analyzed NCHS data on emergency department utilization by payer source, including Medicare, Medicaid, and the State Children's Health Insurance Program, self pay, no charge or charity care; and by hospital characteristics, such as whether the hospital was located in a metropolitan or nonmetroplitan area, to provide context for our work. We also reviewed and analyzed data from the Agency for Healthcare Research and Quality's (AHRQ) Healthcare Cost and Utilization Project to determine the diagnosis-related groups (DRG) most commonly associated with hospital admissions from the emergency department and most commonly associated with non-emergency department admissions--information we determined was related to factors that contribute to crowding. We obtained NCHS and AHRQ data beginning with 2001 because these data became publicly available in 2003 or later, meeting the criterion for inclusion in our analysis. Some data were not available from NCHS for all years between 2001 and 2006 because of revisions made by NCHS to questions on surveys used to collect information and because of low response rates to certain questions on these surveys. At the time we conducted our analysis, the most recent year for which data were available from NCHS and AHRQ was 2006. In this report, we present NCHS estimates; for those cases in which we report an increase or other comparison of these estimates, NCHS tested the differences and found them statistically significant. To assess the reliability of national data from NCHS and AHRQ, we interviewed agency officials and reviewed the methods they used for collecting and reporting these data. We resolved discrepancies we found between the data provided to us and data in published reports by corresponding with officials from NCHS to obtain sufficient explanations for the differences. Based on these steps, we determined that these data were sufficiently reliable for our purposes. To examine information available since 2003 about three indicators of emergency department crowding and the factors that contribute to crowding, we conducted a literature review. In examining information made available since 2003 about indicators and factors of crowding during our literature review, we analyzed articles for what was reported on the effect of crowding on patient quality of care and proposed strategies to address crowding. We conducted a structured search of 16 databases that included peer-reviewed journal articles and other periodicals to capture articles published on or between January 1, 2003, and August 31, 2008. We searched these databases for articles with key words in their title or abstract related to emergency department crowding, or indicators and factors of crowding, such as versions of the word "crowding," "emergency department," "diversion," "wait time," and "boarding." We also included articles published on or between January 1, 2003, and August 31, 2008, that were identified as a result of our interviews with federal officials, professional and research organizations, and subject-matter experts. We also searched related Web sites for additional emergency department crowding publications, including articles reporting on surveys conducted by professional organizations, such as the American Hospital Association. For these articles, we identified the number of respondents and response rates, and for those with lower response rates, we noted them in our report. From all of these sources, we identified over 300 articles, publications and reports (which we call articles) published from January 1, 2003, through August 31, 2008. Within the more than 300 articles, we excluded articles that were published outside of the United States, reported on subjects or data from outside the United States, were only available in an abstract form, had a focus other than day-to-day emergency department operations, or were unrelated to emergency department crowding. We supplemented the articles that were not excluded from our search by reviewing references contained in the bibliography of these articles for additional articles published on or between January 1, 2003, and August 31, 2008, on emergency department crowding that met our inclusion criteria. In total, we included 197 articles in our literature review and analyzed these articles to summarize information on emergency department crowding, including information on diversion, wait times, and boarding, the effect of these indicators of crowding on quality of care, proposed strategies to decrease these indicators, and factors that contributed to emergency department crowding. To review a complete bibliography of these articles, see GAO-09-348SP. Additionally, we interviewed officials from federal agencies and one state agency, officials from professional, research, and other hospital-related organizations, and individual subject-matter experts to obtain and review information on indicators of emergency department crowding and factors that contribute to crowding. During our interviews, we asked about the effect of crowding on patient quality of care and proposed strategies for addressing crowding. We interviewed federal officials from the Department of Health and Human Services' Centers for Medicare & Medicaid Services and the Office of the Assistant Secretary for Preparedness and Response, and officials from NCHS and AHRQ who have conducted research on emergency department utilization and crowding. We also interviewed officials from the Massachusetts Department of Public Health to discuss the state's planned implementation of a new diversion policy in January 2009. We interviewed officials from professional organizations, including the American College of Emergency Physicians (ACEP), the American Hospital Association, the American Medical Association, the Emergency Nurses Association, the National Association of EMS Physicians, and the Society for Academic Emergency Medicine. Some officials from ACEP and the Society for Academic Emergency Medicine have published research in peer-reviewed journals. In addition, we interviewed officials from research organizations, such as the California Healthcare Foundation, the Center for Studying Health System Change, the Heritage Foundation, and the Robert Wood Johnson Foundation's Urgent Matters. We interviewed officials from the Joint Commission (an organization involved in hospital accreditation), the Medicare Payment Advisory Commission (an organization that studies Medicare payment issues and reports to Congress), and the National Quality Forum (an organization that develops quality measures for emergency department care). We also interviewed three individual subject-matter experts who have conducted research on emergency department crowding and strategies to reduce crowding. We conducted this performance audit from May 2008 through April 2009 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 provides information on nationally-representative estimates of emergency departments and emergency department visits in the United States by characteristics such as patient acuity level, payer source, hospital ownership type, geographic region, and type of area (metropolitan or nonmetropolitan) from the National Center for Health Statistics' (NCHS) National Hospital Ambulatory Medical Care Survey (NHAMCS). Specifically, for 2001 through 2006 this appendix presents the following information: the percentage of emergency departments by hospital ownership type, by geographic region, and by type of area (metropolitan or nonmetropolitan) (table 7); the number and percentage of emergency department visits by acuity level (figure 5) and payer source (table 8); the number and percentage of emergency department visits by hospital ownership type, geographic region, and type of area (table 9); and the number and percentage of emergency department visits that resulted in hospital admissions (table 10). Researchers continue to use diversion, wait times (including patients who left before a medical evaluation), and boarding as indicators to point to situations in which crowding is likely occurring in emergency departments; however, as we reported in our 2003 report, there is no standard measure of the extent to which emergency departments are experiencing crowding. In the absence of a widely-accepted standard measure of crowding, researchers have proposed and conducted limited testing of potential measures of crowding. During our literature review of articles on emergency department crowding published on or between January 1, 2003, and August 31, 2008, we identified proposed measures of crowding that researchers have tested, either in a single hospital setting or for a limited period of time. Table 11 describes these proposed measures. While researchers have claimed varying levels of success using these measures to gauge crowding, we found no widely accepted measure of emergency department crowding, and that none of these measures of crowding had been widely implemented by researchers and health care practitioners. This appendix provides information on nationally-representative estimates of intervals of emergency department wait times in the United States: wait time to see a physician, length of stay in the emergency department, and the percentage of visits in which patients left before a medical evaluation. Specifically, this appendix presents the following information from the National Center for Health Statistics' (NCHS) National Hospital Ambulatory Medical Care Survey (NHAMCS): for 2003 through 2006 (the only years for which data were available from NCHS), the percentage of emergency department visits by wait time to see a physician (table 12), average and median wait times to see a physician by patient acuity level (figure 6), average wait times to see a physician by payer type, hospital type, and geographic region (table 13), and average wait times by the hospitals' percentage of visits in which patients left before a medical evaluation (table 14); and for 2001 through 2006, the percentage of visits by emergency department length of stay (table 15), the average and median length of stay by patient acuity level (figure 7), the average length of stay in the emergency department by payer type, hospital type, and geographic region (table 16); and average length of stay by the hospitals' percentage of visits in which patients left before a medical evaluation (table 17). In addition to the contact named above, Kim Yamane, Assistant Director; Danielle Bernstein; Susannah Bloch; Ted Burik; Aaron Holling; Carla Jackson; Ba Lin; Jeff Mayhew; Jessica Smith; and Jennifer Whitworth made key contributions to this report.
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Hospital emergency departments are a major part of the nation's health care safety net. Of the estimated 119 million visits to U.S. emergency departments in 2006, over 40 percent were paid for by federally-supported programs. These programs--Medicare, Medicaid, and the State Children's Health Insurance Program--are administered by the Department of Health and Human Services (HHS). There have been reports of crowded conditions in emergency departments, often associated with adverse effects on patient quality of care. In 2003, GAO reported that most emergency departments in metropolitan areas experienced some degree of crowding (Hospital Emergency Departments: Crowded Conditions Vary among Hospitals and Communities, GAO-03-460). For example, two out of every three metropolitan hospitals reported going on ambulance diversion--asking ambulances to bypass their emergency departments and instead transport patients to other facilities. GAO was asked to examine information made available since 2003 on emergency department crowding. GAO examined three indicators of emergency department crowding--ambulance diversion, wait times, and patient boarding--and factors that contribute to crowding. To conduct this work, GAO reviewed national data; conducted a literature review of 197 articles; and interviewed officials from HHS and professional and research organizations, and individual subject-matter experts. Emergency department crowding continues to occur in hospital emergency departments according to national data, articles we reviewed, and officials we interviewed. National data show that hospitals continue to divert ambulances, with about one-fourth of hospitals reporting going on diversion at least once in 2006. National data also indicate that wait times in the emergency department increased, and in some cases exceeded recommended time frames. For example, the average wait time to see a physician for emergent patients--those patients who should be seen in 1 to 14 minutes--was 37 minutes in 2006, more than twice as long as recommended for their level of urgency. Boarding of patients in the emergency department who are awaiting transfer to an inpatient bed or another facility continues to be reported as a problem in articles we reviewed and by officials we interviewed, but national data on the extent to which this occurs are limited. Moreover, some of the articles we reviewed discussed strategies to address crowding, but these strategies have not been assessed on a state or national level. Articles we reviewed and individual subject-matter experts we interviewed reported that a lack of access to inpatient beds continues to be the main factor contributing to emergency department crowding, although additional factors may contribute. One reason for a lack of access to inpatient beds is competition between hospital admissions from the emergency department and scheduled admissions--for example, for elective surgeries, which may be more profitable for the hospital. Additional factors may contribute to emergency department crowding, including patients' lack of access to primary care services or a shortage of available on-call specialists. In commenting on a draft of this report, HHS noted that the report demonstrates that emergency department wait times are continuing to increase and frequently exceed national standards. HHS also provided technical comments, which we incorporated as appropriate.
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For many years, DOE obtained plutonium for nuclear weapons by reprocessing spent fuel from some of its nuclear reactors. Before the spent fuel could be reprocessed, however, it had to be stored temporarily in water basins so that short-lived fission products could decay, reducing radiation levels to the point where the fuel could be handled with less danger to workers and less damage to chemicals used to extract the plutonium. When Hanford's fuel-processing facilities were permanently shut down in 1992, DOE had no strategy for dealing with the stockpiled fuel. Hanford currently has more than 2,100 metric tons of spent fuel--about 80 percent of the Department's total inventory. DOE and the Defense Nuclear Facilities Safety Board have identified the following safety problems at its spent fuel storage basins: The spent fuel, which is made of uranium and has been irradiated in a nuclear reactor, was not intended for long-term storage in water and is corroding and crumbling. The fuel is stored in canisters at the bottom of the basins, which contain about 16 feet of water to absorb heat from the radioactive decay of the fuel and shield workers from radiation. Because DOE's spent fuel is designed to be dissolved during processing in order to remove the plutonium it contains, only a thin coating (called cladding) was placed over the uranium; in some cases, this cladding is broken or damaged. As a result, uranium, plutonium, and other radioactive materials from the spent fuel have accumulated in the bottoms of storage canisters, in sludge at the bottom of the storage basins, and in the filters and other basin components. The two storage basins, which were not designed for the long-term storage of spent fuel, are vulnerable to leaks and earthquake damage. Constructed in 1951, the basins are now well beyond their expected useful life of 20 years. They are seismically unsound, and at least one has leaked water directly to the surrounding soils. For example, from 1974 through 1979, about 15 million gallons of contaminated water leaked from one basin. The same basin leaked again in 1993. In both incidents, it is likely that contamination reached the Columbia River. The buildings that house the basins are also inadequate, and the location is environmentally precarious. The buildings are not airtight and allow sand, dirt, and dust to enter the water basins, contributing to the buildup of sludge at the bottom of each pool. The basins are about 1,400 feet away from the Columbia River--much too close, in the view of DOE and other parties interested in protecting the river from environmental damage. The existing storage poses risks of exposing workers, the public, and the environment to radioactive materials. For example, an earthquake or even an industrial accident could cause a basin to rupture, releasing large quantities of contaminated basin water to the soil and the Columbia River. The loss of water in the basins could also expose workers and the public to the airborne transmission of radioactive materials released from the corroded fuel and the sludge in the bottom of the basins. Evaluations conducted in 1993 by DOE and 1994 by the Safety Board concluded that improving the spent fuel's storage was urgently needed. Because of the deteriorated condition of the spent fuel and one of the storage basins, the Safety Board described the situation as one where "imminent hazards could arise within two or three years," a time period that has already passed. The Safety Board recommended that, among other things, DOE take action to improve the storage of spent fuel on a high-priority, accelerated basis. DOE has responded to the safety concerns about the spent fuel by developing a plan to dry the fuel and store it farther from the Columbia River. This strategy, which has been evolving since 1994, includes cleaning and packaging the fuel in the basins, removing and drying the fuel at a new processing facility to be built near the basins, and transporting the fuel to a new interim storage facility on the Hanford site several miles from the river. The fuel will be stored there in sealed containers until its final disposition occurs, in a permanent geologic repository. The project also involves treating and disposing of the sludge, debris, and water left in the basins after the fuel is removed. The spent fuel project is organized into subprojects and includes constructing two major facilities--a fuel-drying facility and a canister storage facility. The project also involves designing and constructing a transportation system to move the fuel between the facilities; special canisters to hold the fuel; and various systems and processes to clean, package, and dry the fuel and to move the 14-foot-long canisters to their storage tubes once inside the canister storage building. Although the dry storage of spent fuel is common in the commercial nuclear industry, the specific form of spent fuel that DOE uses--metallic uranium--is more difficult to dry because of its tendency to ignite when in contact with air. Because the spent fuel project at Hanford involves handling, conditioning, and packaging nuclear materials, and DOE eventually expects to be subjected to external regulation for nuclear safety, DOE has required safety standards for the project equivalent to the Nuclear Regulatory Commission's requirements, to the extent practicable. DOE wants to achieve at least three goals through this project--eliminating the continued corrosion of the fuel; quickly reducing the safety risks to workers, the public, and the environment; and lowering the costs associated with the safe storage of the fuel until its final disposition occurs. DOE believes that the dry storage of the spent fuel presents the best option for achieving these goals. The original project schedule established in April 1995 called for starting the fuel's retrieval in December 1997 and completing the project in September 2001. The schedule has been revised twice since then, and in April 1998, the contractors proposed a new schedule that would begin the fuel's retrieval in November 2000 and complete the project by December 2005. (See table 1.) DOE's recurring revisions to the project's schedule reflect an uncertainty about DOE's ability to meet a firm completion date--an uncertainty that has not abated. For example, the April 1998 proposed schedule revision has occurred for two reasons. First, Duke Engineering officials identified additional schedule slippage beyond the dates shown in the December 1997 schedule. Second, EPA and Ecology have demanded enforceable milestones in the Tri-Party Agreement for the spent fuel project. DOE's Assistant Manager for Waste Management said that DOE did not want to establish project milestones with its regulators on the basis of the December 1997 schedule, which was an accelerated schedule with high risk, only to have the dates change before the negotiations were complete. Milestone commitments under the Tri-Party Agreement represent contractual commitments that, if not met, can result in fines being assessed against DOE. To establish a schedule that it had a better chance of meeting, and one that hopefully would not change again during negotiations with the regulators, in April 1998, Duke Engineering and Fluor Daniel proposed a schedule that includes contingency for unforeseen problems. DOE and its regulators expect to have an enforceable agreement on the project's milestones by July 31, 1998. With each change in the schedule, the estimates of the project's total costs have increased. The original cost estimate was about $740 million, while the cost estimate associated with the April 1998 proposed schedule is about $1.4 billion--an 84 percent increase. (See table 2.) In a February 9, 1998, letter to this Committee, DOE stated that the estimates of spent fuel project costs of over $1 billion and 9 years to complete the project (the December 1997 revision) were still less than early estimates of the cost of addressing the spent fuel storage problem at Hanford, which were projected to cost up to $2 billion and take up to 15 years to complete. DOE reasoned that, even with the cost increases now being experienced, the project would still cost roughly $1 billion less and take 6 years less than the original project concept. However, we believe that to evaluate cost and schedule performance on a specific project that DOE is implementing, current estimates need to be compared with the original estimates for this project. Such a comparison shows that estimated costs have nearly doubled and that the project's duration has been extended by over 4 years. Cost and schedule growth on a DOE major system acquisition project (generally projects costing $100 million or more) are not unusual. In our 1996 report on DOE's major system acquisitions, we reported that at least half of the ongoing projects and most of the completed projects had cost overruns and/or schedule slippage. Some of the reasons for cost overruns and schedule slippage are similar to the management problems that have occurred on this spent fuel project. For example, our 1996 report notes that the management of one project was criticized for insufficient attention to technical, institutional, and management issues. Also in that report, we cited a 1993 report that described the causes of cost increases in the environmental restoration program, including design changes, poor project definition, and turnover within the project team. We noted in our report that in recent years, DOE had implemented several initiatives to improve its overall management of these large projects. The schedule for the project that DOE approved in April 1995 was intentionally optimistic and had virtually no contingency for unforeseen problems. DOE insisted on a very optimistic schedule for the project because of the deteriorated condition of the spent fuel and the storage basins and the need to resolve the storage problems expeditiously. In addition, DOE officials thought that a tight schedule would force Westinghouse to accomplish the project more quickly. However, virtually no schedule or cost flexibility existed to address either the technical problems disclosed after characterizing the fuel or other changes implemented as the project progressed. When the initial project proposal was presented to DOE's Assistant Secretary for Environmental Management in November 1994, under the proposed schedule, the removal of the fuel from the basins was to begin in December 1998, and the project was to be completed by April 2006. The proposal was developed by Westinghouse, the company that was the management and operations contractor at Hanford until October 1996. In order to meet those dates, the proposal included several shortcuts to normal DOE procedures, such as (1) allowing some of the project's activities, including procurement actions, to start before the Environmental Impact Statement Record of Decision was issued and (2) allowing a "fast-track" approach in which the project's activities--such as the characterization of the fuel, design of facilities and equipment, safety analyses, and construction--would proceed concurrently instead of sequentially. The Assistant Secretary approved the proposal but directed that the schedule be compressed so that beginning the retrieval of the fuel could be moved up by 18 months--to June 1997. DOE and Westinghouse officials reevaluated the project and determined that there was virtually no chance that the date specified by the Assistant Secretary could be met. Westinghouse proposed--and DOE accepted--a compromise schedule under which retrieval of the fuel would start by December 31, 1997--12 months earlier than under the initial Westinghouse proposal. Westinghouse estimated that it had an 80-percent chance of meeting the date. As part of its program to reduce costs while accelerating cleanup, DOE rewarded Westinghouse for the estimated savings associated with adjusting the project to an accelerated schedule by making an additional incentive fee payment. The program, called Challenge 170, provided incentives for Westinghouse to improve its productivity and eliminate unnecessary work. Westinghouse's fee was calculated as a percentage of the productivity increase or reduction in work scope. Westinghouse submitted formal change requests on the spent fuel project to reflect the compressed schedule and other savings, and DOE estimated that these actions would save $6.9 million, of which, about $2.5 million could be attributed to accelerating the schedule. In 1996, DOE paid Westinghouse as much as $368,000 in fees for these expected savings. However, because of certain cost increases in future years, these claimed savings appear to be deferrals of work that were performed in succeeding years that would not be eligible for an award fee. DOE would need to conduct a detailed analysis to determine if the $2.5 million was a savings. It is unclear, according to a DOE contracting officer, if DOE has the contractual authority to demand that Westinghouse repay any of the $368,000 fee if DOE determines that the savings did not materialize. He said that at the time of our review, DOE had not assessed its legal basis for seeking repayment of the fee. Unfortunately, the compressed schedule, including the deadline of December 31, 1997, for beginning the retrieval of the fuel had little chance of being achieved because it was based on an underlying premise that the project would encounter few problems that would affect the schedule. Therefore, the schedule had virtually no flexibility to address unforeseen problems. Actual experience, however, did not match the assumption; problems were encountered that changed the scope of work required and affected the project's schedule. For example: Characterization activities after the schedule was established revealed several surprises, including the poor condition of the fuel in closed canisters (which necessitated developing a new water treatment system for one basin); the presence of aluminum hydroxide on some of the fuel, which in part, led to a redesign of the storage canisters to better withstand any buildup of hydrogen gas; and the presence of uranium particles and polychlorinated biphenyls (PCBs) in the pool sludge, which necessitated chemical treatment of the sludge before disposal. Strategies for drying the fuel and for controlling pressure in the fuel storage canisters changed significantly. Fuel-drying strategies evolved from a hot-conditioning system, in which the fuel would be heated to 300 degrees centigrade; to a two-step approach of cold drying at 50 degrees centigrade followed by hot conditioning; to a strategy approved in April 1998 to eliminate hot conditioning and rely solely on the cold drying of the fuel. For the fuel storage canisters, the strategy evolved from using closed containers with a pressure relief system to sealed containers with no pressure relief. These changes occurred as DOE and its contractors learned more about the characteristics of the spent fuel and incorporated new strategies to increase safety and reduce long-term storage costs. According to the Assistant Manager for Waste Management at Hanford, the optimistic schedule for the project reflected a trade-off between the health and safety risks associated with continuing to store the spent fuel in the basins and the management risks associated with setting an optimistic schedule and knowing that it would be difficult to meet. The Assistant Manager said that DOE wanted to resolve the basin storage problems quickly and that DOE was also looking for ways to improve the performance of its contractors. Setting an optimistic schedule for the spent fuel project was one strategy that DOE used to try to obtain improved performance. During the project's history, two different companies have been responsible for the project. Westinghouse, which at the time, was the overall Hanford management and operations contractor for DOE, managed the project from its inception in late 1994 until October 1996. In October 1996, the responsibility for the spent fuel project shifted to Duke Engineering, a company that has managed the project as a subcontractor to Fluor Daniel, the new site contractor. Under both Westinghouse and Duke Engineering, the project has suffered from management problems that exacerbated the problems already inherent in the project's schedule. The following are examples: Westinghouse had difficulty implementing sound project management practices. According to DOE officials and available documentation, Westinghouse did not use consistent and reliable estimating procedures to develop project baseline costs or make effective use of the baseline schedule as a tool to manage the project. For example, although Westinghouse developed a baseline for the project and had a system for controlling changes to the baseline, DOE officials said that Westinghouse did not have a sound planning basis for some of its cost estimates. DOE found that some cost estimates had inadequate supporting documentation and that estimating procedures were not applied consistently. In addition, when Duke Engineering assumed responsibility for the project in October 1996, several adjustments had to be made to the project baseline to incorporate more realistic estimates of the time needed to accomplish certain tasks and to add work scope not previously included in the schedule. The former Westinghouse spent fuel project director disagreed that these adjustments were needed and said that when Westinghouse turned over the project to the new contractors in October 1996, the project was on schedule and within budget. DOE officials at Hanford, however, said the Westinghouse schedule did not have a good planning basis or sound justifications and that it never met the requirements for baseline management and control that Westinghouse agreed to in the project management plan. Severe weather design requirements were not incorporated into the canister storage building in a timely manner. The former Westinghouse spent fuel project director said that neither the requirement nor the options for meeting it were clear, but DOE's position has been that the requirement was clear and that Westinghouse failed to implement the requirement in a timely manner, extending the construction schedule for the building and jeopardizing the start of spent fuel retrieval from the basins. Duke Engineering was unable to keep the various subprojects working in accordance with the project's schedule. When Duke Engineering took responsibility for the project in October 1996, with the help of Fluor Daniel, it established an integrated project baseline schedule and a system of controlling change that DOE approved in April 1997. However, DOE's evaluation of the project in September 1997 found significant problems with the management of the project, including Duke Engineering's poor management and contracting practices. For example, DOE criticized Duke Engineering for the weak management of subcontractors when the subcontractors did not perform satisfactorily. In October 1997, the Safety Board reported that the project had management deficiencies, including the inadequate identification of problems, inadequate actions to resolve problems, and a failure to communicate changes and performance expectations to project personnel. Fluor Daniel and DOE officials told us that, in their opinion, these problems occurred because Duke did not have the management and technical expertise in place to properly manage the project. The current president of Duke Engineering told us he agreed with these assessments. Duke Engineering also has had problems with the management and staffing of the project's safety analysis documentation effort. The Safety Board, in its October 1997 report, concluded that a key element in the ultimate success of the project was the timely completion of a number of subproject safety analyses. We found delays in getting the safety documentation prepared and approved on various subprojects. For example, the approval of the final safety analysis report for the canister storage building is now 9 months later than originally planned. The safety analysis report for the cold vacuum drying facility is now 13 months late and was recently rejected by DOE as unacceptable. Because safety documentation for the drying facility is on the "critical path" for the project schedule, delays in completing the documentation will add an estimated 46 days to the overall project. According to DOE's Assistant Manager for Waste Management, safety documentation has been inadequate because of problems with the underlying engineering and design work on the project. He said that Duke Engineering and its subcontractors have not been doing acceptable engineering work on the project and that Duke Engineering did not have people with sufficient skills assigned to prepare safety documents. Duke Engineering officials agreed that there have been design and engineering problems associated with the safety documentation process. They said that they recently added staff with additional safety expertise and made other changes to address these problems. Although DOE and Fluor Daniel were aware of the problems that were causing the schedule to slip, their oversight actions were not effective in resolving those problems. During the time that Westinghouse was still in charge of the project, DOE officials did not take aggressive action to improve contractor performance. These officials said they could not get Westinghouse to develop a sound planning basis for the project baseline and cost estimate or improve its management controls. According to DOE's spent fuel project manager and the Assistant Manager for Waste Management at Hanford, Westinghouse staff did not have the skills necessary to implement project management techniques. However, we found only limited documentation showing that DOE officials were pointing out these deficiencies to Westinghouse and asking for improved performance. The former Westinghouse spent fuel project director disagreed with this assessment of Westinghouse's performance. He said that Westinghouse had made substantial progress on the project and that DOE's evaluations of Westinghouse's performance were generally positive. DOE's Assistant Manager for Waste Management told us that Westinghouse did make progress while managing the project but that, overall, Westinghouse's performance was mixed and left considerable room for improvement, especially in the areas of developing a sound basis for the project baseline and making effective use of project management tools. He added that DOE was trying to get improved performance from Westinghouse by focusing performance reviews on the positive aspects of performance, not by emphasizing the deficiencies. In addition, the Manager of DOE's Richland Operations Office told us that changing site management contractors in October 1996 from Westinghouse to Fluor Daniel resulted from DOE's actions to deal with Westinghouse's performance, including the problems with Westinghouse's performance on the spent fuel project. After Duke Engineering assumed responsibility for the project as part of the new site management contract, Fluor Daniel provided primary oversight of the project for DOE. According to Fluor Daniel's spent fuel project director, it became apparent in December 1996 that Duke Engineering was struggling to establish an integrated project baseline, and in April 1997, after the baseline was approved, Duke Engineering had difficulty ensuring that the various subprojects stayed on schedule. She described Fluor Daniel's oversight of Duke Engineering as increasing in scope and intensity during this period as Duke Engineering struggled to perform on the project. During this period, DOE officials expressed to Fluor Daniel several concerns about the project, including poor quality assurance, unresolved technical issues, and schedule slippage. In its evaluation of Fluor Daniel's performance at Hanford during fiscal year 1997, DOE gave the company a marginal rating for its performance on the spent fuel project. While giving Fluor Daniel credit for having a strong project director and for aggressively pursuing project-related issues, DOE said the marginal rating was justified because of unfavorable cost and schedule variances, missed milestones, and safety issues. Fluor Daniel assessed its own performance on the project as marginal because of construction safety problems, safety analysis reporting issues, and the large slippage in the schedule resulting from Duke Engineering's performance. Despite these oversight actions by DOE, in October 1997, the Safety Board reported that DOE officials at Hanford were not sufficiently aware of the technical details of the project to prevent delays from occurring. They also reported that, up to that point, DOE had not been able to accurately determine the status of the project on a routine basis. DOE and its contractors have been working to improve their performance on the project. The December 1997 revision to the project's schedule was first proposed in August 1997, and it became a catalyst for action on the project. The Safety Board and DOE both conducted reviews that were critical of Duke Engineering's project management. Fluor Daniel stepped up its oversight activities, and in December 1997, it sent Duke Engineering a letter (called a cure notice) requiring the company to correct problems and improve performance on the project or face possible contractual remedies, including termination for default or recompetition of the subcontract rather than extending it. In response, Duke Engineering prepared a recovery plan and added several new managers, including a new spent fuel project director. The company also made several organizational changes to strengthen the management of the subprojects, establish greater accountability for meeting the project's schedule, and speed the resolution of technical issues. In addition, Duke Engineering modified its procedures to better identify emerging issues and control changes to the project's technical baseline. On May 1, 1998, Flour Daniel notified Duke Engineering that it had remedied the problems identified in the cure notice and that if improvements continued, Duke Engineering's subcontract would probably be extended. DOE's Manager, Richland Operations Office, however, was concerned with these decisions and asked Flour Daniel for (1) information on its basis for deciding that the problems had been remedied and (2) a recommendation with supporting justification by May 29, 1998, to either extend or recompete the subcontract with Duke Engineering. DOE has also strengthened its oversight of the project and has taken steps to improve its process for reviewing safety documentation. For example, the Assistant Manager for Waste Management at Hanford began devoting more of his time to the project and specifically to overseeing the contractors' actions. DOE also worked with the contractors to clarify expectations for safety documents and improve the safety review process to reduce the number of duplicative, conflicting, or insignificant comments being made. DOE also increased its use of incentive fees to influence contractor performance. Both Fluor Daniel and Duke Engineering have cost-reimbursement contracts under which the incentive fees are based on the achievement of certain performance objectives. To a more limited extent, this was also true when Westinghouse was the site contractor. For example, for fiscal year 1996, DOE reduced the incentive fees paid to Westinghouse by $625,000 below the $3 million available, primarily because of the company's delays in finishing the design of the canister storage building. Fees paid to Fluor Daniel and Duke Engineering are also being affected by performance. Although DOE has not completed its evaluation of the fees to be paid to Fluor Daniel and Duke Engineering for fiscal year 1997, Fluor Daniel's director of contract management estimated that Fluor Daniel and Duke Engineering will earn only about $1.0 million of the $3.2 million fee available on the spent fuel project. For fiscal year 1998, at least $8.1 million in incentives is available for the spent fuel project. DOE officials at Hanford are negotiating a revised project schedule with the regulators that, the Assistant Manager for Waste Management said, includes a contingency to address unforeseen problems so DOE and its contractors are more confident that the dates can be met. In addition, Duke Engineering is exploring opportunities to shorten the project's time frame by providing the suppliers and lower tier subcontractors with incentives. Despite recent actions to improve contractors' performance and to make the schedule more realistic, however, remaining uncertainties with the project make it difficult for DOE to predict project outcomes with a high degree of reliability. The following are the main uncertainties: Technical questions and changes continue. For example, concerns persist about the discovery of an aluminum hydroxide coating on some of the fuel. Aluminum hydroxide is about 35 percent water and not easy to remove from the fuel. As radiation breaks down the water in the aluminum hydroxide into its basic elements, it could become a significant source of pressure in the storage canisters. According to DOE's spent fuel project director, the companies working on this part of the project believe they have a technical solution but it has not yet been approved. Any delay in completing the safety basis for dealing with the increased pressure, or implementing methods to remove the aluminum hydroxide coating, could delay the start of fuel removal. Operational performance has not been proven. According to DOE's spent fuel project director, other than some limited testing, systems and equipment to clean basin water, handle the spent fuel, and dry the fuel have not been operated to test reliability, the speed of operation, or the adequacy of operator training. She said that operational performance is now the area of greatest uncertainty with the project. The overall project continues to lose ground against the baseline schedule. For example, 1 month after the December 1997 schedule revision, the project was already $22 million over budget and the schedule was beginning to slip. Only 3 months later, in April 1998, the contractors proposed a new schedule adding over 2 more years and $277 million to the project. This latest proposed schedule included about 5 months and $47 million in contingency for unforeseen problems. Even so, it is unclear if all of the delays and new work have been identified, or if the factors contributing to these cost and schedule increases have been discovered and dealt with. Although Duke Engineering has recently made changes to its management team and operating procedures and Fluor Daniel has stepped up its oversight of the project, it is too early to tell if these changes will improve Duke Engineering's ability to manage the project within cost and schedule constraints. However, DOE's Assistant Manager for Waste Management said in a March 1998 letter to Fluor Daniel that many of the management problems identified 6 months earlier continue to exist. He also cited a lack of teamwork between Fluor Daniel and Duke Engineering that was interfering with technical integration of the work and overall progress on the project. The management and oversight problems with the spent fuel project at Hanford are examples of a long DOE history of difficulties in managing major construction projects. The projects that do get finished are usually late and well over budget. The spent fuel project at Hanford is no exception--DOE and its contractors have clearly not met cost and schedule targets. The original project schedule contained virtually no flexibility to deal with unforeseen problems, and management and oversight problems exacerbated problems inherent in the original schedule. Although adding time to the schedule and contingency funding and taking steps to improve the project's management and oversight should improve the probability of meeting future cost and schedule targets, several remaining uncertainties affect DOE's and its contractors' ability to reliably predict a completion date or cost. As a result, it is important that DOE continue to be vigilant and aggressive in its oversight of contractors' activities if the project is to be completed within the latest proposed schedule and cost. We provided DOE with a draft of our testimony for its review and comment. We met with DOE officials, including the Manager of the Richland Operations Office. DOE generally agreed with our testimony, but said the testimony did not clearly state that spent fuel project costs include both capital construction costs and operating costs over the life of the project. We have clarified the testimony accordingly. DOE also said we should recognize that its action to replace Westinghouse as the Hanford site management contractor was due, in part, to DOE's dissatisfaction with Westinghouse's performance on the spent fuel project and represented a significant action on DOE's part. We added this information to our testimony. In addition, DOE noted that it had aggressively identified contractor problems since the inception of the project but had addressed them with Westinghouse informally. Because there was only limited documentation of these actions and contractor management problems continued, we did not add this information to the body of the testimony. Finally, DOE said that our testimony did not make it clear that (1) some of the changes to the project schedule were due to unavoidable increases in project scope as solutions to technical problems were developed and (2) the April 1998 proposed project schedule and cost estimate included a contingency for additional unforeseen problems. We clarified our testimony accordingly. DOE also suggested several technical corrections, which we incorporated as appropriate. We also discussed our findings with Fluor Daniel, Duke Engineering, and Westinghouse. Fluor Daniel and Duke Engineering generally agreed with our findings and provided several technical corrections, which we incorporated as appropriate. Westinghouse disagreed with our findings regarding its performance on the project. Westinghouse officials said that when they turned over the project to the new contractors it was on schedule and within budget, that they had made substantial progress on the project, and that DOE's evaluations of Westinghouse's performance were generally positive. We have summarized Westinghouse's views in our testimony. However, we believe we have described Westinghouse's performance accurately. Westinghouse also suggested several technical corrections, which we incorporated as appropriate. Our scope and methodology are included as an appendix to our testimony. Thank you, Mr. Chairman and Members of the Subcommittee. That concludes our testimony. We would be pleased to respond to any questions you may have. To determine the risks associated with current spent fuel storage at Hanford and the Department of Energy's (DOE) plans to reduce those risks, we reviewed DOE and Defense Nuclear Facilities Safety Board reports on current storage conditions and DOE documents describing the spent fuel storage project. We also reviewed the environmental impact statement for the spent fuel project. In addition, we interviewed DOE and contractor officials, as well as officials from the Environmental Protection Agency and the Washington State Department of Ecology. To determine the current status of the project, we reviewed project schedules and cost estimates approved by DOE, as well as related project documents, including safety basis documentation, project status reports, and correspondence. We also interviewed DOE and contractor officials to understand the project's history, the reasons for the changes to schedule and cost estimates, and the major events leading to those changes. To determine the major causes of schedule delays and cost increases, we reviewed DOE's, the Safety Board's, and the contractors' records and reports. We also interviewed officials from those organizations to obtain their views on the causes of the project's difficulties. We also reviewed reports on other DOE projects to understand why some of those projects had cost and schedule problems. To determine what steps have been taken to correct the project's problems, any penalties for poor performance, and the likelihood of meeting the latest schedule and cost estimates, we reviewed the contractors' records, correspondence, and contract files. We also interviewed DOE and contractor officials. Our review was performed from January through April 1998, in accordance with generally accepted government auditing standards. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO discussed the Department of Energy's (DOE) project to change how DOE stores spent (or irradiated) nuclear fuel from its nuclear reactors at DOE's Hanford site in Washington, focusing on the: (1) risks posed by the storage of the spent nuclear fuel; (2) project's status; (3) major reasons for delays and cost increases; and (4) measures being taken to address these delays and cost increases. GAO noted that: (1) as stored, most of the spent fuel at Hanford presents a risk of releasing nuclear materials to the environment and a consequent danger both to workers and the public; (2) this fuel sits in two water basins that are well beyond their design life and are located just 1,400 feet from the Columbia River; (3) never designed for long-term storage in water, some of the spent fuel has corroded, creating a radioactive sludge that has accumulated in the storage basins; (4) because of leaks in the basins, workers risk exposure to radioactive materials if contaminated water is released to the soil, and the public risks exposure if this water moves through the soil to the river; (5) it is likely that radioactive materials carried in water leaking from one of the basins have reached the river at least twice in the past; (6) although progress has been made in designing and constructing the new facilities, the schedule proposed by the contractors in April 1998 is over 4 years behind the original schedule for completion, and the estimated costs to build and operate the project have almost doubled, to about $1.4 billion; (7) the date to begin moving the spent fuel out of the basins, an important milestone for the project, given the health and safety risks associated with storage conditions, will be delayed until November 2000--almost 3 years beyond the original plan; (8) DOE wanted a compressed schedule for completing the project because of safety concerns at the existing storage basins and because DOE thought that a compressed schedule would improve the contractor's performance; (9) the lack of adequate management by the companies working on the spent fuel project for DOE--Westinghouse Hanford Company, the company that managed the project until 1996, and Duke Engineering, the company now responsible for the project--also contributed to schedule delays and cost overruns; (10) furthermore, oversight by both DOE and its management and integration contractor at the Hanford site--Fluor Daniel Hanford, Inc.--was insufficient to ensure that problems were quickly corrected; (11) recent management changes have been made, and oversight of the project has become more aggressive; (12) in addition, Duke Engineering has replaced several key managers and reorganized its operations and procedures; (13) DOE is negotiating with its regulators--the Environmental Protection Agency and the Washington Department of Ecology--new milestone dates that DOE believes it can meet; and (14) these problems and unresolved technical questions will continue to affect DOE's ability to set reliable targets.
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Most people with mental retardation, cerebral palsy, epilepsy, or other developmental disabilities who reside in large public institutions have many cognitive, physical, and functional impairments. Because their impairments often limit their ability to communicate concerns and many lack family members to advocate on their behalf, they are highly vulnerable to abuse, neglect, or other forms of mistreatment. As of 1994, more than 80 percent of residents in large public institutions were diagnosed as either severely or profoundly retarded. More than half of all residents cannot communicate verbally and require help with such basic activities as eating, dressing, and using the toilet. In addition, nearly half of all residents have behavioral disorders and require special staff attention, and almost one-third require the attention of psychiatric specialists. The Congress established the ICF/MR program as an optional Medicaid benefit in 1971 to respond to evidence of widespread neglect of the developmentally disabled in state institutions, many of which provided little more than custodial care. The program provides federal Medicaid funds to states in exchange for their institutions' meeting minimum federal requirements for a safe environment, appropriate active treatment, and qualified professional staff. In 1994, more than 62,000 developmentally disabled individuals lived in 434 large public institutions certified as ICFs/MR for participation in Medicaid. States operated 392 of these institutions; county and city governments operated 42. The average number of beds in each facility was 170, though facilities range in size from 16 beds to more than 1,000 beds. These institutions provided services on a 24-hour basis as needed. Services included medical and nursing services, physical and occupational therapy, psychological services, recreational and social services, and speech and audiology services. Compared with residents in years past, those in large public institutions today are older and more medically fragile and have more complex behavioral and psychiatric disorders. In recent years, states have reduced the number of people living in these large public ICFs/MR by housing them in smaller, mostly private ICFs/MR and other community residential settings. Large public institutions generally are not accepting many new admissions, and many states have been closing or downsizing their large institutions. HCFA published final regulations for quality of care in ICFs/MR in 1974 and revised them in 1988. To be certified to participate in Medicaid, ICFs/MR must meet eight conditions of participation (CoP) contained in federal regulations. The regulations are designed to protect the health and safety of residents and ensure that they are receiving active treatment for their disability and not merely custodial care. Each CoP encompasses a broad range of discrete standards that HCFA determined were essential to a well-run facility. The CoPs cover most areas of facility operation, including administration, minimum staffing requirements, provision of active treatment services, health care services, and physical plant requirements. (See app. II for a more detailed description of the ICF/MR CoPs.) The eight CoPs comprise 378 specific standards and elements. HCFA requires that states conduct annual on-site inspections of ICFs/MR to assess the quality of care provided and to certify that they continue to meet federal standards for Medicaid participation. The state health department usually serves as the survey agency. These agencies may also conduct complaint surveys at any time during the year in response to specific allegations of unsafe conditions or deficient care. If the surveyors identify deficiencies, the institution must submit a plan of correction to the survey agency and correct--or show substantial progress toward correcting--any deficiency within a specified time period. For serious deficiencies, those cited as violating the CoPs, HCFA requires that the institution be terminated from Medicaid participation within 90 days unless corrections are made and verified by the survey agency during a follow-up visit. If a facility meets all eight CoPs but has deficiencies in one or more of the standards or elements, it may have up to 12 months to achieve compliance as long as the deficiency does not immediately jeopardize residents' health and safety. HCFA's 10 regional offices oversee state implementation of Medicaid ICF/MR regulations by monitoring state efforts to ensure that ICFs/MR comply with the regulations. HCFA regional office staff directly survey some ICFs/MR--primarily to monitor the performance of state survey agencies. In addition, regional office staff provide training, support, and consultation to state agency surveyors. The Department of Justice also has a role in overseeing public institutions for people with developmental disabilities. The Civil Rights of Institutionalized Persons Act (CRIPA) authorizes Justice to investigate allegations of unsafe conditions and deficient care and to file suit to protect the civil rights of individuals living in institutions operated by or on behalf of state or local governments. Justice Department investigations are conducted on site by Justice attorneys and expert consultants who interview facility staff and residents, review records, and inspect the physical environment. The Justice Department seeks to determine whether a deviation from current standards of practice exists and, if so, whether the deviation violates an individual's civil rights. Unlike HCFA, Justice has no written standards or guidelines for its investigations. Justice Department officials told us that the standards they apply are generally accepted professional practice standards as defined in current professional literature and applied by the experts they retain to inspect these institutions. Since the enactment of CRIPA in 1980, Justice has been involved in investigations and enforcement actions in 38 cases involving large public institutions for the developmentally disabled in 20 states and Puerto Rico. As of July 1996, 13 of these investigations remained ongoing, 17 had been closed or resolved as a result of corrections being made, 7 continued to be monitored, and 1 litigated case was on appeal. State Medicaid surveys and Justice Department investigations continue to identify serious deficient care practices in large public ICFs/MR. A few of these practices have resulted in serious harm to residents, including injury, illness, physical degeneration, and death. As of August 1995, 28 of the 434 large public institutions were out of compliance with at least one CoP at the time of their most recent annual state survey. On the last four annual surveys, 122 of these institutions had at least one CoP violation. (See table 1.) These serious violations of Medicaid regulations commonly included inadequate staffing to protect individuals from harm, failure to provide residents with treatment needed to prevent degeneration, and insufficient protection of residents' rights. Lack of adequate active treatment was the most common CoP violation cited in large public ICFs/MR. Serious active treatment deficiencies were cited 115 times in 84 institutions on the past four annual surveys. Eighteen institutions were cited for this CoP deficiency on their most recent annual survey. Serious active treatment deficiencies cited on the survey reports included, for example, staff's failure to prevent dangerous aggressive behavior, failure to ensure that a resident with a seizure disorder and a history of injuries wore prescribed protective equipment, and failure to implement recommended therapy and treatment to maintain a resident's ability to function and communicate. State surveyors also frequently found other CoP violations. They found, for example, residents of one state institution who had suffered severe hypothermia, pneumonia, and other serious illnesses and injuries as a consequence of physical plant deterioration, inadequate training and deployment of professional staff, failure to provide needed medical treatment, drug administration errors, and insufficient supervision of residents. Surveyors determined that the state had failed to provide sufficient management, organization, and support to meet the health care needs of residents and cited the facility for violating the governing body and management CoP. Other CoP violations found during this period include serious staffing deficiencies and client protection violations. Surveyors of one state institution reported deficiencies such as excessive turnover, insufficient staff deployment, frequent caseload changes, and lack of staff training. In this institution, surveyors also found residents vulnerable to abuse and mistreatment by staff and staff who failed to report allegations of mistreatment, abuse, and neglect in a timely manner. Other staff who were known to abuse residents in the past continued to work with residents and did not receive required human rights training. State agencies also conduct complaint surveys in large public ICFs/MR in response to alleged deficiencies reported by employees, advocates, family members, providers, or others. State agencies' complaint surveys found 48 serious CoP violations from 1991 through 1994. The most frequently cited CoP violations were client protections, cited 22 times, and facility staffing, cited 11 times. (See table 1.) State survey agencies generally certify that facilities have sufficiently improved to come back into compliance with federal CoPs. When survey agencies find noncompliance with CoPs, they may revisit the facility several times before certifying that a violation has been corrected. On average, it takes about 60 days for this to occur. Since 1990, the Justice Department has found seriously deficient care that violated residents' civil rights in 17 large public institutions for the mentally retarded or developmentally disabled in 10 states. Its investigations have identified instances of residents' dying, suffering serious injury, or having been subjected to irreversible physical degeneration from abuse by staff and other residents, deficient medical and psychiatric care, inadequate supervision, and failure to evaluate and treat serious behavioral disorders. Justice found, for example, that a resident died of internal injuries in 1995 after an alleged beating by a staff member in one state institution that had a pattern of unexplained physical injuries to residents. In addition, the Department found that in the same facility a few years earlier, a moderately retarded resident suffered massive brain damage and lost the ability to walk and talk due to staff failure to provide emergency care in response to a life-threatening seizure. In another state institution, Justice found facility incident reports from 1992 and 1993 documenting that some residents were covered with ants and one resident was found with an infestation of maggots and bloody drainage from her ear. In another facility, Justice found that a resident was strangled to death in an incorrectly applied restraint in 1989. We reviewed Justice's findings letters issued since 1990 for 15 institutions. The most common serious problems identified were deficient medical and psychiatric care practices, such as inadequate diagnosis and treatment of illness; inappropriate use of psychotropic medications; excessive or inappropriate use of restraints; inadequate staffing and supervision of residents; inadequate or insufficient training programs for residents and staff; inadequate therapy services; deficient medical record keeping; and inadequate feeding practices. States rarely contest Justice's findings in court. Only two CRIPA cases involving large public ICFs/MR have been litigated. Department officials told us that the prospect of litigation usually prompts states to negotiate with Justice and to initiate corrective actions. The Department resolved 11 CRIPA cases without having to take legal action beyond issuing the findings letter because the states corrected the deficiencies. In another 12 cases involving large public ICFs/MR, states agreed to enter into a consent decree with the Department. About half of these latter cases required a civil contempt motion or other legal action to enforce the terms of the decree. State survey agencies may be certifying some large public ICFs/MR that do not meet federal standards. Although state survey agencies have the primary responsibility for monitoring the care in ICFs/MR on an ongoing basis, HCFA surveyors and Justice Department investigators have identified more deficiencies--and more serious deficiencies--than have state survey agencies. Federal monitoring surveys conducted by HCFA regional office staff identified more numerous or more serious problems in some large public ICFs/MR than did state agency surveys of the same institutions. According to HCFA, federal surveyors noted significant differences between their findings and those of the state survey agencies in 12 percent of federal monitoring surveys conducted in large public ICFs/MR between 1991 and 1994. HCFA surveyors determine that significant differences exist when, in their judgment, they have identified serious violations that existed at the time of the state agency survey that the state surveyors did not identify. When conducting monitoring surveys, HCFA regional office staff use the same standards and guidelines as state agency surveyors. These federal surveys are designed to assess the adequacy of state certification efforts in ensuring that ICFs/MR meet federal standards, and, for public facilities, the effectiveness of delegating to states the responsibility for surveying and monitoring the care provided in their own institutions. Justice also identified more deficiencies--and more serious deficiencies--in some large public ICFs/MR than did state survey agencies. Although some deficient care practices found by Justice were also noted on state agency surveys of the same institutions, others were not noted by state surveyors. For example, Justice found seriously deficient care that violated residents' civil rights in 11 state institutions it investigated between 1991 and 1995. Of these 11, state agency surveys cited only 2 for a CoP deficiency even though the state surveys were conducted within a year of Justice's inspection. The types of serious deficiencies often cited in Justice reports but not in state agency surveys of the same institution included deficiencies in medical practices and psychiatric care, inappropriate use of psychotropic medications, and excessive use of restraints. Several factors have contributed to the inability or failure of HCFA and state survey agencies to identify and prevent recurring quality-of-care deficiencies in some large public ICFs/MR. First, states have not identified all important quality-of-care concerns because of the limited approach and resources of Medicaid surveys. Second, enforcement efforts have not been sufficient to ensure that deficient care practices do not recur. Third, because states are responsible for both delivering and monitoring the care provided in most public institutions, state agency surveys of these institutions may lack the necessary independence to avoid conflicts of interest. Finally, a decline in direct HCFA oversight has reduced HCFA's ability to monitor problems and help correct them. Although HCFA has recently begun to implement several initiatives to address some of these weaknesses, others remain unresolved. Differences between the approach and resources of Medicaid surveys and Justice Department investigations may explain why Medicaid surveys have not always identified the serious deficiencies that Justice investigations have. State surveyors examine a broad range of facility practices, environmental conditions, and client outcomes to ensure minimum compliance with HCFA standards. Surveys are generally limited to a review of the current care provided to a sample of residents in an institution, are conducted annually, and may last 1 to 2 weeks at a large public institution. In contrast, Justice Department investigations are intended to determine whether civil rights violations exist. They generally focus on deficient care practices about which Justice has received specific allegations, often related to medical and psychiatric care. Such investigations may include a review of care provided to all individuals in a facility, extend over several months, and include an examination of client and facility records covering several years to assess patterns of professional practice. The professional qualifications and expertise of individuals conducting state agency surveys and Justice's investigations also differ. State surveyors are usually nurses, social workers, or generalists in a health or health-related field. Not all have expertise in developmental disabilities. Although HCFA recommends that at least one member of a state survey team be a qualified mental retardation professional (QMRP), 17 states had no QMRPs on their survey agency staffs as of March 1996. Justice's investigators are usually physicians, psychiatrists, therapists, and others with special expertise in working with the developmentally disabled. According to HCFA and Justice officials, Justice Department investigators generally can better challenge the judgment of professionals in the institution regarding the care provided to individual residents than can state surveyors. HCFA officials acknowledged that the differences between Medicaid surveys and Justice investigations could explain some of the differences between their findings. They told us, however, that they have begun to implement several changes to the survey process to increase the likelihood that state surveys will identify all serious deficiencies. These include new instructions to surveyors for assessing the seriousness of deficiencies, increased training for surveyors and providers, and implementation of a new survey protocol intended to focus more attention on critical quality-of-care elements and client outcomes. The new survey protocol reduces the number of items that must be assessed each year and places greatest emphasis on client protections, active treatment, client behavior and facility practices, and health care services. The new protocol gives surveyors latitude, however, to expand the scope of a facility's survey if they find specific problems. HCFA's pilot test of the new protocol showed that although surveyors identified fewer deficiencies overall than with the standard protocol, they issued more citations for the most serious CoP violations. HCFA is conducting training for state surveyors and providers on this new protocol and plans to monitor certain aspects of its implementation. Even when state survey agencies identify deficiencies in large public ICFs/MR, state enforcement efforts do not always ensure that facilities' corrections are sufficient to prevent the recurrence of the same serious deficiencies. Although state survey agencies almost always certify that serious deficiencies have been corrected, they subsequently cite many institutions for the same violations. For example, between December 1990 and May 1995, state survey agencies cited 33 large public institutions for violating the same CoP on at least one subsequent survey within the next 3 years. Moreover, 25 were cited for violating the same CoP on one or more consecutive surveys. HCFA officials told us that the sanctions available to the states under Medicaid have not always been effective in preventing recurring violations and are rarely used against large public ICFs/MR. Only two possible sanctions are available under the regulations for CoP violations: suspension--that is, denial of Medicaid reimbursement for new admissions--or termination from the program. Medicaid regulations do not contain a penalty for repeat violations that occur after corrective action. Denying reimbursement to large public institutions for new admissions is not a very relevant sanction because many of these institutions are downsizing or closing and are not generally accepting many new admissions. Furthermore, terminating a large institution from the Medicaid program is counterproductive because denying federal funds may further compromise the care of those in the institution. No large public institutions were terminated from Medicaid for reasons of deficient care and not reinstated from 1990 through 1994, the period for which data were readily available. HCFA officials told us that they were particularly concerned about institutions where surveyors found repeat violations of the same CoPs. Although the officials have not explored the usefulness of other sanctions or approaches to enforcement for large public ICFs/MR, they told us that the newly implemented survey procedure was intended to better identify the underlying causes of facility deficiencies, possibly reducing repeat violations. A potential conflict of interest exists because states both operate large public ICFs/MR and certify that these institutions meet federal standards for Medicaid participation. States can lose substantial funds if care is found to be seriously deficient and their institutions lose Medicaid certification. The state survey agency, usually a part of a state's department of health, conducts surveys to determine whether ICFs/MR are in compliance with quality standards. It reports and makes its recommendation to the state Medicaid agency, which makes the final determination of provider certification. Medicaid rules do not require any independent federal or other outside review for a state's ICF/MR to remain certified. HCFA officials, provider representatives, and advocates have expressed concern that this lack of independence compromises the integrity of the survey process. HCFA regional officials told us of instances in which state surveyors were pressured by officials from their own and other state agencies to overlook problems or downplay the seriousness of deficient care in large state institutions. Of concern to the state officials in these instances was the imposition of sanctions that would have cost the state federal Medicaid funds. HCFA regional office staff may mitigate the effects of potential conflicts of interest by training surveyors, accompanying state surveyors during their inspections, or directly surveying the institutions themselves. Direct federal oversight has declined dramatically in recent years despite its importance for independent monitoring of the care provided in large public institutions and the performance of state survey agencies. HCFA's primary oversight mechanism has been the federal monitoring survey, which assesses state agency determinations of provider compliance. As shown in figure 1, the number of federal monitoring surveys conducted in large public ICFs/MR has declined from 31 in 1990 to only 5 in 1995. HCFA began surveying large public ICFs/MR in response to congressional hearings in the mid-1980s that detailed many instances of poor quality and abusive conditions in Medicaid-certified institutions for the developmentally disabled. In 1985, HCFA hired 45 employees, about half of whom had special expertise in working with persons with developmental disabilities, to conduct direct federal surveys. Officials from HCFA and Justice, providers, and experts told us that this effort helped improve the quality of care in many institutions and stimulate improvements to the state survey process. The recent decline in federal oversight, however, has increased the potential for abusive and dangerous conditions in these institutions. HCFA officials told us that regional office staff have neither conducted sufficient reviews nor acted on facility deficiencies in recent years because of competing priorities and resource constraints. According to these officials, resources previously used for federal surveys of ICFs/MR have been diverted to allow compliance with requirements for increased federal monitoring surveys of nursing facilities and for other reasons. Regional office officials report that these resource constraints have limited their current review efforts to mostly private ICFs/MR of six beds or less. HCFA regional office staff are now less able to identify deficiencies or areas of weakness and to provide targeted training or other support to state surveyors. State survey agencies have recently reported a decline in the number of serious CoP violations in large public ICFs/MR. Yet without direct monitoring, HCFA cannot determine whether this decline is due to real improvements in conditions or to decreased vigilance or competence on the part of state agency surveyors. Although HCFA officials have expressed concern about the current level of direct federal oversight of state survey agencies and large public ICFs/MR, they have no plans to increase resources for these efforts. Instead, HCFA officials told us they are examining ways to better target their limited oversight resources. While they are planning to improve their use of existing data for monitoring purposes, they also plan to develop a system of quality indicators to provide information on facility conditions on an ongoing basis. These officials told us that they expect this system of quality indicators to be operational in about 4 years. The ICF/MR program--intended to provide a safe environment with appropriate treatment by qualified professional staff--serves a particularly vulnerable population of individuals with mental retardation and other developmental disabilities in large public ICFs/MR. Most of these institutions comply with Medicaid quality-of-care standards. Serious deficiencies continue to occur, however, in some institutions despite federal standards, oversight by HCFA and state agencies, and continuing investigations by the Department of Justice. States are the key players in ensuring that ICFs/MR meet federal standards. Although their oversight includes annual on-site visits by state survey agencies to all large public ICFs/MR, these agencies have not identified all instances of seriously deficient care. HCFA reviews and Justice Department investigations have identified some instances of deficient care, including medical care, that were not reported in state surveys. Furthermore, serious deficiencies continue to recur in some of these institutions. Effective federal oversight of large public ICFs/MR and the state survey agencies that inspect them requires that the inspection process be well defined and include essential elements of health care, active treatment, and safety; that enforcement efforts prevent the recurrence of problems; that surveyors be independent; and that HCFA officials have sufficient information to monitor the performance of institutions and state survey agencies. The approach and resources of Medicaid surveys, the lack of effective enforcement mechanisms, the potential conflicts of interest occurring when states are charged with surveying the facilities they operate, and the decline in direct federal monitoring efforts have all weakened oversight of large public ICFs/MR and state survey agencies. HCFA has begun to implement changes to the structure and process of state agency surveys of ICFs/MR. The new approach to surveys may result in identifying more serious deficiencies in large public institutions. This change, and others that HCFA is implementing to more efficiently use limited federal and state resources, may also reduce the impact of some of the other weaknesses we have identified. Nonetheless, the lack of independence in state surveys coupled with little direct federal monitoring remains a particular concern. HCFA needs to strengthen the oversight of its ICF/MR program and collect sufficient information in a timely manner to assess the effectiveness of the new approach in identifying and ensuring the correction of deficient care. To improve HCFA's oversight of large public ICFs/MR, we recommend that the Administrator of HCFA assess the effectiveness of its new survey approach in ensuring that serious deficiencies at large public ICFs/MR are identified and corrected; take steps, such as enhanced monitoring of state survey agencies or direct inspection of institutions, to address the potential conflict of interest that occurs when states are both the operators and inspectors of ICFs/MR; and determine whether the application of a wider range of enforcement mechanisms would more effectively correct serious deficiencies and prevent their recurrence. HCFA and the Justice Department reviewed a draft of this report and provided comments, which are reproduced in appendixes III and IV. Both agencies generally agreed with the information provided in this report. In their comments, HCFA and Justice recognized the need for improvements in government oversight of the ICF/MR program to ensure adequate services and safe living conditions for residents of large public institutions. HCFA also provided technical comments, which we have incorporated as appropriate. HCFA is implementing a new survey approach and in its comments agreed with our recommendation that it should assess the effectiveness of this approach. To monitor the implementation of its new approach, federal surveyors will accompany state surveyors on a sample of facility surveys, including a minimum of one large public institution in each state. HCFA plans to analyze the results of these monitoring surveys to determine, among other things, whether the new protocol, as designed, is applicable to large public institutions. These are steps in the right direction. Given the serious problems we have identified in ICFs/MR and in state survey agency performance, we believe HCFA must move quickly to determine whether the new survey process improves the identification of serious deficiencies at large public institutions and make appropriate adjustments if it does not. In its comments, HCFA did not propose specific measures to address our recommendation on the potential conflict of interest that occurs when states are both operators and inspectors of ICFs/MR. HCFA stated that resource constraints have resulted in a significant reduction of on-site federal oversight of state survey agencies and of care in large public ICFs/MR. We believe that HCFA's plan to increase its presence in the field as part of monitoring implementation of the new survey protocol may reduce the impact of potential conflicts of interest at some institutions. However, HCFA must find a more lasting and comprehensive solution to strengthen the independence of the survey process by program improvements or reallocation of existing resources to enhanced monitoring or direct inspection of institutions. HCFA agreed with our recommendation that it determine whether a wider range of enforcement actions would bring about more effective correction of serious deficiencies and prevent their recurrence. HCFA plans to assess whether a wider range of mechanisms would be appropriate for the ICF/MR program on the basis of an evaluation of the impact of alternative enforcement mechanisms for nursing homes due to the Congress in 1997. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from its date of issue. We will then send copies to the Secretary of the Department of Health and Human Services; the Administrator, Health Care Financing Administration; the U.S. Attorney General; and other interested parties. Copies of this report will be made available to others upon request. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or Bruce D. Layton, Assistant Director, at (202) 512-6837. Other GAO contacts and contributors to this report are listed in appendix V. To address our study objectives, we (1) conducted a review of the literature; (2) interviewed federal agency officials, provider and advocacy group representatives, and national experts on mental retardation and developmental disabilities; (3) analyzed national data from inspection surveys of intermediate care facilities for the mentally retarded (ICF/MR); and (4) collected and reviewed HCFA, state agency, and Justice Department reports on several state institutions. We interviewed officials or representatives from the Health Standards and Quality Bureau of HCFA; HCFA regional offices; the Administration on Developmental Disabilities; the President's Committee on Mental Retardation in HHS; the Civil Rights Division in the Justice Department; the National Association of State Directors of Developmental Disabilities Services, Inc.; the National Association of Developmental Disabilities Councils; the National Association of Protection and Advocacy Systems; the Accreditation Council on Services for People With Disabilities; and the Association of Public Developmental Disabilities Administrators. Data reviewed at HCFA consisted of automated data and reports submitted by states and regional offices. We analyzed national data from HCFA's Online Survey, Certification and Reporting System for state and federal ICF/MR surveys conducted between December 1990 and May 1995. Information from surveys conducted before December 1990 was not available at the time of our review. We limited our analysis of HCFA and state data on deficiencies to information about institutions participating in Medicaid as of August 1995. We also reviewed state agency survey reports for 12 large public ICFs/MR, 5 of which were also the subject of Justice investigations between 1991 and 1995. We reviewed Justice's records since 1990, including findings letters, consent decrees, court filings and actions, and other supporting documentation and analyses related to enforcement of the Civil Rights of Institutionalized Persons Act. We conducted our work between May 1995 and July 1996 in accordance with generally accepted government auditing standards. Following are the eight conditions of participation for intermediate care facilities for the mentally retarded (ICF/MR), as prescribed by the Secretary and contained in federal regulations. The standards that must be addressed under this condition include the following: the facility must (1) have a governing body that exercises general control over operations; (2) be in compliance with federal, state, and local laws pertaining to health, safety, and sanitation; (3) develop and maintain a comprehensive record keeping system that safeguards client confidentiality; (4) enter into written agreements with outside resources, as necessary, to provide needed services to residents; and (5) be licensed under applicable state and local laws. To comply with this condition, the facility must (1) undertake certain actions and provide mechanisms to protect the rights of residents; (2) adequately account for and safeguard residents' funds; (3) communicate with and promote the participation of residents' parents or legal guardians in treatment plans and decisions; and (4) have and implement policies and procedures that prohibit mistreatment, neglect, or abuse of residents. Standards for facility staffing include requirements that (1) each individual's active treatment program be coordinated, integrated, and monitored by a qualified mental retardation professional; (2) sufficient qualified professional staff be available to implement and monitor individual treatment programs; (3) the facility not rely upon residents or volunteers to provide direct care services; (4) minimum direct care staffing ratios be adhered to; and (5) adequate initial and continuing training be provided to staff. Regulations specify that each resident receive a continuous active treatment program that includes training, treatment, and health and related services for the resident to function with as much self-determination and independence as possible. Standards under this condition include (1) procedures for admission, transfer, and discharge; (2) requirements that each resident receive appropriate health and developmental assessments and have an individual program plan developed by an interdisciplinary team; (3) requirements for program plan implementation; (4) adequate documentation of resident performance in meeting program plan objectives; and (5) proper monitoring and revision of individual program plans by qualified professional staff. Standards under this condition specify that the facility (1) develop and implement written policies and procedures on the interaction between staff and residents and (2) develop and implement policies and procedures for managing inappropriate resident behavior, including those on the use of restrictive environments, physical restraints, and drugs to control behavior. To meet the requirements of this condition, the facility must (1) provide preventive and general medical care and ensure adequate physician availability; (2) ensure physician participation in developing and updating each individual's program plan; (3) provide adequate licensed nursing staff to meet the needs of residents; (4) provide or make arrangement for comprehensive dental care services; (5) ensure that a pharmacist regularly reviews each resident's drug regimen; (6) ensure proper administration, record keeping, storage, and labeling of drugs; and (7) ensure that laboratory services meet federal requirements. Requirements under this condition include those governing (1) residents' living environment, (2) size and furnishing of resident bedrooms, (3) storage space for resident belongings, (4) bathrooms, (5) heating and ventilation systems, (6) floors, (7) space and equipment, (8) emergency plans and procedures, (9) evacuation drills, (10) fire protection, (11) paint, and (12) infection control. Standards under this condition are designed to ensure that (1) each resident receives a nourishing, well-balanced, and varied diet, modified as necessary; (2) dietary services are overseen by appropriately qualified staff; and (3) dining areas be appropriately staffed and equipped to meet the developmental and assistance needs of residents. In addition to those named above, the following team members made important contributions to this report: James Musselwhite and Anita Roth, evaluators; Paula Bonin, computer specialist; Karen Sloan, communications analyst; George Bogart, attorney-advisor; and Leigh Thurmond and Jamerson Pender, interns. Medicaid: Waiver Program for Developmentally Disabled Is Promising But Poses Some Risks (GAO/HEHS-96-120, July 22, 1996). Financial Management: Oversight of Small Facilities for the Mentally Retarded and Developmentally Disabled (GAO/AIMD-94-152, Aug. 12, 1994). Medicaid: Federal Oversight of Kansas Facility for the Retarded Inadequate (GAO/HRD-89-85, Sept. 29, 1989). 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 role of the Health Care Financing Administration (HCFA), state agencies, and the Department of Justice (DOJ) in overseeing quality of care in intermediate care facilities for the mentally retarded (ICF/MR), focusing on: (1) deficient care practices occurring in large ICF/MR; (2) whether state agencies identify all serious deficiencies in these institutions; and (3) weaknesses in HCFA and state oversight of ICF/MR care. GAO found that: (1) despite federal standards, HCFA and state agency oversight, and continuing Justice Department investigations, serious quality-of-care deficiencies continue to occur in some large public ICFs/MR; (2) insufficient staffing, lack of active treatment needed to enhance independence and prevent loss of functional ability, and deficient medical and psychiatric care are among those deficiencies that have been frequently cited; (3) in a few instances, these practices have led to serious harm to residents, including injury, illness, physical degeneration, and death; (4) states, which are the key players in ensuring that these institutions meet federal standards, do not always identify all serious deficiencies nor use sufficient enforcement actions to prevent the recurrence of deficient care; (5) direct federal surveys conducted by HCFA and Justice Department investigations have identified more numerous and more serious deficiencies in public institutions than have state surveys; (6) furthermore, even when serious deficiencies have been identified, state agencies' enforcement actions have not always been sufficient to ensure that these problems did not recur; (7) some institutions have been cited repeatedly for the same serious violations; (8) although HCFA has recently taken steps to improve the process for identifying serious deficiencies in these institutions and to more efficiently use limited federal and state resources, several oversight weaknesses remain; (9) moreover, state surveys may lack independence because states are responsible for surveying their own institutions; and (10) the effects of this potential conflict of interest raise concern given the decline in direct federal oversight of both the care in these facilities and the performance of state survey agencies.
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We identified three national databases that, as part of broader data collection efforts, collect information on the occurrence of concussion in high school sports, but they do not provide an overall national estimate of occurrence. These databases are the NCCSI database, the CPSC's National Electronic Injury Surveillance System (NEISS), and the Center for Injury Research and Policy's High School RIO. (See table 1 for descriptions of the databases.) According to experts and federal officials, while none of the databases can provide a national estimate of the occurrence of concussion in high school sports, two of them provide national estimates of the occurrence of concussion for the populations they study. High School RIO provides national estimates of the occurrence of concussion in 20 sports for high schools with certified athletic trainers, based on its sample of 100 high schools with certified athletic trainers. Because it collects data on participation in the sports it studies, High School RIO also calculates injury rates by sport and by sex. NEISS provides national estimates of the occurrence of concussion treated in hospital emergency departments, based on its random national sample of approximately 100 hospitals with 24-hour emergency services. The third database, NCCSI, provides information on cases of concussion with serious complications, but it cannot provide national estimates of occurrence of all concussions. According to experts and federal officials, High School RIO and NEISS have certain strengths. The information collected by High School RIO is timely, as athletic trainers in the sample schools report data on a weekly basis. According to CPSC officials, the information collected by NEISS is also timely, in that hospitals in the sample report information on a daily basis and NEISS receives approximately half of the data within 4 days of the patient's being seen in the emergency department. In addition, both High School RIO and NEISS collect information in ways--such as through certified athletic trainers and through review of medical charts, respectively--that experts report to produce more reliable information than other methods. Experts and federal officials have noted that notwithstanding these strengths, the national estimates provided by High School RIO and NEISS may be underestimates of the overall national occurrence of concussion in high school sports. For example, High School RIO gathers information only on concussions that are reported to or observed by a certified athletic trainer, but, according to officials from an athletic trainers' association, athletes may be reluctant to report symptoms of possible concussions to athletic trainers to avoid being removed from play. In addition, the athletic trainers cannot be present at all practices and games and the coaches and parents who are present may not recognize the signs or symptoms of a concussion, resulting in an underestimate of the actual number of concussions in the schools studied. Further, some athletes may consult their family physician about signs and symptoms of a possible concussion without reporting it to the athletic trainer. These concussions would not be included in the database. In addition, because High School RIO collects information on only 20 sports, its data cannot be used to estimate the occurrence of concussion in all sports. Similarly, NEISS gathers information only on concussions in patients who are treated in emergency departments, but not all athletes with a concussion go to an emergency department for treatment. Furthermore, the medical charts that are reviewed by hospital staff for NEISS may not always indicate detailed circumstances of the concussion, and therefore the staff may miss some concussions that were sustained during athletic participation. Experts and federal officials identified additional features of the databases that may lead to further uncertainty and thus preclude the use of the data to provide comprehensive national estimates of concussion in high school sports. For example, High School RIO does not collect data from schools that do not have certified athletic trainers, and researchers do not know how the occurrence and reporting of concussion in schools with athletic trainers differ from schools without athletic trainers or what effect any difference would have on estimates of occurrence. In addition, according to CPSC officials, NEISS cannot always indicate whether a concussion was sustained during participation in a sport or simply involved sports equipment. For example, NEISS would count a concussion sustained by a person who was hit on the head with a baseball bat as a sports-related concussion, regardless of whether or not the injury was incurred during a baseball game or practice. CDC's Heads Up: Concussion in High School Sports is the primary federal program directed specifically at preventing concussion in high school sports. The program, which is one of CDC's educational initiatives, is intended to provide educational materials for coaches, athletic trainers, athletic directors, parents, and athletes to prevent concussion. The Heads Up: Concussion in High School Sports tool kit includes a concussion guide for coaches with information on signs and symptoms and strategies for preventing concussions, a coach's quick-reference wallet card, a coach's clipboard sticker with concussion facts and space for emergency medical contacts, two fact sheets--one for parents and one for athletes--in English and Spanish, an educational DVD, posters for school gymnasiums, and a disc that contains additional resources. According to CDC officials, the Heads Up: Concussion in High School Sports materials were developed by a panel of experts from CDC and outside the federal government. CDC rolled out the Heads Up: Concussion in High School Sports program in September 2005 to coincide with the beginning of the school year. As part of the agency's promotional activities for its national roll-out, CDC developed press kits and other promotional materials, and to promote the program, it partnered with 14 public and private organizations, including Education, physician associations, and other organizations that conduct work in high school athletics or sports medicine. CDC also conducted a targeted media campaign consisting of e-mails and telephone calls to local, regional, and national media outlets, regional and national newspapers, and general and specialty magazines. In addition, the Surgeon General served as a key spokesperson and participated in radio interviews with program officials. CDC estimates that it distributed 20,000 tool kits within the first 3 months of the program and reached 6 million listeners and readers through the targeted media campaign. Agency officials estimate that CDC distributed more than 300,000 Heads Up: Concussion High School Sports materials overall by the end of December 2009. CDC has continued to update and expand its Heads Up: Concussion in High School Sports materials. CDC plans to release updated Heads Up: Concussion in High School Sports materials in spring 2010 to coincide with the release of free online training for high school coaches developed by CDC and NFHS, which will include downloadable Heads Up: Concussion materials and an educational video. CDC has also continued to expand its Heads Up programs to target broader audiences. In addition, CDC officials told us that the agency created sports-specific materials in conjunction with the national governing bodies for youth and high school football, lacrosse, and ice hockey based on the Heads Up: Concussion in High School Sports and other materials. The sports-specific materials include prevention and safety information related to each sport and its equipment. The agency plans to continue developing specific materials for additional sports. Other federal agencies administer programs related to concussion, but most of these programs are not directed specifically at the prevention of concussion in high school sports. CPSC carries out initiatives that include developing educational materials such as brochures and fact sheets. These initiatives are not targeted exclusively at high school sports, but are directed more broadly at sports and recreation safety for youth and adults. For example, CPSC developed a brochure on which helmets to wear for a variety of activities, such as football, baseball, and bicycling, to prevent head injuries, including concussion. HRSA and NIH administer grant programs related to concussion and brain injury from all causes and for all age groups. HRSA grants focus on high-risk groups including youth ages 15-19, and NIH grants have supported some research on concussion in high school sports. However, neither agency administers programs specifically for the prevention of concussion in high school sports. According to department officials, Education does not administer any programs related to the prevention of concussion. The three key state laws regarding the management of concussion that were identified by federal officials and experts all include requirements related to concussion education and athletes' return to play. (See table 2.) The education components of the key state laws--those of Oregon, Texas, and Washington--vary in terms of targeted group and frequency of training. The return-to-play requirements of the key state laws vary with respect to the conditions under which the requirements apply and the personnel who may authorize return to play. All three state laws include requirements for education on concussion, but they vary in the groups targeted and the content and frequency of the education. The educational requirements of the Oregon law are targeted at coaches. In addition to coaches, the Texas law specifies that additional persons--such as athletic trainers, sponsors of extracurricular athletic activities, physicians who assist with activities, and athletes--also must complete an education program. The Washington law is the only one that requires that parents, in addition to coaches and athletes, receive education. The Oregon law is unique in that it requires that coaches receive education on concussion symptoms annually. The Texas and Washington laws are silent on how often coaches should complete such an education program. The Washington law is the only state law we examined that requires school districts to work with a state athletic organization to develop guidelines, forms, and educational materials. School districts in Washington worked with the Washington Interscholastic Activities Association (WIAA) to develop a document, which athletes and parents must sign annually, that contains information on the risks of concussion and on how to recognize the signs and symptoms of concussion. By signing the document, parents and athletes are acknowledging their understanding that the athlete will be removed from play or practice by the coach if he or she is suspected of having a concussion. WIAA also developed fact sheets and an educational video for coaches that describe the signs and symptoms of concussion and propose a management strategy for coaches to follow. Much of the information distributed by WIAA is modeled after CDC's Heads Up: Concussion materials. The Texas law requires the Commissioner of Education to develop and adopt a safety training program, and the Texas Commissioner of Education adopted the extracurricular athletic activity safety training program provided by the University Interscholastic League (UIL). The UIL training manual includes a section on recognizing the signs of concussion and one on reducing head and neck injuries. The latter section states that an athlete with signs of head or neck trauma should receive immediate medical attention and not be allowed to return to play or practice without permission from proper medical authorities. UIL has also developed a parent information manual that includes a section on concussion signs and management. In addition, UIL has contracted with the Brain Injury Association of America to provide to schools and coaches 25,000 palm cards for the management of sports-related concussion, which outline the protocol that every school must follow when dealing with possible head injuries that occur in practice or play of all UIL activities. The Oregon law requires that the State Board of Education establish rules regarding the required concussion education for coaches. An official from the Oregon Department of Education told us that these rules have not yet been established, as the law first applies to the 2010-2011 school year. The return-to-play requirements of the key state laws vary with respect to the conditions under which the requirements apply. The return-to-play requirements of the Texas law apply only to athletes with injuries that result in a loss of consciousness and therefore exclude many concussions. In contrast, the return-to-play requirements of the Oregon and Washington laws apply to athletes with symptoms of or suspicion of concussion. While each state law requires that an athlete removed from play receive written permission from a health care professional before returning to play, the laws vary in the types of health professionals who can provide such permission. The Texas law requires clearance from a physician, and the Oregon law requires clearance from a health care professional. The Washington law requires that an athlete suspected of having a concussion be evaluated and cleared to return to play by a health professional specifically trained in the evaluation and management of concussion. WIAA's Web site indicates that such professionals include medical doctors, doctors of osteopathy, advanced registered nurse practitioners, physicians' assistants, and licensed certified athletic trainers. According to the WIAA Web site, the organization is considering whether other licensed health care providers have sufficient training to qualify them to authorize return to play. The Oregon law is the only one of the three we reviewed that specifically prohibits an athlete removed from play or practice from returning to play or practice on the same day. Federal officials and experts we spoke with identified five sets of voluntary nationwide guidelines that address the management of concussion in sports. (See table 3.) One set specifically targets high school sports, while the other four contain broad recommendations for the management of concussion in athletes of all ages. All five sets of guidelines contain similar recommendations for assessing concussion and managing the athlete, including making return-to-play decisions. For example, all sets of guidelines recommend that an athlete suspected of sustaining a concussion should be monitored closely on the sidelines following the injury and his or her cognitive function assessed at regular intervals for signs and symptoms of deterioration--such as fluctuating levels of consciousness, balance problems, headaches, or nausea. All sets of guidelines also recommend returning an athlete to play on a gradual basis, tailored to the individual athlete's recovery and based on the athlete's signs and symptoms and the results of various concussion assessment tools, such as tests of memory, cognition, balance, and physical exertion. The set of guidelines that specifically targets high school sports, which was developed by NFHS, recommends a gradual increase in mental activity appropriate to high school students, such as attending an abbreviated school day and engaging in short periods of reading. If the athlete remains symptom-free, this is to be followed by a gradual increase in low-impact physical activity once the athlete has returned to a full school day. In addition, this set of guidelines recommends that high school athletes playing high-risk or collision sports or having a history of previous concussions should undergo tests of cognition, memory, and balance prior to the start of season to serve as a baseline in case an injury occurs. Officials from three of the organizations that developed guidelines told us that their members received information about the guidelines in a variety of ways. For example, NFHS officials told us that the association sent its set of guidelines to its member high schools upon publication and planned to include information on the management of concussion in its sports rule books, which it publishes every year for 17 sports, beginning with the 2010-2011 school year. Officials from the American College of Sports Medicine and the National Athletic Trainers' Association told us that concussion management is a frequent topic of discussion at their meetings and that their guidelines were also published in each organization's respective journal. Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions that you or other members of the committee may have. For further information about this statement, please contact Linda T. Kohn 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. Key contributors to this statement were Helene F. Toiv, Assistant Director; Kate Blackwell; George Bogart; Shana R. Deitch; Carolyn Feis Korman; and Roseanne Price. 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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Participation in school sports can benefit children but also carries a risk of injury, including concussion. Concussion is a brain injury that can affect memory, speech, and muscle coordination and can cause permanent disability or death. Concussion can be especially serious for children, who are more likely than adults both to sustain a concussion and to take longer to recover. These factors may affect return-to-play decisions, which determine when it is safe for an athlete to participate in sports again. GAO was asked to testify on concussion incurred in high school sports. This statement focuses on (1) what is known about the nationwide occurrence of concussion, (2) federal concussion prevention programs, (3) the components of key state laws related to the management of concussion, and (4) the recommendations of voluntary nationwide concussion management guidelines. To do this work, GAO conducted literature searches; reviewed injury databases, state laws, and documents from federal agencies and organizations that conduct work in high school athletics or sports medicine; and interviewed federal officials and experts who identified key state laws and nationwide guidelines and provided other information. GAO shared the information in this statement with the relevant federal agencies. GAO identified three national databases that, as part of broader data collection efforts, collect information on the occurrence of concussion in high school sports, but they do not provide an overall national estimate of occurrence. Although the High School Reporting Information Online database provides national estimates of occurrence of concussion, it covers only 20 sports for high schools with certified athletic trainers. It may underestimate occurrence because some athletes may be reluctant to report symptoms of a possible concussion to avoid being removed from a game. The Consumer Product Safety Commission's (CPSC) National Electronic Injury Surveillance System provides national estimates only on concussions treated in an emergency room. The National Center for Catastrophic Sports Injury Research database provides information only on cases of concussion with serious complications and cannot provide national estimates of the occurrence of all concussions. The Centers for Disease Control and Prevention's program, Heads Up: Concussion in High School Sports, which began in September 2005, is the primary federal prevention program directed toward concussion. In addition, CPSC carries out prevention initiatives that include distributing educational materials, but these initiatives are directed more broadly at sports and recreation safety, such as appropriate helmets for football, baseball, and bicycling. The three key laws regarding the management of concussion in high school sports that were identified by federal officials and experts--those of Oregon, Texas, and Washington--all address concussion education and return to play, but their specific requirements vary. The education requirements vary with respect to who is to receive the education. For example, the Washington law targets coaches, athletes, and parents, while the Oregon law targets coaches only. There is also variation with respect to the content and frequency of education. The return-to-play requirements vary in the conditions under which athletes may return to play and in who may authorize it. For example, the Texas requirements apply specifically to athletes who lose consciousness, which excludes many concussions, and the Washington law requires return-to-play authorizations to be made by health professionals specifically trained in the evaluation and management of concussion. GAO found five sets of voluntary nationwide guidelines, which were developed by organizations that conduct work in high school athletics or sports medicine, that address the management of concussion in high school sports. All recommend monitoring an athlete with a concussion on the sidelines and assessing cognitive function regularly for signs of deterioration. All guidelines also recommend returning an athlete to play on a gradual basis, tailored to an individual's recovery and based on symptoms and the results of memory, cognition, and balance tests
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VA's disability compensation program pays monthly cash benefits to eligible veterans who have service-connected disabilities resulting from injuries or diseases incurred or aggravated while on active military duty. The benefit amount is based on the veteran's degree of disability, regardless of employment status or level of earnings. A veteran starts the claims process by submitting a disability compensation claim to one of the 57 regional offices administered by VBA (see fig. 1). In the average disability compensation claim, the veteran claims about five disabilities. For each claimed disability, the regional office adjudicator must develop evidence and determine whether each disability is connected to the veteran's military service. The adjudicator then applies the medical criteria in VA's Rating Schedule to evaluate the degree of disability caused by each service-connected disability, and then the adjudicator determines the veteran's overall degree of service- connected disability. If a veteran disagrees with the adjudicator's decision on any of the claimed disabilities, the veteran may file a Notice of Disagreement. If the regional office is unable to resolve the disagreement to the veteran's satisfaction, the veteran may appeal to the Board. A veteran can dispute a decision not only if the regional office denies benefits by deciding that an impairment claimed by the veteran is not service-connected. Even for a claimed impairment found to be service-connected, the veteran may dispute the severity rating that the regional office assigns to the impairment and ask for an increase in the rating. During fiscal years 2003 and 2004, respectively, the regional offices made about 715, 000 and 598,500 decisions involving disability compensation claims. According to VBA, during fiscal years 2003 and 2004, respectively, veterans submitted Notices of Disagreement in about 13.4 and 14.5 percent of all decisions involving disability ratings, and of the veterans who filed Notices of Disagreement, about 34.9 and 44.4 percent went on to submit appeals to the Board. Assisted by 240 staff attorneys, the Board's 52 veterans law judges decide veterans' appeals on behalf of the Secretary. The Board has full de novo review authority and gives no deference to the regional office decision being appealed. The Board makes its decisions based on only the law, VA's regulations, precedent decisions of the courts, and precedent opinions of VA's General Counsel. During the appeals process, the veteran or the veteran's representative may submit new evidence to the Board and request a hearing. In fiscal year 2004, for all VA programs, the Board decided about 38,400 appeals, of which about 94 percent (35,900) were appeals of disability compensation cases that contained an average of 2.2 contested issues per case. In any given case, the Board might grant the requested benefits for one issue but deny benefits for another. In some instances, the Board may find that a case is not ready for a final decision and return (or remand) the case to VBA for rework, such as obtaining additional evidence and reconsidering the veteran's claim. If VBA still does not grant the requested benefits after obtaining the additional evidence, it returns the case to the Board for a final decision. Of the appeals involving compensation cases decided during fiscal year 2004, the Board reported that it granted requested benefits for at least one issue in about 18 percent of the cases, denied all requested benefits in about 23 percent of the cases, and remanded about 58 percent of the cases to VBA for rework. Effective February 22, 2002, VA issued a new regulation to streamline and expedite the appeals process. Previously, the Board had remanded all decisions needing rework directly to VBA's regional offices. The new regulation, however, allowed the Board to obtain evidence, clarify evidence, cure a procedural defect, or perform almost any other action essential for a proper appellate decision without having to remand the appeal to the regional office. It also allowed the Board to consider additional evidence without having to refer the evidence to the regional office for initial consideration and without having to obtain the appellant's waiver. According to the Board, this change in the process reduced the time required to provide a final decision to the veteran on an appeal, allowed regional offices to use more resources for processing initial claims rather than remands, and virtually eliminated multiple remands on the same case to the regional offices. However, in May 2003, the U.S. Court of Appeals for the Federal Circuit held that the Board could not, except in certain statutorily authorized exceptions, decide appeals in cases in which the Board had developed evidence. As a result, VA established a centralized Appeals Management Center within VBA in Washington, D.C., to take over evidence development and adjudication work on remands. If the Board denies requested benefits or grants less than the maximum benefit available under the law, veterans may appeal to the U. S. Court of Appeals for Veterans Claims, an independent federal court. Unlike the Board, the court may not receive new evidence. It considers only the Board's decision; briefs submitted by the veteran and VA; oral arguments, if any; and the case record that VA considered and that the Board had available. In cases decided on merit (cases not dismissed on procedural grounds), the court may (1) reverse the Board's decision (grant contested benefits), (2) affirm the Board's decision (deny contested benefits) or (3) remand the case back to the Board for rework. Of the 3,489 cases decided on merit during fiscal years 2003-2004, the court reversed or remanded in part or in whole about 88 percent of the cases. Under certain circumstances, a veteran who disagrees with a decision of the court may appeal to the U.S. Court of Appeals for the Federal Circuit and then to the Supreme Court of the United States. The Board of Veterans' Appeals has taken action to strengthen its internal system for reviewing the quality of its own decisions. Specifically, the Board has taken steps to improve its quality review system's sampling methodology and to avoid obscuring serious errors by mixing them with less significant deficiencies. We found, however, that the Board still needs to revise its formula for calculating accuracy rates in order to avoid potentially misleading accuracy rates. During our 2002 evaluation, we reviewed the Board's methods for selecting random samples of Board decisions and calculating accuracy rates for its decisions. We found that the number of decisions reviewed was sufficient to meet the Board's goal for statistical precision in estimating its accuracy rate. However, we pointed out some Board practices that might result in misleading accuracy rates. These practices included not ensuring that decisions made near the end of the fiscal year were sampled and not properly weighting quality review results in the formula used to calculate accuracy rates. At the time of our 2002 report, the Board had agreed in principle to correct these practices. We found in our most recent work that the Board took corrective action in fiscal year 2002 to assure that decisions made near the end of the fiscal year were sampled. The quality review program now selects every 20th original decision made by the Board's veterans law judges and every 10th decision they make on cases remanded by the court to the Board for rework. However, we found that the Board had not revised its formula for calculating accuracy rates in order to properly weight the quality review results for original decisions versus the results for decisions on remanded cases. We determined that, even if this methodological error had been corrected earlier, the accuracy rate reported by the Board for fiscal year 2004 (93 percent) would not have been materially different. However, to avoid the potential for reporting a misleading accuracy rate in the future, corrective action needs to be taken, and the Board agreed to correct this issue in the very near future. In our 2002 evaluation, we also found that the Board included nonsubstantive deficiencies (errors that would not be expected to result in either a remand by the court or a reversal by the court) in calculating its reported accuracy rates. We concluded that the reported accuracy rates understated the level of accuracy that would result if the Board, like VBA, counted only substantive deficiencies in the accuracy rate calculation. VBA had ceased counting nonsubstantive deficiencies in its error rate after the VA Claims Processing Task Force said in 2001 that mixing serious errors with less significant deficiencies could obscure what is of real concern. Similarly, we recommended that the Board's accuracy rates take into account only those deficiencies that would be expected to result in a reversal or a remand by the court. In fiscal year 2002, the Board implemented our recommendation. Also, during the course of our 2002 evaluation of the quality review program, we brought to the Board's attention the governmental internal control standard calling for separation of key duties and the governmental performance audit standard calling for organizational independence for agency employees who review and evaluate program performance. These issues arose because certain veterans law judges who were directly involved in deciding veterans' appeals were also involved in reviewing the accuracy of such decisions. The Board took corrective actions during our review in May 2002 to resolve these issues so all quality reviews from which accuracy rates are determined are done by persons not directly involved in deciding veterans' appeals. In 2002, we also found that the Board collected and analyzed issue-specific data on the reasons that the Court remanded decisions to the Board in order to provide feedback and training to the Board's veterans law judges; however, the Board did not collect issue-specific data on the errors that its own quality reviewers found in decisions of the Board's veterans law judges. We recommended that the Board revise its quality review program to begin collecting such issue-specific error data in order to identify training that could help improve decision quality. In April 2005, the Board said it did not implement this recommendation because it believes the benefits would be too limited to justify the substantial reprogramming of the data system that would be required to collect issue-specific data. The Board also pointed out that the issue-specific data captured for court remands have not proved to be as useful as it had expected in identifying ways to provide training that could reduce court remands. Adjudicator judgment is an inherent factor in deciding disability claims, and it introduces the potential for variation in the process. Part of assessing inconsistency, as we recommended in 2002, would include determining acceptable levels of variation for specific types of disabilities. In late 2004, in response to adverse media reports, VA initiated its first study of consistency. Such studies are the first step in determining the degree of variation that occurs and what levels of variation are acceptable. Adjudicators often must use judgment in making disability decisions. Judgment is particularly critical when the adjudicator must (1) assess the credibility of different sources of evidence; (2) evaluate how much weight to assign different sources of evidence; or (3) assess some disabilities, such as mental disorders, for which the disability standards are not entirely objective and require the use of professional judgment. In such cases, two adjudicators reviewing the same evidence might make differing judgments on the meaning of the evidence and reach different decisions, neither of which would necessarily be found in error by any of VA's quality reviewers. For example, in an illustration provided by the Board, consider a disability claim that has two conflicting medical opinions, one provided by a medical specialist who reviewed the claim file but did not examine the veteran, and a second opinion provided by a medical generalist who reviewed the file and examined the veteran. One adjudicator could assign more weight to the specialist's opinion, while another could assign more weight to the opinion of the generalist who examined the veteran. Depending on which medical opinion is given more weight, one adjudicator could grant the claim and the other could deny it. Yet, a third adjudicator could apply VA's "benefit-of-the-doubt" rule and decide in favor of the veteran. Under this rule, if an adjudicator concludes that there is an approximate balance between the evidence for and the evidence against a veteran's claim, the adjudicator must decide in favor of the veteran. In the design of their quality review systems, VBA and the Board acknowledge the fact that, in some cases, different adjudicators reviewing the same evidence can make differing, but reasonable, judgments on the meaning of the evidence. As a result, VBA and the Board instruct their quality reviewers that when they review a decision, they are not to record an error merely because they would have made a different decision than the one made by the adjudicator. VBA and the Board instruct their quality reviewers to not substitute their own judgment in place of the original adjudicator's judgment if the adjudicator's decision is adequately supported and reasonable. Another example provided by the Board demonstrates how adjudicators must make judgments about the degree of severity of a disability. VA's disability criteria provide a formula for rating the severity of a veteran's occupational and social impairment due to a variety of mental disorders. This formula is a nonquantitative, behaviorally oriented framework for guiding adjudicators in choosing which of the degrees of severity shown in table 1 best describes the claimant's occupational and social impairment. Similarly, VA does not have objective criteria for rating the degree to which certain spinal impairments limit a claimant's motion. The adjudicator must assess the evidence and decide whether the limitation of motion is "slight, moderate, or severe." To assess the severity of incomplete paralysis, the adjudicator must decide whether the veteran's paralysis is "mild, moderate, or severe." The decision on which severity classification to assign to a claimant's condition could vary in the minds of different adjudicators, depending on how they weigh the evidence and how they interpret the meaning the of the different severity classifications. Consequently, it would be unreasonable to expect that no decision-making variations would occur. But it is reasonable to expect the extent of variation to be confined within a range that knowledgeable professionals could agree is reasonable, recognizing that disability criteria are more objective for some disabilities than for others. For example, if two adjudicators were to review the same claim file for a veteran who has suffered the anatomical loss of both hands, VA's disability criteria state unequivocally that the veteran is to be given a 100 percent disability rating. Therefore, no variation would be expected. However, if two adjudicators were to review the same claim file for a veteran with a mental disability, knowledgeable professionals might agree that it would not be out of the bounds of reasonableness if one adjudicator gave the claimant a 50 percent disability rating and the other adjudicator gave a 70 percent rating. However, knowledgeable professionals might also agree that it would be clearly outside the bounds of reasonableness if one adjudicator gave the claimant a 30 percent rating and the other, a 100 percent rating. Although the issue of decision-making consistency is not new, VA only recently began to study consistency issues. In a May 2000 testimony before the House Subcommittee on Oversight and Investigations, Committee on Veterans' Affairs, we underscored the conclusion made by the National Academy of Public Administration in 1997 that VBA needed to study the consistency of decisions made by different regional offices, identify the degree of subjectivity expected for various medical issues, and then set consistency standards for those issues. In August 2002, we drew attention to the fact that there are wide disparities in state-to-state average compensation payments per disabled veteran, and we voiced the concern that such variation raises the question of whether similarly situated veterans who submit claims to different regional offices for similar conditions receive reasonably consistent decisions. In January 2003, we reported that concerns about consistency had contributed to GAO's designation of the VA disability program as high-risk in 2003. Again, in November 2004, we highlighted the need for VA to develop plans for studying consistency issues. Most recently, in December 2004, the media drew attention to the wide variations in the average disability compensation payment per veteran in the 50 states and published data showing that the average payments varied from a low of $6,710 in Ohio to a high of $10,851 in New Mexico. Reacting to these media reports, in December 2004, the Secretary instructed the Inspector General to determine why average payments per veteran vary widely from state to state. As of February 2005 the Office of Inspector General planned to use data obtained from VBA for all regional offices to identify factors that may explain variations among the regional offices. In March 2005, VBA began a study of three disabilities believed to have potential for inconsistency: hearing loss, post-traumatic stress disorder, and knee conditions. VBA assigned 10 subject matter experts to review 1,750 regional office decisions and plans to complete its analysis of study data in mid-May 2005, develop a schedule for future studies of specific ratable conditions, and recommend a schedule for periodic follow-up studies of previously studied conditions. In our 2002 report, we recommended that VA establish a system to regularly assess and measure the degree of consistency across all levels of VA adjudication, including regional offices and the Board, for specific medical conditions that require adjudicators to make difficult judgments. For example, we said VA could create hypothetical claims for certain medical conditions, distribute the claims to multiple adjudicators at each decision-making level, and analyze variations in outcomes. Such a system would identify variation in decision making and provide a basis to identify ways, if considered necessary, to reduce variation through training or clarifying and strengthening regulations, procedures, and policies. Although VA agreed in principle with our recommendation and agreed that consistency is an important goal, it commented that it would promote consistency through training and communication. We support such efforts but still believe VA needs to directly evaluate and measure consistency across all levels of adjudication. Otherwise, VA cannot determine whether such training and other efforts are directed at the causes of inconsistency and whether such efforts actually improve consistency. In our November 2004 report, we found that VBA's administrative data was insufficient to analyze inconsistency because we could not reliably use the data to identify decisions made after fiscal year 2000, identify the regional offices that made the original decisions, or determine service- connection denial rates for specific impairments. However, in October 2004, VBA completed its implementation of a new nationwide data system, known as Rating Board Automation (RBA) 2000. VA said this new system could reliably collect the types of data needed to perform the analyses we sought to do. Therefore, we recommended that the Secretary of Veterans Affairs develop a plan, and include it in VA's annual performance plan, containing a detailed description of how VA intended to use data from the new RBA 2000 information system. We recommended that VA conduct systematic studies of the impairments for which RBA 2000 data reveal indications of decision-making inconsistencies among regional offices. VA concurred with our recommendation. Because the new RBA 2000 data system had been recently implemented, we acknowledged that VA could not implement such a plan until it accumulated a sufficiently large body of data under the new system. In our judgment, at least one year of data would be needed to begin such a study. While we believe the studies recently begun by the Office of Inspector General and VBA are positive steps forward in addressing consistency issues, the RBA 2000 data system, if found to be reliable, can provide VA with the data needed to proactively and systematically target specific impairments that have the widest variations in decision-making outcomes among the regional offices and focus VA's efforts to study reasons for variations on those impairments. Building in such analytical capability to augment its quality assurance program would help enhance program integrity and better assure that veterans' disability decisions are made fairly and equitably. Mr. Chairman, this concludes my remarks. I would be happy to answer any questions you or the members of the subcommittee may have. For further information, please contact Cynthia A. Bascetta at (202) 512- 7101. Also contributing to this statement were Irene Chu, Ira Spears, Martin Scire, and Tovah Rom. Veterans Benefits: VA Needs Plan for Assessing Consistency of Decisions. GAO-05-99. Washington, D.C.: November 19, 2004. High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 2003. Veterans' Benefits: Quality Assurance for Disability Claims and Appeals Processing Can Be Further Improved. GAO-02-806. Washington, D.C.: August 16, 2002. SSA and VA Disability Programs: Re-Examination of Disability Criteria Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.: August 9, 2002. Veterans Benefits Administration: Problems and Challenges Facing Disability Claims Processing. GAO/T-HEHS/AIMD-00-146. Washington, D.C.: May 18, 2000. 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 House Subcommittee on Disability Assistance and Memorial Affairs asked GAO to update a 2002 study to determine what VA has done to (1) correct reported weaknesses in methods used by the Board to select decisions for quality review and calculate the accuracy rates reported by the Board and (2) address the potential for inconsistency in decision-making at all levels of adjudication in VA, including VA's 57 regional offices and the Board. GAO said in 2002 that VA had not studied consistency even though adjudicator judgment is inherently required in the decision-making process, and state-to-state variations in the average disability compensation payment per veteran raised questions about consistency. In January 2003, in part because of concerns about consistency, GAO designated VA's disability program as high-risk. The Department of Veterans Affairs (VA) has taken steps to respond to GAO's 2002 recommendations to correct weaknesses in the methods for selecting decisions by the Board of Veterans' Appeals (Board) for quality review and calculating the accuracy rates reported by the Board. Specifically, the Board now ensures that decisions made near the end of the fiscal year are included in the quality review sample, and the Board now excludes from its accuracy rate calculations any errors that do not have the potential for resulting in a reversal by or remand from the court. GAO found that the Board had not yet revised its formula for calculating accuracy rates in order to properly weight the quality review results for original Board decisions versus the results for Board decisions on cases remanded by the court. However, GAO believes correcting this calculation method will not materially affect the Board's reported accuracy rates. VA still lacks a systematic method for ensuring the consistency of decision-making within VA as a whole, but has begun efforts to understand why average compensation payments per veteran vary widely from state to state. These efforts include studies underway by VA's Office of Inspector General and the Veterans Benefits Administration, which oversees the operations of VA's regional offices. Some variation is expected since adjudicators often must use judgment in making disability decisions, but VA faces the challenge of determining whether the extent of variation is confined within a range that knowledgeable professionals could agree is reasonable.
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To encourage employers to sponsor retirement plans for their employees, the federal government provides preferential tax treatment under the Internal Revenue Code (IRC) for plans that meet certain requirements. In addition, the Employee Retirement Income Security Act of 1974 (ERISA), as amended, sets forth certain protections for participants in private- sector retirement plans, including fiduciary responsibilities that may apply to plan sponsors, which establish certain standards of conduct for those that manage employee benefit plans and their assets. Small employers may choose a plan for their employees from one of three categories: employer-sponsored IRA plans; defined contribution (DC) plans; and defined benefit (DB) plans (often referred to as traditional pension plans). Employer-sponsored IRA plans, which can be either Savings Incentive Match Plans for Employees (SIMPLE) or Simplified Employee Pension (SEP) plans, generally allow employers and, in SIMPLE IRA plans, employees, to make contributions to separate IRA accounts for each participating employee. Employers generally have fewer administration and reporting requirements compared to other types of plans. The second plan category--DC plans--which includes 401(k) plans, allows employers, employees, or both to contribute to individual employee accounts within the plan. DC plans tend to have higher contribution limits for employees than employer-sponsored IRA plans; however, they also have more reporting requirements and other rules; for example, they may be subject to requirements for nondiscrimination testing or top-heavy testing. The third category is DB plans, which promise to provide a specified retirement benefit to employees; the employer is generally responsible for funding the plan. Over the years, Congress has responded to concerns about lack of access to employer-sponsored retirement plans for employees of small employers with legislation to lower costs, simplify requirements, and ease administrative burden. For example, the Revenue Act of 1978 and the Small Business Job Protection Act of 1996 established the SEP IRA plan and the SIMPLE IRA plan respectively, featuring fewer administration requirements than other plan types. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) also included a number of provisions that affected small employers, which were made permanent by the Pension Protection Act of 2006 (PPA). The PPA also established additional provisions that support retirement plan participation by rank- and-file employees, such as automatic enrollment. Federal agencies also play a role in fostering retirement plan sponsorship by small employers. To help encourage sponsorship, federal agencies conduct education and outreach activities and provide information about retirement plans for small employers. Labor, IRS, and SBA--which maintains an extensive network of field offices--have collaborated with each other and with national and local organizations to develop information on small employers retirement plans and conduct outreach with small employers. Various private-sector service providers--from individual accountants, investment advisers, recordkeepers, and actuaries to insurance companies and banks--assist sponsors with their retirement plans. Some sponsors hire a single provider that offers a range of plan services for one fee, sometimes referred to as a "bundled" services arrangement. Other sponsors hire different providers for individual services under an "unbundled" arrangement, paying a separate fee for each service. Plan services include legal, accounting, trustee/custodial, recordkeeping, actuarial (for defined benefit plans), investment management, investment education, or advice. Service providers can also assist with plan administration functions, including any required testing and filing of government reports. We found that the number of employees and average wages greatly influence the likelihood that a small employer will sponsor a retirement plan. Further, our regression analysis using Labor and IRS data found that small employers with larger numbers of employees were the most likely of all small employers to sponsor a plan, as were those paying average annual wages of $50,000-$99,999. Conversely, employers with the fewest employees and the lowest average annual wages were very unlikely to sponsor a plan. A separate analysis we conducted using Labor and IRS data found an overall small employer sponsorship rate of 14 percent in 2009. important to note, however, that this sponsorship rate does not include small employers that sponsor SEP IRA plans because IRS currently does not have a means to collect data on employers that sponsor this plan type. Further examination found that small employers with 26 to 100 employees had the highest sponsorship rate--31 percent--while small employers with 1 to 4 employees had the lowest rate--5 percent (See fig 1). The sponsorship rate cited in this testimony is limited to single employers that sponsor a plan. Consequently, the rate does not include small employers that participated only in multiple employer plans or multiemployer plans, which are outside the scope of this study. We are currently conducting ongoing work on these plan types and their role in the private pension system. According to our analysis of Labor and IRS data, 401(k) and SIMPLE IRA plans were overwhelmingly the most common types of plans sponsored by small employers. Out of slightly more than 712,000 small employers that sponsored a single type of plan, about 86 percent sponsored either a 401(k) or a SIMPLE IRA plan.types sponsored by small employers. Small employers and other stakeholders we interviewed identified various plan options, administration requirements, fiduciary responsibilities, and top-heavy testing requirements as complex and burdensome--often citing these factors as barriers to sponsoring retirement plans or as reasons for terminating them. Plan options and administration requirements: Small employers and other stakeholders said that plan options and administration requirements are frequently complex and burdensome and discourage some small employers from sponsoring a plan. For example, some small employers and retirement experts said that the broad range of plan types and features makes it difficult for small employers to compare and choose a plan that best meets their needs. Some stakeholders also described the administrative burden on small employers of plan paperwork, such as reviewing complicated quarterly investment reports or complying with federal reporting requirements--like those associated with required annual statements--as particularly burdensome. Fiduciary responsibilities: A number of stakeholders indicated that understanding and carrying out a sponsor's fiduciary responsibilities with respect to managing or controlling plan assets presents significant challenges to some small employers.found the selection of investment fund choices for their plans particularly challenging. Further, 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 responsibilities under the law. Top-heavy requirements: Top-heavy requirements are more likely to affect smaller plans (those with fewer than 100 participants) than larger ones, according to IRS. A number of stakeholders said compliance with requirements is often burdensome and poses a major barrier to small According to some experts, some small employer plan sponsorship. employers with high employee turnover may face an even greater likelihood of becoming top-heavy as they replace departing employees while key employees--such as business owners or executives--continue to contribute to the plan. A number of stakeholders stated that compliance with top-heavy rules is confusing and can pose significant burdens on some small employers. For example, some retirement experts said that small employers whose plans are found to be top-heavy may encounter a number of additional costs in the effort to make their plans compliant. These plans can incur additional costs associated with hiring a plan professional to make corrections to plan documents and instituting a minimum top-heavy employer contribution for all participating rank-and- file employees. While sponsors can avoid top-heavy testing by adopting a safe harbor 401(k) plan that is not subject to top-heavy requirements, experts pointed out that the employer contributions required for such plans may offset the advantages of sponsoring such a plan. Federal agencies provide guidance that can assist small employers in addressing some of the challenges they face in starting and maintaining retirement plans. Labor and IRS, often in collaboration with SBA, have produced publications, conducted workshops, and developed online resources, among other efforts, to assist small employers. However, a number of stakeholders, including the IRS Advisory Committee on Tax Exempt and Government Entities, indicated that many small employers are unaware of federal resources on retirement plans, which may, in part, be due to difficulties in finding useful, relevant information across a number of different federal websites. For example, IRS's Retirement Plans Navigator, a web-based tool designed to help small employers better understand retirement plan options, is located on a separate website from the rest of the agency's online plan resources for small employers. Furthermore, Labor and IRS each present retirement plan information separately on their respective websites. Neither agency maintains a central web portal for all information relevant to small employer plan sponsorship, though such portals exist for federal information resources in other areas such as healthcare. Small employers that lack sufficient financial resources, time, and personnel, such as smaller or newer firms, may be unwilling or unable to sponsor plans. Financial resources: Small employers, especially those with lower profit margins or an unstable cash flow, could be less willing or less able to sponsor a retirement plan. One-time costs associated with starting a plan and the ongoing costs involved with maintaining the plan--as well as any requirement to match employee contributions or make mandatory contributions to an employee's account--were cited as barriers to plan sponsorship. Further, small employers we interviewed stated that general economic uncertainty makes them reluctant to commit to such long-term expenses and explained that they needed to reach a certain level of profitability before they would consider sponsoring a plan. Time and personnel: Some small employers stated they may not have sufficient time to administer a plan themselves or lacked the personnel to take on those responsibilities. Further, small employers may not have time to develop the expertise needed to investigate and choose financial products, select the best investment options, or track their performance. For example, one small employer described how business owners without the financial expertise to compare and select from among different plan options would likely find the experience intimidating. Some small employers we interviewed stated that they may be less likely to sponsor a retirement plan if they do not perceive sufficient benefits to the business or themselves. For example, several small employers stated that their firms sponsored plans in order to provide owners with a tax- deferred retirement savings vehicle and one employer described how the firm annually assesses the plan to determine if it continues to benefit the owners. Additionally, a number of small employers stated that employees prioritized healthcare benefits over retirement benefits. Some small employers, such as those who described having younger or lower paid workforces, stated that their employees were less concerned about saving for retirement or were living paycheck to paycheck and did not have funds left over to contribute to a plan. As a result, both types of workers were not demanding retirement benefits. A number of small employers indicated that they use plan service providers to address various aspects of plan administration, which enabled them to overcome some of the challenges of starting and maintaining a plan. For example, one employer noted that her business would not have the time or the expertise to administer its plan without the help of a service provider. While some service providers said they offer affordable plan options and some small employers said the fees service providers charge were affordable, others said they were too high. Further, some stakeholders pointed to other limitations of using service providers, such as the difficulties of choosing providers, setting up a new plan through a provider, switching from one provider to another, as well as the significant responsibilities that may remain with the sponsor, such as managing plan enrollments and separations and carrying out their fiduciary duties, where applicable. Stakeholders proposed several options to address some of the administrative and financial challenges that inhibit plan sponsorship. These options included simplifying plan administration rules, revising or eliminating top-heavy testing requirements, and increasing tax credits. Simplify plan administration requirements: Some stakeholders suggested options that could simplify plan administration requirements. Options included reducing the frequency of statements sent to plan participants and allowing some required disclosures to be made available solely online. IRS officials stated that the agency is also considering proposals to replace a requirement for some interim amendments which stakeholders have identified as a burden for some small employers--with a requirement for notices to be sent directly to employees, which would reduce the number of times plan documents must be amended and submitted to IRS. Revise or eliminate top-heavy testing: A number of stakeholders proposed revising or eliminating top-heavy testing requirements to ease administrative and financial burdens. For example, representatives of the accounting profession told us that top-heavy testing is duplicative because other plan testing requirements help detect and prevent plan discrimination against rank-and-file employees. Representatives of a large service provider told us that lack of plan participation or high turnover among a business' rank-and file employees frequently cause plans sponsored by small employers to become top-heavy. When statutes and regulations change, some sponsors may be required to modify plan documentation and submit it to IRS. Each year since 2004, IRS has published a cumulative list of changes in plan requirements that must be incorporated by plan sponsors. See, for example, IRS Notices 2011-97. Increase tax credits: Some stakeholders believed that tax credits, in general, are effective in encouraging plan sponsorship, but other stakeholders said that the current tax credit for starting a plan is insufficient. A national organization representing small employers cited tax credits as a top factor in an employer's decision to sponsor a plan, adding that an employer's willingness to start a plan depends, to some degree, on the extent to which the tax credit offsets plan-related costs.Similarly, some small employers stated that larger tax credits could ease the financial burden of starting a plan by offsetting plan-related costs. Additionally, one small employer said the incentive needs to be larger as sponsorship costs can amount to $2,000 or more per year. Numerous stakeholders agreed that the federal government could increase education and outreach efforts to inform small employers about plan options and requirements; however, opinions varied on the appropriateness of the federal government's role in these efforts. Officials of a service provider to small employers stated that, because clients are generally not aware of the retirement plan options available to them, the federal government should offer more education and outreach to improve awareness of the types of plans that are available and the rules that apply to each. Several small employers also offered ideas. For example, a small employer said the federal government should focus education and outreach efforts on service providers instead of on small employers. Conversely, some small employers said the federal government should have a limited role or no role in providing education and outreach efforts. Domestic pension reform proposals from public policy organizations, as well as practices in other countries, include features such as asset pooling that could reduce the administrative and financial burdens of small employers. For example, one domestic proposal calls for the creation of a federally managed and federally guaranteed national savings plan. Under this proposal, participation in the program would generally be mandatory for workers; both employers and employees would contribute to the plan; and plan funds would be pooled and professionally managed. By pooling funds, plan administration would be simplified and administrative costs and asset management fees would be reduced. In addition, Automatic IRAs--which are individual IRAs instead of employer-sponsored plans--are another proposal that draws from several elements of the current retirement system: payroll-deposit saving, automatic enrollment, and IRAs. Such a proposal would provide employers who do not sponsor any retirement plans with a mechanism that allows their employees to save for retirement. However, as we reported in 2009, such proposals pose trade-offs. For example, although a proposal that mandates participation would increase plan sponsorship and coverage for workers, employers might offset the resulting sponsorship costs by reducing workers' wages and other benefits. Retirement systems in other countries also use asset pooling and other features that help reduce administrative and financial burdens for small employers. For example, as we previously reported, the predominant pension systems in the Netherlands and Switzerland pool plan assets into pension funds for economies of scale and for lower plan fees. The United Kingdom's National Employment Savings Trust (NEST) features low fees for participating employers and employees and default investment strategies for plan participants. With a significant portion of the private-sector workforce not covered by a pension plan at any one time, retirement security remains a critical issue for our nation. Based on the limited data available, we found the rate of plan sponsorship among small employers, a segment of the economy which employs about one third of all private sector workers, was only 14 percent in 2009. Although one would expect that the high churn rate of small business formation and dissolution would impede small employer plan sponsorship, it also means that many millions of workers in this sector are without access to an employer-sponsored retirement savings plan. Thus, while remaining sensitive to the financial challenges currently facing our nation, expanding coverage among small employers should be an important consideration of national strategies seeking to strengthen the pension component of retirement income security. Our discussions with small employers and other stakeholders identified a variety of challenges small employers face in sponsoring retirement plans. One initial problem is the inability of small employers to easily obtain useful information on how to establish and maintain plans. Although Labor and IRS already provide small employers with considerable online information about retirement plans, information is scattered across multiple federal websites and portals in a largely uncoordinated fashion, making it difficult for busy employers to navigate and locate what they need. However, even if federal information about retirement plans were more accessible to small employers, our interviews with small employers identified a number of other significant challenges to plan sponsorship, including plan administration requirements that are perceived to be unduly complicated and burdensome, not having sufficient financial and personnel resources to sponsor a plan, and insufficient incentives to create and maintain a plan. These challenges, while very real, are also complex and in many instances may not lend themselves to easy answers. Because the expertise to address these issues is spread across multiple agencies and departments that may not always communicate or work together effectively on these issues, there is the potential that inertia and other competing priorities will push these issues onto the back burner. The report we are issuing today recommends the creation of a multiagency task force, to be overseen by the Department of Labor, that would explore and analyze these challenges in greater detail, including ways to make information more accessible, to streamline reporting and disclosure requirements in a thoughtful manner, and to identify the appropriateness and effectiveness of existing and proposed tax incentives and plan designs to boost sponsorship among small employers. Such a task force could help jump-start sustained action on what we consider to be an essential element of our nation's retirement security challenge and initiate a national dialogue on the critical issues of pension coverage Finally, federal agencies' ability to address the challenges to small employer plan sponsorship depends in part on the availability of relevant, timely, and complete data. During our work in estimating the extent of small employer plan sponsorship, we found that complete data on small employer plan sponsorship did not exist because IRS did not have the means to collect information on employers that sponsor SEP IRA plans. Although there are about 1.5 million SEP IRAs, many of these may be sponsored by larger businesses, and we simply do not know the distribution of these plans across all employers. Without a complete picture of small employer plan sponsorship rates, agencies may find it difficult to effectively target their research and outreach efforts. Thus, in our report we also recommend that the Secretary of the Treasury direct the Commissioner of the Internal Revenue Service to consider modifying existing tax forms, such as Forms W-2 or 5498, to gather complete and reliable information about these plan types. Although the challenges that small employers face in sponsoring plans are significant, they can be addressed and with appropriate federal action and cooperation, as well as assistance from the service provider community. While the Department of Treasury, IRS, Labor, SBA, and the Department of Commerce generally agreed with our findings and conclusions, Labor disagreed with our recommendation to create a single web portal for federal guidance on retirement plans for small employers. Because federal resources are scattered across different sites, we believe consolidating plan information onto one web portal can benefit small employers. A complete discussion of our recommendations, Labor's comments, and our response are provided in our full report. Chairman Kohl and Ranking Member Corker, and Members of the Committee, this concludes my prepared remarks. I am happy to answer any questions that you or other members of the committee may have. For further questions on this testimony, please contact me at (202) 512-7215. Individuals making key contributions to this testimony include Edward Bodine, Kun-Fang Lee, David Lehrer, and David Reed. 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 challenges that small employers face when sponsoring retirement plans for their workers. About 42 million workers, or about one third of all private-sector employees, work for employers with less than 100 employees and recent federal data suggest many of these workers lack access to a work-based retirement plan to save for retirement. An estimated 51 to 71 percent of workers at employers with less than 100 workers do not have access to a work-based retirement plan, compared to an estimated 19 to 35 percent of those that work for employers with 100 or more workers. Small employers face a number of barriers to starting and maintaining a plan for their workers. Certain characteristics associated with small employers may contribute to the challenges of sponsoring a plan. For example, in 2008, we reported on challenges that can limit small employer sponsorship of Individual Retirement Arrangement (IRA) plans, including administrative costs, contribution requirements, and eligibility based on employee tenure and compensation, among others. Additionally, federal data suggest that about half of all new businesses (nearly all of which are small) do not survive for more than 5 years. This testimony is based on our report released today that examines (1) the characteristics associated with small employers that are more or less likely to sponsor a retirement plan, (2) challenges small employers face in establishing and maintaining a retirement plan, and (3) options that exist to address those challenges and increase small employer sponsorship. We found that the likelihood that a small employer will sponsor a retirement plan largely depends on the size of the employer's workforce and the workers' average wages. Small employers, retirement experts, and other stakeholders also identified a number of challenges-- such as plan complexity and resource constraints--to starting and maintaining retirement plans. In addition, stakeholders offered options for addressing some challenges to plan sponsorship, which included simplifying federal requirements for plan administration and increasing the tax credit for plan startup costs. Although Labor, IRS, and the Small Business Administration (SBA) collaborate in conducting education and outreach on retirement plans, agencies disseminate information online through separate websites and in a largely uncoordinated fashion. In addition, IRS currently does not have the means to collect information on employers that sponsor a certain type of IRA plan. As a result of our findings, we are recommending efforts for greater collaboration among federal agencies to foster small employer plan sponsorship and more complete collection of IRA plan sponsorship data.
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The first federal effort to publicly display comprehensive data on federal awards was USAspending.gov. Among other things, the Federal Funding Accountability and Transparency Act of 2006 (FFATA) required OMB to establish a free, publicly accessible website containing data on federal awards no later than January 1, 2008. In addition, OMB was required to include data on subawards by January 1, 2009. The act specified a number of required data fields, including the recipient's name, funding agency, amount of award, and a descriptive title. The act also authorized OMB to issue guidance and instructions to federal agencies for reporting award information and requires agencies to comply with that guidance. OMB launched USAspending.gov to meet the act's requirements, relying primarily on federal sources of information. In 2010, we reported on compliance with FFATA's requirements. In that report we presented several key findings, including: OMB had satisfied six of the act's nine requirements we reviewed and partially satisfied another, but did not satisfy two requirements (see appendix II for details). For example, OMB established the publicly searchable website-USAspending.gov-in December 2007. The site included the required data elements and search capabilities, and OMB guidance required periodic updates from agencies consistent with the act's requirement for timeliness. OMB partially satisfied the act's requirement to establish a pilot to test the collection of subaward data. Although it started pilots at two agencies, they were initiated after the date provided for in the act. Also, OMB had not satisfied the provision requiring the inclusion of subaward data on the website by January 2009 or the provision regarding periodic reporting to Congress. Although USAspending.gov included required grant information from 29 agencies for fiscal year 2008, it did not include grant information from 15 programs at 9 other agencies. The unlisted awards were made by large agencies, including the Department of the Treasury and General Services Administration, and smaller agencies such as the U.S. Election Assistance Commission and Japan-U.S. Friendship Commission. We reported that incomplete reporting by agencies was due in part to OMB not implementing a process to identify agencies that did not report required award information and stated that without such a process, it risked continued data gaps that limited the usefulness of the site. In a sample of 100 awards from USAspending.gov that we reviewed, each had at least one data error in a required field, consisting of either a blank data field, an inconsistency between the USAspending.gov data and agency records, or a lack of sufficient agency information to determine consistency. In 73 of the sampled awards, 6 or more of the 17 required data fields exhibited an error. Agency officials attributed the lack of sufficient information, in part, to procedures and systems that did not include documenting all of the data required by FFATA. For those awards where we had enough information to judge sufficiency, the data field with the most inconsistencies was the award title, which often lacked necessary specificity. This weakness was attributed, in part, to the lack of specific guidance from OMB and to the lack of tools to identify incomplete reports. We reported that until OMB addressed these issues, the ability of the public to find requested information and of OMB to correct errors would be limited. To address these findings, we made several recommendations to the Director of OMB. For example, we recommended that OMB revise its guidance to agencies to clarify that award titles should describe the purpose of each award and how agencies should validate and document their submitted data. We also recommended that OMB develop and implement a plan to collect and report subaward data, as well as a procedure to regularly ensure that agencies report required award information. OMB generally agreed with our findings and recommendations. Since we last evaluated FFATA compliance, OMB has taken steps to improve USAspending.gov and the quality of its data through increased agency-level accountability and government-wide improvements. First, in OMB's 2009 Open Government Directive, agencies were directed to designate a high-level senior official to be accountable for the quality of, and internal controls over, federal spending information disseminated on public websites. A list of the agency-designated officials appears on USAspending.gov. Subsequently, in an April 2010 memorandum to senior accountable officials, OMB required agencies to establish a data quality framework for federal spending information, including a governance structure, risk assessments, control activities, and monitoring program. Agencies were directed to submit plans for addressing these requirements to OMB. To address government-wide weaknesses, OMB issued guidance to agencies on improving the quality of data in the Federal Procurement Data System, a contract database that is one of the main sources of USAspending.gov data. In addition, OMB's April 2010 memo established a deadline for the agency collection of subaward data and announced technical improvements to USAspending.gov, including a move to a cloud computing environment, and a control board to coordinate policies and systems that support the collection and presentation of federal spending data. One result of these efforts is the current availability of subaward data on USAspending.gov. Agencies have also reported taking steps to improve their USAspending.gov data. For example, automated tools have been developed through interagency electronic government initiatives that are expected to improve the quality of data on grants and cooperative agreements by making it easier for agencies to regularly report their awards. Additionally, individual agencies reported efforts to improve data quality in open government plans released earlier this year. For example, the Department of Commerce established a formal process to ensure that all grant offices are reporting awards in a timely manner, and the General Services Administration developed an "Information and Data Quality Handbook" that contains a framework for consistent data management. Agencies also reported ongoing efforts to improve data quality. For example, the Department of Homeland Security plans to improve the accuracy and timeliness of data posted on USAspending.gov by promulgating best practices, and the Department of Transportation is working with its components to develop memorandums of understanding to ensure they meet quality assurance reporting guidelines. While the steps discussed above could contribute to improvements in the quality of spending data, their impact is not yet known because OMB's recent reporting on data quality and user feedback has been limited. Specifically: Previously available information on the timeliness and completeness of agency-submitted data is no longer provided on USAspending.gov. We previously reported that OMB maintained a page at USAspending.gov that addressed the completeness of the agency- submitted data by field. That information is no longer available on the site. In its April 2010 memo, OMB discussed the creation of a dashboard on USAspending.gov to track the timeliness, completeness, and accuracy of agencies' reported data. After establishing a baseline, these data were to be updated quarterly. However, the USAspending.gov site does not currently include such a dashboard. OMB has produced only one of the required annual reports to Congress that were to include data on usage of the site and public feedback on its utility. In July 2010, OMB reported that USAspending.gov had been used extensively by the public, and that it had adopted or planned improvements based on user feedback. However, OMB has not produced any subsequent reports, as required by FFATA. On July 13, 2012, officials with OMB's Office of Federal Financial Management told us that OMB no longer plans to rely on a public dashboard to improve data quality. Instead, the officials said, OMB is pursuing several other efforts, including ensuring the implementation of the data quality framework established through its prior guidance and identifying best practices for improving data quality. As we initiate work to address your recent request on spending transparency, we will reassess the quality of data on USAspending.gov, including the extent to which agencies report award data, the accuracy of the data that are reported, and the quality assurance processes used by agencies. As Congress and the administration crafted the American Recovery and Reinvestment Act of 2009 (Recovery Act), they built into it provisions to increase transparency and accountability over spending. It required recipients of Recovery Act funds, including grants, contracts, or loans, to submit quarterly reports with information on each project or activity, including the amount and use of funds and an estimate of the jobs created or retained. Similar to FFATA, the Recovery Act called for the establishment of a website through which the public could gain easy access to this information. Initial establishment of the website was to take place 30 days after the Recovery Act's enactment. The Recovery.gov site was launched in 2009 to fulfill these requirements, and a second site-- http://www.FederalReporting.gov--was established for recipients to report their data. Recipients first reported in early October 2009 on the period from February through September 2009, and reporting has continued for each quarter since then. The transparency envisioned under the Recovery Act for tracking spending and results was unprecedented for the federal government. Tracking billions of dollars disbursed to thousands of recipients promised to be an enormous effort. Further, the need to get a system developed and operating quickly added to the challenge, as did the fact that the public would be able to access the system and form its own views as to the system's transparency. The system also needed to be operational quickly for a variety of programs, across which even the basic question of what constituted a project could differ. Given this daunting task, OMB and the Recovery Board implemented an iterative process involving many stakeholders that can provide insight into challenges and solutions for establishing procedures to increase spending transparency. As part of our oversight of the Recovery Act and in response to a mandate to comment quarterly on recipient reporting, we issued a number of reports addressing procedures related to recipient reporting and the quality of data on Recovery.gov, and we made several recommendations for improvements. Initially, we reported that a range of significant reporting and data quality issues needed to be addressed; our later reports, however, documented both progress and further refinements needed, and progress in making them. Our recommendations included that OMB clarify the definition of full-time equivalent (FTE) jobs and encourage federal agencies to provide or improve program-specific guidance for recipients. In general, OMB and agencies acted upon our recipient reporting-related recommendations and implemented changes in guidance and procedures. Throughout the development of guidance and the early months of implementing recipients reporting, OMB and the Recovery Board used several opportunities for two-way communication with recipients. Early on, OMB and Recovery Board officials held weekly conference calls with state and local representatives to hear comments and suggestions from them and share decisions made. State and local governments, with their difficult fiscal situations, were concerned about being able to meet the added reporting requirements, and the tight timeframes made this particularly difficult. Federal officials heard the concerns and made changes to their plans and related guidance in response. For example, initial guidance in February 2009 began to lay out information that would be reported on Recovery.gov and steps needed to meet reporting requirements, such as including recipient reporting requirements in grant awards and contracts. In response to requests for more clarity, OMB, with input from an array of stakeholders, issued more guidance in June 2009. The June guidance clarified requirements on reporting jobs, such as which recipients were required to report and how to calculate jobs created and retained. In December 2009, responding to concerns regarding the calculation of FTEs, including some we expressed, OMB issued further changes in guidance resulting in simplified jobs-reporting guidance. Recipients of Recovery Act funds needed to quickly learn reporting requirements and develop procedures for meeting them. This was particularly difficult for entities that had not previously received federal funding and were not familiar with federal reporting requirements. Outreach from OMB and the Recovery Board, including conference calls, webinars, and websites, along with guidance were instrumental in bringing recipients up to speed. In addition, agencies provided information and training on reporting for their specific programs through conference calls and webinars. States, as the prime recipients in many cases, ensured that their own agencies and departments and their subrecipients were informed as well by using various means of communications, including conference calls, webinars, and websites. Finally, the Recovery Board also maintained a help desk during the reporting period. Even so, given the uncertainties and ongoing development of the new systems, there were instances of systems going down and data rejections that frustrated recipients. Some extensions were allowed and provisions made for recipients to report and make adjustments to the data, except for FTEs, after reporting closed. After we reported that initially there were significant reporting and quality issues, OMB issued guidance to federal agencies that incorporated lessons learned from the first reporting period and addressed recommendations we had made. Specifically, in December 2009, OMB required agencies to identify significant errors, particularly in award amounts, FTEs, federal award numbers, and recipient name. OMB also provided guidance in identifying instances where recipients did not report. As a result, federal agencies that awarded Recovery Act funds to states generally developed internal policies and procedures for reviewing data quality, as OMB required. At the ground level, agencies addressed recipients' quarterly reporting when performing their oversight of Recovery Act recipients. Further, agencies also reviewed data centrally and performed tests of reasonableness on recipient data by program. OMB also required agencies to provide lists each quarter of those recipients who did not report. Our discussions with agencies indicated that agencies worked with these recipients to identify reasons they did not report. Lists of those who did not report each quarter continue to be available on Recovery.gov. In our work evaluating recipient reporting under specific programs, we found that agencies put considerable effort into ensuring accuracy and completeness, but while the public transparency of Recovery Act spending improved, the agencies often did not benefit much from such recipient-reported data. Agency officials told us they already had much of the information; their own systems provided information on award amounts, funds disbursed, and, to varying degrees, progress being made by grant recipients. However, officials at one agency, the Department of Education, noted that the information obtained through recipient reporting did provide them a useful indication of jobs funded for education programs under the Recovery Act, information they otherwise did not have. Our work also identified some concerns with ensuring that descriptions of awarded projects were adequately detailed in the information that recipients reported. Data collected for Recovery.gov included narrative information that provided the public with details such as the overall purpose of the award and expected results. We found, for example, that an estimated 25 percent of the descriptions of selected infrastructure- related awards met our transparency criteria of having sufficiently clear and complete information on the award's purpose, scope, and nature of activities; location; cost; outcomes; and status of work. Another 68 percent partially met the criteria; and an estimated 7 percent provided little or none of this information. In its September 2010 guidance, OMB added a requirement for agencies to review the narrative fields of recipient reports to better ensure transparency. Our analysis of the quality of recipient-reported data showed that recipients made errors in reporting award identification numbers, amount of awards, and other data that agencies already had, and that if those items had been pre-populated for recipients, errors might have been reduced. The award identification number was a particularly key data element, since it was part of the mechanism to link awards across quarters, yet recipient errors as small as leaving out a hyphen could result in information not being able to be linked. Agencies identified other errors, such as incorrect award amounts, by comparing data recipients reported with data they had. It was time-consuming both to perform those comparisons and to follow up with recipients to get them to fix the errors. The Recovery Board eventually enabled recipients to "copy forward" information reported in previous rounds and modify it as needed, which helped prevent some errors. However, some agency officials suggested that pre-populating these fields with agency data before recipients began their reporting would have reduced the number of errors. In addition, our work indicated that recipients sometimes were required to report similar information into both agency reporting systems and FederalReporting.gov. Agencies required more data in some cases to manage their programs than was required on recipient reports and made available on Recovery.gov. For example, Environmental Protection Agency officials said that they needed project details that were not available in Recovery.gov data for their Recovery Act water programs. Similarly, the Department of Transportation preferred using its own data because they were more detailed, and were reported monthly--more frequently than the Recovery.gov data. While the time constraints of implementing Recovery Act reporting made it difficult to consolidate data collection and prevent collecting similar data from recipients more than once, if more planning time was available to solve this issue, the burden on recipients may have been reduced. There are initiatives under way in Congress and the administration that look to build on these two transparency efforts now in place. For example, legislation has been passed in the House of Representatives and introduced in the Senate to improve the accountability and transparency of federal spending. In addition, in June 2011 the President issued an executive order establishing the Government Accountability and Transparency Board to provide strategic direction for, among other things, enhancing the transparency of federal spending. There are lessons from the implementation of both USAspending.gov and Recovery.gov that can be applied to these new initiatives. Foremost, consideration needs to be given to what objectives are to be achieved and in what priority. As we have seen with both existing systems, success hinges upon ensuring the data's completeness and accuracy. Because it is resource-intensive to ensure all data are reported and correct, it is imperative to limit the data collected to only those essential elements. Clear objectives are helpful in guiding such focus. In addition, the input of federal agencies, recipients, and subrecipients should be considered early in the development of both the system and its procedures. Also, as the system is implemented, communicating impending changes as soon as possible allows for better planning. Finally, as a system rolls out, recipients will need help to learn how to fulfill their reporting responsibilities. Further related to the issue of involving all stakeholders is the need to recognize the increased reporting and oversight effort required of recipients and federal agencies, and to identify approaches that minimize that effort. For example, pre-populating data from federal agencies to reduce the need for recipients to input those data could help with accuracy, although agencies likely will need to continue to play a key role in checking data quality. - - - - - In conclusion, there have been great strides in increasing the transparency of federal awards since 2006. The USAspending.gov and Recovery.gov websites offer the public a wealth of information on how federal funds are spent. However, it is important that ongoing efforts to improve the data provided to the public continue to evolve. We believe having a strategic vision, ensuring data quality, allowing for input of ideas, helping those who have to report, and minimizing reporting burdens can improve the chances of success. Chairman Lieberman, Ranking Member Collins, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions that you may have. For further information regarding this testimony, please contact Stanley J. Czerwinski at (202) 512-6808 or [email protected] or David A. Powner at (202) 512-9286 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 Carol Patey and James R. Sweetman, Jr., Assistant Directors, Lee McCracken, and Kevin Walsh. Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential. GAO-09-580. Washington, D.C.: April 23, 2009. Recovery Act: States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses. GAO-09-829. Washington, D.C.: July 8, 2009. Recovery Act: Funds Continue to Provide Fiscal Relief to States and Localities, While Accountability and Reporting Challenges Need to Be Fully Addressed. GAO-09-1016. Washington, D.C.: September 23, 2009. Recovery Act: Recipient Reported Jobs Data Provide Some Insight into Use of Recovery Act Funding, but Data Quality and Reporting Issues Need Attention. GAO-10-223. Washington, D.C.: November 19, 2009. Recovery Act: Status of States' and Localities' Use of Funds and Efforts to Ensure Accountability. GAO-10-231. Washington, D.C.: December 10, 2009. Recovery Act: One Year Later, States' and Localities' Uses of Funds and Opportunities to Strengthen Accountability. GAO-10-437. Washington, D.C.: March 3, 2010. Recovery Act: States' and Localities' Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability. GAO- 10-604. Washington, D.C.: May 26, 2010. Recovery Act: Increasing the Public's Understanding of What Funds Are Being Spent on and What Outcomes Are Expected. GAO-10-581. Washington, D.C.: May 27, 2010. Recovery Act: States Could Provide More Information on Education Programs to Enhance the Public's Understanding of Fund Use. GAO-10- 807. Washington, D.C.: July 30, 2010. Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States' and Localities' Uses of Funds. GAO-10-999. Washington, D.C.: September 20, 2010. Participants in SBA's Microloan Program Could Provide Additional Information to Enhance the Public's Understanding of Recovery Act Fund Uses and Expected Outcomes. GAO-10-1032R. Washington, D.C.: September 29, 2010. Recovery Act: Opportunities Exist to Increase the Public's Understanding of Recipient Reporting on HUD Programs. GAO-10-966. Washington, D.C.: September 30, 2010. Recovery Act: Head Start Grantees Expand Services, but More Consistent Communication Could Improve Accountability and Decisions about Spending. GAO-11-166. Washington, D.C.: December 15, 2010. Recovery Act: Energy Efficiency and Conservation Block Grant Recipients Face Challenges Meeting Legislative and Program Goals and Requirements. GAO-11-379. Washington, D.C.: April 7, 2011. Recovery Act: Funding Used for Transportation Infrastructure Projects, but Some Requirements Proved Challenging. GAO-11-600. Washington, D.C.: June 29, 2011. Recovery Act: Funds Supported Many Water Projects, and Federal and State Monitoring Shows Few Compliance Problems. GAO-11-608. Washington, D.C.: June 29, 2011. Recovery Act Education Programs: Funding Retained Teachers, but Education Could More Consistently Communicate Stabilization Monitoring Issues. GAO-11-804. Washington, D.C.: September 22, 2011. Recovery Act: Progress and Challenges in Spending Weatherization Funds. GAO-12-195. Washington, D.C.: December 16, 2011. Recovery Act: Housing Programs Met Spending Milestones, but Asset Management Information Needs Evaluation. GAO-12-634. Washington, D.C.: June18, 2012. GAO's assessment of compliance Met OMB launched USAspending.gov, a free, publicly available website, in December 2007. Met The site captured information on all required data elements, such as the entity receiving the award and the award amounts. Met The site allowed searches of data by all required data elements and provided totals for awards made as well as downloadable data. Met The site included data for federal awards made in fiscal year 2007 and later, as well as limited data from previous years. Met To facilitate timeliness of data available on the website, OMB guidance required agencies to submit award data on the 5th and 20th of each month. Met The site included a contact form for public comments and suggestions. Partially met OMB commissioned two pilot programs for collecting subaward data, one at the General Services Administration that ran from April 2008 to December 2008, and one at the Department of Health and Human Services that ran from October 2008 to November 2008. Both pilots were begun after the July 2007 date specified in the act. FFATA Requirement Include subaward data no later than January 1, 2009 (An 18-month extension can be granted for subaward recipients that receive federal funds through state, local, or tribal governments if OMB determines that compliance would impose an undue burden on the subaward recipient.) GAO's assessment of compliance Not met Subaward data (e.g., subcontracts and subgrants) were not yet available for searching on USAspending.gov. FFATA allows OMB to extend the deadline by 18 months for some subaward recipients. However, according to OMB, there was no official extension in place for reporting subaward data at this time. In addition, as of November 2009, OMB had not developed a specific plan for collecting and reporting subaward data. Not met OMB had not submitted the required annual report to Congress containing (1) data on the usage of and public feedback on the site, (2) an assessment of the reporting burden on award recipients, and (3) an explanation of any extension of the subaward deadline. According to OMB officials, it was gathering the necessary information and planned to issue a report in 2010. 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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It is important to ensure the transparency of information detailing how the federal government spends more than $1 trillion annually in the form of contracts, grants, loans, and other awards. Toward this end, the government has multiple initiatives under way to increase such transparency, including publicly accessible websites providing information on federal spending, such as http://www.USAspending.gov and http://www.Recovery.gov. While these efforts have increased the amount of information available, challenges have been identified to better ensure the quality of data on these sites. GAO was asked to provide a statement addressing (1) the status of efforts to improve the quality of publicly available data on government awards and expenditures and (2) lessons that can be learned from the operation of Recovery.gov that can contribute to other spending transparency efforts. In preparing this statement, GAO relied on its previous work in these areas, as well as discussions with OMB officials and officials from the Recovery Accountability and Transparency Board. The Office of Management and Budget (OMB) and other federal agencies have taken steps to improve federal spending data available on USAspending.gov. This effort to publicly display comprehensive data arose from the federal Funding Accountability and Transparency Act of 2006, which required OMB to establish a free, publicly accessible website containing data on federal awards and subawards. OMB launched USAspending.gov in December 2007 to meet these requirements. As GAO reported in 2010, while OMB had satisfied most of the requirements associated with the act, such as establishing the site with required data elements and search capability, it had only partially satisfied the requirement to establish a pilot program to test the collection and display of subaward data and had not met the requirements to include subaward data by January 2009, or to report to Congress on the site's usage. Also, GAO found that from a sample of 100 awards on USAspending.gov, each award had at least one data error and that USAspending.gov did not include information on grants from programs at 9 agencies for fiscal year 2008. Subsequently, OMB and agencies have taken steps to improve the site and the quality of its data through increased agency-level accountability and government-wide improvements. These efforts include directing agencies to appoint a senior-level official to be accountable for the quality of federal spending information disseminated on public websites, and increasing the use of automated tools. However, OMB has not yet implemented plans to create a data quality dashboard on USAspending.gov and has produced only one of the required annual reports to Congress on usage of the site. OMB, the Recovery Accountability and Transparency Board, federal agencies, and funding recipients addressed several challenges in managing reporting under the American Recovery and Reinvestment Act of 2009. Recovery.gov was established in 2009 to provide public access to information on Recovery Act spending. Specifically, it was to provide timely information on projects or activities funded by federal grants, contracts, or loans provided to recipients, such as state or local governments. The transparency envisioned by the act was unprecedented for the federal government, and GAO identified a number of lessons learned from the operation of Recovery.gov: OMB and the Recovery board used two-way communication with recipients to refine and clarify guidance. Training and other assistance was provided to recipients to clarify reporting requirements and address early system problems. After early reporting and quality issues were identified, OMB required agencies to ensure data accuracy and completeness. Recipients made errors in reporting data, but these could be reduced through pre-populating data fields and other refinements to the reporting process. Recent legislative proposals and a newly created executive branch board aim to expand and improve upon the transparency of federal spending. The challenges and lessons learned from implementing the existing reporting tools should help inform current and future efforts. In particular, attention should be given to stakeholder involvement, the effort required for reporting and oversight, and the need for clear objectives and priorities. GAO previously made several recommendations to improve these transparency efforts, including that OMB clarify guidance on reporting award data and develop a procedure to ensure agencies report required information. While GAO is not making new recommendations at this time, it underscores the importance of fully implementing its prior recommendations.
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SSA projects that its current data center will not be adequate to support the demands of its growing workload. In fiscal year 2008, SSA's benefit programs provided a combined total of approximately $650 billion to nearly 55 million beneficiaries. According to the agency, the number of beneficiaries is estimated to increase substantially over the next decade. In addition, SSA's systems contain large volumes of medical information, which is used in processing disability claims. About 15 million people are receiving federal disability payments, and SSA has been contending with backlogs in processing disability claims. According to SSA officials, the agency plans to use a large portion of the $1 billion in funding that it was allocated by the Recovery Act primarily to help build a large-scale data center and to develop new software to reduce the backlog of disability claims. The act provides $500 million from the stimulus package for data center expenses, of which $350 million is slated for the building infrastructure and part of the remaining funding for IT-related upgrades. This is not the entire projected cost: SSA has indicated that it needs a total of about $800 million to fund a new IT infrastructure, including the new data center--the physical building, power and cooling infrastructure, IT hardware, and systems applications. The Recovery Act's goals, among other things, include creating or saving more than 3.5 million jobs over the next two years and encouraging renewable energy and energy conservation. According to the Office of Management and Budget (OMB), the act's requirements include unprecedented levels of transparency, oversight, and accountability for various aspects of Recovery Act planning and implementation. These requirements are intended to ensure, among other things, that * funds are awarded and distributed in a prompt, fair, and reasonable * the recipients and uses of all funds are transparent to the public, and the public benefits of these funds are reported clearly, accurately, and in a timely manner; * funds are used for authorized purposes and instances of fraud, waste, error, and abuse are mitigated; * projects funded under the act avoid unnecessary delays and cost * program goals are achieved, including specific program outcomes and improved results on broader economic indicators. An effort as central to SSA's ability to carry out its mission as its planned new data center requires effective IT management. As our research and experience at federal agencies has shown, institutionalizing a set of interrelated IT management capabilities is key to an agency's success in modernizing its IT systems. These capabilities include, but are not limited to * strategic planning to describe an organization's goals, the strategies it will use to achieve desired results, and performance measures; * developing and using an agencywide enterprise architecture, or modernization blueprint, to guide and constrain IT investments; * establishing and following a portfolio-based approach to investment implementing information security management that ensures the integrity and availability of information. The Congress has recognized in legislation the importance of these and other IT management controls, and OMB has issued guidance. We have observed that without these types of 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 such aims as increased interoperability and effective information sharing. As a result, technology may not effectively and efficiently support agency mission performance and help realize strategic mission outcomes and goals. All these management capabilities have particular relevance to the data center initiative. * IT strategic planning. A foundation for effective modernization, strategic planning is vital to create an agency's IT vision or roadmap and help align its information resources with its business strategies and investment decisions. An IT strategic plan, which might include the mission of the agency, key business processes, IT challenges, and guiding principles, is important to enable an agency to consider the resources, including human, infrastructure, and funding, that are needed to manage, support, and pay for projects. For example, a strategic plan that identifies interdependencies within and across modernization projects helps ensure that these are understood and managed, so that projects--and thus system solutions--are effectively integrated. Given that the new data center is to form the backbone of SSA's automated operations, it is important that the agency identify goals, resources, and dependencies in the context of its strategic vision. * Enterprise architecture. An enterprise architecture consists of models that describe (in both business and technology terms) how an entity operates today and how it intends to operate in the future; it also includes a plan for transitioning to this future state. More specifically, it describes the enterprise in logical terms (such as interrelated business processes and business rules, information needs and flows, and work locations and users) as well as in technical terms (such as hardware, software, data, communications, and security attributes and performance standards). It provides these perspectives both for the enterprise's current environment and for its target environment, as well as a transition plan for moving from one to the other. In short, it is a blueprint for organizational change. Using an enterprise architecture is important to help avoid developing operations and systems that are duplicative, not well integrated, unnecessarily costly to maintain and interface, and ineffective in supporting mission goals. Like an IT strategic plan (with which an enterprise architecture should be closely aligned), an enterprise architecture is an important tool to help SSA ensure that its data center initiative is successful. Using an enterprise architecture will help the agency ensure that the planning and implementation of the initiative take full account of the business and technology environment in which the data center and its systems are to operate. * IT investment management. An agency should establish and follow a portfolio-based approach to investment management in which IT investments are selected, controlled, and monitored from an agencywide perspective. In this way, investment decisions are linked to an organization's strategic objectives and business plans. Such an approach helps ensure that agencies allocate their resources effectively. In 2008, we evaluated SSA's investment management approach and found that it was largely consistent with leading investment management practices. SSA had established most practices needed to manage its projects as investments; however it had not applied its process to all of its investments. For example, SSA had not applied its investment management process to a major portion of its IT budget. We recommended that for full accountability, SSA should manage its full IT development and acquisitions budget through its investment management board. We also made several recommendations for improving the evaluation of completed projects, including the use of quantitative measures of project success. Going forward, ensuring that best practices in investment management are applied to the data center initiative will help the agency effectively use funds appropriated under the Recovery Act. For example, projects funded under the act are to avoid unnecessary delays and cost overruns and are to achieve specific program outcomes and improved results on broader economic indicators. Robust investment management controls are important tools for achieving these goals. For example, developing accurate cost estimates--an important aspect of investment management-- helps an agency evaluate resource requirements and increases the probability of program success. We have issued a cost estimating guide that provides best practices that agencies can use for developing and managing program cost estimates that are comprehensive, well-documented, accurate, and credible, and that provide management with a sound basis for establishing a baseline to formulate budgets and measure program performance. The guide also covers the use of earned value management (EVM), a technique for comparing the value of work accomplished in a given period with the value of the work expected. EVM metrics can alert program managers to potential problems sooner than tracking expenditures alone. Finally, the Recovery Act emphasizes the importance of energy efficiency and green building projects. Applying rigorous investment management controls to the planning and implementation of the data center design will help SSA determine the optimal approach to aligning its initiative with these goals. Because of the large power requirements and the heat generated by the equipment housed in data centers, efficient power and cooling are major concerns, particularly in light of evolving technology and increasing demand for information. To optimize their power and cooling requirements, agencies need to quantify cooling requirements and model these into data center designs. Such considerations affect the choice of locations for a new data center, facility requirements, and even floor space designs. Ways to improve energy efficiencies in data center facilities could include such cost-effective practices as reducing the need for artificial light by maximizing the use of natural light and insulating buildings more efficiently. For example, installing green (planted) roofs can insulate facilities and at the same time absorb carbon dioxide. * Information security. For any organization that depends on information systems and computer networks to carry out its mission or business, information security is a critical consideration. It is especially important for government agencies like SSA, where maintaining the public's trust is essential. Information security covers a wide range of controls, including general controls that apply across information systems (such as access controls and contingency planning) and business process application-specific controls to ensure the completeness, accuracy, validity, confidentiality, and availability of data. For the data center initiative, security planning and management will be important from the earliest stages of the project through the whole life cycle. In today's environment, in which security threats are both domestic and international, operational and physical security is required to sustain the safety and reliability of the data center's services on a day-to-day basis. An agency needs to have well-established security polices and practices in place and provide periodic assessments to ensure that the information and the facility are protected. Organizations must design and implement controls to detect and prevent unauthorized access to computer resources (e.g., data, programs, equipment, and facilities), thereby protecting them from unauthorized disclosure, modification, and loss. Specific access controls could include means to verify personnel identification and authorization. Further, because a data center is the backbone of an organization's operations and service delivery, continuity of operations is a key concern. Data centers need to be designed with the ability to efficiently provide consistent processing of operations. Even slight disruptions in power can adversely affect service delivery. Data centers are vulnerable to a variety of service disruptions, including accidental file deletions, network failures, systems malfunctions, and disasters. In the design of a data center, continuity of operations needs to be addressed at every level--including applications, systems, and businesses. An agency needs to articulate, in a well defined plan, how it will process, retrieve, and protect electronically maintained information in the event of minor interruptions or a full- blown disaster. Disaster recovery plans should address all aspects of the recovery, including where to move personnel and how to maintain the business operations. Agency leaders need to prioritize business recovery procedures and to highlight the potential issues in such areas as application availability, data retention, speed of recovery, and network availability. ____________________________________________________________ In summary, given the projected increase in beneficiaries and the exceptional volume of medical data processed, these IT management capabilities will be imperative for SSA to follow as it pursues the complex data center initiative. Mr. Chairman, this completes my prepared statement. I would be pleased to respond to any questions you or other Members of the Subcommittee 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 Collier, Christie Motley, and Melissa Schermerhorn. 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 American Recovery and Reinvestment Act of 2009 (Recovery Act) provides resources to the Social Security Administration (SSA) to help replace its National Computer Center. This data center, which is 30 years old, houses the backbone of the agency's automated operations, which are critical to providing benefits to nearly 55 million people, issuing Social Security cards, and maintaining earnings records. The act makes $500 million available to SSA for the replacement of its National Computer Center and associated information technology (IT) costs. In this testimony, GAO was asked to comment on key IT management capabilities that will be important to the success of SSA's data center initiative. To do so, GAO relied on previously published products, including frameworks that it has developed for analyzing IT management areas. GAO has not performed a detailed examination of SSA's plans for this initiative, so it is not commenting on the agency's progress or making recommendations. For an effort as central to SSA's mission as its planned new data center, effective practices in key IT management areas are essential. For example: (1) Effective strategic planning helps an agency set priorities and decide how best to coordinate activities to achieve its goals. For example, a strategic plan identifying interdependencies among modernization project activities helps ensure that these are understood and managed, so that projects--and thus system solutions--are effectively integrated. Given that the new data center is to form the backbone of SSA's automated operations, it is important that the agency identify goals, resources, and dependencies in the context of its strategic vision. (2) An agency's enterprise architecture describes both its operations and the technology used to carry them out. A blueprint for organizational change, an architecture is defined in models that describe (in business and technology terms) an entity's current operation and planned future operation, as well as a plan for transitioning from one to the other. An enterprise architecture can help optimize SSA's data center initiative by ensuring that its planning and implementation take full account of the business and technology environment. (3) For IT investment management, an agency should follow a portfoliobased approach in which investments are selected, controlled, and monitored from an agencywide perspective. By helping to allocate resources effectively, robust investment management processes can help SSA meet the accountability requirements and align with the goals of the Recovery Act. For example, projects funded under the act are to avoid unnecessary delays and cost overruns and are to achieve specific program outcomes. Investment management is aimed at precisely such goals: for example, accurate cost estimating (an important aspect of investment management) provides a sound basis for establishing a baseline to formulate budgets and measure program performance. Further, the act emphasizes energy efficiency--also a major concern for data centers, which have high power and cooling requirements. Investment management tools are important for evaluating the most cost-effective approaches to energy efficiency. (4) Finally, information security should be considered throughout the planning, development, and implementation of the data center. Security is vital for any organization that depends on information systems and networks to carry out its mission--especially for government agencies like SSA, where maintaining the public's trust is essential. One part of information security management is contingency and continuity of operations planning--vital for a data center that is to be the backbone of SSA's operations and service delivery. Data centers are vulnerable to a variety of service disruptions, including accidental file deletions, network failures, systems malfunctions, and disasters. Accordingly, it is necessary to define plans governing how information will be processed, retrieved, and protected in the event of minor interruptions or a full-blown disaster. These capabilities will be important in helping to ensure that SSA's data center effort is successful and effectively uses Recovery Act funds.
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The National Flood Insurance Act of 1968 established NFIP as an alternative to providing direct disaster relief after floods. NFIP, which makes federally backed flood insurance available to residential property owners and businesses, was intended to reduce the government's escalating costs for repairing flood damage. Floods are the most common and destructive natural disaster in the United States; however, homeowners' insurance generally excludes flooding. Because of the catastrophic nature of flooding and the inability to adequately predict flood risks, private insurance companies historically have been largely unwilling to underwrite and bear the risk resulting from providing primary flood insurance coverage. Under NFIP, the federal government assumes the liability for the insurance coverage and sets rates and coverage limitations, while the private insurance industry sells the policies and administers the claims. NFIP offers two types of flood insurance premiums to property owners who live in participating communities: subsidized and full-risk. The National Flood Insurance Act of 1968 authorized NFIP to offer subsidized premiums to owners of certain properties. These subsidized rates are not based on flood risk and, according to FEMA, represent only about 40-45 percent of the full flood risk. Congress originally mandated the use of subsidized premiums to encourage communities to join the program and mitigate concerns that charging rates that fully and accurately reflected flood risk would be burdensome to some property owners. Even with highly discounted rates, subsidized premiums are, on average, higher than full-risk premiums. The premiums are higher because subsidized structures built before Flood Insurance Rate Maps (FIRM) became available generally are more prone to flooding (that is, riskier) than other structures. In general, pre-FIRM properties were not constructed according to the program's building standards or were built without regard to base flood elevation--the level relative to mean sea level at which there is a 1 percent or greater chance of flooding in a given year. Potential policyholders can purchase flood insurance to cover both buildings and contents for residential and commercial properties. NFIP's maximum coverage for residential policyholders is $250,000 for building property and $100,000 for contents. This coverage includes replacement value of the building and its foundation, electrical and plumbing systems, central air and heating, furnaces and water heater, and equipment considered part of the overall structure of the building. Personal property coverage includes clothing, furniture, and portable electronic equipment. For commercial policyholders, the maximum coverage is $500,000 per unit for buildings and $500,000 for contents (for items similar to those covered under residential policies). NFIP largely has relied on the private insurance industry to sell and service policies. In 1983, FEMA established the Write-Your-Own (WYO) program. Private insurers become WYOs by entering into an arrangement with FEMA to issue flood policies in their own name. WYOs adjust flood claims and settle, pay, and defend claims but assume no flood risk. Insurance agents from these companies are the main point of contact for most policyholders. WYOs issue policies, collect premiums, deduct an allowance for commission and operating expenses from the premiums, and remit the balance to NFIP. In most cases, insurance companies hire subcontractors--flood insurance vendors--to conduct some or all of the day-to-day processing and management of flood insurance policies. When flood losses occur, policyholders report them to their insurance agents, who notify the WYOs. The companies review the claims and process approved claims for payment. FEMA reimburses the WYOs for the amount of the claims plus expenses for adjusting and processing the claims, using rates that FEMA establishes. As of September 2012, about 85 WYOs accounted for about 85 percent of the more than 5.5 million policies in force. NFIP was added to GAO's High-Risk List in 2006 due to losses from the 2005 hurricanes and the financial exposure the program created for the federal government. Until 2004, NFIP was able to cover most of its claims with premiums it collected and occasional loans from the U.S. Treasury (Treasury) that it repaid. However, after the 2005 hurricanes-- primarily Hurricane Katrina--the program borrowed $16.8 billion from Treasury to cover the unprecedented number of claims. In prior work we found that NFIP, as it was then structured, was not likely to generate sufficient revenues to repay this amount. NFIP since has received additional borrowing authority in the amount of $9.7 billion to cover claims for Superstorm Sandy. As of July 31, 2013, the program owed Treasury approximately $24 billion. NFIP's financial condition highlights structural weaknesses in program funding--primarily its rate structure. By design, NFIP does not operate for profit. Instead, the program must meet a public policy goal--to provide flood insurance in flood-prone areas to property owners who otherwise would not be able to obtain it. NFIP generally is expected to cover its claim payments and operating expenses with the premiums it collects. However, subsidized policies have been a financial burden on the program because of their relatively high losses and premium rates that are not actuarially based. As discussed previously, subsidized policies are associated with structures more prone to flood damage (either because of the way they were built or their location). As a result, the annual amount that NFIP collects in both full-risk and subsidized premiums is generally not enough to cover its operating costs, claim payments, and principal and interest payments to Treasury, especially in years of catastrophic flooding. This arrangement results in much of the financial risk of flooding being transferred to the federal government and ultimately the taxpayer. The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) addressed some of the structural challenges that have contributed to the program's financial instability.policies will not receive subsidized premium rates, subsidies on existing For example, new flood insurance policies for many other properties will be phased out, and policies for properties that are remapped to a higher risk level will be subject to higher premium rates. In addition the Biggert-Waters Act requires FEMA to implement other changes to its rate-setting process, including building a reserve fund and updating maps used to set rates to reflect relevant information on topography, long-term erosion of shorelines, future changes in sea levels, and the intensity of hurricanes. While these changes may help increase NFIP's long-term financial stability, the program still faces challenges in implementing the changes and their ultimate effect is not yet known. Furthermore, weaknesses in NFIP management and operations, including financial reporting processes and internal controls, strategic and human capital planning, and oversight of contractors, also have placed the program at risk. For example, in 2011 we found that FEMA had not developed goals, objectives, or performance measures for NFIP. In addition, FEMA faces challenges modernizing NFIP's insurance policy and claims management system. As a result, we made recommendations to improve the effectiveness of FEMA's planning and oversight efforts for NFIP; improve FEMA's policies and procedures for achieving NFIP's goals; and increase the usefulness and reliability of NFIP's flood insurance policy and claims processing system. While FEMA agreed with our recommendations and has taken some steps to address them, continued attention to these issues is vital and additional steps are needed to address the concerns we have identified in the past. The Biggert-Waters Act mandates that GAO conduct a number of studies related to actual and potential changes to NFIP, including analyses of remaining subsidized properties, and the effect of increasing coverage limits or adding coverage options. In one of our studies responding to these mandates, of remaining subsidized properties, we estimated that with the changes in the Biggert-Waters Act approximately 438,000 policies are no longer eligible for subsidies, including about 345,000 nonprimary residential policies, about 87,000 business policies, and about 9,000 single-family, severe-repetitive-loss policies.the approximately 715,000 remaining subsidized policies are expected to be eliminated over time. Under the act, most remaining subsidized policies no longer would be eligible for subsidies if NFIP coverage lapsed or the properties were sold or substantially damaged. We estimated that with implementation of the provisions addressing sales and coverage lapses, the number of subsidized policies could decline by almost 14 percent per year. At that rate, the number of subsidized policies would be reduced by 50 percent in approximately 5 years. After about 14 years, fewer than 100,000 subsidized policies would remain. However, the actual outcomes and time required for subsidies to be reduced could vary depending on the behavior of policyholders and the actual rate of sales and coverage lapses. In terms of characteristics, we found that the geographic distribution of remaining subsidized policies was similar to the distribution of all NFIP policies. Other characteristics we analyzed-- indicators of home value and owner income--were different for the policies that continue to be eligible for subsidized premium rates compared to those with full-risk rates. In particular, counties with higher home values and income levels tended to have larger percentages of remaining subsidized policies than policies with full-risk rates. In our July 2013 report on subsidized policies, we identified three broad options that could help address the financial impact of remaining subsidized policies on the program, but the advantages and disadvantages of each would need to be considered and action would be required from both Congress and FEMA. These options are not mutually exclusive and may be used together to reduce the financial impact of subsidized policies on NFIP. The way in which an option is implemented (such as more aggressively or gradually) also can produce different effects in terms of policy goals and thus change the advantages and disadvantages. Adjust the pace of eliminating subsidies. Accelerating the elimination of subsidies could improve NFIP's financial stability by more quickly increasing the number of policies with premium rates that more accurately reflect the full risk of flooding, but could exacerbate the difficulty some policyholders may have in adjusting to new rates. In contrast, delaying the elimination of subsidized policies or lengthening the phase-in period would continue to expose the federal government to increased financial risk over a longer time. Moreover, delaying the elimination of subsidies would not represent a long-term fix for those policyholders who could not afford the new premium rates, whenever they came into effect. Target assistance for remaining subsidies. Assistance or a subsidy could be based on the financial need of the property owners, which could help ensure that only those policyholders needing the subsidy would have access to it and retain their coverage, with the rest paying full-risk rates. Targeting subsidies based on need--through a means test, for example--is an approach other federal programs use. However, NFIP does not currently collect the policyholder data required to assess need and determine eligibility and it could be difficult for FEMA to develop and administer such an assistance program in the midst of ongoing management challenges. Moreover, unlike other agencies that provide--and are allocated funds for-- traditional subsidies, NFIP does not receive an appropriation to pay for shortfalls in collected premiums caused by its subsidized rates. One approach to maintain subsidies but improve NFIP's financial stability would be to rate all policies at the full-risk rate and appropriate subsidies for eligible policyholders. Expand mitigation efforts such as elevation, relocation, and demolition of properties. This would include making mitigation mandatory to ensure that more homes were better protected. Mitigation efforts could be used to help reduce or eliminate the long-term risk of flood damage; especially if FEMA targeted the properties that were most costly to the program, such as those with repetitive losses. However, mitigation is expensive for NFIP, taxpayers, and communities. In our October 2008 study of NFIP's rate-setting, we found that the losses generated by NFIP have created substantial financial exposure for the federal government and U.S. taxpayers--due in part to the program's rate-setting process. We also found that FEMA's rate-setting methods, even for full-risk rates, do not result in rates that accurately reflect flood risks. For example, FEMA's rate-setting process does not fully take into account ongoing and planned development, long-term trends in erosion, or the effects of global climate change. Furthermore, FEMA sets rates on a nationwide basis, combining and averaging many topographic factors that are relevant to flood risks, and does not specifically account for these factors when setting rates for individual properties. Partly because of the rate-setting issues, in our July 2013 report on raising coverage limits or adding optional coverage types, we found that the advantages and disadvantages to making more changes to the program, such as these, would need to be carefully weighed. To determine the financial impact on NFIP of increasing coverage limits, we estimated the potential financial effect on NFIP if coverage limits had been raised in 2002-2011. Higher coverage limits would have been associated with increased net revenue in all fiscal years from 2002 through 2011, except for fiscal years 2004 and 2005 when the program experienced catastrophic losses. The overall results were the same when we conducted the analyses using variations in our assumptions to (1) decrease the premiums by 20 percent below the baseline estimate; (2) decrease the claims by 20 percent below the baseline estimate; and (3) estimate that only 25 percent, 50 percent, or 75 percent of all policyholders increased their coverage. Overall, the financial impact on the program of raising coverage limits would depend on the adequacy of the rates charged for the additional coverage. We also found that adding business interruption coverage to NFIP could be particularly challenging. For example, properly pricing risk, underwriting, and claim processing can be complex. Similarly, offering optional coverage for additional living expenses would have many of the same potential effects on NFIP, although this coverage generally is less complex to administer. In July 2013, we reported that FEMA will require several years to fully implement the Biggert-Waters Act and FEMA officials acknowledged that they have data limitations and other challenges to resolve before eliminating some subsidies as required in the act. The following points highlight some of the challenges we identified: The act eliminated subsidies for residential policies that covered nonprimary residences and business policies. FEMA has data on whether a policy covers a primary residence, but officials stated that the data may be outdated or incorrect. In addition, FEMA categorizes policies as residential and nonresidential rather than residential and business. As a result, FEMA does not have the information to identify nonresidential properties such as schools or churches that are not businesses and continue to be eligible for a subsidy. Beginning in October 2013, FEMA will require applicants for new policies and renewals to provide property status (residential or business). The act states that subsidies will be eliminated for policies that have received cumulative payment amounts for flood-related damage that equaled or exceeded the fair market value of the properties, and for policies that experience damage exceeding 50 percent of the fair market value of properties after enactment. Currently, FEMA is unable to make this determination as it does not maintain data on the fair market value of properties insured by subsidized policies. FEMA officials said that they have been in the process of identifying a data source. The act eliminates subsidies for severe repetitive loss policies and provides a definition of severe repetitive loss for single-family homes. However, it requires FEMA to define severe repetitive loss for multifamily properties and FEMA has not yet developed this definition. The act also requires FEMA to phase in full-risk rates on active policies that no longer are eligible for subsidies, but we found that FEMA generally lacks information needed to establish full-risk rates that reflect flood risk for the properties involved and also lacks a plan for proactively obtaining such information. Federal internal control standards state that agencies should identify and analyze risks associated with achieving program objectives, and use this information as a basis for developing a plan for mitigating the risks. In addition, these standards state that agencies should identify and obtain relevant and needed data to be able to meet program goals. However, in July 2013 we reported that FEMA does not have key information used in determining full-risk rates from all policyholders. According to FEMA officials, not all policyholders have elevation certificates, which document their property's risk of flooding. Information about elevation is a key element in establishing premium rates on certain properties. Elevation certificates are required for some properties, but optional for others. According to FEMA officials, consistent with the act they are phasing in rate increases (of 25 percent per year) for policyholders who no longer are eligible for subsidies. The increase will continue until the rates reach a specific level or until policyholders supply an elevation certificate that indicates the property's risk, allowing FEMA to determine the full-risk rate. Although subsidized policies have been identified as a risk to the program because of the financial drain they represent, FEMA does not have a plan to expeditiously and proactively obtain the information needed to set full- risk rates for all of them. Instead, FEMA will rely on certain policyholders to voluntarily obtain elevation certificates, which can be expensive for the property owner. Those at lower risk levels have an incentive to do so because they may then be eligible for lower rates. However, policyholders may not know their risk level, and policyholders with higher risk levels have a disincentive to voluntarily obtain an elevation certificate because they then could pay a higher premium. In our July 2013 report, we concluded that without a plan to expeditiously obtain property-level elevation information, FEMA will continue to lack basic information needed to accurately determine flood risk and continue to base full-risk rate increases for previously subsidized policies on limited estimates. As a result, FEMA's phased-in rates for previously subsidized policies still may not reflect a property's full risk of flooding; with some policyholders paying premiums that are below and others paying premiums that exceed full-risk rates. We recommended that FEMA develop and implement a plan, including a timeline, to obtain needed elevation information as soon as practicable. FEMA agreed with this recommendation and plans to evaluate the appropriate approach to obtain or require the submittal of this information. The Biggert-Waters Act also requires a number of other changes that the agency has been starting to implement. For example FEMA must adjust rates to accurately reflect the current risk of flood to properties when an area's flood map is changed, subject to any other statutory provision in chapter 50 of Title 42 of the Unites States Code. 2013, FEMA has been determining how this provision would affect properties exempted from rate increases when they were remapped. 42 U.S.C. SS 4015(e). agency deems appropriate) over a number of years beginning October 1, 2013. We continue to monitor the status of FEMA's actions related to recommendations we have made in prior reports. In 2008, we recommended that FEMA develop a rate-setting methodology that uses data that results in full-risk premiums that accurately reflect the risk of losses from flooding. account the effects of long-term planned and ongoing development, including climate change. In response to our continued support of this recommendation as well as requirements in the Biggert-Waters Act, FEMA officials stated that they have made progress. For example, FEMA stated they already have revised damage calculations for flooding events that only reach the foundation of the structure, and performed a study to assess the long-term impacts of climate change. FEMA's ongoing efforts include analyzing water-depth probability curves for the various zones and piloting studies to determine structure elevation and flood depths for various return periods. GAO-09-12. National Association of Insurance Commissioners (NAIC) and conducting other analyses to ensure that WYOs accurately report this information. However, FEMA officials stated that the agency cannot take action that completely addresses our recommendations until the WYOs reliably report to NAIC and that it might take several years before all companies consistently report such information. The agency also has been considering how to best introduce the WYOs' actual flood-related expenses into payment formulas over the next several years, when FEMA expects to have more reliable financial information and less variation in reported expense ratios. In 2011, we recommended that FEMA improve strategic planning, performance management, and program oversight within and related to NFIP. FEMA agreed with our recommendations and has addressed some of them, such as strategic planning, but it still needs to continue to address the management and operational weaknesses we identified, including human capital planning, acquisition management, policy and claims management systems, financial management, collaboration, and records management. Unless these management issues are addressed, FEMA risks ongoing challenges in effectively and efficiently managing NFIP, including its management and use of data and technology. In conclusion, when we placed NFIP on the high-risk list in 2006, we noted that comprehensive reform likely would be needed to address the financial challenges facing the program. Since passage of the Biggert- Waters Act, FEMA is taking some important first steps toward implementing the reforms the act requires, but the extent to which the changes included in the act and FEMA's implementation will reduce the financial exposure created by the program is not clear and the program's long-term financial condition is not yet assured. In addition, our previous work has identified many of the necessary actions that FEMA should take to address a number of ongoing challenges in managing and administering the program. Getting NFIP on a sound footing, both financially and operationally, is important to achieving its goals and at the same time reducing its burden on the taxpayer. Chairman Merkley, Ranking Member Heller, 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. If you or your staff have any questions about this testimony, 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 statement. Other staff who made key contributions to this testimony include Jill Naamane and Patrick Ward (Assistant Directors); Isidro Gomez; Karen Jarzynka-Hernandez; Barbara Roesmann; Rhonda Rose; and Jessica Sandler. 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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NFIP, established in 1968, provides policyholders with insurance coverage for flood damage. FEMA, within the Department of Homeland Security, is responsible for managing the program. NFIP offers two types of flood insurance premiums to property owners: subsidized and full-risk. The subsidized rates are not based on flood risk and, according to FEMA, represent only about 40-45 percent of the full flood risk. GAO placed NFIP on its high-risk list in 2006 because of concerns about its long-term solvency and related operational issues. GAO was asked to testify about NFIP issues and its recent work on NFIP. This statement discusses (1) the reasons that NFIP is considered high-risk, (2) changes to subsidized policies and implications of potential additional program changes, and (3) additional challenges for FEMA to address. In preparing this statement, GAO relied on its past work on NFIP, including GAO-13-607 , GAO-13-568 , and GAO-13-283 . The National Flood Insurance Program (NFIP) was added to GAO's high-risk list in 2006 and remains high risk due to losses incurred from the 2005 hurricanes and subsequent losses, the financial exposure the program represents for the federal government, and ongoing management and operational challenges. As of July 31, 2013, the program owed approximately $24 billion to the U.S. Treasury (Treasury). NFIP's financial condition highlights structural weaknesses in how the program has been funded--primarily its rate structure. The annual amount that NFIP collects in both full-risk and subsidized premiums is generally not enough to cover its operating costs, claim payments, and principal and interest payments for the debt owed to Treasury, especially in years of catastrophic flooding, such as 2005. This arrangement results in much of the financial risk of flooding being transferred to the federal government and ultimately the taxpayer. Furthermore, weaknesses in NFIP management and operations, including financial reporting processes and internal controls, strategic and human capital planning, and oversight of contractors have placed the program at risk. The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) mandated that GAO conduct a number of studies related to actual and potential changes to NFIP, including analyses of remaining subsidies and the effect of increasing coverage limits or adding coverage options. In a study of remaining subsidies, GAO estimated that with the changes in the Biggert-Waters Act approximately 438,000 policies no longer are eligible for subsidies, including about 345,000 policies for nonprimary residences, about 87,000 business policies, and about 9,000 policies for single-family properties that had severe-repetitive losses. Subsidies on most of the approximately 715,000 remaining subsidized policies are expected to be eliminated over time as properties are sold or coverage lapses, as are previous exemptions from rate increases after flood zone map revisions. Reducing the financial impact of remaining subsidized policies on NFIP generally could involve accelerating elimination of subsidies, targeting assistance for subsidies, or expanding mitigation efforts, or some combination. Each approach has advantages and disadvantages. In GAO's 2008 study about rate-setting, GAO noted that the losses generated by NFIP have created substantial financial exposure for the federal government and U.S. taxpayers--due in part to its rate-setting process. Partly because of these rate-setting issues, GAO concluded in a July 2013 report that the advantages and disadvantages to additional changes to the program, such as raising coverage limits or adding optional coverage types, would need to be carefully weighed. The Federal Emergency Management Agency (FEMA) will require several years to fully implement the Biggert-Waters Act. FEMA officials acknowledged that they have challenges to resolve. These include updating and correcting information on whether a policy is for a primary or secondary residence, determining the fair market value of insured properties, and developing a definition of severe repetitive loss for multifamily properties. Further, FEMA must establish full-risk rates that reflect flood risk for active policies that no longer are eligible for subsidies; but it does not have a plan to do so. In an effort to update payment formulas to insurance companies, as GAO recommended, FEMA has begun receiving actual flood-related information from some insurance companies but all companies are not reporting the information consistently. GAO continues to support its previous recommendations made to FEMA that focus on the need to address management and operational challenges, ensure that the methods and data used to set NFIP rates accurately reflect the risk of losses from flooding, and that oversight of NFIP and insurance companies responsible for selling and servicing flood policies is strengthened. FEMA agreed with these recommendations and is taking steps to address them.
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Several mechanisms to facilitate coordination among FAA and partner agencies - including interagency committees, advisory boards, and working groups - are in place. First, the Senior Policy Committee, as the interagency governing body for NextGen, is meant to facilitate coordination and planning on NextGen across federal agencies. Chaired by the Secretary of Transportation, the Senior Policy Committee includes senior representatives from the NextGen partner agencies. Among its key activities, this committee works to provide policy guidance, resolve major policy issues, and identify and align resource needs. FAA and other partner agency officials indicated that the Senior Policy Committee has met infrequently. The Senior Policy Committee held their first full committee meeting under the new Administration in September 2009. According to the JPDO Director, JPDO is working closely with the Senior Policy Committee to establish a process for the committee to operate more effectively by providing it with the ability to review interagency dependencies such as FAA's reliance on NASA research, develop a NextGen road map, and establish a set of high-level milestones--which it currently does not have--as well as conduct oversight of NextGen progress. In addition to the Senior Policy Committee, several other interagency coordination mechanisms are in place to facilitate coordination among FAA and partner agencies, many of which are within JPDO. These include the JPDO Board and the JPDO Division Directors Group, each of which is composed of representatives from other federal agencies and FAA. The JPDO Board functions as an adjunct to the Senior Policy Committee and includes representatives from each of the partner agencies. Representatives on the JPDO Board work on actionable outcomes related to NextGen. The Division Directors are responsible for the planning and managing of NextGen. JPDO also has organized nine working groups composed of representatives from federal agencies and industry stakeholders to specialize in developing NextGen's key capabilities, along with recommendations and action plans to be integrated into NextGen planning. Continued industry participation in JPDO Working Groups - which is provided pro-bono - is a challenge given the current business climate and companies' participation in numerous aviation forums. FAA and NASA also participate on four JPDO research transition teams that have been established to ensure that research and development needed for NextGen implementation is identified, conducted, and effectively transitioned to the implementing agency. In previous work, we discussed the formation of these teams, but as they had just been established, noted that their potential effectiveness was unclear. In that work we also identified key challenges in coordinating research, including gaps in funding for needed research and prioritization of research needs. According to the former Director of JPDO and NASA officials, the teams have been useful vehicles for identifying research needs and potential gaps; however, some teams are further along in terms of their involvement among the agencies and their deliverables than others. Although other agencies do not currently participate on these research transition teams, NASA agency officials reported that the structure could provide a model for future coordination across agencies. Other arenas where interagency coordination can take place also exist. For example, the NextGen Management Board, which will be chaired by FAA's newly appointed Deputy Administrator and has representatives from all key FAA lines of business, addresses interagency collaboration on key issues such as maintaining the integrity of information shared through NextGen systems. A liaison from DOD sits on the NextGen Management Board. Our past work identified several leadership and organizational challenges in ensuring coordination across partner agencies. First, we have reported that while JPDO has been in place for several years, the office has experienced a high leadership turnover rate. In 2010, a new JPDO Director was appointed, the office's fourth Director in its 7 years of existence. The lack of stable leadership has made it a challenge for JPDO to move forward on many goals and objectives. Second, in March of 2009, we reported that changes to JPDO's organizational position placing it within ATO could be an impediment to partner agency coordination, as it created ambiguity about JPDO's role and it lowered JPDO's status in the eyes of stakeholders. Moreover, the creation of a staff to support the Senior Policy Committee resulting from a November 2008 Executive Order caused further confusion regarding roles and responsibilities relative to federal partner agencies. Third, with the ATO focused on implementing capabilities through the midterm, JPDO's role was shifted to a focus on the long term beyond 2018. According to stakeholders and partner agency officials we interviewed for this work, given JPDO's long-term focus, it has largely not been involved in ATO's current near- and midterm activities, despite being placed organizationally within ATO. As a result, participation by the partner agencies in those activities is also limited. Agency officials stated that it is important for JPDO to be involved in near- and midterm activities as well as long-term planning to ensure that effective interagency coordination on NextGen is in place. Recent changes in the leadership and organizational position of JPDO are likely to change the nature of the relationship among JPDO, FAA, and its partner agencies and hold promise for increased coordination. JPDO has been elevated from its previous position within ATO and is now situated within FAA and outside of ATO, as illustrated in figure 1. The JPDO Director now reports directly to the Deputy FAA Administrator--who serves as the head of the NextGen Management Board--as well as serving as the Senior Advisor to the Secretary of Transportation. JPDO is also more closely aligned and is in a position to have a more active role with the Senior Policy Committee. This new structure removes the reporting relationship between JPDO and the Chief Operating Officer of ATO, and gives JPDO more visibility within the organization and with federal partners and other stakeholders. With these organizational moves, JPDO is expected to become a better conduit for monitoring cross-agency budgets and facilitating cross-agency collaborations and long-term research planning. Moreover, many of the key mechanisms for agency coordination, such as research transition teams, are within JPDO, and are likely to be affected by the move. According to the new Director of JPDO, a key step in improving the coordination with partner agencies will be to determine what value they see in the work produced by JPDO. As these changes have just recently occurred, it remains to be seen if the changes will result in better coordination across the partner agencies. In addition to these leadership and structural issues, stakeholders and representatives of the partner agencies identified other broad challenges that affect the extent to which some partner agencies have coordinated with others. These challenges include (1) limited funding and staffing to dedicate to NextGen activities, (2) competing mission priorities, and (3) undefined near-term roles and responsibilities of some partner agencies. Limited funding and staffing to dedicate to NextGen activities. Industry stakeholders and agency officials we spoke to stated that some partner agencies' ability to coordinate with other agencies was affected by the levels of funding and staff that could be dedicated to NextGen activities. Officials at some partner agencies we spoke with stated that partner agencies allocated little or no budgetary funding specifically for NextGen activities and because of competing priorities for funds, they were limited in the resources they could dedicate to NextGen planning and coordination efforts. With respect to future investments, according to JPDO and DOT data, in fiscal year 2011, among NextGen partner agencies, three--FAA, NASA, and the Department of Commerce's NOAA--requested some funding for NextGen activities. DOD and DHS did not request funding in their budgets specifically for NextGen activities. OSTP is working with the Office of Management and Budget to improve agency alignment and identification of NextGen-related budgets. Differences in agency mission. Differences among agencies' mission priorities, particularly DHS's and DOD's, also pose a challenge to coordination efforts. DHS's diverse set of mission priorities, ranging from aviation security to border protection, affects its level of involvement in NextGen activities. For example, events such as the 2009 Christmas Day terrorism attempt can shift DHS priorities quickly and move the agency away from focusing on issues such as NextGen, which are not as critical at that particular time. Agency officials also stated that although different departments within DHS are involved in related NextGen activities, such as security issues, the fact that NextGen implementation is not a formalized mission in DHS can affect DHS's level of participation in NextGen activities. Industry stakeholders told us that there are potential consequences if DHS is not involved in long-term NextGen planning, including potentially marginalizing DHS's NextGen areas, such as aviation security. Industry stakeholders reported that FAA could more effectively engage partner agencies in long-term planning by aligning implementation activities to agency mission priorities and by obtaining agency buy-in for actions required to transform the national airspace system. Undefined near-term roles and responsibilities of partner agencies. Some stakeholders and agency officials told us that FAA could do more to clearly define each partner agency's role in key planning documents that guide NextGen implementation efforts, particularly in the near term. Our work has shown that coordinating agencies should work together to define and agree on their respective roles and responsibilities, including how the coordination effort will be led. We reported in 2008 that a key intended purpose of these planning documents, according to JPDO officials, is to provide the means for coordinating among the partner agencies and to identify each agency's role in implementing NextGen capabilities, but that stakeholders said that the planning documents did not provide guidance for their organizational decision making. Some stakeholders and agency officials we spoke to more recently told us that the NextGen Implementation Plan, which identifies near- and midterm implementation efforts, still does not specify how partner agencies will be involved or what outcomes are required from them. Another industry stakeholder explained that if partner agencies do not see their roles reflected in key planning documents, projects which depend on inter- agency coordination will not be fully integrated across all partner agencies. One area in particular where coordination is important is related to how FAA, DOD, and DHS information networks will share information in the future to allow for a shared awareness of the national airspace. Information sharing across agencies is necessary for such things as advanced capabilities related to optimizing the use of certain airspace by the diverse set of users under the auspices of these agencies (e.g. military aircraft, commercial aircraft, general aviation, unmanned aerial vehicles, etc.). Protocols and requirements for inter-agency information sharing have yet to be determined. Limited agency participation in near-term coordination efforts, including establishing protocols on information sharing across agencies, could hamper coordination over the long term. Both the House and Senate FAA reauthorization bills include provisions for improving coordination among partner agencies that could address, in part, some of the challenges identified by industry stakeholders and agency officials. Some of the related provisions in the bills call for, among other things, revised memorandums of understanding with partner agencies that describe the respective responsibilities of each agency, including budgetary commitments. Stakeholders we spoke to cited challenges with coordinating the implementation of NextGen capabilities across FAA lines of business. With multiple FAA lines of business responsible for various NextGen activities, including offices within ATO and outside ATO, coordination and integration is vital since delays in actions required from several offices could prevent or delay full realization of NextGen benefits. Shifting from an organization and culture focused on system acquisition to one focused on integration and coordination will be an ongoing challenge for FAA. Recent organizational changes may help address these issues, but it is too early to measure the success of these efforts. As previously discussed and as shown in figure 1, changes that move JPDO out of the ATO and create a direct reporting relationship to the FAA Deputy Administrator solidify the FAA Deputy Administrator as the key executive in charge of NextGen. The FAA Deputy Administrator has authority over the different lines of business that must work together to implement NextGen and, as chairman of the NextGen Management Board, has the authority to force timely resolution of emerging NextGen implementation issues. Both the House and Senate reauthorization bills include provisions to designate a single official in charge of NextGen. The House bill proposes designating the Director of JPDO as the Associate Administrator for the Next Generation Air Transportation System, while the Senate bill proposes creating a Chief NextGen Officer who would oversee all NextGen programs and JPDO. Because the Deputy Administrator position has not yet been confirmed, it is too early to tell how effective these organizational relationships will be in addressing concerns from industry and the Congress regarding who is in charge of NextGen and whether that official has sufficient authority and accountability to ensure effective implementation. Because these changes have just occurred, it is not yet clear whether they will be sufficient to address the problems cited by the Task Force. authority over activities across FAA, or that suitable oversight mechanisms exist in order to ensure timely implementation of all activities necessary for an operational improvement. As a result, these issues could slow the implementation of NextGen. FAA officials and several stakeholders we interviewed described FAA's near- and midterm efforts as necessary stepping-stones to the long-term plans and vision for NextGen. Early success in implementing key NextGen capabilities desired by aircraft operators will help build confidence among operators that FAA can and will provide the operational improvements necessary for operators to realize benefits from their equipment investments. From a planning perspective, integration of near- and midterm implementation plans with the long-term plans and vision for NextGen is currently an ongoing effort within the FAA. As previously mentioned, near- and midterm implementation is guided by the 2010 NextGen Implementation Plan, which feeds into FAA's Enterprise Architecture for the national airspace system. Supporting the NextGen Implementation plan are two more detailed plans - Segment A, which defines detailed activities through 2015, to be completed later this quarter, which will then be followed by Segment B, which defines NextGen through 2018. These plans will identify in great detail the specific actions that must take place in order to implement the identified capabilities. The long-term vision and initial planning for NextGen took place within JPDO and resulted in the overall Concept of Operations, the NextGen Enterprise Architecture, and an accompanying Integrated Work Plan (IWP). The IWP sought to identify all of the envisioned NextGen capabilities through the long term and also lays out the enabling activities believed necessary to achieve those capabilities (e.g., necessary research and development, policy development, and so forth). Currently, according to a senior FAA official, the operational improvements identified in the 2010 NextGen Implementation Plan and FAA's Enterprise Architecture have been aligned with the operational improvements identified in the NextGen Enterprise Architecture and the IWP. However, the enabling activities necessary to achieve those capabilities have yet to be fully aligned. Various ATO offices and JPDO are currently developing agreements that will set forth how the offices will work together to fully align all of the enabling activities across the various planning documents. The effort to align the rest of the enabling activities is expected to be completed in late fiscal year 2010, according to a senior FAA official. Some stakeholders expressed concern that near- and midterm programs and capabilities are not connected well enough to the long-term vision and identified several key policy decisions that will affect the vision of the NextGen system and thus will determine whether programs, technologies, and capabilities implemented today will be the stepping-stones to future, more advanced capabilities. Three of these decisions that will have a major impact on the direction of near- and midterm implementation efforts as well as the long-term vision involve issues such as the scope and timing of installing necessary equipment on aircraft, expediting environmental reviews, and the extent to which additional airport capacity will be needed. Equipping aircraft. FAA has yet to develop a strategy for the timing, cost, and scope of equipping the nation's aircraft fleet. In particular, FAA must focus on delivering near-term operational benefits by completing activities, such as procedure development, airspace redesign, performance standard development, and separation standard reduction, that lay the foundation for NextGen. Doing so will help provide incentives for users, especially commercial airlines, to invest in equipment for their aircraft. Two key decisions that must be considered are whether all aircraft need to be equipped at all locations and when equipping with various technologies should occur. FAA must align aircraft equipping rules and incentives in a way that minimizes the costs and maximizes the overall benefits of NextGen. We have previously reported that, in some cases, the federal government may deem financial or other incentives desirable to speed the deployment of new equipment and that appropriate incentives will depend on the technology and the potential for an adequate and timely return on public and private investment. Environmental approach. FAA has yet to make decisions regarding how environmental reviews can be expedited and what strategies might be needed to meet national environmental targets. We previously reported that differing levels of review must be completed depending on the extent FAA deems its actions to have significant environmental impact, and that the more extensive the analysis required, the longer the process can take, which can thus affect implementation of NextGen capabilities. A key question in this regard is how to appropriately and expeditiously review actions that may increase noise in some areas but also reduce emissions and reduce noise levels overall. Further, a balance will need to be struck between needs for increased capacity, which means more aircraft will be flying and releasing emissions, and potential environmental targets in the future. A key issue here is that although NextGen will increase the efficiency per flight (fuel burn, distance traveled, and emissions), because there are expected to be more total flights, greenhouse gas emissions in total may rise. Airport capacity. A national policy regarding airport capacity in key metropolitan areas will need to be determined. Even with current planned airport expansion, FAA expects capacity shortfalls in many of the nation's busiest airports. NextGen alone is not likely to sufficiently expand the safety and capacity of the national airspace system. Decisions regarding using existing capacity more efficiently include certifying and approving standards for the use of closely spaced parallel runways--which will be a major driver of the amount of land needed to expand airport capacity and will determine capacity in some metropolitan areas--and developing policies that address situations when demand exceeds capacity at airports or in specific airspace (e.g., pricing, administrative rules, service priorities, and so forth). Furthermore, planning infrastructure projects to increase capacity, such as building additional runways, can take as long as a decade or more, and will require substantial planning and safety and cost analyses. JPDO and MITRE are currently conducting modeling work to examine benefits, costs, and risks associated with alternative assumptions regarding various future scenarios. This work will provide important information to stakeholders and decision makers regarding the validation of the benefits of NextGen capabilities, as well as the extent to which further capacity in the system may be required, and is still in the preliminary stages. Mr. Chairman, this concludes my statement. 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 Gerald L. Dillingham, Ph.D., at (202) 512-2834 or [email protected]. Individuals making key contributions to this testimony include Andrew Von Ah (Assistant Director), Kieran McCarthy, Richard Scott, Maria Mercado, Kevin Egan, Dominic Nadarski, Delwen Jones, Amy Abramowitz, and Bert Japikse. Next Generation Air Transportation System: FAA Faces Challenges in Responding to Task Force Recommendations. GAO-10-188T. Washington, D.C.: October 28, 2009. Responses to Questions for the Record: March 18, 2009, Hearing on ATC Modernization: Near-Term Achievable Goals. GAO-09-718R. Washington, D.C.: May 20, 2009. Next Generation Air Transportation System: Status of Transformation and Issues Associated with Midterm Implementation of Capabilities. GAO-09-479T. Washington D.C.: March 18, 2009. Responses to Questions for the Record: February 11, 2009, Hearing on the FAA Reauthorization Act of 2009. GAO-09-467R. Washington, D.C.: March 10, 2009. 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. Next Generation Air Transportation System: Status of Key Issues Associated with the Transition to NextGen. GAO-08-1154T. Washington, D.C.: September 11, 2008. 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 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. Results Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, D.C.: October 21, 2005. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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To prepare for future air traffic growth, the Federal Aviation Administration (FAA), including its Joint Planning and Development Office (JPDO) and Air Traffic Organization, is planning and implementing the Next Generation Air Transportation System (NextGen) in partnership with other federal agencies, such as the Departments of Commerce, Defense, and Homeland Security, and the aviation industry. NextGen will transform the current radar-based air traffic control system into a satellite-based system. As FAA begins implementing near-and midterm NextGen capabilities, a key challenge will be the extent to which FAA is able to integrate near and midterm improvements (those between 2012 and 2018) with long-term plans (beyond 2018). Furthermore, coordination among federal partner agencies and among various lines of business within FAA is important to ensure that NextGen implementation efforts are aligned. GAO's testimony focuses on (1) current mechanisms for and challenges to coordination among FAA and its partner agencies in implementing NextGen, (2) challenges and ongoing efforts to improve coordination across offices within FAA, and (3) issues related to integrating near- and midterm implementation plans with long-term NextGen plans. This statement is based on past and ongoing GAO work, and interviews GAO conducted with senior agency officials at FAA, JPDO and its partner agencies, and selected industry stakeholders. Several mechanisms to facilitate coordination on NextGen activities among partner agencies and across FAA exist, but challenges to this coordination remain. One interagency coordination mechanism is the Senior Policy Committee, which is the high-level coordinating body across all of the partner agencies. In addition, JPDO is tasked with facilitating day-to-day interagency coordination, and has several mechanisms, including working groups and research transition teams, to accomplish this. GAO has previously reported that a lack of stable leadership and ambiguity surrounding JPDO's organizational position and ongoing role have contributed to the uneven performance of its coordination mechanisms. Recent changes in both the leadership and organizational position of JPDO could improve coordination across partner agencies. Stakeholders and partner agencies identified several other challenges to improving interagency coordination and collaboration, including (1) limited funding and staffing to dedicate to NextGen activities, (2) competing mission priorities, and (3) undefined near-term roles and responsibilities of some partner agencies. FAA also faces challenges coordinating the implementation of NextGen across multiple FAA offices. GAO has previously reported that shifting from an organization focused on system acquisition to one focused on integration and coordination will be an ongoing challenge for FAA. Recent organizational changes that solidify the FAA Deputy Administrator as the key executive in charge of NextGen may help address these challenges. Moreover, FAA has made progress in improving coordination of efforts within FAA, by coordinating some office functions and moving toward a portfolio approach for implementation. However, as all these changes have recently occurred, it is too early to measure their success. Integration of midterm implementation plans with the long-term plans and vision for NextGen is currently an ongoing effort within FAA. FAA officials and several stakeholders described FAA's near- and midterm efforts--such as implementing satellite-based surveillance of aircraft--as necessary stepping-stones to the long-term plans and vision of NextGen--such as aircraft operators receiving satellite surveillance information in the cockpit and using it to self-separate from surrounding aircraft. Early success in implementing NextGen capabilities will help build confidence among aircraft operators that FAA can and will provide the operational improvements necessary for operators to realize benefits from their equipment investments. However, some stakeholders expressed concern that near- and midterm implementation efforts are not integrated well enough with the long-term vision. Stakeholders identified key policy decisions that will affect the vision of the NextGen system over the long term and in turn determine whether programs, technologies, and capabilities implemented today will be the stepping-stones to future, more advanced capabilities. Key decisions include such issues as the installation of aircraft equipment, expediting environmental reviews, and the extent to which additional airport capacity will be needed.
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Addressing the Year 2000 problem in time will be a tremendous challenge for the federal government. Many of the federal government's computer systems were originally designed and developed 20 to 25 years ago, are poorly documented, and use a wide variety of computer languages, many of which are obsolete. Some applications include thousands, tens of thousands, or even millions of lines of code, each of which must be examined for date-format problems. To complicate matters, agencies must also consider the computer systems belonging to federal, state, and local governments; the private sector; foreign countries; and international organizations that interface with their systems. For example, agencies that administer key federal benefits payment programs, such as the Department of Veterans Affairs, exchange data with the Department of the Treasury, which, in turn, interfaces with various financial institutions to ensure that benefits checks are issued. Department of Defense (DOD) systems interface with thousands of systems belonging to foreign military sales customers, private contractors, other federal agencies, and international entities such as the North Atlantic Treaty Organization. Taxpayers can pay their taxes through data exchanges between the taxpayer, financial institutions, the Federal Reserve System, and the Department of the Treasury's Financial Management Service and the Internal Revenue Service. Because of these and thousands of other interdependencies, government systems are also vulnerable to failure caused by incorrectly formatted data provided by other systems that are noncompliant. The federal government also depends on the telecommunications infrastructure to deliver a wide range of services. For example, the route of an electronic Medicare payment may traverse several networks--those operated by the Department of Health and Human Services, the Department of the Treasury's computer systems and networks, and the Federal Reserve's Fedwire electronic funds transfer system. Seamless connectivity among a wide range of networks and carriers is essential nationally and internationally and a Year 2000-induced telecommunications failure could cause major disruptions. In addition, the year 2000 could cause problems for the many facilities used by the federal government that were built or renovated within the last 20 years and contain embedded computer systems to control, monitor, or assist in operations. For example, building security systems, elevators, and air conditioning and heating equipment could malfunction or cease to operate. Agencies cannot afford to neglect any of these issues. If they do, the impact of Year 2000 failures could be widespread, costly, and potentially disruptive to vital government operations worldwide. For example: flights could be grounded or delayed and airline safety could be degraded; the military services could find it extremely difficult to efficiently and effectively equip and sustain their forces around the world; Internal Revenue Service tax systems could be unable to process returns, thereby jeopardizing revenue collection and delaying refunds; the Social Security Administration process to provide benefits to disabled persons could be disrupted; and payments to veterans with service-connected disabilities could be erroneous or severely delayed. Because of the urgent nature of the Year 2000 problem and the potentially devastating impact it can have on critical government operations, we designated the problem as a high-risk area for the federal government in February 1997. Since that time, we have issued over 40 reports and testimony statements detailing specific findings and recommendations related to the Year 2000 readiness of a wide range of federal agencies. We have also issued guidance to help organizations successfully address the issue. Overall, the government's 24 major departments and agencies are making slow progress in fixing their systems. In May 1997, the Office of Management and Budget (OMB) reported that about 21 percent of the mission-critical systems (1,598 of 7,649) for these departments and agencies were Year 2000 compliant. A year later, in May 1998, these departments and agencies reported that 2,914 of the 7,336 mission-critical systems in their current inventories, or about 40 percent, were compliant. Unless progress improves dramatically, a substantial number of mission-critical systems will not be compliant on time. In addition to slow progress in fixing systems, many agencies were not adequately acting on critical steps to establish priorities, solidify data exchange agreements, and develop contingency plans. Likewise, more attention needs to be devoted to (1) ensuring the government has a complete and accurate picture of Year 2000 progress, (2) setting national priorities, (3) ensuring that the government's critical core business processes are adequately tested, (4) recruiting and retaining information technology personnel with the appropriate skills for Year 2000-related work, and (5) assessing the nation's Year 2000 risks, including those posed by key economic sectors. I would like to highlight some of these vulnerabilities and our recommendations made in April 1998 for addressing them. First, governmentwide priorities in fixing systems have yet to be established. There has not been a concerted effort to set governmentwide priorities based on such criteria as the potential for adverse health and safety effects, adverse financial effects on American citizens, detrimental effects on national security, and adverse economic consequences. Furthermore, while individual agencies have been identifying mission-critical systems, this has not always been done based on a determination of the agency's most critical operations. For example, as noted by the Defense Science Board, Defense has no means of distinguishing between the priority of a video-conferencing system and a logistics system, both of which were identified as mission-critical. If priorities are not clearly set, the government may well end up wasting limited time and resources in fixing systems that have little bearing on the most vital government operations. Second, contingency planning across the government has been inadequate. In their May 1998 quarterly reports to OMB, only four agencies reported that they had drafted contingency plans for their core business processes. Without such plans, when unpredicted failures occur, agencies will not have well-defined responses and may not have enough time to develop and test alternatives. Federal agencies depend on data provided by their business partners as well as services provided by the public infrastructure (e.g., power, water, transportation, and voice and data telecommunications). One weak link anywhere in the chain of critical dependencies can cause major disruptions to business operations. Given these interdependencies, it is imperative that contingency plans be developed for all critical core business processes and supporting systems, regardless of whether these systems are owned by the agency. Third, OMB's assessment of the current status of federal Year 2000 progress is predominantly based on agency reports that have not been consistently reviewed or verified. Without independent reviews, OMB and the President's Council on Year 2000 Conversion have little assurance that they are receiving accurate information. In fact, we have found cases in which agencies' systems compliance status reported to OMB has been inaccurate. For example, the DOD Inspector General estimated that almost three quarters of DOD's mission-critical systems reported as compliant in November 1997 had not been certified as compliant by DOD components.In May 1998, the Department of Agriculture reported 15 systems as compliant, even though these were replacement systems that were still under development or were planned to be developed. (The department plans to remove these systems from compliant status in its next quarterly report.) Fourth, end-to-end testing responsibilities have not yet been defined. To ensure that their mission-critical systems can reliably exchange data with other systems and that they are protected from errors that can be introduced by external systems, agencies must perform end-to-end testing for their critical core business processes. The purpose of end-to-end testing is to verify that a defined set of interrelated systems, which collectively support an organizational core business area or function, work as intended in an operational environment. In the case of the year 2000, many systems in the end-to-end chain will have been modified or replaced. As a result, the scope and complexity of testing--and its importance--is dramatically increased, as is the difficulty of isolating, identifying, and correcting problems. Consequently, agencies must work early and continually with their data exchange partners to plan and execute effective end-to-end tests. So far, lead agencies have not been designated to take responsibility for ensuring that end-to-end testing of processes and supporting systems is performed across boundaries, and that independent verification and validation of such testing is ensured. In our April 1998 report on governmentwide Year 2000 progress, we made a number of recommendations to the Chairman of the President's Council on Year 2000 Conversion aimed at addressing these problems. These included establishing governmentwide priorities and ensuring that agencies set their own agencywide priorities, developing a comprehensive picture of the nation's Year 2000 readiness, requiring agencies to develop contingency plans for all critical core requiring agencies to develop an independent verification strategy to involve inspector general or other independent organizations in reviewing Year 2000 progress, and designating lead agencies responsible for ensuring end-to-end operational testing of processes and supporting systems is performed. We are encouraged by actions the Council is taking in response to some of our recommendations. For example, OMB and the Chief Information Officers Council adopted our draft guide providing information on business continuity and contingency planning issues common to most large enterprises as a model for federal agencies. However, as we recently testified before this Subcommittee, some actions have not been initiated--principally with respect to setting national priorities, independent verification, and end-to-end testing. One of the more alarming problems we have come across in our Year 2000 reviews is that some agencies are not adequately prepared for testing their systems for Year 2000 compliance. For example, in April 1998, we reported that DOD did not have a testing strategy that specifies uniform criteria and processes that its components should use in testing their systems. The Army, Navy, and Air Force had not assessed their test needs or test facility requirements. In May 1998, we reported that the Department of Agriculture's Chief Information Officer had not provided test guidance to the department's component agencies, and 8 of 10 component agencies included in our review lacked testing strategies. The fact that these agencies are not prepared now for effective testing raises serious concern. Complete and thorough Year 2000 testing is essential to provide reasonable assurance that new or modified systems process dates correctly and will not jeopardize an organization's ability to perform core business operations after the millennium. Moreover, since the Year 2000 computing problem is so pervasive, potentially affecting an organization's systems software, applications software, databases, hardware, firmware and embedded processors, telecommunications, and external interfaces, the requisite testing is extensive and expensive. Leading organizations estimate that testing will require at least 50 percent of an entity's total Year 2000 program time. To address this problem, we are issuing today a new installment of our Year 2000 guidance which addresses the need to plan and conduct Year 2000 tests in a structured and disciplined fashion. The guide describes a step-by-step framework for managing, and a checklist for assessing, all Year 2000 testing activities, including those activities associated with computer systems or system components (such as embedded processors) that are vendor supported. This disciplined approach and the prescribed levels of testing activities are hallmarks of mature software and system development/acquisition and maintenance processes. The guide describes the five levels of Year 2000 testing activities. The first level establishes the organization infrastructure key processes needed to guide, support, and manage the next four levels of testing activities. For example, it addresses defining and assigning Year 2000 test management authority and responsibility, defining criteria for certifying a system as compliant, identifying and allocating resources, establishing schedules, and securing test facilities. The next four levels provide key processes for effectively designing, conducting, and reporting on tests of incrementally larger system components: software unit/module tests, software integration tests, system acceptance tests, and end-to-end tests. The processes focus on testing of software and system components that the organization is directly responsible for developing, acquiring, or maintaining. Key processes, however, are also defined to address organizational responsibilities relative to testing of vendor-supported and commercial, off-the-shelf (COTS) products and components (including hardware, systems software, embedded processors, telecommunications, and COTS applications). The test model builds upon and complements the five-phase conversion model described in our Year 2000 readiness guide. The five levels of test activities span all phases of our Year 2000 conversion model, with the preponderance of test activities occurring in the conversion model's renovation and validation phases. Finally, the guide incorporates guidance and recommendations of standards bodies, such as the National Institute of Standards and Technology and the Institute of Electrical and Electronic Engineers on Year 2000 testing practices and draws on the work of leading information technology organizations including the Software Engineering Institute, Software Quality Engineering, Software Productivity Consortium, and the United Kingdom's Central Computer and Telecommunications Agency. In conclusion, if effectively implemented, our guide should help federal agencies successfully negotiate the complexities involved with the Year 2000 testing process. However, the success of the government's Year 2000 remediation efforts ultimately hinges on setting governmentwide priorities; ensuring that agencies set priorities and develop contingency plans consistent with these priorities; developing an accurate picture of remediation progress; designating lead agencies for end-to-end testing efforts; and addressing other critical issues, such as recruiting and retaining qualified information technology personnel. Mr. Chairman, this concludes my statement. Mr. Joel Willemssen, GAO's Issue Area Director for Civil Agencies Information Systems and our focal point for Year 2000 work, has accompanied me today. We will be happy to answer any questions you or Members of the Subcommittee may have. Year 2000 Computing Crisis: Telecommunications Readiness Critical, Yet Overall Status Largely Unknown (GAO/T-AIMD-98-212, June 16, 1998). GAO Views on Year 2000 Testing Metrics (GAO/AIMD-98-217R, June 16, 1998). IRS' Year 2000 Efforts: Business Continuity Planning Needed for Potential Year 2000 System Failures (GAO/GGD-98-138, June 15, 1998). Year 2000 Computing Crisis: Actions Must Be Taken Now To Address Slow Pace of Federal Progress (GAO/T-AIMD-98-205, June 10, 1998). Defense Computers: Army Needs to Greatly Strengthen Its Year 2000 Program (GAO/AIMD-98-53, May 29, 1998). Year 2000 Computing Crisis: USDA Faces Tremendous Challenges in Ensuring That Vital Public Services Are Not Disrupted (GAO/T-AIMD-98-167, May 14, 1998). Securities Pricing: Actions Needed for Conversion to Decimals (GAO/T-GGD-98-121, May 8, 1998). Year 2000 Computing Crisis: Continuing Risks of Disruption to Social Security, Medicare, and Treasury Programs (GAO/T-AIMD-98-161, May 7, 1998). IRS' Year 2000 Efforts: Status and Risks (GAO/T-GGD-98-123, May 7, 1998). Air Traffic Control: FAA Plans to Replace Its Host Computer System Because Future Availability Cannot Be Assured (GAO/AIMD-98-138R, May 1, 1998). Year 2000 Computing Crisis: Potential For Widespread Disruption Calls For Strong Leadership and Partnerships (GAO/AIMD-98-85, April 30, 1998). Defense Computers: Year 2000 Computer Problems Threaten DOD Operations (GAO/AIMD-98-72, April 30, 1998). Department of the Interior: Year 2000 Computing Crisis Presents Risk of Disruption to Key Operations (GAO/T-AIMD-98-149, April 22, 1998). Year 2000 Computing Crisis: Business Continuity and Contingency Planning (GAO/AIMD-10.1.19, Exposure Draft, March 1998). Tax Administration: IRS' Fiscal Year 1999 Budget Request and Fiscal Year 1998 Filing Season (GAO/T-GGD/AIMD-98-114, March 31, 1998). Year 2000 Computing Crisis: Strong Leadership Needed to Avoid Disruption of Essential Services (GAO/T-AIMD-98-117, March 24, 1998). Year 2000 Computing Crisis: Federal Regulatory Efforts to Ensure Financial Institution Systems Are Year 2000 Compliant (GAO/T-AIMD-98-116, March 24, 1998). Year 2000 Computing Crisis: Office of Thrift Supervision's Efforts to Ensure Thrift Systems Are Year 2000 Compliant (GAO/T-AIMD-98-102, March 18, 1998). Year 2000 Computing Crisis: Strong Leadership and Effective Public/Private Cooperation Needed to Avoid Major Disruptions (GAO/T-AIMD-98-101, March 18, 1998). Post-Hearing Questions on the Federal Deposit Insurance Corporation's Year 2000 (Y2K) Preparedness (AIMD-98-108R, March 18, 1998). SEC Year 2000 Report: Future Reports Could Provide More Detailed Information (GAO/GGD/AIMD-98-51, March 6, 1998). Year 2000 Readiness: NRC's Proposed Approach Regarding Nuclear Powerplants (GAO/AIMD-98-90R, March 6, 1998). Year 2000 Computing Crisis: Federal Deposit Insurance Corporation's Efforts to Ensure Bank Systems Are Year 2000 Compliant (GAO/T-AIMD-98-73, February 10, 1998). Year 2000 Computing Crisis: FAA Must Act Quickly to Prevent Systems Failures (GAO/T-AIMD-98-63, February 4, 1998). FAA Computer Systems: Limited Progress on Year 2000 Issue Increases Risk Dramatically (GAO/AIMD-98-45, January 30, 1998). Defense Computers: Air Force Needs to Strengthen Year 2000 Oversight (GAO/AIMD-98-35, January 16, 1998). Year 2000 Computing Crisis: Actions Needed to Address Credit Union Systems' Year 2000 Problem (GAO/AIMD-98-48, January 7, 1998). Veterans Health Administration Facility Systems: Some Progress Made In Ensuring Year 2000 Compliance, But Challenges Remain (GAO/AIMD-98-31R, November 7, 1997). Year 2000 Computing Crisis: National Credit Union Administration's Efforts to Ensure Credit Union Systems Are Year 2000 Compliant (GAO/T-AIMD-98-20, October 22, 1997). Social Security Administration: Significant Progress Made in Year 2000 Effort, But Key Risks Remain (GAO/AIMD-98-6, October 22, 1997). Defense Computers: Technical Support Is Key to Naval Supply Year 2000 Success (GAO/AIMD-98-7R, October 21, 1997). Defense Computers: LSSC Needs to Confront Significant Year 2000 Issues (GAO/AIMD-97-149, September 26, 1997). Veterans Affairs Computer Systems: Action Underway Yet Much Work Remains To Resolve Year 2000 Crisis (GAO/T-AIMD-97-174, September 25, 1997). Year 2000 Computing Crisis: Success Depends Upon Strong Management and Structured Approach (GAO/T-AIMD-97-173, September 25, 1997). Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14, September 1997). Defense Computers: SSG Needs to Sustain Year 2000 Progress (GAO/AIMD-97-120R, August 19, 1997). Defense Computers: Improvements to DOD Systems Inventory Needed for Year 2000 Effort (GAO/AIMD-97-112, August 13, 1997). Defense Computers: Issues Confronting DLA in Addressing Year 2000 Problems (GAO/AIMD-97-106, August 12, 1997). Defense Computers: DFAS Faces Challenges in Solving the Year 2000 Problem (GAO/AIMD-97-117, August 11, 1997). Year 2000 Computing Crisis: Time Is Running Out for Federal Agencies to Prepare for the New Millennium (GAO/T-AIMD-97-129, July 10, 1997). Veterans Benefits Computer Systems: Uninterrupted Delivery of Benefits Depends on Timely Correction of Year-2000 Problems (GAO/T-AIMD-97-114, June 26, 1997). Veterans Benefits Computer Systems: Risks of VBA's Year-2000 Efforts (GAO/AIMD-97-79, May 30, 1997). Medicare Transaction System: Success Depends Upon Correcting Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16, 1997). Medicare Transaction System: Serious Managerial and Technical Weaknesses Threaten Modernization (GAO/T-AIMD-97-91, May 16, 1997). Year 2000 Computing Crisis: Risk of Serious Disruption to Essential Government Functions Calls for Agency Action Now (GAO/T-AIMD-97-52, February 27, 1997). Year 2000 Computing Crisis: Strong Leadership Today Needed To Prevent Future Disruption of Government Services (GAO/T-AIMD-97-51, February 24, 1997). High-Risk Series: Information Management and Technology (GAO/HR-97-9, February 1997). 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. 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GAO discussed: (1) the year 2000 risks facing the government; (2) major concerns with the government's progress in fixing its systems; and (3) guidance on year 2000 testing, which is designed to assist agencies in the most extensive and expensive part of remediation. GAO noted that: (1) addressing the year 2000 problem in time will be a tremendous challenge for the federal government; (2) to complicate matters, agencies must consider the computer systems belonging to federal, state, and local governments; the private sector; foreign countries; and international organizations that interface with their systems; (3) the year 2000 could cause problems for the many facilities used by the federal government that were built or renovated within the last 20 years and contain embedded computer systems to control, monitor, or assist in operations; (4) if agencies neglect any of these issues, the impact of year 2000 failures could be widespread, costly and potentially disruptive to vital government operations worldwide; (5) overall, the government's 24 major departments and agencies are making slow progress in fixing their systems; (6) many agencies were not adequately acting on critical steps to establish priorities, solidify data exchange agreements, and develop contingency plans; (7) some agencies are not adequately prepared for testing their systems for year 2000 compliance; (8) complete and thorough year 2000 testing is essential to provide reasonable assurance that new or modified systems process dates correctly and will not jeopardize an organization's ability to perform core business operations after the millenium; (9) since the year 2000 computing problem is so pervasive, the requisite testing is extensive and expensive; (10) to address the testing problem, GAO issued a new installment of its year 2000 guidance which addresses the need to plan and conduct year 2000 tests in a structured and disciplined fashion; (11) if effectively implemented, the guide should help federal agencies successfully negotiate the complexities involved with the year 2000 testing process; and (12) however, the success of the government's year 2000 remediation efforts ultimately hinges on setting governmentwide priorities, ensuring that agencies set priorities and develop contingency plans consistent with these priorities, developing an accurate picture of remediation progress, designating lead agencies for end-to-end testing efforts, and addressing other critical issues such as recruiting and retaining qualified information technology personnel.
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We conducted our work for GAO-09-879 from September 2008 to September 2009 and updated the analysis of the number and duration of continuing resolutions from February to March 2013. until agreement is reached on final appropriations, they create uncertainty for agencies about both when they will receive their final appropriation and what level of funding ultimately will be available. The effects of CRs on federal agencies differ in part on the duration and number of CRs. As the examples in my statement will illustrate, shorter and more numerous CRs can lead to repetitive work. Longer-term CRs allowed for better planning in the near term, however, operating under the level of funding and other restrictions in the CR for a prolonged period also limited agencies' decision-making options and made tradeoffs more difficult. As shown in figure 1, the duration and number of CRs has varied greatly between fiscal years 1999-2013, ranging from 1 to 197 days. The number of CRs enacted in each year also varied considerably ranging from 2 to 21, excluding the current fiscal year. The effects of CRs also vary by agency and program. Not all federal agencies, for example, are under CRs for the same amount of time. In our 2009 report we found that agencies covered by the Defense, Military Construction, and Homeland Security Appropriations Subcommittees operated under CRs for about 1 month on average during fiscal years 1999-2009, whereas other agencies operated under CRs for at least 2 months on average. More recently, for fiscal year 2013, all federal agencies are operating under a CR scheduled to expire on March 27, 2013. Congress includes provisions applicable to the funding of most agencies and programs under a CR. These provisions provide direction regarding the availability of funding within a CR and demonstrate the temporary nature of the legislation. For example, one standard provision provides for an amount to be available to continue operations at a designated rate of operations. Since fiscal year 1999, different formulas have been enacted for determining the rate for operations during the CR period. The amount often is based on the prior fiscal year's funding level or the "current rate" but may also be based on a bill that has passed either the House or Senate. Depending on the language of the CR, different agencies may operate under different rates. The amount is available until a specified date or until the agency's regular appropriations act is enacted, whichever is sooner. In general, CRs prohibit new activities and projects for which appropriations, funds, or other authority were not available in the prior year. Also, so the agency action does not impinge upon final funding prerogatives, agencies are directed to take only the most limited funding actions and CRs limit the ability of an agency to obligate all, or a large share of its available appropriation during the CR. In 2007, Congress enacted the furlough provision in the CR for the first time. This provision permits OMB and other authorized government officials to apportion, or distribute amounts available for obligation, up to the full amount of the rate for operations to avoid a furlough of civilian employees. This authority may not be used until after an agency has taken all necessary action to defer or reduce nonpersonnel-related administrative expenses. Recognizing the constraints inherent in a CR, Congress has at times provided flexibility for certain programs and initiatives through the use of legislative anomalies, which provide funding and authorities different from the standard CR provisions. While uncommon, the majority of the anomalies provided either (1) a different amount than that provided by the standard rate of operations or (2) an extension of expiring program authority. In some cases, CRs provide full-year appropriations for a program or activity, to help agencies manage funds. For example, in fiscal year 2009, the CR appropriated an amount to cover the entire year for Low Income Home Energy Assistance Program (LIHEAP) payments. LIHEAP provides assistance for low-income families in meeting their home energy needs and typically 90 percent of LIHEAP funding is In addition to obligated in the first quarter to cover winter heating costs.the anomalies, multiyear appropriations and advance appropriations can help agencies manage the effects of CRs. For example, agency officials stated that multiyear appropriations, which provide the authority to carry over funds into the next fiscal year, can be helpful in years with lengthy CRs because there is less pressure to obligate all of their funds before the end of the fiscal year, thus reducing the incentive to spend funds on lower priority items that can be procured more quickly. Case study agency officials contacted for our 2009 report said that, absent a CR, they would have hired additional staff sooner for government services such as grant processing and oversight, food and drug inspections, intelligence analysis, prison security, claims processing for veterans' benefits, or general administrative tasks, such as financial management and budget execution. While agency officials said that it was difficult to quantify the effect that hiring delays related to CRs had on specific agency activities given the number of variables involved, agencies provided examples that illustrated the potential adverse effects including: An FDA official said that deferring the hiring and training of staff during a CR affected the agency's ability to conduct the targeted number of inspections negotiated with FDA's product centers in areas such as food and medical devices and that routine surveillance activities (e.g., inspections, sample collections, field examinations, etc.) were some of the first to be affected. BOP officials said that deferring hiring during CRs had made it difficult for BOP to maintain the ratio of corrections officers to inmates as the prison population increased. VBA officials cited missed opportunities in processing additional benefits claims and completing other tasks. Because newly hired claims processors require as much as 24 months of training to reach full performance, a VBA official said that the effects of hiring delays related to CRs were not immediate, but reduced service delivery in subsequent years. Several case study agencies also reported delaying contracts during the CR period, which could reduce the level of services agencies provided and increased costs. For example, BOP reported delaying the activation of its Butner and Tucson Prison facilities and two other federal prisons in 2007 during the CR period to make $65.6 million available for more immediate needs. According to BOP, these delays in the availability of additional prison capacity occurred at a time when prison facilities were already overcrowded. BOP officials also said that delaying contract awards for new BOP prisons and renovations to existing facilities prevented the agency from locking in prices and resulted in higher construction costs and increases in the cost of supplies. Based on numbers provided by BOP, a delay in awarding a contract for the McDowell Prison Facility resulted in about $5.4 million in additional costs. In some instances, delaying contracts resulted in additional costs in terms of time and resources. For example, officials from BOP, VHA, and VBA said that they sometimes had to solicit bids a second time or have environmental, architectural, or engineering analyses redone. Some agency officials said that contracting delays resulting from longer CRs also affected their ability to fully compete and award contracts in the limited time remaining in the fiscal year after the agency had received its regular appropriation. VHA and ACF reported that the application time available for discretionary grants may also be compressed by a longer CR. Further, VA stated that this compressed application time adversely affected the quality of submitted applications. Similarly, BOP's Field Acquisition Office, which is responsible for acquisitions over $100,000, said that trying to complete all of its contracts by the end of the fiscal year when a CR lasts longer than 3 to 4 months negatively affects the quality of competition. According to some representatives of nonprofit organizations and state and local governments, federal grant recipients could temporarily support programs with funds from other sources until agencies' regular appropriations are passed; however, it was more difficult to do so during periods of economic downturn such as the one they recently experienced. An ACF official told us that nonprofit organizations providing shelter to unaccompanied alien children have used lines of credit to bridge gaps in federal funding during a CR. However, in March 2009, a shelter in Texas informed ACF's Office of Refugee Resettlement that its credit was at its limit and it was in immediate need of additional funds to sustain operations for the next 45 to 60 days. The Office of Refugee Resettlement made an emergency grant to this organization to maintain operations with the CR funding remaining. Case study agencies reported that they continued to feel the effects of the delays caused by CRs even after the agencies had received their full year appropriations. In general, longer CRs can make it more difficult to implement unexpected changes in agencies' regular appropriations, because agencies have a limited time to do so. In addition, longer CRs can contribute to distortions in agencies' spending as agencies rush to obligate funds late in the fiscal year. For example, agency officials said that if hiring was delayed during the CR period, it was particularly difficult to fill positions by the end of the fiscal year after a longer CR period. Agency officials said that if the agency does not have enough time to spend its funding on high-priority needs (such as hiring new staff) because of a lengthy CR, the agency ultimately may spend funds on a lower priority item that can be procured quickly. In addition to delays, all case study agencies reported having to perform additional work to manage within the constraints of the CR--potentially resulting in hundreds of hours of lost productivity. The most common type of additional work that agencies reported was having to enter into shorter term contracts or grants multiple times to reflect the duration of the CR. Agencies often made contract or grant awards monthly or in direct proportion to the amount and timing of funds provided by the CR. In other words, if a CR lasted 30 days, an agency would award a 30-day contract for goods or services. Then, each time legislation extended the CR, the agency would enter into another short-term contract to make use of the newly available funding. In 2009, agencies reported that the time needed for these tasks may be minimal and vary depending on the complexity of a contract or grant, but the time spent is meaningful when multiplied across VHA's 153 medical facilities and roughly 800 clinics, FBI's 56 field offices, BOP's 115 institutions, and the thousands of grants and contracts awarded by our case study agencies. For example, at the time of our study, VHA estimated that it awarded 20,000 to 30,000 contracts a year; ACF's Head Start program awarded grants to over 1,600 different recipients each year; and FBI placed over 7,500 different purchase orders a year. While none of the agencies reported tracking these costs, VHA estimated that a 1-month CR resulted in over $1 million in lost productivity at VA medical facilities and over $140,000 in additional work for the agency's central contracting office. These estimates were based on agency officials' rough approximations of the hours spent on specific activities related to CRs multiplied by average cost of the salary of the federal employee performing the task. This time estimate does not include the additional work required to issue multiple grants. activities related to managing during the CR such as weekly planning meetings and monitoring agency resources and requisitions. In general, numerous shorter CRs led to more repetitive work for agencies managing contracts than longer CRs. Numerous shorter CRs were particularly challenging for agencies, such as VHA and BOP, that have to maintain an inventory of food, medicine, and other essential supplies and could result in increased costs. For example, absent a CR, BOP officials said that prison facilities routinely contracted for a 60- to 90- day supply of food. In addition to reducing work, this allowed the prison facilities to negotiate better terms in delivery order contracts by taking advantage of economies of scale. However, under shorter CRs, these facilities generally limited their purchases to correspond with the length and funding provided by the CR. Thus, the prison made smaller, more frequent purchases, which BOP officials said could result in increased costs. Agency officials told us they took various actions to manage inefficiencies resulting from CRs, including delays and increased workload. For example, to avoid the types of hiring delays often associated with a CR, during the CR period in 2009 FBI proceeded with its hiring activities based on a staffing plan supported by the President's Budget. This helped FBI avoid a backlog in hiring later in the year and cumulatively over time, but the agency assumed some risk because it could have received a regular appropriation that did not support the hiring plan it had implemented. Had this happened, FBI officials stated that FBI likely would have had to suspend hiring for the remainder of the fiscal year and make difficult cuts to other nonpersonnel expenses. To reduce the amount of additional work required to modify contracts and award grants in multiple installments, ACF and FDA reported shifting contract and grant cycles to later in the fiscal year. An agency's ability to shift its contract cycle depends on a number of factors, including the type of services being acquired.annual contracts for severable services, such as recurring janitorial services, are executed in the third and fourth quarters of the fiscal year when agencies are less likely to be operating under a CR. Further, FBI reported it generally entered into contracts based on the rate for operations for the period covered by the CR. Previously, each time Congress extended a CR, FBI renewed its contracts to make use of the additional funds that became available, and FBI's Finance Division provided a requisition for the renewal. Under FBI's new streamlined process, the Finance Division committed enough funds to cover a full- year contract at the beginning of the fiscal year. An agency can shift its contract cycle so that To reduce the administrative work required to subdivide funds from each CR to different offices, programs, or both, VBA and VHA reported that they did not allot specific dollar amounts during a CR but rather provided guidance that all offices operate at a certain percentage of the previous year's appropriations. According to agency officials, this provides the agency with more flexibility during the CR period and reduces the workload associated with changes in funding levels. VHA officials said that this also allows each facility to manage its funds to meet priorities identified at the local level. We have not reviewed agency operations under CRs since we issued our 2009 report. However, studies issued after our report was released have highlighted similar themes. This concludes my statement for the record. 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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Congress annually faces difficult decisions on what to fund among competing priorities and interests with available resources. Continuing resolutions (CRs) can create budget uncertainty, complicating agency operations and causing inefficiencies. In all but 3 of the last 30 years, Congress has passed CRs to provide funding for agencies to continue operating until agreement is reached on final appropriations. GAO was asked to provide a statement based on findings from its 2009 report on managing under CRs ( GAO-09-879 ). This statement focuses on (1) a history of CRs and the provisions that Congress includes within them and (2) the effects of CRs on agency operations and actions that federal agencies have taken to manage these effects. GAO's 2009 report reviewed six federal agencies within three cabinet-level departments selected based on factors such as the length of time spent managing under CRs and the types of services they provided. These six case study agencies were the Administration for Children and Families and the Food and Drug Administration within the Department of Health and Human Services; Veterans Health Administration and Veterans Benefits Administration within the Department of Veterans Affairs; and Bureau of Prisons and Federal Bureau of Investigation within the Department of Justice. Under CRs that provide funding for the remainder of a fiscal year, agencies obtain certainty about funding. Therefore, CRs that spanned the months remaining in a fiscal year were not the focus of GAO's report. GAO did not make recommendations in the 2009 report. Because CRs only provide funding until agreement is reached on final appropriations, they create uncertainty for agencies about both when they will receive their final appropriation and what level of funding ultimately will be available. Effects of CRs on federal agencies differ based in part on the duration and number of CRs and may vary by agency and program. CRs include provisions that prohibit agencies from beginning new activities and projects and direct agencies to take only the most limited funding actions. Congress can provide flexibility for certain programs and initiatives through the use of legislative anomalies, which provide funding and authorities different from the standard CR provisions. Officials from all six case study agencies reported that they delayed hiring or contracts during the CR period, potentially reducing the level of services agencies provided and increasing costs. After operating under CRs for a prolonged time, agencies faced additional challenges executing their final budget as they rushed to spend funds in a compressed timeframe. All case study agencies reported performing additional work to manage within CR constraints, such as issuing shorter term grants and contracts multiple times. Agency officials reported taking varied actions to manage inefficiencies resulting from CRs, including shifting contract and grant cycles to later in the fiscal year to avoid repetitive work, and providing guidance on spending rather than allotting specific dollar amounts during CRs to provide more flexibility and reduce the workload associated with changes in funding levels.
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Our prior work highlights some of the challenges VA faces in formulating its budget. As we reported in 2006, these challenges include making realistic assumptions about the budgetary impact of some of its policies, making accurate calculations, and obtaining sufficient data for useful budget projections. In 2009, we again reported on VA's budget formulation challenges--specifically, VA's challenges projecting the amount of long- term care it will provide and estimating the costs of this care. Our 2006 report on VA's overall health care budget illustrated that in formulating its budget, VA faces challenges making realistic assumptions about the budgetary impact of its proposed policies. We reported that the President's requests for additional funding for VA's medical programs for fiscal years 2005 and 2006 were in part due to unrealistic assumptions VA made about how quickly the department would realize savings from proposed changes in its nursing home policy. Specifically, we found that: VA's fiscal year 2005 budget justification included a proposal to reduce the amount of care VA provides--known as workload--in VA-operated nursing homes, one of three settings which provide VA nursing home services. VA assumed that savings from this reduction in workload would be realized on the first day of fiscal year 2005. VA officials later told us that this assumption had been unrealistic because of the accelerated time frame of the planned policy change. The change would have required transferring or discharging veterans from the nursing homes in an extremely compressed time frame; moreover, achievement of substantial savings from this policy would have also likely required reducing the number of VA employees. VA's fiscal year 2006 budget justification included a policy proposal to reduce patient workload and costs by prioritizing the veterans who would receive a certain type of VA nursing home care. VA assumed that savings resulting from the policy change could be realized before the start of the 2006 fiscal year; however, VA officials said they later realized that time frame was unrealistic. In our 2006 report, we recommended that VA improve its budget formulation processes by explaining in its budget justifications the relationship between the implementation of proposed policy changes and the expected timing of cost savings to be achieved. VA agreed with this recommendation and acted on this recommendation in VA's fiscal year 2009 budget justification. Our 2006 report also illustrated that VA faces challenges making accurate calculations during budget formulation. As we reported, VA made computation errors when estimating the effect of its proposed fiscal year 2006 nursing home policy, and this contributed to requests for supplemental funding that year. We found that VA underestimated workload and the costs of providing care in all three of its nursing home settings. VA officials said that the errors resulted from calculations being made in haste during the OMB appeal process, and that a more standardized approach to long-term care calculations could provide stronger quality assurance to help prevent future mistakes. In 2006, we recommended that VA strengthen its internal controls to better ensure the accuracy of calculations it uses in preparing budget requests. VA agreed with and implemented this recommendation and had the savings estimates from proposed policy changes in its fiscal year 2009 budget justification validated by an outside actuarial firm. In formulating its budget, VA also faces the challenge of obtaining sufficient data for useful workload projections, as illustrated in our 2006 report. We reported that the President's requests for additional funding for VA health care programs in fiscal years 2005 and 2006 were, in part, due to the lack of sufficient data on how many OEF/OIF veterans VA would care for in those fiscal years. In its fiscal year 2005 budget justification, VA projected that it would need to provide care to about 23,500 returning OEF/OIF veterans. VA subsequently revised its projections to indicate that VA would serve nearly 100,000 OEF/OIF veterans. According to VA officials, the original projections for providing care to OEF/OIF veterans had been understated for fiscal year 2005 in part because the projections were based on insufficient data on veterans returning from Iraq and Afghanistan. Insufficient data on returning OEF/OIF veterans continued to be a challenge in formulating VA's fiscal year 2006 budget justification. VA officials told us they did not have sufficient data for that fiscal year due to challenges obtaining data needed to identify these veterans from the Department of Defense (DOD). After the President submitted the fiscal year 2006 budget request, VA determined that it expected to provide care to approximately 87,000 more veterans than initially projected for fiscal year 2006. According to VA officials, the agency subsequently began receiving the DOD data it requires to identify OEF/OIF veterans on a monthly basis rather than the quarterly reports it used to receive. Our recent work on VA's budget showed how VA continued to face challenges formulating its budget for long-term care services. In January 2009, we reported on VA's challenges developing realistic assumptions to project the amount of noninstitutional long-term care services it would provide to veterans. We found that, in its fiscal year 2009 budget justification, VA included a spending estimate for noninstitutional long- term care services that appeared unreliable, in part because this spending estimate was based on a workload projection that appeared to be unrealistically high, given recent VA experience providing these services. Specifically, in an effort to help meet veterans' demand for noninstitutional services, VA projected that it would increase its noninstitutional workload 38 percent from fiscal year 2008 to fiscal year 2009. VA included this projection in the budget despite the fact that from fiscal year 2006 to fiscal year 2007--the most recent year for which workload data are available--VA's actual workload for these services decreased about 5 percent, rather than increasing as projected. (See fig. 1.) In its fiscal year 2009 budget justification, VA did not provide information regarding its plans for how it will increase noninstitutional workload 38 percent from fiscal year 2008 to fiscal year 2009. To strengthen the credibility of the estimates of long-term care spending in VA's budgeting proposals and increase transparency for Congress and stakeholders, we recommended that in future budget justifications VA use workload projections for estimating noninstitutional long-term care spending that are consistent with VA's recent experience or report the rationale for using projections that are not. In commenting on a draft of our report, VA did not indicate whether it agreed with this recommendation, but stated it would complete an action plan that responds to the recommendation by the end of March 2009. In addition to having difficulty developing reliable projections on the amount of long-term care services it will provide, VA also faces challenges developing realistic assumptions about the cost of providing these services when formulating its budget. In January 2009, we reported that VA may have underestimated its nursing home spending for fiscal year 2009 because it used a cost assumption that appeared unrealistically low, given both recent VA experience and economic forecasts of increases in health care costs. To formulate its nursing home spending estimate, VA assumed that the cost of providing a day of nursing home care would increase 2.5 percent from fiscal year 2008 to fiscal year 2009. However, from fiscal year 2006 to fiscal year 2007--the most recent year for which actual cost data are available--the cost to provide this care increased approximately 5.5 percent. Similarly, for fiscal year 2007 to fiscal year 2008, VA estimated that its nursing home costs would increase approximately 11 percent. In addition to its recent experience, VA's 2.5 percent cost increase is also less than the rate provided in OMB guidance to VA to help with its budget estimates--which forecasted a rate of inflation for medical services of 3.8 percent for the same time period. In our January 2009 report, we also found that VA's estimate of the amount it would spend for noninstitutional long-term care services in fiscal year 2009 appeared to be unreliable--in part because VA based this estimate on a cost assumption that appeared unrealistically low, when compared to VA's recent experience and to economic forecasts of increases in health care costs. Specifically, VA assumed that the cost of providing a day of noninstitutional long-term care would not increase from its fiscal year 2008 level. VA used this assumption to formulate its noninstitutional long- term care spending estimate despite the fact that from fiscal year 2006 to fiscal year 2007--the most recent year for which actual cost data are available--the cost of providing these services increased 19 percent. VA's cost assumption is also inconsistent with the OMB guidance provided to VA. In its fiscal year 2009 budget justification, VA did not provide information regarding its nursing home or noninstitutional cost assumptions. However, VA officials told us that they made these assumptions in order to be conservative in VA's fiscal year 2009 budget estimates. To strengthen the credibility of the estimates of long-term care spending in VA's budgeting proposals and increase transparency for Congress and stakeholders, we recommended that VA, in future budget justifications, use cost assumptions for estimating both nursing home and noninstitutional long-term care spending that are consistent with VA's recent experience or report the rationale for using cost assumptions that are not. In commenting on a draft of our report, VA did not indicate whether it agreed with these recommendations, but stated it would complete an action plan that responds to the recommendations, again by the end of March 2009. Our prior work highlights some of the challenges VA faces in executing its health care budget. These challenges include spending and tracking funds designated by VA for specific health care initiatives as well as providing timely and useful information to Congress regarding budget execution progress and problems. After formulating its estimates of likely spending on its health care services, VA is also responsible for executing its budget efficiently and effectively. However, our 2006 report on VA's funding for specific mental health initiatives showed that in executing its budget, VA faces challenges spending and tracking the use of funds designated by VA for specific VA health care initiatives, in particular funds that VA intends to use to expand services to improve access to care for its veteran population. For example, in 2006, we reported that in fiscal years 2005 and 2006, VA had difficulty spending and tracking funds it had designated for new initiatives included in VA's mental health strategic plan, which were to expand mental health services in order to address gaps previously identified by VA. These initiatives--which were to be funded by $100 million in fiscal year 2005 and $200 million in fiscal year 2006--were intended to enhance VA's larger mental health program. In both fiscal years, VA allocated funds to VA medical centers and offices that were to be used for mental health strategic plan initiatives during those fiscal years, as part of VA's efforts to expand these services. As we reported in 2006, VA faced challenges in both spending the funds and tracking their use in fiscal years 2005 and 2006: Challenges in spending funds--We found that, by the end of fiscal years 2005 and 2006, some VA medical centers had not spent all of the funds they had received for mental health strategic plan initiatives for those fiscal years, according to VA medical center officials and other available information. In fiscal year 2005, this was due to factors such as the length of time it took the medical centers to hire new staff and locate or renovate space for new mental health programs. Challenges in tracking the use of funds--In both fiscal years, VA did not have an adequate method in place for tracking spending for its new mental health strategic plan initiatives. VA did not track how funds allocated for plan initiatives were spent, and as a result, VA could not determine to what extent the funds for plan initiatives were spent on those initiatives. To provide information for improved management and oversight, we recommended that VA track the extent to which the funds allocated for mental health strategic plan initiatives are spent for those initiatives. Since we reported on this issue in November 2006, VA has implemented a tracking system to monitor spending on mental health strategic plan initiatives and help determine the extent to which funds allocated for mental health strategic plan initiatives are spent for those initiatives. Although VA took steps to address its challenges tracking its spending on mental health initiatives, our more recent work in 2009 shows how VA continues to face spending challenges when the department undertakes efforts to expand services for veterans. In January 2009 we reported that VA's fiscal year 2009 budget justification included plans to increase VA's spending on noninstitutional long-term care services, in order to partially close previously identified gaps in the provision of these services. VA assumed it would be able to increase its noninstitutional workload by 38 percent from fiscal year 2008 to fiscal year 2009. However, in our report we raised questions about VA's ability to achieve this increase in workload. As we noted in our report, VA officials stated that increasing noninstitutional workload is challenging. Similar to VA's prior mental health initiatives, many of VA's noninstitutional services are provided by VA personnel, and as a result, VA must take the time to hire and train more personnel before it has the capacity to serve an increased workload. These factors suggest that VA may have difficulty spending its resources as planned. In its budget justification, VA did not explain how it plans to achieve this increase in noninstitutional workload. As VA executes its budget, VA also faces the challenge of providing timely information to Congress about the agency's progress and any problems the agency encounters during this process. For example, in our 2006 report on VA's overall health care budget, we reported that although VA staff had closely monitored its budget execution and identified problems for fiscal years 2005 and 2006, VA did not report this information to Congress in a timely manner. For example, anticipating challenges in managing within its resources, VA had closely monitored the fiscal year 2005 budget as early as October 2004. However, Congress did not learn of the budget challenges facing VA until April 2005. In addition, VA faces a challenge in providing information to Congress that would be useful for congressional oversight of VA's budget. For example, in 2006, we also found that VA's reporting of its budget execution progress and problems to Congress could have been more informative. In the appropriations act for fiscal year 2006, Congress included a requirement for VA to submit quarterly reports regarding the status of the medical programs budget during that fiscal year. In addition, the conference report accompanying the appropriations act directed VA to include waiting list performance measures, among other things. We found that VA did not include in its quarterly reports certain types of information that would have been useful for congressional oversight. For example, in its reports to Congress, VA used a patient workload measure that counted patients only once no matter how many times they used VA services within the fiscal year. This measure did not capture the difference between patients predominantly using low-cost services such as primary care outpatient visits and those using high-cost services such as acute inpatient hospital care. In contrast, VA provided in its reports to OMB other workload measures that provided a more complete picture of whether new patients were receiving low- or high-cost services. Some of those measures provided to OMB included a measure of one type of inpatient care-- nursing home workload--and the number of outpatient visits. In addition, in one of its quarterly reports to Congress, VA reported access measures for existing VA patients--the percentage of primary care and percentage of specialty care appointments scheduled within 30 days of the desired date--where VA was exceeding its performance goals. However, VA did not provide one access measure identified in the conference report: the time required for new patients to get their first appointment. Although not the same measure, a similar measure VA produced for other purposes showed the number of new patients waiting for their first appointment to be scheduled. This measure showed that the number of new patients waiting for their first appointment to be scheduled almost doubled from April 2005 to March 2006, indicating a potential problem in the first quarter of fiscal year 2006. We recommended that VA improve its reporting of budget execution progress to Congress by incorporating measures of patient workload to capture the costliness of care and a measure of waiting times. These measures might help alert Congress to potential problems VA may face in managing within its budget in future years. VA implemented part of this recommendation in the quarterly report it submitted to Congress in May 2008, in which VA reported two measures related to waiting times. Although the inclusion of these measures in VA's quarterly reports can help facilitate congressional oversight, VA could provide additional information to inform Congress about the costliness of VA care. Sound budget formulation, monitoring of budget execution, and the reporting of informative and timely information to Congress for oversight continue to be essential as VA addresses budget challenges we have identified in recent years. While the budget process inevitably involves imperfect information and uncertainty about future events, VA has the opportunity to improve the credibility of its budgeting process by continuing to address problems that we have identified in recent years. Doing so can increase the credibility and usefulness of information that VA provides to Congress and affected stakeholders on its annual budget plans and the progress it makes in spending appropriated funds as planned. This is particularly the case for long-term care services, where budget workload assumptions and cost projections, as highlighted by our work for several years, raise questions regarding the credibility and usefulness of projected spending estimates. In addition, our prior report on new VA mental health initiatives to address identified gaps in services may provide a cautionary lesson regarding the expansion of new VA health care programs more generally. Namely, that the availability of funding for new health care initiatives does not in itself mean that these initiatives will be fully implemented within a given fiscal year--in part because new initiatives can bring challenges in hiring and training new staff--or that monitoring and tracking of such funding will be adequate to report the extent to which new initiatives are being implemented as planned. Mr. Chairman, this concludes my prepared remarks. I would be happy to answer any questions you or other members of the Subcommittee may have. For more information regarding this testimony, please contact Randall B. Williamson at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. In addition, James C. Musselwhite, Assistant Director; Deirdre Brown; Robin Burke; and Krister Friday 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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The Department of Veterans Affairs (VA) estimates it will provide health care to 5.8 million patients with appropriations of $41.2 billion in fiscal year 2009. The President has proposed an increase in VA's health care budget for fiscal year 2010 to expand services for veterans. VA's patient population includes aging veterans who need services such as long-term care-- including nursing home and noninstitutional care provided in veterans' homes or community-- and veterans returning from Afghanistan and Iraq. Each year, VA formulates its medical care budget, which involves developing estimates of spending for VA's health care services. VA is also responsible for budget execution-- spending appropriations and monitoring their use. GAO was asked to discuss challenges related to VA's health care services budget formulation and execution. This statement focuses on (1) challenges VA faces in formulating its health care budget, and (2) challenges VA faces in executing its health care budget. This testimony is based on three GAO reports: VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement (GAO-06-958) (Sept. 2006); VA Heath Care: Spending for Mental Health Strategic Plan Initiatives Was Substantially Less Than Planned (GAO-07-66) (Nov. 2006); and VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement (GAO-09-145) (Jan. 2009). VA faces challenges formulating its health care budget each fiscal year. As noted in GAO's 2006 report on VA's overall health care budget, these include making realistic assumptions about the budgetary impact of policy changes, making accurate calculations, and obtaining sufficient data for useful budget projections. For example, GAO found that VA made unrealistic assumptions about how quickly it would realize savings from proposed changes in nursing home policy. While VA took steps to respond to GAO's 2006 recommendations about VA budgeting, recent GAO work found similar issues. In 2009, GAO reported on VA's long-term care budget--namely, on challenges in projecting the amount and cost of VA long-term care. GAO found that in its fiscal year 2009 budget justification, VA used assumptions about the cost of nursing home and noninstitutional care that appeared unrealistically low given recent VA experience and other indicators. VA said it would complete an action plan responding to GAO's 2009 recommendations by the end of March 2009. VA also faces challenges executing its health care budget. These include spending and tracking funds for specific initiatives and providing timely and useful information to Congress on budget execution progress and problems. GAO's 2006 report on VA funding for new mental health initiatives found VA had difficulty spending and tracking funds for initiatives in VA's mental health strategic plan to expand services to address service gaps. The initiatives were to enhance VA's larger mental health program and were to be funded by $100 million in fiscal year 2005. Some VA medical centers did not spend all the funds they had received for the initiatives by the end of the fiscal year, partly due to the time it took to hire staff and renovate space for mental health programs. Also, VA did not track how funding allocated for the initiatives was spent. GAO's 2006 report on VA's overall health care budget found that VA monitored its health care budget execution and identified execution problems for fiscal years 2005 and 2006, but did not report the problems to Congress in a timely way. GAO also found that VA's reporting on budget execution to Congress could have been more informative. VA has not fully implemented one of GAO's two recommendations for improving VA budget execution. Sound budget formulation, monitoring of budget execution, and the reporting of informative and timely information to Congress for oversight continue to be essential as VA addresses budget challenges GAO has identified. Budgeting involves imperfect information and uncertainty, but VA has the opportunity to improve the credibility of its budgeting by continuing to address identified problems. This is particularly true for long-term care, where for several years GAO work has highlighted concerns about workload assumptions and cost projections. By improving its budget process, VA can increase the credibility and usefulness of information it provides to Congress on its budget plans and progress in spending funds. GAO's prior work on new mental health initiatives may provide a cautionary lesson about expanding VA programs--namely, that funding availability does not always mean that new initiatives will be fully implemented in a given fiscal year or that funds will be adequately tracked.
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As of September 30, 1993, the District of Columbia's three defined benefit pension plans for police officers and firefighters, teachers, and judges had a total of about 24,000 participants. During 1993, the District contributed a total of about $292.3 million to the plans and the federal government paid about $52.1 million. The Congress created the three plans over a number of years beginning early in this century. Under the plans' enabling legislation, only the federal government paid into the plans and did so just for current annual retirement benefits (known as pay-as-you-go funding). The Congress did not authorize accumulating funds to meet the plans' normal costs--the amount of funds needed each year that would be sufficient to pay all retirement benefits of active plan participants when due. Effective with Home Rule in January 1975, the responsibility for making the pay-as-you-go payments was transferred to the District government. Because the plans' normal costs were not funded, the shortfall in funds needed to pay future retirement benefits--the plans' unfunded liability--increased each year. The Congress partly addressed the plans' unfunded liability with the District of Columbia Retirement Reform Act of 1979, which changed the District's payments to the plans to a modified pay-as-you-go basis and authorized annual federal payments to the plans of about $52.1 million. Consequently, the contribution requirements in the reform act did not provide for amortizing (paying off over a number of years) the plans' unfunded liability. In November 1992, we reported that the plans' unfunded liability had grown to about $5 billion and that they were not as well funded as other public plans. Our report also noted that the District faced an increasing demand on revenues from the three plans. We reported that by the year 2005 its contributions could grow to about 15 percent of revenues ($640.2 million), compared with about 8 percent ($234.9 million) in 1991. Similarly, as shown in figure 1.1, without changes to the current law the District's contributions to the three plans as a percentage of payroll will increase from 54 percent to a high of 71 percent in 2005, when federal contributions cease. Since our report, there has been much discussion about how to address these plans' continued underfunding. H.R. 3728, in conjunction with D.C. Act 10-239, has been proposed as one means to do so. The House bill and the District's act would eliminate the unfunded liability in the year 2035, mainly by increasing the obligations of the federal government, active plan participants, and retirees, and by placing the District's contributions on an actuarial basis. (See chapter 3 for a full discussion of these provisions.) Concern for the plans' underfunding was heightened by the District's recent cash flow difficulties. These difficulties caused the District to defer its contributions to the funds for the second and third quarters of fiscal year 1994 until fiscal year 1995. This action led to a lawsuit by the District of Columbia Retirement Board (DCRB) that required the contributions to be made. We reported in June 1994 that the District is faced with both unresolved long-term financial issues and continued short-term financial crises, such as a significant and continuing decline in its cash position. Placing the plans' funding on an actuarial basis and eliminating their unfunded liability would relieve the District of a significant financial burden. Such action would also help ensure that sufficient funds are available to pay future retirement benefits. To fully evaluate H.R. 3728, the Ranking Minority Member of the House Committee on the District of Columbia requested us to provide certain information related to the three plans and their unfunded liability. Specifically, he asked us to provide the history and current status of the plans' unfunded pension liability and the number of plan participants before Home Rule, including a comparison of the plans' unfunded liability with other state and local plans, and an analysis of the District's funding formula under the proposed legislation and alternative federal funding methods. To develop the history of the plans' unfunded liability, we reviewed the legislative history of the District of Columbia Retirement Reform Act of 1979, which established the pension funds for the three plans. We also reviewed the reports of commissions that had been established at various times by the Congress and the District government to evaluate the District's fiscal activities, including reviews of the plans' pension funds. In addition, we held discussions with and obtained information from District government and DCRB staff and officials, such as the number of plan participants before Home Rule. To compare the three plans' unfunded liability with other state and local plans, we obtained survey data published in March 1993 by the Public Pension Coordinating Council. We used these data to update the comparison of the funding status of the three District plans with 24 comparable defined benefit state and local governmental pension plans in our November 1992 report. To analyze H.R. 3728 and the companion District act we used, in part, a study of the bill that was done for DCRB by Milliman & Robertson, Inc., its actuarial consultants. In addition, we reviewed the actuarial model developed by the firm and used it to determine the potential effects of alternate funding methods for eliminating the three plans' unfunded liability. This model includes typical actuarial assumptions about rates of inflation, wage increases, and investment earnings. Our work was performed from January through October 1994 in accordance with generally accepted government auditing standards. We did not obtain agency comments on this report. However, we discussed the history and status of the three pension plans with District officials to ensure that the report's descriptions were accurate and complete. When the Congress created the District's plans for police officers and firefighters, teachers, and judges, it provided for funding them on a pay-as-you-go basis. Beginning in the mid-1970s, congressional committees considered various proposals to fund the plans on an actuarial basis and to eliminate their unfunded liability. In 1978, the Congress passed one proposal that, however, was vetoed because the federal funding obligation was deemed too high. In 1979, compromise legislation was enacted that provided for lower federal funding and modified pay-as-you-go payments for the District. Because this legislation did not provide for eliminating the plans' unfunded liability, the liability had increased to $5 billion in 1993, with the plans continuing to be not as well funded as other comparable public plans. The Congress created defined benefit pension plans for District of Columbia police officers and firefighters, teachers, and judges at different times: police officers and firefighters in 1916; teachers in 1920; and judges in 1970. These plans were funded on a pay-as-you-go basis, which meant that they received only enough money to pay current annual retirement benefits but did not accumulate any funds with which to meet the constantly accruing future pension liabilities of their participants. In 1946, however, the funding of the teachers' plan was changed to an actuarial basis so that the District's contribution covered the normal cost of the plan as well as amortizing the accrued unfunded liability over a 20-year period. Subsequently in 1968, the District's commissioners requested and were granted permission by the Congress to fund only the normal cost of the plan each year because of the need to use revenues for other purposes. This change was enacted in 1970 by Public Law 91-263, which put the fund on a modified pay-as-you-go basis, covering only the normal cost each year. This law also froze the fund at its June 20, 1969, balance of $61.8 million and mandated that it remain at that level or the amount of the employees' equity, whichever was greater. Congressional concern with District operations led to the establishment of the Commission on the Organization of the Government of the District of Columbia (Nelsen Commission) in September 1970. The commission's charter was to analyze the District government's operations with the goal of promoting increased economy and efficiency. Accordingly, the scope of the commission's review included the District's pension plans for police officers and firefighters and teachers (the judges plan was not within its charter). The commission's August 1972 report recommended the creation of a separate pension fund for police officers and firefighters that would invest moneys not required for current operations and have periodic Department of the Treasury actuarial valuations. In addition, the commission recommended actions to reverse the increase in the unfunded liabilities in the police officers' and firefighters' and teachers' plans and to provide a means for financing any liberalization of their benefits that might be approved in the future. In May 1974, in response to the Nelsen Commission report, the Chairman of the House Subcommittee on Revenue and Financial Affairs, Committee on the District of Columbia, introduced H.R. 15139, intended to establish and finance a pension fund for police officers and firefighters. There was opposition from the Office of Management and Budget (OMB) and the bill died in Subcommittee. The Congress took no further action on the pension funding issue until March 1976, when legislation was considered by the House Subcommittee on Fiscal Affairs, Committee on the District of Columbia. An objective of the legislation was to establish an actuarially sound basis for financing retirement benefits in the plans for police officers and firefighters, teachers, and judges. H.R. 14960 was reported out by the full Committee in August 1976, but was not considered by the House because of opposition by OMB. On April 6, 1977, the House Subcommittee on Fiscal Affairs, Committee on the District of Columbia, reported out H.R. 2465. Subsequently, the bill was reported out of the Committee on April 26, 1977; introduced in the full House as H.R. 6536; and passed in September 1977. This legislation authorized a total federal contribution of about $769 million over 25 years, starting at about $48 million in 1978 and declining to $2 million in 2003, to help finance the liabilities for retirement benefits incurred before Home Rule. Later that year, in November 1977, the Senate considered S. 2316, which differed somewhat from H.R. 6536. Among other things, the Senate bill required annual federal payments of $80 million for 25 years and included tougher standards for disability benefits. The federal payments were intended to amortize the unfunded liability of about $1.05 billion for retirements that had occurred before Home Rule; this liability was deemed to be the federal share of the total unfunded liability of about $2.09 billion that had been incurred up to that time. The remaining balance of $1.04 billion, which was attributable to nonretirees, was deemed to be the District's share of the total unfunded liability. (Subsequently, the Department of the Treasury calculated that the total unfunded liability was about $2.7 billion--see p. 19.) However, the formula in the Senate bill for computing the District's annual contributions did not provide for amortizing the District's share of the unfunded liability. While the Committee report on the bill recognized that actuarially based funding required the liability to be amortized, the report also stated that in the long run full funding of the District's share was fiscally impossible given its strained financial circumstances and competing claims on revenues. However, the Committee believed that the District could afford to pay--for an initial interim 25-year period, as the federal share was being amortized--the lesser of (1) the net normal cost plus interest on its share of the unfunded liability and (2) the net pay-as-you-go cost plus an amount that, paid annually to 2003, would allow the District's share of the unfunded liability to increase by no more than the rate of inflation. Thereafter, the District would pay the net normal cost plus interest on the unfunded liability. The Senate passed H.R. 6536, which had been amended to incorporate S. 2316. In October 1978, the House and Senate conference committee reported out H.R. 6536, which authorized a smaller federal contribution of $65 million annually over 25 years. In November 1978, then President Carter vetoed H.R. 6536. His veto message articulated two principal arguments: the federal contribution authorized by the Congress overstated the appropriate federal liability, largely because the existing liability was due to abuses of the disability retirement statutes before Home Rule; and the amount authorized ignored the continuing federal contribution for thousands of District employees covered by the federal Civil Service Retirement System (CSRS). The Carter administration stated that it was willing to assume 60 percent of the cost of moving the affected District plans to an actuarially sound system. Under this proposal, the federal government would have contributed $462 million over 25 years. However, the veto message noted that with H.R. 6536 the Congress supported a more costly funding method that obligated the federal government to pay about $1.6 billion over the same time period. Following the veto, the Congress addressed the pension plans' funding issue again in 1979. The House and Senate agreed to S. 1037, which represented a compromise between the Senate's provisions for fully amortizing the federal share and the House's partial amortization provisions. The Senate bill provided for funds to cover the unfunded liability for all retirements--service and disability--before Home Rule; the House bill provided funds for 75 percent of the unfunded liability for service retirements and 33-1/3 percent of the unfunded liability for disability retirements before Home Rule. In November 1979, S. 1037, the District of Columbia Retirement Reform Act of 1979, was signed into law. The act notes that the retirement benefits--which Congress had authorized for the police officers, firefighters, teachers, and judges of the District of Columbia--had not been financed on an actuarially sound basis. Neither federal payments to the District nor District payments for pensions had taken into account the long-term financial requirements of these retirement plans. Consequently, the act established for the first time separate retirement funds for (1) police officers and firefighters, (2) teachers, and (3) judges. The act also established a retirement board to manage the funds, required that the funds be managed on an actuarially sound basis, and provided federal contributions to these funds to partially finance the liability for retirement benefits incurred before January 2, 1975, the effective date of Home Rule. At that time, the three plans had a total of 14,095 active participants and 7,657 retirees (see table 2.1). The act committed the federal government to pay $52.07 million annually beginning in fiscal year 1980 and continuing through 2004. This amount represented a compromise between the Congress and the administration in defining the appropriate federal share of the plans' unfunded liability. Under the act, the federal share was 80 percent of the service retirement unfunded liability and 33-1/3 percent of the disability retirement unfunded liability, as of October 1, 1979, for District employees who had retired as of January 2, 1975, the effective date of Home Rule. The present value of the total federal government obligation for the 25-year period was then $646 million, an amount anticipated to be sufficient to pay off the revised federal share of the unfunded liability by the year 2005. The 1979 reform act's provisions reflected the earlier congressional beliefs that (1) in the long term the District's financial condition would not enable it to pay off its share of the unfunded liability and (2) in the near future the District should not be burdened with having to pay the net normal costplus interest on its share of the unfunded liability. Therefore, an alternate method was adopted for the 25 years before 2005, providing for substantially lower contributions. Accordingly, the annual District contribution to the pension funds, as determined by DCRB based upon a formula in the act, consists of the sum of three items: The lesser of (1) the net pay-as-you-go cost or (2) the net normal cost plus interest on the unfunded actuarial liability. An amount necessary to amortize over 10 years the difference of (1) the actuarially projected unfunded liability in the year 2004 if no such amortization payments were made and (2) the actuarially projected liability in the year 2004 if the 1979 unfunded liability grew by the anticipated rate of inflation during the interim. However, any additional amount required under this provision may not exceed 10 percent of the net pay-as-you-go cost for the police officers' and firefighters' plan or 30 percent for the teachers' or judges' plans. An amount necessary to amortize over 25 years any liability due to plan changes. After the federal contribution ceases, the reform act provides that beginning with fiscal year 2005 the District's contribution to the three funds will be an amount equal to their net normal cost plus interest on their unfunded liability. On the effective date of the reform act in November 1979, the District's share of the unfunded liability was about $2 billion, based on Department of the Treasury calculations: Present value of total unfunded liability: $2,676,200,000; less present value of future federal payments: $646,400,000; equals present value of the District's unfunded liability: $2,029,800,000. In 1989, the District's concern with its financial condition resulted in the Mayor appointing an independent commission charged with developing a fiscal strategy for fiscal years 1992-96. As part of its charter, the commission reviewed the pension funds for police officers and firefighters, teachers, and judges. The commission's 1990 report noted that while the reform act's funding formula did not permit unfunded liabilities to accrue, it did permit the existing liability to grow. The report also pointed out that, under the District's funding formula, in 2005 the unfunded liability would be $8 billion and that the District's required contribution would be $795 million--about 85 percent of the payroll for the three plans. Accordingly, the commission made the following recommendations: Adoption of a funding policy that would include annual funding of the normal cost, amortization of the unfunded liability as a level percentage of payroll over 45 years, and an increase in the investment return assumption from 7 to 8 percent per year. Continuation of the annual federal contributions of $52.07 million per year for 49 (instead of 14) more years, with an annual 5-percent increase in the amount of the payment--the assumed rate of inflation used in determining pension costs. Reduction of 1 percent in the automatic cost-of-living increases for retirees. Our November 1992 report echoed the commission's observations about the unfunded liability for the three plans. We stated that the effect of the reform act was to allow the initial $2.0 billion unfunded liability to increase to about $4.9 billion in 1993, due mostly to interest accruing on it. Our report noted that because the reform act specified limitations on the level of amortization contributions the District could make, no amortization of the unfunded liability was possible. We also pointed out that in 2005 the District's annual contribution could represent about 15 percent of its revenues, compared with about 8 percent in 1991, and that the unfunded liability, which could be as high as $7.7 billion, would remain constant beginning in that year. The effect of the funding formula in the 1979 reform act has been to limit the funded status of the three plans. In our November 1992 report, we pointed out that the three District plans were not funded as completely as other comparable state and local governmental plans. In updating our data we found that this continues to be the case for the 24 plans. Of the three District plans, the police officers' and firefighters' plan has the lowest funding level compared with all the other plans, while the plans for teachers and judges are a little better funded but still at lower levels than comparable plans. Figures 2.1 through 2.3 compare the funded status of the three District plans with the same public plans that were included in our earlier report. (See app. III for a complete list of the plans.) In congressional deliberations leading up to the 1979 reform act, the appropriate federal responsibility for the three plans' unfunded liability as of the effective date of Home Rule was considered to be the portion that represented all retirees. However, to ensure presidential approval of the reform act, the Congress agreed to fund less than the full amount of these retirees' share: 80 percent of service retirements and 33-1/3 percent of disability retirements. It was anticipated that the authorized annual federal payments of $52.07 million would amortize this share by the year 2005. Congressional deliberators recognized the need to amortize the District's share of the plans' unfunded liability as of the effective date of Home Rule. However, they believed that the District's financial resources (1) would never enable its share to the amortized, (2) would eventually enable it to pay the annual net normal cost and interest on its share, and (3) should not be overly burdened with paying the latter amounts during the 25-year period in which the federal share was being amortized. Accordingly, the formula for calculating the District's annual contribution was devised to limit its payments to amounts that essentially allow its share of the unfunded liability to increase with the rate of inflation to the year 2005 and to remain constant after that time. In that year, the unfunded liability could be about $6.1 billion and the District's contribution could be about 15 percent of its revenues, compared with about 8 percent in 1993--a significant financial burden. The effect of the reform act's funding formula has been to limit the three plans' funded status compared with other public plans. Given the District's current financial condition, the congressional concerns about the District's financial capability appear to have been appropriate. Unless the District's financial condition improves significantly, the District will not likely be able to eliminate the plans' unfunded liability without federal financial assistance. The District government deliberated the issue of the three plans' unfunded liability and enacted legislation to eliminate it. The District's act, however, will not take effect until companion federal legislation is enacted. Without such a federal law, the plans' unfunded liability will continue to grow and the District's annual contributions will consume an increasing portion of its revenues. The three plans' unfunded liability would be eliminated under proposed companion legislation that was introduced in the District of Columbia Council in December 1993 (Council Bill 10-515) and in the House of Representatives in January 1994 (H.R. 3728). Both bills contained the same provisions, except for District contribution requirements that were only in the Council's bill. Both bills included provisions for increasing the federal government's and employees' obligations and placing the District's contributions on an actuarial basis. The District's bill was enacted into law on May 4, 1994, as D.C. Act 10-239, the Full Funding of Pension Liability Retirement Reform Amendment Act of 1994, but it will not take effect until H.R. 3728 or comparable companion federal legislation is enacted. Thus, the House bill is a companion to the District's law and should be considered in conjunction with it. A study of H.R. 3728 conducted by an actuarial consulting firm for DCRB concluded that it would effectively eliminate the unfunded liability for the three plans in the year 2035. This would be accomplished through placing additional obligations on the federal government and active and retired employees and putting the District's contributions on an actuarial basis, while also mandating a minimum annual District payment. The basic approach is to stabilize the District's contributions at 45 percent of payroll through year 2035, as shown in figure 3.1. At 45 percent of payroll, the annual contributions would range from $403.5 million in year 2005 to $1.7 billion in year 2035. Maintaining pension contributions as a level percentage of payroll is the most common funding method used by public sector pension plans. The federal contribution to the plans would significantly increase under H.R. 3728. Under current law, the annual federal payments of $52.1 million, which have a present value of about $392 million, cease as of 2005. The bill proposes increasing the federal payment by 5 percent each year, beginning with fiscal year 1996, and extending it for 30 additional years, from 2005 through 2035. The federal payment would increase substantially in the latter part of the 40-year period, rising to about $367 million in the 40th year (see fig. 3.2). Overall, the present value of the total federal obligation would be increased by about $1.1 billion. (See app. I.) The obligations of the plans' active participants would increase and the retirees' benefits would decrease. All three plans' active participants would be required to contribute an additional 1 percent of pay: police officers', firefighters', and teachers' contributions would rise from 7 to 8 percent, and judges' would go from 3.5 to 4.5 percent. In addition, retirees' cost-of-living adjustments would be reduced from two to one each year. Also, police officers and firefighters who retired before February 15, 1980, would receive cost-of-living adjustments based on the consumer price index rather than on the active participants' pay raises. Finally, H.R. 3728 requires several changes in the District's responsibilities. In particular, the formula for determining the District's payment would be changed to one that is actuarially based; this approach adjusts the District's contributions to a level percentage of payroll and is most commonly used by public sector plans. Under this formula, the District's contribution would be stable as a level percentage of payroll and consist of several components: (1) the plans' net normal cost; (2) the amortization of their unfunded liability as of October 1, 1995, over 40 years; and (3) the amortization of actuarial gains and losses as well as benefit increases over 15 and 25 years, respectively. However, the bill specifically provides that the District's annual contribution must be at least $295.5 million, the amount of its certified contribution for 1995. Using this approach, the District's contributions would be slightly lower than current costs in the first few years, then increase in step with payroll. The percentage of payroll contribution for these groups will gradually fall from the current 53.8 percent to 44.8 percent after 2005. The District's contributions from 1996 through 2020 would be less than the current law requires and would be greater thereafter (see fig. 3.3). The present value of the District's contributions under current law through 2035 is about $8.2 billion and decreases to about $7.0 billion under the bill. We note that under the District's act, its contributions would be at the mandatory $295.5 million minimum for fiscal years 1996 through 1998. Our analysis shows that this provision results in the District paying a total of about $58 million more in annual dollars than would be required actuarially. As table 3.1 shows, for example, the 1996 payment is $32.7 million more than the actuarially determined amount. The plans' current funding method and their unfunded liability represent a significant and increasing financial burden to the District. For this reason, we support timely action on eliminating the unfunded liability and placing the plans' funding on a sound actuarial basis. H.R. 3728 sets forth one approach that would resolve these matters along the foregoing general lines. However, we are concerned with the proposed federal funding method because the annual 5-percent increase is inequitable to future generations of taxpayers--particularly in the latter part of the 40-year period--because it requires them to help eliminate a greater share of a liability incurred by much earlier generations. A more equitable federal funding method, which shifts less of the burden to the future, would be a constant annual payment, as under current law (see further discussion in ch. 4). We also note that the District's payments would be about $58 million higher for the first 3 years under D.C. Act 10-239 than actuarially required. Under H.R. 3728, federal contributions to the three District plans would increase by 5 percent annually, going from $54.7 million in 1996 to $366.6 million in 2035. In lieu of these increasing payments, we analyzed the effect of various constant annual federal payments. Our analysis shows that total federal obligations would be less than under H.R. 3728 with level annual payments ranging from $52.1 million to $92.1 million. The federal obligation would be about one-half of the amount under the bill if the current annual payment of $52.1 million is continued through the year 2035. Somewhat smaller federal savings would be attained under the bill with higher constant annual payments up to $92.1 million but in these circumstances the District's overall burden would be increased. However, an annual federal payment of $102.1 million would have about the same effect on District contributions as the bill. In lieu of the incremental federal payments proposed by H.R. 3728, we analyzed the effect of constant federal payments of various amounts through the year 2035. Our analysis shows that the greatest federal savings--about one-half of the amount that would be paid under H.R. 3728--would be realized by extending the current federal payment of $52.1 million. (These data are summarized in table 4.1 below and detailed in app. II.) This change would also increase the District's contributions by about 10 percentage points in today's value (present value). Somewhat smaller federal savings under the bill would be obtained with annual payments of $72.1 million and $92.1 million. In terms of the District's contributions as a percentage of payroll, the changes are less dramatic (see table 4.2). The effect of a constant federal payment of $52.1 million would be to increase the District's contributions as a percentage of payroll by about 5 percentage points from the 45 percent under H.R. 3728. Given the District's current fiscal situation, however, a question arises as to the amounts that the District could realistically be expected to contribute in future years. For example, the 5-percentage point increase in the District's percentage of payroll in 2005, with a constant $52.1 million federal payment, equates to an additional District contribution of about $45 million that year, for a total of $448.2 million. In contrast, the comparable increases under a constant federal payment of $92.1 million amount to a much more modest $13.1 million. (See app. II.) However, an annual federal payment of $102.1 million--present value of about $1.46 billion--would also stabilize the District's contributions at about 45 percent of payroll. H.R. 3728 proposes a substantial increase in the federal obligation to the three District pension plans to help eliminate their unfunded liability by extending and escalating the current annual federal payment of $52.1 million to year 2036. This approach, however, inequitably burdens future taxpayers by requiring them to help eliminate a greater share of a liability incurred by much earlier generations. Instead, the unfunded liability could be eliminated with annual federal payments of a constant amount. Constant annual federal payments of about $102.1 million through 2035 would achieve the same results as the bill in terms of stabilizing the District's contributions at about 45 percent of payroll from the year 2005 through 2035. Also, such payments would cost the federal government $40 million less overall than the total federal payments under H.R. 3728. If the Congress wishes to change the law to increase federal payments to the three District pension plans, it should consider authorizing a constant annual payment rather than the escalating payments provided for in H.R. 3728. A constant annual approach would be more equitable because it would avoid shifting to future taxpayers a disproportionate share of the burden of financing the three plans. In addition, if the Congress concludes that the federal share should be increased in total by the amount authorized in H.R. 3728--calculated at about $1.1 billion in value today--the appropriate constant annual federal payment would be $102.1 million.
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Pursuant to a congressional request, GAO reviewed the District of Columbia's pension plans for certain employees, focusing on: (1) the history and status of the plans' unfunded pension liability and the number of plan participants prior to Home Rule; (2) a comparison of the plans' unfunded liability with other state and local plans; and (3) the District's funding formula under the proposed legislation and alternative federal funding methods. GAO found that: (1) the District's pension plans were originally funded on a pay-as-you-go basis with no accrual of monies for future liabilities; (2) even when the plans were put on an actuarial basis, the District's contributions to the pension funds were lower than needed to eliminate the unfunded liabilities; (3) the District's pension plans are not as well funded as some comparable state and local plans; (4) the proposed legislation would eliminate the plans' unfunded liability in 2035 by increasing federal payments, decreasing benefits and cost-of-living adjustments, and placing the District's contributions on an actuarial basis; (5) under the proposed funding method, the federal government would assume about $1 billion of the District's obligations, most of which would be paid in future budget years because of the 5-percent annual increase in the federal payments; (6) the District's contributions for the first 3 years would be at the required minimum and would be higher than the actuarially determined amounts; (7) a constant federal payment of about $102.1 million would shift less of the contribution burden to future federal budgets and taxpayers and would help eliminate the unfunded liability; and (8) options to lower annual federal payments would eliminate the unfunded liability but increase the District's contributions.
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Our October 2009 report on climate change adaptation found no coordinated national approach to adaptation, but our May 2011 report on climate change funding cited indications that federal agencies were beginning to respond to climate change more systematically. About the same time as the issuance of our October 2009 report, Executive Order 13514 on Federal Leadership in Environmental, Energy, and Economic Performance called for federal agencies to participate actively in the Interagency Climate Change Adaptation Task Force. The task force, which began meeting in Spring 2009, is co-chaired by the Council on Environmental Quality (CEQ), the National Oceanic and Atmospheric Administration (NOAA), and the Office of Science and Technology Policy (OSTP), and includes representatives from more than 20 federal agencies and executive branch offices. The task force was formed to develop federal recommendations for adapting to climate change impacts both domestically and internationally and to recommend key components to include in a national strategy. On October 14, 2010, the task force released its interagency report outlining recommendations to the President for how federal policies and programs can better prepare the United States to respond to the impacts of climate change. The report recommends that the federal government implement actions to expand and strengthen the nation's capacity to better understand, prepare for, and respond to climate change. These recommended actions include making adaptation a standard part of agency planning to ensure that resources are invested wisely and services and operations remain effective in a changing climate. According to CEQ officials, the task force will continue to meet as an interagency forum for discussing the federal government's adaptation approach and to support and monitor the implementation of recommended actions in the progress report. The task force is due to release another report in October 2011 that documents progress toward implementing its recommendations and provides additional recommendations for refining the federal approach to adaptation, as appropriate, according to CEQ officials. Individual agencies are also beginning to consider adaptation actions. For example, in May 2009, the Chief of Naval Operations created Task Force Climate Change to address the naval implications of a changing Arctic and global environment. The Task Force was created to make recommendations to Navy leadership regarding policy, investment, and action, and to lead public discussion. In addition, the U.S. Department of the Interior issued an order in September 2009 designed to address the impacts of climate change on the nation's water, land, and other natural and cultural resources. Among other things, the order requires each bureau and office in the department to consider and analyze potential climate change impacts when undertaking long-range planning exercises, setting priorities for scientific research and investigations, developing multi-year management plans, and making major decisions regarding potential use of resources. In another example, according to NOAA, its Regional Integrated Sciences and Assessments (RISA) program supports climate change research to meet the needs of decision makers and policy planners at the national, regional, and local levels. In October 2009, we reported that some state and local authorities were beginning to plan for and respond to climate change impacts. We visited three U. S. sites in doing the work for that report--New York City; King County, Washington; and the state of Maryland--where state and local officials were taking such steps. We have not evaluated the progress of these initiatives since the issuance our 2009 report. New York City: New York City's adaptation efforts stemmed from a growing recognition of the vulnerability of the city's infrastructure to natural disasters, such as the severe flooding in 2007 that led to widespread subway closures. At the time of our October 2009 report, New York City's adaptation efforts typically had been implemented as facilities were upgraded or as funding became available. For example, the city's Department of Environmental Protection (DEP), which manages water and wastewater infrastructure, had begun to address flood risks to its wastewater treatment facilities. These and other efforts are described in DEP's 2008 Climate Change Program Assessment and Action Plan. Many of New York City's wastewater treatment plants, such as Tallman Island, are vulnerable to sea level rise and flooding from storm surges because they are located in the floodplain next to the bodies of water into which they discharge. In response to this threat, DEP planned to, in the course of scheduled renovations, raise sensitive electrical equipment, such as pumps and motors, to higher levels to protect them from flood damage. King County, Washington: According to officials from the King County Department of Natural Resources and Parks (DNRP), the county took steps to adapt to climate change because its leadership was highly aware of climate impacts on the county. For example, in November 2006, the county experienced severe winter storms that caused a series of levees to crack. The levees had long needed repair, but the storm damage helped increase support for the establishment of a countywide flood control zone district, funded by a dedicated property tax. The flood control zone district planned to use the funds, in part, to upgrade flood protection facilities to increase the county's resilience to future flooding. In addition to more severe winter storms, the county expected that climate change would lead to sea level rise; reduced snowpack; and summertime extreme weather such as heat waves and drought, which can lead to power shortages because hydropower is an important source of power in the region. The University of Washington Climate Impacts Group, funded by NOAA's RISA program, has had a long-standing relationship with county officials and worked closely with them to provide regionally specific climate change data and modeling, such as a 2009 assessment of climate impacts in Washington, as well as decision-making tools. Maryland: Maryland officials took a number of steps to formalize their response to climate change effects. An executive order in 2007 established the Maryland Commission on Climate Change, which released the Maryland Climate Action Plan in 2008. As part of this effort, the Maryland Department of Natural Resources (DNR) chaired an Adaptation and Response Working Group, which issued a report on sea level rise and coastal storms. The 2008 Maryland Climate Action Plan calls for future adaptation strategy development to cover other sectors, such as agriculture and human health. Additionally, Maryland provided guidance to coastal counties to assist them with incorporating the effects of climate change into their planning documents. For example, DNR funded guidance documents to three coastal counties--Dorchester, Somerset, and Worcester Counties-- on how to address sea level rise and other coastal hazards in their local ordinances and planning efforts. In our prior work, we found that the challenges faced by federal, state, and local officials in their efforts to adapt to climate change fell into several categories: Focusing on immediate needs. Available attention and resources were focused on more immediate needs, making it difficult for adaptation efforts to compete for limited funds. For example, several federal, state, and local officials who responded to a questionnaire we prepared for our October 2009 report on adaptation noted how difficult it is to convince managers of the need to plan for long-term adaptation when they are responsible for more urgent concerns that have short decision-making time frames. One federal official explained that "it all comes down to resource prioritization. Election and budget cycles complicate long-term planning such as adaptation will require. Without clear top-down leadership setting this as a priority, projects with benefits beyond the budget cycle tend to get raided to pay current- year bills to deliver results in this political cycle." Insufficient site-specific data. Without sufficient site-specific data, such as local projections of expected changes, it is hard to predict the impacts of climate change and thus hard for officials to justify the current costs of adaptation efforts for potentially less certain future benefits. This is similar to what we found in past work on climate change on federal lands. Specifically, our August 2007 report demonstrated that land managers did not have sufficient site-specific information to plan for and manage the effects of climate change on the federal resources they oversee. In particular, the managers lacked computational models for local projections of expected changes. For example, at the time of our review, officials at the Florida Keys National Marine Sanctuary said that they did not have adequate modeling and scientific information to enable managers to predict the effects of climate change on a small scale, such as that occurring within the sanctuary. Without such modeling and information, most of the managers' options for dealing with climate change were limited to reacting to already-observed effects on their units, making it difficult to plan for future changes. Furthermore, these resource managers said that they generally lacked detailed inventories and monitoring systems to provide them with an adequate baseline understanding of the plant and animal species that existed on the resources they manage. Without such information, it is difficult to determine whether observed changes are within the normal range of variability. Lack of clear roles and responsibilities. Adaptation efforts are constrained by a lack of clear roles and responsibilities among federal, state, and local agencies. Of particular note, about 70 percent (124 of 178) of the federal, state, and local officials who responded to a questionnaire we prepared for our October 2009 report on adaptation rated the "lack of clear roles and responsibilities for addressing adaptation across all levels of government" as very or extremely challenging. For example, according to one respondent, "there is a power struggle between agencies and levels of government...Everyone wants to take the lead rather than working together in a collaborative and cohesive way." These challenges make it harder for officials to justify the current costs of adaptation efforts for potentially less certain future benefits. A 2009 report by the National Research Council discusses how officials are struggling to make decisions based on future climate scenarios instead of past climate conditions. According to the report, requested by the Environmental Protection Agency and NOAA, usual practices and decision rules (for building bridges, implementing zoning rules, using private motor vehicles, and so on) assume a stationary climate--a continuation of past climate conditions, including similar patterns of variation and the same probabilities of extreme events. According to the National Research Council report, that assumption, which is fundamental to the ways people and organizations make their choices, is no longer valid; Climate change will create a novel and dynamic decision environment. We reached similar conclusions in a March 2007 report that highlighted how historical information may no longer be a reliable guide for decision making. We reported on the Federal Emergency Management Agency's (FEMA) National Flood Insurance Program, which insures properties against flooding, and the U.S. Department of Agriculture's (USDA) Federal Crop Insurance Corporation, which insures crops against drought or other weather disasters. Among other things, the report contrasted the experience of private and public insurers. We found that many major private insurers were proactively incorporating some near-term elements of climate change into their risk management practices. In addition, other private insurers were approaching climate change at a strategic level by publishing reports outlining the potential industry-wide impacts and strategies to proactively address the issue. In contrast, we noted that the agencies responsible for the nation's two key federal insurance programs had done little to develop the kind of information needed to understand their programs' long-term exposure to climate change for a variety of reasons. As a FEMA official explained, the National Flood Insurance Program is designed to assess and insure against current--not future--risks. Unlike the private sector, neither this program nor the Federal Crop Insurance Corporation had analyzed the potential impacts of an increase in the frequency or severity of weather-related events on their operations over the near- or long-term. The proactive view of private insurers in our 2007 report was echoed on March 17, 2009, by the National Association of Insurance Commissioners, which adopted a mandatory requirement that insurance companies disclose to regulators the financial risks they face from climate change, as well as actions the companies are taking to respond to those risks. We have not studied the progress of these specific programs in managing the nation's long-term exposure to climate change since the issuance of our 2007 report. Based on information obtained from studies, visits to sites pursuing adaptation efforts, and responses to a Web-based questionnaire sent to federal, state, and local officials knowledgeable about adaptation, our October 2009 report identified three categories of potential federal actions for addressing challenges to adaptation efforts: First, training and education efforts could increase awareness among government officials and the public about the impacts of climate change and available adaptation strategies. A variety of programs are trying to accomplish this goal, such as the Chesapeake Bay National Estuarine Research Reserve (partially funded by NOAA), which provides education and training on climate change to the public and local officials in Maryland. Second, actions to provide and interpret site-specific information could help officials understand the impacts of climate change at a scale that would enable them to respond. About 80 percent of the respondents to our Web-based questionnaire rated the "development of state and local climate change impact and vulnerability assessments" as very or extremely useful. Third, Congress and federal agencies could encourage adaptation by clarifying roles and responsibilities. About 71 percent of the respondents to our Web-based questionnaire rated the development of a national adaptation strategy as very or extremely useful. Furthermore, officials we spoke with and officials who responded to our questionnaire said that a coordinated federal response would also demonstrate a federal commitment to adaptation. Importantly, our October 2009 report recommended that within the Executive Office of the President the appropriate entities, such as CEQ, develop a national adaptation plan that includes setting priorities for federal, state, and local agencies. CEQ generally agreed with our recommendation. Some of our other recent climate change-related reports offer additional examples of the types of actions federal agencies and the Congress could take to assist states and communities in their efforts to adapt. Our August 2007 report, for example, recommended that certain agencies develop guidance advising managers on how to address the effects of climate change on the resources they manage. Furthermore, our May 2008 report on the economics of policy options to address climate change identified actions Congress and federal agencies could take, such as reforming insurance subsidy programs in areas vulnerable to hurricanes or flooding. Our May 2011 report on federal climate change funding found that (1) agencies do not consistently interpret methods for defining and reporting the funding of climate change activities, (2) key factors complicate efforts to align such funding with strategic priorities, and (3) options are available to better align federal funding with strategic priorities, including governmentwide strategic planning. Any effective federal climate change adaptation strategy will need to ensure that federal funds are properly tracked and that funding decisions are aligned with strategic priorities. Given the interdisciplinary nature of the issue, such alignment is a challenge as formidable as it is necessary to address. In our report, we identified three methods for defining and reporting climate change funding, foremost of which is guidance contained in OMB's Circular A-11. The circular directs agencies to report funding that meet certain criteria in three broad categories--research, technology, and international assistance. According to OMB staff, Circular A-11 is the primary method for defining and reporting long-standing "cross-cuts" of funding for climate change activities. Interagency groups, such as USGCRP have collaborated in the past with OMB to clarify the definitions in Circular A-11, according to comments from CEQ, OMB, and OSTP. Our work suggests that existing methods for defining and reporting climate change funding are not consistently interpreted and applied across the federal government. Specifically, for our May 2011 report, we sent a Web-based questionnaire to key federal officials involved in defining and reporting climate change funding, developing strategic priorities, or aligning funding with strategic priorities. Most of these respondents indicated that their agencies consistently applied methods for defining and reporting climate change funding. Far fewer respondents indicated that methods for defining and reporting climate change funding were applied consistently across the federal government. Some respondents, for example, noted that other agencies use their own interpretation of definitions, resulting in inconsistent accounting across the government. Respondents generally identified key reasons agencies may interpret and apply existing methods differently, including difficulty determining which programs are related to climate change. In comments to our May 2011 report, CEQ, OMB, and OSTP noted that consistency likely varies by method of reporting, with Circular A-11 being the most consistent and other methods being less so. In addition, our work identified two key factors that complicate efforts to align federal climate change funding with strategic priorities across the federal government. First, federal officials lack a shared understanding of priorities, partly due to the multiple, often inconsistent messages articulated in different sources, such as strategic plans. Our review of these sources found that there is not currently a consolidated set of strategic priorities that integrates climate change programs and activities across the federal government. As we stated in our May 2011 report, in the absence of clear, overarching priorities, federal officials are left with many different sources that present climate change priorities in a more fragmented way. The multiple sources for communicating priorities across the climate change enterprise may result in conflicting messages and confusion. The second key factor that complicates efforts to align federal funding with priorities is that existing mechanisms intended to do so are nonbinding, according to respondents, available literature, and stakeholders. For example, some respondents noted that the interagency policy process does not control agency budgets and that agencies with their own budget authority may pay little attention to federal strategic priorities. In other words, federal strategic priorities set through an interagency process may not be reflected in budget decisions for individual agencies. As OSTP officials acknowledged to us, "The major challenge is the need to connect climate science programs with broader inter- and intra-agency climate efforts." In comments to our report, OSTP stated that while significant progress is being made in linking the climate science-related efforts, individual agencies still want to advance initiatives that promote or serve their agency missions. This, according to OSTP, yields a broader challenge of tying climate-related efforts (science, mitigation, and adaptation) together into a coherent governmentwide strategy. Our May 2011 report identified several ways to better align federal climate change funding with strategic priorities, including: (1) options to improve the tracking and reporting of climate change funding, (2) options to enhance how strategic climate change priorities are set, (3) the establishment of formal coordination mechanisms, and (4) continuing efforts to link related climate change activities across the federal government. Specific options are discussed in detail in our May 2011 report and include a governmentwide strategic planning process that promotes a shared understanding among agencies of strategic priorities by articulating what they are expected to do within the overall federal response to climate change. Also discussed in detail is an integrated budget review process that better aligns these priorities with funding decisions through a more consistent method of reporting and reviewing climate change funding. Federal entities are beginning to implement some of these options. For example, there has been some recent progress on linking related federal climate change programs, according to OSTP. Specifically, OSTP stated that the science portion of the CEQ, NOAA, and OSTP-led Climate Change Adaptation Task Force is being integrated within USGCRP. OSTP also stated that it is working to create an interagency body that will bring together agencies that provide climate services to allow for better links between climate services and other federal climate-related activities. To further improve the coordination and effectiveness of federal climate change programs and activities, we recommended in our May 2011 report that the appropriate entities within the Executive Office of the President, in consultation with Congress, clearly establish federal strategic climate change priorities and assess the effectiveness of current practices for defining and reporting related funding. Chairman Durbin, Ranking Member Moran, and Members of the Subcommittee, this concludes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have. For further information about this testimony, please contact David Trimble at (202) 512-3841 or [email protected]. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. Steve Elstein, Cindy Gilbert, Ben Shouse, Jeanette Soares, Kiki Theodoropoulos, and J. Dean Thompson also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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A 2009 assessment by the United States Global Change Research Program (USGCRP) found that many types of extreme weather events, such as heat waves and regional droughts, have become more frequent and intense during the past 40 to 50 years. According to the assessment, changes in extreme weather and climate events will affect many aspects of society and the natural environment, such as infrastructure. In addition, the Department of Defense found that climate change may act as an accelerant of instability or conflict, placing a burden to respond on militaries around the world. According to the National Academies, USGCRP, and others, greenhouse gases already in the atmosphere will continue altering the climate system into the future regardless of emissions control efforts. Therefore, adaptation--defined as adjustments to natural or human systems in response to actual or expected climate change--is an important part of the response to climate change. This testimony addresses (1) the actions federal, state, and local authorities are taking to adapt to climate change; (2) the challenges that federal, state, and local officials face in their efforts to adapt and actions federal agencies could take to help address these challenges; and (3) the extent to which federal funding for adaptation and other climate change activities is consistently tracked and reported and aligned with strategic priorities. The information in this testimony is based on prior work, largely on GAO's recent reports on climate change adaptation and federal climate change funding. Federal, state, and local authorities are beginning to take steps to adapt to climate change. Federal agencies are beginning to respond to climate change systematically through an Interagency Climate Change Adaptation Task Force formed to recommend key components for inclusion in a national adaptation strategy. Individual agencies are also beginning to consider adaptation actions. For example, in May 2009, the Chief of Naval Operations created Task Force Climate Change to address the naval implications of a changing Arctic and global environment. Some state and local government authorities were beginning to plan for and respond to climate change impacts, GAO reported in 2009. For example, the state of Maryland had a strategy for reducing vulnerability to climate change, which focused on protecting habitat and infrastructure from future risks associated with sea level rise and coastal storms. In another example, King County, Washington, established a countywide flood control zone district to upgrade flood protection facilities and increase the county's resilience to future flooding, among other things. Federal, state, and local officials face numerous challenges in their efforts to adapt to climate change, and further federal action could help them make more informed decisions. These challenges include a focus of available attention and resources on more immediate needs and insufficient site-specific data--such as local projections of expected climate changes. The lack of such data makes it hard to understand the impacts of climate change and thus hard for officials to justify the cost of adaptation efforts, since future benefits are potentially less certain than current costs. GAO's October 2009 report identified potential federal actions for improving adaptation efforts, including actions to provide and interpret site-specific information, which could help officials understand the impacts of climate change at a scale that would enable them to respond. In a May 2008 report on the economics of policy options to address climate change, GAO identified actions Congress and federal agencies could take, such as reforming insurance subsidy programs in areas vulnerable to hurricanes or flooding. Funding for adaptation and other federal climate change activities could be better tracked, reported, and aligned with strategic priorities. GAO's report on federal climate change funding suggests that methods for defining and reporting such funding are not consistently interpreted and applied across the federal government. GAO also identified two key factors that complicate efforts to align funding with priorities. First, officials across a broad range of federal agencies lack a shared understanding of priorities, partly due to the multiple, often inconsistent messages articulated in different policy documents, such as strategic plans. Second, existing mechanisms intended to align funding with governmentwide priorities are nonbinding and limited when in conflict with agencies' own priorities. Federal officials who responded to a Web-based questionnaire, available literature, and stakeholders involved in climate change funding identified several ways to better align federal climate change funding with strategic priorities. These include a governmentwide strategic planning process that promotes a shared understanding among agencies of strategic priorities by articulating what they are expected to do within the overall federal response to climate change.
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A domestic bioterrorist attack is considered to be a low-probability event, in part because of the various difficulties involved in successfully delivering biological agents to achieve large-scale casualties. However, a number of cases involving biological agents, including at least one completed bioterrorist act and numerous threats and hoaxes, have occurred domestically. In 1984, a group intentionally contaminated salad bars in restaurants in Oregon with salmonella bacteria. Although no one died, 751 people were diagnosed with foodborne illness. Some experts predict that more domestic bioterrorist attacks are likely to occur. The burden of responding to such an attack would fall initially on personnel in state and local emergency response agencies. These "first responders" include firefighters, emergency medical service personnel, law enforcement officers, public health officials, health care workers (including doctors, nurses, and other medical professionals), and public works personnel. If the emergency were to require federal disaster assistance, federal departments and agencies would respond according to responsibilities outlined in the Federal Response Plan. Several groups, including the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction (known as the Gilmore Panel), have assessed the capabilities at the federal, state, and local levels to respond to a domestic terrorist incident involving a weapon of mass destruction (WMD), that is, a chemical, biological, radiological, or nuclear agent or weapon. While many aspects of an effective response to bioterrorism are the same as those for any disaster, there are some unique features. For example, if a biological agent is released covertly, it may not be recognized for a week or more because symptoms may not appear for several days after the initial exposure and may be misdiagnosed at first. In addition, some biological agents, such as smallpox, are communicable and can spread to others who were not initially exposed. These differences require a type of response that is unique to bioterrorism, including infectious disease surveillance, epidemiologic investigation, laboratory identification of biological agents, and distribution of antibiotics to large segments of the population to prevent the spread of an infectious disease. However, some aspects of an effective response to bioterrorism are also important in responding to any type of large-scale disaster, such as providing emergency medical services, continuing health care services delivery, and managing mass fatalities. Federal spending on domestic preparedness for terrorist attacks involving WMDs has risen 310 percent since fiscal year 1998, to approximately $1.7 billion in fiscal year 2001, and may increase significantly after the events of September 11, 2001. However, only a portion of these funds were used to conduct a variety of activities related to research on and preparedness for the public health and medical consequences of a bioterrorist attack. We cannot measure the total investment in such activities because departments and agencies provided funding information in various forms--as appropriations, obligations, or expenditures. Because the funding information provided is not equivalent, we summarized funding by department or agency, but not across the federal government (see apps. I and II). Reported funding generally shows increases from fiscal year 1998 to fiscal year 2001. Several agencies received little or no funding in fiscal year 1998. For example, within the Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention's (CDC) Bioterrorism Preparedness and Response Program was established and first received funding in fiscal year 1999 (see app. I and app. II). Its funding has increased from approximately $121 million at that time to approximately $194 million in fiscal year 2001. Research is currently being done to enable the rapid identification of biological agents in a variety of settings; develop new or improved vaccines, antibiotics, and antivirals to improve treatment and vaccination for infectious diseases caused by biological agents; and develop and test emergency response equipment such as respiratory and other personal protective equipment. Appendix I provides information on the total reported funding for all the departments and agencies carrying out research, along with examples of this research. The Department of Agriculture (USDA), Department of Defense (DOD), Department of Energy, HHS, Department of Justice (DOJ), Department of the Treasury, and the Environmental Protection Agency (EPA) have all sponsored or conducted projects to improve the detection and characterization of biological agents in a variety of different settings, from water to clinical samples (such as blood). For example, EPA is sponsoring research to improve its ability to detect biological agents in the water supply. Some of these projects, such as those conducted or sponsored by DOD and DOJ, are not primarily for the public health and medical consequences of a bioterrorist attack against the civilian population, but could eventually benefit research for those purposes. Departments and agencies are also conducting or sponsoring studies to improve treatment and vaccination for diseases caused by biological agents. For example, HHS' projects include basic research sponsored by the National Institutes of Health to develop drugs and diagnostics and applied research sponsored by the Agency for Healthcare Research and Quality to improve health care delivery systems by studying the use of information systems and decision support systems to enhance preparedness for the delivery of medical care in an emergency. In addition, several agencies, including the Department of Commerce's National Institute of Standards and Technology and DOJ's National Institute of Justice are conducting research that focuses on developing performance standards and methods for testing the performance of emergency response equipment, such as respirators and personal protective equipment. Federal departments' and agencies' preparedness efforts have included efforts to increase federal, state, and local response capabilities, develop response teams of medical professionals, increase availability of medical treatments, participate in and sponsor terrorism response exercises, plan to aid victims, and provide support during special events such as presidential inaugurations, major political party conventions, and the Superbowl. Appendix II contains information on total reported funding for all the departments and agencies with bioterrorism preparedness activities, along with examples of these activities. Several federal departments and agencies, such as the Federal Emergency Management Agency (FEMA) and CDC, have programs to increase the ability of state and local authorities to successfully respond to an emergency, including a bioterrorist attack. These departments and agencies contribute to state and local jurisdictions by helping them pay for equipment and develop emergency response plans, providing technical assistance, increasing communications capabilities, and conducting training courses. Federal departments and agencies have also been increasing their own capacity to identify and deal with a bioterrorist incident. For example, CDC, USDA, and the Food and Drug Administration (FDA) are improving surveillance methods for detecting disease outbreaks in humans and animals. They have also established laboratory response networks to maintain state-of-the-art capabilities for biological agent identification and the characterization of human clinical samples. Some federal departments and agencies have developed teams to directly respond to terrorist events and other emergencies. For example, HHS' Office of Emergency Preparedness (OEP) created Disaster Medical Assistance Teams to provide medical treatment and assistance in the event of an emergency. Four of these teams, known as National Medical Response Teams, are specially trained and equipped to provide medical care to victims of WMD events, such as bioterrorist attacks. Several agencies are involved in increasing the availability of medical supplies that could be used in an emergency, including a bioterrorist attack. CDC's National Pharmaceutical Stockpile contains pharmaceuticals, antidotes, and medical supplies that can be delivered anywhere in the United States within 12 hours of the decision to deploy. The stockpile was deployed for the first time on September 11, 2001, in response to the terrorist attacks on New York City. Federally initiated bioterrorism response exercises have been conducted across the country. For example, in May 2000, many departments and agencies took part in the Top Officials 2000 exercise (TOPOFF 2000) in Denver, Colorado, which featured the simulated release of a biological agent. Participants included local fire departments, police, hospitals, the Colorado Department of Public Health and the Environment, the Colorado Office of Emergency Management, the Colorado National Guard, the American Red Cross, the Salvation Army, HHS, DOD, FEMA, the Federal Bureau of Investigation (FBI), and EPA. Several agencies also provide assistance to victims of terrorism. FEMA can provide supplemental funds to state and local mental health agencies for crisis counseling to eligible survivors of presidentially declared emergencies. In the aftermath of the recent terrorist attacks, HHS released $1 million in funding to New York State to support mental health services and strategic planning for comprehensive and long-term support to address the mental health needs of the community. DOJ's Office of Justice Programs (OJP) also manages a program that provides funds for victims of terrorist attacks that can be used to provide a variety of services, including mental health treatment and financial assistance to attend related criminal proceedings. Federal departments and agencies also provide support at special events to improve response in case of an emergency. For example, CDC has deployed a system to provide increased surveillance and epidemiological capacity before, during, and after special events. Besides improving emergency response at the events, participation by departments and agencies gives them valuable experience working together to develop and practice plans to combat terrorism. Federal departments and agencies are using a variety of interagency plans, work groups, and agreements to coordinate their activities to combat terrorism. However, we found evidence that coordination remains fragmented. For example, several different agencies are responsible for various coordination functions, which limits accountability and hinders unity of effort; several key agencies have not been included in bioterrorism-related policy and response planning; and the programs that agencies have developed to provide assistance to state and local governments are similar and potentially duplicative. The President recently took steps to improve oversight and coordination, including the creation of the Office of Homeland Security. Over 40 federal departments and agencies have some role in combating terrorism, and coordinating their activities is a significant challenge. We identified over 20 departments and agencies as having a role in preparing for or responding to the public health and medical consequences of a bioterrorist attack. Appendix III, which is based on the framework given in the Terrorism Incident Annex of the Federal Response Plan, shows a sample of the coordination efforts by federal departments and agencies with responsibilities for the public health and medical consequences of a bioterrorist attack, as they existed prior to the recent creation of the Office of Homeland Security. This figure illustrates the complex relationships among the many federal departments and agencies involved. Departments and agencies use several approaches to coordinate their activities on terrorism, including interagency response plans, work groups, and formal agreements. Interagency plans for responding to a terrorist incident help outline agency responsibilities and identify resources that could be used during a response. For example, the Federal Response Plan provides a broad framework for coordinating the delivery of federal disaster assistance to state and local governments when an emergency overwhelms their ability to respond effectively. The Federal Response Plan also designates primary and supporting federal agencies for a variety of emergency support operations. For example, HHS is the primary agency for coordinating federal assistance in response to public health and medical care needs in an emergency. HHS could receive support from other agencies and organizations, such as DOD, USDA, and FEMA, to assist state and local jurisdictions. Interagency work groups are being used to minimize duplication of funding and effort in federal activities to combat terrorism. For example, the Technical Support Working Group is chartered to coordinate interagency research and development requirements across the federal government in order to prevent duplication of effort between agencies. The Technical Support Working Group, among other projects, helped to identify research needs and fund a project to detect biological agents in food that can be used by both DOD and USDA. Formal agreements between departments and agencies are being used to share resources and knowledge. For example, CDC contracts with the Department of Veterans Affairs (VA) to purchase drugs and medical supplies for the National Pharmaceutical Stockpile because of VA's purchasing power and ability to negotiate large discounts. Overall coordination of federal programs to combat terrorism is fragmented. For example, several agencies have coordination functions, including DOJ, the FBI, FEMA, and the Office of Management and Budget. Officials from a number of the agencies that combat terrorism told us that the coordination roles of these various agencies are not always clear and sometimes overlap, leading to a fragmented approach. We have found that the overall coordination of federal research and development efforts to combat terrorism is still limited by several factors, including the compartmentalization or security classification of some research efforts.The Gilmore Panel also concluded that the current coordination structure does not provide for the requisite authority or accountability to impose the discipline necessary among the federal agencies involved. The multiplicity of federal assistance programs requires focus and attention to minimize redundancy of effort. Table 1 shows some of the federal programs providing assistance to state and local governments for emergency planning that would be relevant to responding to a bioterrorist attack. While the programs vary somewhat in their target audiences, the potential redundancy of these federal efforts highlights the need for scrutiny. In our report on combating terrorism, issued on September 20, 2001, we recommended that the President, working closely with the Congress, consolidate some of the activities of DOJ's OJP under FEMA. We have also recommended that the federal government conduct multidisciplinary and analytically sound threat and risk assessments to define and prioritize requirements and properly focus programs and investments in combating terrorism. Such assessments would be useful in addressing the fragmentation that is evident in the different threat lists of biological agents developed by federal departments and agencies. Understanding which biological agents are considered most likely to be used in an act of domestic terrorism is necessary to focus the investment in new technologies, equipment, training, and planning. Several different agencies have or are in the process of developing biological agent threat lists, which differ based on the agencies' focus. For example, CDC collaborated with law enforcement, intelligence, and defense agencies to develop a critical agent list that focuses on the biological agents that would have the greatest impact on public health. The FBI, the National Institute of Justice, and the Technical Support Working Group are completing a report that lists biological agents that may be more likely to be used by a terrorist group working in the United States that is not sponsored by a foreign government. In addition, an official at USDA's Animal and Plant Health Inspection Service told us that it uses two lists of agents of concern for a potential bioterrorist attack. These lists of agents, only some of which are capable of making both animals and humans sick, were developed through an international process. According to agency officials, separate threat lists are appropriate because of the different focuses of these agencies. In our view, the existence of competing lists makes the assignment of priorities difficult for state and local officials. Fragmentation is also apparent in the composition of groups of federal agencies involved in bioterrorism-related planning and policy. Officials at the Department of Transportation (DOT) told us that that even though the nation's transportation centers account for a significant percentage of the nation's potential terrorist targets, the department was not part of the founding group of agencies that worked on bioterrorism issues and has not been included in bioterrorism response plans. DOT officials also told us that the department is supposed to deliver supplies for FEMA under the Federal Response Plan, but it was not brought into the planning early enough to understand the extent of its responsibilities in the transportation process. The department learned what its responsibilities would be during the TOPOFF 2000 exercise, which simulated a release of a biological agent. In May 2001, the President asked the Vice President to oversee the development of a coordinated national effort dealing with WMDs. At the same time, the President asked the Director of FEMA to establish an Office of National Preparedness to implement the results of the Vice President's effort that relate to programs within federal agencies that address consequence management resulting from the use of WMDs. The purpose of this effort is to better focus policies and ensure that programs and activities are fully coordinated in support of building the needed preparedness and response capabilities. In addition, on September 20, 2001, the President announced the creation of the Office of Homeland Security to lead, oversee, and coordinate a comprehensive national strategy to protect the country from terrorism and respond to any attacks that may occur. These actions represent potentially significant steps toward improved coordination of federal activities. Our recent report highlighted a number of important characteristics and responsibilities necessary for a single focal point, such as the proposed Office of Homeland Security, to improve coordination and accountability. Nonprofit research organizations, congressionally chartered advisory panels, government documents, and articles in peer-reviewed literature have identified concerns about the preparedness of states and local areas to respond to a bioterrorist attack. These concerns include insufficient state and local planning for response to terrorist events, a lack of hospital participation in training on terrorism and emergency response planning, questions regarding the timely availability of medical teams and resources in an emergency, and inadequacies in the public health infrastructure. In our view, there are weaknesses in three key areas of the public health infrastructure: training of health care providers, communication among responsible parties, and capacity of laboratories and hospitals, including the ability to treat mass casualties. Questions exist regarding how effectively federal programs have prepared state and local governments to respond to terrorism. All 50 states and approximately 255 local jurisdictions have received or are scheduled to receive at least some federal assistance, including training and equipment grants, to help them prepare for a terrorist WMD incident. In 1997, FEMA identified planning and equipment for response to nuclear, biological, and chemical incidents as areas in need of significant improvement at the state level. However, an October 2000 research report concluded that even those cities receiving federal aid are still not adequately prepared to respond to a bioterrorist attack. Inadequate training and planning for bioterrorism response by hospitals is a major problem. The Gilmore Panel concluded that the level of expertise in recognizing and dealing with a terrorist attack involving a biological or chemical agent is problematic in many hospitals. A recent research report concluded that hospitals need to improve their preparedness for mass casualty incidents. Local officials told us that it has been difficult to get hospitals and medical personnel to participate in local training, planning, and exercises to improve their preparedness. Local officials are also concerned about whether the federal government could quickly deliver enough medical teams and resources to help after a biological attack. Agency officials say that federal response teams, such as Disaster Medical Assistance Teams, could be on site within 12 to 24 hours. However, local officials who have deployed with such teams say that the federal assistance probably would not arrive for 24 to 72 hours. Local officials also told us that they were concerned about the time and resources required to prepare and distribute drugs from the National Pharmaceutical Stockpile during an emergency. Partially in response to these concerns, CDC has developed training for state and local officials in using the stockpile and will deploy a small staff with the supplies to assist the local jurisdiction with distribution. Components of the nation's public health system are also not well prepared to detect or respond to a bioterrorist attack. In particular, weaknesses exist in the key areas of training, communication, and hospital and laboratory capacity. It has been reported that physicians and nurses in emergency rooms and private offices, who will most likely be the first health care workers to see patients following a bioterrorist attack, lack the needed training to ensure their ability to make observations of unusual symptoms and patterns. Most physicians and nurses have never seen cases of certain diseases, such as smallpox or plague, and some biological agents initially produce symptoms that can be easily confused with influenza or other, less virulent illnesses, leading to a delay in diagnosis or identification. Medical laboratory personnel require training because they also lack experience in identifying biological agents such as anthrax. Because it could take days to weeks to identify the pathogen used in a biological attack, good channels of communication among the parties involved in the response are essential to ensure that the response proceeds as rapidly as possible. Physicians will need to report their observations to the infectious disease surveillance system. Once the disease outbreak has been recognized, local health departments will need to collaborate closely with personnel across a variety of agencies to bring in the needed expertise and resources. They will need to obtain the information necessary to conduct epidemiological investigations to establish the likely site and time of exposure, the size and location of the exposed population, and the prospects for secondary transmission. However, past experiences with infectious disease response have revealed a lack of sufficient and secure channels for sharing information. Our report last year on the initial West Nile virus outbreak in New York City found that as the public health investigation grew, lines of communication were often unclear, and efforts to keep everyone informed were awkward, such as conference calls that lasted for hours and involved dozens of people. Adequate laboratory and hospital capacity is also a concern. Reductions in public health laboratory staffing and training have affected the ability of state and local authorities to identify biological agents. Even the initial West Nile virus outbreak in 1999, which was relatively small and occurred in an area with one of the nation's largest local public health agencies, taxed the federal, state, and local laboratory resources. Both the New York State and the CDC laboratories were inundated with requests for tests, and the CDC laboratory handled the bulk of the testing because of the limited capacity at the New York laboratories. Officials indicated that the CDC laboratory would have been unable to respond to another outbreak, had one occurred at the same time. In fiscal year 2000, CDC awarded approximately $11 million to 48 states and four major urban health departments to improve and upgrade their surveillance and epidemiological capabilities. With regard to hospitals, several federal and local officials reported that there is little excess capacity in the health care system in most communities for accepting and treating mass casualty patients. Research reports have concluded that the patient load of a regular influenza season in the late 1990s overtaxed primary care facilities and that emergency rooms in major metropolitan areas are routinely filled and unable to accept patients in need of urgent care. We found that federal departments and agencies are participating in a variety of research and preparedness activities that are important steps in improving our readiness. Although federal departments and agencies have engaged in a number of efforts to coordinate these activities on a formal and informal basis, we found that coordination between departments and agencies is fragmented. In addition, we remain concerned about weaknesses in public health preparedness at the state and local levels, a lack of hospital participation in training on terrorism and emergency response planning, the timely availability of medical teams and resources in an emergency, and, in particular, inadequacies in the public health infrastructure. The latter include weaknesses in the training of health care providers, communication among responsible parties, and capacity of laboratories and hospitals, including the ability to treat mass casualties. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-7118. Barbara Chapman, Robert Copeland, Marcia Crosse, Greg Ferrante, Deborah Miller, and Roseanne Price also made key contributions to this statement. We identified the following federal departments and agencies as having responsibilities related to the public health and medical consequences of a bioterrorist attack: USDA - U.S. Department of Agriculture APHIS - Animal and Plant Health Inspection Service ARS - Agricultural Research Service FSIS - Food Safety Inspection Service OCPM - Office of Crisis Planning and Management DOC - Department of Commerce NIST - National Institute of Standards and Technology DOD - Department of Defense DARPA - Defense Advanced Research Projects Agency JTFCS - Joint Task Force for Civil Support National Guard U.S. Army DOE - Department of Energy HHS - Department of Health and Human Services AHRQ - Agency for Healthcare Research and Quality CDC - Centers for Disease Control and Prevention FDA - Food and Drug Administration NIH - National Institutes of Health OEP - Office of Emergency Preparedness DOJ - Department of Justice FBI - Federal Bureau of Investigation OJP - Office of Justice Programs DOT - Department of Transportation USCG - U.S. Coast Guard Treasury - Department of the Treasury USSS - U.S. Secret Service VA - Department of Veterans Affairs EPA - Environmental Protection Agency FEMA - Federal Emergency Management Agency Figure 1, which is based on the framework given in the Terrorism Incident Annex of the Federal Response Plan, shows a sample of the coordination activities by these federal departments and agencies, as they existed prior to the recent creation of the Office of Homeland Security. This figure illustrates the complex relationships among the many federal departments and agencies involved. The following coordination activities are represented on the figure: OMB Oversight of Terrorism Funding. The Office of Management and Budget established a reporting system on the budgeting and expenditure of funds to combat terrorism, with goals to reduce overlap and improve coordination as part of the annual budget cycle. Federal Response Plan - Health and Medical Services Annex. This annex to the Federal Response Plan states that HHS is the primary agency for coordinating federal assistance to supplement state and local resources in response to public health and medical care needs in an emergency, including a bioterrorist attack. Informal Working Group - Equipment Request Review. This group meets as necessary to review equipment requests of state and local jurisdictions to ensure that duplicative funding is not being given for the same activities. Agreement on Tracking Diseases in Animals That Can Be Transmitted to Humans. This group is negotiating an agreement to share information and expertise on tracking diseases that can be transmitted from animals to people and could be used in a bioterrorist attack. National Medical Response Team Caches. These caches form a stockpile of drugs for OEP's National Medical Response Teams. Domestic Preparedness Program. This program was formed in response to the National Defense Authorization Act of Fiscal Year 1997 (P.L. 104-201) and required DOD to enhance the capability of federal, state, and local emergency responders regarding terrorist incidents involving WMDs and high-yield explosives. As of October 1, 2000, DOD and DOJ share responsibilities under this program. Office of National Preparedness - Consequence Management of WMD Attack. In May 2001, the President asked the Director of FEMA to establish this office to coordinate activities of the listed agencies that address consequence management resulting from the use of WMDs. Food Safety Surveillance Systems. These systems are FoodNet and PulseNet, two surveillance systems for identifying and characterizing contaminated food. National Disaster Medical System. This system, a partnership between federal agencies, state and local governments, and the private sector, is intended to ensure that resources are available to provide medical services following a disaster that overwhelms the local health care resources. Collaborative Funding of Smallpox Research. These agencies conduct research on vaccines for smallpox. National Pharmaceutical Stockpile Program. This program maintains repositories of life-saving pharmaceuticals, antidotes, and medical supplies that can be delivered to the site of a biological (or other) attack. National Response Teams. The teams constitute a national planning, policy, and coordinating body to provide guidance before and assistance during an incident. Interagency Group for Equipment Standards. This group develops and maintains a standardized equipment list of essential items for responding to a terrorist WMD attack. (The complete name for this group is the Interagency Board for Equipment Standardization and Interoperability.) Force Packages Response Team. This is a grouping of military units that are designated to respond to an incident. Cooperative Work on Rapid Detection of Biological Agents in Animals, Plants, and Food. This cooperative group is developing a system to improve on-site rapid detection of biological agents in animals, plants, and food. Bioterrorism: Coordination and Preparedness (GAO-02-129T, Oct. 5, 2001). Bioterrorism: Federal Research and Preparedness Activities (GAO-01-915, Sept. 28, 2001). Combating Terrorism: Selected Challenges and Related Recommendations (GAO-01-822, Sept. 20, 2001). Combating Terrorism: Comments on H.R. 525 to Create a President's Council on Domestic Terrorism Preparedness (GAO-01-555T, May 9, 2001). Combating Terrorism: Accountability Over Medical Supplies Needs Further Improvement (GAO-01-666T, May 1, 2001). Combating Terrorism: Observations on Options to Improve the FederalResponse (GAO-01-660T, Apr. 24, 2001). Combating Terrorism: Accountability Over Medical Supplies Needs Further Improvement (GAO-01-463, Mar. 30, 2001). Combating Terrorism: Comments on Counterterrorism Leadership and National Strategy (GAO-01-556T, Mar. 27, 2001). Combating Terrorism: FEMA Continues to Make Progress in Coordinating Preparedness and Response (GAO-01-15, Mar. 20, 2001). Combating Terrorism: Federal Response Teams Provide Varied Capabilities; Opportunities Remain to Improve Coordination (GAO-01-14, Nov. 30, 2000). West Nile Virus Outbreak: Lessons for Public Health Preparedness (GAO/HEHS-00-180, Sept. 11, 2000). Combating Terrorism: Linking Threats to Strategies and Resources (GAO/T-NSIAD-00-218, July 26, 2000). Chemical and Biological Defense: Observations on Nonmedical Chemical and Biological R&D Programs (GAO/T-NSIAD-00-130, Mar. 22, 2000). Combating Terrorism: Need to Eliminate Duplicate Federal Weapons of Mass Destruction Training (GAO/NSIAD-00-64, Mar. 21, 2000).
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Federal research and preparedness activities related to bioterrorism center on detecting of such agents; developing new or improved vaccines, antibiotics, and antivirals; and developing performance standards for emergency response equipment. Preparedness activities include: (1) increasing federal, state, and local response capabilities; (2) developing response teams; (3) increasing the availability of medical treatments; (4) participating in and sponsoring exercises; (5) aiding victims; and (6) providing support at special events, such as presidential inaugurations and Olympic games. To coordinate their activities, federal agencies are developing interagency response plans, participating in various interagency work groups, and entering into formal agreements with each other to share resources and capabilities. However, GAO found that coordination of federal terrorism research, preparedness, and response programs is fragmented, raising concerns about the ability of states and localities to respond to a bioterrorist attack. These concerns include poor state and local planning and the lack of hospital participation in training on terrorism and emergency response planning. This report summarized a September 2001 report (GAO-01-915).
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Decennial census data play a key role in the allocation of many grant programs. In fiscal year 2004, the federal government administered 1,172 grant programs, with $460.2 billion in combined obligations. Most of these obligations were concentrated in a small number of grants. For example, Medicaid was the largest formula grant program, with federal obligations of $183.2 billion, or nearly 40 percent of all grant obligations, in fiscal year 2004. Many of the formulas used to allocate grant funds rely upon measures of population, often in combination with other factors. In addition to the census count, the Bureau has programs that estimate more current data on population and population characteristics that are derived from the decennial census of population. Grant formula allocations also use the estimated data from the Bureau's postcensal population estimates, the Current Population Survey, and the American Community Survey. Because the decennial census provides population counts once every ten years, the Bureau also estimates the population for the years between censuses. These estimates are referred to as postcensal population estimates. They start with the most recently available decennial census data and for each year adjust population counts for births, deaths, and migration. Because these population estimates are more current than the decennial population counts, the distribution formulas for federal grants often use these data. For example, the allocation formula for the Social Services Block Grants uses the most recent postcensal population estimates to distribute funds. While the decennial census and postcensal estimates provide annual data, the Current Population Survey provides monthly data. This survey's sampling design relies on information developed for the decennial census and its data are revised annually to be consistent with the postcensal estimates. The survey is primarily designed to generate detailed information about the American labor force, such as the number of people unemployed. Data from this survey are also used to allocate funds for programs, for instance programs under the Workforce Investment Act. Another survey, the American Community Survey (ACS), provides detailed socioeconomic characteristics for the nation's communities. The ACS relies on information developed for the decennial census and its annual data are controlled to be identical to postcensal population estimates. Currently, the ACS provides information on communities with populations over 65,000. Data from the ACS are also used to allocate federal funds, such as determining fair market rent levels used in the Section 8 housing voucher program. Because the ACS is to replace 2010 census long form socioeconomic data, it is expected that ACS data will be used more extensively in other federal assistance programs in the future. Beginning in 2010, 5-year estimates will be available for areas to the smallest block groups, census tracts, small towns, and rural areas. Beyond their use by the federal government, the population counts and estimates are also used extensively by state and local governments, businesses, nonprofits, and research institutions. Population-based data drawn from the decennial census, postcensal population estimates, and the ACS play critical roles in the conduct of community development programs undertaken by the federal, state, and local governments. Such data are central to the conduct of the federal government's Community Development Block Grant program (CDBG), the federal government's 13th largest formula grant program with $3 billion in obligations in fiscal year 2004. Since 1974, this program has provided $120 billion to help communities address a host of urban problems ranging from poverty and deteriorating housing to population loss and social isolation. Given the breadth of the program's objectives and the diversity of the nation's communities, CDBG employs four formulas to allocate funds among 50 states, the District of Columbia, and 1,080 local governments. These formulas depend on census data, including total population, individuals in poverty, lagging population growth, households in overcrowded homes, as well as the number of pre-1940 homes. An accurate census relies on finding and counting people--only once--in the right place and getting complete, correct information on them. Seeking to obtain an accurate count has been a concern since the first census in 1790. Concern about undercounting the population continued through the decades. In the 1940s, demographers began to obtain a more thorough understanding of the scope and nature of the undercount. For example, the selective service registration of October 1940 showed 2.8 percent more men than the census count. According to the Bureau, operations and programs designed to improve coverage have resulted in the total undercount declining in all but one decade since the 1940s. These measures of coverage are based on demographic analysis, which compares the census count to birth and death certificates and other administrative data (see fig. 1). Modern coverage measurement began with the 1980 Census, when the Bureau compared decennial figures to the results of an independent sample survey of the population. In using statistical methods such as these, the Bureau began to generate detailed measures of the differences among undercounts of particular ethnic, racial and other groups. In 1990, the Bureau relied on a Post-Enumeration Survey to verify the data it collected through the 1990 Census. For this effort, the Bureau interviewed a sample of households several months after the 1990 Census, and compared the results to census questionnaires to determine if each sampled person was correctly counted, missed, or double counted in the Census. The Bureau estimated that the net undercount, which it defined as those missed minus those double counted, came to about 4 million people. To estimate the accuracy of the 2000 Census, the Bureau conducted the Accuracy and Coverage Evaluation (A.C.E.), which was an independent sample survey designed to estimate the number of people that were over- and undercounted in the census, a problem the Bureau refers to as coverage error. This evaluation found that in the 2000 Census there was a net overcount. For 2010 the Bureau plans a census coverage measurement program that will, among other things, produce estimates of components of census net and gross coverage error (the latter includes misses and erroneous enumerations) in order to assess accuracy. The accuracy of state and local population estimates may have an effect, though modest, on the allocation of grant funds among the states. In our June 2006 report, we analyzed how sensitive two federal formula grants are to alternative population estimates, such as those derived by statistical methods. In the June 2006 report, we recalculated certain federal assistance to the states using the A.C.E. population estimates from the 2000 Census, as well as the population estimates derived from the Post- Enumeration Survey, which was administered to evaluate the accuracy of the 1990 Census. This simulation was done for illustrative purposes only-- to demonstrate the sensitivity of government programs to alternative population estimates. While only the actual census numbers should be used for official purposes, our simulation shows the extent to which alternative population counts would affect the distribution of selected federal grant funds and can help inform congressional decision making on the design of future censuses. We selected the Social Services Block Grant (SSBG) as part of this simulation because the formula for this block grant program, which is based solely on population, and the resulting funding allocations are particularly sensitive to alternative population estimates. At a given level of appropriation, any changes in the state's population relative to other states' changes would have a proportional impact on the allocation of funds to the state. In fiscal year 2004, the federal government allocated $1.7 billion to states in block grant funds under the program. Recalculating these allocations using statistical population estimates from the 2000 A.C.E., only $4.2 million--or 0.25 percent--of $1.7 billion in block grant funds would have shifted. The total $1.7 billion SSBG allocation would not have changed because SSBG receives a fixed annual appropriation. In other words, those states receiving additional funds would have reduced the funds of other states. In short, 27 states and the District of Columbia would have gained $4.2 million and 23 states would have lost a total of $4.2 million. Based on our simulation of the funding formula for this block grant program, the largest percentage changes were for Washington, D.C., which would have gained 2.05 percent (or $67,000) in grant funding and Minnesota which would have lost 1.17 percent (or $344,000). For the programs we examined, less than half of a percent of total funding would be redistributed by using the revised population counts. Figure 2 shows how much (as a percentage) and where SSBG funding in 2004 would have shifted as a result of using statistical population estimates for recalculating formula grant funding by state. We previously reported that using 1990 adjusted data as the basis for allocations had little relative effect on the distribution of annual funding to states. More recently, we reported that statistical population estimates from the 2000 Census would have shifted a smaller percentage of funding compared to those from the 1990 Census because the difference between the actual and estimated population counts was smaller in 2000. For example, using statistical estimates of the population following the 1990 Census, a total of 0.37 percent of SSBG funds would have shifted among the states in fiscal year 1998. In addition to any impact that inaccuracies in the census count may have on allocation of federal funds, between decennials differences between the actual population and population estimates could affect fund allocation. To calculate grant amounts, formula grants generally rely on annual population estimates for each state developed by the Bureau. State populations are estimated by adding to the prior year's population estimate the number of births and immigrants and subtracting the number of deaths and emigrants. These estimates are subject to error, mainly because migration between states and between the United States and other countries is difficult to measure. By the end of the decade, when the census count is taken, a significant gap may have arisen between the population estimate and the census count. We found that by the time of the 2000 census count, the annual estimates of population differed from the 2000 count by about 2.5 percent. This "error of closure" was substantially larger than that for the 1990 census--0.6 percent. We found that correcting population estimates to reflect the 2000 census count redistributes among states about $380 million in federal grant funding for Medicaid, Foster Care, Adoption Assistance, and SSBG. Most of the shift in funding occurred in fiscal year 2003 when federal matching rates for three of the programs were based on population estimates derived from the 2000 census. For the SSBG program, the shift occurred in 2002 when it began using the 2000 census count. Complete and accurate data from the decennial census are central to our democratic system of government. These same data serve as a foundation for the allocation of billions of dollars in federal funds to states and local governments. Because of the importance of the once-a-decade count, it is essential to ensure that it is accurate. Though the overall undercount has generally declined since it has been measured, evaluating the accuracy of the census continues to be essential given the importance of the data, the need to know the nature of any errors, and the cost of the census overall. We continue to monitor the Bureau's progress in this important effort. Mr. Chairman, this concludes my remarks. I will be glad to answer any questions that you, Mr. Turner, or other subcommittee members may have. For further information regarding this statement, please contact Mathew Scire, Director, Strategic Issues, on (202) 512-6806 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 Steven Lozano, Assistant Director; Betty Clark; Robert Dinkelmeyer; Greg Dybalski; Ron Fecso; Sonya Phillips; Michael Springer; and Cheri Truett. 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. Census 2000: Design Choices Contributed to Inaccuracy of Coverage Evaluation Estimates. GAO-05-71. Washington, D.C.: November 12, 2004. 2010 Census: Cost and Design Issues Need to Be Addressed Soon. GAO- 04-37. Washington, D.C.: January 15, 2004. 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. 2000 Census: Complete Costs of Coverage Evaluation Programs Are Not Available. GAO-03-41. Washington, D.C.: October 31, 2002. The American Community Survey: Accuracy and Timeliness Issues. GAO-02-956R. Washington, D.C.: September 30, 2002. 2000 Census: Refinements to Full Count Review Program Could Improve Future Data Quality. GAO-02-562. Washington, D.C.: July 3, 2002. 2000 Census: Coverage Evaluation Matching Implemented as Planned, but Census Bureau Should Evaluate Lessons Learned. GAO-02-297. Washington, D.C.: March 14, 2002. Formula Grants: Effects of Adjusted Population Counts on Federal Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999. Formula Programs: Adjusted Census Data Would Redistribute Small Percentage of Funds to States. GAO/GGD-92-12. Washington, D.C.: November 7, 1991. 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 that produces critical data used to apportion congressional seats, redraw congressional districts, and allocate billions of dollars in federal assistance. This testimony discusses (1) the various measures of population used to allocate federal grant funds (2) how the accuracy of the population count and measurement of accuracy have evolved and the U.S. Census Bureau's (Bureau) plan for coverage measurement in 2010; and (3) the potential impact that differences in population estimates can have on the allocation of grant funds. This testimony is based primarily on GAO's issued work in which it evaluated the sensitivity of grant formulas to population estimates. In fiscal year 2000, GAO found that 85 percent of federal government obligations in grants to state and local governments were distributed on the basis of formulas that use data such as state population and personal income. The decennial census is the foundation for measuring the nation's population. It provides a count of the population every 10 years, and is the starting point for estimates of population made in years between the censuses. Obtaining an accurate population count through the decennial census has been a concern since the first census in 1790. Concern that the decennial census undercounted the population has continued since then. To measure accuracy, the Bureau since 1940 has used demographic analysis, in which it compares census counts with information on births, deaths, and other information. With the exception of 1990, the Bureau's demographic analysis shows that the extent to which the census undercounted the population has declined. More recently, the Bureau has used statistical techniques in which it compares the census count with the results of an independent sample survey of the population. For 2010, the Bureau plans to use similar statistical techniques to measure the accuracy and coverage of the census. Evaluating the accuracy of the census is essential given the importance of the data, the need to know the nature of any errors, and the cost of the census overall. GAO's prior work has illustrated that the accuracy of state and local population estimates may have some effect on the allocation of grant funds. Specifically, to show the sensitivity of grant programs to alternative population estimates, GAO simulated how two grant program formulas would allocate federal funds to states if population estimates were substituted for census counts. This simulation was done for illustrative purposes only. While only actual census numbers should be used for official purposes, this simulation showed some shifting of grant funds among the states when estimates were used. For example, recalculating allocations of Social Services Block Grant funds using estimates of population for 2000, rather than the census count, would result in shifting $4.2 million--or 0.25 percent--of $1.7 billion in fiscal year 2004 funds. Specifically, 27 states and the District of Columbia would have gained $4.2 million and 23 states would have lost a total of $4.2 million.
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To address the problems associated with unstable forms of plutonium and inadequate packaging for long-term storage, DOE established a standard for the safe storage of plutonium for a minimum of 50 years that sets plutonium stabilization and packaging requirements. Stabilization is achieved by heating the material to remove moisture that could lead to a buildup of pressure, which would increase the risk of rupturing a container. Plutonium storage containers designed to meet the standard consist of an inner and outer container, each welded shut. The inner container is designed so that it can be monitored for a buildup of pressure using analytical techniques, such as radiography, that do not damage the container. Containers must also be resistant to fire, leakage, and corrosion. Plutonium stabilization and packaging are completed at Rocky Flats, Hanford, and SRS, and SRS has already received nearly 1,900 containers from Rocky Flats. Stabilization and packaging are still ongoing at Lawrence Livermore and Los Alamos National Laboratories. Once stabilization and packaging are completed, DOE estimates that it will have nearly 5,700 plutonium storage containers stored at locations across the United States that could eventually be shipped to SRS. SRS's plutonium storage plans originally called for the construction of a state-of-the-art Actinide Packaging and Storage Facility that would have provided long-term storage and monitoring of standard plutonium containers in a secure environment. DOE changed its storage plans and cancelled the project in 2001 because it expected to store the plutonium for only a few years until a facility to process the plutonium for permanent disposition was available. Instead of building a new facility, DOE decided to use two existing buildings at SRS for plutonium storage and monitoring operations: Building 105-K and Building 235-F. Building 105-K was originally a nuclear reactor built in the early 1950s and produced plutonium and tritium until 1988. The reactor was then placed in a cold standby condition until its complete shutdown in 1996. The major reactor components were removed and the facility is now primarily used to store plutonium and highly enriched uranium. Building 235-F was also constructed in the 1950s and was used until the mid-1980s to produce plutonium heat sources that were used to power space probes for the National Aeronautics and Space Administration and the Department of Defense. The building is currently used to store plutonium. After the design basis threat was changed in October 2004, SRS was forced once again to reevaluate its storage plans. Because the new design basis threat substantially increased the potential threat that SRS must defend against, Building 105-K and Building 235-F would need extensive and expensive upgrades to comply with the new requirements. SRS estimated the total cost of this additional security at over $300 million. SRS further estimated that it could save more than $120 million by not using Building 235-F for storage and therefore decided in April 2005 to consolidate plutonium storage in Building 105-K. DOE cannot consolidate its excess plutonium at SRS for several reasons. First, DOE has not completed a plan to process the plutonium into a form for permanent disposition, as required by the National Defense Authorization Act for Fiscal Year 2002. DOE proposed two facilities at SRS to process its surplus plutonium into a form for permanent disposition: a mixed oxide fuel fabrication facility to convert plutonium into fuel rods for use in nuclear power plants and a plutonium immobilization plant where plutonium would be mixed with ceramics, the mixture placed in large canisters, and the canisters then filled with high- level radioactive waste. The canisters would then be permanently disposed of at Yucca Mountain. In 2002, citing budgetary constraints, DOE cancelled the plutonium immobilization plant, eliminating the pathway to process its most heavily contaminated plutonium into a form suitable for permanent disposition. Section 3155 of the act provides that if DOE decides not to construct either of two proposed plutonium disposition facilities at SRS, DOE is prohibited from shipping plutonium to SRS until a plan to process the material for permanent disposition is developed and submitted to the Congress. To date, DOE has not developed a disposition plan for the plutonium that would have been processed in the immobilization plant. In its fiscal year 2006 budget, DOE requested $10 million to initiate conceptual design of a facility that would process this plutonium. However, it is uncertain when this design work would be completed and a plan prepared. Second, even if a plan to process this plutonium for permanent disposition had been developed and DOE were able to ship the plutonium, SRS would still be unable to accommodate some of Hanford's plutonium because Hanford's accelerated cleanup plans and SRS's storage plans are inconsistent with one another. DOE approved both plans even though Hanford's accelerated cleanup plan called for shipping some of its plutonium to SRS in a form that SRS had not planned on storing. Hanford stores nearly one-fifth of its plutonium in the form of 12-foot-long nuclear fuel rods, with the remainder in about 2,300 DOE standard 5-inch- wide, 10-inch-long storage containers. The fuel rods were to be used in Hanford's Fast Flux Test Facility reactor. The reactor has been closed, and the fuel rods were never used. Hanford's plutonium is currently being stored at the site's Plutonium Finishing Plant--the storage containers in vaults and the nuclear fuel rods in large casks inside a fenced area. Hanford was preparing to ship plutonium to SRS as part of its efforts to accelerate the cleanup and demolition of its closed nuclear facilities. Although Hanford's original cleanup plan called for demolishing the Plutonium Finishing Plant by 2038, the plan was modified in 2002 to accelerate the site's cleanup. Hanford's accelerated cleanup plan that was approved by DOE's Office of Environmental Management now calls for shipping the storage containers and nuclear fuel rods to SRS by the end of fiscal year 2006 so that Hanford can demolish the Plutonium Finishing Plant by the end of fiscal year 2008. To meet the new deadline, Hanford planned to ship the fuel rods intact to SRS. Nevertheless, SRS's July 2004 plutonium storage plan stated that Hanford would cut the fuel rods and package the plutonium in approximately 1,000 DOE standard storage containers before shipping the material to SRS. Although Building 105-K has space to store the fuel rods intact, several steps would be necessary before DOE could ship the fuel rods from Hanford to SRS. First, there is currently no Department of Transportation- certified shipping container that could be used to package and ship the fuel rods. In addition, SRS would be required, among other things, to prepare the appropriate analyses and documentation under the National Environmental Policy Act and update Building 105-K's safety documentation to include storage of the fuel rods. Wherever the fuel rods are stored, they would have to be disassembled before processing the plutonium for permanent disposition. Hanford and SRS currently lack the capability to disassemble the fuel rods, but DOE plans to study establishing that capability at SRS as part of its conceptual design of a facility to process the plutonium for disposition. The challenges DOE faces storing its plutonium stem from the department's failure to adequately plan for plutonium consolidation. DOE has not developed a complexwide, comprehensive strategy for plutonium consolidation and disposition that accounts for each of its facilities' requirements and capabilities. Until DOE is able to develop a permanent disposition plan, additional plutonium cannot be shipped to SRS, and DOE will not achieve the cost savings and security improvements that plutonium consolidation could offer. According to DOE officials, the impact of continued storage at Los Alamos and Lawrence Livermore will be relatively minor because both laboratories had already planned to maintain plutonium storage facilities for other laboratory missions. However, according to Hanford officials, continued storage at Hanford could cost approximately $85 million more annually because of increasing security requirements and will threaten the achievement of the goals in the site's accelerated cleanup plan. Specifically, maintaining storage vaults at Hanford's Plutonium Finishing Plant will prevent the site from demolishing the plant as scheduled by September 2008. Under DOE's plutonium storage standard, storage containers must be periodically monitored to ensure continued safe storage. Without a monitoring capability that can detect whether storage containers are at risk of rupturing, there is an increased risk of an accidental plutonium release that could harm workers, the public, and the environment. Monitoring activities must occur in a facility that, among other things, is equipped to confine accidentally released plutonium through effective ventilation and appropriate filters. In addition, the facility must have a fire protection system to protect storage containers and prevent their contents from being released in a major fire. According to the Safety Board, Building 105-K is not currently equipped with adequate ventilation or fire protection. Specifically, SRS removed the High-Efficiency Particulate Air (HEPA) filters that were used in the building's ventilation system when it was a nuclear reactor. Such filters could prevent plutonium from escaping the building in the event of a release from the storage containers. In addition, Building 105-K lacks automatic fire detection or suppression systems. As a result, plutonium storage containers cannot safely be removed from inside the outer packaging used to ship the containers to SRS. The outer package--a 35- gallon steel drum--is used to ship a single storage container and is designed to resist damage during transportation and handling. The outer package confines the plutonium in the event the storage container inside is breached. In addition, the outer package provides an additional layer of protection from fire for the storage container inside. Because monitoring requires x-raying individual storage containers and, in some cases, puncturing and cutting storage containers to analyze the condition of the container and the plutonium within, the storage containers must be removed from their outer packaging. SRS plans to establish a capability to restabilize the plutonium by heating it in a specialized furnace in the event monitoring determines that the stored plutonium is becoming unstable (i.e., increasing the risk of rupturing a storage container). The restablized plutonium would then be packaged into new storage containers. The only facility at SRS currently capable of restabilizing and repackaging the plutonium has closed in preparation for decommissioning. Because Building 105-K does not have the capability to monitor storage containers, DOE had planned to install monitoring equipment in Building 235-F at SRS. Building 235-F was chosen primarily because it was already equipped with filtered ventilation systems appropriate to handling plutonium--multiple and redundant air supply and exhaust fan systems that use HEPA filters. Exhaust from the ventilation system is further filtered through a sand filter before entering the outside atmosphere. Currently, Building 235-F is limited to removing storage containers from their outer packaging and x-raying the containers to evaluate potential pressurization. Although DOE has installed equipment in Building 235-F that can puncture the storage container to relieve pressure, Building 235-F currently lacks the capability to conduct destructive examinations. Destructive examinations consist of cutting containers open to take samples of and analyze the gases inside and examining the containers themselves for indications of corrosion. In addition, destructive examination allows plutonium inside the container to be analyzed to detect any changes in the plutonium's condition. Building 235-F also currently lacks the capability to restabilize and repackage plutonium. In addition, Building 235-F faced several other challenges that would have affected its ability to monitor plutonium. Because of changes in the design basis threat, Building 235-F would not have had sufficient security to store Category I quantities of plutonium. SRS officials estimate that 972 storage containers contain Category I quantities of plutonium metal. Although these storage containers are at relatively low risk for rupture, SRS would have been unable to remove those containers from Building 105-K to monitor their condition. According to SRS officials, security measures could have been established in Building 235-F if a safety issue had arisen that required opening a Category I container. Furthermore, the Safety Board identified a number of serious safety concerns with Building 235-F. Specifically, the Safety Board reported the following: The building lacks fire suppression systems, and many areas of the building lack fire detection and alarm systems. The building's nuclear criticality accident alarm system has been removed. A nuclear criticality accident occurs when enough fissile material, such as plutonium, is brought together to cause a sustained nuclear chain reaction. The immediate result of a nuclear criticality accident is the production of an uncontrolled and unpredictable radiation source that can be lethal to people who are nearby. A number of the building's safety systems depend upon electrical cables that are approximately 50 years old and have exceeded their estimated life. When electrical cables age, they become brittle and may crack, increasing the potential for failure. SRS has discovered two areas in the soil near the building that could present a hazard in the event of an earthquake. The building's ventilation system still contains plutonium from its previous mission of producing plutonium heat sources to power space probes. This highly radioactive plutonium could be released, for example, during a fire or earthquake and could pose a hazard to workers in the building. Once again, DOE's monitoring challenges demonstrate its failure to adequately plan for plutonium consolidation. Instead of a comprehensive strategy that assessed the monitoring capabilities needed to meet its storage standard, DOE's plans went from constructing a state-of-the-art storage and monitoring facility to using a building that the Safety Board had significant concerns with. Moreover, DOE's plans have subsequently changed again. In April 2005, after spending over $15 million to begin modifications to Building 235-F, DOE announced that it would only use the building to monitor plutonium temporarily. Now, DOE plans to install the necessary safety systems and monitoring equipment in Building 105-K, a 50-year-old building that was not designed for such functions. This decision underscores that DOE's lack of careful planning has forced SRS to focus on what can be done with existing facilities, eliminating options that could have been both more cost-effective and safer than current plans. Mr. Chairman, this concludes my prepared statement. I 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 Gene Aloise at (202) 512-3841 or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Sherry McDonald, Assistant Director; and Ryan T. Coles made key contributions to this testimony. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Plutonium is very hazardous to human health and the environment and requires extensive security because of its potential use in a nuclear weapon. The Department of Energy (DOE) stores about 50 metric tons of plutonium that is no longer needed by the United States for nuclear weapons. Some of this plutonium is in the form of contaminated metal, oxides, solutions, and residues remaining from the nuclear weapons production process. To improve security and reduce storage costs, DOE plans to establish enough storage capacity at its Savannah River Site (SRS) in the event it decides to consolidate its plutonium there until it can be permanently disposed of. GAO was asked to examine (1) the extent to which DOE can consolidate this plutonium at SRS and (2) SRS's capacity to monitor plutonium storage containers. As GAO reported in July 2005, DOE cannot yet consolidate its surplus plutonium at SRS for several reasons. First, DOE has not completed a plan to process the plutonium into a form for permanent disposition, as required by the National Defense Authorization Act for Fiscal Year 2002. Without such a plan, DOE cannot ship additional plutonium to SRS. Second, SRS cannot receive all of the plutonium from DOE's Hanford Site because it is not in a form SRS planned to store. Specifically, about 20 percent of Hanford's plutonium is in the form of 12-foot-long nuclear fuel rods, which Hanford had planned to ship intact to SRS as part of its efforts to cleanup and demolish its closed nuclear facilities. However, SRS's storage plan assumed Hanford would package all of its plutonium in DOE's standard storage containers. Until a permanent disposition plan is developed, more plutonium cannot be shipped to SRS and DOE will not achieve the cost savings and security improvements that consolidation could offer. In particular, continued storage at Hanford will cost approximately $85 million more annually because of increasing security requirements and will threaten that site's achievement of the milestones in its accelerated cleanup plan. In addition, DOE lacks the necessary capability to fully monitor the condition of the plutonium to ensure continued safe storage. The facility at SRS that DOE plans to use to store plutonium lacks adequate safety systems to conduct monitoring of storage containers. Without a monitoring capability, DOE faces increased risks of an accidental plutonium release that could harm workers, the public, and the environment. DOE had planned to construct a monitoring capability in another building at SRS that already had safety systems needed to work with plutonium. However, this building would not have had sufficient security to conduct all of the required monitoring activities. In addition, this building also has other serious safety problems. Faced with these challenges, DOE announced in April 2005 that it would have SRS's storage facility upgraded to conduct plutonium monitoring.
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DOD buys hand tools for a wide range of maintenance and repair activities that include maintaining everything from facilities and vehicles to aircraft and ships. DOD buys tools either from GSA or by local purchase. DOD regulations state that use of established supply sources, such as GSA, should be maximized. If the supply system cannot be used, local purchases may be considered if they are in the best interest of the government in terms of the combination of quality, timeliness, and cost. DOD aircraft maintenance units use silhouetted tool boxes and displays, which contain shadow drawings of the tools, to control tools at the user level and prevent foreign object damage to aircraft resulting from tools left in or on an aircraft during maintenance. Generally, the tool box or kit has a foam insert in each drawer that is cut and shaped to the size of the tools to facilitate the physical inventories taken at the time a mechanic checks out and returns the tool box to the tool room (see fig. 1.) Other military units, such as artillery and transportation units, use tool boxes that do not maintain the tools as neatly and are less easily inventoried. Executive agencies are required to establish and maintain systems of internal controls that provide reasonable assurance that resource use is consistent with applicable laws, regulations, and policies; resources are safeguarded to prevent waste, loss, and misuse; transactions and other events are adequately documented and fairly disclosed; and resources are accounted for. With regard to hand tools, basic internal controls should include prior authorization of specific tool purchases by an individual knowledgeable of a unit's tool needs; independent checks to ensure that tool purchases are properly received; and accurate inventory records to reflect tool receipts, issues, and on-hand quantities. DOD has not issued guidance establishing controls over hand tools at the user level. DOD does have overall guidance for the physical security of government property located at military installations, but the guidance does not contain specific procedures for controlling tool purchases, inventories, and related receipts and issues. The military services also have not provided adequate guidance to installations and operating units. Other than requiring periodic physical inventories, the guidance does not provide specific controls over hand tools. The Air Force has recognized the need for better guidance and, in November 1993, established an Air Force Tool Committee to develop new guidance for use Air Force-wide. Although guidance on tool purchases and inventories is lacking, the military services have issued guidance to prevent foreign object damage to aircraft from tools left on or in aircraft during maintenance. Air Force mechanics are required to sign out for tool kits or individual tools, and an inventory of the tools is performed. After the work is completed, the mechanics return the tools, and the contents again are inventoried to ensure that none are left in the aircraft. The Navy and the Marine Corps use a similar system to prevent foreign object damage. DOD has insufficient cost data at the headquarters, command, and installation levels to identify and track hand tool purchases, inventory levels, and losses. Also, because the military services consider hand tools to be expendable items representing small dollar values, losses that are identified by operating units often are not reported to investigative organizations and higher commands. DOD headquarters does not maintain cost information reflecting hand tool purchases, inventory levels, and losses. DOD does report information on losses of all government property annually to the Congress, but DOD officials told us that the reported information includes very limited data on hand tools because such losses often get little visibility and generally do not meet the minimum reporting threshold of $1,000 per incident. Representatives at the headquarters of all of the military services and the commands we visited also told us that they do not receive or maintain information that reflects hand tool purchases, inventory levels, or losses. The representatives stated that they do not manage down to that level and that such information only would be available at the installation level. However, we visited Fort Bragg, Oceana Naval Air Station, Langley Air Force Base, and Camp Lejeune Marine Corps Base and found that data were very limited at the installation and operating unit levels. At our request, certain units compiled data on the amount of recent tool purchases. For example, one unit at the Oceana Naval Air Station was able to provide lists of individual tool purchases for 20 months that totaled $25,844. However, most of the installations and units visited did not know the value of the tool inventories and could not provide complete data on tool purchases. For example, units at Camp Lejeune had data reflecting the number and types of tools owned but did not know the value of the tool inventories. Agents at the security investigating organization of each installation told us that they maintain a log of all investigations of suspected stolen government property but do not report such losses to anyone. The logs, which are used to monitor trends in thefts and other crimes, include very little information on tool losses. Reports prepared to document losses of government property and provide the basis for an investigation of the reasons for the losses generally were not prepared for tools due to the small dollar values involved. At Langley Air Force Base, for example, these reports had not included any hand tools for the past 2 years. The absence of adequate management guidance has contributed to a general lack of basic internal controls at individual installations and operating units. We identified weaknesses in basic internal controls at each of the four installations and eight operating units we visited. These weaknesses related to purchase authorizations and inventory record-keeping. All units we visited required prior authorization for specific tool purchases except for the two units at Langley Air Force Base. Instead, personnel used a blanket authorization from the unit that was entered into the base service store's computer system. One squadron we visited authorized six persons to buy tools at the base service store, and the other, smaller unit we visited authorized two persons to buy tools. Some of the personnel authorized to purchase tools also were responsible for establishing the tool requirements for the unit. Further, unit personnel not involved in the purchases did not routinely check to see that the unit actually received the tools. Without these controls, there was no assurance that the purchases were necessary or that the unit received the tools. At all units we visited, either inventory records were inaccurate or no records were available that could be used to identify and track hand tool purchases and related receipts, issues, and on-hand quantities. The only records the Army units we visited at Fort Bragg could provide were (1) copies of a register showing a list of all items purchased by the units, including hand tools, and (2) hand receipts showing the authorized and on-hand quantities of tools in tool rooms, trailers, and boxes that were assigned to specific individuals in the units. No inventory records were available to show tool receipts and issues or the disposition of the purchases. The Air Force units we visited at Langley Air Force Base did not have records showing receipts and issues. They only had computer-generated lists of the current inventory of tools in each tool box or tool room drawer. Some of these lists were not dated and did not accurately reflect the total number of tool boxes on hand. For example, one unit's undated documentation stated that six avionics tool boxes with 65 tools in each box were on hand. However, our physical inspection disclosed that 10 tool boxes were on hand. The Marine Corps units we visited at Camp Lejeune did not have inventory records showing tool purchases and related receipts and issues. Both units had stock lists of tools in each tool box. One unit also had hand receipts for spare tools in the tool room, and the other unit had inventory cards for the spare tools. One Navy unit at Oceana Naval Air Station had established an automated system for monitoring on-hand quantities of tools in its tool room and tool kits. However, this system did not reflect tool receipts and issues. The other Oceana unit had set up a manual inventory record system about 6 months prior to our visit to get better control over purchases, receipts, issues, and inventory levels for the tool room. However, we found that the records were not accurate. For example, some tool purchases were not entered on the inventory record cards before they were issued to users. In June 1994, the squadron commander revised the unit's procedures to tighten the controls over tool purchases and inventories. We made several physical counts at each operating unit we visited to test the accuracy of the records that were available. We found inaccuracies at each unit, with discrepancy rates of up to 68 percent. In total, the records for 99 of 515 tools in the tool rooms (19 percent) were inaccurate, and the records for 173 of 2,700 tools in the tool boxes (6 percent) were inaccurate. For example, the inventory records at one unit indicated that nine diagonal cut pliers were on hand, but our physical count showed that six pliers actually were on hand. We requested the results of physical inventories by the military services and found that they often were not documented. Personnel in the Air Force and Navy units and one of the Marine Corps units stated that they conducted physical inventories but did not maintain documentation of the results of these inventories. Personnel in the Army units and one of the Marine Corps units told us that they conducted the required periodic physical inventories and that the results were reflected on hand receipts. We reviewed the documents and noted that some missing tools had been identified. DOD has provided only limited oversight to determine how effectively installations and operating units control tool purchases and inventories since the last comprehensive DOD Inspector General review of this area was performed over 10 years ago. This review identified a need for better procedures and controls. No comprehensive reviews have been made since that time, and audit efforts have been limited to local reviews at individual installations. During recent years, the Army and Navy audit agencies have done only one or two local audits while the Air Force audit agency has performed 35 local audits since 1989. The audits identified problems with the controls over hand tools. Routine inspections and surveys by command level management and inspector general staff also generally do not include an evaluation of tool procedures and controls. For example, an inspector general representative of the Air Force's Air Combat Command told us that the inspector general's policy is not to perform compliance type inspections and reviews and that the staff did not have any knowledge of the adequacy of hand tool controls. We did find that the Marine Corps' Field Supply and Maintenance Analysis Office performs periodic inspections at units, which include tool controls. The inspections disclosed deficiencies in these controls during the past 3 years relating to the lack of inventory records, absence of physical inventories, and accumulation of excess tools. We recommend that the Secretary of Defense take the following actions to ensure that hand tool purchases and inventories are adequately controlled: Require that the military services and major commands provide guidance to installations and operating units specifying the needed internal controls over hand tools. These controls should include requirements for prior authorization of tool purchases and maintenance of accurate inventory records that reflect tool receipts, issues, and quantities on hand. Require that inspector general and internal audit staffs incorporate controls over hand tools into the periodic inspections that are performed at installations and operating units. We are not recommending that DOD and the military services obtain and report overall cost information on tool purchases, inventory levels, and losses. If military units put adequate internal controls in place, including accurate inventory records, such information should be readily available at the installation and unit levels. DOD agreed that, to varying degrees, the military services' policies and procedures governing the purchase and accountability of hand tools are inadequate (see app. II). DOD also agreed that internal controls should be reviewed by the services and strengthened as necessary. By March 31, 1995, DOD expects to issue a memorandum to the military services directing that closer scrutiny be paid to hand tool accountability and that regulations, policies, and procedures governing hand tool purchases be strengthened. The memorandum also will direct that each military service secretary advise their inspector general and internal audit staffs to incorporate control of hand tools in periodic inspections at installations and operating units. Although generally agreeing with our report, DOD did question some aspects. DOD believes that our findings were insufficient to indicate a systemic problem with inadequate inventory accountability and record-keeping. DOD also believes that our findings reflect a problem with implementation of existing guidance and that no additional guidance is needed for existing hand tool inventories. Because our review was limited to four installations and eight operating units, we cannot state unequivocally that our findings indicate a systemic problem. However, we did identify problems at each location visited, which would indicate to us that similar problems may exist elsewhere. With regard to the adequacy of guidance, we continue to believe that additional guidance is needed. Personnel at the units visited consistently stated that one of the reasons for the problems we noted was the lack of guidance specifying the internal controls needed for receipts, issues, and inventories at the operating units. Furthermore, individual services, such as the Air Force, acknowledge the need for better guidance. We are sending copies of this report to the Chairmen and Ranking Minority Members, House and Senate Committees on Appropriations, Senate Committees on Armed Services and on Governmental Affairs, and House Committee on Government Reform and Oversight; the Secretaries of Defense, the Army, the Navy, and the Air Force; and the Director, Office of Management and Budget. Please contact me at (202) 512-5140 if you have any questions. The major contributors to this report are listed in appendix III. We reviewed the Department of Defense's (DOD) and the military services' policies and procedures for controlling hand tools. We discussed program operations, guidance, and oversight with officials at the headquarters of DOD and each of the military services and obtained overall program data when available. We also visited the General Services Administration to discuss its functions as federal manager for hand tools and to obtain available information on tool sales to DOD. We visited one installation in each of the military services--Langley Air Force Base, Virginia; Oceana Naval Air Station, Virginia Beach, Virginia; Fort Bragg, Fayetteville, North Carolina; and Camp Lejeune Marine Corps Base, Jacksonville, North Carolina--to review controls over hand tools. At each installation, we (1) requested overall information on hand tool purchases, inventories, and losses and (2) visited two operating units to evaluate internal controls over hand tools. We visited the following units at each installation: Langley Air Force Base 94th Fighter Squadron, 1st Fighter Wing 72nd Helicopter Squadron, 1st Fighter Wing Oceana Naval Air Station Aircraft Intermediate Maintenance Department Fighter Squadron VF-41, Fighter Wing, U. S. Atlantic Fleet Fort Bragg 2nd Battalion, 504th Parachute Infantry Regiment, 82nd Airborne Division 546th Transportation Company, 189th Maintenance Battalion, 1st Corps Support Command Camp Lejeune Marine Corps Base 1st Battalion, 10th Artillery Regiment, 2nd Marine Division 464th Helicopter Squadron, 29th Marine Air Group, 2nd Marine Aircraft Wing At each unit, we (1) discussed internal controls with unit personnel, (2) reviewed available documents related to tool purchases and inventories, and (3) made physical counts to test the accuracy of inventory records. We also contacted the major command responsible for each installation visited and obtained overall information related to hand tools. As part of our evaluation of management oversight, we contacted inspector general offices, military audit services, and investigative organizations to discuss their oversight of hand tool controls and review audit, inspection, and investigative reports. We performed our review between February and October 1994 in accordance with generally accepted government auditing standards. Larry Peacock, Evaluator-in-Charge Linda Koetter, Evaluator Dawn Godfrey, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the military services' controls over hand tools, focusing on: (1) whether the services' policies and procedures for preventing the loss or unnecessary purchase of hand tools are adequate; (2) whether information is available on the costs associated with missing, lost, and stolen hand tools; and (3) the extent to which military installations control hand tool inventories and review their hand tool controls. GAO found that: (1) it cannot determine the extent to which DOD purchases unnecessary hand tools because DOD does not maintain cost data or track tool purchases and inventory levels; (2) DOD and the military services have not provided sufficient guidance and oversight to ensure that hand tools are adequately safeguarded and controlled at military installations; (3) military units do not have adequate internal controls or records to properly account for tool purchases and manage inventories; (4) many military units permitted personnel to purchase tools without prior authorization, could not identify tool purchases and trace them to inventory records, and had discrepancies between available inventory records and actual tool quantities; (5) Air Force operating units purchased many new warranted tools that were unnecessary and made local purchases even though the tools were available through normal DOD supply channels; and (6) in response to a GAO recommendation, the Air Force advised its major commands to comply with established acquisition policies and procedures.
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In fiscal year 1995, the Department of Defense (DOD) plans to spend over $79 billion for research, development, test, evaluation, and production of weapon systems. While DOD has acquired some of the most technologically advanced and effective weapon systems, DOD has often been criticized for not acquiring the systems in the most efficient manner. As weapon system programs progress through the phases of the acquisition process, they are subject to review at major decision points called milestones. The milestone review process is predicated on the principle that systems advance to higher acquisition phases by demonstrating that they meet prescribed technical specifications and performance thresholds. Figure 1.1 illustrates the DOD's weapon system acquisition process. At milestone 0, a determination is made about whether an identified mission need warrants a study of alternative concepts to satisfy the need. If warranted, the program is approved to begin the concept exploration and definition phase. At milestone I, a determination is made about whether a new acquisition program is warranted. If warranted, initial cost, schedule, and performance goals are established for the program, and authorization is given to start the demonstration and validation phase. At milestone II, a determination is made about whether continuation of development, testing, and preparation for production is warranted. If warranted, authorization is given to start the engineering and manufacturing development phase. Also, approval of this phase will often involve a commitment to low-rate initial production (LRIP). At milestone III, a determination is made about whether the program warrants a commitment to build, deploy, and support the system. DOD acquisition policy states that program risks shall be assessed at each milestone decision point before approval is granted for the next phase. The policy adds that test and evaluation shall be used to determine system maturity and identify areas of technical risk. Operational test and evaluation (OT&E) is a key internal control to ensure that decisionmakers have objective information available on a weapon system's performance, to minimize risks of procuring costly and ineffective systems. OT&E has been defined as (1) the field test, under realistic conditions, of any item of (or key component of) weapons, equipment, or munitions for the purpose of determining its effectiveness and suitability for use in combat by typical military users and (2) the evaluation of the results of such a test. Over a period of many years, the Congress has been concerned about the performance of weapon systems being acquired by DOD. As early as 1972, the Congress required DOD to provide it with information on the OT&E results of major weapon systems before committing them to production. However, the Congress continued to receive reports from the DOD Inspector General (DOD-IG), us, and others that (1) weapon systems were not being adequately tested before beginning production, (2) fielded systems were failing to meet their performance requirements, and (3) OT&E being conducted on weapon systems was of poor quality. In the late 1970s and early 1980s, the Congress enacted a series of laws to ensure that U.S. military personnel receive the best weapon systems possible and that the U.S. government receives best value for the defense procurement dollar. Among other things, these laws specified that independent OT&E be conducted; established the Office of the Director, Operational Test and Evaluation (DOT&E), and assigned it specific oversight duties and responsibilities; specified that OT&E of a major defense acquisition program may not be conducted until DOT&E approves the adequacy of the plans for that OT&E; required that a major system may not proceed beyond LRIP until its initial OT&E is completed; and required that DOT&E analyze the results of OT&E conducted for each major defense acquisition program and, prior to a final decision to proceed beyond LRIP, report on the adequacy of the testing and whether the results confirm that the items tested are operationally effective and suitable for combat. In the late 1980s, the Congress found that DOD was acquiring a large portion of the total program quantities, using the LRIP concept, without successfully completing OT&E. In the National Defense Authorization Act for Fiscal Years 1990 and 1991 (P.L. 101-189), the Congress addressed this situation by including a definition of LRIP and a requirement that the determination of the LRIP quantities to be procured be made when a decision is made to enter engineering and manufacturing development. According to the act, LRIP was defined as the minimum quantity needed to (a) provide production-representative articles for OT&E, (b) establish an initial production base, and (c) permit orderly ramp-up to full-rate production upon completion of OT&E. In the conference report for the act, the conferees indicated that they did not condone the continuous reapproval of LRIP quantities that eventually total a significant percentage of the total planned procurement. Also, the conferees granted an exception to the LRIP legislation for ship and satellite programs because of their inherent production complexity, small number, high unit cost, and long unit production periods. However, they directed the Secretary of Defense to develop regulations that capture the spirit of the LRIP legislation as it applies to these programs. This special consideration for ships and satellites carries with it additional reporting requirements to improve the oversight of these programs. Finally, in the National Defense Authorization Act for Fiscal Year 1994, the Congress required that the Secretary of Defense ensure that appropriate, rigorous, and structured testing be completed prior to LRIP of any electronic combat or command, control, and communications countermeasure system. Senators David Pryor and William V. Roth, Jr., requested that we review DOD's use of LRIP in the acquisition of major defense programs. Specifically, the Senators asked that we determine whether LRIP policies were resulting in the production of systems with adequate performance capabilities and the legislation underlying the LRIP policies was adequate. We analyzed the legislation and DOD policies governing the production and testing of weapon systems, particularly those dealing with (1) the purposes of LRIP, (2) the criteria or requirements for entering LRIP and full-rate production, and (3) the testing requirements related to this process. We used the results of our extensive body of work from the past decade or so on defense acquisition programs and the acquisition processto determine whether the LRIP concept, as currently authorized and practiced by DOD, has resulted in a premature commitment to production of both major and nonmajor systems. We reviewed the 1993 report of the DOD-IG on LRIP and held discussions with the DOD-IG staff. We gathered and summarized data on numerous ongoing system acquisition programs (both major and nonmajor programs) and supplemented that information with discussions with officials from the Office of the Secretary of Defense and the military services. In addition, we gathered and analyzed information on the advantages and disadvantages of conducting OT&E before LRIP (for both major and nonmajor systems). We also held discussions with those officials on DOD's current acquisition strategies and OT&E policies and practices. This review was conducted from April 1993 to May 1994 in accordance with generally accepted government auditing standards. Our extensive body of work over the years has amply demonstrated that improper usage of LRIP has been widespread. Many major and nonmajor systems from each of the services have been prematurely committed to production, which often results in problems being found after a substantial number of units have been produced and a significant commitment made to the entire procurement program. In addition, contrary to the statutory emphasis on minimum LRIP quantities and conferee statements, many programs continue in LRIP for prolonged periods. DOD's continuing reluctance to employ the discipline of early OT&E is evident in each of the services and in many major and nonmajor programs. Adequate controls have not been established over the start and continuation of LRIP. A requirement to successfully complete enough independent testing in an operational environment to ensure that the item meets its key performance parameters before LRIP starts would be feasible in most cases and would be an effective management control over the premature start of production. Over the years, we have found numerous instances from all three services in which production of major and nonmajor systems was permitted to begin and continue based not on the systems' technical maturity, but on schedule or other considerations. DOD has frequently committed programs to production without assurance that the systems would perform satisfactorily. Many of the weapon systems that start production prematurely later experience significant operational effectiveness and/or suitability problems. As a result, major design changes were often needed to correct the problems, additional testing was needed to verify that the corrective action was effective, and costly retrofits were needed for any delivered units. A few of the many examples of premature and extensive commitments to production of major and nonmajor systems are shown in the following tables. Table 2.1 shows systems that entered LRIP before any operational tests were conducted and later experienced significant problems during the tests. Table 2.2 shows systems that were subjected to early operational tests but were allowed to enter LRIP even though the performance deficiencies were not corrected. Programs that enter production prematurely often require more time and resources than originally planned to correct problems and to meet the requirements for full-rate production. LRIP is often continued, despite the evidence of technical problems, well beyond that needed to provide test articles and to establish an initial production capability. As a result, major production commitments are often made during LRIP. In the conference report for the LRIP legislation, the conferees stated that they did not intend to authorize the continuance of LRIP on an indefinite basis. Nevertheless, the existing LRIP legislation does not include any specific principles or guidelines on when and how programs should begin LRIP, on the type and amount of testing to be done before LRIP, on how much LRIP can or should be done, or under what circumstances LRIP should be curtailed or stopped. Instead, the emphasis has been placed almost entirely on the full-rate production decision, at which point the law requires, among other things, that a report be provided on the adequacy of the testing conducted and an assessment be made of the system's operational effectiveness and suitability. Although programs are delayed getting approval for full-rate production, LRIP is rarely stopped or slowed significantly. As a result, the decision to start LRIP, in many cases, is also the de-facto full-rate production decision. DOD's written policies provide that acquisition strategies be event-driven and link major contractual commitments and milestone decisions to demonstrated accomplishments in development, test, and initial production. However, DOD policies state that a primary goal in developing an acquisition strategy shall be to minimize the time and cost of satisfying a need consistent with common sense and sound business practices. In addition, DOD's policies state, but without detailed requirements, that OT&E should be conducted throughout the acquisition process. However, while DOD is statutorily required to conduct OT&E before full-rate production is approved, DOD's policies permit LRIP to begin before any OT&E is conducted. The point at which LRIP begins is not a required milestone under DOD policy. As a result, for many major defense acquisition programs, the services do not plan to conduct any OT&E prior to the start of LRIP. It has been and continues to be the exception, rather than the rule, for programs to include OT&E before LRIP starts. In some instances, the services plan to start LRIP even though they plan to use developmental or prototype units for their initial OT&E, not LRIP units. Although not required by written DOD or Navy policy, the Navy now performs a limited phase of OT&E before LRIP to prepare for later phases of OT&E on some of its programs. However, these programs are not required to meet specific testing-related criteria before entering LRIP. As shown in table 2.2, even when some OT&E was conducted prior to the start-up of production, identified problems were not verified as corrected, and significant performance problems emerged later in the program. Over the past several years, DOD has stated that it planned to reemphasize the need for OT&E as early as possible in the acquisition process. However, we have not detected any reemphasis on early OT&E, and DOD's 1991 revision of its key acquisition directives did not address this issue. DOD acquisition and testing officials concede that there has not been any major reemphasis on early OT&E. In fact, DOD has recently supported legislative proposals that would reduce the current overall requirements to conduct OT&E. DOD has recognized that reducing the amount of production prior to completing development provides for greater design maturity, which increases the likelihood of meeting system requirements and avoiding retrofit costs. In commenting on our 1992 report, DOD officials said they were lessening the amount of concurrent development and production in weapon programs due to the end of the Cold War. In 1992, the Under Secretary of Defense for Acquisition also stated that the need to replace existing weapon systems in order to maintain a significant technological advantage was no longer as urgent. However, acquisition strategies of many current programs do not reflect these positions. DOD's acquisition practices continue to stress the importance of minimizing the time to deploy new or improved weapon systems. Highly concurrent acquisition strategies continue to be featured in many current major and nonmajor programs, with little, if any, OT&E expected until well after the start of production and a significant commitment is made to the procurement of the system. Our analysis of the current selected acquisition reports shows that many programs continue to postpone initial OT&E until well after the start of production. LRIP is expected to be approved in February 1996 for the Army's Secure Mobile Anti-Jam Reliable Tactical Terminal. Initial OT&E will not be completed until July 1998, by which time a total of 125 units, or 3 years of LRIP, is planned to be approved out of a total program quantity of 367 units. The LRIP decision for the Air Force's F-22 aircraft program is expected in June 1998, and initial OT&E is to be conducted from March to November 2001. Thus, 1 year of preproduction verification and 4 years of LRIP--80 aircraft out of a total quantity of 442 units--are planned to be approved before completion of OT&E. The Navy plans to procure 106 of the 630 planned Multifunctional Information Distribution Systems before OT&E is completed in December 2000 and a full-rate production decision is made in June 2001. In addition, 42 prototype systems are to be built as part of the system development effort. These programs feature major commitments to LRIP before development is completed and before any OT&E is completed, even though developmental prototypes are expected to be available for testing in these programs. Accordingly, a substantial and frequently irreversible commitment to production will have been made before the results of independent testing are available to decisionmakers. In its 1993 report, the DOD-IG found that major defense acquisition programs were entering LRIP without meeting development, testing, and production readiness prerequisites. As a result, the DOD-IG concluded that DOD incurred excessive program risk of overcommitment to production of systems without obtaining assurance that the design is stable, potentially operationally acceptable, and capable of being produced efficiently. Among other things, the DOD-IG recommended that DOD (1) provide guidance on the specific minimum required program accomplishments for entry into and continuation of LRIP and (2) require that program-specific exit criteria be established for entry into and continuation of LRIP. DOD is currently considering what, if any, actions will be taken in light of the DOD-IG's recommendations. The decision to begin LRIP should be given much more attention because decisionmakers find it very difficult to stop or slow down programs once they are in production. Given the cost risks involved and DOD's inability or unwillingness to curtail production after it starts, we agree with the DOD-IG that controls are urgently needed over the start and continuation of LRIP. A key criterion for all programs beginning LRIP should be the completion of a phase of independent testing in an operational environment. During such testing, some problems should be expected. However, enough realistic testing should be conducted for the services' independent testing agencies and/or DOT&E to be able to certify to the decision authority that (1) the system's developmental testing is essentially complete and the basic results have been validated in an operational environment, (2) the system has clearly shown that it can meet the key parameters among its minimum acceptable performance requirements, (3) the system has clearly demonstrated the potential to fully meet all of its minimum acceptable requirements for performance and suitability without major or costly design changes, and (4) the system should be able to readily complete its remaining OT&E in time to support the planned full-rate production decision. Comprehensive testing of a system's operational suitability features, such as supportability, may not be possible during early independent testing. However, the testing should be sufficient to reveal major suitability problems. Conducting OT&E before LRIP will not, by itself, result in a better weapon system, but it is the best means available to guard against the premature start of production. Decisionmakers need verifiable information on system design maturity and where corrective actions are needed before production start-up. Every effort should be made to correct problems in development, not in production, because early fixes are less expensive, easier to implement, and less disruptive. In today's national security environment, there should be very few cases in which an urgent need dictates that DOD start production without assurance that the system will work as intended. We realize that, for some programs, a significant effort (personnel and facilities) may be needed to produce one or more prototypes for a phase of early OT&E. These programs would typically involve inherent fabrication complexity, small procurement quantities, high unit cost, and long unit production periods. To suspend that type of effort while OT&E is underway could be costly and disruptive. Alternatively, key subsystems should be independently tested on surrogate platforms before production. Once underway, production should be limited until acceptable OT&E results are obtained on the entire system. We believe that LRIP should be used to focus on (1) addressing producibility and product quality issues; (2) producing just enough systems to support initial OT&E, to prove out the production process, and to sustain the production line; and (3) testing those systems and correcting any deficiencies. A limit on the quantity that can be produced under LRIP would provide an opportunity to correct problems that are identified during initial OT&E, without incurring the risk of overproducing under the LRIP phase. We recommend that the Secretary of Defense revise DOD's acquisition policies in the following ways: Require that, before entry into LRIP, programs (with the exception of ships, satellites, and those other programs that involve inherent fabrication complexity, small procurement quantities, high unit costs, and long unit production periods) plan, buy prototypes for, and conduct enough realistic testing for the service's independent testing agency and/or DOT&E to be able to certify to the decision authority that (1) the system's developmental testing is essentially complete and the basic results of that testing have been validated in an operational environment; (2) the system has clearly shown that it can meet the key parameters among its minimum acceptable performance requirements; (3) the system has clearly demonstrated the potential to fully meet all of its minimum acceptable requirements for performance and suitability without major or costly design changes; and (4) the system should be able to readily complete its remaining OT&E in time to support the planned full-rate production decision. Require that those programs excluded from the requirement to test prototypes instead test all key subsystems in an operational environment before entry into LRIP. Adopt the recommendations made by the DOD-IG regarding controls over the start and continuation of LRIP such as (1) providing guidance on the specific minimum required program accomplishments for entry into and continuation of LRIP and (2) requiring that program-specific exit criteria be established for entry into and continuation of LRIP. We also recommend that the Secretary of Defense work with the service secretaries to ensure that these policies are implemented for the acquisition of both major and nonmajor systems. The legislation defining LRIP has not been effective in accomplishing its purpose, which was to limit the commitment to major production quantities pending satisfactory completion of OT&E. Therefore, we recommend that the Congress legislatively mandate (1) that certain OT&E requirements be met before LRIP may start and (2) specific limits on the number of units allowed to be produced during LRIP. Specifically, the Congress may wish to require that all defense acquisition programs (major and nonmajor) conduct enough realistic testing on the entire system or key subsystems to ensure that its key performance parameters are met before LRIP is permitted to start. In addition, the Congress may wish to (1) specify a percentage (10 percent, for example) of a system's total procurement beyond which a program may not proceed during LRIP and/or (2) amend 10 U.S.C. 2400 (by deleting subsection (b)(3)) to preclude the use of LRIP authority to ramp-up the production rate prior to the successful completion of OT&E.
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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) use of low-rate initial production (LRIP) in its systems acquisition programs, focusing on whether: (1) DOD LRIP practices result in the production of adequate systems; and (2) the legislation underlying LRIP policies is adequate. GAO found that: (1) despite congressional emphasis on the need for operational test and evaluation (OT&E) prior to system production, legislation and DOD policies permit LRIP to start before any OT&E is conducted because there are no specific guidelines on the type and amount of testing required prior to LRIP; (2) the lack of guidelines has resulted in substantial inventories of unsatisfactory weapons that need costly modifications and some deployments of substandard systems to combat forces; (3) correction of system deficiencies in prematurely produced systems lengthens production schedules and increases resource consumption; (4) major production decisions are often made during LRIP; (5) LRIP severely limits Congress' and DOD decisionmakers' options for dealing with deficient systems; (6) DOD needs accurate, independent information on system performance and suitability to minimize the risks of procuring costly and ineffective systems; and (7) in light of the current national security environment, there should not be an urgent need to start LRIP before system capabilities are adequately tested.
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Herbal dietary supplements are traditionally used to alleviate certain medical conditions, such as anxiety, digestive problems, and depression, and to improve general quality of life. However, for many traditional uses, there is not clear scientific evidence to show that they prevent or treat underlying diseases or conditions. Further, some herbal dietary supplements may interact in a potentially harmful manner with some prescription drugs. For example, according to NIH, St. John's wort can negatively affect the efficacy of antidepressants, HIV treatments, cancer drugs, and anticoagulants, though this is not always noted on product labels. The possibility of adverse drug interactions is one of the reasons that FDA recommends that consumers check with their health practitioners before beginning any supplement regimen. The elderly are particularly at risk from these interactions since recent studies have found that approximately 85 percent of the elderly take at least one prescription drug over the course of a year and 58 percent take three or more. Many herbal supplements have not been exhaustively tested for hazardous interactions with prescription drugs, other supplements, or foods. Under DSHEA, dietary supplements are broadly presumed safe, and FDA does not have the authority to require them to be approved for safety and efficacy before they enter the market, as it does for drugs. However, a dietary supplement manufacturer or distributor of a supplement with a "new dietary ingredient"--an ingredient that was not marketed in the United States before October 15, 1994--may be required to notify FDA at least 75 days before marketing the product, depending on the history of use of the ingredient. Also, all domestic and foreign companies that manufacture, package, label, or hold dietary supplements must follow FDA's current good manufacturing practice regulations, which outline procedures for ensuring the quality of supplements intended for sale. Under DSHEA, a firm, not FDA, is responsible for determining that any representation or claims made about the dietary supplements it manufactures or distributes are substantiated by adequate evidence to show that they are not false or misleading. Except in the case of a new dietary ingredient, where premarket review for safety data and other information is required by law, a firm does not have to provide FDA with the evidence it relies on to substantiate effectiveness before or after it markets its products. For the most part, FDA relies on postmarket surveillance efforts--such as monitoring adverse event reports it receives from companies, health care practitioners, and individuals; reviewing consumer complaints; and conducting facility inspections--to identify potential safety concerns related to dietary supplements. Once a safety concern is identified, FDA must demonstrate that the dietary supplement presents a significant or unreasonable risk, or is otherwise adulterated, before it can be removed from the market. A product sold as a dietary supplement cannot suggest on its label or in labeling that it treats, prevents, or cures a specific disease or condition without specific approval from FDA. Under FDA regulations, a manufacturer may submit a health claim petition in order to use a claim on its product labeling that characterizes a relationship between the product and risk of a disease, and FDA may authorize it provided the claims meet certain criteria and are authorized by FDA regulations (e.g., diets high in calcium may reduce the risk of osteoporosis). However, manufacturers may make "qualified health claims" when there is emerging evidence for a relationship between a dietary supplement and reduced risk of a disease or condition, subject to FDA's enforcement discretion. The claim must include specific qualifying language to indicate that the supporting evidence is limited. Dietary supplement labeling may include other claims describing how a dietary ingredient is intended to affect the normal structure or function of the body (e.g. fiber maintains bowel regularity). The manufacturer is responsible for ensuring the accuracy and truthfulness of such claims, but must submit a claim to FDA for review no later than 30 days after marketing it. Because FDA does not confirm the claim--a lack of objection allows the manufacturer to use it--the following disclaimer must be included: "This statement has not been evaluated by the FDA. This product is not intended to diagnose, treat, cure, or prevent any disease." The manufacturer does not need to provide FDA with documentation, and FDA does not test to determine if the claim is true. In addition, these claims generally may not state that a product is intended to diagnose, mitigate, treat, cure, or prevent a disease or the adverse effects associated with a therapy for a disease, either by naming or describing a specific disease. A claim also cannot suggest an effect on an abnormal condition associated with a natural state or process, such as aging. Context is a consideration; a product's name and labeling cannot imply such an effect by use of pictures or scientific or lay terminology. Finally, a product cannot claim to be a substitute for a product that is a therapy for a disease, or claim to augment a therapy or drug. To make any of these claims, a manufacturer must submit and receive authorization of a health claim petition. The Federal Trade Commission (FTC) regulates advertising for dietary supplements and other products sold to consumers. FTC receives thousands of consumer complaints each year related to dietary supplements and herbal remedies. FTC has, in the past, taken action against supplement sellers and manufacturers whose advertising was deemed to pose harm to the general public. FDA works with FTC in this area, but FTC's work is directed by different laws. Consuming high levels of the contaminants for which we tested the 40 products can lead to severe health consequences, such as increased risk of cancer, as noted in table 1. The negative health effects described are, unless otherwise noted, for the acute toxicity in the human body. However, the exact effects of these contaminants on an individual are based on an individual's specific characteristics. For instance, since lead can build up in the human body, the effect of consuming a potentially dangerous level of lead by a 55-year-old man depends on the amount of lead that man has consumed during his lifetime, among other factors. FDA has not issued any regulations addressing safe or unsafe levels of contaminants in dietary supplements, but both FDA and EPA have set certain advisory levels for contaminants in other foods. The human body's absorption of many contaminants is governed by intake method, so advisory levels for other foods (e.g., drinking water) cannot be strictly applied to dietary supplements. In addition, EPA sets limits on how much pesticide residue can remain on food and feed products. These pesticide residue limits are known as tolerances and are enforced by FDA. If no residue tolerance has been set for a particular pesticide, any product containing that pesticide residue is considered adulterated and its sale is prohibited by law. See table 2 for a summary of the regulations issued by FDA or EPA regarding some of the contaminants we tested for. Our investigation found examples of deceptive or questionable marketing and sales practices for dietary supplements popular among the elderly (see table 3). The most egregious practices included suspect marketing claims that a dietary supplement prevented or cured extremely serious diseases, such as cancer and cardiovascular disease. Other dietary supplements were claimed to mitigate age-related medical conditions, such as Alzheimer's disease and diverticular disorder. We also found some claims that followed FDA's labeling regulations and guidelines, but could still be considered deceptive or questionable and provide consumers with inaccurate information. In addition, while conducting in-person and telephone conversations with dietary supplements sellers, our investigators, posing as elderly consumers, were given potentially harmful medical advice by sales staff, including that they could take supplements in lieu of prescription medication. In making these claims, sellers put the health of consumers at risk. A link to selected audio clips from these calls is available at: http://www.gao.gov/products/GAO-10-662T. Below are details on several cases in which herbal supplement marketing practices were deceptive or questionable and sometimes posed health risks to consumers. All cases of deceptive or questionable marketing and inappropriate medical advice have been referred to FDA and FTC for appropriate action. Case 2: In online materials, this garlic supplement included claims that it would (1) prevent and cure cardiovascular disease, (2) prevent and cure tumors and cancer, (3) prevent obesity, and (4) reduce glycemia to prevent diabetes. According to NIH, all these claims are unproven, and garlic is not recommended for treating these conditions. In fact, for several of these conditions, garlic may interact adversely with common FDA-approved drug treatments. Nowhere in this product's marketing materials does the seller suggest that consumers should consult their health care providers prior to taking its supplement. While NIH recognizes that garlic may have some anticancer properties, the agency notes that additional clinical trials are needed to conclude whether these properties are strong enough to prevent or treat cancer. Further, studies have shown that garlic may alter the levels of some cancer drugs in the human body, lessening their effectiveness. For diabetes, there are no studies that confirm that garlic lowers blood sugar or increases the release of insulin in humans. In fact, NIH recommends caution when combining garlic with medications that lower blood sugar, and further suggests that patients taking insulin or oral drugs for diabetes be monitored closely by qualified health care professionals. Case 3: According to its labeling, this ginseng supplement--which costs $500 for a 90-day supply--cures diseases, effectively prevents diabetes and cardiovascular disease, and prevents cancer or halts its progression. These claims are unproven--no studies confirm that ginseng can prevent or cure any disease. In fact, NIH recommends that breast and uterine cancer patients avoid ginseng. In addition, ginseng may adversely interact with cancer drugs. The product labeling claims do not differentiate between type 1 and type 2 diabetes. According to NIH, ginseng's effect on patients with type 1 diabetes is not well studied. While ginseng may lower blood sugar levels in patients with type 2 diabetes, the long-term effects of such a treatment program are unclear, and it is not known what doses are safe or effective. NIH specifically recommends that consumers with type 2 diabetes use proven therapies instead of this supplement. Case 7: While our investigators posed as consumers purchasing dietary supplements, sales staff provided them with an informational booklet regarding an enzyme that claims to " us against dementia and Alzheimer's, exhibiting a truly miraculous capacity to optimize mental performance and fight off cognitive decline." In fact, FDA reviewed the scientific evidence for the active ingredient of this supplement and found that it was not adequate to make such a claim. Because the agency considered such a health claim potentially misleading, FDA provided for the use of a qualified health claim that contains a disclaimer that must accompany the health claim in all labeling in which these claims appear. While the booklet we received does state the FDA disclaimer on the first page, the manufacturer follows it with a rejoinder: "The very cautious language of these claims, which FDA mandates can only be stated word for word, is at best a grudging concession to the extensive clinical research done with . Considering this agency's legendary toughness against dietary supplements, FDA's willingness to go this far with the suggests that the FDA must be sure it is safe to take and also that the FDA is unable to deny can improve human brain function." Case 8: One of our fictitious consumers visited a supplement specialty store looking for a product that would help with high blood pressure. The sales representative recommended a garlic supplement and stated that the product could be taken in lieu of prescribed blood pressure medication. According to NIH, while this herb may lower blood pressure by a small amount, the scientific evidence is unclear. NIH does not recommend this supplement as a treatment for high blood pressure and warns patients to use caution while taking this product with other drugs or supplements that can lower blood pressure. Further, it is not recommended that a consumer start or stop a course of treatment without consulting with his or her health care provider. Even if a sales representative is licensed to dispense medical advice, he or she still does not know the consumer's patient history, including other drug programs, allergies, and medical conditions, making it potentially dangerous for the sales representative to provide medical advice. Case 9: At a supplement specialty store, one of our investigators posed as an elderly consumer who was having difficulty remembering things. A sales representative recommended one of the store's ginkgo biloba supplements. The consumer told the representative that he takes aspirin everyday and asked if it was safe to take aspirin and ginkgo biloba together. The sales representative told him that it is completely safe to take the two together. However, according to FDA, if aspirin is taken with the recommended product, it can increase the potential for internal bleeding. We spoke to FDA and FTC regarding these 10 claims, and they agreed that the statements made in product labeling for cases 1 through 6 are largely improper, as the labeling suggests that each product has an effect on a specific disease. For case 7, FDA stated that while the specific claims discussed here are allowable, depending on the context in which they were made, FDA might consider the totality of marketing materials to be improper. FDA also agreed that the claims made to our undercover investigators in cases 8 and 10 were questionable or likely constituted improper disease claims, but that to take action, additional information as to the prevalence and context of the claims would be necessary. For case 9, FDA noted that, since the statement made by sales staff was safe usage information, not a claim about the product's effects, it would not violate FDA regulations, unless the agency could develop other evidence to show that the claim was false or misleading or constituted an implied disease claim. In addition, FDA and NIH both noted that by definition, no dietary supplement can treat, prevent, or cure any disease. We found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplement products we tested, though none of the contaminants were found in amounts considered to pose an acute toxicity hazard to humans. Specifically, all 37 supplements tested positive for trace amounts of lead. Thirty-two also contained mercury, 28 contained cadmium, 21 contained arsenic, and 18 contained residues from at least one pesticide. See appendixes III and IV for the complete results of these tests. The levels of contaminants found do not exceed any FDA or EPA regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming these 40 supplements. However, because EPA has not set pesticide tolerance limits for the main ingredients of the herbal dietary supplements we tested, the pesticide contaminants exceed FDA advisory levels. FDA agreed that 16 of the 40 supplements we tested would be considered in violation of U.S. pesticide tolerances if FDA, using prescribed testing procedures, confirmed our results. We note that 4 of the residues detected are from pesticides that currently have no registered use in the United States. According to FDA, scientific research has not been done on the long-term health effects from consumption of such low levels of many of these specific contaminants, as current technology cannot detect these trace contaminants when they are diluted in human bloodstreams. We have referred these products to FDA for its review. After reviewing test results with EPA and FDA officials, we also spoke with several of the manufacturers of supplements that had trace amounts of contaminants. The manufacturers we spoke with stated that they ensure that their products are tested for contamination, and that these tests have shown that their products do not contain contaminants in excess of regulatory standards. Manufacturers also stated that they comply with all FDA regulations and follow good manufacturing practices as defined by the agency. While the manufacturers we spoke with were concerned about finding any contaminants in their supplements, they noted that the levels identified were too low to raise any issues during their own internal product testing processes. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the committee may have at this time. For further information about this testimony, please contact Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals who made major contributions to this testimony were Jonathan Meyer and Andrew O'Connell, Assistant Directors; John Ahern; Dennis Fauber; Robert Graves; Cristian Ion; Elizabeth Isom; Leslie Kirsch; Barbara Lewis; Flavio Martinez; James Murphy; Ramon Rodriguez; Tim Walker; and John Wilbur. To determine whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices to encourage the use of these products, we investigated a nonrepresentative selection of 22 storefront and mail-order retailers selling herbal dietary supplements. We identified these retailers by searching online using search terms likely to be used by actual consumers and by observing newspaper advertisements. Posing as elderly customers, we asked sales staff at each company a series of questions regarding the potential health benefits of herbal dietary supplements as well as potential interactions with other common over-the- counter and prescription drugs. While our work focused on herbal dietary supplements, we also evaluated claims made regarding nonherbal supplement products during undercover storefront visits and telephone calls. We also reviewed written marketing language used on approximately 30 retail Web sites. We evaluated the accuracy of product marketing claims against health benefit evaluations published through the National Institutes of Health and Food and Drug Administration (FDA). To determine whether selected herbal dietary supplements were contaminated with harmful substances, we purchased 40 unique single- ingredient herbal supplement products from 40 different manufacturers and submitted them to an accredited laboratory for analysis. We selected the types of herbs to purchase based on recent surveys about the supplements usage of the elderly, defined for this report as individuals over the age of 65. These surveys identified the most commonly used herbs among the elderly as chamomile, echinacea, garlic, ginkgo biloba, ginseng, peppermint, saw palmetto, and St. John's wort. We purchased these 40 unique products from a combination of retail chain storefronts and online or mail-order retailers. For each online retailer, we selected products based primarily on relative popularity according to the site's list of top sellers. At each retail chain storefront, because of limited selection, we selected only items that would be expected to be sold at all chain locations. All 40 products were submitted to an accredited laboratory where they were screened for the presence of lead, arsenic, mercury, cadmium, and residues from organichlorine and organophosphorous pesticides. These contaminants were selected based on prevalence and the likelihood of negative health consequences due to consumption. The recommended daily intake levels of these contaminants and the likely negative health consequences because of consumption were determined based on a review of relevant health standards and discussions with FDA and Environmental Protection Agency experts. For each herbal dietary supplement product, we submitted one unopened, manufacturer-sealed bottle to the laboratory for analysis. To identify levels of arsenic, cadmium, lead, and mercury, products were analyzed using inductively coupled plasma mass spectrometry according to method AOAC 993.14. Detection limits for these contaminants were .075 milligrams/kilogram, .010 milligrams/kilogram, .005 milligrams/kilogram, and .050 nanograms/gram, respectively. To identify levels of pesticide residues, products were analyzed using a variety of residue-specific methods, including those methods published in the FDA Pesticide Analytical Manual. We did not independently validate the results received with another lab or through any other mechanism. See appendix II for a complete list of analytes and their related detection levels. Detection limit (ppm) Detection limit (ppm) Dacthal (DCPA) Diazinon (O Analog) Endosulfan I (alpha-endosulfan) Detection limit (ppm) Detection limit (ppm) Endosulfan II (beta-Endosulfan) Malathion OA (Malaoxon) Detection limit (ppm) Detection limit (ppm) Quintozene (PCNB) S 421 (Octachlordipropylether) Detection limit (ppm) Detection limit (ppm) Parts per million is a measure equivalent to milligrams per kilogram or milligrams per liter. Chlorpyrifos (Dursban) St. John's wort gamma-HCH (Lindane) Chlorpyrifos (Dursban) Hexachlorobenzene (HCB) Dacthal (DCPA) 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 studies have shown that use of herbal dietary supplements--chamomile, echinacea, garlic, ginkgo biloba, and ginseng--by the elderly within the United States has increased substantially. Sellers, such as retail stores, Web sites, and distributors, often claim these supplements help improve memory, circulation, and other bodily functions. GAO was asked to determine (1) whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices and (2) whether selected herbal dietary supplements are contaminated with harmful substances. To conduct this investigation, GAO investigated a nonrepresentative selection of 22 storefront and mail-order retailers of herbal dietary supplements. Posing as elderly consumers, GAO investigators asked sales staff (by phone and in person) at each retailer a series of questions regarding herbal dietary supplements. GAO also reviewed written marketing language used on approximately 30 retail Web sites. Claims were evaluated against recognized scientific research published by the National Institutes of Health (NIH) and the Food and Drug Administration (FDA). GAO also had an accredited lab test 40 unique popular single-ingredient herbal dietary supplements for the presence of lead, arsenic, mercury, cadmium, organichlorine pesticides, and organophosphorous pesticides. Certain dietary supplements commonly used by the elderly were deceptively or questionably marketed. FDA statutes and regulations do not permit sellers to make claims that their products can treat, prevent, or cure specific diseases. However, in several cases, written sales materials for products sold through online retailers claimed that herbal dietary supplements could treat, prevent, or cure conditions such as diabetes, cancer, or cardiovascular disease. When GAO shared these claims with FDA and the Federal Trade Commission (FTC), both agreed that the claims were improper and likely in violation of statutes and regulations. In addition, while posing as elderly customers, GAO investigators were often told by sales staff that a given supplement would prevent or cure conditions such as high cholesterol or Alzheimer's disease. To hear clips of undercover calls, see http://www.gao.gov/products/GAO-10-662T . Perhaps more dangerously, GAO investigators were given potentially harmful medical advice. For example, a seller stated it was not a problem to take ginkgo biloba with aspirin to improve memory; however, FDA warns that combining aspirin and ginkgo biloba can increase a person's risk of bleeding. In another case, a seller stated that an herbal dietary supplement could be taken instead of a medication prescribed by a doctor. GAO referred these sellers to FDA and FTC for appropriate action. GAO also found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplement products tested, though none in amounts considered to pose an acute toxicity hazard. All 37 supplements tested positive for trace amounts of lead; of those, 32 also contained mercury, 28 cadmium, 21 arsenic, and 18 residues from at least one pesticide. The levels of heavy metals found do not exceed any FDA or Environmental Protection Agency (EPA) regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming these 40 supplements. While the manufacturers GAO spoke with were concerned about finding any contaminants in their supplements, they noted that the levels identified were too low to raise any issues internal product testing.
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Personal services contracts are a type of contract in which the government exercises relatively continuous supervision and control over the individuals performing the work. FPDS-NG reports that the federal government obligated approximately $1.5 billion on personal services contracts from fiscal years 2011 through 2015. General guidance on personal services contracts is laid out in the Federal Acquisition Regulation (FAR). In addition, there are federal statutes giving specific authority to agencies to award personal services contracts. Agencies such as DOD and USAID also have developed supplemental regulations for approving, overseeing, and administering such contracts. Agencies may award personal services contracts for a variety of services under specific statutory authority. Some examples of services performed by personal services contractors include medical services and management support for agency operations such as disaster relief. Lastly, the Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget has issued guidance on defining and managing the performance of inherently governmental and critical functions. FPDS-NG is a comprehensive, web-based tool for agencies to report contract transactions. It is a searchable database of contract information that provides a capability to examine data across government agencies and provides managers a mechanism for determining where contract dollars are being spent. The contracting officer who awards a contract has responsibility for the accuracy of the individual contract action information entered in FPDS-NG. Agencies are responsible for developing a process and monitoring results to ensure timely and accurate reporting of contractual transactions in FPDS-NG and are required to submit certifications about the accuracy of contract reporting to the General Services Administration (GSA). According to GSA, these certifications collectively demonstrate that the data in FPDS-NG currently have an overall accuracy rate of 95 percent. We previously have reported on some of the shortcomings of the FPDS-NG system and its predecessors. Nevertheless, we routinely use data from FPDS-NG, but only after determining, through various means, that the data we use are sufficiently reliable for our specific reporting purposes. Part 37 of the FAR prescribes policy and procedures specific to the acquisition and management of services by contract. Sections 37.103 and 37.104 specifically discuss contracting officer responsibilities and provide descriptive elements for assessing whether a proposed contract is a personal services contract. According to the FAR, the employer/employee relationship can occur either as a result of the contract's terms or in the manner of administration of the contract. The FAR notes that each contract arrangement should be judged in the light of its own facts and circumstances, with the primary question being whether the contractor's personnel are subject to the relatively continuous supervision and control of government personnel. The FAR enumerates the characteristics of personal services contracts: Performance on a government site, Principal tools and equipment furnished by the government, Services applied directly to the agency mission, Comparable services are performed in similar agencies using civil The need for the type of service can reasonably be expected to last more than 1 year, and The nature of the service or the way that it is performed reasonably requires government direction or supervision of the contractor's employees to adequately protect the government's interest, retain control of the function, or retain full responsibility for the function. Agencies also may have supplemental regulations to the FAR. Before awarding some personal services contracts, Department of Defense Federal Acquisition Regulation Supplement (DFARS) requires, for example, a determination that asserts, among other things, that a nonpersonal service contract--a contract not directly supervised by government employees--is not practicable and cites the relevant statutory authorities. The USAID Acquisition Regulation provides references to statutory authority and describes the kinds of tasks U. S. citizens may be assigned as personal services contractors, including some duties that might otherwise be assigned to direct-hire employees. Since 2008 for DOD and 2009 for civilian agencies, Congress has required agencies to prepare an annual inventory of contracted services, covering the preceding fiscal year. The inventories are to include a number of data elements for each entry, including a description of the services, the total dollar amount obligated, the number of contractor personnel expressed as full-time equivalents for direct labor, and whether the contract is a personal services contract. Agencies also are required to review their inventories to, among other things: ensure that each contract that is a personal services contract has been entered into, and is being performed, according to laws and regulations; ensure that the agency is not using contractor personnel to perform inherently governmental functions; and identify activities that should be considered for conversion to performance by federal employees. These inventories are intended, in part, to help provide better insight into the number of contractor full-time equivalents providing services and the functions they are performing, and determine whether any of these functions warrant conversion to performance by government employees. We have previously reported on challenges with developing and using the inventory of contracted services and have made recommendations for DOD to revise inventory guidance to improve the review of contract functions, approve a plan of action with milestones and time frames to establish a common data system to collect contractor manpower data, and designate a senior management official at the military departments to develop plans to use inventory data to inform management decisions. DOD concurred with GAO's recommendations. In 2011, OFPP issued guidance, OFPP Policy Letter 11-01, on the performance of inherently governmental and critical functions. The guidance was intended to assist agencies in ensuring that only federal employees perform work that is inherently governmental. The guidance contained examples of the types of work that would be considered inherently governmental. Some examples include determination of budget policy, hiring decisions for federal employees, the direction and control of intelligence or counterintelligence operations, and administering contracts, among others. The FAR states that contracts shall not be used to perform inherently governmental functions, but the regulation provides that this prohibition does not apply to personal services contracts issued under statutory authority. We cannot confirm the extent that personal services contracts are awarded at DOD because we found discrepancies at two DOD agencies whose contracts we examined. Specifically, although FPDS-NG reports that DOD spent about $118 million on personal services contracts in fiscal year 2015, we found that personal services contract obligations from the Air Force and Army were overstated in the FPDS-NG data because they included obligations that were not for personal services contracts. In addition, we identified personal services contracts in the inventory of contracted services data for the Air Force, Army, and Navy that were not recorded as such in FPDS-NG. We did not identify similar issues at USAID, which reported spending more than $123 million on personal services contracts in fiscal year 2015. For both DOD and USAID, however, we observed that the extent to which personal services contracts are used may be undercounted since some contracts for nonpersonal services share many of the characteristics of personal services contracts and could, in fact, be administered as personal services contracts. We found that the extent to which personal services contracts are used by DOD may be over stated in FPDS-NG based on our review of selected files and interviews with contracting officials. Specifically, documentation in contract files for some Air Force and Army contracts did not support the classification as a personal services contract as reported in FPDS-NG. Contracting officers are tasked with ensuring the accuracy of the data captured in FPDS-NG, but, in total, 17 of 45 DOD contracts--more than one third--we reviewed were incorrectly coded. The results of our examination of the selected contracts for each agency follow: We found that 4 of the 15 contracts reviewed were incorrectly reported as personal services contracts in FPDS-NG. We confirmed this with Air Force officials. Documentation in the contract file for the 4 contracts indicated that the product service code was not correct. For example, one incorrectly coded Air Force contract was for the Air Force Tricare liaison to coordinate referrals and ensure that medical paperwork was provided to external providers for continuity of care, which, according to the contract's performance work statement, did not involve the direct supervision or control by government staff--a defining feature of personal services contracts. The correctly coded contracts were all for medical personnel, such as dental assistants, nurses, and pharmacy technicians at various Air Force installations. We found that 13 of the 15 contracts we selected were incorrectly coded in FPDS-NG as personal services contracts. Of the 13 incorrectly coded contract actions we reviewed, 2 were task orders for billeting services. An Army official stated that the product service code cited in the base contract was incorrect at the time of the initial award and was then applied to subsequent task orders. Eleven other contracts did not constitute personal services contracts based on our review of the statement of work. For example, in one incorrectly coded Army contract, the contractor was required to present six separate seminars, but was not subject to the relatively continuous supervision and control of government staff, a defining characteristic of personal services contracts. Army officials confirmed that the original product service codes recorded in FPDS-NG were incorrect for these 13 contracts. The two contracts correctly coded were for engineering services in Iraq. We found that 15 of 15 Navy contracts in our sample reported as personal services contracts in FPDS-NG were all correctly coded and the designation was supported in the contract file. All of the contracts we reviewed were for health care-related services at U.S. Naval Hospital, Guam, including pharmacy technicians and a registered nurse. We found that 15 of 15 contracts selected for review based on the product service code reported in FPDS-NG had documentation in the contract file to support the personal services contract designation. Agency officials stated that the distinction between personal services contracts and nonpersonal services contracts is sometimes difficult to determine, and that making a decision that a particular contract is a personal service contract is subjective and depends on the interpretation of tasks and supervision. According to section 37.103 of the FAR, the contracting officer is responsible for ensuring that a proposed contract for services is proper. For personal services contracts, the contracting officer must document the file with a statement of the facts and rationale supporting a conclusion that the contract is specifically authorized by statute. Further, according to Standards for Internal Control in the Federal Government, management is responsible for the design and execution of appropriate types of control activities that ensure the proper execution of transactions. This includes appropriate documentation of transactions to ensure that reliable information is available for making decisions and the proper supervision of contractors. The second source we used for information about DOD's personal services contracts, DOD's annual inventories of contracted services, differed from FPDS-NG in the reporting of personal services contracts information. Figure 1 depicts the extent to which DOD personal services contracts appeared in both the inventory of contracted services and in FPDS-NG. The FPDS-NG data for the Air Force, Army, and Navy differed substantially from the inventory, as depicted above in figure 1. For each of the military departments, the inventory of contracted services contained references to personal services contracts not recorded as such in FPDS- NG. For both the Air Force and the Army, there was little commonality between the personal services contracts identified in FPDS-NG and the inventories. Although all of the Navy's personal services contracts that were identified in FPDS-NG were included in the Navy's inventory of contracted services, the Navy's inventory included 14 additional personal services contracts not identified in FPDS-NG. The discrepancies between FPDS-NG and the inventory of contracted services could be explained by a variety of circumstances. We have reported and agency officials agreed that the inventories are developed in different ways. For example, in the case of the Navy, officials stated that they develop the inventory using information from both FPDS-NG and the Enterprise-wide Contractor Manpower Reporting Application, a system used by contractors to self-report information. Officials stated that identifying whether a contract was for personal services was one of the data fields to be completed by the contractor, but contractors may not be knowledgeable about the characteristics of personal services contracts. We did not find discrepancies between the personal services contracts in FPDS-NG and the USAID's inventory. USAID uses data from FPDS-NG to develop its annual inventory of contracted services. According to Standards for Internal Control in the Federal Government, it is the responsibility of management to ensure that reliable information is available for making decisions and the proper supervision of contractors. An accurate account of the use of personal services contracts assists agencies to properly understand manpower requirements, evaluate risks, and determine if adjustments are needed. The inconsistency in the reported data from the two sources hinders the ability of agency managers to understand the extent that they are using personal services contracts and how they are used. Apart from the inaccuracies and differences in data reported in FPDS and the inventories of contracted services, it is also possible that personal services contracts could be undercounted because nonpersonal services contracts could be administered in a manner that results in their actually being personal services contracts and potentially unauthorized personal services contracts. In our sample of 40 contracts coded as engineering and technical services, or other professional services contracts--- nonpersonal services--we did not assess the contract administration and, therefore, did not identify examples of where a contract was a personal services contract due to being administered in a way that resulted in direct supervision of a contractor by government personnel. However, we note that relatively small changes in the tasks or supervision could result in some of the nonpersonal services contracts we reviewed being administered as personal services contracts. For example, many of the contracts involved the contractor performing critical tasks, with performance occurring in a government workspace. While the statement of work required the contractor (not the government) to provide supervision, given the critical nature of the tasks performed and co- location of contractors and government personnel, there is an opportunity for government officials to exercise continuous supervision and control over the contractor so that the contract would become a personal services contract. Contracting officials for these contracts emphasized that these contracts were not personal services contracts since they did not entail the relatively constant supervision of the contractor staff by government officials. The officials acknowledged, however, that just a slight change in the administration of these contracts could convert them into personal services contracts. Officials also stated that, in some cases, performance of selected tasks by contractor staff could be an area where it would be challenging to say whether a particular activity constituted personal services or not. In our review of the 40 nonpersonal services contracts awarded by the Air Force, Army, Navy, and USAID in fiscal year 2014, we found that a number of contracts had several characteristics common to personal services contracts based on documentation in the contract file and the FAR's descriptive elements. To illustrate, the following four contracts, one from each agency, demonstrate the similarities to personal services contracts. For each contract below either the contract or discussions with contracting officials specified that the Contracting Officer's Representative (COR) served as the liaison between the government and the contractor, but other aspects of the contract meet many of the characteristics of personal services contracts as presented in the sidebar. An Air Force contract for engineering cost support services includes specific tasks such as preparing program office estimates, cost benefit analyses, and sufficiency reviews of prime contractor estimates, and evaluating costs. The contractor acts as a liaison between the program office and auditors from agencies such as Air Force Audit Agency, DOD's Office of the Inspector General, and the Government Accountability Office. Other duties entail preparing a monthly acquisition report, program management review, budget management reviews, and spring and fall program reviews. Principal tools and equipment furnished The nature of the service or the way that it is performed reasonably requires, either directly or indirectly, Government direction or supervision of the contract employees to adequately protect the government's interest, retain control of the function, or retain full personal responsibility for the function that is supported in a duly authorized federal officer or employee. An Army contract for support to Army Comprehensive Soldier and Family Fitness Training Centers specifies various tasks. One task identified an operations manager serving as the co-chair /member of the Walter Reed Army Institute of Research and as a member of the Army Fit Content Review Board. A second task identified includes the operation manager facilitating external research projects from the initial planning to implementation. A third task is for managing multiple facets of curriculum development and review. A fourth task is for a public affairs specialist to be responsible for planning, developing and executing strategic public affairs programs. A Navy contract to provide engineering and technical services for control systems and information systems required life-cycle support to software systems and major acquisition programs and support of Navy policies for acquisition of software intensive systems, including preparing test plans and participation in an executive steering group. A USAID contract to provide surge services for administrative functions such as the development of policy in the areas of event management, meeting and retreat facilitation, curriculum development, project design, and program and evaluation to support USAID's mission. USAID and DOD have multiple authorities available for awarding personal services contracts. However, contract files at USAID did not cite the correct authority for the 15 contracts we reviewed. Additionally, USAID and DOD personal services contracts are used to support differing missions and entail different kinds of tasks. USAID has permanent authority to award personal services contracts under the Foreign Assistance Act of 1961 as amended. USAID also received authority in its fiscal year 2014 appropriation for some personal services contracts. For the 15 domestic USAID personal services contracts we reviewed, the authority cited in the contract file was a provision of the Foreign Assistance Act of 1961 that only authorizes personal services contracts abroad--outside of the United States--and an executive order. USAID officials acknowledged that the authority cited in the contracts was not the relevant authority. However, they stated that other authority pertaining to disaster relief in the Foreign Assistance Act of 1961 authorized the use of the domestic personal services contracts we reviewed. We did not find evidence of the correct authority documented in the file as required under the FAR. USAID acknowledged these documentation errors during the course of our review, and shared steps it had taken to revise its personal services contracts documentation. For example, USAID had revised its cover sheet for personal services contracts listing the possible authorities with a check box to indicate the authority relevant to that contract. However, USAID had not yet developed a process to determine whether the availability of the cover sheet will ensure that contracting officials cite the specific and correct authority. DOD's statutory authorities for the use of personal services contracts include personal services for health care among others. DOD contracts cited statutory authority or the DFARS which, in turn, had a reference to the relevant statutory authority. Table 1 shows the authority cited for the DOD personal services contracts we reviewed. USAID's personal services contracts that we reviewed cover a broad range of activities including program management, security analysis, and logistics, among others. In contrast, the majority of DOD's personal services contracts that we reviewed are more narrowly focused on medical personnel. Another difference between USAID and DOD is the use of personal services contracts to conduct inherently governmental tasks. USAID's supplemental regulation stipulates that personal services contractors can perform any duty a government employee might perform with few exceptions. According to DOD officials, it is not DOD's practice to assign personal services contractors to perform inherently governmental tasks. As explained in USAID's supplemental regulation, USAID's personal services contractors who are U.S. citizens may be delegated or assigned any authority, duty, or responsibility that direct hire employees might have, with some exceptions, such as acting as a contracting officer. Inherently governmental tasks are those that would ordinarily only be performed by government employees such as making decisions about the priorities for budget requests, direction of intelligence operations, or awarding contracts, and examples of such tasks are laid out in the FAR and OFPP Policy Letter 11-01. The FAR's general prohibition on the use of contractors to perform inherently governmental tasks does not apply to personal services contracts issued under statutory authority. USAID officials confirmed the tasks in some contracts we reviewed include inherently governmental tasks, as illustrated in two examples below. Security Analyst: This contractor is responsible for a variety of tasks including analyzing large volumes of security data and reports to make decisions or recommendations shaping agency programs. In addition, the contractor develops strategies for major areas of uncertainty in domestic and international political, social, or economic policies, trends, or situations that have potentially significant repercussions to the agency. The contractor develops the organization's position on controversial or disputed issues. These tasks are considered inherently governmental, according to the FAR and OFPP Policy Letter 11-01. Senior Program Manager: This contractor is responsible for a variety of tasks including performing complex country analysis and program design to develop existing and future programs and strategies in high priority countries. In addition, the contractor manages or participates in the selection of grantees, contractors, and other personal services contractors. These tasks are considered inherently governmental, according to the FAR and OFPP Policy Letter 11-01. The majority of DOD's personal services contracts we reviewed were awarded to obtain medical services from practitioners such as doctors, nurses, and pharmacists. For example, for the Navy, all 15 personal services contracts were for medical services. This was also the case for 11 contracts from the Air Force. The Army's personal services contracts in our sample were for engineering services abroad. Agencies need accurate information about their personal services contracts in order to ensure that government supervision of the work is appropriate. Without such information agencies do not have information useful for managing their programs. The Air Force and Army had significant errors in reporting the use of personal contracts and USAID consistently cited the incorrect authority for awarding the personal services contracts we reviewed. Therefore, there is room for improving procedures to help ensure accurate information is recorded. USAID has taken initial steps to revise its documentation but has not yet developed a process to determine whether the steps taken will result in increased accuracy. Personal services contracts are important to understand and track because the contractors are directly supervised by government personnel much as government employees would be. Because of their organic relationship to the work of government, it is incumbent on government agencies to have credible, accurate information about the number of these contracts and the authorities under which they are awarded. The absence of such reliable and credible information hinders the ability of government managers to determine if there are sufficient government personnel to carry out inherently governmental work and to properly oversee the work of contractors to ensure that the government remains responsible for the execution of approved government functions and for managing the agency's work. To ensure accurate reporting of personal services contracts, we make the following two recommendations. The Secretary of Defense direct the Secretaries of the Air Force and the Army take steps to ensure the accurate recording of personal services contracts in the Federal Procurement Data System-Next Generation. The Administrator, United States Agency for International Development implement periodic reviews of selected personal services contracts to ensure the effectiveness of steps taken to assist contracting officers to cite the correct statutory authority for personal services contracts. We provided a draft of this report to DOD and USAID for their review and comment. In written comments reprinted in appendixes II and III, both DOD and USAID concurred with our recommendations and described the actions they plan to take. DOD stated that the Director, Defense Procurement and Acquisition Policy, will issue a memo to the Army and Air Force Senior Procurement Executives directing them to take appropriate steps to ensure the accurate recording of personal services contracts. USAID stated that the Agency had revised and distributed a coversheet to a standard form which they believed would result in greater accuracy in citing the authorization for domestic personal services contracts. Consistent with our recommendation, USAID has revised its checklist used for reviewing and validating key acquisition functions. The agency will use the checklist in its annual procurement systems reviews to verify that contracting officials cite the correct authority. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Administrator, United States Agency for International Development, the Undersecretary of Defense for Acquisition, Technology, and Logistics, the Undersecretary of Defense, Personnel and Readiness and other interested parties. In addition the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. This report examines (1) the extent to which selected agencies award personal services contracts; and (2) how those agencies use personal services contracts. To identify the extent to which the government reports awarding personal service contracts, we analyzed data from the Federal Procurement Data System--Next Generation (FPDS-NG). We selected contracts, excluding modifications, identified as personal services contracts based on the product service code of R 497--a product service code reserved for personal services contracts--for contracts awarded in fiscal years 2011 through 2015. Fiscal year 2015 was the latest year with certified FPDS- NG data at the time we started our review. We identified 11 agencies or departments that reported obligations for personal services contracts. We analyzed the data and identified the Department of Defense (DOD) and the United States Agency for International Development (USAID) as the two agencies that reported the highest obligations for personal services contracts in fiscal years 2011 through 2015. Although we identified inaccuracies in some of the data in FPDS-NG, as discussed in this report, we discussed the data and its limitations with agency officials and determined that the data from FPDS-NG were sufficiently reliable for purposes of selecting the agencies with the highest obligations on personal services contracts and obtaining a sample of contracts. We also identified the four agencies--the Air Force, Army, and Navy within the Department of Defense (DOD), and the United States Agency for International Development (USAID)--with the highest obligations for personal services contracts using FPDS-NG data. These agencies account for nearly 60 percent of the spending on such contracts in fiscal year 2014. We reviewed a nongeneralizable random sample of 60 contracts coded as personal services contracts in FPDS-NG, 15 contracts from each agency (Air Force, Army, Navy, and USAID). The 60 contract random nongeneralizable sample was drawn from all contracts in fiscal year 2014 that reported obligations for personal services contracts equal to or greater than $10,000. We reviewed the files to determine the specific statutory authority cited for awarding the personal services contract, the tasks performed by the contractor, supervision provided, and the duration of the contract including options. We also obtained policy documents and supplemental regulations from the agencies detailing agency responsibilities with respect to personal services contracts and interviewed agency officials. We compared the data reported in FPDS- NG, such as the contract number and award value, to information in the selected contract files and determined that the FPDS-NG data were sufficiently reliable for the purposes of selecting our sample. We determined that a number of contracts identified by the Army and the Air Force as personal services contracts were miscoded as personal services contracts based on documentation in the contract file and discussions with agency officials. To obtain additional information on the extent to which agencies use personal services contracts, we also examined the data on personal services contracts from the publically available inventories of contracted services for the Air Force, Army, Navy and USAID for fiscal year 2014. Fiscal year 2014 was the latest year with certified inventory data, at the time of our review. These inventories are congressionally required compilations of services contracts intended to provide insight into the kinds of services purchased and the number of contractor personnel involved. We discussed the preparation of the inventories with agency officials and reviewed our prior reports on inventories. However, examination of the inventory of contracted services data for the Air Force, Army and Navy did not resolve discrepancies we found between DOD's FPDS-NG data and the inventory of contracted services data. Based on our review of the FPDS-NG data, reviews of the selected service contract inventory data, selected contract files, and interviews with DOD and USAID officials, we determined that the FPDS-NG data are not sufficiently reliable for comparing obligations from year to year for personal services contracts or for determining the extent to which DOD awarded personal services contracts. We present data on obligations for illustrative purposes only. To determine how DOD and USAID use personal services contracts, we reviewed contract files to determine the authority cited for awarding the contracts and analyzed the statements of work, which define the kinds of services required under the contracts. To further explore the differences in how these agencies use personal services contracts and other types of service contracts, we also reviewed a different nongeneralizable random sample of 40 contracts that were coded as engineering and technical services, or other professional services contracts awarded by the Air Force, Army, Navy, and USAID in fiscal year 2014 (10 contracts from each agency). We selected these categories of services because they are similar to the types of services performed by personal services contractors and constituted a majority of the services contracts awarded by DOD and USAID. We did not review contractor performance or contract administration for this report. We compared the data reported in FPDS-NG, such as the contract number and award value, to information in the selected contract files and determined that the FPDS-NG data were sufficiently reliable for the purposes of selecting our sample. The sample of contracts both personal and nonpersonal included in our review is not generalizable to a larger universe, but is designed to provide illustrative examples of characteristics and use of personal service contracts at the selected agencies and components, and for comparison of characteristics of personal and nonpersonal services contract awards. We reviewed the Federal Acquisition Regulation (FAR), obtained supplemental regulations and policy documents from the Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget, and from the agencies we reviewed that detailed agency responsibilities with respect to personal services contracts. We interviewed agency personnel concerning their responsibilities for awarding personal services contracts, for preparing the data entered in FPDS-NG, for preparing the annual inventory of contracted services, and reviewing the contracts subsequent to inventory preparation. To gain further insight into FPDS-NG, agency-specific service contract inventories, and contract files, we interviewed officials from the Air Force, Army, Navy, USAID, and the Office of the Secretary of Defense (OSD), including OSD General Counsel and OSD's Total Force Manpower and Resources Directorate. We also interviewed officials from the Office of Management and Budget's OFPP regarding the government-wide use of personal services contracts. We conducted this performance audit from February 2016 to July 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Penny Berrier, Assistant Director; John Beauchamp; Stephanie Gustafson; Kristine Hassinger; Julia Kennon; Carol Mebane; Jean McSween; Kate Pfeiffer; Roxanna Sun; and Abby Volk made significant contributions to this review.
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A personal services contract is one that makes contractor personnel appear to be government employees. These contracts must be authorized by federal law. According to FPDS-NG, the government reported obligating about $1.5 billion on personal services contracts in fiscal years 2011 through 2015. GAO was asked to examine the federal government's use of personal services contracts. This report discusses (1) the extent to which selected federal agencies award personal services contracts, and (2) how those agencies use them. GAO identified the four agencies spending the most on personal services contracts--the Air Force, Army, Navy, and USAID--as reported in FPDS-NG. These agencies account for about 60 percent of total spending on these contracts. GAO also reviewed the service contract inventories these agencies prepared for fiscal year 2014, the latest year available at the time of this review. GAO reviewed the files for a nongeneralizable sample of 60 personal (15 at each agency) and 40 nonpersonal services contracts (10 at each agency) and interviewed agency officials. GAO did not review the administration of the contracts. The United States Agency for International Development (USAID) spent more than $123 million on personal services contracts in fiscal year 2015, according to the Federal Procurement Data System-Next Generation (FPDS-NG). But GAO cannot confirm the extent that personal services contacts are awarded by the Department of Defense (DOD) because GAO identified significant reporting errors at two DOD agencies--the Air Force and the Army. Specifically, 4 of the 15 Air Force contracts and 13 of the 15 Army contracts GAO reviewed were incorrectly recorded in FPDS-NG as personal services contracts. Defense officials agreed with this assessment. Further, the fiscal year 2014 inventories of contracted services at Air Force, Army, and Navy contained personal services contracts not captured in FPDS-NG, as shown in the figure below. Apart from the inaccuracies of the reported data, GAO observed and agency officials agreed that additional undercounting could exist since some contracts for nonpersonal services could become personal services contracts, depending on whether the contract involves direct supervision by government employees. In the absence of accurate data, proper management of personal services and other contracts becomes more difficult. Military departments and USAID use personal services contracts differently. DOD personal services contracts GAO reviewed were mostly for health care services. As permitted under its regulations, USAID uses personal services contracts for a broader range of functions such as program management, security analysis, and logistics, some of which are considered tasks that only government employees should perform--inherently governmental activities. Federal regulations that prohibit contractors from performing such activities do not apply to authorized personal services contracts. DOD's practice is not to use personal services contracts for inherently governmental tasks. DOD and USAID have multiple authorities for awarding personal services contracts, but none of the files GAO reviewed at USAID cited the correct authority for personal services contracts performed in the United States. USAID has taken steps to address this issue but has not yet determined whether these steps will be effective. GAO recommends that the Secretary of Defense direct the Air Force and Army to take steps to ensure the accurate recording of personal services contracts in FPDS-NG; and that USAID ensure the correct authority is cited for personal services contracts performed in the United States. DOD and USAID concurred with our recommendations.
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As the central human resources agency for the federal government, OPM is tasked with ensuring that the government has an effective civilian workforce. To carry out this mission, OPM delivers human resources products and services including policies and procedures for recruiting and hiring, provides health and training benefit programs, and administers the retirement program for federal employees. According to the agency, approximately 2.7 million active federal employees and nearly 2.5 million retired federal employees rely on its services. The agency's March 2008 analysis of federal employment retirement data estimates that nearly 1 million active federal employees will be eligible to retire and almost 600,000 will most likely retire by 2016. According to OPM, the retirement program serves current and former federal employees by providing (1) tools and options for retirement planning and (2) retirement compensation. Two defined-benefit retirement plans that provide retirement, disability, and survivor benefits to federal employees are administered by the agency. The first plan, the Civil Service Retirement System (CSRS), provides retirement benefits for most federal employees hired before 1984. The second plan, the Federal Employees Retirement System (FERS), covers most employees hired in or after 1984 and provides benefits that include Social Security and a defined contribution system. OPM and employing agencies' human resources and payroll offices are responsible for processing federal employees' retirement applications. The process begins when an employee submits a paper retirement application to his or her employer's human resources office and is completed when the individual begins receiving regular monthly benefit payments as calculated by OPM. Processing retirement claims includes functions such as determining retirement eligibility, inputting data into benefit calculators, and providing customer service. To do so, the agency uses over 500 different procedures, laws, and regulations, which are documented on its internal website. For example, the site contains memorandums that outline new procedures for handling special retirement applications, such as those for disability or court orders. In addition, OPM's retirement processing involves the use of over 80 information systems that have approximately 400 interfaces with other internal and external systems. OPM has stated that the federal employee retirement process does not provide prompt and complete benefit payments upon retirement, and that customer service expectations for more timely payments are increasing. The agency also reports that a greater workload is expected due to an anticipated increase in the number of retirement applications over the next decade, although current retirement processing operations are at full capacity. Further, the agency has identified several factors that limit its ability to process retirement benefits in an efficient and timely manner. Specifically, OPM noted that: current processes are paper-based and manually intensive, resulting in a higher number of errors and delays in providing benefit payments; the high costs, limited capabilities, and other problems with the existing information systems and processes pose increasing risks to the accuracy of benefit payments; current manual capabilities restrict customer service; federal employees have limited access to retirement records, making planning for retirement difficult; and attracting qualified personnel to operate and maintain the antiquated retirement systems, which have about 3 million lines of custom programming, is challenging. Recognizing the need to modernize its retirement processing, in the late 1980s OPM began initiatives that have called for automating its antiquated paper-based processes. Initial modernization visions called for developing an integrated system and automated processes to provide prompt and complete benefit payments. However, following attempts over more than two decades, the agency has not yet been successful in achieving the modernized retirement system that it envisioned. In early 1987, OPM began a program called the FERS Automated Processing System (FAPS). However, after 8 years of planning, the agency decided to reevaluate the program and the Office of Management and Budget requested an independent review of the program that identified various management weaknesses. The independent review suggested areas for improvement and recommended terminating the program if immediate action was not taken. In mid-1996, OPM terminated the program. In 1997, OPM began planning a second modernization initiative, called the Retirement Systems Modernization (RSM) program. The agency originally intended to structure the program as an acquisition of commercially available hardware and software that would be modified in-house to meet its needs. From 1997 to 2001, OPM developed plans and analyses and began developing business and security requirements for the program. However, in June 2001, it decided to change the direction of the retirement modernization initiative. In late 2001, retaining the name RSM, the agency embarked upon its third initiative to modernize the retirement process and examined the possibility of privately sourced technologies and tools. Toward this end, the agency determined that contracting was a viable alternative and, in 2006, awarded three contracts for the automation of the retirement process, to include the conversion of paper records to electronic files and consulting services to redesign its retirement operations. In February 2008, OPM renamed the program RetireEZ and deployed an automated retirement processing system. However, by May 2008 the agency determined that the system was not working as expected and suspended system operation. In October 2008, after 5 months of attempting to address quality issues, the agency terminated the contract for the system. In November 2008, OPM began restructuring the program and reported that its efforts to modernize retirement processing would continue. However, after several years of trying to revitalize the program, the agency terminated retirement system modernization in February 2011. OPM's efforts to modernize its retirement system have been hindered by weaknesses in several key project management disciplines. Our experience with major modernization initiatives has shown that having sound IT management capabilities is essential to achieving successful outcomes. Among others, these capabilities include project management, risk management, organizational change management, system testing, cost estimating, progress reporting, planning, and oversight. However, we found that many of the capabilities in these areas were not sufficiently developed. For example, in reporting on RSM in February 2005, we noted weaknesses in key management capabilities, such as project management, risk management, and organizational change management. Project management is the process for planning and managing all project-related activities, including defining how project components are interrelated. Effective project management allows the performance, cost, and schedule of the overall project to be measured and controlled in comparison to planned objectives. Although OPM had defined major retirement modernization project components, it had not defined the dependencies among them. Specifically, the agency had not identified critical tasks and their impact on the completion of other tasks. By not identifying critical dependencies among retirement modernization components, OPM increased the risk that unforeseen delays in one activity could hinder progress in other activities. Risk management is the process for identifying potential problems before they occur. Risks should be identified as early as possible, analyzed, mitigated, and tracked to closure. OPM officials acknowledged that they did not have a process for identifying and tracking retirement modernization project risks and mitigation strategies on a regular basis but stated that the agency's project management consultant would assist it in implementing a risk management process. Without such a process, OPM did not have a mechanism to address potential problems that could adversely impact the cost, schedule, and quality of the retirement modernization project. Organizational change management is the process of preparing users for the changes to how their work will be performed as a result of a new system implementation. Effective organizational change management includes plans to prepare users for impacts the new system might have on their roles and responsibilities, and a process to manage those changes. Although OPM officials stated that change management posed a substantial challenge to the success of retirement modernization, they had not developed a detailed plan to help users transition to different job responsibilities. Without having and implementing such a plan, confusion about user roles and responsibilities could have hindered effective implementation of new retirement systems. We recommended that the Director of OPM ensure that the retirement modernization program office expeditiously establish processes for effective project management, risk management, and organizational change management. In response, the agency initiated steps toward establishing management processes for retirement modernization and demonstrated activities to address our recommendations. We again reported on OPM's retirement modernization in January 2008, as the agency was on the verge of deploying a new automated retirement processing system. We noted weaknesses in additional key management capabilities, including system testing, cost estimating, and progress reporting. Effective testing is an essential activity of any project that includes system development. Generally, the purpose of testing is to identify defects or problems in meeting defined system requirements or satisfying system user needs. At the time of our review, 1 month before OPM planned to deploy a major system component, test results showed that the component had not performed as intended. We warned that until actual test results indicated improvement in the system, OPM risked deploying technology that would not accurately calculate retirement benefits. Although the agency planned to perform additional tests to verify that the system would work as intended, the schedule for conducting these tests became compressed from 5 months to 2-1/2 months, with several tests to be performed concurrently rather than in sequence. The agency identified a lack of testing resources, including the availability of subject matter experts, and the need for further system development as contributing to the delay of planned tests and the need for concurrent testing. The high degree of concurrent testing that OPM planned to meet its February 2008 deployment schedule increased the risk that the agency would not have the resources or time to verify that the planned system worked as expected. Cost estimating represents the identification of individual project cost elements, using established methods and valid data to estimate future costs. The establishment of a reliable cost estimate is important for developing a project budget and having a sound basis for measuring performance, including comparing the actual and planned costs of project activities. Although OPM developed a retirement modernization cost estimate, the estimate was not supported by the documentation that is fundamental to a reliable cost estimate. Without a reliable cost estimate, OPM did not have a sound basis for formulating retirement modernization budgets or for developing the cost baseline that is necessary for measuring and predicting project performance. Earned value management (EVM) is a tool for measuring program progress by comparing the value of work accomplished with the amount of work expected to be accomplished. Fundamental to reliable EVM is the development of a baseline against which variances are calculated. OPM used EVM to measure and report monthly performance of the retirement modernization system. The reported results provided a favorable view of project performance over time because the variances indicated the project was progressing almost exactly as planned. However, this view of project performance was not reliable because the baseline on which it was based did not reflect the full scope of the project, had not been validated, and was unstable (i.e., subject to frequent changes). This EVM approach in effect ensured that material variances from planned project performance would not be identified and that the state of the project would not be reliably reported. We recommended that the Director of OPM address these deficiencies by, among other things, conducting effective system tests prior to system deployment, in addition to improving program cost estimation and progress reporting. In response to our report, OPM stated that it concurred with our recommendations and stated that it would take steps to address the weakness we identified. Nevertheless, OPM deployed a limited initial version of the modernized retirement system in February 2008. After unsuccessful efforts to address system quality issues, the agency suspended system operation, terminated the system contract, and began restructuring the modernization effort. In April 2009, we again reported on OPM's retirement modernization, noting that the agency still remained far from achieving the modernized retirement processing capabilities that it had planned. Specifically, we noted that significant weaknesses continued to exist in three key management areas that we had previously identified--cost estimating, progress reporting, and testing--while also noting two additional weaknesses related to planning and oversight. Despite agreeing with our January 2008 recommendation that OPM develop a revised retirement modernization cost estimate, the agency had not completed initial steps for developing a new cost estimate by the time we reported again in April 2009. At that time, we reported that the agency had not yet fully defined the estimate's purpose, developed an estimating plan, or defined the project's characteristics. By not completing these steps, OPM increased the risk that it would produce an unreliable estimate and not have a sound basis for measuring project performance and formulating retirement modernization budgets. Although it agreed with our January 2008 recommendation to establish a basis for effective EVM, OPM had not completed key steps as of the time of our April 2009 report. Specifically, despite planning to begin reporting on the retirement project's progress using EVM, the agency was not prepared to do so because initial steps, including the development of a reliable cost estimate and the validation of a baseline, had not been completed. Engaging in EVM reporting without first performing these fundamental steps could have again rendered the agency's assessments unreliable. As previously discussed, effective testing is an essential component of any project that includes developing systems. To be effectively managed, testing should be planned and conducted in a structured and disciplined fashion. Beginning the test planning process in the early stages of a project life cycle can reduce rework later. Early test planning in coordination with requirements development can provide major benefits. For example, planning for test activities during the development of requirements may reduce the number of defects identified later and the costs related to requirements rework or change requests. OPM's need to compress its testing schedule and conduct tests concurrently, as we reported in January 2008, illustrates the importance of planning test activities early in a project's life cycle. However, at the time of our April 2009 report, the agency had not begun to plan test activities in coordination with developing its requirements for the system it was planning at that time. Consequently, OPM increased the risk that it would again deploy a system that did not satisfy user expectations and meet requirements. Project management principles and effective practices emphasize the importance of having a plan that, among other things, incorporates all the critical areas of system development and is to be used as a means of determining what needs to be done, by whom, and when. Although OPM had developed a variety of informal documents and briefing slides that described retirement modernization activities, the agency did not have a complete plan that described how the program would proceed in the wake of its decision to terminate the system contract. As a result, we concluded that until the agency completed and used a plan that could guide its efforts, it would not be properly positioned to move forward with its restructured retirement modernization initiative. Office of Management and Budget and GAO guidance calls for agencies to ensure effective oversight of IT projects throughout all life- cycle phases. Critical to effective oversight are investment management boards made up of key executives who regularly track the progress of IT projects such as system acquisitions or modernizations. OPM's Investment Review Board was established to ensure that major investments are on track by reviewing their progress and determining appropriate actions when investments encounter challenges. Despite meeting regularly and being provided with information that indicated problems with the retirement modernization, the board did not ensure that retirement modernization investments were on track, nor did it determine appropriate actions for course correction when needed. For example, from January 2007 to August 2008, the board met and was presented with reports that described problems the retirement modernization program was facing, such as the lack of an integrated master schedule and earned value data that did not reflect the "reality or current status" of the program. However, meeting minutes indicated that no discussion or action was taken to address these problems. According to a member of the board, OPM guidance regarding how the board is to communicate recommendations and needed corrective actions for investments it is responsible for overseeing had not been established. Without a fully functioning oversight body, OPM could not monitor the retirement modernization and make the course corrections that effective boards are intended to provide. Our April 2009 report made new recommendations that OPM address the weaknesses in the retirement modernization project that we identified. Although the agency began taking steps to address them, the recommendations were overtaken by the agency's decision in February 2011 to terminate the retirement modernization project. In November 2011, agency officials, including the Chief Information Officer, Chief Operating Officer, and Associate Director for Retirement Services, told us that OPM does not plan to initiate another large-scale effort to modernize the retirement process. Rather, the officials said the agency intends to take targeted steps to improve retirement processing that will include hiring and training approximately 100 new staff to help improve the timeliness of processing retirement applications and responding to retirement claims; demonstrating the capability to automate retirement applications; working with other agencies to improve the quality of electronic data they transmit to OPM for use in retirement processing; and improving OPM's retirement services website to allow enhanced communication. Under this approach, OPM does not currently have plans to modernize the existing, antiquated retirement systems that the agency has long identified as necessary to accomplishing retirement modernization and improving the timeliness and accuracy of benefit payments. In summary, despite OPM's recognition of the need to improve the timeliness and accuracy of retirement processing, the agency has thus far been unsuccessful in several attempts to develop the capabilities it has long sought. For over two decades, the agency's retirement modernization efforts have been plagued by weaknesses in management capabilities that are critical to the success of such endeavors. Among the management disciplines the agency has struggled with are project management, risk management, organizational change management, cost estimating, system testing, progress reporting, planning, and oversight. Even though the agency is now considering only modest efforts to improve retirement processing, the development and institutionalization of these management capabilities is key to the success of any future retirement modernization or other IT initiative that OPM undertakes. Mr. Chairman, this concludes my statement today. I would be pleased to answer any questions that you or other members of the Subcommittee may have at this time. If you have any questions concerning this statement, please contact Valerie C. Melvin, Director, Information Management and Technology Resources Issues, at (202) 512-6304 or [email protected]. Other individuals who made key contributions include Mark T. Bird, Assistant Director; Larry E. Crosland; Lee A. McCracken; Teresa M. Neven; and Charles E. Youman. 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 Office of Personnel Management (OPM) is the central human resources agency for the federal government and, as such, is tasked with ensuring the government has an effective civilian workforce. As part of its mission, OPM defines recruiting and hiring processes and procedures; provides federal employees with various benefits, such as health benefits; and administers the retirement program for federal employees. The use of information technology (IT) is crucial in helping OPM to carry out its responsibilities, and in fiscal year 2011 the agency invested $79 million in IT systems and services. For over 2 decades, OPM has been attempting to modernize its federal employee retirement process by automating paper-based processes and replacing antiquated information systems. However, these efforts have been unsuccessful, and OPM canceled its most recent retirement modernization effort in February 2011. GAO was asked to provide a statement summarizing its work on challenges OPM has faced in managing its efforts to modernize federal employee retirement processing. To do this, GAO relied on previously published work as well as a limited review of more recent documentation on OPM's retirement modernization activities. In a series of reviews, GAO found that OPM's efforts to modernize its retirement system have been hindered by weaknesses in several important management disciplines that are essential to successful IT modernization efforts. For example, in 2005, GAO made recommendations to address weaknesses in the following areas: (1) Project management. While OPM had defined major retirement modernization components, it had not identified the dependencies among them, increasing the risk that delays in one activity could hinder progress in others. (2) Risk management. OPM did not have a process for identifying and tracking project risks and mitigation strategies on a regular basis. This meant that OPM lacked a mechanism to address potential problems that could adversely impact the retirement modernization effort's cost, schedule, and quality. (3) Organizational change management. OPM had not developed a detailed plan to help users transition to different job responsibilities in response to the deployment of the new system, which could lead to confusion about roles and responsibilities, hindering effective system implementation. In 2008, as OPM was on the verge of deploying its automated retirement processing system, GAO reported deficiencies and made recommendations to improve key management capabilities in additional areas: (1) Testing. Test results 1 month prior to the deployment of a major system component showed that it had not performed as intended. The defects, along with a compressed testing schedule, increased the risk that the deployed system would not work as intended. (2) Cost estimating. The cost estimate OPM had developed was not supported by documentation necessary to its reliability. This meant that OPM did not have a sound basis for formulating budgets or developing a cost baseline for the program. (3) Earned value management, which is a tool for measuring program progress. The baseline against which OPM was measuring program progress did not reflect the full scope of the project, meaning that variances from planned performance would not be identified. In 2009, GAO reported that OPM continued to face challenges in cost estimating, earned value management, and testing and made recommendations to address these deficiencies as well as additional weaknesses in planning and overseeing the retirement modernization effort. Although OPM agreed with GAO's recommendations and had begun to address them, the agency terminated the retirement modernization effort in February 2011. The agency has since stated that it does not plan to undertake another large-scale retirement modernization, but instead plans targeted steps to improve retirement processing, such as hiring new staff and working to improve data quality. Nonetheless, the development and institutionalization of the capabilities GAO recommended to address these weaknesses remains key to the success of any future IT initiatives that OPM undertakes. GAO is not making new recommendations at this time. As noted, GAO has previously made numerous recommendations to address the challenges OPM has faced in carrying out its retirement modernization efforts.
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The procedures the Bureau used during the 1990 Census to count people without conventional housing had limitations that resulted in incomplete data. To address these limitations and help improve the quality of the data, the Bureau used a procedure for the 2000 Census called Service-Based Enumeration that attempted to count people where they receive services such as emergency shelters, soup kitchens, and regularly scheduled mobile food vans. Service-Based Enumeration also counted people in targeted nonsheltered outdoor locations such as encampments beneath bridges. The operation occurred from March 27 through March 29, 2000. According to Bureau officials, Service-Based Enumeration was not designed, and was never intended, to provide a specific count of homeless persons. Instead, the operation was part of a larger effort to count people without conventional housing, including people in "institutional group quarters" such as correctional facilities, nursing homes, and mental hospitals, and "non-institutional group quarters" such as college dormitories, military quarters, and group homes. Service-Based Enumeration counted people in specific categories of noninstitutional group quarters. To help ensure a complete count of people without conventional housing, the Bureau partnered with local governments and community advocacy groups to obtain lists of service locations and to assist with the enumeration. In some cases, the Bureau hired clients of the advocacy groups and other people trusted by the homeless to conduct Service-Based Enumeration. For example in Atlanta, an advocacy group for homeless veterans helped the Bureau employ homeless veterans to improve the count of this population. Local governments helped the Bureau as well, often investing considerable resources. For example, Los Angeles paid to keep its city-run shelters open on the night they were enumerated so that people using their services could be counted. To address your concerns about the Bureau's dissemination of data on persons without conventional housing, we agreed to examine (1) the Bureau's plans for reporting the results of Service-Based Enumeration and its reasons for changing those plans and (2) the Bureau's protocols for releasing data. To accomplish these objectives, we interviewed key Bureau officials and reviewed relevant Bureau documents and data such as operational plans, decision memorandums, and the Bureau's partnership program evaluation. In order to obtain the perspective of data users, partners, and stakeholders, we conducted in-person and telephone interviews with homeless advocates, local government officials, and representatives of public service agencies in New York City, Los Angeles, Cleveland, Atlanta, and Washington, D.C. These cities had large numbers of people without conventional housing and they were actively involved with the Bureau during the 2000 Census. The organizations we contacted also provided relevant documentation, such as comprehensive file documents relating to partnership activities. In addition to the above locations, we did our audit work at Bureau headquarters in Suitland, Maryland. Our audit work was conducted from April 2002 through September 2002 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Secretary of Commerce. On November 21, 2002, the Secretary forwarded the Bureau's written comments on the draft (see app. I). We address these comments at the end of this report. Under the Bureau's original plan for releasing Service-Based Enumeration data in Summary File-1 (SF-1), the emergency and transitional shelter count was one of several categories of noninstitutional group quarters data that were to be reported separately. Other people counted in the Service- Based Enumeration, including people counted at targeted nonsheltered outdoor locations, soup kitchens, and regularly scheduled mobile food vans, were to be combined and reported under the category "other non- institutional group quarters." This category also included residential care facilities providing protective oversight, shelters against domestic violence, staff dormitories for nurses and interns at military and general hospitals, and living quarters for victims of natural disasters. This decision was documented in an April 1999 internal memorandum from the Bureau's Assistant Division Chief for Special Population Statistics to the Assistant Division Chief for Census Programs. The Service-Based Enumeration operation took place a year later, in March 2000. The April 1999 plan was in large part a reaction to the challenges the Bureau faced counting the emergency shelter and street population during the 1990 Census. Although the Bureau disseminated separate counts of people found at emergency shelters, preidentified street locations, and similar sites, the counts proved to be incomplete. Moreover, the Bureau stated in its October 2001 report that despite its warnings to the contrary, the data were sometimes misinterpreted as a "homeless" count. The October report does not offer an example of this, but the misinterpretation clearly played a role in a lawsuit against the Bureau. As a result, when designing the 2000 census, the Bureau attempted to both improve the count and take precautions to ensure that the Service-Based Enumeration count would not be misconstrued as a count of the homeless. The Bureau's data dissemination plans took into account the recommendations of the Commerce Secretary's 2000 Census Advisory Committee, a panel that included representatives of advocacy and other groups (including representatives from organizations that represent local governments) that met periodically to review the Bureau's plans. The homeless population was represented by the National Coalition for the Homeless--an advocacy group that coordinates a network of 300 state and local housing and homeless organizations. In its January 1999 final report, the Census 2000 Advisory Committee recommended that special attention be paid to tabulating the results of Service-Based Enumeration and targeted outdoor enumerations so that they could not be aggregated and used as a homeless count. In January 2001, 5 months before the SF-1 release, the Bureau reversed its April 1999 decision to release emergency and transitional shelter data separately because of "data quality concerns." Instead, as shown in figure 1, the Bureau planned to combine the emergency and transitional shelter data with the "other non-institutional group quarters." This category contained data on a variety of living arrangements including facilities for natural disaster victims. The Bureau's decision was contained in an internal Bureau memorandum from the Chief of the Population Division to the Chief of the Decennial Systems and Contracts Management Office. Bureau officials told us that the decision to exclude a separate emergency and transitional shelter count in SF-1 was made between December 2000 and January 2001, by the Director of the Decennial Census with input from the Associate Director Decennial Census, the Population Division, the Associate Director for Demographic Programs, the Decennial Management Division, and the Decennial Statistical Studies Division. According to Bureau officials, their concerns focused on the accuracy of a new statistical procedure called "multiplicity estimation" that adjusted the number counted to better reflect the number of actual shelter users. Because Service-Based Enumeration only counted people who were at these facilities on the day of enumeration, the Bureau intended to use multiplicity estimation to calculate the number of people who used these facilities but were not present during Service-Based Enumeration. The multiplicity estimation procedure was based on information from those who were counted and on the number of times they used the service facilities in the prior week. An estimate of people not counted on the day of enumeration was added to the count of people who were. According to the Bureau, the multiplicity estimates tested well during the 1998 dress rehearsal for the 2000 Census possibly because the three rehearsal sites did not offer large enough sample sizes of the appropriate populations to adequately test this procedure. However, during the 2000 Census the Bureau found that a census question pertaining to facility usage upon which the multiplicity estimates were based had a low response rate. Moreover, the Bureau found that respondents, particularly in shelters, did not answer the question accurately. Due to data quality concerns, the Bureau decided not to use multiplicity estimation to adjust the data and consequently decided not to report the data separately. Bureau officials said they did not announce the change in plans because they were still evaluating the problems with the data. It was not until June 2000 that the Bureau began recalculating the data and making a final decision on which categories to aggregate. Ultimately, the Bureau did not report any of the Service-Based Enumeration data separately in SF-1. Emergency and transitional shelter data were the only data that were to be released in SF-1 under separate reporting categories that the Bureau decided to combine with another category. The release of the SF-1 data in June 2001 produced public discussion in the press, among census partners, and in the Congress about the Bureau's decision to not separately release Service-Based Enumeration data. In a briefing for staff of the House Committee on Governmental Affairs, the Associate Director of the Decennial Census announced that the Bureau planned to produce a separate report on the emergency and transitional shelter data. In October 2001, the Bureau issued a special report, entitled Emergency and Transitional Shelter Population: 2000. This report separately identified emergency and transitional shelter data for various levels of geography down to the census tract level with 100 or more people in emergency and transitional shelters. The report did not include data for the populations in targeted nonsheltered outdoor locations, soup kitchens, regularly scheduled mobile food vans, and shelters for domestic violence. The 17-page report contains an extensive discussion on the limitations of the data. For example, the Bureau noted that the data in the report should not be construed as a count of people without conventional housing. Moreover, the emergency and transitional shelter data at the census tract level are not in the hard copy, but rather in the Internet version of the report. The Bureau stated that all Census 2000 data at the tract level are available on the Internet and are not available in printed reports. The October report contains most of the same data that were to be released under the April 1999 dissemination plan for SF-1. The Bureau asserted that the data quality concerns with the emergency and transitional shelter data (cited when it changed the plan to release these data in SF-1) required that the data be presented in a manner that allowed the Bureau to clearly outline the data's limitations. The October 2001 report contained an extended discussion of these limitations. The October 2001 report also identified reasons the Bureau did not (and never planned to) separately release data on people counted at targeted nonsheltered outdoor locations, soup kitchens, regularly scheduled mobile food vans, and shelters for victims of domestic violence, including the following. People without conventional housing who were at outside locations other than the targeted nonsheltered outdoor locations identified for the census were not included in the TNSOL operation. For the purposes of the TNSOL operation, the definition of "outdoor" excluded both mobile and transient locations used by people experiencing homelessness as well as abandoned buildings. The option was given to the individuals found at soup kitchens and regularly scheduled mobile food vans to select "usual home elsewhere." For example, if an individual enumerated at a soup kitchen listed a usual home elsewhere, then that person was tabulated at their usual residence and not at the service location. Therefore, the data on this population would not reflect a true count of the individuals using these services. Prior to publicly releasing the October report, the Bureau asked two representatives from the National Coalition for the Homeless to review a draft of the portion of the report that described the limitations of the data. The National Coalition for the Homeless commented extensively on the section containing the caveats and limitations in order to strengthen the report. A member of the Board of Directors for the National Coalition for the Homeless told us that he provided this feedback both as an academician and a stakeholder. Bureau officials stated that because of its position on the Bureau's Census Advisory Committee, the National Coalition for the Homeless was the only advocacy group that reviewed any portion of the October 2001 report prior to its publication. The controversy surrounding the release of the combined Service-Based Enumeration data highlights the challenges the Bureau faced in 2000 trying to meet the needs of various data users and the work the Bureau still needs to do when planning for the 2010 Census to better reconcile those needs. For example, several organizations we contacted favored the separate release of the Service-Based Enumeration data categories. Indeed, local government officials we talked to in New York City believed that the data would help with grant applications, projections about future service needs, and determining their success in getting people off the streets and into shelters. The Executive Director of the Northeast Ohio Coalition for the Homeless stated that the city of Cleveland does not do its own count of this population and, therefore, the Bureau numbers are the only ones available on this segment of the population. Los Angeles city officials wanted the Service-Based Enumeration data so they could better target their services and, like Cleveland, Los Angeles did not have its own data. Several of these entities stated that the potential misuse of data was not a valid reason for not separately releasing data. In addition, the majority of the organizations we contacted partnered with the Bureau anticipating that they would be able to use the Service-Based Enumeration data to evaluate whether improvements were made in enumerating local populations without conventional housing in 2000 compared to 1990. The Assistant City Attorney of Los Angeles estimated that Los Angeles spent about $300,000 on the effort to improve the count of Los Angeles's people without conventional housing. For example, as part of an extensive effort to help the Bureau develop a list of targeted nonsheltered outdoor locations, the city provided senior Bureau staff with a helicopter tour over some outdoor locations where people without conventional housing lived. The Assistant City Attorney of Los Angeles stated that she believed the city would get the targeted nonsheltered outdoor locations data that they helped collect and wanted to review. In addition, because of the Bureau's focus on counting people at shelters, the city kept shelters open on the night of the enumeration at its own expense even though shelters in Los Angeles typically do not have many people during warm weather. Los Angeles expected to have detailed data to use to evaluate the effectiveness of its resource allocation. However, the National Coalition for the Homeless and other advocates of the homeless opposed the separate release of any of the Service-Based Enumeration data. They were concerned that these data could be misused as a count of the homeless population and lead to flawed decision-making by policymakers. Ultimately, the Bureau left a number of data users unsatisfied. Those who wanted the Service-Based Enumeration categories released separately did not feel the Bureau met their expectations with the data released in SF-1 or with the release of the October report. Users who opposed the separate release of the data and were pleased that SF-1 combined the Service-Based Enumeration components with other data were displeased that the October 2001 report was released. The difficulties the Bureau experienced trying to reconcile the competing needs and interests of data users illustrates the importance of effective communication between the Bureau and its key data users and partners to ensure no expectation gaps develop. More than just a good business practice, federal internal control standards require agencies to have effective external communications with groups that can have a serious impact on programs, projects, operations, and other activities. However, our conversations with several Bureau partners and our review of Bureau documents suggest that communications were sometimes vague and insufficient. For example, although the April 1999 memorandum that outlined the Bureau's initial data dissemination plans was written a year before the 2000 Census, this information may not have been effectively communicated to the Bureau's partners. Indeed, at a Capitol Hill briefing on this topic in June 2001, Bureau officials themselves acknowledged that they did not do a good job of communicating on this issue. Some of the partners we spoke to indicated that had they known earlier about the Bureau's plans to limit the release of Service-Based Enumeration data they might have focused their resources on different census operations. Further, our review of Bureau documents indicated that the information on the "official plan" for the release of the different Service-Based Enumeration categories of data was limited and inconsistent. Some partners stated that they did not know that the Bureau never intended to report the targeted nonsheltered outdoor location data. Although the Bureau made numerous presentations on Service-Based Enumeration that emphasized there would be no count of the homeless, the Bureau provided little detail on how components of Service-Based Enumeration would actually be presented. In the absence of clear communication from the Bureau, partners developed their own expectations of what would be released. Several of the local officials and advocates that we spoke to expected that the data would be released in the same detail as it was in 1990, because they were not told otherwise. For example, a Los Angeles government official said that the Bureau stated it would not provide a homeless count in 1990, but it still released the street count data separately. By focusing resources on counting specific categories of the population, the Bureau may have created expectations that there would be a count of that population. A cause of the Bureau's shifting position on reporting the components of Service-Based Enumeration appears to be its lack of documented, clear, transparent, and consistently applied guidelines governing the release of data from the 2000 Census. Except for some guidance aimed at protecting the confidentiality of census records, the Bureau had few written guidelines on the level of quality needed to release data to the public. Had these guidelines been in place during the decennial census, they could have informed the Bureau's decision on whether to release the Service-Based Enumeration data, how to characterize these data, and help defend the decision after it was made. Such guidelines could also provide a basis ahead of time for expectations about the conditions under which data will or will not be released. Although Bureau officials emphasized that the Bureau has a long tradition of high standards and procedures that yield quality data (to its credit, the Bureau's quality assurance practices identified the problem with the multiplicity estimator), the officials acknowledged that these standards were primarily part of the agency's institutional knowledge. The written guidance that did exist appeared to be vague and insufficient for making consistent decisions on the quality thresholds needed for releasing data to the public, and the circumstances under which it might be appropriate to suppress certain data. According to the Bureau's Associate Director for Methodology and Standards, a technical paper issued in 1974 and revised in 1987 contained the Bureau's only written guidelines for discussion and presentation of errors in data. This paper noted that, "stimates for individual cells of a published table should not be suppressed solely because they are subject to large sampling errors or large nonsampling variances, provided users are given adequate caution of the lack of reliability of the data. On the other hand, data known to have very serious bias may be suppressed." In 2000, the Bureau initiated a new quality assurance program to document Bureau-wide protocols designed to ensure the quality of data collected and disseminated by the Bureau. The Bureau's Methodology and Standards Council is charged with setting statistical and survey quality standards and guidelines for Bureau surveys and censuses. In support of this role, the council has established a quality framework in which the demographic, economic, and decennial areas can share and support common principles, standards, and guidelines. The quality framework covers eight unique areas, one of which is dissemination. Because this Bureau program is in its initial stages, we could not evaluate it. However, Bureau officials believe that the program is a significant first step in addressing the lack of agencywide written guidelines for releasing data. The initiative appears to be consistent with Office of Management and Budget guidelines issued in February 2002 requiring federal agencies to issue their own guidance for ensuring and maximizing the quality, objectivity, utility, and integrity of information disseminated by the agency. As the Bureau develops its guidelines, it will be important that they be well documented, transparent, clearly defined, and consistently applied. Although Service-Based Enumeration was designed to address the challenges the Bureau encountered during the 1990 Census in obtaining a complete count of people without conventional housing, the Bureau's experience during the 2000 Census suggests that tallying this population group remains problematic. Moreover, the Bureau's difficulties were compounded by its shifting position on how to report the data once they were collected. A number of government, community, and advocacy organizations helped the Bureau enumerate this population group. However, the Bureau, by first planning to release the data one way, then changing the decision, and ultimately releasing the data anyway--all for reasons that were not clearly articulated to the Bureau's stakeholders-- raised questions about the Bureau's decision-making on data quality issues. As noted at the beginning of this report, related questions have also been raised about how the Bureau collected and reported data on Hispanic subgroups. To the extent similar incidents occur in the future, they could undermine public confidence in the accuracy and credibility of Bureau data. Thus, as the Bureau plans for the 2010 Census, it will be important for it to refine its methods for enumerating people living in unconventional housing and reporting the resulting data, in part by properly testing and evaluating those methods. As noted earlier, the Bureau could not properly test a key statistical technique during the census dress rehearsal because the sample size was too small. Moreover, while addressing the competing needs and desires of data users will likely remain a considerable challenge, it will be important for the Bureau to more effectively articulate its plans to avoid the expectation gaps that occurred during 2000. The Bureau's plans for collecting data on persons without conventional housing need to specify how the Bureau plans to separately report these data. Bureau-wide guidelines on the level of quality needed to release data to the public, on how and when to document data limitations, and on the circumstances under which it is acceptable to suppress data, could help the Bureau be more accountable and consistent in its dealings with data users and stakeholders, and help ensure that the Bureau's decisions both are, and appear to be, totally objective. To ensure that the 2010 Census will provide public data users with more complete, accurate, and useful information on the segment of the population without conventional housing, we recommend that the Secretary of Commerce direct the Director of the Bureau of the Census to do the following. 1. Ensure that all procedures for enumerating and estimating segments of the population without conventional housing are properly tested and evaluated under conditions as similar to the census as possible. 2. Develop agencywide guidelines for Bureau decisions on the level of quality needed to release data to the public, how to characterize any limitations in the data, and when it is acceptable to suppress the data for reasons other than protecting the confidentiality of respondents. Ensure that these guidelines are documented, transparent, clearly defined, and consistently applied. 3. Ensure that the Bureau's plans for releasing data are clearly and consistently communicated with the public. The Secretary of Commerce forwarded written comments from the Bureau of the Census on a draft of this report (see app. I). The Bureau agreed with each of our recommendations and, as indicated in the letter, is taking steps to implement them. However, it expressed several general concerns about our findings. The Bureau's principal concerns and our response are presented below. The Bureau also suggested minor wording changes to provide additional context and clarification. We accepted the Bureau's suggestions and made changes to the text as appropriate. The Bureau took exception to our findings concerning the adequacy of its data quality guidelines, noting that the Bureau's decisions regarding the release and characterization of emergency and transitional shelter data were based on established guidelines for data quality. However, the Bureau did not cite any written guidelines to support its position. As noted in our report, Bureau officials, including the Associate Director for Methodology and Standards, told us that the Bureau had few written guidelines, standards, or procedures related to the quality of data released to the public. In this report we acknowledge the Bureau's tradition of high standards and procedures that yield quality data. However, according to the Bureau, these standards are generally undocumented and part of the agency's institutional knowledge. To provide a basis for consistent decision-making and clear communication within the Bureau and to the public, guidelines on the quality of data released to the public must be fully documented, transparent, clearly defined, and consistently applied. Additionally, the Bureau said that when data do not meet an acceptable level of quality, it considers various options for modifying its dissemination plans. The Bureau's decision to delay the release of the emergency and transitional shelter data may have been entirely appropriate. Our concern is not that the Bureau changed its plans, but that it could not provide us its guidelines for determining an acceptable level of quality or clearly indicate how it determined that the data did not meet minimal quality standards for release in SF-1. The Bureau also commented that its decisions regarding the distribution of data from SF-1 were well publicized and that the only change in Bureau plans for the release of Service-Based Enumeration data was the decision to delay release of the emergency and transitional shelter data. This report focused on the changing plans for the release of the emergency and transitional shelter data and noted that the Bureau never intended to release any other data from the Service-Based Enumeration. However, we found that the Bureau did not effectively communicate its decisions with its partners or the public. Decisions on the release of the emergency and transitional shelter data were contained in internal decision memoranda. We found that these decisions were not always reflected in new releases of the SF-1 documentation. Although Bureau officials told us that they always intended to produce a separate report on emergency and transitional shelter data, they did not make this intention public when the SF-1 data were released. Some stakeholders did not realize that the Bureau was not releasing emergency and transitional shelter data with SF-1 until they examined the SF-1 data. As we stated in our report, these communication problems can undermine stakeholder and public confidence in the Bureau and its products. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from its issue date. At that time, we will send copies of this report to the Chairman of the House Committee on Government Reform, the Chairman of the Subcommittee on Civil Service, Census and Agency Organization, the Secretary of Commerce, and the Director of the Bureau of the Census. Copies will be made available to others on request. This report will also be available at no charge on GAO's home page at http://www.gao.gov. Please contact me on (202) 512-6806 or by e-mail at [email protected] if you have any questions. Other key contributors to this report were Robert Goldenkoff, Timothy Wexler, Elizabeth Powell, Chris Miller, James Whitcomb, Ty Mitchell, Robert Parker, and Michael Volpe. 2000 Census: Refinements to Full Count Review Program Could Improve Future Data Quality. GAO-02-562. Washington, D.C.: July 3, 2002. 2000 Census: Coverage Evaluation Matching Implemented As Planned, but Census Bureau Should Evaluate Lessons Learned. GAO-02-297. Washington, D.C.: March 14, 2002. 2000 Census: Best Practices and Lessons Learned for a More Cost- Effective Nonresponse Follow-Up. GAO-02-196. Washington, D.C.: February 11, 2002. 2000 Census: Coverage Evaluation Interviewing Overcame Challenges, but Further Research Needed. GAO-02-26. Washington, D.C.: December 31, 2001. 2000 Census: Analysis of Fiscal Year 2000 Budget and Internal Control Weaknesses at the U.S. Census Bureau. GAO-02-30. Washington, D.C.: December 28, 2001. 2000 Census: Significant Increase in Cost Per Housing Unit Compared to 1990 Census. GAO-02-31. Washington, D.C.: December 11, 2001. 2000 Census: Better Productivity Data Needed for Future Planning and Budgeting. GAO-02-4. Washington, D.C.: October 4, 2001. 2000 Census: Review of Partnership Program Highlights Best Practices for Future Operations. GAO-01-579. Washington, D.C.: August 20, 2001. Decennial Censuses: Historical Data on Enumerator Productivity Are Limited. GAO-01-208R. Washington, D.C.: January 5, 2001. 2000 Census: Information on Short- and Long-Form Response Rates. GAO/GGD-00-127R. Washington, D.C.: June 7, 2000. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO's Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as "Today's Reports," on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select "Subscribe to GAO Mailing Lists" under "Order GAO Products" heading.
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The Bureau of the Census partnered with local governments, advocacy groups, and other organizations to help it enumerate people without conventional housing. Counting this population--which includes shelter residents and the homeless--has been a longstanding challenge for the Bureau. A number of organizations put substantial resources into an operation the Bureau called Service-Based Enumeration. In return, some expected the Bureau to provide data that would help them plan and deliver employment, health, and other services. However, the Bureau did not release the data as planned, which raised questions about the Bureau's decision-making on data quality issues. In response to a congressional request, GAO examined the Bureau's decision-making process behind its change in plans. The Bureau's original plan for releasing Service-Based Enumeration data was outlined in an April 1999 internal memorandum that called for the separate release of data on people counted at "emergency and transitional shelters." The Bureau planned to combine other components of Service-Based Enumeration, including people counted at soup kitchens, regularly scheduled mobile food vans, and certain outdoor locations, into a single category. Driving the Bureau's decision was its experience during the 1990 Census when it released separate counts of people found at shelters, on the street, and similar locations that proved to be incomplete. The Bureau also tried to ensure that the Service-Based Enumeration figures could not be used as a "homeless" count, because it was not designed to provide a specific count of the homeless. Instead, the operation was part of a larger effort to count people without conventional housing. In January 2001, the Bureau changed its earlier decision because a statistical procedure used to refine the emergency and transitional shelter data proved to be unreliable, which lowered the quality of the data. In response, the Bureau combined the shelter data with a category called "other non-institutional group quarters," a category that also includes data on people enumerated in several other group locations such as facilities for victims of natural disasters. In the fall of 2001, the Bureau produced a heavily qualified special report on the shelter data. A key cause of the Bureau's shifting position on reporting these data appears to be its lack of well documented, transparent, clearly defined, and consistently applied guidelines on the minimum quality necessary for releasing data. Had these guidelines been in place at the time of the census, the Bureau could have been better positioned to make an objective decision on releasing these figures. Additionally, the Bureau could have used the guidance to explain to data users the reasons for the decision, eliminating any appearance of censorship and arbitrariness. Because the Bureau did not always adequately communicate its plans for releasing the data, expectation gaps developed between the Bureau and entities that helped with Service-Based Enumeration.
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The Federal Acquisition Regulation is the primary regulation for use by all federal agencies in acquiring supplies and services. Sections 46 and 52, which discuss and set forth quality assurance and contract clauses, respectively, provide guidance in determining quality assurance responsibilities. According to the Federal Acquisition Regulation, government contract quality assurance is defined as the various functions, including inspections, performed by the government to determine whether a contractor has fulfilled the contract obligations pertaining to quality and quantity. These inspections can either be conducted at the contractor's place of manufacture and production (source) or at the receiving location for the parts (destination). DCMA is DOD's primary organization for performing quality assurance oversight for contracts and this oversight responsibility typically only covers prime contractors. DCMA's execution of its quality assurance responsibility is primarily through its source inspection program. Source inspections are defined as inspections at the point where goods are manufactured or assembled. There are three types of source inspections: physical inspection; contractor process reviews; and kind, count, and condition. Physical inspection involves inspecting parts by comparing the parts to a specification, drawing, or other instruction. Contractor process reviews are inspections of processes and procedures for establishing confidence that the procured parts will produce a desired outcome. Inspections involving kind, count, and condition are inspections intended to visually identify and verify the quantity and exterior appearance of a part to determine if it visually meets contract specifications. During fiscal year 2003, DCMA was responsible for government source inspection for approximately 273,000 contracts. The Federal Acquisition Regulation requires that contracts include inspection and other quality requirements that will protect the interest of the government. It also provides guidance in establishing which clauses to include in the various types of contracts. The clauses included in each contract dictate the type and level of quality assurance oversight to be performed. DCMA quality assurance specialists are expected to follow the inspection and acceptance provisions in each contract in determining whether they are required to perform quality assurance oversight. If the contract states that inspection and acceptance will be at destination, then DCMA does not perform any quality assurance oversight. End users within military units, such as Army battalions and Air Force squadrons, perform inspection and acceptance for these contracts. Questions have been raised about the efficiency of DCMA's quality assurance oversight program. In October 2003, the DOD Inspector General reported that of the 518 contracts requiring DCMA source inspection that they reviewed, at least 172 of the inspections provided either nominal or no value to the DOD quality assurance process. The DOD Inspector General also pointed out concerns in the DOD quality assurance program, including (1) ambiguity in the level and extent of requested source inspections; (2) inconsistent and unclear application of items defined as critical or having a critical application; (3) inconsistent implementation of inspection procedures for items considered commercial, off-the-shelf; and (4) arbitrary and inconsistent inspection procedures for items purchased from distributors. In our review of 15 contracts awarded to 11 contractors, DCMA provided quality assurance oversight and enforcement over these spare parts prime contractors. DCMA used three types of inspections to perform quality assurance oversight over the contractors. DCMA adhered to the Federal Acquisition Regulation, contract quality requirements, and DCMA guidance in providing quality assurance oversight over these prime contractors. Federal Acquisition Regulation clauses included in the contracts guide whether or not DCMA would perform quality assurance oversight. DCMA provides oversight for those contracts requiring inspection at the place of manufacture of the parts. Enforcement of spare parts quality and safety during the production process was achieved through the issuance of corrective action requests. DCMA quality assurance specialists followed established policies, procedures, and guidance in performing their oversight over the spare parts prime contractors in our review. As shown in table 1, the quality assurance specialists performed one or a combination of three types of inspections over prime contractors. The three types of inspections include: physical inspection to measure the dimensions of parts or to test the parts; process reviews; or an observation of the kind, count, and condition of the parts. At 7 of the 11 contractor locations , DCMA quality assurance specialists performed both process reviews and physical inspections. For physical inspection of spare parts, the quality assurance specialist selects a sample of the parts from various production runs and inspects them by comparing the parts to a specification, drawing, or other instruction. For example, at one location, the prime contractor had procured the part from a subcontractor and required the subcontractor to provide test data related to the part. The quality assurance specialist reviewed the test data and compared it to the part specifications. Also, the quality assurance specialist inspected the number imprinted on the parts, exterior painting, and workmanship of the received parts to ensure they complied with contract specifications. The second type of inspection involves evaluating the prime contractors' processes to determine compliance with established contract requirements and production procedures. During these inspections the quality assurance specialist assesses the prime contractor's processes and production line procedures in relation to established industry practices and provides the contractor an early opportunity to make corrections or improvements, if necessary. For example, at one prime contractor location, the quality assurance specialist monitored the prime contractor's key processes during the production, including the cleaning, painting, welding, and final quality inspection of the product. To help ensure a comprehensive quality assurance check, the quality assurance specialist performed his daily quality checks at different phases of the production process. Also, the quality assurance specialist reviewed the prime contractor's procedures for selecting its subcontractors to determine if the subcontractors were certified in accordance with the applicable industry standards. The third type of inspection consists of observing the kind, count, and condition of the parts. Observation of the kind of part includes visual identification of at least one part for each different part being procured under the contract and verifying the part number against the number required in the contract. Counting the parts involves visual confirmation of the contents of one package per line item and counting the number of packages received. The quality assurance specialists verify the physical appearance of the parts to assess their condition. For example, at one location, the quality assurance specialist performed a kind, count, and condition inspection to confirm that the contractor had the correct part by verifying the part number, checking to ensure the contractor had the proper quantity of parts, and inspecting the outward appearance of the parts. DCMA's quality assurance oversight over the 11 spare parts prime contractors in our review was in accordance with the Federal Acquisition Regulation, contract quality requirements, and DCMA's One Book guidance. Each contract we reviewed designated the location of inspection and acceptance by contract line item. Contracts that were designated for inspection and acceptance at the contractor's place of manufacture and production received DCMA quality assurance oversight. When contracts are designated for inspection and acceptance at the receiving location for the parts, the end user is responsible for inspecting the procured part and the DCMA quality assurance specialist typically does not get involved with the contract. Of the 15 contracts we reviewed, DCMA provided quality assurance oversight for the 13 contracts that were designated for inspection and acceptance at source. The other two contracts were designated for inspection and acceptance at destination and did not require DCMA quality assurance oversight. In accordance with the One Book guidance, quality assurance specialists performed inspections and acceptance for its customers to ensure supplies were in compliance with contract requirements. According to a DCMA official, this guidance allows DCMA quality assurance specialists flexibility in providing quality assurance oversight over prime contractors. For example, the guidance does not include standard requirements for the number of tests, site visits, or inspections that the DCMA quality assurance specialists should perform while providing quality assurance oversight. When contracts were designated for inspection and acceptance at source, quality assurance specialists typically reviewed contract requirements, assessed the contractor's risks of producing nonconforming parts, determined what needed to be done to mitigate the risks, and applied quality assurance oversight, including inspections, based on the contractor's risk level. During the production process, when a prime contractor's processes or spare parts did not meet contract requirements, DCMA used an enforcement system that involved issuing requests for corrective action by the prime contractor. According to the Federal Acquisition Regulation, contractors must be given an opportunity to correct or replace nonconforming supplies. Contractors are notified about nonconformance through corrective action requests issued by DCMA or product quality deficiency reports issued by the end user. When there is contractual nonconformance during the production process, DCMA may issue the prime contractor a corrective action request to formally communicate the deficiency and request corrective action on the part of the prime contractor. When the prime contractor does not take corrective actions, contractual remedies available to procuring contracting officers include suspension of progress payments, termination for default, and penalties such as suspension or debarment from holding contracts with the government. Only 2 of the 11 prime contractors that we reviewed received corrective action requests related to the contracts in our review. According to DCMA officials, the remaining contractors did not warrant corrective action requests related to the contracts we reviewed. Our review of DCMA files related to these contractors also did not identify any need for corrective actions by the prime contractors. Corrective actions identified by the two contractors involved the prime contractor making corrections or changes to its production processes and demonstrating how processes would be improved to prevent further instances of nonconformance. For example, DCMA issued a corrective action request to a prime contractor identifying loose insulation, an inactive gear, poor painting quality, and parts that did not meet surface finish specification requirements as nonconforming items. The prime contractor corrected the nonconformance and DCMA accepted the product. To prevent reoccurrence of the deficiencies, the prime contractor reported that it had taken the following actions: (1) discontinued the use of material that caused the loose insulation, (2) instructed operators to ensure that gears were properly adjusted, (3) arranged a meeting with all contractor paint personnel advising them on the importance of attention to detail, and (4) agreed to provide their quality assurance representatives with acceptable and unacceptable finish samples as visual standards to meet customer expectations. For the other prime contractor, DCMA issued a corrective action request because the contractor used the wrong procedure to receive approval for a major waiver from contract requirements. The request for major waiver was supposed to go through an array of signatures and DCMA approvals, whereas a minor waiver could be submitted and approved electronically, requiring fewer signatures and approvals. However, the prime contractor downgraded the waiver request from major to minor without the appropriate concurrence and approval of DCMA and submitted the request through the electronic system. According to the prime contractor, their personnel had conflicting procedures describing how to process waivers. To prevent reoccurrence of incorrect processing of major waivers, the contractor planned to review its current procedures for processing waivers. Also, the contractor planned to train its quality assurance staff to ensure they understand the correct procedures for processing waivers. The prime contractors in our review adhered to industry standards in providing quality assurance oversight over their subcontractors' work. Based on industry standards, prime contractors performed at least two or up to four methods to provide quality assurance oversight over their subcontractors, as shown in table 2. The primary methods of oversight used were evaluating subcontractors for placement on an Approved Supplier List and requiring certifications of parts and processes. Industry standards, such as the International Organization for Standardization 9001 and Aerospace Standards 9100, require that an organization have a quality management system in place to ensure that it will produce high quality products that will serve their intended purpose. The standards are broad and are intended to be applicable to all organizations, regardless of type, size, and product provided. All of the prime contractors that we reviewed evaluated potential subcontractors prior to the contract award for placement on their Approved Supplier List. The purpose of establishing an Approved Supplier List is to identify qualified subcontractors capable of producing needed parts or processes in accordance with industry standards and contractual specifications. When evaluating a potential subcontractor for inclusion on their Approved Supplier List, some prime contractors periodically visited their subcontractors' production facilities, requested that subcontractors complete surveys containing questions regarding the subcontractors' capabilities and qualifications necessary to produce parts and processes, or examined information about the technical skills and qualifications of subcontractor personnel, past performance for producing similar products, and applicable certifications related to the subcontractors' operations. Six of the 11 prime contractors said they periodically visited potential subcontractors prior to contract award. All of the prime contractors that we reviewed required certifications such as independent, third-party certifications or certificates of conformance from their subcontractors to certify that their parts and processes are in accordance with contract requirements and industry standards. Independent, third-party certifications and certificates of conformance served as verification that the subcontractors could produce parts and processes that conformed to contractual specifications. Prime contractors required certifications from their subcontractors for different phases of the production process. For example, one contractor used steel to fabricate parts and required a certification from the steel subcontractor that the steel had been produced according to specifications. In this instance, the prime contractor did not use the steel provided by the subcontractor until they received the certificate of conformance verifying that the product was in accordance with industry standards and contractual requirements. Eight of the 11 prime contractors we reviewed periodically tested parts or processes produced by their subcontractors. Prime contractors tested the subcontractors' parts or processes at either the manufacturing site or the receiving point to determine whether products or processes met contractual specifications. For example, one prime contractor performed mechanical and electrical tests on all materials received from subcontractors to ensure that the materials met contract specifications. If the materials did not meet contract specifications, the prime contractor's review board, which included the government quality assurance specialist, made a determination concerning the disposition of the materials. Disposition options included using the material "as is" or scrapping it. Seven of the prime contractors that we reviewed tracked and monitored the performance of their subcontractors by establishing performance goals, assessing and rating the subcontractors' performance, or recommending corrective and preventive actions when subcontractors produced nonconforming parts. The seven prime contractors established performance goals and rated their subcontractors on a routine and periodic basis using various performance metrics, such as product quality and on-time deliveries. For example, one contractor kept track of the number of nonconforming parts provided by each subcontractor in relation to the total number of parts provided. When a subcontractor's nonconformance rate exceeded the prime contractor's acceptable goal, the prime contractor placed the subcontractor on probation. In our review of the 15 contracts, DCMA held prime contractors accountable for overseeing their subcontractors' work by requiring that prime contractors adhered to contract clauses concerning oversight responsibility. When instances of nonconformance were reported through product quality deficiency reports, the DCMA quality assurance personnel and the prime contractor determined if the deficiency was due to contractor nonconformance and assigned responsibility for corrective action. For the 15 contracts we reviewed, one deficiency was determined to be the responsibility of the prime contractor and DCMA held the prime contractor accountable for the part. During our review, service officials provided us with examples of other contracts in which nonconforming parts reached end users. DCMA followed its procedures for evaluating the causes of these nonconforming parts. The reasons for the nonconformance varied for each part. Most of the 15 contracts we reviewed included Federal Acquisition Regulation clause 52.246-2, Inspection of Supplies--Fixed Price, which states that the prime contractor shall tender to the government for acceptance only supplies that have been inspected in accordance with the inspection system and found by the contractor to be in conformity with contract requirements. This contract clause also states that the contractor is not relieved of its oversight responsibility when government quality assurance over subcontractors is required. The remaining contracts included other quality clauses or did not specify quality requirements because the contractors had quality systems that had been previously approved by the procuring contracting officers. DCMA also performed reviews of subcontractors' certifications to the prime contractor that the parts and processes produced by the subcontractor were manufactured in accordance with the contract requirements. DCMA quality assurance specialists periodically reviewed third-party certifications and contractors' documents related to site visits, receiving inspections, and other oversight of subcontractors. These reviews provided a technique for DCMA to determine whether the contractors' quality assurance systems were adequate for oversight of subcontractors. For example, at one contractor location, the quality assurance specialist obtained copies of certifications that steel was produced and heat-treated in accordance with standards. The specialist also reviewed copies of test records maintained by the contractor during the production process. After parts are provided to end users within military units, such as Army battalions and Air Force squadrons, instances of nonconforming parts are reported through product quality deficiency reports. End users issue product quality deficiency reports to identify deficiencies in parts that may indicate nonconformance with contractual or specification requirements. When the end user identifies a nonconforming product, the user issues a product quality deficiency report that is sent to the applicable DCMA contract management office and distributed to the quality assurance specialist responsible for overseeing the contractor that produced the item. The quality assurance specialist notifies the contractor of the report. The contractor may request that the part be returned to its facility for testing to determine whether the problem that has been identified by the user can be duplicated. The DCMA quality assurance specialist and the prime contractor also determine if the deficiency was due to contractor nonconformance with contract requirements and assign responsibility for corrective action. DCMA writes the final disposition of the product quality deficiency report based on the results of the tests completed by the contractor and the assessment of who was responsible for the deficiency. In those cases where the deficiency was determined to be the responsibility of the prime contractor, DCMA held the prime contractor accountable for the part. If the cause of the deficiency was tied back to a subcontractor, DCMA held the prime contractor responsible for correcting the deficiency and ensuring that the subcontractor's processes were modified to correct the cause of the nonconformance. During our review, service officials provided examples of other contracts in which nonconforming parts reached end users for various reasons. DCMA and prime contractors followed their procedures in evaluating causes for the nonconformance. For example, in March 2004 one prime contractor was notified that five wiring harnesses, manufactured by one of their approved subcontractors, were defective. Investigations showed that the prime contractor's quality oversight system did not detect the problem because its personnel were unfamiliar with drawings, specifications, or electrical wiring harness fabrications. After the problem was identified, the prime contractor provided training related to drawings and proper manufacturing processes to its quality assurance personnel as well as subcontractor personnel. However, according to the prime contractor, the subcontractor still could not produce the wiring harnesses correctly. As a result, the prime contractor selected another subcontractor to manufacture the wiring harnesses. In another case, the contract was for a survival kit that included critical safety items. The nonconformance related to an O-ring lubricant that was allowing oxygen pressure to be released prematurely. Based on the deficiency report, the contractor began using another lubricant for the O-ring that eliminated the problem. For this contract, DCMA recommended that government source inspection be added at the subcontractor level because no prior government source inspection was required. Yet in another example, an axle component manufactured by a subcontractor broke on an aircraft landing gear because the dimensions of the axle component were incorrect. Incorrect dimensions resulted from the subcontractor's improper grinding process; yet, the subcontractor never reported the discrepancies to the prime contractor. Since the incident, the prime contractor has placed the subcontractor on probation within the prime contractor's quality approval system. The subcontractor will remain on probation until an audit is performed by the end users of the axle to verify that all corrective actions are in effect. DCMA and the prime contractors we reviewed utilized a number of processes to provide quality assurance oversight over the production of spare parts for the military. The processes included conducting physical inspections of parts produced by contractors, reviewing prime contractor's processes, evaluating potential subcontractors for placement on an Approved Supplier List, requiring certifications of parts and processes, testing parts and processes, and tracking and monitoring subcontractor's performance. These processes are founded upon contractual requirements, DCMA policies, and industry standards for quality assurance. In addition, there are enforcement procedures that DCMA uses when nonconforming spare parts reach end users. However, despite these quality assurance controls, some risk still exists. For example, while we did not identify any major deficiencies from the contracts and practices we reviewed, service officials provided examples of nonconforming parts related to contracts not included in our review that reached end users for various reasons. Furthermore, given the vast number of contracts and contractors involved in providing spare parts to the government, we recognize that the risk of nonconforming spare parts reaching end users exists. Compliance by contractors, DCMA, and other DOD agencies with established internal controls helps mitigate against this risk. In written comments on a draft of this report, DOD provided one technical comment, which we incorporated as appropriate. DOD did not provide any additional comments. DOD's written comments are reprinted in their entirety in appendix III. We are sending copies of this report to the Secretary of Defense; the Secretaries of the Army, the Navy, and the Air Force; the Director of the Defense Contract Management Agency; the Director of the Defense Logistics Agency; 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. Please contact me at (202) 512-8365 if you or your staffs have any questions concerning this report. Major contributors to this report are included in appendix IV. To address our objectives, we judgmentally selected for review 11 contracts awarded to 11 prime contractors. During the course of our review, Defense Contract Management Agency (DCMA) and the prime contractors provided four additional contracts awarded to some of these same contractors that had nonconforming parts that reached end users, bringing the total number of contracts we reviewed to 15. Given the small number of contracts we reviewed, our results cannot be used to make inferences about the entire population of contracts requiring government quality assurance. We included the following kinds of contracts as candidates for our study: contracts, purchase orders, basic ordering agreements, delivery orders against existing contracts, and contract modifications for existing contracts. We included contracts that were large and small dollar value, from DCMA's East and West regions, and from the Army, Navy, Air Force, and the Defense Logistics Agency (DLA). Eleven of these contracts were judgmentally selected: three from information provided by the Navy and Air Force on nonconforming parts and 8 from DCMA. To select the eight contracts, we obtained a query from DCMA's Mechanization of Contract Administration Services system of contracts for October 1, 1999, through September 30, 2003. Because of the large number of contracts in the database and because we wished to examine recent contract quality assurance oversight practices, we sorted the query to only identify contracts for fiscal year 2003. From this query, we sorted the contracts into four groups according to whether they were associated with the Army, the Navy, the Air Force, or the Defense Logistics Agency. We randomly sampled contracts from each of these four groups. Then, we judgmentally selected a subset of contracts from our random samples in such a way to obtain a set of eight contracts that spanned the various military commands and DCMA's East and West regions. The breakout of the eight contracts included three Army, two Air Force, two Navy, and one Defense Logistics Agency. To assess the reliability of data from DCMA's Mechanization of Contract Administration Services system we (1) performed electronic testing of required data elements, (2) reviewed existing information about the data and the system, and (3) interviewed agency officials knowledgeable about the data. We determined DCMA's Mechanization of Contract Administration Services system data to be reliable for the purposes of our review. To assess whether DCMA provided quality assurance oversight and enforcement over its spare parts prime contractors in accordance with established policies, procedures, and guidance, we compared contract quality assurance provisions and requirements to oversight actions performed by DCMA for the 15 contracts. Specifically, we reviewed the Federal Acquisition Regulation, the DCMA One Book, and the contracts to determine quality assurance oversight responsibilities and enforcement actions available to assure contractor compliance. We compared these policies, procedures, and contract requirements to the three types of inspections performed by DCMA quality assurance specialists to assess if DCMA provided appropriate oversight. For each of the contracts, we met with officials at the DCMA contract management offices identified on the contracts to determine quality assurance oversight actions performed by DCMA personnel. As part of this assessment, we determined which of the three types of inspections were performed for each contractor. We sent letters to officials at the DOD contracting offices to obtain and review documentation related to the pre-award process, quality assurance requirements, and the contracting officers' interaction with DCMA prior to contract award. In assessing whether DCMA used enforcement actions, we reviewed the product quality deficiency reports included in our review to determine if DCMA levied enforcement actions against the prime contractor when necessary. We also reviewed prior DOD and GAO reports related to DCMA's execution of its quality assurance oversight over prime contractors and DOD's implementation of its deficiency reporting system. To assess whether prime contractors provided quality assurance oversight over their subcontractors' work related to producing spare parts and followed industry standards and contract requirements, we identified prime contractor quality assurance oversight actions performed over subcontractors. We reviewed Aerospace Standard 9100 and prime contractor quality manuals to determine requirements for establishing contractor quality management systems and ensuring that their subcontractors are providing quality parts. We visited and interviewed representatives at the prime contractor locations as shown in appendix II, and determined whether the prime contractors used subcontractors. For those that used subcontractors, we identified the level of quality assurance oversight performed by these prime contractors over the subcontractors. We discussed whether the prime contractors performed supplier ratings of their subcontractors, tested parts or processes provided by their subcontractors, or conducted site visits at their subcontractors' facilities. At the prime contractor facilities, we observed the prime contractors' processes for manufacturing or repairing parts to determine the quality assurance performed by the prime contractor throughout the production process. To assess how DCMA held prime contractors accountable for the work of their subcontractors, we reviewed the 15 contracts to determine if the contracts included clauses holding the prime contractor responsible for the spare parts provided to the government and whether instances of nonconformance had occurred. For the reported instances of nonconformance, we looked at whether DCMA held the prime contractor responsible for correcting the nonconformance and what types of actions were performed by DCMA. We also reviewed the Federal Acquisition Regulation to determine contract clauses that require the prime contractor to ensure that parts furnished to the government conform to contract requirements. We reviewed the contracts to determine if they included clauses that the prime contractor was responsible for the spare parts being provided. We also visited or obtained information from representatives at the following organizations: U.S. Air Force, Office of the Assistant Secretary, Contracting Operations Division, Rosslyn, Va.; U.S. Air Force Materiel Command, Wright Patterson Air Force Base, Ohio; U.S. Army Materiel Command Headquarters, Fort Belvoir, Va.; U.S. Army, Aviation and Missile Command, Redstone Arsenal, U.S. Army, Communications Electronics Command, Fort Monmouth, NJ; U.S. Army, Research Development and Engineering Command, Armament Research, Development and Engineering Center, Rock Island, Ill.; U.S. Army, Research Development and Engineering Command, Edgewood Chemical Biological Center, Rock Island, Ill.; U.S. Army, Secretary of the Army for Acquisition, Logistics, and Technology, Arlington, Va.; U.S. Army, Tank Automotive and Armaments Command, Warren, Mich.; U.S. Navy, Naval Air Systems Command, Patuxent River Naval Air Station, Patuxent River, Md.; U.S. Navy, Office of the Assistant Secretary, Research, Development, and Acquisition, Washington, D.C.; U.S. Defense Logistics Agency Headquarters, Fort Belvoir, Va.; U.S. Defense Contract Management Agency Headquarters, Alexandria, Va.; Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, Alexandria, Va.; and Aerospace Industries Association, Arlington, Va. We performed our review from November 2003 through October 2004 in accordance with generally accepted government auditing standards. In addition to the individual named above, Connie W. Sawyer, Jr.; Tracy Whitaker; Leslie West; Renee McElveen; Minette Richardson; Kenneth Patton; Sidney Schwartz; and Douglas Cole made key contributions to this report. The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. 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In the 2004 Defense Appropriations Act, Congress mandated that GAO examine and report on the oversight of prime contractors by the Department of Defense (DOD) and the oversight of subcontractors by the prime contractors. Contract quality assurance oversight is intended to assess whether contractors are capable of and are providing supplies or services that meet contract quality and technical requirements. Providing effective oversight is challenging. DCMA recognizes that the risk of nonconforming parts reaching end users exists, given the diversity of contracts, parts, and products used to meet weapon systems requirements and uses a risk management process to guide its efforts. For fiscal year 2003, government quality assurance oversight was required for approximately 273,000 contracts. GAO determined (1) whether DOD provided quality assurance oversight and enforcement over its spare parts prime contractors, (2) if prime contractors provided quality assurance oversight over their subcontractors, and (3) how DOD held prime contractors accountable for overseeing the subcontractors' work. To address these objectives, GAO judgmentally selected and reviewed 15 contracts awarded to 11 prime contractors by the services and the Defense Logistics Agency. In commenting on a draft of this report, DOD provided one technical comment, which GAO incorporated as appropriate. GAO's review of the 15 contracts showed that quality assurance personnel within the Defense Contract Management Agency (DCMA)--DOD's primary organization for providing quality assurance oversight--generally followed established policies, guidance, regulations, and contract requirements in performing oversight and enforcement over spare parts prime contractors. This oversight ranged from conducting physical inspection of parts, such as testing the measurements and functions of a part to evaluating contractor production processes to observing the outer appearance and counting the number of parts for compliance with contract requirements. When one of the prime contractor's processes and another contractor's parts did not meet contract requirements, DCMA used its enforcement system by issuing requests for corrective action by the prime contractors. GAO found that the 11 prime contractors reviewed provided quality assurance oversight over their subcontractors' work in accordance with industry standards and contract requirements. The contractors used at least two and up to four methods in providing quality assurance oversight over their subcontractors. These methods included evaluating potential subcontractors for placement on an Approved Supplier List, requiring certifications of parts and processes, testing parts and processes, and tracking and monitoring subcontractor's performance. The primary methods of oversight were evaluating subcontractors for placement on an Approved Supplier List and requiring certifications that parts and processes conform to contractual specifications. Establishing an Approved Supplier List served to identify subcontractors capable of producing needed parts or processes in accordance with industry standards and contractual specifications. In GAO's review of the 15 contracts, DCMA held prime contractors accountable for their subcontractors' work by requiring that the prime contractors adhere to contract clauses concerning oversight responsibility. Most of the contracts included either clauses stating that the prime contractor shall provide supplies that conform to contract requirements or clauses related to other quality requirements. When nonconformance was reported, DCMA quality assurance personnel and the prime contractor determined if the deficiency was due to contractor nonconformance and assigned responsibility for corrective action. GAO identified one deficiency from the 15 contracts that the prime contractor was responsible for and DCMA held the prime contractor accountable for the part. While GAO did not identify any major deficiencies from the contracts and practices it reviewed, GAO recognizes that the risk of nonconforming spare parts reaching end users exists. Compliance by contractors, DCMA, and other DOD agencies with established internal controls helps mitigate against this risk.
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Over the past 50 years, as a result of producing tens of thousands of nuclear weapons, DOE's facilities have also produced radioactive and other toxic substances that pose potential health threats to DOE's workers and the communities located nearby. These substances include the radionuclides uranium, plutonium, and cesium; toxic metals; organic solvents; and chlorinated hydrocarbons. Epidemiological research--research on the incidence, distribution, and control of disease in a population--provides a scientific evaluation of the health effects of exposing workers and the public to such potentially harmful materials. Such research uses health, exposure, environmental monitoring, and personnel records to analyze health effects and evaluate methods to protect people and prevent harm. As such, epidemiological research is essential to a comprehensive occupational and environmental health program. DOE and its predecessor agencies have a long history in epidemiological research, starting with studies of the survivors of the atom bomb. In the past, much of this research was conducted by DOE or its contractors in secret and concentrated on the correlation between the rates of cancer-related deaths of workers at DOE's nuclear weapons complex and their exposure to ionizing radiation. A number of separate mortality studies--studies of death rates--have been conducted on approximately 420,000 workers over the past 30 years. However, because the records that researchers needed to study the health effects of working in DOE's facilities were maintained differently at each facility and were difficult to locate, the types and quality of epidemiological research that could be conducted were limited. To alleviate these problems and facilitate epidemiological research on the health effects of exposure to radiation and other hazards, the Secretarial Panel recommended that DOE continue developing CEDR as a comprehensive repository of data on its workers. In addition, to break down what was perceived as "a wall of secrecy" and to help establish the credibility of and maintain independence in the conduct of DOE's epidemiological research, the Secretarial Panel recommended opening this research and its supporting data to external investigation and scrutiny. Among other things, the Secretarial Panel recommended that DOE execute a memorandum of understanding with the Department of Health and Human Services (HHS), making HHS responsible for long-range, analytic epidemiological studies, while DOE remained responsible for descriptive epidemiology. As a result, much of the epidemiological research on DOE's facilities is now managed by HHS. Within HHS' Centers for Disease Control and Prevention, which implemented this memorandum of understanding, the National Institute for Occupational Safety and Health was made responsible for occupational health research (i.e., research on workers employed by DOE and its contractors), while the National Center for Environmental Health was made responsible for research involving the environment, including communities near DOE's facilities. The Secretarial Panel also called for greater outside scrutiny by recommending that the National Academy of Sciences (NAS) play a key role in overseeing and monitoring the development of CEDR. In response to the Secretarial Panel, as well as a concurrent request from DOE to provide general scientific advice on the status and direction of DOE's epidemiological programs, NAS established a Committee on DOE Radiation Epidemiological Research Programs. In 1990, this committee issued a report making a number of recommendations about access to data for researchers outside DOE, the types of data to be included in CEDR, and its future development. The report also noted that use of CEDR will depend on ease of access to the information it contains and researchers' perception of its value. Beginning in 1990, a DOE contractor facility, the Lawrence Berkeley Laboratory, in Berkeley, California, constructed a prototype, known as preCEDR, to serve as the basis of CEDR. In 1992, DOE made data available through this system. In August 1993, DOE published a catalog of data available in CEDR to assist current and potential users in identifying data sets for potential use and to provide instructions on how to obtain access to these data. Through fiscal year 1994, DOE had received $14.35 million in appropriations for CEDR, of which it had spent $9.45 million for CEDR and related expenses and redirected the remaining $4.9 million to other activities. CEDR is budgeted at $1 million for fiscal year 1995, of which $500,000 was funded as of February 1995. DOE does not have available the uniform demographic, exposure, medical, and environmental data that would make CEDR a comprehensive and valuable epidemiological resource for independent researchers. The Secretarial Panel recommended in 1990 that DOE define a minimum set of data necessary for epidemiological research and routinely maintain and collect these data at all DOE facilities. As part of this effort, in May 1992 DOE requested that each of its facilities, within 3 years, complete an inventory of 123 specific types of records that the Department believed were important for conducting epidemiological studies. We reported on this and other DOE efforts to manage records in a May 1992 report. DOE officials told us that when completed, this records inventory would be included in CEDR and would more easily identify for researchers where these specific types of records are located. Meanwhile, DOE is waiting for its facilities to complete their records inventories, which may take until 1996, before it takes steps to routinely collect and maintain the types of records it has already identified as important. In addition, the NAS committee stated that CEDR should be capable of supporting many kinds of epidemiological studies, including long- and short-term health surveillance, monitoring studies, screening programs, and long-term mortality studies. However, as we reported in December 1993, DOE probably will not establish a comprehensive health surveillance program until at least 1998. Such a program would standardize the documentation of workers' occupational exposures to radiation and other industrial hazards--such as chemicals, gases, metals, and noise--and could identify trends in workers' illnesses and injuries that might be related to these exposures. Until such a program is in place, the comprehensive data on health effects and exposure needed for important epidemiological research will not be available for placement in CEDR. Moreover, DOE's Assistant Secretary for Environment, Safety, and Health told us in October 1994 that standardization of data at DOE's facilities was a problem that would take several years to resolve. Without the important data necessary to support many types of epidemiological research, CEDR today mainly contains the limited data from DOE-sponsored mortality studies of workers at DOE's facilities at Oak Ridge, Tennessee; Rocky Flats, Colorado; Hanford, Washington; and elsewhere. Of the 37 data sets in CEDR, 36 contain the retrospective information--data on past incidents--used to conduct these studies. (See app. I.) Some new data will be included when certain ongoing studies are completed. These studies include mortality studies of DOE's workers at the Idaho National Engineering Laboratory and the Portsmouth Gaseous Diffusion Plant in Ohio; a study of cancer incidence among workers at Rocky Flats by the National Institute for Occupational Safety and Health; and studies from the National Center for Environmental Health, including estimates of the effect of the radiation from Hanford on the air and water in the surrounding area. While adding the results of these studies will make some of the data in CEDR more current, the system will still lack the comprehensive data discussed above that would make it the valuable resource that the Secretarial Panel and NAS recommended. According to many NAS committee members and CEDR users we spoke with, the current lack of comprehensive epidemiological data limits CEDR's value for research. The Secretarial Panel cautioned DOE that retrospective data would have limited value for future research. Also, members of the NAS committee told us that the data on mortality that CEDR currently contains limit the types of studies that can be done and have minimal value for future research on health effects. NAS noted in its 1994 report that the scope of the data currently in CEDR limits the type of research that can be conducted. The data restrict researchers by defining the groups that can be studied, the variables that can be examined, and the analytic methods that can be applied. Officials at the National Institute for Occupational Safety and Health and the National Center for Environmental Health also stated that CEDR would be of greater value if it contained data on chemical exposures and health effects. These data will not be available until DOE's health surveillance program is completed. Since CEDR contains only limited retrospective data, researchers who need more information must still locate records at DOE's facilities, where the records are not consistently maintained. However, despite CEDR's limited value for health effects research, several NAS experts, current users, and DOE officials believe that it has significant value as a teaching tool for students of epidemiology. DOE has made data from its mortality studies easy for outside researchers to access through CEDR, and thousands of people have accessed the system to see what basic data are available. However, few researchers have used the data for original studies on health effects. In addition, some members of the NAS Committee on Epidemiological Research and some researchers we interviewed noted problems that impair the usability of the data. Difficulties include a lack of data that have not been previously modified by other researchers to meet their specific research needs, data that are hard to work with because they have been edited to protect the privacy of the workers, and data that are not current. In addition, some researchers have encountered problems with the quality of the data, including missing and inconsistent data and inadequate documentation of the studies included. For these reasons, some CEDR users need to review original records at DOE's facilities but find the records difficult to obtain. For the first time in its history, DOE has made the data used to support its epidemiological research accessible. DOE has created a system that allows researchers easy access to the epidemiological data that were used to conduct its mortality studies, as recommended by both the Secretarial Panel and NAS. In addition to data from past studies, CEDR contains summary information, such as the 1992 annual summary of epidemiological surveillance data from Brookhaven National Laboratory. Potential users of CEDR can obtain basic information about the system's contents and file structure (but cannot access the actual data) through DOE's published catalog of available data or via a computer link with CEDR directly or through the Internet. The summaries, which do not provide detailed research data, are available to all Internet users. We were able to access CEDR directly from personal computers using communication software and found the instructions relatively easy to follow. According to the CEDR staff at the Lawrence Berkeley Laboratory, computer logs show that thousands of people have accessed CEDR to find out what basic data are available. To view or obtain the actual data on DOE's workers, a user must receive authorization from DOE. Getting such authorization is a relatively simple process. The required forms, including confidentiality agreements, are provided in the CEDR catalog. Authorization generally takes about a month. Approved users can obtain data from the Lawrence Berkeley Laboratory via electronic tape or diskette, or through direct transmission if they have specialized equipment. Users we talked with reported no major problems in obtaining data from CEDR. Despite the system's accessibility, few independent researchers have sought approval from DOE to become authorized CEDR users. In addition, some authorized users have never obtained data from CEDR. DOE provided us with a list of 22 primary users as of September 1994. Some of the users listed, however, were not independent researchers but worked for DOE or its contractors. Some of these users were involved only in loading, testing, and maintaining the system. We identified 13 independent researchers who were primary users and may have obtained data from CEDR. (See table 1.) We confirmed that nine independent researchers had obtained data from CEDR. Three of these users worked on studies funded by the National Institute for Occupational Safety and Health, three worked on university research projects, two conducted research for public health institutes, and one was a private consultant. Researchers using CEDR have encountered a number of problems with the data in the system, limiting the value of these data for their research. Although four of the nine researchers we spoke with found the quality of the data satisfactory for their research purposes, the other five researchers reported the following problems: Original data, not previously edited by other researchers, are not available through CEDR. To protect workers' privacy, key data elements important for certain research have been removed. The data in the mortality studies are frequently old and have not been updated. Research is hindered by problems with the quality of the data, including missing and inconsistent data and inadequate documentation of studies by prior researchers. It is difficult to conduct research beyond DOE's initial studies or to fully validate the results, according to many of the researchers we spoke with, because CEDR may not contain data as they were originally recorded at DOE's facilities. Instead, it generally contains data that have been assembled and edited by prior researchers to answer specific research questions. Some independent researchers using data in CEDR stated that they need the original records to conduct their studies. Two CEDR users conducting studies under contracts with the National Institute for Occupational Safety and Health stated that their research was hampered because the working data sets available in the data base were not original data but had already been edited by prior researchers. Answering new research questions would require obtaining the original records directly from DOE's facilities. Another CEDR user conducting research for a public health institute told us that the best data for research are the original records found at DOE's facilities. An official of the National Institute for Occupational Safety and Health, as well as a member of the NAS committee, stated similar views. The extent to which some personal identifiers have been removed from the data in CEDR to protect the privacy of workers has made it difficult for some CEDR users to do more precise calculations or compare records. For example, DOE replaced identifying data elements, such as names and social security numbers, with pseudo-identifiers. DOE also rounded some key dates in workers' files, such as birth date, hiring date, and death date, if applicable. In contrast, an official from the National Institute for Occupational Safety and Health stated that while the Institute replaces identifying data elements, such as the name and social security number, in data that it releases to the public, it does not truncate dates. Researchers funded by the National Institute for Occupational Safety and Health noted that truncating key dates makes it difficult to do precise calculations of exposure, for which it is necessary to know the exact numbers of days a worker is exposed to a hazard. In addition, replacing identifying data elements makes it difficult to compare various records on workers by, for example, consulting a state or national cancer registry. Consulting such registries is often necessary to obtain a worker's complete health history. Several NAS committee members and current CEDR users told us that CEDR would be more useful for follow-up studies if mortality data were updated, especially data on those exposed to radiation. The mortality studies included in CEDR were conducted on various workers who were employed between 1942 and 1988 at different DOE facilities. In many of these studies, the most recent mortality data are more than 10 years old. Researchers are unable to follow up on the results of the mortality studies without significant additional work. Researchers we spoke with explained that because the chronic effects of exposure to low doses of radiation may not occur until decades afterwards, workers who have been exposed to radiation should be studied over lengthy periods. One epidemiologist, a member of the NAS committee, stated that unless the workers in a study are monitored until the cause of death has been determined, the results of the study are not conclusive. Other epidemiologists and health physicists from the Centers for Disease Control and some DOE contractors also agreed that the data in CEDR would be more useful if the information on mortality were updated. DOE's Assistant Secretary for Environment, Safety, and Health said that while she considers it the responsibility of the Department to update these radiation studies, she is not sure that the funding necessary to do this will be available, given the current emphasis on funding research on the occupational health effects of hazardous chemicals rather than radiation. Some researchers working with CEDR have encountered additional problems with the quality of the data. Five primary users we interviewed had encountered missing, inconsistent, or inaccurate data. Measuring exposure was a major problem for these users. Examples provided by the data base manager of a research project sponsored by the National Institute for Occupational Safety and Health included the following: In one file, the researchers identified data on 115 workers that conflicted with other information in the file about the amount of radiation to which these workers had been exposed. The researchers could not determine which data were correct. In another file, researchers found 1,000 people listed as never having been monitored for plutonium exposure. Nevertheless, a date was entered in the field for "first date monitored for plutonium exposure." The researchers could not tell which information was correct. One CEDR user, who had served on the NAS committee, expressed concern that inexperienced researchers could draw erroneous conclusions on the basis of the data currently in CEDR. In her opinion, DOE should not widely publicize access to CEDR for research until some of the problems with its data have been addressed. In an attempt to identify problems with the quality of the data, DOE is setting up a computer bulletin board for CEDR users to communicate with each other and point out problems they have uncovered. DOE cannot be sure, however, that users will take the time to point out these problems. The Secretarial Panel noted that an important element of epidemiological studies is documentation from the original researcher explaining the study's methodology, assumptions made, and limitations of the data. While both the Secretarial Panel and the NAS committee recommended that all studies provided to CEDR should be supported with documentation, some researchers using CEDR have found insufficient documentation, making the studies difficult to reconstruct. In one case, a university researcher had to go to the facility that was the subject of the study to resolve problems with the documentation. Researchers using CEDR for the two studies sponsored by the National Institute for Occupational Safety and Health also noted problems caused by inadequate documentation. The staff at the Lawrence Berkeley Laboratory responsible for developing CEDR told us that the researchers who provided the studies often did not comply with documentation guidelines. DOE has recently issued revised guidelines in an attempt to improve compliance. However, this measure will not correct inadequate documentation of those studies already in CEDR, and it is unknown whether future data providers will be more responsive to this revised guidance. Because of the limitations of the data in CEDR, some researchers seek to obtain original records from DOE's facilities, but they report encountering difficulties. Researchers using CEDR for the two studies sponsored by the National Institute for Occupational Safety and Health reported that difficulties in obtaining original records are inhibiting their research. The two researchers told us that when requesting such records from DOE sites, they encountered either uncooperative contractor staff or a lack of adequate staff resources to service their requests. According to DOE's Assistant Secretary for Environment, Safety, and Health, CEDR is not really intended to be the sole source of data for epidemiological researchers from the National Institute for Occupational Safety and Health, who are likely to require the original records from DOE's facilities. She was aware that these researchers and others have had difficulties obtaining records from some DOE sites, and she was attempting to work with the contractors to resolve specific problems on a case-by-case basis. Although DOE is adding to the contents of CEDR, doubt remains whether the data base will become the system that NAS and the Secretarial Panel envisioned, containing uniform and useful demographic, exposure, medical, and environmental data. The DOE Assistant Secretary responsible for the CEDR program acknowledged the system's current limitations and told us CEDR may not become this comprehensive data base. Moreover, DOE has not attempted the long-range planning needed to achieve this vision. The Secretarial Panel had recommended that DOE, under the guidance of NAS, establish a clear statement of CEDR's intended goals and uses and an orderly plan for implementing the system. Such a plan would define the steps to be accomplished, milestones for completing the work, and resources needed. NAS committee members told us they were not aware of any long-range planning for CEDR. DOE officials with the Office of Epidemiology and Health Surveillance told us they did not have any long-range plans that identified the specific tasks, priorities, time frames, or resources necessary to develop CEDR into a comprehensive data base containing the types of data that NAS had recommended. DOE currently does not know when comprehensive epidemiological data will be available to put into CEDR, how much it will cost to place these data in CEDR, or how many researchers will potentially use these data. DOE is making progress toward standardizing and maintaining data on the exposure of its current laboratory workers to radiation and other hazards that might affect their health. Rather than develop CEDR into a comprehensive data base, the DOE Assistant Secretary said DOE may consider that the data base's current function of providing the public with access to its existing epidemiological research data is sufficient. In addition, the Assistant Secretary told us in October 1994 that the budget for CEDR--$1 million in fiscal year 1995--will be reevaluated if usage does not increase substantially. Even with increased usage, however, it is not clear whether CEDR is the most cost-effective and practical means of accomplishing the more limited objective of providing access to DOE's epidemiological data and data gathered under the memorandum of understanding with HHS. Some researchers and others we spoke with suggested that a far less expensive clearinghouse arrangement might meet this need just as effectively. For example, a clearinghouse might simply list the name of the study, the type of data it contained, and the location of the data. These data would remain at the facility where they were collected. CEDR was originally intended both to help dispel public fears about secretive research at DOE and to be a valuable resource for independent researchers studying the long-term epidemiological and other health effects of working at or living near DOE's facilities. The current system has removed the "wall of secrecy" surrounding DOE's epidemiological research by making some of the data available to outside researchers. However, as it now stands, CEDR has limited utility as a research data base. DOE is years away from routinely collecting and maintaining the epidemiological data on its workers that are needed to help make CEDR a comprehensive resource. Consequently, CEDR appears to be at a crossroad, and an overall assessment of the system would help DOE better ensure that it is spending its limited funds wisely. If DOE decides to pursue the original vision for CEDR, it cannot be assured of an orderly implementation without a long-range plan that sets forth the required time frames, resources, and costs and takes into account the ongoing efforts to uniformly collect and maintain epidemiological data throughout DOE's facilities. If DOE decides not to develop a comprehensive epidemiological data base, it could either maintain or abandon the current system. However, maintaining the current system may not be the most practical and cost-effective means of providing the epidemiological data used in DOE's past studies and those currently being conducted by HHS. Resolving the problems impairing the usefulness of the data in the current system could cost DOE still more. Finally, if DOE decides to abandon the system, continued openness and public access to its health effects research cannot be ensured without identifying alternative means of collecting and disseminating epidemiological data. We recommend that the Secretary of Energy, in consultation with the Secretary of Health and Human Services, the National Academy of Sciences committee, and representatives of the research community, determine whether the Comprehensive Epidemiologic Data Resource is the most practical and cost-effective means of providing epidemiological data for research on health effects. The assessment should cover the costs, benefits, and time frames for including more comprehensive data on health effects in the data base, as well as alternative means of making these data available to outside researchers. If the Secretary determines that the Comprehensive Epidemiologic Data Resource is not the most practical and cost-effective means of compiling epidemiological data, DOE should determine whether continued funding is appropriate. As requested, we provided a draft of this report to DOE for comment. Although DOE did not provide a written response, the Acting Director of the Office of Epidemiology and Health Surveillance did express her views on the report. Overall, she agreed with the problems we identified with the data. However, she maintained that such limitations are inherent in data collected from historical studies and that these data on former workers are nevertheless important and useful. She noted that DOE is making efforts to update and review these data to resolve inconsistencies. She further noted that DOE is required to remove personal identifiers to protect the identities of individual workers. We fully agree that workers' privacy must be protected. Nevertheless, as we stated in our report, unlike the National Institute for Occupational Safety and Health, DOE truncates (abbreviates or shortens) key dates, an action that can limit the usefulness of the data. Regarding the need to include data on current workers and residents in CEDR, the Acting Director agreed that the information is vital and will be included as new studies are completed. However, while adding the results of these studies will make some of the data more current, the system will still lack the comprehensive data--such as uniform health, exposure, environmental monitoring, and personnel data--that would make it the valuable resource for new research on health effects that the Secretarial Panel and NAS recommended. The Acting Director also expressed concern about our recommendation that the cost-effectiveness of CEDR be evaluated, noting that most of the costs for CEDR have already been incurred. However, these costs are the costs of the present data base, which contains historical information. DOE does not know what it will cost to include the types of health surveillance data in CEDR that the Secretarial Panel and NAS recommended. If CEDR will not include these data, even the costs of maintaining the current system may not be justified. Finally, the Acting Director told us that DOE has added five primary users of the data base since we completed our audit work and has added over 100 files in the last year. We did not verify or evaluate this information. We also discussed the facts presented in this report with CEDR program officials at the Lawrence Berkeley Laboratory, who generally agreed that these facts were accurate. They provided updated information on users of CEDR and data sets in the system, which we incorporated into the report. We performed our review between February 1994 and May 1995 in accordance with generally accepted government auditing standards. In performing this review, we interviewed officials at DOE headquarters, including the Assistant Secretary for Environment, Safety, and Health. We also interviewed the personnel at the Lawrence Berkeley Laboratory, Berkeley, California, responsible for designing and operating CEDR. We spoke with eight of the nine members of the NAS committee responsible for monitoring progress on CEDR, officials at the National Institute for Occupational Safety and Health and the National Center for Environmental Health, and all authorized CEDR users we were able to contact. (See app. II for details of our scope and methodology.) 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 Energy and other interested parties. We will also make the report available to others on request. Please call me at (202) 512-3841 if you or your staff have any questions. Major contributors to this report are listed in appendix III. The Comprehensive Epidemiologic Data Resource (CEDR) provides a repository of data that have been used to support epidemiological studies conducted on workers at Department of Energy (DOE) facilities. DOE has funded studies on various groups of workers of DOE or its contractors from the 1940s through the 1990s at facilities involved in the production of nuclear weapons. (See table I.1.) More than one study has been included in CEDR for several of these facilities. As of November 1994, CEDR contained a total of 37 data sets, or logically related data files. Table I.1 lists the 36 data sets covering DOE-sponsored studies on workers; an additional data set covers a 1990 study of atom bomb survivors. Of the 36 data sets in CEDR as of that date, 29 are analytic data sets from past studies at DOE's facilities and 7 are working data sets. Of the 29 analytic data sets from DOE sites or facilities, 28 are from mortality studies. The remaining set came from a morbidity study that examined the incidence and cause of respiratory disease among workers. Table I.1: Data From DOE-Sponsored Studies on Workers Available Through CEDR as of November 1994 The Linde plant and the uranium facility at Mallinckrodt Chemical Works are no longer operational. We analyzed the contents of CEDR as of November 10, 1994. During our review, DOE was adding new data sets and updating others already in the system. For example, DOE added new analytic data sets from 1994 studies on workers at Fernald, Oak Ridge, Mallinckrodt, Savannah River, and other facilities and updated several working data sets, including data on workers at the Mound plant. In addition to the 36 data sets shown in table I.1, seven new analytical data sets, including two from multiple-site studies, were added. A total of 44 data sets were available through CEDR as of December 31, 1994. More additions and updates are planned for 1995. DOE intends to make all the studies that it funds on exposures in or near DOE's facilities available through CEDR. DOE officials told us that during 1995 they plan to add new data sets to CEDR and update some of the existing data. Among the new data DOE plans to add are analytic data sets from additional studies of workers at several DOE facilities, a summary data set of epidemiological surveillance data for one or more sites, a data set on workers who painted radium dials, and data on exposures at DOE's Nevada Test Site. Updates are planned to the working data sets for at least two sites and the dosimetry data for several others. To determine how well CEDR meets its intended objective of being a comprehensive resource, we (1) reviewed recommendations from reports by the Secretarial Panel for the Evaluation of Epidemiologic Research Activities and National Academy of Sciences (NAS) on designing and implementing CEDR; (2) interviewed officials at DOE headquarters--including the Assistant Secretary for Environment, Safety, and Health; the Acting Director of the Office of Epidemiology and Health Surveillance; and the CEDR Program Coordinator--and contractor staff at the Lawrence Berkeley Laboratory concerning the current status of CEDR; (3) reviewed relevant DOE directives, program plans, progress reports, and documentation on CEDR; (4) interviewed eight of the nine members (attempts to contact the ninth member were unsuccessful) of the NAS committee responsible for monitoring and reporting on DOE's progress on CEDR; and (5) interviewed the officials from the National Institute for Occupational Safety and Health and the National Center for Environmental Health who were responsible for the studies conducted under the memorandum of understanding between DOE and the Department of Health and Human Services (HHS). To determine how accessible and usable CEDR is for outside researchers we also (1) obtained authorization from DOE to become CEDR users and accessed and reviewed various files in the system and (2) interviewed CEDR users about their experiences with the system. We also discussed these issues with the officials on the NAS committee and at HHS mentioned above. We performed our review between February 1994 and May 1995 in accordance with generally accepted government auditing standards. We discussed the facts presented in this report with CEDR program officials at the Lawrence Berkeley Laboratory and officials at DOE headquarters and incorporated their views where appropriate. As requested, we also provided a draft of this report to DOE for comment. Although DOE did not formally respond within the 15 days allowed, the views expressed by the Acting Director of the Office of Epidemiology and Health Surveillance and our evaluation of them are presented in the Agency Comments section of this report. Margie K. Shields, Regional Management Representative Randolph D. Jones, Evaluator-in-Charge Daniel F. Alspaugh, Evaluator Jonathan M. Silverman, Communications 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. 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 Energy's (DOE) epidemiological database, focusing on: (1) whether the database functions as a comprehensive repository of epidemiological data about DOE workers and the communities surrounding DOE facilities; (2) whether the system is accessible to outside researchers; and (3) DOE future plans for the system. GAO found that: (1) the current DOE epidemiological database is not as comprehensive as originally envisioned because it lacks uniform data on laboratory workers' exposure to radiation and other hazardous substances and the health of these workers and residents near DOE facilities; (2) although DOE is trying to standardize its data and develop a more comprehensive employee health surveillance program, it will be at least three years before these goals are reached; (3) although the database is easily accessible, few independent researchers have used it because the data are of limited value for new research; (4) data problems include the lack of raw or updated data, missing and inconsistent data elements, and inadequate research documentation; (5) researchers often have to examine original records, which may be difficult to obtain, to get complete information; (6) DOE is uncertain whether the database will ever be as comprehensive as originally envisioned and it has not undertaken specific long-range plans to make it a comprehensive system; and (7) DOE has not assessed whether the current database or an alternative system would be the most cost-effective and practical means of providing researchers with needed data.
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The Knutson-Vandenberg Trust Fund, as authorized by the Act of June 9, 1930, as amended (16 U.S.C. 576-576b), allows portions of the receipts from timber sales to be deposited into the K-V Fund to be used to reforest timber sale areas. In addition to being used for planting trees, these deposits may also be used for eliminating unwanted vegetation and for protecting and improving the future productivity of the renewable resources on forest land in sale areas, including sale area improvement operations, maintenance, construction, and wildlife habitat management. Reforestation is needed where timber harvests or natural disasters have depleted the existing timber stands. In fiscal year 1997, about $166 million was expended from the K-V Fund for reforestation and related projects. The majority of the K-V moneys--about $115 million in fiscal year 1997--was used to fund direct reforestation activities. In addition to the direct reforestation expenditures, about $51 million was used for costs incurred to support and manage the reforestation program, such as rents, utilities, computer equipment, or the salaries of program support staff. Federal law permits the Forest Service to transfer amounts from the K-V Fund, as well as other Forest Service appropriations, to supplement the Forest Service's firefighting funds when emergencies arise. The Forest Service is authorized to advance money from any of its appropriations and trust funds to pay for fighting forest fires. The Forest Service is not authorized to restore amounts so transferred. Congressional action is required to restore such funds. The Forest Service's oversight and management of the K-V Fund and the reforestation program are decentralized. Forest Service headquarters and the nine regional offices establish policy and provide technical direction to forest offices. The forest offices, in turn, provide general oversight to district offices and help the districts plan K-V projects. The district ranger is responsible for overseeing the planning and implementation of K-V projects. Between 1990 and 1996, the Forest Service transferred about $645 million from the K-V Fund for emergency firefighting activities that had not been fully reimbursed. Since these transfers had not been reimbursed, these funds were unavailable for K-V projects. In the past, when such transfers were made, the Department of Agriculture requested and received supplemental appropriations to restore the transferred moneys, generally within 2 years of the original transfer. However, in more recent time, the Department of Agriculture had not submitted a request for a supplemental appropriation to the Congress. It was not until March 15, 1996, that the Department of Agriculture submitted a request for supplemental appropriations to the Office of Management and Budget for the $420 million transferred during fiscal years 1990, 1992, and 1995. After an additional $225 million was transferred from the K-V Fund in 1996, the Congress, in 1997, provided $202 million from the emergency firefighting appropriation as a partial reimbursement of the K-V Fund. At the beginning of fiscal year 1998, the K-V Fund had an unrestored balance of about $493 million. To provide the Congress with the information it needs to consider any future requests for appropriations to restore previously transferred funds, we recommended that the Secretary of Agriculture report to the Congress on the financial status of the K-V Fund. The Department of Agriculture has informed the Congress about the general dimensions of the K-V funding issue on several occasions, and that information has resulted in some replenishment of the K-V Fund. For example, the Fiscal Year 1997 Omnibus Appropriation Bill provided additional appropriations for emergency firefighting, and $202 million was apportioned to the K-V Fund in January 1997. In addition, the Department has begun providing the Congress with information on the K-V Fund balance at the beginning of each fiscal year, expected K-V collections during the year, and expected K-V expenditures so that the impact of future firefighting transfers can be assessed. Although the Forest Service acknowledged that failure to restore the amounts transferred from the K-V Fund would potentially disrupt the K-V program, forest and district offices continued to operate and plan for future reforestation projects as if the transfers had not occurred. Furthermore, the Forest Service had not informed the Congress of the impact that the funding shortfall would have on the agency's reforestation activities or developed a plan or strategy for reallocating the remaining funds to the highest-priority projects. Although timber receipts of as much as $200 million had been added to the fund annually, the Forest Service will not be able to pay for all of its planned projects, estimated in fiscal year 1996 at about $942 million, unless the moneys transferred from the K-V Fund for firefighting purposes are restored. We recommended that if the administration decides not to forward to the Congress the Department's request for restoration of the funds transferred for firefighting purposes, or the Congress decides not to restore these funds during the fiscal year 1997 budget considerations, the Secretary of Agriculture should direct the Chief of the Forest Service, by the end of fiscal year 1997, to revise the list of planned K-V projects to take into account the actual balance in the K-V Fund. The Department has not implemented this recommendation and believes that the Forest Service had sufficient funding to meet all K-V requirements for 1998 and that revising the list of K-V projects downward to match the reduced K-V funding would be both speculative and not creditable. The Department added that it would not require such a list until it was certain that K-V funding for the year was inadequate. In that event, it would provide the Congress with a generic description of the types of K-V activities that would be dropped. The K-V Act requires that the K-V Fund expenditures in any one sale area not exceed the amount collected in that sale area. To facilitate the management of K-V projects and the accounting for K-V funds, however, the Forest Service allows each forest to pool its K-V collections for each timber sale into a forest-level fund, commonly called a K-V pool. At the end of each fiscal year, each forest is required to create a balance sheet showing the cash available for its K-V projects, the projected collections from ongoing sales, and the estimated costs for planned projects. The Forest Service does not have the financial management information and controls needed to ensure compliance with the K-V Act prohibition limiting K-V Fund expenditures on individual sale areas to the collections from those same sale areas. Collections are recorded for individual sales, whereas expenditures are managed and recorded in total at the district level rather than by individual sales. By allowing each forest to pool K-V collections without adequate financial controls and information, the Forest Service cannot ensure that trust fund expenditures do not exceed collections for a given sale area. We recommended that the Secretary of Agriculture direct the Chief of the Forest Service to perform, in consultation with the Chief Financial Officer, an analysis of alternatives (including the costs and benefits of each alternative) to obtain the financial data necessary to ensure that the K-V Fund's expenditures in one sale area are limited to the amounts collected from that area, as required by the K-V Act. The Secretary of Agriculture did not request that the Forest Service analyze alternatives to the sale-by-sale accounting system that would ensure compliance with the K-V Act. The Secretary indicated that he did not believe such an analysis was necessary and that the current Forest Service methods fulfilled requirements of the K-V Act. We continue to believe that the Forest Service's current information systems and controls do not provide assurance that the expenditures in one sale area do not exceed the collections from that sale area as required by law. The Forest Service collects a certain amount of K-V funds on each timber sale to pay for the costs of supporting the program at all organizational levels. The regions and forests issue guidance that specifies the percentage of K-V funds that should be collected from individual sale areas to support the program at the forest, regional, and Washington offices. The agency's overall guidance, however, does not explain how individual regions or forests should calculate and limit amounts for program support. If the allocations for support costs are not limited to the amount collected, however, funds available for project expenditures in sale areas could be insufficient. Only one forest we visited during our 1996 review limited its use of K-V funds for program support to the amounts collected for that purpose. For three of the forests, the regions did not restrict their expenditures for program support to the amounts that had been collected, nor did the forests limit the amount spent for program support at the forest level. For example, if a project costs $100, the forest might instruct the district to collect an additional 20 percent of the project's cost, or $20, to cover the cost of supporting the program. When the forest allocated funds for a project to the district, it withheld funds to cover the forest's support costs. However, rather than limiting these withholdings--to continue our example--to 20 percent of the project's cost, or $20, the forest would withhold 20 percent of the total cost ($120) or $24. This method of determining support costs would reduce the amount available for project work to $96, $4 less than the projected need. We recommended that the Secretary of Agriculture direct the Chief of the Forest Service to require all organizational levels to use a standardized methodology for assessing and withholding the support costs for the K-V program that would limit expenditures for program support to the amounts collected for such purposes. The Secretary of Agriculture directed the Chief of the Forest Service to establish a standardized methodology for assessing and withholding program support costs for the K-V program, and the Forest Service formed a task force to recommend what that standardized methodology would be. The task force completed its work in November 1997, and the Forest Service estimates that the corrective action will be fully implemented when the recommended changes become part of the agency's directives in September 1998. Mr. Chairman, on the basis of the Department of Agriculture's response to our recommendations, it appears that it has taken positive actions on our recommendations to better inform the Congress about the magnitude of transfers from the K-V Fund for firefighting purposes and the need to establish a standardized methodology for assessing and withholding program support costs for the K-V program. The Department of Agriculture has not implemented our recommendations concerning revising the list of K-V projects downward because of inadequate funding or performing an analysis of alternatives to a sale-by-sale accounting of K-V Fund expenditures. We continue to believe that action is needed in these areas. We will be pleased to respond to any questions that you or the Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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Pursuant to a congressional request, GAO discussed the shortcomings in the Forest Service's administration of the Knutson-Vandenberg Trust Fund (K-V Fund), focusing on the: (1) transfers from the K-V Fund that have not been fully restored; (2) effect of unrestored transfers on planned projects; (3) lack of financial information to ensure compliance with the K-V Act requirements; and (4) lack of a standardized methodology for calculating and limiting program support costs. GAO noted that: (1) between 1990 and 1996, $645 million was transferred from the K-V Fund to support emergency firefighting activities that was not reimbursed; (2) to assist Congress in its consideration of any future requests for appropriations to restore previously transferred funds, GAO recommended that the Secretary of Agriculture report to Congress on the financial status of the K-V fund; (3) the Department has begun providing Congress with additional information on the financial status of the K-V Fund; (4) in fiscal year 1997, Congress acted upon that information by providing $202 million to partially repay moneys transferred from the K-V Fund; (5) the Secretary of Agriculture has not directed the Forest Service to revise the list of planned K-V projects to take into account the actual balance in the K-V Fund; (6) although the K-V Act requires that K-V Fund expenditures in one sale area be limited to amounts collected in the same area, the Forest Service does not collect expenditure data on a sale-by-sale basis; (7) GAO recommended that the Secretary of Agriculture direct the Forest Service to perform an analysis of alternatives to obtain the financial data necessary to ensure that the K-V Fund's expenditures in one sale area are limited to the amounts collected from that area, as required by the K-V Act; (8) the Secretary of Agriculture indicated that such an analysis was not necessary and that the current Forest Service methods fulfilled the requirements of the K-V Act; (9) at the time of GAO's 1996 report, the Forest Service did not have a system in place to ensure the consistent handling of program support charges for the K-V program agencywide; and (10) since that time, the Forest Service has completed an analysis of the methodological changes that are needed to standardize the Forest Service's practices for assessing and withholding program support costs for the K-V program and the results of the agency's work should be implemented when the practices become part of the Forest Service's directives in September 1998.
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The Parole Commission and Reorganization Act of 1976 established USPC as an independent agency within DOJ. In particular, the act required USPC to develop rules and regulations establishing guidelines for (1) granting or denying an application or recommendation to parole any eligible prisoner, (2) imposing reasonable conditions on an order granting parole, and (3) modifying or revoking an order paroling any eligible prisoner. In addition, the act required USPC to enact other rules and regulations as necessary to carry out a national parole policy. Certain functions of USPC changed after the federal and D.C. governments abolished parole and enacted a new sentencing structure for certain offenses that included a new form of post-incarceration supervision, called supervised release, as discussed below. The Sentencing Reform Act of 1984 abolished parole for federal offenders convicted of crimes committed on or after November 1, 1987, and, under a new sentencing structure for certain offenses, introduced supervised release for these offenders. Generally, federal offenders convicted of crimes committed before November 1, 1987, are eligible for parole and USPC has jurisdiction to determine whether to grant or deny parole for these offenders. Federal offenders convicted on or after November 1, 1987, now receive determinate sentences--a definite term of imprisonment, followed in most cases by a period of supervised release, which may continue for a number of years. Additionally, under the Sentencing Reform Act, a federal court, in imposing a sentence to a term of imprisonment for a felony or a misdemeanor, may include as part of the sentence a requirement that the offender be placed on a term of supervised release after imprisonment, as well as modify, terminate, extend, or revoke a term of supervised release.have jurisdiction for supervision and revocation decisions for these federal offenders subject to terms of supervised release under the new determinate sentencing structure. With the abolition of parole for federal offenders, it was expected that the existing functions of USPC--granting parole, determining and modifying parole conditions, and revoking parole--would apply to a limited and diminishing class of federal Thus, USPC does not offenders sentenced under the old sentencing law who were on or otherwise eligible for parole. Thus, the act provided for the eventual abolition of USPC. The expectation that USPC would only carry residual functions that eventually would disappear, or readily could be assigned elsewhere, changed with the enactment of the National Capital Revitalization and Self-Government Improvement Act of 1997 (Revitalization Act). The Revitalization Act, along with related D.C. legislation, instituted reforms in the sentencing and supervision structure for D.C. offenders, which in many respects were similar to those that the Sentencing Reform Act of 1984 had established for federal offenders. Revitalization Act required the District of Columbia to move to a determinate sentencing structure for certain offenses and abolished parole. Also, it provided for terms of supervised release to follow the determinate sentences to be imposed. Further, it provided USPC with ongoing jurisdiction for supervision and revocation decisions for D.C. Code offenders subject to terms of supervised release under the new determinate sentencing structure. In August 2000, the District of Columbia enacted a determinate sentencing system and abolished parole for D.C. offenders convicted of crimes committed on or after August 5, 2000. These offenders now receive determinate sentences, followed in most cases by a period of supervised release. According to DOJ, during the period of supervised release, the offenders' behavior is to be closely monitored under conditions that USPC determines are in order to protect public safety and maximize the likelihood of successful reentry into society. D.C. offenders convicted of crimes committed before August 5, 2000, are under the jurisdiction of USPC and are on or are eligible for parole. USPC was last reauthorized in 2013, since it still has offenders under its jurisdiction, including federal and D.C. offenders on or eligible for parole and D.C. offenders on supervised release or serving a prison sentence that includes supervised release. This reauthorization expires on November 1, 2018. Pub. L. No. 105-33, 111 Stat. 712 (1997). Offenders under USPC's jurisdiction currently include the following: federal offenders on or eligible for parole; other federal offenders, including transfer treaty offenders, military offenders, and certain Federal Witness Protection Program offenders; D.C. offenders on or eligible for parole; and D.C. offenders on supervised release or serving a prison sentence that includes supervised release. Regarding the above offenders, USPC currently has the responsibility for: holding hearings regarding release decisions for federal, transfer treaty, military, and D.C. offenders; making determinations regarding the initial conditions of supervised release for D.C. offenders, managing these offenders' risk in the community, modifying the conditions of supervision for changed circumstances, discharging offenders from supervision early, and issuing warrants or summons for violation of the conditions; and revoking the release of federal, military, witness protection, and D.C. offenders on parole and D.C. offenders on supervised release. As figure 1 shows that, from fiscal years 2002 through 2014, the total number of offenders under USPC's jurisdiction declined 26 percent from about 23,000 to about 17,100. Specifically, the number of federal and D.C. offenders on or eligible for parole declined; however, the number of D.C. offenders on supervised release or serving a prison sentence that includes supervised release generally increased. Table 1 in appendix I provides data on the annual variation in these numbers during this period, and the subsections below elaborate on the trends. As figure 2 illustrates, from fiscal years 2002 through 2014, the overall number of federal offenders either on or eligible for parole declined 67 percent, from just about 7,200 to about 2,400 following the abolition of federal parole in 1987. In particular, over the period shown in the figure, the number of federal offenders on parole declined 68 percent from about 4,000 to about 1,300. Similarly, the number of federal offenders eligible for parole declined 66 percent from about 3,200 to about 1,100. Table 2 in appendix I provides the annual variation in these numbers from fiscal years 2002 through 2014 for this population. Figure 3 provides information on the number and composition of federal offenders under USPC's jurisdiction for 5 of the most recent fiscal years. As the figure illustrates, the overall number of federal offenders under USPC's jurisdiction declined 27 percent from fiscal years 2010 through 2014 mainly because of the decline in the number of federal offenders on parole. Table 3 in appendix I provides data on the annual variation in these numbers from fiscal years 2002 through 2014. As figure 4 illustrates, from fiscal years 2002 through 2014, the number of D.C. offenders on or eligible for parole declined 74 percent, from about 14,100 to about 3,700 following the abolition of parole for D.C. offenders in 2000. In particular, over the period shown in the figure, the number of D.C. offenders on parole declined 70 percent from about 7,400 to about 2,200. Similarly, the number of D.C. offenders eligible for parole declined 78 percent from about 6,700 to 1,500. Table 4 in appendix I provides the annual variation in these numbers from fiscal years 2002 to 2014. Figure 5 illustrates that, from fiscal years 2002 through 2014, following the introduction of supervised release in 2000, the total number of D.C. offenders on supervised release or serving a prison sentence that includes supervised release increased 606 percent, from about 1,700 to about 12,000 in fiscal year 2011, and then slightly declined but remained above 11,000 through fiscal year 2014. In particular, over the period shown in the figure, the number of D.C. offenders on supervised release increased 600 percent from about 900 to about 6,300 in fiscal year 2011 and then slightly declined but remained above 5,700 through 2014. Similarly, the number of D.C. offenders serving a prison sentence that includes supervised release increased 613 percent from about 800 to about 5,700 in fiscal year 2011 and then slightly declined to above 5,300 through 2014. Table 5 in appendix I provides the annual variation in these numbers from fiscal years 2002 to 2014. According to officials from USPC and criminal justice partner organizations we interviewed, any organization accepting the transfer of USPC's jurisdiction over D.C. offenders would need to have three key organizational characteristics in place for such a transfer to be feasible. Because no existing entity currently possesses these characteristics, a transfer of USPC's jurisdiction to another entity is not feasible without altering the characteristics of an existing entity or establishing a new organization. Doing so would pose challenges related to estimating costs and assessing impacts on decision making. According to officials we interviewed from USPC and CSOSA, in order for another entity to feasibly assume USPC's jurisdiction for D.C. offenders, this entity would need to have the following key organizational characteristics in place: (1) relevant statutory authority; (2) specialized processes, procedures, and personnel; and (3) formal agreements with other organizations concerning decisions for parole and supervised release cases. We found that none of the other 17 criminal justice entities currently involved with D.C. offenders possesses any of the three: Relevant statutory authority. The Revitalization Act specifies different organizations' responsibilities over D.C. offenders, including USPC's jurisdiction for parole and supervised release decisions regarding these offenders. None of the other 17 entities we assessed have similar authority. Further, USPC derives its powers from existing statute to subpoena witnesses for parole and supervised release revocation hearings. Thus, any organization assuming USPC's functions would likewise need relevant statutory authority to do so. Specialized processes, procedures, and personnel. USPC has mechanisms in place, as well as the appropriate expertise, for handling and hearing parole and supervised release cases. No other organization that could potentially assume USPC's jurisdiction has these same mechanisms in place already. For example, USPC's standard operating procedures describe the hearing processes and the specific steps hearing officials are required to take before making recommendations to the Parole Commissioners for parole and supervised release cases. Additionally, according to USPC officials, because USPC is the only organization in the federal government that makes parole and supervised release decisions based on federal and D.C. statutes, its personnel have developed the necessary expertise to carry out its responsibilities over time. Formal agreements with other organizations concerning parole and supervised release decisions. USPC has formal agreements concerning its decisions for parole and supervised release cases with other criminal justice partners. Thus, an entity absorbing USPC's jurisdiction would need to establish these formal agreements anew and stipulate roles. For example, according to USPC officials, USPC conducts many decision hearings for D.C. offenders who have been released outside of the D.C. metro area. In order to conduct those hearings, USPC leverages its formal agreement with U.S. Probation and Pretrial Services, to ensure that it has access to offenders and information on these offenders. Further, according to CSOSA officials, their agency's understanding with USPC is formalized in an interagency agreement. They noted that any transfer of jurisdiction would require a new, formalized agreement with any new entity accepting USPC's jurisdiction to ensure ongoing and successful D.C. offender management. Further, according to USPC officials, formal agreements are reinforced with statutory authorities. Thus any entity assuming USPC functions would need authority to enter into formal agreements with partner agencies for the management of D.C. offenders. Given that no entity currently involved in the criminal justice system has the structure in place to absorb USPC's jurisdiction for D.C. offenders, the transfer of jurisdiction is not feasible without altering the characteristics of an existing entity or establishing a new organization. Altering or establishing a new entity poses challenges estimating costs and assessing impacts on decision making. Altering the characteristics of an existing entity or establishing a new organization with the structure to assume USPC's jurisdiction could involve an initial outlay of expenditures in order to begin operations. For example, start-up costs could include, among others, costs related to hiring and training personnel; renting or building work space; and establishing processes, procedures, and an infrastructure of technology. Such initial costs could possibly be neutralized by longer term savings attributable to reductions in USPC operations. However, because it is difficult to estimate both the specific start up costs involved and any projected efficiencies resulting from a modification to USPC's jurisdiction, a net cost effect is difficult to estimate as well. Estimating the dollar amount of start-up costs is challenging on several fronts. We spoke with representatives from the D.C. Office of the Deputy Mayor for Public Safety and Justice, which has oversight of D.C.'s criminal justice agencies and thus could have responsibility for supervising a new entity if the entity were to be housed in the D.C. government. According to these officials, they are not well positioned to generate a cost estimate for creating a new entity for three reasons. First, D.C. has not recently established an entirely new organization and thus these officials had no example upon which to base an estimate. Second, they noted that D.C. had recently consolidated several agencies, and that this process resulted in increased costs. Finally, they explained that estimates of this type are often required to be made years in advance in order to secure the necessary statutory and funding changes from their city council and Congress. Estimating projected efficiencies resulting from a modification to USPC's jurisdiction is also difficult. This is mainly because USPC would still incur operating costs related to its authorities over federal offenders even after its jurisdiction over D.C. offenders was transferred. In addition, USPC's operations with respect to D.C. offenders would still need to operate for some amount of time before a new or altered entity would be ready to assume its responsibilities. Thus, there would be some overlap of expenses before funding shifted. It is also important to note that D.C. government organizations that could oversee a new or altered entity already rely on federal funding. For example, the Superior Court of the District of Columbia received about $115 million in funding from the federal government in fiscal year 2014. Additionally, the Public Defender Service for District of Columbia's Parole Division, which provides representation to D.C. offenders facing revocation before USPC, among other things, received about $40 million in fiscal year 2014 from the federal government to do so. Thus, withdrawing funding from USPC to provide additional federal funds to another organization that already receives federal funding would likely just shift the federal burden. On the other hand, if the new or altered entity could perform USPC's functions related to D.C. offenders more efficiently and at a lower cost than USPC, then federal savings might be realized. Assessing USPC's current operational expenses and analyzing where efficiencies could be achieved would require a thorough evaluation. Such an evaluation, and the implementation of any changes resulting from it, could require upfront costs. Thus, it is difficult to estimate whether or not any longer term savings could be achieved after the initial investments to alter an existing entity or establish a new organization. Altering the characteristics of an existing entity or establishing a new organization with the structure to assume USPC's jurisdiction could initially result in delays in decision-making but the longer term impact is also challenging to assess. For example, the altered or newly created organization would need time to start up and establish formal agreements with its criminal justice partners such as CSOSA. According to USPC and CSOSA officials, this could result in the other entity experiencing potential delays in making parole or supervised release decisions. These officials further stated that such delays could result in increased incarceration and supervision costs, risks of litigation, and threats to public safety. Specifically, according to USPC and CSOSA officials, because offenders cannot be released until the organization processes decisions, delays in decision-making by the other entity could result in, for example, offenders staying incarcerated longer and having higher housing-related costs. These officials also stated that if offenders are under supervision and a decision to revoke their status is delayed, then this could result in more supervision-related expenses. Further, according to USPC and CSOSA officials, when decisions are made outside the statutory timeframes because of delays, offenders could be positioned to file lawsuits, which could result in additional costs related to, for example, defending the organization's actions. Finally, according to USPC officials, if courts were to rule in favor of those offenders, they could potentially offer early release or reduced sentences to them, which could result in public safety threats. We requested comments on a draft of this report from DOJ, CSOSA, and the D.C. government. They did not provide written comments. USPC and CSOSA provided technical comments, which we incorporated into the draft as appropriate. If you or your staff have any questions about our work, please contact me 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 report. GAO staff who made major contributions to this report are listed in appendix III. Table 6 describes the federal and local agencies involved with District of Columbia offenders. We identified these entities by reviewing our prior work on the District's criminal justice system and other information on the key responsibilities of these federal and District criminal justice organizations. David C. Maurer, (202) 512-9627 or [email protected]. In addition to the contact named above, Joy Booth (Assistant Director); David Alexander; Pedro Almoguera; Willie Commons, III; Emily Gunn; Eric Hauswirth; Susan Hsu; Katherine Lee; and Juan Tapia-Videla made key contributions to this report.
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USPC was established in 1976, in part to carry out a national parole policy that would govern the release of offenders to community supervision prior to completing their full custody sentences. USPC's budget is just over $13 million for fiscal year 2015. Over time, changes in laws have abolished parole and introduced supervised release--a new form of postincarceration supervision. As a result, USPC has been reauthorized and has authority to grant and revoke parole for eligible federal and D.C. offenders and to revoke supervised release for D.C. offenders violating the terms of their release. USPC's current authorization is set to expire in 2018. This report addresses (1) changes in the number of offenders under USPC's jurisdiction from fiscal years 2002 through 2014 and (2) the organizational characteristics needed for an entity to feasibly assume jurisdiction of D.C. offenders from USPC, and the feasibility and implications of such a transfer. GAO analyzed USPC data on federal and D.C. offenders from fiscal years 2002-2014--the most recent years for which reliable data were available--as well as DOJ reports on USPC and USPC policies, and determined that the data were sufficiently reliable for our purposes. GAO also discussed with USPC and some of its criminal justice partners the feasibility of transferring USPC's jurisdiction for D.C. offenders and any related challenges. From fiscal years 2002 through 2014, the total number of offenders under the Department of Justice's (DOJ) U.S. Parole Commission's (USPC) jurisdiction declined 26 percent from about 23,000 to about 17,000. Specifically, following the abolition of parole, the number of offenders on or eligible for parole declined 67 percent among federal offenders, and 74 percent among D.C. offenders. However, following the introduction of supervised release, the number of D.C. offenders on supervised release or serving a prison sentence that includes supervised release increased 606 percent from fiscal year 2002 to fiscal year 2011, and then slightly declined through fiscal year 2014. Transferring USPC's jurisdiction for D.C. offenders would require that an entity has three key organizational characteristics to assume this jurisdiction, and altering or establishing a new entity poses challenges. Based on our discussions with officials from USPC and other organizations, including those from the D.C. government, these three key organizational characteristics are: statutory authority for asserting jurisdiction over D.C. offenders; processes, procedures and personnel in place for handling parole and supervised release cases; and formal agreements with other criminal justice organizations for making parole and supervised release decisions. We identified 17 criminal justice entities with the potential to assume USPC's jurisdiction for D.C. offenders; however none currently possesses the three key organizational characteristics. Thus, transferring jurisdiction is not feasible without altering an existing or establishing a new entity, and would pose challenges related to estimating costs and assessing impacts on decision making. GAO is not making any recommendations.
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A domestic bioterrorist attack is considered to be a low-probability event, in part because of the various difficulties involved in successfully delivering biological agents to achieve large-scale casualties. However, a number of cases involving biological agents, including at least one completed bioterrorist act and numerous threats and hoaxes, have occurred domestically. In 1984, a group intentionally contaminated salad bars in restaurants in Oregon with salmonella bacteria. Although no one died, 751 people were diagnosed with foodborne illness. Some experts predict that more domestic bioterrorist attacks are likely to occur. The burden of responding to such an attack would fall initially on personnel in state and local emergency response agencies. These "first responders" include firefighters, emergency medical service personnel, law enforcement officers, public health officials, health care workers (including doctors, nurses, and other medical professionals), and public works personnel. If the emergency were to require federal disaster assistance, federal departments and agencies would respond according to responsibilities outlined in the Federal Response Plan. Several groups, including the Advisory Panel to Assess Domestic Response Capabilities for Terrorism Involving Weapons of Mass Destruction (known as the Gilmore Panel), have assessed the capabilities at the federal, state, and local levels to respond to a domestic terrorist incident involving a weapon of mass destruction (WMD), that is, a chemical, biological, radiological, or nuclear agent or weapon. While many aspects of an effective response to bioterrorism are the same as those for any disaster, there are some unique features. For example, if a biological agent is released covertly, it may not be recognized for a week or more because symptoms may not appear for several days after the initial exposure and may be misdiagnosed at first. In addition, some biological agents, such as smallpox, are communicable and can spread to others who were not initially exposed. These differences require a type of response that is unique to bioterrorism, including infectious disease surveillance, epidemiologic investigation, laboratory identification of biological agents, and distribution of antibiotics to large segments of the population to prevent the spread of an infectious disease. However, some aspects of an effective response to bioterrorism are also important in responding to any type of large-scale disaster, such as providing emergency medical services, continuing health care services delivery, and managing mass fatalities. Federal spending on domestic preparedness for terrorist attacks involving WMDs has risen 310 percent since fiscal year 1998, to approximately $1.7 billion in fiscal year 2001, and may increase significantly after the events of September 11, 2001. However, only a portion of these funds were used to conduct a variety of activities related to research on and preparedness for the public health and medical consequences of a bioterrorist attack. We cannot measure the total investment in such activities because departments and agencies provided funding information in various forms--as appropriations, obligations, or expenditures. Because the funding information provided is not equivalent, we summarized funding by department or agency, but not across the federal government (see apps. I and II). Reported funding generally shows increases from fiscal year 1998 to fiscal year 2001. Several agencies received little or no funding in fiscal year 1998. For example, within the Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention's (CDC) Bioterrorism Preparedness and Response Program was established and first received funding in fiscal year 1999 (see app. I and app. II). Its funding has increased from approximately $121 million at that time to approximately $194 million in fiscal year 2001. Research is currently being done to enable the rapid identification of biological agents in a variety of settings; develop new or improved vaccines, antibiotics, and antivirals to improve treatment and vaccination for infectious diseases caused by biological agents; and develop and test emergency response equipment such as respiratory and other personal protective equipment. Appendix I provides information on the total reported funding for all the departments and agencies carrying out research, along with examples of this research. The Department of Agriculture (USDA), Department of Defense (DOD), Department of Energy, HHS, Department of Justice (DOJ), Department of the Treasury, and the Environmental Protection Agency (EPA) have all sponsored or conducted projects to improve the detection and characterization of biological agents in a variety of different settings, from water to clinical samples (such as blood). For example, EPA is sponsoring research to improve its ability to detect biological agents in the water supply. Some of these projects, such as those conducted or sponsored by DOD and DOJ, are not primarily for the public health and medical consequences of a bioterrorist attack against the civilian population, but could eventually benefit research for those purposes. Departments and agencies are also conducting or sponsoring studies to improve treatment and vaccination for diseases caused by biological agents. For example, HHS' projects include basic research sponsored by the National Institutes of Health to develop drugs and diagnostics and applied research sponsored by the Agency for Healthcare Research and Quality to improve health care delivery systems by studying the use of information systems and decision support systems to enhance preparedness for the delivery of medical care in an emergency. In addition, several agencies, including the Department of Commerce's National Institute of Standards and Technology and DOJ's National Institute of Justice are conducting research that focuses on developing performance standards and methods for testing the performance of emergency response equipment, such as respirators and personal protective equipment. Federal departments' and agencies' preparedness efforts have included efforts to increase federal, state, and local response capabilities, develop response teams of medical professionals, increase availability of medical treatments, participate in and sponsor terrorism response exercises, plan to aid victims, and provide support during special events such as presidential inaugurations, major political party conventions, and the Superbowl. Appendix II contains information on total reported funding for all the departments and agencies with bioterrorism preparedness activities, along with examples of these activities. Several federal departments and agencies, such as the Federal Emergency Management Agency (FEMA) and CDC, have programs to increase the ability of state and local authorities to successfully respond to an emergency, including a bioterrorist attack. These departments and agencies contribute to state and local jurisdictions by helping them pay for equipment and develop emergency response plans, providing technical assistance, increasing communications capabilities, and conducting training courses. Federal departments and agencies have also been increasing their own capacity to identify and deal with a bioterrorist incident. For example, CDC, USDA, and the Food and Drug Administration (FDA) are improving surveillance methods for detecting disease outbreaks in humans and animals. They have also established laboratory response networks to maintain state-of-the-art capabilities for biological agent identification and the characterization of human clinical samples. Some federal departments and agencies have developed teams to directly respond to terrorist events and other emergencies. For example, HHS' Office of Emergency Preparedness (OEP) created Disaster Medical Assistance Teams to provide medical treatment and assistance in the event of an emergency. Four of these teams, known as National Medical Response Teams, are specially trained and equipped to provide medical care to victims of WMD events, such as bioterrorist attacks. Several agencies are involved in increasing the availability of medical supplies that could be used in an emergency, including a bioterrorist attack. CDC's National Pharmaceutical Stockpile contains pharmaceuticals, antidotes, and medical supplies that can be delivered anywhere in the United States within 12 hours of the decision to deploy. The stockpile was deployed for the first time on September 11, 2001, in response to the terrorist attacks on New York City. Federally initiated bioterrorism response exercises have been conducted across the country. For example, in May 2000, many departments and agencies took part in the Top Officials 2000 exercise (TOPOFF 2000) in Denver, Colorado, which featured the simulated release of a biological agent. Participants included local fire departments, police, hospitals, the Colorado Department of Public Health and the Environment, the Colorado Office of Emergency Management, the Colorado National Guard, the American Red Cross, the Salvation Army, HHS, DOD, FEMA, the Federal Bureau of Investigation (FBI), and EPA. Several agencies also provide assistance to victims of terrorism. FEMA can provide supplemental funds to state and local mental health agencies for crisis counseling to eligible survivors of presidentially declared emergencies. In the aftermath of the recent terrorist attacks, HHS released $1 million in funding to New York State to support mental health services and strategic planning for comprehensive and long-term support to address the mental health needs of the community. DOJ's Office of Justice Programs (OJP) also manages a program that provides funds for victims of terrorist attacks that can be used to provide a variety of services, including mental health treatment and financial assistance to attend related criminal proceedings. Federal departments and agencies also provide support at special events to improve response in case of an emergency. For example, CDC has deployed a system to provide increased surveillance and epidemiological capacity before, during, and after special events. Besides improving emergency response at the events, participation by departments and agencies gives them valuable experience working together to develop and practice plans to combat terrorism. Federal departments and agencies are using a variety of interagency plans, work groups, and agreements to coordinate their activities to combat terrorism. However, we found evidence that coordination remains fragmented. For example, several different agencies are responsible for various coordination functions, which limits accountability and hinders unity of effort; several key agencies have not been included in bioterrorism-related policy and response planning; and the programs that agencies have developed to provide assistance to state and local governments are similar and potentially duplicative. The President recently took steps to improve oversight and coordination, including the creation of the Office of Homeland Security. Over 40 federal departments and agencies have some role in combating terrorism, and coordinating their activities is a significant challenge. We identified over 20 departments and agencies as having a role in preparing for or responding to the public health and medical consequences of a bioterrorist attack. Appendix III, which is based on the framework given in the Terrorism Incident Annex of the Federal Response Plan, shows a sample of the coordination efforts by federal departments and agencies with responsibilities for the public health and medical consequences of a bioterrorist attack, as they existed prior to the recent creation of the Office of Homeland Security. This figure illustrates the complex relationships among the many federal departments and agencies involved. Departments and agencies use several approaches to coordinate their activities on terrorism, including interagency response plans, work groups, and formal agreements. Interagency plans for responding to a terrorist incident help outline agency responsibilities and identify resources that could be used during a response. For example, the Federal Response Plan provides a broad framework for coordinating the delivery of federal disaster assistance to state and local governments when an emergency overwhelms their ability to respond effectively. The Federal Response Plan also designates primary and supporting federal agencies for a variety of emergency support operations. For example, HHS is the primary agency for coordinating federal assistance in response to public health and medical care needs in an emergency. HHS could receive support from other agencies and organizations, such as DOD, USDA, and FEMA, to assist state and local jurisdictions. Interagency work groups are being used to minimize duplication of funding and effort in federal activities to combat terrorism. For example, the Technical Support Working Group is chartered to coordinate interagency research and development requirements across the federal government in order to prevent duplication of effort between agencies. The Technical Support Working Group, among other projects, helped to identify research needs and fund a project to detect biological agents in food that can be used by both DOD and USDA. Formal agreements between departments and agencies are being used to share resources and knowledge. For example, CDC contracts with the Department of Veterans Affairs (VA) to purchase drugs and medical supplies for the National Pharmaceutical Stockpile because of VA's purchasing power and ability to negotiate large discounts. Overall coordination of federal programs to combat terrorism is fragmented. For example, several agencies have coordination functions, including DOJ, the FBI, FEMA, and the Office of Management and Budget. Officials from a number of the agencies that combat terrorism told us that the coordination roles of these various agencies are not always clear and sometimes overlap, leading to a fragmented approach. We have found that the overall coordination of federal research and development efforts to combat terrorism is still limited by several factors, including the compartmentalization or security classification of some research efforts.The Gilmore Panel also concluded that the current coordination structure does not provide for the requisite authority or accountability to impose the discipline necessary among the federal agencies involved. The multiplicity of federal assistance programs requires focus and attention to minimize redundancy of effort. Table 1 shows some of the federal programs providing assistance to state and local governments for emergency planning that would be relevant to responding to a bioterrorist attack. While the programs vary somewhat in their target audiences, the potential redundancy of these federal efforts highlights the need for scrutiny. In our report on combating terrorism, issued on September 20, 2001, we recommended that the President, working closely with the Congress, consolidate some of the activities of DOJ's OJP under FEMA. We have also recommended that the federal government conduct multidisciplinary and analytically sound threat and risk assessments to define and prioritize requirements and properly focus programs and investments in combating terrorism. Such assessments would be useful in addressing the fragmentation that is evident in the different threat lists of biological agents developed by federal departments and agencies. Understanding which biological agents are considered most likely to be used in an act of domestic terrorism is necessary to focus the investment in new technologies, equipment, training, and planning. Several different agencies have or are in the process of developing biological agent threat lists, which differ based on the agencies' focus. For example, CDC collaborated with law enforcement, intelligence, and defense agencies to develop a critical agent list that focuses on the biological agents that would have the greatest impact on public health. The FBI, the National Institute of Justice, and the Technical Support Working Group are completing a report that lists biological agents that may be more likely to be used by a terrorist group working in the United States that is not sponsored by a foreign government. In addition, an official at USDA's Animal and Plant Health Inspection Service told us that it uses two lists of agents of concern for a potential bioterrorist attack. These lists of agents, only some of which are capable of making both animals and humans sick, were developed through an international process. According to agency officials, separate threat lists are appropriate because of the different focuses of these agencies. In our view, the existence of competing lists makes the assignment of priorities difficult for state and local officials. Fragmentation is also apparent in the composition of groups of federal agencies involved in bioterrorism-related planning and policy. Officials at the Department of Transportation (DOT) told us that that even though the nation's transportation centers account for a significant percentage of the nation's potential terrorist targets, the department was not part of the founding group of agencies that worked on bioterrorism issues and has not been included in bioterrorism response plans. DOT officials also told us that the department is supposed to deliver supplies for FEMA under the Federal Response Plan, but it was not brought into the planning early enough to understand the extent of its responsibilities in the transportation process. The department learned what its responsibilities would be during the TOPOFF 2000 exercise, which simulated a release of a biological agent. In May 2001, the President asked the Vice President to oversee the development of a coordinated national effort dealing with WMDs. At the same time, the President asked the Director of FEMA to establish an Office of National Preparedness to implement the results of the Vice President's effort that relate to programs within federal agencies that address consequence management resulting from the use of WMDs. The purpose of this effort is to better focus policies and ensure that programs and activities are fully coordinated in support of building the needed preparedness and response capabilities. In addition, on September 20, 2001, the President announced the creation of the Office of Homeland Security to lead, oversee, and coordinate a comprehensive national strategy to protect the country from terrorism and respond to any attacks that may occur. These actions represent potentially significant steps toward improved coordination of federal activities. Our recent report highlighted a number of important characteristics and responsibilities necessary for a single focal point, such as the proposed Office of Homeland Security, to improve coordination and accountability. Nonprofit research organizations, congressionally chartered advisory panels, government documents, and articles in peer-reviewed literature have identified concerns about the preparedness of states and local areas to respond to a bioterrorist attack. These concerns include insufficient state and local planning for response to terrorist events, a lack of hospital participation in training on terrorism and emergency response planning, questions regarding the timely availability of medical teams and resources in an emergency, and inadequacies in the public health infrastructure. In our view, there are weaknesses in three key areas of the public health infrastructure: training of health care providers, communication among responsible parties, and capacity of laboratories and hospitals, including the ability to treat mass casualties. Questions exist regarding how effectively federal programs have prepared state and local governments to respond to terrorism. All 50 states and approximately 255 local jurisdictions have received or are scheduled to receive at least some federal assistance, including training and equipment grants, to help them prepare for a terrorist WMD incident. In 1997, FEMA identified planning and equipment for response to nuclear, biological, and chemical incidents as areas in need of significant improvement at the state level. However, an October 2000 research report concluded that even those cities receiving federal aid are still not adequately prepared to respond to a bioterrorist attack. Inadequate training and planning for bioterrorism response by hospitals is a major problem. The Gilmore Panel concluded that the level of expertise in recognizing and dealing with a terrorist attack involving a biological or chemical agent is problematic in many hospitals. A recent research report concluded that hospitals need to improve their preparedness for mass casualty incidents. Local officials told us that it has been difficult to get hospitals and medical personnel to participate in local training, planning, and exercises to improve their preparedness. Local officials are also concerned about whether the federal government could quickly deliver enough medical teams and resources to help after a biological attack. Agency officials say that federal response teams, such as Disaster Medical Assistance Teams, could be on site within 12 to 24 hours. However, local officials who have deployed with such teams say that the federal assistance probably would not arrive for 24 to 72 hours. Local officials also told us that they were concerned about the time and resources required to prepare and distribute drugs from the National Pharmaceutical Stockpile during an emergency. Partially in response to these concerns, CDC has developed training for state and local officials in using the stockpile and will deploy a small staff with the supplies to assist the local jurisdiction with distribution. Components of the nation's public health system are also not well prepared to detect or respond to a bioterrorist attack. In particular, weaknesses exist in the key areas of training, communication, and hospital and laboratory capacity. It has been reported that physicians and nurses in emergency rooms and private offices, who will most likely be the first health care workers to see patients following a bioterrorist attack, lack the needed training to ensure their ability to make observations of unusual symptoms and patterns. Most physicians and nurses have never seen cases of certain diseases, such as smallpox or plague, and some biological agents initially produce symptoms that can be easily confused with influenza or other, less virulent illnesses, leading to a delay in diagnosis or identification. Medical laboratory personnel require training because they also lack experience in identifying biological agents such as anthrax. Because it could take days to weeks to identify the pathogen used in a biological attack, good channels of communication among the parties involved in the response are essential to ensure that the response proceeds as rapidly as possible. Physicians will need to report their observations to the infectious disease surveillance system. Once the disease outbreak has been recognized, local health departments will need to collaborate closely with personnel across a variety of agencies to bring in the needed expertise and resources. They will need to obtain the information necessary to conduct epidemiological investigations to establish the likely site and time of exposure, the size and location of the exposed population, and the prospects for secondary transmission. However, past experiences with infectious disease response have revealed a lack of sufficient and secure channels for sharing information. Our report last year on the initial West Nile virus outbreak in New York City found that as the public health investigation grew, lines of communication were often unclear, and efforts to keep everyone informed were awkward, such as conference calls that lasted for hours and involved dozens of people. Adequate laboratory and hospital capacity is also a concern. Reductions in public health laboratory staffing and training have affected the ability of state and local authorities to identify biological agents. Even the initial West Nile virus outbreak in 1999, which was relatively small and occurred in an area with one of the nation's largest local public health agencies, taxed the federal, state, and local laboratory resources. Both the New York State and the CDC laboratories were inundated with requests for tests, and the CDC laboratory handled the bulk of the testing because of the limited capacity at the New York laboratories. Officials indicated that the CDC laboratory would have been unable to respond to another outbreak, had one occurred at the same time. In fiscal year 2000, CDC awarded approximately $11 million to 48 states and four major urban health departments to improve and upgrade their surveillance and epidemiological capabilities. With regard to hospitals, several federal and local officials reported that there is little excess capacity in the health care system in most communities for accepting and treating mass casualty patients. Research reports have concluded that the patient load of a regular influenza season in the late 1990s overtaxed primary care facilities and that emergency rooms in major metropolitan areas are routinely filled and unable to accept patients in need of urgent care. We found that federal departments and agencies are participating in a variety of research and preparedness activities that are important steps in improving our readiness. Although federal departments and agencies have engaged in a number of efforts to coordinate these activities on a formal and informal basis, we found that coordination between departments and agencies is fragmented. In addition, we remain concerned about weaknesses in public health preparedness at the state and local levels, a lack of hospital participation in training on terrorism and emergency response planning, the timely availability of medical teams and resources in an emergency, and, in particular, inadequacies in the public health infrastructure. The latter include weaknesses in the training of health care providers, communication among responsible parties, and capacity of laboratories and hospitals, including the ability to treat mass casualties. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-7118. Barbara Chapman, Robert Copeland, Marcia Crosse, Greg Ferrante, Deborah Miller, and Roseanne Price also made key contributions to this statement. We identified the following federal departments and agencies as having responsibilities related to the public health and medical consequences of a bioterrorist attack: USDA - U.S. Department of Agriculture APHIS - Animal and Plant Health Inspection Service ARS - Agricultural Research Service FSIS - Food Safety Inspection Service OCPM - Office of Crisis Planning and Management DOC - Department of Commerce NIST - National Institute of Standards and Technology DOD - Department of Defense DARPA - Defense Advanced Research Projects Agency JTFCS - Joint Task Force for Civil Support National Guard U.S. Army DOE - Department of Energy HHS - Department of Health and Human Services AHRQ - Agency for Healthcare Research and Quality CDC - Centers for Disease Control and Prevention FDA - Food and Drug Administration NIH - National Institutes of Health OEP - Office of Emergency Preparedness DOJ - Department of Justice FBI - Federal Bureau of Investigation OJP - Office of Justice Programs DOT - Department of Transportation USCG - U.S. Coast Guard Treasury - Department of the Treasury USSS - U.S. Secret Service VA - Department of Veterans Affairs EPA - Environmental Protection Agency FEMA - Federal Emergency Management Agency Figure 1, which is based on the framework given in the Terrorism Incident Annex of the Federal Response Plan, shows a sample of the coordination activities by these federal departments and agencies, as they existed prior to the recent creation of the Office of Homeland Security. This figure illustrates the complex relationships among the many federal departments and agencies involved. The following coordination activities are represented on the figure: OMB Oversight of Terrorism Funding. The Office of Management and Budget established a reporting system on the budgeting and expenditure of funds to combat terrorism, with goals to reduce overlap and improve coordination as part of the annual budget cycle. Federal Response Plan - Health and Medical Services Annex. This annex to the Federal Response Plan states that HHS is the primary agency for coordinating federal assistance to supplement state and local resources in response to public health and medical care needs in an emergency, including a bioterrorist attack. Informal Working Group - Equipment Request Review. This group meets as necessary to review equipment requests of state and local jurisdictions to ensure that duplicative funding is not being given for the same activities. Agreement on Tracking Diseases in Animals That Can Be Transmitted to Humans. This group is negotiating an agreement to share information and expertise on tracking diseases that can be transmitted from animals to people and could be used in a bioterrorist attack. National Medical Response Team Caches. These caches form a stockpile of drugs for OEP's National Medical Response Teams. Domestic Preparedness Program. This program was formed in response to the National Defense Authorization Act of Fiscal Year 1997 (P.L. 104-201) and required DOD to enhance the capability of federal, state, and local emergency responders regarding terrorist incidents involving WMDs and high-yield explosives. As of October 1, 2000, DOD and DOJ share responsibilities under this program. Office of National Preparedness - Consequence Management of WMD Attack. In May 2001, the President asked the Director of FEMA to establish this office to coordinate activities of the listed agencies that address consequence management resulting from the use of WMDs. Food Safety Surveillance Systems. These systems are FoodNet and PulseNet, two surveillance systems for identifying and characterizing contaminated food. National Disaster Medical System. This system, a partnership between federal agencies, state and local governments, and the private sector, is intended to ensure that resources are available to provide medical services following a disaster that overwhelms the local health care resources. Collaborative Funding of Smallpox Research. These agencies conduct research on vaccines for smallpox. National Pharmaceutical Stockpile Program. This program maintains repositories of life-saving pharmaceuticals, antidotes, and medical supplies that can be delivered to the site of a biological (or other) attack. National Response Teams. The teams constitute a national planning, policy, and coordinating body to provide guidance before and assistance during an incident. Interagency Group for Equipment Standards. This group develops and maintains a standardized equipment list of essential items for responding to a terrorist WMD attack. (The complete name for this group is the Interagency Board for Equipment Standardization and Interoperability.) Force Packages Response Team. This is a grouping of military units that are designated to respond to an incident. Cooperative Work on Rapid Detection of Biological Agents in Animals, Plants, and Food. This cooperative group is developing a system to improve on-site rapid detection of biological agents in animals, plants, and food. Bioterrorism: Public Health and Medical Preparedness (GAO-02-141T, Oct. 9, 2001). Bioterrorism: Coordination and Preparedness (GAO-02-129T, Oct. 5, 2001). Bioterrorism: Federal Research and Preparedness Activities (GAO-01-915, Sept. 28, 2001). Combating Terrorism: Selected Challenges and Related Recommendations (GAO-01-822, Sept. 20, 2001). Combating Terrorism: Comments on H.R. 525 to Create a President's Council on Domestic Terrorism Preparedness (GAO-01-555T, May 9, 2001). Combating Terrorism: Accountability Over Medical Supplies Needs Further Improvement (GAO-01-666T, May 1, 2001). Combating Terrorism: Observations on Options to Improve the FederalResponse (GAO-01-660T, Apr. 24, 2001). Combating Terrorism: Accountability Over Medical Supplies Needs Further Improvement (GAO-01-463, Mar. 30, 2001). Combating Terrorism: Comments on Counterterrorism Leadership and National Strategy (GAO-01-556T, Mar. 27, 2001). Combating Terrorism: FEMA Continues to Make Progress in Coordinating Preparedness and Response (GAO-01-15, Mar. 20, 2001). Combating Terrorism: Federal Response Teams Provide Varied Capabilities; Opportunities Remain to Improve Coordination (GAO-01-14, Nov. 30, 2000). West Nile Virus Outbreak: Lessons for Public Health Preparedness (GAO/HEHS-00-180, Sept. 11, 2000). Combating Terrorism: Linking Threats to Strategies and Resources (GAO/T-NSIAD-00-218, July 26, 2000). Chemical and Biological Defense: Observations on Nonmedical Chemical and Biological R&D Programs (GAO/T-NSIAD-00-130, Mar. 22, 2000).
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Federal research and preparedness activities related to bioterrorism center on detecting of such agents; developing new or improved vaccines, antibiotics, and antivirals; and developing performance standards for emergency response equipment. Preparedness activities include: (1) increasing federal, state, and local response capabilities; (2) developing response teams; (3) increasing the availability of medical treatments; (4) participating in and sponsoring exercises; (5) aiding victims; and (6) providing support at special events, such as presidential inaugurations and Olympic games. To coordinate their activities, federal agencies are developing interagency response plans, participating in various interagency work groups, and entering into formal agreements with each other to share resources and capabilities. However, GAO found that coordination of federal terrorism research, preparedness, and response programs is fragmented, raising concerns about the ability of states and localities to respond to a bioterrorist attack. These concerns include poor state and local planning and the lack of hospital participation in training on terrorism and emergency response planning. This report summarized a September 2001 report (GAO-01-915).
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Contractor protective forces--including 2,339 unionized officers and their 376 nonunionized supervisors--are not uniformly managed, organized, staffed, trained, or compensated across the six DOE sites we reviewed. For example, we found the following: Three different types of protective force contracts are in use. These contract types influence how protective force operations are overseen by federal officials and how protective force operations are coordinated with other site operations. The size of sites' protective forces ranges from 233 to 533 uniformed, unionized officers, and the composition of these forces and their associated duties and responsibilities vary based on their categorization. Protective forces are divided into four categories: Security Officer (SO): Responsible for unarmed security duties such as checking for valid security badges. SOs represent about 5 percent of total unionized protective forces. Security Police Officer-I (SPO-I): Primarily responsible for protecting fixed posts during combat. SPO-Is represent about 34 percent of total unionized protective forces. These types of contracts include (1) direct contracts between protective force contractors and DOE or NNSA; (2) a component of management and operating (M&O) contracts between M&O contractors and DOE or NNSA; and (3) subcontracts between an M&O contractor and a protective force contractor. SPO-II: Primarily responsible for mobile combat to prevent terrorists from reaching their target but can also be assigned to fixed posts. SPO- IIs represent about 39 percent of total unionized protective forces. SPO-III: Primarily responsible for mobile combat and special response skills, such as those needed to recapture SNM (on site) and recover SNM (off site) if terrorists succeed in acquiring it. SPO-IIIs are usually organized into special response teams, and SPO-IIIs represent about 19 percent of total unionized protective forces. Each protective force has uniformed, nonunionized supervisors, but the duties, responsibilities, and ranks of these supervisors are generally site specific and not detailed in DOE's protective force policies. DOE policy mandates certain protective force training but allows sites some flexibility in implementation. For example, newly hired protective forces must complete DOE's Basic Security Police Officer Training class, but these courses, offered by each of the sites we reviewed, range in length from 9 to 16 weeks. In addition, we found that one site had largely completed the implementation of most aspects of the TRF initiative, but others are not expecting to do so until the end of fiscal year 2011. Pay, based on the site and the category of protective forces, ranges from nearly $19 per hour to over $26 per hour. Overtime pay, accrued in different ways at the sites, and other premium pay, such as additional pay for night shifts and holidays, may significantly increase protective force pay. While all employers contributed to active protective force members' medical, dental, and life insurance benefits, they differed in the amount of their contributions and in the retirement benefits they offered. In general, new hires were offered defined contribution plans, such as a 401(k) plan, that provides eventual retirement benefits that depend on the amount of contributions by the employer or employee, as appropriate, as well as the earnings and losses of the invested funds. At the time of our review, two sites offered new hires defined benefit plans that promised retirees a certain monthly payment at retirement. Two other sites had defined benefit plans that covered protective force members hired before a particular date but were not open to new hires. We found two primary reasons for these differences. First, protective forces at all six of the sites we reviewed operate under separate contracts and collective bargaining agreements. Second, DOE has a long-standing contracting approach of defining desired results and outcomes--such as effective security--instead of detailed, prescriptive guidance on how to achieve those outcomes. While creating some of the differences noted, this approach, as we have previously reported, allows security to be closely tailored to site- and mission-specific needs. Since its inception in 2005, TRF has raised concerns in DOE security organizations, among protective force contractors, and in protective force unions about the ability of protective forces--especially older individuals serving in protective forces--to continue meeting DOE's weapons, physical fitness, and medical qualifications. As we reported in 2005, some site security officials recognized they would have to carefully craft career transition plans for protective force officers who may not be able to meet TRF standards. Adding to these concerns are DOE's broader efforts to manage its long-term postretirement and pension liabilities for its contractors, which could have a negative impact on retirement eligibility and benefits for protective forces. In 2006, DOE issued its Contractor Pension and Medical Benefits Policy (Notice 351.1), which was designed to limit DOE's long-term pension and postretirement liabilities. A coalition of protective force unions stated that this policy moved them in the opposite direction from their desire for early and enhanced retirement benefits. Concerns over TRF implementation and DOE's efforts to limit long-term pension and postretirement liabilities contributed to a 44-day protective force strike at the Pantex Plant in 2007. Initially, Pantex contractor security officials designated all of the plant's protective force positions as having to meet a more demanding DOE combatant standard, a move that could have disqualified a potentially sizable number of protective forces from duty. Under the collective bargaining agreement that was eventually negotiated in 2007, some protective forces were allowed to meet a less demanding combatant standard. DOE has also rescinded its 2006 Contractor Pension and Medical Benefits Policy. However, according to protective force union officials, failure to resolve issues surrounding TRF implementation and retirement benefits could lead to strikes at three sites with large numbers of protective forces--Pantex, the Savannah River Site, and Y-12--when their collective bargaining agreements expire in 2012. To manage its protective forces more effectively and uniformly, over the past decades DOE has considered two principal options--improving elements of the existing contractor system or creating a federal protective force. We identified five major criteria that DOE officials, protective force contractors, and union officials have used to assess the advantages and disadvantages of these options. Overall, in comparing these criteria against the two principal options, we found that neither contractor nor federal forces seems overwhelmingly superior, but each has offsetting advantages and disadvantages. Either option could result in effective and more uniform security if well-managed. However, we identified transitional problems with converting the current protective force to a federalized force. When assessing whether to improve the existing contractor system or federalize protective forces, DOE, protective force contractors, and union officials have used the following five criteria: A personnel system that supports force resizing and ensures high-quality protective force members. Greater standardization of protective forces across sites to more consistently support high performance and ready transfer of personnel between sites. Better DOE management and oversight to ensure effective security. Prevention or better management of protective force strikes. Containment of the forces' costs within expected budgets. Evaluating the two principal options--maintaining the current security force structure or federalizing the security force--against these criteria, we found that if the forces are well-managed, either contractor or federal forces could result in effective and more uniform security for several reasons: First, both options have offsetting advantages and disadvantages, with neither option emerging as clearly superior. When compared with a possible federalized protective force, a perceived advantage of a contractor force is greater flexibility for hiring or terminating an employee to resize the forces; a disadvantage is that a contractor force can strike. In contrast, federalization could better allow protective forces to advance or laterally transfer to other DOE sites to meet protective force members' needs or DOE's need to resize particular forces, something that is difficult to do under the current contractor system. Second, a key disadvantage of the current contractor system, such as potential strikes for contractor forces, does not preclude effective operations if the security force is well-managed. For instance, a 2009 memo signed by the NNSA administrator stated that NNSA had demonstrated that it can effectively manage strikes through the use of replacement protective forces. Third, distinctions between the two options can be overstated by comparing worst- and best-case scenarios, when similar conditions might be realized under either option. For example, a union coalition advocates federalization to get early and enhanced retirement benefits, which are available for law enforcement officers and some other federal positions, to ensure a young and vigorous workforce. However, such benefits might also be provided to contractor protective forces. Reliably estimating the costs to compare protective force options proved difficult and precluded our detailed reporting on it. Since contractor and federal forces could each have many possible permutations, choosing any particular option to assess would be arbitrary. For example, a 2008 NNSA- sponsored study identified wide-ranging federalization options, such as federalizing all or some SPO positions at some or all facilities or reorganizing them under an existing or a new agency. In addition, DOE would have to decide on the hypothetical options' key cost factors before it could reasonably compare costs. For example, when asked about some key cost factors for federalization, an NNSA Service Center official said that a detailed workforce analysis would be needed to decide whether DOE would either continue to use the same number of SPOs with high amounts of scheduled overtime or hire a larger number of SPOs who would work fewer overtime hours. Also, the official said that until management directs a particular work schedule for federalized protective forces, there is no definitive answer to the applicable overtime rules, such as whether overtime begins after 8 hours in a day. The amount of overtime and the factors affecting it are crucial to a sound cost estimate because overtime pay can now account for up to about 50 percent of pay for worked hours. If protective forces were to be federalized under existing law, the current forces probably would not be eligible for early and enhanced retirement benefits and might face a loss of pay or even their jobs. For example: According to officials at the Office of Personnel Management (OPM) and NNSA's Service Center, if contractor SPOs were federalized under existing law, they would likely be placed into the federal security guard (GS-0085) job series. Although a coalition of unions has sought federalization to allow members to have early and enhanced retirement benefits, which allows employees in certain federal jobs to retire at age 50 with 20 years of service, federal security guards are not eligible for these benefits. Our analysis indicated transitioning protective force members may receive lower pay rates as federal security guards. Contractor force members receive top pay rates that could not generally be matched under the likely General Schedule pay grades. If protective forces were federalized, OPM officials told us that current members would not be guaranteed a federal job and would have to compete for the new federal positions; thus, they risk not being hired. Nonveteran protective force members are particularly at risk because competition for federal security guard positions is restricted to those with veterans' preference, if they are available. According to OPM officials, legislation would be required to provide federal protective forces with early and enhanced retirement benefits because their positions do not fit the current definition of law enforcement officers that would trigger such benefits. However, if such legislation were enacted, these benefits' usual provisions could create hiring and retirement difficulties for older force members. Older members might not be rehired because agencies are typically authorized to set a maximum age, often age 37, for entry into federal positions with early retirement. In addition, even if there were a waiver from the maximum age of hire, older protective forces members could not retire at age 50 because they would have had to work 20 years to meet the federal service requirement for "early" retirement benefits. These forces could retire earlier if they were granted credit for their prior years of service under DOE and NNSA contracts. However, OPM officials told us OPM would strongly oppose federal retirement benefits being granted for previous years of contractor service (retroactive benefits). According to these officials, these retroactive benefits would be without precedent and would violate the basic concept that service credit for retirement benefits is only available for eligible employment at the time it was performed. Moreover, retroactive benefits would create an unfunded liability for federal retirement funds. In a joint January 2009 memorandum, senior officials from NNSA and DOE rejected the federalization of protective forces as an option and supported the continued use of contracted protective forces--but with improvements. They concluded that, among other things, the transition to a federal force would be costly and would be likely to provide little, if any, increase in security effectiveness. However, these officials recognized that the current contractor system could be improved by addressing some of the issues that federalization might have resolved. In particular, they announced the pursuit of an initiative to better standardize protective forces' training and equipment. According to these officials, more standardization serves to increase effectiveness, provide cost savings, and facilitate better responses to potential work stoppages. In addition, in March 2009, DOE commissioned a study group to recommend ways to overcome the personnel system problems that might prevent protective force members from working to a normal retirement age, such as 60 to 65, and building reasonable retirement benefits. In addition, NNSA established a Security Commodity Team to establish standardized procurement processes and to identify and test security equipment that can be used across sites. According to NNSA officials, NNSA established a common mechanism in December 2009 for sites to procure ammunition. In addition, to move toward more standardized operations and a more centrally managed protective force program, NNSA started a broad security review to identify possible improvements. As a result, according to NNSA officials in January 2010, NNSA has developed a draft standard for protective force operations, which is intended to clarify both policy expectations and a consistent security approach that is both effective and efficient. For the personnel system initiative to enhance career longevity and retirement options, in June 2009, the DOE-chartered study group made 29 recommendations that were generally designed to enable members to reach a normal retirement age within the protective force, take another job within DOE, or transition to a non-DOE career. The study group identified 14 of its 29 career and retirement recommendations as involving low- or no-cost actions that could conceivably be implemented quickly. For example, some recommendations call for reviews to find ways to maximize the number of armed and unarmed positions that SPOs can fill when they can no longer meet their current combatant requirements. Other recommendations focus on providing training and planning assistance for retirement and job transitions. The study group also recognized that a majority (15 out of 29) of its personnel system recommendations, such as enhancing retirement plans to make them more equivalent and portable across sites, may be difficult to implement largely because of budget constraints. Progress on the 29 recommendations had been limited at the time of our review. When senior department officials were briefed on the personnel system recommendations in late June 2009, they took them under consideration for further action but immediately approved one recommendation--to extend the life of the study group by forming a standing committee. They directed the standing committee to develop implementation strategies for actions that can be done in the near term and, for recommendations requiring further analysis, additional funding, or other significant actions, to serve as an advisory panel for senior department officials. According to a DOE official in early December 2009, NNSA and DOE were in varying stages of reviews to advance the other 28 recommendations. Later that month, NNSA addressed an aspect of one recommendation about standardization, in part by formally standardizing protective force uniforms. In the Conference Report for the fiscal year 2010 National Defense Authorization Act, the conferees directed the Secretary of Energy and the Administrator of the National Nuclear Security Administration to develop a comprehensive DOE-wide plan to identify and implement the recommendations of the study group. In closing, while making changes to reflect the post-9/11 security environment, DOE and its protective force contractors through their collective bargaining agreements have not successfully aligned protective force personnel systems--which affect career longevity, job transitions, and retirement--with the increased physical and other demands of a more paramilitary operation. Without better alignment, in our opinion, there is greater potential for a strike at a site, as well as potential risk to site security, when protective forces' collective bargaining agreements expire. In the event of a strike at one site, the differences in protective forces' training and equipment make it difficult to readily provide reinforcements from other sites. Even if strikes are avoided, the effectiveness of protective forces may be reduced if tensions exist between labor and management. These concerns have elevated the importance of finding the most effective approach to maintaining protective force readiness, including an approach that better aligns personnel systems and protective force requirements. At the same time, DOE must consider its options for managing protective forces in a period of budgetary constraints. With these considerations in mind, DOE and NNSA have recognized that the decentralized management of protective forces creates some inefficiencies and that some systemic career and longevity issues are not being resolved through actions at individual sites. NNSA's standardization initiatives and recommendations made by a DOE study group offer a step forward. However, the possibility in 2012 of strikes at three of its highest risk sites makes it imperative, as recommended by our report and directed by the fiscal year 2010 National Defense Authorization Act, that DOE soon resolve the issues surrounding protective forces' personnel system. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee have. 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 September 11, 2001, terrorist attacks raised concerns about the security of Department of Energy (DOE) sites with weapons-grade nuclear material, known as Category I special nuclear material (SNM). To better protect these sites against attacks, DOE has sought to transform its protective forces protecting SNM into a Tactical Response Force (TRF) with training and capabilities similar to the U.S. military. This testimony is based on prior work and has been updated with additional information provided by protective forces' union officials. In a prior GAO report, Nuclear Security: DOE Needs to Address Protective Forces' Personnel System Issues (GAO-10-275), GAO (1) analyzed information on the management, organization, staffing, training, and compensation of protective forces at DOE sites with Category I SNM; (2) examined the implementation of TRF; and (3) assessed DOE's two options to more uniformly manage protective forces; and (4) reported on DOE's progress in addressing protective force issues. DOE generally agreed with the recommendations in GAO's prior report that called for the agency to fully assess and implement, where feasible, measures identified by DOE's 2009 protective forces study group to enhance protective forces' career longevity and retirement options. Over 2,300 contractor protective forces provide armed security for DOE and the National Nuclear Security Administration (NNSA) at six sites that have long-term missions to store and process Category I SNM. DOE protective forces at each of these sites are covered under separate contracts and collective bargaining agreements between contractors and protective force unions. As a result, the management, organization, staffing, training and compensation--in terms of pay and benefits--of protective forces vary. Protective force contractors, unions, and DOE security officials are concerned that the implementation of TRF's more rigorous requirements and the current protective forces' personnel systems threaten the ability of protective forces--especially older members--to continue their careers until retirement age. These concerns, heightened by broader DOE efforts to manage postretirement and pension liabilities for its contractors that might have a negative impact on retirement eligibility and benefits for protective forces, contributed to a 44-day protective force strike at an important NNSA site in 2007. According to protective force union officials, the issues surrounding TRF implementation and retirement benefits are still unresolved and could lead to strikes at three sites with large numbers of protective forces when their collective bargaining agreements expire in 2012. Efforts to more uniformly manage protective forces have focused on either reforming the current contracting approach or creating a federal protective force (federalization). Either approach might provide for managing protective forces more uniformly and could result in effective security if well-managed. However, if protective forces were to be federalized under existing law, the current forces probably would not be eligible for enhanced retirement benefits and might face a loss of pay or even their jobs. Although DOE rejected federalization as an option in 2009, it recognized that the current contracting approach could be improved by greater standardization and by addressing personnel system issues. As a result, NNSA began a standardization initiative to centralize procurement of equipment, uniforms, and weapons to achieve cost savings. Under a separate initiative, a DOE study group developed a number of recommendations to enhance protective forces' career longevity and retirement options, but DOE has made limited progress to date in implementing these recommendations.
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As we testified in July, time is running out for agencies and the pace needs to be accelerated if widespread systems problems are to be avoided as the Year 2000 approaches. We stressed in our testimony that the Office of Management and Budget (OMB) and key federal agencies need to move with more urgency. Among the other related issues we noted was that increased attention was required on validation and testing of Year 2000 solutions, data interfaces and exchanges, and contingency planning. OMB's most current Year 2000 progress report on the federal government's efforts, released last week, again demonstrates that although federal agencies are generally making progress toward achieving Year 2000 compliance, the overall pace of that progress is too slow. Based on individual agency reports, 75 percent of the agencies' approximately 8,500 mission-critical systems remain to be repaired or replaced, and the total cost estimate has risen to $3.8 billion, up $1 billion from the previous quarterly report. According to OMB, reports of several of the agencies were disappointing; consequently, it placed agencies in one of three categories, depending upon evidence of progress. In the first category are four agencies that OMB found had "insufficient evidence of progress." For these agencies, OMB established a "rebuttable presumption going into the Fiscal Year 1999 budget formulation process this Fall that we [OMB] will not fund requests for information technology investments unless they are directly related to fixing the year 2000 problem." OMB's second category contains 12 other agencies for which it cited "evidence of progress but also concerns." These agencies were put on notice that continued funding for information technology investments would be contingent on continued progress. Finally, for the eight remaining agencies that according to OMB, appear to be making progress--and this includes VA--funding requests will be handled in the usual manner, although progress at all agencies will be reevaluated on the basis of their next quarterly reports, due November 15. We are encouraged by OMB's statements and believe they reflect an increased urgency to address the Year 2000 issue. Further, we note that in its report, OMB states that it plans to address other issues that we raised in our July testimony. OMB emphasized that proper validation of changes was critical to success. It stated that it planned to meet with agencies over the coming months to discuss the adequacy of scheduled timetables for completing validation. OMB said it would discuss with agencies the preparedness of communications interfaces with systems external to the federal government, including those of state and local governments and the private sector. OMB asked agencies for a summary of the contingency plan for any mission-critical system that was reported behind schedule in two consecutive quarterly reports so that it could summarize such plans in future reports to the Congress. We look forward to implementation of these key activities as we continue monitoring OMB's leadership of the federal government's Year 2000 effort. VA is very vulnerable to the impact of the new millennium because of the large number of veterans and their dependents that it serves; this is why it is so important that VA's systems be made compliant in time to avoid disruption to the benefits and services on which millions of Americans depend. Our past and current work at VA indicates that the Department recognizes the urgency of its task, and it has made progress. But much remains to be done if it is to avoid the widespread computer failures that unmodified systems could bring. If left uncorrected, the types of possible problems that could occur include but are not limited to late or inaccurate benefits payments, lack of patient scheduling for hospital treatments, and misinterpretation of patient data. The number of areas vulnerable to problems is vast. The Department's June 1997 Year 2000 plan (VA Year 2000 Solutions) outlines VA's strategy, activities, and major milestones. According to this plan and in line with OMB guidance, VA's primary approach is to make its 11 existing mission-critical systems compliant; one, in fact, already is. Table 1 lists these systems, along with the numbers of applications they serve and the responsible VA component or office. Responsible for overseeing the Year 2000 problem at VA is its chief information officer (CIO); he is assisted by the CIOs of both VBA and VHA, by senior information technology managers in the National Cemetery System, and by staff offices at VA headquarters. VA has also designated a Year 2000 project manager, responsible for general oversight and monitoring. According to VA's August 14, 1997, quarterly report to OMB, the Department has made progress in addressing the Year 2000 problem. As noted in the report, 1 of its 11 mission-critical systems--the one serving the National Cemetery System--is already fully compliant. Of the 10 remaining mission-critical systems and their applications, 85 percent have been assessed and 51 percent have been renovated. In addition, VA has updated its total Year 2000 cost estimate from $144 million (May 1997) to $162 million; VA's stated reason for the increase is the need for upgrades to its commercial off-the-shelf software and hardware and more contractual support. Further, VA's current estimate shows that it expects systems assessment to be completed by the end of next January, renovation of systems by November 1998, validation by January 1999, and implementation by October 1999--2 months earlier than VA reported in May. As we testified before the Subcommittee in June, correcting the Year 2000 problem is critical to VBA's mission of providing benefits and services to veterans and their dependents. VBA has responded to this challenge by initiating a number of actions, including developing an agencywide plan and a Year 2000 strategy, and creating a program management organization. However, several substantial risks remain. If VBA is to avert serious disruption to its ability to disseminate benefits, it will need to strengthen its management and oversight of Year 2000-related activities. Our May 30, 1997, report contained 10 specific recommendations to the Secretary of Veterans Affairs on actions that VBA needed to take to address the Year 2000 problem. VA concurs with all 10, and is in the process of implementing them. For example, according to VBA: To strengthen its Year 2000 program management office, it has assigned oversight and coordination responsibilities for all Year 2000 activities to this office alone. It has completed inventories of data interfaces and third-party products (hardware, software, mainframes, minicomputers, operating systems, and utilities). VBA has also determined that most of its third-party products are Year 2000 compliant--98 percent of its personal computers, local area networks, minicomputers, and commercial software; and all of its imaging equipment and associated software. It has renovated half of the 157 applications that make up its six mission-critical systems. It plans to renovate the remaining applications by November 1998. While we are encouraged by these positive actions, we understand from discussions with VBA officials that key work schedules have been compressed, creating added pressure. For example, renovation of VBA's largest and most critical applications--those necessary to the functioning of its Compensation and Pension Service--may not be completed by VBA's target date of December 1998. Changes to these applications have had to be delayed in order to effect this year's legislatively mandated changes and cost- of-living increases. Time is similarly short for work on the loan guaranty system, for which key phases remain to be completed. For example, the new construction and valuation application is scheduled to start in early fiscal year 1998, but it has a fail date of December 1998. This leaves VBA only slightly 1 year to design, develop, test, and implement this application. A further challenge for VBA is that it has not modified its schedule to take into account recent problems and delays in its attempts to replace an education payment system for selected reservists known as chapter 1606. Such schedules are important to ensuring that all mission-critical applications are fixed; they therefore need to be modified or updated to reflect realistic estimations of the difficulty of the work involved. In addition, although VBA has completed an inventory of 590 internal and external interfaces, as of July 31, 1997, only 26 percent of the interfaces had been assessed for compliance. VBA's Year 2000 project manager indicated that VBA is encountering problems determining whether its external interfaces are Year 2000 compliant because external sources have not provided the necessary information. VBA also has not updated its January 1997 risk assessment to reflect the recent change in its Year 2000 strategy. Specifically, in response to concerns raised regarding its initial approach, VBA redirected its Year 2000 strategy by focusing on converting its existing benefits payment systems rather than replacing the noncompliant systems. Since risk assessment is an important prerequisite for effectively prioritizing projects and mitigating potential problems, updating the previous risk assessment to take this change into account is essential. An internal VA oversight committee, established to monitor and evaluate the progress of VBA's Year 2000 activities, identified concerns similar to ours. Specifically, according to a member of this committee, little time remains for VBA to make the necessary modifications to its compensation and pension and loan guaranty systems, and much work remains in assessing the external interfaces for compliance. The Year 2000 challenge for VHA is enormous. As the largest centrally directed civilian health care system in the United States, VHA manages health care delivery to veterans within 22 regional areas geographically dispersed throughout the country; these areas are known as Veterans Integrated Service Networks (VISNs), and they encompass 173 VA medical centers, 376 outpatient clinics, 133 nursing homes, and 39 domiciliaries--a total of 721 facilities. These sites utilize a wide range of electronic information systems, biomedical equipment, facilities systems, and other computer-based system products. Accordingly, it is essential that each of these 22 regional health care networks thoroughly assesses and plans for ensuring Year 2000 compliance so that service delivery is not interrupted. Within VHA, the CIO has overall responsibility for planning and managing Year 2000 compliance. The CIO created a VHA Year 2000 project office, empowered to develop compliance guidance. In April 1997, this office developed a VHA plan for addressing the year 2000; the plan was approved by VA's Under Secretary for Health on May 14 of this year. The CIOs of each of the 22 regional networks, medical facility directors, and managers have ultimate responsibility for preparing and executing their individual Year 2000 plans, including all required assessment, renovation, validation/testing, and implementation activities. According to VA's August 14, 1997, quarterly report to OMB, VHA is in the initial stages of assessing the compliance of its two mission-critical systems--the Veterans Health Information Systems and Technology Architecture (VISTA)--formerly known as the Decentralized Hospital Computer Program (DHCP)--and the VHA corporate systems. VA also reported that of the two systems' applications, 17 percent have been assessed and 16 percent renovated. VHA plans to complete this assessment and renovation by the end of January 1998 and July 1998, respectively. According to VA's Year 2000 readiness review, VHA's strategy for the national VISTA applications is to assess all 143 applications and recode as necessary. According to VHA, 34 of its 143 applications have been assessed; 33 of these 34 were eliminated as a result of the assessment. In order to effectively assess and renovate, it is necessary to understand how local facilities are using the national VISTA applications. One potential risk is that some local facilities have customized national applications, according to VA's Year 2000 readiness review. If this is true, it is important that VHA know where applications have been changed--even in small ways--so as to ensure that they are Year 2000 compliant. Beyond customization, local facilities may purchase software add-ons to work with the national applications; here, too, these must be inventoried and Year 2000 compliance assessed. An inventory of internal and external VISTA interfaces has not yet been completed; systems developers plan to identify such interfaces when they assess each application. Should internal information be corrupted by exposure to uncorrected external interfaces through network exchanges, system crashes and/or loss of data could result. VA's Year 2000 project manager has expressed concern that this information may not be obtainable from external sources, who have yet to inform VHA whether their interfaces are Year 2000 compliant. As with interfaces, VHA must be assured that the commercial software products it uses are Year 2000 compliant. It has completed an inventory of its commercial products, such as personal computer operating systems, office automation software, and medical applications; according to the project manager, over 3,000 software products and 1,000 software vendors have been identified. VHA plans to rely on the General Services Administration to provide it with a general list of commercial products that are Year 2000 compliant. For specialized products unique to the health care industry, VHA plans to contact manufacturers for compliance information. Physical facilities are another area of concern. According to VHA's Year 2000 program manager, VHA has not completed an inventory of facilities-related systems and equipment such as elevators; heating, ventilating, and air conditioning equipment; lighting systems; security systems; and disaster recovery systems. Such elements are vitally important to VHA's ability to provide high-quality health care services. VHA is working with the General Services Administration and manufacturers on this issue. Since it is often critical that medical services not be interrupted, VHA is required to have contingency plans in place in case hospital systems fail. These plans are reviewed and assessed regularly by the Joint Commission on Accreditation of Healthcare Organizations. However, such contingency plans are meant to ensure continued operation in the event of disaster; such approval does not necessarily ensure that all backup systems are Year 2000 compliant. Health care facilities depend on the reliable operation of a variety of biomedical devices--equipment that can record, process, analyze, display, or transmit medical data. Examples include computerized nuclear magnetic resonance imaging (MRI) systems, cardiac monitoring systems, cardiac defibrillators, and various tools for laboratory analysis. Such devices may depend on a computer for calibration or day-to-day operation. This computer could be either a personal computer that connects to the device from a distance or a microprocessor chip embedded within the device. In either case, the software that controls the operation of the computer may be susceptible to the Year 2000 problem. The impact could range from incorrect formatting of a printout to incorrect operation of the device, having the potential to affect patient care or safety. The risks for a specific medical device depend on the role of the device in the patient's care and the design of the device. Although medical treatment facilities have the expertise to understand how medical devices are used, they rely on device manufacturers to analyze designs and disclose Year 2000 compliance status. As a health care provider and user of medical devices, VHA is a key stakeholder in determining compliance of such tools. Another key player is the Food and Drug Administration (FDA), in its role of protecting the public from unsafe and/or ineffective medical devices. In attempting to ascertain the potential impact of the century change on its biomedical devices, VHA on two separate occasions sent letters to manufacturers. Its first letter was sent over a period of a few days beginning June 23 of this year to equipment manufacturers identified by selected experts within VHA. In the letter, VHA inquired as to steps the manufacturer planned to take to resolve the Year 2000 issue. Out of 118 letters, VHA received 32 responses. These responses were reviewed by VHA's medical device integrated product team, comprising internal experts from a variety of fields. On the basis of the team's analysis, VHA sent more detailed letters asking specific questions, including whether the manufacturer provided any devices to VA that incorporate a real-time clock; if such devices were provided, whether they are Year 2000 compliant; and, for those that are not compliant, asking for model numbers, device names, and the specific impact the century change would likely have on the device. These letters were sent to about 1,600 manufacturers on September 9, 1997, with a request for responses by October 3. According to VHA, 50 responses had been received as of September 15. Product team members plan to review responses to ensure that they are categorized correctly as compliant, noncompliant, or pending; VHA will maintain a database of the manufacturers and their responses. This database will be made available to VA medical centers through the VHA intranet, although key personnel such as biomedical engineers may not have easy access to the intranet at some medical centers. The information will also be communicated to VA medical centers through monthly conference calls among engineers and communications with medical center directors. We feel that it is imperative that such results be widely disseminated; if the VHA intranet is insufficient for this task, other means should be found. FDA also recently began communicating with manufacturers. According to officials, FDA sent a letter in early July of this year to about 13,000 such manufacturers, reminding them of their responsibility to ensure that their products will not be affected by the century change. In the letter, FDA reminded manufacturers that, according to section 518 of the Federal Food, Drug, and Cosmetic Act, they are required to notify users or purchasers when FDA determines a device presents an unreasonable risk of substantial harm to public health. Although one response was received, the acting director of FDA's Division of Electronics and Computer Science explained that it was not the agency's intention to solicit a specific response because FDA expects manufacturers to report any problems found through normal reporting channels. FDA plans to disseminate information on any Year 2000 problems reported by manufacturers to the public through its reporting systems, such as the Medical Products Reporting Program ("MedWatch"). According to the director of FDA's Cardiovascular Division, the agency's strategy for helping to determine whether medical devices are Year 2000 compliant is to rely on the knowledge and experience of its resident experts. These experts, with backgrounds in electrical engineering, software engineering, and/or biomedical engineering, have reviewed the design of selected medical devices to determine whether the devices would be affected by the century change. In the case of pacemakers, for example, FDA experts have concluded that no adverse effect will result. This conclusion was based on the fact that the internal operations of pacemakers do not involve dates. The experts further said that although pacemaker settings are often changed with the assistance of a computer, which often uses dates and may be noncompliant, a trained physician is always involved in controlling the settings. A federal entity--the Year 2000 Subgroup on Biomedical Equipment--is working to coordinate the effort to obtain Year 2000 compliance status information from medical device manufacturers. This group plans to follow up on nonrespondents to questionnaires sent out by VHA, FDA, and other federal health care providers to manufacturers requesting this information. In closing, Mr. Chairman, I want to stress that while our detailed review of the VHA area is just now underway, it is clear that for VA as a whole to have all of its mission-critical systems compliant by January 1, 2000, will entail a huge, well-coordinated effort. This concludes my statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO discussed federal progress in addressing the Year 2000 problem, focusing on: (1) action taken by the Department of Veterans Affairs (VA) as a whole; (2) steps taken by the Veterans Benefits Administration (VBA) in response to recommendations contained in a GAO report; and (3) results of its review of the Veterans Health Administration's (VHA) Year 2000 activities. GAO noted that: (1) according to VA's August 14, 1997, quarterly report to the Office of Management and Budget, the Department has made progress in addressing the Year 2000 problem; (2) as noted in the report, one of its 11 mission-critical systems--the one serving the National Cemetery System--is already fully compliant; (3) of the ten remaining mission critical systems and their applications, 85 percent have been assessed and 51 percent have been renovated; (4) in addition, VA has updated its total Year 2000 cost estimate from $144 million (May 1997) to $162 million; (5) VA's stated reason for the increase is the need for upgrades to its commercial off-the-shelf software and hardware, and more contractual support; (6) VA's current estimate shows that it expects systems assessment to be completed by the end of next January, renovation of systems by November 1998, validation by January 1999, and implementation by October 1999--2 months earlier than VA reported in May; (7) VBA has responded to the Year 2000 challenge by initiating a number of actions, including developing an agencywide plan and a Year 2000 strategy and creating a program management organization; (8) however, several substantial risks remain; (9) if VBA is to avert serious disruption of its ability to disseminate benefits, it will need to strengthen its management and oversight of Year 2000-related activities; (10) VHA is in the initial stages of assessing the compliance of its two mission-critical systems; (11) it is essential that each of VHA's 22 regional health care networks thoroughly assesses and plans for ensuring Year 2000 compliance so that service delivery is not interrupted; (12) in order to effectively assess and renovate, it is necessary to understand how local customizations, software add-ons, external interfaces, and physical facilities may affect Year 2000 compliance; (13) VHA is assessing Year 2000 impact on medical devices; and (14) while GAO's detailed review of the VHA area is just now under way, it is clear that for VA as a whole to have all of its mission-critical systems compliant by January 1, 2000, will entail a huge, well-coordinated effort.
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The federal real property portfolio is vast and diverse, totaling more than 900,000 buildings and structures--including office buildings, warehouses, laboratories, hospitals, and family housing--and worth hundreds of billions of dollars. The six largest federal real property holding agencies-- DOD; GSA; the U.S. Postal Service; and the Departments of Veterans Affairs (VA), Energy, and the Interior--occupy 87.6 percent of the total square footage in federal buildings. Overall, the federal government owns approximately 83 percent of this space and leases or otherwise manages the rest; however, these proportions vary by agency. For example GSA, the central leasing agent for most agencies, now leases more space than it owns. The federal real property portfolio includes many properties the federal government no longer needs. In May 2011, the White House posted an interactive map of excess federal properties on its Web site, noting that the map illustrates a sampling of over 7,000 buildings and structures currently designated as excess. These properties range from sheds to underutilized office buildings and empty warehouses. We visited an office and warehouse complex in Fort Worth, Texas that was listed on the Web site. Ten of the properties listed on the Web site as part of the Fort Worth complex were parceled together and auctioned in May 2011, but the sale is not yet final. The structures ranged from large warehouses to a concrete slab. (See fig. 1.) Work we are currently doing for this subcommittee on how federal agencies designate excess federal real property will include visits to other properties from around the country that are considered excess. After we first designated federal real property as a high-risk area in 2003, the President issued Executive Order 13327 in February 2004, which established new federal property guidelines for 24 executive branch departments and agencies. Among other things, the executive order called for creating the interagency FRPC to develop guidance, collect best practices, and help agencies improve the management of their real property assets. DOD has undergone four BRAC rounds since 1988 and is currently implementing its fifth round. Generally, the purpose of prior BRAC rounds was to generate savings to apply to other priorities, reduce property deemed excess to needs, and realign DOD's workload and workforce to achieve efficiencies in property management. As a result of the prior BRAC rounds in 1988, 1991, 1993, and 1995, DOD reported that it had reduced its domestic infrastructure, and transferred hundreds of thousands of acres of unneeded property to other federal and nonfederal entities. DOD data show that the department had generated an estimated $28.9 billion in net savings or cost avoidances from the prior four BRAC rounds through fiscal year 2003 and expects to save about $7 billion each year thereafter, which could be applied to other higher priority defense needs. These savings reflect money that DOD has estimated it would likely have spent to operate military bases had they remained open. However, we found that DOD's savings estimates are imprecise because the military services have not updated them regularly despite our prior reported concerns on this issue. The 2005 BRAC round affected hundreds of locations across the country through 24 major closures, 24 major realignments, and 765 lesser actions, which also included terminating leases and consolidating various activities. Legislation authorizing the 2005 BRAC round maintained requirements established for the three previous BRAC rounds that GAO provide a detailed analysis of DOD's recommendations and of the BRAC selection process. We submitted the results of our analysis in a 2005 report and testified before the BRAC Commission soon thereafter. Since that time, we have published annual reports on the progress, challenges, and costs and savings of the 2005 round, in addition to numerous reports on other aspects of implementing the 2005 BRAC round. The administration and real-property-holding agencies have made progress in a number of areas since we designated federal real property as high risk in 2003. In 2003, we reported that despite the magnitude and complexity of real-property-related problems, there had been no governmentwide strategic focus on real property issues. Not having a strategic focus can lead to ineffective decision making. As part of the government's efforts to strategically manage its real property, the administration established FRPC--a group composed of the OMB Controller and senior real property officers of landholding agencies--to support real property reform efforts. Through FRPC, the landholding agencies have also established asset management plans, standardized real property data reporting, and adopted various performance measures to track progress. The asset management plans are updated annually and help agencies take a more strategic approach to real property management by indicating how real property moves the agency's mission forward; outlining the agency's capital management plans; and describing how the agency plans to operate its facilities and dispose of unneeded real property, including listing current and future disposal plans. According to several member agencies, FRPC no longer meets regularly but remains a forum for agency coordination on real property issues and could serve a larger role in future real property management. We also earlier reported that a lack of reliable real property data compounded real property management problems. The governmentwide data maintained at that time were unreliable, out of date, and of limited value. In addition, certain key data that would be useful for budgeting and strategic management were not being maintained, such as data on space utilization, facility condition, historical significance, security, and age. We found that some of the major real-property-holding agencies faced challenges developing reliable data on their real property assets. We noted that reliable governmentwide and agency-specific real property data are critical for addressing real property management challenges. For example, better data would help the government determine whether assets are being used efficiently, make investment decisions, and identify unneeded properties. In our February 2011 high-risk update, we reported that the federal government has taken numerous steps since 2003 to improve the completeness and reliability of its real property data. FRPC, in conjunction with GSA, established the Federal Real Property Profile (FRPP) to meet a requirement in Executive Order 13327 for a single real property database that includes all real property under the control of executive branch agencies. FRPP contains asset-level information submitted annually by agencies on 25 high-level data elements, including four performance measures that enable agencies to track progress in achieving property management objectives. In response to our 2007 recommendation to improve the reliability of FRPP data, OMB required, and agencies implemented, data validation plans that include procedures to verify that the data are accurate and complete. Furthermore, GSA's Office of Governmentwide Policy (OGP), which administers the FRPP database, instituted a data validation process that precludes FRPP from accepting an agency's data until the data pass all established business rules and data checks. In our most recent analysis of the reliability of FRPP data, we found none of the previous basic problems, such as missing data or inexplicably large changes between years. In addition, agencies continue to improve their real property data for their own purposes. From a governmentwide perspective, OGP has sufficient standards and processes in place for us to consider the 25 elements in FRPP as a database that is sufficiently reliable to describe the real property holdings of the federal government. Consequently, we removed the data element of real property management from our high-risk list this year. The government now has a more strategic focus on real property issues and more reliable real property data, but problems related to unneeded property and leasing persist because the government has not addressed underlying legal and financial limitations and stakeholder influences. In our February 2011 high-risk update, we noted that the legal requirements agencies must adhere to before disposing of a property, such as requirements for screening and environmental cleanup, present a challenge to consolidating federal properties. Currently, before GSA can dispose of a property that a federal agency no longer needs, it must offer the property to other federal agencies. If other federal agencies do not need the property, GSA must then make the property available to state and local governments and certain nonprofit organizations and institutions for public benefit uses, such as homeless shelters, educational facilities, or fire or police training centers. As a result of this lengthy process, GSA's underutilized or excess properties may remain in an agency's possession for years and continue to accumulate maintenance and operations costs. We have also noted that the National Historic Preservation Act, as amended, requires agencies to manage historic properties under their control and jurisdiction and to consider the effects of their actions on historic preservation. The average age of properties in GSA's portfolio is 46 years, and since properties more than 50 years old are eligible for historic designation, this issue will soon become critically important to GSA. The costs of disposing of federal property further hamper some agencies' efforts to address their excess and underutilized real property problems. For example, federal agencies are required by law to assess and pay for any environmental cleanup that may be needed before disposing of a property--a process that may require years of study and result in significant costs. In some cases, the cost of the environmental cleanup may exceed the costs of continuing to maintain the excess property in a shut-down status. The associated costs of complying with these legal requirements create disincentives to dispose of excess property. Moreover, local stakeholders--including local governments, business interests, private real estate interests, private-sector construction and leasing firms, historic preservation organizations, various advocacy groups for citizens that benefit from federal programs, and the public in general-- often view federal facilities as the physical face of the federal government in their communities. The interests of these multiple, and often competing stakeholders, may not always align with the most efficient use of government resources and can complicate real property decisions. For example, as we first reported in 2007, VA officials noted that stakeholders and constituencies, such as historic building advocates or local communities that want to maintain their relationship with VA, often prevent the agency from disposing of properties. In 2003, we indicated that an independent commission or governmentwide task force might be necessary to help overcome stakeholder influences in real property decision making. In 2007, we recommended that OMB, which is responsible for reviewing agencies' progress on federal real property management, assist agencies by developing an action plan to address the key problems associated with decisions related to unneeded real property, including stakeholder influences. OMB agreed with the recommendation. The administration's recently proposed legislative framework, CPRA, is somewhat responsive to our recommendation in that it addresses legal and financial limitations, as well as stakeholder influences in real property decision making. With the goal of streamlining the disposal process, CPRA provides for an independent board to determine which properties it considers would be the most appropriate for public benefit uses. This streamlined process could reduce both the time it takes for the government to dispose of property and the amount the government pays to maintain property. To provide financial assistance to the agencies, CPRA establishes an Asset Proceeds and Space Management Fund from which funds could be transferred to reimburse an agency for necessary costs associated with disposing of property. Reimbursing agencies for the costs they incur would potentially facilitate the disposal process. To address stakeholder influences, the independent board established under CPRA would, among other things, recommend federal properties for disposal or consolidation after receiving recommendations from civilian landholding agencies and would independently review the agencies' recommendations. Grouping all disposal and consolidation decisions into one set of proposals that Congress would consider in its entirety could help to limit local stakeholder influences at any individual site. CPRA does not explicitly address the government's overreliance on leasing. In 2008, we found that decisions to lease selected federal properties were not always driven by cost-effectiveness considerations. For example, we estimated that the decision to lease the Federal Bureau of Investigation's field office in Chicago, Illinois, instead of constructing a building the government would own, cost about $40 million more over 30 years. GSA officials noted that the limited availability of upfront capital was one of the reasons that prevented ownership at that time. Federal budget scorekeeping rules require the full cost of construction to be recorded up front in the budget, whereas only the annual lease payments plus cancellation costs need to be recorded for operating leases. In April 2007 and January 2008, we recommended that OMB develop a strategy to reduce agencies' reliance on costly leasing where ownership would result in long-term savings. We noted that such a strategy could identify the conditions under which leasing is an acceptable alternative, include an analysis of real property budget scoring issues, and provide an assessment of viable alternatives. OMB concurred with this recommendation but has not yet developed a strategy to reduce agencies' reliance on leasing. One of CPRA's purposes--to realign civilian real property by consolidating, colocating, and reconfiguring space to increase efficiency--could help to reduce the government's overreliance on leasing. Our current work examines the efficiency of the federal government's real property lease management in more detail. DOD has undergone five BRAC rounds to realign DOD's workload to achieve efficiencies and savings in property management, including reducing excess properties. The BRAC process, much like CPRA, was designed to address obstacles to closures or realignments, thus permitting DOD to close or realign installations and its missions to better use its facilities and generate savings. Certain key elements of DOD's process for closing and realigning its installations may be applicable to the realignment of real property governmentwide. Some of these key elements include establishing goals, developing criteria for evaluating closures and realignments, developing a structural plan for applying selection criteria, estimating the costs and savings anticipated from implementing recommendations, establishing a structured process for obtaining and analyzing data, and involving the audit community. DOD's BRAC process was designed to address certain challenges to base closures or realignments, including stakeholder interests, thereby permitting the department to realign its missions to better use its facilities, generate savings, and sometimes also resulting in the disposal of property. The most recent defense base closure and realignment round followed a historical analytical framework, carrying many elements of the process forward or building upon lessons learned from the department's four previous rounds. DOD used a logical, reasoned, and well-documented process. In addition, we have identified lessons learned from DOD's 1988, 1991, 1993, and 1995 rounds, and we have begun an effort to assess lessons learned from the 2005 BRAC round. DOD's 2005 BRAC process consisted of activities that followed a series of statutorily prescribed steps, including: Congress established clear time frames for implementation; DOD developed options for closure or realignment recommendations; BRAC Commission independently reviewed DOD's proposed President reviewed and approved the BRAC recommendations; and Congress did not disapprove of the recommendations and thus they became binding. In developing its recommendations for the BRAC Commission, DOD relied on certain elements in its process that Congress may wish to consider as it evaluates the administration's proposed legislation for disposing of or realigning civilian real property, as follows: Establish goals for the process. The Secretary of Defense emphasized the importance of transforming the military to make it more efficient as part of the 2005 BRAC round. Other goals for the 2005 BRAC process included fostering jointness among the four military services, reducing excess infrastructure, and producing savings. Prior rounds were more about reducing excess infrastructure and producing savings. Develop criteria for evaluating closures and realignments. DOD initially proposed eight selection criteria, which were made available for public comments via the Federal Register. Ultimately, Congress enacted the eight final BRAC selection criteria in law and specified that four selection criteria, known as the "military value criteria," were to be given priority in developing closure and realignment recommendations. The primary military value criteria include such considerations as an installation's current and future mission capabilities and the impact on operational readiness of the total force; the availability and condition of land, facilities, and associated airspace at both existing and potentially receiving locations; the ability to accommodate a surge in the force and future total force requirements at both existing and potentially receiving locations; and costs of operations and personnel implications. In addition, Congress specified that in developing its recommendations, DOD was to apply "other criteria," such as the costs and savings associated with a recommendation; the economic impact on existing communities near the installations; the ability of the infrastructure in existing and potential communities to support forces, missions, and personnel; and environmental impact. Further, Congress required that the Secretary of Defense develop and submit to Congress a force structure plan that described the probable size of major military units--for example, divisions, ships, and air wings--needed to address probable threats to national security based on the Secretary's assessment of those threats for the 20-year period beginning in 2005, along with a comprehensive inventory of global military installations. In authorizing the 2005 BRAC round, Congress specified that the Secretary of Defense publish a list of recommendations for the closure and realignment of military installations inside the United States based on the statutorily-required 20-year force- structure plan and infrastructure inventory, and on the selection criteria. Estimate costs and savings to implement closure and realignment recommendations. To address the cost and savings criteria, DOD developed and used the Cost of Base Realignment Actions model (COBRA) a quantitative tool that DOD has used since the 1988 BRAC round to provide consistency in potential cost, savings, and return-on- investment estimates for closure and realignment options. We reviewed the COBRA model as part of our review of the 2005 and prior BRAC rounds and found it to be a generally reasonable estimator for comparing potential costs and savings among alternatives. As with any model, the quality of the output is a direct function of the input data. Also, DOD's COBRA model relies to a large extent on standard factors and averages and does not represent budget quality estimates that are developed once BRAC decisions are made and detailed implementation plans are developed. Nonetheless, the financial information provides important input into the selection process as decision makers weigh the financial implications--along with military value criteria and other considerations--in arriving at final decisions about the suitability of various closure and realignment options. However, according to our assessment of the 2005 BRAC round, actual costs and savings were different from estimates. Establish an organizational structure. The Office of the Secretary of Defense emphasized the need for joint cross-service groups to analyze common business-oriented functions. For the 2005 BRAC round, as for the 1993 and 1995 rounds, these joint cross-service groups performed analyses and developed closure and realignment options in addition to those developed by the military services. In contrast, our evaluation of DOD's 1995 BRAC round indicated that few cross-service recommendations were made, in part because of the lack of high-level leadership to encourage consolidations across the services' functions. In the 1995 BRAC round, the joint cross-service groups submitted options through the military services for approval, but few were approved. The number of approved recommendations that the joint cross-service groups developed significantly increased in the 2005 BRAC round. This was in part, because high-level leadership ensured that the options were approved not by the military services but rather by a DOD senior-level group. Establish a common analytical framework. To ensure that the selection criteria were consistently applied, the Office of the Secretary of Defense, the military services, and the seven joint cross-service groups first performed a capacity analysis of facilities and functions in which all installations received some basic capacity questions according to DOD. Before developing the candidate recommendations, DOD's capacity analysis relied on data calls to hundreds of locations to obtain certified data to assess such factors as maximum potential capacity, current capacity, current usage, and excess capacity. Then, the military services and joint cross-service groups performed a military value analysis for the facilities and functions based on primary military value criteria, which included a facility's or function's current and future mission capabilities, physical condition, ability to accommodate future needs, and cost of operations. Involve the audit community to better ensure data accuracy. The DOD Inspector General and military service audit agencies played key roles in identifying data limitations, pointing out needed corrections, and improving the accuracy of the data used in the process. In their oversight roles, the audit organizations, who had access to relevant information and officials as the process evolved, helped to improve the accuracy of the data used in the BRAC process and thus strengthened the quality and integrity of the data used to develop closure and realignment recommendations. For example, the auditors worked to ensure certified information was used for BRAC analysis, and reviewed other facets of the process, including the various internal control plans, the COBRA model, and other modeling and analytical tools that were used in the development of recommendations. There are a number of important similarities between BRAC and a civilian process as proposed in the administration's CPRA. As a similarity, both BRAC and CPRA employ the all-or-nothing approach to disposals and consolidations, meaning that once the final list is approved by the independent commission or board, it must be accepted or rejected as a whole. Another important similarity is that both the BRAC and proposed CPRA processes call for an independent board or commission to review recommendations. A key difference between BRAC and the administration's proposed CPRA is that while the BRAC process placed the Secretary of Defense in a central role to review and submit candidate recommendations to the independent board, CPRA does not provide for any similar central role for civilian agencies. The BRAC process required the Secretary of Defense to develop and submit recommendations to the BRAC Commission for review. In this role, the Office of the Secretary of Defense reviewed and revised the various candidate recommendations developed by the four military services and the seven separate joint cross service groups. In contrast, the administration's proposed CPRA does not place any official or organization in such a central role to review and submit the recommendations proposed by various federal agencies to the independent board for assessment and approval. Another key difference between BRAC and CPRA is the time period in which the commission will be in existence. CPRA, as proposed by the administration, is a continuing commission which will provide recommendations twice a year for 12 years, whereas, the BRAC Commission convened only for those years in which it was authorized. For example, after the most recent 2005 BRAC round, the Commission terminated by law in April 2006. However, we believe the need for a phased approach involving multiple rounds of civilian property realignments is warranted given it may take several BRAC-like rounds to complete the disposals and consolidations of civilian real property owned and leased by many disparate agencies including GSA, VA, Department of the Interior, Department of Energy, and others. In closing, the government has made strides toward strategically managing its real property and improving its real property planning and data over the last 10 years, but those efforts have not yet led to sufficient reductions in excess property and overreliance on leasing. DOD's experience with BRAC could help the process move forward to dispose of unneeded civilian real property and generate savings for the taxpayer. Chairman Carper, Ranking Member Brown, and Members of the Subcommittee, this concludes our prepared statement. We will be pleased to answer any questions that you may have at this time. For further information on this testimony, please contact David Wise at (202) 512-2834 or [email protected] regarding federal real property, or Brian Lepore at (202) 512-4523 or [email protected] regarding the BRAC process. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. In addition to the contacts named above, Keith Cunningham, Assistant Director; Laura Talbott, Assistant Director; Vijay Barnabas; Elizabeth Eisenstadt; Amy Higgins; Susan Michal-Smith; Crystal Wesco; and Michael Willems made important contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The federal government holds more than 45,000 underutilized properties that cost nearly $1.7 billion annually to operate, yet significant obstacles impede efforts to close, consolidate, or find other uses for these properties. GAO has designated federal real property management as a high-risk area, in part because of the number and cost of these properties. The Office of Management and Budget (OMB) is responsible for reviewing federal agencies' progress in real property management. In 2007, GAO recommended that OMB assist agencies by developing an action plan to address key obstacles associated with decisions related to unneeded real property, including stakeholder influences. In May 2011, the administration proposed legislation, referred to as the Civilian Property Realignment Act (CPRA), to, among other things, establish a legislative framework for disposing of and consolidating civilian real property and that could help limit stakeholder influences in real property decision making. This statement identifies (1) progress the government has made toward addressing obstacles to federal real property management, (2) some of the challenges that remain and how CPRA may be responsive to those challenges, and (3) key elements of the Department of Defense's (DOD) base realignment and closure (BRAC) process that could expedite the disposal of unneeded civilian properties. To do this work, GAO relied on its prior work, and reviewed CPRA and other relevant reports. In designating federal real property management as a high-risk area, GAO reported that despite the magnitude and complexity of real-property-related problems, there was no governmentwide strategic focus on real property issues and governmentwide data were unreliable and outdated. The administration and real-property-holding agencies have subsequently improved their strategic management of real property by establishing an interagency Federal Real Property Council designed to enhance real property planning processes and implementing controls to improve the reliability of federal real property data. Even with this progress, problems related to unneeded property and leasing persist because the government has not yet addressed other challenges to effective real property management, such as legal and financial limitations and stakeholder influences. CPRA is somewhat responsive to these challenges. For example, CPRA proposes an independent board that would streamline the disposal process by selecting properties it considers appropriate for public benefit uses. This streamlined process could reduce disposal time and costs. CPRA would also establish an Asset Proceeds and Space Management Fund that could be used to reimburse agencies for necessary disposal costs. The proposed independent board would address stakeholder influences by recommending federal properties for disposal or consolidation after receiving recommendations from civilian landholding agencies and independently reviewing the agencies' recommendations. CPRA does not explicitly address the government's overreliance on leasing, but could help do so through board recommendations for consolidating operations where appropriate. GAO is currently examining issues related to leasing costs and excess property. Certain key elements of DOD's BRAC process--which, like CPRA, was designed to address obstacles to closures or realignments--may be applicable to the disposal and realignment of real property governmentwide. These elements include establishing goals, developing criteria for evaluating closures and realignments, estimating the costs and savings anticipated from implementing recommendations, and involving the audit community. A key similarity between BRAC and CPRA is that both establish an independent board to review agency recommendations. A key difference is that while the BRAC process places the Secretary of Defense in a central role to review and submit candidate recommendations to the independent board, CPRA does not provide for any similar central role for civilian agencies.
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According to DOD, there were 287 aircraft in the OSA fleet as of May 2017. All OSA aircraft are military variants of commercial aircraft. (See appendix IV for more information and images of these aircraft.) Table 1 lists the number of OSA aircraft by DOD owner/operator and type of usage. A majority of the executive aircraft is located at Joint Base Andrews, Maryland, and a small number are located overseas, as shown in table 2. Thirteen of the 44 executive aircraft are designated as service secretary controlled aircraft. The primary mission for these 13 aircraft is to transport the military departments' Secretaries, Chiefs of Staff, and other senior officials such as the Undersecretaries and Vice Chiefs of Staff. Service secretary controlled aircraft also support travel for members of congress and for White House support missions, including for cabinet-level officials. In addition, 9 of the 44 executive aircraft are designated for use by the Commanders of the Combatant Commands. As of May 2017, the Army owned and operated 121 of the 243 nonexecutive aircraft. U.S. Africa Command leased one aircraft, and the remaining 121 aircraft belonged to the U.S. Special Operations Command, Marine Corps, Navy, and Air Force, which respectively owned 21, 25, 33, and 42 aircraft. Of the Air Forces' 42 nonexecutive aircraft, 18 were designated for Defense Intelligence Agency or Defense Security Cooperation Agency support to overseas locations. Multiple officials have responsibilities for approving the use of government aircraft and air travel. Specifically, the Secretaries of the Military Departments, the Chairman of the Joint Chiefs of Staff, and Combatant Commanders review and approve requests within their respective commands. In addition, the Office of the Secretary of Defense Executive Secretary and the Assistant Secretary of Defense for Legislative Affairs prioritize and approve requests within their approval authorities. Table 3 summarizes the responsibilities for approving requests for use of government aircraft. DOD guidance sets clear priorities for the use of its aircraft to support officials in certain positions within the department. Specifically, the guidance lists 26 required DOD users and 35 authorized DOD users of government aircraft who are categorized into four tiers. DOD's highest priority (tier one) travelers are required to use government aircraft for both official and unofficial travel while tier two travelers are required to use government aircraft only for official travel. The Secretary of Defense prioritizes tier one and tier two officials as travelers that are required to use government aircraft because there is a continuous requirement for secure communications; a threat exists that could endanger lives; or there is a need to satisfy exceptional scheduling requirements that make commercial transportation unacceptable. DOD's tier three and four travelers are not required to use government aircraft, but are authorized to use the aircraft for official travel when the demands of their travel prevent the use of commercial aircraft. DOD's aircraft are also used to support employees and members of Congress and White House support missions--a user pool which could total over 550 users. Table 4 lists the required and authorized users of DOD's aircraft. White House support missions are trips provided by DOD and directed by the President such as travel for cabinet-level officials, the Vice-President, and First Lady. DOD guidance supports travel for members and employees of Congress when approved by the Assistant Secretary of Defense for Legislative Affairs. DOD supports travel for congressional users when the purpose of travel is related to DOD programs or activities. DOD guidance does not support travel for congressional users if a commercial flight is able to meet the users' departure and arrival requirements within a 24-hour period. However, if the trip includes unusual circumstances, such as a clear and present danger or other compelling operational considerations that make commercial transportation unacceptable, then congressional users may use military aircraft. During calendar years 2014 through 2015, government and military officials took more than 19,000 flights on OSA executive aircraft, and our review of a nongeneralizable, random sample of flight packages from calendar years 2014 and 2015 found that DOD generally followed its guidance for approving use of these aircraft for these selected flights. We analyzed the data for executive flights conducted during calendars years 2014 and 2015, and found that there were a total of 19,752 flights. In both calendar years most of the flights were flown by authorized, but not required users, as shown in Table 5. During calendar years 2014 and 2015, DOD's four tier one required users accounted for 4 percent of the total executive flights. Its 22 required tier two users accounted for another 27 percent of the total. The remaining 69 percent of the flights were taken by the hundreds of personnel who were authorized, but not required, to use DOD's executive aircraft. As indicated in table 5, 29 percent of the total executive flight data was categorized in non-specific terms such as "below tier 2 user". Consequently, it is not possible to provide exact percentages of flight usage for each of the different authorized user categorizes. However, based on the 2014 and 2015 authorized user flight data that was specifically categorized, the following users accounted for at least these percentage of the total flights: tier-three users, 21 percent; tier-four users, 1 percent; White House support mission users, 12 percent; and Congressional delegations, 5 percent. According to DOD officials, most of the non-specific flights were for tier-three-and-four users, but some of the flights were for White House support missions or Congressional delegations. Additional analyses of the calendar year 2014 and 2015 flight data showed that usage rates varied both within and across months and years. For example, in calendar year 2014, the number of daily flights ranged from a low of 2 flights on December 30, 2014, to a high of 70 flights on December 8, 2014. In calendar year 2015, the low ranged from 2 flights on April 5, 2015, to a high of 51 flights on December 18, 2015, and March 31, 2015. During calendar years 2014 and 2015, the executive flights went to over 1,000 locations, and the ten most visited destinations accounted for about 40 percent of those flights. Those locations included Joint Base Andrews in Maryland; Ramstein Air Base in Germany; MacDill Air Force Base in Florida; Scott Air Force Base in Illinois; and Stuttgart Airport in Germany. DOD officials told us that they often see high demand for executive aircraft to support congressional users during congressional recess periods. We found that users in all categories, including congressional, White House support missions, as well as required DOD, and all other authorized users, flew on most days during the 2014 and 2015 two-week spring and four to five-week summer congressional recess periods. However, when we analyzed the total numbers of daily flights, we found that most of days with 40 or more executive flights occurred outside the congressional recess period in calendar year 2014 or 2015, and only one day--during the 2015 spring recess, occurred within those periods. In total, during calendar year 2014, there were 71 days where OSA aircraft flew 40 or more flights, and in 2015 there were 23 days with 40 or more flights. DOD officials told us that they generally prioritize White House support missions and congressional users over tier three or four authorized users. However, at times they are unable to accommodate congressional travelers due to number of participants and distance of travel requirements. DOD officials stated that congressional requests often include larger participant sizes and overseas travel; however, there are a limited number of executive aircraft that can accommodate larger groups and fly long distances. DOD guidance specifies that large executive aircraft (i.e., capable of carrying 15 or more passengers) will be approved only for groups of 5 or more members of Congress. The Air Force has two types of large executive aircraft (C-40s and C-32s). In calendar years 2014 and 2015, we found that 76 percent of the congressional user flights used C-40 executive aircraft, which seat up to 36 passengers and can fly 5,000 nautical miles without refueling. In 2007, DOD established the Executive Airlift Scheduling Activity to facilitate sharing of executive aircraft among the military services and combatant commands when requests exceed capacity. Multiple officials from the services and DOD's components told us that this sharing approach generally works, and that services usually agree to use their service secretary controlled aircraft to fly officials outside of their service, when asked. Our analysis showed that service secretary controlled aircraft accounted for 13 percent of the executive flights in 2014, and 15 percent of the executive flights in 2015. Table 6 shows that while service secretary controlled aircraft generally flew users from within their associated service, approximately 18 percent of service secretary controlled flights supported users from outside their service. DOD Generally Followed Its Approval Guidance for a Select Set of Executive Flights Reviewed We analyzed flight request packages from a nongeneralizable, random sample of 53 executive flights taken during calendar years 2014 through 2015 and, consistent with a report we issued in 2014, we found that for these select flights DOD generally followed its guidance for approving executive aircraft use. The Secretaries of the Military Departments and Combatant Commanders review and approve OSA aircraft requests within their respective Departments and Commands. The Air Force Deputy Chief of Staff for Operations, Plans and Requirements is also responsible for scheduling congressional and White House support missions. DOD guidance defines a list of procedures for approving the use of OSA. As shown in Figure 1, DOD guidance requires each OSA flight request package to contain specific information, such as the name and rank of traveler, itinerary, cost comparison if needed, and appropriate signatures. Although some packages were missing items, we did not find evidence to suggest the requested flight should have been disapproved. Specifically, 51 of the 53 flight request packages listed the names and titles or ranks of travelers, and 43 of the 53 flight request packages included a signed request. In addition, 42 out of the 53 flight request packages included the purpose of travel and 40 out of the 53 flight request packages included the senior DOD traveling official's signature certifying use of the aircraft. We also found that 24 out of the 53 flight request packages were for authorized users. The request packages for authorized users are required to include additional information and we found that most of the packages included most of the information. For example, all of the 24 packages included the military department or agency of travelers, and 20 of 24 packages included a statement that the travel requirements of DOD guidance have been met. In addition, 17 of 24 packages included documentation such as an explanation as to why scheduling requirements could not be changed to permit the use of commercial air, and a justification to include a statement of commercial air costs. We discussed any items that were missing with DOD officials and did not find evidence to suggest the requested flights should have been disapproved. In recent years, DOD has implemented a consistent process to validate the size of its OSA fleet. The process results in a general determination of the sufficiency of the OSA inventory, and the 2015 and 2016 determinations were expressed in terms of risks to mission accomplishment. The services do not generally use the validation process determinations as a basis for their OSA aircraft procurement and divestment decisions. In 2011, guided by a memorandum from the Vice Chairman of the Joint Chiefs of Staff and DOD Instruction 4500.43, Operational Support Airlift, DOD began to implement a structured, repeatable approach to validate its OSA fleet on an annual basis, to comply with Office of Management and Budget guidance. The Vice Chairman's memorandum established working and steering groups to provide input and oversight to the process and the instruction laid out many of the details of the new fleet validation process. The instruction assigned DOD and service officials a variety of responsibilities with regard to OSA aircraft. For example, in addressing the need to gain efficiencies by sharing aircraft and flight data across the department, it specifically instructed each of the military department secretaries and the combatant commanders to budget for the costs of their OSA aircraft, and to manage those aircraft as required to maximize wartime readiness, efficiency, cost-effectiveness and peacetime utilization. DOD Instruction 4500.43 noted that DOD is required to conduct validations of its OSA aircraft inventory and requirements to determine the sufficiency of the fleet, and it instructed the Chairman of the Joint Chiefs of Staff to conduct an annual OSA aircraft review and to provide the results to the Secretary of Defense. The instruction lists a wide range of requirements that the fleet validation is to be based upon. These include: peacetime engagement and support; travel for members of Congress; travel for DOD's required-use travelers; and a range of wartime requirements associated with contingency scenarios, specific contingency plans and concepts of operation, steady-state campaigns, posture planning efforts, and general and direct support. The OSA validation process begins when the Joint Staff and an independent contractor collect and analyze data from the services and combatant commands. The results of the analysis are then presented to the working and steering groups, and may go through additional reviews before the process concludes with a memorandum from the Chairman of the Joint Chiefs of Staff to the Secretary of Defense, which validates the fleet and addresses risk. Figure 2 shows the full extent of the process, and shows that some steps can be omitted if there are no disagreements or contentious issues to resolve. In recent years, the OSA validation process has resulted in a general determination of the sufficiency of the OSA fleet to meet requirements. This determination has been reported annually in memorandums from the Chairman of the Joint Chiefs of Staff to the Secretary of Defense. Throughout the validation process, the OSA aircraft inventory is compared to a broad set of requirements. Some of the anticipated future requirements are estimated based on historical aircraft usage rates. For example, executive aircraft requirements are estimated based on the past usage of executive aircraft by DOD's required users, Congressional users, and White House directed travelers. Because the usage of these travelers can vary from year to year, the Chairmen's memorandums refer to the requirements as estimates, and consequently, address the ability of the OSA fleet to meet these requirements in general terms. Table 7 shows that the size of the OSA fleet has declined each year since 2013, as well as the Chairmen's assessments. The Chairman's validation memorandums for 2015 and 2016 expressed the sufficiency of the OSA fleet in terms of risk, based on a risk matrix developed by the OSA working group in 2014. The OSA risk matrix categorizes risks as low, moderate, significant, or high based on the percentage of days DOD expects to be able to conduct all its required missions. In Table 8, we have converted the working group's risk-level percentages to numbers of days in a year. The Chairman's 2016 OSA fleet validation memorandum indicated that with a fleet of 45 executive aircraft the risk to mission accomplishment was moderate; and the mission risk for the nonexecutive fleet of 256 aircraft was low. Based on the risk matrix, this means DOD should be able to meet all of the flight requests for tier one and tier two users, White House directed travelers, and Congressional members and delegations, on between 336 and 343 days of the year. Stated more simply, those users can expect a shortage of available executive aircraft to affect some travel plans between 22 and 29 days of the year. Similarly, DOD expects that its nonexecutive aircraft may be unable to meet some mission requirement on up to 22 days of the year. The Chairmen's validation memorandums are generally not used to support OSA aircraft procurement or divestment decisions. As previously noted, OSA guidance instructs the military department secretaries and the combatant commanders to budget for the costs of their OSA aircraft, and to manage those aircraft as required to maximize wartime readiness, efficiency, cost-effectiveness and peacetime utilization. Service officials told us their decisions to divest or replace OSA aircraft are generally made based on internal service assessments concerning the age and maintenance condition of the aircraft, and the need to balance OSA aircraft requirements against other service priorities. For example, Navy and Army officials said that they retired C-20 aircraft because the aircraft were old and expensive to maintain. On April 8, 2014, when General Dempsey issued the first annual OSA validation memorandum, he included an attachment which showed that the services and U.S. Special Operations Command had programed reductions of 68 aircraft and he recommended the exact same reduction in the size of the OSA fleet (from 344 to 276 aircraft) through fiscal year 2019. The subsequent validation memorandums, for the 2014, 2015, and 2016 fleets, did not contain any specific recommendations for force structure changes, but each memorandum noted that the services were continuing to identify efficiencies and program reductions in their OSA fleets. We are not making recommendations in this report. DOD provided technical comments on a draft of this report, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Under Secretary of Defense for Acquisition, Technology and Logistics; the Chairman of the Joint Chiefs of Staff; the Secretaries of the Military Departments, and the Commandant of the Marine Corps; the Commander of the United States Transportation Command; and other interested parties. The report is also available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-5257 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V. The Department of Defense (DOD) defines an aircraft mishap as an event resulting in death, injury, illness or property damage. DOD guidance defines four categories or classes of mishaps according to severity: Class A: Mishap resulted in a fatality, a permanent total disability, damage equal to or greater than $2 million, or a destroyed aircraft. Class B: Mishap resulted in a permanent partial disability, damage equal or greater than $500,000, but less than $2 million, or hospitalization for inpatient care of three or more individuals (not including observation or diagnostic care). Class C: Mishap resulted in a nonfatal injury or occupational illness that caused loss of one or more days from work not including the day or shift it occurred, or damage equal or greater to $50,000, but less than $500,000. Class D: Mishap resulted in a recordable injury or illness not otherwise classified as Class A, B, or C, or damage equal or greater to $20,000, but less than $50,000. While any reportable mishap is, by definition, a matter of concern, the rate of mishaps per flight (or sortie) is low for OSA aircraft. Complete historical flight data is not available for the OSA fleet. However, a calculation based on an extrapolation that uses the average sortie numbers from the 2016 OSA validation process analysis would yield a rate of 7 mishaps for every 10,000 sorties. Furthermore, DOD classifies its class A and B mishaps as its serious mishaps, and these mishaps accounted for 22 of the 174 total OSA mishaps from fiscal years 2007 through 2016. See Table 9 for the complete mishap data for that period. Appendix II: Information on Maintenance of Operational Support Airlift (OSA) Based on our interviews with service maintenance officials and analysis of service maintenance data, we found that: Contractors perform almost all executive and nonexecutive OSA aircraft maintenance, including most organizational-level and depot- level maintenance. In some instances, one contract covers aircraft from more than one service. For example, the Air Force manages the support contract for the Air Force, Army, and Navy C-37 aircraft. All the services require that maintenance for these aircraft comply with Federal Aviation Administration standards for similar types of commercial aircraft. Many of the OSA aircraft are more than 20-years-old. Upcoming depot maintenance and modification periods will reduce the availability of 2 or 3 C-32 and 2 or 3 C-40B executive aircraft. According to Air Force officials, various capability upgrades and modifications will be made so the planes can continue to meet Federal Aviation Administration standards and customer requirements. Each of the maintenance and modification actions is scheduled to take between 10 days and 9 months. In response to this situation, in June 2016, the Executive Secretary sent a memorandum to the military departments, the Assistant Secretary of Defense for Legislative Affairs, and others in DOD, with a copy to the Director of the White House Military Office, alerting them that availability of these larger capacity aircraft will be limited until 2018. The memorandum also asked the addressees to be prepared for flight cancellations due to short notice higher priority missions and to always have commercial air transportation planned as a backup. As shown in tables 10 (Air Force), 11 (Army), and 12 (Navy), many OSA aircraft are over 20 years old and have availability or mission capable rates around or above 70 percent. However, some OSA aircraft have lower availability rates, such as the Air Force C-37 (58 percent) and the Army C-37 (65 percent). To examine the extent to which DOD used executive aircraft, and the extent the usage for select flights complied with guidance, we identified and reviewed the guidance DOD and its components have in place to approve the use executive aircraft. Additionally, we interviewed officials from the Joint Staff, U.S. Transportation Command, the military services, the Office of the Secretary of Defense Executive Secretary, and the Office of the Assistant Secretary of Defense for Legislative Affairs and discussed their roles in approving the use of executive aircraft. Because there was no central source for current and historical executive flight data, we obtained the most current data available--calendar year 2014 and 2015 executive aircraft flight data--from both the Joint Staff and the military services. We then analyzed the data to identify the portions of the total flights that supported various categories of DOD and non-DOD travelers. We also analyzed the calendar year 2014 and 2015 flight data by type of aircraft used. We also analyzed a nongeneralizable, random sample of 53 executive OSA flights and compared the documentation in the flight request packages to the flight package documentation requirements listed in DOD's OSA guidance. The initial scope for the sample included all 19,752 flights conducted during calendar years 2014 through 2015. We received flight information from the services that indicated departure and arrival dates, departure and arrival locations, tiers of travelers, and service of travelers. Based on this, we compiled a unique list of flights, organized by flight type (Joint Staff or service secretary aircraft) and tier (tiers one, two, three, and four; below tier 2; congressional delegation; White House; and other). We then created 9 sampling strata as described in table 13, and distributed a sample of 100 flights proportionally across the strata where the sample was designed to achieve overall 95 percent confidence intervals within +/- 10 percentage points of an attribute estimate. In February 2017, we delivered the selected sample of 100 flights to the respective services with a request for the associated flight packages. However, we ultimately restricted our analyses to a select subset of 53 nongeneralizable flight packages for several reasons. Specifically, upon requesting flight packages, we learned that certain types of flights, for example, congressional user and combatant command flights were not collected by the services. As a result, it was determined the delivered select set of 53 flight packages could not be generalized to all flights in calendar years 2014-2015 due to the limited scope of the sampled flights with available packages and due to the small sample size, which would not provide precise estimates. We concluded that the data provided by the Joint Staff and the military services were sufficiently reliable for the purposes of our reporting objectives by interviewing each of the services and the Joint Staff about their databases used to enter and maintain flight data. To examine the process DOD uses to validate its OSA fleet size and the extent to which the process results have influenced force structure decisions, we gathered documentation on DOD's annual OSA validation process. The documentation we reviewed included DOD guidance, meeting minutes, briefings, and a methodology paper. We also analyzed the results of the OSA fleet validation process. Since 2014, the Chairman of the Joint Chiefs of Staff has presented these results to the Secretary of Defense in an annual OSA fleet validation memorandum. We also interviewed officials from the military services, Joint Staff, the U.S. Transportation Command, and a private contractor who supported the OSA validation process, to determine their roles in the annual validation process and to identify how the process results are used. We also discussed the basis for OSA force structure decisions with officials from the military services. We conducted this performance audit from June 2016 to June 2017 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. Tables 14 through 22 show some key facts about DOD's different types of OSA aircraft, along with a picture of each type of aircraft. In addition to the contact named above, the following staff members made key contributions to this report: Michael Ferren, Assistant Director, Brenda M. Waterfield, David M. Ballard, Vincent M. Buquicchio, Patricia F. Donahue, Amie Lesser, Marc Meyer, Dan Royer, Leigh Ann Sheffield, and Sonya L. Vartivarian.
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OSA missions support the movement of a limited number of high-priority passengers and cargo with time, place, or mission-sensitive requirements. DOD's OSA aircraft are variants of commercial aircraft. OSA aircraft are categorized as either executive (used to transport DOD, congressional, and cabinet officials) or non-executive (used to fulfill wartime or contingency needs). As of May 2017, DOD had 287 OSA aircraft--44 executive and 243 non-executive--about 6 percent of DOD's airlift/cargo/utility aircraft. House Report 114-537 and Senate Report 114-255 included provisions for GAO to review the use and size of the OSA fleet. This report examines the extent to which DOD (1) used OSA executive aircraft in 2014 and 2015, and if this usage complied with guidance; and (2) has a process to validate its OSA fleet size. GAO reviewed DOD guidance for approving the use of OSA aircraft, analyzed the most current executive aircraft flight data available--calendar years 2014 and 2015--and compared the approval documentation from a sample of those flights to DOD's guidance. GAO also reviewed documentation and interviewed officials to assess DOD's OSA validation process and results. In calendar years 2014 and 2015, government officials took thousands of flights on Operational Support Airlift (OSA) executive aircraft, and our review of a nongeneralizable sample of 53 flight packages found that those trips generally followed Department of Defense (DOD) guidance for requesting the use of government aircraft. DOD requires its officials in certain positions to fly on military aircraft, including OSA executive aircraft. It also authorizes, but does not require, officials in other government positions to fly on OSA executive aircraft. We analyzed the use of OSA executive aircraft during 2014 and 2015--the latest years for which data were available--and found that of the 19,752 executive flights conducted, 31 percent supported required users and 69 percent supported other authorized users. The Vice President, the First Lady, and other cabinet-level officials on White House support mission trips accounted for about 12 percent of the flights, and members of congress and congressional employees accounted for about 5 percent of the flights. DOD guidance requires documentation for each flight request including the rank or position of the traveler, itinerary, and in some cases, cost data. While not generalizable beyond these flights, our review of 53 flight request packages found that the packages generally contained most required documentation. Although some packages were missing items, we discussed those items with DOD officials, and we did not find evidence to suggest the requested flight should have been disapproved. In recent years, DOD has implemented a consistent process to validate the size of its OSA fleet and to have a risk assessment of the fleet's ability to meet requirements all 365 days per year. In 2016, for example, the executive fleet's risk-to-mission accomplishment was assessed as moderate, and the non-executive fleet's risk-to-mission was assessed as low. The services do not generally use the validation process determinations as a basis for OSA aircraft procurement and divestment decisions. According to service officials, those decisions are based on separate, independent evaluations of their force structure needs, which evaluate the age and maintenance conditions of their aircraft, and the need to balance OSA aircraft requirements against other service priorities. GAO is not making any recommendations in this report. DOD provided technical comments on a draft of this report, which GAO incorporated as appropriate.
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STARS will replace controller workstations with new color displays, processors, and computer software at FAA and DOD terminal air traffic control facilities. (See fig. 1.) The total number of facilities scheduled to receive STARS has fluctuated between 70 and 190 because some of the facilities have received interim systems and may not get full STARS. FAA is designing STARS to provide a platform that allows easy and rapid incorporation of new hardware- and software-based tools to help improve controllers' productivity and make the nation's airspace safer and managed more efficiently. For each acquisition project that the agency undertakes, FAA officially estimates, or develops baselines for, the project's life-cycle costs, schedule, benefits, and performance in a formal document called the acquisition program baseline. This baseline, which is approved by the Joint Resources Council, FAA's acquisition decision-making body, is used to monitor a project's progress in these four areas. The initial acquisition plan for STARS was approved in March 1996; and in September 1996, FAA signed a contract with Raytheon Corporation to acquire STARS. The initial strategy for STARS included two phases: (1) initial system capability, which was to provide the same functions as the equipment in use at the time and (2) final system capability, which was to implement new functions to help controllers move traffic more safely and efficiently. FAA's acquisition policy requires that projects follow a structured and disciplined test and evaluation process appropriate to the product or facility being tested. Typically, this process includes system testing and field familiarization testing. System testing usually includes development and operational, production, and site acceptance testing. Field familiarization testing includes system and software testing in an operational environment to verify operational readiness. Raytheon and FAA have already conducted a series of tests of the STARS software and plan to continue such testing. As problems arise during these tests, they are documented using program trouble reports (PTR) and are classified from type 1, the most severe, to type 4, the least severe. FAA's policy defines each type. The policy states that type-1 PTRs prevent the accomplishment of an operational or mission-essential capability and could jeopardize safety and security. Type-2 PTRs adversely affect but does not preclude the performance of an operational or mission-essential capability and a workaround solution is not available. Type-3 PTRs adversely affect but does not preclude the performance of an operational or mission-essential capability and a workaround solution is available. Type-4 PTRs prevent or adversely affect the accomplishment of a nonessential capability and can be handled procedurally. FAA's contract with Raytheon calls for the contractor to correct all type-1 and type-2 PTRs and, as directed by the government, to correct type-3 and type-4 PTRs. The timing of the corrective action depends, in part, on the severity of the PTR and on its relevance to upcoming activities. From the project's inception until 2001, a multidisciplinary team oversaw STARS and was responsible for carrying out the acquisition strategy for implementing the project. In November 2000, FAA began formulating a new organization that would be responsible for all terminal modernization activities. This new organization, the Terminal Business Service, was intended to move the agency from a project-driven to a point-of-service approach, which would address performance issues at each facility in an integrated fashion. This new organization is now responsible for the STARS program along with other projects for terminal facilities. The current STARS program is not the program that FAA contracted for in 1996. When FAA awarded the contract in September 1996, it estimated that STARS would cost $940 million and be implemented at 172 facilities by 2005. This estimate was based on acquiring STARS through a commercial off-the-shelf technology with limited development, since a version of this technology was already in use in other countries. In 1997, when FAA first introduced STARS, FAA controllers, who were accustomed to using the older equipment, began to voice concerns about computer-human interface issues that could hamper their ability to monitor air traffic. For example, the controllers noted that many features of the old equipment could be operated with knobs, allowing controllers to focus on the screen. By contrast, STARS was menu-driven and required the controllers to make several keystrokes and use a trackball, diverting their attention from the screen. The maintenance technicians also identified differences between STARS and its backup system that made it difficult to monitor the system. For example, the visual warning alarms and the color codes identifying problems were not consistent between the two systems. Addressing these and other issues required extensive software development because the commercial version of STARS that Raytheon delivered to FAA very tightly coupled the software for the information that would be displayed on the screen and the software that would calculate aircraft position. Because of this coupling, it was difficult for Raytheon to implement the new or modified display requirements that FAA had identified. Accordingly, FAA directed Raytheon to separate the display software from the air traffic control software so that Raytheon could more efficiently implement future display- and air traffic control-related changes to each type of software. To help ensure that STARS meets all of these and other requirements, FAA is developing multiple versions of STARS software, each with specific features, and plans to integrate them into a single version, which will be deployed nationwide. (See fig. 2.) This incremental approach, according to FAA, gives air traffic controllers early experience with the software as it is being developed rather than introducing an entirely new system at the end, as was the case with the commercially available version. For example, FAA has developed a version known as early display configuration, which would replace the controllers' current displays and monitoring equipment but would use the existing computer and processing software. Figure 2 shows FAA's new strategy for developing STARS software incrementally. In the early display configurations, FAA separated the display software from the original commercial version and installed and tested the display software, together with some of the original software, at El Paso and Syracuse. In the initial system configuration, FAA took the original software and added some air traffic control software and tested this software at Eglin Air Force Base. After each type of software was tested, FAA began combining the two types to run together in a version called full STARS 2. Subsequent versions of full STARS incorporate additional functions. Figure 3 provides the schedule for when each version of STARS became or is scheduled to become operational at the first facility. Since 1996, FAA acquisition executives have approved two changes to the cost and schedule estimates for STARS. These changes are presented in table 1. The October 1999 change was approved to give Raytheon enough time to add and modify the display software in order to resolve computer- human interface issues. The March 2002 change was approved after FAA decided to deploy STARS to facilities where frequent equipment failures caused delays; to new facilities; and to facilities where a digital radar, needed to operate STARS, is available. Under this strategy, FAA is also assessing how to deploy STARS to remaining facilities in a cost-effective manner. Facilities that previously received new hardware and software so that they could continue to operate while waiting for STARS would get new technology but may not get the full STARS system. FAA responded to the DOT IG's concerns about the agency's plans for deploying STARS at Philadelphia by stating that FAA plans to follow its policy for testing STARS and addressing critical software problems. However, FAA officials, controllers and maintenance technicians all have concerns about whether required training can be completed by the November 17, 2002, deployment date. In June 2002, the DOT IG questioned whether FAA's commitment to deploy STARS in Philadelphia before testing it first in Memphis, as planned, would allow the agency to test the system adequately and address critical software problems that might be identified before deployment. While the Memphis terminal facility has fewer and less complex air traffic control operations than more congested facilities, such as the one in Philadelphia, FAA changed its plans because meeting the commitment to deploy STARS in Philadelphia would not allow enough time to test STARS first in Memphis. FAA testified in September 2001 that it would deploy STARS to Philadelphia to coincide with the opening of a new terminal, scheduled for November 17, 2002. FAA officials said they view the achievement of the November 17, 2002, deployment as important to the agency's credibility and that they believe they will learn more from testing STARS in Philadelphia, which is more representative of terminal facilities, than they would have learned in Memphis. According to FAA, its plans for deploying STARS in Philadelphia are consistent with its testing policy, which calls for independent operational testing of a system after it has been deployed in one location. Under the current plan, FAA will use STARS to control live traffic at Philadelphia beginning on November 17, 2002--a step signifying initial operating capability--but the current air traffic control system will remain available as a backup. In accordance with its policy, the agency will then conduct independent testing after a "period of use," scheduled from the day after initial operations through December 2002. At that point, as the policy directs, the agency will declare the system ready for operational use and will complete the switch to the new system. At that time, now scheduled for February 2003, the new system will be formally commissioned and the current system decommissioned. To address critical STARS software problems identified prior to deploying STARS, FAA is attempting to resolve the most critical problems (type-1 and type-2 PTRs) before November 17, 2002. According to FAA's definition, type-1 problems are those that, if not corrected, might prevent the accomplishment of an operational or mission-essential capability or might jeopardize safety, while type-2 problems adversely affect but does not prevent the accomplishment of an operational or mission-critical capability. FAA's data showed that as of August 30, 2002, there were 5 type-1 PTRs and 68 type-2 PTRs, against the system being deployed in Philadelphia, that still need to be resolved. FAA officials stated that they have assigned these problems to the contractor and plan to validate the contractor's fixes. Validation is important because, in some instances, the fixes have not performed as intended. In addition, FAA has identified at least 12 type-3 PTRs and other issues, such as completing required training, that need to be resolved prior to deployment in Philadelphia. FAA is also meeting biweekly with Raytheon to monitor the contractor's progress in implementing and testing fixes for PTRs. In addition, FAA has installed STARS hardware and an earlier version of STARS software at Philadelphia so that users can become familiar with the system. On September 19, 2002, FAA plans to begin testing the most recent STARS software in Philadelphia. While FAA maintains that its plans for testing STARS and addressing critical software problems are adequate to address the DOT IG's concerns, the agency is less certain that it will be able to complete the certification training required for maintenance technicians at the Philadelphia terminal before the new version of STARS begins operation in November. The union representing maintenance technicians expressed concern because FAA has not yet finalized the content and schedule of the training for controllers and maintenance technicians on the software that will be deployed in Philadelphia. Under a new training agreement between the union and FAA, on-site certification training--rather than training at FAA's central facility in Oklahoma City--is required for all employees before a new system begins operation. Union officials expressed concern that without a finalized training schedule, its members will not have enough time to receive training for certification before the November deployment. FAA officials acknowledged that having enough time for training is an issue. Union and FAA officials are working to solve these concerns prior to deployment. Moreover, according to FAA officials, FAA is meeting with maintenance technicians and controllers to discuss issues related to training, as well as maintenance and testing. Because FAA was not able to deploy STARS according to its original schedule, under which some terminals would have received the new equipment by 1998, FAA implemented several interim projects. Under these projects, FAA replaced failing equipment with new software, radar displays, and other hardware so that the terminals could continue operating while STARS was delayed. Under one project, Common Automated Radar Terminal System (Common ARTS), FAA procured common software for the automated equipment at some of its largest terminal facilities and about 130 smaller facilities. Common ARTS provides functions similar to those being designed for STARS, such as the ability to support simultaneous multiple radar displays and adapt to site changes. FAA also purchased 294 ARTS color displays, which replaced aging radar displays at six terminals with those that are high-resolution. The cost for Common ARTS and the ARTS color displays attributable to STARS delays was around $90.5 million. We provided a draft of this report to DOT. We met with DOT officials, including the Director, Terminal Business Service, FAA. These officials generally agreed with the facts and made technical and clarifying comments, which we have incorporated into this report as appropriate. FAA initially began the Common ARTS project because of delays in a program that preceded STARS. Under the initial phase of this project, developed by Lockheed Martin Corporation, equipment was delivered to 131 small- to medium-sized facilities beginning in 1997 and to 5 large facilities in 1998 and 1999. However, FAA later purchased equipment for five additional facilities, which was installed in 2001 and 2002. documentation on the prioritization of trouble reports and agency policy and guidance on critical trouble reports and test and evaluation requirements. To determine the impact of changes in the schedule for deploying STARS, we reviewed FAA documentation on the interim projects and the associated costs and also reviewed IG and GAO products on the impact of delays on implementing STARS. We did not independently verify the data we received from FAA. We performed our work in August 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to interested Members of Congress, the Secretary of Transportation, and the Administrator, FAA. We will also 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 or your staff have any questions about this report, please contact me at (202) 512-3650. I can also be reached by E-mail at [email protected]. Key contributors to this report are listed in appendix I. In addition to those individuals listed above, Nabajyoti Barkakati, Geraldine Beard, Elizabeth Eisenstadt, Tammi Nguyen, Madhav Panwar, and Glenda Wright made key contributions to this report. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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Since September 1996, the Federal Aviation Administration (FAA) has been developing the Standard Terminal Automation Replacement System (STARS) project to replace the outdated computer equipment that air traffic controllers currently use in some facilities to control air traffic within 5 to 50 nautical miles of an airport. Comparing the currently projected cost and deployment schedule for STARS with the original cost and schedule is difficult because the program presently bears little resemblance to the program envisioned in 1996. FAA has officially changed the cost, schedule, and requirements for STARS twice. In October 1999, FAA estimated the cost for its new approach at $1.4 billion, with a schedule to begin deploying STARS in 2002 at 188 facilities and complete installation at all facilities by 2008. The second change occurred in March 2002, when FAA lowered its estimate from $1.4 billion to $1.33 billion, reduced the number of facilities receiving STARS from 188 to 74, and changed the date to complete installation at all facilities from 2008 to 2005. FAA responded to the Department of Transportation Inspector General's concerns about the agency's plans for deploying STARS in Philadelphia by stating that it plans to follow its policy for testing STARS and addressing critical software problems. Because the FAA changed the date for deploying STARS at the first facility from 1998 to 2002, it had to implement interim systems to allow it to continue to meet demands for air traffic services. Specifically, it had to replace radar displays and other hardware that were difficult to maintain and had limited capacity to accommodate software that would allow FAA to add new features. FAA documents show the cost to implement these interim solutions when STARS was delayed was $90.5 million.
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Community and migrant health centers are financed in part with federal grants administered by HRSA. HHS awards grants to public and nonprofit entities to plan, develop, and operate health centers for medically underserved populations. To assist in providing health care to these groups, HHS awarded over $750 million in grant assistance in fiscal year 1996. Like all patients, those receiving care from community or migrant health centers may seek compensation for medical malpractice if they believe the treatment they receive does not meet an acceptable standard of care. Patients may seek payment for economic losses such as medical bills, rehabilitation costs, and lost income; and noneconomic losses such as pain, suffering, and anguish. To obtain protection against malpractice claims before FTCA coverage became available, most centers had purchased private comprehensive malpractice insurance. The Congress enacted the Federally Supported Health Centers Assistance Act of 1992 (P.L. 102-501) to provide FTCA medical malpractice coverage to community and migrant health centers. This law made FTCA coverage available to grantees for a 3-year period beginning January 1, 1993, and ending December 31, 1995. It provided centers an opportunity to reduce their malpractice insurance expenditures. The Congress extended the availability of permanent FTCA coverage to centers in December 1995. FTCA coverage, which is provided at no cost to the centers, is an alternative to private comprehensive malpractice insurance and gives centers a chance to redirect their savings to the provision of health services. Centers opting for FTCA coverage may decide to purchase a supplemental or "gap" policy to cover events not covered by FTCA. Even with the purchase of a gap policy, HRSA expects that centers will spend less on insurance than they would if they continued to purchase comprehensive coverage. In a center not covered by FTCA, patients or their representatives would file a malpractice claim with the private carrier insuring the provider. Insurers are generally responsible for investigating claims, defending the provider, and paying any successful claims, up to a stated policy limit. If not resolved by the insurer, a claim could result in a lawsuit filed in state court. In addition to insuring centers against instances of malpractice, insurers may provide risk management services. Private carriers generally view these services as a way to reduce the incidence of malpractice, and in turn, reduce or minimize their liability. Malpractice claims against FTCA-covered centers are resolved differently from those filed against centers with private insurance. Patients of FTCA-covered centers must file administrative claims with HHS. Claims must be filed within 2 years after the patient has discovered or should have discovered the injury and its cause. Under FTCA procedures, the claim is filed against the federal government rather than against the provider. After reviewing the claim, the HHS Office of General Counsel may attempt to negotiate a financial settlement or, if it finds the case to be without merit, it may disallow the claim. Claimants dissatisfied with HHS' determination have 6 months to file a lawsuit against the federal government in federal district court. Claimants may also file suit if HHS fails to respond to their claims within 6 months of receipt. If a claim results in the filing of a medical malpractice suit, the Attorney General, supported by the Department of Justice (DOJ), represents the interest of the United States in either settling the case out of court or in defending the case during the trial. If the claim continues to trial, the case is heard in a federal district court without a jury; punitive damages cannot be awarded. Protection against malpractice claims through FTCA has been provided to federally employed health care providers since 1946, when the government waived its sovereign immunity for torts, including medical malpractice. Prior to this date, individuals were prohibited from bringing a civil action against the federal government for damages resulting from the negligent or other wrongful acts or omissions of its employees acting within the scope of their employment. Since then, the federal government defends malpractice claims made against federal employees practicing medicine at agencies such as the Department of Veterans Affairs, the Indian Health Service, and the Department of Defense, so long as those practitioners were providing care within the scope of their employment. While FTCA coverage may reduce centers' insurance costs, it imposes a potentially significant liability on the federal government because FTCA does not limit the amount for which the government can be held liable. Private policies generally limit the amount that can be paid on a claim, typically to $500,000 or $1 million. The total amount paid for all claims is also usually limited. For example, a policy with coverage limits of $1 million/$3 million will pay up to $1 million for each claim and no more than $3 million for all claims annually. As FTCA does not specify a monetary limitation, payments could be substantially higher than the monetary limits of private malpractice insurance policies. While most eligible centers did not rely on FTCA coverage during the demonstration period, centers now seem to be taking greater advantage of the opportunity to reduce their costs. The number of centers relying on FTCA coverage appears to have increased significantly. During the demonstration period, all centers were required to apply for FTCA coverage but did not necessarily cancel their private comprehensive malpractice insurance. As a result, most centers incurred the cost of private insurance during the demonstration period and were not relying on FTCA coverage. As of March 21, 1997, 452 of 716 eligible centers have applied for FTCA coverage. HRSA has told centers to cancel private comprehensive malpractice insurance when they come under FTCA but remains uncertain, as it was in the demonstration period, about which FTCA-covered centers have actually terminated that insurance and are thus not paying for duplicate coverage. During the demonstration period, many centers were uncertain FTCA coverage would be permanently extended and retained private insurance. Centers feared that converting back to private comprehensive malpractice insurance, if an extension was not enacted, would be both difficult and costly. Others were concerned about the possibility that not all claims would be covered by FTCA. While HRSA permits centers to combine gap policies with FTCA coverage, the expense and difficulty associated with obtaining gap coverage was an additional concern. The permanent extension of FTCA and provisions in the new law appear to have eased many of the centers' concerns. Since the demonstration began, private insurers have developed more gap policies to insure against incidents not covered by FTCA. The new law made FTCA coverage optional for centers. Centers that do not want FTCA coverage are no longer required to apply for it. In addition, the new law addressed other concerns raised by the centers during the demonstration period. For example, FTCA coverage was expanded to include part-time practitioners in the fields of family practice, general internal medicine, general pediatrics, and obstetrics and gynecology. Centers were also given greater assurance that the federal government would cover their claims. During the demonstration period, DOJ could invalidate HHS' decision to grant a center FTCA coverage after a claim was filed. Now, HHS' decision is binding upon the Attorney General. The possibility of reducing center costs also influenced many of the center officials with whom we spoke. For example, one center in New England reported its malpractice insurance costs were reduced by almost $600,000 since 1993. A center official there told us that the savings have been used to improve medical staff retention and will also be used to expand patient programs. Another center in the Midwest reported savings of $350,000. Of the center officials we spoke to who now intend to rely on FTCA coverage, all reported the opportunity to reduce costs as the main factor in choosing FTCA over private comprehensive malpractice insurance. Although FTCA participation appears to have grown substantially since the demonstration period, not all centers have opted for FTCA coverage. Of the approximately 716 centers currently eligible for this coverage, 264 of the eligible centers, or 37 percent of them, have not applied for it. FTCA is still a relatively recent option for centers and some center personnel may be questioning the desirability of this coverage for their facility. Uncertainty about which practitioners and services are not covered by FTCA, the availability of private policies to cover any gaps, and questions about the FTCA claims resolution process may all contribute to a center's decision to retain private coverage. Center officials from two southern states told us that their malpractice premiums were low enough that there was little incentive to convert to FTCA coverage. Officials from other centers that do not have FTCA coverage told us that resistance from the medical staff and the loss of tailored risk management services are also contributing factors in their decision to keep private insurance. Few of the 138 FTCA claims filed against health centers since the beginning of FTCA coverage have been resolved. Although the number of FTCA claims filed against centers has increased since the demonstration period began in 1993, only five settlements have been made and all have been relatively small. Table 1 shows the number of claims filed and compensation sought and awarded by fiscal year. In addition to the five claims that have been settled, seven others have been disallowed by HHS. The total amount of compensation sought by the 126 remaining claimants is in excess of $400 million. Thirty-two FTCA claims have resulted in lawsuits that have been filed in federal court. The 94 remaining claims are pending in HHS. Current claims and settlement experience may not be an accurate indicator of future claims. Although claim payments to date have been relatively small, one large settlement or court award could dramatically increase the total. Other factors also make it difficult to predict future payments. There may be a time lag between alleged instances of malpractice and claim filings, as claimants have 2 years from the date of the alleged incident to file a claim. However, a prior analysis of claims reported by centers before the demonstration period showed that their claims experience was considered favorable by actuaries in relation to the insurance premiums they paid. HRSA has drafted a legislative proposal limiting the federal government's liability for FTCA claims filed against migrant and community health centers. This proposal, initially recommended by HHS' OIG and currently under review by the Secretary of HHS, calls for capping the amount a claimant may seek in damages from an FTCA-covered center at $1 million. This would be comparable with the $1 million cap per claim that private insurance carriers typically place on malpractice policies, including those sold to health centers. If enacted, this proposal would, for the first time, limit the federal government's liability under FTCA and would be an exception for only federally funded health centers. According to HHS' OIG report, this cap could save the federal government as much as $30.6 million over a 3-year period, if all health centers elected FTCA coverage. Of the 126 unresolved FTCA claims, which include the 32 pending lawsuits, 59 seek compensation in excess of $1 million. HRSA's collection of FTCA participation data has been limited. This information is necessary to determine whether FTCA coverage is reducing health centers' costs and is also critical to the agency's ability to provide risk management. Although HRSA has attempted to collect data related to centers' use and savings under FTCA, these attempts have not been effective. HHS has also failed to respond to claimants in a timely manner, which gives them the opportunity to file lawsuits in federal court. While HRSA intends to provide centers with some risk management services, it has not developed a comprehensive risk management plan and presently does not intend to provide some of the important risk management activities currently provided by private insurers and other federal agencies. HRSA cannot accurately report the amount centers spent on comprehensive private malpractice insurance during the FTCA demonstration period, nor can the agency report with certainty the total cost reductions realized by FTCA-covered centers during that period. HRSA officials were unable to identify those centers that canceled these comprehensive policies during the demonstration period and relied on FTCA coverage. Although HRSA collected data from centers regarding their insurance costs and savings under FTCA, we found that these data were not reliable for determining whether centers canceled their private comprehensive malpractice insurance and reduced their costs. The form HRSA provided to centers was not accompanied by instructions. In addition, the form did not provide centers with a means of reporting and identifying all of their malpractice insurance expenditures. Consequently, centers may have supplied inappropriate data or reported expenditures inaccurately while other information, critical to determining actual cost reductions, was not obtained. Without reliable information on centers' reliance on FTCA it will be difficult for HRSA to target its limited risk management services on FTCA-covered centers. Similarly, without sound data on cost reductions, HRSA will be unable to determine if coverage under FTCA saves centers money. HRSA is now taking steps to end dual coverage, which has hampered HRSA's data collection efforts and oversight of FTCA. While HRSA advised centers in April 1996 that they must choose between FTCA coverage and private comprehensive malpractice insurance, it did not establish a date after which duplicate insurance will no longer be an allowable charge to the grant at centers with FTCA coverage. We spoke with officials at 27 centers with FTCA coverage. Of those 27 centers, 6 were also covered by private comprehensive malpractice insurance. We subsequently advised HRSA that a deadline was needed to ensure that health centers reduce their costs by terminating duplicate coverage. HRSA officials agreed and recently issued a directive to FTCA-covered centers to cancel their private comprehensive malpractice insurance by March 31, 1997. In many cases, HHS has not contacted claimants regarding their claims, and some claimants have filed suit in federal court. Claimants are precluded from filing suit for 6 months unless HHS has denied the claim. For 22 of the 32 claims involving FTCA-covered centers that have resulted in federal lawsuits, HHS had not responded to the claimants or contacted them to discuss a settlement during the 6-month period. HHS officials told us that in many cases they had been unable to obtain documentation and medical reviews needed to assess the merits of these claims and were therefore not prepared to either settle or deny them. DOJ is now responsible for representing the government in these lawsuits. If HHS had achieved a settlement in any of these cases, some of the costs of FTCA administration associated with involving another federal agency, preparing for trial, and defending the case in court might have been avoided. Risk management provides an opportunity to limit financial losses resulting from allegations of improper patient care. It also offers providers a way to improve service to patients, avoid patient injuries, and reduce the frequency of malpractice claims. The health care experts we spoke with consistently promoted risk management as a tool to simultaneously minimize loss and improve the quality of patient care. Although the law extending FTCA coverage to centers does not direct HRSA to provide risk management, HRSA officials acknowledge both the need to minimize the federal government's potential liability and provide risk management services to centers. HRSA has begun to provide centers with some of these services. However, HRSA is not planning as extensive a risk management program as some private insurance carriers or other federal agencies with FTCA malpractice coverage, such as the Department of Defense and the Indian Health Service. (App. III provides more details on the purpose and potential benefits of risk management for health care facilities.) A wide range of risk management services was offered to health facilities and practitioners by the insurance companies and federal agencies we interviewed. While some provided extensive services--including site inspections, periodic risk reassessments, and telephone hotlines to respond to center concerns--others offered these services on request or to larger facilities. The more commonly offered services included claims tracking, analysis, and feedback on specific incidents, educational seminars, risk management publications, and the opportunity to obtain specific guidance on center concerns. Most of the health center officials we spoke with valued their insurer's risk management services. Many regarded the opportunity to discuss a new procedure or a potential malpractice claim with a risk manager as the most important feature of their insurer's risk management plan. Several officials said they were reluctant to cancel private comprehensive malpractice coverage in favor of FTCA because they would then lose the risk management services they have come to rely upon. In contrast, other centers find risk management services are still available from their private insurer if they purchase a supplemental policy to cover gaps in FTCA coverage. Additionally, HRSA has advised centers that the purchase of private risk management services by centers will be an allowable charge to their grant. Recently, HRSA has begun to take steps to provide centers with risk management. HRSA has contracted with the National Association of Community Health Centers (NACHC) to provide telephone consultations with centers regarding FTCA and risk management issues. NACHC may also provide a limited number of special risk management seminars to centers through HRSA-sponsored training. HRSA officials told us that they will obtain a subscription for all FTCA-covered centers to the Armed Forces Institute of Pathology's annual publication, Open File, which is exclusively devoted to risk management issues. Individually tailored risk management assessments may also be offered to centers through HRSA's Technical Assistance Program. This assistance would supplement the agency's periodic site inspections of centers, already a routine component of its grant management process. While HRSA has taken important steps in providing centers with some risk management services, some critical risk management activities--performed by other insurers, including other federal agencies--have been excluded from its efforts. For example, it has not established a policy for providing centers with specific feedback based on their claims experience nor has it instituted a useful claims tracking system, widely regarded by risk management experts as an essential component of managing risk. The experts we spoke to told us that a tracking system provides a way of identifying problem practitioners as well as patterns among practitioners and facilities. While HRSA officials agreed with the importance of these risk management activities, they told us that the initial activities related to the implementation of FTCA for health centers necessarily took priority over the development of a comprehensive risk management plan. Community and migrant health centers are being challenged by increasing financial pressures, jeopardizing their service to large medically needy populations. By opting for FTCA coverage, centers can reduce their malpractice insurance expenditures and redirect these funds to providing needed services to their communities. Malpractice coverage provided by FTCA differs in many ways from that provided by private malpractice insurance coverage. One of the significant differences is the lack of a monetary limitation on liability coverage, which could play a signiftcantant role in determining the federal government's ultimate cost of providing FTCA coverage to community and migrant health centers and which heightens the importance of a sound risk management plan. As more centers rely on FTCA for malpractice coverage, the federal government's potential liability will increase as will the need for risk management. Insurers and other federal agencies have employed a variety of risk management practices to limit liability and improve clinical practices. The growth in FTCA coverage offers both the challenge of a greater federal liability to manage and a new opportunity to help community and migrant health centers improve the quality of their care. We recommend that the Secretary of Health and Human Services direct the Administrator of HRSA to develop a comprehensive risk management plan, including procedures to capture claims information and to identify problem-prone clinical procedures, practitioners, and centers. We provided HHS an opportunity to comment on a draft of this report, but it did not provide comments in time for inclusion in the final report. However, program officials provided us with updated claims information and also offered several technical comments based on their review of the draft report, which we have incorporated as appropriate. In addition, we also discussed the findings presented in this report with program officials who generally agreed with the facts we presented and with our evaluation of HRSA's management of FTCA coverage for community health centers. We are sending copies of this report to the Director of the Office of Management and Budget, the Secretary of Health and Human Services, and interested congressional committees. We will make copies available to others upon request. Major contributors include Paul Alcocer, Geraldine Redican, Barbara Mulliken, and Betty Kirksey. Please call me at (312) 220-7767 if you or your staff have any questions concerning this report. To review HHS' implementation of FTCA coverage for community health centers, we spoke with officials from HRSA's Bureau of Primary Health Care in Bethesda, Maryland, as well as the agency's regional FTCA coordinators. To assess the FTCA claims resolution process and to determine the status of claims filed, we met with and obtained data from the Public Health Service Claims Office, HHS' Office of General Counsel, and DOJ. However, we did not independently verify the status of these claims. To obtain information on why community health centers do and do not participate in the FTCA program, we interviewed officials from the National Association of Community Health Centers (NACHC) and three state primary care associations. We also interviewed officials from 35 community health centers, including 27 centers with FTCA coverage and 8 centers that were not participating in the FTCA program. To determine the types of risk management services provided to community health centers, we interviewed representatives of seven insurers and three risk management consulting firms providing these services. We also discussed these services with some of the community health center officials we interviewed. We identified the insurance carriers through discussions with HRSA officials in both headquarters and regional offices, community health centers, NACHC, and others knowledgeable about the malpractice market. We selected carriers selling malpractice insurance in a variety of geographic areas, including both coasts, the midwest, and the south. We also selected carriers with significant experience insuring community health centers. We estimate that collectively, these carriers have insured over 300 community health centers against malpractice claims. We also discussed the unique risk management needs of community health care centers with a variety of health care experts. In addition, we contacted the Armed Forces Institute of Pathology and the Indian Health Service to discuss their risk management programs. Alcona Citizens for Health, Inc. (MI) Barnes-Kasson County Hospital (PA) Brownsville Community Health Center (TX) Citizens of Lake County for Health Care, Inc. (TN) Columbia Valley Community Health Services (WA) Country Doctor Community Clinic (WA) Crusaders Central Clinic Association (IL) Detroit Community Health Connection, Inc. (MI) East Arkansas Family Health Center, Inc. (AR) El Rio Santa Cruz Neighborhood Health Center, Inc. (AZ) Erie Family Health Center, Inc. (IL) Grace Hill Neighborhood Health Center (MO) Greater New Bedford Community Health Center, Inc. (MA) Indian Health Board of Minneapolis, Inc. (MN) Kitsap Community Clinic (WA) La Clinica de Familia, Inc. (NM) La Clinica del Pueblo de Rio Arriba (NM) Lamprey Health Care, Inc. (NH) Laurel Fork-Clear Fork Health Centers, Inc. (TN) Lawndale Christian Health Center (IL) Manet Community Health Center, Inc. (MA) Memphis Health Center, Inc. (TN) Missoula City/County Health Department (MT) Model Cities Health Center, Inc. (MN) Ossining Open Door Health Center (NY) Perry County Medical Center, Inc. (TN) Presbyterian Medical Services (NM) Providence Ambulatory Health Care Foundation, Inc. (RI) Sea Mar Community Health Center (WA) Shawnee Health Service Development Corporation (IL) Southern Ohio Health Services Network (OH) South Plains Health Provider Organization, Inc. (TX) Southwest Community Health Center, Inc. (CT) The Clinic in Altgeld (IL) Westside Health Services, Inc. (NY) Risk management offers physicians and other health care practitioners and facilities a means of improving patient services, avoiding patient injuries, and reducing the frequency of malpractice claims. Organizations such as the American Medical Association, the American Hospital Association, the Joint Commission on the Accreditation of Healthcare Organizations, and the Physician Insurers Association of America (PIAA) recognize risk management as an effective tool for minimizing liability and enhancing quality care. The insurers and health care experts we spoke with concurred that risk management provides the underwriter or, in the case of FTCA coverage, the federal government, the possibility of preventing instances of malpractice from occurring and thereby reducing financial liability. They also told us that risk management can help educate physicians and other medical personnel while improving their performance. Many of the center officials we spoke with also valued risk management services. The insurance industry and federal officials we spoke with consistently underscored claims tracking and analysis as one of risk management's most critical components. Claims tracking and analysis provides a way of identifying patterns in the types of malpractice claims filed against providers. This information may be used to identify facilities or practitioners that pose risks and problem-prone clinical practices. It can also be key to implementing corrective actions, such as selecting a practitioner or an entire facility for other risk management services. Aggregating and analyzing claims data and sharing results with health care providers may reduce the number of claims by bringing to light factors that lead to claims. Analyzing claims made and settled is done by individual insurers, organizations representing groups of insurers, such as PIAA, and federal agencies administering health programs FTCA covers for malpractice claims. Many insurers collect medical malpractice data. Data collected may relate to the cause of claims and their severity, the amounts requested and paid by type of injury, and demographic features of claimants and providers. For example, PIAA, which represents physician-owned or -directed professional liability insurance companies, routinely collects and analyzes data from 21 of its member companies. PIAA has issued special reports on topics such as lung cancer, medication errors, and orthopedic surgical procedures. This information can alert providers to situations that may put them at greater risk for a malpractice claim and increase their awareness of new or continuing problem areas. The federal government also recognizes the value of analyzing claims data as both a risk management tool and a means of improving quality care. The Armed Forces Institute of Pathology (AFIP) performs detailed claims analysis for all branches of the military and other federal agencies, such as the Department of Veterans Affairs, that are covered by FTCA. In addition to conducting studies, AFIP also provides direct feedback and responds to queries from facilities seeking to improve performance and minimize risk. The Indian Health Service (IHS) provides health care services at both hospitals and outpatient facilities. IHS performs its own analysis of claims, although on a smaller scale than AFIP. IHS has tracked claims for 10 years and provides routine feedback to all facilities and practitioners after a claim has been resolved. It has also created a database of all filed claims and has issued reports of its analysis to IHS facilities. 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Pursuant to a legislative requirement, GAO reviewed the implementation of Federal Tort Claims Act (FTCA) coverage for community health centers, focusing on the: (1) health centers' use of FTCA coverage; (2) status of claims filed against FTCA-covered centers through March 21, 1997; and (3) Department of Health and Human Services' (HHS) management of FTCA for community and migrant health centers, and its efforts to reduce claims through risk management programs. GAO noted that: (1) the permanent authorization of FTCA coverage, the greater availability of supplemental policies to cover incidents not covered under FTCA, and the reports of some centers already realizing substantial savings have contributed to the willingness of many centers to now obtain FTCA coverage; (2) although the Health Resources and Services Administration (HRSA) required centers to apply for FTCA coverage during the demonstration period, centers were not compelled to cancel their private comprehensive malpractice insurance; (3) although HRSA does not have complete data on center participation during the 3-year demonstration period, it appears that most centers retained their private comprehensive malpractice insurance during this time; (4) because these centers were covered by both FTCA and their private policies, they did not reduce their insurance costs; (5) of the 716 centers eligible for FTCA coverage, 452 have elected this coverage and are now required to cancel their private comprehensive malpractice insurance; (6) despite this level of participation, a significant number of centers have not reapplied for FTCA coverage since its recent extension; (7) as of March 21, 1997, 264 of the 716 centers eligible for FTCA coverage, or 37 percent, had not applied for it; (8) since the demonstration period began in 1993, there have been 138 claims filed against FTCA-covered centers alleging damages of more than $414 million; (9) however, the actual amount of the federal government's liability for these claims is unclear; (10) as of March 21, 1997, only five claims have been settled, with total payments of $355,250; (11) at the recommendation of HHS' Office of Inspector General, HRSA developed a legislative proposal that, if enacted, would limit the federal government's liability to $1 million for claims filed against FTCA-covered centers; (12) by extending FTCA coverage to centers, the federal government has assumed potential liabilities that need oversight and careful management; (13) HHS could improve its administration of FTCA coverage for community and migrant health centers by strengthening data collection efforts and claims management practices; (14) HHS has 6 months in which to either deny a claim or make a settlement offer before a claimant may file suit in federal court; (15) for 22 of the 32 claims that have resulted in federal lawsuits, HHS had not attempted to respond to the claimants during this 6-month period; and (16) risk management services can help centers minimize liability by reducing their financial exposure to claims.
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moved from retrospective, cost-and-charge-based reimbursements to prospective systems and fee schedules designed to contain cost growth. The August 1997 passage of BBA dramatically changed the existing paradigm, setting Medicare on a course toward a more competitive and consumer-driven model. HCFA, the agency charged with administering the program, must accomplish this transition while continuing to oversee the processing of about 900 million claims annually. BBA contained over 350 separate Medicare and Medicaid mandates, the majority of which apply to the Medicare program. The Medicare mandates are of widely varying complexity. Some, such as the Medicare+Choice expansion of beneficiary health plan options and the implementation of PPSs for SNFs, home health agencies, and hospital outpatient services, are extraordinarily complex and have considerable budgetary and payment control implications. Others, such as updating the conversion factor for anesthesia payments, are relatively minor. Although most implementation deadlines are near term--over half had 1997 or 1998 deadlines--several are not scheduled to be implemented until 2002. Overall, BBA required HCFA to implement about 240 unique Medicare changes. Since August 1997, about three-quarters of the mandates with a July 1998 deadline have been implemented. HCFA's recent publication of the Medicare+Choice and SNF PPS regulations are examples of the progress HCFA has made in implementing key mandates. The remaining 25 percent missed the BBA implementation deadline, including establishment of a quality-of-care medical review process for SNFs and a required study of an alternative payment system for certain hospitals. It is clear that HCFA will continue to miss implementation deadlines as it attempts to balance the resource demands generated by BBA provisions with other competing objectives. BBA-mandated changes. Finally, the need to modernize its multiple automated claims processing and other information systems, a task complicated by the Year-2000 computer challenges, is competing with other ongoing responsibilities. HCFA has proposed that the Department of Health and Human Services seek legislative relief by delaying implementation of certain BBA provisions--those requiring major computer system changes that also coincide with Year-2000 computer renovations. According to HCFA's computer contractor, simultaneously pursuing both BBA implementation and Year-2000 system changes risks the failure of both activities and threatens HCFA's highest priority--uninterrupted claims payments. The contractor advised HCFA to seek relief from competing requirements, which could allow the agency to focus instead on Year-2000 computer system renovations. The BBA provisions to be delayed by the computer renovations include updates to the October 1999 inpatient hospital PPS rate and the January 2000 physician fee schedule, hospital outpatient PPS limits on outpatient therapy services, and billing changes for SNFs. The appendix lists other BBA mandates that are being postponed. the new PPS rates, which cover both services previously billed by the SNF and by certain outside providers. Without this provision, it may be more difficult to adequately monitor whether bills for SNF residents are being submitted appropriately. BBA establishes a new Medicare+Choice program, which will significantly expand the health care options that can be marketed to Medicare beneficiaries beginning in the fall of 1998. In addition to traditional Medicare and HMOs, beneficiaries will be able to enroll in preferred provider organizations, provider-sponsored organizations, and private fee-for-service plans. Medical savings accounts will also be available to a limited number of beneficiaries under a demonstration program. The goal is a voluntary transformation of Medicare via the introduction of new plan options. Capitalizing on changes in the delivery of health care, these new options are intended to create a market in which different types of health plans compete to enroll and serve Medicare beneficiaries. Recognizing that consumer information is an essential component of a competitive market, BBA mandated a national information campaign with the objective of promoting informed plan choice. From the beneficiary's viewpoint, information on available plans needs to be (1) accurate, (2) comparable, (3) comprehensible, and (4) readily accessible. Informed beneficiary choice will be critical since BBA phases out the beneficiary's right to disenroll from a plan on a monthly basis and moves toward the private sector practice of annual reconsideration of plan choice. campaign" that includes comparative data on the available health plan choices. This publicity campaign will support what is to become an annual event each November--an open enrollment period in which beneficiaries may review the options and switch to a different health plan. As in the past, health plans will continue to provide beneficiaries with marketing information that includes a detailed description of covered services. In fact, HCFA comparative summaries will refer beneficiaries to health plans for more detailed information. HCFA is taking a cautious approach and testing the key components of its planned information campaign. This caution is probably warranted by the important role played by information in creating a more competitive Medicare market and by the agency's inexperience in this type of endeavor. In March 1998, the agency introduced a database on the Internet called "Medicare Compare," which includes summary information on health plans' benefits and out-of-pocket costs. The toll-free telephone number will be piloted in five states--Arizona, Florida, Ohio, Oregon and Washington--and gradually phased in nationally during 1999. Because of some concerns about its readability, HCFA has also decided to pilot a new beneficiary handbook in the same five states instead of mailing it to all beneficiaries this year. The handbook, a reference tool with about 36 pages, will describe the Medicare program in detail, providing comparative information on both Medicare+Choice plans as well as the traditional fee-for-service option. For beneficiaries in all other states, HCFA will send out a five- to six-page educational pamphlet that explains the Medicare+Choice options but contains no comparative information. This schedule will allow HCFA to gather and incorporate feedback on the effectiveness of and beneficiary satisfaction with the different elements of the information campaign into its plans for the 1999 open enrollment period. comparative information on Medicare HMOs. Among other things, we recommended that HCFA produce plan comparison charts and require plans to use standard formats and terminology in benefit descriptions. In developing comparative information for Medicare Compare, HCFA attempted to use information submitted by health plans as part of the contracting process. Like beneficiaries, HCFA had difficulty reconciling information from different HMOs because it was not standardized across plans. HCFA's Center for Beneficiary Services, the new unit responsible for providing information to Medicare enrollees, has been forced to recontact HMOs and clarify benefit descriptions. Recognizing that standardized contract information would reduce the administrative burden on both health plans and different HCFA offices that use the data, the agency has accelerated the schedule for requiring standard formats and language in contract benefit descriptions. Although originally targeted by 2001, the new timetable calls for contract standardization beginning with submissions due in the spring of 1999. If available on schedule, standardized contracts should facilitate the production of comparative information for the introduction of the annual open enrollment period in November 1999. that the use of nonformulary drugs may result in substantially higher out-of-pocket costs. Only five of eight Tampa plans mention mammograms in their benefit summaries--even though all plans covered mammograms. Most plans listed mammograms under the "preventive service" benefit category. One plan, however, included them under hospital outpatient services. Consistent presentation is important because beneficiaries may rely on plans' benefit summaries when comparing coverage and out-of-pocket cost information. Federal employees and retirees can readily compare benefits among health plans in the Federal Employees Health Benefits Program because the Office of Personnel Management requires that plan brochures follow a common format and use standard terminology. It is encouraging that HCFA wants to accelerate a similar requirement for Medicare+Choice plans. In the fall of 1999, HCFA expects to require health plans to use standard formats and terminology to describe covered services in the summary-of-benefits portion of the marketing materials. Comparative data on quality and performance are a key component of the information campaign mandated by BBA and an essential underpinning of quality-based competition. Recognizing that the measurement and reporting of such comparative data is a "work in progress," the act directed broad distribution of such information as it becomes available. Categories of information specifically mentioned by BBA include beneficiary health outcomes and satisfaction, the extent to which health plans comply with Medicare requirements, and plan disenrollment rates. While disenrollment rates could be prepared for publication in a matter of months, other types of quality-related information have accuracy or reliability problems or are still being developed. immature health plan information systems and ambiguities in the HEDIS measurement specifications. Though committed to making the HEDIS information available as quickly as possible, HCFA emphasized that its premature release would be unfair to both plans and beneficiaries. Finally, efforts have been under way for some time to develop measures that actually demonstrate the quality of the care delivered--often referred to as "outcome" measures. As noted, the current HEDIS measures look at how frequently a health plan delivers specific services, such as immunizations, not at outcomes. The development and dissemination of reliable health outcome measures is a much more complicated task and remains a longer-term goal. Before passage of BBA, HCFA had funded a survey to measure and report beneficiaries' satisfaction with their HMOs. For example, Medicare enrollees were asked how easy it was to gain access to appropriate care and how well their physicians communicated with them about their health status and treatment options. HCFA plans to make the survey results available on its Medicare Compare Internet site this fall and to include the data in mailings to beneficiaries during the fall 1999 information campaign. We believe that the usefulness of HCFA's initial satisfaction survey for identifying poor performing plans is limited because it surveyed only those individuals satisfied enough with their plan to remain enrolled for at least 12 months. HCFA is planning a survey of those who disenrolled, which could help distinguish among the potential causes of high disenrollment rates in some plans, such as quality and access issues or beneficiary dissatisfaction with the benefit package. Houston, Texas, the highest disenrollment rate was nearly 56 percent, while the lowest was 8 percent. The large range in disenrollment rates among HMOs suggests that this single variable could be a powerful tool in alerting beneficiaries about potentially significant differences among plans and the need to seek additional information before making a plan choice. Questions have been raised by health plan representatives and others about the estimated cost of the information campaign. The campaign is to be financed primarily from user fees--that is, an assessment on participating health plans. We are conducting a review of HCFA's information campaign plans at your request and that of the Senate Committee on Finance. Our work began recently, and since then HCFA has modified its plans significantly, affecting the estimated costs of different components. While we cannot yet make an overall assessment, it is clear that the operation of the toll-free number is the most expensive component and, because of a lack of prior experience, is the most difficult cost to estimate. The cost of the toll-free number comprises 44 percent of the total information campaign budget. HCFA projects fiscal year 1998 costs of $50.2 million to support set up as well as operations during fiscal year 1999. All but $4 million will come from user fees collected from existing Medicare HMOs. For fiscal year 2000, operations costs are projected to grow to $68 million. important that the toll-free number meet beneficiaries' reasonable needs or expectations. However, until HCFA actually gains experience with the toll-free number, it has no firm basis to judge either the duration of the calls or the type of information beneficiaries will find useful. The phased implementation of the toll-free numbers should give HCFA a better idea of what beneficiaries want and may necessitate adjustments to current plans. Ultimately, the design of this and other aspects of the information campaign should be driven less by cost and more by how effective they are in meeting beneficiary needs and contributing to the intended transformation of the Medicare program. Consequently, we will be looking at (1) whether the estimated cost of the planned activities is appropriate and efficient in the near term, and (2) whether, over the longer term, the impact and effectiveness of these activities might be increased. On July 1, 1998, HCFA began phasing in a Medicare PPS for SNFs, as directed by BBA. Under the new system, facilities receive a payment for each day of care provided to a Medicare-eligible beneficiary (known as the per diem rate). This rate is based on the average daily cost of providing all Medicare-covered SNF services, as reflected in facilities' 1995 costs. Since not all patients require the same amount of care, the per diem rate is "case-mix" adjusted to take into account the nature of each patient's condition and expected care needs. Previously, SNFs were paid the reasonable costs they incurred in providing Medicare-allowed services. There were limits on the costs that were reimbursed for the routine portion of care, that is, general nursing, room and board, and administrative overhead. Payments for capital costs and ancillary services, such as rehabilitation therapy, however, were virtually unlimited. Cost-based reimbursement is one of the main reasons the SNF benefit has grown faster than most components of the Medicare program. Because providing more services generally triggered higher payments, facilities have had no incentive to restrict services to those necessary or to improve their efficiency. care for beneficiaries for less than the case-mix adjusted payment will benefit financially. Those with costs higher than the per diem amount will be at risk for the difference between costs and payments. The PPS for hospitals is credited with controlling outlays for inpatient hospital care. Similarly, the Congressional Budget Office (CBO) estimates that over 5 years the SNF PPS could save $9.5 billion compared with what Medicare would have paid for covered services. Although HCFA met the deadline for issuing the implementing regulations for the new SNF per diem payment system, features of the system and inadequate data used to establish rates could compromise the anticipated savings. As noted in previous testimony, design choices and data reliability are key to implementing a successful payment methodology. We are concerned that the system's design preserves the opportunity for providers to increase their compensation by supplying potentially unnecessary services. Furthermore, the per diem rates were computed using data that overstate the reasonable cost of providing care and may not appropriately reflect the differences in costs for patients with different care needs. In addition, as a part of the system, HCFA's regulation appears to have initiated an automatic eligibility process--that is, a new means of determining eligibility for the Medicare SNF benefit, that could expand the number of beneficiaries who will be covered and the length of covered stays. The planned oversight is insufficient, increasing the potential for these aspects of the regulations to compromise expected savings. Immediate modifications to the regulations and efforts to refine the system and monitor its performance could ameliorate our concerns. (physical, occupational, or speech therapy), to assign patients to the different groups. Categorizing patients on the basis of expected service use conflicts with a major objective of a PPS--to break the direct link between providing services and receiving additional payment. A SNF has incentives to reduce the costs of the patients in each case-mix group. Because the groups are largely defined by the services the patient is to receive, a facility could do this by providing the minimum level of services that characterize patients in that group (see table 1). This would reduce the average cost for the SNF's patients in that case-mix group, but not lower Medicare payments for these patients. For patients needing close to the maximum amount of therapy services in a case-mix group, facilities could maximize their payments relative to their costs by adding more therapy so that the beneficiary was categorized in the next higher group. An increase in daily therapy from 140 to 144 minutes, for example, would change the case-mix category of a patient with moderate assistance needs from the "very high" to the "ultra high" group, resulting in a per diem payment that was about $60 higher. By thus manipulating the minutes of therapy provided to its rehabilitation patients, a facility could lower the costs associated with each case-mix category and increase its Medicare payments. Rather than improve efficiency and patient care, this might only raise Medicare outlays. care needed using methods that are less susceptible to manipulation by a SNF. Nevertheless, being able to classify patients appropriately is critical to ensuring that Medicare can control its SNF payments and that SNFs are adequately compensated for their mix of patients. We are also concerned that the data underlying the SNF rates overstate the reasonable costs of providing services and may not appropriately reflect costs for patients with different care needs. The rates to be paid SNFs are computed in two steps. First, a base rate reflecting the average per diem costs of all Medicare SNF patients is calculated from 1995 Medicare SNF cost report data. This base rate may be too high, because the reported costs are not adequately adjusted to remove unnecessary or excessive costs. Second, a set of adjustors for the 44 case-mix groups is computed using information on the costs of services used by about 4,000 patients. This sample may simply be too small to reliably estimate these adjustors. Most of the cost data used to set the SNF prospective per diem rates were not audited. At most, 10 percent of the base year--1995--cost reports underwent a focused audit in which a portion of the SNFs' expenses were reviewed. Of particular concern are therapy costs, which are likely inflated because there have been no limits on cost-based payments. HCFA staff report that Medicare has been paying up to $300 per therapy session. These high therapy costs were incorporated in the PPS base rates. Even if additional audits were to uncover significant inappropriate costs, HCFA maintains that it has no authority to adjust the base rates after the July 1, 1998, implementation of the new payment system. The adjustors for each category of patients are based on data from two 1-day studies of the amount of nursing and therapy care received by fewer than 4,000 patients in 154 SNFs in 12 states. Almost all Medicare patients will be in 26 of the 44 case-mix groups. For about one-third of these 26 groups, the adjustors are based on fewer than 50 patients. Given the variation in treatment patterns among SNFs, such a small sample may not be adequate to estimate the average resource costs for each group. As a result, the case-mix adjusted rates may not vary appropriately to account for the services facilities are expected to provide--rates will be too high for some types of patients and too low for others. Medicare's SNF benefit is for enrollees who need daily skilled care on an inpatient basis following a minimum 3-day hospitalization. Before implementation of the prospective per diem system, SNFs were required to certify that each beneficiary met these criteria. With the new payment system, the method for establishing eligibility for coverage will also change. Facilities will assign each patient to one of the case-mix groups on the basis of an assessment of the patient's condition and expected service use, and the facility will certify that each patient is appropriately classified. Beneficiaries in the top 26 of the 44 case-mix groups will automatically be deemed eligible for SNF coverage. If facilities do not continue to assess whether beneficiaries meet Medicare's coverage criteria, "deeming" could represent a considerable new cost to the program. Some individuals who are in one of these 26 deemed categories may only require custodial or intermittent skilled care, but HCFA's regulations appear to indicate that they could still receive Medicare coverage. Medical review nurses who work with HCFA payment contractors indicated in interviews that some patients included in the 26 groups would not necessarily need daily skilled care. This may be particularly true at a later point in the SNF stay, since SNF coverage can only begin after a 3-day hospitalization. Individuals with certain forms of paralysis or multiple sclerosis who need extensive personal assistance may also need daily skilled care immediately following a hospital stay for pneumonia, for example. After a certain period, however, their need for daily skilled care may end, but their Medicare coverage will continue because of deeming. Similarly, certain patients with minor skin ulcers will be deemed eligible for Medicare coverage, whereas previously only those with more serious ulcers believed to require daily care were covered. Thus, more people could be eligible and Medicare could be responsible for longer stays unless HCFA is clear that Medicare coverage criteria have not been changed. Deeming eligibility would not be a problem if all patients in a case-mix group met Medicare's coverage criteria. To redefine the patient groups in this way would require additional research and analysis. However, an immediate improvement would be for HCFA to clarify that Medicare will only pay for those patients that the facility certifies meet Medicare SNF coverage criteria. Whether a SNF patient is eligible for Medicare coverage and how much will be paid are based on a facility's assessment of its patients. Yet, HCFA has no plans to monitor those assessments to ensure they are appropriate and accurate. In contrast, when Texas implemented a similar reimbursement system for Medicaid, the state instituted on-site reviews to monitor the accuracy of patient assessments and to determine the need for training assessors. In 1989, the first year of its system's operation, Texas found widespread over-assessment. Through continued on-site monitoring, the error rate has dropped from about 40 percent, but it still remains at about 20 percent. The current plans for collecting patient assessment information actually discourage rather than facilitate oversight. A SNF will transmit assessment data on all its patients, not just those eligible for Medicare coverage, to a state agency that will subsequently send copies to HCFA. However, the claim identifying the patient's category for Medicare payment is sent to the HCFA claims contractor that pays the bill. At the time it is processing the bill, the claims contractor will not have access to data that would allow confirmation that the patient's classification matches the assessment. To some extent, the implementation of the SNF prospective per diem system reduces the opportunities for fraud in the form of duplicate billings or billing for services not provided. Since a SNF is paid a fixed per diem rate for most services, it would be fraudulent to bill separately for services included in the SNF per diem. Yet, the new system opens opportunities to mischaracterize patients or to assign them to an inappropriate case-mix category. Also, as was the case with the former system, methods to ensure that beneficiaries actually receive required services could be strengthened. As with the implementation of any major payment policy change, HCFA should increase its vigilance to ensure that fraudulent practices discovered in nursing homes, similar to problems noted in our prior work, do not resurface. BBA workload alone, implementation delays were probably inevitable. And now, HCFA has been advised by its contractor that its highest priority--uninterrupted claims processing through the timely completion of Year-2000 computer renovations--may be jeopardized by some BBA mandates that also require computer system changes. Though HCFA is implementing what will become an annual information campaign associated with Medicare+Choice, it has little experience in planning and coordinating such an undertaking. The ability of the campaign to provide accurate, comparable, comprehensive, and readily accessible information will help to determine the success of the hoped for voluntary movement of Medicare beneficiaries into less costly, more efficient health care delivery systems. While BBA computer system-related delays may jeopardize some anticipated program savings, slower Medicare expenditure growth is also at risk because of weaknesses in the implementation of other mandates. HCFA could take short-term steps to correct deficiencies in the new SNF PPS. However, longer-term research is needed to implement a payment system that fully realizes the almost $10 billion in savings projected by CBO. Mr. Chairman, this concludes my statement. I will be happy to answer any questions that you or Members of the Subcommittee may have. Collection of non-inpatient encounter data from plans SHMO: Plan for integration of part C and SHMO Medicare subvention: Project for military retirees Reporting and verification of provider identification numbers (employer identification numbers and Social Security numbers) Maintaining savings from temporary reductions in capital payments for PPS hospitals SNF consolidated billing for part B services Payment update for hospice services Update to conversion factor 1/1/99Implementation of resource-based practice expense RVUs Implementation of resource-based malpractice RVUs Prospective payment fee schedule for ambulance services Application of $1,500 annual limit to outpatient rehabilitation therapy services (continued) The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed the Health Care Financing Administration's (HCFA) implementation of Medicare provisions contained in the Balanced Budget Act of 1997 (BBA), focusing on: (1) an overview of how HCFA's implementation has progressed since GAO's earlier testimony; (2) the efforts to inform Medicare beneficiaries about the expanded health plan choices available to them in 1999, commonly referred to as the information campaign; and (3) the prospective payment system (PPS) for skilled nursing facilities (SNF), which began a 3-year phase-in in June 1998. GAO noted that: (1) HCFA is making progress in meeting the legislatively established implementation schedules; (2) since the passage of BBA in August 1997, almost three-fourths of the mandates with a July 1998 deadline have been implemented; (3) however, HCFA officials have acknowledged that many remaining BBA mandates will not be implemented on time; (4) HCFA maintains that these delays will have a minimal impact on anticipated Medicare program savings; (5) given the concurrent competition for limited resources and the differing importance and complexity of the many BBA mandates, the success or failure of HCFA's implementation efforts should not be judged solely on meeting deadlines; (6) rather, any assessment should consider whether the agency is meeting congressional objectives while taking a reasoned management approach to identifying critical BBA tasks, keeping them on track, and integrating them with other agency priorities; (7) complying with the BBA mandate to conduct an information campaign that provides beneficiaries with the tools to make informed health plan choices poses significant challenges for HCFA and participating health plans; (8) in implementing the Medicare plus Choice program, HCFA must now assemble the necessary comparative information about these options and find an effective means to disseminate it to beneficiaries; (9) a parallel goal of the information campaign is to give beneficiaries information about the quality and performance of participating health plans to promote quality-based competition among plans; (10) HCFA has accelerated its goals for obtaining standardized information from plans, and GAO believes health plan disenrollment rates provide an acceptable short-term substitute measure of plan performance; (11) the campaign is to be financed primarily from user fees; (12) HCFA has met the July 1, 1998, implementation date for phasing in a new payment system for SNFs; (13) GAO is concerned, however, that payment system design flaws and inadequate underlying data used to establish payment rates may compromise the system's ability to meet the twin objectives of slowing spending growth while promoting the delivery of appropriate beneficiary care; (14) in the short term, the new payment system could be improved if HCFA clearly stated that SNFs are responsible for insuring that the claims they submit are for beneficiaries who meet Medicare coverage criteria; and (15) in the longer term, further research to improve the patient grouping methodology and new methods to monitor the accuracy of patient assessments could substantially improve the performance of the new payment system.
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TSA receives thousands of air passenger screening complaints through five centralized mechanisms but does not have an agencywide policy, consistent processes, or an agency focal point to guide the receipt of these complaints, or "mine" these data to inform management about the nature and extent of the screening complaints to help improve screening operations and customer service. For example, TSA data indicate the following: From October 2009 through June 2012, TSA received more than 39,000 screening complaints through its TSA Contact Center (TCC), including more than 17,000 complaints about pat-down procedures. From October 2009 through June 2012, TSA's Office of the Executive Secretariat received approximately 4,000 complaints that air passengers submitted by mail. From April 2011 (when it was launched) through June 2012, the agency's Talk to TSA web-based mechanism received approximately 4,500 air passenger screening complaints, including 1,512 complaints about the professionalism of TSA staff during the screening process. However, the data from the five centralized mechanisms do not reflect the full nature and extent of complaints because local TSA staff have discretion in implementing TSA's complaint processes, including how they receive and document complaints. For example, comment cards were used in varying ways at 6 airports we contacted. Specifically, customer comment cards were not used at 2 of these airports, were on display at 2 airports, and were available upon request at the remaining 2 airports we contacted. TSA does not have a policy requiring that complaints submitted using the cards be tracked or reported centrally. We concluded that a consistent policy to guide all TSA efforts to receive and document complaints would improve TSA's oversight of these activities and help ensure consistent implementation. TSA also uses TCC data to inform the public about air passenger screening complaints, monitor operational effectiveness of airport security checkpoints, and make changes as needed. However, TSA does not use data from its other four mechanisms, in part because the complaint categories differ, making data consolidation difficult. A process to systematically collect information from all mechanisms, including standard complaint categories, would better enable TSA to improve operations and customer service. Further, at the time of our review, TSA had not designated a focal point for coordinating agencywide policy and processes related to receiving, tracking, documenting, reporting, and acting on screening complaints. Without a focal point at TSA headquarters, the agency does not have a centralized entity to guide and coordinate these processes, or to suggest any additional refinements to the system. To address these weaknesses, we recommended that TSA establish a consistent policy to guide agencywide efforts for receiving, tracking, and reporting air passenger screening complaints; establish a process to systematically compile and analyze information on air passenger screening complaints from all complaint mechanisms; and designate a focal point to develop and coordinate agencywide policy on screening complaint processes, guide the analysis and use of the agency's screening complaint data, and inform the public about the nature and extent of screening complaints. The Department of Homeland Security (DHS) concurred with the recommendations and indicated actions that TSA had taken, had underway, and was planning to take in response. For example, DHS stated that TSA would review current intake and processing procedures at headquarters and in the field and develop policy, as appropriate, to better guide the complaint receipt, tracking, and reporting processes. We believe that these are beneficial steps that would address the recommendation, provided that the resulting policy refinements improve the existing processes for receiving, tracking, and reporting all air passenger screening complaints, including the screening complaints that air passengers submit locally at airports through comment cards or in person at security checkpoints. In commenting on a draft of our November 2012 report, TSA also stated that the agency began channeling information from the Talk to TSA database to the TCC in October 2012. However, DHS did not specify in its letter whether TSA will compile and analyze data from the Talk to TSA database and its other centralized mechanisms in its efforts to inform the public about the nature and extent of screening complaints, and whether these efforts will include data on screening complaints submitted locally at airports through customer comment cards or in person at airport security checkpoints. DHS also did not provide sufficient detail for us to assess whether TSA's planned actions will address the difficulties we identified in collecting standardized screening data across different complaint categories and mechanisms. DHS stated that the Assistant Administrator for the Office of Civil Rights & Liberties, Ombudsman and Traveler Engagement was now the focal point for overseeing the key TSA entities involved with processing passenger screening complaints. It will be important for the Assistant Administrator to work closely with, among others, the office of the Assistant Administrator of Security Operations because this office oversees screening operations at commercial airports and security operations staff in the field who receive screening complaints submitted through customer comment cards or in person at airport security checkpoints. We will continue to monitor TSA's progress in implementing these recommendations. TSA has several methods to inform passengers about its complaint processes, but does not have an agencywide policy or mechanism to ensure consistent use of these methods among commercial airports. For example, TSA has developed standard signs, stickers, and customer comment cards that can be used at airport checkpoints to inform passengers about how to submit feedback to TSA; however, we found inconsistent use at the 6 airports we contacted. For example, customer comment cards were displayed in the checkpoints at 2 airports, while at 2 others the cards were provided upon request. However, we found that passengers may be reluctant to ask for such cards, according to TSA. TSA officials at 4 of the 6 airports also said that the agency could do more to share best practices for informing passengers about complaint processes. For example, TSA holds periodic conference calls for its Customer Support Managers--TSA staff at certain commercial airports who work in conjunction with other local TSA staff to resolve customer complaints and communicate the status and resolution of complaints to air passengers--to discuss customer service. However, Customer Support Managers have not used this mechanism to discuss best practices for informing air passengers about processes for submitting complaints, according to the officials we interviewed. Policies for informing the public about complaint processes and mechanisms for sharing best practices among local TSA officials could help provide TSA reasonable assurance that these activities are being conducted consistently and help local TSA officials learn from one another about what practices work well. We recommended that TSA establish an agencywide policy to guide its efforts to inform air passengers about the screening complaint processes and establish mechanisms, particularly at the airport level, to share information on best practices for informing air passengers about the screening complaint processes. DHS concurred with the recommendation and stated that TSA would develop a policy to better inform air passengers about the screening complaint processes. We will continue to monitor TSA's progress in implementing this recommendation. TSA's complaint resolution processes do not fully conform to standards of independence to ensure that these processes are fair, impartial, and credible, but the agency is taking steps to improve independence. Specifically, TSA airport officials responsible for resolving air passenger complaints are generally in the same chain of command as TSA airport staff who are the subjects of the complaints. While TSA has an Ombudsman Division that could help ensure greater independence in the complaint processes, the division primarily focuses on handling internal personnel matters and is not yet fully equipped to address external complaints from air passengers, according to the head of the division. TSA is developing a new process for referring air passenger complaints directly to the Ombudsman Division from airports and for providing air passengers an independent avenue to make complaints about airport security checkpoint screening. In August 2012, TSA's Ombudsman Division began addressing a small number of air passenger complaints forwarded from the TCC, according to the head of that division. TSA also began advertising the division's new role in addressing passenger screening complaints via the TSA website in October 2012. According to the Assistant Administrator of TSA's Office of Civil Rights & Liberties, Ombudsman and Traveler Engagement, the division will not handle complaints for which there exists an established process that includes an appeals function, such as disability complaints or other civil rights or civil liberties complaints, in order to avoid duplication of currently established processes. According to the Assistant Administrator, the agency also plans to initiate a Passenger Advocate Program by January 2013, in which selected TSA airport staff will be trained to take on a collateral passenger advocate role, respond in real time to identify and resolve traveler-related screening complaints, and assist air passengers with medical conditions or disabilities, among other things. It is too early to assess the extent to which these initiatives will help mitigate possible concerns about independence. TSA officials stated that the agency is undertaking efforts to focus its resources and improve the passenger experience at security checkpoints by applying new intelligence-driven, risk-based screening procedures and enhancing its use of technology. One component of TSA's risk-based approach to passenger screening is the Pre™️ program, which was introduced at 32 airports in 2012, and which the agency plans to expand to 3 additional airports by the end of the calendar year. The program allows frequent flyers of five airlines, as well as individuals enrolled in other departmental trusted traveler programs--where passengers are pre-vetted and deemed trusted travelers--to be screened on an expedited basis. This program is intended to allow TSA to focus its resources on high-risk travelers. According to TSA, more than 4 million passengers have been screened through this program to date. Agency officials have reported that with the deployment of this program and other risk-based security initiatives, such as modifying screening procedures for passengers 75 and over and active duty service members, TSA has achieved its stated goal of doubling the number of passengers going through expedited screening. According to TSA, as of the end of fiscal year 2012, over 7 percent of daily passengers were eligible for expedited screening based on low risk. However, the estimated number of passengers that will be screened on an expedited basis is still a relatively small percentage of air passengers subject to TSA screening protocols each year. We plan to begin an assessment of TSA's progress in implementing the TSA Pre™️ program in 2013. Chairman Petri, Ranking Member Costello, and Members of the Subcommittee, this concludes my prepared remarks. I look forward to responding to any questions that you may have. For questions about this statement, please contact Steve Lord at (202) 512-4379 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Jessica Lucas-Judy (Assistant Director), David Alexander, Thomas Lombardi, Anthony Pordes, and Juan Tapia-Videla. 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 findings of our November 2012 report assessing the Transportation Security Administration's (TSA) efforts to improve the air passenger screening complaints processes. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis. Given TSA's daily interaction with members of the traveling public, air passenger screening complaints reflect a wide range of concerns about, for example, the systems, procedures, and staff that TSA has used for screening air passengers at security checkpoints. This includes concerns related to the use of Advanced Imaging Technology and enhanced pat-down procedures. TSA screens or oversees the screening of more than 650 million air passengers per year at 752 security checkpoints in more than 440 commercial airports nationwide, and must attempt to balance its aviation security mission with competing goals of efficiency and respecting the privacy of the traveling public. The agency relies upon multiple layers of security to deter, detect, and disrupt persons posing a potential risk to aviation security. These layers focus on screening millions of passengers and pieces of carry-on and checked baggage, as well as tons of air cargo, on a daily basis. TSA has processes for addressing complaints about air passengers' screening experience at security checkpoints, but concerns have been raised about these processes. Also, TSA is implementing a Pre™️ program to expedite screening at security checkpoints. This statement primarily based on our November 2012 report and, like the report, discusses the extent to which TSA has (1) policies and processes to guide the receipt of air passenger screening complaints, and uses this information to monitor or enhance screening operations, (2) a consistent process for informing passengers about how to make complaints, and (3) complaint resolution processes that conform to independence standards to help ensure that these processes are fair and impartial. As requested, the statement also describes TSA's recent efforts to make the screening process more risk-based and selective through use of TSA's Pre™️ program. In summary, TSA receives thousands of air passenger screening complaints through five central mechanisms, but does not have an agencywide policy, consistent processes, or a focal point to guide receipt and use of such information. Also, while the agency has several methods to inform passengers about its complaint processes, it does not have an agencywide policy or mechanism to ensure consistent use of these methods among commercial airports. In addition, TSA's complaint resolution processes do not fully conform to standards of independence to ensure that these processes are fair, impartial, and credible, but the agency is taking steps to improve independence. To address these issues, we made four recommendations to TSA with which the agency concurred, and it indicated actions it is taking in response. Finally, TSA officials stated that the agency is undertaking efforts to focus its resources and improve the passenger experience at security checkpoints by applying new intelligence-driven, risk-based screening procedures, including expanding its Pre™️ program. TSA plans to have this program in place at 35 airports by the end of the calendar year and estimates that it has screened more than 4 million passengers to date through this program.
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The Corps is the world's largest public engineering, design, and construction management agency, responsible for water resources infrastructure such as dams, levees, hurricane barriers, and floodgates in every state. Through its Civil Works program, the Corps plans, designs, and operates water resources infrastructure projects. The Civil Works program is organized into 3 tiers: a national headquarters in Washington, D.C.; 8 regional divisions that were established generally according to watershed boundaries; and 38 districts nationwide. In addition, the Corps maintains national and regional centers that provide technical services to Corps divisions and districts, such as support of dam safety repair projects. The Assistant Secretary of the Army for Civil Works (ASA(CW)), appointed by the President, establishes the strategic direction, develops policy, and supervises the execution of the Civil Works program. The Corps headquarters and regional division offices primarily implement policies and provide oversight to district offices. The Corps headquarters' Dam Safety Officer (DSO), a civilian official, is responsible for all dam safety activities, including establishing policy and technical criteria for dam safety and prioritizing dam-safety-related work. The eight divisions, commanded by military officers, coordinate civil works projects in the districts within the eight respective geographic areas. The Corps districts, commanded by military officers, are responsible for planning, engineering, constructing, and managing water resources infrastructure projects in their districts as well as coordinating with the Corps' sponsors. Most of the Corps' dams are one of two types: earthen or concrete. According to Corps data, about 68 percent of Corps dams have earthen embankments, constructed of various types of materials such as clay, silt, sand, or gravel. Another 30 percent of Corps dams are concrete dams. Dams can have various features, such as spillway gates and conduit outlets, to control water releases, as well as auxiliary spillways to divert water flows in the event of expected maximum flood conditions. (See fig. 1.) To ensure continued safe operation, Corps dams undergo routine maintenance, such as cleaning of drains and mowing of embankments, but in some cases require major repairs, which, as defined by the Corps, are those that cost over $16 million. These repairs may be to: rehabilitate spillway gate equipment to safely pass excess water, build cutoff walls to prevent erosion to embankments or foundations fill voids in embankments or foundations with grout, build shear walls to increase dam stability, increase dam's height to prevent overtopping, or anchor a dam to its foundation. Since 2005, the Corps has used a risk-informed approach to select dams for safety-related repairs. While integrating traditional engineering analyses and standards, the risk-informed approach aims to identify and prioritize the most critical dam safety risks rather than eliminate all potential risks. To that end, the Corps has developed the Dam Safety Action Classification (DSAC) system, based on a 5-point scale, to help guide key decisions for dam safety repairs. This risk classification system reflects the probability of a dam's failure and resulting potential consequences due to failure. As of July 2015, the Corps has placed 309 dams (about 44 percent) in actionable categories (DSAC 1, 2, and 3) because the dams were determined to be at moderate to very high risk of failure. In particular, the Corps has classified 17 dams as DSAC 1 (very high urgency), 76 dams as DSAC 2 (high urgency), and 216 dams as DSAC 3 (moderate urgency). From fiscal year 2007 to fiscal year 2016, the Corps selected 16 of these DSAC 1 and 2 dams for repairs. According to the Corps' Safety of Dams regulation, once a dam has been selected as needing repair according to its DSAC designation, the Corps is to take the following steps to study, design, and construct a dam safety repair project. Study: Corps district officials are to conduct a dam safety modification study to determine a long-term solution. This study is to involve risk analyses, determination of potential failure modes, evaluation of alternatives to address potential failures, and development of a recommended technical solution with its estimated cost. The study also is to identify cost share sponsors and to recommend an applicable authority for cost sharing purposes (discussed later in this report) under which to implement the repair work. The results of the study are published in a dam safety modification report, which is forwarded to division and headquarters officials, including the DSO, for review and approval of recommended repairs. The Corps districts are to communicate to sponsors and the public about dam failure risks and potential repairs during the study phase. Once approved by Corps' DSO and ASA(CW), the cost estimate in the dam safety modification report is used as a basis to request funds from Congress for design and construction. Design: Project design takes place at the Corps districts and dam safety production centers, involving investigation of site conditions, such as testing soils, engineering analysis, and development of design plans and specifications. In addition, further risk analyses are to be conducted as well as expert reviews of the design. During the project's design, the Corps districts are also to communicate to sponsors and the public about their plans for conducting repairs. Construction: Project construction, managed by district officials, is typically carried out through contracts with private companies. Construction for dam safety repairs can take multiple years and involve several contracts. To assure construction quality, the Corps districts are required to conduct regular inspections. In addition, Corps officials are to continue their outreach and communications with sponsors and the public throughout the construction period. Sponsors share in the costs of dam safety repairs based on original congressional authorizations for dam construction or subsequent sponsors' agreements with the Corps. A wide array of entities can be cost sharing sponsors, including federal, state, and local agencies as well as private entities. Sponsors may be identified at the time of original dam construction or at a later time. Congressional authorizations or sponsors' agreements with the Corps delineate the benefits sponsors receive as well as their responsibilities and cost sharing obligations. Cost sharing terms are unique to each sponsor at each dam. Commensurate with benefits derived from use of a dam, sponsors typically pay a percentage of a dam's annual operations and maintenance costs, as well as the same percentage of total costs of major dam safety repairs. Cost sharing percentages can range from under 1 percent, such as for small water supply users, to over 50 percent, such as for hydropower users, depending on a sponsor's agreement with the Corps. Sponsors' payment mechanisms for dam safety repairs vary. When the Corps determines a need for dam safety repairs, it typically budgets for and funds the entire amount of the repair upfront. Sponsors, responsible for sharing in the design and construction costs for dam safety repair projects, pay their cost shares in different ways as described below and in table 1. However, not all Corps dams have cost sharing sponsors. The federal government fully funds the repairs of those Corps dams that do not have sponsors. Non-federal sponsors, depending on their agreement with the Corps, are to pay their cost share either on a "pay-as-you-go" basis or at the end of the project. Sponsors that are identified at the time of initial dam construction typically pay their cost share on a pay-as-you-go basis. In these situations, sponsors contribute their cost share while project design and construction are ongoing. Sponsors--typically water utilities--that enter into agreements with the Corps subsequent to the dam's initial construction have the option to pay as you go or in lump sum, with interest, at the end of the dam safety repair project, once all costs are finalized and calculated. According to Corps officials, non-federal sponsors may seek an exception to amortize their cost share payments over time following project completion. The Corps collects and tracks payments submitted by non-federal sponsors and transmits them to the U.S. Treasury. Federal sponsors of Corps dams are the U.S. Department of Energy's four Power Marketing Administrations (PMA). PMAs sell the electrical output of federally owned and operated hydroelectric dams. PMAs market wholesale power by entering into contracts with customers, with preference given to not-for-profit public-owned utilities, to sell power at set rates. Through their rates, PMAs recover all costs associated with power production and transmission, including their cost share for dam safety repairs, which they remit directly to the U.S. Treasury. PMAs are to recover all associated power production costs within a reasonable period of time, which the Department of Energy has traditionally considered to be 50 years or less. According to the Corps' Safety of Dams regulation, during a dam safety modification study, Corps district officials are to identify and analyze all the potential ways that a dam could fail. Such potential failure modes can include: (1) embankment or foundation erosion through seepage; (2) inability of a dam to safely pass excess water during expected maximum flood conditions (hydrologic failure mode); or (3) inability of a dam to withstand the expected maximum earthquake (seismic failure mode). Once potential failure modes, among other things, are determined, Corps district officials are to generate a dam safety modification report that reviews alternatives and recommends a technical solution to address the potential failure modes. For cost sharing purposes, the regulation requires the district to recommend in the report one of the two types of cost sharing arrangements or authorities: Major Rehabilitation authority or Dam Safety Assurance authority. The potential failure mode is the primary factor in determining the applicable authority, in addition to consideration of policy and statutory requirements: Major Rehabilitation: According to Corps officials, this authority applies to dam safety repairs associated with typical degradation of dams over time. Under this authority, sponsors are to pay their full cost share. For example, if a sponsor's agreed cost share is 10 percent, then the sponsor is responsible for 10 percent of the total cost of the dam safety repair project. (See table 2.) The Corps' regulation requires application of Major Rehabilitation authority if embankment or foundation erosion through seepage or instability is determined to be the potential failure mode. Dam Safety Assurance: In certain situations, however, the Corps can apply its Dam Safety Assurance authority, which significantly reduces sponsors' cost shares. This authority, based on Section 1203 of the Water Resources Development Act (WRDA) of 1986, applies to safety- related dam modifications needed as a result of new hydrologic or seismic data or changes in state-of-the-art design or construction criteria deemed necessary for safety purposes (state-of-the-art provision). This authority reflects, in part, the availability of new information--such as current hydrologic models or seismic studies--that could indicate a dam's increased vulnerability and greater risk of failure. Application of this authority reduces a sponsor's responsibility to 15 percent of its agreed cost share, effectively reducing a sponsor's cost share obligation by 85 percent. For example, if a sponsor's agreed cost share is 10 percent, then the sponsor is responsible for 15 percent of this amount, meaning that it would be responsible for 1.5 percent of the total cost of a dam safety repair project. (See table 2.) The final determination of cost sharing authority is reviewed through the Corps' chain of command. The Corps' DSO is to review and approve the dam safety modification report and determination of funding authority. Subsequently, the ASA(CW) office is to review the DSO decision and determine if it concurs. Sponsors have no formal role in the Corps' authority determination. According to Corps officials, while the sponsors are typically involved in cost sharing discussions, funding authority determination is a federal responsibility and not subject to appeals from sponsors. The Corps applied either its Major Rehabilitation or Dam Safety Assurance authority to the 16 dams selected for dam safety repairs from fiscal year 2007 to fiscal year 2016, selecting the funding authority to address each dam's determined potential failure mode consistent with its regulation. (See app. II.) The total estimated cost for these repairs is $5.8 billion. For 11 of the 16 dams the Corps applied its Major Rehabilitation authority. At 9 of these 11 dams, the potential failure mode was determined to be embankment or foundation erosion through seepage, and the Corps implemented dam safety repair projects under its Major Rehabilitation authority consistent with its regulation. Sponsors for these dams are to pay their full cost share, estimated at $574 million of the total $4.2 billion in repairs. For the 5 remaining dams, the Corps applied its Dam Safety Assurance authority because repairs were determined to be the result of new hydrologic or seismic data indicating the potential inability of these dams to safely pass excess water during expected maximum flood conditions or to withstand the expected maximum earthquake. The sponsors for these dams are to pay 15 percent of their cost share--which cumulatively total an estimated $31 million of the total $1.6 billion in repairs for these dams. While the Corps applied the Dam Safety Assurance authority to 5 of 16 dams in our review based on the availability of new hydrologic or seismic data, it did not apply the Dam Safety Assurance authority's state-of-the- art provision to any of these dam safety repair projects. According to ASA(CW) officials, the Corps has not applied the state-of-the-art provision since enactment of the enabling legislation (WRDA of 1986). When asked why the Corps had not applied this provision, ASA(CW) officials said that they would consider applying the state-of-the-art provision on a case-by-case basis, but they have never been presented with a case that they determined to have merited it. Additionally, ASA(CW) officials were unable to define the conditions under which the provision could apply or to provide a hypothetical example of a dam safety issue that would lead them to use it. The circumstances under which the state-of-the-art provision might apply have not been identified in the Corps regulations, and the Corps has not had a consistent policy position regarding when the state-of-the-art provision might apply. The Corps' 1997 regulation states that dam safety repairs required due to state-of-the-art changes would be decided on a case-by-case basis, but does not identify criteria for how the cases would be selected. However, in 2011, and again in the 2014 update, the Corps' Safety of Dams regulation discusses application of Dam Safety Assurance authority only with regard to new hydrologic or seismic data, stating that the state-of-the-art provision would not be applied. Specifically, the 2014 regulation notes the difficulty of defining the state- of-the-art provision and states that because the state-of-the-art "terminology makes it difficult to define the kinds of repairs that would be applicable, it is not used." The same 2014 regulation states that use of the state-of-the-art provision must be decided on a case-by-case basis by the ASA(CW). Internal control standards state that information and effective communication are needed for an agency to achieve all of its objectives. Moreover, internal controls guidance states that effective communication may be achieved through clear policy. However, the Corps' current regulation is not clear as to what is meant by "state-of-the-art design or construction criteria deemed necessary for safety purposes" in the statutory provision. Thus, this lack of clarity coupled with the Corps' inconsistent policy position has hindered the Corps from applying the state-of-the-art provision in a manner consistent with other Dam Safety Assurance provisions. Without clarifying the circumstances under which the state-of-the-art provision applies and implementing the policy consistently, the Corps is at risk of not applying the full range of statutory authorities provided to it, thereby raising questions about the appropriate allocation of federal and non-federal funding for dam safety repairs. As discussed later in this report, the Corps' inaction in setting a clear policy for a provision under which sponsors face significant financial impacts has contributed to conditions under which sponsors have asserted their own terms for use of the provision or are considering taking legal action against the Corps. In contrast, another federal agency has applied a similar state-of-the-art provision to its dam safety repairs. The U.S. Department of the Interior's Bureau of Reclamation (Reclamation) has a similar statutory authority enacted by the Reclamation Safety of Dams Act of 1978, which requires sponsors' cost share at 15 percent when modifications result from new hydrologic or seismic data, or changes in state-of-the-art design or construction criteria deemed necessary for safety purposes. According to Reclamation officials, while Reclamation has not developed a definition for the state-of-the-art design or construction criteria, it has operationalized and applied the state-of-the-art provision exclusively to modify 30 dams since 1978, primarily in situations where defensive dam safety measures, such as filters and drainage mechanisms, were lacking or were not consistent with the current state of the practice. The Corps' lack of clarity and a consistent policy position regarding the state-of-the-art provision under the Dam Safety Assurance authority has contributed to disagreements with a major sponsor and uncertainty regarding sponsor payment. In this case, Southeastern Power Administration (SEPA), the federal PMA sponsor for Center Hill (Tennessee) and Wolf Creek (Kentucky) dams, has disagreed with the Corps' decision to repair the dams under its Major Rehabilitation authority rather than the state-of-the-art provision of the Dam Safety Assurance authority. (See fig. 2.) SEPA has asserted that the Dam Safety Assurance authority should apply to these projects. SEPA has taken this position, in part, because while dam safety repairs at Wolf Creek were originally determined to be under the Major Rehabilitation authority, Corps district officials had subsequently recommended using the Dam Safety Assurance authority based on application of the state-of-the-art provision. SEPA was aware of the district's recommendation to change the authority determination to Dam Safety Assurance. However, the ASA(CW) ultimately did not support this recommendation noting that erosion caused by seepage--the potential failure mode identified at these dams--has consistently and categorically been addressed through application of the Major Rehabilitation authority. According to SEPA officials, the conflicting actions of Corps district and headquarters officials on authority determination created uncertainty for SEPA regarding the Corps' position. SEPA stated that the need for repairs to Center Hill and Wolf Creek dams is based on state-of-the-art design and construction practices and notes that the Corps consulted with recognized international experts to design the cutoff walls being built at these dams to address the effects of seepage. According to SEPA officials, current repairs based on state-of- the-art practices are being made at these two dams, in part, because previous repair efforts did not adequately address site conditions contributing to seepage. Conversely, Corps officials told us that seepage naturally occurs at all dams and periodically needs to be addressed, such as through implementation of repair projects. Moreover, according to Corps officials, the "karst" limestone upon which the Center Hill and Wolf Creek dams are built is prone to increasing seepage over time because of the dissolution of soluble rock foundation. Concrete cut- off walls put in place at Center Hill and Wolf Creek dams under current projects were designed to consider these effects and, according to Corps officials, constructed as permanent seepage control measures. Because of the high cost of repairs to these two dams--estimated at about $958 million, for which SEPA's share under its original congressional authorization is about 50 percent--SEPA officials have expressed concern about the agency's ability to recover costs if the projects are considered under the Major Rehabilitation authority. Under this authority, SEPA's cost to recover for both dams is estimated at about $482 million. Officials said that if SEPA were obligated to recover this amount, its hydropower rates could become prohibitively expensive. As a result, according to these officials, SEPA's customers might terminate their contracts and acquire energy via more economical options, such as energy derived from natural gas or coal. If the Corps were to apply its Dam Safety Assurance authority to these repairs under, for example, the state-of-the-art provision, SEPA's cost to recover would be reduced to about $72 million (85 percent reduction). The outcome related to the disagreement between the Corps and SEPA has significant implications given that mitigating the effects of seepage, as evidenced by our review, is a common reason for making safety- related repairs. In recent rate-making notices, SEPA has based its proposed rates on the Dam Safety Assurance authority for dam safety repairs at Center Hill and Wolf Creek dams. This action signals SEPA's position that it should pay the reduced cost share (about $72 million) provided under this authority, and without resolution, recovering federal outlays for funding the majority of project costs (about $410 million) remains uncertain. In moving forward to resolve this disagreement, it is important that potential impacts on aging dam infrastructure, hydropower rates, and the federal budget are considered in a coordinated, strategic approach. SEPA's rate actions could set precedent and create uncertainty for the federal government if sponsors at other dams also assert that the state- of-the-art provision applies to projects that mitigate the effects of seepage. For example, the Corps determined that repairs to mitigate the effects of seepage were needed at 9 of the 16 dams we reviewed, with a total estimated cost of about $4 billion. If other sponsors at these dams were to follow SEPA's example, the federal government could potentially receive reduced cost share payments from these sponsors. Further, in light of its aging infrastructure, more Corps dams could require seepage- related repairs in the future. A policy that clarifies the Corps' application of the state-of-the-art provision could help to minimize potential disagreements with sponsors and lead to greater certainty concerning the federal government's and project sponsors' cost sharing obligations. The Corps' Safety of Dams regulation requires Corps districts to engage sponsors by notifying them during the study phase about the dam safety repair project and their estimated financial responsibility. The regulation further states: "Requirements for cost sharing and the identification of non-Federal sponsors (or partners) must occur very early in the study process to ensure that the non-Federal interests are willing cost share partners. Uncertainty about sponsorship and the lack of meaningful sponsor involvement in the scope and extent of dam safety repairs can cause delays to the dam safety modification work." As mentioned previously, under the Corps' regulations, Corps district officials are also expected to communicate with sponsors throughout project design and construction as well as officially notify sponsors of their final cost share payment upon the project's completion. Additionally, internal control standards state that managers should effectively communicate with external stakeholders that may have a significant impact on the agency achieving its goals. While the Corps Safety of Dams regulation identifies when communication with sponsors is to occur, it does not provide clear guidance on how to effectively communicate with sponsors to establish and implement cost sharing agreements. Based on our discussions with state, local, and private sponsors of the dams we reviewed, we found that the Corps has generally established good relationships with these non- federal sponsors and communicated project status information; however, some Corps districts were not timely or effective in communicating and reaching agreement on cost sharing responsibilities. Of the 16 dam safety repair projects we reviewed, 9 had sponsors, and--as discussed below--at 3 of the 9 dams the Corps did not communicate with the sponsors in a manner that would ensure their meaningful involvement and willingness to be cost sharing partners, as required by its regulation. According to the agreements, these sponsors are to pay their cost share to the Corps, which remits these funds to the U.S. Treasury. However, at least three sponsors have expressed concerns and indicated resistance about paying their determined cost shares, estimated to be about $3.1 million. Because the Corps does not have clear guidance to ensure effective communications with sponsors, it did not adequately communicate or reach agreements on cost sharing responsibilities with these sponsors. As a result, these sponsors' plans for paying their cost shares are uncertain, leaving the recovery of federal outlays from these sponsors similarly uncertain. Tuttle Creek Dam: At Tuttle Creek dam (Kansas), the Corps identified and contacted one water supply sponsor during the study phase (2000-2002) of a dam stabilization project as well as notified the sponsor of its estimated cost share, but otherwise did not effectively engage the sponsor throughout the project to ensure the sponsor's cost share payment. In a 2002 letter to the Corps, the sponsor asserted its position that it should not be required to pay for repairs to stabilize the dam, a repair that would enable the dam to withstand the expected maximum earthquake. In the sponsor's opinion, the sponsor was not responsible for sharing costs related to changes in the Corps' design standards or to address what the sponsor felt were design flaws. In 2003, the Corps responded to the sponsor reiterating the sponsor's responsibility for sharing in the costs of the project. The Corps' written response included its estimate of the sponsor's cost share, approximately $770,000, and described payment options: pay- as-you-go or lump sum at the end of construction. According to the sponsor, it did not raise any further objections and, in a subsequent telephone conversation with Corps district officials, indicated its preference to use the pay-as-you-go option because it would be unable to afford a lump sum payment. Since 2003, the sponsor received briefings on the status of the project; however, the Corps did not follow up or otherwise engage the sponsor to pay incrementally while construction was ongoing. Construction was completed in 2010, but as of October 2015, the Corps had not requested payment or notified the sponsor of its final cost share. Corps officials told us that they are preparing a billing letter to send to the sponsor. Rough River Dam: At Rough River dam (Kentucky), the Corps' 2012 dam safety modification report stated that the project to grout and construct a 1,700-foot cutoff wall would be completed at full federal expense with no cost sharing sponsors. However, subsequent reviews by Corps headquarters identified water supply contract holders, and in 2013, the Corps notified three water supply sponsors of their cost sharing responsibilities for the dam safety repair. Due to uncertainty in identifying sponsors and delays in executing agreements with them, as discussed below, the Corps may experience challenges collecting these sponsors' cost shares when the project is finally complete, estimated to be no later than 2021. Specifically: One sponsor has had a water use agreement with the Corps since 1978, but has not been drawing water from the reservoir since 2007. In 2013, the Corps requested that the sponsor remove its water intake structure from the reservoir. However, in the same year, as mentioned previously, the Corps notified this sponsor of its cost sharing responsibilities for the dam safety repair project. In May 2015, the Corps signed a termination agreement with the sponsor under which the sponsor will not share the costs of the project. While the Corps is not expecting to collect a cost share, its interaction with the sponsor indicates a lack of effective communication. Although the Corps notified a second sponsor of its cost sharing responsibilities in 2013, this sponsor currently does not have a cost sharing responsibility for the dam safety repair project because the sponsor paid upfront for "major capital replacement" as part of its 1966 agreement with the Corps. This provision of the agreement is to expire in April 2016, and according to Corps officials, a supplement to the agreement is being developed. The supplement would include this sponsor's cost sharing responsibility in the current project. However, we were not able to reach this sponsor to confirm its intention to be a cost sharing sponsor, and it remains uncertain whether the Corps should expect a future agreement to cover current project costs. The third sponsor has been drawing water from the reservoir since 2002, when the sponsor negotiated terms of its water use with the Corps under a draft contract. Despite drawing up to 1.6 million gallons per day from the reservoir, the sponsor has not paid the Corps for water use and operations and maintenance expenses because a contract between the parties has not been executed. As a result, despite notifying the sponsor of its cost sharing responsibilities in the dam safety repair project in 2013, the Corps has no mechanism to compel payment from this sponsor. According to the sponsor, it has tried to finalize the 2002 contract numerous times, but the Corps did not finalize the agreement in any of these instances. In July 2015, a Corps district official told us that Corps headquarters is reviewing the negotiated agreement; however, uncertainty about cost sharing exists until all parties execute a contract. Center Hill Dam: At Center Hill Dam (Tennessee), the Corps identified three water supply sponsors during the study phase but generally had minimal interactions with them to communicate cost sharing estimates and responsibilities. While two sponsors accept their cost sharing responsibilities and estimated cost sharing amounts, one sponsor disagrees with the Corps' application of the Major Rehabilitation authority. Similar to the argument made by SEPA, which is also a sponsor at this dam, this water supply sponsor stated that the repairs being made to address the effects of seepage at the dam incorporate state-of-the-art design and construction practices and that the Corps should apply the state-of-the-art provision, thereby reducing this sponsor's cost share. Under the Major Rehabilitation authority, this sponsor has a $1.9 million cost share. According to this sponsor, a municipal water utility, covering this cost would require raising water rates approximately 50 cents per household per month. The sponsor is contemplating a legal challenge if the Corps does not apply the state-of-the-art provision to lower this sponsor's cost share according to a sponsor official. The Corps has maintained its position that application of its Major Rehabilitation authority is appropriate for this dam safety repair. Considering the significant cost of dam safety repair projects, and the number of dams that could need repairs in the future, implementing a dam safety program as effectively as possible is important. This implementation would include adequately defining conditions for key policy determinations to ensure the appropriate allocation of federal versus non-federal funds for dam safety repairs. However, the fact that the Corps has not developed policy guidance on the types of circumstances under which the state-of-the-art provision of its Dam Safety Assurance authority might apply, and has not had a consistent policy position, limits the Corps' ability to ensure the effective implementation of the dam safety program. Without clarifying the circumstances under which the state-of-the-art provision applies and implementing the policy consistently, the Corps is at risk of not applying the full range of statutory authorities provided to it. Moreover, because of the financial implications of its authority determinations for sponsors, the Corps' inaction in setting a clear policy for this provision contributes to conditions under which it is potentially exposed to adverse actions of these sponsors. The Corps' engagement of project sponsors is critical to the successful implementation of dam safety repair projects not only to ensure the continued provision of benefits, such as water supply and hydropower generation, but also to recover federal outlays used to fund projects upfront. Because the Corps has not always effectively communicated with or engaged sponsors, some are deriving benefits from dams absent an agreement with the Corps while other sponsors that have agreements either have not been notified by the Corps of their final cost share responsibility or dispute the Corps' cost sharing determination and may raise a legal challenge. While the Corps' Safety of Dams regulation provides guidance to district offices for communicating with sponsors, greater clarity about effective communication requirements to establish and implement agreements with sponsors would help the Corps ensure equity in its treatment of sponsors and make certain that the federal government receives expected cost share payments. To improve cost sharing for dam safety repairs, we recommend that the Secretary of Defense direct the Secretary of the Army to direct the Chief of Engineers and Commanding General of the U.S. Army Corps of Engineers to clarify policy guidance: on the types of circumstances under which the state-of-the-art provision of the Dam Safety Assurance authority might apply to dam safety repair projects. for district offices to effectively communicate with sponsors to establish and implement cost sharing agreements during dam safety repair projects. For all dams, including the three dams named in the report, this would involve communicating estimated and final cost sharing amounts, executing agreements, and engaging sponsors to ensure cost share payment. We provided a draft of this report to the Department of Defense (DOD) for official review and comment. In its written comments, which are reprinted in appendix III, DOD concurred with our recommendations and described the actions it plans to take within the next 18 months. In response to our recommendation to clarify policy guidance on the types of circumstances under which the state-of-the-art provision of the Dam Safety Assurance authority might apply, the department stated that the ASA(CW) will clarify the usage of the provision within the next 18 months. Regarding our recommendation to clarify policy guidance for district offices to communicate with sponsors to establish and implement cost sharing agreements, DOD stated that ASA(CW) will review and clarify policy, guidance, and business practices related to communication with sponsors within the next 18 months. With respect to the three dam safety repair projects identified in our report, the department stated that the ASA(CW) will engage with their sponsors to establish a path forward to recouping the federal investment in the Corps' work, including finalization of water supply agreements. We are sending copies of this report to the appropriate congressional committees and the Secretary of Defense, the Secretary of the Army, the Chief of Engineers and Commanding General of the U.S. Army Corps of Engineers, and other interested parties. In addition, the report will be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions, please contact me at (202) 512- 2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. The table below lists all sponsors we interviewed for this report. Not all sponsors for the dams included in our review were available for interview. Additionally, because the Southeastern Power Administration (SEPA) is a major cost sharing sponsor, we interviewed the Tennessee Valley Public Power Association, an organization that represents 155 local utilities across seven states that purchase wholesale power marketed by SEPA. In addition to the contact named above, Michael Armes, Assistant Director; Irina Carnevale, Analyst in Charge; Geoffrey Hamilton; Georgeann Higgins; Vondalee Hunt; Davis Judson; SaraAnn Moessbauer; Joshua Ormond; and Amy Rosewarne made key contributions to this report.
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The Corps operates over 700 dams, which are aging and may require major repairs to assure safe operation. At some dams, sponsors that benefit from dam operations share in the cost of operating and repairing these dams based on original congressional authorizations for dam construction or subsequent agreements with the Corps. Since 2005, the Corps initiated an estimated $5.8 billion in repairs at 16 dams with urgent repair needs; sponsors are to share repair costs at 9 of these dams. GAO was asked to examine cost sharing for Corps dam safety repairs. This report examines how, over the last 10 years, the Corps (1) determined cost sharing and (2) communicated with sponsors regarding cost sharing. GAO reviewed relevant laws and Corps regulations; analyzed dam safety projects' documentation for the 16 dams the Corps selected for repairs since 2005; conducted site visits to a non-generalizable sample of three dams based on cost share determinations and range of sponsors; and interviewed Corps officials and sponsors. The U.S. Army Corps of Engineers (Corps) determined sponsors' (such as water utilities and hydropower users) share of costs for dam safety repairs pursuant to regulations, but did not apply a provision in a statutory authority that reduces sponsors' share. The Corps determined these cost shares based on analyses of the potential ways each dam could fail, and in consideration of statutory requirements regarding which type of cost sharing arrangement, or authority, would apply given these possible failure scenarios. The Corps applied its Major Rehabilitation authority at 11 of the 16 dam safety repair projects GAO reviewed for repairs associated with typical degradation of dams, such as embankment or foundation erosion through seepage. Under this authority, sponsors are to pay their full agreed-upon cost share of the repair. The Corps applied its Dam Safety Assurance authority at 5 of the 16 dam safety repair projects GAO reviewed for repairs that resulted from the availability of new hydrologic or seismic data. Under this authority, sponsors' agreed-upon cost share is reduced by 85 percent. The Corps did not apply one provision of its Dam Safety Assurance authority--related to repairs needed due to changes in state-of-the-art design or construction criteria (state-of-the-art provision)--since the enactment of the enabling legislation in 1986. Since that time, the Corps has not provided guidance on the types of circumstances under which the state-of-the-art provision applies and has not had a consistent policy position regarding the provision. For example, the Corps' latest regulation states in one section that the state-of-the-art provision will not be applied because of the difficulty in defining terminology, while another section allows for consideration on a case-by-case basis. Without clarifying the circumstances under which the state-of-the-art provision applies, and implementing the policy consistently, the Corps is at risk of not applying the full range of statutory authorities provided to it, contributing to conditions under which, as discussed below, sponsors have taken actions opposing the Corps. In GAO's review of 9 dams with sponsors, the Corps did not communicate with or effectively engage all sponsors. For example, a federal sponsor that markets hydropower generated at two dams disagreed with the Corps' decision to not apply the state-of-the-art provision of its Dam Safety Assurance authority, which, if used, would reduce this sponsor's cost share by about $410 million. This sponsor has proceeded to set its power rates in anticipation of paying the reduced cost share, creating uncertainty for the recovery of federal outlays for repairs. In addition, GAO found the Corps was not effective in reaching agreement with other sponsors on cost-sharing responsibilities at three dams because it did not have clear guidance for effectively communicating with sponsors. For example, the Corps did not engage a sponsor to ensure cost share payment at one dam and, at another dam, delayed executing agreements that would ensure sponsors' cost shares. Because the Corps did not effectively engage these sponsors, some are deriving benefits absent agreements with the Corps, while others that have agreements have not been notified of their final cost-sharing responsibility. As a result, these sponsors' cost share payments (about $3.1 million) are uncertain. GAO recommends that the Corps clarify policy guidance on (1) usage of the state-of-the-art provision and (2) effective communication with sponsors to establish and implement cost sharing agreements for all dams, including the three named in this report. The Department of Defense concurred with GAO's recommendations.
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The law and regulations that govern federal procurement are designed to foster competition and to promote desirable social objectives, among other goals. The Congress has long encouraged agencies to ensure that small businesses have an opportunity to participate in federal procurements and has authorized agencies to reserve certain requirements for award to small businesses. For example, in 1988 the Congress established an annual governmentwide goal of awarding not less than 20 percent of prime contract dollars to small businesses and in 1997 increased this goal to 23 percent. When all the laws and regulations to achieve the procurement system's objectives were considered, some came to believe that the result was a complex and unwieldy system that left little room for agencies to exercise sound business judgment in satisfying their needs. Two pieces of reform legislation--the Federal Acquisition Streamlining Act of 1994 (FASA) and the Clinger-Cohen Act of 1996--were passed to address these problems as well as other government acquisition and investment-related concerns. Each act included provisions designed to streamline the procurement system, increase its responsiveness, and make it more efficient. As agencies began to implement acquisition reform initiatives, representatives of small businesses began to express concerns that the initiatives would have an adverse effect on small businesses. Agencies combined existing contracts into fewer, larger contracts--referred to as "bundled contracts"--to streamline procurement and reduce contract administration costs. Questions were raised about the extent to which contract requirements were being bundled and the effect that such bundling had on small businesses' ability to participate in federal procurement. In light of these concerns, the Congress amended the Small Business Act to create a legislative definition of contract bundling. As amended, the act defines contract bundling as the consolidation of two or more procurement requirements for goods or services previously provided or performed under separate, smaller contracts into a solicitation of offers for a single contract that is likely to be unsuitable for award to a small business concern because of the diversity, size, or specialized nature of the elements of the performance specified; the aggregate dollar value of the anticipated work; the geographic dispersion of performance sites; or any combination of these three criteria. The statute also defines a "separate, smaller contract" as a contract that has been performed by one or more small businesses or was suitable for award to one or more small businesses. The Small Business Act, as amended, states that, to the maximum extent practicable, agencies shall avoid unnecessary and unjustified bundling of contract requirements that precludes small businesses' participation in procurements as prime contractors. For those contracts considered to be bundled, the Small Business Act establishes criteria for determining whether contract bundling was necessary and justified, and requires agencies that intend to bundle requirements to document that these criteria have been met. Our analysis of overall data on construction contract awards indicates that small businesses are continuing to win work and that their ability to compete is not being impaired. Since 1997, construction contract awards to small businesses have increased steadily in the face of a decline in overall construction awards. As table 1 shows, awards to small businesses increased from about $1.6 billion to about $1.9 billion from fiscal year 1997 through fiscal year 2000 (in constant fiscal year 1999 dollars) while overall awards declined from about $6.6 billion to about $5.9 billion. Consequently, the share of awards going to small businesses increased from about 25 to about 32 percent. Our analysis also showed that this trend occurred despite an increase in awards to foreign firms and domestic firms performing abroad. The proportion of total DOD construction awards going to such firms increased from 10 percent in fiscal year 1997 to 14 percent in fiscal year 2000. Contracting officials pointed out that small business construction firms generally confine their operations to a specific region or geographic area, sometimes pursuing work only in the metropolitan area where the firm is headquartered. According to the officials, small business construction firms would typically not have the resources to perform work abroad and would be very unlikely to win contracts for such projects. Because the overall data do not identify bundled contracts, we were not able to measure the extent of contract bundling directly. Accordingly, we reviewed selected contracts to assess whether agencies were consolidating requirements. Of the 26 contracts we reviewed, 5 were large contracts that consolidated requirements to the point of limiting small businesses' participation. These particular contracts combined the components of a multiple-facility project under a single contract. Officials analyzed these projects to assess whether the work could accommodate smaller contractors but concluded that only by having a single contractor build the entire project could the work be performed efficiently. For example, the Navy requested proposals for the construction of a complex of eight facilities at the Stennis Space Center in Mississippi to house a Special Operations Forces unit. The Navy estimated the cost of the complex at $24.2 million. A large business received the contract, and the Navy official responsible for monitoring small business contracting indicated that small businesses would have had difficulty undertaking a project of this size. The contracting officer told us that because these facilities were clustered on a compact site and were served by common cooling and mechanical systems, a single contract was awarded for constructing the entire complex. Space at the construction site would not have accommodated multiple contractors. Contracting officials told us that when contracting to construct a multiple-facility project, they have historically considered whether components of the project can be acquired through separate, smaller contracts suitable for award to small businesses. However, if an analysis of site and project characteristics indicated that a single contractor would be necessary in order for the work to be performed efficiently, a single contract would be awarded. In cases like these, Small Business Administration (SBA) representatives normally review planned construction contracts and--when it appears unlikely that small businesses will be able to compete for a contract--may recommend alternative contracting approaches that will increase opportunities for small businesses. At the two locations we visited, contracting officers had submitted each of the contracts we reviewed to the appropriate SBA representatives and received approval to proceed with their planned contracting approach. Another six of the contracts we reviewed involved ordering construction projects under task-order contracts. In these cases, small businesses were able to participate. Task-order contracts define the broad outlines of the government's needs and permit the government to place orders to acquire specific work over a fixed period within stated dollar limits. Under FASA, agencies may award task-order contracts as part of initiatives to streamline federal procurement. To encourage competition, the Congress established a preference for awarding task-order contracts to multiple contractors rather than to a single one and for providing each of the contractors an opportunity to be considered for specific orders. To preserve the simplicity and flexibility of administering task-order contracts, the Congress provided contracting officers broad discretion to define the procedures used to evaluate offers and select contractors when placing orders. According to contracting officials, placing orders under task-order contracts allows them to acquire construction work more quickly and with less administrative effort than awarding individual contracts. Small businesses won some task-order contracts at the locations we visited. For example, the Army awarded six task-order contracts that provided for ordering construction and incidental design services over a 4- year period, including options. While the Army expected that individual projects would be valued in the $100,000 to $500,000 range, the Army could order up to $5 million in work annually or $20 million over the 4- year period. The contracts called for contractors to submit competitive proposals on orders and for the Army to select the most advantageous proposal. The Army awarded two of the six task-order contracts through competitions limited to small disadvantaged businesses participating in the 8(a) program. In the competition for orders under the contracts, these two small disadvantaged businesses won $4 million, or about 28 percent, of the work acquired under the six contracts through November 2000. Another nine of the contracts we reviewed combined the requirements for design and construction work on a single facility under a single contract. In these cases, again, small businesses were able to participate. Agencies have traditionally awarded separate contracts for design and construction work. As part of the Clinger-Cohen Act's initiatives to streamline federal procurement, however, the Congress authorized agencies to award single contracts covering both design and construction work, referred to as "design-build contracts." Under the statute, agencies use a two-phase approach to selecting a design-build contractor, initially inviting contractors to submit information on their qualifications and technical approach to the work. Agencies use this information to identify the most highly qualified contractors and invite these firms to submit more-detailed information, such as design concepts and cost or price data. On the basis of their experience to date, officials indicated that using design-build contracts has enabled them to reduce project completion times and costs. Small businesses competed successfully for design-build contracts at the locations we visited. For example, the Navy requested proposals for the design and construction of a wharf and an associated administrative, shop, and storage building estimated to cost about $8.4 million. Initially, 12 firms submitted information on their capabilities and past performance. After evaluating this information, the Navy concluded that two small businesses and one large business were best qualified to undertake the project and invited these firms to submit a design proposal and price for the work. Navy evaluators considered the design solutions submitted by the two small businesses to be superior to that submitted by the large business. Since one of the small businesses also proposed the lowest price, this firm was awarded a contract for the work. Contracting officials pointed out that, to compete successfully for design-build contracts, construction firms must team up with design firms. Of these nine design-build contracts, small businesses won two and were considered among the most highly qualified contractors in the competition for two others. Lastly, of the remaining six contracts, five were separate contracts covering the construction of single facilities for which complete designs had been previously prepared. Small businesses won three of these five contracts. Finally, the last of the six contracts covered the design and construction of two closely related facilities. This final project was modest in scope, having an estimated cost of $5.7 million and--although this contract was not awarded to a small business--two small businesses were considered among the most highly qualified contractors competing for the contract. DOD and SBA reviewed a draft of this report. DOD's Director of Small and Disadvantaged Business Utilization told us that DOD had no comments on the draft. SBA's written comments are contained in appendix I. SBA indicated that the report's analysis is useful in improving an understanding of contract bundling and contract consolidation. SBA noted that the report does not discuss the Small Business Competitiveness Demonstration Program and its applicability to construction contracts. An evaluation of this program was beyond the scope of this review. SBA suggested that we include an appendix detailing the cases reviewed. Accordingly, we have incorporated a list of the contracts reviewed in our discussion of the scope and methodology of the review. To identify trends in DOD's contracting for construction and use of small business contractors, we analyzed data from DOD's prime contract database for fiscal years 1997 through 2000. Using this database, we determined trends in total obligations on contracts for construction work by converting obligations into constant fiscal year 1999 dollars and using gross domestic product deflator indexes in the President's Budget submission applicable to military outlays. In addition, we determined the shares of total obligations going to various classifications of business entities. We did not independently verify the accuracy of the information in DOD's database. To assess the extent to which DOD's contracting officers had combined construction requirements, we reviewed the laws and implementing regulations defining contract bundling and reviewed large contracts for construction awarded at selected contracting offices. Using DOD's prime contract database, we ranked DOD's contracting offices in terms of total dollars awarded for general repair and construction work in fiscal year 1999. (Data for fiscal year 2000 were not available at the time we were planning our work.) After ranking DOD's contracting offices, we reviewed contracts at the highest-ranked Army and Navy contracting offices: the Army Corps of Engineers' Mobile District, Mobile, Alabama, and the Naval Facilities Engineering Command's Southern Division, Charleston, South Carolina. At these two locations, we reviewed all contracts valued at $5 million or more awarded during fiscal year 2000 for construction in the United States. We did not review contracts at an Air Force contracting office because the Army and Navy provide the Air Force with contracting support and the 28 highest-ranked offices were either Army or Navy contracting offices. Table 2 lists the 26 contracts--valued at $347 million-- selected for review. For these contracts, we reviewed contract documentation to determine whether requirements had been combined, the reasons cited for combining requirements, and the extent of small businesses' participation in competition for the contracts. We also discussed these issues with contracting officials, the contracting offices' small business utilization monitors, and SBA representatives responsible for overseeing the selected contracting offices. Our results cannot be generalized to the universe of construction contract awards. We conducted our review from November 2000 through May 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense and the Acting Administrator of the Small Business Administration. We will make copies available to others on request. If you have any questions regarding this report, please contact me on (202) 512-4841 or Ralph Dawn on (202) 512-4544. Other key contributors to this report were Monty Peters, Ralph Roffo, and John Van Schaik. Small Business: Trends in Federal Procurement in the 1990s (GAO-01-119, Jan. 18, 2001). Federal Procurement: Trends and Challenges in Contracting With Women-Owned Small Businesses (GAO-01-346, Feb. 16, 2001). Small Businesses: Limited Information Available on Contract Bundling's Extent and Effects (GAO/GGD-00-82, Mar. 31, 2000). Defense Contracting: Sufficient, Reliable Information on DOD's Mentor- Protege Program Is Unavailable (GAO/NSIAD-98-92, Mar. 30, 1998). Base Operations: DOD's Use of Single Contracts for Multiple Support Services (GAO/NSIAD-98-82, Feb. 27, 1998).
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Congress appropriates billions of dollars annually to construct buildings and other facilities for military training and operations. Small business have carried out a significant portion of this work. Congress and small business advocates, however, had become concerned that agencies were combining requirements into larger contracts that small businesses could not win. GAO examined the contract bundling of military construction requirements. GAO determined whether (1) overall data on construction contract awards to small businesses indicated that their ability to compete for contracts had been impaired and (2) selected Department of Defense (DOD) contracting offices had combined construction requirements in ways that hampered small businesses' ability to compete. Overall data on military construction contract awards to small businesses revealed that small businesses are generally continuing to win work and that their ability to compete is not being impaired. The Small Business Administration reviewed and approved of DOD's plan to determine whether the construction work being done could accommodate smaller contractors. Small businesses were able to compete for the remaining contracts.
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Generally, we have broad authority to evaluate agency programs and investigate matters related to the receipt, disbursement, and use of public money. To carry out our audit responsibilities, we have a statutory right of access to agency records. Specifically, federal agencies are required to provide us information about their duties, powers, activities, organization, and financial transactions. In concert with our statutory audit and evaluation authority, this provision gives GAO a broad right of access to agency records, including records of the Intelligence Community, subject to a few limited exceptions. GAO's access statute authorizes enforcement of GAO's access rights through a series of steps specified in the statute, including the filing of a civil action to compel production of records in federal district court. However, GAO may not bring an action to enforce its statutory right of access to a record relating to activities that the President designates as foreign intelligence or counterintelligence activities. GAO's statutory authorities permit us to evaluate a wide range of activities in the Intelligence Community, including the management and administrative functions that intelligence agencies, such as the Central Intelligence Agency (CIA), have in common with all federal agencies. However, since 1988, the Department of Justice (DOJ) has maintained that Congress intended the intelligence committees to be the exclusive means of oversight, effectively precluding oversight by us. In our 2001 testimony about GAO's access to information on CIA programs and activities, we noted that in 1994 the CIA Director sought to further limit our audit work of intelligence programs, including those at DOD. In 2006, the ODNI agreed with DOJ's 1988 position, stating that the review of intelligence activities is beyond GAO's purview. While we strongly disagree with DOJ and the ODNI's view, we foresee no major change in limits on our access without substantial support from Congress--the requestor of the vast majority of our work. Congressional impetus for change would have to include the support of the intelligence committees, which have generally not requested GAO reviews or evaluations of CIA's or other intelligence agencies' activities for many years. With support, however, we could evaluate some of the basic management functions that we now evaluate throughout other parts of the federal government, such as human capital, acquisition, information technology, strategic planning, organizational alignment, and financial and knowledge management. As this Subcommittee is well aware, the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA) established the Director of National Intelligence to serve as the head of the Intelligence Community; act as the principal advisor to the President, the National Security Council, and the Homeland Security Council for intelligence matters related to national security; and oversee and direct the implementation of the National Intelligence Program. Since its inception, the ODNI has undertaken a number of initiatives, including the development of both 100- and 500-day plans for integration and collaboration. One of the core initiatives of these plans is to modernize the security clearance process across the Intelligence Community and at the national level, where other federal agencies, including DOD, OMB, and Office of Personnel Management (OPM) are also engaged. Among other things, IRTPA also directed the President to select a single department, agency, or element of the executive branch to be responsible for day-to-day oversight of the government's security clearance process. In June 2005, the President issued an executive order that assigned OMB responsibility for ensuring the effective implementation of a policy that directs agency functions related to determinations of personnel eligibility for access to classified information be uniform, centralized, efficient, effective, timely, and reciprocal. In its new capacity, OMB assigned the responsibility for the day-to-day supervision and monitoring of security clearance investigations, as well as for tracking the results of individual agency-performed adjudications, to OPM. With respect to (1) personnel employed or working under a contract for an element of the Intelligence Community and (2) security clearance investigations and adjudications for Sensitive Compartmented Information, OMB assigned the responsibility for supervision and monitoring of security clearance investigations and tracking adjudications to the ODNI. In May 2006, OMB's Deputy Director for Management stated during a congressional hearing that the agency's oversight role in improving the governmentwide clearance process might eventually be turned over to the ODNI. For decades, we have assisted Congress in its oversight role and helped agencies with disparate missions to improve the economy, effectiveness, and efficiency of their operations and the need for interagency collaboration in addressing 21st century challenges, and we could assist the intelligence and other appropriate congressional committees in their oversight of the Intelligence Community as well. Our work also provides important insight on matters such as best practices to be shared and benchmarked and how government and its nongovernmental partners can become better aligned to achieve important outcomes for the nation. In addition, GAO provides Congress with foresight by highlighting the long- term implications of today's decisions and identifying key trends and emerging challenges facing our nation before they reach crisis proportions. For the purpose of this hearing, I will discuss our extensive experience in addressing governmentwide human capital issues and other management issues that can assist the intelligence and other appropriate congressional committees in their oversight of Intelligence Community transformation and related management reforms. GAO has identified a number of human capital transformation and management issues over the years, such as acquisition, information technology, strategic planning, organizational alignment, financial and knowledge management, and personnel security clearances, as cross- cutting, governmentwide issues that affect most federal agencies, including those within the Intelligence Community. Human capital transformation and management issues have also been repeatedly identified as areas of weakness within the Intelligence Community by other organizations, including the Subcommittee on Oversight, House Permanent Select Committee on Intelligence; the Congressional Research Service; and independent commissions, such as the 9/11 Commission and Weapons of Mass Destruction Commission. Moreover, the ODNI has acknowledged that Intelligence Community agencies face some of the governmentwide challenges that we have identified, including integration and collaboration within the Intelligence Community workforce and inefficiencies and reciprocity of personnel security clearances. Significant issues affecting the Intelligence Community include strategic human capital transformation and reform issues, DOD's new pay-for- performance management system called NSPS, the extent to which agencies rely on, oversee, and manage their contractor workforce, and personnel security clearances. In fact, we have identified some of these programs and operations as high-risk areas due to a range of management challenges. GAO and others have reported that the Intelligence Community faces a wide range of human capital challenges, including those dealing with recruiting and retaining a high-quality diverse workforce, implementation of a modernized performance management system, knowledge and skill gaps, integration and collaboration, and succession planning. Our extensive work on government transformation distinctly positions us to assist the intelligence and other appropriate congressional committees to oversee the Intelligence Community's efforts to address these human capital challenges as well as to inform congressional decision making on management issues. Our work on governmentwide strategic human capital management is aimed at transforming federal agencies into results- oriented, high-performing organizations. Transformation is necessary because the federal government is facing new and more complex challenges than ever before, and agencies must re-examine what they do and how they do it in order to meet those challenges. Central to this effort are modern, effective, economical, and efficient human capital practices, policies, and procedures integrated with agencies' mission and program goals. In 2001, we added strategic human capital management to the list of governmentwide high-risk areas because of the long-standing lack of a consistent strategic approach for marshaling, managing, and maintaining the human capital needed to maximize government performance and ensure its accountability. Although the federal government made progress in addressing these issues in the years that followed, we found that more can be done in four key areas: (1) top leadership in agencies must provide the attention needed to address human capital and related organizational transformation issues; (2) agencies' human capital planning efforts need to be fully integrated with mission and program goals; (3) agencies need to enhance their efforts to acquire, develop, and retain talent; and (4) organizational cultures need to promote high performance and accountability. Based on our experience in addressing agencies' performance management challenges, we are uniquely positioned to help Congress evaluate such issues within the Intelligence Community, including the development and implementation of its pay-for-performance personnel management system. As an example of our experience in this area, I would like to highlight our work on DOD's new civilian personnel management system--the NSPS--which has provided Congress with insight on DOD's proposal, design, and implementation of this system. The National Defense Authorization Act for Fiscal Year 2004 provided DOD with authority to establish a new framework of rules, regulations, and processes to govern how the almost 700,000 defense employees are hired, compensated, promoted, and disciplined. Congress provided these authorities in response to DOD's position that the inflexibility of the federal personnel systems was one of the most important constraints to the department's ability to attract, retain, reward, and develop a civilian workforce to meet the national security mission of the 21st century. Prior to the enactment of the NSPS legislation in 2003, we raised a number of critical issues about the proposed system in a series of testimonies before three congressional committees. Since then, we have provided congressional committees with insight on DOD's process to design its new personnel management system, the extent to which DOD's process reflects key practices for successful transformation, the need for internal controls and transparency of funding, and the most significant challenges facing DOD in implementing NSPS. Most important, we have noted in testimonies and reports that DOD and other federal agencies must ensure that they have the necessary institutional infrastructure in place before implementing major human capital reform efforts, such as NSPS. This institutional infrastructure includes, at a minimum, a human capital planning process that integrates the agency's human capital policies, strategies, and programs with its program goals, mission, and desired outcomes; the capabilities to effectively develop and implement a new human capital system; and the existence of a modern, effective, and credible performance management system that includes adequate safeguards to ensure a fair, effective, nondiscriminatory, and credible implementation of the new system. While GAO strongly supports human capital reform in the federal government, how it is done, when it is done, and the basis upon which it is done can make all the difference in whether such efforts are successful. An additional major issue of growing concern, both within and outside the Intelligence Community, deals with the type of work that is being performed by contractors, the need to determine the appropriate mix of government and contractor employees to meet mission needs, and the adequacy of oversight and accountability of contractors. These are areas where we also are well-positioned to provide additional support to the intelligence committees. While there are benefits to using contractors to perform services for the government--such as increased flexibility in fulfilling immediate needs--GAO and others have raised concerns about the federal government's increasing reliance on contractor services. A key concern is the risk associated with contractors providing services that closely support inherently governmental functions. Inherently governmental functions require the exercise of discretion in applying government authority and/or in making decisions for the government; as such, they should be performed by government employees, not contractors. In 2007, I testified before the Senate Committee on Homeland Security and Governmental Affairs that the proper role of contractors in providing services to the government was the topic of some debate. I would like to reiterate that, in general, I believe there is a need to focus greater attention on which functions and activities should be contracted out and which should not, to review and reconsider the current independence and conflict-of-interest rules relating to contractors, and to identify the factors that prompt the government to use contractors in circumstances where the proper choice might be the use of civil servants or military personnel. Similarly, it is important that the federal government maintain an accountable and capable workforce, responsible for strategic planning and management of individual programs and contracts. In a September 2007 report, we identified a number of concerns regarding the risk associated with contractors providing services that closely support inherently governmental functions. For example, an increasing reliance on contractors to perform services for core government activities challenges the capacity of federal officials to supervise and evaluate the performance of these activities. The Federal Acquisition Regulation (FAR) provides agencies examples of inherently governmental functions that should not be performed by contractors. For example, the direction and control of intelligence and counter-intelligence operations are listed as inherently governmental functions. Yet in 2006, the Director of National Intelligence reported that the Intelligence Community finds itself in competition with its contractors for employees and is left with no choice but to use contractors for work that may be "borderline inherently governmental." Unless the federal government, including Intelligence Community agencies, pays the needed attention to the types of functions and activities performed by contractors, agencies run the risk of losing accountability and control over mission-related decisions. For more than 3 decades, GAO's reviews of personnel security clearances have identified delays and other impediments in DOD's personnel security clearance program, which maintains about 2.5 million clearances, including clearances for intelligence agencies within DOD. These long- standing problems resulted in our adding the DOD personnel security clearance program to our high-risk list in January 2005. One important outgrowth of this designation has been the level of congressional oversight from this Subcommittee, as well as some progress. In the past few years, several positive changes have been made to DOD-- as well as governmentwide--clearance processes because of increased congressional oversight, recommendations from our work, and new legislative and executive requirements. One of OMB's efforts to improve the security clearance process involved taking a lead in preparing a November 2005 strategic plan to improve personnel security clearance processes governmentwide. In its February 2007 and 2008 annual IRTPA- mandated reports to Congress, OMB noted additional improvements that had been made to the security clearance process governmentwide. For example, OMB had issued standards for reciprocity (an agency's acceptance of a clearance issued by another agency), OPM had increased its investigative workforce, and DOD and other agencies had dramatically increased their use of OPM's Electronic Questionnaires for Investigations Processing system to reduce the time required to get a clearance by 2 to 3 weeks. Further, the Director of National Intelligence, the Under Secretary of Defense for Intelligence, and OMB's Deputy Director for Management established a team, the Joint Security Clearance Process Reform Team, to improve the security clearance process. The team is to develop a transformed, modernized, and reciprocal security clearance process that is supposed to be universally applicable to DOD, the Intelligence Community, and other federal agencies. The extent to which this new process will be implemented governmentwide, or whether leadership of the new system will be assigned to the ODNI, however, remains uncertain. Any attempts to reform the current security clearance process, regardless of which agency or organization undertakes the effort, should include some key factors. Specifically, current and future efforts to reform personnel security clearance processes should consider, among other things, determining whether clearances are required for positions, incorporating more quality control throughout the clearance processes to supplement current emphases on timeliness, establishing metrics for assessing all aspects of clearance processes, and providing Congress with the long-term funding requirements of security clearance reform. Although we have not worked with the entire Intelligence Community as part of our body of work on security clearances, we have worked with DOD intelligence agencies. For example, in the period from 1998 through 2001, we reviewed National Security Agency clearance investigative reports and Defense Intelligence Agency adjudicative reports. Similarly, our February 2004 report examined information about adjudicative backlogs DOD-wide and the situation in those two intelligence agencies. Importantly, since 1974, we have been examining personnel security clearances mostly on behalf of Congress and some on behalf of this Subcommittee. Through scores of reports and testimonies, we have acquired broad institutional knowledge that gives us a historical view of key factors that should be considered in clearance reform efforts. We are well positioned to assist Congress in its oversight of this very important area. In addition to our work on human capital transformation and personnel security clearance issues, our recent work has also addressed management issues--such as ISR systems, space acquisitions, and the space acquisition workforce--that directly affect the Intelligence Community and illustrate our ability to further support the intelligence and other appropriate congressional committees in their oversight roles. GAO's highly qualified and experienced staff--including its analysts, auditors, lawyers, and methodologists--and secure facilities position us to perform intensive reviews that could be useful in assessing the transformation and related management reforms under consideration within the Intelligence Community, especially in connection with human capital and acquisition and contracting-related issues. GAO personnel who might perform work relating to the Intelligence Community have qualifications, skills, expertise, clearances and accesses, and experience across the federal government, in the national security arena, and across disciplines. For example, GAO methodologists have expertise in designing and executing appropriate methodological approaches that help us develop recommendations to improve government operations. Our attorneys advise GAO's analysts, issue external legal decisions and legal opinions, and prepare testimony, legislation, and reports on subjects reflecting the range of government activity. This legal work, for example, involves subjects such as information technology, international affairs and trade, foreign military sales, health and disability law, and education and labor law. GAO also already has personnel with appropriate clearances and accesses. I would like to highlight a couple of examples of GAO's work to demonstrate our expertise and capacity to perform intensive reviews in intelligence-related matters. In the past year, we have testified and issued reports addressing DOD's ISR systems, including unmanned aircraft systems. The term "ISR" encompasses multiple activities related to the planning and operation of sensors and assets that collect, process, and disseminate data in support of current and future military operations. Intelligence data can take many forms, including optical, radar, or infrared images, or electronic signals. In April 2007, we testified that DOD has taken some important first steps to formulate a strategy for improving the integration of future ISR requirements, including the development of an ISR Integration Roadmap and designating ISR as a test case for its joint capability portfolio management concept. We also testified that opportunities exist for different services to collaborate on the development of similar weapon systems as a means for creating a more efficient and affordable way of providing new capabilities to the warfighter. As part of another review of ISR programs, we found that nearly all of the systems in development we examined had experienced some cost or schedule growth. As part of our work, we selected 20 major airborne ISR programs and obtained information on current or projected operational capabilities, acquisition plans, cost estimates, schedules, and estimated budgets. We analyzed the data to determine whether pairs of similar systems shared common operating concepts, capabilities, physical configurations, or primary contractors. We reviewed acquisition plans for programs in development to determine whether they had established sound business cases or, if not, where the business case was weak. We reviewed cost and schedule estimates to determine whether they had increased and, where possible, identified reasons for the increases. Based on our research and findings, we recommended that DOD develop and implement an integrated enterprise-level investment strategy, as well as report to the congressional defense committees the results of ISR studies underway and identify specific plans and actions it intends to take to achieve greater jointness in ISR programs. DOD generally agreed with our recommendations. We have also performed in-depth reviews of individual space programs that are shared with the Intelligence Community. For example, in recent years we have examined the Space Radar program, which is expected to be one of the most complex and expensive satellite developments ever. We reported that while the program was adopting best practices in technology development, its schedule estimates may be overly optimistic and its overall affordability for DOD, which was parternering with the Intelligence Community, was questionable. Our concerns were cited by the Senate Select Committee on Intelligence in its discussion of reasons for reducing funding for Space Radar. Our work on the space acquisition workforce is another example of in- depth programmatic reviews we have been able to perform addressing intelligence-related matters. In a September 2006 report, we identified a variety of management issues dealing with Air Force space personnel. This is a critical issue because the Air Force provides over 90 percent of the space personnel to DOD, including the National Reconnaissance Office (NRO). We found that the Air Force has done needs assessments on certain segments of its space workforce, but it has not done an integrated, zero-based needs assessment of its space acquisition workforce. In the absence of an integrated, zero-based needs assessment of its space acquisition workforce and a career field specialty, the Air Force cannot ensure that it has enough space acquisition personnel or personnel who are technically proficient to meet national security space needs--including those in the Intelligence Community. As a part of this work, we collected and analyzed Air Force personnel data in specific specialty codes related to space acquisition and tracked their career assignments, training, and progression, including those assigned to the NRO. For example, we collected and analyzed data on space acquisition positions and personnel from multiple locations, and conducted discussion groups about topics including education and prior experience with junior and midgrade officers at the Space and Missile Systems Center in California. We made recommendations to DOD to take actions to better manage its limited pool of space acquisition personnel, and DOD generally agreed with our findings and recommendations. Our ability to continue monitoring security clearance-related problems in DOD as well as other parts of the federal government and to provide Congress with information for its oversight role could be adversely affected if the ODNI assumes management responsibility over this area. First, in 2006, OMB's Deputy Director for Management has suggested that the agency's oversight role of the governmentwide security clearance process might be transferred to the ODNI. Alternatively, the ODNI could assume leadership, to some extent, of a new security clearance process that is intended for governmentwide implementation by a team established by the Director of National Intelligence, the Under Secretary of Defense for Intelligence, and OMB's Deputy Director for Management. While we have the legal authority to audit the personnel security clearance area if its oversight is moved to the ODNI or if the Joint Security Clearance Process Reform Team's proposed process is implemented governmentwide, we could face difficulties in gaining the cooperation we need to access the information. Although we have established and maintained a relatively positive working relationship with the ODNI, limitations on our ability to perform meaningful audit and evaluation work persist. Specifically, we routinely request and receive substantive threat briefings and copies of finished intelligence products prepared under the ODNI, and we meet with officials from the ODNI and obtain information about some of their activities. We also receive the ODNI agency comments and security reviews on most of our draft reports, as appropriate. However, since some members of the Intelligence Community have taken the position that the congressional intelligence committees have exclusive oversight authority, we do not audit or evaluate any programs or activities of the ODNI, nor are we able to verify or corroborate factual briefings or information provided. This resistance to providing us access to information has taken on new prominence and is of greater concern in the post-9/11 context, especially since the Director of National Intelligence has been assigned responsibilities addressing issues that extend well beyond traditional intelligence activities. For example, the ODNI and the National Counterterrorism Center refused to provide us security-related cost data for the 2006 Olympic Winter Games in Turin, Italy, although we were provided this type of data in prior reviews of the Olympic Games. If we continue to experience limitation on the types and amounts of information we can obtain from the Intelligence Community, then GAO may not be able to provide Congress with an independent, fact-based evaluation of the new security clearance process during its development and, later, its implementation. Either of these actions could occur without legislation. If the ODNI were to take leadership or oversight responsibilities for governmentwide personnel security clearances, it might be prudent to incorporate some legislative provision to reinforce GAO's access to the information needed to conduct audits and reviews in the personnel security clearance area. Finally, GAO supports S. 82 and we would be well-positioned to provide Congress with an independent, fact-based evaluation of Intelligence Community management reform initiatives with the support of Congress and S. 82. Specifically, S. 82 would, if enacted, reaffirm GAO's authority, under existing statutory provisions, to audit and evaluate financial transactions, programs, and activities of elements of the Intelligence Community, and to access records necessary for such audits and evaluations. GAO has clear audit and access authority with respect to elements of the Intelligence Community, subject to a few limited exceptions. However, since 1988, DOJ and some members of the Intelligence Community have questioned GAO's authority in this area. In addition, for many years, the executive branch has not provided GAO with the level of cooperation needed to conduct meaningful reviews of elements of the Intelligence Community. As previously noted, this issue has taken on new prominence and is of greater concern in the post-9/11 context, especially since the Director of National Intelligence has been assigned responsibilities addressing issues that extend well beyond traditional intelligence activities, such as information sharing. The implications of executive branch resistance to GAO's work in the intelligence area were highlighted when the ODNI refused to comment on GAO's March 2006 report involving the government's information-sharing efforts, maintaining that DOJ had "previously advised" that "the review of intelligence activities is beyond the GAO's purview." We strongly disagree with this view. GAO has broad statutory authorities to audit and evaluate agency financial transactions, programs, and activities, and these authorities apply to reviews of elements of the Intelligence Community. Importantly, S. 82, in reaffirming GAO's authorities, recognizes that GAO may conduct reviews, requested by relevant committees of jurisdiction, of matters relating to the management and administration of elements of the Intelligence Community in areas such as strategic planning, financial management, information technology, human capital, knowledge management, information sharing, organizational transformation and management reforms, and collaboration practices. In recognition of the heightened level of sensitivity of audits and evaluations relating to intelligence sources and methods or covert actions, this bill would restrict GAO audits and evaluations of intelligence sources and methods or covert actions to those requested by the intelligence committees or congressional majority or minority leaders. In addition, in the context of reviews relating to intelligence sources and methods or covert actions, the bill contains several information security-related provisions. The bill includes, for example, provisions (1) requiring GAO to perform our work and use agency documents in facilities provided by the audited agencies; (2) requiring GAO to establish, after consultation with the Select Committee on Intelligence of the Senate and the Permanent Select Committee on Intelligence of the House of Representatives, procedures to protect such classified and other sensitive information from unauthorized disclosure; and (3) limiting GAO's reporting of results of such audits and evaluations strictly to the original requester, the Director of National Intelligence, and the head of the relevant element of the Intelligence Community. In our view, Congress should consider amending the bill language to include the intelligence committees in these reporting provisions when the congressional leadership is the original requester. The reaffirmation provisions in the bill should help to ensure that GAO's audit and access authorities are not misconstrued in the future. One particularly helpful provision in this regard is the proposed new section 3523a(e) of title 31, specifying that no "provision of law shall be construed as restricting or limiting the authority of the Comptroller General to audit and evaluate, or obtain access to the records of, elements of the intelligence community absent specific statutory language restricting or limiting such audits, evaluations, or access to records." This provision makes clear that, unless otherwise specified by law, GAO has the right to evaluate and access the records of elements of the Intelligence Community pursuant to its authorities in title 31 of the United States Code. Chairman Akaka, Senator Voinovich, and Members of the Subcommittee, this concludes my prepared testimony. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. For further information regarding this testimony, please contact Davi M. D'Agostino, Director, Defense Capabilities and Management, at (202) 512- 5431 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 Mark A. Pross, Assistant Director; Tommy Baril; Cristina T. Chaplain; Jack E. Edwards; Brenda S. Farrell; Robert N. Goldenkoff; John P. Hutton; Julia C. Matta; Erika A. Prochaska; John Van Schaik; Sarah E. Veale; and Cheryl A. Weissman. GAO Strategic Plan 2007-2012. GAO-07-1SP. Washington, D.C.: March 2007. High Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, D.C.: October 21, 2005. Defense Management: Key Elements Needed to Successfully Transform DOD Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005. DOD's High-Risk Areas: Successful Business Transformation Requires Sound Strategic Planning and Sustained Leadership. GAO-05-520T. Washington, D.C.: April 13, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. Results-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational Transformations. GAO-03-669. Washington, D.C.: July 2, 2003. Human Capital: Federal Workforce Challenges in the 21st Century. GAO-07-556T. Washington, D.C.: March 6, 2007. Intelligence Reform: Human Capital Considerations Critical to 9/11 Commission's Proposed Reforms. GAO-04-1084T. Washington, D.C.: September 14, 2004. Aviation Security: Federal Air Marshal Service Is Addressing Challenges of Its Expanded Mission and Workforce but Additional Actions Needed. GAO-04-242. Washington, D.C.: November 19, 2003. High-Risk Series: Strategic Human Capital Management. GAO-03-120. Washington, D.C.: January 2003. Human Capital: DOD Needs Better Internal Controls and Visibility over Costs for Implementing Its National Security Personnel System. GAO-07-851. Washington, D.C.: July 16, 2007. Human Capital: Observations on Final Regulations for DOD's National Security Personnel System. GAO-06-227T. Washington, D.C.: November 17, 2005. Human Capital: DOD's National Security Personnel System Faces Implementation Challenges. GAO-05-730. Washington, D.C.: July 14, 2005. Military Operations: Implementation of Existing Guidance and Other Actions Needed to Improve DOD's Oversight and Management of Contractors in Future Operations. GAO-08-436T. Washington, D.C.: January 24, 2008. Federal-Aid Highways: Increased Reliance on Contractors Can Pose Oversight Challenges for Federal and State Officials. GAO-08-198. Washington, D.C.: January 8, 2008. Department of Homeland Security: Improved Assessment and Oversight Needed to Manage Risk of Contracting for Selected Services. GAO-07-990. Washington, D.C.: September 17, 2007. Federal Acquisitions and Contracting: Systemic Challenges Need Attention. GAO-07-1098T. Washington, D.C.: July 17, 2007. Defense Acquisitions: Improved Management and Oversight Needed to Better Control DOD's Acquisition of Services. GAO-07-832T. Washington, D.C.: May 10, 2007. Personnel Clearances: Key Factors to Consider in Efforts to Reform the Security 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. DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 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. DOD Personnel Clearances: DOD Needs to Overcome Impediments to Eliminating Backlog and Determining Its Size. GAO-04-344. Washington, D.C.: Feb. 9, 2004. 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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For decades, GAO has assisted Congress in its oversight role and helped federal departments and agencies with disparate missions to improve the economy, efficiency, and effectiveness of their operations. GAO's work provides important insight on matters such as best practices to be shared and benchmarked and how government and nongovernmental partners can become better aligned to achieve important outcomes for the nation. In addition, GAO provides Congress with foresight by highlighting the long-term implications of today's decisions and identifying key trends and emerging challenges facing our nation before they reach crisis proportions. For this hearing, GAO was asked to (1) highlight governmentwide issues where it has made a major contribution to oversight and could assist the intelligence and other congressional committees in their oversight of the Intelligence Community, and (2) comment on the potential impact on GAO's access to perform audit work on personnel security clearances if the Office of the Director of National Intelligence (ODNI) were to assume management of this issue from the Office of Management and Budget (OMB). Given historical challenges to GAO's ability to audit the Intelligence Community's programs and activities, this testimony also discusses GAO's views on Senate bill S. 82, known as the Intelligence Community Audit Act of 2007. GAO has considerable experience in addressing governmentwide management challenges, including such areas as human capital, acquisition, information technology, strategic planning, organizational alignment, and financial and knowledge management, and has identified many opportunities to improve agencies' economy, efficiency, and effectiveness, and the need for interagency collaboration in addressing 21st century challenges. For example, over the years, GAO has addressed the human capital issues, such as acquiring, developing, and retaining talent; strategic workforce planning; building results-oriented cultures; pay for performance; contractors in the workforce; and personnel security clearances, which affect all federal agencies, including the Intelligence Community. Furthermore, GAO identified delays and other impediments in the Department of Defense's (DOD) personnel security clearance program, which also maintains clearances for intelligence agencies within DOD. GAO designated human capital transformation and personnel security clearances as high-risk areas. GAO also recently issued reports addressing Intelligence Community-related management issues, including intelligence, surveillance, and reconnaissance; space acquisitions; and the space acquisition workforce. If ODNI were to assume management responsibilities over security clearances across the federal government, GAO's ability to continue monitoring this area and provide Congress information for its oversight role could be adversely affected. In 2006, OMB's Deputy Director for Management suggested that OMB's oversight role of the governmentwide security clearance process might be transferred to the ODNI. GAO has established and maintained a relatively positive working relationship with the ODNI, but limitations on GAO's ability to perform meaningful audit and evaluation work persist. While GAO has the legal authority to audit the personnel security clearance area, if the ODNI were to assume management responsibilities over this issue, then it may be prudent to incorporate some legislative provision to reinforce GAO's access to information needed to conduct such audits and reviews. GAO supports S. 82 and believes that if it is enacted, the agency would be well-positioned to assist Congress in oversight of Intelligence Community management reforms. S. 82 would reaffirm GAO's existing statutory authority to audit and evaluate financial transactions, programs, and activities of elements of the Intelligence Community, and to access records necessary for such audits and evaluations. GAO has clear audit and access authority with respect to elements of the Intelligence Community, subject to a few limited exceptions. However, for many years, the executive branch has not provided GAO the level of cooperation needed to conduct meaningful reviews of elements of the Intelligence Community. This issue has taken on new prominence and is of greater concern in the post-9/11 context, especially since the ODNI's responsibilities extend well beyond traditional intelligence activities. The reaffirmation provisions in the bill should help to ensure that GAO's audit and access authorities are not misconstrued in the future.
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The use of information technology (IT) to electronically collect, store, retrieve, and transfer clinical, administrative, and financial health information has great potential to help improve the quality and efficiency of health care and is important to improving the performance of the U.S. health care system. Historically, patient health information has been scattered across paper records kept by many different caregivers in many different locations, making it difficult for a clinician to access all of a patient's health information at the time of care. Lacking access to these critical data, a clinician may be challenged to make the most informed decisions on treatment options, potentially putting the patient's health at greater risk. The use of electronic health records can help provide this access and improve clinical decisions. As we have previously noted, electronic health records are particularly crucial for optimizing the health care provided to military personnel and veterans. While in military status and later as veterans, many DOD and VA patients tend to be highly mobile and have health records residing at multiple medical facilities within and outside the United States. Making such records electronic can help ensure that complete health care information is available for most military service members and veterans at the time and place of care, no matter where it originates. Key to making health care information electronically available is interoperability--that is, the ability to share data among health care providers. Interoperability enables different information systems or components to exchange information and to use the information that has been exchanged. This capability is important because it allows patients' electronic health information to move with them from provider to provider, regardless of where the information originated. If electronic health records conform to interoperability standards, they can be created, managed, and consulted by authorized clinicians and staff across more than one health care organization, thus providing patients and their caregivers the necessary information required for optimal care. Paper- based health records--if available--also provide necessary information, but unlike electronic health records, do not provide decision support capabilities, such as automatic alerts about a particular patient's health, or other advantages of automation. Interoperability depends on the use of agreed-upon standards to ensure that information can be shared and used. In the health IT field, standards may govern areas ranging from technical issues, such as file types and interchange systems, to content issues, such as medical terminology. DOD and VA have agreed upon numerous common standards that allow them to share health data. They have also participated in numerous standards- setting organizations tasked to reach consensus on the definition and use of standards. For example, DOD and VA officials serve as members and are actively working on several committees and groups within the Healthcare Information Technology Standards Panel. The panel identifies and harmonizes competing standards and develops interoperability specifications that are needed for implementing the standards. Interoperability can be achieved at different levels. At the highest level, electronic data are computable (that is, in a format that a computer can understand and act on to, for example, provide alerts to clinicians on drug allergies). At a lower level, electronic data are structured and viewable, but not computable. The value of data at this level is that they are structured so that data of interest to users are easier to find. At still a lower level, electronic data are unstructured and viewable, but not computable. With unstructured electronic data, a user would have to find needed or relevant information by searching uncategorized data. Beyond these, paper records also can be considered interoperable (at the lowest level) because they allow data to be shared, read, and interpreted by human beings. According to DOD and VA officials, not all data require the same level of interoperability, nor is interoperability at the highest level achievable in all cases. For example, unstructured, viewable data may be sufficient for such narrative information as clinical notes. Figure 1 shows the distinction between the various levels of interoperability and examples of the types of data that can be shared at each level. DOD and VA have been working to exchange patient health information electronically since 1998. We have previously noted their efforts on three key projects: The Federal Health Information Exchange (FHIE), begun in 2001 and enhanced through its completion in 2004, enables DOD to electronically transfer service members' electronic health information to VA when the members leave active duty. The Bidirectional Health Information Exchange (BHIE), established in 2004, was aimed at allowing clinicians at both departments viewable access to records on shared patients--that is, those who receive care from both departments. For example, veterans may receive outpatient care from VA clinicians and be hospitalized at a military treatment facility. The interface also allows DOD sites to see previously inaccessible data at other DOD sites. The Clinical Data Repository/Health Data Repository (CHDR) interface, implemented in September 2006, linked the departments' separate repositories of standardized data to enable a two-way exchange of computable health information. These repositories are a part of the modernized health information systems that the departments have been developing--DOD's AHLTA and VA's HealtheVet. In their ongoing initiatives to share information, VA uses its integrated medical information system--the Veterans Health Information Systems and Technology Architecture (VistA)--which was developed in-house by VA clinicians and IT personnel. All VA medical facilities have access to all VistA information. DOD currently relies on its AHLTA, which is comprised of multiple legacy medical information systems that the department developed from commercial software products that were customized for specific uses. For example, CHCS, which was formerly DOD's primary health information system, is still in use to capture pharmacy, radiology, and laboratory order management. In addition, the department uses Essentris (also called the Clinical Information System), a commercial health information system customized to support inpatient treatment at military medical facilities. Not all of DOD's medical facilities yet have this inpatient medical system. To facilitate compliance with the act, the Interagency Clinical Informatics Board, made up of senior clinical leaders from both departments who represent the user community, began establishing priorities for interoperable health data between DOD and VA. In this regard, the board is responsible for determining clinical priorities for electronic data sharing between the departments, as well as what data should be viewable and what data should be computable. Based on its work, the board established six interoperability objectives for meeting the departments' data sharing needs. According to the former acting director of the interagency program office, DOD and VA consider achievement of these six objectives, in conjunction with capabilities previously achieved (e.g., FHIE, BHIE, CHDR), to be sufficient to satisfy the requirement for full interoperability by September 2009. The six objectives are listed in table 1. Our prior reports on DOD's and VA's efforts to develop fully interoperable electronic health records noted their progress and highlighted issues that they needed to address to achieve electronic health record interoperability. Specifically, our July 2008 report noted that the departments were sharing some, but not all, electronic health information at different levels of interoperability. At that time the departments' efforts to set up the interagency program office were in the early stages. Leadership positions in the office were not permanently filled, staffing was not complete, and facilities to house the office had not been designated. Accordingly, we recommended that the Secretaries of Defense and Veterans Affairs expedite efforts to put in place permanent leadership, staff, and facilities for the program office. The departments agreed with our recommendations and stated that they would take actions to address them. Our January 2009 report noted that the departments had defined plans to further increase their sharing of electronic health information; however, the plans did not contain results-oriented (i.e., objective, quantifiable, and measurable) performance goals and measures that could be used as a basis to track and assess progress. We recommended the departments develop and document such goals and performance measures for the six interoperability objectives, to use as the basis for future assessments and reporting of interoperability progress. DOD and VA agreed with our recommendation and stated that the departments intended to include results-oriented goals in their future plans. DOD and VA continue to take steps toward achieving full interoperability in compliance with applicable standards by September 30, 2009. In this regard, the departments have achieved planned capabilities for three of the interoperability objectives--refine social history data, share physical exam data, and demonstrate initial network gateway operation. The following information further explains DOD's and VA's activities with respect to these three objectives. Refine social history data: The departments established this objective to enable DOD to share social history data captured in its electronic health record with VA. These data describe, for example, patients' involvement in hazardous activities and tobacco and alcohol use. Our review of DOD and VA project documentation confirmed that the departments have achieved sharing of viewable social history data, thus providing VA with additional clinical information on shared patients that clinicians could not previously view. Share physical exam data: The departments established this objective to implement an initial capability for DOD to share with VA the electronic health record information that supports the physical exam process when a service member separates from active military duty. To this end, the departments achieved the capability for VA to view DOD's medical exam data through the BHIE interface, allowing VA to view outpatient treatment records, pre- and postdeployment health assessments, and postdeployment health reassessments, which are compiled for the DOD physical exam. Demonstrate initial network gateway operation: DOD and VA want to demonstrate the operation of secure network gateways to support health information sharing between the departments. These gateways are to support health record data exchange, thus facilitating future growth in data sharing. As of early July 2009, the departments reported that five network gateways were operational and that data migration to two of the operational gateways had begun. The departments believed these five gateways satisfy the intent of the objective and will provide sufficient capacity to support health information sharing between DOD and VA as of September 2009. The officials stated, however, that they anticipate needing up to four additional gateways to support future growth in information sharing between the departments at locations and dates that are to be determined. For the remaining three objectives, the departments have partially achieved planned capabilities, with additional work needed to fully meet the objectives. Regarding the objective to expand questionnaires and self- assessment tools, this additional work is intended to be completed by September 2009. With respect to the objectives to expand Essentris and demonstrate initial document scanning, department officials stated that they also intend to meet these objectives; however, additional work will be required beyond September to perform all the activities necessary to meet clinicians' needs for health information. The following information further explains the departments' activities with respect to these objectives. Expand questionnaires and self-assessment tools: The departments intend to provide all periodic health assessment data stored in the DOD electronic health record to VA in a format that associates questions with responses. Health assessment data are collected from two sources: questionnaires administered at military treatment facilities and a DOD health assessment reporting tool that enables patients to answer questions about their health upon entry into the military. Questions relate to a wide range of personal health information, such as dietary habits, physical exercise, and tobacco and alcohol use. Our review of the departments' project documentation determined that they have established the capability for VA to view questions and answers from the questionnaires collected by DOD at military treatment facilities; however, they have not yet established the capability for VA to view information from DOD's health assessment reporting tool. Department officials stated that they intend to establish this additional capability by September 2009. Expand Essentris in DOD: By September 30, 2009, DOD intends to expand Essentris to at least one additional site for each military service and to increase the percentage of inpatient discharge summaries that it shares electronically with VA to 63 percent. According to the acting director of the interagency program office, as of late June 2009, the departments had expanded the system to two Army sites (but not yet to an Air Force or Navy site) and were sharing 58 percent of inpatient discharge summaries. The acting director stated that the departments expect to meet their goal of sharing 63 percent of inpatient discharge summaries and expand the system to an Air Force and a Navy site by the September deadline. Nonetheless, the official stated that to better meet clinicians' needs, DOD plans to further expand the inpatient medical records system. In this regard, the department has established a revised goal of making the inpatient system operational for 92 percent of DOD's inpatient beds by September 2010. Demonstrate initial document scanning: The departments intend to demonstrate an initial capability to scan service members' medical documents into the DOD electronic health record and share the documents electronically with VA by September 2009. According to the program office acting director, the departments were in the process of setting up an interagency test environment to test the initial capability to query medical documents associated with specific patients as of late June 2009. He stated that the departments expect to begin user testing at up to nine sites by September 2009. According to this official, these activities are expected to demonstrate initial document scanning capability. However, after September, the departments anticipate performing additional work to expand their initial document scanning capability (e.g., completion of user testing and deployment of the scanning capability at all DOD sites). The DOD/VA Interagency Program Office is not yet effectively positioned to serve as a single point of accountability for the implementation of fully interoperable electronic health record systems or capabilities. Since we last reported in January 2009, the departments have made progress in setting up the office by hiring additional staff, although they continue to fill key leadership positions on an interim basis. In addition, the office has begun to demonstrate responsibilities outlined in its charter, but is not yet fulfilling key IT management responsibilities in the areas of performance measurement, scheduling, and project planning. To address the requirements set forth in the act, the departments identified in the September 2008 DOD/VA Information Interoperability Plan a schedule and key activities for setting up the interagency program office. Since we last reported in January 2009, the departments have completed all but one of the activities identified in their schedule. For example, they have completed personnel descriptions for the office's staff and have continued efforts to recruit and hire staff for both government and contractor positions. As of early July 2009, the departments had selected staff members for 10 of 14 government positions, an increase of 8 staff since our last report. The acting director of the office reported that recruitment efforts were underway to fill the remaining 4 positions by late September 2009. Further, all 16 contractor positions had been filled, an increase of 10 contractor staff since we last reported. Table 2 provides the status of selected key activities to establish the interagency program office. However, while the departments have taken action toward hiring a full- time permanent director and a deputy director to lead the office, these positions continue to be filled on an interim basis. As of early July, DOD had selected a candidate for the director position, VA had concurred with the selection, and the candidate's application had been sent to the Office of Personnel Management for approval. In the meantime, the departments requested and received an extension of the current acting director's appointment until September 30, 2009, or until a permanent official is hired. Further, as of late June 2009, interagency program officials stated that actions were underway to fill the deputy director position and that VA was interviewing candidates for this position. According to the acting director, the departments anticipate making a selection for the deputy director position by the end of July 2009. The January 2009 interagency program office charter describes, among other things, the mission and function of the office associated with attaining interoperable electronic data. The charter further identifies responsibilities of the office in carrying out its mission, in areas such as oversight and management, stakeholder communication, and decision making. The office has taken steps toward fulfilling certain responsibilities described in its charter. For example, the office submitted its first annual report to Congress that summarized the departments' efforts toward achieving full interoperability and the status of key activities completed to set up the office. Further, the office developed 11 standard operating procedures in areas such as program management oversight, strategic communications, and process improvement. However, the office has yet to carry out other key responsibilities identified in its charter that are fundamental to effective IT program management and that would be essential to effectively serving as the single point of accountability. For example, the office has not yet established results-oriented (i.e., objective, quantifiable, and measurable) goals and performance measures for all six interoperability objectives--an action that we previously recommended that DOD and VA undertake. Using results-oriented metrics to measure progress is an important IT program management activity because they can serve as a basis to provide meaningful information on the status of a program. As noted earlier, DOD and VA agreed with our recommendation calling for the establishment of results-oriented performance goals and measures. Further, the program office charter identifies the development of metrics to monitor the departments' performance against interoperability goals as a responsibility of the office. Nonetheless, the office has only developed such a goal for one interoperability objective--expand Essentris in DOD. It has not developed results-oriented goals and measures for the other five objectives, instead stating that such goals and measures will be included in the next version of the DOD/VA Joint Executive Council Joint Strategic Plan (known as the joint strategic plan), which the office expects to complete by December 2009. If the departments complete the development of results-oriented performance goals and measures for their interoperability objectives, they will be better positioned to gauge their progress toward achieving fully interoperable capabilities and improving veterans' health care. Development of an integrated master schedule is also a key IT program management activity, especially given the complexity of the departments' efforts to achieve full interoperability. According to DOD guidance, an integrated master schedule should identify detailed project tasks and the associated start, completion, and interim milestone dates; resource needs; and relationships (e.g., sequence and dependencies) between tasks. While the program office has begun to develop an integrated master schedule as required by its charter, the current version does not include the attributes of an effective schedule. For example, the schedule included limited information for three of the six interoperability objectives (i.e., refine social history data, share physical exam data, and expand questionnaires and self-assessment tools). Specifically, the schedule included the name of each objective and a completion date of September 30, 2009. However, the schedule contained no information on tasks to be performed to meet the objectives. Further, the schedule did not reflect start dates, resource needs, or relationships between tasks for any of the six interoperability objectives. Without a complete and detailed integrated master schedule, the departments are missing another key activity that could be useful in determining their progress towards achieving full interoperability. Similarly, development of a project plan is an important activity for IT program management. Industry best practices and IT project management principles stress the importance of sound planning for any project. Inherent in such planning is the development and use of a project management plan that describes, among other factors, the project's scope, resources, and key milestones. The interagency program office charter identifies the need to develop a project plan, but, as of late June 2009, the office had not yet done so. Without a project plan, the departments lack a key tool that could be used to guide their efforts in achieving full interoperability. In discussing these activities, the program office's acting director and former acting director cited three reasons for why performance measurement, scheduling, and project planning responsibilities had not been accomplished. First, they stated that because it has taken longer than anticipated to hire staff, the office has not been able to perform all of its responsibilities. Second, the office's interim leadership and staff have focused their efforts on providing to interested parties (e.g., federal agencies and military organizations) briefings, presentations, and status information on activities the office is undertaking to achieve interoperability, in addition to participating in efforts to develop a strategy for implementation of the Virtual Lifetime Electronic Record, which the President announced in April 2009. Finally, according to the officials, the office waited until June 2009 to begin the process of developing metrics so that they could do so in conjunction with the departments' annual update to the joint strategic plan that is scheduled for completion in late 2009. However, without metrics to monitor progress, a complete integrated master schedule, and a project plan, the interagency program office's ability to effectively provide oversight and management, including meaningful progress reporting on the delivery of interoperable capabilities, is jeopardized. Moreover, in the absence of these critical activities, the office is not effectively positioned to function as the single point of accountability for achieving full interoperability. DOD and VA have continued to increase electronic health information interoperability. In particular, the departments have taken steps to meet their six interoperability objectives by September 30, 2009. However, for two of the six interoperability objectives, the departments subsequently plan to perform significant additional activities that are necessary to meet clinicians' needs. Further, the departments' lack of progress in establishing fundamental IT management capabilities that are specific responsibilities of the interagency program office contributes to uncertainty about the extent to which the departments will progress toward achievement of full interoperability by the deadline. While the departments have generally made progress toward making the program office operational, the office has not yet completed a project plan or a detailed integrated master schedule. Without these important tools, the office is limited in its ability to effectively manage and provide meaningful progress reporting on the delivery of interoperable capabilities that are intended to improve the quality of health care provided to our nation's veterans. To better improve management of DOD's and VA's efforts to achieve fully interoperable electronic health record systems, including satisfaction of the departments' interoperability objectives, we recommend that the Secretaries of Defense and Veterans Affairs direct the Director of the DOD/VA Interagency Program Office to establish a project plan and a complete and detailed integrated master schedule. In written comments on a draft of this report, the DOD official who is performing the duties of the Assistant Secretary of Defense (Health Affairs) and the Acting Director of the DOD/VA Interagency Program Office concurred with our findings and recommendation. The VA Chief of Staff also provided written comments, in which the department concurred with our recommendation. In this regard, DOD and VA stated that they will provide the necessary information for the DOD/VA Interagency Program Office to establish a project plan and to complete a detailed integrated master schedule. If the recommendation is properly implemented, it should better position DOD and VA to effectively measure and report progress in achieving full interoperability. Beyond its concurrence with the recommendation, the VA Chief of Staff stated that the department disagreed with the report's characterization of the six interoperability objectives and expressed concern about the report projecting that the objective to demonstrate initial document scanning would not be completed by the September 30, 2009 deadline. Specifically, VA stated that our report portrayed the six interoperability objectives as the necessary steps to achieving full interoperability, even though the departments consider the objectives to be just one component of achieving full interoperability, along with existing data exchange capabilities. However, in discussing the objectives, we stated that according to the former acting director of the interagency program office, the departments consider achievement of the six objectives, in conjunction with capabilities previously achieved (e.g., FHIE, BHIE, CHDR), to be sufficient to satisfy the requirement for full interoperability by September 2009. With respect to the objective to demonstrate initial document scanning, the Chief of Staff stated that our report projects that the objective will not be met by the September deadline. However, while our report states that according to the acting program office director, additional work will be required beyond September to perform all the activities necessary to meet clinicians' needs related to document scanning, we did not report that the departments would not meet this objective by the September deadline. In fact, our report noted that according to this official the departments expect to begin user testing at up to nine sites by September 2009, and that these activities are expected to demonstrate initial document scanning capability. Nonetheless, we revised our report as appropriate, in an attempt to more clearly reflect the departments' intent with regard to this objective. DOD, VA, and the interagency program office also provided technical comments on the draft report, which we incorporated as appropriate. The departments and the DOD/VA Interagency Program Office comments are reproduced in app. II, app. III, and app. IV, respectively. We are sending copies of this report to the Secretaries of Defense and Veterans Affairs, appropriate congressional committees, and other interested parties. In addition, the report is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have questions about this report, please contact me at (202) 512-6304 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V. To evaluate the Department of Defense's (DOD) and Veterans Affairs' (VA) progress toward developing electronic health record systems or capabilities that allow for full interoperability of personal health care information, we reviewed our previous work on DOD and VA efforts to develop health information systems, interoperable health records, and interoperability standards to be implemented in federal health care programs. We obtained and analyzed agency documentation and interviewed program officials to determine DOD's and VA's progress towards achieving full interoperability by September 30, 2009, as required by the National Defense Authorization Act for Fiscal Year 2008. We also analyzed information gathered from agency documentation to identify interoperability objectives, milestones, and target dates for ongoing and planned interoperability initiatives whose target dates extend beyond September 30, 2009. In addition, through interviews with cognizant DOD and VA officials, we obtained and assessed information regarding the departments' plans for achieving full interoperability of electronic health information. To determine whether the interagency program office is positioned to serve as a single point of accountability for developing and implementing electronic health records, we obtained and reviewed program office documentation, including its charter and standard operating procedures. We compared the responsibilities identified in the charter with actions taken by the office to exercise the responsibilities. Additionally, we interviewed interagency program office officials to determine the status of filling leadership and staffing positions within the office. We conducted this performance audit at DOD and VA locations in the greater Washington, D.C., metropolitan area from April through July 2009, 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, key contributions to this report were made by Mark Bird, Assistant Director; Rebecca Eyler; Lee McCracken; Michael Redfern; J. Michael Resser; Kelly Shaw; Eric Trout; and Merry Woo.
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The National Defense Authorization Act for Fiscal Year 2008 required the Department of Defense (DOD) and the Department of Veterans Affairs (VA) to accelerate their exchange of health information and to develop systems or capabilities that allow for interoperability (generally, the ability of systems to exchange data) by September 30, 2009. It also required compliance with federal standards and the establishment of a joint interagency program office to function as a single point of accountability for the effort. Further, the act directed GAO to semiannually report on the progress made in achieving these requirements. For this third report, GAO evaluated (1) the departments' progress and plans toward sharing fully interoperable electronic health information that comply with federal standards and (2) whether the interagency program office is positioned to function as a single point of accountability. To do so, GAO analyzed agency documentation on project status and conducted interviews with agency officials. DOD and VA have taken steps to meet six objectives that they identifiedforachieving full interoperability in compliance with applicable standards (see table) by September 30, 2009. Specifically, the departments have achieved planned capabilities for three of the objectives--refine social history data, share physical exam data, and demonstrate initial network gateway operation. For the remaining three objectives, the departments have partially achieved planned capabilities, with additional work needed to fully meet the objectives. Regarding the objective to expand questionnaires and self-assessment tools, this additional work is intended to be completed by the deadline. The departments' officials have stated that they intend to meet the objectives to expand DOD's inpatient medical records system and demonstrate initial document scanning; however, additional work will be required beyond September to perform all the activities necessary to meet clinicians' needs for health information. The DOD/VA Interagency Program Office is not yet effectively positioned to function as a single point of accountability for the implementation of fully interoperable electronic health record systems or capabilities between DOD and VA. While the departments have made progress in setting up the office by hiring additional staff, they continue to fill key leadership positions on an interim basis. Further, while the office has begun to demonstrate responsibilities outlined in its charter, it is not yet fulfilling key information technology management responsibilities in the areas of performance measurement (as GAO previously recommended), project planning, and scheduling, which are essential to establishing the office as a single point of accountability for the departments' interoperability efforts.
| 5,935 | 512 |
During calendar year 2010, HHS had 6,697 employees who were appointed under sections 209(f) or (g).served at the National Institutes of Health (NIH), the Food and Drug Administration (FDA), or the Centers for Disease Control and Prevention (CDC), while the remaining employees served in the Office of the Secretary or within other operating divisions, as shown in figure 1. Congress provided EPA with the authority to use Title 42 to employ up to 30 persons at any one time through fiscal year 2015. At the time of our study, EPA had appointed 17 fellows in its Office of Research and Development from 2006 to 2011 under section 209(g) and all 17 fellows remained with EPA. Appointments for the three fellows hired in 2006 have been renewed for another 5-year term. Figure 2 shows the cumulative onboard Title 42 staff, by new hire or conversion. According to EPA officials, the agency has identified mission critical personnel needs and is actively recruiting to fill the 13 remaining authorized Title 42 positions. The agency has no plans to use authority under section 209(f) at this time, but may consider it in the future. Officials told us EPA would need to develop guidance for implementing section 209(f) before using the authority. Title 42 fellows at EPA lead scientific research initiatives, are considered experts in the related scientific discipline, and some manage or direct a division or office. According to EPA officials, Title 42 provides two important tools EPA needs to achieve its mission: (1) the flexibility to be competitive in recruiting top experts who are also sought after by other federal agencies, private industry, and academia; and (2) the appointment flexibility needed to align experts with specific skills to changing scientific priorities. EPA officials stated it is not the agency's intention to hire a fellow long-term under Title 42, but rather employ the individual as long as a priority remains high. Annual salaries for Title 42 fellows at EPA range from approximately $153,000 to $216,000, with an average salary of about $176,000 and a median salary of about $171,000. As shown in table 4, 15 of the 17 EPA fellows had salaries exceeding Executive Level IV. In December 2010, EPA began a pilot of using market salary data to estimate salaries of what Title 42 candidates could earn in positions outside of government given their education, experience, professional standing, and other factors. EPA used the market salary data to inform salary negotiations for the five fellows appointed since the implementation of the pilot. According to EPA officials, the market salary pilot concludes in December 2012 and its effect will be analyzed at that time. In appointing Title 42 fellows, EPA generally followed appointment guidance described in its Title 42 Operations Manual. EPA could, however, improve procedures for resolving potential conflicts of interest. We conducted 10 case file reviews of EPA Title 42 employees and in two cases we reviewed, employees had potential conflict of interest situations arise after appointment resulting, in part, from the agency's failure to ensure Title 42 employees followed agreed upon ethics requirements. EPA acknowledged it could improve its postappointment ethics oversight and reported it has plans to ensure that Title 42 employees follow requirements such as submitting confirmation of stock divestitures to its General Counsel, for example, and other ethics requirements. However, at the time of our review, EPA had not provided us with implementation plans or timeframes for its improved oversight. To address this issue, we recommended that EPA, as part of its efforts to improve postappointment ethics oversight, develop and document a systematic approach for ensuring Title 42 employees are compliant with ethics requirements after appointment. EPA disagreed with our recommendation, citing certain actions already taken, such as a plan to require proof of compliance with ethics agreements. We acknowledged EPA's plans to address these issues, but maintained the recommendation was needed to ensure implementation because the two ethics issues we reported occurred over 2 years ago. Our legal opinion, issued on July 11, 2012, responded to a Congressional request for our views on whether there are statutory caps on pay for consultants and scientists appointed pursuant to 42 U.S.C. SSSS 209(f) or (g). We concluded that an appropriations law provision enacted as part of the Fiscal Year 1993 Labor-HHS-Education Appropriations Act established a permanent appropriation cap on the pay of individuals appointed on a limited-time basis under 42 U.S.C. SSSS 209(f) or (g) at agencies funded through that Act. With regard to individuals not subject to this cap, we concluded further that two other pay limitations set forth in Title 5 of the U.S. Code that we considered do not apply to appointments made pursuant to 42 U.S.C. SSSS 209(f) or (g). Federal pay systems are extremely complex, and we encountered challenges in attempting to resolve ambiguities arising from pay laws enacted at different times over nearly 70 years. Sections 209(f) and (g) of title 42 were enacted in 1944 and have not been amended since that time. There have, however, been many significant changes in related laws and regulations that were relevant to our consideration of the issues raised. Consequently, we conducted extensive research of legislative history to aid in our understanding of congressional actions and the interplay of the laws addressed below, and examined regulations issued pursuant to these provisions over the last 65 years. We also solicited the views of HHS, the Office of Personnel Management (OPM), and the EPA. The appropriations for each fiscal year from 1957 through 1993 included a cap on pay for "consultants or individual scientists appointed for limited periods of time" (underscoring added) pursuant to 42 U.S.C. SSSS 209(f) or (g). The appropriations for fiscal year 1993 established a permanent cap on such compensation, providing that pay may be set at rates not to exceed "the per diem rate equivalent to the maximum rate payable for senior-level positions under 5 U.S.C. SS 5376." This cap currently limits base pay to $155,500. Our review of the legislative history of the first appropriation to contain the limit indicated that it was enacted due to other restrictions in law on compensation as an increase over then-existing pay authority. We considered the meaning of the phrase "for limited periods of time," which has appeared in all of the relevant appropriations provisions from 1956 to 1993. In 1956, when this language was first included in the appropriations law, the Public Health Service's regulations included time limitations on employment. Thus the time limit generally applied to all consultant appointments made under section 209(f) beginning in 1947, when the regulation containing the limit was first promulgated, unless "special circumstances" led the administrator to approve an extension. Further, the limit was in effect in 1956, when the first appropriations law provision referring to consultants appointed for "limited periods of time" was enacted. However, this time limitation was removed from the regulations in 1966. 31 Fed. Reg. 12,939 (Oct. 5, 1966). Therefore, the appropriations pay cap applied to all section 209(f) consultants from 1956 until HHS changed the regulations in 1966 allowing for the hiring of consultants for indefinite periods. Although the regulations implementing section 209(f) no longer included a time limitation on the employment of special consultants after 1966, the appropriations provisions for 1967 and subsequent years, using virtually identical language each year, imposed a cap only on pay of "consultants or individual scientists appointed for limited periods of time pursuant to ." The appropriations restriction did not impose any cap on pay for those consultants whose appointments were not limited in time. As a result, after the 1966 regulations were promulgated and continuing to the present, HHS has employed two categories of consultants: those appointed for limited periods of time, to whom the pay cap applies, and consultants appointed for indefinite periods, to whom the pay cap does not apply. Importantly, the appropriations pay restriction is applicable only to payments made from Labor-HHS-Education Appropriations Acts. Three components of the Public Health Service (the Agency for Toxic Substances and Disease Registrations, the Food and Drug Administration, and the Indian Health Services) are funded by appropriations acts other than the Labor-HHS-Education Appropriations Act, and are not covered by a restriction on funds appropriated under that Act. Thus, we concluded that there is a cap of Executive Level IV on the pay of consultants and scientists employed for limited periods of time pursuant to 42 U.S.C. SSSS 209(f) or (g) in all but three of the Public Health Service Agencies. With respect to individuals not covered by the appropriation cap, we examined the applicability of two pay limitations found in title 5: section 3109, which limits pay for consultants "procure" on a temporary or intermittent basis, and section 5373, which limits pay fixed by administrative action. Section 3109, enacted in 1946, establishes specific legal parameters, including a pay cap and a limit on appointment duration, governing the employment of experts or consultants whose appointment must be authorized by an "appropriation or other statute." That pay cap applies unless a different cap is authorized by the appropriation or another statute. Beginning in 1956, Congressional actions signaled that section 3109 did not apply to section 209(f) appointments. From1956 and continuing until 1993, Congress enacted provisions yearly in appropriations acts that set a cap (which may or may not have been higher than that found in section 3109 in any given year) for all those appointed pursuant to sections 209(f) or (g) for a limited period of time and funded out of the Labor-HHS- Education Appropriations Act. From fiscal year 1970 until the provisions became permanent in fiscal year 1993, the appropriations acts for HHS contained separate provisions placing identical compensation limits for experts and consultants subject to 5 U.S.C. SS 3109, and for consultants and scientists appointed for limited periods of time pursuant to 42 U.S.C. SSSS 209(f) or (g). Identical provisions would have been unnecessary if Congress believed that the limitations in 5 U.S.C. SS 3109 would apply to 42 U.S.C. SSSS 209(f) and (g) consultants or scientists. Further, in 1992, Congress added subsection (d) to section 3109. It directs OPM to prescribe regulations necessary to administer section 3109. OPM subsequently issued regulations which provide that section 3109 does not apply to the appointment of experts or consultants under other authorities. 5 C.F.R. SS 304.101. It also informed us that it "does not consider the cap under 5 U.S.C. SS 3109 to apply to consultants under 42 U.S.C. SS 209(f)." This interpretation is entitled to considerable weight since OPM is the agency charged with administering section 3109. Based on our review, we found that Congress had not spoken directly on the applicability of section 3109 to the authorities in 42 U.S.C. 209(f) and (g) and that OPM's interpretation was reasonable. Therefore, we concluded that the provisions of section 3109 do not apply to consultants employed pursuant to 42 U.S.C. SS 209(f). The other pay cap that we considered is found in section 5373 of title 5 of the United States Code, which places limits on pay fixed by administrative action. Pay fixed by administrative action refers to the various pay-setting authorities in which pay is determined by the agency instead of pursuant to pay rates under otherwise applicable statutory pay systems, such as the General Schedule. Congress first enacted section 5373 in 1964, 20 years after it passed sections 209(f) and (g). Section 5373 limits pay set by administrative action to no more than the rate for level IV of the Executive Schedule, and lists specific pay authorities which are excepted from coverage. The rate for level IV of the Executive Schedule is currently $155,500 per year. 42 U.S.C. SSSS 209(f) and (g) are not among the authorities explicitly excepted from section 5373. We looked at multiple issues in determining that the section 5373 cap does not apply to 42 U.S.C. SSSS 209(f) or (g) appointees. We found no evidence that Congress had considered the section 209 authorities when the administrative pay cap was enacted. Sections 209(f) and (g) allow for compensation "without regard to the Classification Act of 1923." We parsed laws enacted in 1923 and later to see if this language should be interpreted to create an exemption from section 5373, which of course was enacted over 40 years after the Classification Act of 1923, and after several additional pay laws had also been enacted. Finally, we looked at Congressional action in appropriations passed from 1964 through 1993, and in extending section 209 authority to EPA in 2005 and in 2009. These Congressional actions led us to believe that it did not intend for the 5 U.S.C. SS 5373 pay cap to apply to consultants and scientists hired pursuant to 42 U.S.C. SSSS 209(f) and (g). Given the evidence of how Congress viewed the authority, we did not object to HHS's interpretation that the 1993 appropriations cap is the only restriction on its authority to compensate individuals appointed under 42 U.S.C. SSSS 209(f) or (g). In conclusion, with respect to the first issue, the 1993 appropriations act unequivocally limits the pay of consultants and scientists appointed for limited periods of time pursuant to 42 U.S.C. SSSS 209(f) or (g) at agencies that are funded by Labor-HHS-Education Appropriations Acts. With regard to the two title 5 limitations, we think that the pay limitations do not apply to appointments made pursuant to 42 U.S.C. SSSS 209(f) or (g). The statutory pay provisions we analyzed, as mentioned earlier, were enacted over the course of nearly 70 years, and are in different federal pay systems. As one court has observed, "although some pay systems are 'linked' to one another," they have not been "fastidiously integrated" to achieve uniform federal compensation policies." In this case, the issues raised - in particular the applicability of the two title 5 limitations on the title 42 authority to hire special consultants and fellows - reflect the difficulty of applying distinct statutory schemes to determine whether specific pay limits apply. Thus if Congress desires upper pay limits for appointments under sections 209(f) and (g), it may wish to consider amending these provisions to specifically establish such limits. Both HHS and EPA have used Title 42 to recruit and retain highly skilled, in-demand personnel to government service in order to execute their missions. At the same time, HHS's lack of complete data and guidance on its use of Title 42 may limit the agency's ability to strategically manage its use and provide oversight of the authority. Effective monitoring of the use of Title 42 is particularly important in light of HHS's increasing use of the authority and the number of employees earning salaries higher than most federal employees. EPA generally followed its Title 42 policies and has incorporated some modifications to improve its appointment and compensation practices; however, EPA's current ethics guidance does not sufficiently ensure Title 42 employees meet ethics requirements after appointment. EPA acknowledged it could improve its post-appointment ethics oversight and reported it has plans to ensure that Title 42 employees send its General Counsel confirmation of stock divestitures and other ethics requirements. However, at the time of our review, EPA had not provided us with implementation plans or timeframes. Although its plans appear to be prudent steps for addressing the specific issues that arose in the cases we reported, it will be important for EPA to implement them as soon as possible to mitigate the risk of future potential conflict of interest issues. Going forward, our recommendations to HHS and EPA to strengthen certain practices under Title 42, if implemented, should help strengthen the management and oversight of this special hiring authority. Chairman Pitts, Ranking Member Pallone, and Members of the Subcommittee, this completes our prepared statement. We would be pleased to respond to any questions you or others may have at this time. For further information regarding this statement, please contact Robert Cramer, Managing Associate General Counsel, at (202) 512-7227, or [email protected], or Robert Goldenkoff, Director, Strategic Issues, at (202) 512-2757, or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Trina Lewis, Assistant Director; Shea Bader, Analyst-In- Charge; Dewi Djunaidy; Karin Fangman; and Sabrina Streagle. 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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HHS and EPA have been using special hiring authority provided under 42 U.S.C. SSSS209(f) and (g)referred to in this testimony as Title 42to appoint individuals to fill mission critical positions in science and medicine and, in many cases, pay them above salary limits usually applicable to federal government employees. GAO was asked to review the extent to which HHS and EPA have (1) used authority under Title 42 to appoint and compensate employees since 2006, and (2) followed applicable agency policy, guidance, and internal controls for appointments and compensation. GAO was also asked to determine if there are statutory caps on pay for consultants and scientists appointed pursuant to Title 42. This testimony is based on GAOs July 2012 report (GAO-12-692) and a legal opinion on whether there are statutory caps on pay for consultants and scientists appointed pursuant to 42 U.S.C. SSSS 209(f) or (g). (B-3223357) The Department of Health and Human Services' (HHS) use of special hiring authorities under 42 U.S.C. SSSS 209(f) and (g) has increased in recent years, from 5,361 positions in 2006 to 6,697 positions in 2010, an increase of around 25 percent. Nearly all HHS Title 42 employees work in one of three HHS operating divisions: the National Institutes of Health (NIH), the Food and Drug Administration (FDA), and the Centers for Disease Control and Prevention (CDC). Title 42 employees at HHS serve in a variety of areas, including scientific and medical research support and in senior, director-level leadership positions. At NIH, one-quarter of all employees, and 44 percent of its researchers and clinical practitioners, were Title 42 appointees. HHS reported that Title 42 enables the agency to quickly fill knowledge gaps so medical research can progress and to respond to medical emergencies. HHS further reported Title 42 provides the compensation flexibility needed to compete with the private sector. In 2010, 1,461 of HHS's Title 42 employees earned salaries over $155,500. The highest base pay amount under the General Schedule - the system under which most federal employees are paid - was $155,500 in 2010. Under certain types of Title 42 appointments, statutory pay caps may apply. 2010 was the last year of HHS data available at the time of GAO's review. HHS does not have reliable data to manage and provide oversight of its use of Title 42. Moreover, HHS did not consistently adhere to certain sections of its Title 42 section 209(f) policy. For example, the policy states that 209(f) appointments may only be made after non-Title 42 authorities have failed to yield a qualified candidate, but GAO found few instances where such efforts were documented. HHS has recently issued updated 209(f) policy that addresses most of these issues. HHS is developing agencywide policy for appointing and compensating employees under Title 42 section 209(g), but it is not clear the policy will address important issues such as documenting the basis for compensation. Since 2006, the Environmental Protection Agency (EPA) has used section 209(g) to appoint 17 employees. Fifteen of EPA's 17 Title 42 employees earned salaries over $155,500 in 2010. EPA appointment and compensation practices were generally consistent with its guidance; however, EPA does not have post-appointment procedures in place to ensure Title 42 employees meet ethics requirements to which they have previously agreed. In its legal opinion, GAO concluded that an appropriations pay cap applies to certain, but not all, employees appointed under 42 U.S.C. SSSS 209(f) and (g). If Congress desires upper pay limits for appointments not currently subject to the pay cap, it may wish to consider legislation to specifically establish such limits. In the report on which this testimony is based, GAO made recommendations to HHS to improve oversight and management of its Title 42 authority and a recommendation to EPA to improve enforcement of its ethics requirements. HHS agreed with GAO's recommendations, while EPA disagreed, citing actions already taken. GAO acknowledged EPA's plans to address these issues, but maintained the recommendation was needed to ensure implementation.
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Medicare's physician fee schedule includes payments for over 7,000 services, such as office visits, surgical procedures, and tests. Most services are defined as discrete and stand-alone in that they may be furnished independently of other services, but a small number of services are defined as supplemental because they are commonly furnished along with other primary services. Services under the Medicare fee schedule are described and defined by the AMA's Current Procedural Terminology (CPT) Editorial Panel, and each service is assigned a five-digit identifier, or code. The CPT Editorial Panel revises and modifies CPT codes based largely on suggestions from specialty societies and the CPT Editorial Panel's Advisory Committee. Code revisions require research from both CPT staff and specialty society members who assist the CPT Editorial Panel in its work. According to AMA officials, the CPT process generally takes about 14 months from the time potential codes are first identified by specialty societies to the final revision or development of a new code. CMS relies on the AMA/Specialty Society Relative Value Scale Update Committee (RUC)--an expert panel that includes members from national physician specialty societies--to develop and update on an ongoing basis the resource estimates upon which fees are based. Specialty societies identify services for review, gather data on resource use, and make proposals to the RUC on resource estimates for services. Physician work estimates are developed using vignettes of each service furnished to a typical patient, where the specific physician activities are described for three phases--before, during, and after the service. Practice expense estimates considered direct--clinical labor (that is, the nurse's or technician's time), equipment, and supplies--are developed similarly for each of these phases. (App. II provides an example of a vignette and practice expense estimates for one service.) The RUC evaluates proposals submitted by the specialty societies and makes recommendations for final consideration by CMS. The RUC meets three times a year, and, on average, reviews approximately 300 codes annually. The RUC also assists CMS in the Five-Year Review process--a review of fees for all services that the agency is required by law to conduct at least every 5 years to account for changes in medical practice. While CMS may reject or modify the RUC's recommendations, from 1993 through 2009, the agency accepted over 90 percent of the recommendations pertaining to 3,600 new and revised CPT codes. CMS may at times also make changes to fees for services independent of RUC recommendations. Efficiencies in multiple services that are furnished together may be factored into fees primarily in two ways. First, the RUC and specialty societies generally attempt to consider whether other services are typically furnished along with the service they are reviewing to avoid duplication of the resources associated with physician work and practice expenses that may be incurred only once. For example, certain activities included in the practice expense component, such as preparing the patient before a procedure and cleaning the room after the procedure, are performed only once when two services are furnished together. However, the RUC has not reviewed every service; therefore, estimates are outdated for a large portion of services and may no longer reflect current technology and medical practice. For example, resource estimates for certain image-guided surgeries were developed when a surgeon performed the surgery and a radiologist performed the related imaging, whereas in current medical practice, a single physician tends to do both tasks. Further, for supplemental services, the RUC ensures that the physician work and practice expense resources required before and after the service are not duplicated. Second, CMS has, independent of the RUC and specialty societies, implemented its own policies to recognize efficiencies occurring in certain services. CMS has a long-standing policy called a multiple procedure payment reduction (MPPR) to avoid duplicate payments for portions of practice expenses that are incurred only once when two or more surgical services are furnished together by the same physician during the same operating session. CMS expanded the MPPR to include certain diagnostic imaging services in 2006. Under the MPPR policy, the full fee is paid for the more expensive service, but a reduction is applied to the fees for each subsequent service. Generally, a 50 percent reduction is applied to fees for surgical services performed during the same operating session and a 25 percent reduction is applied to fees for certain imaging services that are furnished together. By law, updates to fees are required to be budget neutral--that is, they cannot cause Medicare's aggregate payments to physicians to increase or decrease by more than $20 million. As a result, any "savings" realized from reducing the fees for particular services do not accrue to the Medicare program but are redistributed across all services, resulting in a slight increase to the fees for all other services. In some instances, Congress has overridden budget neutrality to ensure that payment changes result in savings to Medicare. For example, through the Deficit Reduction Act of 2005 (DRA), Congress mandated that savings resulting from the MPPR for certain imaging services that were furnished together be exempted from budget neutrality. As a result, annual savings of approximately $96 million were not redistributed across all services, but accrued as savings to the Medicare program in 2006. CMS has taken steps to recognize efficiencies for services commonly furnished together through the use of the RUC process and the MPPR, but has not targeted services with the greatest potential for savings, and the RUC process depends on specialty societies. The MPPR is limited in scope because it does not apply to a broad range of services, nor does it capture efficiencies occurring in the physician work component. CMS stated that it is reviewing the efforts of a workgroup recently created by the RUC to identify efficiencies in services that are commonly furnished together. In March 2006 MedPAC criticized the RUC for recommending more increases than decreases in resource estimates, largely because the RUC had focused on services that specialty societies believed were undervalued. In response, the RUC established the Five- Year Review Identification Workgroup in October 2006 to identify potentially misvalued services. The workgroup used several criteria to identify these services, one of which was to examine services commonly furnished together to determine if such services should be bundled to reduce duplication in the physician work component. The workgroup requested data from CMS on services commonly furnished together in 2007. CMS forwarded a list of over 2,200 service pairs that were furnished together more than 50 percent of the time, but did not tell the workgroup how to prioritize its review of the services. Instead, the workgroup developed its own methodology, targeting service pairs that were almost exclusively furnished together. While the methodology represents a reasonable first step to identify potentially misvalued services, and the workgroup has expended considerable effort and resources in implementing it, the methodology will likely result in limited savings to Medicare. This is because the group did not systematically focus on services that accounted for a large share of Medicare spending, nor did it exclude supplemental services with limited potential for savings. The workgroup focused on service pairs in which the two services were performed together at least 90 percent of the time. The workgroup classified service pairs into two types: type A, in which both services in the pair were performed together at least 90 percent of the time, and type B, in which one service was performed with another service at least 90 percent of the time in a unidirectional relationship (that is, when the first service was performed, the second service was also performed at least 90 percent of the time, but when the second service was performed, the first service was not performed at least 90 percent of the time). The workgroup identified 22 type A and 31 type B service pairs where possible duplication was occurring in physician work. However, these service pairs would likely result in limited savings. First, 19 of the 22 type A pairs and 20 of the 31 type B pairs included supplemental services for which further reductions in fees would likely be small. For example, in performing a three-dimensional heart wall imaging study (also known as a myocardial perfusion imaging study), physicians may take additional measurements of blood flow or heart wall function. These additional services are supplemental to the primary service and are therefore already priced to exclude overlap in practice expenses incurred before and after the service. Second, spending for the lower-priced service in the remaining pairs was minimal: $27 million for the remaining 3 type A services and $117 million for the remaining 11 type B services. Thus, potential savings from combining the remaining service pairs would likely be no more than half these respective amounts, assuming a 50 percent discount was applied to the lower-priced service--a generous assumption, since that is the maximum discount that CMS has applied to services under the MPPR. Another limitation of the workgroup's review of services commonly furnished together is that its process is resource intensive. This element is inherent in a process based on input and consensus from specialty societies. The workgroup follows the RUC's process in that it solicits proposals from specialty societies for potential revisions to the service pairs. The proposals must then be approved by the CPT Editorial Panel, the RUC, and CMS (see fig. 1). To date, the workgroup has identified only a limited number of misvalued services commonly furnished together. Since the review of service pairs that was started in 2007, the workgroup has identified three misvalued services; at the workgroup's recommendation, these (echocardiography) services were combined into a single code in 2009. The earliest any additional changes might be implemented for the type A and B service pairs first identified in 2007 would be 2010. Finally, the workgroup is required to undertake other tasks, including reviewing services because of technological changes or because of high growth, utilization, or intensity. These reviews also require involvement from the specialty societies, in addition to their efforts to revise estimates of physician work and practice expenses an ongoing basis as well as for the Five-Year Reviews. Despite the demands of these tasks, the RUC has stated that CMS should continue to rely on the workgroup to identify opportunities for efficiencies, rather than implement an MPPR, which it perceives to be an imprecise tool for reducing duplicate payments for portions of services furnished only once. CMS's MPPR policy reflects efficiencies for certain imaging and surgical procedures commonly furnished together, but it is limited in scope. CMS estimated that its use of the MPPR for certain imaging procedures produced savings of about $96 million in 2006. In this instance, Congress exempted these savings from the budget neutrality provision; as a result, the $96 million was not redirected to other services but accrued as savings to the Medicare program. In principle, an MPPR can be implemented quickly to reflect efficiencies for services performed together. In developing the list of services to be selected for an MPPR, CMS does not formally solicit opinion from specialty societies or others until the MPPR is published as a proposed rule. For example, in developing the imaging MPPR, CMS--acting independently of the RUC and specialty societies, on MedPAC's recommendation--identified imaging services that were commonly furnished together and determined an appropriate discount to account for efficiencies occurring in the practice expense component. CMS then published these decisions in its August 2005 proposed rule for specialty society and public comment and finalized its decisions in November 2005 after evaluating and responding to stakeholder comments. These changes went into effect on January 1, 2006. The MPPR as currently used by CMS does have limitations. First, the MPPR does not apply to nonsurgical and nonimaging services that are commonly furnished together. When CMS developed the MPPR for surgical services in 1996, it acknowledged that efficiencies likely also occur for nonsurgical services. However, other than the imaging MPPR, CMS has not implemented an MPPR policy for nonsurgical services. Contractors we interviewed identified many opportunities to expand the MPPR policy to areas where services are commonly furnished together. For example, they stated that similar efficiencies occur when certain types of tests--such as nerve conduction studies or pulmonary function, vision, and hearing tests--are performed together. However, as of July 2009, CMS had not published proposals to systematically review services commonly furnished together by focusing on the most expensive services with the greatest potential for savings to Medicare. Second, the MPPR only reflects efficiencies occurring in practice expenses, not in the physician work component, where certain physician activities may occur only once. For example, a physician's review of a patient's medical history and prior imaging or other test results before the service, and dictation of the final report for the medical record, occur only once. Under the current payment methodology, the time spent on these activities is included in each service because the services are assumed to be furnished separately. Several organizations we interviewed stated that an MPPR for the physician work component was warranted to avoid duplicate payments to physicians for activities that they perform only once. In its 2006 report, MedPAC similarly recommended that CMS examine efficiencies that might be occurring in the physician work component but are not reflected in the fee schedule. However, CMS has not conducted such a review. Our review of Medicare claims data indicated the potential for reducing excessive physician payments by implementing an MPPR to reflect efficiencies generally occurring in the practice expense component of certain nonsurgical and nonimaging service pairs commonly furnished together. In addition, our analysis of certain imaging services indicated potential for further reducing excessive payments by implementing an MPPR to reflect efficiencies in the physician work component when these services are performed together. Our systematic review of a sample of the most costly service pairs showed potential for annual savings of over one-half billion dollars with implementation of an MPPR to reflect efficiencies in the practice expense component. Contractor Medical Directors we met with determined that an MPPR was appropriate for 149 (over 40 percent) of the 350 most costly service pairs we reviewed with them. The contractor Medical Directors recommended these MPPRs to reflect efficiencies occurring in practice expenses for services that were furnished only once. The 149 service pairs included interventional radiology procedures, physical therapy services, and various tests, such as additional imaging, pulmonary function, vision, hearing, and pathology. For example, a cardiovascular stress test is commonly furnished with a three-dimensional heart imaging test. However, the Medical Directors cautioned that CMS would need to carefully monitor utilization of these services to ensure that physicians did not change their behavior by scheduling services on different days to avoid reduced fees for those subject to an MPPR. Our analysis of 118 imaging service pairs suggests that efficiencies in physician work occur when services are furnished together, and an MPPR policy that reflected these efficiencies could save Medicare over $175 million annually. We sought the advice of contractor Medical Directors and other experts, who agreed that efficiencies occur in physician work when two or more services are furnished together and that an MPPR would be appropriate to account for these efficiencies. Our savings estimate is based on reducing fees for the lower-priced service in each service pair to reflect efficiencies in physician time spent on activities performed before and after the service that are already included in the higher-priced service. For example, the service pair that accounted for the largest share of spending across all imaging service pairs was the physician's interpretation of two computed tomography (CT) scans: CT of the abdomen with dye and CT of the pelvis with dye. Of a total of 18 minutes allotted for interpretation of the second (lower-priced) service, 8 minutes were allotted for activities such as reviewing the patient's prior medical history before the service and reviewing the final report and following up with the referring physician after the service. Since time spent on these activities was already included in the first (higher-priced) service, we discounted the fee for the lower-priced service by 44 percent (that is, 8 minutes / 18 minutes). While the results of our analysis cannot be generalized to all service pairs, the concept of applying an MPPR for the physician work component could be applied to other services. Our analysis focused on efficiencies in activities performed before and after each service, but there are also likely efficiencies occurring during, or within, the intraservice phase. For example, a practicing radiologist we interviewed stated that when two CT scans of contiguous body areas (e.g., the abdomen and pelvis) are taken at the same time, the total number of actual CT images reviewed is lower than if each scan were performed separately. This is because an abdominal CT generally includes margins of the pelvis and vice versa, and the images of these overlapping margins are examined only once by the radiologist. Other efficiencies relating to technology advances, such as digital storage and retrieval of imaging, may also be realized during the intraservice phase. The RUC and specialty societies may be limited in their ability to help CMS quickly identify opportunities for further savings from efficiencies occurring when services are commonly furnished together. The RUC's methodology for identifying additional services is not focused on finding savings for the Medicare program. Moreover, the RUC workgroup's dependence on specialty societies limits its ability to make progress. CMS, on the other hand, has the tools in place to readily expand its MPPR policy to reflect efficiencies occurring in the practice expense and physician work components of services that are commonly furnished together. However, as of July 2009, the agency did not appear to have conducted a systematic review of claims data to identify opportunities with the greatest potential for further savings. Further, unless specifically exempted by Congress (as was done in the DRA for fee changes for certain imaging services), savings would be redistributed to other services in accordance with the budget neutrality provision, and the Medicare program would not realize savings. The Acting Administrator of CMS should take further steps to ensure that fees for services paid under Medicare's physician fee schedule reflect efficiencies that occur when services are performed by the same physician to the same beneficiary on the same day. These efforts could include systematically reviewing services commonly furnished together and implementing an MPPR to capture efficiencies in both physician work and practice expenses, where appropriate, for these services; focusing on service pairs that have the most impact on Medicare spending; and monitoring the provision of services affected by any new policies it implements to ensure that physicians do not change their behavior in response to these policies. To ensure that savings are realized from the implementation of an MPPR or other policies that reflect efficiencies occurring when services are furnished together, Congress should consider exempting these savings from budget neutrality. We obtained written comments on a draft of this report from the Department of Health and Human Services (HHS), which are reprinted in appendix III. We obtained oral comments from representatives of the AMA. HHS concurred with our recommendation and stated that CMS plans to perform an analysis of nonsurgical codes that are furnished together between 60 and 70 percent of the time to determine whether efficiencies occur in the physician work and practice expense component of these services. HHS stated that it would implement policies to reflect these efficiencies, as appropriate, and agreed that CMS should focus on service pairs that have the most impact on Medicare spending. HHS also agreed on the need to monitor physician utilization of services if the MPPR is expanded. HHS suggested that we include in an appendix to the report the specific service pairs that we identified. We did not include such an appendix because our report focuses on illustrating the value of CMS's taking a more systematic approach, rather than focusing on specific service pairs, to ensure that the fee schedule reflects efficiencies when services are provided together. However, we will work with CMS officials and share information to aid in the agency's efforts. AMA representatives expressed three broad concerns about the draft report. First, they disagreed with our assessment of the RUC workgroup's efforts to ensure that services are appropriately coded and valued. Second, they stated that a broad application of the MPPR to account for efficiencies in practice expenses and physician work was not appropriate. Third, they opposed our matter for congressional consideration that suggests that any savings from implementing the report's recommendations be exempted from budget neutrality requirements. AMA representatives disagreed with the report draft's characterization of the efficacy of the RUC workgroup, noting that the RUC workgroup's efforts have been aggressive, timely, and efficient. They also stated that the specialty societies had developed proposals to combine the type A and B service pairs that would result in significant savings should CMS implement them in 2010 or 2011. As an example, they projected that the proposals to combine 14 myocardial perfusion services of the workgroup's 53 type A and type B service pairs would result in annual savings of about $40 million from efficiencies occurring in the physician work component. In addition, they said that while they did not have an estimate, they believed that savings for the practice expense component would also likely be significant. Finally, representatives stated that in its review of potentially misvalued services, the workgroup may have already identified and made recommendations on some of the unique codes or pairs included in our list of 149 code pairs. We acknowledge in the draft the time and effort the workgroup has expended in identifying potentially misvalued services. However, based on our review of the workgroup's processes and progress to date, we continue to believe that these processes are resource intensive and will likely limit CMS's ability to quickly identify opportunities for savings from those service pairs that account for a high share of Medicare spending. In addition, as stated in the draft, the workgroup has not prioritized its review to systematically focus on services with the greatest potential savings for Medicare. While it is possible that some of the type A and type B service pairs the workgroup identified may be relatively costly, its methodology does not systematically focus on such services. We believe our assessment of the workgroup's progress remains accurate--as of 2009 the workgroup had identified only three misvalued services that were combined. Finally, from our list of 149 code pairs (which included 116 unique codes), the workgroup had identified only one code pair and 21 unique codes in its review of potentially misvalued codes. AMA representatives stated that a "blanket reduction" of 25 percent for the 149 code pairs based on duplication in time spent on certain preservice and postservice tasks was not appropriate. They contended that for an average service, the intensity of time spent on tasks in the preservice and postservice phases is less than the intensity of time spent on intraservice tasks. AMA representatives added that in some instances a 25 percent reduction may be too high, whereas in other instances it might be more appropriate. They said that for some of the newer codes, the RUC had already taken any potential efficiencies into account, but for some of the old codes, which have not been revalued by the RUC, the 25 percent discount may be more reasonable. The AMA representatives also stated that the RUC workgroup's efforts result in a more accurate and credible system of coding and valuation of services and thus is more effective than the application of "arbitrary policies" such as an MPPR. In the draft report, we acknowledge the limitations of our approach and state that the results of our analysis cannot be generalized to all service pairs. Our draft also states that the discount of 25 percent we applied to the 149 code pairs is consistent with the imaging MPPR that reflects efficiencies in the practice expense component. We do not recommend that CMS adopt our specific methodology; rather we present it as an illustration of potential efficiencies occurring in the physician work component that can be uncovered through a systematic review of service pairs. However, we continue to believe that CMS should undertake a systematic review of services and, where appropriate, expand the MPPR to ensure that physician fee schedule payments reflect efficiencies when services are performed by the same physician to the same beneficiary on the same day. AMA representatives disagreed with the draft's statement that spending on physician services has recently grown at an average annual rate of 6 percent, and opposed our suggestion that Congress consider exempting any savings from implementation of the report's recommendations from federal budget neutrality requirements. AMA representatives told us that the growth rate of per beneficiary spending on Part B physician services has slowed to an annual rate of 3 percent in 2006 and 2007. Regarding our suggestion that Congress consider exempting any savings from budget neutrality, AMA representatives expressed concern that the exemption would have an adverse effect on primary care services that could benefit from the redistribution of savings and stated that savings would be spent on other programs. We agree that the annual rate of growth in per beneficiary spending on physician services slowed somewhat in 2006 and 2007, but even taking this into account, annual spending from 1997 to 2008 grew an average of 6 percent. We recommend that Congress consider exempting potential savings from budget neutrality to help ensure the fiscal health of the Medicare program. As we noted in the draft, there is recent precedent for exempting savings from budget neutrality. We agree that primary care services are important, but Congress has other mechanisms for altering payment for these services. AMA representatives also provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Acting Administrator, CMS, and relevant congressional committees. This report also will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions, 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. In this appendix, we describe the processes we used to determine opportunities for the Centers for Medicare & Medicaid Services (CMS) to avoid excessive payments for services commonly furnished together. To determine additional opportunities for CMS to avoid excessive payments for services that are commonly furnished together, we conducted a systematic review of Medicare claims data using the 2006 Medicare Physician/Supplier Part B 5 Percent Standard Analytic File. To conduct this review, we selected physician services that were paid under the resource-based payment methodology. We generated a list of all service pairs that were furnished by the same physician to the same beneficiary on the same day and made the following exclusions: service pairs with low utilization--those that were billed fewer than 5,000 service pairs containing only the professional portion of a service; service pairs that were already subject to payment policies that reduced payments for one of the services in the pair; service pairs containing supplemental services, which are priced to exclude duplication of physician work and practice expenses that are already included in the primary service; and service pairs containing duplicate services. The remaining list of service pairs was our universe of pairs that represented opportunities for savings from efficiencies that resulted when the two services were furnished together. To target our review to the service pairs that accounted for a large share of Medicare spending, we ranked the service pairs based on spending for the lesser-priced service (since the multiple procedure payment reduction (MPPR) and other policies usually apply to that service) and selected the 350 costliest service pairs based on total spending. We met with contractor Medical Directors and their staffs in five different states to determine if there were efficiencies taking place in the practice expense component when these service pairs were furnished together. To ensure consistency of review across the five contractors, we developed a standard set of questions that each contractor followed in evaluating the service pairs. We asked contractors to examine service descriptions and definitions, as well as coding instructions from the Current Procedural Terminology (CPT) manual and from CMS, and use their clinical judgment and knowledge to assess whether there were efficiencies occurring because certain practice expenses were incurred only once before and after each service in the service pairs. We also asked contractors to determine the payment policy that best captured these efficiencies. For example, contractors determined whether the services in each pair should be combined into a single code, there should be no payment for one service in the service pair because it was inherently included in the other, or an MPPR should be applied. If an MPPR should be applied, contractors determined the approximate discount that was most appropriate. Since all five contractors determined that an MPPR was the most appropriate payment policy to reflect efficiencies in all 149 of the 350 service pairs they identified as having potential, we estimated total savings to the Medicare program by applying the appropriate discount to spending for the lower-priced service in each pair. Our estimate of savings is conservative for several reasons. First, we excluded services that were billed multiple times on the same day by the same physician, since our focus was on potential savings when two unique services were furnished together. To the extent that there is overlap of physician work and practice expenses in the preservice and postservice phases of these duplicate services, an MPPR should be applied to account for this overlap. Second, we generally applied a discount of 25 percent or less to the service pairs to mirror CMS's discount on imaging service pairs, although, in certain instances, a higher discount was warranted based on the extent of duplication in practice expenses. To estimate potential savings from applying an MPPR to account for duplication of physician work activities occurring before and after each service in the service pairs, we first examined the American Medical Association (AMA) database--the Resource-Based Relative Value System (RBRVS) Data Manager--to determine if data on these activities were available for all service pairs. The RBRVS Data Manager contains vignettes describing the physician's work for a specific procedure for a typical patient in three phases: preservice, intraservice, and postservice. The AMA/Specialty Society Relative Value Scale Update Committee (RUC) bases its estimates of physician work and practice expenses on these vignettes. Because we found that vignettes were missing for a large proportion of services, we used physician time--the amount of time it takes a physician to perform a service--as a proxy for physician work, and discounted the fee for the lesser-priced service in each service pair for the extent of overlap in physician time spent on the preservice and postservice phases across the two services. Using the physician time file on the CMS Web site, we calculated this discount as the sum of time spent on the preservice and postservice phases of the lesser-priced service divided by total time for that service. We limited our analysis to the imaging service pairs that we had identified from our review of Medicare claims data because we wanted to examine a homogenous group of services where the activities included in the pre- and postservice phases were generally the same across different imaging services, and therefore the time spent on pre- and postservice phases was also likely to be relatively uniform across this group of services. We applied the discount to the professional fee of imaging services, since the professional fee captures the physician's work in interpreting the imaging service. We discussed our approach with several experts in the Medicare physician payment system. These included an experienced contractor Medical Director; a Medicare Payment Advisory Commission (MedPAC) official who is an expert in Medicare physician payment policy; and a practicing radiologist and leading expert in the field who has written extensively on Medicare payment policy and reimbursement issues. They concurred that our methodology was a reasonable approach to estimating potential savings from an MPPR for physician work. This appendix contains examples of a vignette and a practice expense estimate. The vignette (fig. 2) is used by specialty societies to develop estimates of physician work resources for a service. The practice expense estimate (fig. 3) describes the nonphysician clinical labor, supplies, and equipment resources required for each service. In addition to the contact named above, Phyllis Thorburn, Assistant Director; William A. Crafton; Iola D'Souza; Richard Lipinski; and Elizabeth T. Morrison made key contributions to this report.
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Medicare's physician fees may not always reflect efficiencies that occur when a physician performs multiple services for the same patient on the same day, and some resources required for these services do not need to be duplicated. In response to a request from Congress, GAO examined (1) the Centers for Medicare & Medicaid Services' (CMS) efforts to set appropriate fees for services furnished together and (2) additional opportunities for CMS to avoid excessive payments when services are furnished together. GAO examined relevant policies, laws, and regulations; interviewed CMS officials and others; and analyzed claims data to identify opportunities for further savings. CMS has taken steps to ensure that physician fees recognize efficiencies that occur when certain services are commonly furnished together, that is, by the same physician to the same beneficiary on the same day, but has not targeted services with the greatest potential for savings. CMS is reviewing the efforts of a workgroup created by the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) in 2007 to examine potential duplication in resource estimates for services furnished together. However, the RUC workgroup has not focused on services that account for the largest share of Medicare spending. For this and other reasons, its methodology to identify and review services furnished together likely will result in limited savings. The workgroup's process is also resource intensive because it depends on input and consensus from specialty societies. Independent of the RUC, CMS has implemented a multiple procedure payment reduction (MPPR) policy for certain imaging and surgical services when two or more related services are furnished together. Under an MPPR, the full fee is paid for the highest-priced service and a reduced fee is paid for each subsequent service to reflect efficiencies in overlapping portions of the practice expense component--clinical labor, supplies, and equipment. For example, a nurse's time preparing a patient for a medical procedure or technician's time setting up the required equipment is incurred only once. The MPPR produced savings of about $96 million in 2006 for imaging services. However, the scope of the policy is limited because the policy does not apply to nonsurgical and nonimaging services commonly furnished together, nor does it specifically reflect efficiencies occurring in the physician work component--the financial value of a physician's time, skill, and effort. For example, when two services are furnished together, a physician reviews a patient's medical records once, but the time for that activity is generally reflected in fees paid for both services. CMS has additional opportunities to reduce excess physician payments that can occur when services are furnished together and Medicare's fees do not reflect the efficiencies realized. GAO's review found that expanding the MPPR to reflect practice expense efficiencies that occur when nonsurgical, nonimaging services are provided together could reduce payments for these services by an estimated one-half billion dollars annually. GAO's review also indicated that expanding the existing MPPR policy to reflect efficiencies in the physician work component of certain imaging services could reduce these payments by an estimated additional $175 million annually. Under the budget neutrality requirement, by law, savings from reductions in fees are redistributed by increasing fees for all other services. Thus, these potential savings would accrue as savings to Medicare only if Congress exempted them from the budget neutrality requirement, as was done in the Deficit Reduction Act of 2005 for savings from the changes to certain imaging services fees.
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The Broadcasting Board of Governors oversees the efforts of all nonmilitary international broadcasting, which reaches an estimated audience of more than 100 million people each week in more than 125 markets worldwide. The Board manages the operations of the International Broadcasting Bureau (IBB), VOA, the Middle East Television Network (Alhurra and Radio Sawa), RFE/RL, and Radio Free Asia (RFA). In addition to serving as a reliable source of news and information, VOA is responsible for presenting U.S. policies through a variety of means, including officially labeled government editorials. Radio/TV Marti, RFE/RL, and RFA were created by Congress to function as "surrogate" broadcasters, designed to temporarily replace the local media of countries where a free and open press does not exist. Created by the Bush administration and the Board, the Middle East Television Network draws its mission from the core purpose of U.S. international broadcasting, which is to promote and sustain freedom by broadcasting accurate and objective news and information about the United States and the world to audiences overseas. In addition to the stand-alone entities that make up U.S. international broadcasting, Congress and the Board have created other broadcast organizations to meet specific program objectives. Congress created Radio Free Iraq, Radio Free Iran, and Radio Free Afghanistan and incorporated these services into RFE/RL's operations. Under its new strategic approach to broadcasting, the Board and the Bush administration created Radio Sawa, the Afghanistan Radio Network (ARN), Radio Farda, and Alhurra to replace poorly performing services, more effectively combine existing services, and create new broadcast entities where needed. Figure 1 illustrates the Board's current organizational structure. VOA, RFE/RL, and RFA are organized around a collection of language services that produces program content. In some countries, more than one entity broadcasts in the same language. These overlapping services are designed to meet the distinct missions of each broadcast entity. Currently, 42 of the Board's 74 language services (or 57 percent) target the same audiences in the same languages. While some degree of overlap is to be expected given the varying missions of the broadcast entities, the Board has concluded that this level of overlap requires ongoing analysis and scrutiny. The Board's budget for fiscal year 2003 was approximately $552 million, with nearly half of its resources used to cover transmission, technical support, Board and IBB management staff salaries, and other support costs. Among the broadcast entities, funds are roughly equally divided among VOA and the four other U.S. broadcasting entities. Figure 2 provides a breakout of the Board's fiscal year 2003 budget. Our reviews of U.S. international broadcasting reveal that the Board faces the challenges of operating a mix of broadcast entities with varying missions and structures in an environment that provides significant marketing obstacles. As we reported in July 2003, the Board has adopted a new approach to broadcasting that is designed to overcome several of these challenges. The Board's key organizational challenge is the disparate mix of broadcast entities it is tasked with managing. To address this problem, the Board has adopted a "single system" approach to broadcasting whereby broadcast entities are viewed as content providers and the Board assumes a central role in tailoring this content to meet the demands of individual markets. The Board also faces marketing challenges that include the lack of a unique reason for listeners to tune in, the general lack of target audiences within broadcast markets, and poor-to-fair signal quality for many of the broadcast services. Recent initiatives such as Radio Sawa and Alhurra have addressed these deficiencies, and the Board has required that all broadcast services, to the extent feasible, address these issues as well. The Board's major organizational challenge is the need to further consolidate and streamline its operations to better leverage existing resources and generate greater program impact in priority markets. According to the Board's strategic plan, "the diversity of the Broadcasting Board of Governors--diverse organizations with different missions, different frameworks, and different constituencies--makes it a challenge to bring all the separate parts together in a more effective whole." As noted in our 2003 report, senior program managers and outside experts with whom we spoke supported considering the option of consolidating U.S. international broadcasting efforts into a single entity. The Board intends to create a unified broadcasting system by treating the component parts of U.S. international broadcasting as a single system. Under this approach, VOA and other U.S. broadcast entities are viewed as content providers, and the Board's role is to bring this content together to form new services or entities as needed. The single-system approach to managing the Board's diversity requires that the Board actively manage resources across broadcast entities to achieve common broadcast goals. A good example of this strategy in action is Radio Farda, which combined VOA and RFE/RL broadcast content to produce a new broadcast product for the Iranian market. In the case of Radio Sawa, the Board replaced VOA's poorly performing Arabic service with a new broadcast entity. The Board's experience with implementing Radio Sawa suggests that it can be difficult to make disparate broadcast entities work toward a common purpose. For example, Board members and senior planners told us they encountered some difficulties attempting to work with officials to launch Radio Sawa within VOA's structure and were later forced to constitute Radio Sawa as a separate grantee organization. While this move was needed to achieve the Board's strategic objectives, it contributed to the further fragmentation of U.S. international broadcasting. The Board's strategic plan comments openly on the marketing challenges facing U.S. international broadcasters, specifically that many language services lack a unique reason for listeners or viewers to tune in; few language services have identified their target audiences--a key first step in developing a broadcast strategy; many language services have outmoded formats and programs with an antiquated, even Cold War, sound and style; and three-quarters of transmitted hours have poor or fair signal quality. Consistent with its "Marrying the Mission to the Market" philosophy, the Board has sought to address these deficiencies in key markets with new initiatives in Afghanistan, Iran, and the Middle East that support the war on terrorism. The first project under the new approach, Radio Sawa (recently added to the new Middle East Television Network), was launched in March 2002 using many of the modern, market-tested broadcasting techniques and practices prescribed in its strategic plan, including identifying a target audience, researching the best way to attract the target audience, and delivering programming to the Middle East in a contemporary and appealing format. The Board's other recent initiatives also have adhered to this new approach by being tailored to the specific circumstances of each target market. These initiatives include the Afghanistan Radio Network, Radio Farda service to Iran, and the Alhurra satellite service to the Middle East. Table 1 describes the Board's recent projects that support the war on terrorism. Although we have not validated available research data, the Board claims that implementation of these marketing improvements has led to dramatic increases in audience listening rates. For example, based on surveys conducted by ACNielsen, the Board maintains that Radio Sawa is now the number one international broadcaster in six countries in the Middle East, reaching an average weekly audience of about 38 percent of the general population and about 49 percent of its 15- to 29-year-old target audience across all six countries. These levels far exceed the 1 to 2 percent audience reach of the VOA Arabic service, which Radio Sawa replaced. In addition, the Board's main research contractor--Intermedia--has indicated that as of March 2004, Radio Farda is the leading international broadcaster in Iran--achieving an average weekly listenership of 15 percent, which is 10 percent more than the combined weekly audiences for VOA and RFE/RL's prior services to Iran. Board officials have told us that preliminary audience reach data for the Board's satellite channel Alhurra will be available by June of this year. While the audience numbers on Radios Sawa and Farda appear to be very positive, as we reported in July 2003, U.S. broadcasters suffer from a credibility problem. To address this issue, we recommended that the Board adopt measures of broadcaster credibility, which the Board has recently implemented. In addition to these new initiatives, the Board has tasked all language services with adopting the tenets of its new approach, such as identifying a target audience and improving signal quality, to the maximum extent possible within existing budget constraints. They hope that these improvements will lead to significant audience boosts for a number of higher- and lower-priority services that suffer from very low listening rates. For example, data from the Board's 2003 language review show that more than one-quarter of all language services had listening rates of fewer than 2 percent at that time. The Board manages its limited resources through its annual language service review process, which is used to address such issues as how resources should be allocated among services based on their priority and impact, how many broadcast services should be carried, what degree of overlap and content duplication should exist among services, and whether services should be eliminated because they have fulfilled their broadcast mission. This process responds to the congressional mandate that the Board periodically review the need to add and delete language services. The Board has interpreted this mandate to include the expansion and reduction of language services. Since 1999, the Board has identified more than $50 million in actual or potential savings through the language service review process by moving resources from lower- to higher-priority services, by eliminating language services, and by reducing language service overlap and transmission costs. As noted in our July 2003 report, the Board's strategic plan concludes that if U.S. international broadcasting is to become a vital component of U.S. foreign policy, it must focus on a clear set of broadcast priorities. The plan notes that trying to do too much at the same time fractures this focus, extends the span of control beyond management capabilities, and siphons off precious resources. As discussed in our report, the Board determined that current efforts to support its broadcast languages are "unsustainable" with current resources, given its desire to increase impact in high-priority markets. Our survey of senior program managers revealed that a majority supported significantly reducing the total number of language services and the overlap in services between VOA and the surrogate broadcasters. We found that 18 of 24 respondents said that too many language services are offered. When asked how many countries should have more than one U.S. international broadcaster providing service in the same language, 23 of 28 respondents said this should occur in only a few countries or no countries at all. The Board's annual language service review process serves as the Board's principal tool for managing these complex resource questions. This process has evolved into an intensive program and budget review that culminates with ranked priority and impact listings for each of the Board's 74 language services. These ranked lists become the basis for proposed language service reductions or eliminations and provide the Board with an analytical basis for making such determinations using measures of U.S. strategic interests, audience size, press freedom, and a host of other factors. Since the first language service review process began in 1999 and up through 2002, the Board has reduced the scope of operations of over 25 language services based on their priority and impact rankings and reallocated about $19.7 million to help fund higher-priority broadcast needs such as Radio Sawa and Radio Farda. As discussed in our February 2004 report, a clear example of the language service review process in action was the Board's recent proposal to eliminate 17 Central and Eastern European language services which served to reduce the overall number of language services and eliminate several overlapping services where the Board believed each broadcast entity's mission had been completed. This decision resulted in nonrecurring budget savings of about $8.8 million for fiscal year 2004 and recurring annual savings of about $12.1 million. Our only criticism of this decision was that the Board's language service review process did not include a measure of press freedom that gauges whether the press acts responsibly and professionally. This is a significant omission in the Board's current measure, given the congressional concern that RFE/RL's broadcast operations not be terminated until a country's domestic media meet this condition. Board officials acknowledged that their existing press freedom measure could be updated to include information on media responsibility and professional quality, and work is under way to develop a more comprehensive measure for the Board's 2004 language service review. In our September 2000 report, we cited the Board's concerns about overlapping language services and its plans to address this issue in subsequent iterations of the language service review process. In our July 2003 report we again raised the issue of language service overlap and content duplication between VOA and the surrogates. We also noted that while the Board's strategic plan identified overlap as a challenge, it failed to answer questions about when it is appropriate to broadcast VOA and surrogate programming in the same language. The Board has responded to our observations and recommendations by incorporating a review of overlapping services in its language service review process for 2003. The Board developed several approaches to dealing with overlap. For example, services can be "merged" by having one service subsume another (as was the case with Radio Farda). A second approach is to run alternating services, as is the case with the Afghanistan Radio Network, which runs VOA and RFE/RL programming on a single broadcast stream. Another approach is to simply terminate one or both overlapping services. All of the Board's overlapping services were assessed with these different approaches in mind. As a result of this analysis, the Board identified an estimated $4.9 million in fiscal year 2004 and 2005 savings from overlap services that could be redirected to higher- priority broadcasting needs, such as expanded Persian language television for Iran and expanded Urdu language radio for Pakistan. Mr. Chairman, the Board has revised its strategic planning and performance management system to respond to the recommendations in our July 2003 report aimed at improving the measurement of its results. In that report, we recommended that the Board's new strategic plan include a goal designed to gauge progress toward reaching significant audiences in markets of strategic interest to the United States. Our report also recommended that the Board establish key performance indicators relating to the perceived credibility of U.S. broadcasters, whether audiences are aware of U.S. broadcast offerings in their area, and whether VOA is achieving its mission of effectively explaining U.S. policies and practices to overseas audiences. In response to our recommendation for a goal that would measure progress in reaching large audiences in markets of strategic interest to the United States, the Board replaced the seven strategic goals in its plan with a single goal focused on this core objective. The goal is supported by a number of performance indicators (at the entity and language service level) that are designed to measure the reach of U.S. international broadcasting efforts and whether programming is delivered in the most effective manner possible. Weekly listening rates at the entity level and target audience numbers by language service provide key measures of the Board's reach. Other program effectiveness measures include program quality, the number of broadcast affiliates, signal strength, Internet usage, and cost per listener. In response to our recommendation for a measure of broadcaster credibility to identify whether target audiences believe what they hear, the Board added such a measure to its performance management system. Reaching a large listening or viewing audience is of little use if audiences largely discount the news and information portions of broadcasts. Our survey of senior program managers and discussions with Board staff and outside groups all suggest the possibility that U.S. broadcasters (VOA in particular) suffer from a credibility problem with foreign audiences, who may view VOA and other broadcasters as biased sources of information. InterMedia, the Board's audience research contractor, told us that it was working on a credibility index for another customer that could be adapted to meet the Board's needs and, when segmented by language service, would reveal whether there are significant perception problems among key target audiences. However, to develop a similar measure, Intermedia told us that the Board would need to add several questions to its national survey instruments. In response to our finding that the Board lacked a measure of audience awareness, the Board has added such a measure to its performance management system. We determined this measure would help the Board answer a key question of effectiveness: whether target audiences are even aware of U.S. international broadcasting programming available in their area. Board officials have stated that this measure would help the Board understand a key factor in audience share rates and what could be done to address audience share deficiencies. We found that the Board could develop this measure because it already collects information on language service awareness levels in its audience research and in national surveys for internal use. Finally, in response to our finding that the Board lacked a measure of whether target audiences hear, understand, and retain information broadcast by VOA on American thought, institutions, and policies, Board officials we spoke with told us that they are currently developing this measure for inclusion in the Board's performance management system. The unique value-added component of VOA's broadcasting mission is its focus on issues and information concerning the United States, our system of government, and the rationale behind U.S. policy decisions. Tracking and reporting these data are important in determining whether VOA is accomplishing its mission. Officials from the Board's research firm noted that developing a measure of this sort is feasible and requires developing appropriate quantitative and qualitative questions to include in the Board's ongoing survey activities. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the subcommittee may have at this time. For future contacts regarding this testimony, please call Jess Ford or Diana Glod at (202) 512-4128. Individuals making key contributions to this testimony included Janey Cohen, Melissa Pickworth, Addison Ricks, and Michael ten Kate. 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 terrorist attacks of September 11, 2001, were a dramatic reminder of the importance of cultivating a better understanding of the United States and its policies with overseas audiences. U.S. public diplomacy activities include the efforts of the Broadcasting Board of Governors, which oversees all nonmilitary U.S. international broadcasting by the Voice of America (VOA) and several other broadcast entities. Such broadcasting helps promote a better understanding of the United States and serves U.S. interests by providing overseas audiences with accurate and objective news about the United States and the world. GAO has issued three reports over the past 4 years examining the organizational, marketing, resource, and performance reporting challenges faced by the Board. Our recommendations to the Board have included the need to address the long-standing issue of overlapping language services (i.e., where two services broadcast in the same language to the same audience) and to strengthen the Board's strategic planning and performance by placing a greater emphasis on results. The Board has taken significant steps to respond to these and other recommendations. The Broadcasting Board of Governors has responded to a disparate organizational structure and marketing challenges by developing a new strategic approach to broadcasting which, among other things, emphasizes reaching large audiences through modern broadcasting techniques. Organizationally, the existence of five separate broadcast entities has led to overlapping language services, duplication of program content, redundant newsgathering and support services, and difficulties coordinating broadcast efforts. Marketing challenges include outmoded program formats, poor signal delivery, and low audience awareness in many markets. Alhurra television broadcasts to the Middle East and Radio Farda broadcasts to Iran illustrate the Board's efforts to better manage program content and meet the needs of its target audiences. Although we have not validated available research data, the Board claims that the application of its new approach has led to dramatic increases in listening rates in key Middle East markets. To streamline its operations, the Board has used its annual language service review process to address such issues as how resources should be allocated among language services on the basis of their priority and impact, what degree of overlap should exist among services, and whether services should be eliminated because they have fulfilled their broadcast mission. Since 1999, the Board has identified more than $50 million in actual or potential savings through this process. In response to our recommendations on the Board's strategic planning and performance management efforts, the Board revised its strategic plan to make reaching large audiences in strategic markets the centerpiece of its performance reporting system. The Board also added broadcaster credibility and audience awareness to its array of performance measures and plans to add a measure of whether VOA is meeting its mandated mission.
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As technology has advanced, the federal government has become increasingly dependent on computerized information systems to carry out operations and process, maintain, and report essential information. Federal agencies rely on such systems to process, maintain, and report large volumes of sensitive data, such as personal information. Ineffective protection of these systems and information can impair delivery of vital services and result in loss or theft of computer resources, assets, and funds; inappropriate access to and disclosure, modification, or destruction of sensitive information, such as PII; undermining of agency missions due to embarrassing incidents that erode the public's confidence in government; damage to networks and equipment; and high costs for remediation. Recognizing the importance of these issues, federal law includes requirements intended to improve the protection of government information and systems. These laws include the Federal Information Security Modernization Act (FISMA) of 2014, which among other things, requires the head of each agency to provide 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 or information systems. More specifically, federal agencies are to develop, document, and implement an agency-wide information security program to provide security for the information and information systems that support the operations of the agency, including those provided or managed by another agency, a contractor, or other organization on behalf of the agency. In addition, the head of each agency is responsible for, among other things, ensuring that senior agency officials carry out their information security responsibilities and that all personnel are held accountable for complying with the agency-wide information security program. The act also assigned OMB and the Department of Homeland Security (DHS) oversight responsibilities to assist agencies in effectively implementing information security protections. In addition, NIST is responsible for developing standards and guidelines that include minimum information security requirements. IRS's mission is to provide America's taxpayers top-quality service by helping them to understand and meet their tax responsibilities and to enforce the law with integrity and fairness to all. In carrying out its mission, IRS relies extensively on computerized information systems, which it must effectively secure to protect sensitive financial and taxpayer data for the collection of taxes, processing of tax returns, and enforcement of federal tax laws. During fiscal year 2015, IRS collected more than $3.3 trillion; processed more than 243 million tax returns and other forms; and issued more than $403 billion in tax refunds. IRS employs about 90,000 people in its Washington, D.C., headquarters and at more than 550 offices in all 50 states, U.S. territories, and some U.S. embassies and consulates. To manage its data and information, the agency operates two enterprise computing centers. It also collects and maintains a significant amount of personal and financial information on each U.S. taxpayer. Protecting this sensitive information is essential to protecting taxpayers' privacy and preventing financial loss and damages that could result from identity theft and other financial crimes. Further, the size and complexity of the IRS add unique operational challenges. The Commissioner of Internal Revenue has overall responsibility for ensuring the confidentiality, integrity, and availability of the information and systems that support the agency and its operations. Within IRS, the senior agency official responsible for information security is the Associate CIO, who heads the IRS Information Technology Cybersecurity organization. Risks to cyber-based assets can originate from unintentional or intentional threats. Unintentional threats can be caused by natural disasters, defective computer or network equipment, software coding errors, and the actions of careless or poorly trained employees. Intentional threats include targeted and untargeted attacks from criminal groups, hackers, disgruntled employees, foreign nations engaged in espionage and information warfare, and terrorists. These adversaries vary in terms of their capabilities, willingness to act, and motives. These threat sources make use of various techniques--or exploits--that may adversely affect federal information, computers, software, networks, and operations. These exploits are carried out through various conduits, including websites, e-mails, wireless and cellular communications, Internet protocols, portable media, and social media. Further, adversaries can leverage common computer software programs as a means by which to deliver a threat by embedding exploits within software files that can be activated when a user opens a file within its corresponding program. The number of information security incidents affecting systems supporting the federal government is increasing. Specifically, the number of incidents reported by federal agencies to the U.S. Computer Emergency Readiness Team (US-CERT) increased from 5,503 in fiscal year 2006 to 67,168 in fiscal year 2014, an increase of 1,121 percent. This upward trend continues. According to OMB, agencies reported 77,183 incidents in fiscal year 2015. Similarly, the number of incidents involving PII reported by federal agencies has more than doubled in recent years, from 10,481 in 2009 to 27,624 in 2014. Moreover, for fiscal year 2015, OMB reported that federal agencies spent about $13.1 billion on cybersecurity, and agencies budgeted about $14 billion for cybersecurity for fiscal year 2016. This amount may increase significantly, as the president's fiscal year 2017 budget proposes investing over $19 billion in resources for cybersecurity. Cyber incidents can adversely affect national security, damage public health and safety, and compromise sensitive information. Regarding IRS specifically, two recent incidents illustrate the impact on taxpayer and other sensitive information: In June 2015, the Commissioner of the IRS testified that unauthorized third parties had gained access to taxpayer information from its Get Transcript application. According to officials, criminals used taxpayer- specific data acquired from non-agency sources to gain unauthorized access to information on approximately 100,000 tax accounts. These data included Social Security information, dates of birth, and street addresses. In an August 2015 update, IRS reported this number to be about 114,000, and reported that an additional 220,000 accounts had been inappropriately accessed. In a February 2016 update, the agency reported that an additional 390,000 accounts had been accessed. Thus, about 724,000 accounts were reportedly affected. The online Get Transcript service has been unavailable since May 2015. In March 2016, IRS stated that as part of its ongoing security review, it had temporarily suspended the Identity Protection Personal Identification Number (IP PIN) service on IRS.gov. The IP PIN is a single-use identification number provided to taxpayers who are victims of identity theft (IDT) to help prevent future IDT refund fraud. The service on IRS's website allowed taxpayers to retrieve their IP PINs online by passing IRS's authentication checks. These checks confirm taxpayer identity by asking for personal, financial, and tax-related information. The IRS stated that it was conducting further review of the IP PIN service and is looking at further strengthening the security features. As of April 7, the online service was still suspended. As we reported in March 2016, IRS has implemented numerous protections over key financial and tax processing systems; however, it had not always effectively implemented access and other controls, including elements of its information security program. Access controls are intended to prevent, limit, and detect unauthorized access to computing resources, programs, information, and facilities. They include identification and authentication, authorization, cryptography, audit and monitoring, and physical security, among others. In our most recent review we determined that IRS had improved access controls, but some weaknesses remain. Identifying and authenticating users--such as through user account-password combinations--provides the basis for establishing accountability and controlling access to a system. IRS established policies for identification and authentication, including requiring multifactor authentication for local and network access accounts and establishing password complexity and expiration requirements. It also improved identification and authentication controls by, for example, expanding the use of an automated mechanism to centrally manage, apply, and verify password requirements. However, weaknesses in identification and authentication controls remained. For example, the agency used easily guessable passwords on servers supporting key systems. In addition, while IRS continued to expand the use of two- factor access to its network, the Treasury Inspector General for Tax Administration reported that IRS had not fully implemented unique user identification and authentication or remote electronic authentication that complies with federal requirements. Authorization controls limit what actions users are able to perform after being allowed into a system and should be based on the concept of "least privilege," granting users the least amount of rights and privileges necessary to perform their duties. While IRS established policies for authorizing access to its systems, it continued to permit excessive access in some cases. For example, users were granted rights and permissions in excess of what they needed to perform their duties, including for an application used to process electronic tax payment information and a database on a human resources system. Cryptography controls protect sensitive data and computer programs by rendering data unintelligible to unauthorized users and protecting the integrity of transmitted or stored data. IRS policies require the use of encryption, and the agency continued to expand its use of encryption to protect sensitive data. However, key systems we reviewed had not been configured to encrypt sensitive user authentication data. Audit and monitoring is the regular collection, review, and analysis of events on systems and networks in order to detect, respond to, and investigate unusual activity. IRS established policies and procedures for auditing and monitoring its systems and continued to enhance its capability by, for example, implementing an automated mechanism to log user activity on its access request and approval system. But it had not established logging for two key applications used to support the transfer of financial data and access and manage taxpayer accounts; nor was the agency consistently maintaining key system and application audit plans. Physical security controls, such as physical access cards, limit access to an organization's overall facility and areas housing sensitive IT components. IRS established policies for physically protecting its computer resources and physical security controls at its enterprise computer centers, such as a dedicated guard force at each of its computer centers. However, the agency had yet to address weaknesses in its review of access lists for both employees and visitors to sensitive areas. IRS also had weaknesses in configuration management controls, which are intended to prevent unauthorized changes to information system resources (e.g., software and hardware) and provide assurance that systems are configured and operating securely. Specifically, while IRS developed policies for managing the configuration of its IT systems and improved some configuration management controls, it did not, for example, ensure security patch updates were applied in a timely manner to databases supporting two key systems we reviewed, including a patch that had been available since August 2012. To its credit, IRS had established contingency plans for the systems we reviewed, which help ensure that when unexpected events occur critical operations can continue without interruption or can be promptly resumed, and that information resources are protected. Specifically, IRS had established policies for developing contingency plans for its information systems and for testing those plans, as well as for implementing and enforcing backup procedures. Moreover, the agency had documented and tested contingency plans for its systems and improved continuity of operations controls for several systems. Nevertheless, the control weaknesses can be attributed in part to IRS's inconsistent implementation of elements of its agency-wide information security program. The agency established a comprehensive framework for its program, including assessing risk for its systems, developing system security plans, and providing employees with security awareness and specialized training. However, IRS had not updated key mainframe policies and procedures to address issues such as comprehensively auditing and monitoring access. In addition, the agency had not fully mitigated previously identified deficiencies or ensured that its corrective actions were effective. During our most recent review, IRS told us it had completed corrective actions for 28 of our prior recommendations; however, we determined that 9 of these had not been effectively implemented. The collective effect of the deficiencies in information security from prior years that continued to exist in fiscal year 2015, along with the new deficiencies we identified, are serious enough to merit the attention of those charged with governance of IRS and therefore represented a significant deficiency in IRS's internal control over financial reporting systems as of September 30, 2015. To assist IRS in fully implementing its agency-wide information security program, we made two new recommendations to more effectively implement security-related policies and plans. In addition, to assist IRS in strengthening security controls over the financial and tax processing systems we reviewed, we made 43 technical recommendations in a separate report with limited distribution to address 26 new weaknesses in access controls and configuration management. Implementing these recommendations--in addition to the 49 outstanding recommendations from previous audits--will help IRS improve its controls for identifying and authenticating users, limiting users' access to the minimum necessary to perform their job-related functions, protecting sensitive data when they are stored or in transit, auditing and monitoring system activities, and physically securing its IT facilities and resources. Table 1 below provides the number of our prior recommendations to IRS that were not implemented at the beginning of our fiscal year 2015 audit, how many were resolved by the end of the audit, new recommendations, and the total number of outstanding recommendations at the conclusion of the audit. In commenting on drafts of the reports presenting the results of our fiscal year 2015 audit, the IRS Commissioner stated that while the agency agreed with our new recommendations, it will review them to ensure that its actions include sustainable fixes that implement appropriate security controls balanced against IT and human capital resource limitations. We have also previously reported that IRS can take steps to improve its response to data breaches involving the inappropriate disclosure--or potential disclosure--of personally identifiable information. Specifically, in December 2013 we reported on the extent to which data breach policies at eight agencies, including IRS, adhered to requirements and guidance set forth by OMB and NIST. While the agencies in our review generally had policies and procedures in place that reflected the major elements of an effective data breach response program, implementation of these policies and procedures was not consistent. With respect to IRS, we determined that its policies and procedures generally reflected key practices, although the agency did not require considering the number of affected individuals as a factor when determining if affected individuals should be notified of a suspected breach. In addition, IRS did not document lessons learned from periodic analyses of its breach response efforts. We recommended that IRS correct these weaknesses, but the agency has yet to fully address them. The importance of protecting taxpayer information is further highlighted by the billions of dollars that have been lost to IDT refund fraud, which continues to be an evolving threat. IDT refund fraud occurs when a refund-seeking fraudster obtains an individual's Social Security number, date of birth, or other PII and uses it to file a fraudulent tax return seeking a refund. This crime burdens legitimate taxpayers because authenticating their identities is likely to delay the processing of their tax returns and refunds. Moreover, the victim's PII can potentially be used to commit other crimes. Given current and emerging risks, in 2015 we expanded our high-risk area on the enforcement of tax laws to include IRS's efforts to address IDT refund fraud. IRS develops estimates of the extent of IDT refund fraud to help direct its efforts to identify and prevent the crime. While its estimates have inherent uncertainty, IRS estimated that it prevented or recovered $22.5 billion in fraudulent IDT refunds in filing season 2014. However, it also estimated that it paid $3.1 billion in fraudulent IDT refunds. IRS has taken steps to address IDT refund fraud; however, it remains a persistent and evolving threat. For example in its fiscal year 2014-2017 strategic plan, IRS increased resources dedicated to combating IDT and other types of refund fraud. In 2015, IRS reported allocating more than 4,000 full-time equivalent staff and spending $470 million on refund fraud and IDT activities. In addition, IRS received an additional $290 million for fiscal year 2016 to improve customer service, IDT identification and prevention, and cybersecurity efforts. The agency has also taken actions to improve customer service related to IDT fraud by, for example, providing an increased level of service to taxpayers calling its identity theft toll-free phone line. In addition, IRS has worked with tax preparation professionals, states, and financial institutions to better detect and prevent IDT fraud. These efforts notwithstanding, fraudsters continue to adapt their schemes to identify weaknesses in IDT defense, such as by gaining access to taxpayers' tax return transcripts through IRS's online Get Transcript service. According to IRS officials, this allows fraudsters to create historically consistent returns that are hard to distinguish from one filed by a legitimate taxpayer. These continuing challenges highlight the need for additional actions by IRS. As we have reported, there are steps IRS can take to, among other things, better authenticate the identity of taxpayers before issuing refunds. In January 2015 we reported that IRS's authentication tools have limitations. For example, individuals could obtain an e-file PIN by providing their name, Social Security number, date of birth, address, and filing status for IRS's e-file PIN application. Identity thieves can easily find this information, allowing them to bypass some, if not all, of IRS's automatic checks. After filing an IDT return using an e-file PIN, the fraudster could file a fraudulent return through IRS's normal return processing. Accordingly, we recommended that IRS assess the costs, benefits, and risks of its authentication options. In November 2015, IRS officials told us that the agency had developed guidance for its Identity Assurance Office to assess costs, benefits, and risk of authentication tools. In February 2016, officials told us that this office plans to complete a strategic plan for taxpayer authentication across the agency in September 2016. Until it completes these steps, IRS will lack key information to make decisions about whether and how much to invest in authentication options. Under FISMA, the Director of OMB is responsible for developing and overseeing the implementation of policies, principles, standards, and guidelines on information security in federal agencies, except with regard to national security and certain other systems. The director is also responsible for coordinating the development of standards and guidelines by NIST. For its part, NIST is responsible under FISMA for developing security standards and guidelines for agencies that include standards for categorizing information and information systems according to ranges of impact levels, minimum security requirements for information and information systems in risk categories, guidelines for detection and handling of information security incidents, and guidelines for identifying an information system as a national security system. Accordingly, OMB and NIST have prescribed policies, standards, and guidelines that are intended to assist federal agencies with identifying and providing information security protections commensurate with the risk and magnitude of harm resulting from the unauthorized access, use, disclosure, alteration, and destruction of information and information systems, including those systems operated by a contractor or others on behalf of the agency. These include the following: OMB M-14-03, Enhancing the Security of Federal Information and Information Systems, which provides agencies with direction for managing information security risk on a continuous basis, including requirements for establishing information security continuous monitoring programs. NIST, Federal Information Processing Standard 199, Standards for Security Categorization of Federal Information and Information Systems, requires agencies to categorize their information systems as low-impact, moderate-impact, or high-impact for the security objectives of confidentiality, integrity, and availability. NIST Federal Information Processing Standard 200, Minimum Security Requirements for Federal Information and Information Systems, specifies minimum security requirements for federal agency information and information systems and a risk-based process for selecting the security controls necessary to satisfy these requirements. NIST Special Publication 800-53, Security and Privacy Controls for Federal Information Systems and Organizations, provides a catalog of security and privacy controls for federal information systems and organizations and a process for selecting controls. OMB and NIST also have provided guidance to agencies on procedures for authenticating users to federal systems and websites, including the following: OMB M-15-13, Policy to Require Secure Connections across Federal Websites and Web Services, which requires all publicly accessible federal websites and web services to provide service through a secure connection. OMB M-04-04, E-Authentication Guidance for Federal Agencies, which addresses federal government services accomplished using the Internet, instead of on paper, and calls for identity verification or authentication to make sure that online government services are secure and protect privacy. This guidance established four levels of identity assurance for electronic transactions requiring authentication. Each level describes the agency's degree of certainty that a user has presented an identifier that refers to his or her identity: Level 1: little or no confidence in the asserted identity's validity. Level 2: some confidence in the asserted identity's validity. Level 3: high confidence in the asserted identity's validity. Level 4: very high confidence in the asserted identity's validity. NIST Special Publication 800-63-2, Electronic Authentication Guideline, provides technical guidelines for federal agencies implementing electronic authentication and covers remote authentication of users (such as employees, contractors, or private individuals) interacting with government IT systems over open networks. Specifically, it provides technical requirements for agencies to use in selecting technology to achieve specified levels of e- authentication assurance, as defined by OMB and illustrated by the following examples: Level 1: Identity proofing is not required. Successful authentication occurs when an individual proves through the means of authentication that he or she possesses and controls the token. The cryptographic methods used at this level may still allow someone with malicious intent to intercept the transmission of a password through eavesdropping and crack it using a dictionary attack (i.e., guessing a password through trial-and-error using a dictionary). Level 2: Requires single-factor remote authentication, using one of three factors--something you know (e.g., a password), something you have (e.g., an identification badge), or something you are (e.g., a fingerprint). Identity proofing requirements are introduced, requiring presentation of identifying materials or information. Approved cryptographic methods would not allow the type of eavesdropping attack that is possible at Level 1. Level 3: Requires multi-factor remote authentication, requiring at least two authentication factors. An individual proves possession of a physical or software token in combination with some memorized knowledge. Approved cryptographic methods should be strong enough to protect against impersonation of the verifying entity. Level 4: Is intended to provide the highest practical remote network authentication assurance, requiring the proof of possession of a key through a cryptographic protocol. At this level in-person identity proofing is required. It is otherwise similar to Level 3, except with stronger cryptographic methods in place. Federal law also gives OMB and DHS responsibility and authority for oversight of operational aspects of federal information security. In particular, the OMB Director is charged with overseeing and enforcing agency compliance with information security requirements by taking certain actions authorized by relevant federal law (discussed in more detail below), and OMB has developed various mechanisms to carry out its oversight function. Budgetary authority: Federal law gives OMB the power of enforcement and accountability related to evaluating agencies' management of their information resources, which includes ensuring that information security policies, procedures, and practices are adequate. In particular, in enforcing accountability, OMB is empowered to recommend reductions or increases in an agency's budget and restrict the availability of funds for information resources, among other things. OMB Cyber Unit: In fiscal year 2015, OMB established the OMB Cyber and National Security Unit (OMB Cyber) within the Office of the Federal Chief Information Officer. This unit is responsible for strengthening federal cybersecurity through oversight of agency and government-wide programs, issuing and implementing policies to address emerging IT security risks, and oversight of government-wide response to major incidents and vulnerabilities. CyberStat Reviews: OMB has also established the "CyberStat Review" process, which involves evidence-based meetings led by OMB to ensure agencies are accountable for their cybersecurity posture, while assisting them in developing targeted, tactical actions to deliver results. FISMA reporting: As required by FISMA, OMB reports annually to Congress on the effectiveness of information security policies and practices at executive branch agencies during the preceding year and a summary of evaluations conducted by agency inspectors general. Regarding DHS, the Federal Information Security Modernization Act of 2014 codified its responsibility for certain operational aspects of federal agency cybersecurity. In particular, DHS is responsible for administering, in consultation with OMB, the implementation of agency information security policies and practices for information systems (other than national security systems, Department of Defense, and the intelligence community's "debilitating impact" systems); developing, issuing, and overseeing the implementation of binding operational directives to agencies on matters such as incident reporting, contents of agency's annual reports, and other operational requirements; and operating the federal information security incident center (the U.S Computer Emergency Readiness Team or US-CERT), deploying technology to continuously diagnose and mitigate threats, compiling and analyzing data, and developing and conducting targeted operational evaluations, including threat and vulnerability assessments of systems. In May 2015 DHS issued its first directive, which required all departments and agencies to review and mitigate all critical vulnerabilities on their Internet-facing systems. DHS identifies these vulnerabilities using scanning tools and reports the results to agencies on a weekly basis. Agencies are then required to mitigate the DHS-identified vulnerabilities within 30 days of the report, or provide a justification to DHS outlining barriers, planned steps for resolution, and a time frame for mitigation. DHS has also supplied agencies with tools and technologies to assist in protecting against cyber threats and vulnerabilities. For example: Continuous Diagnostics and Mitigation Program: Since fiscal year 2013, DHS has provided agencies the opportunity to use a suite of tools and capabilities to identify cybersecurity risks on an ongoing basis, prioritize these risks based on potential impacts, and enable cybersecurity personnel to mitigate the most significant problems first. National Cybersecurity Protection System: NCPS is an integrated system-of-systems intended to deliver a range of capabilities for intrusion detection, intrusion prevention, analytics, and information sharing. When deployed on an agency's connection to the Internet, the system monitors inbound and outbound traffic for malicious activity. In summary, while IRS has made progress in implementing information security controls, it needs to continue to address weaknesses in access controls and configuration management and consistently implement all elements of its information security program. The risks IRS is exposed to have been illustrated by recent incidents involving public-facing applications, highlighting the importance of securing systems that contain sensitive taxpayer and financial data. In addition, fully implementing key elements of a breach response program will help ensure that when breaches of sensitive data do occur, their impact on affected individuals will be minimized. IRS also needs to assess the costs, benefits, and risks of alternatives for better authenticating taxpayers who access its systems. Finally, strengthening the security posture of IRS--and other agencies-- also depends on the key roles played by OMB, NIST, and DHS in providing oversight and guidance from a government-wide perspective, such as that related to improving authentication. Chairwoman Comstock, Ranking Member Lipinski, and Members of the Subcommittee, this concludes my statement. I would be happy to answer any questions you have. If you have any questions regarding this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected], Nancy Kingsbury at (202) 512-2928 or [email protected], or James R. McTigue, Jr. at (202) 512-9110 or [email protected]. Other key contributors to this statement include Jeffrey Knott, Larry Crosland, John de Ferrari, and Neil A. Pinney (assistant directors); Dawn E. Bidne; Mark Canter; James Cook, Shannon J. Finnegan; Lee McCracken; Justin Palk; J. Daniel Paulk; Monica Perez-Nelson; David Plocher; Erin Saunders Rath; and Daniel Swartz. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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In collecting taxes, processing returns, and providing taxpayer service, IRS relies extensively on computerized information systems. Accordingly, it is critical that sensitive taxpayer and other data are protected. Recent data breaches at IRS highlight the vulnerability of taxpayer information. In addition, identity theft refund fraud is an evolving threat that occurs when a thief files a fraudulent tax return using a legitimate taxpayer's identity and claims a refund. Since 1997, GAO has designated federal information security as a government-wide high-risk area, and in 2015 it expanded this area to include the protection of personally identifiable information. GAO also added identity theft refund fraud to its high-risk area on the enforcement of tax laws. This statement discusses (1) IRS's information security controls over tax processing and financial systems and (2) roles that federal agencies with government-wide information security responsibilities play in providing guidance and oversight to agencies. This statement is based on previously published GAO work and a review of federal guidance. In March 2016 GAO reported that the Internal Revenue Service (IRS) had instituted numerous controls over key financial and tax processing systems; however, it had not always effectively implemented safeguards intended to properly restrict access to systems and information. In particular, while IRS had improved some of its access controls, weaknesses remained with identifying and authenticating users, authorizing users' level of rights and privileges, encrypting sensitive data, auditing and monitoring network activity, and physically securing its computing resources. These weaknesses were due in part to IRS's inconsistent implementation of its agency-wide security program, including not fully implementing GAO recommendations. The table below shows the status of prior and new GAO recommendations as of the end of its fiscal year (FY) 2015 audit of IRS's information security. GAO concluded that these weaknesses collectively constituted a significant deficiency for the purposes of financial reporting for fiscal year 2015. Until they are effectively mitigated, taxpayer and financial data will continue to be exposed to unnecessary risk. The importance of protecting taxpayer information is further highlighted by the billions of dollars that have been lost to identity theft refund fraud, which continues to be an evolving threat. While IRS has taken steps to address this issue, as GAO reported in January 2015 it has yet to assess the costs, benefits, and risks of methods for improving the authentication of taxpayers' identity. The Office of Management and Budget (OMB), National Institute of Standards and Technology (NIST) and the Department of Homeland Security (DHS) provide government-wide guidance and oversight for federal information security. These agencies have taken a number of actions to carry out these responsibilities. For example: OMB has prescribed security policies, including direction on ensuring that online services provided by agencies are secure and protect privacy. NIST has developed standards and guidelines for implementing security controls, including those for authenticating users during online transactions. DHS has issued a directive requiring departments and agencies to mitigate critical vulnerabilities on their Internet-facing systems. It also assists agencies in monitoring their networks for malicious traffic. In addition to 49 prior recommendations that had not been implemented, GAO made 45 new recommendations to IRS in March 2016 to further improve its information security controls and program. GAO also recommended that IRS assess costs, benefits, and risks of taxpayer authentication options.
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In 1993, the most recent year for which published Uniform Crime Reporting data were available, there were 142,520 arrests in the United States for forcible rape and other sexual offenses. Public alarm about sex crimes has prompted legislative activity at both the state and federal levels. Since 1994, 49 states have enacted laws requiring sex offenders to register their addresses with state or local law enforcement officials, and 30 states have adopted provisions for notifying citizens of the presence of a sex offender in their community. In December 1995, Public Law 104-71, the Sex Crimes Against Children Prevention Act of 1995, was passed. This act increased penalties against those who sexually exploit children either by engaging in certain conduct or via computer use, as well as those who transport children with the intent to engage in criminal sexual activity. In May 1996, the Violent Crime Control and Law Enforcement Act of 1994 was amended to require the release of relevant information to protect the public from sexually violent offenders who reside in their communities. The act, Public Law 104-145, also known as "Megan's Law," requires community notification of the presence of convicted sex offenders. A 1994 survey by the Safer Society, a resource and referral center for sex offender assessment and treatment, indicated that there were 710 sex offender programs in the United States that treated adult pedophiles, rapists, and other sexual offenders. This number represented a 139-percent increase in the number of treatment programs since 1986. Of these, 137 were residential treatment programs (90 being prison-based), and 573 were outpatient or community-based programs. There are three general types of treatment approaches: the organic, biological, or physical approach includes surgical castration, hormonal/pharmacological treatment, and psychosurgery; the psychotherapeutic approach includes individual, group, and familial counseling; and the cognitive-behavioral approach covers a variety of cognitive and skills training methods and includes behavior control techniques. Psychotherapeutic treatment was the primary approach to treating sex offenders before the 1960s. Today, cognitive-behavioral approaches predominate. According to the Safer Society's 1994 survey, 77 percent of sex offender programs used the cognitive-behavioral approach, 9 percent used the psychotherapeutic approach, and 14 percent used other treatment models. No program reported using the organic model alone as the basis for treatment. Conducting rigorous research on the effectiveness of sex offender treatment is difficult for methodological and ethical reasons. Methodological obstacles include difficulty in selecting a sample of offenders for treatment who are representative of all sex offenders, obtaining adequate comparison or control groups against which to compare offenders receiving treatment, determining how to deal with offenders who withdraw or are terminated from treatment, and determining what criteria to use for judging the success or failure of treatment and information sources to use in making this determination.According to Furby, Blackshaw, and Weinrott (1989), conditions are not often conducive to doing rigorous sex offender treatment research. Rather than designing study samples and data collection procedures to meet the information needs of their studies, evaluators are often forced by short time frames and inadequate funding into using samples and data sources that are readily available. Ethical issues arise when researchers must decide which offenders should be admitted into the treatment program. If treatment is withheld from some eligible offenders, they may be precluded from receiving the benefits of a potentially therapeutic intervention. If treatment is provided to all offenders, then the treatment's efficacy cannot be well-tested empirically, and scarce resources may be expended on an ineffective program. Comparing alternative treatment conditions is one way to resolve the ethical dilemma. We collected, reviewed, and analyzed information from 22 research reviews on sex offender treatment issued between 1977 and 1996. These reviews were identified through a multistep process that included contacting known experts in the sex offense research field, conducting computerized searches of several online databases, and screening hundreds of studies on sex offender treatment. We sent the list of reviews to seven experts in the field to confirm the comprehensiveness of our list of research reviews. We used a data collection instrument to systematically collect information on treatment settings and types, offender types, recidivism measures, methodology issues, follow-up periods, and conclusions reached from these reviews. (See app. I for a more detailed description of our methodology.) We sent a draft of this report to three of the experts previously consulted to ensure that we had presented the information about the reviews fairly and accurately. Their comments were incorporated where appropriate. We did not send a draft to any other agency or organization because we did not obtain information from such organizations for use in this study. We did our work between October 1995 and March 1996 in accordance with generally accepted government auditing standards. The 22 research reviews covered about 550 studies on sex offenders. Of these studies, 176 were cited in 2 or more reviews, and 26 were cited in 5 or more reviews. Given the widely varying levels of detail provided in the research reviews, we could not always determine whether reference was being made to a study of sex offender treatment or to other types of studies on sex offenders (e.g., recidivism studies on untreated offenders and studies attempting to identify sex offender characteristics). Therefore, we could not precisely determine the total number of studies on sex offender treatment covered in these research reviews. We also did not determine how many studies covered in the 22 research reviews were duplicative in terms of researchers publishing multiple articles based on the same set of data. At least 10 reviews were authored or coauthored by individuals affiliated with a sex offender treatment program. The earliest study included in a research review was published in 1944, the most recent in 1996. Almost all of the research reviews provided narrative assessments of original research studies, with approximately one-half also providing a tabular summary of at least some of the studies covered. Only one review performed a meta-analysis, which is a statistical aggregation of the results from multiple studies to derive an overall quantitative estimate of the effectiveness of treatment. Most research reviews did not restrict their coverage to a single type of treatment, treatment setting, or offender type. Two focused primarily on a specific treatment setting--one on prison-based treatment programs and the other on hospital-based programs. Nine focused primarily on cognitive-behavioral approaches, five on organic treatment, and one on psychotherapeutic treatment methods. Half of the reviews included studies on offenders who committed intrafamilial crimes, while others were not always clear whether the offense was intrafamilial or nonfamilial. In assessing recidivism results, most research reviews considered whether findings were based on official (e.g., parole violation, rearrest, reconviction) or unofficial (e.g., self-report, report from family members) indicators of outcome. When official data sources were described in the research reviews, conviction for a new sex crime was the single most frequently cited recidivism measure. In many cases, however, the review did not specify whether the original study used arrest and/or conviction for a sex or nonsex crime as the recidivism measure. As indicated earlier, sometimes this was because the original study itself was unclear about how recidivism was measured. Some of the research reviews concluded that treated offenders had lower recidivism rates than untreated offenders. Others felt that the studies undertaken were so flawed that no firm conclusions could be drawn. Many reviewers seemed to be somewhere in between. They tended to conclude that, while some recent treatment approaches appeared promising, more rigorous research was needed to firmly establish their effectiveness. These reviewers asserted that the more rigorous research should employ larger and more representative samples of treated and untreated offenders, with longer follow-up periods and with better indicators of recidivism. Eighteen of the 22 research reviews included some discussion of cognitive-behavioral programs, and 12 of the 18 concluded that such programs were at least somewhat effective. These types of programs typically involved satiation, aversion conditioning, covert sensitization, and relapse prevention techniques either used alone or, more often, in combination with one another. Reviewers who concluded that cognitive-behavioral programs were effective often emphasized different components as being the source of their efficacy and differed in terms of what types of offenders they were most effective in treating. One reviewer, for example, concluded that deviant sexual behavior could be reduced by techniques involving covert sensitization, aversion therapy, and a combination of the two. Another set of reviewers concluded that comprehensive cognitive/behavioral programs, particularly when administered to exhibitionists and molesters, held the greatest promise for effective sex offender treatment. The National Research Council reported in 1994 that anger management may be appropriate for dealing with violent individuals, but that "it has not been demonstrated that, in fact, such techniques can alter a long-term pattern of sexually aggressive behavior." Seventeen of the 22 research reviews discussed organic treatments, and 6 of the 17 concluded that there was some evidence of effectiveness. However, there was no consensus even among these reviewers about a particular drug being most effective, nor about the duration of positive effects from such interventions. Fifteen of the 22 research reviews discussed psychotherapeutic approaches to treatment. None concluded that the various forms of counseling that characterize this approach were sufficient by themselves to substantially alter the behavior of sex offenders. However, a number of reviewers indicated that psychotherapy was useful in diminishing recidivism when used in conjunction with other treatments. Only two reviews attempted to quantify the overall benefit of treatment programs. A 1990 report by the Canadian Solicitor General stated: "A reasonable conclusion . . . is that treatment can be effective in reducing recidivism from about 25% to 10-15%." The only known and available meta-analysis, or statistical aggregation, of treatment studies to date concluded that "the net effect of the sexual offender treatment programs examined . . . is 8 fewer sexual offenders per 100" (Hall, 1995). Both of these reviews included a range of sex offender types, treatment settings, and programs. They did not identify any particular subgroup of sex offenders for whom treatment was more effective. Most reviewers, even those who were quite positive about the promise of sex offender treatment programs, felt that more work was needed before firm conclusions could be reached. They cited the methodological limitations of studies as the major obstacle to drawing firm conclusions about treatment effectiveness. Even those reviewers who appeared to be among the most positive and optimistic (at least regarding cognitive/ behavioral programs) echoed the general sentiment that "there are no conclusive data available from completely methodologically sound research" (Marshall and Anderson, unpublished). The research reviews found that conclusions about the effectiveness of treatment programs were impeded by methodological weaknesses in the implementation and reporting of the studies. The problems identified may be grouped into three broad categories: (1) limitations in the methodological design of studies, (2) limitations in the recidivism measures used, and (3) limitations in how the studies were reported. Nearly all of the reviews identified weaknesses in the study design as a problem with sex offender treatment research. While numerous design problems were identified, two were most recurrent. Of the 22 reviews, 15 were critical of the absence of comparison or control groups, and 12 were critical of follow-up periods that were inadequate in duration. In addition, 5 were critical of the inconsistent duration of follow-up periods. To meaningfully interpret recidivism results, it is important for an effectiveness study to use a comparison group that is similar on key characteristics to the treatment group. Using a comparison group helps answer such questions as (1) what would recidivism rates have been without treatment and (2) what factors, other than the treatment program alone, may have affected recidivism? For example, such studies may find that treatment volunteers, those with significant community ties, and/or older offenders may have lower recidivism rates, even without treatment, than other types of offenders. Without a comparable no-treatment group of offenders against which to benchmark the results of the treatment group, it is difficult to know how much of an impact, if any, the treatment program had on recidivism. The reviews found that, in the absence of comparison groups, researchers sometimes compared the recidivism rates obtained in their study against those obtained in other studies. However, explanations other than treatment and study characteristics could have accounted for different recidivism rates in these studies. These include differences in sex offense reporting rates, apprehension levels, and prosecutorial policies across different jurisdictions and study periods. Research has shown that sex crimes are underreported and that the longer the follow-up period, the more accurate the assessment of recidivism. One reviewer noted that "Recidivism rates are most meaningful if they cover at least a five-year period, postincarceration" (Becker, 1994), while another suggested that "studies that follow up offenders for periods of as short as 5 years or less may be producing substantial underestimates of true rates of recidivism" (Finkelhor, 1986). Although we cannot be precise about the average length of follow-up because the research reviews did not report it in a systematic fashion, it appears that many of the studies covered in the reviews involved follow-up periods of less than 5 years. Not only can follow-up periods be too short to accurately measure recidivism rates, reviewers also found it difficult to compare the outcomes of different studies because the studies varied in the amount of time they tracked offenders after treatment and no statistical analyses were performed to account for the differences. Studies reported recidivism rates after 3 months, 1 year, 4 years, 15 years, etc. Follow-up periods even varied within a single study. Offenders were reportedly at risk for periods ranging from 1 month to 20 years in a single study. While a short follow-up period may not invalidate comparisons between similar treatment and control groups, the recidivism rate obtained for both groups is likely to be an underestimate of the true recidivism rate, because offenders are more likely to be reported and apprehended for their sex crimes in the long run than in the short run. Many of the reviews identified other weaknesses in the research design of sex offender treatment studies. These weaknesses included selection bias (e.g., program participants were selected because they volunteered, so study results may not have been generalizable to nonvolunteers), the use of small study samples, and failure to consider attrition from treatment in determining how outcome data were analyzed. An ongoing study of institutionalized sex offenders in California was cited by several research reviews and experts in the field as employing a research design that attempts to control for many of the methodological problems besetting other studies. (The design and preliminary findings from this evaluation are described in app. II.) The validity of conclusions about treatment effectiveness is greatly affected by which data sources are used to measure outcome. Given that research has indicated that sex offenses are underreported, that a single data source is likely to be incomplete, and that some data sources are less reliable than others, the fewer and less reliable the data sources on which recidivism measures are based, the greater the likelihood that recidivism rates will be underestimated. Nearly three-fourths of the research reviews pointed out the problem of studies relying on too few data sources to measure recidivism. The reviews criticized studies that relied solely on either official records or offender self-reports to determine whether program participants had reoffended. They stated that both official records and self-reports are likely to contain measurement error. For example, both arrest and conviction records are likely to yield underestimates of recidivism if sex offenses are underreported. Self-report recidivism information may be unreliable. Such limitations in data sources would not affect the scientific validity of comparing the recidivism rates of treated and untreated offenders since both groups would be affected equally. However, these limitations could affect the accuracy of the recidivism estimates. Consequently, it is advisable to use multiple data sources to overcome the weakness of each single data source. The operational definition of recidivism also has a significant bearing on the results obtained from outcome studies. In some cases, recidivism was defined as a rearrest or conviction for a sex offense; in others, it was defined as rearrest or conviction for any offense. In still other cases, recidivism was defined only as a rearrest, or only as a reconviction, with the nature of the crime unspecified. There seemed to be little consensus among reviewers about what an optimal indicator of recidivism would be. As a result, it was difficult to determine whether, and by how much, sex offender treatment reduced recidivism. Nearly half of the reviews indicated some type of limitation in how sex offender treatment studies were reported. The most frequently indicated limitations included inadequate descriptions of the treatment programs, failure to report the criteria used to select study participants, and inadequate descriptions of recidivism measures. In the absence of such information, it is exceedingly difficult to synthesize the state of knowledge of sex offender treatment research. For example, without knowing the contents of a program or how program participants were selected for it, the ability to replicate the study and determine whether results are generalizable is diminished. Without knowing precisely how recidivism was measured in a study renders comparisons between it and other studies meaningless. A substantial number of studies have been done on sex offender treatment effectiveness, many of which were assessed in the research reviews described and synthesized in this report. The most optimistic reviews concluded that some treatment programs showed promise for reducing deviant sexual behavior. However, nearly all reported that definitive conclusions could not be drawn because methodological weaknesses in the research made inferences about what works uncertain. There was consensus that to demonstrate the effectiveness of sex offender treatment more and better research would be required. Copies of this report will be made available to others upon request. The major contributors to this report are listed in appendix IV. Please call me at (202) 512-8777 if you have any questions.
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Pursuant to a congressional request, GAO reviewed research results on the effectiveness of sex offender treatment programs in reducing recidivism. GAO noted that: (1) all of the research studies reviewed provided qualitative and quantitative summaries of sex offender treatment programs; (2) nearly all of the studies identified limitations in evaluating treatment effectiveness; (3) there was no consensus as to which treatment reduces recidivism; (4) the cognitive-behavioral treatment approach works well in treating child molesters and exhibitionists, but treatment effectiveness depends on the type of offender and treatment setting; (5) researchers did not engage in comparison studies to measure recidivism rates because of the studies' inconsistent measurements; (6) the research reports lacked sufficient descriptive information on how program participants are selected and recidivism measured; and (7) definitive conclusions could not be drawn about deviant sexual behavior because certain methodological weaknesses have underscored inferences.
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Information technology should enable government to better serve the American people. However, despite spending hundreds of billions on IT since 2000, the federal government has experienced failed IT projects and has achieved little of the productivity improvements that private industry has realized from IT. Too often, federal IT projects run over budget, behind schedule, or fail to deliver results. In combating this problem, proper oversight is critical. Both OMB and federal agencies have key roles and responsibilities for overseeing IT investment management and OMB is responsible for working with agencies to ensure investments are appropriately planned and justified. However, as we have described in numerous reports, although a variety of best practices exist to guide their successful acquisition, federal IT projects too frequently incur cost overruns and schedule slippages while contributing little to mission-related outcomes. Agencies have reported that poor-performing projects have often used a "big bang" approach--that is, projects that are broadly scoped and aim to deliver capability several years after initiation. For example, in 2009 the Defense Science Board reported that the Department of Defense's (Defense) acquisition process for IT systems was too long, ineffective, and did not accommodate the rapid evolution of IT. The board reported that the average time to deliver an initial program capability for a major IT system acquisition at Defense was over 7 years. Each year, OMB and federal agencies work together to determine how much the government plans to spend on IT projects and how these funds are to be allocated. As reported to OMB, federal agencies plan to spend more than $82 billion on IT investments in fiscal year 2014, which is the total expended for not only acquiring such investments, but also the funding to operate and maintain them. Of the reported amount, 27 federal agencies plan to spend about $75 billion, $17 billion on development and acquisition and $58 billion on operations and maintenance (O&M). Figure 1 shows the percentages of total planned spending for 2014 for the $75 billion spent on development and O&M. However, this $75 billion does not reflect the spending of the entire federal government. We have previously reported that OMB's figure understates the total amount spent in IT investments. Specifically, it does not include IT investments by 58 independent executive branch agencies, including the Central Intelligence Agency, or by the legislative or judicial branches. Further, agencies differed on what they considered an IT investment; for example, some have considered research and development systems as IT investments, while others have not. As a result, not all IT investments are included in the federal government's estimate of annual IT spending. OMB provided guidance to agencies on how to report on their IT investments, but this guidance did not ensure complete reporting or facilitate the identification of duplicative investments. Consequently, we recommended, among other things, that OMB improve its guidance to agencies on identifying and categorizing IT investments. Further, over the past several years, we have reported that overlap and fragmentation among government programs or activities could be harbingers of unnecessary duplication. Thus, the reduction or elimination of duplication, overlap, or fragmentation could potentially save billions of tax dollars annually and help agencies provide more efficient and effective services. OMB has implemented a series of initiatives to improve the oversight of underperforming investments, more effectively manage IT, and address duplicative investments. These efforts include the following: IT Dashboard. Given the importance of transparency, oversight, and management of the government's IT investments, in June 2009, OMB established a public website, referred to as the IT Dashboard, that provides detailed information on 760 major IT investments at 27 federal agencies, including ratings of their performance against cost and schedule targets. The public dissemination of this information is intended to allow OMB; other oversight bodies, including Congress; and the general public to hold agencies accountable for results and performance. Among other things, agencies are to submit Chief Information Officer (CIO) ratings, which, according to OMB's instructions, should reflect the level of risk facing an investment on a scale from 1 (high risk) to 5 (low risk) relative to that investment's ability to accomplish its goals. Ultimately, CIO ratings are assigned colors for presentation on the Dashboard, according to the five-point rating scale, as illustrated in table 1. As of April 2014, according to the IT Dashboard, 201 of the federal government's 760 major IT investments--totaling $12.4 billion--were in need of management attention (rated "yellow" to indicate the need for attention or "red" to indicate significant concerns). (See fig. 2.) TechStat reviews. In January 2010, the Federal CIO began leading TechStat sessions--face-to-face meetings to terminate or turnaround IT investments that are failing or are not producing results. These meetings involve OMB and agency leadership and are intended to increase accountability and transparency and improve performance. Subsequently, OMB empowered agency CIOs to hold their own TechStat sessions within their respective agencies. According to the former Federal CIO, the efforts of OMB and federal agencies to improve management and oversight of IT investments have resulted in almost $4 billion in savings. Federal Data Center Consolidation Initiative. Concerned about the growing number of federal data centers, in February 2010 the Federal CIO established the Federal Data Center Consolidation Initiative. This initiative's four high-level goals are to promote the use of "green IT" by reducing the overall energy and real estate footprint of government data centers; reduce the cost of data center hardware, software, and operations; increase the overall IT security posture of the government; and shift IT investments to more efficient computing platforms and technologies. OMB believes that this initiative has the potential to provide about $3 billion in savings by the end of 2015. PortfolioStat. In order to eliminate duplication, move to shared services, and improve portfolio management processes, in March 2012, OMB launched the PortfolioStat initiative. Specifically, PortfolioStat requires agencies to conduct an annual agency-wide IT portfolio review to, among other things, reduce commodity IT spending and demonstrate how their IT investments align with the agency's mission and business functions. PortfolioStat is designed to assist agencies in assessing the current maturity of their IT investment management process, making decisions on eliminating duplicative investments, and moving to shared solutions in order to maximize the return on IT investments across the portfolio. OMB believes that the PortfolioStat effort has the potential to save the government $2.5 billion over the next 3 years by, for example, consolidating duplicative systems. Given the magnitude of the federal government's annual IT budget, which is expected to be more than $82 billion in fiscal year 2014, it is important that agencies leverage all available opportunities to ensure that their IT investments are acquired in the most effective manner possible. To do so, agencies can rely on IT acquisition best practices and initiatives such as OMB's IT Dashboard, and OMB-mandated TechStat sessions. Additionally, agencies can save billions of dollars by continuing to consolidate federal data centers and by eliminating duplicative investments through OMB's PortfolioStat initiative. In 2011, we identified seven successful acquisitions and nine common factors critical to their success, and noted that (1) the factors support OMB's objective of improving the management of large-scale IT acquisitions across the federal government, and (2) wide dissemination of these factors could complement OMB's efforts. Specifically, we reported that federal agency officials identified seven successful acquisitions, in that they best achieved their respective cost, schedule, scope, and performance goals. Notably, all of these were smaller increments, phases, or releases of larger projects. The common factors critical to the success of three or more of the seven acquisitions are generally consistent with those developed by private industry and are identified in table 2. These critical factors support OMB's objective of improving the management of large-scale IT acquisitions across the federal government; wide dissemination of these factors could complement OMB's efforts. The IT Dashboard serves an important role in allowing OMB and other oversight bodies to hold agencies accountable for results and performance. However, we have issued a series of reports highlighting deficiencies with the accuracy and reliability of the data reported on the Dashboard. For example, we reported in October 2012 that Defense had not rated any of its investments as either high or moderately high risk and that in selected cases, these ratings did not appropriately reflect significant cost, schedule, and performance issues reported by GAO and others. We recommended that Defense ensure that its CIO ratings reflect available investment performance assessments and its risk management guidance. Defense concurred and has revised its process to address these concerns. Further, while we reported in 2011 that the accuracy of Dashboard cost and schedule data had improved over time, more recently, in December 2013 we found that agencies had removed investments from the Dashboard by reclassifying their investments--representing a troubling trend toward decreased transparency and accountability. Specifically, the Department of Energy reclassified several of its supercomputer investments from IT to facilities and the Department of Commerce decided to reclassify its satellite ground system investments. Additionally, as of December 2013, the public version of the Dashboard was not updated for 15 of the previous 24 months because OMB does not revise it as the President's budget request is being created. We also found that, while agencies experienced several issues with reporting the risk of their investments, such as technical problems and delayed updates to the Dashboard, the CIO ratings were mostly or completely consistent with investment risk at seven of the eight selected agencies. Additionally, the agencies had already addressed several of the discrepancies that we identified. The final agency, the Department of Veterans Affairs, did not update 7 of its 10 selected investments because it elected to build, rather than buy, the ability to automatically update the Dashboard, and has now resumed updating all investments. To their credit, agencies' continued attention to reporting the risk of their major IT investments supports the Dashboard's goal of providing transparency and oversight of federal IT investments. Nevertheless, the rating issues that we identified with performance reporting and annual baselining, some of which are now corrected, serve to highlight the need for agencies' continued attention to the timeliness and accuracy of submitted information, in order to allow the Dashboard to continue to fulfill its stated purpose. We recommended that agencies appropriately categorize IT investments and that OMB make Dashboard information available independent of the budget process. OMB neither agreed nor disagreed with these recommendations. Six agencies generally agreed with the report or had no comments and two others did not agree, believing their categorizations were appropriate. We continue to believe that our recommendations are valid. TechStat reviews were initiated by OMB to enable the federal government to turnaround, halt, or terminate IT projects that are failing or are not producing results. In 2013, we reported that OMB and selected agencies had held multiple TechStats, but that additional OMB oversight was needed to ensure that these meetings were having the appropriate impact on underperforming projects and that resulting cost savings were valid. Specifically, we determined that as of April 2013, OMB reported conducting 79 TechStats, which focused on 55 investments at 23 federal agencies. Further, 4 selected agencies--the Departments of Agriculture, Commerce, HHS, and DHS--conducted 37 TechStats covering 28 investments. About 70 percent of the OMB-led and 76 percent of agency- led TechStats on major investments were considered medium to high risk at the time of the TechStat. However, the number of at-risk TechStats held was relatively small compared to the current number of medium- and high-risk major IT investments. Specifically, the OMB-led TechStats represented roughly 18.5 percent of the investments across the government that had a medium- or high-risk CIO rating. For the 4 selected agencies, the number of TechStats represented about 33 percent of the investments that have a medium- or high-risk CIO rating. We concluded that until OMB and agencies develop plans to address these weaknesses, the investments would likely remain at risk. In addition, we reported that OMB and selected agencies had tracked and reported positive results from TechStats, with most resulting in improved governance. Agencies also reported projects with accelerated delivery, reduced scope, or termination. We also found that OMB reported in 2011 that federal agencies achieved almost $4 billion in life-cycle cost savings as a result of TechStat sessions. However, we were unable to validate OMB's reported results because OMB did not provide artifacts showing that it ensured the results were valid. Among other things, we recommended that OMB require agencies to report on how they validated the outcomes. OMB generally agreed with this recommendation. In an effort to consolidate the growing number of federal data centers, in 2010, OMB launched a consolidation initiative intended to close 40 percent of government data centers by 2015, and, in doing so, save $3 billion. Since 2011, we have issued a series of reports on the efforts of agencies to consolidate their data centers. For example, in July 2011 and July 2012, we found that agencies had developed plans to consolidate data centers; however, these plans were incomplete and did not include best practices. In addition, although we reported that agencies had made progress on their data center closures, OMB had not determined initiative-wide cost savings, and oversight of the initiative was not being performed in all key areas. Among other things, we recommended that OMB track and report on key performance measures, such as cost savings to date, and improve the execution of important oversight responsibilities, and that agencies complete inventories and plans. OMB agreed with these two recommendations, and most agencies agreed with our recommendations to them. Additionally, as part of ongoing follow-up work, we have determined that while agencies had closed data centers, the number of federal data centers was significantly higher than previously estimated by OMB. Specifically, as of May 2013, agencies had reported closing 484 data centers by the end of April 2013, and were planning to close an additional 571 data centers--for a total of 1,055--by September 2014. However, as of July 2013, 22 of the 24 agencies participating in the initiative had collectively reported 6,836 data centers in their inventories-- approximately 3,700 data centers more than OMB's previous estimate from December 2011. This dramatic increase in the count of data centers highlights the need for continued oversight of agencies' consolidation efforts. OMB launched the PortfolioStat initiative in March 2012, which required 26 executive agencies to, among other things, reduce commodity IT spending and demonstrate how their IT investments align with the agency's mission and business functions. In November 2013, we reported on agencies efforts to complete key required PortfolioStat actions and make portfolio improvements. We noted that all 26 agencies that were required to implement the PortfolioStat initiative took actions to address OMB's requirements. However, there were shortcomings in their implementation of selected requirements, such as addressing all required elements of an action plan to consolidate commodity IT, and migrating two commodity areas to a shared service by the end of 2012. In addition, several agencies had weaknesses in selected areas such as the CIO's authority to review and approve the entire portfolio, and ensuring a complete baseline of information relative to commodity IT. Further, we observed that OMB's estimate of about 100 consolidation opportunities and a potential $2.5 billion in savings from the PortfolioStat initiative was understated because, among other things, it did not include estimates from Defense and the Department of Justice. Our analysis, which included these estimates, showed that, collectively, the 26 agencies reported about 200 opportunities and at least $5.8 billion in potential savings through fiscal year 2015, at least $3.3 billion more than the number initially reported by OMB. In March 2013, OMB issued a memorandum commencing the second iteration of its PortfolioStat initiative. This memorandum identified a number of improvements that should help strengthen IT portfolio management and address key issues we have identified. However, we concluded that selected OMB efforts could be strengthened to improve the PortfolioStat initiative and ensure agencies achieve identified cost savings, including addressing issues related to existing CIO authority at federal agencies, and publicly reporting on agency-provided data. We recommended, among other things, that OMB require agencies to fully disclose limitations with respect to CIO authority. In addition, we made several recommendations to improve agencies' implementation of PortfolioStat requirements. OMB partially agreed with these recommendations, and responses from 20 of the agencies commenting on the report varied. In summary, OMB's and agencies' recent efforts have resulted in greater transparency and oversight of federal spending, but continued leadership and attention are necessary to build on the progress that has been made. The expanded use of the common factors critical to the successful management of large-scale IT acquisitions should result in more effective delivery of mission-critical systems. Additionally, federal agencies need to continue to improve the accuracy and availability of information on the Dashboard to provide greater transparency and even more attention to the billions of dollars invested in troubled projects. Further, agencies should conduct additional TechStat reviews to focus management attention on troubled projects and establish clear action items to turn the projects around or terminate them. The federal government can also build on the progress of agencies' data center closures and reduction in commodity IT. With the possibility of over $5.8 billion in savings from the data center consolidation and PortfolioStat initiatives, agencies should continue to identify consolidation opportunities in both data centers and commodity IT. In addition, better support for the estimates of cost savings associated with the opportunities identified would increase the likelihood that these savings will be achieved. Chairman Udall, Ranking Member Johanns, 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 staffs have any questions about this testimony, please contact me at (202) 512-9286 or at [email protected]. Individuals who made key contributions to this testimony are Dave Hinchman (Assistant Director), Rebecca Eyler, Kaelin Kuhn, Bradley Roach, Andrew Stavisky, and Kevin Walsh. 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 government reportedly plans to spend at least $82 billion on IT in fiscal year 2014. Given the scale of such planned outlays and the criticality of many of these systems to the health, economy, and security of the nation, it is important that OMB and federal agencies provide appropriate oversight and transparency into these programs and avoid duplicative investments, whenever possible, to ensure the most efficient use of resources. GAO has previously reported and testified that federal IT projects too frequently fail and incur cost overruns and schedule slippages while contributing little to mission-related outcomes. Numerous best practices and administration initiatives are available for agencies that can help them improve the oversight and management of IT acquisitions. GAO is testifying today on the results and recommendations from selected reports that focused on how best practices and IT reform initiatives can help federal agencies better manage major acquisitions and legacy investments. Information technology (IT) acquisition best practices have been developed by both industry and the federal government to help guide the successful acquisition of investments. For example, GAO recently reported on nine critical factors underlying successful major IT acquisitions. Factors cited included (1) program officials were actively engaged with stakeholders and (2) prioritized requirements. One key IT reform initiative undertaken by the Office of Management and Budget (OMB) to improve transparency is a public website, referred to as the IT Dashboard, which provides information on 760 major investments at 27 federal agencies, totaling almost $41 billion. The Dashboard also includes ratings of investments' risk on a scale from 1 (high risk) to 5 (low risk). As of April 2014, according to the Dashboard, 559 investments were low or moderately low risk (green), 159 were medium risk (yellow), and 42 were moderately high or high risk (red). GAO has issued a series of reports on Dashboard accuracy and, in 2011, found that while there were continued issues with the accuracy and reliability of cost and schedule data, the accuracy of these data had improved over time. Further, a recent GAO report found that selected agencies' ratings were mostly or completely consistent with investment risk. However, this report also noted that agencies had removed major investments from the IT Dashboard, representing a troubling trend toward decreased transparency and accountability. Additionally, GAO reported that as of December 2013, the public version of the Dashboard was not updated for 15 of the previous 24 months because OMB did not revise it as the President's budget request was being created. Consequently, GAO made recommendations to improve the Dashboard's accuracy, ensure that it includes all major IT investments, and increase its availability. Agencies generally agreed with the report or had no comments. In an effort to consolidate the growing number of federal data centers, OMB launched a consolidation initiative intended to close 40 percent of government data centers by 2015, and in doing so, save $3 billion. GAO reported that agencies planned to close 1,055 data centers by the end of fiscal year 2014, but also highlighted the need for continued oversight of these efforts. Among other things, GAO recommended that OMB improve the execution of important oversight responsibilities, with which OMB agreed. To better manage the government's existing IT systems, OMB launched the PortfolioStat initiative, which, among other things, requires agencies to conduct annual reviews of their IT investments and make decisions on eliminating duplication. GAO reported that agencies continued to identify duplicative spending as part of PortfolioStat and that this initiative has the potential to save at least $5.8 billion by fiscal year 2015, but that weaknesses existed in agencies' implementation of the initiative's requirements. Among other things, GAO made several recommendations to improve agencies' implementation of PortfolioStat requirements. OMB partially agreed with these recommendations, and most of the other 20 agencies commenting on the report also agreed. GAO has previously made numerous recommendations to OMB and federal agencies on key aspects of IT acquisition management, as well as the oversight and management of these investments. In particular, GAO has made recommendations regarding the IT Dashboard, efforts to consolidate federal data centers, and PortfolioStat.
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Lead contamination of drinking water is difficult and expensive to control. It seldom occurs naturally in source water supplies like rivers and lakes; therefore it cannot be treated at a centralized treatment facility. Rather, lead enters drinking water primarily from the corrosion of materials containing lead in the water distribution system and in household plumbing. These materials include lead service lines that connect a house to the water main, lead-based solder used in a house to join copper pipe, and brass faucets and other plumbing fixtures. The Safe Drinking Water Act is the key federal law protecting public water supplies from harmful contaminants. EPA's 1991 Lead and Copper Rule, promulgated pursuant to the Act, requires water systems to protect consumers against exposure to elevated levels of lead in drinking water by chemically treating water to reduce its corrosiveness and by collecting water samples from consumer taps and testing them for evidence of lead corrosion. EPA considers lead to be elevated (known as the "action level") when lead levels are higher than 15 parts per billion in over 10 percent of tap water samples taken. Because lead contamination generally occurs after water leaves the treatment plant, the Lead and Copper Rule requires testing for lead at consumers' taps. If elevated lead levels are found and persist after treatment to minimize the water's corrosiveness, the water system must annually replace 7 percent of the lead service lines that it owns. Implementation and enforcement of the Lead and Copper Rule in the District of Columbia is complicated because of the number and nature of the entities involved. The Washington Aqueduct, owned and operated by the U.S. Army Corps of Engineers, is responsible for water treatment (including corrosion control). WASA purchases water from the Washington Aqueduct and delivers it to District residents, and is responsible for monitoring tap water samples for lead. EPA Region III in Philadelphia has oversight and enforcement authority for the District's public water systems. Similar to many of the other approximately 400 largest drinking water systems in the United States (i.e., serving populations greater than 100,000), WASA is also responsible for wastewater collection and transmission, including operation and maintenance of its wastewater treatment facility and sanitary sewer system. This water infrastructure in the District of Columbia, like in many older cities, is aging and will require substantial funding over the next several years for replacement or rehabilitation. A June 17, 2004, administrative order for compliance on consent between EPA and WASA required WASA to take a number of corrective actions that, by necessity, enhanced its coordination with EPA and the D.C. Department of Health. Among these actions were developing a plan to identify additional lead service lines, improving the selection of sampling locations and reporting of water testing results to EPA, developing a strategy to improve WASA's public education efforts, and collaborating with the D.C. Department of Health to set priorities for replacing lead service lines. Most importantly, with the introduction of orthophosphate to the drinking water supply, WASA met, and has continued to meet, federal standards for lead in drinking water. WASA's most recent report on lead levels in D.C. drinking water was delivered to EPA in January 2008. WASA reported that 90 percent of the samples had lead levels of 11 parts per billion (ppb) or less, which is below EPA's lead action level of 15 ppb. This is the sixth monitoring period in a row that WASA has met the lead action level. To resolve its lead problem in the long-term, however, WASA decided that it needed to undertake a program to replace the public portions of all its customers' lead service lines (roughly 35,000 lines) by 2016. WASA estimates that its program to replace all the District's lead service lines will cost at least $400 million. Importantly, this figure reflects only the cost to replace the public portion of customers' lead lines. Customers would need to finance replacement of their private portion of the lead lines (at a cost that could reach $2,500) on their own. Through the first quarter of fiscal year 2008, WASA has spent $105 million on the program, and expects to spend roughly another $300 million by 2016. Perhaps the most important complication facing WASA's lead service line replacement program is that ownership of lead service lines in the District of Columbia is shared--WASA owns the portion from the water main to the property line, and homeowners own the portion from the property line to the home. Homeowners may pay to replace their portion of the lead service line at the same time as WASA replaces its portion, but are not required to do so. Figure 1 shows the configuration of a service line from the water main to a customer's home. WASA established a program to encourage homeowners to replace their portion of lead service lines. This program included: a low-interest loan program for low-income residents, offered through a grants of up to $5,000 for low-income residents, offered by the District of Columbia Department of Housing and Community Development; and: a fixed-fee structure for line replacement of $100 per linear foot plus $500 to connect through the wall of the home, to make pricing easier for homeowners to understand. Despite these incentives, D.C. homeowners have been reluctant to replace the private side of the lead service line. Through the length of WASA's lead service line replacement program, beginning in fiscal year 2003 and running through the first quarter of fiscal year 2008, of the 14,260 lead service lines replaced in public space, only 2,128 homeowners replaced the private portion of their lead service line. These totals are particularly troublesome given the lack of information about the benefits of partial lead service line replacement. Indeed, experts disagree about the effectiveness of removing only part of a lead service line. Studies that EPA cited in the Lead and Copper Rule suggest that long- term exposure to lead from drinking water decreases when a service line is only partially replaced. However, after partial replacement of a lead service line, exposure to lead in drinking water is likely to increase in the short term because cutting or moving the pipe can dislodge lead particles and disturb any protective coating on the inside of the pipe. Some experts believe that lead exposure can increase after partial service line replacement because of galvanic corrosion where the dissimilar metals of the old and new pipes meet. A study presented at the 2006 American Water Works Annual Conference summarizing the experience of partial lead service line replacement by the Greater Cincinnati Water Works found that partial replacements of lead lines resulted in much higher lead levels in the water for up to 1 month after replacement, even though the system was optimized for corrosion control. Even after this initial period, the sites with partial replacements had similar water lead concentrations as the sites in which the entire lead line was left in place--indicating there would be little, if any, benefit of partial lead line replacement. In the study, only completely replacing the lead service line resulted in both short- and long-term water quality improvements in all of the sites tested. The authors also noted that the use of a Teflon sleeve, or some other method of treating the portion of the line remaining in service, may help to protect water quality, but that more needs to be done in this area. Recognizing the need for more research, EPA has partnered with the American Water Works Association Research Foundation on a study of the relative contributions of service lines and plumbing fixtures to lead levels at the tap. The projected completion of the study is November 2008. In light of these problems, WASA is now considering whether its current lead line replacement program should be restructured, particularly given its high cost and the competing demands on its budget. As a water utility serving a large metropolitan area, the lead problem has posed only one of several major infrastructure challenges for the utility and its customers. For example, approximately one-third of the District (by acreage) is served by combined sewers, which carry both sanitary waste from homes and businesses and storm water drainage. During storms this untreated sewage is discharged directly into the Anacostia and Potomac Rivers, adversely impacting the quality of these waters. To meet federal water quality standards, WASA will need to spend considerable sums of money to deal with the problem. Specifically, a March 2005 consent decree between WASA and EPA requires WASA, by 2025, to implement WASA's long-term control plan, including construction of large underground tunnels to temporarily store excess flows until they can be treated at the Blue Plains Wastewater Treatment Plant and other measures, to significantly reduce combined sever overflows into the Anacostia River and other area waterways. WASA has estimated the cost of this effort to reach $2.2 billion dollars. WASA's challenges are mirrored across the country, where projected needs for investment in drinking water and wastewater infrastructure range from $485 billion to nearly $1.2 trillion over 20 years. The variation in these estimates reflects alternative assumptions about the nature of existing capital stock, replacement rates, and financing costs. EPA reported in its most recent Drinking Water Infrastructure Needs Survey (issued in June 2005) that drinking water utilities alone will need an estimated $276.8 billion for the 20-year period ending in December 2022. EPA's new estimate exceeds those from prior surveys by more than 60 percent, largely as a result of an increased emphasis on capturing previously underreported needs for infrastructure rehabilitation and replacement. According to EPA's report, current needs increased by about 50 percent, but future needs rose by over 100 percent. EPA attributes the difference to a more complete assessment of the longer-term needs for addressing "aging infrastructure that is currently adequate, but will require replacement or significant rehabilitation over the next 20 years." Pipeline rehabilitation and replacement represents a significant portion of the projected infrastructure needs for water utilities. EPA estimates that underground pipelines account for about 75 percent of the nation's existing capital investment in drinking water and wastewater infrastructure. According to the American Society of Civil Engineers, U.S. drinking water and wastewater utilities are responsible for an estimated 800,000 miles of water delivery pipelines and between 600,000 and 800,000 miles of sewer pipelines, respectively. However, several recent studies have raised concerns about the condition of the existing pipeline network. For example, in August 2002, based on a nationwide survey of large drinking water and wastewater utilities, we reported that more than one- third of the utilities had 20 percent or more of their pipelines nearing the end of their useful life. In the case of one in 10 utilities, 50 percent or more of the utility's pipelines were nearing the end of their useful life. Citing a "huge wave of aging pipe infrastructure," the American Water Works Association in 2001 predicted a significant increase in pipe breaks and repair costs over the next 30 years--even if utilities increase their investment in pipe infrastructure several fold. Other studies make similar predictions for the pipelines owned by wastewater utilities. Despite the looming problems facing utility pipelines, our nationwide survey found that pipeline rehabilitation and replacement was not occurring as desired, with over two-thirds of the utilities reporting that they have fallen short of their desired pace of rehabilitation and replacement. Specifically, we found that roughly half of the utilities actually rehabilitated or replaced one percent or less of their pipelines annually, even though an estimated 89 percent of drinking water utilities and 76 percent of wastewater utilities believed that a higher level of rehabilitation and replacement should be occurring. More generally, we found that many utilities had deferred maintenance, minor capital improvements, and/or major capital improvements due to insufficient funding. About one-third of the utilities deferred maintenance expenditures, and similar percentages of utilities deferred expenditures in the other categories. According to EPA's June 2005 Drinking Water Infrastructure Needs Survey, the largest category of need is the installation and maintenance of transmission and distribution systems--accounting for $183.6 billion, or about 66 percent of the needs projected through 2022. For wastewater systems, EPA's 2004 Clean Watersheds Needs Survey projected infrastructure-related needs for publicly-owned wastewater systems of $202.5 billion through 2024. Several factors have contributed to the nation's deteriorating water infrastructure over the years. The adequacy of the available funding, in particular, has been a key determinant of how well utility infrastructure has been maintained. However, according to our nationwide survey, a significant percentage of the utilities serving populations of 10,000 or more--29 percent of the drinking water utilities and 41 percent of the wastewater utilities--were not generating enough revenue from user charges and other local sources to cover their full cost of service. In addition, when asked about the frequency of rate increases during the period from 1992 to 2001, more than half the utilities reported raising their rates infrequently: once, twice, or not at all over the 10-year period. Our survey also raised questions about whether utility managers have enough information about their capital assets to effectively plan their future investment needs. We found that many utilities either did not have plans for managing their assets, or had plans that may not be adequate in scope or content. Specifically, more than one-fourth of the utilities did not have plans for managing their existing capital assets. Moreover, for the utilities that did have such plans, the plans in many instances did not cover all assets or did not contain one or more key elements, such as an inventory of assets, assessment criteria, information on the assets' condition, and the planned and actual expenditures to maintain the assets. Citing communities' funding difficulties, many have looked to the federal government for financial assistance. However, if budgetary trends over the past few years serve as any indication, federal funding will not close the gap. The key federal programs supporting water infrastructure financing include the Clean Water State Revolving Fund (CWSRF) for wastewater facilities, and the Drinking Water State Revolving Fund (DWSRF) for drinking water facilities. Under each of these programs, the federal government provides seed money to states, which the states in turn use to support revolving funds that loan money to qualifying localities within their jurisdictions for new construction and upgrades. However, the trends and overall funding levels associated with these programs, suggest that they will only have a marginal impact in closing the long-term water infrastructure funding gap. Federal appropriations for the CWSRF in particular have decreased by nearly 50 percent during the past five years-- from $1.34 billion enacted for fiscal year 2004 to $689 million enacted for fiscal year 2008. Funding for the DWSRF has remained virtually flat during the same period. Growing infrastructure needs, combined with local pressure to keep user rates low, make it imperative that utilities manage their resources as cost effectively as possible. While hardly a "silver bullet" for the water industry's massive shortfall in infrastructure funding, comprehensive asset management is one approach that has shown promise in helping utilities better identify their needs, set priorities, and plan future investments. Basic elements of comprehensive asset management include: collecting and organizing detailed information on assets; analyzing data to set priorities and make better decisions about assets; integrating data and decision making across the organization; and linking the strategy for addressing infrastructure needs to service goals, operating budgets, and capital improvement plans. At its most basic level, asset management gives utility managers the information they need to make sound decisions about maintaining, rehabilitating, and replacing capital assets--and to make a sound case for rate increases and proposed projects to their customers and governing bodies. Our 2004 report identified a number of asset management practices that could help water utilities better manage their infrastructure and target their investments to achieve the maximum benefit. Among other things, we found that collecting, analyzing, and sharing data across the organization helped utilities make informed decisions about which assets to purchase, optimize their maintenance practices, and determine how long to repair an asset before replacement becomes more cost-effective. Some utility managers, for example, have used risk assessments to determine how critical certain assets (such as pipelines) are to their operations, considering both the likelihood and consequences of their failure. This systematic evaluation has helped them to target their resources accordingly, with the most critical assets receiving preventive maintenance while other, less critical assets received attention on an as needed basis. Having better information on utility assets has not only allowed managers to identify and prioritize investment needs, but has also helped them justify periodic rate increases to their customers and governing boards to pay for needed improvements. In one case, for example, utility managers modeled information on pipe performance history and replacement costs and predicted the approximate number of pipe breaks at various levels of funding. By understanding the trade-offs between lower rates and higher numbers of pipe breaks, the governing board was able to make an informed decision about the level of service that was appropriate for its community. Whether the problem is replacing lead service lines, as is the case for WASA, meeting new regulatory requirements, or paying the price for years of deferred maintenance, many utilities are facing huge investments to add new capital assets and replace others that are reaching the end of their useful life. Comprehensive asset management is one approach that shows real promise as a tool to help drinking water and wastewater utilities effectively target limited resources and, ultimately, ensure a sustainable water infrastructure for the future. Accordingly, our report recommended that the Environmental Protection Agency take steps to strengthen the agency's existing initiatives on asset management and ensure that relevant information is accessible to those that need it. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of this Subcommittee may have at this time. For further information, please contact John B. Stephenson at (202) 512- 3841. Individuals making key contributions to this testimony included Elizabeth Beardsley, Ellen Crocker, Steve Elstein, Tim Minelli, Nathan Morris, Alison O'Neill, and Lisa Turner. This is a work of the U.S. government and is not subject to copyright protection in the United States. This 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 discovery in 2004 of lead contamination in the District of Columbia's drinking water resulted in an administrative order between the Environmental Protection Agency (EPA) and the District's Water and Sewer Authority (WASA), requiring WASA to take a number of corrective actions. WASA also took additional, longer-term measures, most notably a roughly $400 million program to replace what may be 35,000 lead service lines in public space within its service area. As in WASA's case, water utilities nationwide are under increasing pressure to make significant investments to upgrade aging and deteriorating infrastructures, improve security, serve a growing population, and meet new regulatory requirements. In this context, GAO's testimony presents observations on (1) WASA's efforts to address lead contamination in light of its other pressing water infrastructure needs, and (2) the extent to which WASA's challenges are indicative of those facing water utilities nationwide. To address these issues, GAO relied primarily on its 2005 and 2006 reports on lead contamination in drinking water, as well as other recent GAO reports examining the nation's water infrastructure needs and strategies to address these needs. With the introduction of orthophosphate to its drinking water WASA has consistently tested below the federal action level for lead. However, WASA is reevaluating its roughly $400 million, longer-term solution for replacement of what may be 35,000 lead service lines within its jurisdiction. In addition to the program's high cost, a key problem WASA faces is that, by law, it may only replace the portion of the service line that it owns; replacing the portion on private property is at the homeowner's discretion. Accordingly, WASA has been encouraging homeowners to participate in the program by replacing their own portion of the lead lines. Despite these efforts, however, homeowner replacement of lead service lines remains limited. Of the 14,260 lead service lines WASA replaced through the first quarter of fiscal year 2008, there were only 2,128 instances in which the homeowner participated in private side replacement. Many questions remain about the benefits of partial lead service line replacement. In fact, some research to date suggests that partial service line replacement results in (1) short-term spikes in lead levels immediately after partial replacement and (2) little long-term reduction in lead levels. WASA's dilemma over this program is taking place within the context of its other staggering infrastructure needs. Most notably, WASA is undertaking a $2.2 billion effort to meet the terms of a consent decree with EPA requiring the utility to control its sewer overflow problems. WASA's challenges in addressing its lead contamination problems and other infrastructure demands are mirrored across the country, where infrastructure needs are estimated to range from $485 billion to nearly $1.2 trillion nationwide over the next 20 years. In particular, many utilities have had difficulty in raising funds to repair, replace, or upgrade aging capital assets; comply with regulatory requirements; and expand capacity to meet increased demand. For example, based on a nationwide survey of several thousand drinking water and wastewater utilities, GAO reported in 2002 that 29 percent of the drinking water utilities and 41 percent of the wastewater utilities were not generating enough revenue from user rates and other local sources to cover their full cost of service. GAO also found that about one-third of the utilities (1) deferred maintenance because of insufficient funding, (2) had 20 percent or more of their pipelines nearing the end of their useful life, and (3) lacked basic plans for managing their capital assets. Other GAO work suggests that the nation's water utilities could more effectively manage their infrastructure at a time when huge investments are needed. In 2004, for example, GAO cited "comprehensive asset management" as one approach that could help utilities better identify and manage their infrastructure needs. While by no means a panacea to their fundamental fiscal challenges, water utilities can use comprehensive asset management to minimize the total cost of designing, acquiring, operating, maintaining, replacing, and disposing of capital assets over their useful lives, while achieving desired service levels.
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Ms. Chairwoman and Members of the Committee: We are pleased to be here today to discuss bank and thrift supervision and examination. Supervisory and examination procedures today show evidence of lessons learned from the bank and thrift crises of the 1980s and early 1990s. These procedures are the primary basis used by the federal regulatory agencies to assess the risks that banks and thrifts assume and to take actions that are needed to maintain a safe and sound banking system and protect the deposit insurance funds. A combination of regulatory and legislative changes, along with market forces, has expanded the number and scope of activities undertaken by insured depository institutions, particularly the largest ones, and thus the risks that they assume. These expanded activities include offering and/or dealing in a range of nontraditional bank products, such as mutual funds, securities, derivatives, and other off-balance sheet products. The resulting complex institutions represent a major supervisory and regulatory challenge. In keeping with the changes in the banking environment, federal bank and thrift regulators have recently announced that bank examinations will explicitly include an assessment of how effectively banks manage risk and a rating on their sensitivity to risks posed by a variety of market factors. Although we have not yet fully assessed the implementation of most of the recent changes to supervisory and examination policy, they appear to address some of our concerns about examinations in the aftermath of bank failures in the 1980s and early 1990s. Perhaps the most important--yet unanswered--question to ask in assessing changes in bank and thrift supervision is to what extent improvements in the detection of problems can help ensure that regulators take timely and forceful corrective action to prevent or minimize losses to the deposit insurance funds. describe the history of the bank and thrift crises of the late 1980s and early 1990s and the legislative response to these crises, highlight supervisory and examination weaknesses we have noted in the past and improvement efforts that have been made or are under way, and identify continuing issues. From 1980 to 1994, record losses were absorbed by the federal deposit insurance funds. In this period, nearly 1,300 thrifts failed, and 1,617 federally insured banks were closed or received FDIC financial assistance. Losses to deposit insurance funds have been estimated at about $125 billion. Banks and thrifts failed during the 1980s for several reasons. A mismatch between the income from fixed rate mortgages and the costs of borrowing funds at market rates in competition with nondepository institutions were among the reasons for large losses that led to the failure of thrifts. Banks suffered losses from defaults on loans concentrated in several industries that suffered economic downturns over the decade, including agriculture, real estate, and developing nation loans. One factor we and others cited as contributing to the problems of both thrifts and banks during this period was excessive forbearance by federal regulators. Regulators had wide discretion in choosing the severity and timing of enforcement actions to correct unsafe and unsound practices. They also had a common philosophy of trying to work informally and cooperatively with troubled institutions. In a 1991 report, we concluded that these conditions had resulted in enforcement actions that were neither timely nor forceful enough to (1) correct unsafe and unsound banking practices or (2) prevent or minimize losses to the insurance funds. The regulators themselves have recognized that their supervisory practices failed to adequately control risky practices that led to numerous thrift and bank failures. We made specific recommendations for changes to the supervisory process that would help ensure that institutions failing to operate in a safe and sound manner would be subject to timely and forceful supervisory response, including, if necessary, prompt closure. of the Federal Savings and Loan Insurance Corporation (FSLIC) and troubles in the thrift industry. In addition to creating the Savings Association Insurance Fund to replace FSLIC, FIRREA created a new thrift industry regulator with increased enforcement authority--the Office of Thrift Supervision. It also authorized FDIC to terminate a bank's or thrift's deposit insurance for unsafe and unsound conditions. The second law, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), was enacted, in part, because of concerns that the exercise of regulatory discretion during the 1980s did not adequately protect the safety and soundness of the banking system or minimize insurance fund losses. FDICIA contains several safety and soundness provisions based on a simple principle: if a depository institution fails to operate in a safe and sound manner, it should be subject to timely and forceful supervisory response, including, if necessary, prompt closure. Also, FDICIA requires a number of corporate governance and accounting reforms to (1) strengthen corporate governance, (2) improve financial reporting, and (3) aid early identification of safety and soundness problems. Among the corporate governance and accounting reforms, FDICIA establishes generally accepted accounting principles as the standard for all reports to regulators; requires that management and auditors annually report on the financial condition and management of the largest depository institutions, including effectiveness of and compliance with internal controls; and requires that institutions have independent audit committees composed of outside directors. In addition, FDICIA contains provisions for improving regulatory supervision. FDICIA mandates annual on-site examinations of insured banks and thrifts. Also, consistent with specific recommendations we made, it requires implementation of a "trip wire" approach to limit regulatory discretion in key areas, including capital, by mandating specific regulatory responses to safety and soundness problems. These changes, incorporated in sections 38 and 39 of the Federal Deposit Insurance Act, were intended to increase the likelihood of prompt regulatory action to prevent or minimize loss to the insurance funds. regulatory action as an institution's capital drops to lower levels. Although this requirement should strengthen oversight in several ways, it is inherently limited as a tool for early intervention to correct problems and thus safeguard the insurance funds. This is because impaired capital levels often do not appear until after a bank has experienced problems in other areas, such as asset quality and management. Section 39 allows regulatory action before capital is impaired. However, section 39, as implemented, appears to do little to reduce regulatory discretion. The implementing guidelines and regulations did not (1) establish clear and specific definitions of unsound conditions and practices or (2) link such conditions or practices to specific mandatory regulatory actions. As we noted in our 1996 report, the subjective nature of the implementation continued the wide discretion that regulators had in the 1980s over the timing and forcefulness of enforcement actions. did not systematically test critical internal controls such as compliance with loan underwriting policies. We recommended that a comprehensive review of internal controls be a part of bank and thrift examinations and that the condition of a bank's or thrift's system of internal controls receive explicit consideration in a determination of an institution's examination rating. Insufficient review of loan quality and loan loss reserves: Effective loan quality assessment is important, because loans generally make up the majority of bank and thrift assets and involve the greatest risk. Determining the adequacy of loan loss reserves is critical because without such a determination, in combination with a proper assessment of loan quality, examiners have no reliable basis to understand an institution's true financial condition. We recommended that examination policies require a representative sampling of loans and better documentation of loan quality and the development of a methodology to determine the adequacy of loan loss reserves. Weaknesses in detecting and ensuring corrective actions related to insider lending: Loans to insiders--such as bank directors, officers, or principals--should pose no greater risk than transactions with other bank customers. Abusive insider activities can be among the most insidious of reasons for the deterioration of the health of a bank. In 1994, we reported that examiners faced numerous impediments to determining the full extent of insider problems at banks and that such problems were not always corrected as a result of examinations. We recommended that bank regulators review insider activities in their next examination of each bank, partly by comparing data provided during the examination with information from other sources. We also recommended that federal bank regulators ensure that all directors understand their responsibility for seeing that effective corrective action is taken. Insufficient assessment of actual and potential risks of bank holding company activities to insured bank subsidiaries: In our reports, we have found that transactions between a bank holding company and its insured bank subsidiary were not always thoroughly reviewed. Such transactions include loans from the bank to other, nonbank subsidiaries; fees charged by the bank holding company to the bank subsidiary; and asset transfers from nonbank subsidiaries to the bank subsidiary. We recommended that the supervisors develop and require mandatory procedures for assessing the actual and potential risks to insured bank subsidiaries of bank holding company activities. as essential, because examiners have broad discretion and must exercise considerable judgment in planning and conducting examinations and in drawing conclusions about bank safety and soundness. Our findings led us to recommend that regulators establish policies to ensure sufficient documentation of the analysis that underlies the examination report, and thorough supervisory review of all examination and inspection procedures Finally, we have noted in past reports that improved coordination among federal and state banking supervisors could result in more efficient and effective use of examination resources. Coordination is also critical for the supervision of large banking institutions in that it could foster consistency in examinations and reduce regulatory burden. Regulators have made a number of changes in an effort to improve their examinations since the bank and thrift crises of the late 1980s, and I would like to highlight some that seem most significant. In general, these changes appear appropriate and consistent with recommendations we have made. However, we have not fully assessed the effectiveness of their implementation. When evaluating these changes, it is also important to note that they have occurred during favorable economic conditions that have contributed to strong bank and thrift profits. The most important test for the changes will be whether the information they provide in examination reports would lessen the severity of problems for banks and thrifts during any future economic downturn. One of the most significant efforts at improvement involves changes in examinations to account for a dynamic banking environment in which institutions can rapidly reposition their portfolio risk exposures. Regulators have recognized that in such an environment, periodic assessments of the condition of financial institutions based on transaction testing alone are not sufficient for ensuring the continued safe and sound operation of financial institutions. To ensure that institutions have the internal controls and processes in place necessary to identify, measure, monitor, and control risk exposures that can change rapidly, the approach regulators are taking to the examination process is evolving to emphasize evaluations of the appropriateness of such internal controls and processes instead of relying heavily on transaction testing. Regulators have changed the system they use to rate the safety and soundness of banks and thrifts to reflect an increasing emphasis on risk management and internal controls. Until January 1997, examiners used the rating system known as CAMEL (capital adequacy, asset quality, management and administration, earnings, and liquidity). Examiners were instructed in 1996 to give greater emphasis to the adequacy of an institution's risk management processes, including its internal controls when evaluating management under the CAMEL system. On December 9, 1996, the Federal Financial Institution Examination Council added an "S" to create a new CAMELS rating, with the S representing an institution's sensitivity to market risk. The S rating component is to represent the result of a combined assessment of both the institution's level of market risk and its ability to manage market risk.Regulators expect the sophistication of an institution's risk management system to be commensurate with the complexity of its holdings and activities and appropriate to its specific needs and circumstances. I should mention that in regulators' examinations of U.S. branches of foreign banks, an emphasis on risk management and internal controls began in 1994 with implementation of a rating system known as ROCA (risk management, operational controls, compliance, and asset quality.) As I noted earlier, we have recommended that the condition of a bank or thrift's system of internal controls receive explicit consideration in a determination of the institution's examination rating. We have also recommended that the regulators develop and require minimum mandatory procedures to assess the actual and potential risks of bank holding company activities to insured bank subsidiaries. Increased attention to internal controls and risk management, if effectively implemented, should help enhance the regulators' ability to keep pace with a changing banking environment. The supervisors' effective implementation of these initiatives is essential to the success of their examination programs. Regulators also told us that they believe that these initiatives complement the prompt corrective action policies mandated by FDICIA. Other improvement efforts I'd like to highlight that we regard as consistent with our earlier recommendations include the following: Improvements in examination guidelines to detect insider lending problems: The recommendations we made in this area have been adopted by the Federal Reserve Board, FDIC, and the OCC. Specifically, examination guidance now explicitly calls for reviewing insider activities and ensuring that directors understand their responsibility for effective corrective action. Improvements under way in examination documentation and supervisory review of examination findings: Federal banking regulators have described relevant improvement efforts. For example, according to the Federal Reserve's Framework for Risk-Focused Supervision of Large Complex Institutions, the Federal Reserve has been working to refine its standards for workpapers, especially for examinations of state member banks. Also, the Federal Reserve and FDIC have recently implemented an automated examination process to standardize documentation. Federal Reserve officials said that about 25 U.S. states, to date, have also indicated they will begin using this standardized work process. In addition, OCC issued a new policy in February 1997 describing workpaper requirements for all of its supervisory activities. Agreements to coordinate examinations by federal and state banking regulators: The Federal Reserve Board, FDIC, and state banking departments completed a single Nationwide State/Federal Supervisory Agreement in November 1996 covering state-chartered banks that open branches in other states. This agreement modifies an April 1996 State/Federal Protocol and Model Agreement by including the Federal Reserve Board as a signatory. Together, these agreements set out, among other things, the goals of supervision, division of responsibilities among the various regulators, and common examination and application processes. Federal Reserve and FDIC officials told us that implementation to date has been successful. These officials also said the examination process has been improved by assigning each institution a single case manager who is responsible for coordinating all examinations of that institution. Changes in examination procedures and in the banking industry will lead to new challenges for the supervisory agencies. A key task will be ensuring consistency in the supervisory and examination policies and practices of the agencies. Further, the agencies face the tasks of ensuring staff expertise and examining increasingly complex banking organizations. Nontraditional lines of business and interstate branching will bring increasing numbers of depository institutions under the jurisdiction of several regulatory agencies. One result of this will be a more complex task of ensuring that the regulations and enforcement actions of multiple agencies are consistent and that their examinations provide a complete picture of the banks' and thrifts' operations. The division of responsibilities among the bank and thrift regulatory agencies is not generally based on specific areas of expertise, functions, or activities of either the regulatory agency or the banks for which they are responsible. Rather, responsibilities are divided according to the type of charter--thrift or bank, national or state--and whether banks are members of the Federal Reserve System. Some analysts, bank industry representatives, and agency officials credit the current structure with encouraging financial innovations and providing checks and balances to guard against arbitrary oversight decisions or actions. We and others, however, have identified concerns that arise from having four agencies with similar responsibilities. These concerns include possible inconsistent treatment of institutions in examination policies and practices, enforcement actions, and regulatory standards and decisionmaking. In the case of bank holding companies, with the Federal Reserve responsible for the bank holding company and other federal regulators responsible for the banking subsidiaries, divided supervisory responsibility may hinder regulators from obtaining a complete picture of an entire banking organization. Although we recognize that only Congress can make the policy judgments in deciding whether and how to restructure the bank oversight system, we have recommended that Congress reduce the number of agencies with primary responsibilities for bank oversight. If the current structure, with multiple agencies, continues, coordinating their activities and ensuring consistency in their regulations and enforcement actions will remain difficult issues. The regulatory agencies have several initiatives under way that are intended to better coordinate their activities and ensure consistency, such as the automated examination process developed by the Federal Reserve and FDIC. Ultimately, these initiatives should be judged by their results, particularly including the quality of the examinations. that the regulators will continue to face is the need to build and maintain the expertise needed for supervising these more complex organizations. Federal regulators have hired specialists, such as economists with technical expertise in the quantitative methods and economic models underlying banks' risk management systems and specialists in electronic banking, bank information systems, and risk management. Further, the agencies have a number of initiatives to improve the scope and quality of information that is provided to field examiners to help them understand banking activities and the risks that banks undertake. In addition, the supervisory agencies have recently completed training on the risk-focused examination process and the new CAMELS rating system. Previously, the Federal Reserve took steps to enhance examiner training on internal controls by developing an Internal Controls School in 1995 that was designed initially for examiners of U.S. branches and agencies of foreign banks and expanded to meet the needs of examiners of U.S. domestic banks. Federal Reserve officials told us that they also developed a training seminar in 1996 for examiners and in-house international supervisory staff that emphasizes ensuring the appropriate supervisory strategy for the U.S. operations of foreign banks. With the passage of interstate banking and the increased reliance of banks on lines of business other than traditional lending, we anticipate that the task of bank management will become more difficult. The bank regulatory agencies will face a similar challenge--ensuring that their examinations and enforcement strategies lead to sound management practices as banks increasingly rely on nontraditional lines of business. Since large, complex bank organizations are likely to come under the regulatory jurisdiction of several agencies, the problem of coordination that I mentioned earlier will be relevant for these organizations. Several of our recent reports point to other types of issues that are likely to become increasingly common as banks move into more complex lines of business. securities regulators, we recommended that the bank regulators work with the Securities and Exchange Commission and the National Association of Securities Dealers to develop consistent standards for investor protection and to ensure the safety and soundness of banks that are engaged in some form of securities business. In our report on the operations of foreign bank organizations in the United States, we noted deficiencies in the internal controls of these organizations. Although federal bank regulators are aware of these deficiencies and have initiatives under way that they believe will address these problems, we noted that the regulators do not have plans to evaluate the results of these initiatives. We recommended that the Federal Reserve Board develop a strategy for evaluating the outcomes of the efforts to improve the internal controls of foreign bank organizations. It will be important for the regulatory officials to develop a strategy, including objective measures, for assessing the progress they are making through their efforts to improve the examination process and to ensure that the procedures and systems necessary to collect the data relevant to those measures are in place and operating. Such objective evaluations should be useful in determining whether the examinations are achieving their intended results or whether additional initiatives may be needed. At the same time, we are encouraged by some of the changes that the bank regulatory agencies have made in their examination procedures, since they appear to address a number of the shortcomings that we had addressed in our earlier reports. As one official noted, the small number of banks in difficulty has provided the regulatory agencies with an opportunity to improve their operations. However, the business of banking has been changing at the same time, and banks are taking on new risks. Also, because of the differences in the responsibilities and the examination and enforcement approaches among regulators, such as those for the security activities of depository institutions, a key question is whether improvement will be uniformly adopted by all regulators and consistently implemented. Whether current examination strategies provide an adequate basis for the regulatory agencies to anticipate problems and take appropriate and prompt corrective actions to address those problems, especially during any future economic downturn, is unknown. Ms. Chairwoman, this concludes my statement. My colleagues and I would be pleased to respond to any questions you may have. Foreign Banks: Internal Control and Audit Weaknesses in U.S. Branches (GAO/GGD-97-181, Sept. 29, 1997). Financial Regulation: Bank Modernization Legislation (GAO/T-OCE/GGD-97-103, May 7, 1997). Bank and Thrift Regulation: Implementation of FDICIA's Prompt Regulatory Action Provisions (GAO/GGD-97-18, Nov. 21, 1996). Bank Oversight: Fundamental Principles for Modernizing the U.S. Structure (GAO/T-GGD-96-117, May 2, 1996). Financial Regulation: Modernization of the Financial Services Regulatory System (GAO/T-GGD-95-121, Mar.15, 1995). Bank Insider Activities: Insider Problems and Violations Indicate Broader Management Deficiencies (GAO/GGD-94-88, Mar. 30, 1994). Bank Regulation: Consolidation of the Regulatory Agencies (GAO/T-GGD-94-106, Mar. 4, 1994). Bank and Thrift Regulation: FDICIA Safety and Soundness Reforms Need to Be Maintained (GAO/T-AIMD-93-5, Sept. 23, 1993). Bank and Thrift Regulation: Improvements Needed in Examination Quality and Structure (GAO/T-AFMD-93-2, Feb. 16, 1993). Bank Examination Quality: OCC Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-14, Feb. 16, 1993). Bank and Thrift Regulation: Improvements Needed in Examination Quality and Regulatory Structure (GAO/AFMD-93-15, Feb. 16, 1993). Bank Examination Quality: FDIC Examinations Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-12, Feb. 16, 1993). Bank Examination Quality: FRB Examinations and Inspections Do Not Fully Assess Bank Safety and Soundness (GAO/AFMD-93-13, Feb. 16, 1993). Banks and Thrifts: Safety and Soundness Reforms Need To Be Maintained (GAO/T-GGD-93-3, Jan. 27 1993). Bank Supervision: Prompt and Forceful Regulatory Actions Needed (GAO/GGD-91-69, Apr. 15, 1991). 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 discussed bank and thrift supervision and examination. GAO noted that: (1) bank supervision and examination today show evidence of lessons learned from the bank and thrift crises of the 1980s and early 1990s; (2) these procedures are the primary basis for federal regulatory agencies to assess the risks that banks and thrifts assume and to take actions to maintain a safe and sound banking system and protect deposit insurance funds; (3) one critical lesson of the earlier crises was that excessive regulatory forbearance contributed to the extent of the crises; (4) the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) based regulatory practices on a simple principle: if a depository institution fails to operate in a safe and sound manner, it should be subject to timely and forceful supervisory response, including, if necessary, prompt closure; (5) FDICIA also required that banks reform their corporate governance and accounting practices and that the regulatory agencies improve their supervision of insured banks and thrifts; (6) in a November 1996 report, however, GAO noted that questions remain about the effectiveness of FDICIA's trip-wire provisions which are intended to limit regulatory discretion; (7) as implemented, the trip-wire that enables regulatory action at the early stage of problems in a bank does little to limit regulatory discretion; (8) in several reports in the early 1990s, GAO also noted limitations in the safety and soundness examinations conducted by the regulatory agencies; (9) the limitations included a lack of comprehensive internal control assessments, insufficient review of loan quality and loan loss reserves, weaknesses related to insider lending, and insufficient assessment of bank subsidiaries; (10) regulators have made a number of changes in an effort to improve their examinations; (11) the changes respond, in part, to the dynamic banking environment in which institutions can rapidly reposition risk exposures; (12) to ensure that banks and thrifts have the managerial ability and internal control structure to effectively manage risk, the examination process is evolving to put greater emphasis on risk management and internal controls; and (13) in its recent report on foreign banking organizations operating in the United States, GAO noted that regulators have begun to put greater emphasis on risk management processes and operational controls in examinations of these organizations.
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The sale or transfer of U.S. defense items to friendly nations and allies is an integral component of both U.S. national security and foreign policy. The U.S. government authorizes the sale or transfer of military equipment, including spare parts, to foreign countries either through government-to-government agreements or through direct sales from U.S. manufacturers. The Arms Export Control Act and the Foreign Assistance Act of 1961 authorize the DOD foreign military sales program. From 1993 through 2002, DOD delivered over $150 billion worth of services and defense articles to foreign countries through foreign military sales programs administered by the military services. The articles sold include classified and controlled cryptographic spare parts. The Department of State sets overall policy concerning which countries are eligible to participate in the DOD foreign military sales program. DOD identifies military technology that requires control when its transfer to potential adversaries could significantly enhance a foreign country's military or war-making capability. Various agencies such as the Department of State and DOD are responsible for controlling, in part, the transfer or release of military technology to foreign countries. The Defense Security Cooperation Agency, under the direction of the Under Secretary of Defense for Policy, has overall responsibility for administering the foreign military sales program, and the military services generally execute the sales agreements with the individual countries. A foreign country representative initiates a request by sending a letter to DOD asking for such information as the price and availability of goods and services, training, technical assistance, and follow-on support. Once the foreign customer decides to proceed with the purchase, DOD prepares a Letter of Offer and Acceptance stating the terms of the sale for the items and services to be provided. After this letter has been accepted, the foreign customer is generally required to pay, in advance, the amounts necessary to cover the costs associated with the services or items to be purchased from DOD and then is allowed to request spare parts through DOD's supply system. Generally, the military services use separate automated systems to process requisitions from foreign countries for spare parts. While the Air Force has retained responsibility for its system, responsibility for the Army's and the Navy's systems was transferred to the Defense Security Assistance Development Center in October 1997. The Center, which is part of the Defense Security Cooperation Agency, has overall responsibility for providing system information technology maintenance support, such as testing the system. For blanket orders, the systems use various codes and item identifiers to restrict the spare parts available to the countries. In cases where the systems validate a requisition, the requisition is sent to a supply center to be filled and shipped. In cases where the systems reject a requisition, the requisition is sent to a country manager for review. The country manager will either validate the requisition and forward it to the supply center to be filled and shipped or reject the requisition, in which case the requisition is canceled. Our reviews showed that the Army, the Navy, and the Air Force were not testing their automated systems to ensure that the systems were accurately reviewing and approving blanket order requisitions for compliance with restrictions and operating in accordance with foreign military sales policies. Our tests of the services' automated systems used to manage foreign countries' requisitions for spare parts made through blanket orders showed that classified and controlled spare parts that the services did not want released were being released to countries. For example, we identified 5 out of 38 blanket order requisitions for which the Navy's system approved and released 32 circuit card assemblies' controlled cryptographic spare parts to foreign countries. According to Defense Security Assistance Development Center officials, who are responsible for this portion of the Navy's system, the system was not programmed to review the controlled cryptographic items codes, and as a result, the system automatically approved and released the parts requested by the foreign countries. Navy and DOD officials were unaware that the system was not reviewing controlled cryptographic parts prior to their release to foreign countries. For another example, the Air Force's system used controls that were based on supply class restrictions and that were ineffective and resulted in erroneously approving requisitions for shipment. Included in an item's national stock number is a four-digit federal supply class, which may be shared by thousands of items. The national stock number also contains a nine-digit item identification number that is unique for each item in the supply system. We found that countries requisitioning parts under the Air Force's system could obtain a classified or controlled spare part by using an incorrect, but unrestricted, supply class with an item's correct national item identification number. The Air Force was unaware of this situation until our test of the system identified the problem. In response to our work, the Air Force corrected the problem. GAO's internal control standards require periodic testing of new and revised software to ensure that it is working correctly, while the Office of Management and Budget's internal control standards require periodic reviews to determine how mission requirements might have changed and whether the information systems continue to fulfill ongoing and anticipated mission requirements. The importance of testing and reviewing systems to ensure that they are operating properly is highlighted in the Federal Information Security Management Act of 2002. The act requires periodic testing and evaluation of the effectiveness of information security controls and techniques. Moreover, the act requires agencies, as part of their information security program, to include a process for planning, implementing, evaluating, and documenting remedial actions to address deficiencies. Under guidance from the Office of Management and Budget, agencies are to develop a Plan of Actions & Milestones to report on the status of remediation efforts. This plan is to list information security weaknesses, show estimated resource needs or other challenges to resolving them, key milestones and completion dates, and the status of corrective actions. In commenting on our prior reports, DOD either concurred or partially concurred with our recommendations for testing the services' requisition- processing systems. The department, however, does not have a plan specifying the remedial actions to be taken to implement these recommendations. If actions are not taken to implement testing and reviews, the potential benefits of these controls in preventing the inadvertent release of classified or controlled spare parts may not be realized. Regarding our recommendation to periodically test the Army's system, DOD concurred and stated that testing of the Army system and its logic would occur, given the funding and guidance required to do so. In response to our recommendation to periodically test the Navy's system, DOD concurred. Concerning our recommendation to periodically test the Air Force's system, DOD partially concurred and stated that a program was being developed to test new modifications to the Air Force's system and that testing of old modifications would be an ongoing effort. Testing only the modifications to the Air Force's system, as DOD commented, will not necessarily ensure that the system's logic is working correctly. Subsequently, the Air Force concurred with our recommendation and reported that it had modified its system and would be conducting annual tests of the system's logic. The Defense Security Cooperation Agency and the military services are developing a new automated system, the Case Execution Management Information System, to process foreign military sales requisitions. The new system will replace the services' existing legacy systems with a standard DOD system. DOD expects to deploy the new system in fiscal year 2007. Internal control standards requiring testing will be applicable to the new system. Our reviews showed that the Navy's and the Air Force's systems allowed country managers, who are responsible for managing the sale of items to foreign countries, to override system decisions not to release to foreign countries classified or controlled parts that are requisitioned under blanket orders. We identified instances where Navy and Air Force country managers overrode the systems' decisions without documenting their reasons for doing so. For example, of the 123 Air Force requisitions we reviewed, the Air Force's system identified 36 requisitions for country manager review. For 19 of the requisitions, the managers overrode the system's decisions and shipped classified and controlled spare parts without documenting their reasons for overriding the system. The managers we queried could not provide an explanation for overriding the system. In 1999, the Army modified its system to reject requisitions that are made under blanket orders for classified or controlled parts. As a result, Army country managers were precluded from manually overriding the Army system's decisions. Compared with the Navy's and the Air Force's systems, the Army's system provides more stringent protection against releasing classified or controlled parts that are not authorized for release under blanket orders to foreign countries. Preventing the inadvertent release of classified and controlled spare parts that are not authorized for release under blanket orders to foreign countries deserves the highest level of management attention. The preemptive nature of testing and reviewing systems allows this internal control to identify system weaknesses prior to the inadvertent release of classified or controlled spare parts. Had the services conducted periodic tests of their systems, the instances of releasing spare parts that DOD did not want released that we identified in our reports could have been significantly reduced, if not eliminated. Developing effective corrective action plans is key to ensuring that remedial action is taken to address significant information-system internal control deficiencies. We believe the department could demonstrate its commitment to addressing this systemic weakness by providing specific information on its planned remedial actions. Documenting country managers' decisions to override system decisions is a control that could help prevent the release of classified or controlled parts that are not authorized for release under blanket orders to a foreign country. However, modifying systems, as the Army did, to reject requisitions that are made under blanket orders for classified or controlled parts and to preclude country managers from manually overriding system decisions would provide more stringent protection against releasing classified or controlled parts that are not authorized for release under blanket orders to a foreign country. To reduce the likelihood of releasing classified and controlled spare parts that DOD does not want to be released to foreign countries, we recommend that you take the following three actions: Direct the Under Secretary of Defense for Policy, in conjunction with the Secretaries of the Army and the Navy, and direct the Secretary of the Air Force to develop an implementation plan, such as a Plan of Actions & Milestones, specifying the remedial actions to be taken to ensure that applicable testing and review of the existing requisition-processing systems are conducted on a periodic basis. Direct the Under Secretary of Defense for Policy, in conjunction with the Secretaries of the Army, the Air Force, and the Navy, to determine whether current plans for developing the Case Execution Management Information System call for periodic testing and, if not, provide for such testing. Direct the Under Secretary of Defense for Policy, in conjunction with the Secretary of the Navy, and direct the Secretary of the Air Force to determine if it would be beneficial to modify the Navy's and the Air Force's requisition-processing systems so that the systems reject requisitions for classified or controlled parts that foreign countries make under blanket orders and preclude country managers from manually overriding system decisions, and to modify their systems as appropriate. The Director of the Defense Security Cooperation Agency provided written comments on a draft of this report for DOD and partially concurred with one recommendation and concurred with two recommendations. DOD partially concurred with our recommendation to develop a Plan of Actions & Milestones specifying the remedial actions to be taken to ensure that applicable testing and review of the existing requisition- processing systems is conducted on a periodic basis. DOD stated that the services have made appropriate changes to their systems in response to our prior reports and routine maintenance and have tested the applications accordingly. DOD also stated that, in lieu of a formal Plan of Actions & Milestones, the military services, in concert with DOD, can institute a practice of testing the applications on an annual basis, if those applications are not otherwise changed and tested as a matter of routine maintenance, to satisfy the requirement for periodic testing. We agree that alternatives to a formal Plan of Actions & Milestones may address the needed remedial actions. However, we believe any alternative should specify the remedial actions to be taken to ensure that applicable testing and review of the existing requisition-processing systems are conducted on a periodic basis, and we have modified our recommendation accordingly. DOD concurred with our recommendation regarding the Case Execution Management Information System. DOD stated that the system's software program testing will adhere to software-testing standards in place at the time of implementation, including testing to ensure that the functionality of existing software code is not changed when the coding is modified or enhanced. DOD also concurred with our recommendation to determine if it would be beneficial to modify the Navy's and the Air Force's requisition-processing systems so that the systems reject requisitions for classified or controlled parts that foreign countries make under blanket orders and preclude managers from manually overriding system decisions, and to modify their systems as appropriate. DOD stated that it will review the Navy's and the Air Force's business processes, as well as the requisition-processing systems. DOD noted that a better option may be to mandate that country managers seek the appropriate waivers in accordance with DOD policy to allow the release of a classified or controlled spare part under a blanket order; provide sufficient documentation for doing so; and make sure it is done as the exception, not the rule. We agree that this option would enhance the Navy's and the Air Force's controls and could help prevent the release of classified or controlled parts that are not authorized for release under a blanket order to a foreign country. DOD also provided technical and editorial comments, which we have incorporated as appropriate. DOD's comments are reprinted in appendix I of this letter. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written statement of the actions taken on our recommendations to the Senate Committee on Governmental Affairs and to the House Committee on Government Reform not later than 60 days from the date of the report and to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of the report. Because agency personnel serve as the primary source of information on the status of recommendations, we request that DOD also provide us with a copy of DOD's statement of action to serve as preliminary information on the status of open recommendations. Please provide me with a copy of your responses. My e-mail address is [email protected]. We are sending copies of this report to Senator Tom Harkin; the Senate and House Committees on Armed Services; the Secretaries of the Army, the Navy, and the Air Force; the Director, Office of Management and Budget; and other interested congressional committees. The report is also available on GAO's home page at http://www.gao.gov. If you have any questions, please call me at (202) 512-8365. Key contributors to this report were Thomas Gosling, Louis Modliszewski, and R. K. Wild. Key contributors to our prior reports are listed in those reports. The following are GAO's comments on the Department of Defense's letter dated October 8, 2004. 1. In our report, we modified the text to clarify that the parts were not authorized for release under blanket orders. The title of this report is consistent with the titles of our prior reports on this subject, as listed on page 1, and we did not modify it as DOD suggests. 2. In response to DOD's comments, we modified the text to state that DOD does not have a plan specifying the remedial actions to be taken to implement our recommendations. The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts newly released reports, testimony, and correspondence on its Web site. 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Under Department of Defense (DOD) policy, the export of classified and controlled spare parts must be managed to prevent their release to foreign countries that may use them against U.S. interests. GAO has issued a series of reports on the foreign military sales program in which weaknesses in the military services' internal controls were identified. This report highlights (1) a systemic problem that GAO identified in the internal controls of the military services' requisition-processing systems and (2) a potential best practice that GAO identified in one service that provides an additional safeguard over foreign military sales of classified and controlled parts. At the time GAO conducted its reviews, the Army, the Navy, and the Air Force were not testing their automated requisition-processing systems to ensure that the systems were accurately reviewing and approving blanket order requisitions for compliance with restrictions on the sale of classified and controlled spare parts and operating in accordance with foreign military sales policies. Blanket order requisitions are based on agreements between the U.S. government and a foreign country for a specific category of items for which foreign military sales customers will have a recurring need. GAO's tests of the services' requisition-processing systems showed that classified and controlled spare parts that the services did not want to be released to foreign countries under blanket orders were being released. GAO's internal control standards require periodic testing of new and revised software to ensure that it is working correctly, while the Office of Management and Budget's internal control standards require periodic reviews to determine how mission requirements might have changed and whether the information systems continue to fulfill ongoing and anticipated mission requirements. DOD either concurred or partially concurred with GAO's recommendations for testing the requisition-processing systems. The department, however, does not have a plan specifying the remedial actions to be taken to implement these recommendations. Internal control standards requiring testing also will be applicable to the Case Execution Management Information System, an automated requisition-processing system that DOD and the military services are developing to replace the existing individual military service systems. The Army's automated requisition-processing system incorporates a potential best practice that helps to prevent the release of classified or controlled parts that are not authorized under blanket orders to foreign countries. The automated systems used by the Navy and the Air Force allow country managers to override system decisions not to release to foreign countries classified or controlled parts that are requisitioned under blanket orders. GAO found instances where Navy and Air Force country managers overrode the systems' decisions without documenting their reasons for doing so. In contrast, the Army's system automatically cancels requisitions that are made under blanket orders for classified or controlled parts. Because the requisitions are automatically canceled, country managers do not have an opportunity to override the system's decisions. Compared with the Navy's and the Air Force's systems, the Army's system provides more stringent protection against releasing classified or controlled parts that are not authorized under blanket orders to foreign countries.
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Western Hemisphere countries have gone beyond their multilateral trade commitments during the past decade and pursued economic integration through numerous free trade and customs union agreements. The largest of these are Mercosur, signed in 1991, and the North American Free Trade Agreement (NAFTA), which entered into force in 1994. Other regional groups such as the Central American Common Market, the Andean Community, and the Caribbean Community have either been initiated or expanded. (See app. I for more information on the 34 countries of the Free Trade Area of the Americas.) Also, countries in the region have concluded numerous bilateral free trade and investment agreements with others in the region and worldwide. In addition, Chile and the European Union have recently started trade negotiations, while similar European Union and Mercosur negotiations are already under way. In December 1994, the heads of state of the 34 democratic countries in the Western Hemisphere agreed at the first Summit of the Americas in Miami, Florida, to conclude negotiations on a Free Trade Area of the Americas (FTAA) no later than 2005. The FTAA would cover a combined population of about 800 million people, more than $11 trillion in production, and $3.4 trillion in world trade. It would involve a diverse set of countries, from some of the wealthiest (the United States and Canada) to some of the poorest (Haiti) and from some of the largest (Brazil) to some of the smallest in the world (Saint Kitts and Nevis). Proponents of the FTAA contend that a successful negotiation could produce important economic benefits for the United States. The FTAA region is already important economically for the United States, purchasing about 36 percent of U.S. exports of goods and services in 1999 and receiving over 23 percent of U.S. foreign direct investment. Business groups point out that if relatively high tariffs and other market access barriers are removed, U.S. trade with the region could expand further. U.S. exports to many FTAA countries face overall average tariffs above 10 percent, whereas all 33 other countries participating in FTAA negotiations already have preferential access to the U.S. market on certain products through unilateral programs or NAFTA. In addition, some U.S. industry representatives assert that they have lost sales and market share to competitors that have preferential access into other Western Hemisphere markets through bilateral free trade agreements that exclude the United States. For example, the U.S. Trade Representative testified before the House Committee on Ways and Means in March 2001 that because of the Canada-Chile trade agreement, Canadian products will enter Chile duty free, while U.S. products face an 8 percent duty. The FTAA would help remedy this disadvantage by providing U.S. exporters with access equivalent to that provided to U.S. competitors. Supporters also assert that the FTAA would benefit the United States by stimulating increased trade and investment and enabling more efficient production by allowing businesses to produce and purchase throughout an integrated hemisphere. Beyond these economic benefits, the FTAA is widely regarded as a centerpiece of efforts to forge closer and more productive ties to Western Hemisphere nations, increase political stability, and strengthen democracy in the region. While an FTAA may provide benefits for the United States, it may also adversely impact certain import-competing sectors. Some U.S. business and labor groups argue that import restrictions are necessary to help them to compete against imports produced with more favorable labor costs, less restrictive environmental regulations, or imports that receive government assistance. Also, some labor and environmental groups argue that potential FTAA provisions may reduce the ability of countries to set and enforce high standards for health, safety, and the environment. For example, some opponents are concerned that the FTAA would contain NAFTA-like investment provisions, which they argue give corporations a greater ability to challenge government regulations than is provided for under domestic law. Finally, as is the case with other international trade agreements, the FTAA has drawn the attention of organizations and individuals apprehensive about the FTAA's effects on greater global integration and the resulting impact on society and the environment. Between December 1994 and March 1998, FTAA countries laid the groundwork for an FTAA. Efforts over the past 18 months have produced a first draft of text on the major negotiating topics, which will constitute the basis from which negotiations will proceed in those areas. The FTAA negotiations have also resulted in the adoption and partial implementation of several business facilitation measures and improved coordination between FTAA countries on trade matters. In the first years of the FTAA process, FTAA negotiators agreed on the overall structure, scope, and objectives of the negotiations. FTAA participants formally initiated the negotiations at the San Jose Ministerial and Santiago Summit of 1998, where they agreed on how the negotiations would proceed. Specifically, they agreed in 1998 at San Jose that the FTAA would be a single undertaking, meaning that the agreement would be completed and implemented as one whole unit instead of in parts. Ministers also agreed that the FTAA could coexist with other subregional agreements, like Mercosur and NAFTA, to the extent that the rights and obligations go beyond or are not covered by the FTAA. An eventual FTAA agreement would contain three basic components: (1) chapters on general issues and the overall architecture of the FTAA and its institutions, (2) schedules for reducing tariff and nontariff barriers, and (3) chapters on specific topics. The specific topics currently under negotiation include (1) market access for goods, (2) investment, (3) services, (4) government procurement, (5) dispute settlement, (6) subsidies/antidumping/ countervailing duties, (7) agriculture, (8) intellectual property rights, and (9) competition policy. As illustrated in figure 1, FTAA participants formed negotiating groups on each of these topics; agreed on a general mandate for each group; formed special committees on smaller economies, the participation of civil society, and electronic commerce; and determined that the negotiations would be led by a vice-ministerial-level Trade Negotiations Committee. Chairmanship of the negotiations changes every 18 months, with Argentina serving as the current chair, to be succeeded by Ecuador for the next round of negotiations following the April meetings. Brazil and the United States are set to co-chair the final round from November 2002 to December 2004. Ministers set out the workplans for the negotiating process and select new chairs for the negotiating groups in the same 18- month increments. Since the 1998 launch of the negotiations, the nine FTAA negotiating groups have met the ministerial goals set for them of producing first drafts of their respective chapters, which contain the agreement's detailed rules. As illustrated in figure 2, negotiators were directed by ministers in November 1999 to submit first drafts of their chapters to the Trade Negotiations Committee by December 2000, using annotated outlines developed in the previous phase as frames of reference. According to FTAA participants and other observers, these were ambitious goals, and working-level activity since 1998 has been fairly intense in order to meet them. They stated that merely providing the first drafts of the chapters marks important progress, as the drafts are necessary groundwork for future negotiations. Under FTAA negotiating procedures, individual countries may still propose new text to be included in the draft chapters; the removal of brackets and text can only be done by consensus. Third Summit Quebec City, According to U.S. and foreign negotiators, however, the draft text is heavily bracketed, indicating that agreement on specific language has not been reached. The draft text generally represents a consolidation of all proposals submitted by FTAA countries so far. FTAA participants state that the draft conveys wide differences between the countries over substance and philosophical approaches to key issues. The Trade Negotiations Committee is currently in the process of assembling a report that will be provided to trade ministers at the upcoming Buenos Aires Ministerial on April 7. In addition to making progress on producing the first drafts of the chapters, the negotiations have yielded several other accomplishments. Ministers agreed to adopt eight customs-related business facilitation measures (for example, expediting express shipments) and 10 additional transparency (openness) measures (for example, posting tariff and trade flows to the FTAA website) at the Toronto Ministerial in 1999. U.S. officials report that the FTAA countries immediately began to implement all 10 transparency measures and are in various stages of carrying out the customs measures. Outside of the concrete accomplishments, many observers feel the negotiations have greatly improved coordination and provided a broader understanding of trade and its impacts among FTAA countries, in part through technical assistance in the form of reports, databases, seminars, and financial assistance provided by the Inter- American Development Bank, the Organization of American States, and the United Nations Economic Commission for Latin America and the Caribbean. A number of challenges must be overcome in order to successfully complete the FTAA. For example, to build on the technical foundation of the first years of negotiations, much work remains to be done in three areas: setting the agreement's detailed rules, deciding on the market access concessions, and devising the institutional structure to implement the completed agreement. However, negotiators have not yet begun to bargain on the agreement's detailed rules or market access concessions, and vice-ministers have not begun to formulate the agreement's institutional structure. Negotiators will conduct their work in an environment filled with challenges, due to the complex and controversial character of some of the issues, and the diverse nature and fluid political and economic condition of the participants. Many observers believe these challenges will be resolved only if the governments demonstrate their commitment to the agreement's completion. In order to conclude the FTAA, the negotiating groups will first need to begin negotiating on the removal of the brackets that signify disagreement in the text on the agreement's detailed rules. However, this task will be difficult, because the text deals with controversial and complex issues. For example, agricultural support measures and antidumping provisions are widely understood to be controversial; observers feel that some of the more difficult issues will not be resolved until the deadline for completing the negotiations. Other negotiating groups' tasks are complex by virtue of the extent of the subject matter to be covered. For example, the market access negotiating group is responsible not only for the elimination of tariffs but also for devising rules of origin, customs procedures, safeguards, and technical barriers to trade. Other negotiating groups' tasks are complex because they break new ground for many of the FTAA countries. For example, competition policy has not been the subject of a multilateral agreement on which to build, and only two of the FTAA countries are signatories to the multilateral Agreement on Government Procurement. Before countries can begin to negotiate on market access concessions, they must agree on the basic ground rules of the negotiations. Negotiators refer to these as the "modalities." Once the FTAA participants agree on the modalities, market access liberalization negotiations can begin. Decisions on these procedural matters are especially important for five of the nine negotiating groups: market access, agriculture, government procurement, investment, and services. In addition, some negotiating groups need guidance on whether their groups can share procedural processes. For example, the market access and agriculture groups could have a common approach to tariff reduction starting points or the pace of tariff elimination. Much work remains to be done in order to establish an institutional structure for the implementation of the agreement. This involves such key issues as the role and location of a permanent secretariat and the institutional mechanism by which the participants will oversee implementation of the agreement, including dispute settlement provisions. FTAA experts expect it can only be completed near the end of the negotiation process because the structure is largely dependent on the results of the negotiations. The ministers also need to address administrative issues related to the negotiation process. The final negotiation period will be chaired jointly by the United States and Brazil. However, both U.S. and Brazilian government officials told us that they have not yet determined how a joint chair relationship will function. The very fact that 34 widely differing countries are participating in an endeavor to create a hemispheric free trade zone in itself complicates the process. Since the participants range from some of the world's largest and most economically powerful to the smallest and most economically disadvantaged, their objectives and incentives for the negotiations naturally differ. For example, the United States seeks broad improvements in trade rules and access, in addition to the lowering of regional tariffs; Brazil is primarily interested in gaining access to certain sectors of the U.S. market in which it faces relatively high barriers; the smaller economy countries are interested in protecting their economies from becoming overwhelmed by the larger ones while securing special treatment in an eventual FTAA; and Mexico has less economic incentive to pursue an FTAA because it already has preferential access to most hemispheric markets through a comprehensive network of free trade arrangements. Finally, several FTAA experts told us that the 2005 deadline has seemed far away to many participants, thus sapping needed momentum from the negotiating process. The FTAA negotiating process is challenging because it requires consensus. Interests of specific individual countries or negotiating blocks may not be ignored even if they are not accepted in their entirety. For example, the United States pressed for the inclusion of labor rights and environment provisions in the FTAA. This proposal was met with steadfast opposition by some FTAA countries, but the United States was ultimately accommodated with the creation of the Committee of Government Representatives on the Participation of Civil Society. The Committee, which is to provide a vehicle for public input on these issues, remains a point of contention for both the United States and some of its FTAA partners. For example, the United States proposed that the Committee release a report containing recommendations based on the first round of public input but was initially blocked from doing so by another FTAA country. Eventually, a compromise was reached, and the Committee issued a summary report of the public input. Another challenge is the varying resource capacity of the FTAA participants. Many of the countries, including most of those with smaller economies, negotiate in blocks, which helps them to pool resources in the negotiations. However, government officials from some FTAA- participating countries told us that they are concerned about the demand placed on their limited budgets and staff. For example, the market access negotiating group, which has a very broad portfolio of issues, was not able to be broken up into more manageable components because of resource capacity limitations. In addition, potential competing trade negotiations could also challenge the FTAA process. For example, several foreign government officials explained that the start of a new round of negotiations at the World Trade Organization (WTO) would require them to choose between the WTO and the FTAA for their most qualified negotiators and experts. The domestic political and economic climate of the participants influences not only their internal policies but also the reaction of the other participants. The recent U.S. election is a good example. FTAA experts told us that uncertainty in the fall of 2000 over how the election would affect the direction of U.S. trade policy impacted the progress of the negotiations. In addition, the United States had not developed its negotiating position for several important issues. Some FTAA experts told us that they believed the United States did not have a mandate to make meaningful concessions on market access, which are, in their view, necessary to complete an agreement. In addition, some experts believe that progress in the FTAA in certain areas such as agriculture is reliant on progress in the WTO. Meanwhile, economic hardship and political uncertainty have made some participants more reluctant to pursue an FTAA. FTAA experts noted that in the future, participating countries could face other distractions that would direct their energies away from the FTAA. This includes increased opposition from groups that have not yet fully mobilized against the FTAA. A number of participants told us that the FTAA could be successfully concluded if the key Western Hemisphere leaders demonstrate that they have the political will to conclude the agreement. However, some observers have concerns about whether this climate currently exists in the two main FTAA countries: the United States and Brazil. In particular, FTAA experts and participants have been closely following the debate within the United States on the overall direction of U.S. trade policy and its implications for the FTAA. Some FTAA participants believe that the United States has been distracted from pursuing trade liberalization because it lacks a domestic consensus on the benefits of trade and the way in which to handle the overlap between trade and labor rights and the environment. Several told us that they believed the absence of trade promotion authority has hampered the process to the extent that other countries have held back making concessions on free trade agreement rules and procedures. Others stated that the primary cost of the President's lack of trade promotion authority was in giving others an excuse to slow progress. Many observers we consulted believe that trade promotion authority is essential for the next phase of negotiations, particularly completion of the market access concessions. These experts said that the foreign partners will not make significant concessions unless they have credible assurance that the deal will not come undone when submitted to Congress for approval. Concerns also exist about Brazil's commitment to the FTAA process. Even though Brazil has actively participated in the negotiations, observers have noted that Brazil has appeared reticent to embrace an FTAA, and Brazilian officials admit that Brazil has held back during the negotiations. They explained that this reticence is because they believe the United States is not ready to negotiate on issues of greatest interest to Brazil such as high U.S. tariffs on key Brazilian exports and changes to the U.S.'s antidumping regime. In addition, Brazil's Foreign Minister recently stated that the FTAA is less of a priority for Brazil than the expansion of Mercosur in South America. The April 2001 meetings of ministers in Buenos Aires and leaders in Quebec City represent a critical juncture in the process. Successful meetings in April could lend fresh momentum and clear direction to the FTAA at an important point in the negotiations. At a minimum, FTAA negotiators need guidance for the next 18 months to proceed. However, while the time allotted to settle numerous outstanding decisions is tight, there has been considerable high-level political activity recently that might improve the chances for a favorable outcome. Both April meetings, but particularly the April Summit of hemispheric leaders, provide an opportunity to inject momentum into the negotiating process at a critical point in the FTAA's development. Past summits have been used to make major advancements in the FTAA process. For example, the first summit, held in Miami in 1994, resulted in the leaders' commitment to achieve the vision of an FTAA by 2005. The April Summit will engage President Bush and other newly elected heads of state in the FTAA process and provide an opportunity for all 34 leaders to renew their countries' political commitment to the FTAA. Doing so at this time is particularly important, because the phase of negotiations where countries set out initial positions is ending. The next phase is expected to narrow the many substantive differences that remain, which will require political direction and support. The April meetings will provide an indication of the U.S.'s and other countries' willingness to make the effort and tough choices required for the bargaining that lies ahead. The April meetings also represent an opportunity to generate interest in and support of the FTAA within the U.S. Congress, the U.S. business community, and the U.S. public. This support will be crucial if the United States is to provide the forceful leadership many FTAA participants believe is necessary for concluding a deal. It is also required for ultimate approval of an FTAA in Congress and in the U.S. "court of public opinion." Until recently, congressional interest in the FTAA has been limited, and business support has been muted, according to both business and government officials. The April meetings could highlight the importance attached by hemispheric leaders to an FTAA and provide reasons for optimism about its potential viability. The political boost FTAA supporters hope to achieve in April depends, in part, on the meetings' success in addressing key questions about how negotiations will proceed. These decisions will set the pace, goals, and structure for the next phase of negotiations, since the ministers typically set out the agenda for the next phase of the process at the ministerial meeting. As shown in figure 3, specific direction needs to be provided for the remainder of the negotiations. At a practical level, the negotiators are seeking specific direction as follows: 1. The additional work to be done in refining the rules and disciplines contained in the draft texts, such as removing the brackets that currently signify disagreement. 2. The date for deciding on how negotiations on specific market access commitments will be negotiated. 3. General and institutional provisions of an FTAA. 4. The chairs of the various groups and committees for the next 18 months, and whether to create new committees or groups. However, these practical decisions may be affected by broader issues. For example, Chile has floated the idea of moving up the target date for completion of the negotiations to December 31, 2003, with a final agreement entering into effect on January 1, 2005. This idea of accelerating negotiations is still being debated within and among FTAA governments and may be actively discussed at the April meetings. Some FTAA participants, notably Brazil, have publicly stated that a 2003 deadline is unrealistic. Others believe that a 2003 deadline is both doable and desirable. Decisions made at the April meetings could affect public input into and support for the next phase of FTAA negotiations. For example, trade ministers are expected to consider adopting additional business facilitation measures. In addition, whether and how to respond to the input from civil society groups must be decided. U.S. groups that submitted formal input to the FTAA Committee of Government Representatives of Civil Society told us they are disappointed because there is little evidence that their input is being given serious consideration in FTAA negotiations. Some U.S. government officials we interviewed concurred with this assessment. Others said that U.S. negotiators are considering the input, as are some foreign negotiators. The United States is seeking a more in-depth report on civil society views this year and an expansion of public outreach efforts in future years. In addition, Canada, more than 50 Members of Congress, and various U.S. nongovernmental groups are calling for public release of the bracketed text. Publicly available information on the FTAA negotiations is limited, a fact that has caused suspicion and concern among the nongovernmental groups. These groups see the release of the text as an important confidence-building measure in its own right and as concrete evidence of ministers' commitment to transparency in decision-making. However, this is likely to prove controversial among FTAA governments in April, given the ongoing and confidential nature of FTAA deliberations. The issue of transparency is also controversial domestically. U.S. negotiators note that releasing the text could hamper their flexibility in exploring creative options to obtain their objectives. Even though the U.S. government released public summaries of U.S. negotiating positions in the FTAA in late January, it faces a lawsuit by two environmental groups seeking access to the full text of U.S. proposals. A large number of issues remain to be resolved between now and the conclusion of the April meetings. When vice-ministers met in January 2001 to prepare for the April meetings, their discussions focused on solving controversies associated with the bracketed text. They spent less time discussing other decisions required in April, or resolving issues, such as whether more business facilitation measures are practical. In addition, the vice-ministers could not schedule an anticipated follow-up planning meeting. As a result, FTAA countries will be forced to tackle their ambitious agenda for April in a very short time frame. Only 4 days of official meetings have been scheduled, and these immediately precede the Ministerial. Expected protests by opponents of the FTAA may complicate the situation further. The United States has faced unique constraints in preparing for the Buenos Aires Ministerial. The new U.S. administration has yet to decide its position on key issues, such as whether to support a 2003 deadline for completing FTAA negotiations, and public release of the bracketed text. In addition, Robert Zoellick, the chief U.S. trade negotiator, was sworn in as U.S. Trade Representative on February 7, just 2 months before the Buenos Aires Ministerial. While significant work remains to be completed for the April meetings, there has been considerable high-level political activity that might improve the chance for a favorable outcome. The new U.S. administration has initiated a number of high-level contacts between President Bush and key hemispheric leaders in advance of the Quebec Summit of the Americas. Already, President Bush has met Mexican President Vincente Fox, Canadian Prime Minister Chretien, Colombian President Pastrana, and Salvadorean President Flores. Meetings with Brazilian President Cardoso, Chilean President Lagos, and Argentinian President de la Rua have been announced. Among other things, the meetings are intended to establish personal rapport and to reassure these leaders of President Bush's intention to make the region a priority and to conclude the FTAA. The President's Trade Policy Agenda released in early March underlines these ideas, as well as the President's seriousness in securing trade promotion authority from Congress to implement an FTAA. These statements, and others like it, may help the administration establish political support for the decisions required to start the next phase of FTAA negotiations on a solid footing. We obtained oral comments on a draft of this report from the U.S. Trade Representative's Director for the Free Trade Area of the Americas. USTR generally agreed with the information in the report and provided technical comments that we incorporated as appropriate. To meet our objectives of (1) discussing what progress has been made in the free trade negotiations to date, (2) identifying the challenges that must be overcome to complete a free trade agreement, and (3) discussing the importance of the April meetings of trade ministers and national leaders of the participating countries, we reviewed FTAA and executive branch documents and related literature and economic literature, and held discussions with lead U.S. government negotiators for each of the FTAA negotiating groups. We also had discussions with foreign government officials representing the negotiating blocks, and from officials with the Inter-American Development Bank, the Organization of American States, and the United Nations Economic Commission for Latin America and the Caribbean, who each provide technical assistance to the negotiations. In addition, we met with experts on the FTAA and international trade negotiations, and business and civil society groups that have expressed interest in the FTAA process. This report is also based on our past and ongoing work on Western Hemisphere trade liberalization. We conducted our work from September 2000 through March 2001 in accordance with generally accepted government auditing standards. As you requested, unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days after its issue date. At that time, we will send copies to appropriate congressional Committees and to the Honorable Robert Zoellick, U.S. Trade Representative. Copies will be made available to others upon request. If you or your staff have any questions about this report, please contact me on (202) 512-4128. Other GAO contacts and staff acknowledgments are listed in appendix II. The 34 FTAA countries include some of the U.S.'s largest trading partners and some of its smallest. Many of them are members of regional trade groups or free trade agreements. Figure 4 shows the countries of the FTAA region and some of the regional trade groups. Table 1 shows the U.S. trade and investment relationship with the 33 other FTAA countries, organized by regional trade groups. In addition to the persons named above, Tim Wedding, Jody Woods, Ernie Jackson, and Rona Mendelsohn made key contributions to this report.
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The negotiations to establish a Free Trade Area of the Americas (FTAA), which would eliminate tariffs and create common trade and investment rules within the 34 democratic nations of the Western Hemisphere, are among the most significant ongoing multilateral trade negotiations for the United States. Two meetings held in April 2001 offer opportunities to inject momentum and set an ambitious pace for the next, more difficult phase of the negotiations. Because of the significance of the FTAA initiative, this report (1) discusses the progress that has been made in the free trade negotiations so far, (2) identifies the challenges that must be overcome to complete a free trade agreement, and (3) discusses the importance of the April meetings of trade ministers and national leaders of participating countries. GAO found that the FTAA negotiations have met the goals and deadlines set by trade ministers. Significant challenges remain, including market access concessions and doubts that key Western Hemisphere leaders will have the political will to embrace the agreement. The April meetings of trade ministers will serve as a transition from the initial proposal phase to the substantive negotiations phase.
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Cable television emerged in the late 1940s to fill a need for television service in areas with poor over-the-air reception, such as in mountainous or remote areas. By the late 1970s, cable began to compete more directly with free over-the-air television by providing new networks--available only on cable systems--such as HBO (introduced in 1972), Showtime (introduced in 1976), and ESPN (introduced in 1979). According to FCC, cable's penetration rate--as a percent of television households--increased from 14 percent in 1975 to 24 percent in 1980 and to 65 percent by 2002. Cable television is by far the largest segment of the subscription video market, a market that includes cable television, satellite service (direct broadcast satellite (DBS) providers such as DirecTV), and other technologies that deliver video services to customers' homes. Cable companies deliver video programming to customers through cable systems. These systems consist of headends--facilities where programming from broadcast and cable networks is aggregated--and distribution facilities--the wires that carry the programming from the headend to customers' homes. Depending on the size of the community, a single headend can serve multiple communities or several headends may be required to serve a single large community. At the community level, cable companies obtain a franchise license under agreed-upon terms and conditions from a franchising authority, such as a township or county. In some cases, state public service commissions are also involved in cable regulation. During cable's early years, franchising authorities regulated many aspects of cable television service, including franchise terms and conditions and subscriber rates. In 1984, the Congress passed The Cable Communications Policy Act, which imposed some limitations on franchising authorities' regulation of rates. However, 8 years later, in response to increasing rates, the Congress passed The Cable Television Consumer Protection and Competition Act of 1992. The 1992 act required FCC to establish regulations ensuring reasonable rates for basic service--the lowest level of cable service that includes the broadcast networks--unless a cable system has been found to be subject to effective competition, which the act defined. The act also gave FCC authority to regulate any unreasonable rates for upper tiers (often referred to as expanded-basic service), which includes cable programming provided over and above that provided on the basic tier. Expanded-basic service typically includes such popular cable networks as USA Network, ESPN, CNN, and so forth. In anticipation of growing competition from satellite and wire-based providers, the Telecommunications Act of 1996 phased out all regulation of expanded- basic service rates by March 31, 1999. However, franchising authorities retain the right to regulate basic cable rates in cases where no effective competition has been found to exist. As required by the 1992 act, FCC annually reports on cable rates for systems found to have effective competition compared to systems without effective competition. To fulfill this mandate, FCC annually surveys cable franchises regarding their cable rates. In 2002, the survey included questions about a range of cable issues including the percentage of subscribers purchasing non-video services and the specifics of the programming channels offered on each tier to better understand the cable industry. Until recently, cable companies usually encountered limited competition in their franchise areas. Some franchise agreements were initially established on an exclusive basis, thereby preventing wire-based competition to the incumbent cable provider. In 1992, the Congress prohibited the awarding of exclusive franchises, and in 1996, the Congress took steps to allow telephone companies and electric companies to enter the video market. Still, only limited wire-based competition has emerged, in part because it takes large capital expenditures to construct a cable system. However, competition from DBS has grown rapidly in recent years. Initially unveiled in 1994, DBS served over 18 million American households by June 2002. Today, two of the five largest subscription video service providers are DirecTV and EchoStar, the two primary DBS companies. In a recently released report, we found that competition in the subscription video market can have a significant impact on cable rates. Using an econometric model, we found that franchise areas with a second wire-based video provider had rates approximately 17 percent lower than similar franchise areas without such a competitor. We did not, however, find that competition from DBS providers is associated with lower cable prices, although we did find that where DBS companies provide local broadcast networks to their customers, cable companies provide more channels than in areas where DBS companies do not provide local broadcast channels. Moreover, we also found that DBS providers obtain a substantially higher level of subscribers in areas where they are providing local broadcast channels. FCC's annual cable rate survey seeks information on cable franchises' cost changes that may underlie changes in cable rates during the preceding year. To evaluate the reliability of these statistics, we asked 100 of the approximately 700 franchises that FCC surveyed in 2002 to describe how cost change information that they provided to FCC was calculated. Figure 1 shows the actual portion of the FCC survey which franchises completed to provide their cost change information. E. Programming Service Charges in Community In the following, the "basic cable service tier" or BST is the service tier that includes the retransmission of over-the-air broadcast signals and may include a few satellite or regional channels. A "cable programming service tier" or CPST is any other tier containing programming other than that on the BST, pay-per-channel, or pay-per-view. CPST1 refers to the major CPST and typically meets two criteria: It has the most channels and most subscribers among the CPST tiers (if more than one CPST is offered). Sometimes a "mini-tier" with considerably fewer channels has the most subscribers among the CPSTs. This mini-tier is considered CPST2 , whether or not it has the most subscribers. Monthly Charges for Programming Services 48 49 50 51 Year-to-date change in monthly charge on row 50 Monthly charge for BST Monthly charge for CPST1 Monthly charge for BST plus CPST1 (rows 48 + 49) For July 1, 2001 and July 1, 2002, allocate the change shown on row 51 by estimating the dollars and cents that each factor, below, contributed. The total of these factors (row 58) should equal the change on row 51. 52 License or copyright fees, existing programs 53 License or copyright fees, new programs 54 Headend or distribution facility investment 55 General inflation, not included elsewhere 56 Other cost changes (positive or negative) 57 Non-cost-related factors (positive or negative) 58 Total of rows 52-57 (must equal row 51) ----- ----- ----- ----- ----- ----- ----- Our discussions with cable franchises indicated considerable variation in how franchises completed this section of the 2002 FCC cable rates survey. Our preliminary observations indicate that there are two causes for the resulting variation: (1) there were insufficient instructions or examples on how the form was supposed to be completed, leading to confusion among cable operators regarding what to include for the different cost factors and how to calculate each of them; and (2) the requirement that the cost and non-cost factors sum to the reported annual rate increase caused many cable operators to adjust one or more of the cost factors, thereby resulting in data that might not provide an accurate assessment of the cost factors underlying cable rate increases. Lack of adequate instructions. Our interviews with 100 cable franchises indicate that the lack of specific guidance regarding the cost change section of the survey caused considerable confusion about how to fill out the form. Every franchise that we spoke with said it was unclear what FCC expected for at least one of the six factors (5 cost factors as well as a non- cost factor); 73 of the 100 franchises said that the instructions were insufficient. In particular, several cable representatives we interviewed noted that there were no instructions or examples to show how to calculate investment, what types of cost elements should go into the other costs category, and what FCC meant by non-cost factors. This lack of guidance created considerable variation in the approaches taken to develop the cost factors. Table 1 provides information on the approaches cable franchises used to complete the portion of the survey pertaining to cost and non-cost factors underlying rate changes. Requirement that factors sum to the reported annual rate change. Our survey of 100 cable franchises that responded to FCC's 2002 cable rates survey indicated that a second source of confusion relates to the requirement that the sum of the underlying cost and non-cost factors (see fig. 1 lines 52-57) equal the change in the franchise's cable rates (see fig. 1 line 51). This portion of FCC's survey was originally designed during the 1990s when both basic and expanded-basic services were regulated. At that time, cable companies were required to justify any rate increases the cable company implemented based on cost increases that it had incurred during the year. An FCC official told us that the rate/cost factor portion of the form was designed to mirror a regulatory form that was used at that time to justify rate changes. When expanded-basic services were deregulated in March 31, 1999, FCC realized that cost factors would no longer necessarily equal the yearly rate change because companies were no longer required to tie rate changes to explicit cost factors for regulatory purposes. In the 1999 cable rates survey, FCC added the non-cost line in this section of the survey and continued to require that the cost factors and the non-cost factor sum to the reported annual rate change. FCC officials told us that cable operators could use the non-cost factor element to make up any difference (positive or negative) between their changes in costs and rates. However, based on our findings, it appears that this may not have been clearly communicated to cable franchises. We found that only 10 franchises took this approach and instead, most franchises told us that they chose to change their estimate of one or more of the cost factors. In most cases, cable representatives told us that this meant reducing other cost factors because most franchises told us that their actual annual cost increases for the year covered by the 2002 survey exceeded their rate change for expanded-basic service. In other words, most franchises--84 of the 100 franchises we spoke with--did not provide a complete or accurate accounting of their costs changes for the year. The following are some examples of how the franchises we surveyed chose to equalize the cost factors with the rate change. Fifteen franchises said they entered dollar values in the factors until the entire rate increase was justified and did not consider the remaining cost factors; Twenty franchises said they chose to adjust the dollar estimates in existing and/or new programming in order to balance costs and rates; Seven franchises said they chose to adjust the costs included for investment in order to balance costs and rates; Twenty-seven franchises said they chose to adjust the amount of their inflation estimate to ensure that costs and rates were in balance; Twenty-six franchises said they chose to adjust the other costs factor to ensure that costs and rate changes were in balance; and Four franchises said they adjusted more than one of the cost factors in order to balance costs and rates. For example, one franchise chose to adjust all of the factors by a uniform percentage in order to retain a constant ratio of cost increases. The 1992 Cable Act established three conditions for a finding of effective competition, and a fourth was added in the 1996 Act. Specifically, a finding of effective competition in a franchise area requires that FCC has found one of the following conditions to exist: Fewer than 30 percent of the households in the franchise area subscribe to cable service (low-penetration test). At least two companies unaffiliated with each other offer comparable video programming service (through a wire or wireless--e.g., DBS-- service) to 50 percent or more of the households in the franchise area and at least 15 percent of the households take service other than from the largest company (competitive provider test). The franchising authority offers video programming service to at least 50 percent of the households in the franchise area (municipal test). A local telephone company or its affiliate (or any other company using the facilities of such carrier or its affiliate) offers video programming, by means other than direct broadcast satellite, that is comparable to that offered by the cable provider in the franchise area (LEC test). Franchising authorities have primary authority to regulate basic cable rates. However, these rates may only be regulated if the cable system is not facing effective competition. Under FCC rules, in the absence of a demonstration to the contrary, cable systems are presumed not to face effective competition. The cable operator bears the burden of demonstrating that it is facing effective competition. Once the presence of effective competition has been established, the franchising authority is no longer authorized to regulate basic cable rates. FCC does not independently update or revise an effective competition finding once it is made. An effective competition finding may be reversed if a franchising authority petitions to be recertified to regulate basic rates by demonstrating that effective competition no longer exists. However, such petitions are rare. Our preliminary review of the approximately 700 cable franchises that responded to FCC's 2002 cable rates survey suggests that the agency's lack of any updates or reexamination of the status of competition in franchise areas may lead to some classifications of the competitive status of franchises that do not reflect current conditions. For example: Forty-eight of the 86 franchises in the sample that FCC had classified as satisfying the low-penetration test for effective competition actually reported current information to FCC on their operations that appeared, based on our preliminary calculations, to indicate that current penetration rates are greater than the 30 percent threshold. Ten cable franchises appeared to have a penetration rate exceeding 70 percent--a full 40 percentage points above the legislated low-penetration threshold. Forty of the 262 franchises in the FCC survey that had been classified as having effective competition by FCC also reported that the franchising authority was currently regulating basic service rates. This would not be in accord with the statutory requirement. It is possible that such an inconsistency could occur because cable companies incorrectly completed FCC's survey in some fashion. Although the survey form asks the cable franchise whether they face effective competition in the franchise area, those responses are not always consistent with information maintained by FCC regarding whether there has been an official finding of effective competition. When FCC's information conflicts with the survey response, FCC overrides the answer provided by the cable franchise. We found that FCC staff overrode the survey responses on effective competition for 24 percent of all franchises in its 2002 survey. Also, we have searched for instances in which franchising authorities sought to have a finding of effective competition reversed. We found two instances in which FCC reversed a finding of effective competition. However, in one of these instances involving ten franchises in Delaware, some of the franchises appear to remain classified as having effective competition even though FCC reversed the position in 1999. In its 2002 Report on Cable Industry Prices, FCC acknowledges that the classification of the competitive status of some franchises may not reflect current conditions. Some franchises that face competition may not have filed a petition, and therefore are not classified as facing effective competition. Also, some franchises may have previously met the criteria for a finding of effective competition, but because of changing circumstances may not currently meet the criteria and remain classified as facing effective competition. We are conducting additional work on the issues discussed today and a more complete analysis will be included in our final report, which we plan to issue in October 2003. In addition to the topics discussed today, we will be providing a more comprehensive analysis of the factors underlying recent cable rate increases, the impact of competition on cable rates and service, and cable tiering issues. Mr. Chairman, this concludes my prepared remarks. We would be pleased to answer any questions you or other members of the Committee may have. For questions regarding this testimony, please contact William B. Shear on (202) 512-4325 or at [email protected]. Individuals making key contributions to this testimony included Amy Abramowitz, Mike Clements, Keith Cunningham, Michele Fejfar, Wendy Turenne, Mindi Weisenbloom, and Carrie Wilks.
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Over 65 percent of American households currently subscribe to cable television service. There has been increasing concern that cable television rates have been rising aster than the rate of inflation for the last few years. As required, on a yearly basis, FCC prepares a report on cable rates in areas that face and those that do not face effective competition--a term defined by statute. For information used in this report, FCC maintains information on the competitive status of cable franchises and annually surveys a sample of cable franchises. GAO examined (1) the reliability of information that cable companies provided to FCC in its annual survey regarding cost factors underlying cable rate increases and (2) FCC's process for updating and revising cable franchise classifications as to whether they face effective competition. Based on interviews with 100 randomly sampled cable franchises that completed FCC's 2002 survey, GAO's preliminary analysis indicates that FCC's survey may not be a reliable source of information on the cost factors underlying cable rate increases. Because of the following problems, GAO found that there are inconsistencies in how companies completed the survey. FCC provided minimal instructions or examples on how the portion of the survey covering the cost factors underlying rate increases should be completed. It appears that cable companies made varying assumptions on how to complete the survey. FCC's survey required that cable companies fully allocate their reported annual rate increase to various cost and non-cost factors. Our preliminary findings indicate that there was inadequate guidance on how to achieve this requisite balance, and cable companies approached the question in varying ways. Based on preliminary work, GAO found that FCC's classification of cable franchises as to whether they face effective competition might not accurately reflect current conditions. GAO found instances where information in the survey responses of some franchises would suggest that the criteria for an effective competition finding that was made in the past might no longer be present. However, a finding of effective competition is only changed if a formal process is instituted. GAO found only two instances where a petition was filed that resulted in a reversal of an effective competition finding.
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Medicare is the nation's largest single payer for health care. In 1995, it spent an estimated $177 billion, or 12 percent of the federal budget, on behalf of more than 37 million elderly and disabled people. The Congressional Budget Office (CBO) projects that, under current program law, program spending will almost double in the next 6 years to an estimated $332 billion by 2002. Approximately 90 percent of Medicare beneficiaries obtained services on an unrestricted fee-for-service basis; that is, patients chose their own physicians or other health care providers, with bills sent to the program for payment. This set-up mirrored the nation's private health insurance indemnity plans, which prevailed until the 1980s. Since then, many changes have taken place in the financing and delivery of health care. Large health care purchasers have used leverage on hospitals and other providers to obtain lower prices. Private payers, including large employers, use an aggressive management approach to control health care costs. HCFA is Medicare's health care buyer. HCFA's pricing of services and controls over utilization have been carefully prescribed by interrelated statute, regulation, and agency policy. HCFA contracts with about 70 companies--such as Blue Cross and Aetna--to handle claims screening and processing and to audit providers. Each of these commercial contractors works with its local medical community to set coverage policies and payment controls in addition to those that have been established nationally by HCFA. As a result, billing problems involving waste, fraud, and abuse are handled, for the most part, at the contractor level. This arrangement was prompted when the program was established in the mid-1960s by concerns that the federal government, which lacked extensive claims processing expertise and experience, would prove incapable of providing service comparable to that of private insurers. means that insurance companies responsible for reviewing the appropriateness of Medicare claims are also, through the medical networks they own, billing the program. At a time when the volume of Medicare claims has exceeded 800 million a year, Medicare is being billed increasingly by entrepreneurial entities rather than by medical professionals. Although growth rates for inpatient hospital and physician services have moderated since the 1980s, Medicare spending remains high. Combined spending for these services amounted in 1994 to $120 billion--nearly three-fourths of total Medicare spending. The sheer size of these categories means that each percentage point of growth represents hundreds of millions of dollars. Smaller categories of services, however, have displayed much more rapid growth through the 1990s, helping to drive total Medicare spending to double-digit inflation. Home health agency (HHA) and skilled nursing facility (SNF) services each grew at an average annual rate of 28 percent from 1990 through 1996. Private insurers and employer purchasers have sought to stem such health cost escalation by shifting from their role as passive payers to become more prudent managers of health care costs. Some 90 percent of health plans--from fee-for-service to managed care--actively manage costs through price competition and negotiation and utilization monitoring techniques. By contrast, Medicare's reimbursement policies and claims payment activities have not been adapted to the contemporary marketplace and today's demands for fiscal discipline in public programs. The home health and SNF spending categories, in particular, illustrate the damaging effects of reimbursement policies that fail to incorporate effective pricing and utilization management techniques. In the case of home health services, for example, Medicare pays HHAs on the basis of costs but uses few tools to determine whether the costs are reasonable. Also, physicians are not required to see the patients for whom they sign plans of care and are not held accountable if they approve inappropriate levels of service. Medicare does not require HHAs to provide beneficiaries or physicians with information on the home health services billed on their, or their patients', behalf. The Medicare contractors, moreover, pay 97 percent or more of home health claims without review.Even when reviews are done, Medicare claims processing contractors rarely visit HHAs or beneficiaries to verify the actual and appropriate provision of services. One consequence of such neglect is the escalation of visits per Medicare beneficiary, which rose an average of about 20 percent a year from 1989 to 1994. In July 1995 we reported that the largest privately held HHA in the United States, which was being investigated for fraud, obtained 95 percent of its total revenues from Medicare. Current and former employees told us medical records were altered and forged to ensure continued or prolonged home health care visits. Services were provided to patients who were not homebound--for example, one who routinely drove a vehicle to go grocery shopping and one who walked a few blocks alone daily to eat at the local senior citizens' center. services provided across geographic areas and provider types. For example, in 1993 patients in southeastern states received on average more than twice as many visits as patients in northwestern states. Furthermore, diabetics received an average of about twice as many visits from proprietary HHAs as from voluntary or government-run agencies. Skilled nursing facilities represent another area in which Medicare's unguarded reimbursement policies have been exploited. In this setting, a population with extensive health care needs grouped together at a single location offers unscrupulous providers the opportunity for volume billing, and Medicare often does not look for warnings of egregious overutilization or rapid increases in billings. Under Medicare's provisions for reimbursement, providers can bill Medicare directly, without the SNF or attending physician affirming whether the items were necessary or provided as claimed. In other words, medical equipment suppliers, providers of rehabilitation therapy, and providers of X rays and other diagnostic tests can determine levels of services and bill Medicare with little or no oversight. In addition, Medicare's automated systems do not capture data in a way that would practically allow them to flag indications of improbably high charges or levels of services at individual facilities. This is in part because the data are not organized to report which beneficiaries are in nursing homes. In January of this year we reported that a wide array of provider types--including physicians, optometrists, psychiatrists, laboratories, and medical equipment suppliers--have fraudulently or otherwise inappropriately billed Medicare for services and supplies furnished to nursing facility residents. The wrongdoing has generally focused on billing Medicare for unnecessary or undelivered services, or misrepresenting a service to obtain reimbursement. The investigations we reviewed probed activities in over 40 states, with many providers operating in multiple states. reasonable. This is particularly pertinent to rehabilitation therapy, services that account for 30 percent of SNF costs. Specifically, Medicare places no absolute dollar limits on reimbursements for occupational or speech therapy, and charges for therapy services are not linked through billing codes to the amount of time spent with patients or the treatment provided. In other words, Medicare has no easy way to limit the amount it will pay for occupational or speech therapy or to determine whether a charge is for 15, 30, or 60 minutes of treatment. Absent any benchmarks, and with limited resources available for auditing, it is largely infeasible for Medicare contractors to judge whether therapy providers have overstated their costs. Last year we reported that Medicare had been charged as much as $600 for an hour of therapy services. HCFA has acknowledged the problem and recently estimated that implementing salary equivalency guidelines for speech and occupational therapy, in conjunction with adjusting other salary guidelines, could save $1.4 billion over the next 6 years. To date, however, the salary guidelines have not been established. Although occupational therapists in SNFs earn on average $23 per hour, we recently found in one contractor's files that more than 25 percent of submitted charges for one unit (undefined) of occupational therapy exceeded $195, and some approached $1,500 per unit. Under Medicare rules for reimbursing SNFs, the problem of overpaying for rehabilitation therapy services becomes compounded. That is, Medicare pays SNFs a portion of their overhead expenses, based on the percentage of their total Medicare-related business. The higher the Medicare-related payments to rehabilitation agencies (or other outside contractors), the more Medicare business an SNF can claim, and the higher the percentage of its overhead that can be charged to the program. Further, as noted by the Prospective Payment Assessment Commission (PROPAC), SNFs may cite high use of ancillary services, such as therapy, to justify an exemption from routine service cost limits, thereby increasing their payments for routine (bed, board, nursing) services. Allowing payment problems to continue unchecked results in billions of dollars of unnecessary spending. HCFA has been aware of the rehabilitation therapy overcharging problem since 1990. In 1993 HCFA began studies to develop averages for therapists' salaries. Its most recent analysis is expected to be completed some time this summer. Given the usual time involved in the federal notification and publication requirements for changing Medicare prices, salary equivalency guidelines--which are key to Medicare's determination of reasonable costs--are unlikely to be implemented before the middle of 1997 at the earliest. This situation is consistent with HCFA's past experience of taking years to adjust excessively high payment rates. It took almost 3 years to lower the price of an item it paid up to four times more for than consumers paid at the local drug store. HCFA can adjust prices that are inherently unreasonable, but its authority to do so is very limited and involves a complex set of procedures that take a long time to complete. Because of the time and resources involved, HCFA only occasionally uses this process. In an August 1995 report, we showed that Medicare paid higher than the retail prices for 44 types of surgical dressings. Under the Omnibus Budget Reconciliation Act (OBRA) of 1987, however, even the unwieldy inherent reasonableness authority to change these prices was effectively eliminated. Before 1987, individual Medicare contractors had the authority to adjust prices to reflect local market conditions using a publication and notification process that could be completed in less than 90 days. In a letter to a congressional subcommittee, the HHS Inspector General last year characterized as "absurd" the situation limiting HCFA's ability to make timely adjustments to payment levels. Because of strict statutory constraints and its own burdensome regulatory and administrative procedures, HCFA is slow to address overpricing and overutilization problems. As we reported to the Congress last September, many of the tools Medicare's contractors use to manage their commercial insurance plans are not authorized for use in the Medicare program. In stark contrast to private payers, HCFA and its contractors generally cannot use such utilization controls as prior approval or case management to coordinate and monitor expensive services and specialist care; encourage the use of "preferred providers"--those who meet utilization, price, and quality standards; or negotiate with select providers for discounts, promptly change prices to match those available in the market, or competitively bid prices. Not surprisingly, Medicare's ability to emphasize cost efficiency in its dealings with suppliers, physicians, and institutions that habitually provide excessive services is limited, and for certain services Medicare pays higher prices than its private sector counterparts. (See app. I for details on commonly used private sector strategies and their applicability to Medicare. See also chapter 11 of the Physician Payment Review Commission's (PPRC) 1996 Annual Report to Congress.) The recognition that Medicare needs to change its role from largely a claims processor to prudent manager is beginning to take shape in HCFA itself as well as in pending legislation passed by the House of Representatives last month. For example, HCFA has planned, among several new initiatives, a demonstration testing the concept of competitive bidding for certain supplies, such as oxygen, hospital beds, and urological and incontinence products; an improvement on earlier case management experiments by which primary care physicians would, for example, provide comprehensive management for beneficiaries with specific diagnoses, such as diabetes, hypertension, or congestive heart failure, for which Medicare would reimburse them with a bundled, capitated payment as is currently done on a monthly basis for end-stage renal disease patients; and a demonstration in selected locations that allows beneficiaries to join preferred provider organization health plans, which are not currently available under Medicare. program dollars. In particular, HCFA would have the authority to contract directly with companies specializing in utilization review and fraud detection to monitor and adjudicate claims. In essence, HCFA could contract with the companies best suited to perform medical, utilization, and fraud reviews; audit cost reports; revisit payment decisions and recover overpayments; provide education on payment integrity and benefit quality assurance issues; and provide more specific guidance on coverage of medical equipment and supplies. Increased flexibility and an accompanying assured funding stream, such as that proposed in this legislation, would significantly enhance HCFA's ability to curb overutilization and inappropriate billings. Despite these initiatives, however, important tools would still be unavailable to the Medicare program. For example, HCFA uses profiling--that is, statistical analyses--to identify "outlier" providers whose practice patterns differ markedly from those of their peers. While the private sector is free to use profiling results to provide financial rewards or penalties (in the form of exclusion from preferred provider networks), HCFA lacks the authority to do so. In addition, HCFA and its contractors have no viable statutory authority to require prior approval of select procedures. Most important, HCFA does not have the authority needed to promptly correct overpricing problems. The problems facing Medicare confront private insurers as well, but they are equipped with a larger and more versatile inventory of health care management strategies than HCFA currently has. These strategies may not be deployable in every aspect, but in general they suggest ways to make Medicare more cost effective. Commercial contractors, which play a key role in administering Medicare, routinely employ management-of-care approaches in their capacity as private insurers. If they applied similar approaches to Medicare, the government might be able to avoid spending substantial sums unnecessarily. 1. The Congress should enact funding and contractor reform provisions similar to those contained in H.R. 3103. Such reforms would give HCFA the flexibility to hire the private sector expertise necessary to apply the best health cost management practices. 2. HCFA needs to target Medicare's high-cost, high-utilization areas for running demonstrations to apply such strategies as the use of case management and companies specializing in utilization review. For example, HCFA could identify, as the focus of the demonstrations, geographic areas with particularly high home health or SNF costs per Medicare beneficiary. 3. The Congress should give HHS the flexibility to make prompt adjustments to fee schedules when overpriced services and supplies are identified. For example, Medicare should be able to reduce fee schedule prices for surgical supplies within 90 days, similar to what was customary before OBRA 1987. We have included as appendix II a list of GAO recommendations recently made to correct specific Medicare payment problems. Mr. Chairman, this concludes my statement. I will be pleased to answer any questions. For more information on this testimony, please call Edwin P. Stropko, Associate Director, at (202) 512-7119. Other major contributors included Audrey Clayton, Patricia Davis, Hannah Fein, and Barry Tice. HCFA concerned about adaptability and relevance to Medicare (Table notes on next page) Cited below are our recommendations and matters for congressional consideration addressing specific reimbursement system and payment control problems. The emphasis of Medicare's home health benefit program has recently shifted from primarily posthospital acute care to more long-term care. At the same time, HCFA's ability to manage the program has been severely weakened by coverage changes mandated by court decisions and a decrease in the funds available to review HHAs and the care they provide. The Congress may wish to consider whether the Medicare home health benefit should continue to become more of a long-term care benefit or if it should be limited primarily to a posthospital acute care benefit. The Congress should also consider providing additional resources so that controls against abuse of the home health benefit can be better enforced. To curtail the practice of giving providers unauthorized access to beneficiary medical records, the Congress should authorize HHS OIG to establish monetary penalties that could be assessed against nursing facilities that disclose information from patients' medical records not in accord with existing federal regulation. We recommend that the Secretary of HHS direct the Administrator of HCFA to establish, for procedure billing codes by provider or beneficiary, thresholds for unreasonable cumulative levels or rates of increase in services and charges, and to require Medicare carriers to implement automated screens that would suspend for further review claims exceeding those thresholds and undertake demonstration projects designed to assess the relative costs and benefits of alternative ways to reimburse nursing facilities for part B services and supplies; these alternatives should include such options as unified billing by the nursing facility and some form of capped payment. We recommend that the Secretary of HHS direct the HCFA Administrator to develop policies and revise practices so that Medicare can (1) price services and procedures more competitively, (2) manage payments through state-of-the-art data analysis methods and use of technology, and (3) better scrutinize the credentials of vendors seeking to bill the program; examine the feasibility of allowing Medicare's commercial contractors to adopt for their Medicare business such managed care features as preferred provider networks, case management, and enhanced utilization review; and seek the authority necessary from the Congress to carry out these activities. Given the urgency for expediting Medicare program changes that could lead to substantial savings, the Congress may wish to consider directing the Secretary of HHS to develop a proposal seeking the necessary legislative relief that would allow Medicare to participate more fully in the competitive health care marketplace. Such relief could include allowing the Secretary of HHS to set maximum prices on the basis of market surveys, or, if the formal rulemaking process is preserved, allowing the Secretary to make an interim adjustment in fees while the studies and rulemaking take place. The Congress may also wish to consider options for granting relief from the funding declines in Medicare's anti-fraud-and-abuse activities. The Secretary should direct the Administrator of HCFA to require that bills submitted to fiscal intermediaries itemize supplies; develop and implement prepayment review policies as part of the process of implementing any new or expanded Medicare coverage; and establish procedures to prevent duplicate payments by fiscal intermediaries and carriers. The fee-schedule approach to setting prices provides a good starting point for setting appropriate Medicare prices. HCFA, however, needs greater authority and flexibility to quickly adjust fee-schedule prices when market conditions warrant such changes. To allow Medicare to take advantage of competitive prices, the Congress should consider authorizing HCFA or its carriers to promptly modify prices for durable medical equipment and other medical supplies. For this to work effectively, however, HCFA or the carriers must devote adequate resources to routine price monitoring. The Secretary should direct the Administrator of HCFA to (1) set explicit limits to ensure that Medicare pays no more for therapy services than would any prudent purchaser; (2) strengthen certification requirements to better ensure that those entities billing Medicare are accountable for the services provided to beneficiaries; and (3) define billable therapy service units so they relate to the time spent with the patient. Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996). Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities (GAO/HEHS-96-18, Jan. 24, 1996). Fraud and Abuse: Medicare Continues to be Vulnerable to Exploitation by Unscrupulous Providers (GAO/T-HEHS-96-7, Nov. 2, 1995). Medicare Spending: Modern Management Strategies Needed to Curb Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995). Medicare: Antifraud Technology Offers Significant Opportunity to Reduce Health Care Fraud (GAO/AIMD-95-77, Aug. 11, 1995). Medicare: Excessive Payments for Medical Supplies Continue Despite Improvements (GAO/HEHS-95-171, Aug. 8, 1995). Medicare: Adapting Private Sector Techniques Could Curb Losses to Fraud and Abuse (GAO/T-HEHS-95-211, July 19, 1995). Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17, July 19, 1995). Medicare: Modern Management Strategies Needed to Curb Program Exploitation (GAO/T-HEHS-95-183, June 15, 1995). Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in Nursing Homes (GAO/HEHS-95-23, Mar. 30, 1995). High-Risk Series: Medicare Claims (GAO/HR-95-8, Feb. 1995). Medicare: Inadequate Review of Claims Payments Limits Ability to Control Spending (GAO/HEHS-94-42, Apr. 28, 1994). Health Care Reform: How Proposals Address Fraud and Abuse (GAO/T-HEHS-94-124, Mar. 17, 1994). Medicare: Greater Investment in Claims Review Would Save Millions (GAO/HEHS-94-35, Mar. 2, 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 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed strategies to curb Medicare spending, which has grown by over 10 percent a year since 1989, twice the rate of the national economy. GAO noted that: (1) Medicare has not used tools used by private health care payers to manage and improve its utilization, reimbursement, and claims policies and procedures; (2) Medicare's smaller categories of services, which are typically less managed and monitored, have displayed much higher growth than its larger categories of services; (3) the Health Care Financing Administration (HCFA) has been slow to address overpricing and overutilization problems, sometimes taking years to adjust excessively high payment rates; (4) strict statutory constraints and its own burdensome regulatory and administrative procedures hinder HCFA from using such private-sector management tools as case management, preferred providers, or discount negotiation; (5) in an effort to change its role from claims processor to prudent manager, HCFA has initiated demonstrations to explore its use of competitive bidding for certain supplies, case management, and preferred providers; and (6) proposed legislation could give HCFA the funding and flexibility it needs to better manage its contractors and services.
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As computer technology has advanced, both government and private entities have become increasingly dependent on computerized information systems to carry out operations and to process, maintain, and report essential information. Public and private organizations rely on computer systems to transmit sensitive and proprietary information, develop and maintain intellectual capital, conduct operations, process business transactions, transfer funds, and deliver services. In addition, the Internet has grown increasingly important to American business and consumers, serving as a medium for hundreds of billions of dollars of commerce each year. Consequently, ineffective information security controls can result in significant risks, including loss or theft of resources, including money and intellectual property; inappropriate access to and disclosure, modification, or destruction of sensitive information; use of computer resources for unauthorized purposes or to launch attacks on other computers systems; damage to networks and equipment; loss of business due to lack of customer confidence; and increased costs from remediation. Cyber-based threats are evolving and growing and arise from a wide array of sources. These sources include business competitors, corrupt employees, criminal groups, hackers, and foreign nations engaged in espionage and information warfare. These threat sources vary in terms of the capabilities of the actors, their willingness to act, and their motives, which can include monetary gain or political advantage, among others. Table 1 shows common sources of cyber threats. These sources of cyber threats make use of various techniques, or exploits, to adversely affect an organization's computers, software, or networks, or to intercept or steal valuable or sensitive information. Table 2 provides descriptions of common types of cyber exploits. Cyberspace--where much business activity and the development of new ideas often take place--amplifies these threats by making it possible for malicious actors to quickly steal and transfer massive quantities of data while remaining anonymous and difficult to detect. For example, cyber attackers do not need to be physically close to their victims, technology allows attacks to easily cross state and national borders, attacks can be carried out at high speed and directed at a number of victims simultaneously, and cyber attackers can more easily remain anonymous. Moreover, the use of these and other techniques is becoming more sophisticated, with attackers using multiple or "blended" approaches that combine two or more techniques. Using such techniques, threat actors may target individuals, resulting in loss of privacy or identity theft; businesses, resulting in the compromise of proprietary information or intellectual property; critical infrastructures, resulting in their disruption or destruction; or government agencies, resulting in the loss of sensitive information and damage to economic and national security. Reports of cyber incidents affecting both public and private institutions are widespread. The U.S. Computer Emergency Readiness Team (US- CERT) receives computer security incident reports from federal agencies, state and local governments, commercial enterprises, U.S. citizens, and international computer security incident response teams. In its fiscal year 2011 report to Congress on implementation of the Federal Information Security Management Act of 2002, the Office of Management and Budget reported that US-CERT received over 100,000 total incident reports in fiscal year 2011. Over half of these (about 55,000) were phishing exploits; other categories of incidents included virus/Trojan horse/worm/logic bombs; malicious websites; policy violations; equipment theft or loss; suspicious network activity; attempted access; and social engineering. Private sector organizations have experienced a wide range of incidents involving data loss or theft, economic loss, computer intrusions, and privacy breaches, underscoring the need for improved security practices. The following examples from news media and other public sources illustrate that a broad array of information and assets remain at risk. In March 2012, it was reported that a security breach at Global Payments, a firm that processed payments for Visa and Mastercard, could compromise the credit- and debit-card information of millions of Americans. Subsequent to the reported breach, the company's stock fell more than 9 percent before trading in its stock was halted. Visa also removed the company from its list of approved processors. In March 2012, it was reported that Blue Cross Blue Shield of Tennessee paid out a settlement of $1.5 million to the U.S. Department of Health and Human Services arising from potential violations stemming from the theft of 57 unencrypted computer hard drives that contained protected health information of over 1 million individuals. In April 2011, Sony disclosed that it suffered a massive breach in its video game online network that led to the theft of personal information, including the names, addresses, and possibly credit card data belonging to 77 million user accounts. In February 2011, media reports stated that computer hackers had broken into and stolen proprietary information worth millions of dollars from the networks of six U.S. and European energy companies. A retailer reported in May 2011 that it had suffered a breach of its customers' card data. The company discovered tampering with the personal identification number (PIN) pads at its checkout lanes in stores across 20 states. In mid-2009 a research chemist with DuPont Corporation reportedly downloaded proprietary information to a personal e-mail account and thumb drive with the intention of transferring this information to Peking University in China and also sought Chinese government funding to commercialize research related to the information he had stolen. Between 2008 and 2009, a chemist with Valspar Corporation reportedly used access to an internal computer network to download secret formulas for paints and coatings, reportedly intending to take this proprietary information to a new job with a paint company in Shanghai, China. In December 2006, a product engineer with Ford Motor Company reportedly copied approximately 4,000 Ford documents onto an external hard drive in order to acquire a job with a Chinese automotive company. These incidents illustrate the serious impact that cyber threats can have on, among other things, the security of sensitive personal and financial information and proprietary information and intellectual property. While these effects can be difficult to quantify monetarily, they can include any of the following: For consumers or private citizens: identity theft or compromise of personal and economic information and costs associated with lower- quality counterfeit or pirated goods. For business: lost sales, lost brand value or damage to public image, cost of intellectual property protection, and decreased incentive to invest in research and development. For the economy as a whole: lower economic growth due to reduced incentives to innovate and lost revenue from declining U.S. trade with countries that have weak IP rights regimes. The prevalence of cyber threats and the risks they pose illustrate the need for security controls and other actions that can reduce organizations' vulnerability to such attacks. As we have reported, there are a number of cybersecurity technologies that can be used to better protect systems from cyber attacks, including access control technologies, system integrity technologies, cryptography, audit and monitoring tools, and configuration management and assurance technologies. In prior reports, we have made hundreds of recommendations to federal agencies to better protect their systems and cyber-reliant critical infrastructures. Table 3 summarizes some of the common cybersecurity technologies, categorized by the type of security control they help to implement. In addition, the use of an overall cybersecurity framework can assist in the selection of technologies to protect an organization against cyber attacks. Such a framework includes determining the business requirements for security; performing risk assessments; establishing a security policy; implementing a cybersecurity solution that includes people, process, and technology to mitigate identified security risks; and continuously monitoring and managing security. Risk assessments, which are central to this framework, help organizations determine which assets are most at risk and to identify countermeasures to mitigate those risks. Risk assessment is based on a consideration of threats and vulnerabilities that could be exploited to inflict damage. Even with such a framework, there often are competing demands for cybersecurity investments. For example, for some companies, mitigating physical risks may be more important than mitigating cyber risks. Further, investing in cybersecurity technologies needs to make business sense. It is also important to bear in mind the limitations of some cybersecurity technologies and to be aware that their capabilities should not be overstated. Technologies do not work in isolation. Cybersecurity solutions make use of people, process, and technology. Cybersecurity technology must work within an overall security process and be used by trained personnel. We have also emphasized the importance of public-private partnerships for sharing information and implementing effective cybercrime prevention strategies. Similarly, the Office of the National Counterintelligence Executive has identified a series of "best practices in data protection strategies and due diligence for corporations." strategy; insider threat programs and awareness; effective data management; network security, auditing, and monitoring; and contingency planning. Multiple federal agencies undertake a wide range of activities in support of IP rights. Some of these agencies are the Departments of Commerce (including the U.S. Patent and Trademark Office), State, Justice (including the FBI), Health and Human Services, and Homeland Security; the U.S. Trade Representative; the U.S. Copyright Office; and the U.S. International Trade Commission. In many cases, IP-related efforts represent a small part of the agencies' much broader missions. Office of the National Counterintelligence Executive, Foreign Spies Stealing U.S. Economic Secrets in Cyberspace. Department of Justice's (DOJ) U.S. attorneys offices, Criminal Division, and the FBI investigate and prosecute federal IP crimes. DOJ established the Computer Hacking and Intellectual Property program, which consists of specially trained assistant U.S. attorneys to pursue IP cases. Each of the 93 U.S. attorneys offices throughout the country have assistant U.S. attorneys designated as Computer Hacking and Intellectual Property coordinators, who are available to work on IP cases. In addition, DOJ has created Computer Hacking and Intellectual Property units in 25 U.S. attorney's offices with histories of large IP case loads. DOJ's Computer Crime and Intellectual Property Section--based in Washington, D.C.-- consists of prosecutors devoted to enforcing computer crime and IP laws. Computer Crime and Intellectual Property Section attorneys prosecute cases, assist prosecutors and other investigative agents in the field, and help develop and implement an overall criminal enforcement strategy. The FBI's Cyber Division oversees the bureau's IP enforcement efforts; though not all of its IP investigations are cyber-related. Over the years, Congress and the administration have created interagency mechanisms to coordinate federal IP law enforcement efforts. These include the National Intellectual Property Law Enforcement Coordination Council (NIPLECC), created in 1999 to coordinate U.S. law enforcement efforts to protect and enforce IP rights in the United States and abroad and the Strategy for Targeting Organized Piracy initiative, created by the President in 2004 to target cross-border trade in tangible goods and strengthen U.S. government and industry IP enforcement action. In December 2004, Congress passed legislation to enhance NIPLECC's mandate and created the position of the Coordinator for International Intellectual Property Enforcement, located within the Department of Commerce, to lead NIPLECC. In November 2006 we reported that NIPLECC continued to face persistent difficulties, creating doubts about its ability to carry out its mandate. We also noted that while the Strategy for Targeting Organized Piracy had brought attention and energy to IP efforts within the U.S. government, it had limited usefulness as a tool to prioritize, guide, implement, and monitor the combined efforts of multiple agencies. In 2008, Congress passed the Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP Act), which, among other things, created the position of the Intellectual Property Enforcement Coordinator (IPEC) to serve within the Executive Office of the President. The duties of the coordinator outlined in the act include specific efforts to enhance interagency coordination, such as the development of a comprehensive joint strategic plan. The act also required the Attorney General to devote additional resources to IP enforcement and undertake other IP- enforcement-related efforts. In October 2010, we noted that DOJ and FBI officials and Office of the IPEC staff reported taking many actions to implement the requirements of the PRO-IP Act. Moreover, the IPEC coordinated with other federal entities to deliver the 2010 Joint Strategic Plan on Intellectual Property Enforcement to Congress and the public. We reported that the plan addressed the content requirements of the act, but that enhancements were needed, such as identifying responsible departments and entities for all action items and estimates of resources needed to carry out the plan's priorities. Accordingly, we recommended that the IPEC take steps to ensure that future strategic plans address these elements. IPEC staff generally concurred with our findings and recommendations. In summary, the ongoing efforts to steal U.S. companies' intellectual property and other sensitive information are exacerbated by the ever- increasing prevalence and sophistication of cyber-threats facing the nation. Recently reported incidents show that such actions can have serious impact not only on individual businesses, but on private citizens and the economy as a whole. While techniques exist to reduce vulnerabilities to cyber-based threats, these require strategic planning by affected entities. Moreover, effective coordination among federal agencies responsible for protecting IP and defending against cyber- threats, as well as effective public-private partnerships, are essential elements of any nationwide effort to protect America's businesses and economic security. Chairman Meehan, Ranking Member Higgins, and Members of the Subcommittee, this concludes my statement. I would be happy to answer any questions you have at this time. If you have any questions regarding this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected]. Other key contributors to this statement include Michael Gilmore and Anjalique Lawrence (Assistant Directors), Bradley Becker, Kush Malhotra, and Lee A. McCracken. Cybersecurity: Threats Impacting the Nation. GAO-12-666T. Washington, D.C.: April 24, 2012 IT Supply Chain: National Security-Related Agencies Need to Better Address Risks. GAO-12-361. Washington, D.C.: March 23, 2012. Critical Infrastructure Protection: Cybersecurity Guidance Is Available, but More Can Be Done to Promote Its Use. GAO-12-92. Washington, D.C.: December 9, 2011. Cybersecurity: Continued Attention Needed to Protect Our Nation's Critical Infrastructure. GAO-11-865T. Washington, D.C.: July 26, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Electricity Grid Modernization: Progress Being Made on Cybersecurity Guidelines, but Key Challenges Remain to be Addressed. GAO-11-117. Washington, D.C.: January 12, 2011. Intellectual Property: Agencies Progress in Implementing Recent Legislation, but Enhancements Could Improve Future Plans. GAO-11-39. Washington, D.C.: October 13, 2010. Critical Infrastructure Protection: Key Private and Public Cyber Expectations Need to Be Consistently Addressed. GAO-10-628. Washington, D.C.: July 15, 2010. Cyberspace: United States Faces Challenges in Addressing Global Cybersecurity and Governance. GAO-10-606. Washington, D.C.: July 2, 2010. Cybersecurity: Continued Attention Is Needed to Protect Federal Information Systems from Evolving Threats. GAO-10-834T. Washington, D.C.: June 16, 2010. Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods. GAO-10-423. Washington, D.C.: April 12, 2010. Cybersecurity: Progress Made but Challenges Remain in Defining and Coordinating the Comprehensive National Initiative. GAO-10-338. Washington, D.C.: March 5, 2010. Intellectual Property: Enhancements to Coordinating U.S. Enforcement Efforts. GAO-10-219T. Washington, D.C.: December 9, 2009. National Cybersecurity Strategy: Key Improvements Are Needed to Strengthen the Nation's Posture. GAO-09-432T. Washington, D.C.: March 10, 2009. Intellectual Property: Federal Enforcement Has Generally Increased, but Assessing Performance Could Strengthen Law Enforcement Efforts. GAO-08-157. Washington, D.C.: March 11, 2008. Cybercrime: Public and Private Entities Face Challenges in Addressing Cyber Threats. GAO-07-705. Washington, D.C.: June 22, 2007. Intellectual Property: Strategy for Targeting Organized Piracy (STOP) Requires Changes for Long-term Success. GAO-07-74. Washington, D.C.: November. 8, 2006. 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The threat of economic espionage--the theft of U.S. proprietary information, intellectual property (IP), or technology by foreign companies, governments, or other actors--has grown. Moreover, dependence on networked information technology (IT) systems has increased the reach and potential impact of this threat by making it possible for hostile actors to quickly steal massive amounts of information while remaining anonymous and difficult to detect. To address this threat, federal agencies have a key role to play in law enforcement, deterrence, and information sharing. Consistent with this threat, GAO has designated federal information security as a governmentwide high-risk area since 1997 and in 2003 expanded it to include protecting systems and assets vital to the nation (referred to as critical infrastructures). GAO was asked to testify on the cyber aspects of economic espionage. Accordingly, this statement discusses (1) cyber threats facing the nation's systems, (2) reported cyber incidents and their impacts, (3) security controls and other techniques available for reducing risk, and (4) the responsibilities of key federal entities in support of protecting IP. To do this, GAO relied on previously published work in this area, as well as reviews of reports from other federal agencies, media reports, and other publicly available sources. The nation faces an evolving array of cyber-based threats arising from a variety of sources. These sources include criminal groups, hackers, terrorists, organization insiders, and foreign nations engaged in crime, political activism, or espionage and information warfare. These threat sources vary in terms of the capabilities of the actors, their willingness to act, and their motives, which can include monetary gain or political advantage, among others. Moreover, potential threat actors have a variety of attack techniques at their disposal, which can adversely affect an organization's computers or networks and be used to intercept or steal valuable information. The magnitude of the threat is compounded by the ever-increasing sophistication of cyber attack techniques, such as attacks that may combine multiple techniques. Using these techniques, threat actors may target individuals and businesses, resulting in, among other things, loss of sensitive personal or proprietary information. These concerns are highlighted by reports of cyber incidents that have had serious effects on consumers and businesses. These include the compromise of individuals' sensitive personal data such as credit- and debit-card information and the theft of businesses' IP and other proprietary information. While difficult to quantify monetarily, the loss of such information can result in identity theft; lower-quality counterfeit goods; lost sales or brand value to businesses; and lower overall economic growth and declining international trade. To protect against these threats, a variety of security controls and other techniques are available. These include technical controls such as those that manage access to systems, ensure system integrity, and encrypt sensitive data. But they also include risk management and strategic planning that organizations undertake to improve their overall security posture and reduce their exposure to risk. Further, effective public-private partnerships are a key element for, among other things, sharing information about threats. Multiple federal agencies undertake a wide range of activities in support of IP rights. Some of these agencies include the Departments of Commerce, Justice, and Homeland Security, among others. For example, components within the Justice Department and the Federal Bureau of Investigation are dedicated to fighting computer-based threats to IP. In addition, both Congress and the Administration have established interagency mechanisms for better coordinating the protection of IP. Ensuring effective coordination will be critical for better protecting the economic security of America's businesses. In prior reports, GAO has made hundreds of recommendations to better protect federal systems, critical infrastructures, and intellectual property.
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Nurse recruitment and retention is essential for VHA to carry out its mission to provide quality care that improves the health and well-being of veterans. In its 2014 Interim Workforce and Succession Strategic Plan, VHA identified nurses as the second most mission-critical occupation for recruitment and retention; only physicians ranked higher. As the demand for health care services increases, effective nurse recruitment and retention is increasingly important for VHA to ensure an adequate and qualified workforce. In the last 5 years, the number of nurses providing care to veterans has increased, and VHA expects it will continue to increase because of the expected increased demand for services. In FY 2014, VHA employed more than 85,000 nurses who provided both direct and indirect care to patients through its health care system. The number of nurses providing direct patient care has increased from about 72,000 to about 82,000-- approximately a 14 percent increase--from FY 2010 through FY 2014, while the number of unique patients served increased from about 6.0 million to about 6.6 million--approximately a 10 percent increase--during this same time period. VHA projects that approximately 40,000 new RNs will be needed through FY 2018 to maintain adequate staffing levels, including replacing retired nurses, to meet veterans' needs. (See app. I for the number of nurses providing direct and indirect care at VA medical centers from FY 2010 through FY 2014.) In addition to the need for more nurses due to an increasing number of veterans, VHA anticipates that changes in veteran demographics, including an aging population, will increase the need for nurses to provide more complex types of services to care for veterans. In its 2014 Interim Workforce and Succession Strategic Plan, VHA reported that after 2015, the largest segment of the veteran population will be between 65 and 84 years of age. Also, the number of women veterans receiving care through VHA has nearly doubled since 2004, requiring changes to the type of care provided and corresponding skills needed. VHA estimates that veteran usage of primary care, surgical specialty care, and mental health care will each increase by more than 20 percent over the next 10 years. The nurse skill mix--the proportion of each type of nurse (NPs, RNs, LPNs, and NAs) of the total nursing staff in a particular unit or medical center--is an important component of VHA nurse staffing, as the level of education and training for each nurse position determines the types of services that can be provided. (See table 1 for VHA nurse positions, responsibilities, and educational requirements.) For example, intensive care units require higher intensity nursing, and may have a skill mix that is primarily composed of RNs compared to other types of units that may provide less complex care, such as outpatient clinics. In the last 5 fiscal years, RNs comprised the largest percentage of nurses within VHA, and were approximately 64 percent of the nurse workforce in FY 2014. NPs comprised the smallest percentage over the same period. (See fig. 1.) For the first time, in FY 2015, VA began collecting data on the number of nurse hires and vacancies at each of its medical centers. For FY 2015, as of June, VA medical centers hired approximately 8,600 nurses; approximately 5,100 (59 percent) were RNs, and approximately 430 were NPs (5 percent), reflecting VHA's need for nurses with advanced skills and education. Despite these new hires, VHA estimated that there were about 17,000 vacancies across VA medical centers as of June 2015, with about 12,100 (71 percent) for RN positions. (See app. I for the number of nurse hires and losses at VA medical centers for FY 2015, as of June.) The average national nurse turnover rate for VHA from FY 2010 through FY 2014 was 7.6 percent. The turnover rates for NPs and RNs increased over this same period, and in FY 2014, were 9.1 percent and 7.8 percent, respectively. VHA reported high projected losses for nurses, such as from retirement, in the next few fiscal years. In 2014, for example, VHA reported that by FY 2019, approximately 20 percent of its nurses will be eligible for retirement. Retirement and career advancement through opportunities elsewhere were the top two reasons why nurses reportedly left VHA. In addition, according to findings from VHA's 2015 Workforce Planning Report, approximately 12 percent of all nurses that left VHA in FY 2012 did so in their first year of employment. (See app I. for annual nurse turnover rates by position type for FY 2010 through FY 2014.) VA medical centers are responsible for recruiting and retaining nurses in their respective facilities, with VHA providing support to assist them. Specifically, VHA has developed initiatives that medical centers may offer to help with the recruitment and retention of nurses. VHA also provides guidance and policies to its medical centers on the process of recruiting and hiring nurses and on the initiatives medical centers may use to help with recruitment and retention. Additionally, VHA provides marketing services and tools to medical centers, including marketing campaigns that advertise the benefits of working at VHA and recruitment brochures that medical centers can use at local career fairs. Nurse recruitment begins with advertising and publicizing available positions to encourage potential candidates to apply, through various channels, including through local publications, job fairs, and USAjobs.gov. Once medical centers recruit, interview, and select a nursing candidate, that nursing candidate goes through a process known as onboarding and credentialing. Most medical centers employ nurse recruiters, who are responsible for managing the administrative components of the hiring process, as well as various aspects of nurse recruitment and retention. The nurse recruiter position varies among medical centers. Some medical centers assign the nurse recruiter to the medical center's clinical nursing services office, and these nurse recruiters are typically RNs. Other medical centers assign nurse recruiters to the medical center's human resources office, and these nurse recruiters may not have clinical backgrounds. VHA has multiple system-wide initiatives to recruit and retain its nurse workforce, but some VA medical centers face challenges in offering them to nurses and with recruitment and retention more broadly. We found that VHA has eight key initiatives that medical centers may offer to help them recruit and retain nurses. (See table 2.) VHA's initiatives focus primarily on providing (1) education and training, and (2) financial benefits and incentives. (See app. II for VHA expenditures for and nurse participation in key recruitment and retention initiatives from FY 2010 through FY 2014.) With the exception of the mandatory RN Transition to Practice initiative, VA medical centers generally have discretion to offer any of VHA's initiatives to nurses, including the discretion to submit requests for proposals for any of the initiatives that require them. The four VA medical centers in our review varied in the number of initiatives they offered from FY 2010 through FY 2014. (See table 3.) For example, one of the medical centers in our review offered three of the four education and training initiatives--RN Transition to Practice, VA Nursing Academic Partnerships, and VA Learning Opportunities Residency. This medical center also offered the Post-Baccalaureate Nurse Residency--which, beginning in FY 2015, is part of the VA Nursing Academic Partnerships--and developed curricula to move participants through the initiatives. This medical center also offered all four of the financial initiatives--recruitment, retention, and relocation incentives; the Education Debt Reduction Program; the Employee Incentive Scholarship Program; and flexible work schedules. The medical center ceased offering recruitment, retention, and relocation incentives in 2013; according to medical center officials, VHA introduced new employee performance criteria that medical center officials felt were too difficult for employees to achieve or for medical centers to provide justification for retention incentives. Officials from all four medical centers reported offering flexible work schedules to provide nurses with options when trying to maintain work life balance, such as offering nurses compressed schedules (e.g., 10-hour shifts, 4 days a week). While VA medical centers generally have discretion to offer any of VHA's initiatives, all medical centers that employed RNs with less than 1 year of nursing experience were required to offer the RN Transition to Practice initiative. However, officials from two medical centers in our review reported not offering the initiative at all or not offering it across all 5 fiscal years. Officials from one medical center offered the RN Transition to Practice initiative for 1 year, beginning in 2012, but subsequently decided not to hire newly graduated nurses because of the extensive orientation and training they required. According to officials, after one of its current LPNs returned to school to become an RN, this medical center coordinated with another VA medical center in the region for this new RN to participate in that medical center's RN Transition to Practice curriculum. Officials from the second medical center told us that it offered a 16-week program designed to help new nurses acclimate to VA but did not offer VHA's 12-month RN Transition to Practice initiative because they did not believe it was required. In addition to offering VHA's initiatives, three of the four medical centers in our review developed local recruitment and retention initiatives. Two medical centers developed initiatives to provide employment to train student nurses; the medical centers' initiatives were similar to the VA Learning Opportunities Residency. Officials from one of these medical centers told us that the medical center developed a local initiative because the nursing schools in the region offered associate degrees only; whereas, VHA's initiative requires medical centers to partner with schools of nursing with baccalaureate degree programs. The other medical center offered the VA Learning Opportunities Residency, as well as its own student nurse employment and training initiative. Officials from a third medical center in our review told us that the medical center offered a 16- week RN Transition to Practice initiative to train new RN graduates; these RNs are hired on a temporary basis and are hired as full-time employees when RN vacancies open. Officials from three of the four medical centers in our review reported that VHA's initiatives helped improve their ability to recruit and retain nurses, as shown in the following examples: Officials from one medical center reported that they hired 9 of the 10 nurses who participated in the VHA Post-Baccalaureate Nurse Residency as full-time nurses in academic year 2012-2013, the first year the medical center offered the initiative. The medical center retained 7 of these 9 nurses as of the end of the following academic year 2013-2014. Officials from another medical center that offered the Education Debt Reduction Program reported that, of the six nurses that began the program since 2010, five completed the 5-year service agreement and, as of April 2015, remained employees of the medical center. Officials from one medical center that offered the Employee Incentive Scholarship Program reported that 23 nurses completed the program over the past 10 years, and, as of February 2015, 21 of those nurses have remained employees of the medical center. Despite these successes, however, officials from three of the four medical centers in our review reported challenges with offering VHA's initiatives specifically, and recruiting and retaining nurses more broadly, both of which limited the initiatives' usefulness. These challenges--lack of sufficient administrative support, competition with private sector medical facilities for qualified and skilled nurses, the rural location of the medical center, and employee dissatisfaction--may affect medical centers' ability to effectively and efficiently recruit and retain nurses. Lack of sufficient administrative support. Officials from one medical center reported challenges in efficiently offering some of the initiatives due to the lack of sufficient administrative support. Specifically, medical center officials reported not having sufficient human resources and clerical staff to process in a timely manner the paperwork associated with specific VHA recruitment and retention initiatives, such as the Employee Incentive Scholarship Program. Competition with the private sector. Officials from two medical centers reported challenges in recruiting and retaining nurses because of competition with private hospitals in the area. Officials from one medical center told us that they face significant competition from local hospitals, as there are multiple private boutique and specialty hospitals in their area. Officials stated that competing with these hospitals, especially for entry-level nurses, is difficult because the hospitals offer generous signing bonuses. Officials from another medical center told us that the high cost of living and lower nursing salaries compared to the salaries offered by competing medical facilities in the area negatively affects the medical center's ability to successfully recruit and retain nurses, specifically RNs and NPs. Officials from this medical center told us that they do not have sufficient funds, such as funds from VHA's Education Debt Reduction Program, to offer nurses financial incentives to make up for the large difference in salaries. In addition, while the Choice Act increased the maximum repayment amount for each recipient of the Education Debt Reduction Program from $60,000 to $120,000, VHA officials told us that VHA did not increase the medical center's annual funding allocation for the program to account for that increase. In FY 2014, this medical center had turnover rates of 10 percent or higher for NPs, RNs, and LPNs, above the national average of 7.9 percent for all nurses. Rural location. Officials from one medical center that has community outpatient clinics located in rural areas reported challenges recruiting qualified nurses with the requisite experience to work in critical care or other specialized units such as mental health. Officials from another medical center located in a rural area reported that, while the medical center receives high interest in nurse employment generally from the community and has a ready applicant pool for some nurses, it also faces challenges in recruiting nurses with advanced degrees or advanced training and expertise to work in the emergency department or intensive care unit because of its rural location. Employee dissatisfaction. Officials from one medical center and its union reported high levels of nurse dissatisfaction with medical center leadership as a result of recent investigations, including by VA's OIG, examining access to care issues in the facility. This dissatisfaction has negatively affected the medical center's ability to retain nurses, according to officials from this medical center. In FY 2014, for example, this medical center had a 12 percent turnover rate for NPs and close to a 30 percent turnover rate for NAs. With some nurses on administrative leave and high nurse turnover, officials stated that nurses are stepping into positions temporarily and are being asked to work additional or longer shifts. Officials stated that the medical center's units are inadequately staffed to care for the medical center's current patient load, which they believe is affecting access and the quality of care provided to veterans. In addition to challenges identified by the medical centers in our review, VHA also identified a challenge specific to the RN Transition to Practice initiative. Officials from the Office of Nursing Services told us that, when VHA began to require medical centers to offer the RN Transition to Practice initiative in November 2011, VHA did not provide specific funding to medical centers to do so and relied on medical centers to determine how to fund the initiative, which is financially and staff-resource intensive. According to VHA officials, there have been two unintended consequences of requiring medical centers to offer this initiative without VHA funding. First, some medical centers are deciding to hire experienced RNs only, who would not be eligible for the initiative, rather than hiring new RNs because of the financial burden associated with the initiative. Second, some medical centers in rural locations have found it difficult to offer the initiative because of a lack of available instructors qualified to provide the required training. VHA conducts limited monitoring of VA medical centers to ensure they are in compliance with its key nurse recruitment and retention initiatives. Consistent with federal internal control standards, monitoring should be ongoing in the course of normal program operations and provide reasonable assurance of compliance with applicable laws and regulations. VHA's Office of Academic Affiliations has a system in place for conducting site visits to the medical centers that offer the VA Nursing Academic Partnerships initiative. Office of Academic Affiliations officials reported that the site visits occur at least once per year to gauge a medical center's adherence to the residency's policies and contractual requirements. In addition to providing consulting services during these site visits to all medical centers that offer this initiative, these officials also told us that site visit reports are specifically generated for medical centers that are offering the initiative for the first time, and these reports are provided to the nursing school and medical center leadership. Officials told us that they have stopped three medical centers from offering the VA Nursing Academic Partnerships initiative when it was in the pilot phase due to non-compliance with program policies. VHA Healthcare Talent Management officials told us that although they conducted site visits to medical centers in the past that offered the Education Debt Reduction Program, they are currently not conducting site visits. Officials reported that these site visits were in response to a medical center reporting difficulty implementing the initiatives the office manages, and were a method of comprehensively assessing individual medical center's compliance with policies or guidance, as well as being consultative in nature. A Healthcare Talent Management official reported that the office lacked sufficient staff to enable them to conduct any site visits in FY 2015 and that additional staff have been hired, which will enable the office to resume site visits in FY 2016. In addition, although VHA required VA medical centers, as of November 2011, to offer VHA's RN Transition to Practice initiative to RNs with 1 year or less of experience, the Office of Nursing Services does not have a process in place to determine if all medical centers are in compliance. We found, for example, that one medical center in our review that employed RNs with less than 1 year of experience had not offered the RN Transition to Practice initiative; officials from this medical center stated that they thought the initiative was recommended and not required. Officials from the Office of Nursing Services told us that, when the RN Transition to Practice initiative became a requirement in November 2011, there was no specific funding provided to medical centers to offer it. Because of this lack of funding, officials said that it has been difficult to provide oversight of this initiative. With limited monitoring taking place as part of its oversight, VHA lacks assurance that its medical centers are complying with the recruitment and retention initiatives' policies and requirements, and that any problems can be identified and resolved in a timely and appropriate manner. Although three VA medical centers in our review reported that VHA's key recruitment and retention initiatives for nurses have been helpful, VHA has conducted limited evaluations to determine any needed training resources or to determine the initiatives' effectiveness system-wide and whether any changes are needed. This lack of evaluation may affect VHA's ability to improve the initiatives and ultimately medical centers' ability to recruit and retain nurses. Consistent with federal internal control standards, measuring performance allows organizations to track the progress they are making towards program goals and objectives, and provides managers important information on which to make management decisions and resolve any problems or program weaknesses. According to VHA officials, there are processes in place to determine if problems exist with several of its recruitment and retention initiatives. First, for the first time, in FY 2015, VHA's Healthcare Talent Management conducted a survey of medical centers as part of the data collection process for VHA's Interim Workforce and Succession Strategic Plan. The purpose of the survey was to collect information on workforce priorities in the field and to gauge barriers to medical centers as they offer the three recruitment and retention initiatives managed by Healthcare Talent Management. The survey responses provided feedback on some of the barriers that medical centers faced with offering the initiatives, such as an application process for the Education Debt Reduction Program that was not user friendly. Healthcare Talent Management officials said they plan to use these survey results to make changes to the initiatives it manages, and the office plans to continue including questions regarding workforce planning priorities in future surveys. Second, VHA's Office of Nursing Services is currently conducting a formal evaluation of the RN Transition to Practice initiative. According to an official, the purpose of the evaluation is to gather information on any successes that medical centers have experienced with offering the initiative. As part of the data collection process, the evaluation team has started interviewing program coordinators at selected medical centers, and will analyze available participant survey data. In addition, the evaluation team plans to survey all medical centers to gauge their compliance with the requirement that all medical centers with RNs with 1 year or less of experience offer the initiative. According to officials, the initiative is set to expire in 2016, and VHA will use the information from the evaluation to make decisions and set goals regarding the program moving forward. Lastly, the Office of Academic Affiliations uses various tools to assess nurse residents' skill competency and satisfaction with the initiatives it manages. For example, it uses an assessment tool to measure nurses' progress toward the development of core clinical competencies at set intervals throughout their participation in the VA Nursing Academic Partnerships, specifically the Post-Baccalaureate Nurse Residency. The Office of Academic Affiliations also uses a survey to gauge participating students' satisfaction with its training programs and residencies, including the VA Nursing Academic Partnerships - Graduate Education initiative, on topics such as the learning and working environments, as well as clinical faculty skills. However, VHA has not conducted any assessments of the adequacy of training resources for nurse recruiters. In particular, there are substantial differences in the availability of training resources for nurse recruiters, who can play a key role in medical centers offering VHA's nurse recruitment and retention initiatives to nurses, according to officials from VHA and representatives of a national nursing organization. According to a VHA official, there is currently no face-to-face training provided by VHA specifically for nurse recruiters, but there is regular training available to those assigned to a human resources office as part of training available to all human resources staff. Representatives of a national nursing organization reported that the clinical nurse recruiters at VA medical centers often feel overwhelmed and unprepared in the position because of a lack of training and human resources-related information, which may have resulted in turnover in that position. VHA officials told us that these differences in training for different types of nurse recruiters have existed for years, but no review of the training provided to nurse recruiters has been conducted. Further, VHA officials told us there are no current plans to assess the differences in the training and the effect that it has on the effectiveness of nurse recruiters. VHA officials reported that the barrier to conducting this type of assessment was resources, both a lack of funding, as well as a lack of staff to conduct the assessment. Furthermore, VHA has not conducted any evaluations of the overall effectiveness of the key initiatives in meeting VHA's system-wide nurse recruitment and retention goals. In its 2014 Interim Workforce and Succession Strategic Plan, VHA reported that its plan included recruiting highly skilled employees in mission critical occupations, which includes nurses, who are able to function at the top of the competency level, as well as retaining these employees as VHA develops a pipeline of qualified nurses that will take on more senior roles. In addition, VHA reported that it is challenged with ensuring it has the appropriate workforce to meet current and future needs that result from shortages and competition for certain health care positions, such as nurses. For example, 42 percent of VHA's senior leadership, which includes senior-level nurses, is eligible for retirement in 2015, and this percentage will increase over the next 7 years. The strategic plan noted that VHA has several initiatives, such as the Education Debt Reduction Program, to address some of its recruitment challenges, but does not discuss the effectiveness of this initiative in meeting recruitment goals. VA's annual report to Congress presents statistical information on some of VHA's recruitment and retention initiatives, such as the number of nurses that received financial incentives in FY 2014 and the amount of financial incentives paid during that time, but does not provide information on the effectiveness of those initiatives in the recruitment and retention of nurses. VHA officials reported that they hold regular and ad hoc meetings for all offices that manage VHA's nurse recruitment and retention initiatives to discuss a variety of topics, such as coordination and effectiveness. For example, the Office of Academic Affiliations holds ad hoc meetings with the Office of Nursing Services and Healthcare Talent Management to coordinate their initiatives related to recruitment and retention. In addition, Healthcare Talent Management holds quarterly meetings with the Office of Academic Affiliations and the Office of Nursing Services to share data, coordinate resources, and offer support for the other offices' programs. Although these offices may meet to discuss the management of the initiatives, VHA officials reported no current plans to evaluate the overall effectiveness of the initiatives in meeting strategic goals. A VHA official noted that the lack of evaluations of the overall effectiveness of VHA's initiatives is a gap in the organization's oversight. This official said that the recruitment and retention initiatives for nurses are offered at the local medical center level, and their role has primarily been to provide consultative services to those facilities. VHA officials noted that some data are regularly maintained at the national level, and although they are able to gather limited data on the initiatives from the medical centers, they need to develop a process to evaluate its initiatives to provide better support. Oversight that includes evaluations of individual initiatives, if conducted, could provide VHA with data to identify any resource needs, such as training or administrative needs, and difficulties that medical centers are experiencing offering the initiatives, such as the lack of adequate administrative support as reported to us by medical centers in our review. A system-wide evaluation could help ensure that VHA's recruitment and retention initiatives are effective in meeting departmental goals and that resources are effectively allocated across all VA medical centers. Evaluation results could also be useful if communicated to relevant stakeholders, such as medical centers, to inform them of any compliance issues or any operational changes that may be needed. Under federal internal control standards, relevant program information and guidance are needed throughout an agency to achieve all of its objectives, and should be communicated to management and others within the organization in a reliable form and within a time frame that enables them to carry out their organizational responsibilities, such as the implementation of a program or policy. Adequate numbers of qualified nurses are essential for VHA to meet its mission of providing quality and timely health care for veterans. As the number of veterans seeking health care increases and the demographics of that population continue to change, VHA faces challenges ensuring it has the appropriate nurse workforce needed to provide care, including more complex, specialized services. In addition, the Choice Act required VHA to add additional clinical staff, including nurses, to its workforce to increase access to care for veterans. VHA has a number of key initiatives to help medical centers recruit and retain nurses; however, challenges, including competition with the private sector for qualified and skilled nurses and the lack of sufficient administrative support, may limit their effectiveness. Furthermore, VHA's limited oversight of its key nurse recruitment and retention initiatives hinders its ability to assess the effectiveness of these initiatives and make any needed adjustments to help ensure its nurse workforce is keeping pace with the health care needs of veterans. Because of its limited monitoring, VHA lacks assurance that its medical centers are offering recruitment and retention initiatives in accordance with the policies and guidance that it has developed. Further, limited evaluations of medical centers offering VHA's initiatives have meant VHA is unable to systematically identify problems or needed program changes to ensure that the initiatives are being offered efficiently and effectively, including determining whether medical centers have sufficient training resources to support its nurse recruitment and retention initiatives. Further, without system-wide evaluations of its collective initiatives, VHA is unable to determine to what extent its nurse recruitment and retention initiatives are effective in meeting VHA polices and Choice Act provisions, or ultimately, whether VHA's initiatives are sufficient to meet veterans' health care needs. To help ensure the effective recruitment and retention of nurses across VA medical centers, we recommend the Secretary of Veterans Affairs direct the Under Secretary for Health to take the following three actions: 1. Develop a periodic reporting process to help monitor VA medical center compliance with the policies and procedures for each of its key recruitment and retention initiatives; 2. Evaluate the adequacy of training resources provided to all nurse recruiters at VA medical centers to ensure that they have the tools and information to perform their duties efficiently and effectively; and 3. Conduct a system-wide evaluation of VHA's key nurse recruitment and retention initiatives, to determine the overall effectiveness of these initiatives, including any needed improvements, and communicate results and information in a timely manner to relevant stakeholders. We provided a draft of this report to VA for comment. In its written comments, reproduced in appendix III, VA generally agreed with our conclusions and concurred with our recommendations. In its comments, VA also provided information on workgroups it was planning to establish, as well as its plans for implementing each recommendation, with an estimated completion date of October 2017. 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 appropriate congressional committees, the Secretary of Veterans Affairs, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix II: Selected Characteristics of Veterans Health Administration's (VHA) Key Nurse Recruitment and Retention Initiatives (Number of participating nurses) Initiative Education and training initiatives RN Transition to Practice n/a (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a (n/a) 2,856,845 (335) 3,194,961 (349) 3,128,159 (368) 3,675,841 (434) 3,999,113 (475) 16,162,888 (640) 14,829,597 (440) 8,479,674 (260) 10,590,642 (162) 10,950,556 (366) VA Nursing Academic Partnerships - Graduate Education Financial benefits and incentives initiatives Recruitment, retention, and relocation incentives Education Debt Reduction Program n/a (n/a) n/a (n/a) n/a (n/a) n/a (n/a) 427,469 (5) 35,976,421 (6,514) 31,355,259 (5,358) 24,214,577 (5,880) 16,345,604 (2,692) 11,243,725 (1,899) 5,938,084 (1,607) 5,554,648 (1,353) 6,015,672 (1,300) 4,599,492 (961) 3,079,405 (643) 30,965,399 (3,483) 30,006,001 (3,697) 23,353,940 (3,699) 20,701,054 (3,445) 23,806,109 (2,965) n/a (n/a) n/a (n/a) n/a (n/a) n/a (n/a) n/a (n/a) In addition to the contact named above, Janina Austin, Assistant Director; Jennie Apter; Shana R. Deitch; Jacquelyn Hamilton; Kelli A. Jones; Vikki Porter; and Jessica L. Preston made key contributions to this report.
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GAO and others have highlighted the need for an adequate and qualified nurse workforce to provide quality and timely care to veterans. VHA faces challenges such as increased competition for skilled clinicians in hard-to-fill occupations such as nurses. As GAO has previously reported, recruitment and retention is particularly difficult for nurses with advanced professional skills, knowledge, and experience, which is critical given veterans' needs for more complex specialized services. GAO was asked to provide information on the recruitment and retention of nurses within VHA. This report reviews (1) the initiatives VHA has to recruit and retain its nurse workforce and (2) the extent to which VHA oversees its nurse recruitment and retention initiatives. GAO reviewed documents and interviewed officials from VHA, four VA medical centers selected to reflect variation in factors such as nurse turnover, and regional offices for these medical centers. GAO used federal internal control standards to evaluate VHA's oversight. GAO also interviewed selected stakeholder organizations. The Department of Veterans Affairs' (VA) Veterans Health Administration (VHA) has multiple system-wide initiatives to recruit and retain its nurse workforce, but three of the four VA medical centers in GAO's review faced challenges offering them. VHA identified a number of key initiatives it offers to help medical centers recruit and retain nurses, which focus primarily on providing (1) education and training, and (2) financial benefits and incentives. VA medical centers generally have discretion in offering these initiatives. The four medical centers in GAO's review varied in the number of initiatives they offered, and three of these medical centers developed local recruitment and retention initiatives in addition to those offered by VHA. GAO also found that while three of the four medical centers reported improvements in their ability to recruit and retain nurses through their offering of VHA's initiatives; they also reported challenges. The challenges included a lack of sufficient administrative support for medical centers, competition with private sector medical facilities, reduced pool of nurses in rural locations with advanced training, and employee dissatisfaction. VHA's oversight of its key system-wide nurse recruitment and retention initiatives is limited. Specifically, GAO found that VHA conducts limited monitoring of medical centers' compliance with its initiatives. For example, in the past, VHA conducted site visits in response to a medical center reporting difficulty with implementation of one of its initiatives, and to assess compliance with program policies, but it is no longer conducting these visits. Consistent with federal internal control standards, monitoring should be ongoing and should identify performance gaps in a policy or procedure. With limited monitoring, VHA lacks assurance that its medical centers are complying with its nurse recruitment and retention initiatives, and that any problems are identified and resolved in a timely and appropriate manner. In addition, VHA has not conducted evaluations of the training resources provided to nurse recruiters at VA medical centers or the overall effectiveness of the initiatives in meeting its nurse recruitment and retention goals, or whether any changes are needed. Consistent with federal internal control standards, measuring performance tracks progress towards program goals and objectives, and provides important information to make management decisions and resolve any problems or program weaknesses. For example, GAO found that VHA does not know whether medical centers have sufficient training to support its nurse recruitment and retention initiatives. In particular, there is currently no face-to-face training provided by VHA specifically for nurse recruiters, but there is regular training available to those assigned to a human resources office as part of training available to all human resources staff. Representatives from a national nursing organization reported that clinical nurse recruiters at VA medical centers often feel more unprepared for the position than those assigned to human resources offices, but no evaluation of this disparity or its effects has occurred. Without evaluations of its collective system-wide initiatives, VHA is unable to determine to what extent its nurse recruitment and retention initiatives are effective in meeting VHA policies and the Veterans Access, Choice, and Accountability Act provisions, or ultimately whether VHA has an adequate and qualified nurse workforce at its medical centers that is sufficient to meet veterans' health care needs. GAO recommends VA (1) develop a process to help monitor medical centers' compliance with its key nurse recruitment and retention initiatives; (2) evaluate the adequacy of training resources provided to nurse recruiters; and (3) conduct a system-wide evaluation of its key nurse recruitment and retention initiatives. VA concurred with the recommendations.
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Since January 2011, DHS has continued to update and strengthen its strategy for how the department plans to address our high-risk designation and resolve its management challenges. In January 2011, DHS provided us with its initial Integrated Strategy for High Risk Management, which summarized the department's preliminary plans for addressing the high-risk area. The January 2011 strategy, which DHS later updated in June 2011 and December 2011, was generally responsive to the actions and outcomes we identified for the department to address this high-risk area. Specifically, in our March 2011 written response to DHS's January 2011 update, we stated that the strategy generally identified multiple, specific actions and target completion time frames consistent with the outcomes we identified; designated senior officials to be responsible for implementing most actions; and included scorecards to depict, at a high level, the department's views of its progress in addressing each high-risk area and a framework for monitoring implementation of corrective actions through, among other things, quarterly meetings between DHS and us. However, the January 2011 update generally did not discuss the root causes of problems. Further, while the strategy identified whether DHS believed it had the resources available to implement planned actions, it did not identify what the specific resource needs were or what additional resources may be needed, making it difficult to assess the extent to which DHS has the capacity to implement those actions. In June 2011, DHS updated its Integrated Strategy for High Risk Management. The update demonstrated the department's continued leadership commitment to address the high-risk designation and represented continued progress. For example: DHS identified 10 root causes that cut across the four management functions and management integration. By identifying these root causes, the department better positioned itself to determine corrective actions for addressing the underlying problems that have affected its management implementation efforts, and to assess the extent to which progress made in implementing the corrective actions has mitigated those underlying problems. DHS organized its corrective actions into 16 key management initiatives (e.g., financial management controls, IT program governance, and procurement staffing model) to address its management challenges and the 31 actions and outcomes we identified. Identifying key management initiatives should help DHS prioritize its efforts and resources for addressing its root causes and management challenges, and provide a useful framework for monitoring the department's implementation of the initiatives and associated corrective actions. However, elements of the update could be strengthened or clarified to better address our high-risk criteria and the actions and outcomes we previously identified, including (1) better defining the root causes of its management problems; (2) clarifying the resources available to implement corrective actions; (3) consistently reporting the progress of its corrective actions; and (4) more clearly and consistently reporting the progress of its key management initiatives. DHS provided its most recent update to its strategy in December 2011. Overall, we believe that the December update positions the department to address its management challenges and the implementation and transformation high-risk area. For example: DHS updated its initiatives--removing two initiatives from the management integration area and adding four new initiatives, including human resources information technology, management health assessment, strategic sourcing, and acquisition workforce development; DHS included, for the first time, ratings of the department's progress addressing the 31 high-risk outcomes; and DHS enhanced its reporting and rating methodology for its key management initiatives. Specifically, DHS replaced a color-coded (green, yellow or red) rating system used in previous updates with a new system for self-reporting progress. DHS now measures and reports its progress addressing the five criteria for removal from high risk in two ways. One way uses standard indicators for measuring progress and a pie graph for reporting such progress across all of its key management initiatives against the first four criteria--leadership commitment, capacity, corrective action plans, and monitoring. The second way uses specific performance measures unique to each initiative for measuring progress and a fuel-type gauge for reporting on the fifth criterion--demonstrated progress. According to DHS, the revised methodology, amongst other things, results in a more objective view of each initiative's progress. However, the December 2011 update could be strengthened or clarified to better enable DHS and GAO to assess the department's progress, in the following ways: More clearly and consistently report the resources available to implement corrective actions. DHS identified whether it had sufficient resources to implement most of the corrective actions. However, as we also reported to DHS regarding the January and June 2011 strategies, for many corrective actions DHS did not provide information on what the specific resource needs are or what additional resources may be needed to implement the corrective actions. The absence of resource information makes it difficult to fully assess the extent to which DHS has the capacity to implement these actions, particularly within the time frames identified for the corrective actions Consistently report on corrective actions. DHS provided information on the department's rationale for eliminating and adding key management initiatives, but has not consistently provided such information for the corrective actions it established for each initiative. For example, the December strategy contained three new corrective actions for the IT program-governance initiative that were not in the June 2011 strategy, but did not include three corrective actions that had been in the June 2011 strategy. The December strategy did not consistently explain the department's rationale for eliminating or adding corrective actions from the June strategy, such as whether the corrective actions were already completed, or if the corrective actions were no longer appropriate or feasible. Without consistently providing information on the basis for DHS's decision to add or remove corrective actions, it is difficult for DHS and us to track the status and progress of the department's efforts to fully implement its management initiatives. Establish measures and report on progress for all initiatives. DHS established a total of 58 measures to track its demonstrated progress in implementing the 18 initiatives included in the December 2011 strategy. While these measures provide additional insight into DHS's self-reported progress and represent an important improvement from the June 2011 strategy, DHS has not yet established measures for one of its initiatives--the new management health assessment initiative--and did not report on its progress for more than 40 percent (24 of the 58) of the measures in the December 2011 strategy. Without establishing measures and consistently reporting on their progress, neither DHS nor we can fully assess the department's progress in implementing its initiatives. Stabilize its methodology for measuring progress. We believe that the enhanced methodology DHS established for assessing its progress in implementing its initiatives generally allows for a more- objective assessment. However, the evolving nature of DHS's methodology, which the department revised in the June 2011 strategy and again in the December strategy, makes it difficult to effectively monitor the department's progress over time. By strengthening these four aspects, we believe the December 2011 strategy, if implemented and sustained, provides a path for DHS to address our high-risk designation. We will continue to closely monitor and assess DHS's progress in addressing the high-risk designation and the department's overall transformation efforts as part of our work for the 2013 high-risk update, which we plan to issue in January 2013. DHS has made progress addressing management challenges and achieving high-risk outcomes in some key areas. The Secretary and Deputy Secretary of Homeland Security, and other senior officials, have demonstrated commitment and top leadership support to address the department's management challenges. As the following examples illustrate, DHS is making progress achieving the long-term goal of enhancing its management capabilities and building a more-integrated department. In June 2011, we reported that, per departmental acquisition guidance, DHS's Science and Technology directorate reviewed and approved test and evaluation documents and plans for programs undergoing testing, and conducted independent assessments for the programs that completed operational testing. In October 2011, to enhance the department's ability to oversee major acquisition programs, DHS realigned the acquisition management functions previously performed by two divisions within the Office of Chief Procurement Officer to establish the Office of Program Accountability and Risk Management (PARM). PARM, which is responsible for program governance and acquisition policy, serves as the Management Directorate's executive office for program execution and works with DHS leadership to assess the health of major acquisitions and investments. To help with this effort, PARM is developing a database, known as the Decision Support Tool, intended to improve the flow of information from component program offices to the Management Directorate to support its governance efforts. DHS also included a new management initiative in its December 2011 update (strategic sourcing) to increase savings and improve acquisition efficiency by consolidating contracts departmentwide for the same kinds of products and services, and reported awarding 14 strategically sourced contracts in fiscal year 2011. We currently have ongoing work related to both of these areas that we will report on later this year. In February 2012, we reported that the DHS Chief Information Officer (CIO) and Chief Human Capital Officer were coordinating to streamline and consolidate the department's human resources investments. Specifically, in 2010 and 2011, the DHS CIO conducted program and portfolio reviews of hundreds of IT investments and systems. DHS evaluated portfolios of investments within its components to avoid investing in systems that are duplicative or overlapping, and to identify and leverage investments across the department. DHS also consolidated (1) 6 personnel security-related systems into its departmentwide Integrated Security Management System--with an additional personnel security system planned for consolidation in 2012, and (2) two components' portals into the Homeland Security Information Network, with plans to consolidate 12 additional portals before 2014. DHS has reduced the number of material weaknesses in internal controls from 18 since the inception of the department in 2003 to 5 in fiscal year 2011. In addition, in fiscal year 2010 DHS committed to the goal of receiving a qualified audit opinion on its consolidated balance sheet in fiscal year 2011 by, for example, remediating financial management issues at the U.S. Coast Guard (USCG). In fiscal year 2011, DHS achieved this goal by moving from a disclaimer of opinion to a qualified audit opinion on its balance sheet and statement of custodial activity for the first time since the department's creation. In its December 2011 strategy, DHS reported plans to expand the audit to all financial statements in fiscal year 2012. DHS believes this will identify additional areas for corrective action and help it to obtain a clean audit opinion on all financial statements by September 2013, although there is no clear plan for how full auditability will be achieved. In February 2012, we reported that DHS consolidated five time-and- attendance systems into a departmentwide time-and-attendance system and plans to incorporate an additional component by June This consolidation effort is part of DHS's broader human 2012. resources IT initiative. This initiative is intended to, among other things (1) support the development and implementation of consistent and consolidated human resources IT systems across DHS, and (2) strengthen and unify the department's ability to collect and share human resource information. We also reported in February 2012 that DHS had initiated a Senior Executive Service Candidate Development Program in May 2011 to build its senior leadership pipeline within the department--consolidating what had been four individual leadership programs into a single DHS-wide program--and lowered its senior leadership vacancy rates from a peak of 25 percent in 2006 to 10 percent at the end of fiscal year 2011.In February 2011, we reported that the department put in place common policies, procedures, and systems within individual management functions, such as human capital, that help to integrate its component agencies.commitment by identifying roles and responsibilities at the departmental level for the key management initiatives it has included in the December 2011 strategy. Additionally, DHS has promoted accountability for management integration among department and component management chiefs by, among other things, having the department chiefs provide written objectives that explicitly reflect priorities and milestones for that management function as well as aligning the component chiefs' individual performance plans to the department's goals and objectives. DHS has also demonstrated top leadership In its December 2011 strategy, DHS presented detailed plans to address a number of management challenges. However, in many instances, DHS has considerable work ahead to fully implement these plans and address these challenges. Our prior work has identified challenges related to acquisition oversight, cost growth, and schedule delays, including departmental concerns about the accuracy of cost estimates for some of DHS's major programs. For example, in June 2010 we reported that over half of the programs we reviewed awarded contracts to initiate acquisition activities without component or department approval of documents essential to planning acquisitions, such as mission need statements outlining the specific functional capabilities required to accomplish DHS's mission and objectives; operational requirements; and acquisition program baselines. Additionally, we reported that only a small number of DHS's major acquisitions had validated cost estimates. Further, DHS reported in its December 2011 strategy that senior executives are not confident enough in the data to use the Decision Support Tool developed by PARM to help make acquisition decisions. However, DHS's plans to improve the quality of the data in this database are limited. At this time, PARM only plans to check the data quality in preparation for key milestone meetings in the acquisition process. This could significantly diminish the Decision Support Tool's value because users cannot confidently identify and take action to address problems meeting cost or schedule goals prior to program review meetings. DHS continues to face challenges in managing its IT acquisitions, ensuring proper implementation and departmentwide coordination, and implementing information security controls. For example, as we reported in 2011, DHS faces challenges fully defining key system investment and acquisition management policies and procedures for IT. Moreover, the extent to which DHS implemented these investment and acquisition management policies and practices in major IT programs has been inconsistent. We also reported that major IT acquisition programs were not subjected to executive-level acquisition and investment management reviews. As a result, major programs aimed at delivering important mission capabilities had not lived up to their capability, benefit, cost, and schedule expectations. DHS is currently pilot testing a new approach for overseeing and managing its IT acquisitions. We are currently reviewing this new governance approach and expect to report the results of our work later this year. Further, we previously reported on the need for federal agencies, including DHS, to improve implementation of information security controls, such as those for configuring desktop computers and wireless communication devices. DHS reports that, as of December 2011, it mostly addressed IT security. However, the DHS Office of Inspector General continues to report a material weakness in this area and identifies information security as a major management challenge facing the department. Due to material weaknesses in internal controls over financial reporting, DHS was unable to provide assurance that internal controls over financial reporting were operating effectively as of September 30, 2011. According to DHS, due to existing internal control weaknesses and focus on corrective actions, the audit opinion on internal controls over financial reporting will likely remain a disclaimer in fiscal year 2012. DHS also faces challenges in modernizing its financial systems. We previously reported that DHS twice attempted to implement an integrated departmentwide financial management system, but had not been able to consolidate its disparate systems. Specifically, in June 2007, we reported that DHS ended its Electronic Managing Enterprise Resources for Government Effectiveness and Efficiency effort after determining that the resulting financial management systems would not provide the expected system functionality and performance. In December 2009, we reported that the Transformation and Systems Consolidation program had been significantly delayed by bid protests and related litigation. In March 2011, DHS ended this program and reported that moving forward it would consider alternatives to meet revised requirements. In 2011, DHS decided to change its strategy for financial system modernization. Rather than implement a departmentwide integrated financial management system solution, DHS opted for a decentralized approach to financial management systems modernization at the component level. Specifically, DHS reported in its December 2011 strategy that it plans to replace financial management systems at three components it has identified as most in need, including the Federal Emergency Management Agency (FEMA), USCG, and Immigrations and Customs Enforcement (ICE). As of February 2012, DHS officials stated that they first planned to modernize FEMA's system, which would start using a federal shared service provider at the beginning of fiscal year 2015. DHS officials told us they had not yet identified the specific approach or necessary resources and time frames for implementing new systems at USCG and ICE. It is not clear whether DHS's new, decentralized approach to financial system modernization will ensure that component's financial management systems can generate reliable, useful, timely information for day-to-day decision making; enhance the department's ability to comprehensively view financial information across DHS; and comply with related federal requirements at DHS and its components. We will continue to monitor DHS's actions in this area. DHS continues to face challenges implementing some of its key human capital initiatives and functions. For example, the DHS Chief Information Officer's (CIO) September 2011 assessment of the human resources IT program identified two risks that could have adverse effects on the cost and schedule of the program. First, if the program is unable to meet its established baseline schedules, there is a high probability of program breach and potential loss of funding due to lack of prioritization. Second, if a thorough understanding of existing legacy applications and processes across the DHS components is not achieved, the new, consolidated system will not adequately replace existing functionality nor provide the stable operational functionality needed from the program. DHS has also struggled with low job satisfaction among its employees since its inception. For the 2011 Federal Employee Viewpoint Survey, DHS scored below the governmentwide average on the Office of Personnel Management's Job Satisfaction Index and ranked 31st of 33 federal agencies on employee satisfaction, according to the Partnership for Public Service's analysis of the survey results. At the subcommittee's request, we currently have work underway evaluating the effectiveness of DHS's plans and efforts to address its employee morale issues and expect to report our findings later this year. Further, in June 2011, DHS reported that it was developing component operational plans to implement its departmentwide workforce strategy and align the component plans with the goals, measures, and objectives of the strategy. However, in its December 2011 strategy, DHS reported that it had not finished providing feedback to components on their fiscal year 2011 plans. DHS needs to continue to demonstrate sustainable progress in integrating its management functions within and across the department and its components and take additional actions to further and more effectively integrate the department. Specifically, in its January 2011 high-risk strategy, DHS described plans to establish an Integrated Investment Life Cycle Model (IILCM) for managing investments across its components and management functions; strengthening integration within and across those functions; and ensuring mission needs drive investment decisions. This framework seeks to enhance DHS resource decision making and oversight by creating new department-level councils to identify priorities and capability gaps, revising how DHS components and lines of business manage acquisition programs, and developing a common framework for monitoring and assessing implementation of investment decisions. DHS reported in December 2011 that the IILCM initiative had made little progress since January 2011 though the department planned to begin using the IILCM by the end of September 2012. The department also indicated it had not determined resource needs to accomplish any of the eight associated corrective actions it has identified for this initiative. While DHS has made progress, the department still faces considerable challenges. Going forward, DHS needs to continue implementing its Integrated Strategy for High Risk Management and show measurable, sustainable progress in implementing its key management initiatives and corrective actions and achieving outcomes. We will continue to monitor and assess DHS's implementation and transformation efforts through our ongoing and planned work, including the 2013 high-risk update that we expect to issue in early 2013. 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 may have. For questions about this statement, please contact David C. Maurer at (202) 512-9627 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Maria Strudwick, Assistant Director; Scott Behen, analyst-in- charge; Michael Laforge, Anjalique Lawrence, Gary Mountjoy, Sabine Paul, Nathan Tranquilli, and Katherine Trimble. Other contributors include: David Alexander, Katherine Davis, Jan Montgomery, and Tomas Ramirez, Jr. Key contributors for the previous work that this testimony is based on are listed within each individual product. Information Technology: Departments of Defense and Energy Need to Address Potentially Duplicative Investments. GAO-12-241. Washington D.C.: February 17, 2012. DHS Human Capital: Senior Leadership Vacancy Rates Generally Declined, but Components' Rates Varied. GAO-12-264. Washington, D.C.: February 10, 2012. Department of Homeland Security: Additional Actions Needed to Strengthen Strategic Planning and Management Functions. GAO-12-382T. Washington D.C.: February 3, 2012. Department of Homeland Security: Progress Made and Work Remaining in Implementing Homeland Security Missions 10 Years after 9/11. GAO-11-881. Washington D.C.: September 7, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Information Security: Federal Agencies Have Taken Steps to Secure Wireless Networks, but Further Actions Can Mitigate Risk. GAO-11-43. Washington, D.C.: November 30, 2010. Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010. Information Security: Agencies Need to Implement Federal Desktop Core Configuration Requirements. GAO-10-202. Washington, D.C.: March 12, 2010. Financial Management Systems: DHS Faces Challenges to Successfully Consolidating Its Existing Disparate Systems. GAO-10-76. Washington, D.C.: December 4, 2009. Department of Homeland Security: Actions Taken Toward Management Integration, but a Comprehensive Strategy Is Still Needed. GAO-10-131. Washington, D.C.: November 20, 2009. Homeland Security: Despite Progress, DHS Continues to Be Challenged in Managing Its Multi-Billion Dollar Annual Investment in Large-Scale Information Technology Systems. GAO-09-1002T. Washington, D.C.: September 15, 2009. Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008. Department of Homeland Security: Better Planning and Assessment Needed to Improve Outcomes for Complex Service Acquisitions. GAO-08-263. Washington, D.C.: April 22, 2008. Homeland Security: Departmentwide Integrated Financial Management Systems Remain a Challenge. GAO-07-536. Washington, D.C.: June 21, 2007. Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity, version 1.1. GAO-04-394G. Washington, D.C.: March 2004. High-Risk Series: Strategic Human Capital Management. GAO-03-120. Washington, D.C.: January 2003. Determining Performance and Accountability Challenges and High Risks. GAO-01-159SP. Washington, D.C.: November 2000. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Since 2003, GAO has designated the implementation and transformation of DHS as high risk because, among other things, DHS had to combine 22 agencies, while ensuring no serious consequences for U.S. national and economic security. This high-risk area includes challenges in DHS's management functions--financial management, human capital, IT, and acquisitions; the effect of those challenges on implementing DHS's missions; and integrating the functions. In November 2000, GAO published criteria for removing areas from its high-risk list. In September 2010, GAO identified 31 actions and outcomes critical to addressing this high-risk area. This testimony addresses DHS's progress in (1) developing a strategy for addressing its high-risk designation and (2) achieving outcomes critical to addressing this high-risk area. This statement is based on GAO products issued from June 2007 through February 2012, including selected updates. It also includes preliminary observations from GAO's ongoing work reviewing DHS's IT governance, for which GAO reviewed documents on IT governance and interviewed officials. The Department of Homeland Security (DHS) has updated and strengthened its strategy for how it plans to address GAO's high-risk designation and resolve the department's management challenges. In January 2011, DHS provided GAO with its Integrated Strategy for High Risk Management, which summarized the department's preliminary plans for addressing the high-risk area. GAO found that this strategy, which was later updated in June and December 2011, was generally responsive to the actions and outcomes needed to address GAO's high-risk designation. For example, the January 2011 strategy generally identified multiple, specific actions and target completion time frames consistent with the outcomes GAO identified. However, the strategy did not address the root causes of problems, among other things. In its June 2011 strategy, DHS, among other things, identified 10 root causes that cut across the management areas and their integration. GAO identified ways the strategy could be strengthened, including consistently reporting the progress of its initiatives and corrective actions. In its most recent update, DHS better positioned itself to address its management challenges. For example, for the first time, DHS included ratings of the department's progress addressing its high-risk outcomes. However, GAO believes that DHS could more consistently report on available resources and corrective actions, establish measures and report on progress made for all initiatives, and stabilize its methodology for measuring progress. These changes, if implemented and sustained, provide a path for DHS to address GAO's high-risk designation. DHS has made progress, but has considerable work ahead to achieve actions and outcomes critical to addressing this high-risk area. Among other accomplishments, DHS realigned its acquisition management functions within a new office to assess the health of major acquisitions and investments; conducted program and portfolio reviews of hundreds of information technology (IT) investments; and reduced the number of material weaknesses in internal controls. DHS also demonstrated top leadership commitment by identifying roles and responsibilities for its key management initiatives. However, DHS has more work ahead to fully implement its plans and address its management challenges. For example, in June 2010 GAO reported that over half of the programs reviewed awarded contracts to initiate acquisition activities without component or department approval of essential planning documents. In addition, DHS faces challenges fully defining key system investment and acquisition management policies and procedures. Further, as of September 30, 2011, due to material weaknesses in internal controls over financial reporting, DHS was unable to provide assurance that these internal controls were operating effectively. In September 2011 we reported that DHS also continues to face challenges implementing some key human capital initiatives, such as its workforce strategy. DHS also needs to continue to demonstrate sustainable progress in integrating its management functions within and across the department and its components, including making progress with its model for managing investments across components and management functions. GAO will continue to assess DHS's efforts to address its high-risk designation and will report its findings on the department's progress in the high-risk update that it expects to issue in early 2013. This testimony contains no new recommendations. GAO has made over 100 recommendations to DHS since 2003 to strengthen the department's management and integration efforts. DHS has implemented many of these recommendations and is in the process of implementing others.
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Through the impartial and independent investigation of citizens' complaints, federal ombudsmen help agencies be more responsive to the public, including people who believe that their concerns have not been dealt with fully or fairly through normal channels. Ombudsmen may recommend ways to resolve individual complaints or more systemic problems, and may help to informally resolve disagreements between the agency and the public. While there are no federal requirements or standards specific to the operation of federal ombudsman offices, the Administrative Conference of the United States recommended in 1990 that the President and the Congress support federal agency initiatives to create and fund an external ombudsman in agencies with significant interaction with the public. In addition, several professional organizations have published relevant standards of practice for ombudsmen. Both the recommendations of the Administrative Conference of the United States and the standards of practice adopted by various ombudsman associations incorporate the core principles of independence, impartiality (neutrality), and confidentiality. For example, the ABA's standards define these characteristics as follows: Independence--An ombudsman must be and appear to be free from interference in the legitimate performance of duties and independent from control, limitation, or penalty by an officer of the appointing entity or a person who may be the subject of a complaint or inquiry. Impartiality--An ombudsman must conduct inquiries and investigations in an impartial manner, free from initial bias and conflicts of interest. Confidentiality--An ombudsman must not disclose and must not be required to disclose any information provided in confidence, except to address an imminent risk of serious harm. Records pertaining to a complaint, inquiry, or investigation must be confidential and not subject to disclosure outside the ombudsman's office. Relevant professional standards contain a variety of criteria for assessing an ombudsman's independence, but in most instances, the underlying theme is that an ombudsman should have both actual and apparent independence from persons who may be the subject of a complaint or inquiry. According to ABA guidelines, for example, a key indicator of independence is whether anyone subject to the ombudsman's jurisdiction can (1) control or limit the ombudsman's performance of assigned duties, (2) eliminate the office, (3) remove the ombudsman for other than cause, or (4) reduce the office's budget or resources for retaliatory purposes. Other factors identified in the ABA guidelines on independence include a budget funded at a level sufficient to carry out the ombudsman's responsibilities; the ability to spend funds independent of any approving authority; and the power to appoint, supervise, and remove staff. The Ombudsman Association's standards of practice define independence as functioning independent of line management; they advocate that the ombudsman report to the highest authority in the organization. According to the ABA's recommended standards, "the ombudsman's structural independence is the foundation upon which the ombudsman's impartiality is built." One aspect of the core principle of impartiality is fairness. According to an article published by the U.S. Ombudsman Association on the essential characteristics of an ombudsman, an ombudsman should provide any agency or person being criticized an opportunity to (1) know the nature of the criticism before it is made public and (2) provide a written response that will be published in whole or in summary in the ombudsman's final report. In addition to the core principles, some associations also stress the need for accountability and a credible review process. Accountability is generally defined in terms of the publication of periodic reports that summarize the ombudsman's findings and activities. Having a credible review process generally entails having the authority and the means, such as access to agency officials and records, to conduct an effective investigation. The ABA recommends that an ombudsman issue and publish periodic reports summarizing the findings and activities of the office to ensure its accountability to the public. Similarly, recommendations by the Administrative Conference of the United States regarding federal ombudsmen state that they should be required to submit periodic reports summarizing their activities, recommendations, and the relevant agency's responses. Federal agencies face legal and practical constraints in implementing some aspects of these standards because the standards were not designed primarily with federal agency ombudsmen in mind. However, ombudsmen at the federal agencies we reviewed for our 2001 report reflected aspects of the standards. We examined the ombudsman function at four federal agencies in addition to EPA and found that three of them--the Federal Deposit Insurance Corporation, the Food and Drug Administration, and the Internal Revenue Service--had an independent office of the ombudsman that reported to the highest level in the agency, thus giving the ombudsmen structural independence. In addition, the ombudsmen at these three agencies had functional independence, including the authority to hire, supervise, discipline, and terminate their staff, consistent with the authority granted to other offices within their agencies. They also had control over their budget resources. The exception was the ombudsman at the Agency for Toxic Substances and Disease Registry, who did not have a separate office with staff or a separate budget. This ombudsman reported to the Assistant Administrator of the agency instead of the agency head. In our July 2001 report, we recommended, among other things, that EPA modify its organizational structure so that the function would be located outside of the Office of Solid Waste and Emergency Response, whose activities the national ombudsman was charged with reviewing. EPA addresses this recommendation through its placement of the national ombudsman within the OIG, where the national ombudsman will report to a newly-created position of Assistant Inspector General for Congressional and Public Liaison. OIG officials also told us that locating the national ombudsman function within the OIG offers the prospect of additional resources and enhanced investigative capability. According to the officials, the national ombudsman will likely have a small permanent staff but will also be able to access OIG staff members with expertise in specific subject matters, such as hazardous waste or water pollution, on an as-needed basis. Further, OIG officials anticipate that the ombudsman will adopt many of the office's existing recordkeeping and reporting practices, which could help address the concerns we noted in our report about accountability and fairness to the parties subject to an ombudsman investigation. Despite these aspects of EPA's reorganization, several issues merit further consideration. First and foremost is the question of intent in establishing an ombudsman function. The term "ombudsman," as defined within the ombudsman community, carries with it certain expectations. The role of an ombudsman typically includes program operating responsibilities, such as helping to informally resolve program-related issues and mediating disagreements between the agency and the public. Assigning these responsibilities to an office within the OIG would conflict with statutory restrictions on the Inspector General's activities. Specifically, the Inspector General Act, as amended, prohibits an agency from transferring any function, power, or duty involving program responsibilities to its OIG. However, if EPA omits these responsibilities from the position within the OIG, then it will not have established an "ombudsman" as the function is defined within the ombudsman community. In our April 2001 report, we noted that some federal experts in dispute resolution were concerned that among the growing number of federal ombudsman offices there are some individuals or activities described as "ombuds" or "ombuds offices" that do not generally conform to the standards of practice for ombudsmen. A related issue is that ombudsmen generally serve as a key focal point for interaction between the government, or a particular government agency, and the general public. By placing the national ombudsman function within its OIG, EPA appears to be altering the relationship between the function and the individuals that make inquiries or complaints. Ombudsmen typically see their role as being responsive to the public, without being an advocate. However, EPA's reorganization signals a subtle change in emphasis: OIG officials see the ombudsman function as a source of information regarding the types of issues that the OIG should be investigating. Similarly, rather than issue reports to complainants, OIG officials expect that the national ombudsman's reports will be addressed to the EPA Administrator, consistent with the reporting procedures for other OIG offices. The officials told us that their procedures for the national ombudsman function, which are still being developed, could provide for sending a copy of the final report or a summary of the investigation to the original complainant along with a separate cover letter when the report is issued to the Administrator. Based on the preliminary information available from EPA, the reorganization raises other issues regarding the consistency of the agency's ombudsman function with relevant professional standards. For example, under EPA's reorganization, the national ombudsman will not be able to exercise independent control over budget and staff resources, even within the general constraints that are faced by federal agencies. According to OIG officials, the national ombudsman will have input into the hiring, assignment, and supervision of staff, but overall authority for staff resources and the budget allocation rests with the Assistant Inspector General for Congressional and Public Liaison. OIG officials pointed out that the issue our July 2001 report raised about control over budget and staff resources was closely linked to the ombudsman's placement within the Office of Solid Waste and Emergency Response. The officials believe that once the national ombudsman function was relocated to the OIG, the inability to control resources became much less significant as an obstacle to operational independence. They maintain that although the ombudsman is not an independent entity within the OIG, the position is independent by virtue of the OIG's independence. Despite the OIG's argument, we note that the national ombudsman will also lack authority to independently select and prioritize cases that warrant investigation. According to EPA, the Inspector General has the overall responsibility for the work performed by the OIG, and no single staff member--including the ombudsman--has the authority to select and prioritize his or her own caseload independent of all other needs. Decisions on whether complaints warrant a more detailed review will be made by the Assistant Inspector General for Congressional and Public Liaison in consultation with the national ombudsman and staff. EPA officials are currently reviewing the case files obtained from the former ombudsman, in part to determine the anticipated workload and an appropriate allocation of resources. According to OIG officials, the national ombudsman will have access to other OIG resources as needed, but EPA has not yet defined how decisions will be made regarding the assignment of these resources. Under the ABA guidelines, one measure of independence is a budget funded at a level sufficient to carry out the ombudsman's responsibilities. However, if both the ombudsman's budget and workload are outside his or her control, then the ombudsman would be unable to assure that the resources for implementing the function are adequate. Ombudsmen at other federal agencies must live within a budget and are subject to the same spending constraints as other offices within their agencies, but they can set their own priorities and decide how their funds will be spent. EPA has also not yet fully defined the role of its regional ombudsmen or the nature of their relationship with the national ombudsman in the OIG. EPA officials told us that the relationship between the national and regional ombudsmen is a "work in progress" and that the OIG will be developing procedures for when and how interactions will occur. Depending on how EPA ultimately defines the role of its regional ombudsmen, their continued lack of independence could remain an issue. In our July 2001 report, we concluded that the other duties assigned to the regional ombudsmen--primarily line management positions within the Superfund program--hamper their independence. Among other things, we cited guidance from The Ombudsman Association, which states that an ombudsman should serve "no additional role within an organization" because holding another position would compromise the ombudsman's neutrality. According to our discussions with officials from the Office of Solid Waste and Emergency Response and the OIG, the investigative aspects of the ombudsman function will be assigned to the OIG, but it appears that the regional ombudsmen will respond to inquiries and have a role in informally resolving issues between the agency and the public before they escalate into complaints about how EPA operates. For the time being, EPA officials expect the regional ombudsmen to retain their line management positions. Finally, including the national ombudsman function within the Office of the Inspector General raises concerns about the effect on the OIG, even if EPA defines the ombudsman's role in a way that avoids conflict with the Inspector General Act. By having the ombudsman function as a part of the OIG, the Inspector General could no longer independently audit and investigate that function, as is the case at other federal agencies where the ombudsman function and the OIG are separate entities. As we noted in a June 2001 report on certain activities of the OIG at the Department of Housing and Urban Development, under applicable government auditing standards the OIG cannot independently and impartially audit and investigate activities it is directly involved in. A related issue concerns situations in which the national ombudsman receives an inquiry or complaint about a matter that has already been investigated by the OIG. For example, OIG reports are typically transmitted to the Administrator after a review by the Inspector General. A process that requires the Inspector General to review an ombudsman- prepared report that is critical of, or could be construed as reflecting negatively on, previous OIG work could pose a conflict for the Inspector General. OIG officials are currently working on detailed procedures for the national ombudsman function, including criteria for opening, prioritizing, and closing cases, and will have to address this issue as part of their effort. In conclusion, Mr. Chairman, we believe that several issues need to be considered in EPA's reorganization of its ombudsman function. The first is perhaps the most fundamental--that is, the need to clarify the intent. We look forward to working with Members of the Subcommittee as you consider the best way of resolving these issues.
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The Environmental Protection Agency's (EPA) hazardous waste ombudsman was first established within the Office of Solid Waste and Emergency Response as a result of the 1984 amendments to the Resource Conservation and Recovery Act. Over time, EPA expanded the national ombudsman's jurisdiction to include Superfund and other hazardous waste programs managed by the Office of Solid Waste and Emergency Response, and, by March 1996, EPA had designated ombudsmen in each of its 10 regional offices. Although the national ombudsman's activities ranged from providing information to investigating the merits of complaints, in recent years, the ombudsman played an increasingly prominent role through his investigations of citizen complaints. Pending legislation would reauthorize an office of the ombudsman within EPA. In November 2001, the EPA Administrator announced that the national ombudsman would be relocated from the Office of Solid Waste and Emergency Response to the Office of Inspector General (OIG) and would address concerns across the spectrum of EPA programs. Although there are no federal requirements or standards specific to the operation of ombudsman offices, several professional organizations have published standards of practice relevant to ombudsmen who deal with inquiries from the public. If EPA intends to have an ombudsman function that is consistent with the way the position is typically defined in the ombudsman community, placing the national ombudsman within the OIG does not achieve that objective. The national ombudsman, as the position is currently envisioned, still will not be able to exercise independent control over the budget and staff resources needed to implement the function. Prior to the reorganization, the national ombudsman could independently determine which cases to pursue; however, according to EPA, the Inspector General has the overall responsibility for the work performed by the Office, and no single staff member has the authority to select and prioritize his or her own caseload independent of all other needs. Finally, placing the ombudsman in the OIG could also affect the activities of the Inspector General.
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The federal government has provided health insurance benefits to its employees through FEHBP since 1960. The Congress established FEHBP primarily to help the government compete with private-sector employers in attracting and retaining talented and qualified workers. All active and retired federal workers and their dependents are eligible to enroll in FEHBP plans, and about 86 percent of eligible workers and retirees participate in the program. As of July 2002, FEHBP provided health insurance coverage to about 8.3 million individuals, including 2.2 million active workers, 1.9 million retirees, and an estimated 4.2 million of their dependents. The government pays a portion of each enrollee's health insurance benefit premium cost. Currently, as set by statute, the government pays 72 percent of the weighted average premium of all health benefit plans participating in FEHBP, but no more than 75 percent of any plan's premium. The premiums are intended to cover enrollees' health care costs, plans' expenses, reserves, and OPM's administrative costs. Total FEHBP health insurance premiums paid by the government and enrollees were about $22 billion in 2001. The legislative history of the FEHBP statute indicates that the Congress wanted enrollees to exercise choice among various plan types and, by using their own judgment, select health plans that best meet their specific needs. The FEHBP statute authorizes OPM to contract with FFS plans which include the Blue Cross and Blue Shield (BCBS) service benefit plan and plans sponsored by federal employee and postal organizations, such as those for the Foreign Service and rural letter carriers and comprehensive medical plans (commonly known as HMOs), thereby providing choice to enrollees. Some plans offer two levels of benefits, which provide enrollees with more options, and some plans also offer a point-of-service (POS) option that provides an enrollee a choice of using the plan's health care providers or, by paying a higher fee, selecting providers outside of the plan's provider network. By statute, OPM is responsible for negotiating contracts with the FFS plans and HMOs each year. Under this authority, OPM can negotiate these contracts without regard to competitive bidding requirements. Those plans meeting the minimum requirements specified in the statute and regulations may participate in the program and their contracts may be automatically renewed each year. However, plans can choose to terminate their contracts with OPM at the end of the contract period, and under certain circumstances OPM has the authority to terminate contracts. As part of its contracting responsibility, OPM negotiates benefits and premiums with each plan. In April of each year, OPM sends a letter to all approved and participating FFS plans and HMOs--its annual "call letter"-- to solicit proposed benefit and premium changes for the next year, which are due by the end of May. The statute does not define a specific benefit package that must be offered but indicates the core health care services that plans must cover. Each plan therefore proposes its own benefit package in response to the call letter. In addition, the plans propose the premiums for these benefits, which must be provided for two levels of coverage--self-only and self and family. As a result, each plan's benefit package and premiums can differ. OPM attempts to complete its negotiations by August so that brochures describing the plans' benefits and premiums can be ready for the FEHBP open season that begins in November and lasts about a month. FEHBP's brochures, which OPM approves each year, facilitate enrollee plan comparisons and selections. During each open season, federal workers and retirees are free to switch to other plans for the next calendar year, regardless of any preexisting health conditions. Thus, enrollees can determine which plans best meet their needs. OPM data show that in 2000 and 2001 less than 5 percent of enrollees switched plans. Thirteen FFS plans participated in FEHBP in 2002. Overall, about 70 percent of federal employees and retirees who participate in FEHBP were enrolled in FFS plans. Enrollees in these plans can choose their own physicians and hospitals and the plan reimburses the provider or the enrollee for the cost of each covered service provided up to a stated limit. In addition, 11 of the 13 FFS plans had preferred provider organization (PPO) networks, and by using providers in these networks, enrollees can spend less in cost-sharing requirements compared to non-PPO providers. The FEHBP statute establishes the rate-setting process for FFS plan premiums. FFS plans are experience rated--that is, the premiums are to be updated each year based on past claims experience and benefit adjustments. As a result, premiums are designed to cover the cost of all claims filed for enrollees as well as plan profit and administrative costs and, therefore, will differ for each FFS plan. In 2002, all active federal workers and retirees could enroll in the BCBS service benefit plan and in six of the FFS employee organization plans. (See table 1.) The remaining six FFS organization plans were available only to members of the sponsoring organizations. In 2002, 170 HMOs, located in local markets throughout the country, participated in FEHBP and accounted for about 30 percent of FEHBP enrollees. HMO enrollees must generally use a plan's provider network to obtain services. OPM has established the rate-setting process for HMOs participating in FEHBP in regulations. For most HMOs, OPM bases the FEHBP premium rate on the rates paid to the HMO by the two other employer-sponsored groups with the most similarly sized enrollments in that community. This ensures that FEHBP obtains a rate that is at least comparable to the lower of the rates paid by two other similarly sized groups, with adjustments to account for differences in the demographic characteristics of FEHBP enrollees and the benefits provided. The number of HMOs available to federal workers and retirees depends on the area where they live or work. In 2002, 11 states had no HMOs participating in FEHBP and, in the other states and the District of Columbia, the median number of HMOs available to federal enrollees was two. Some local markets had higher HMO participation. For example, the Washington, D.C., area and southern California had at least four HMOs in which federal workers and retirees could enroll in 2002. A few plans accounted for the largest share of FEHBP enrollment. The largest plan--the BCBS service benefit plan--had about half of the 2002 enrollment. The three largest plans, including BCBS, were all FFS plans and accounted for almost two-thirds of FEHBP enrollment. About two- thirds of the 183 participating FFS plans and HMOs enrolled fewer than 5,000 active federal workers and retirees, and slightly less than a third of all plans enrolled fewer than 1,000 in 2002. The three other large purchasers we reviewed varied in the extent to which they provide coverage through HMOs, FFS plans, and PPOs as well as in the number of plans they offer. GM, the largest private-sector purchaser of employer-sponsored health insurance, purchased coverage for about 1.2 million workers, retirees, and their dependents through 81 FFS plans, 31 PPOs, and 136 HMOs in 2002. About 71 percent of the unionized employees and retirees and about 63 percent of the salaried employees and retirees were enrolled in FFS plans and PPOs. CalPERS purchased coverage in 2002 for about 1.2 million active and retired state and local government public employees and their family members who obtained coverage through nearly 1,100 local government agencies, including schools, and the state of California. About 74 percent of CalPERS enrollees were in 7 HMOs, with the remainder in 2 PPOs and 3 plans covering members of such associations as the association of highway patrolmen in 2002. PBGH, a California employer coalition, purchased HMO coverage through its Negotiating Alliance for 19 large employers. About 350,000 workers, retirees, and dependents were in PBGH's 7 HMOs in 2002. This represented about 70 percent of participants in these employers' plans. Participating employers made their own arrangements for non-HMO coverage, primarily through PPOs, for the remaining employees. From 1991 through 2002, health insurance premiums for FEHBP increased on average 5.9 percent a year compared to 6.4 percent for large employers--those in the Kaiser/HRET survey with 5,000 or more employees--and 5.8 percent for CalPERS. (See fig. 1.) FEHBP average premium increases have exceeded 10 percent beginning in 2001, but higher premium increases were partially offset by some plans reducing benefits-- mostly increased enrollee cost sharing--and some enrollees switching to plans with lower premiums. Generally, FEHBP premiums increased at a lower rate than premiums for other large employers and CalPERS during the first half of the last decade, but increased faster during the second half. For example, cumulatively from 1991 to 1996, premiums increased on average about twice as fast for large employers (6.1 percent per year) than for FEHBP (3.2 percent per year). Premiums for CalPERS also increased faster (5.1 percent per year) on average during this period than for FEHBP. During the mid-1990s, the rate of change in premiums was negative for both FEHBP and CalPERS and as a result average premiums declined temporarily. FEHBP premiums declined on average by about 4 percent in 1995, while CalPERS premiums declined on average from 0.8 to 4 percent per year from 1995 to 1997. Cumulatively from 1997 to 2002, FEHBP average premiums grew about 2 percentage points per year faster than those of CalPERS and large employers--8.6 percent per year compared to 6.5 and 6.7 percent per year, respectively. Much of the difference in premium increases between FEHBP and other major purchasers during this period occurred in 1998 and 1999. OPM attributes much of FEHBP's premium growth in these years to changes made to the reserve balances maintained by FEHBP plans. FEHBP's average premium increase of 13.3 percent in 2002 was similar to increases for other large purchasers, but about 4 percentage points higher than the CalPERS increase. OPM announced in September 2002 that average premiums would increase by 11.1 percent in 2003 for all FEHBP plans. Premiums for FEHBP's FFS plans were expected to increase on average by 10.5 percent, while HMO premiums were expected to rise an average of 13.6 percent. This represents the third straight year of double-digit premium increases for FEHBP, but this increase was less than FEHBP's average increase in 2002, and less than those many other employers anticipate. While 2003 premiums for many large employers were still being negotiated at the time of our work, two employee benefit consulting firms reported preliminary findings from surveys of employee health benefits managers that anticipated overall premium increases of from 13 to 15 percent, and average HMO premium increases of 16 percent, for 2003. CalPERS in particular is facing a significant premium increase in 2003. Premiums for CalPERS' HMOs--which enroll the bulk of its participants--were expected to increase an average of 26 percent in 2003. Premiums for CalPERS' two PPOs were expected to increase about 19 and 22 percent. FEHBP's premium increases in recent years would have been higher but for increased cost-sharing requirements for employees and retirees as well as shifts in enrollment to plans with lower premiums. Over the last 6 years, FEHBP plans have been required to cover certain new benefits, but plans have also had some offsetting benefit reductions--mostly increased enrollee cost sharing--thereby resulting in a net benefit reduction. Like many FEHBP and other large employers' health plans, from 2000 through 2002, three large FFS plans increased or introduced cost-sharing features such as copayments or coinsurance for prescription drugs and physicians as well as deductibles for other services, as the following examples illustrate. BCBS raised its standard option employee copayment for PPO home and physician visits from $12 to $15, and raised its annual deductible from $200 to $250 per individual and from $400 to $500 for families. BCBS also introduced cost sharing for mail-order prescription drugs for Medicare beneficiaries, which the plan had previously waived. The Government Employees Hospital Association, Inc. (GEHA) raised the copayment for a physician office visit from $10 to $15, and raised employee coinsurance for non-PPO providers from 20 percent to 25 percent. In addition, GEHA raised its annual deductible from $250 to $300 per individual and from $500 to $600 for families, and increased the maximum annual out-of-pocket limit from $4,500 to $5,500. Mail Handlers raised the standard option deductible from $200 to $250 per individual, and from $600 to $750 for families. Enrollees who have shifted to plans with lower premiums have also reduced FEHBP's average premium increases. Specifically, OPM's actuarial estimates indicate that FEHBP enrollees who switch to plans offering lower premiums have reduced average premium increases about 1 percent per year since 1997. For 2003, OPM anticipated that this phenomenon would offset the overall premium increase by about 1.2 percent from what it otherwise would have been. Our analysis shows that, from 1999 to 2002, more than two-thirds of plans with premium increases lower than the median FEHBP premium increase gained enrollment. FEHBP premium increases are related to prior years' increased claims expenditures, which for the three largest FEHBP plans from 1998 to 2000 were in large part driven by increasing expenditures for prescription drugs and hospital outpatient care. Increasing plan payments per drug dispensed accounted for most of the increase in expenditures for drugs, while increasing utilization accounted for the increase in hospital outpatient care expenditures. Our analysis of 1998 to 2000 claims data for FEHBP's three largest plans-- all FFS plans--indicate that per-enrollee claims expenditures increased by about 12.6 percent, including increases of about 8.6 percent from 1998 to 1999, and about 3.7 percent from 1999 to 2000. We specifically examined claims expenditures for these three plans because HMOs typically do not track or report claims data to OPM and the three plans we reviewed represented about 90 percent of FFS enrollees and about two-thirds of total FEHBP enrollees. Claims expenditures for prescription drugs and hospital outpatient care accounted for more than 70 percent of the overall increase in per-enrollee claims expenditures for these plans from 1998 through 2000, while hospital inpatient care and physician visits accounted for most of the remainder. Increases in claims for prescription drugs accounted for the largest share (47 percent) of the overall increase in claims expenditures from 1998 to 2000 and increased at the fastest rate during this period--by nearly one-fourth. (See table 2.) The increase in per-enrollee claims expenditures for each of these services represents changes in plan payments per service and utilization for these categories. Specifically, figure 2 shows that increasing plan payments per service played the larger role in changing claims expenditures for prescription drugs, hospital inpatient care, and physician visits-- 66 percent of the $235 increase in expenditures for prescription drugs, 76 percent of the $57 increase for hospital inpatient care, and 93 percent of the $45 increase for physician visits. Utilization increases accounted for all of the increase in expenditures for hospital outpatient care and the remainder of the increases for prescription drugs, hospital inpatient care, and physician visits. Aging FEHBP enrollees and the changing health care market may have contributed to increasing plan payments and utilization. Increased utilization was in part associated with FEHBP's aging enrollee population. OPM actuaries estimate that a 1-year increase in the average age of the FEHBP population translates into almost a 3.3 percent increase in total health costs. From 1998 through 2000, the average age of FEHBP enrollees increased by about half a year, from 61.6 years to 62.1 years. Recently, higher payments have also resulted from providers' negotiations with managed care plans. In the early and mid-1990s, managed care plans were able to extract significant discounts from providers that they included in their networks. However, in recent years studies have indicated that providers have secured higher payments in part due to consolidations-- particularly among hospitals in some major metropolitan areas--that may have increased their market power. In addition, there is some evidence in these studies that physicians are demanding and receiving higher fees. Consistent with the design of FEHBP, which encourages enrollee choice, OPM relies on competition among plans and its annual negotiations with participating plans to moderate FEHBP plans' premium increases. To maximize enrollees' choices among plans, OPM contracts with all plans meeting minimum standards and allows plans to propose varying benefit designs. In its annual negotiations with the plans, OPM suggests various cost containment strategies for plans to consider as they prepare their benefit and premium proposals, and for 2003 placed more emphasis on encouraging the plans to propose approaches to control cost increases. Other major purchasers, such as CalPERS, PBGH, and GM, adopt different approaches in developing their health benefit offerings such as negotiating based on a standardized benefit package and contracting only with plans with which they reach a satisfactory agreement. As large purchasers face escalating premiums, they continue to look for new ways to help control costs, including offering plans that make enrollees more sensitive to the costs of health care by giving them more control over their health care spending, charging enrollees more when they go to higher cost hospitals, or focusing more attention on managing chronic health care conditions. OPM contracts with all plans meeting certain standards and requirements. As long as plans continue to meet the minimum standards, OPM does not exclude them from the program. Although the statute gives OPM the authority to remove plans from FEHBP under certain circumstances, OPM officials said that they have not recently exercised this authority primarily because they wanted to maximize enrollee choice and minimize enrollee disruption, especially in less populated areas of the country. While FFS plans and HMOs do not have to compete against one another to participate in FEHBP, they do have to compete with other plans to attract enrollees. One way plans compete is by the benefits they offer. Since the FEHBP statute does not define a specific benefit package, but rather requires plans to offer a core set of benefits, plans propose the benefits they will offer to remain competitive within their own market areas, whether national or local. Each year, OPM negotiates each plan's benefits package, ensuring that the costs for any new benefits proposed by the plan are offset by reductions in other benefits. Plans also compete for enrollees based on their premiums. By statute, premiums must "reasonably and equitably" reflect the cost of the benefits provided by the different plan types participating in FEHBP. Premiums for FFS plans are experience rated. Over time, their premiums approximately equal average service expenditures, administrative costs, and profits. If OPM and the plans set premiums too high or too low in one year, OPM makes appropriate adjustments to premiums and reserve balances in subsequent years. To set FEHBP premium rates for the HMOs, OPM relies on the negotiations that these plans conduct with two similarly sized purchasers in each market, requiring FEHBP to receive the lower of the two rates. OPM's Office of the Inspector General conducts periodic audits to assure the validity of these rates. The government's method for setting premium contributions provides plans an incentive to price their products competitively since enrollees pay less for lower cost plans and pay the entire cost exceeding the maximum government share. For example, for a plan with a self-only premium of $3,200 per year, the enrollee would pay $800 and the government would pay the other 75 percent ($2,400). For a plan costing $3,400, the enrollee would pay $856 while the government would pay the maximum $2,544. For any plan costing more, the enrollee would have to pay the entire additional cost--a plan costing $3,600, for example, would require a $1,056 annual premium from the enrollee while the government share would remain at $2,544. Few plans have premiums much higher than the amount where the enrollee would receive the maximum government share: Only 19 of the 183 plans in 2002 had premiums more than 10 percent above $3,392 (the premium equivalent to the maximum government share of $2,544), while 97 had premiums at least 10 percent below this amount. Each year, OPM's "call letter" provides its negotiation objectives and calls for the plans' new benefit and premium proposals. OPM uses its annual letter to give guidance regarding the goals to be achieved and the types of cost containment efforts plans may want to consider to help contain premium increases. OPM encourages plans to consider implementing cost containment strategies each year as they draft their FEHBP benefit and premium proposals. During negotiations over benefits and premiums, OPM tends to focus its cost containment efforts on plans that submit proposals with the highest premium increases or those that are outliers in some other way. To some degree, OPM relies on the competitive nature of the program to achieve results in that each plan must weigh the potential effect of its benefit offerings and premiums on its market share. Changes in benefits, and any resulting premium changes, can affect a plan's enrollment, but there is a trade-off since increased benefits may be attractive to potential enrollees while the associated increased premium may deter enrollment. OPM has encouraged plans to consider several strategies to help moderate premium increases. For example, for contract year 1998, OPM encouraged FFS plans to expand and strengthen their existing PPO arrangements by obtaining discounts when cost effective. For that year, it also encouraged all plans to consider proposing a point-of-service (POS) product. OPM's call letter stated that POS products were an effective way to introduce enrollees to the concept of managed health care. For contract years 2001 and 2002, OPM's call letters encouraged ways to control rising prescription drug costs including use of drug formularies and three-tier drug benefits-- that is, lower cost sharing for generic and brand name drugs on a plan's formulary than for drugs not included on the formulary. Even more than in past years, OPM's latest call letter for contract year 2003 challenged plans to identify ways to reduce premium increases. OPM asked plans to propose innovative ideas to help contain these increases. For 2003, OPM also encouraged plans to consider several specific cost containment strategies including increasing enrollees' out-of-pocket costs, reemphasizing the need to manage prescription drug costs, and putting more emphasis on care management for enrollees who have chronic conditions. In addition, the call letter told plans to expect very tough negotiations, a specific direction OPM did not include in past letters. On September 17, 2002, OPM announced that FEHBP premiums would increase by an average of about 11.1 percent for 2003, about 2 percentage points less than in 2002. In addition, OPM officials indicated that, while some individual plans increased or decreased benefits, overall benefit levels would be largely similar to those available in 2002. OPM officials reported that the initial proposals submitted by the plans would have resulted in a 13.4 percent increase for 2003. Following negotiations with OPM on benefits and premiums, the average increase was reduced to 12.4 percent. OPM officials anticipated that the remaining savings from the initial proposals would result from FEHBP enrollees switching to lower cost plans during the open enrollment season. Whereas OPM contracts with all plans meeting minimum standards and negotiates benefit packages that can vary with each plan, other large purchasers we reviewed follow a different approach. CalPERS, GM, and PBGH conduct negotiations based on a standardized benefit package. At the end of the negotiations, these purchasers can decide not to contract with a plan that does not meet their standards in such areas as cost or quality. Some of these purchasers also reward enrollees by paying more of the premiums when enrollees choose plans the purchasers consider to be the best value. Continuing premium increases have caused these and many other large purchasers to search for ways to reduce their premium costs. While many purchasers first look to shift more of the costs to their employees by taking such actions as increasing plan deductibles, some are also exploring new strategies to help contain these increases. The three large purchasers we reviewed rely on a standardized benefits package when conducting negotiations, particularly in negotiations with HMOs. CalPERS standardized benefits and copayments across its HMOs in 1993 to be able to better assess differences in plans' costs, and GM also negotiates with HMOs using a standardized benefits package. PBGH, in conjunction with other national purchasers, developed an annual request for proposals that it uses for its standardized HMO benefit package. Along with using standardized benefit packages, some large purchasers exclude plans if they cannot negotiate a satisfactory agreement with them. During its negotiations for benefit year 2002, for example, CalPERS rejected bids from all participating HMOs as too high and then allowed them to resubmit revised bids. CalPERS rejected the bids because the proposed increases were twice as high as those that occurred in the past 5 years and were considerably higher than what CalPERS had expected. CalPERS ultimately dropped 3 of its 10 HMOs at the end of its negotiations that year. For benefit year 2003, CalPERS dropped 2 of the remaining 7 HMOs at the end of its negotiations to help control premium increases and to provide the best value for those premiums. GM reviews and scores HMOs on the basis on quality and cost. Plans scoring relatively low will either be dropped or be given a year to improve. Like FEHBP, some other large purchasers vary the premiums some employees pay to encourage enrollment in certain plans. For example, as part of its value purchasing strategy, which the company started in 1997, GM evaluates HMOs for quality and value and encourages salaried employees to enroll in those plans it rates as higher value plans. For salaried employees, GM covers a larger share of the premiums for HMOs designated as higher value. GM estimates that it saves about $4.6 million annually by having its salaried employees move into HMOs designated as higher value and that these employees save about $2 million in premiums. Also, PBGH states that it focuses its purchasing efforts on plans it has identified as high quality and some employers participating in the group support PBGH's effort by setting their premium contributions to encourage employee enrollment in plans considered to be high value. Over the next several years, analysts predict that double-digit health insurance premium increases will continue. As a result, many large purchasers are searching for ways to slow this growth. Shifting more of the costs to employees is one of the first cost containment strategies employers consider as premium rates escalate. In particular, many of the largest employers have increased deductibles for PPO plans. For example, employer survey data show that the average annual deductible for self- only in-network PPO coverage increased from $175 in 1999 to $310 in 2002, while out-of-network deductibles increased from $272 in 1999 to $529 in 2002. Similarly, very large employers are increasingly using multiple-tier cost sharing for prescription drugs as a cost containment strategy. According to another employer survey, 22 percent of PPOs had a three-tier drug copayment in 2000, but the number increased to 40 percent in 2001. Some large purchasers, including OPM and those we reviewed, are beginning to explore new strategies to help reduce escalating costs. For example, some are in the early stages of considering "consumer-driven" plans that provide employees with more financial incentives to be sensitive to health care costs and more control over their health care spending decisions. As this concept covers a wide range of possible approaches, there is no single definition. However, all approaches tend to shift more decision-making responsibility regarding health care from employers to employees. For example, they could provide employees with a personal spending account, which the employer would fund at different levels. One plan funds these accounts at $1,000 for an individual or at $2,000 for a family. Employees could use this money to pay medical expenses. If employees spend all the money in their accounts, they would have to spend their own money until a deductible amount--which for one plan was $600 for an individual employee and $1,200 for a family--is met. Then, coverage through an insurance policy purchased by the employer would begin. In some approaches, employees who do not spend all the money in their accounts could carry the money over from year to year. To date, as these plans are so new, few people are enrolled--several studies have estimated that fewer than 1 percent of enrollees with employer- sponsored health insurance are in some form of consumer-driven health plans. Other new strategies that some purchasers are considering include plans that contain provisions to help reduce hospital costs and costs for enrollees with chronic conditions. For example, CalPERS and PBGH are exploring the use of financial incentives for enrollees when choosing from which hospital to receive care. Such plans are now becoming available but represent a very small share of the market. These plans offer tiered copayments for enrollees that are lower for hospitals that offer the best rates and are higher for those that are more expensive. Another approach attracting attention among many large employers is disease management, which focuses attention on chronic illnesses such as asthma, diabetes, and heart disease that generate a large amount of health care expenditures. For example, CalPERS, PBGH, and GM are all actively involved in pursuing disease management programs. Also, in its call letter for contract year 2003, OPM encouraged FEHBP plans to consider using disease management programs. However, according to one employer survey, many purchasers said that disease management programs are too new and data are not yet available to assess the benefits compared to the costs. We provided a draft of this report to OPM, CalPERS, GM, and PBGH for their review. OPM generally concurred with our study findings, highlighting its negotiating strategy as contributing to average FEHBP premiums for 2003 being below national trends. OPM also indicated that in the coming year it will strengthen its efforts by adding enhanced consumer education to provide enrollees with additional information for making informed choices. CalPERS and GM also concurred with our findings. PBGH, along with OPM and CalPERS, provided technical comments, which we incorporated as appropriate. (App. II contains the full text of OPM's comments.) As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date. We will then send copies to the Director of OPM, other interested parties, and appropriate congressional committees. We will also make copies available to others on request. In addition, this report will be available at no charge on GAO's Web site at http://www.gao.gov. Please call me at (202) 512-7118 or John Dicken at (202) 512-7043 if you have any additional questions. N. Rotimi Adebonojo and Joseph Petko were major contributors to this report. To compare premium trends for the Federal Employees Health Benefits Program (FEHBP) and other large purchasers over the last decade, we obtained data from the Office of Personnel Management (OPM), the California Public Employees' Retirement System (CalPERS), and surveys of private employer-sponsored health benefits conducted by the Kaiser Family Foundation and the Health Research and Educational Trust (Kaiser/HRET). To identify factors driving FEHBP's recent premium growth, we analyzed several OPM data sources, including summary reports it received from the three largest nationwide plans on enrollees' health care service utilization and related plan payments for 1998 through 2000. These three plans are all fee-for-service (FFS) plans and accounted for 90 percent of FEHBP enrollment in FFS plans and almost two-thirds of the total FEHBP enrollment. We analyzed expenditure and utilization data for services, including hospital inpatient care, hospital outpatient care, physician visits, prescription drugs, laboratory services, surgery, and mental health and substance abuse for 1998 through 2000 for the three largest plans. These summary data are submitted to OPM by each FFS experience-rated plan, reporting utilization and expenditures incurred by the plan in a calendar year and paid in that calendar year and through the first 9 months of the next calendar year. Because each plan reports its data to OPM slightly differently, we aggregated expenditures and utilization for multiple categories of services, including hospital inpatient, hospital outpatient, prescription drugs, and physician visits--and all other services. We adjusted each plan's expenditures by enrollment as reported by the plans to OPM to calculate per-enrollee expenditure and utilization, and calculated a payment per unit for each category of service. We weighted the expenditure and utilization for the three plans by their respective enrollments for each year from 1998 to 2000. We calculated the increase in per-enrollee claims expenditure attributable to increased plan payments from 1998 through 2000 using the change in plan payments over the 3 years and assuming utilization remained steady at the 1998 level. Similarly, we calculated the increase in per-enrollee claims attributed to increased utilization using the change in utilization from 1998 to 2000 and assuming plan payments were constant at the 2000 level. In addition, using OPM's data for all FEHBP plans, we compared each plan's premium and enrollment changes from 1999 through 2002. We could only do this analysis for those plans that participated in FEHBP in each of the comparison years--for example, in both 2001 and 2002. We identified how many plans with premium changes less than and greater than the median premium gained and lost enrollment. These counts do not include plans that dropped out of FEHBP because we do not know what type of premium and enrollment changes these plans would have experienced in the following year. We also reviewed the literature and interviewed OPM officials and actuaries at the Hay Group, Hewitt Associates LLC, and William M. Mercer, Inc. To examine the steps OPM takes to control FEHBP costs, we interviewed officials in OPM's Office of Insurance Programs and Office of the Actuary. To obtain the plans' perspectives, we interviewed officials at the Blue Cross Blue Shield Association and at Kaiser Permanente--two large plans participating in FEHBP. We also interviewed representatives from two federal employee unions--the American Federation of Government Employees and the National Treasury Employees Union. To examine how other large purchasers negotiate health benefits and attempt to control costs, we reviewed the literature and employee benefit surveys; interviewed employee benefit consultants; and interviewed officials of three large purchasers of employer-sponsored health insurance, including CalPERS--the largest public purchaser of health insurance after the federal government, Pacific Business Group on Health (PBGH)--a California-based purchaser representing 19 large employers, and General Motors (GM)--the largest private purchaser of employer- sponsored health benefits. See table 3 for selected characteristics of FEHBP and the other large group purchasers.
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Federal employees' health insurance premiums have increased at double-digit rates for 3 consecutive years. GAO was asked to examine how the Federal Employees Health Benefits Program's (FEHBP) premium trends compared to those of other large purchasers of employer-sponsored health insurance, factors contributing to FEHBP's premium growth, and steps the Office of Personnel Management (OPM) takes to help contain premium increases compared to those of other large purchasers. GAO compared FEHBP to the California Public Employees' Retirement System (CalPERS), General Motors, and a large private-employer purchasing coalition in California as well as data from employee benefit surveys. FEHBP's premium trends from 1991 to 2002 were generally in line with other large purchasers--increasing on average about 6 percent annually. OPM announced that average FEHBP premiums would increase about 11 percent in 2003, 2 percentage points less than in 2002 and less than some other large purchasers are expecting. FEHBP enrollees would likely have paid even higher premiums in recent years if not for modest benefits reductions and enrollees who shifted to less expensive plans. Increasing premiums are related to the plans' higher claims expenditures. For FEHBP's three largest plans, about 70 percent of increased claims expenditures from 1998 to 2000 was due to prescription drugs and hospital outpatient care. Most of the increase in drug expenditures was due to higher plan payments per drug, while the increase in hospital outpatient care expenditures was due to higher utilization. OPM relies on enrollee choice, competition among plans, and annual negotiations with participating plans to moderate premium increases. Whereas some large purchasers require plans to offer standardized benefit packages and reject bids from plans not offering satisfactory premiums, OPM contracts with all plans willing to meet minimum standards and allows plans to vary benefits, maximizing enrollees' choices. Each year, OPM suggests cost containment strategies for plans to consider and relies on participating plans to propose benefits and premiums that will be competitive with other participating plans. OPM generally concurred with our findings.
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Although little is known about the emerging space support vehicle industry, the U.S. commercial space-launch industry generated $617 million in revenue in 2015 and has experienced significant growth in the past half-decade. FAA reported that its licensed launches have increased 60 percent and industry revenue has increased 471 percent since 2012. We've previously reported that the industry has experienced growth in the number and complexity of launches and growth in demand for space launches. Furthermore, the industry is developing new types of reusable launch vehicles, which could reduce launch costs. Components of the U.S. commercial space transportation industry include: Launch Companies: These companies launch satellites or other payloads into space. Their clients include governments, other companies, and individuals. Currently, the industry is launching non- human payloads using rockets and has yet to launch space flight participants. At the same time, some launch companies are developing hybrid launch systems, which contain elements of both aircraft and rocket-powered vehicles. Companies we interviewed plan to use these vehicles--which take off as an aircraft and then launch the spacecraft once reaching a certain altitude--to launch non- human payloads and to transport spaceflight participants to space. For example, WhiteKnightTwo plans to carry Virgin Galactic's SpaceShipTwo aircraft to an altitude of 50,000 feet where it will air launch SpaceShipTwo and the participants on board into space. According to representatives of launch companies we interviewed, while most of launch companies' current activities are focused on launches, they may also use the aircraft component of a hybrid launch system for non-launch activities. For example, Virgin Galactic has also considered using WhiteKnightTwo to carry scientific payloads into conditions that would simulate spaceflight. Spaceports: Spaceports are FAA-licensed launch or reentry sites used for commercial space launches and reentries that are developed by private companies and/or states. Spaceports can be co-located with federal sites or commercial or general aviation airports. Spaceports generally include launch pads and runways as well as other infrastructure, such as hangar space, and services, such as emergency services to be used by commercial space companies. As of June 2016, there were 10 FAA-licensed nonfederal launch sites. Space Support Companies: This category includes companies whose business plans focus on training future spaceflight participants. This training simulates conditions encountered in space and can either be accomplished on the ground using pools and centrifuges or in the air using aircraft, hence the interest of companies in the commercial space support vehicle industry. In addition to training, space support companies offer or plan to offer other services, such as carrying scientific payloads for micro gravity experiments and repositioning cargo from one location to another through the air. FAA's Office of Aviation Safety (AVS) oversees civil aviation activities in the United States. Thus, it regulates aircraft that may be used for space support activities. AVS is responsible for certifying the airworthiness of aircraft, pilots, mechanics, and others whose work affects the safety of those aircraft. When certifying aircraft, AVS inspectors review aircraft engines, propellers, parts, and equipment, including avionics, to provide a reasonable expectation of safety. In addition, AVS is responsible for certifying all operational and maintenance enterprises in domestic civil aviation. In fiscal year 2016, AVS had 7,246 full-time equivalent (FTE) employees and a budget of $1.26 billion. The Office of Commercial Space Transportation (AST) is the office within the FAA responsible for overseeing and coordinating the conduct of commercial launch and reentry operations and issuing and transferring licenses and permits authorizing such activities. Unlike AVS, AST has a dual mandate to (1) protect the public health and safety (people not participating in the launch, i.e., third parties), the safety of property, and national security and foreign policy interests of the United States during commercial launch and reentry activities and (2) encourage, facilitate, and promote U.S. commercial space transportation. The Commercial Space Launch Amendments Act of 2004 instructed the Department of Transportation (DOT) to promote the continuous improvement of the safety of launch vehicles designed to carry humans. Prior to launch, space flight participants must provide written consent to participate. In fiscal year 2016, AST had 92 FTE employees and a budget of $17.8 million. Stakeholders identified spaceflight participant training as one potential use for space support vehicles. FAA regulations require only minimal training for spaceflight participation. Specifically, operators are required to train each space flight participant how to respond to emergency situations, such as smoke, fire, and the loss of cabin pressure. However, some companies are interested in providing training beyond the minimal requirements to potential space flight participants. Stakeholders we interviewed disagreed on the best way to train future spaceflight participants. Some industry stakeholders (13 of 37) told us that future space flight participants will need to receive training in high- performance aircraft. Specifically, 4 of 9 space support companies, 3 of 13 launch companies, 2 of 5 spaceports, and 4 of 10 other stakeholders argued that it is necessary for customers to fully understand what they will experience and the only way to replicate this is through training in high- performance jets. Stakeholders explained that factors that can be simulated in high performance jets but not through other means include the stress of a confined environment and exposure to the physiological and psychological effects of spaceflight. Further, four stakeholders said this training is necessary to become acquainted with g-forces involved with spaceflight and that space support vehicles are best able to provide this training. NASA officials also stated that familiarization with and experiencing high-g environments while performing time critical communication is important preparation for spaceflight participants. See figure 2 for examples of space support vehicles, including high- performance jets (on left) and the modified Boeing 727 (on right). In addition, six stakeholders explained that due to the high cost of spaceflight, getting this experience would be important for someone who is considering space tourism. However, as discussed below this training currently is not available in the U.S. On the other hand, 13 stakeholders report training can be accomplished through currently allowed means, including standard certified aircraft and ground based training. Five of 9 space support companies, 5 of 13 launch companies, and 3 of 10 other stakeholders reported that it is critical to expose future spaceflight participants to the conditions they will encounter in space, but these conditions can be replicated through means other than high-performance jets. Two space support companies said they provide ground-based training through centrifuges, pools, and instruction in space-related topics such as the physiological and psychological effects of space travel. One launch company reported to us that spaceflight participants will only need to know how they will react to microgravity but will not need to know how to accomplish tasks in microgravity. According to some stakeholders, this acclimation to microgravity can be accomplished through parabolic flight, centrifuges, and pools. One company is currently offering a microgravity experience in a Boeing 727 with an interior that has been modified to accommodate passengers to this activity, and another company has considered entering this market with a similar aircraft. Two of 13 launch companies reported they do not anticipate a high training burden for future customers and thus would probably not utilize aircraft training or centrifuges. The remaining 12 of the 37 stakeholders we interviewed did not comment on this issue. Further, stakeholders representing spaceports have proposed that spaceports are the proper place to host spaceflight participant training. Spaceport stakeholders we interviewed said that spaceports provide runways, launch pads, hangars, and other services such as emergency response services for commercial space-transportation companies. As mentioned above, representatives of two of the five spaceports we spoke to thought space flight training should be provided in high-performance jets. Two stakeholders we interviewed at spaceports also expressed interest in hosting companies that provide spaceflight participant training and see it as a potential source of new revenue, either now or when the tourism industry evolves and sends customers into space. One spaceport operator we interviewed sees spaceflight participant training as economically beneficial for the communities surrounding spaceports. In addition to spaceflight participant training, some stakeholders we spoke to identified microgravity research as a potential use for space support vehicles. Microgravity research uses reduced gravity to understand how objects or people will react in reduced gravity environments (such as orbit). Microgravity can be provided through parabolic flights. NASA officials told us microgravity flights are used to test equipment that will be sent into orbit, including for example exercise equipment and 3D printers. According to FAA, one company currently conducts microgravity research using a Boeing 727 with a standard airworthiness certificate. Other companies have proposed using retired military aircraft to fly scientific payloads for researchers. It is difficult to determine the size of the market for the use of space support vehicles for training because we have found no publicly available studies on the size of the spaceflight participant training market, and companies we interviewed told us they have not conducted their own market analysis. However, companies within the industry provided a wide range of estimates of the size of a potential training market. Estimates of the training market reported by stakeholders are often dependent on the size of the overall space tourism market and the training burden launch companies anticipate for their customers. One industry study that found that there are around 8,000 individuals with the money and inclination to take a space tourism flight by 2022. However, it's not clear how many of these 8,000 individuals would choose to purchase training from training providers, and the number would likely depend on whether launch companies require training for passengers, how intensive the training will be, and whether they will contract for this training or offer it in house. Further, studies of the tourism market that we identified are dated and may not reflect current industry conditions. According to stakeholders we interviewed, there are no studies available on the research market; however, they said that research is a growing segment of the space support market. One stakeholder reported that the research market is the most robust commercial space market that currently exists. It is unclear how many aircraft operators are currently supplying aircraft services for research, but five stakeholders we interviewed expressed interest in using their aircraft to carry scientific payloads for researchers. Based on our interviews, the main customers for this service include universities, the government, and private sector organizations. Two of the companies that we interviewed obtained standard aircraft certification from FAA for aircraft that could be classified as space support vehicles. However, as representatives from one company explained, the certification process was lengthy and expensive. One of the companies received certification to operate parabolic flights using a retrofitted Boeing 727. These flights provide a weightlessness experience that could be used for spaceflight participant training (see fig 3). A company representative told us that the certification process took 18 months and cost millions of dollars. The other company uses a certified aircraft to move its rocket that would be used in a launch from one place to another. While two companies were able to obtain standard aircraft certification for what could be considered space support vehicles, other stakeholders said that the aircraft certification process may not be economically feasible for companies due to the cost of meeting the requirements. For example, representatives of one company said they have considered acquiring a high-performance jet for spaceflight participant training, but that the market for spaceflight participant training would not support the investment needed to purchase the aircraft and go through the current AVS certification process. In addition, FAA's standard aircraft-certification process is not well suited for the types of aircraft that space support companies would like to use. As mentioned earlier, AVS regulates the safety of aircraft by certifying aircraft to provide a reasonable expectation of safety. According to FAA officials, aircraft manufacturers are typically set up to work with FAA on the certification process, which is an on-going process as the aircraft are designed and built. The process is not designed for single-production aircraft like those launch companies are developing or retired military jets that companies would like to use for spaceflight participant training. Further, if an aircraft with a standard airworthiness certificate is modified or used for another purpose than its original purpose, including for space support, FAA regulations for the standard aircraft certification process require documentation of all modifications that demonstrates that these modifications comply with applicable regulations. AVS allows certain aircraft to fly under an experimental certificate, but companies are prohibited from operating these aircraft for carrying persons or property for compensation and hire--meaning companies cannot receive money for carrying passengers or cargo. Operators can apply for experimental certificates for unique aircraft that have not been approved under the AVS certification process. Experimental certificates can be issued for: showing compliance with regulations; exhibition (such as air shows or movie production); air racing; and conducting market surveys. FAA has provided experimental certificates for some vehicles that could be used for space support services. For example, experimental certificates have been issued for aircraft that are part of a hybrid launch vehicle system for testing and further aircraft development. However, because current regulations do not allow the owners of these experimentally certified vehicles to carry persons or property for compensation, companies are not allowed to use experimentally certified aircraft for space flight participant training or to transport cargo on a hybrid launch system. The restriction on using experimentally certified aircraft to carry persons or property for compensation has limited some companies' ability to operate in the space-support services market. Three stakeholders we interviewed said they would like to operate space support vehicles, but are having a difficult time securing funding from investors because of market uncertainty and not knowing if they will be allowed to operate them. In addition, some of the companies we interviewed have training operations in other countries because they are not allowed to operate specific aircraft in the United States under current laws and regulations. Further, one company we interviewed has a spaceflight-participant training program that received a safety approval from AST but does not own a vehicle for the training. Company representatives said that they do not want to invest in a space support vehicle until they know if they will be allowed to operate it. Allowing companies to use experimentally certified aircraft for compensation or hire would require a regulatory change. Some of the stakeholders that we interviewed said that a Letter of Deviation Authority (LODA) from an experimental certification may be an option to be able to operate for compensation or hire, but FAA officials we interviewed said that LODAs only apply to pilot training and cannot be used for spaceflight participant training. As described previously, AST issues licenses and permits for commercial space launches. This process includes issuing experimental permits for the development of hybrid vehicles that are connected with a launch activity. When the aircraft component of a hybrid launch vehicle is used in non-launch operations, companies must go through AVS's certification process to obtain an experimental certificate and operate under aviation regulations. When hybrid launch vehicles are being developed for launch activities, companies operate under commercial space regulations, and FAA may issue an experimental permit or a license. Similar to experimental certificates, companies with experimental permits are prohibited from carrying property or human beings for compensation and hire, according to statute. While companies can perform activities, such as conducting test flights, they may not use hybrid launch vehicles to receive compensation for carrying persons or property. For example, companies would not be able to receive compensation for carrying a researcher. When issuing experimental permits, AST's process focuses on minimizing risks to ensure the safety of third parties. As discussed below, FAA is developing a report that would help address this issue specifically for hybrid launch vehicles used in non-launch non-reentry operations. Through our discussions with FAA and interviews with stakeholders, we identified potential options for regulating space support vehicles (see table 1). One of these options is to keep in place the current process using standard airworthiness certificates for regulating aircraft that companies would like to use for space support vehicles. Other options would require statutory and/or regulatory changes to allow for the operation of space support vehicles. Each of these regulatory options raises issues to be considered. When asked what changes, if any, should be made to FAA's current regulatory process to oversee aircraft that might provide support services for the commercial space transportation industry, stakeholders had mixed views. Twenty-five of the 37 stakeholders expressed some opinion about changing the regulatory process. While 11 of these 25 stakeholders did not see a problem with the current approach for space support vehicles, 14 of 25 expressed an interest in a change. Eleven of the 25 stakeholders who expressed an opinion said that the current regulatory process under AVS is the best approach for regulating space support vehicles. These stakeholders prefer the currently regulatory approach for the following reasons: They said that the AVS certification process could best protect participants and third parties from potential safety risks. They said that the technical expertise for ensuring that aircraft are safe for participants is within AVS. Some of the proposed space support activities--such as using retired military jets to provide spaceflight participant training--are not legitimate space activities but are in fact recreational aviation activities and should therefore be regulated along with other aviation activities. Some stakeholders said that the current AVS system is preferable because AST is overburdened, and its staff needs to focus on other commercial space activities, such as issuing launch licenses. Some stakeholders would like these activities to remain under AVS to keep them separate from commercial space launch activities, especially in the public eye. For example, three stakeholders we interviewed were worried that a crash involving a space support vehicle might negatively impact the entire commercial space transportation industry. Two stakeholders expressed concern that moving space support vehicles to AST would place these activities under the informed consent regime. Thus, accidents might impact the safety numbers and mar the image and thus of attractiveness of the future commercial space tourism industry. Other stakeholders we interviewed believe that AST would be a preferable FAA office to provide regulatory oversight to AVS. Specifically, 6 of the 25 stakeholders that expressed an opinion said that space support vehicles should be regulated under AST, citing the following reasons: Two stakeholders interviewed said that AST staff are familiar with the commercial space transportation industry and are therefore in the best position to determine if a certain vehicle is necessary for commercial space transportation activities. Five stakeholders interviewed said that they are already working with AST for other purposes, such as obtaining launch licenses, and would prefer to continue working with one office to streamline the process. Two of the stakeholders who preferred AST cited the office's statutory informed-consent regime, which instead of prohibiting certain commercial space transportation activities, ensures that participants are made aware of the activity's potential risks. In addition, some stakeholders were interested in a combined approach. Specifically, 6 of the 13 launch companies that we interviewed said that all space support vehicles should be regulated by AVS, except hybrid launch vehicles, which they would prefer to be regulated by AST. See discussion below on FAA's proposal on the regulation of the aircraft portion of a hybrid launch system, when it is operating as a space support vehicle. Two stakeholders said that companies should have the choice to work with AVS or AST. Further, the Commercial Spaceflight Federation (CSF) has been discussing with its membership how space support vehicles should be regulated. CSF's discussion is focusing primarily on the use of experimental aircraft, such as former military jets, for compensation and hire. CSF representatives indicated that some of its members' view is that Congress should direct the Administrator of FAA to authorize spaceflight training flights through rulemaking, but these flights should remain under AVS. However, they noted that if a company has gone through the current difficult certification process for a certain capability, such as using a standard certified aircraft to provide periods of microgravity through a series of parabolic maneuvers, then companies should not need to use an exemption to replicate this service. Further, to help minimize safety risks if space support vehicle flights were to be authorized, these representatives said that they should begin and end at a spaceport. In addition, passengers should be notified that the aircraft are not certified as safe under AVS's aircraft rules and are not licensed as space transportation--essentially an informed consent regime. According to CSF representatives, a benefit of this approach is that it should enable new capabilities that cannot exist within the current legal and regulatory framework while helping minimize safety risks. According to FAA officials, the commercial space transportation industry is evolving and AST and AVS have worked with companies individually to determine how they can legally operate within the current regulatory system. However, FAA officials acknowledge that this issue is potentially growing as more companies try to figure out how to cost-effectively provide what they see as a potential market--supporting commercial space transportation. Federal internal control standards state that conditions affecting an agency, such as FAA, and its environment continually change and that these changing conditions often prompt new risks or changes to existing risks that need to be assessed. FAA has taken steps to assess the licensing and permitting process for hybrid launch vehicles; however, it has not assessed whether space support vehicles are needed to meet the potential research, training, and other needs of the commercial space transportation industry, and if it should propose changes that would accommodate all aircraft that could be used as space support vehicles. FAA officials said that their views on non-launch and non-reentry operations of hybrid launch vehicles will be expressed in their report that was mandated under the U.S. Commercial Space Launch Competitiveness Act. However, this report only focuses on one type of vehicle--hybrid launch vehicles. As we described previously, hybrid launch systems contain elements of both aircraft and rocket-powered vehicles. These vehicles take off horizontally and then launch the spacecraft once reaching a certain altitude. Currently, the portion of a hybrid launch system that can operate like an aircraft is regulated as aircraft by AVS through experimental certificates when it is not engaged in a launch. While the U.S. Commercial Space Launch Competitiveness Act required FAA to report on approaches for streamlining the licensing and permitting process of non-launch, non-reentry operations of hybrid launch vehicles related to space transportation, it did not require FAA to develop a proposed regulatory framework. Although Congress did not require FAA to develop a regulatory framework for vehicles that could be used in support of space activities, federal internal control standards state that federal agencies should identify, analyze, and respond to significant changes that could impact the internal control system--the mechanism by which an entity's oversight provides reasonable assurance that the agency's objectives will be achieved. Further, they state that conditions affecting an agency, such as FAA, and its environment continually change and that these changing conditions often prompt new risks or changes to existing risks that need to be assessed and addressed. While FAA has taken steps to handle the safety issues of these vehicles on an individual basis and is assessing approaches for streamlining the licensing and permitting process of hybrid launch vehicles, it has not examined how its regulatory framework should change, if at all, to address the potential growth and related risks in the use of space support vehicles. Thus, some stakeholders we spoke to are delaying investments in space support vehicles. The U.S. commercial space-transportation industry has seen significant development in the past decade. As the industry evolves, companies are considering how to provide additional services to support the industry's needs. While some companies are using certified aircraft to provide space support services such as spaceflight participant training, other companies would like to use vehicles such as retired military jets and hybrid launch vehicles to provide such services. FAA's current regulatory framework applies to aircraft; however, the aircraft that some companies would like to use to provide space support services do not fit into this framework. As stakeholders recognized, a change in regulatory regimes may impact safety and streamline the regulatory process. For example, while FAA's current regulations help ensure passenger safety, they also prevent some companies from providing space support services. While FAA has started considering this issue, especially for hybrid launch systems, it has not determined if space support vehicles are needed to meet the potential research, training, and other needs of the commercial space industry nor fully examined its current regulations as they relate to space support vehicles and determined and documented the results of its assessment. Since FAA has not conducted a comprehensive assessment of how space support activities fit under its aviation or commercial space transportation regulatory regimes, officials from some U.S. companies told us they are delaying investments in space support vehicles. As a result, it is uncertain if companies will be able to use space support vehicles for potentially useful spaceflight participant training and research services to meet the future needs of the commercial space-transportation industry. To respond to changes in the aviation and commercial space- transportation industries, we recommend that the Secretary of Transportation direct the FAA Administrator to fully examine and document whether the current regulatory framework is appropriate for aircraft that could be considered space support vehicles, and if not, suggest legislation or develop regulatory changes, or both, as applicable. We provided a draft of this report to the Department of Transportation for review and comment. DOT is not providing comments on the recommendation at this time, but will provide a detailed response to the recommendation within 60 days of the final report's issuance. DOT provided technical comments, which we incorporated into the report, as appropriate. In addition, to verify information, we provided a draft of this report to NASA for review and comment. NASA provided technical comments, which we incorporated into the report, as appropriate. We are sending copies of this report to the Secretary of Transportation, the Administrator of the FAA, and the Administrator of NASA, as well as appropriate congressional committees 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 members have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. In addition to the individual named above, Cathy Colwell (Assistant Director), Stephanie Purcell (Analyst in Charge), Namita Bhatia- Sabharwal, Dave Hooper, Sara Ann Moessbauer, Amy Rosewarne, and Travis Schwartz made key contributions to this report.
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As the commercial space transportation industry has grown significantly in the last decade, a related industry has emerged that plans to complement the commercial space industry by using vehicles called space support vehicles to conduct space-related activities, but not launch into space. The U.S. Commercial Space Launch Competitiveness Act of 2015 includes a provision for GAO to review the uses for space support vehicles and services and any barriers to their use. This report addresses stakeholder views on (1) potential uses for space support vehicles, (2) challenges that companies may face when attempting to use these vehicles, and (3) how these vehicles should be regulated. GAO reviewed prior GAO and industry reports, relevant laws and regulations, and interviewed officials on two proposals for regulating space support vehicles. GAO interviewed officials at FAA and the National Aeronautics and Space Administration and 37 legal experts and stakeholders from industry organizations, launch companies, space support companies, and spaceports--identified by agency and industry officials. Company officials GAO interviewed identified potential uses for "space support vehicles"--which include a variety of aircraft from high-performance jets to balloons and the aircraft portion of a hybrid launch systems (a vehicle that contains elements of both an aircraft and a rocket-powered launch vehicle)--but the size of the market for these uses is unclear. Company officials said they plan to use space support vehicles to train spaceflight participants and to conduct research in reduced gravity environments. For example, some company officials said they would like to use high-performance jets to train future spaceflight participants by exposing them to physiological and psychological effects encountered in spaceflight. Other company officials said they would like to use space support vehicles to research how objects or people react in reduced gravity environments. It is difficult to know the size of the market for spaceflight training and research as GAO found no studies on these markets. However, stakeholders said they expect interest in research to increase. Some company officials said the Federal Aviation Administration's (FAA) regulatory framework presents a market challenge because companies cannot get FAA approval to use the aircraft they would like to use to carry passengers or cargo for compensation, thus limiting their ability to operate in the market. FAA's Office of Aviation Safety (AVS) regulates aircraft that companies would like to use as space support vehicles by issuing standard and experimental certificates that help ensure safety. While officials from two companies GAO interviewed have received standard aircraft certification for their space support vehicle, others said the standard certification process is lengthy and not designed for the type of vehicles they would like to use, such as unique, single-production aircraft or retired military jets. In addition, FAA regulations do not allow companies to receive compensation for carrying people or property on an aircraft operating under an experimental certificate. As a result, some of the companies we interviewed have training operations in other countries where they can receive payment for the activity. Further, FAA's Office of Commercial Space Transportation (AST)--the office that regulates commercial space activities--is only authorized to regulate commercial space activities, such as launches, focusing on the safety of third parties. According to FAA officials, a statutory or regulatory change would be needed to allow companies to use space support vehicles that do not meet AVS's standard certification requirements for compensation. Stakeholders GAO interviewed have mixed views on how FAA should regulate space support vehicles; some companies believe the current regulatory approach is appropriate, while others believe the system should be changed in the face of new technology and commercial space development. While FAA has taken steps to assess the licensing and permitting process for hybrid launch vehicles, it has not assessed whether space support vehicles are needed and if it should propose changes that would accommodate all aircraft that could be used as space support vehicles. Thus, some U.S. company officials said they are delaying investments in space support vehicles, and therefore, it is uncertain if they will be able to use them to meet the future needs of the commercial space transportation industry. The Secretary of the Department of Transportation (DOT) should direct the FAA Administrator to fully examine and document whether the FAA's current regulatory framework is appropriate for space support vehicles and, if not, suggest legislative or regulatory changes, or both, as applicable. DOT provided technical comments; however, it did not comment on the recommendation at this time.
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FWS, operating through its headquarters and eight regional offices, is responsible for managing 1,586 of the listed species found in the United States (see fig.1). NMFS, operating through its headquarters and five regional offices, is responsible for managing 96 listed species. In addition, the Services have proposed an additional 41 species for listing, but as of January 2017 had not yet made a final determination on listing those species. Additionally, since enactment of the ESA, the Services have delisted 76 species--47 as a result of recovery efforts, 10 due to the species' extinction, and 19 because of data errors in the original listing. The Services' Section 4 programs encompass all actions related to listing or delisting species, designating or revising critical habitat, and conducting 5-year status reviews for listed species. Regarding listing or delisting a species, the process begins either through a petition submitted by an individual, group, or state agency or a review initiated by one of the Services. For petitions to list a species, the Service with jurisdiction over the species follows a multi-step process to determine if the listing of the species is warranted, as depicted in figure 2. For the species that the relevant Service determines warrant listing, the Service issues and publishes a proposed rule in the Federal Register. The issuance of a proposed or final rule to list a species is generally governed by procedures prescribed in the ESA and Administrative Procedure Act, such as providing opportunities for the public to submit additional information and comment on proposed rules. After evaluating any additional information and comments, if the relevant Service determines that the species is threatened or endangered, it generally issues a final rule to add the species to the respective list. FWS also maintains a "candidate" list for those species it determines warrant listing, but has determined that the immediate listing of the species is precluded by work on higher priority listing actions, such as actions for other species facing greater threats. Each year FWS publishes a Candidate Notice of Review that documents the Service's re-evaluation of the status and threats facing each candidate species to determine whether the species should be removed from the candidate list and either proposed for listing or withdrawn from further consideration. As of December 2016, there were 30 species identified by FWS as candidates for listing. When a species is proposed for listing, the act requires the Services to concurrently consider whether there are areas essential to the species' conservation and if so, to propose designation of critical habitat for the species. Critical habitat may include areas occupied by the species-- such as areas that provide food, water, cover or shelter, or sites for breeding and rearing offspring--as well as unoccupied areas that the Services determine are essential for the conservation of the species. As of January 2017, the Services had collectively designated critical habitat for 846 species listed as endangered or threatened in the United States. In addition, Section 4 of the ESA requires the Services to review the status of each listed species at least once every 5 years. The purpose of the 5-year status review is to evaluate whether a listed species should be delisted, reclassified from an endangered to threatened species (downlisted) or from a threatened to endangered species (uplisted), or if its classification should not change. In 1982, Congress amended the ESA to establish statutory deadlines for the Services to complete Section 4 actions associated with listing, delisting, critical habitat designations or revisions, and 5-year status reviews. According to the accompanying Conference Committee report, the intended purposes of the amendments were to "expedite the decisionmaking process and to ensure prompt action in determining the status of the many species which may require the protections of the Act." Congress also amended Section 11 of the act to authorize citizens to file suits against the Services for failing to perform actions by the deadlines imposed under Section 4. Each of the specific Section 4 actions and their associated statutory deadlines are described in table 1. For decades, FWS has faced challenges in implementing its Section 4 program, in part because of a high volume of litigation and petitions seeking to add a large number of species to the threatened and endangered species lists. For example, in 2007, FWS received two "mega-petitions," collectively requesting the listing of 674 species in the Southwest and Mountain-Prairie regions. In 2010, another "mega-petition" was submitted requesting the listing of 404 southeast aquatic species. During fiscal years 2005 through 2015, FWS received 170 petitions to list 1,446 species. According to a 2010 FWS report to Congress, petitions to list species are an integral aspect of endangered and threatened species protection. The report further stated, however, that FWS does not have the capability to postpone action on petitions because of statutory deadlines or to balance that work with other Section 4 program actions. The report also indicated that any delay in making a petition finding could lead to litigation for which FWS has no sufficient legal defense. As a result, with limited resources and a significant petition workload with statutory deadlines, FWS has been vulnerable to and has experienced a high volume of litigation that has affected much of FWS's Section 4 program since the early 1990s. Beginning in fiscal year 1998, and in each year thereafter, annual appropriations acts have established statutory caps on the funds available for FWS to implement certain provisions within its Section 4 program. According to FWS officials, the initial spending cap was established to limit the amount that could be spent on listing actions so that funds would be available for other Section 4 actions, such as developing and completing recovery plans. Subsequent appropriations acts established additional spending caps specific to 90-day and 12- month petition findings, critical habitat designations, and foreign species- related listing actions. During fiscal years 2005 through 2015, overall funding for FWS's listing and critical habitat actions averaged about $20 million per year (see fig. 3). Based on our review, we found that a variety of plaintiffs filed 141 deadline suits against the Services for allegedly failing to comply with statutory deadlines for Section 4 actions involving 1,441 species during fiscal years 2005 through 2015. Approximately 86 percent of the suits (122 of 141) were filed against FWS, about 10 percent (14 of 141) were filed against NMFS, and about 4 percent (5 of 141) were filed against both Services (see app. I for a list of the 141 deadline suits). On average, about 13 deadline suits were filed each fiscal year, ranging from 5 deadline suits in fiscal year 2015 to 33 suits in fiscal year 2010 (see fig. 4). The deadline suits filed against the Services involved allegedly missing deadlines across the range of Section 4 actions, including listing, delisting, designating or revising critical habitat, and conducting 5-year status reviews. Figure 5 provides information on the number of suits that were filed across the 11-year period based on the specific Section 4 action involved. Additionally, the 141 deadline suits included Section 4 actions for a total of 1,441 unique species (see app. II). The majority of the suits (93 of 141) centered on an action for a single species, such as allegedly missing the deadline to issue a 90-day finding on a petition to list a specific species, but about one-third of the suits (48 of 141) involved actions for multiple species. For example, a 2009 suit filed by WildEarth Guardians alleged that FWS failed to make 90-day findings for two petitions it had submitted to list 674 Rocky Mountain and Southwestern species. Similarly, in 2005, California State Grange--a nonprofit organization promoting agriculture and rural family farm units in California--filed a suit against FWS for allegedly failing to conduct 5-year status reviews for 194 listed species located in California. Factoring in species involved in the suits as well as the specific Section 4 actions at issue, we found that collectively, the deadline suits comprised a total of 1,673 actions. FWS was responsible for the majority of the actions (1,545 of 1,673), NMFS was responsible for 120 of the 1,673 actions, and the two agencies worked jointly on 8 actions. Table 2 provides a breakdown--by fiscal year and type of Section 4 action--of the total number of actions involved across the deadline suits filed against the Services during fiscal years 2005 through 2015. See appendix II for additional information on the number and type of actions specific to each agency. Across the deadline suits filed during fiscal years 2005 through 2015, 44 different lead plaintiffs representing a variety of interests filed suits against the Services (see table 3). However, two environmental groups, the Center for Biological Diversity and WildEarth Guardians, collectively filed more than half of the suits (73 of 141). The Center for Biological Diversity was the most active plaintiff, filing a total of 46 deadline suits against the Services over this period for allegedly missing deadlines for completing 90-day and 12-month findings on petitions to list hundreds of species. Trade associations, representing businesses and industry such as the California Cattlemen's Association and Florida Home Builders Association, filed suits against FWS for allegedly missing deadlines related to 90-day and 12-month findings on petitions to delist threatened and endangered species as well as allegedly missing deadlines in conducting 5-year status reviews for a number of species. Based on our analysis, we found that the majority of ESA Section 4 deadline suits filed in fiscal years 2005 through 2015 were resolved through negotiated settlement agreements that established schedules for the Services to complete the actions involved in the suits. Otherwise, the settlement agreements did not affect the substantive basis or procedural rule-making requirements the Services were to follow in completing the actions. Officials from both Services said they prioritized completing actions included in settlement agreements in implementing their Section 4 workloads. NMFS officials indicated that the deadline suits and their resulting settlement agreements did not have a significant effect on the implementation of the agency's Section 4 program. In contrast, FWS has delayed completing some Section 4 actions to complete those included in settlement agreements. FWS has initiated several changes to its Section 4 program to help prioritize the order in which it addresses its backlog of hundreds of overdue actions and to help increase the efficiency of its Section 4 program, including revising information requirements for listing petitions. The Services resolved the majority of deadline suits filed during fiscal years 2005 through 2015 by negotiated settlement agreements, whereby the parties generally agreed on a schedule for the Services to complete the Section 4 actions at issue in the suits. Specifically, the Services resolved about 72 percent of the suits (101 of 141) through negotiated settlement agreements (see table 4). About 22 percent of the suits (31 of 141) were resolved through voluntary or unopposed dismissal, primarily because the Services had completed the actions involved in the suits and nothing further remained to be litigated. The remaining 9 deadline suits, all involving FWS, were resolved by a court order. Specifically, the courts dismissed 6 of the suits, ruling in favor of FWS. In the other 3 suits, the courts issued orders directing FWS to complete the Section 4 action at issue by an established schedule. According to officials from DOJ and the Services, the agencies coordinate in deciding how to respond to a deadline suit, including whether or not to negotiate a settlement with the plaintiff or proceed with litigation. In reaching its decision, DOJ considers several factors, including whether there may be a legal defense to the suit--such as providing information establishing that the agency took action on the finding at issue or that the plaintiff lacked standing--and the likelihood that the government could obtain a favorable outcome. The officials said that most deadline suits are resolved through a negotiated settlement agreement because in the majority of them, it is undisputed that a statutory deadline was missed. When negotiating the terms of a settlement agreement, DOJ officials said they consult with the Services to evaluate their workload, priorities, and available resources to propose a reasonable deadline for making the decisions agreed to under the settlement. DOJ officials said they are guided by a 1986 DOJ memorandum--referred to as the Meese Memorandum--in negotiating settlement terms. Accordingly, officials from DOJ and the Services stated that any agreement to settle a deadline suit would only include a commitment to perform a mandatory Section 4 action by an agreed-upon schedule and would not otherwise predetermine or prescribe a specific substantive outcome for the actions to be completed by the Services. Similarly, for those suits resolved by a court order, DOJ officials said they present what they believe is a reasonable timeframe for the court to consider in establishing a schedule for the Services to complete the action. Most settlement agreements established time frames specific to the Section 4 action at issue, but in some settlement agreements, the Services also agreed to complete additional, related actions within certain time frames. For example, several settlement agreements contained provisions for the Services to complete an action by a certain date as well as a related, contingent action by the applicable Section 4 statutory deadline, such as a 12-month finding for a listing petition, if the 90-day finding concluded that the listing of a species may be warranted. Additionally, in 2010, DOJ sought to have multiple deadline suits--filed by the Center for Biological Diversity and WildEarth Guardians against FWS that were pending in several district courts--transferred and consolidated by the Judicial Panel for Multi-District Litigation (MDL). The MDL panel consolidated 15 deadline suits in the federal district court for the District of Columbia, and in 2011, FWS reached a separate settlement agreement with each of the plaintiffs in these suits. The settlement agreements primarily established schedules for FWS to make hundreds of 90-day and 12-month findings on listing petitions. In the settlement agreement with WildEarth Guardians, FWS also agreed to make either not warranted findings or proposed and final listing determinations for the 251 species that were candidate species in 2010. Each agreement also included provisions that for any action that resulted in a proposed listing rule, the final listing determination would be made in accordance with the one-year period prescribed in the statute. In exchange for these commitments made by FWS, each of the plaintiffs agreed to limits on filing additional listing petitions and deadline suits until the terms of the agreements conclude in fiscal year 2017. According to FWS officials, consolidating these suits and entering into the two settlement agreements helped make FWS's Section 4 workload more predictable, essentially establishing a five-year work plan that reflected the agency's priorities for completing overdue Section 4 actions for hundreds of species. Other than agreed-upon schedules for completing Section 4 actions, the settlement agreements and court orders did not affect the substantive basis or procedural rule-making requirements the Services were to follow in completing the actions. For example, the settlement agreements contained provisions specifying that nothing in the agreement should be interpreted to limit or modify the discretion afforded to the Services under the ESA. Similarly, the provisions also stated that the agreements did not change any of the procedures to be followed, or the substance of, any rulemaking action to be completed under the agreement, such as opportunities for public comment on proposed listing rules. These opportunities include submitting comments and additional information to be considered during the status review accompanying a 12-month finding on a listing petition, notice and public comment period on any proposed rule to list a species or designate or revise critical habitat, and notice of issuance of any final rule. Based on our analysis, we found that as of December 2016, the Services collectively completed 1,766 Section 4 actions related to the 104 suits that were resolved by settlement agreements and court orders entered into fiscal years 2005 through 2015. Table 5 provides a breakdown of the outcomes of the decisions the Services made related to these Section 4 actions, based on whether the Services made a positive finding-- determining that a listing, delisting, or critical habitat-related action was warranted--or a negative finding, meaning that the Services generally found that the action at issue was not warranted. The Services prioritized completing actions included in settlement agreements and court orders, but FWS delayed working on some Section 4 actions to complete those covered in the agreements and orders. In implementing the Services' Section 4 programs, officials from both Services said they prioritized completing actions included in settlement agreements and court orders above other Section 4 actions. According to NMFS officials, deadline suits and their resulting settlement agreements during fiscal years 2005 through 2015 did not have a significant effect on the implementation of their Section 4 program. NMFS officials said this is largely because NMFS is responsible for fewer species than FWS, has not received as many of the 'mega-petitions' for listing species that FWS has, and has largely been able to manage its workload without being compelled to act in response to deadline suits. The officials added that in many instances in which a deadline suit was filed, NMFS was already working on the Section 4 action at issue and therefore making a decision by an agreed-to time frame did not significantly alter how NMFS implemented its Section 4 program workload. In contrast to NMFS, FWS has delayed completing some Section 4 actions, including those with statutory deadlines, to complete actions included in settlement agreements and court orders, according to FWS documentation. For fiscal years 2005 through 2015, FWS officials said they have focused much of their Section 4 program on completing actions required under settlement agreements and court orders. This focus has been particularly evident since 2011, when FWS entered into the two MDL settlement agreements that established a five-year workplan for completing hundreds of listing and other Section 4 actions by the end of fiscal year 2017. To fulfill its commitments under these agreements, FWS's efforts related to listing have required the use of substantially all of its petition and listing budgetary resources, according to FWS documents. In focusing on completing the actions covered by the two MDL settlement agreements, FWS documents indicated that the agency was limited in its ability to undertake work on additional Section 4 actions outside of the agreements. For example, according to an FWS press release announcing positive 90-day listing petition findings for 374 southeastern aquatic species included in one of the 2011 MDL settlement agreements, FWS stated that it was unable to complete 12-month status reviews for these species until fiscal year 2017. The agency explained that this was because of existing commitments made under various settlement agreements and court orders. According to FWS documents, it has not had resources sufficient to complete its backlog of overdue actions and with anticipated resources, it has the capacity to complete a limited number of actions per year. As of September 2016, FWS's backlog of overdue Section 4 actions included nearly 600 12-month findings on listing petitions and other listing-related actions that FWS has been unable to address while it focused on completing its litigation-related workload. To help prioritize the order in which it addresses its backlog and to help increase the efficiency of its Section 4 program, FWS has initiated several changes to its program. For example, starting in October 2015, FWS implemented a streamlined process for publishing its 90-day and 12- month findings in the Federal Register. Instead of issuing each decision individually, as was done in the past, the streamlined process bundles all 90-day findings on a quarterly basis and 12-month findings biannually and publishes those decisions collectively in the Federal Register. FWS officials said that they anticipate this streamlined approach will result in administrative efficiencies and reduced publishing costs. In March 2016, FWS established a Unified Listing Team with the goal of promoting a more consistent, efficient, and timely petition review process. An initial activity this team undertook included developing a National Listing Workplan for fiscal years 2017-2023. This 7-year workplan lays out a plan for addressing FWS's backlog of listing petition findings and critical habitat decisions. According to FWS documentation, the workplan will help enable the agency to more effectively and efficiently administer its workload based on the needs of candidate and petitioned species while providing greater clarity and predictability to the public about the timing of its actions. In developing the workplan, FWS utilized its prioritization methodology that was finalized in July 2016. The prioritization methodology outlines the order of priority that FWS will give to species in making 12-month findings on listing petitions, giving highest priority to species considered to be critically imperiled. FWS officials said the agency's ability to implement its workplan as scheduled is subject to change based on future funding and litigation, which may require FWS to reprioritize its workload. In addition, in September 2016, the Services jointly issued a final rule revising regulations that outline the process and information required for listing petitions. The Services stated that the purposes for the revisions were "to improve the content and specificity of petitions to enhance the efficiency and effectiveness of the petition process to support species conservation." Among other revisions, petitions will be limited to one species per petition, and petitioners will be required to provide a "complete, balanced representation of the relevant facts" with respect to the Services' initial 90-day finding. According to officials from the Services, improving the quality of information submitted in support of listing petitions will help enable the Services to more efficiently process the petitions and issue decisions in a timelier manner. We provided a draft of this report for review and comment to the Department of Commerce, the Department of the Interior, and the Department of Justice. The Departments of Commerce, the Interior, and Justice each provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Attorney General, the Secretary of Commerce, the Secretary of the Interior, 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) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix III. Section 4 deadline suits include citizen suits filed against the U.S. Fish and Wildlife Service (FWS) and National Marine Fisheries Service (NMFS) to compel compliance with statutory deadlines for certain actions under Section 4 of the Endangered Species Act (ESA). Section 4 of the act includes statutory deadlines for the Services to complete certain mandatory actions, including making findings on petitions to list or delist species, designating or revising critical habitat, and conducting 5-year status reviews of listed species. Table 6 provides information on each of the deadline suits filed against the Services during fiscal years 2005 through 2015, including the date the suit was filed, the district court in which it was filed, a summary of the Section 4 action at issue, and the disposition of the suit. Section 4 deadline suits include citizen suits filed against the U.S. Fish and Wildlife Service (FWS) and National Marine Fisheries Service (NMFS), to compel compliance with statutory deadlines for certain actions under Section 4 of the Endangered Species Act. Section 4 of the act includes statutory deadlines for the Services to complete certain mandatory actions, including making findings on petitions to list or delist species, designating or revising critical habitat, and conducting 5-year status reviews of listed species. Table 7 provides information on the taxonomic groups of species involved in the Section 4 deadline suits filed during fiscal years 2005 through 2015. Table 8 provides information on the distribution of the species managed by FWS and NMFS as well as distribution by each of the agency's respective regions. Table 9 provides information on the number of actions involved in the Section 4 deadline suits by agency. In addition to the contact named above, Alyssa M. Hundrup (Assistant Director), Carolyn Blocker, Ellen Fried, Cindy Gilbert, Richard Johnson, Michael Meleady, Sara Sullivan, and Manuel Valverde made key contributions to this report.
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To receive protection under the ESA--enacted to conserve at risk species--a species must first be added to one of the federal lists of threatened or endangered species. FWS and NMFS jointly administer the ESA and have programs that encompass actions related to Section 4 of the ESA. Some of these actions--such as making findings on petitions filed by a person or group requesting addition or removal of species from one of the lists--must be completed by specific statutory deadlines. GAO was asked to review deadline litigation brought under Section 4 of the ESA. This report examines (1) the number and scope of deadline suits filed against the Services during fiscal years 2005 through 2015 under Section 4 of the ESA, and (2) the outcomes of these suits and the effect, if any, the suits had on the Services' implementation of their Section 4 programs. GAO reviewed the ESA and agency documents; obtained a list of Section 4-related suits filed during fiscal years 2005 through 2015 from the Department of Justice, which is responsible for representing the Services; identified from the list those that were deadline suits and compared the list with other sources to confirm reliability; analyzed the suits, including documentation on how they were resolved; and interviewed Justice, FWS, and NMFS officials. The agencies provided technical comments on this report. GAO found that plaintiffs filed 141 deadline suits against the U.S. Fish and Wildlife Service (FWS) and National Marine Fisheries Service (NMFS) for allegedly failing to take actions within statutory deadlines under Section 4 of the Endangered Species Act (ESA) during fiscal years 2005 through 2015 (see figure). Section 4 contains mandatory deadlines for such actions as making findings on petitions to list or delist species as threatened or endangered. The suits involved 1,441 species and cited a range of Section 4 actions, but most suits were related to missed deadlines for issuing findings on petitions to list species. Figure: Number of Endangered Species Act Section 4 Deadline Suits Filed, Fiscal Years 2005-2015 The majority of deadline suits filed during fiscal years 2005 through 2015 were resolved through negotiated settlement agreements that established schedules for the agencies to complete the actions involved in the suits. Agency officials said that most deadline suits are resolved through settlement because it is undisputed that a statutory deadline was missed. Other than setting schedules for completing Section 4 actions, the settlement agreements did not affect the substantive basis or procedural rule-making requirements the Services were to follow in completing the actions, such as providing opportunities for public notice and comment on proposed listing rules. Officials also said they prioritize completing actions in settlement agreements in implementing their Section 4 programs. NMFS officials indicated that work resulting from deadline suits did not have a significant effect on the implementation of their program, in part because NMFS has not had a high number of petitions to list species. In contrast, FWS has delayed completing some actions to complete those included in settlement agreements. FWS has initiated several changes to help improve Section 4 program implementation, including developing a 7-year workplan that prioritizes the order for completing overdue actions and revising information requirements for listing petitions.
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The Los Alamos National Laboratory, located in New Mexico, is charged with enhancing the security of nuclear weapons and nuclear materials worldwide. On Thursday, May 4, 2000, Bandelier National Monument workers in the Cerro Grande Mountain area set fire to a portion of the monument's land to thin uncontrolled forest growth. The fire rapidly grew out of control, and during the 2-week period that followed, over 47,000 acres of national forest, county, pueblo, and laboratory land burned. The laboratory later reported that 8,000 acres of its land had been damaged, 39 structures had been destroyed, and almost $130 million in fire-related costs had been incurred. The laboratory was officially closed from May 8 until May 22 but, according to Los Alamos officials, remained in a state of emergency because of damage caused by the fire and the threat of flooding until August 2000. After the fire, the laboratory's Cerro Grande Rehabilitation Project office contacted divisions that had lost equipment in the fire and required that they submit detailed lists of their losses to obtain the release of fire recovery funds from DOE. Seven divisions indicated that they needed a total of $13.2 million in fiscal year 2000 and $15 million in subsequent years to recover from the fire. Each division provided information on the equipment that had been damaged or destroyed by the fire, the estimated cost of replacement equipment, and the actual cost of replacement equipment that had already been purchased. The equipment needing replacement included desktop and laptop computers, printers, cameras, office furniture, scientific equipment, and related supplies. The laboratory, in general, purchases equipment using several procurement methods. Each method is intended to obtain goods and services at the lowest cost, taking into account the cost of procurement administration. One such method is the laboratory's just-in-time subcontracting program. This program, according to laboratory officials, allows personnel to obtain products from prequalified suppliers at discounted prices, usually within 24 hours of order placement. Orders and payments are processed electronically, thereby eliminating the need for involvement from the procurement staff. Other procurement methods used by the laboratory include the purchase card program, wherein a credit card is used, and purchase orders. Through the purchase card program, laboratory personnel may order supplies and equipment through the Internet or other available sources of supply. Laboratory officials told us that the laboratory does not track the total cost of purchases of $25,000 or less made collectively through its just-in-time subcontracting program, purchase card program, and purchase orders. However, during fiscal year 2000, Los Alamos' procurement staff processed over $46 million in individual purchase orders of $25,000 or less for goods and services, including personal computers, printers, digital cameras, and related equipment and supplies. The DOE Office of Inspector General has issued at least one report on computer acquisitions. Specifically, in 1997, the DOE Office of Inspector General performed an audit of desktop computer acquisitions at the Idaho National Engineering and Environmental Laboratory. The Inspector General's report indicated that, in order to reduce costs, DOE's Idaho contractor had formally studied its desktop computer acquisition practices and estimated that establishing a mandatory performance standard for computers would result in millions of dollars in savings per year. On the basis of this study, DOE's Idaho contractor established a mandatory computer performance standard at the site. The Inspector General reported that DOE's Idaho contractor could further improve its computer acquisition practices by using alternative supply sources, such as GSA, Small Business Administration contracts, or other desktop computer vendors. We found no similar DOE reviews regarding the acquisition of laptop computers, computer printers, or digital cameras for other DOE sites. The Los Alamos contractor probably could have saved money by expanding its possible supply sources. Our review showed that Los Alamos paid nearly the full retail price or more for many of the items. If Los Alamos had used more supply sources, it could have saved about 25 percent on certain items. Supply sources that could have been used include GSA and more suppliers that advertise over the Internet. Recent literature suggests that using the Internet to expand supply sources and compare prices can produce savings. Los Alamos officials indicated that the laboratory has been using the Internet but acknowledged that more enhancements in Internet procurement were possible. Because of the difficulty in getting detailed price and product information for the time period the purchases were made, we reviewed only 17 items purchased by the laboratory from May through July 2000 (see app. I). We determined the manufacturer's suggested retail price (retail price) for 12 of the items: 5 desktop computers, 1 laptop computer, 4 printers, and 2 digital cameras. Of the 12 items, Los Alamos received discounts from the suppliers it used on only 5. In five cases, Los Alamos paid nearly the retail price for the items. In two cases, Los Alamos paid more than the retail price. In addition to comparing Los Alamos' purchase prices with retail prices, we also identified individual suppliers that could have provided certain of the items at a cost below that paid by Los Alamos. For example, Los Alamos could have saved about 25 percent in some cases if it had used other sources. Los Alamos purchased the 17 items from three local New Mexico vendors (one of which was a just-in-time contractor), one Internet vendor, and one computer manufacturer. The laboratory did not attempt to purchase the equipment items through GSA's Internet shopping site or from other vendors that advertise their equipment over the Internet. Laboratory officials told us that, for the items reviewed, they felt most comfortable dealing with companies they had done business with in the past. Because historical prices for computer and electronic equipment are not readily available, it was difficult to determine what Los Alamos could have paid for all of the 17 items we reviewed if it had used other vendors. We were able, however, to develop price comparisons for 4 of the 17 items: 3 printers and 1 digital camera. The total Los Alamos purchase price for the four items was $2,677, but these items would have cost $2,000 if purchased at that same time from GSA or from suppliers that advertise over the Internet, a savings of 25 percent. Although this sample is small, it shows that expanding supply sources could save money. In commenting on this information, Los Alamos officials said that the most expensive of the four items, a digital camera costing about $1,300 and purchased 8 days after the laboratory reopened, was needed immediately to document the fire damage and was purchased from a local vendor at a discounted price. However, we found that this camera could have been purchased directly from the manufacturer at any time after the fire for about $974 and received within 2 days with no shipping cost. Recent literature suggests that using the Internet to expand supply sources and compare prices can produce savings. For example, according to an article in the November 2000 issue of Public Management, Internet procurement offers a significant opportunity to cut costs, increase organizational effectiveness, and improve customer service. Internet procurement, as described in the article, allows agencies to search for products and services from available suppliers and determine best prices, product availability, and shipping costs. Although Los Alamos used the Internet to make many of its purchases, it did not use it to compare prices from available suppliers. Officials of the laboratory said it has been using the Internet but acknowledged that more enhancements in Internet procurement were possible. Los Alamos contracting officials further said that their contract with DOE encourages but does not require using GSA to purchase equipment and that they did not consider using GSA for their replacement purchases. One Los Alamos procurement assistant who was responsible for procuring many of the equipment items included in our review indicated that she was not aware that GSA had an online shopping site. In response to our review, Los Alamos officials said the laboratory would give greater consideration to using GSA for its future equipment purchases. Specifically, these officials indicated that people who use purchase cards now receive training on how to use GSA Advantage! and will be encouraged to use GSA as an alternative to the laboratory's just-in- time program when appropriate. The Los Alamos contractor could save money by establishing mandatory performance standards for computer and computer-related equipment. DOE's contractor at the Department's Idaho laboratory reported that mandatory standards for computers resulted in cost savings at that laboratory. Neither Idaho nor Los Alamos has developed performance standards for computer printers, digital cameras, or other related equipment. However, consideration of such standards could provide additional opportunities for cost savings. According to the Office of Inspector General's report on computer acquisitions at DOE's Idaho laboratory, the contractor there determined that millions of dollars in cost savings were possible if mandatory performance standards for purchasing such equipment were implemented. The computer performance standards in question refer to such things as the speed of the microprocessor, the size of the random access memory, and the size of the hard drive. Before October 1994, DOE's Idaho laboratory had no sitewide standard to govern the acquisition of desktop computer systems. To address this issue, the laboratory contractor formed a working group consisting of representatives from all laboratory departments to study the situation. The working group developed a specific computer standard and recommended that it be established laboratorywide. Anticipated benefits included, for example, lower computer support costs and fewer training expenses. The laboratory contractor required all departments to comply with the standard. The contractor also adopted and implemented a policy that stipulates, in part, that only the contractor's information resources management director can approve deviations from the standard. Because DOE's Idaho contractor reported cost savings at that laboratory, using mandatory performance standards may represent a best practice that could be used by Los Alamos. At Los Alamos, the contractor has developed minimum voluntary performance standards for its desktop and laptop computer acquisitions, but no maximum standards. Also, unlike Idaho, Los Alamos has no requirement that purchases above the standard receive formal management review and approval. According to Los Alamos contracting officials, whenever an employee requests a new computer system, that request is reviewed by a supervisory official, but the review is not formally documented. Of the 17 equipment items we reviewed, 9 were desktop or laptop computers. All nine computers had performance capabilities that exceeded Los Alamos' minimum voluntary standards. For example, one voluntary standard for laptop computers is having a hard drive of 6.4 gigabytes. All three laptop computers in our sample had hard drives of 12 gigabytes or more. Because there is no requirement to document instances in which capabilities exceed Los Alamos' voluntary minimum standards, we could not determine if the enhanced performance capabilities and extra cost associated with these laptop computers were justified. Neither Idaho nor Los Alamos has developed performance standards for computer printers, digital cameras, or other related equipment. However, on the basis of our review, such standards may be beneficial. For example, one equipment item we reviewed was a printer for which Los Alamos paid more than $1,400. Because of its unique capabilities, such a printer is normally used to meet the printing needs of a group of individuals connected to the same network server. In this case, however, the printer was being used primarily by one technical staff member and one part-time contractor who was in the office about one-third of the time. Neither individual needed a printer with unique capabilities. Other technical staff members we interviewed had printers for their personal use with lesser speed capabilities that cost between $280 and $700. In addition, we noted that the clarity and resolution of the $700 printer were similar to those of the $1,400 printer, but that the $700 printer had less memory. Printer memory, however, is an issue only when a large number of employees are queuing up for printing simultaneously. The Los Alamos contractor could save money if it increased its use of a standard brand of computer and computer-related equipment. DOE's contractor at its Idaho laboratory determined that it could achieve considerable cost savings by limiting the various brands and models of desktop computers it purchased. Because of these reported cost savings, such limitations may be a best practice that could be used by Los Alamos. In contrast to Idaho, Los Alamos generally allows various brands and models of the same equipment to be purchased. Before 1995, according to a report by DOE's contractor at its Idaho laboratory, that laboratory allowed many different computer systems to be purchased. The contractor's report indicated that this had created a range of problems: higher costs for maintenance, support, and training; difficulties in communicating through electronic messaging and using shared files; and problems in operating among work platforms and programs. Therefore, when Idaho established its standard for desktop computers, the contractor took the standard one step further and charged its procurement division with selecting a computer model that, on the basis of cost, reliability, serviceability, and other factors, would be in compliance with the standard. A cost-benefit analysis showed that cost savings ranging from $5 million to $10 million could be achieved over 10 years if the proposed standard was implemented. Subsequently, the procurement division awarded a contract to a single vendor to provide one specific brand of network and laptop computers and one specific brand of desktop computers. At Los Alamos, in general, no similar limitations on desktop and laptop computer acquisitions exist. As a result, the contractor can purchase different brands and models of computers. For instance, the six desktop computers we reviewed were all different brands or models, and the three laptop computers were all different brands. These computers can also vary in price. For example, one replacement desktop computer cost about $2,900, while a different brand computer with enhanced capabilities cost about $2,600. According to Los Alamos contracting officials, the laboratory's employees had different brands and models of equipment before the fire. The items purchased were intended to be nearly identical replacements for the ones that had been destroyed by the fire. Los Alamos officials also told us that uniformity in computers across the entire laboratory would not meet the needs of the diverse applications and functions involved in experimental work. These officials indicated, however, that a certain number of the laboratory's more than 40 organizations have begun using a standard brand of computer to meet their specific requirements. We determined that two Los Alamos divisions--Business Operations and Facility and Waste Operations---have begun using a standard brand of computers and it has dramatically reduced support costs. However, Los Alamos has not formally evaluated the feasibility of adopting this approach for more of its organizations. While the scope of our review was limited, it raised the possibility that significant savings could be realized at Los Alamos by adopting revised procurement practices. If Los Alamos expanded its use of the Internet and, thereby, considered a broader spectrum of supply sources, including GSA, significant savings could be possible. Additional savings might also be possible if Los Alamos adopted the best practices being reported at Idaho. For example, if Los Alamos established mandatory performance standards for computer and computer-related equipment purchases, savings could probably be realized by avoiding purchasing higher-priced equipment that exceeds the needed capabilities. Furthermore, if Los Alamos limited the number of brands and models of the same equipment it purchased as at Idaho, savings could be realized from volume discounts associated with making multiple purchases of the same equipment item and from lower support costs. DOE's Idaho contractor reported that these practices have or likely will result in cost savings. To improve the economy of equipment purchases at the Los Alamos National Laboratory, we recommend that you direct the contractor at Los Alamos to develop policies and procedures that encourage greater consideration of additional supply sources, including GSA and suppliers that advertise over the Internet; establish, to the extent practicable, mandatory performance standards for computer and computer-related equipment; and evaluate, in light of the reported savings at two Los Alamos divisions, the feasibility of having more of its organizations use a standard brand of computer and computer-related equipment. We provided a draft copy of this report to DOE for its review and comment. DOE stated that the overall finding of potential cost saving opportunities and the three associated recommendations contained in the report merit additional management attention. DOE indicated that it was directing Los Alamos to undertake specific actions in response to each of the recommendations. While generally agreeing with our recommendations, DOE pointed out that most of the procurements in question were made during a regional disaster, and that DOE places a high value on supporting regional socioeconomic development. In addition, DOE stressed in its comments that best value includes aspects other than lowest possible advertised cost. Further, DOE indicated that mandatory performance standards for computer and computer-related equipment could potentially affect programmatic or mission requirements. We believe that adopting our recommendations will not adversely affect DOE's ability to purchase equipment during an emergency, promote regional development, or achieve the best value. We also believe that mandatory performance standards for computer and computer-related equipment should be flexible enough to allow exceptions, but that those exceptions should be formally reviewed. DOE's complete comments are presented in appendix III. We performed our work at DOE's headquarters and Los Alamos from August 2000 through March 2001 in accordance with generally accepted government auditing standards. Additional information on the scope and methodology of our review is presented in appendix II. We are sending copies of this report to interested congressional committees and subcommittees and to the Director, Office of Management and Budget. We will also make copies available to others on request. Price was not available. To determine whether supplemental funding was being spent in the most economical fashion, we randomly selected 17 items of replacement equipment that had already been purchased for further review. Of the 17 selected items, 6 were different brands or models of desktop computers, 3 were different brands of laptop computers, 6 were different brands or models of printers, and 2 were different models of digital cameras. For each item, we requested a report from Los Alamos' property management system regarding the item and the item's purchase invoice. We used this information to determine the performance specifications, procurement source, and price paid for each item. We also, to the extent possible, examined each item and interviewed the employee to whom each item had been assigned. Through this process, we were able to determine the exact configuration of each item, including its peripherals and options. Further, we independently attempted to determine if each item could have been procured at a lower price using a supply source other than that used by the laboratory, such as GSA's Federal Supply Schedule and private companies that offer their equipment for sale over the Internet. We also obtained from Los Alamos contracting officials information on the laboratory's requirements regarding equipment purchases. This information included a copy of the current DOE contract with the University of California, applicable DOE acquisition regulations, and laboratory policies and procedures pertaining to purchasing computer and computer-related equipment and using GSA for equipment purchases. In addition, we searched for DOE reports on the procurement of computer equipment by DOE contractors and found a 1997 Office of Inspector General audit on desktop acquisitions at the Idaho National Engineering and Environmental Laboratory. We found no other DOE reports on the acquisition of computers or computer-related equipment. Finally, we researched available literature for information on the advantages and disadvantages of Internet procurement. We performed our work from August 2000 to March 2001 in accordance with generally accepted government auditing standards.
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The Department of Energy (DOE) received $13.2 million in supplemental funding to replace equipment lost at the Los Alamos National Laboratory in the May 2000 Cerro Grande fire. GAO reviewed the practices used by the contractor that runs the laboratory--the University of California (UC)--to determine whether it can benefit from modified purchasing practices. GAO found that UC can save money by (1) expanding its supply sources to include suppliers such as the General Services Administration and the Internet; (2) establishing mandatory maximum performance standards for computer purchases to avoid unjustified, costly, and unnecessary capabilities; and (3) increasing its use of a standard brand of computer and computer-related equipment to maximize volume discounts with selected suppliers.
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Palau consists of 8 main islands and more than 250 smaller islands, with a total land area of roughly 190 square miles, located approximately 500 miles southeast of the Philippines. About 20,000 people live in Palau, concentrated largely in one urban center around the city of Koror, and more than one-quarter of the population is non-Palauan. Palau's economy is heavily dependent on its tourism sector and on foreign aid from the United States, Japan, and Taiwan. Similar to many small island economies, Palau's public sector spending represents a significant percentage of its gross domestic product (GDP). U.S. relations with Palau began when American forces liberated the islands near the end of World War II. In 1947, the United Nations assigned the United States administering authority over the Trust Territory of the Pacific Islands, which included what are now the Federated States of Micronesia, the Republic of the Marshall Islands, the Commonwealth of the Northern Mariana Islands, and Palau. Palau adopted its own constitution in 1981. The U.S. and Palau governments concluded a Compact of Free Association in 1986; the compact entered into force on October 1, 1994. The Department of the Interior's (Interior) Office of Insular Affairs (OIA) has primary responsibility for monitoring and coordinating all U.S. assistance to Palau, and the Department of State (State) is responsible for government-to-government relations. Key provisions of the compact and its subsidiary agreements address the sovereignty of Palau, types and amounts of U.S. assistance, security and defense authorities, and periodic reviews of compact terms. Table 1 summarizes key provisions of the Palau compact and related subsidiary agreements. In addition to the U.S. assistance provided under the compact, U.S. agencies--the Department of Education, the Department of Health and Human Services (HHS), and Interior, among others--provide discretionary federal programs in Palau as authorized by U.S. legislation and with appropriations from Congress. (See app. II for a complete listing of these programs in Palau.) In our 2008 report, we projected that U.S. assistance to Palau from 1995 through 2009 would exceed $852 million. Of this total, economic assistance under the compact accounts for a projected 68 percent and discretionary federal programs account for a projected 31 percent (see fig. 1). The September 2010 Agreement between the U.S. and Palau governments would extend assistance to Palau to 2024 but steadily reduce the annual amount provided. The Agreement would also extend the authority and framework for U.S. agencies to continue compact federal services and discretionary federal programs. Key provisions of the Agreement would include, among others, extending direct economic assistance to Palau, providing infrastructure project grants and contributions to an infrastructure maintenance fund, establishing a fiscal consolidation fund, and making changes to the trust fund. U.S. assistance to Palau under the Agreement would total approximately $215 million through 2024. Legislation implementing the Agreement was not approved by Congress during 2011. Department of the Interior provided $13.1 million for direct economic assistance in 2011 and again in 2012; however, funds were not provided either year for infrastructure projects, the infrastructure maintenance fund, or the fiscal consolidation fund. Direct economic assistance ($107.5 million). Under the Agreement, the U.S. government would provide direct economic assistance-- budgetary support for Palau government operations and specific needs such as administration of justice and public safety, health, and education--amounting to $13 million in 2011 and declining to $2 million by 2023. The Agreement also calls for the U.S. and Palau governments to establish a five-member Advisory Group to provide annual recommendations and timelines for economic, financial, and management reforms. The Advisory Group must report on Palau's progress in implementing these or other reforms, prior to annual U.S.- Palau economic consultations. These consultations are to review Palau's progress in achieving reforms such as improvements in fiscal management, reducing the public sector workforce and salaries, reducing government subsidization of utilities, and tax reform. If the U.S. government determines that Palau has not made significant progress in implementing meaningful reforms, direct assistance payments may be delayed until the U.S. government determines that Palau has made sufficient progress. Infrastructure projects ($40 million). Under the Agreement, the U.S. government would provide U.S. infrastructure project grants to Palau for mutually agreed infrastructure projects--$8 million annually through 2013, $6 million in 2014, and $5 million in both 2015 and 2016. The Agreement requires Palau to provide a detailed project budget and certified scope of work for any projects receiving these funds. Infrastructure maintenance fund ($28 million). Under the Agreement, the U.S. government would make contributions to a fund to be used for maintenance of U.S.-financed major capital improvement projects, including the Compact Road and Airai International Airport. Through 2024, the U.S. government would contribute $2 million annually, and the Palau government would contribute $600,000 annually to the fund. Fiscal consolidation fund ($10 million). Under the Agreement, the U.S. government would provide grants of $5 million each in 2011 and 2012, respectively, to help the Palau government reduce its debts. Unless agreed to in writing by the U.S. government, these grants cannot be used to pay any entity owned or controlled by a member of the government or his or her family, or any entity from which a member of the government derives income. U.S. creditors must receive priority, and the government of Palau must report quarterly on the use of the grants until they are expended. Trust fund ($30.25 million). Under the Agreement, the U.S. government would contribute $30.25 million to the fund from 2013 through 2023. The government of Palau will reduce its previously scheduled withdrawals from the fund by $89 million. From 2024 through 2044, Palau can withdraw up to $15 million annually, as originally scheduled. Moneys from the trust fund account cannot be spent on state block grants, operations of the office of the President of Palau, the Olibiil Era Kelulau (Palau National Congress), or the Palau Judiciary. Palau must use $15 million of the combined total of the trust fund disbursements and direct economic assistance exclusively for education, health, and the administration of justice and public safety. Annual U.S. assistance to Palau under the Agreement would decline from roughly $28 million in 2011 to $2 million in 2024. Figure 2 details the timeline and composition of assistance outlined in the Agreement. The Agreement would extend the authority for the provision of compact federal services and discretionary programs in Palau. Federal services. The Agreement would amend the compact's subsidiary agreements regarding federal services. Specifically, the Agreement amends the terms of postal, weather, and aviation services to Palau. Federal discretionary programs. The Agreement would extend the framework for U.S. agencies to provide discretionary federal programs to Palau, with implementation of the programs contingent on annual appropriations to those agencies. The addition of $30.25 million in U.S. contributions and the delay of $89 million in Palau withdrawals through 2023, as provided by the Agreement, would improve the fund's prospects for sustaining scheduled payments through 2044. At the end of June 2012, the fund had a balance of approximately $163 million. The trust fund would need a 5.0 percent annual return to yield the proposed withdrawals from 2011 through 2044 under the Agreement. This rate is well below the 7.9 percent return that the fund earned from its inception to June 30, 2012. Figure 3 shows projected trust fund balances in 2012 through 2044 under the Agreement, with varying rates of return. The additional contributions and reduced withdrawals scheduled in the Agreement would also make the trust fund a more reliable source of revenue under conditions of market volatility. With these changes, the trust fund would have an approximately 90 percent probability of sustaining payments through 2044. In comparison, the fund has a 40 percent probability of sustaining the $15 million annual withdrawals scheduled under the compact through 2044. Figure 4 compares the probability that the trust fund will sustain the proposed withdrawals under the terms outlined in the Agreement with the probability that the trust fund will sustain the withdrawals scheduled under the compact. Estimates prepared for the government of Palau project that Palau's reliance on U.S. assistance provided under the Agreement will decline, while its reliance on trust fund withdrawals and domestic revenue will increase. These estimates show U.S. assistance, as provided under the Agreement, declining from 28 percent of government revenue in 2011 to less than 2 percent of government revenue in 2024. The estimates also show Palau's trust fund withdrawals growing from 5 percent of government revenue in 2011 to 12 percent in 2024. In addition, the estimates indicate that Palau's domestic revenue will rise from 40 percent of all government revenue in 2011 to 59 percent in 2024. Finally, the estimates prepared for Palau project a relatively steady reliance on U.S. discretionary federal programs, ranging from 12 percent of all government revenue in 2011 to 14 percent in 2024. The estimates assume that discretionary federal programs will grow at the rate of inflation; however, discretionary programs are subject to annual appropriations and may not increase over time. Figure 5 shows the types and amounts of Palau's estimated revenues for 2011 and 2024. The estimates prepared for the government of Palau project that U.S. assistance to Palau from 2011 through 2024, including discretionary federal programs, will total approximately $427 million. The estimates further project that discretionary programs will account for nearly half of U.S. assistance through 2024, with assistance amounts specified in the Agreement accounting for the other half. (See fig. 6.) In contrast, in 2008, we estimated discretionary program funding accounted for less than one- third of total U.S. assistance to Palau from 1995 through 2009. Legislation has been introduced in both the Senate and the House that would approve and implement the September 2010 agreement between the U.S. and Palau governments. In February 2011, a bill was introduced in the Senate that would implement the Agreement, as written. The Senate bill would authorize and appropriate funds to Interior for specified assistance. The Senate bill would also extend the authority, and authorize appropriations, for the provision of compact federal services in Palau. However, the proposed legislation does not appropriate funds for compact federal services. As of September 2012, the Senate has not acted on this bill. In June 2012, a bill was introduced in the House that would approve and implement the Agreement, with some modifications. Specifically, the pending House bill: Shifts the timing of the provision of some specified Agreement assistance to account for the fact that fiscal year 2011 has passed. Extends the full faith and credit provision of the compact to the U.S. commitments of assistance under the Agreement for direct economic assistance, the trust fund, the infrastructure maintenance fund, the fiscal consolidation fund, and infrastructure projects. Applies an inflation adjustment to the Agreement assistance for direct economic assistance and infrastructure project grants, and payments to the trust fund, infrastructure maintenance fund, and fiscal consolidation fund. Extends a pledge of the full faith and credit of the United States for the full payment of the amounts necessary to conduct the audits of the assistance provided, as called for under the Agreement. In addition, the Senate and House bills implementing the Agreement would amend the sections of the Agreement that extend the authority for the provision of compact federal services and discretionary programs in Palau. The proposed Senate and House legislation would authorize annual appropriations for weather and aviation services. The proposed Senate and House legislation would extend the eligibility of the people, government, and institutions of Palau for certain discretionary programs, including special education and Pell grants. However, the proposed bills differ in how they would authorize appropriations to subsidize postal service to Palau, the Republic of the Marshall Islands, and the Federated States of Micronesia. The Senate legislation would have authorized appropriations of $1.5 million to Interior for 2011 through 2024, to subsidize postal services provided by the U.S. Postal Service. The proposed House legislation would authorize appropriations of $1.5 million to Interior beginning in 2012 and through 2024, to subsidize postal services. Under the proposed House bill, Interior would be authorized to transfer these funds to the U.S. Postal Service under the condition that domestic postage may be used for mail to these countries. Chairman Fleming, Ranking Member Sablan, and Members of the Subcommittee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. For further information about this statement, please contact David Gootnick at (202) 512-3149 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Emil Friberg (Assistant Director), Ming Chen, David Dayton, Brian Hackney, Reid Lowe, Grace Lui, and Valerie L. Nowak made key contributions to this statement. Robert Alarapon, Benjamin Bolitzer, Rhonda Horried, Farahnaaz Khakoo, Jeremy Sebest, Cynthia Taylor, and Anu Mittal provided technical assistance. Table 2 shows the assistance provided to Palau under the compact from 1995 through 2009. Table 3 shows the proposed assistance to Palau for 2011 through 2024, as outlined in the Agreement. Table 4 lists discretionary U.S. federal program funds expended by the Palau national government, the Palau Community College, and the Palau Community Action Agency, as reported in the organizations' single audit reports for 2009.
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The Compact of Free Association between the United States and the Republic of Palau, which entered into force in 1994, provided for several types of assistance aimed at promoting Palau's self-sufficiency and economic advancement. Included were 15 years of direct assistance to the Palau government; contributions to a trust fund meant to provide Palau $15 million each year in fiscal years 2010 through 2044; construction of a road system, known as the Compact Road; and federal services such as postal, weather, and aviation. U.S. agencies also provided discretionary federal programs related to health, education, and infrastructure. In 2008, GAO projected that total assistance in fiscal years 1994 through 2009 would exceed $852 million. In September 2010, the United States and Palau signed an agreement (the Agreement) that would, among other things, provide for additional assistance to Palau beginning in fiscal year 2011 and modify its trust fund. Currently, there are two bills pending before Congress to implement the Agreement. In this testimony, GAO updates a November 2011 testimony on (1) the Agreement's provisions for economic assistance to Palau, (2) its impact on the trust fund's likelihood of sustaining scheduled payments through fiscal year 2044, (3) the projected role of U.S. assistance in Palau government revenues, and (4) the pending legislation to implement the Agreement. GAO reviewed current trust fund data and new pending legislation for this testimony. The Agreement would provide decreasing assistance, totaling approximately $215 million through fiscal year 2024 and includes the following: direct economic assistance ($107.5 million) for Palau government operations; infrastructure project grants ($40 million) to build mutually agreed projects; infrastructure maintenance fund ($28 million) for maintaining the Compact Road, Palau's primary airport, and certain other major U.S.-funded projects; fiscal consolidation fund ($10 million) to assist Palau in debt reduction; and trust fund contributions ($30.25 million) in addition to the $70 million contributed under the compact Under the Agreement, the United States would contribute to the trust fund in fiscal years 2013 through 2023, and Palau would reduce its withdrawals by $89 million in fiscal years 2010 through 2023. GAO projects that the fund would have a 90 percent likelihood of sustaining payments through fiscal year 2044 with these changes, versus 40 percent without these changes. Estimates prepared for the Palau government project declining reliance on U.S. assistance under the Agreement--from 28 percent of government revenue in fiscal year 2011 to 2 percent in fiscal year 2024--and growing reliance on trust fund withdrawals and domestic revenues. The estimates show trust fund withdrawals rising from 5 percent to 24 percent and domestic revenues rising from 40 to 59 percent, of total government revenue. According to the estimates, U.S. assistance in fiscal years 2011 through 2024 would total $427 million, with discretionary federal programs accounting for about half of that amount. Congress has not approved legislation to implement the Agreement as of September 2012. Pending Senate legislation would implement the Agreement and appropriate funds to do so. Pending House legislation would implement the agreement, apply an inflation adjustment to assistance payments, and shift the timing of certain assistance payments to reflect the fact that 2011 has passed.
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Long-term fiscal simulations by GAO, Congressional Budget Office (CBO), and others all show that despite a 3-year decline in the federal government's unified budget deficit, we still face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. In fact, our long-range challenge has grown in the past three years and the projected tsunami of entitlement spending is closer to hitting our shores. The long-term fiscal challenge is largely a health care challenge. Although Social Security is important because of its size, the real driver is health care spending. It is both large and projected to grow more rapidly in the future. GAO's current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. Figure 1 shows two alternative fiscal paths. The first is "Baseline extended," which extends the CBO's August baseline estimates beyond the 10-year projection period, and the second is an alternative based on recent trends and policy preferences. Our "Alternative simulation" assumes action to return to and remain at historical levels of revenue and reflects somewhat higher discretionary spending than in Baseline extended and more realistic Medicare estimates for physician payments than does the Baseline extended scenario. Although the timing of deficits and the resulting debt build up varies depending on the assumptions used, both simulations show that we are on an imprudent and unsustainable fiscal path. The bottom line is that the nation's longer-term fiscal outlook is daunting under any realistic policy scenario or set of assumptions. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path also increasingly will constrain our ability to address emerging and unexpected budgetary needs and they serve to increase the burdens that will be faced by future generations. Although Social Security, Medicare, and Medicaid dominate the long-term outlook, they are not the only federal programs or activities that bind the future. The federal government undertakes a wide range of responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. In fact, last year the U.S. government's major reported liabilities, social insurance commitments, and other fiscal exposures continued to grow. They now total approximately $50 trillion--about four times the nation's total output (GDP) in fiscal year 2006--up from about $20 trillion, or two times GDP in fiscal year 2000. (See fig. 2.) Absent meaningful reforms, these amounts will continue to grow every second of every minute of every day due to continuing deficits, known demographic trends, and compounding interest costs. GAO, Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003). leadership. In addition to the proposal that both of you are offering, I'm pleased to say that several other members on both sides of the political aisle and on both ends of Capitol Hill are also taking steps to answer the call for fiscal prudence by proposing bills to accomplish similar objectives. I was pleased to join you when you announced this proposal. As I said at the time, I believe it offers one potential means to achieve an objective we all should share: taking steps to make the tough choices necessary to keep America great and to help make sure that our country's, children's and grandchildren's future is better than our past. Senators Conrad and Gregg, thank you for your leadership. I was especially pleased to see that the task force that would be created by your legislation was informed by GAO's work on the key elements necessary for any task force or commission to be successful. Last year we looked at several policy-oriented commissions. (See app. I for a summary table on that work.) Our analysis suggests that there are a number of factors that can increase the likelihood a commission will be successful. Examples of those factors--and elements your proposal encompasses-- are a broad charter--don't artificially limit what can be discussed and don't set policy preconditions (like "must support individual accounts") for membership, involvement of leaders from both the executive and legislative branches--including elected officials, a report with specific proposals and a requirement for supermajority vote to make recommendations to the President and the Congress, and a process to require consideration of the proposals. A few of these points deserve elaboration. Having a broad charter and no preconditions is very important. This means that "everything is on the table"--and that is critical in order for the effort to be credible and have any real chance of success. But let me be clear what we mean by "everything is on the table"--it means that everything is open for discussion and debate. It does not mean advance agreement to a specific level of revenues or benefit changes. The only precondition should be the end goal: to put the nation's fiscal outlook back on a prudent and sustainable path for the future. I believe that having true bipartisanship and active involvement by both the executive and the legislative branches is important. If any proposal is seen as partisan or the product of only one branch, it is unlikely to fly with the American people. Candidly, based on my interactions with thousands of Americans from across the nation during the past two years, there is little confidence in the ability of elected officials to rise above partisan battles and ideological divides. As a result, I believe that any related commission or task force should also involve knowledgeable professionals from selected nonpartisan institutions who have significant expertise and experience. Finally, the task force or commission will need to move beyond diagnosis to prescription. We know the path must be changed. What we need now are credible and specific legislative proposals that will accomplish that. Furthermore, these should come from a supermajority of the task force or commission members with a mechanism to assure a vote on a majority basis by the Congress. At your request, we are looking at how other countries have reformed their entitlement programs--not the substance of their reforms but rather the process that led up to the reform. As countries have sought to reform entitlements such as pensions and disability, they have often used commissions as a means to develop reform proposals that became the basis for legislation. For example, the 2003 Rurup Commission in Germany, composed of experts, public officials, and others, made recommendations for reform of public pensions that were enacted in 2004 and 2007. In the Netherlands, the 2000 Donner Commission composed of respected public figures representing the major political parties developed recommendations that became the basis for major disability reform legislation enacted in 2005. In the early 1990s, a working group of parliamentary members in Sweden developed the concept of a major structural reform of their public pension system that was worked out in detail in succeeding years and enacted in 1998. In addition to these types of commissions, several countries also have permanent advisory bodies tasked with periodically informing the government on pension policy challenges and reform options. Our related work is not yet complete, but some of what we have found to date would not surprise you. These special groups--whether commissions or task forces--can and do fill multiple roles including public education, coalition building, "setting the table" for action, and providing a means for and cover to act. Leadership is key and public education is also important. You asked that we comment on some particulars--and on areas where we think further refinements would increase the chances of success. Let me now turn to three areas: timing and how to ensure involvement of the newly-elected President, congressional action: whether--and if so how--to permit amendments to or substitutes for the commission's proposals, and the supermajority vote requirement, and the chairmanship of the commission. A great strength of your proposal is that it calls for the task force or commission to deliberate throughout 2008. As you know, members of the Fiscal Wake-Up Tour believe that fiscal responsibility and intergenerational equity must be a top priority for the new President. We all agree that finding solutions will require leadership, bipartisan cooperation, a willingness to discuss all options and courage to make tough choices. For example, those who argue that spending must come down from projected levels should explain which programs they would target and how the savings would be achieved. Those who argue for higher taxes should explain what level of taxation they are willing to support, the manner in which the new revenue would be raised and the mechanisms that will help to ensure that any additional revenues will be used in a manner that will help rather than hinder our effort to be fiscally responsible. Those who are unwilling to do either should explain how much debt they are willing to impose on future generations of Americans. Indeed, we have suggested a number of key questions we believe it is reasonable to ask the candidates. These include the following: What specific spending cuts, if any, do you propose and how much of the problem would they solve? What specific tax increases, if any, do you propose and how much of the problem would they solve? What is your vision for the future of Social Security and what strategies would you pursue to bring it about? What is your vision for the nation's health care system, including the future of Medicare, and what strategies would you pursue to bring it about? These questions and others should be addressed by all the (presidential) candidates so the public can assess whether he or she appreciates the magnitude of the problem, the consequences of doing nothing (or making the problem worse), and the realistic trade-offs needed to find real and sustainable solutions. Although I believe the candidates should recognize the seriousness of this challenge, I also believe it is unrealistic to expect candidates to offer coherent, fully comprehensive proposals at this point in the campaign. In that sense the task force or a similar commission performs a great service: candidates could promise to take seriously any information or proposals and to engage in a constructive manner with the group after the election. They could agree that for the task force or commission to have a chance of succeeding "everything must be on the table" at least for discussion. That said, it is important to find a way to involve whoever is elected as our new President. After all, it will be the person elected approximately 53 weeks from now who must use the "bully pulpit" and put their energy and prestige behind the effort to help ensure success. Although I think having a deadline is important, I believe that a December 9, 2008, deadline for the commission's report does not offer enough time for the kind of input and involvement that will be necessary. Some way must be found to gain the active involvement and buy-in of the incoming President. In any event, it seems likely that the December 2008 deadline would need to be replaced--perhaps with a January or February 2009 date. You also asked us to think about the current requirement for a "fast track" up-or-down vote in the House and Senate and the requirement for a supermajority in both houses. As former Congressman and former Office of Management and Budget (OMB) Director Leon Panetta has said, in any effort to change our fiscal path "nothing will be agreed to until everything is agreed to." This statement also offers a warning about the dangers of picking apart any package. Whatever process is developed for considering the task force's recommendations should protect the proposal from being picked apart amendment by amendment. The task force is charged with developing-- and agreeing to--a coherent proposal which, taken as a whole, will put us on a prudent and sustainable long-term fiscal path. Presumably, to reach agreement, the members will have made compromises--any proposal is going to have elements that represent concessions by the various members. In all likelihood those concessions will have been made in return for concessions by others. If individual elements can be eliminated by amendment, the likelihood that the package will achieve its goal will be reduced. The very process of coming up with a coherent proposal means that the package is likely to stand or fall as a whole. In that sense the prohibition on amendments makes some sense. At the same time, I believe it would make sense to permit alternatives. I say alternatives not amendments because I believe it is important that any alternatives achieve the same change in fiscal path as the task force's proposal. The SAFE bill proposed by Senator Voinovich and by Representatives Cooper and Wolf does permit alternatives--but it holds them to the same standards and criteria as the proposal from the commission. Permitting alternative packages to be offered and voted upon may increase the credibility and acceptance of the end result. The Task Force bill requires both a supermajority to report out a proposal and a supermajority in both houses to adopt the proposal. The supermajority requirement within the task force (or commission) offers assurance that any proposal has bipartisan support. It offers stronger backing for a proposal that must reflect difficult choices. If a proposal comes to the Congress with a two-thirds or three-fourths vote of the task force, the necessity for a supermajority vote to enact the proposal in the Congress is less clear. It is even possible that this requirement could offer the opportunity for a minority to derail the process. Any package that makes meaningful changes to our fiscal path is going to contain elements that generate significant opposition. Therefore, although I think requiring a supermajority within the task force makes sense, requiring a supermajority vote for enactment of the task force or commission's proposal by the Congress is inappropriate. In my view, such a requirement puts too many hurdles in the way of making tough choices and achieving necessary reforms. Finally, Chairman Conrad, Senator Gregg, let me raise a question about the role envisioned for the outgoing Administration. I believe you are correct to include executive branch officials. In this regard, I have the utmost respect for the current Secretary of the Treasury. I have met with him on several occasions and am well aware that he has made several statements about the need for action on our long-term fiscal challenge. At the same time, I believe that designating a cabinet official in an outgoing administration as the task force chairman presents some serious challenges and potential drawbacks. Both the strength and the weakness of having the Secretary of the Treasury participate is that he will be seen as representing the outgoing President. While participation by the executive branch at the highest level will be important, having an outgoing Administration official serve as chairman may serve to hinder rather than help achieve acceptance and enactment of any findings and recommendations. Given the fiscal history of the first 7 years of this century and the experience with the Commission to Strengthen Social Security, I would question whether having the Treasury Secretary or any other current Administration official serve as chairman is the right way to go. Before concluding, I would like to say a few words about what I hope is a renewed push to find a vehicle for addressing this very important challenge. Senator Voinovich has proposed the SAFE Commission. Its membership is different than your Task Force proposal but it seeks the same goal--improving our fiscal path. As I noted, Congressmen Cooper and Wolf have joined to introduce companion bills in the House: both to the SAFE Commission and to the Conrad-Gregg Bipartisan Task Force. As a result, both the Senate and the House have before them bills that seek to create vehicles for executive-legislative bipartisan development of credible, specific, legislative proposals to put us back on a prudent and sustainable fiscal path in order to ensure that our future is better than our past. We owe it to our country, children, and grandchildren to do no less. These are encouraging signs. I hope there is movement in this Congress. At the same time I think we must recognize that achieving and maintaining fiscal sustainability is not a one-time event. Even if a task force or commission is created and succeeds in developing a proposal and that proposal is enacted, it will be necessary to monitor our path. In that context I note that the proposal by Senators Feinstein and Domenici for a permanent commission would require periodic review and reporting of recommendations every 5 years to maintain the adequacy and long-term solvency of Social Security and Medicare. In our work looking at other countries we note that reform is an ongoing process and that no matter how comprehensive initial reforms, some adjustments are likely to be necessary. Something like the ongoing commission suggested by Senators Feinstein and Domenici may be a good companion and follow-on to the Task Force/Commissions envisioned by either the Bipartisan Task Force or the SAFE Commission bills. We will need to be flexible in our response to early challenges and success as we move forward. Changing our fiscal path to a prudent and sustainable one is hard work and achieving reform requires a process with both integrity and credibility. In our work on other countries' entitlement reform efforts, we see that reforms are sometimes the culmination of earlier efforts that may have seemed "unsuccessful" at the time. For example, a 1984 Swedish commission on pension reform did not reach consensus on a proposal but its work helped set the stage for a process that resulted in a major reform. Similarly, the recent reforms of public pensions in Germany and disability in the Netherlands built upon a long series of incremental reform changes. Each reform effort can move the process forward and each country must find its own way. Today we can build on previous efforts in the United States. In this country we have been discussing Social Security reforms and developing reform options since the mid-1990s. We have had two major commissions on entitlement reform in the last decade--a Presidential commission on Social Security in 2001 and a Congressional commission on Medicare in 1998. There have also been discussion, studies and commissions on tax reform. As we said in our report on the December 2004 Comptroller General forum on our nation's long-term fiscal challenge, leadership and the efforts of many people will be needed to change our fiscal path. The issues raised by the long-term fiscal challenge are issues of significance that affect every American. By making its proposal, this Committee has shown the kind of leadership that is essential for us to successfully address the long-term fiscal challenge that lies before us. The United States is a great nation, possibly the greatest in history. We have faced many challenges in the past and we have met them. It is a mistake to underestimate the commitment of the American people to their country, children, and grandchildren; to underestimate their willingness and ability to hear the truth and support the decisions necessary to deal with this challenge. We owe it to our country, children and grandchildren to address our fiscal and other key sustainability challenges. The time for action is now. Mr. Chairman, Senator Gregg, members of the Committee, let me repeat my appreciation for your commitment and concern in this matter. We at GAO stand ready to assist you in this important endeavor. Restricted; required revenue neutrality and keeping incentives for homeownership and charitable giving, and encouraging savings; required to consider equity and simplicity too 32 (22/10) 17 (9/8) 10 (0/10) 16 (0/16); Included 3 former Members of Congress 9 (0/9); Chair and Vice-Chair were former Senators; 1 former House Representative on panel; also included 4 professors and 2 "tax practitioners" Yes, functionally; technically Breaux = Chair; Thomas = "Administrative Chair" No; proposed recommendations failed to gain required 11 votes (Jan. 1995) (Dec. 2001) (July 2004) (Nov. 2005) No; but recommended 5 broad principles for crafting "solutions to our fiscal problems" n.a. Yes 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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GAO has for many years warned that our nation is on an imprudent and unsustainable fiscal path. During the past 2 years, the Comptroller General has traveled to 24 states as part of the Fiscal Wake-Up Tour. Members of this diverse group of policy experts agree that finding solutions to the nation's long-term fiscal challenge will require bipartisan cooperation, a willingness to discuss all options, and the courage to make tough choices. Indeed, the members of the Fiscal Wake-Up Tour believe that fiscal responsibility and intergenerational equity must be a top priority for the new President. Several bills have been introduced that would establish a bipartisan group to develop proposals/policy options for addressing the longterm fiscal challenge. At the request of Chairman Conrad and Senator Gregg, the Comptroller General discussed GAO's views on their proposal to create a Bipartisan Task Force for Responsible Fiscal Action (S. 2063). Long-term fiscal simulations by GAO, Congressional Budget Office (CBO), and others all show that despite some modest improvement in near-term deficits, we face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. Under any realistic policy scenario or assumptions, the nation's longer-term fiscal outlook is daunting. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path also increasingly will constrain our ability to address emerging and unexpected budgetary needs and increase the burdens that will be faced by future generations. As the Comptroller General stated when the bill was introduced, the Bipartisan Task Force for Responsible Fiscal Action offers one potential means to taking steps to make the tough choices necessary to keep America great, and to help make sure that our country's, children's, and grandchildren's future is better than our past. GAO noted that the bill incorporates key elements needed for any task force or commission to be successful: (1) a statutory basis, (2) a broad charter that does not artificially limit what can be discussed and does not set policy preconditions for membership, (3) bipartisan membership, (4) involvement of leaders from both the executive and legislative branches--including elected officials, (5) a report with specific proposals and a requirement for supermajority vote to make recommendations to the President and the Congress, and (6) a process to require consideration of the proposals. GAO also made some suggestions it believes could enhance the likelihood that the bill will achieve its overarching goals. GAO suggested the sponsors consider (1) including a way for the next President to be involved in the process of proposal development, (2) permitting alternative packages to be voted on that would achieve the same fiscal result, and (3) eliminating the requirement for a supermajority in Congress. With the same aim, GAO also expressed some reservations about the current approach to specifying the Task Force Chairman.
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In the post-Cold War era, the proliferation of chemical and biological weapon technologies in developing countries presents DOD with a national security challenge. The 1997, 2001, and 2006 Quadrennial Defense Reviews as well as other DOD publications have emphasized the need to address the increasing threat posed by the proliferation of weapons of mass destruction, including chemical and biological weapons. The 2006 Quadrennial Defense Review specifically states that DOD's vision is to organize, train, equip, and resource the future force to deal with all aspects of the threat posed by weapons of mass destruction. It notes that DOD has doubled its investment in chemical and biological defenses since 2001, and is increasing funding for its Chemical Biological Defense Program across the Future Years Defense Program by $2.1 billion (approximately 20 percent). However, experiences during the Persian Gulf War and the preparations for Operation Iraqi Freedom exposed weaknesses in the preparedness of U.S. forces to defend against a chemical or biological attack. In addition, we and DOD's Inspector General have published reports addressing continued problems in aspects of DOD's chemical and biological defense preparedness. Finally, at present there remain disagreements within DOD regarding the nature and extent of the chemical and biological threat and the degree to which major weapon systems should be survivable against such threats and capable of operating in a contaminated environment (see app. II). This lack of agreement could adversely affect DOD's ability to develop and carry out a coherent plan to defend against chemical and biological threats. Until 2003, DOD's acquisition procedures (unless waived) required that weapon systems survivability be addressed in accordance with assessed threat levels, including chemical and biological, anticipated in the weapon system's projected operating environment. These procedures defined survivability as the capability of a weapon system and crew to avoid or withstand a man-made hostile environment without suffering an abortive impairment of its ability to accomplish its designated mission. The Army, Navy, and Air Force issued supplemental acquisition policies that established service-specific procedures to address the chemical and biological contamination survivability of their weapon systems. In 2003, DOD replaced its acquisition procedures with a Defense Acquisition Guidebook, which, together with the controlling DOD directive and instruction, no longer specifically requires that weapon system survivability against chemical and biological threats be addressed during the system design and development phase. According to a DOD official, this action was part of a DOD effort to simplify its weapon system acquisition process. The only current DOD acquisition requirement specifically related to chemical and biological threats is that weapon system program offices address protection for crew members (as opposed to the weapon system itself) against the effects of a chemical or biological threat. As part of weapon system design and development efforts, DOD uses scientific and technical information from research and testing activities to better understand various chemical and biological agents and their impact on military operations, including the survivability of weapon systems. DTIC maintains a centralized database containing a broad range of scientific and technical information intended to maximize the return on investment in research, evaluation, and studies. In addition to its centralized database, DTIC uses the Chemical and Biological Information Analysis Center (CBIAC), a contractor-operated information analysis center, to maintain additional databases and provide information specific to chemical and biological issues. DOD indicated in its August 2005 interim report that it intends to build on the existing databases maintained by CBIAC and to develop a centralized database by the end of fiscal year 2007 that contains comprehensive information on the effects of chemical and biological agents and decontaminants on weapon systems. In executing its role as a coordinating point for DOD scientific and technical information databases and systems, DTIC makes information available throughout DOD. Figure 1 illustrates the intended flow of information among testing facilities, program offices, and DTIC. DOD and the military services do not consistently address weapon system chemical and biological survivability during the acquisition process. In the absence of clear DOD guidance and effective controls, responsibility for decisions regarding weapon system chemical and biological survivability has devolved largely to the individual military services and weapon system program offices. The program offices we visited do not consistently document their chemical and biological survivability decisions, nor is there an established, clear, and effective DOD-level process for the oversight of these decisions. Although emphasis is placed on chemical and biological threats in DOD's strategic guidance, DOD and military service policies do not establish a clear process for considering and testing weapon system chemical and biological survivability. While DOD acquisition policies require that survivability of personnel after exposure to chemical and biological agents be addressed by all weapon system programs, they do not specifically require the consideration of weapon system survivability. There also are no DOD policies regarding the quantity and type of weapon system survivability testing that should be conducted. In addition, joint staff policies do not address or provide specific instruction as to how chemical and biological survivability should be considered during the acquisition process, or how this consideration should be monitored, reviewed, and documented. Each of the existing service acquisition policies is therefore unique and differs in the extent and amount of detail it requires for considering weapon system chemical and biological survivability. DOD acquisition officials told us that each weapon system service sponsor has the ability to decide whether and to what extent to incorporate survivability testing. Of the military services, the Army has the most detailed policy for addressing this. However, while emphasizing the need to monitor and review chemical and biological survivability issues in general, Army policies allow service sponsors and program offices to individually decide how and to what extent to consider weapon system survivability during the acquisition process. The Air Force and Navy have less detailed policies and also leave decision making to the weapon system sponsor and program office. Navy officials told us that, in their opinion, having less rigid requirements was advantageous because it reduces system development time and costs. The extent to which services consider weapon system survivability during the acquisition process is further influenced by differences in how each service perceives the chemical and biological threat and plans to conduct operations in a contaminated environment. The Army focuses on tactical and theater chemical and biological threats against exposed ground combat personnel and equipment. In comparison, the Air Force concept of operations in a contaminated environment is mainly a strategy of avoidance and protection, while the Navy view is that a chemical or biological attack on surface ships is a less likely threat. In the absence of DOD-wide policies and processes, DOD officials stated that the responsibility for determining the extent of chemical and biological survivability consideration or testing has fallen largely on the individual weapon system program offices, in consultation with each service sponsor. However, program offices also lack specific guidance and a clear process governing the extent to which chemical and biological survivability should be considered or tested. In our review of nine weapon system programs, we found that the program offices exercised broad discretion over whether or to what extent to evaluate the need for and benefit of conducting chemical and biological survivability testing. Although all nine of these program offices had conducted or were considering some kind of testing, we found that the extent and nature of this testing varied widely, even for similar types of systems. For example, the two sea-based weapon system program offices we reviewed considered chemical and biological testing differently, even though both systems are intended for similar operating environments. The program offices for the three land systems we reviewed also conducted very different tests from one another, although these systems also are intended for the same operating environment. Many factors affected the program offices' determination about the extent to test a weapon system's chemical and biological survivability, including the type of system (air, land, or sea), required system capabilities, system concept of operation, perceived chemical and biological threat, and other factors relating to the status of system cost, schedule, and performance. A more detailed discussion of the testing conducted for the nine weapon system programs we reviewed can be found in appendix II. The nine weapon system program offices we reviewed did not consistently document their decisions regarding how they considered or tested chemical and biological survivability. Although they could provide documentation regarding what survivability testing was conducted, they did not have a consistent method to track what was considered or was not included, because there is no DOD, joint, or service requirement for program offices to document these decisions. DOD officials stated that there is currently no DOD-level process for documenting how weapon system program offices determined whether to consider or test chemical and biological survivability. There is no effective DOD-level oversight of how chemical and biological survivability is considered by weapon system program offices. In 1993, Congress directed the Secretary of Defense to designate an office as the single DOD focal point for chemical and biological defense matters. DOD subsequently identified the Assistant to the Secretary of Defense for Nuclear and Chemical and Biological Defense Programs as the single DOD focal point for chemical and biological defense matters. However, the military services and various offices within DOD never adopted a consistent method for incorporating chemical and biological survivability and related testing into major weapon system development acquisition, including oversight responsibilities. Between 1994 and 2004, GAO and DOD Inspector General reports identified multiple management and oversight process problems regarding the incorporation of chemical and biological survivability into weapon system development. Various military service acquisition offices and DOD agencies, such as the U.S. Army Nuclear Chemical Agency, and the office of the Assistant to the Secretary of Defense for Nuclear and Chemical and Biological Defense, held differing views as to where this responsibility resided and how chemical and biological survivability should be incorporated into weapon system development. These differing views have hindered the development of an oversight process and prevented effective monitoring of weapon system program office decisions regarding chemical and biological survivability. Although the Office of the Assistant Secretary of Defense for Nuclear and Chemical and Biological Defense Programs directed the development and issuance of DOD's August 2005 interim report, DOD continues to lack a clear and effective department-level process for overseeing the inclusion of chemical and biological survivability in weapon system development. In addition, according to DOD officials, no single joint organization, such as the Joint Requirements Oversight Council or the Joint Requirements Office, specifically monitors or tracks whether weapon system chemical and biological survivability is considered in the weapon system acquisition process. There also is no specific chemical and biological survivability Functional Capabilities Board to review program office survivability decisions. DOD officials stated that these joint oversight organizations do not have a role in overseeing weapon system chemical and biological survivability and that consideration of survivability requirements during the acquisition process is therefore service-specific. Furthermore, because chemical and biological survivability is not usually a key performance parameter for a weapon system, it is often traded off to satisfy other pressing requirements dealing with the weapon system cost, schedule, or performance. DOD officials we spoke with acknowledged that program cost and schedule concerns could reduce the amount of chemical and biological weapon system survivability testing conducted. While the Milestone Decision Authority focuses on requirements associated with key performance parameters, none of the nine weapon systems we reviewed included chemical and biological survivability as a key performance factor. Only specific chemical and biological equipment-such as detection, protection, and decontamination equipment-have identified chemical and biological survivability as a key performance parameter. DOD, through DTIC, maintains a centralized database for science and technology information that could facilitate program offices' consideration of weapon system chemical and biological survivability, but the comprehensiveness of the survivability information in this database is unknown. We found it unlikely that this database is comprehensive for three reasons: (1) DOD policy is unclear as to whether chemical and biological information is covered by the policy, (2) no process has been established governing how information should be submitted to DTIC, and (3) no office or organization is responsible for overseeing that information is submitted to DTIC. It is unclear whether chemical and biological survivability information is covered by the broad DOD policy directing that scientific and technical information be submitted to DTIC. This policy requires that DTIC be provided with copies of DOD-sponsored scientific and technical information, but does not specifically address whether chemical and biological survivability information is included. Some DOD officials involved in chemical and biological survivability research and/or testing told us that they believed they were not required to submit the results of their work to DTIC. Further, there is no established process for submitting chemical and biological information to DTIC. As a result, individual personnel and organizations submit information to DTIC through ad hoc actions, and some DOD officials expressed concern that not all information is submitted to DTIC as required. Finally, no office or organization in DOD has been clearly designated as responsible for exercising oversight to ensure that chemical and biological research and testing results are submitted to DTIC. The DOD instruction addressing management of the collection of scientific and technical information assigns responsibility for submitting research and testing results to the DOD activities involved, but this instruction does not specifically indicate whether the activity sponsoring or approving the work or, alternatively, the organization performing it is responsible for its submission to DTIC. Officials at the DOD research and testing facilities we visited told us they routinely submitted the results of their work to DTIC, and we observed that DTIC and CBIAC were storing large amounts of this information. The two major DOD chemical and biological research and testing facilities we visited had an oversight process in place for ensuring that all research and testing projects submitted the required information to DTIC. However, responsibility for submitting this information was either left to individual research or testing staff, or was presumed to have been submitted to DTIC by the program offices requesting the work. DTIC officials stated that DTIC was not responsible for ensuring that DOD research and testing facilities submitted all research and testing results, and that DTIC had neither the authority nor the desire to do this. We could not identify any military service or program office level oversight for ensuring that research and testing results were submitted to DTIC, and some of the program offices we visited said the submission of research and test results to DTIC was not their responsibility. The absence of an internal control for ensuring that research and test results are submitted to DTIC and entered in DTIC's database could result in unnecessary expenditures on duplicative work. For example, if research or testing is performed regarding an aspect of survivability, but its results not entered in the DTIC database, officials in another program office interested in the same research or testing might fail to recognize it had already been performed and cause this work to be done again. The issues identified in previous DODIG and GAO reports regarding weapon system incorporation of chemical and biological survivability during the system acquisition process remain largely unresolved. Without DOD establishing consistent policy requiring that chemical and biological survivability be considered during weapon system acquisition and establishing a clear process for doing so, the incorporation of chemical and biological survivability into major weapons system acquisition is likely to remain varied and inconsistent. Consequently, military planners and commanders are likely to face varying weapon system performance, availability, and interoperability issues. This, in turn, could complicate the planning and execution of operations and increase the risk of mission failure, because systems that are not chemically or biologically survivable but become exposed to chemical or biological agents may not be available to a combatant commander for reuse in critical missions, such as deploying or supplying troops. Furthermore, without consistent documentation of program offices' rationales for trade-off decisions in their consideration of weapon system chemical and biological survivability, DOD's ability to identify and analyze associated risks could be hindered. Finally, the absence of a clearly defined DOD-level process for overseeing military service and program office actions limits DOD's ability to ensure that appropriate weapon system survivability decisions are being made. Without clarifying existing policies regarding which research and testing information should be submitted, the process to be used for submitting it, and which DOD offices or organizations are responsible for overseeing its submission, DTIC will likely be unable to ensure the maintenance of a centralized database containing comprehensive chemical and biological research and testing information. This could limit DOD's ability to efficiently and economically assess the effects of chemical and biological agent contamination on weapon system components and materials, and could result in duplicative research and testing, thus causing unnecessary design and development costs. To better ensure the incorporation of chemical and biological survivability into weapon systems, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to take the following six actions: Either modify current DOD policy or develop guidance to ensure that chemical and biological survivability is consistently addressed in the weapon system acquisition process. This policy or guidance should establish a clear process for program offices to follow regarding the extent to which chemical and biological system survivability should be considered and tested; require consistent, DOD-wide documentation of decisions regarding how weapon system chemical and biological survivability is considered and tested; and establish an oversight process within DOD and the services for monitoring weapon system program office decisions; modify current DOD policy to ensure that DOD's database of chemical and biological scientific and technical information is comprehensive. This modified policy should state which chemical and biological survivability information belongs in the body of scientific and technical information that is required to be submitted to DTIC; clarify responsibilities and establish a specific process for the submission of chemical and biological scientific and technical information to DTIC; and designate which DOD office or organization is responsible for exercising oversight to ensure that this information is submitted to DTIC. In commenting on a draft of this report, DOD concurred with all recommendations. Regarding our recommendations for either modifying current DOD policy or developing guidance to ensure that chemical and biological survivability is consistently addressed in the weapon system acquisition process, DOD plans to issue a Chemical Biological Contamination Survivability Policy by May 2006 and subsequently draft a DOD Directive addressing Chemical, Biological, Radiological, and Nuclear Survivability. With regard to our recommendations for modifying current DOD policy to ensure that DOD's database of chemical and biological scientific and technical information is comprehensive, DOD initiated the development of a chemical and biological material effects database by forming and hosting an executive steering committee that met for the first time in March 2006. DOD plans to establish and institute this database at the Chemical and Biological Defense Information and Analysis Center (CBIAC) managed by the Defense Technical Information Center (DTIC). The Assistant to the Secretary of Defense for Nuclear and Chemical and Biological Defense Programs is overseeing the development of this database, which DOD expects to be ready by the end of Fiscal Year 2007. DOD's comments are reprinted in appendix III. DOD also provided technical comments, which we have incorporated as appropriate. We are sending copies of this report to the Secretaries of Defense, the Air Force, the Army, the Navy, and the Commandant of the Marine Corps; and the Director, Office of Management and Budget. We 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 members have any questions regarding this report, please contact me at (202) 512-5431 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. To assess the extent to which DOD addresses weapon system chemical and biological survivability during the acquisition process, we reviewed DOD, joint staff, and service policies, guidance, and procedures and interviewed officials throughout DOD. We also conducted a non probability sample of nine major weapon systems. We selected programs for this non probability sample based on several factors, including (1) high dollar value, (2) whether the weapon system was a joint program, and (3) risk of exposure to chemical and biological weapons. The methodology used to select our sample helped achieve a sample of weapon systems that was both diverse and relevant to chemical and biological survivability. For example, the sample includes weapon systems from all military services and all types of systems-land, sea, and air. The sample also includes both legacy systems and those currently in development. To understand how DOD's acquisition, testing, and data submission and storage policies affect weapon systems program offices' practices, we spoke with officials and examined documentation from the nine weapon system program offices we reviewed. The list of selected weapons systems is provided below: DD(X) Destroyer Stryker Infantry Carrier V-22 Osprey Vertical Lift Aircraft To determine the extent to which DOD maintains a comprehensive database for facilitating the inclusion of chemical and biological survivability in weapons system design and development, we reviewed DOD and service policies, guidance, and procedures. We compared these policies, guidance, and procedures to the objectives and fundamental concepts of internal controls defined in Standards for Internal Control in the Federal Government. We also conducted interviews with database officials and members of the chemical and biological testing community and reviewed documents at the following locations in consultation with DOD officials and identified as crucial to this subject area in previous GAO reports: Air Force Research Laboratory, Dayton, Ohio Army Research Laboratory, Survivability and Lethality Analysis Directorate, Aberdeen, Maryland Chemical and Biological Information Analysis Center, Edgewood, Defense Technical Information Center, Fort Belvoir, Virginia West Desert Test Center, Dugway Proving Ground, Utah Defense Threat Reduction Agency, Alexandria, Virginia We conducted our review from February 2005 through January 2006 in accordance with generally accepted government auditing standards. pon tem condcted teting t either the copon, component, or tem level. Wepon tem in deign phase. Specific procedre for the conider- tion of chemicnd ilogicsurvivability not developed. Concept of opertion preclde thi vehicle from operting in chemicl or iologicl contminted environment. We found that the extent and nature of chemical and biological survivability testing varied widely in all nine weapon systems we reviewed, even for similar types of systems. Both sea-based weapon systems we reviewed exhibited varying consideration of chemical and biological testing. For example, the Navy's Littoral Combat Ship (LCS) program office considered chemical and biological survivability testing low-risk due to the perceived operating environment and concept of operations for this weapon system. Officials stated that the key survivability approach will be to reduce susceptibility to contamination through detection and avoidance. In contrast, the Navy's next generation destroyer DD(X) was designed with a higher chemical and biological system protection level, and consequently the program office conducted limited coupon testing of specific materials found in the ship's superstructure. In its technical comments on this report, DOD stated that this occurred because the DD(X) concept of operations does not preclude exposure to chemical and biological attacks, while the LCS concept of operations does preclude exposure to chemical and biological agents. These systems thus utilized different concepts of operations although both are intended to operate in a littoral environment. DOD and program officials stated that land systems would be those most likely to include chemical and biological survivability testing because of the increased likelihood of encountering contamination on the modern battlefield. However, these programs also conducted tests very different from each other although they are intended for the same operating environment. The Marine Corps' Expeditionary Fighting Vehicle program office conducted four chemical and biological materials tests that looked at the effects of decontaminants on a variety of materials and included extensive tests using Chemical Agent Resistant Coating on the exterior and interior of the vehicle. In comparison, program officials from the Army's new wheeled personnel carrier, Stryker, used a different approach, focusing on applying a chemical agent simulant to a complete Stryker vehicle and then conducting decontamination procedures. However, in this case a different testing approach for a similar system may have been appropriate because the Stryker is not constructed with new materials and all existing materials used in constructing the Stryker meet military specification requirements for chemical and biological survivability. The Army's Future Combat System is currently reassessing chemical and biological survivability in its design and development. This program is still in development and has not reached the point where definitive decisions on chemical and biological survivability are applicable. The Army sponsor and the program office have been coordinating with the Joint Requirements Oversight Council, U.S. Army Nuclear and Chemical Agency, and the Army Training and Doctrine Command in creating chemical and biological survivability requirements. Of the four aircraft weapon system programs we sampled, three conducted similar levels of chemical and biological testing. Of the three current systems, the Air Force's F/A-22 Raptor and Joint Strike Fighter program offices conducted testing as extensive as that conducted by the Navy for the V-22 Osprey, although these two systems were assessed as much less likely to encounter chemical and biological contamination as the V-22 Osprey. The V-22 Osprey program office performed vulnerability assessments, survivability assessments, and some material coupon tests. Both the Air Force Joint Strike Fighter and F/A-22 Raptor program offices conducted complementary material and component contamination and decontamination compatibility tests. To identify material survivability issues, the F/A-22 Raptor program office contracted with a defense contractor to perform a literature search in advance of any testing. The Joint Strike Fighter program office effectively employed the results of this F/A-22 Raptor testing performed by using the survivability manual developed for the F/A-22 Raptor rather than developing its own. This manual was effectively used as a reference to meet both program's chemical and biological survivability and decontamination thresholds following exposure to chemical and biological weapons and decontamination procedures. The legacy aircraft system we reviewed, the C-17, conducted little chemical and biological testing because much of its testing and development occurred during a different threat environment. Program officials stated that decontamination procedures for the C-17 were developed in the 1980s and that the chemical and biological survivability requirements were drastically scaled down after the end of the Cold War. Many factors affected the program office's determination about the extent to test a weapon system's chemical and biological survivability. These factors included the type of system (i.e., air, land, or sea), required system capabilities, system concept of operation, the perceived chemical and biological threat, and other factors related to the status of system cost, schedule, and performance. Senior DOD officials stated that each service sponsor has the ability to choose whether to accept the risks related to cost and schedule to incorporate testing of chemical and biological survivability. DOD officials stated that in general land systems are perceived as the most likely to encounter chemical and biological contamination and that the perceived threat for sea and air systems has traditionally been considered lower than the perceived threat for land systems. This perception was based on old Cold War concepts and has since changed. DOD officials told us that asymmetric threats are a greater concern today and that system developers must weigh the threat context as they are developing systems and deciding what types of survivability to test based on perceived risk. Program offices we visited stated that the high financial cost of both live and simulated chemical and biological agent testing was a factor that influences decisions about testing weapon system chemical and biological survivability. For example, officials at the Expeditionary Fighting Vehicle program office estimated that coupon testing with live agents could cost approximately $30,000 to $50,000, and full system, live agent field testing of equipment at a facility such as the West Desert Test Center at Dugway Proving Grounds would cost approximately $1 million. In addition, the C-17 program office stated that live agent testing cost approximately $1 million. Interviews with various DOD research facilities where testing is conducted supported these amounts. F/A-22 program officials also stated that although they conducted coupon and component tests, they would not encourage a full system chemical and biological survivability test because such a test would be too expensive and would destroy the aircraft being tested. In addition to the contact named above, William Cawood, Assistant Director; Renee S. Brown, Jane Ervin, Catherine Humphries, David Mayfield, Renee McElveen, Anupama Patil, Matthew Sakrekoff, Rebecca Shea, and Cheryl Weissman also made key contributions to this report.
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The possibility that an adversary may use chemical or biological weapons against U.S. forces makes it important for a weapon system to be able to survive such attacks. In the National Defense Authorization Act for Fiscal Year 2005, Congress mandated that the Department of Defense submit a plan to address weapon system chemical and biological survivability by February 28, 2005. This plan was to include developing a centralized database with information about the effects of chemical and biological agents on materials used in weapon systems. DOD did not submit its plan as mandated. GAO was asked to evaluate (1) the extent to which DOD addresses weapon system chemical and biological survivability during the acquisition process, and (2) DOD's internal controls for maintaining a comprehensive database that includes chemical and biological survivability research and test data for weapon system design and development. The extent to which chemical and biological survivability is considered in the weapon system acquisition process is mixed and varied. Although DOD strategic guidance and policy has emphasized the growing threat of an adversary's use of chemical and biological weapons for over a decade, DOD, joint, and military service weapon system acquisition policies are inconsistent and do not establish a clear process for considering and testing system chemical and biological survivability. To assess the extent DOD addresses chemical and biological survivability during the acquisition process, GAO conducted a non probability sample of nine major weapon systems based on high dollar value, whether the system was a joint program, and risk of exposure to chemical and biological weapons. Because DOD and joint acquisition policies do not require that survivability be specifically addressed, the military services have developed their own varying and unique policies. Thus, for the nine weapon systems GAO reviewed, the program offices involved made individual survivability decisions, resulting in inconsistent survivability consideration and testing. In the absence of DOD requirements, program offices also inconsistently document their decisions regarding how they consider and test chemical and biological survivability. Furthermore, DOD policies do not establish a clear process for responsibility, authority, and oversight for monitoring program office decisions regarding chemical and biological survivability. Without establishing consistent policies requiring that chemical and biological survivability be considered during weapon system acquisition, and a clear process for doing so, military planners and commanders are likely to face varying weapon system performance, availability, and interoperability issues. These could negatively affect system availability in a contaminated environment and limit DOD's ability to identify risk and ensure that appropriate decisions are made. DOD, through its Defense Technical Information Center (DTIC), maintains a centralized database for science and technology information that could facilitate program offices' consideration of weapon system chemical and biological survivability, but the comprehensiveness of this database is unknown due to inadequate internal controls. It is unlikely that the DTIC database contains fully comprehensive information about this for three reasons. First, it is unclear whether this information is covered by the broad DOD policy directing that scientific and technical information be submitted to DTIC. Second, there is no established process for submitting scientific and technical information to DTIC. As a result, it is submitted to DTIC through the ad hoc actions of individual personnel and organizations, and some DOD officials expressed concern that not all information is being submitted to DTIC. Third, no office or organization in DOD has been given clear oversight responsibility to ensure that information is submitted to DTIC. The lack of a database with comprehensive information about weapon system chemical and biological survivability creates the risk of unnecessary expenditures on duplicative testing.
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Federal laws authorize both state and federal entities to protect the Medicaid program from fraud, waste, and abuse. Specifically, various provisions of federal law give CMS the authority to oversee Medicaid program integrity and to set requirements with which state Medicaid programs must comply. As a result, program integrity efforts consist of state and federal activities to detect and deter improper payments-- including fraud, waste, and abuse--that range from provider enrollment to post-payment claims review and investigation. Provider enrollment: States screen providers who seek to participate in Medicaid to verify their eligibility. As part of the enrollment process, states must collect certain information from providers, including MCOs, about their ownership interests and criminal background, search exclusion and debarment lists, and take action to exclude those providers who appear on those lists. In some states, MCOs are primarily responsible for enrolling participating providers. Pre-payment review: States conduct prepayment review of claims to ensure appropriateness. Typically, states use payment edits programmed into their claims processing systems to compare claims data in order to approve or deny claims, or flag them for further review. They may also analyze claims data against models of fraudulent behavior to identify potentially fraudulent providers for further investigation. Post-payment claims review: States and Medicaid contractors analyze paid claims, related provider records, and supporting documentation to ensure appropriate utilization, and to identify potential improper payments. These routine reviews may rely on the use of algorithms and data mining to identify potentially improper payments, which are subjected to additional review, including audits. Auditing: Payments to providers are audited to determine compliance with Medicaid billing rules. Investigation: When enrollment, prepayment review, post-payment review, or audits uncover potentially fraudulent claims, states must refer those claims or providers to law enforcement entities for investigation and possible prosecution. Recovery: Once a state has identified and documented improper payments through audit activity, the state generally has one year from the date of a final audit report to recover the overpayment from the provider before reporting the return of the federal share, which can reach up to 100 percent for certain newly enrolled populations under PPACA, to CMS. Federal law requires the state to return the federal share of the overpayment regardless of whether the state was able to recover it, unless the provider has been determined to be bankrupt or out of business. A variety of entities are engaged in Medicaid program integrity activities. States have primary responsibility for reducing, identifying, and recovering improper payments. Federal entities typically provide oversight, as well as program and law enforcement support. Figure 1 illustrates the various entities, both federal and non-federal, that are involved in Medicaid program integrity. See, e.g., 42 U.S.C. SSSS 1396a(a)(69), 1396u-6. PI units for corrective action and potential fraud cases to the state's MFCU. In addition, states are now required to contract with recovery audit contractors (RAC) to identify under- and over-payments as part of their program integrity activities. CMS oversees state Medicaid programs by providing states with guidance related to statutory and regulatory requirements, as well as technical assistance on specific program integrity activities such as data- mining. The DRA increased the federal government's role by establishing the Medicaid Integrity Program to support and oversee state program To carry out these responsibilities, CMS established the integrity efforts. Medicaid Integrity Group, which conducts comprehensive reviews of state Medicaid program integrity activities to assess these activities and the state's compliance with federal program integrity laws. In addition, the Medicaid Integrity Group works with MICs who review and audit Medicaid claims. The Medicaid Integrity Group also provides training to state program integrity staff through its Medicaid Integrity Institute. CMS also collects information from states on their recoveries of overpayments; however, we recently reported that most states were not fully reporting recoveries and recommended that CMS should increase efforts to hold states accountable for reliably reporting program integrity recoveries to ensure that states are returning the federal share of recovered overpayments. HHS-OIG oversees Medicaid program integrity through its audits, investigations, and program evaluations. It is also responsible for enforcing certain civil and administrative health care fraud laws. In addition, the HHS-OIG oversees the MFCUs, assessing their compliance with statutes, regulations, and HHS-OIG policy. HHS-OIG is also responsible for assessing MFCU performance and recommends program improvements where appropriate. States have traditionally provided Medicaid benefits using a fee-for- service system, where health care providers are paid for each service. However, according to CMS, in the past 15 years, states have more frequently implemented a managed care delivery system for Medicaid benefits. In a managed care delivery system, beneficiaries obtain some portion of their Medicaid services from an organization under contract with the state, and payments to MCOs are typically made on a predetermined, per person per month basis. In contrast, under the traditional fee-for-service delivery system, health care providers are paid for each unit of service delivered. Two-thirds of Medicaid beneficiaries now receive some of their services from MCOs, and many states are expanding their use of managed care to additional geographic areas and Medicaid populations. Nationally, approximately 27 percent, or $74.7 billion, of federal Medicaid expenditures in fiscal year 2011 were attributable to Medicaid managed care which, according to HHS, included the 57 percent of Medicaid beneficiaries who were enrolled in Medicaid MCOs as of July 1, 2011. States oversee MCOs that provide care to Medicaid beneficiaries through contracts and reporting requirements, which may include identifying improper payments to providers within their plans. In addition, CMS has developed requirements for states and MCOs to protect against fraud and abuse in Medicaid managed care. Among other things, CMS requires MCOs to implement compliance plans, train MCO employees, and monitor payments. Most state and federal program integrity officials we interviewed told us that they did not closely examine Medicaid managed care payments, but instead primarily focused their program integrity efforts on FFS claims. Moreover, federal entities have taken few steps to address Medicaid managed care program integrity. State PI unit officials from five of the seven states in our study and MFCU officials from four of the study states told us they primarily focus their program integrity efforts on Medicaid FFS claims. These officials said they have not begun to closely examine program integrity in Medicaid managed care, which is a growing portion of overall Medicaid State PI units and MFCUs are responsible for ensuring expenditures.Medicaid program integrity, part of which includes monitoring managed care program integrity. Each of the seven states included in our review had more than 60 percent of beneficiaries enrolled in managed care as of July 1, 2011, and expenditures attributable to managed care in the seven states varied, ranging from 18 to 38 percent of their total Medicaid spending in fiscal year 2011. PI unit officials from the seven states described differing levels of complexity in conducting Medicaid managed care program integrity activities, as shown in the examples that follow. At the most sophisticated level, PI unit officials from two of the seven states we spoke with told us they examined payments to MCO plans and providers to identify improper payments, conducted meetings with MCOs to discuss provider audits and investigations, and used data analytics to identify aberrant patterns among MCO providers. They also conducted independent audits of payments to MCO plans. PI unit officials in the remaining five states told us that they were still in the early stages of shifting the focus of program integrity efforts to Medicaid managed care, and thus reported more limited actions. PI unit officials from three of these five states told us they examined Medicaid managed care providers for improper payments and fraud by reviewing MCO reporting on improper payments. PI unit officials from the remaining two states told us they did not examine MCO encounter data, and one of these states told us they do not perform audits of MCO providers or actively search for fraudulent activities. MCOs have responsibility for identifying improper payments to providers within their plans; however, state officials suggested that MCOs might not have an incentive to identify and recover improper payments. Officials from two of the seven state PI units we spoke with told us that they believed MCOs were not consistently reporting improper payments to the state to avoid appearing vulnerable to fraud and abuse. Further, officials from three PI units described a potential conflict of interest because when MCOs report improper payment recoveries, future capitation rates could be reduced because of any improper payments identified. For example, officials from four PI units said their states account for improper payment recoveries and explained that it negatively impacts the MCO plans' rates for the following year. State officials we spoke with told us that one reason they have not focused on managed care program integrity is that MCO plan and provider audits and investigations are more complex than those in the FFS model. Similarly, almost all of the state MFCU officials we spoke with told us that extra effort was required to obtain detailed managed care claims data. While most states have access to managed care encounter data, states must rely on MCO plans to provide actual dollar amounts of claims, which are needed to audit and investigate providers and determine the amounts of overpayments. Obtaining the data from each MCO could require significant time and effort, which may hamper audits and investigations, particularly in states with several MCO plans. For example, according to CMS, as of July 1, 2011, four of the seven states included in our review had 20 or more MCOs operating in their state. State officials also told us that in order to be effective, PI unit and MFCU staff needed specialized training and federal support in the form of updated regulations, guidance, and technical assistance. For example, state program integrity staff from two states attending the 2013 National Association of Medicaid Program Integrity conference suggested that one way that CMS could enhance its assistance to states would be to redirect its Medicaid integrity contractors to focus their audit activities on managed care payments. Such an arrangement could help identify possible patterns or vulnerabilities across states and assist states as they work to acquire the necessary expertise in managed care program integrity. Without closer examination of Medicaid managed care payments, state PI units and MFCUs have limited ability to identify improper payments made to MCOs. They are also unable to ensure that MCOs are taking appropriate actions to identify, prevent, or discourage improper payments to providers. PPACA is expected to significantly expand the Medicaid program, with many of the new beneficiaries being enrolled in managed care and covered almost entirely by federal funds in 2014 through 2016. Considering managed care's growing share of federal Medicaid expenditures, Medicaid managed care is an area where program integrity activities are of growing importance to ensure the protection of federal dollars. Similar to states, federal entities--CMS and HHS-OIG--have taken few steps to address Medicaid managed care program integrity. For example, CMS officials told us that states have primary responsibility for direct oversight of MCOs' compliance with program integrity requirements. CMS provides on-going support and guidance to states regarding their managed care programs, including review and approval of states' managed care waivers and contracts, as well as assessment and guidance regarding program integrity in Medicaid managed care. For example, CMS's comprehensive reviews examine state compliance with federal regulations governing managed care contracts, such as ensuring that MCOs disclose certain ownership and control information. However, according to CMS officials, the comprehensive reviews do not require or check to ensure that states are conducting more in-depth managed care program integrity activities, such as audits of managed care claims. In 2000, CMS issued Medicaid managed care program integrity guidance to states; as of Nov. 18, 2013, however, this guidance was not available on the CMS website, and six of the seven state PI unit officials we spoke with did not mention it when asked about the guidance they relied on in CMS officials said they were conducting program integrity activities.updating this guidance, but did not have a timeline for its completion. According to CMS officials, states have requested additional support in ensuring managed care program integrity, and CMS has taken some actions to provide additional assistance. CMS officials said that states, including those with significant managed care experience, are still trying to understand their roles and responsibilities in overseeing managed care program integrity. In 2013, CMS offered two training sessions on Medicaid managed care program integrity through its Medicaid Integrity Institute. CMS officials told us that the sessions were well attended by PI unit staff and other Medicaid program staff. We reviewed the presentation materials, which provided extensive information regarding Medicaid managed care program integrity practices and strategies. Presentation materials are accessible to PI staff who did not attend the training if they register as users through the Medicaid Integrity Institute website. States and CMS ensure Medicaid program integrity by preventing, detecting, and recovering improper payments. Specifically, various provisions of the SSA authorize CMS to develop requirements for the proper and efficient operation of the Medicaid program, including reporting requirements and methods for prepayment and post-payment review. In addition, the SSA requires CMS to audit Medicaid claims, including cost reports and payments to MCOs and requires MCO contracts to contain provisions giving HHS and states audit and access authority over MCOs and their subcontractors. This contractual requirement also appears in CMS's regulations, although CMS does not require states to conduct such audits. Moreover, PPACA required state Medicaid programs to establish contracts consistent with state law and similar to the contracts established for the Medicare RAC program, and required CMS to coordinate this expansion with the states and to promulgate implementing regulations. CMS subsequently issued guidance to the states and a regulation implementing the Medicaid RAC program; however, this regulation allowed states to exclude Medicaid In comments managed care claims from review by Medicaid RACs.accompanying the final rule, issued in 2011, CMS indicated that it might require Medicaid RACs to review managed care claims during future rule- making, once a permanent Medicare managed care RAC program was fully operational or a viable state Medicaid model had been identified. During a February 2014 interview with CMS officials, the officials reiterated that they were open to revisiting the issue of whether the Medicaid RAC program should cover MCO claims, but the officials did not provide any specific details regarding how or when this might be accomplished. The need for CMS leadership on program integrity efforts in managed care is particularly important, given that some states' expansions of their Medicaid programs under PPACA may be accomplished through managed care arrangements. Until CMS takes steps to ensure the integrity of Medicaid managed care, state and federal Medicaid dollars remain vulnerable to fraud, waste, and abuse. The HHS-OIG has noted the emergence of MCO fraud among recent Medicaid fraud trends, citing the increase in the agency's workload on MCO fraud cases. During the 2013 National Association of Medicaid Program Integrity conference, the agency presented on the challenges associated with identifying different types of plan-based fraud schemes, some of which result in inflated payments to MCOs. While CMS does audit states' payments to MCOs to verify that the state is paying the capitated rates specified in the MCO's contract, CMS does not require states to audit the appropriateness of these payments, to ensure, for example, that these payments do not include improper payments by plans. In addition to plan-level fraud, the agency has noted the need for more emphasis on analyzing potential provider fraud in Medicaid managed care. On June 1, 2012, HHS-OIG issued updated performance standards directing MFCUs to take steps to ensure that state Medicaid agencies, MCOs, and other agencies refer suspected provider fraud cases to the MFCU. Additionally, the updated performance standards direct MFCUs to ensure their caseload mix reflects the proportion of Medicaid beneficiaries enrolled in managed care. As of March 10, 2014, HHS-OIG had published three MFCU evaluations that used the new performance standards. In one MFCU evaluation, HHS-OIG found that 55 percent of the state's Medicaid beneficiaries were enrolled in MCOs, but the state's MFCU only opened one case involving an MCO during the two year review period. The other two state MFCU evaluations did not mention managed care, although the states' MFCUs did not open or close any managed care provider cases during the review period. According to CMS officials, as of July 1, 2011, the two states had almost 78 percent and nearly 60 percent of their Medicaid beneficiaries enrolled in MCOs. The involvement of multiple state and federal entities in similar activities-- post-payment reviews, audits, and investigations--has resulted in fragmented program integrity activities. Typically, as we have found in past work, coordinating activities can alleviate many of the problems created by fragmentation, allowing entities to avoid unnecessary duplication and overlap. State program integrity officials we interviewed told us that coordination efforts helped them avoid unnecessary duplication, but presented additional challenges. Post-payment review activities are primarily led by states' PI units, which can include their SURS and RACs. Other state entities, such as state auditors' offices and other divisions in the state Medicaid agency may also participate in post-payment review activities. PI units coordinate these activities by (1) delegating specific data-mining targets to specific entities to avoid overlap, or (2) coordinating data-mining activities to ensure that the different entities are not duplicating each other's efforts to identify improper payments. For example, in four of the five states that had signed contracts with RACs, PI unit officials told us they require that before starting a data-mining project, the RAC must submit its plan to the PI unit for approval.data-mining activities to ensure that the RAC will not be duplicating the activities of other entities. Additionally, officials from one of these PI units told us they participate in a monthly meeting with the SURS, RAC, ZPIC, state auditor's office, and MFCU to discuss current data mining projects, and to decide who is best able to handle specific cases. Then, the PI unit checks the plan against other Although multiple state entities conduct post-payment review activities, their activities are not necessarily duplicative. State PI unit officials told us that the purposes of these reviews vary. For example, some PI unit officials told us other divisions within the state Medicaid agencies will use data mining to examine quality of care or clinical oversight issues. SURS post-payment reviews can include ensuring compliance with Medicaid payment policies. The involvement of multiple federal and state entities in audits leads to fragmentation. PI units, RACs, MICs, HHS-OIG--and in some states, the state auditor's office--perform audits. PI unit officials told us they take the lead in coordinating these audit activities to minimize overlap and duplication, as well as expand the types of providers and health care areas subject to review. For example, five of the states we selected for this study had signed contracts with RACs, and PI unit officials from these states told us they direct the RACs to focus audits on specific areas to avoid duplicating other efforts. For example, PI unit officials in one state noted that the RAC asked and was granted permission to examine home health claims, which was an area where the PI unit had been unable to focus. In some cases, PI units also coordinated with MICs on collaborative audits. For these audits, PI units typically identified audit targets using state claims data, and the MIC performed the audit. Officials from one state told us that collaborative audits with the MIC in their state had reviewed over $200 million in claims, from which the state expects some recoveries. With regard to fraud, fragmentation exists, in part, because multiple law enforcement entities may be responsible for the investigation of fraudulent claims. For example, fraud schemes may cross state lines thereby necessitating the involvement of multiple law enforcement entities. MFCUs have the primary responsibility for fraud investigations and coordinate with other state and federal law enforcement entities, including the HHS-OIG, U.S. Attorney's Offices, the Federal Bureau of Investigation, and state attorneys general. MFCUs coordinate with these entities to prevent duplicative investigations and to share knowledge on potential fraud schemes. MFCU officials from all of the states included in our review said they have regular meetings with federal entities to discuss cases, and officials from three MFCUs said they work cases with federal entities. HHS-OIG officials also said they work jointly with MFCUs and other entities to prevent a scenario where both entities would be conducting separate but duplicative investigations. To prevent duplication between fraud investigations and improper payment audits, all PI unit and MFCU officials we spoke with said they meet regularly to discuss current investigations and audits to ensure they are not pursuing the same target. All the MFCUs and PI units from the states that we reviewed had a memorandum of understanding, which describes the entities' relationship, consistent with federal regulation. Additionally, all of these entities said they seldom or never worked on cases involving the same provider at the same time. MFCU officials said that coordination helps with investigations because a PI unit pursuing a separate payment recovery action against a suspect provider could interfere with a criminal investigation. Coordination among PI units and MFCUs also allows the entities to share limited resources as the need arises. For example, MFCUs typically do not have clinical staff on hand, but can rely on the clinical expertise of PI units' and state Medicaid agencies' staff. MFCU officials from four states told us that coordination among entities helped improve their cases by better leveraging resources. Officials from one MFCU said their coordination meetings allow the entities to decide who is best suited to handle specific cases. Officials from two MFCUs said that working with other entities allows the MFCU to give assistance to or receive assistance from these other entities on investigations and executing warrants. Officials from another MFCU told us that other entities can take on cases that the MFCU would not have the authority to prosecute on their own. However, our previous work has shown that measuring the results of health care fraud investigations is difficult due to several factors. These factors include the difficulties of establishing a health care fraud baseline to determine whether the amount of fraud has changed over time, quantifying the effect of investigation and prosecution on deterring fraud, and establishing a causal link between the work and changes in health care fraud. Overall, PI unit officials generally described coordination efforts among program integrity offices positively. Officials from six of the seven PI units generally described their coordination efforts as requiring minimal resources and in some cases suggested that coordination improved program integrity functions, allowing the state to recover additional overpayments. For example, coordination among PI units and other entities--such as RACs or MFCUs--can allow entities to share limited resources and expertise. Officials from five MFCUs said their states' PI units will provide education to MFCU staff on various aspects of, and changes to, the Medicaid program. Officials from one PI unit said that MIC staff provided clinical expertise that was not available within the PI unit. However, some of the officials with whom we spoke said that coordination efforts have sometimes proven to be problematic. For example, officials from three PI units described challenges with some types of collaborations. Officials from one PI unit told us they have to expend resources to address inappropriate audit findings from other entities. For example, in some cases, the MIC had pursued audit findings that the PI unit was not able to successfully support in court. These officials also told us that due to the number of entities involved, the audit coordination process was somewhat convoluted and caused delays in the audit process. Officials from a second PI unit said collaborative audits, which were initially put into place by the Medicaid Integrity Group to enhance collaboration between states and MICs, were not useful. The officials noted that years of working with the MIC on one project have generated less than $1,000 in findings in their state. Officials from a third PI unit told us that they spent time directing RAC activities in order to steer the RAC away from unproductive audits. The PI unit officials said the RACs sometimes pursue audits that result in findings that are difficult to prove and can harm relations with providers. Additionally, officials from three PI units--including two of the above-- said they would prefer to handle the work of RACs or MICs on their own or otherwise consolidate this work, if resources were available. PI units and MFCU officials told us that their organizations coordinate their activities with multiple entities to avoid unnecessary duplication; however, the results of these coordinated efforts have been mixed. Despite the combined efforts of various program integrity entities, our previous work has found that some states appear to be recovering only a small portion of estimated improper payments. GAO identified a gap between state and federal efforts to ensure Medicaid managed care program integrity. Federal laws require the states and CMS to ensure the integrity of the Medicaid program, including payments under Medicaid managed care. However, most of the state PI units and MFCUs included in our review were not closely examining the activities of MCOs citing a lack of sufficient guidance and support. For example, CMS does not require states to audit the appropriateness of payments to MCOs to ensure payments have not been improperly inflated, nor does CMS require states to include review of payments to MCO providers as part of their Medicaid RAC programs. However, CMS has largely delegated managed care program integrity activities to the states. Without adequate federal support and guidance on ways to prevent or identify improper payments in a managed care setting, states are neither well-positioned to identify improper payments made to MCOs, nor are they able to ensure that MCOs are taking appropriate actions to identify, prevent, or discourage improper payments. Such efforts take on greater urgency as states that choose to expand their Medicaid programs under PPACA are likely to do so with managed care arrangements, receiving a 100 percent federal match for newly eligible individuals from 2014 through 2016. Unless CMS takes a larger role in holding states accountable, and provides guidance and support to states to ensure adequate program integrity efforts in Medicaid managed care, the gap between state and federal efforts to monitor managed care program integrity leaves a growing portion of federal Medicaid dollars vulnerable to improper payments. Program integrity activities are fragmented across multiple state and federal entities. If not carefully coordinated, these fragmented activities could result in additional overlap and unnecessary duplication. State PI units and MFCUs we reviewed coordinate with one another and federal entities to avoid duplication, but their coordination efforts present both benefits and challenges. As implemented across the states, newer program integrity efforts--such as RACs and MICs--may improve states' efforts to identify and recover improper payments; however, they will also increase the need for coordination to ensure maximum program coverage and minimum duplication and overlap of program integrity activities. Given that combined federal and state efforts have recovered only a small portion of the estimated improper payments, it will be important to continue to monitor federal and state program integrity efforts in Medicaid as a means of assessing whether the current structure is effective. In order to improve the efficiency and effectiveness of Medicaid program integrity efforts, we recommend that the Administrator of CMS take the following three actions: 1. hold states accountable for Medicaid managed care program integrity by requiring states to conduct audits of payments to and by managed care organizations; 2. update CMS's Medicaid managed care guidance on program integrity practices and effective handling of MCO recoveries; and 3. provide the states with additional support in overseeing Medicaid managed care program integrity, such as the option to obtain audit assistance from existing Medicaid integrity contractors. We provided a draft of this report to HHS for comment. In its written comments, HHS stated that the Department concurred with two of our recommendations, and stated that our first recommendation-- to hold states accountable for Medicaid managed care program integrity by requiring states to conduct audits of payments to and by managed care organizations--was unclear. In response to this recommendation, HHS listed current CMS activities that the Department believes address the first recommendation. These activities include the audits under the PERM program, the adoption of regulations requiring MCOs to have fraud and abuse compliance plans and to provide in their contracts for HHS and state audit and access authority. While the activities described by HHS support states in ensuring other aspects of Medicaid program integrity, they do not require states to conduct audits to ensure the appropriateness of payments to MCOs or payments by MCOs and therefore do not achieve the goal of our recommendation. Taking this additional step, particularly in combination with additional guidance and audit assistance, would help ensure that payments to MCO plans are appropriate and that providers within MCOs are also consistently reviewed, thus helping ensure the integrity of the Medicaid program. HHS agreed with our recommendation to update CMS's Medicaid managed care guidance on program integrity practices and effective handling of MCO recoveries. HHS stated that CMS is consulting with federal and state partners regarding strategies to improve Medicaid program integrity, and plans to address changes in future rulemaking or other guidance. Additionally, HHS agreed that states could benefit from additional Medicaid managed care guidance, particularly regarding improper payment recoveries, and that CMS would consider issuing guidance to states regarding the handling of overpayment recoveries. HHS also agreed with our recommendation that CMS provide states with additional support in overseeing Medicaid managed care program integrity, such as the option to obtain audit assistance from existing Medicaid integrity contractors. HHS stated that CMS currently offers assistance to states, including guidance in the use of tools for managed care program integrity. HHS also said that in 2014 CMS will conduct special in-depth reviews focused on managed care program integrity activities in selected states that are expanding the use of managed care. Additionally, HHS stated that CMS is working with two states with considerable managed care experience to develop a model for managed care audits for all states. HHS's comments are reproduced in appendix I. HHS also provided technical comments, which we incorporated as appropriate. We also provided an extract of this report to the state PI units and MFCUs that we selected for interviews. We incorporated their technical comments 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 committees, 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 at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix II. In addition to the contact named above, key contributors to this report were: Tom Conahan, Assistant Director; Matthew Gever, Drew Long, Jasleen Modi, Dawn Nelson, and Jennifer Whitworth.
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In fiscal year 2013, the Medicaid program covered about 71.7 million individuals at a cost of $431.1 billion, of which CMS estimated that $14.4 billion (5.8 percent) were improper payments. Multiple state and federal entities are involved in program integrity efforts, such as payment review, auditing, and investigating fraud. GAO was asked to examine how these entities ensure comprehensive Medicaid program integrity. This report examines state and federal roles and responsibilities to identify potential (1) gaps in efforts to ensure Medicaid program integrity coverage; and (2) fragmentation, overlap, or duplication of program integrity efforts, and efforts to coordinate activities. GAO examined relevant federal laws and regulations, CMS guidance, and state program integrity reviews. GAO also interviewed officials from CMS and HHS's Office of Inspector General, as well as PI unit and MFCU officials from seven states. GAO identified a gap in state and federal efforts to ensure Medicaid managed care program integrity. Federal laws require the states and the Centers for Medicare & Medicaid Services (CMS) to ensure the integrity of the Medicaid program, including payments under Medicaid managed care, which are growing at a faster rate than payments under fee-for-service (FFS). However, five state program integrity (PI) units and four Medicaid Fraud Control Units (MFCU) from the seven states included in GAO's review said they primarily focus their efforts on Medicaid FFS claims and have not begun to closely examine program integrity in Medicaid managed care. In addition, federal entities have taken few steps to address Medicaid managed care program integrity. CMS, the federal agency within the Department of Health and Human Services (HHS) that oversees Medicaid has largely delegated managed care program integrity oversight activities to the states, but has not updated its program integrity guidance since 2000. Additionally, CMS does not require states to audit managed care payments, and state officials GAO interviewed said they require additional CMS support, such as additional guidance and the option to obtain audit assistance from existing Medicaid integrity contractors in overseeing Medicaid managed care program integrity. The involvement of multiple entities in conducting post-payment reviews, audits, and investigations has resulted in fragmented program integrity efforts; yet the effects of fragmentation are unclear. As GAO has found in past work, coordinating activities can alleviate many problems created by fragmentation, thus allowing entities to avoid unnecessary duplication and overlap. Most of the program integrity officials from the seven states GAO included in this review said that coordination efforts helped them manage overlap and avoid unnecessary duplication; however some officials said that coordination presented additional challenges for time and staff resources. Given that combined federal and state efforts have recovered only a small portion of the estimated improper payments, continued monitoring of federal and state program integrity efforts in Medicaid will be an important means of assessing whether the current structure is effective. Because of the gap GAO identified between state and federal program integrity efforts in managed care, neither state nor federal entities are well positioned to identify improper payments made to managed care organizations (MCOs), nor are they able to ensure that MCOs are taking appropriate actions to identify, prevent, or discourage improper payments. Improving federal and state efforts to strengthen Medicaid managed care program integrity takes on greater urgency as states that choose to expand their Medicaid programs under the Patient Protection and Affordable Care Act are likely to do so with managed care arrangements, and will receive a 100 percent federal match for newly eligible individuals from 2014 through 2016. Unless CMS takes a larger role in holding states accountable, and provides guidance and support to states to ensure adequate program integrity efforts in Medicaid managed care, the gap between state and federal efforts to monitor managed care program integrity will leave a growing portion of federal Medicaid dollars vulnerable to improper payments. GAO recommends that CMS increase its oversight of program integrity efforts by requiring states to audit payments to and by MCOs; updating its guidance on Medicaid managed care program integrity; and providing states additional support for managed care oversight, such as audit assistance from existing contractors. In its comments, HHS asked for clarification on the first recommendation and concurred with the other two. In response, GAO clarified its first recommendation--that CMS take the added step of requiring states to audit the appropriateness of payments to and by MCOs to better ensure Medicaid program integrity.
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Although more than 70 federal agencies have foreign language needs, some of the largest programs are concentrated in the Army, the State Department, the Central Intelligence Agency, and the Federal Bureau of Investigation. Office of Personnel Management (OPM) records indicate that the government employs just under a thousand translators and interpreters in the job series reserved for this group. The government also employs tens of thousands of individuals who use foreign language skills in positions such as FBI special agents and legal attaches, State Department Foreign Service officers, and Department of Commerce Foreign Commercial Service (FCS) officers. For the four agencies we reviewed, a total of nearly 20,000 staff are employed in positions that require some foreign language proficiency. Agency management of these resources takes place against the backdrop of an emerging federal issue--strategic human capital management. The foreign language staffing and proficiency shortfalls we discuss in our report can be seen as part of a broader pattern of human capital weaknesses and poor workforce planning that has impacted the operations of agencies across the federal government. In fact, GAO recently designated human capital management as a governmentwide high-risk area on the basis of specific problem areas identified in prior GAO reports.For example, GAO previously testified that the Department of Defense faces looming shortages of intelligence analysts, computer programmers, and pilots. In a subsequent report on trends in federal employee retirements, we found that relatively large numbers of individuals in key math and science fields will be eligible to retire by the end of fiscal year 2006: These include physics (47 percent); chemistry (42 percent); computer specialists (30 percent); and electronics and electrical engineering (27 percent and 28 percent, respectively). In response to these risks, the administration, the Office of Management and Budget (OMB), OPM, and GAO have issued guidance on how agencies can begin the process of strategically managing their staffing resources. For example, OPM has developed a five-step workforce planning model that outlines the basic tenets of effective workforce planning. The president and OMB's guidance stresses that agencies should seek to address shortages of skills by conducting thorough workforce analyses, by using existing personnel flexibilities available to federal agencies, and by identifying additional authorities or flexibilities they might need to remove current obstacles and barriers to effective workforce management. GAO guidance emphasizes the use of a self-assessment checklist for better aligning human capital with strategic planning and core business practices. Officials in the four agencies we reviewed reported varied types and degrees of foreign language shortages depending on the agency, job position, language, and skill level. They noted shortages of translators and interpreters and people with skills in specific languages, as well as a shortfall in proficiency level among people who use foreign language skills in their jobs. The Army's greatest foreign language needs were for translators and interpreters, cryptologic linguists, and human intelligence collectors. The State Department has not filled all of its positions requiring foreign language skills. And, although the Foreign Commercial Service has relatively few positions that require foreign language proficiency, it had significant shortfalls in personnel with skills in six critical languages. While the FBI does not have a set number of positions for its special agent linguists, these agents must have some level of foreign language proficiency that they can use in conducting investigations. (When identified by language, FBI staffing and proficiency data are classified and are discussed in the classified report mentioned earlier.) While our report provides detailed staffing and proficiency shortfall data for four agencies, I would like to use the data we obtained for the U.S. Army to illustrate the nature and extent of some of these shortfalls. The Army provided us data on translator and interpreter positions for six languages it considers critical: Arabic, Korean, Mandarin Chinese, Persian- Farsi, Russian, and Spanish (our analysis excluded Spanish because the Army has a surplus of Spanish language translators and interpreters). As shown in table 1, the Army had authorization for 329 translator and interpreter positions for these five languages in fiscal year 2001 but only filled 183 of them, leaving a shortfall of 146 (44 percent). In addition to its needs for translators and interpreters, the Army also has a need for staff with applied language skills. We obtained detailed information on two key job series involving military intelligence-- cryptologic linguists and human intelligence collectors. As shown in table 2, the Army had a shortfall of cryptologic linguists in two of the six foreign languages it viewed as most critical--Korean and Mandarin Chinese. Overall, there were 142 unfilled positions, which amounted to a 25 percent shortfall in cryptologic linguists in these two languages. The Army also had a shortfall of human intelligence collectors in five of the six foreign languages it viewed as most critical in this area--Arabic, Russian, Spanish, Korean, and Mandarin Chinese.Overall, there were 108 unfilled positions, which amounted to a 13 percent shortfall in these five languages. The greatest number of unfilled human intelligence collector positions was in Arabic, but the largest percentage shortfall was in Mandarin Chinese. Table 3 provides data on these shortfalls, by language. The shortages that agencies reported can have a significant impact on agency operations. Although it is sometimes difficult to link foreign language skills to a specific outcome or event, foreign language shortages have influenced some agency activities. Here are a few examples: The Army has noted that a lack of linguists is affecting its ability to conduct current and anticipated human and signal intelligence missions. As a result, the Army said that it does not have the linguistic capacity to support two concurrent major theaters of war. The need for Spanish speakers has been an issue in pursuing Florida health care fraud cases. The assistant U.S. attorney in Miami in charge of health care fraud investigations recently advised the FBI that his office would decline to prosecute health care fraud cases unless timely translations of Spanish conversations were available. This situation has important implications, since the Miami region has the nation's largest ongoing health care fraud investigation. The FBI estimates that Medicare and Medicaid losses in the region are in excess of $3 billion. The FBI's Los Angeles office has also cited a critical need for Spanish language specialists and language monitors for cases involving violent gang members. According to the Bureau, being able to target these gang members will save lives in Los Angeles but is contingent on the availability of Spanish linguists to assist with these investigations. The need for foreign language speakers has hindered State Department operations. The deputy director of the State Department's National Foreign Affairs Training Center recently testified on this topic. She said that shortfalls in foreign language proficiency have contributed to a lack of diplomatic readiness. As a result, the representation and advocacy of U.S. interests abroad has been less effective; U.S. exports, investments, and jobs have been lost; and the fight against international terrorism and drug trafficking has been weakened. Finally, the lack of translators has thwarted efforts to combat terrorism. For instance, the FBI has raised concern over the thousands of hours of audio tapes and pages of written material that have not been reviewed or translated due to a lack of qualified linguists. Our second objective was to examine federal agencies' strategies to address these foreign language shortages. The agencies we reviewed are pursuing three general strategies to meet their foreign language needs. First, agencies are focusing on staff development by training staff in foreign languages, providing pay incentives for individuals using those skills, and ensuring an attractive career path for linguists or language-proficient employees. Second, agencies are making use of external resources. This effort can include contracting staff as needed; recruiting native or U.S.- trained language speakers; or drawing on the expertise of other agency staff, reservists, or retirees. Third, several agencies have begun to use technology to leverage limited staff resources, including developing databases of contract linguists, employing language translation software, and performing machine screening of collected data. Figure 1 provides an overview of these categories and related strategies. While these assorted efforts have had some success, current agency strategies have not fully met the need for some foreign language skills, as evidenced by the continuing staffing and proficiency shortfalls that each agency we reviewed faces. Limited Progress Made Our third objective was to analyze federal agencies' efforts to implement an on Workforce Planning overall strategic workforce plan to address current and projected foreign language shortages. To help fill existing skills shortages, some agencies have begun to adopt a strategic approach to human capital management and workforce planning. As I mentioned earlier, OPM has issued a workforce planning model that illustrates the basic tenets of strategic workforce planning. We used this model to assess the relative maturity of workforce planning at the four agencies we reviewed. As shown in figure 2, this model suggests that agencies follow a five-step process that includes setting a strategic direction, documenting the size and nature of skills gaps, developing an action plan to address these shortages, implementing the plan, and evaluating implementation progress on an ongoing basis. This is a model that could be used to guide workforce planning efforts as they relate to other skills needed in the federal government such as math, science, and information technology. We found that the FBI has made an effort to address each of the five steps in OPM's model. For instance, the FBI has instituted an action plan that links its foreign language program to the Bureau's strategic objectives and program goals. This action plan defines strategies, performance measures, responsible parties, and resources needed to address current and projected language shortages. We found that the FBI's work in the foreign language area was supported by detailed reports from field offices that documented the Bureau's needs. The FBI reviewed these reports along with workload statistics from its regional offices. FBI officials noted that implementation progress is routinely tracked and adjustments to the action plan are made as needed. In contrast, the other three agencies have yet to pursue this type of comprehensive strategic planning and had only completed some of the steps outlined in OPM's planning model. The Army has limited its efforts to developing a plan partially outlining a strategic direction and identifying its available supply and demand for staff with foreign language skills (addressing only steps 1 and 2 of the OPM model). The State Department has not yet set a strategic direction for its language program; however, the department has addressed step 2 in the workforce planning model through its annual survey of ambassadors regarding foreign language needs at their posts on a position-by-position basis. State has yet to develop an action plan and the related implementation and monitoring steps described in OPM's model. Finally, the status of the Foreign Commercial Service's language program closely mirrored the situation we found at the State Department. One difference, however, is that the agency surveys senior officers regarding a post's foreign language needs every 3 years instead of annually. Another difference is that FCS officials indicated that they have begun a workforce planning initiative that is designed to address the key components outlined in the OPM model. In closing, I would like to note that foreign language shortages have developed over a number of years. It will take time, perhaps years, to overcome this problem. Effective human capital management and workforce planning, however, offer a reasonable approach to resolving such long-standing problems. Mr. Chairman and members of the Subcommittee, this concludes my prepared statement. I will be happy to answer any questions the Subcommittee members may have.
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Federal agencies' foreign language needs have increased during the past decade because of increasing globalization and the changing security environment. At the same time, agencies have seen significant reductions-in-force and no-growth or limited-growth environments during the last decade. As a result, some agencies now confront an aging core of language-capable staff while recruiting and retaining qualified new staff in an increasingly competitive job market. The four agencies GAO reviewed reported shortages of translators and interpreters and other staff, such as diplomats and intelligence specialists, with foreign language skills. These shortfalls varied depending on the agency, job position, language, and skill level. The agencies reported using a range of strategies to address their staffing shortfalls, such as providing employees with language training and pay incentives, recruiting employees with foreign language skills, hiring contractors, or taking advantage of information technology. One of the four agencies has adopted a strategic approach to its workforce planning efforts. In contrast, the other three agencies have yet to pursue overall strategic planning in this area.
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CMS has undertaken steps to educate beneficiaries about the Part D benefit using written documents, a toll-free help line, and the Medicare Web site. To explain the Part D benefit to beneficiaries, CMS had produced more than 70 written documents as of December 2005. Medicare & You--the beneficiary handbook--is the most widely available and was sent directly to beneficiaries in October 2005. Other written documents were targeted to specific groups of beneficiaries, such as dual-eligible beneficiaries and beneficiaries with Medicare Advantage or Medigap policies. Beneficiaries can obtain answers to questions about the Part D benefit by calling the 1-800-MEDICARE help line. This help line, which is administered by CMS, was established in March 1999, to answer beneficiaries' questions about the Medicare program. As of December 2005, about 7,500 CSRs were handling calls on the help line, which operates 24 hours a day, 7 days a week, and is run by two CMS contractors. CMS provides CSRs with detailed scripts to use in answering the questions. Call center contractors write the scripts, and CMS checks them for accuracy and completeness. In addition, CMS's Medicare Web site provides information about various aspects of the Medicare program. The Web site contains basic information about the Part D benefit, suggests factors for beneficiaries to consider when choosing plans and provides guidance on enrollment and plan selection. It also lists frequently asked questions, and allows users to view, print, or order publications. In addition, the site contains information on cost and coverage of individual plans. There is also a tool that allows beneficiaries to enroll directly in the plan they have chosen. Although the six sample documents we reviewed informed readers of enrollment steps and factors affecting coverage, they lacked clarity in two ways. First, about 40 percent of seniors read at or below the fifth-grade level, but the reading levels of the documents ranged from seventh grade to postcollege. As a result, these documents are challenging for many seniors. Even after adjusting the text for 26 multisyllabic words, such as Medicare, Medicare Advantage, and Social Security Administration, the estimated reading level ranged from seventh to twelfth grade, a reading level that would remain challenging for at least 40 percent of seniors. Second, on average, the six documents we reviewed did not comply with about half of the 60 commonly recognized guidelines for good communications. For example, although the documents included concise and descriptive headings, they used too much technical jargon and often did not define difficult terms such as formulary. The 11 beneficiaries and 5 advisers we tested reported frustration with the documents' lack of clarity as they encountered difficulties in understanding and attempting to complete 18 specified tasks. For example, none of these beneficiaries and only 2 of the advisers were able to complete the task of computing their projected total out-of-pocket costs for a plan that provided Part D standard coverage. Only one of 18 specified tasks was completed by all beneficiaries and advisers. Even those who were able to complete a given task expressed confusion as they worked to comprehend the relevant text. Of the 500 calls we placed to CMS's 1-800-MEDICARE help line regarding the Part D benefit, CSRs answered about 67 percent of the calls accurately and completely. Of the remainder, 18 percent of the calls received inaccurate responses, 8 percent of the responses were inappropriate given the question asked, and about 3 percent received incomplete responses. In addition, about 5 percent of our calls were not answered, primarily because of disconnections. The accuracy and completeness of CSR responses varied significantly across our five questions. (See fig. 1.) For example, while CSRs provided accurate and complete responses to calls about beneficiaries' eligibility for financial assistance 90 percent of the time, the accuracy rate for calls concerning the drug plan that would cost the least for a beneficiary with specified prescription drug needs was 41 percent. CSRs inappropriately responded 35 percent of the time that this question could not be answered without personal identifying information--such as the beneficiary's Medicare number or date of birth--even though the CSRs could have answered our question using CMS's Web-based prescription drug plan finder tool. CSRs' failure to read the correct script also contributed to inaccurate responses. The time GAO callers waited to speak with CSRs also varied, ranging from no wait time to over 55 minutes. For 75 percent of the calls--374 of the 500--the wait was less than 5 minutes. We found that the Part D benefit portion of the Medicare Web site can be difficult to use. In our evaluation of overall usability--the ease of finding needed information and performing various tasks--we found usability scores of 47 percent for seniors and 53 percent for younger adults, out of a possible 100 percent. While there is no widely accepted benchmark for usability, these scores indicate difficulties in using the site. For example, tools such as the drug plan finder were complicated to use, and forms that collect information on-line from users were difficult to correct if the user made an error. We also evaluated the usability of 137 detailed aspects of the Part D benefit portion of the site, including features of Web design and on-line tools, and found that 70 percent of these aspects could be expected to cause users confusion. For example, key functions of the prescription drug plan finder tool, such as the "continue" and "choose a drug plan" buttons, were often not visible on the page without scrolling down. In addition, the drug plan finder tool defaults--or is automatically reset--to generic drugs, which may complicate users' search for drug plans covering brand name drugs. The material in this portion of the Web site is written at the 11th grade level, which can also present challenges to some users. Finally, in our evaluation of the ability of seven participants to collectively complete 34 user tests, we found that on average, participants were only able to proceed slightly more than half way though each test. When asked about their experiences with using the Web site, the seven participants, on average, indicated high levels of frustration and low levels of satisfaction. Within the past 6 months, millions of Medicare beneficiaries have been making important decisions about their prescription drug coverage and have needed access to information about the new Part D benefit to make appropriate choices. CMS faced a tremendous challenge in responding to this need and, within short time frames, developed a range of outreach and educational materials to inform beneficiaries and their advisers about the Part D benefit. To disseminate these materials, CMS largely added information to existing resources, including written documents, such as Medicare & You; the 1-800-MEDICARE help line; and the Medicare Web site. However, CMS has not ensured that its communications to beneficiaries and their advisers are provided in a manner that is consistently clear, complete, accurate, and usable. Although the initial enrollment period for the Part D benefit will end on May 15, 2006, CMS will continue to play a pivotal role in providing beneficiaries with information about the drug benefit in the future. The recommendations we have made would help CMS to ensure that beneficiaries and their advisers are prepared when deciding whether to enroll in the benefit, and if enrolling, which drug plan to choose. Mr. Chairman, this concludes my prepared remarks. I would be happy to respond to any questions that you or other Members of the subcommittee may have at this time. For further information regarding this statement, please contact Leslie G. Aronovitz at (312) 220-7600. Contact points for our Offices of Congressional Relations and Public Affairs may be found in the last page of this statement. Susan T. Anthony and Geraldine Redican-Bigott, Assistant Directors; Shaunessye D. Curry; Helen T. Desaulniers; Margaret J. Weber; and Craig H. Winslow made key contributions to this statement. To assess the clarity, completeness, and accuracy of written documents, we compiled a list of all available CMS-issued Part D benefit publications intended to inform beneficiaries and their advisers and selected a sample of 6 from the 70 CMS documents available, as of December 7, 2005, for in- depth review, as shown in Table 1. The sample documents were chosen to represent a variety of publication types, such as frequently asked questions and fact sheets available to beneficiaries about the Part D benefit. We selected documents that targeted all beneficiaries or those with unique drug coverage concerns, such as dual-eligibles and beneficiaries with Medigap plans. To determine the accuracy and completeness of information provided regarding the Part D benefit, we placed a total of 500 calls to the 1-800- MEDICARE help line. We posed one of five questions about the Part D benefit in each call, so that each question was asked 100 times. Table 2 summarizes the questions we asked and the criteria we used to evaluate the accuracy of responses. We received written comments on a draft of our report from CMS (see app. III). CMS said that it did not believe our findings presented a complete and accurate picture of its Part D communications activities. CMS discussed several concerns regarding our findings on its written documents and the 1-800-MEDICARE help line. However, CMS did not disagree with our findings regarding the Medicare Web site or the role of SHIPs. CMS also said that it supports the goals of our recommendations and is already taking steps to implement them, such as continually enhancing and refining its Web-based tools. CMS discussed concerns regarding the completeness and accuracy of our findings in terms of activities we did not examine, as well as those we did. CMS stated that our findings were not complete because our report did not examine all of the agency's efforts to educate Medicare beneficiaries and specifically mentioned that we did not examine the broad array of communication tools it has made available, including the development of its network of grassroots partners throughout the country. We recognize that CMS has taken advantage of many vehicles to communicate with beneficiaries and their advisers. However, we focused our work on the four specific mechanisms that we believed would have the greatest impact on beneficiaries--written materials, the 1-800-MEDICARE help line, the Medicare Web site, and the SHIPs. In addition, CMS stated that our report is based on information from January and February 2006, and that it has undertaken a number of activities since then to address the problems we identified. Although we appreciate CMS's efforts to improve its Part D communications to beneficiaries on an ongoing basis, we believe it is unlikely that the problems we identified in our report could have been corrected yet given their nature and scope. CMS raised two concerns with our examination of a sample of written materials. First, it criticized our use of readability tests to assess the clarity of the six sample documents we reviewed. For example, CMS said that common multisyllabic words would inappropriately inflate the reading level. However, we found that reading levels remained high after adjusting for 26 multisyllabic words a Medicare beneficiary would encounter, such as Social Security Administration. CMS also pointed out that some experts find such assessments to be misleading. Because we recognize that there is some controversy surrounding the use of reading levels, we included two additional assessments to supplement this readability analysis--the assessment of design and organization of the sample documents based on 60 commonly recognized communications guidelines and an examination of the usability of six sample documents, involving 11 beneficiaries and 5 advisers. Second, CMS expressed concern about our examination of the usability of the six sample documents. The participating beneficiaries and advisers were called on to perform 18 specified tasks, after reading the selected materials, including a section of the Medicare & You handbook. CMS suggested that the task asking beneficiaries and advisers to calculate their out-of-pocket drug costs was inappropriate because there are many other tools that can be used to more effectively compare costs. We do not disagree with CMS that there are a number of ways beneficiaries may complete this calculation; however, we nonetheless believe that it is important that beneficiaries be able to complete this task on the basis of reading Medicare & You, which, as CMS points out, is widely disseminated to beneficiaries, reaching all beneficiary households each year. In addition, CMS noted that it was not able to examine our detailed methodology regarding the clarity of written materials--including assessments performed by one of our contractors concerning readability and document design and organization. We plan to share this information with CMS. Finally, CMS took issue with one aspect of our evaluation of the 1-800- MEDICARE help line. Specifically, CMS said the 41 percent accuracy rate associated with one of the five questions we asked was misleading, because, according to CMS, we failed to analyze 35 of the 100 responses. However, we disagree. This question addressed which drug plan would cost the least for a beneficiary with certain specified prescription drug needs. We analyzed these 35 responses to this question and found the responses to be inappropriate. The CSRs would not provide us with the information we were seeking because we did not supply personal identifying information, such as the beneficiary's Medicare number or date of birth. We considered such responses inappropriate because the CSRs could have answered this question without personal identifying information by using CMS's Web-based prescription drug plan finder tool. Although CMS said that it has emphasized to CSRs, through training and broadcast messages, that it is permissible to provide the information we requested without requiring information that would personally identify a beneficiary, in these 35 instances, the CSR simply told us that our question could not be answered. CMS also said that the bulk of these inappropriate responses were related to our request that the CSR use only brand-name drugs. This is incorrect--none of these 35 responses were considered incorrect or inappropriate because of a request that the CSR use only brand-name drugs--as that was not part of our question. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Today's hearing focuses on Medicare Part D, the program's new outpatient prescription drug benefit. On January 1, 2006, Medicare began providing this benefit, and beneficiaries have until May 15, 2006, to enroll without the risk of penalties. The Centers for Medicare & Medicaid Services (CMS), which administers the Part D benefit, has undertaken outreach and education efforts to inform beneficiaries and their advisers. GAO was asked to discuss how CMS can better ensure that Medicare beneficiaries are informed about the Part D benefit. This testimony is based on Medicare: CMS Communications to Beneficiaries on the Prescription Drug Benefit Could Be Improved, GAO-06-654 (May 3, 2006). Information given in the six sample documents that GAO reviewed describing the Part D benefit was largely complete and accurate, although this information lacked clarity. First, about 40 percent of seniors read at or below the fifth-grade level, but the reading levels of these documents ranged from seventh grade to postcollege. Second, on average, the six documents we reviewed did not comply with about half of 60 common guidelines for good communication. For example, the documents used too much technical jargon and often did not define difficult terms. Moreover, 16 beneficiaries and advisers that GAO tested reported frustration with the documents' lack of clarity and had difficulty completing the tasks assigned to them. Customer service representatives (CSRs) answered about two-thirds of the 500 calls GAO placed to CMS's 1-800-MEDICARE help line accurately and completely. Of the remainder, 18 percent of the calls received inaccurate responses, 8 percent of the responses were inappropriate given the question asked, and about 3 percent received incomplete responses. In addition, about 5 percent of GAO's calls were not answered, primarily because of disconnections. The accuracy and completeness of CSRs' responses varied significantly across the five questions. For example, while CSRs provided accurate and complete responses to calls about beneficiaries' eligibility for financial assistance 90 percent of the time, the accuracy rate for calls concerning the drug plan that would cost the least for a beneficiary with specified prescription drug needs was 41 percent. For this question, the CSRs responded inappropriately for 35 percent of the calls by explaining that they could not identify the least costly plan without the beneficiary's personal information--even though CSRs had the information needed to answer the question. The time GAO callers waited to speak with CSRs also varied, ranging from no wait time to over 55 minutes. For 75 percent of the calls--374 of the 500--the wait was less than 5 minutes. The Part D benefit portion of the Medicare Web site can be difficult to use. GAO's test of the site's overall usability--the ease of finding needed information and performing various tasks--resulted in scores of 47 percent for seniors and 53 percent for younger adults, out of a possible 100 percent. While there is no widely accepted benchmark for usability, these scores indicate that using the site can be difficult. For example, the prescription drug plan finder was complicated to use and some of its key functions, such as "continue" and "choose a drug plan," were often not visible on the page without scrolling down.
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BEP, a bureau of the Department of the Treasury, buys currency paper from a private company and prints the nation's currency at production facilities in Washington, D.C., and Fort Worth, Texas. According to BEP data, the currency paper contract amounts to about $115 million per year. Currency paper is a highly specialized product that includes cotton and linen fibers as well as anticounterfeiting features to enhance the quality and security of the paper. Several agencies affect the production of currency paper. The Department of the Treasury oversees BEP's production of currency, including its procurement of currency paper. The U.S. Secret Service, now within the Department of Homeland Security, is responsible for anticounterfeiting activities and works with BEP in assessing the security of BEP's money production facilities and currency redesign. The Federal Reserve Board sets monetary policy for the nation, obtains new currency from BEP, and issues the new currency to the public through depository institutions. The Advanced Counterfeit Deterrence Steering Committee, which includes members from BEP, the Department of the Treasury, the U.S. Secret Service, and the Federal Reserve System recommends to the Secretary of the Treasury the anticounterfeiting features to be placed in U.S. currency. If the Secretary of the Treasury accepts these recommendations, they become part of the specifications or requirements for the currency paper. The procurement of currency paper is subject to an appropriations limitation, called the Conte Amendment, enacted in December 1987. In effect, the Conte Amendment requires that distinctive paper for U.S. currency and passports be manufactured in the United States. The amendment further prohibits the purchase of currency and passport paper from a supplier owned or controlled by a foreign entity unless the Secretary of the Treasury determines that no domestic source exists. The procurement of currency paper is also subject to another statutory limitation that prohibits the Secretary of the Treasury from entering into a contract in excess of 4 years for manufacturing distinctive currency paper. BEP changed the solicitations for the 1999 and 2003 currency paper contracts and intends to include these changes in the solicitation for the next contract, which will be awarded in 2006. Some of the changes addressed barriers we reported in 1998. These changes included the following: Switching to a 4-year contract. Previously, BEP negotiated a 1-year contract with three 1-year options, which meant that manufacturers were not assured that they would receive the contract from one year to the next. According to BEP officials, a 4-year contract creates less risk for manufacturers because the contractor is almost guaranteed to receive the contract for 4 years when the government no longer has the option to renew the contract each year. Allowing multiple awards. Previously, BEP required any bidder to bid on the entire currency paper contract. BEP divided its total currency paper requirements into several different lots and allowed companies to select the parts of the solicitation they would bid on. For example, a company could choose to bid only on the paper for the $1 and $2 bills. Thus, the contract could be awarded to two companies. Potential suppliers told BEP that, in order to begin production, they would need a long-term commitment for at least 40 percent of the contract. Allowing a 24-month mobilization period. Previously, the mobilization period--the time between the contract award date and the date for starting deliveries to BEP--was no more than 60 days. In 1998 some paper manufacturers told us that the start-up period historically allowed by BEP was not long enough for companies that are not currently manufacturing currency paper. Allowing representative rather than identical samples. Previously, companies had to produce samples during the bidding process using the same machines they would use to produce currency paper if they received the contract. BEP required these samples, which are called identical samples, so that it could determine whether the companies were capable of manufacturing paper that met its specifications. BEP now allows for representative samples during the bidding process. Representative samples are manufactured on equipment that is similar to what the company would use if it were awarded the contract. Allowing representative samples enables companies that do not currently own the required equipment to produce paper samples on another company's equipment and avoid purchasing costly equipment until they have been awarded the contract. Domestic paper companies, for example, could use the equipment of European paper companies to produce representative samples and then acquire the appropriate equipment if they were awarded the contract. Agreeing to consider innovative financing and acquisition arrangements. Previously, solicitations did not provide any help to companies that would have had to make a considerable financial investment to purchase the equipment needed to compete for the contract. To facilitate such an investment, the 1999 and 2003 solicitations stated that BEP would "consider innovative financing and acquisition arrangements" proposed by a potential supplier, but the solicitations did not specify what these arrangements might be. BEP officials told us that these arrangements could include having the government pay for some capital equipment if the contractor repaid the government at the end of the contract. However, two of eight paper manufacturers who said they were interested in competing for the contract told us that the lack of financial assistance continues to make it difficult for them to compete for the contract. Furnishing the security thread. Previously, BEP expected potential paper manufacturers to obtain the security thread used in currency paper on their own, which some paper manufacturers cited as a barrier because the sole manufacturer of the security thread is a subsidiary of the current supplier. As a result, potential manufacturers would have had to purchase the thread and make royalty payments to that company. BEP modified the solicitations for the 1999 and 2003 contracts to indicate that it would provide the security thread that is inserted into most currency paper to other successful bidders as government- furnished property rather than requiring them to obtain the thread themselves. BEP awarded the first contracts with these changes in fiscal years 1999 and 2003. According to documents in BEP's contract files, one company in addition to the current supplier submitted a proposal for the 1999 contract, but ultimately withdrew because, according to this company, it was unwilling to continue to expend the resources required to produce fully compliant paper samples without a contract. Four other companies expressed interest in the 1999 contract, but did not submit proposals. One company said it did not submit a proposal because it determined that the estimated capital expenditures exceeded any potential profit that might be realized over the 4-year contract period. Another company that had expressed interest in the contract said it did not submit a proposal because it was unable to obtain a commitment for the large capital investment required. Additionally, the company said the contract's provision for ordering a wide range of paper quantities made it difficult to calculate a return on investment. A third interested company did not submit a proposal because of durability requirements for the currency paper. A fourth interested company did not give a reason for not submitting a proposal. For the 2003 contract, the current supplier was the only company to submit a proposal. Three paper companies other than the current supplier asked to receive the solicitation, but these companies took no further action. The next solicitation for the currency paper contract is expected to be issued in the fall of 2005, and the contract is scheduled to be awarded in 2006. This solicitation will include all the changes that BEP previously made, according to BEP officials. Despite the changes BEP made to the contract solicitation, paper manufacturers we surveyed in 2004 told us that significant barriers to competition remain. Specifically, the eight paper manufacturers we surveyed who said they would be interested in providing currency paper to BEP told us that the following barriers, which we reported in 1998, still exist: Security requirements for the manufacturing facility. Three of the eight manufacturers told us that implementing these security requirements--which include ensuring that all waste is accounted for, controlling access to sensitive production areas in the paper mill, and erecting physical barriers around the mill--make it difficult for them to compete for the currency paper contract because of the high costs to upgrade their facilities. Technology required to incorporate anticounterfeiting features. Three of the eight manufacturers told us that the cost of the equipment and the technical expertise necessary to insert the security thread into currency paper make it difficult for them to compete for the currency paper contract. Requirement for U.S. ownership. Three manufacturers told us that this legislative restriction, known as the Conte Amendment, continues to be a barrier because it mandates that the company that produces U.S. currency paper be domestically owned--that is, at least 90 percent U.S.- owned, according to the Department of the Treasury. Lack of financial assistance for capital investment. Although BEP has indicated that it will consider innovative financing proposals from a potential supplier, two of the eight manufacturers told us that the lack of financial assistance for capital investment continues to make it difficult for them to compete for the contract. According to BEP, under the FAR, it can make advance payments to manufacturers for capital investment only if the manufacturer pays the money back to BEP, with interest, during the life of the contract. Length of contract. One of the eight manufacturers, who said it plans to submit a proposal for the 2006 contract, told us that the length of the contract, which is restricted by statute to 4 years, makes it difficult to compete for the currency paper contract. This manufacturer said that, to make a profit during this contract, it would need a 5-year contract and at least 40 percent of the contract. According to BEP, these five barriers continue to exist because they either are outside of BEP's control or are essential components of producing currency paper. For example, the restriction against foreign ownership and the length of the currency paper contract are both legislative provisions that would require congressional action to change. In addition, U.S. Secret Service officials told us that there are tremendous benefits to producing U.S. currency paper inside the United States because, according to the Secret Service, it does not have the authority to oversee the security of personnel or plant facilities in a foreign country. The Secret Service further stated that, although it may be able to make agreements allowing for such oversight, it can be difficult to take quick, decisive action in a foreign country. The Secret Service also pointed out that the logistics of moving currency paper across great distances and borders would pose additional security risks. However, Secret Service officials indicated that, in their view, foreign ownership would not pose a security problem as long as the paper was produced in the United States and the employees who produced the paper had undergone background checks. BEP officials also believe that providing financial assistance for capital investment is outside of their control because, as previously mentioned, under the FAR, BEP can make advance payments to manufacturers for capital investment only if the manufacturer pays the money back to BEP, with interest, during the life of the contract. Two of the barriers to competition that paper manufacturers identified are within BEP's control, but these barriers--the security requirements for the manufacturing facility and the technology required to insert anticounterfeiting features, such as the security thread--remain because they are essential for currency paper. Officials from BEP, the Federal Reserve Board, and the Secret Service noted that currency paper is a valuable asset that must be guarded and protected from counterfeiting. Potential security features for U.S. currency are reviewed by the Advanced Counterfeit Deterrence Steering Committee, which is made up of representatives from BEP, the Department of the Treasury, the Federal Reserve System, and the U.S. Secret Service. This committee recommends which security features should be in U.S. currency, and the Secretary of the Treasury decides which features to incorporate. These security features require that manufacturers of currency paper use advanced technology to insert anticounterfeiting features into paper. Furthermore, to ensure the security of the paper and of the anticounterfeiting features, manufacturing facilities must have greater physical security than paper mills generally. We agree with BEP that some of the remaining barriers are outside its control; however, we found that BEP's outreach to paper manufacturers is limited and is generally done in conjunction with its other procurements. For example, BEP does not conduct industry briefings for its potential suppliers. We found that the Departments of Defense and Homeland Security hold industry briefings as frequently as possible to provide potential contractors with information and an opportunity to comment on future solicitations and procurements. BEP's outreach to potential paper manufacturers generally consists of publishing its draft currency paper solicitation in Federal Business Opportunities and waiting for the paper manufacturers to contact them. One paper manufacturer we surveyed commented that it was unaware of the solicitation for the 2003 contract. In commenting on a draft of this report, BEP stated that, in addition to the outreach efforts we describe, it is pursuing other outreach efforts. For example, BEP stated that it attends fairs and banknote conferences where potential suppliers are consulted to determine if their company has an interest in contracting with BEP for various currency materials, primarily currency paper, inks, and counterfeit deterrent features. The FAR states that an agency's contracting officer is responsible for evaluating the reasonableness of the offered prices to ensure that the final price is fair and reasonable. The FAR does not define "fair and reasonable," but establishes various techniques and procedures for a contracting officer to use in evaluating prices. Furthermore, the contract pricing reference guidance available from the Department of Defense (DOD) discusses the application of these requirements. For a price to be fair to the buyer, it must be in line with either the fair market value of the product or the total allowable cost of providing the product that would be incurred by a well- managed, responsible firm using reasonably efficient and economical methods of performance, plus a reasonable profit. To be fair to the seller, a price must be realistic in terms of the seller's ability to satisfy the terms and conditions of the contract. A reasonable price, according to the DOD guidance, is a price that a prudent and competent buyer would be willing to pay, given available data on market conditions, such as supply and demand, general economic conditions, and competition. For the currency paper contract, there is currently only one buyer and one seller, domestically. As a result, pricing is established through negotiation. The FAR further states that the contracting officer may use any of several analysis techniques to ensure that the final price is fair and reasonable. The techniques the officer uses depends on whether adequate price competition exists. For the 1999 contract, BEP determined that adequate price competition existed because of the expectation that at least one additional meaningful proposal would be submitted. Consequently, BEP used price analysis--a comparison of the two proposals--as a basis for determining that the 1999 contract prices, which totaled $207 million, were fair and reasonable. BEP also compared the proposed prices with an independent government cost estimate, which BEP prepared for the contract. For the 2003 contract, BEP determined that adequate price competition did not exist because, although several companies requested copies of the solicitation, only the current supplier submitted a proposal. Under such circumstances, the FAR requires agencies to use one or more of several proposal analysis techniques to ensure that the final price is fair and reasonable. BEP took the following steps to determine its prenegotiation pricing objective: Obtaining certified cost data from the current supplier, as required by FAR 15.403-4. Requesting that the Defense Contract Audit Agency (DCAA) audit the current supplier's price proposal. DCAA found that the current supplier's proposal was acceptable as a basis for negotiating a fair and reasonable price. To perform its audit, DCAA used the applicable requirements contained in the FAR, the Treasury's Acquisition Procurement Regulations, and the Cost Accounting Standards. BEP officials said they also independently reviewed and assessed the current supplier's proposed costs and did not rely solely on DCAA's findings. Establishing a technical analysis team to examine various aspects of the current supplier's manufacturing process that affect price. The technical analysis concentrated on production yield factors, paper machine speeds and capacity, and labor requirements, among other things. According to BEP, these areas have a major impact on cost and are an essential part of a cost analysis. Performing a price analysis using comparison with previous contract prices for currency paper to verify that the overall price offered was fair and reasonable. In 1998, we recommended that BEP arrange for postaward audits of the current supplier's costs and ensure that the supplier maintains acceptable cost accounting and estimating systems for future contracts. The purpose of a postaward audit is to determine if the price, including the profit, negotiated for the contract was increased by a significant amount because the contractor furnished cost or pricing data that were not accurate, complete, or current. For the 1999 contract, a postaward audit was not required because the supplier was not required to submit cost or pricing data. Following the award of the 2003 contract, BEP requested that DCAA perform a postaward audit of the current supplier. DCAA found that the current supplier's certified cost or pricing data were accurate, complete, and current. DCAA also performed a postaward audit of the subcontractor that provides the security thread for U.S. currency and found that the subcontractor's data were accurate, complete, and current. Finally, DCAA reviewed the current supplier's estimating system and found it to be adequate to provide estimated costs that are reasonable, compliant with applicable laws and regulations, and subject to applicable financial control systems. In 1998 we reported that two BEP procurement practices contributed, or could contribute, to higher-than-necessary currency paper costs. These practices included not obtaining royalty-free data rights for the security thread used in currency paper and ordering inconsistent quantities of paper. We found that BEP continues to make royalty payments for the use of the security thread and will have to do so until December 2006. We also found that BEP continues to have difficulty in accurately estimating the amount of paper it will require, but inconsistent order sizes have not yet adversely affected the prices it pays. We previously reported that a subsidiary of the current supplier holds patents for manufacturing the security thread used to deter counterfeiting. This thread is inserted into all U.S. currency denominations greater than $2. According to a BEP official, the current supplier approached BEP with the idea for the security thread in the mid-1980s, and BEP encouraged this company to develop the thread, but BEP neither entered into a research and development contract to help fund the effort, nor did it attempt to negotiate rights to that technology or technical data, according to another BEP official. Because the government did not obtain royalty-free data rights to, or fund the development of the security thread, it does not have any rights to the associated technical data and must pay for any use of the thread. The price BEP currently pays for currency paper includes the cost of royalty payments, which are generally allowable under the FAR. For the 2003 contract, these payments totaled $663,000 over 4 years. According to the current supplier, these royalty payments will end in December 2006. As a result, beginning with the next currency paper contract--which BEP expects to award at the end of 2006--BEP will not have to pay royalties for the use of the current security thread or negotiate a license to provide the thread to a second supplier. In addition, to avoid a recurrence of this situation, BEP plans to purchase, for an undetermined price, royalty-free rights to any new anticounterfeiting features that it obtains in the future from any sources. Properly written, such an agreement could enable BEP to incorporate new technology at its discretion and allow currency paper contractors to use that technology in manufacturing paper to meet the government's requirements. In addition, BEP included a special provision in the 2003 currency paper contract stating that BEP will not incorporate any new anticounterfeiting feature into U.S. currency paper unless it has negotiated an exclusive license to the feature. We also reported in 1998 that BEP actually ordered more paper than it estimated during some years. As a result, BEP paid a higher unit cost for the paper, because the price was based on the estimated amount, and therefore the contractor's fixed costs were spread over fewer units than BEP purchased. If BEP had accurately estimated the quantity of paper it ordered, the contractor's fixed costs would have been spread over more units, resulting in a lower per-unit price. We recommended that BEP ensure that its paper estimates more closely reflect the expected amounts needed. BEP responded that its estimates are based on the best available estimate from the Federal Reserve Board. Since 1999, BEP's currency paper orders have remained inconsistent, but this inconsistency has not yet adversely affected BEP's prices. Specifically, for 4 of the last 6 years, BEP's orders were at or below the estimates the contractor used in setting its price, and therefore the orders should not have resulted in a higher price for currency paper. (See fig. 1.) However, in fiscal years 2003 and 2004, BEP's actual orders were considerably higher than the minimum quantities estimated in the contract. In fiscal year 2003, the minimum quantity was 151 million sheets, and BEP ordered almost 280 million sheets; and in fiscal year 2004, the minimum quantity was 203 million sheets, and BEP ordered 296 million sheets. Although BEP's order amounts exceeded the minimum quantities, the price BEP paid for currency paper was not adversely affected because of the pricing approach used by the contractor in the current contract. In its August 1996 currency paper report, BEP concluded that competition was not immediately feasible because the current supplier was the only domestic source that could supply currency paper that met BEP's requirements. In addition, BEP estimated that it would pay $21 million to $37 million more per year for currency paper if it purchased paper from more than one supplier. These increased costs would result from, among other things, high capital equipment costs for a new supplier, according to BEP. BEP also made several recommendations, including that it continue to improve its relationship with the current supplier by working to resolve problems before they arise; continue to try to identify alternative sources for currency paper, and if a viable source of currency paper is identified, analyze the costs and economic feasibility of having two sources; and review the possible catastrophic occurrences that could interrupt currency paper supplies, and if necessary, increase the inventory of currency paper to mitigate the effects of such an occurrence. Analyzing the advantages and disadvantages of obtaining a second supplier would help BEP determine if a second supplier would be cost effective over the long term, weigh the benefits of obtaining a second supplier against the potential security and quality concerns associated with a second supplier, and ensure that BEP can maintain an adequate supply of currency paper. Obtaining a second supplier could have advantages. Economic literature shows that a key advantage of obtaining a second supplier is that it can generate competition, which helps to ensure that the buyer receives the best price possible. In general, with more competition, each individual firm has less control over the final price in the market. In contrast, a single supplier has the potential to restrict output and set market prices above competitive levels. In addition, some economic studies have found that the entry of additional firms into a market lowers prices. An additional advantage of obtaining a second supplier is that new entrants can stimulate innovation in certain markets, whereas some researchers have found that a single supplier may not be particularly innovative. Another key advantage of obtaining a second supplier could be greater assurance of a steady supply of currency paper. With more than one supplier and more than one production site, the buyer would have greater assurance of a steady supply of goods even if one site were disrupted by, for example, a strike, natural disaster, bankruptcy, or terrorist attack. This would be an important advantage for BEP, because currency paper is essential to U.S. and world commerce, and an adequate supply must be assured. Some actions have already been taken to avoid these potential problems. To mitigate a disruption to the currency paper supply, the current supplier says it could produce currency paper at two separate locations. In addition, BEP keeps about a 3-month supply of currency paper in reserve. Obtaining a second supplier could also have disadvantages. First, even though it could create competition, it might not lower prices initially because each new supplier would have expensive start-up costs (such as the capital costs of specialized paper-making equipment) and would therefore need to charge a high price for currency paper. Second, the risk of changes in product quality and design would increase with more than one supplier in more than one location. For instance, according to a physicist who specializes in paper production, two companies, given the same specifications, could produce paper of consistent strength, but would have much more difficulty adjusting for the texture of the paper, and slight differences could exist within the same specifications. Even slight changes can adversely affect a buyer such as BEP, which requires adherence to very specific technical standards. Federal Reserve Board officials told us that they are concerned that minor differences in the quality of currency paper could diminish the reputation of U.S. currency. Secret Service officials, who are responsible for protecting U.S. currency from counterfeiting, said they would need to be assured that a second supplier had proved that it could produce paper of consistent quality over a period of time because even slight variations between the papers produced by the two manufacturers could hamper their anticounterfeiting efforts and lower confidence in U.S. currency. Finally, increasing the number of suppliers, production locations, or both would increase the potential for security breaches because more people would know about the classified anticounterfeiting features incorporated in currency paper, and more sites could be vulnerable to intrusion. Federal Reserve Board officials, who are responsible for issuing U.S. currency, maintained that awarding the contract to several different suppliers could compromise the secrecy of the paper's anticounterfeiting features because more people would have access to and could potentially disclose information about them. Finding itself relying on a single supplier in the early 1990s for the clad metal it uses to make coins, the U.S. Mint weighed the advantages and disadvantages of obtaining a second supplier and decided that the advantages outweighed the disadvantages. To obtain a second supplier, the Mint worked closely with a new company and allowed it to begin producing a small amount of material. Initially, the Mint's second supplier had some difficulty producing a product of consistent quality, and the unit costs of the material were higher than the original supplier's unit costs because the second supplier was producing smaller quantities. But as the quality of the material improved, the company began to increase its production for the Mint, and it now produces 55 percent of the metal that the Mint uses to make coins. According to Mint officials, the use of a second supplier enabled the Mint to maintain a steady supply of material when the demand for coins spiked in 1999 and 2000 (because coins were collected for the new millennium) and when each supplier experienced labor strikes. Mint officials also told us that they believe that obtaining a second supplier for clad material initially increased the Mint's costs, but they were not able to quantify the amount of the increase. Nonetheless, according to Mint officials, the price for clad metal has decreased since the Mint began using a second supplier. In commenting on a draft of this report, the Federal Reserve Board noted that, regardless of price issues, the issues of security and quality are not the same for clad metal and currency paper. Obtaining effective competition for the currency paper contract continues to be a challenge for BEP, despite the changes it has made and plans to continue making to its contract solicitations. Barriers to competition remain, and the current supplier continues to be the sole supplier of currency paper. We agree with BEP that some of the remaining barriers are outside its control or are essential for security purposes, and we recognize that the current supplier has generally provided BEP with a steady, timely supply of paper that has met its requirements for the past 125 years. However, we believe the uniqueness of the currency paper procurement and the disadvantages of having a single supplier are sufficient to warrant a regular effort on BEP's part to reach out to paper manufacturers before issuing solicitations to help BEP determine what additional steps should be taken to encourage competition for the currency paper contract. Although BEP concluded in its August 1996 currency paper study that competition was not immediately feasible because the current supplier was the only domestic source of currency paper that could meet its requirements, BEP has not weighed the advantages and disadvantages of obtaining a second supplier--including the impact on the cost, security, quality, and adequacy of the currency paper supply--since 1996. Consequently, while BEP can demonstrate that it is receiving a fair and reasonable price for currency paper, it is unclear if that price is higher or lower than the price BEP would pay if there were a second supplier. But cost is not the only factor in deciding whether or not to use a second supplier. The security and integrity of the paper, and of U.S. currency, are also important. A second supplier must be able to demonstrate that it can produce paper that contains the same security features and technical specifications as the current paper. Slight changes to the quality and make- up of currency paper have the potential to hamper anticounterfeiting efforts and could result in an overall loss of confidence in U.S. currency. Analyzing the advantages and disadvantages of obtaining a second supplier would help BEP assess whether a second supplier of currency paper is needed to ensure an adequate supply of quality currency paper at a fair and reasonable price. To obtain the views of paper manufacturers on barriers to competition and to determine if there is a need for a second supplier of currency paper, we are recommending that the Secretary of the Treasury direct the Director of BEP to take the following two actions: Before issuing solicitations for currency paper contracts in the future, increase outreach activities with paper manufacturers to allow them to provide their views on the barriers to competition, identify the steps BEP should take to address these barriers, and comment on the solicitations. Determine if there is a need to obtain a second supplier for currency paper by preparing an analysis of the advantages and disadvantages of obtaining a second supplier of currency paper, including the impact on the cost, security, quality, and adequacy of the currency paper supply. If the analysis determines that there is a need to obtain a second supplier, the Secretary should then determine what steps are necessary to obtain a second supplier for currency paper. We provided the BEP, the Mint, and the Federal Reserve Board with drafts of this report for their review and comment. These agencies generally agreed with our findings and provided technical comments, which we incorporated as appropriate. In written comments, BEP commented that our draft report does not recognize all of its outreach efforts to paper manufacturers and that the royalty payments associated with purchasing currency paper are an allowable expense under FAR. We incorporated this additional information in our report as appropriate. BEP also agreed with our recommendations and described its plans to implement them. BEP's comments are provided in appendix III. We are sending copies of this report to the cognizant congressional committees; the Chairman of the Board of Governors of the Federal Reserve System; the Secretary of the Treasury; the Directors of BEP and the Mint; the Director, Office of Management and Budget; 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 about this report, please contact me at [email protected] or Tammy Conquest at [email protected]. Alternatively, I can be reached at (202) 512-2834. Major contributors to this report are listed in appendix IV. As appropriate, the Bureau of Engraving and Printing (BEP) has the Defense Contract Audit Agency (DCAA) perform audits. Arrange for postaward audits of the current supplier's costs. When required, BEP has DCAA conduct postaward audits of the current contractor's costs. Include data and analyses in the currency paper procurement record that demonstrate the benefits the government is to receive when it approves profit levels that are aimed at recognizing or providing an incentive for capital investments. When required, BEP plans to comply with the FAR. To the extent possible, make more extensive use of price analysis to determine the fairness and reasonableness of prices, including the collection of data from foreign countries on their currency prices and data on similar supplies purchased by other agencies, such as paper for passports and money orders. BEP stated that a comparison of the price of U.S. currency paper with the price of foreign currency paper or money order and passport paper would not be a valid comparison because of technical differences. Ensure that all future currency paper procurements reflect the expected amounts of paper needed and that orders against contracts are for consistent amounts. BEP bases the amount of paper needed on the best available estimate provided by the Federal Reserve System. Ensure that the government obtains royalty-free data rights to any future security measures incorporated into currency paper. BEP plans to obtain royalty-free data rights to all future security measures that it incorporates into currency paper. To determine the steps the Bureau of Engraving and Printing (BEP) took to encourage competition for the 1999 and 2003 currency paper contracts, we interviewed BEP officials and reviewed the changes BEP made to the contract solicitations. To determine the results of these efforts, we reviewed the solicitations for the 1999 and 2003 contracts and sent a questionnaire to 15 domestic and foreign manufacturers of cotton-based security paper to determine the factors that have made it difficult for them to compete for the currency paper contract. We used a questionnaire that was similar to the questionnaire used for our 1998 report, allowing us to compare responses for the two time periods. Our survey universe consisted of manufacturers we had surveyed for our 1998 report, manufacturers identified by the American Forest and Paper Association, manufacturers identified by BEP as having expressed interest in the currency paper contract, and the current supplier. We received responses from 14 of the 15 manufacturers and made several attempts to obtain a response from the one manufacturer who did not respond to our survey. We also performed structured telephone interviews with all 14 manufacturers to clarify their survey responses. Our primary variable for analysis was interest in providing currency paper to BEP. We considered the eight manufacturers who responded that they were "very interested" or "somewhat interested" in providing currency paper to BEP as our most important group for the purposes of this study because they have a stated interest in supplying paper to BEP. We reviewed economics literature and interviewed several academic experts to determine the relevant barriers to competition. Finally, we analyzed the Conte Amendment, the statute limiting the procurement of distinctive currency paper to a 4-year contract, and other applicable procurement laws and regulations to identify requirements affecting the procurement of currency paper. To determine the steps BEP took to determine that the prices it paid for currency paper under the 1999 and 2003 contracts were fair and reasonable, we reviewed documents in BEP's contract files for the 1999 and 2003 contracts. We reviewed the process BEP must follow to determine fair and reasonable pricing. We reviewed the prenegotiation memorandums and negotiation summaries from the contract files and interviewed BEP procurement officials to determine what cost and price analysis activities BEP undertook to establish a fair and reasonable price. We then compared these actions with the requirements for cost and price analysis techniques under FAR part 15.404-1. We also obtained and reviewed audits of the current supplier that BEP requested from the Defense Contract Audit Agency and that have been issued since 1998. To determine the extent to which BEP has analyzed the advantages and disadvantages of obtaining a second supplier for currency paper, we reviewed BEP's most recent currency paper study, which was issued in 1996. We also interviewed several industry analysts and academic experts, and reviewed relevant economics literature. Although economic research on competition in government contracting is abundant, it has never been applied to the currency paper market. Therefore, we reviewed economic studies of other markets to determine the advantages and disadvantages of obtaining a second supplier. We also interviewed officials from BEP, the U.S. Secret Service, and the Federal Reserve System to obtain their views on the implications of obtaining multiple suppliers for currency paper. To gain additional perspective on the potential effects of obtaining a second supplier for currency paper, we interviewed former and current officials from the U.S. Mint about their experiences with a second supplier. The Mint was not able to provide us with financial data to demonstrate whether the price it paid for clad material changed after it began using a second supplier. We performed our work in Washington, D.C., from August 2004 through April 2005 in accordance with generally accepted government auditing standards. In addition to the individuals named above, Robert Ackley, Tim DiNapoli, Elizabeth Eisenstadt, Barbara El Osta, Heather Halliwell, Susan Michal- Smith, Terry Richardson, and John W. Shumann made key contributions to this report.
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For over 125 years, the Bureau of Engraving and Printing (BEP), within the Department of the Treasury, has relied on a single contractor to supply the paper for U.S. currency. Such a long-term contracting relationship could contribute to higher costs and other risks. Another federal agency that relied on a single contractor, the U.S. Mint, decided to obtain a second supplier for coin metal. In solicitations for currency paper contracts in 1999 and 2003, BEP took steps to address barriers to competition that GAO had identified in 1998 through a survey of paper manufacturers. This report updates GAO's 1998 report using data from a second survey. It addresses (1) the changes BEP made to encourage competition and the results of its efforts, (2) the steps BEP took to ensure that it paid fair and reasonable prices, and (3) the analysis BEP has done of the advantages and disadvantages of obtaining a second supplier. To encourage competition for the 1999 and 2003 contracts, BEP modified its solicitations to, among other things, indicate that it would provide bidders with the security thread that is inserted into most currency paper and extend the time for initial deliveries. For the 1999 contract, one additional supplier submitted an initial proposal but later withdrew it, and for the 2003 contract, only the current supplier submitted a proposal. This company remains the sole supplier of U.S. currency paper. According to paper manufacturers, several barriers to competition remain, including the high capital costs of and technological requirements for producing currency paper. BEP said it has not addressed these barriers because the requirements are either essential to preserve the security of currency paper or they are outside BEP's control (e.g., anticounterfeiting features are recommended by a federal committee). While some of the remaining barriers are outside BEP's control, BEP's outreach to paper manufacturers has been limited. For example, BEP does not meet regularly with them, as the Departments of Defense and Homeland Security meet with potential suppliers of their procurements, to identify additional steps that could be taken to encourage competition. To the extent that BEP has reached out to paper manufacturers, it has generally done so in conjunction with other BEP procurements. For the contracts awarded in 1999 and 2003, BEP took several steps, consistent with the Federal Acquisition Regulation's requirements, to determine that the prices it paid under these contracts were fair and reasonable. For the 1999 contract, it used price analysis (a comparison of two proposals) to determine that the two proposals it initially received were fair and reasonable. This analysis was sufficient because BEP had determined that adequate price competition existed. For the 2003 contract, BEP performed several cost analysis activities to ensure that the final agreed-to price was fair and reasonable, since the current supplier was the only company that submitted a proposal. For example, BEP obtained certified cost and pricing data from the current supplier, requested an audit review of the current supplier's price proposal, and established a technical analysis team to examine steps in the current supplier's manufacturing process that affect price. BEP also arranged for postaward audits of the current supplier. BEP has not analyzed the advantages and disadvantages of obtaining a second supplier of currency paper since 1996. At that time, it concluded that the costs would outweigh the benefits, but it did not analyze the long-term effects. As a result, it does not know how a second supplier would affect the costs, quality, security, and supply of currency paper over time. Analyzing the advantages and disadvantages of obtaining a second supplier would help BEP determine the need for one.
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State child welfare systems consist of a complicated network of policies and programs designed to protect children. With growing caseloads over the past decade, the systems' ability to keep pace with the needs of troubled children and their families has been greatly taxed. From fiscal year 1984 through 1995, the foster care population grew from an estimated 276,000 children to 494,000. In 1995, about 261,000 of these children were supported by federal funds through title IV-E of the Social Security Act. The federal government plays an important role in financing foster care and establishes minimum procedural requirements for the placement process. As required by the Adoption Assistance and Child Welfare Act of 1980 (P.L. 96-272), states must make reasonable efforts to prevent or eliminate the need for removing children from their homes. Once a child is removed from the home, the state must also provide services to the family and the child with the goal of reuniting them. If reunification is not possible, the state is to find permanent placement for the child outside the family home. To guide the permanency planning process by which a state is to find permanent placements for foster children, the act also requires that the state develop a case plan for each child. Each case plan must be reviewed at least every 6 months and, within 18 months, a permanency hearing must be held to determine the future status of the child. If a final decision is not made at this hearing, federal law provides that additional hearings must be held at least every 12 months. Options for the child's future status can include, but are not limited to, reuniting the child with his or her family, placing the child for adoption, continuing temporary foster care, or continuing foster care permanently or long term because of the child's special needs or circumstances. Increasingly, children are being placed with their own relatives, who then may sometimes receive foster care subsidies. The prolonged stays of children in foster care have prompted 26 states to enact laws or policies to shorten to less than the federally allowed 18 months the time between entering foster care and the first permanency hearing. Twenty-three of these states have enacted such laws, while three others have done so by administrative policy. A majority of these states require the hearing within 12 months. In two states, the shorter time frame applies only to younger children. Colorado requires that the permanency hearing be held within 6 months for children under age 6, and Washington requires the hearing to be held within 12 months for children aged 10 or younger. The remaining 24 states and the District of Columbia have statutes consistent with the federal requirement of 18 months. (For a description of the 26 state statutes, policies, and time requirements, see app. I.) The state laws, like federal law, do not require that a final decision be made at the first hearing. Ohio and Minnesota, however, do require that a permanency decision be determined after a limited extension period. Ohio, for example, requires a permanency hearing to be held within 12 months, with a maximum of two 6-month extensions. At the end of that time, a permanent placement decision must be made. According to officials in Ohio's Office of Child Care and Family Services, the requirement for earlier permanency hearings was made to expedite the permanent placement process and reduce the time children spend in foster care. State officials also believed, however, that this requirement may have unintentionally resulted in increasing the number of children placed in long-term foster care because other placement options could not be developed. State data, in part, confirmed this observation. While long-term foster care placements for children supported with state funds dropped from 1,301 in 1990 to 779 in 1995, long-term placements for children from low-income families who are supported in part with federal funds rose from 1,657 to 2,057 in the same period. Although the states we reviewed did not systematically evaluate the impacts of their initiatives, they have implemented a variety of operational and procedural changes to expedite and improve the permanency process. The states reported that these actions have improved the lives of some children by (1) reuniting them with their families more quickly; (2) expediting the termination of parental rights when reunification is not feasible, making it possible for child welfare agencies to begin looking for an adoptive home sooner; or (3) reducing the number of different foster care placements in which children live. Some states implemented low-cost, creative methods for financing and providing services that address specific barriers to reuniting families. Arizona's Housing Assistance Program focused on families in which the major barrier to reunification was inadequate housing for the family. According to reports and data from the Arizona Department of Economic Security, between 1991 and 1995, as the result of the program, 939 children were reunited with their families, representing almost 12 percent of the children reunified during this period. State officials estimated that this program saved the state over $1 million in foster care-related costs between 1991 and 1995. Arizona and Kentucky placed special emphasis on expediting the process by which parental rights could be terminated. Arizona's Severance Project focused on cases in which termination of parental rights was likely or reunification services were not warranted and for which a backlog of cases had developed. In April 1986, the state enacted a law providing funds for hiring severance specialists and legal staff to work on termination cases. The following year, in 1987, the state implemented the Arizona State Adoption Project, which focused on identifying additional adoptive homes, including recruiting adoptive parents for specific children and contracting for adoptive home recruitment services. State officials reported that the Adoption Project resulted in a 54-percent increase in the number of new homes added to the state registry in late 1987 and 1988. In addition, they noted that the Severance Project contributed to a more than 32-percent reduction in the average length of stay between entering care and the filing of the termination petition for fiscal years 1991 through 1995. children available for adoption rose, the state was forced to focus its efforts on identifying potential adoptive homes and shifted its emphasis to strategies to better inform the public about the availability of adoptive children. Some states are experimenting with concurrent planning. Under this approach, child welfare officials work toward reuniting a family while developing an alternate plan for permanently removing the child if reunification efforts fail. By working on the two plans simultaneously, caseworkers reduce the time needed to prepare the paperwork for terminating parental rights if reunification efforts fail. Under a concurrent planning approach, caseworkers emphasize to the parents that if they do not adhere to the requirements set forth in their case plan, parental rights can be terminated. Some state officials attributed obtaining quicker permanent placements in part to parents making more concerted efforts to make the changes needed to have their children returned home. Colorado began using concurrent planning formally in 1994 for children under age 6 in conjunction with the implementation of the law requiring that for children under age 6, the permanency hearing must be held within 6 months of the child's entering care. The program has been implemented in five counties. Preliminary data from an ongoing evaluation in Jefferson County shows that 65 out of 78 children, or 87 percent, achieved permanent placement within 1 year of initial placement as compared with 50 of 71 children, or 70 percent, in a control group. State Department of Human Services officials told us that concurrent planning was a key factor that contributed to the success of children's being placed more quickly in permanent homes. All decisions regarding both the temporary and final placement of foster children come through states' court systems. Therefore, Hamilton County, Ohio, juvenile court officials focused attention on the court's involvement in achieving permanency more quickly by developing new procedures to expedite case processing. To do so, in 1985, they revised court procedures by (1) designating lawyers specially trained in foster care issues as magistrates to hear cases; (2) assigning one magistrate to each case for the life of that case to achieve continuity; and (3) agreeing at the end of every hearing--with all participants present--to the date for the next hearing. According to court officials, the county saved thousands of dollars because it could operate three magistrates' courtrooms for about the cost of one judge's courtroom. Also, a report on court activities indicated that because of these changes, between 1986 and 1990, the number of children (1) placed in four or more different foster care placements decreased by 11 percent and (2) the percentage of children leaving temporary and long-term foster care in 2 years or less increased from 37 to 75 percent. Our efforts to assess the overall impact of these initiatives were hampered by the absence of evaluation data. We found that the states generally did not conduct systematic evaluations of their programs, and outcome information was often limited to state reports and the observations of state officials. Although many of these efforts reported improvements, for example, in speeding the termination of parental rights once this goal was established, the lack of comparison groups or quality data from the period before the initiative made it difficult to reach definitive conclusions about the initiatives' effectiveness. States increased their chances of successfully developing and implementing initiatives when certain key factors were a part of the process. When contemplating changes, state officials had to take into consideration the intricacies of the foster care process, the inherent difficulty that caseworkers and court officials face when deciding whether a child should be returned home, and the need, in some cases, for caseworkers and judges to recognize that termination of parental rights should be pursued. When Kentucky officials, for example, initiated a project to shorten the process for terminating parental rights, they faced the challenge of changing the way caseworkers and members of the legal system had viewed termination of parental rights. Many caseworkers saw the termination of parental rights as a failure on their part because they were not able to reunify the family. As a result, they seldom pursued termination and instead kept the children in foster care. In addition, judges and lawyers were often not sufficiently informed of the negative effects on children who do not have permanent homes. Thus, as part of this project, newsletters and training were provided about the effects on children of delaying termination of parental rights. Officials in the states we reviewed recognized that improving the permanency planning process requires concerted time and effort, coordination, and resources. These officials identified several critical, often interrelated factors required to meet these challenges. These included (1) long-term involvement of officials in leadership positions; (2) involvement of key stakeholders in developing consensus and obtaining buy-in about the problem and its solution; and (3) the availability of resources to plan, implement, and sustain the project. With the expected rise in foster care caseloads through the start of the next century further straining state and federal child welfare budgets, increasing pressure will be placed on states to develop initiatives to move children into permanent homes more quickly. Many of these initiatives will need to address the difficult issues of deciding under what circumstances to pursue reunification and what time period is appropriate before seeking the termination of parental rights. We found promising initiatives for changing parts of the permanency process so that children can be moved from foster care into permanent placements more quickly. Developing and successfully implementing these innovative approaches takes time and often challenges long-standing beliefs. To succeed, these initiatives must look to local leadership involvement, consensus building, and sustained resources. As these initiatives become a part of the complex child welfare system, however, they can also create unintended consequences. Identifying appropriate cases for the expeditious termination of parental rights and processing them faster--thereby making more children available for possible adoption--can create difficulties if efforts to develop more adoptive homes have not received equal emphasis. We also observed that a critical feature of these initiatives was often absent: Many of them lacked evaluations designed to assess the impact of the effort. The availability of evaluation information from these initiatives would not only point to the relative success or failure of an effort but also help identify unintended outcomes. The lack of program and evaluation data will continue to hinder the ability of program officials and policymakers to fully understand the overall impact of these initiatives. Mr. Chairman, this concludes my formal remarks. I will be happy to answer any questions you or other members of the Subcommittee may have. For more information on this testimony, please call Gale C. Harris, Assistant Director, at (202) 512-7235. Other major contributors are David D. Bellis, Social Science Analyst; Shellee S. Soliday and Octavia V. Parks, Senior Evaluators; Julian Klazkin, Senior Attorney; and Rathi Bose, Evaluator. Ariz. Rev. Stat. Ann., Section 8-515.C.(West Supp. 1996) Colo. Rev. Stat., Section 19-3-702(1)(Supp. 1996) Conn. Gen. Stat. Ann., Section 46b-129(d),(e) (West 1995) Ga. Code Ann., Section 15-11-419 (j),(k)(1996) 705 Ill. Comp. Stat. Ann., 405/2-22(5)(West Supp. 1996) Ind. Code Ann., Section 31-6-4-19(c)(Michie Supp. 1996) Iowa Code Ann., Section 232.104 (West 1994) Kan. Stat. Ann., Section 38-1565(b),(c)(1995) La. Ch. Code Ann., Arts. 702,710(West 1995) Mich. Stat. Ann., Section 27.3178(598.19a) (Law Co-op Supp. 1996) Minn. Stat. Ann., Section 260.191 Subd. 3b(West Supp. 1997) Miss. Code Ann., Section 43-21-613 (3)(1993) New Hampshire Court Rules Annotated, Abuse and Neglect, Guideline 39 (Permanency Planning Review) N.Y. Jud. Law, Section 1055(b)(McKinney Supp. 1997) Ohio Rev. Code Ann., Sections 2151.353(F) 2151.415 9 (A) (Anderson 1994) 42 Pa. Cons. Stat. Ann., Section 6351(e-g)(West Supp. 1996) (continued) R.I. Gen. Laws, Section 40-11-12.1(1990) S.C. Code Ann., Section 20-7-766(Law. Co-op. Supp. 1996) Utah Code Ann., Section 78-3a-312, (1996) Va. Code Ann., Section 16.1-282(Michie 1996) Wash. Rev. Code Ann., Section 13.34.145(3)(4) (West Supp. 1997) W. Va. Code Sections 49-6-5, 49-6-8(1996) Wis. Stat. Ann., Sections 48.355(4); 48.38; 48.365(5)(West 1987) Wyo. Stat. Ann., Section 14-6-229 (k)(Michie Supp. 1996) Michigan's time frame to hold the permanency hearing was calculated by adding the days needed to conduct the preliminary hearing, trial, dispositional hearing, and the permanency hearing. Virginia's time frame to hold the permanency hearing was calculated by adding the number of months required to file the petition to hold the permanency hearing plus the number of days within which the court is required to schedule the hearing. Child Welfare: Complex Needs Strain Capacity to Provide Services (GAO/HEHS-95-208, Sept. 26, 1995). Child Welfare: Opportunities to Further Enhance Family Preservation and Support (GAO/HEHS-95-112, June 15, 1995). Foster Care: Health Needs of Many Young Children Unknown and Unmet (GAO/HEHS-95-114, May 26, 1995). Foster Care: Parental Drug Abuse Has Alarming Impact on Young Children (GAO/HEHS-94-89, Apr. 4, 1994). Residential Care: Some High-Risk Youth Benefit, But More Study Needed (GAO/HEHS-94-56, Jan. 28, 1994). Foster Care: Services to Prevent Out-of-Home Placements Are Limited by Funding Barriers (GAO/HRD-93-76, June 29, 1993). Foster Care: State Agencies Other Than Child Welfare Can Access Title IV-E Funds (GAO/HRD-93-6, Feb. 9, 1993). Foster Care: Children's Experiences Linked to Various Factors; Better Data Need (GAO/HRD-91-64, Sept. 11, 1991). Child Welfare: Monitoring Out-of-State Placements (GAO/HRD-91-107BR, Sept. 3, 1991). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed: (1) state efforts to reduce the time frames within which hearings must be held to determine permanent placements for foster children; (2) state initiatives designed to expedite permanent placements for foster children and the effectiveness of these initiatives; and (3) key factors that facilitate changes in this part of the child welfare system. GAO noted that: (1) signaling the importance of permanent placement to the well-being of children, 26 states have established more stringent requirements on the timing of the first permanency hearing than has federal law, which requires a hearing within 18 months; (2) in addition, the states it reviewed undertook operational and procedural initiatives to expedite the permanent placement process as well as make well-informed permanent placement decisions; (3) although most of these states did not systematically evaluate their initiatives, they reported that many of the initiatives have contributed to reducing the time spent in foster care or decreasing the total number of foster placements made for a child; (4) state officials reported that the key factors in successfully implementing these initiatives were the long-term involvement of key officials, an extended commitment of resources, and the need for a change in perspective of case workers and judges in order to recognize that, in some cases, termination of parental rights is the best solution for the child's future.
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The DFC Support Program's two major goals are to: 1. establish and strengthen collaboration among communities, private non-profit agencies, and federal, state, local, and tribal governments to support the efforts of community "coalitions" to prevent and reduce substance abuse among youth; and 2. reduce substance abuse over time among youth and adults by addressing the factors in a community that increase the risk of substance abuse and promoting the factors that minimize the risk of substance abuse. Coalitions receiving grant funds through the program are obliged to make progress toward four core outcome measures. These relate to the prevalence of drug use among youth in their communities over the past 30 days, youth's perceptions of the risk, and the separate perceptions of parental and peer disapproval of drug use--each of which is discussed later in the report. Under the DFC Support Program, ONDCP provides federal grants to coalitions that have established sustainable and accountable anti-drug efforts involving every major sector of a community, such as law enforcement and schools. For the purposes of this report we refer to coalitions as grantees. According to ONDCP officials, a DFC coalition is collaboration among groups, such as parents and businesses who agree to work together toward a common goal of building a safe, healthy, and established through a locally-based arrangement for cooperation and drug-free community. DFC grants are intended to support community based coalitions and the activities they carry out. Funds are granted to the coalition, not a particular sector or sector member. DFC coalitions are broad-based groups consisting of representatives of youth, parents, businesses, the media, law enforcement, religious or other civic groups, health care professionals, and other organizations involved in reducing substance abuse in their communities, especially among youth--as illustrated in figure 1. ONDCP funds four types of DFC Support Program grants: (1) New; (2) Continuation; (3) Mentoring; and (4) Mentoring Continuation. For the purposes of this review, we focused on New and Continuation DFC grants as they constitute the majority of grants awarded. 1. New grants represent those openly competing for their 1st or 6th year of DFC funding. 2. Continuation grants represent annual "in-cycle" grants for years 2 through 5, or 7 through 10 of DFC funding. 3. Mentoring grants represent the first in a 2-year grant awarded to existing coalitions to support their work to create new DFC coalitions. Mentoring Continuation grants represent the second year of the 2- year award. 4. Each new and continuation grant awards up to $125,000 per fiscal year and mentoring grants limit awards to $75,000 per fiscal year. By statute, eligible coalitions may receive a new grant for 1 year and then apply for a 1-year continuation grant in each of the subsequent 4 years-- for a total first round grant period of 5 years. After the first 5 years, grantees can apply again for a second 5 year round--the maximum allowable term is 10 years--and the 6th year begins with another new grant. Grantees can apply for continuing grants again in each of the 4 years thereafter. According to ONDCP, it bases decisions on whether or not to continue a grant on the extent to which the coalition has (1) made satisfactory progress in its efforts to reduce youth substance abuse and (2) complied with all the terms and conditions of its award. To meet the statutory requirements of the DFC Support Program for initial eligibility--years 1 and 6--a coalition must: submit an application to the ONDCP Administrator; consist of one or more representatives from each of the 12 sectors-- at least one representative per sector--as illustrated in figure 1; demonstrate that the representatives of the coalition have worked together on substance abuse reduction initiatives for at least 6 months (prior to applying); demonstrate substantial participation from volunteer leaders in the have as its principal mission the reduction of substance abuse in a comprehensive and long-term manner, with a primary focus on youth in the community; describe and document the nature and extent of the substance abuse problem in the community; provide a description of the substance abuse prevention and treatment programs and activities underway at the time of the grant application and identify substance abuse programs and service gaps in the community; develop a strategic plan to reduce substance abuse among youth; and work to develop a consensus regarding the priorities of the community to combat substance abuse among youth; establish a system to measure and report outcomes; conduct an initial benchmark survey of drug use among youth and provide assurances that the entity conducting the evaluation has sufficient experience in gathering data related to substance abuse among youth or in evaluating the effectiveness of community anti-drug coalitions; and demonstrate that the coalition is an "ongoing concern" by demonstrating that it has established itself as an appropriate legal entity or organization that receives financial support from non-federal sources and has a strategy to solicit substantial financial support from non-federal sources after the expiration of the grant term. For additional information on the statutory requirements for the DFC Support Program, see table 2 in appendix I. In addition to meeting statutory eligibility requirements, grantees must also comply with DFC Support Program terms and conditions. For example, the program requires that grantees must develop a comprehensive 12-Month Action Plan that includes an appropriate strategy for each drug they will be addressing--as well as a mechanism for demonstrating their progress along the way. Further, two grantees may not serve the same zip code, unless both have clearly demonstrated a plan for collaboration. For more information on the additional program requirements for the DFC Support Program, see table 3 in appendix I. In fiscal year 2015, the DFC Support Program's appropriated budget was approximately $93.5 million, representing just under a quarter of ONDCP's total budget of about $375 million. As table 1 shows, the total number of DFC Support Program grants increased each fiscal year from 2013 to 2015. According to ONDCP, since the passage of the Drug-Free Communities Act in 1997, the DFC Support Program has funded more than 2,000 coalitions and mobilizes nearly 9,000 community volunteers across the country. ONDCP and SAMHSA have operated the grant program through an inter- agency agreement since 2005 that they update annually. Specifically, ONDCP oversees the strategic planning, bi-annual progress reporting, funding of the DFC Support Program, and SAMHSA conducts day-to-day administration, such as interacting with grantees on a regular basis and reviewing their activities. SAMHSA, as directed by ONDCP also awards a grant to the Community Anti-Drug Coalitions of America (CADCA), which provides technical assistance and training to grantees in order to enhance their capacity. For example, CADCA trains grantees in effective community problem-solving strategies and teaches them how to assess their local substance abuse-related problems and develop responsive action plans. The DFC Support Program operates on a yearly grant cycle, working through a given calendar year. The DFC grant life cycle follows a typical federal grant life cycle, as shown in figure 2. ONDCP and SAMHSA require grantees to submit semi-annual progress reports through an ONDCP system called DFC Management and Evaluation (DFC Me). These reports contain descriptions of the activities the grantees conducted in supporting the program's two broad goals, as well as their progress against the program's four core measures: 1. Past 30-Day Prevalence of Use--youth who reported use of alcohol, tobacco, marijuana, or illicit use of prescription drugs at least once in the past 30 days. 2. Perception of Risk--youth who reported that the use of alcohol, tobacco, marijuana, or illicit use of prescription drugs is harmful. 3. Perception of Parental Disapproval--youth who reported their parents feel the regular use of alcohol, tobacco, and marijuana, or illicit use of prescription drugs is wrong or very wrong. 4. Perception of Peer Disapproval--youth who reported their friends thought it would be "wrong or very wrong" for them to drink alcohol, engage in any tobacco or marijuana use, or illicit prescription drug use. See appendix II for additional details on ONDCP's core measures. As we have previously reported, conducting grant management processes like those illustrated above, in accordance with internal control standards, statutory requirements, and leading practices for collaborating agencies is essential for achieving program outcomes. ONDCP's and SAMHSA's efforts to jointly manage the DFC Support Program are consistent with relevant, key collaboration practices. Specifically, in our prior work, we have found that collaboration is enhanced when partners follow certain key practices, such as (1) defining a common outcome, (2) agreeing on roles and responsibilities, and (3) establishing compatible policies, procedures, and other means to operate across agency boundaries. We have also recognized in prior work that collaborating agencies should work together to define and agree on their respective roles and responsibilities, including how the collaborative effort will be led, designating a lead body, establishing oversight for the initiative, and employing mechanisms to implement their efforts. DFC grantees have engaged in a range of activities, including drug abuse education campaigns and efforts to enhance enforcement, and they report on these activities in their semi-annual progress reports to SAMHSA. ONDCP, through its contractor, routinely reviews the nature and scope of these activities to ensure they fit within one of the Seven Strategies for Community Change. For example, according to ONDCP, one of these seven strategies is "providing information." As ONDCP reported, from February 2014 through July 2014, to execute this strategy, grantees held 7,338 face-to-face information sessions on topics such as the consequences of youth substance abuse and the importance of drug abstinence, reaching almost 138,000 adults and more than 156,000 youth. Figure 3 illustrates the DFC Support Program's overarching goal, its specific program goals, ONDCP's seven strategies for goal attainment, and examples of grantees' activities aligned with each. Our review of grant files from 30 grantees also revealed diversity in terms of specific activities within the seven strategic categories. For example, grantees reported conducting alcohol prevention outreach activities and events for parents; implementing a county-wide marijuana prevention media campaign; and implementing prescription drug take-back, or collection, events. We also spoke with 10 of the 30 grantees to discuss, among other things, how they are using their funds to implement one or more of the seven program strategies. Some examples include the following. Providing Support: To provide support to youth working on prevention and education efforts, a grantee sponsors a "Yearly Youth Summit," which is organized partially by their 20 member youth coalition. The youth coalition selects the topics and guest speakers for the summit and invites up to 75 peers who discuss and brainstorm ideas for activities and ways to address a specific substance abuse problem at their school. Additionally, tables are assigned to encourage communication outside an individual's immediate peer group. Enhancing Skills: To enhance the skills of those in the community to be on alert for and vigilant against potential drug abuse, one grantee sponsored a session for local realtors on precautions to take when preparing for open houses--warning realtors that leftover prescription drugs in medicine cabinets present the potential for abuse among those walking through the home for sale. Enhancing Access/Reducing Barriers: To reduce cultural barriers, one grantee developed signs emphasizing the legal purchase age for alcohol in multiple languages to respect the diversity of languages spoken across its community--as seen in figure 4. The grantee then provided these signs to local business owners. Providing Information: To provide greater information to parents on what drug prevention steps they could take, one grantee chose to address the challenges parents may face when hosting teenage parties at their home. Specifically, this grantee worked with its youth group to identify house parties as a concern in the community and provided parents with information on the consequences of providing alcohol and youth alcohol consumption. The grantee used the slogan to remind parents of their children's needs: "Be my Parent, not my Bartender," which they told us parents found particularly compelling. Changing Consequences: To change consequences for adults who host underage drinking parties, another grantee launched an anonymous tip line called "QuikTip," which led to tips coming in daily to their local 911 call center. One outcome resulting from the QuikTip line was that a New Year's underage drinking party was reported, which led to law enforcement being dispatched to the party. Modifying/Changing Policies: To modify or enforce policies among its local businesses, one grantee partnered with the District Attorney's office to create a task force that included business owners, local policy makers, and youth coalition members. This task force made it a priority to ensure that all clerks selling alcoholic beverages were taking mandatory beverage service training and also worked to gain buy-in among task force participants for an increase in alcohol policy compliance checks. The grantee drew upon its 18- to 20-year old members to assist in testing store clerks' adherence to the under aged drinking laws. Changing Physical Design: To change the appearance of alcoholic beverage packages, another coalition reported that its youth group created stickers as part of a "Keep It Legal" campaign. The group designed and helped place approximately 540 stickers on alcoholic items sold throughout the community that contained a message about the legal drinking age and the consequences of alcohol consumption--as shown in figure 5. ONDCP and SAMHSA have developed standard operating procedures to collect relevant information from new applicants and current grantees and to document grantees' compliance with eligibility requirements in governing statutes. Per the IAA between ONDCP and SAMHSA, SAMHSA is charged with collecting, analyzing, and reporting the status of grantees' compliance to ONDCP. The agencies require substantial documentation from grantees in terms of initial and continuing grant applications. Some examples include: A grant application, which includes a grantee's mission statement, description of its projects, and a 12-month action plan outlining its focus areas and planned activities; Detailed budget narrative and budget sections that accompany the application. These documents, in part, identify sources of non-federal matching funds that grantees receive to meet the DFC funds matching requirement; Resumes and job descriptions for key personnel, such as the program director and project coordinator; Coalition involvement agreements from representatives for all 12 sectors to indicate compliance with the statutory requirement; Two sets of coalition meetings minutes per year, with attendees listed out, to demonstrate coalition membership involvement; Submission of documentation and verification of the organization's non-profit status, such as maintaining a 501(c)(3) status; Semi-annual progress reports through DFC Me to provide accurate and meaningful statistical representation of youth surveyed on the core measures and activities in each of the geographical areas served by the coalition; Quarterly and annual Federal Financial Reports that demonstrate compliance with the grant's purposes by accurately documenting its funds transactions; Sustainability plans--required for grantees in year 3 or year 7 of the grant life cycle to show progress to achieve self-sustainment after completing the DFC Support Program; and Letter of Mutual Cooperation between the coalitions with the identification of zip codes served (if applicable) that requires grantees to outline their collaborative efforts. According to ONDCP and SAMHSA officials, their procedures require that all of this documentation is to be stored and safeguarded in SAMHSA's databases to preserve the record of the grant. The procedures also require that SAMHSA grant management officials review these grantee files to continually monitor grantees' compliance with eligibility criteria and for SAMHSA to report to ONDCP on any grantee compliance issues. According to the officials, collecting these documents and ensuring that files are complete and accurate also assists with monitoring the grantees' progress in implementing their stated strategies and action steps. In addition to the documentation required to help ensure grantees' statutory compliance, ONDCP and SAMHSA developed specific DFC Support Program terms and conditions. They also have procedures in place to help ensure grantees are meeting these requirements. For example, one term and condition of the grant is that grantees must agree in writing to comply with federal grant requirements through the use of a checklist from the U.S. Department of Health and Human Services-- SAMHSA's parent agency. ONDCP and SAMHSA then developed a process to track submission of this checklist, which likewise applies to the submission of all other required documents. Specifically, SAMHSA is to monitor grantees to ensure receipt of the document and when a grantee has not submitted it, SAMHSA's grant management specialists are to reach out to request it again. If grantee noncompliance becomes an issue, then SAMHSA is to report the concern to ONDCP during routine meetings and by documenting it in a tracking spreadsheet for ONDCP's review. In addition to procedures in place to help monitor grantees' compliance with statutory provisions and other terms and conditions of the grant, performance measures and procedures were established to obtain and analyze grantee performance. The procedures include (1) a system to collect data from the grantees on performance measures, and (2) a contract with an evaluation agency to analyze and summarize the performance measures data. Specifically, ONDCP, through its contractor, conducts and issues a national evaluation report based on data collected by grantees. The evaluation report, published annually, provides information on two sets of data: (1) the activities grantees reported, and (2) the outcome data reflecting change on the DFC four core measures, using both qualitative and quantitative data collection and analysis. See appendix II for additional details on the four core measures and trends in grantees' outcomes. Based on our file review and analysis of the files encompassing the more than 20 types of required documents from 30 grantees, we found that SAMHSA does not consistently follow documentation and reporting procedures to ensure grantees' compliance with both the statutory provisions and established grant program terms and conditions. Specifically, we found that SAMHSA followed all processes for ensuring that initial applicants had submitted the required documentation before awarding these applicants their initial grant funding. However, SAMHSA was less consistent in its adherence to procedures for confirming documentation for grantees in later years of their grants. We also found that SAMHSA did not effectively track grantee compliance and therefore, had not been accurately reporting to ONDCP on the status of grantees' required documentation. To conduct our analysis, we reviewed the official grant files for 30 randomly selected grantees that received DFC Support Program funding in fiscal year 2015. Since in any given year, some grantees will be first time grant recipients and others will be more tenured, we widened our review to include the files for fiscal years 2013 and 2014 for any selected grantee in continuation status. Such a mix of grantees in different years of funding allowed us to see variation in the content and depth of the grant documents that ONDCP and SAMHSA require to be on file. For example, all grantees, regardless of their tenure in the program, are required to have progress reports on file. In contrast, only grantees who recently applied for year 3 or year 7 funding, for example, are required to have sustainability plans. We found that SAMHSA adhered inconsistently to its documentation and reporting procedures at different stages of grantees' tenure. For example, during our file review, we found that all of the 22 grantees in our sample that should have had a complete initial application package in the official grantee file generally had one. However, we also found that: While all 30 grantees in our sample were required to submit progress reports every 6 months, at least one report was missing for 26 grantees. Specifically, for the 30 grantees, a total of 128 semi-annual reports should have been submitted and filed in the official grantee file, but 83 were missing. According to SAMHSA officials, these reports were missing because grantees lacked access to designated databases where progress reports are uploaded. Specifically, SAMHSA's database--COMET--went offline in December 2014 and was replaced by the DFC Management and Evaluation Tool (DFC Me), which became operational in February 2016. SAMHSA officials said they did not request progress reports from grantees during the transition period between Coalition Online Management and Evaluation Tool (COMET) and DFC Me, which lasted approximately 18 months. However, they were aware that ONDCP's contractor provided DFC grantees with an electronic template that allowed the grantees to collect data and document their progress as required, outside of the designated databases. In February 2016, ONDCP requested all grantees to input their progress report information into DFC Me, to include information covering the transition period. Prior to that date however, SAMHSA staff did not request this information from grantees and therefore, did not have it to conduct their monitoring efforts. SAMHSA officials acknowledged that their staff did not conduct the necessary follow up to ensure that the files were stored in the updated system for record keeping purposes. SAMHSA officials also acknowledged that they were not aware of the number of reports from grantees that were omitted from the record. Of the 26 grantees that should have had continuation application packages in their official grantee files, 9 were missing the required Federal Financial Report. The Federal Financial Report is a document in which the grantee details its expenditures, disbursements, and cash receipts. SAMHSA requires grantees to submit the Federal Financial Report within 90 days of the fiscal year's end. SAMHSA officials acknowledged that the Federal Financial Reports were likely missing because the grantees did not provide them and SAMHSA staff did not follow up to obtain them. When we discussed this finding with SAMHSA officials, they were unaware of the omission. Of the 18 grantees that should have had sustainability plans in their official grantee files, 14 were missing the required plans. These sustainability plans are to outline how the grantee intends to maintain the resources necessary to achieve its long-term goals and continued progress after exiting the DFC Support Program. According to SAMHSA officials, 12 of the 14 grantees were missing the sustainability plans because SAMHSA staff had not uploaded them to the system of record, and the remaining 2 grantees never submitted them and the grants management specialist did not follow up to obtain the document. SAMHSA officials were unaware of these omissions. SAMHSA's policies and procedures require that the official award file contain the formal, complete record of the history of an award, such as documents that support verification of statutory eligibility. SAMHSA officials also told us that its staff is responsible for ensuring that all files are stored in a shared database system, in accordance with SAMHSA policy. In addition, the IAA between ONDCP and SAMHSA outlines that SAMHSA is responsible for ensuring grantees have submitted all required documents, following up as needed, and reporting to ONDCP on grantees' status. According to ONDCP and SAMHSA officials, SAMHSA did routinely relay reports to ONDCP on grantees' status. However, SAMHSA officials acknowledged that they were unaware that files were missing, which calls into question the effectiveness of their program monitoring. It also challenges the accuracy and validity of the grantee status reports that SAMHSA provided to ONDCP. In particular, ONDCP officials told us they were never made aware that any required grantee documents were not included in the official record. SAMHSA officials said that in March 2016, to strengthen their grants administration process, they instituted a new internal review process in which they randomly select 50 grant files per month from their various grant programs to assess the completeness and accuracy of grantees' documentation. As part of the internal review process, SAMHSA has also taken other steps including enhancing training, developing policies and procedures, and implementing a step-by-step guide and training for grant managers on entering information into the official grant file. While this review process had not included the DFC Support Program initially, in November 2016, while our audit work was nearing completion, officials said they were planning to expand their focus to incorporate all of SAMHSA's grant programs. While officials provided information on how they planned to address particular deficiencies on a case by case basis, they did not explain how they planned to ensure systemic remediation of any issue found repeatedly or a timeframe for implementing the changes. According to Standards for Internal Control in the Federal Government, managers are to (1) promptly evaluate findings from audits and other reviews, including those showing deficiencies and recommendations, (2) determine proper actions in response to these findings and recommendations, and (3) complete, within established time frames, all actions that correct or otherwise resolve the matters brought to management's attention. Ensuring this new review process is fully implemented in a sustainable manner will be critical for SAMHSA as it aims to strengthen DFC grants monitoring. Further, developing an action plan with time frames for addressing any deficiencies it finds through its reviews and making systemic changes to mitigate deficiencies on a prospective basis will also help its management of the DFC program. Further, Standards for Internal Control in the Federal Government states that all transactions and other significant events need to be clearly documented and should be readily available for examination. For the DFC Support Program, such transactions include SAMHSA's collection, storage, and review of grantee documentation. It also includes SAMHSA's documentation and reporting of grantee status to ONDCP. Additionally, control activities--policies, procedures, and mechanisms-- should enforce management's directives and help ensure that actions are taken to address risks, such as ensuring DFC grantees are not remiss in meeting statutory and program requirements. Related, internal controls for monitoring should generally be designed to assure that ongoing monitoring occurs in the course of normal operations. This includes regular management and supervisory activities, comparisons, and reconciliations. Deficiencies found during ongoing monitoring or through separate evaluations should be communicated to the individual responsible for the function and serious matters should be reported to top management. Control activities like these should be an integral part of an entity's accountability for stewardship of government resources. SAMHSA's lack of follow up with grantees and its lack of visibility over omitted documents resulted in incomplete and inaccurate documentation of status in its reports to ONDCP. Without a method to ensure that grantee status reporting to ONDCP is complete and accurate, SAMHSA cannot be certain that grantees are engaging in intended activities, that funds are being used in accordance with program requirements, and that all other statutory requirements and grant program terms and conditions have been met. Since 2008, ONDCP and SAMHSA have taken steps to improve the DFC Support Program by employing leading collaboration practices and funding a variety of drug prevention activities. However, SAMHSA's inconsistent adherence to some procedures, particularly with respect to grantees that are funded year after year, has resulted in the persistence of missing or incomplete documentation in the official grantee files, which has limited performance monitoring. Developing an action plan that includes time frames for addressing deficiencies found through its grant file reviews and making systemic changes based on its findings, as well as developing a method for ensuring complete and accurate grantee status reporting to ONDCP, would position SAMHSA officials to further strengthen monitoring efforts. As the number of youth who engage in illicit drug use remains a public health concern, the continued focus on funding grantees and monitoring them for both progress and compliance is vital. To better ensure grantees' compliance with the Drug-Free Communities Support Program's statutory requirements and to strengthen monitoring of grantee activities, we recommend that SAMHSA take the following two actions: develop an action plan with time frames for addressing any deficiencies it finds through its reviews and making systemic changes to mitigate deficiencies on a prospective basis to strengthen the grant monitoring process, and develop and implement a method for ensuring that the grantee status reports it provides to ONDCP are complete and accurate. ONDCP and the Department of Health and Services (HHS) provided written comments on a draft of this report. In their comments, both agencies concurred with our recommendations. In HHS's written comments, reproduced in appendix III, HHS stated SAMHSA will implement a targeted review focusing on the DFC files and strengthen its grants management processes to ensure that the reports it provides to ONDCP are timely and accurate. HHS also provided technical comments which we incorporated where appropriate. We are sending copies of this report to the Director of the Office of National Drug Control Policy, the Secretary of Health and Human Services, and appropriate congressional committees and members, and other interested parties. In addition, this report is available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions, please contact Diana Maurer 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 report. GAO staff that made significant contributions to this report are listed in appendix IV. The Office of National Drug Control Policy's (ONDCP) Drug-Free Communities (DFC) Support program requires grantees to report on four core measures in progress reports semiannually as listed in table 4. Grantees collect these core measure data and ONDCP provides it to its contractor for national-level evaluation and reporting. For example, in the National Evaluation of Drug-Free Communities Support Program Summary of Findings through 2014, the percentage change in the past 30 days of drug use among middle school and high school youth is evaluated and reported bi-annually. Figure 6 shows the trend in drug use from 2002 through 2014. Since the program added prescription drugs to the core measures in 2012, figure 7 captures the prevalence of prescriptions drugs in comparison to alcohol, tobacco, and marijuana in fiscal year 2013. In addition to the contact named above, Joy Booth (Assistant Director), Aditi Archer (Analyst-in-Charge), David Alexander, Lyle Brittain, Willie Commons III, Dominick Dale, Eric Hauswirth, Anna Maria Ortiz, Jeffrey Paulk, and Justin Snover made key contributions to this report.
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In 2015, approximately 2.2 million adolescents aged 12 to17 were current users of illicit drugs. The Drug-Free Communities Act of 1997 established the DFC Support Program--a federal grant program supporting drug abuse prevention efforts that engage schools, law enforcement, and other sectors of a community. The program targets reductions in the use of alcohol, tobacco, marijuana, and the illicit use of prescription drugs. The Office of National Drug Control Policy Reauthorization Act of 2006 includes a provision that GAO routinely assess ONDCP's programs and operations. This report addresses: (1) the extent to which ONDCP and SAMHSA use leading practices to coordinate program administration and the types of activities funded; and (2) the extent to which ONDCP's and SAMHSA's' operating procedures both ensure DFC grantees comply with governing statutes and provide a basis for performance monitoring. To conduct this work, GAO analyzed agency policies from 2013-2015 (most recent available); interviewed agency officials; and analyzed coordination efforts against relevant key practices GAO identified previously. GAO reviewed files obtained from a non-generalizable random sample of 30 grantees and interviewed a random subset of 10. The Office of National Drug Control Policy (ONDCP) and the U.S. Department of Health and Human Services' Substance Abuse and Mental Health Services Administration (SAMHSA) employ leading collaboration practices to administer the Drug Free Communities (DFC) Support Program and have funded a range of drug prevention activities. Both agencies have improved their collaboration since GAO last reported on the DFC program in 2008. Their current efforts to jointly manage the DFC Support program are consistent with GAO's relevant key collaboration practices. For example, ONDCP and SAMHSA defined and agreed upon common outcomes, such as prioritizing efforts to increase participation from under-represented communities. The two agencies have also funded a range of DFC grantees' activities and report on these activities in their annual evaluation reports. For example, ONDCP reported that from February through July 2014, grantees educated more than 156,000 youth on topics related to the consequences of substance abuse. To illustrate, the 10 grantees GAO interviewed described their specific efforts, including programs for Enhancing Skills: To enhance the skills of those in the community, one grantee sponsored a session for local realtors on precautions to take when preparing for open houses--warning them that leftover prescriptions in medicine cabinets present the potential for abuse among those walking through the home for sale. Enhancing Access/Reducing Barriers: To reduce cultural barriers, another grantee developed signs with text in the multiple languages spoken throughout the community that shopkeepers could display to emphasize the legal purchase age for alcohol. Providing Information: To provide greater information to parents on the consequences of providing alcohol in their homes, a grantee created a slogan to remind parents of their children's needs, "Be my Parent, not my Bartender." The agencies have operating procedures in place, but could enhance grantee compliance and performance monitoring. In particular, SAMHSA does not consistently follow documentation and reporting procedures to ensure grantees' compliance with governing statutes. SAMHSA also has not been accurately reporting to ONDCP on grantee compliance. Specifically for the files GAO reviewed, SAMHSA followed all processes for ensuring that initial applicants had submitted required documentation before awarding them initial grant funding. However, SAMHSA was less consistent in adhering to procedures for confirming documentation in later years of the program. For example, 14 of the 18 grantees that should have had sustainability plans in their files did not. These plans outline how the grantee intends to maintain necessary resources to achieve long-term goals after exiting the program. Prior to GAO's review, ONDCP and SAMHSA officials were not aware of the missing data in the grant files. Without close adherence to existing procedures, and a mechanism to ensure that the documentation it reports to ONDCP is accurate and complete, SAMHSA's performance monitoring capacity is limited and it cannot be certain that grantees are engaging in intended activities and meeting long-term goals. GAO recommends that SAMHSA develop an action plan with time frames to strengthen DFC grant monitoring and ensure it sends complete and accurate information to ONDCP. SAMHSA concurred with these recommendations and identified actions to address them.
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The same speed and accessibility that create the enormous benefits of the computer age can, if not properly controlled, allow individuals and organizations to inexpensively eavesdrop on or interfere with computer operations from remote locations for mischievous or malicious purposes, including fraud or sabotage. In recent years, the sophistication and effectiveness of cyberattacks have steadily advanced. Government officials are increasingly concerned about attacks from individuals and groups with malicious intent, such as criminals, terrorists, and nation-states. As we reported in June 2007, cybercrime has significant economic impacts and threatens U.S. national security interests. Various studies and experts estimate the direct economic impact from cybercrime to be in the billions of dollars annually. In addition, there is continued concern about the threat that our adversaries, including nation-states and terrorists, pose to our national security. For example, intelligence officials have stated that nation-states and terrorists could conduct a coordinated cyber attack to seriously disrupt electric power distribution, air traffic control, and financial sectors. In May 2007, Estonia was the reported target of a denial-of-service cyber attack with national consequences. The coordinated attack created mass outages of its government and commercial Web sites. To address threats posed against the nation's computer-reliant infrastructures, federal law and policy establishes DHS as the focal point for cyber CIP. For example, within DHS, the Assistant Secretary of Cyber Security and Communications is responsible for being the focal point for national cyber CIP efforts. Under the Assistant Secretary is NCSD which interacts on a day-to-day basis with federal and nonfederal agencies and organizations (e.g., state and local governments, private-sector companies) regarding, among other things, cyber-related analysis, warning, information sharing, major incident response, and national-level recovery efforts. Consequently, DHS has multiple cybersecurity-related roles and responsibilities. In May 2005, we identified, and reported on, 13 key cybersecurity responsibilities called for in law and policy. These responsibilities are described in appendix I. Since then, we have performed detailed work and made recommendations on DHS's progress in fulfilling specific aspects of the responsibilities, as discussed in more detail later in this statement. In addition to DHS efforts to fulfill its cybersecurity responsibilities, the President in January 2008 issued HSPD 23--also referred to as National Security Presidential Directive 54 and the President's "Cyber Initiative"--to improve DHS and the other federal agencies' cybersecurity efforts, including protecting against intrusion attempts and better anticipating future threats. While the directive has not been made public, DHS officials stated that the initiative includes steps to enhance cyber analysis related efforts, such as requiring federal agencies to implement a centralized network monitoring tool and reduce the number of connections to the Internet. Over the last several years, we have reported that DHS has yet to comprehensively satisfy its key cybersecurity responsibilities. These reports included about 30 recommendations that we summarized into the following key areas that are essential for DHS to address in order to fully implement its cybersecurity responsibilities. In July 2008, we identified that cyber analysis and warning capabilities included (1) monitoring network activity to detect anomalies, (2) analyzing information and investigating anomalies to determine whether they are threats, (3) warning appropriate officials with timely and actionable threat and mitigation information, and (4) responding to the threat. These four capabilities are comprised of 15 key attributes, which are detailed in appendix II. We concluded that while US-CERT demonstrated aspects of each of the key attributes, it did not fully incorporate all of them. For example, as part of its monitoring, US-CERT obtained information from numerous external information sources; however, it had not established a baseline of our nation's critical network assets and operations. In addition, while it investigated if identified anomalies constitute actual cyber threats or attacks as part of its analysis, it did not integrate its work into predictive analyses of broader implications or potential future attacks, nor does it have the analytical or technical resources to analyze multiple, simultaneous cyber incidents. The organization also provided warnings by developing and distributing a wide array of attack and other notifications; however, these notifications were not consistently actionable or timely--providing the right information to the right persons or groups as early as possible to give them time to take appropriate action. Further, while it responded to a limited number of affected entities in their efforts to contain and mitigate an attack, recover from damages, and remediate vulnerabilities, the organization did not possess the resources to handle multiple events across the nation. We also concluded that without the key attributes, US-CERT did not have the full complement of cyber analysis and warning capabilities essential to effectively perform its national mission. As a result, we made 10 recommendations to the department to address shortfalls associated with the 15 attributes in order to fully establish a national cyber analysis and warning capability. DHS concurred with 9 of our 10 recommendations. In June 2008, we reported on the status of DHS's efforts to establish an integrated operations center that it agreed to adopt per recommendations from a DHS-commissioned expert task force. The two operations centers that were to be integrated were within the department's National Communication System and National Cyber Security Division. We determined that DHS had taken the first of three steps towards integrating the operations centers--called the National Coordination Center Watch and US-CERT--it uses to plan for and monitor voice and data network disruptions. While DHS completed the first integration step by locating the two centers in adjacent space, it had yet to implement the remaining two steps. Specifically, although called for in the task force's recommendations, the department had not organizationally merged the two centers or involved key private sector critical infrastructure officials in the planning, monitoring, and other activities of the proposed joint operations center. In addition, the department lacked a strategic plan and related guidance that provides overall direction in this area and has not developed specific tasks and milestones for achieving the two remaining integration steps. We concluded that until the two centers were fully integrated, DHS was at risk of being unable to efficiently plan for and respond to disruptions to communications infrastructure and the data and applications that travel on this infrastructure, increasing the probability that communications will be unavailable or limited in times of need. As a result, we recommended that the department complete its strategic plan and define tasks and milestones for completing remaining integration steps so that we are better prepared to provide an integrated response to disruptions to the communications infrastructure. DHS concurred with our first recommendation and stated that it would address the second recommendation as part of finalizing its strategic plan. DHS has recently made organizational changes to bolster its cybersecurity focus. For example, in response to the President's January 2008 Cyber Initiative, the department established a National Cybersecurity Center to ensure coordination among cyber-related efforts across the federal government. DHS placed the center at a higher organizational level than the Assistant Secretary of Cyber Security and Communications. As we previously reported, this placement raises questions about, and may in fact, diminish the Assistant Secretary's authority as the focal point for the federal government's cyber CIP efforts. It also raises similar questions about NCSD's role as the primary federal cyber analysis and warning organization. In September 2008, we reported on a 2006 major DHS-coordinated cyber attack exercise, called Cyber Storm, that included large scale simulations of multiple concurrent attacks involving the federal government, states, foreign governments, and private industry. We determined that DHS had identified eight lessons learned from this exercise, such as the need to improve interagency coordination groups and the exercise program. We also concluded that while DHS had demonstrated progress in addressing the lessons learned, more needed to be done. Specifically, while the department completed 42 of the 66 activities identified to address the lessons learned, it identified 16 activities as ongoing and 7 as planned for the future. In addition, DHS provided no timetable for the completion dates of the ongoing activities. We noted that until DHS scheduled and completed its remaining activities, it was at risk of conducting subsequent exercises that repeated the lessons learned during the first exercise. Consequently, we recommended that DHS schedule and complete the identified corrective activities so that its cyber exercises can help both public and private sector participants coordinate their responses to significant cyber incidents. DHS agreed with the recommendation. In 2007, we reported and testified on the cybersecurity aspects of CIP plans for 17 critical infrastructure sectors, referred to as sector- specific plans. Specifically, we found that none of the plans fully addressed the 30 key cybersecurity-related criteria described in DHS guidance. We also determined that while several sectors' plans fully addressed many of the criteria, others were less comprehensive. In addition to the variations in the extent to which the plans covered aspects of cybersecurity, there was also variance among the plans in the extent to which certain criteria were addressed. For example, fewer than half of the plans fully addressed describing (1) a process to identify potential consequences of cyber attack or (2) any incentives used to encourage voluntary performance of risk assessments. We noted that without complete and comprehensive plans, stakeholders within the infrastructure sectors may not adequately identify, prioritize, and protect their critical assets. Consequently, we recommended that DHS request that the lead federal agencies, referred to as sector-specific agencies, that are responsible for the development of CIP plans for their sectors fully address all cyber-related criteria by September 2008 so that stakeholders within the infrastructure sectors will effectively identify, prioritize, and protect the cyber aspects of their CIP efforts. The updated plans are due this month. In a September 2007 report and October 2007 testimony, we identified that federal agencies had initiated efforts to improve the security of critical infrastructure control systems--computer-based systems that monitor and control sensitive processes and physical functions. For example, DHS was sponsoring multiple control systems security initiatives, including efforts to (1) improve control systems cybersecurity using vulnerability evaluation and response tools and (2) build relationships with control systems vendors and infrastructure asset owners. However, the department had not established a strategy to coordinate the various control systems activities across federal agencies and the private sector. Further, it lacked processes needed to address specific weaknesses in sharing information on control system vulnerabilities. We concluded that until public and private sector security efforts are coordinated by an overarching strategy and specific information sharing shortfalls are addressed, there was an increased risk that multiple organizations would conduct duplicative work and miss opportunities to fulfill their critical missions. Consequently, we recommended that DHS develop a strategy to guide efforts for securing control systems and establish a rapid and secure process for sharing sensitive control system vulnerability information to improve federal government efforts to secure control systems governing critical infrastructure. In response, DHS officials took our recommendations under advisement and more recently have begun developing a Federal Coordinating Strategy to Secure Control Systems, which is still a work in process. In addition, while DHS began developing a process to share sensitive information; it has not provided any evidence that the process has been implemented or that it is an effective information sharing mechanism. We reported and later testified in 2006 that the department had begun a variety of initiatives to fulfill its responsibility for developing an integrated public/private plan for Internet recovery. However, we determined that these efforts were not comprehensive or complete. As such, we recommended that DHS implement nine actions to improve the department's ability to facilitate public/private efforts to recover the Internet in case of a major disruption. In October 2007, we testified that the department had made progress in implementing our recommendations; however, seven of the nine have not been completed. For example, it revised key plans in coordination with private industry infrastructure stakeholders, coordinated various Internet recovery-related activities, and addressed key challenges to Internet recovery planning. However, it had not, among other things, finalized recovery plans and defined the interdependencies among DHS's various working groups and initiatives. In other words, it has not completed an integrated private/public plan for Internet recovery. As a result, we concluded that the nation lacked direction from the department on how to respond in such a contingency. We also noted that these incomplete efforts indicated DHS and the nation were not fully prepared to respond to a major Internet disruption. In summary, DHS has developed and implemented capabilities to satisfy aspects of key cybersecurity responsibilities. However, it still needs to take further action to fulfill all of these responsibilities. In particular, it needs to fully address the key areas identified in our recent reports. Specifically, it will have to bolster cyber analysis and warning capabilities, address organizational inefficiencies by integrating voice and data operations centers, enhance cyber exercises by completing the identified activities associated with the lessons learned, ensure that cyber-related sector-specific critical infrastructure plans are completed, improve efforts to address the cybersecurity of infrastructure control systems by completing a comprehensive strategy and ensuring adequate mechanisms for sharing sensitive information, and strengthen its ability to help recover from Internet disruptions by finalizing recovery plans and defining interdependencies. Until these steps are taken, our nation's computer-reliant critical infrastructure remains at unnecessary risk of significant cyber incidents. Mr. Chairman, this concludes my statement. I would be happy to answer any questions that you or members of the subcommittee may have at this time. If you have any questions on matters discussed in this testimony, please contact me at (202) 512-9286, or by e-mail at [email protected]. Other key contributors to this testimony include Camille Chaires, Michael Gilmore, Rebecca LaPaze, Kush Malhotra, and Gary Mountjoy. Developing a comprehensive national plan for securing the key resources and critical infrastructure of the United States, including information technology and telecommunications systems (including satellites) and the physical and technological assets that support such systems. This plan is to outline national strategies, activities, and milestones for protecting critical infrastructures. Fostering and developing public/private partnerships with and among other federal agencies, state and local governments, the private sector, and others. DHS is to serve as the "focal point for the security of cyberspace." Improving and enhancing information sharing with and among other federal agencies, state and local governments, the private sector, and others through improved partnerships and collaboration, including encouraging information sharing and analysis mechanisms. DHS is to improve sharing of information on cyber attacks, threats, and vulnerabilities. Providing cyber analysis and warnings, enhancing analytical capabilities, and developing a national indications and warnings architecture to identify precursors to attacks. Providing crisis management in response to threats to or attacks on critical information systems. This entails coordinating efforts for incident response, recovery planning, exercising cybersecurity continuity plans for federal systems, planning for recovery of Internet functions, and assisting infrastructure stakeholders with cyber-related emergency recovery plans. Leading efforts by the public and private sector to conduct a national cyber threat assessment, to conduct or facilitate vulnerability assessments of sectors, and to identify cross-sector interdependencies. Leading and supporting efforts by the public and private sector to reduce threats and vulnerabilities. Threat reduction involves working with the law enforcement community to investigate and prosecute cyberspace threats. Vulnerability reduction involves identifying and remediating vulnerabilities in existing software and systems. Collaborating and coordinating with members of academia, industry, and government to optimize cybersecurity-related research and development efforts to reduce vulnerabilities through the adoption of more secure technologies. Establishing a comprehensive national awareness program to promote efforts to strengthen cybersecurity throughout government and the private sector, including the home user. Improving cybersecurity-related education, training, and certification opportunities. Partnering with federal, state, and local governments in efforts to strengthen the cybersecurity of the nation's critical information infrastructure to assist in the deterrence, prevention, preemption of, and response to terrorist attacks against the United States. Working in conjunction with other federal agencies, international organizations, and industry in efforts to promote strengthened cybersecurity on a global basis. Coordinating and integrating applicable national preparedness goals with its National Infrastructure Protection Plan. Attribute Establish a baseline understanding of network assets and normal network traffic volume and flow Assess risks to network assets Obtain internal information on network operations via technical tools and user reports Obtain external information on threats, vulnerabilities, and incidents through various relationships, alerts, and other sources Detect anomalous activities Verify that an anomaly is an incident (threat of attack or actual attack) Investigate the incident to identify the type of cyber attack, estimate impact, and collect evidence Identify possible actions to mitigate the impact of the incident Integrate results into predictive analysis of broader implications or potential future attack Develop attack and other notifications that are targeted and actionable Provide notifications in a timely manner Distribute notifications using appropriate communications methods Contain and mitigate the incident Recover from damages and remediate vulnerabilities Evaluate actions and incorporate lessons learned This is a work of the U.S. government and is not subject to copyright protection in the United States. 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Recent cyber attacks demonstrate the potentially devastating impact these pose to our nation's computer systems and to the federal operations and critical infrastructures that they support. They also highlight that we need to be vigilant against individuals and groups with malicious intent, such as criminals, terrorists, and nation-states perpetuating these attacks. Federal law and policy established the Department of Homeland Security (DHS) as the focal point for coordinating cybersecurity, including making it responsible for protecting systems that support critical infrastructures, a practice commonly referred to as cyber critical infrastructure protection. Since 2005, GAO has reported on the responsibilities and progress DHS has made in its cybersecurity efforts. GAO was asked to summarize its key reports and their associated recommendations aimed at securing our nation's cyber critical infrastructure. To do so, GAO relied on previous reports, as well as two reports being released today, and analyzed information about the status of recommendations. GAO has reported over the last several years that DHS has yet to fully satisfy its cybersecurity responsibilities. To address these shortfalls, GAO has made about 30 recommendations in the following key areas. Specifically, examples of what GAO reported and recommended are as follows: (1) Cyber analysis and warning--In July 2008, GAO reported that DHS's United States Computer Emergency Readiness Team (US-CERT) did not fully address 15 key cyber analysis and warning attributes. For example, US-CERT provided warnings by developing and distributing a wide array of notifications; however, these notifications were not consistently actionable or timely. Consequently, GAO recommended that DHS address these attribute shortfalls. (2) Cyber exercises--In September 2008, GAO reported that since conducting a cyber attack exercise in 2006, DHS demonstrated progress in addressing eight lessons it learned from this effort. However, its actions to address the lessons had not been fully implemented. GAO recommended that the department schedule and complete all identified corrective activities. (3) Control systems--In a September 2007 report and October 2007 testimony, GAO identified that DHS was sponsoring multiple efforts to improve control system cybersecurity using vulnerability evaluation and response tools. However, the department had not established a strategy to coordinate this and other efforts across federal agencies and the private sector, and it did not effectively share control system vulnerabilities with others. Accordingly, GAO recommended that DHS develop a strategy to guide efforts for securing such systems and establish a process for sharing vulnerability information. While DHS has developed and implemented capabilities to address aspects of these areas, it still has not fully satisfied any of them. Until these and other areas are effectively addressed, our nation's cyber critical infrastructure is at risk of increasing threats posed by terrorists, nation-states, and others.
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The United States essentially relies on a two-step process to prevent inadmissible people from entering the country. The Bureau of Consular Affairs in the State Department is responsible for issuing international travel documents, such as passports to United States citizens and visas to citizens of other countries. On March 1, 2003, the Bureau of Customs and Border Protection in the Department of Homeland Security assumed responsibility for inspecting travelers at and between ports of entry. Inspectors from the Immigration and Naturalization Service (INS), the U.S. Customs Service, and the Animal and Plant Health Inspection Service (APHIS) were brought together in this new bureau. In fiscal year 2002, there were about 440 million border crossings into the United States at over 300 designated ports of entry (see table 1). Of the more than 358 million border crossers who entered through land ports of entry, almost 50 million entered as pedestrians. The rest entered in more than 131 million vehicles, including cars, trucks, buses, and trains. Further, the State Department processed about 8.4 million nonimmigrant visa applications and issued about 7 million passports. The term biometrics covers a wide range of technologies that can be used to verify a person's identity by measuring and analyzing his or her physiological characteristics, based on data derived from measuring a part of the body directly. For example, technologies have been developed to measure a person's finger, hand, face, retina, and iris. Biometric systems are essentially pattern recognition systems. They use electronic or optical sensors such as cameras and scanning devices to capture images, recordings, or measurements of a person's characteristics and computer hardware and software to extract, encode, store, and compare these characteristics. Using biometrics as identifiers for border security purposes appears to be appealing because they can help tightly bind a traveler to his or her identity by using physiological characteristics. Unlike other identification methods, such as identification cards or passwords, biometrics are less easily lost, stolen, or guessed. The binding is dependent on the quality of the identification document presented by the traveler to enroll in the biometric system. If the identification document does not specify the traveler's true identity, the biometric data will be linked to a false identity. In our work last year, we examined several different biometric technologies and found four to be suitable for border control systems: fingerprint recognition, facial recognition, iris recognition, and hand geometry. Other biometric technologies were determined to be impractical in a border control application because of accuracy or user acceptance issues. For example, speaker recognition systems do not perform well in noisy environments and do not appear to be sufficiently distinctive to permit identification of an individual within a large database of identities. We defined four different scenarios in which biometric technologies could be used to support border control operations. Two scenarios use a biometric watch list to identify travelers who are inadmissible to the United States (1) before issuing travel documents and (2) before travelers enter the country. The other two scenarios help bind the claimed identity of travelers to their travel documents by incorporating biometrics into (1) U.S. visas or (2) U.S. passports. Linking an individual's identity to a U.S. travel document could help reduce the use of counterfeit documents and imposters' fraudulent use of legitimate documents. Biometrics have been used in border control environments for several years. For example, the INS Passenger Accelerated Service System (INSPASS), a hand geometry system first installed in 1993, has been used in seven U.S. and two Canadian airports to reduce inspection time for trusted travelers. Since April 1998, border crossing cards, also called laser visas, have been issued to Mexican citizens that include their photograph and prints of the two index fingers. The Automated Biometric Fingerprint Identification System (IDENT) is used by DHS to identify aliens who are repeatedly apprehended trying to enter the United States illegally. IDENT is also being used as a part of the National Security Entry-Exit Registration System (NSEERS) that was implemented last year. Laws passed in the last 2 years require a more extensive use of biometrics for border control. The Attorney General and the Secretary of State jointly, through the National Institute of Standards and Technology (NIST) are to develop a technology standard, including biometric identifier standards. When developed, this standard is to be used to verify the identity of persons applying for a U.S. visa for the purpose of conducting a background check, confirming identity, and ensuring that a person has not received a visa under a different name. By October 26, 2004, the Departments of State and Justice are to issue to aliens only machine- readable, tamper-resistant visas and other travel and entry documents that use biometric identifiers. At the same time, Justice is to install at all ports of entry equipment and software that allow the biometric comparison and authentication of all U.S. visas and other travel and entry documents issued to aliens and machine-readable passports. While biometric technology is currently available and used in a variety of applications, questions remain regarding the technical and operational effectiveness of biometric technologies in applications as large as border control. In addition, before implementing any biometric border control system, a number of other issues would have to be considered including: The system's effect on existing border control procedures and people. Technology is only part of an overall security solution and only as effective as the procedures within which it operates. The costs and benefits of the system, including secondary costs resulting from changes in processes or personnel to accommodate the biometrics. The system's effect on privacy, convenience, and the economy. The successful implementation of any technology depends not only on the performance of the technology but also on the operational processes that employ the technology and the people who execute them. The implementation of biometrics in border security is no exception. Further, the use of technology alone is not a panacea for the border security problem. Instead, biometric technology is just a piece of the overall decision support system that helps determine whether to allow a person into the United States. The first decision is whether to issue travelers a U.S. travel document. The second decision, made at the ports of entry, is whether to admit travelers into the country. Biometrics can play a role in both decisions. Sorting the admissible travelers from the inadmissible ones is currently conducted by using information systems for checking names against watch lists and by using manual human recognition capabilities to see if the photograph on a travel document matches the person who seeks entry to the United States. When enabled with biometrics, automated systems can verify the identity of the traveler and assist inspectors in their decision making. However, a key factor that must be considered is the performance of the biometric technology. For example, if the biometric technology that is used to perform watch list checks before visas are issued has a high rate of false matches, the visa processing workload could increase at the embassies and consulates. If the same biometric solution were used at the ports of entry, it could lead to increased delays in the inspection process and an increase in the number of secondary inspections. Exception processing will also have to be carefully considered. Exceptions would include people who fail to enroll in the biometric visa system or are not correctly matched by it. Exception processing that is not as good as biometric-based primary processing could be exploited as a security hole. Failure of equipment must also be considered and planned for. Further, to issue visas with biometrics, an appropriate transition strategy must be devised to simultaneously handle both visas with biometrics and the current visa that could remain valid without biometrics for up to the next 10 years. Before any significant project investment is made, the benefit and cost information of the project alternatives should be analyzed and assessed in detail. A clear statement of the high-level system goals should drive the overall concept of a U.S. border control system. System goals address the system's expected outcomes and are usually based on business or public policy needs, which for a border control system could include items such as binding a biometric feature to a person's identity on a travel document, identifying undesirable persons on a watch list, checking for duplicate enrollments in the system, verifying identities at the borders, ensuring the security of the biometric data, and ensuring the adequacy of privacy protections. The benefits gained from a biometric border control system should be based on how well the system achieves the high-level goals. A concept of operations should be developed that embodies the people, process, and technologies required to achieve the goals. To put together the concept of operations, a number of inputs have to be considered, including legal requirements, existing processes and infrastructure used, and known technology limitations. Performance requirements should also be included in the concept of operations, such as processing times. Business process reengineering, such as new processes to conduct inspections of passengers in vehicles or to maintain a database of biometric data, would also be addressed in the concept of operations. As we have noted, the desired benefit is the prevention of the entry of travelers who are inadmissible to the United States. More specifically, the use of a biometric watch list can provide an additional check to name- based checks and can help detect travelers who have successfully established separate names and identities and are trying to evade detection. The use of visas with biometrics can help positively identify travelers as they enter the United States and can limit the use of fraudulent documents, including counterfeit and modified documents, and impostors' use of legitimate documents. However, the benefits gained by using biometric have several limitations. First, the benefit achieved is directly related to the performance of the biometric technology. The performance of facial, fingerprint, and iris recognition is unknown for systems as large as a biometric visa system that would require storage and comparison against 100 million to 240 million records. The largest facial, fingerprint, and iris recognition systems contain 60 million, 40 million, and 30,000 records, respectively. The population of the biometric watch list is critical to its effectiveness. Policies and procedures would need to be developed for adding and maintaining records in the watch list database. Key questions that have to be answered include who is added to the watch list, how someone is removed from the watch list, and how errors could be corrected. Successfully identifying people on the biometric watch list is also dependent on the effectiveness of the law enforcement and intelligence communities in identifying individuals who should be placed on the watch list. Issuing visas with biometrics will only assist in identifying those currently required to obtain visas to enter this country. For example, Canadians, Mexicans with border crossing cards, and foreign nationals participating in the visa waiver program do not have to have a visa to enter the United States. The issuance of visas with biometrics is also dependent on establishing the correct identity during enrollment. This process typically depends on the presentation of identification documents. If the documents do not specify the applicant's true identity, then the travel document will be linked to a false identity. Further, biometric technology is not a solution to all border security problems. Biometric technology can address only problems associated with identifying travelers at official locations such as embassies and ports of entry. While the technology can help reduce the number of illegal immigrants who cross with fraudulent documents, it cannot help with illegal immigrants who cross between the ports of entry. INS has previously estimated that up to 60 percent of the 275,000 new illegal immigrants a year do not present themselves at a port of entry to enter the United States. In addition, biometrics cannot help to identify foreign nationals who enter through ports of entry and are properly admitted by an inspector but may overstay their visit. The costs of any proposed system must be considered. Both initial costs and recurring costs need to be estimated. Initial costs need to account for the engineering efforts to design, develop, test, and implement the system; training of personnel; hardware and software costs; network infrastructure improvements; and additional facilities required to enroll people into the biometric system. Recurring cost elements include program management costs, hardware and software maintenance, hardware replacement costs, training of personnel, additional personnel to enroll or verify the identities of travelers in the biometric system, and possibly the issuance of token cards for the storage of biometrics collected for issuing visas. While specific cost estimates depend on the detailed assumptions made for the concept of operations, the costs are significant. The Privacy Act of 1974 limits federal agencies' collection, use, and disclosure of personal information, such as fingerprints and photographs. Accordingly, the Privacy Act generally covers federal agency use of personal biometric information. However, as a practical matter, the act is likely to have a more limited application for border security. First, the act applies only to U.S. citizens and lawfully admitted permanent residents. Second, the act includes exemptions for law enforcement and national security purposes. Representatives of civil liberties groups and privacy experts have expressed concerns regarding (1) the adequacy of protections for security, data sharing, identity theft, and other identified uses of biometric data and (2) secondary uses and "function creep." These concerns relate to the adequacy of protections under current law for the large-scale data handling in a biometric system. Besides information security, concern was voiced about an absence of clear criteria for governing data sharing. The broad exemptions of the Privacy Act, for example, provide no guidance on the extent of the appropriate uses law enforcement may make of biometric information. Because there is no general agreement on the appropriate balance of security and privacy to build into a system using biometrics, further policy decisions are required. The range of unresolved policy issues suggests that questions surrounding the use of biometric technology center as much on management policies as on technical issues. The use of biometric technologies could potentially impact the length of the inspection process. Any lengthening in the process of obtaining travel documents or entering the United States could affect travelers significantly. At some consular posts, visas are issued the day applications are received. Even without biometrics, the busiest ports of entry regularly have delays of 2 to 3 hours. Increases in inspection times could compound these delays. Delays inconvenience travelers and could result in fewer visits to the United States or lost business to the nation. Further studies will be necessary to measure what the potential effect could be on the American economy and, in particular, on the border communities. These communities depend on trade with Canada and Mexico, which totaled $653 billion in 2000. The use of biometrics in a border control system in the United States could affect the number of international visitors and how other countries treat visitors from the United States. Much visa issuance policy is based on reciprocity--that is, the process for allowing a country's citizens to enter the United States would be similar to the process followed by that country when U.S. citizens travel there. If the United States requires biometric identifiers when citizens of other countries apply for a visa, those countries may require U.S. citizens to submit a biometric when applying for a visa to visit their countries. Similarly, if the United States requires other countries to collect biometrics from their citizens and store the data with their passport for verification when they travel here, they may require the United States to place a biometric in its passports as well. As more countries require the use of biometrics to cross their borders, there is a potential for different biometrics to be required for entering different countries or for the growth of multiple databases of biometrics. Unless all countries agree on standard biometrics and standard document formats, a host of biometric scanners might be required at U.S. and other ports of entry. The International Civil Aviation Organization plans to standardize biometric technology for machine-readable travel documents, but biometric data-sharing arrangements between the United States and other countries would also be required. In January 2003, as required by the USA PATRIOT Act and the Enhanced Border Security and Visa Entry Reform Act, the Attorney General, the Secretary of State, and NIST jointly submitted a report that focuses on specific legislative requirements related to interoperable databases, biometric identifiers, and travel document authentication for entry only. The report discusses the current border control process, the need for a new approach, and identifies several issues that need to be addressed to make a more extensive use of biometrics in automated border control systems. As a part of this report, NIST developed technical standards for biometric identifiers and tamper-resistance for travel documents. NIST reported that facial recognition and fingerprint recognition are the only biometric technologies with sufficiently large operational databases for testing at this time. NIST concluded that while iris recognition is a promising candidate, it requires collection of a large test database to test the uniqueness of iris data for large samples. NIST recommends that 10 fingerprints be used for background identification, and a dual biometric system using 2 fingerprint images and a face image may be needed to meet projected system requirements for verification. For tamper-resistance, NIST recommended the use of a public key infrastructure to authenticate the source of travel documents. According to the report, the Attorney General and the Secretary of State have agreed to use a live-capture digital photograph and fingerprints for identity enrollment, background checks, and identity verification. However, the exact number of fingerprints required at enrollment has not been finalized. The report identifies several issues and considerations that need to be further evaluated and resolved. The resolution of these issues will have significant operational, technical, and cost implications. According to the report, if the various stakeholders of this cross-agency effort do not work out these details before major investments are made, the estimated cost and expected results of the investment will be at risk. Further, the report states that due to the size and complexity of the effort, the deployment schedule will need to be delayed at least 1 year from the October 26, 2004, target date established in the legislation. Many of the issues identified in the report are consistent with the challenges we identified in our work last year. For example, the report discusses the need to change the end-to-end business process to incorporate the enrollment and verification of biometric information from travelers. Further, the report cites the need to improve border security without a major adverse effect on tourism, commerce, and border traffic flow. Privacy issues and the effect on international relations are also addressed. Exception processing is discussed. According to the report, approximately 2 percent of the population cannot provide good fingerprint images. As a result, an alternate enrollment and identification procedure will be required for these people. To develop the biometric border control system, the report estimates it would cost about $3.8 billion including initial and recurring costs over a six-year period. The report cites a number of steps that need to be taken by a cross-agency project team to clarify the scope, costs, benefits, and schedule required to implement the legislative requirement. For example, the report cites the need to develop a cross-agency concept of operations for the entire end-to- end process that would guide the scoping, requirements definition, and trade-off analyses required to develop and deploy the system. The concept of operations would also help determine how the proposed solution can balance identity verification and efficient traffic flow objectives at land borders. The report also discusses the need to update the overall costs and benefits of the solution to confirm that the effort will achieve the benefits desired at an acceptable cost. Steps will also need to be taken to align U.S. biometric standards with those of other countries, particularly visa-waiver countries, in a manner consistent with the concept of operations. Finally, the report cites the need to define and establish a cross-agency program management and governance structure to drive the business change and deployment associated with this effort. As the Department of Homeland Security and other agencies consider a biometrics-based border security concept of operations, they may need to address current challenges that we have observed during our ongoing work at land ports of entry. At a minimum, these challenges represent potential implementation issues that could affect the security benefits intended by the new border security system. These challenges include: Integrity of the Inspections Process. The need to balance the dual objectives of identifying those who should not be permitted entry into the country and keeping traffic and trade flowing through the ports creates potential weaknesses in the process that biometrics can help resolve but not entirely. For example, we recently reported on our ability to enter the country at ports of entry with erroneous answers to inspector questions and counterfeit identification. Also, at land ports of entry, computer checks are made on the vehicle that travelers arrive in but not on the driver and passengers unless inspectors suspect wrongdoing. Moreover, we observed that new security procedures aimed at increasing process integrity were not consistently followed. With respect to alternative inspection programs, various trusted traveler programs, intended to process large numbers of pre-screened travelers quickly so that inspectors can devote more time to travelers whose risk is unknown, can be strengthened through wider use of biometrics. Some current programs are not attractive to many travelers because the cost of participation does not ensure time savings when crossing the border. Providing Technology and Equipment to Inspectors. Some current border operations are time-consuming because inspectors must separately log on and off of several lookout databases that need to be checked when more intensive, or secondary, inspections are required. This could increase the risk that an inspector might overlook valuable information. Further, inspectors still perform many routine administrative processes by hand, although some ports of entry have successfully automated some of these manual processes. Once the concept of operations for a new border security system is adopted, extensive introduction of new equipment and automated processes will require extensive training and reinforcement. Access to Intelligence Information. The amount of intelligence information border inspectors currently receive in a single day can be overwhelming, and inspectors report that they do not have enough time to read it. Further, because of the need to staff inspection lanes, some ports of entry reported not having time to conduct daily intelligence and safety briefings, as required. Ensuring that intelligence information is relevant, and that inspectors have sufficient time to review and absorb it, will present a significant challenge for a new border security system. Adequate and Consistent Inspector Training. Merging INS and Customs inspectors into a single shared inspection force will be a significant challenge because INS and Customs train their inspectors at two separate academies using two different curricula with little time devoted to learning each other's laws and regulations. In addition, training, particularly of new inspectors, is a continuing need after deployment of inspectors, but the pressures of inspection itself has taken precedence over both on-the-job training and formal training at some ports. In conclusion, biometric technologies are available today that can be used for border security. However, it is important to bear in mind that effective security cannot be achieved by relying on technology alone. Technology and people must work together as part of an overall security process. As we have pointed out, weaknesses in any of these areas, such as those we identified at land ports of entry, diminishes the effectiveness of the security process. We have found that three key considerations need to be addressed before a decision is made to design, develop, and implement biometrics into a border control system: 1. Decisions must be made on how the technology will be used. 2. A detailed cost-benefit analysis must be conducted to determine that the benefits gained from a system outweigh the costs. 3. A trade-off analysis must be conducted between the increased security, which the use of biometrics would provide, and the effect on areas such as privacy and the economy. A report recently issued jointly by the Attorney General, Secretary of State, and NIST agrees with these considerations. As DHS and other agencies consider the development of a border security system with biometrics, they need to define what the high-level goals of this system will be and develop the concept of operations that will embody the people, process, and technologies required to achieve these goals. With these answers, the proper role of biometric technologies in border security can be determined. If these details are not resolved, the estimated cost and performance of the resulting system will be at risk. Mr. Chairmen, this concludes my statement. I would be pleased to answer any questions that you or members of the subcommittees may have. For further information, please contact Nancy Kingsbury, Managing Director, Applied Research and Methods, at (202) 512-2700, or Richard Stana, Director, Homeland Security and Justice, at (202) 512-8777. Individuals making key contributions to this testimony include Yvette Banks, Naba Barkakati, Michael Dino, Barbara Guffy, Richard Hung, Rosa Lin, and Lori Weiss. Combating Terrorism: Observations on National Strategies Related to Terrorism. GAO-03-519T. Washington, D.C.: March 3, 2003. Homeland Security: Challenges Facing the Coast Guard as it Transitions to the New Department. GAO-03-467T. Washington, D.C.: February 12, 2003. Weaknesses In Screening Entrants Into The United States. GAO-03-438T. Washington, D.C.: January 30, 2003. Major Management Challenges and Program Risks: Department of Homeland Security. GAO-03-102. Washington, D.C.: January 2003. Homeland Security: Management Challenges Facing Federal Leadership. GAO-03-260. Washington, D.C.: December 20, 2002. Homeland Security: Information Technology Funding and Associated Management Issues. GAO-03-250. Washington, D.C.: December 13, 2002. Border Security: Implications of Eliminating the Visa Waiver Program. GAO-03-38. Washington, D.C.: November 22, 2002. Homeland Security: INS Cannot Locate Many Aliens Because It Lacks Reliable Address Information. GAO-03-188. Washington, D.C.: November 21, 2002. Container Security: Current Efforts to Detect Nuclear Materials, New Initiatives, and Challenges. GAO-03-297T. New York, NY: November 18, 2002. Technology Assessment: Using Biometrics for Border Security. GAO-03- 174. Washington, D.C.: November 15, 2002. Coast Guard: Strategy Needed for Setting and Monitoring Levels of Effort for All Missions. GAO-03-155. Washington, D.C.: November 12, 2002. Border Security: Visa Process Should Be Strengthened as an Antiterrorism Tool. GAO-03-132NI. Washington, D.C.: October 21, 2002. Customs Service: Acquisition and Deployment of Radiation Detection Equipment. GAO-03-235T. Washington, D.C.: October 17, 2002.
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One of the primary missions of the new Department of Homeland Security (DHS) focuses on border control--preventing the illegal entry of people and goods into the United States. Part of this mission is controlling the passage of travelers through official ports of entry into the United States. Facilitating the flow of people while preventing the illegal entry of travelers requires an effective and efficient process that authenticates a traveler's identity. Generally, identifying travelers at the ports of entry is performed by inspecting their travel documents, such as passports and visas, and asking them questions. Technologies called biometrics can automate the identification of individual travelers by one or more of their distinct physiological characteristics. Biometrics have been suggested as a way of improving the nation's ability to determine whether travelers are admissible to the United States. GAO found that biometric technologies are available today that can be used for border control. However, questions remain regarding the technical and operational effectiveness of biometric technologies in applications as large as border control. Before implementing any biometric border control system, a number of other issues would have to be considered, including the system's effect on existing border control procedures and people, the costs and benefits of the system, and the system's effect on privacy, convenience, and the economy. Furthermore, technology is only part of the solution. Effective security requires technology and people to work together to implement policies, processes, and procedures. At land border ports of entry, DHS faces several challenges including ensuring that the inspections process has sufficient integrity to enable inspectors to intercept those who should not enter our country, while still facilitating the entry of lawful travelers; ensuring that inspectors have the necessary technology, equipment, and training to do their job efficiently and effectively; and providing inspectors the access to necessary intelligence information.
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The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. No. 104-193) (PRWORA) made sweeping changes to national welfare policy. Principally, these reforms gave states the flexibility to design their own programs and the strategies necessary for achieving program goals, including how to move welfare recipients into the workforce. But because the act also changed the way in which federal funds for welfare programs flow to the states, most of the program's fiscal risks also shifted to the states. PRWORA created the TANF block grant, a fixed federal funding stream that replaced the AFDC and related programs in which federal funding matched state spending and increased automatically with caseload. Under AFDC, which entitled eligible families to aid, the federal funding was largely open-ended so that if a state experienced caseload and related cost increases, federal funds would increase with state funds to cover expenditures for the entire caseload. This open-ended federal commitment provided that financing for every dollar spent on these programs was shared by the federal government and the states, thereby limiting the states' exposure to escalating costs. In contrast, the TANF block grant eliminated the federal entitlement to aid. The federal government provides a fixed amount of funds regardless of any changes in state spending or the number of people the programs serve. While the states must also provide a fixed level of funds from their own resources--their maintenance of effort (MOE) --they are now responsible for meeting most of the costs associated with any increase in caseload on their own. How they plan to manage this fiscal risk is what I refer to in this testimony as contingency planning. In this new welfare partnership, it is tempting to suggest that since welfare reform devolved decisions regarding eligibility and program services to the states, the potential volatility of the caseload is no longer a federal concern. However, in light of both federal requirements and their own fiscal limitations, states will be challenged during a downturn to maintain or increase state funds for benefits when they are most needed. States' decisions regarding who to serve, for how long, and with what services will surely depend on how much flexibility they have with the resources-- state and federal--that are available to finance their welfare programs. Although considerable uncertainties exist about the impacts of downturns, the potential cyclical nature of program costs as well as the fiscal constraints states face in responding to hard times heightens the importance of fiscal planning. Helping states maintain their programs was indeed recognized as a federal interest by Congress when it included the Contingency Fund and Loan Fund--mechanisms for states to gain access to additional federal funds--in TANF. It is unclear what impact a major economic downturn or recession will have on welfare participation given the significant reforms in national welfare policy. Recent studies have tried to establish a link between caseload trends and certain macroeconomic indicators in part to determine how sensitive welfare programs might be to changes in the economy. While the research literature generally suggests that caseloads may very well increase in an economic downturn, there is substantial uncertainty regarding the extent of the impact. These studies point to the variety of other factors affecting caseload levels, particularly with the advent of welfare reform. For example, a 1999 Council of Economic Advisors (CEA) report suggests that a 1 percent increase in the unemployment rate could produce a 5 to 7 percent increase in welfare caseloads. However, this same study noted that changes in family structure and welfare policies can significantly mitigate the impact of an economic downturn on caseloads. In fact, the recent caseload drop was at least partly due to reforms ushered in by TANF--the study suggests that about one-third of the caseload reduction from 1996 through 1998--independent of the strong economy. Just as the reforms may have prompted reduced caseloads during times of economic expansion, greater emphases on work implies a tighter link to work and hence the economy, making TANF more sensitive to an economic downturn than AFDC. On the other hand, the reforms may pose significant disincentives for people to return to the welfare rolls or to apply even if they are eligible during downturns. For example, PRWORA imposes a 5-year lifetime limit on federal assistance on individuals receiving on going assistance; many may try other options first before returning to the welfare rolls. In addition, many states now offer a variety of work supports such as child care, transportation subsidies, and an earned income tax credit (EITC) to families not receiving cash assistance. These supports may be enough to allow earnings from even a part-time job to support a family without returning to the cash assistance rolls. Budgetary stress caused by caseload volatility may be compounded by the limitations placed on most states by constitutional or statutory requirements to balance their general fund budgets. During a fiscal crisis, state policymakers face difficult choices regarding whom to serve, for how long, and with what services. But more important to the discussion today is that each of these "hard choices" must be financed in the context of fiscal limitations--including legislative restrictions, constitutional balanced budget mandates, or conditions imposed by the bond market-- on state's ability to increase spending, especially in times of fiscal stress. For example, revenues may come in lower than expected during an economic downturn and a state's enacted budget can fall into deficit. State balanced budget requirements often motivate states to both reallocate resources within their budgets and cut program spending or increase taxes during recessions. Such difficulties, I am sure, come as no surprise to many of the members of this Subcommittee who have had to make many of these difficult choices while serving in state legislative bodies. For these reasons prudent fiscal planning, especially contingency budgeting for a fiscal "rainy day," becomes particularly important. In a fiscal crisis, a state's need to cut spending or increase revenues can be alleviated if it has accumulated surplus balances in rainy day funds--these surpluses may be used to cover a given year's deficit. However, unless there are reserves specifically earmarked for low-income families, welfare programs will have to compete with other state priorities for any of the rainy day funds. Finding the right balance between saving and investing resources in programs that help people make the transition from welfare to work continues to be one of the main challenges for states as they develop strategies to address the needs of low-income families. To set aside reserves for future welfare costs, states have two options: they can save federal TANF funds and/or they can save their own funds. However, states noted significant disincentives to save associated with both of these options. State officials told us that there is concern that accumulating unspent TANF balances might signal that the funds are not needed and that they have been under considerable pressure to spend their TANF balances more quickly to avoid the accumulation of large unspent balances in the U.S. Treasury. States have accumulated a portion of their own funds in general purpose rainy day funds, but welfare would have to compete with other claims for these dollars when these dollars are released from state treasuries. Under TANF, the amount of each state's block grant was based on the amount of federal AFDC funds spent by the state when caseloads and spending were at historic highs. Because caseloads have fallen so dramatically, generally states have been able to reap the fiscal benefits of welfare reform by parlaying abundant federal resources into new programs and savings. Any federal funds they choose to reserve must remain at the U.S. Treasury until the states need them for low-income families. As of September 30, 2000 states reported leaving $9 billion in unspent TANF funds at the U.S. Treasury; this amounts to 14.5 percent of the total TANF funds awarded since 1996. Although many might view these balances as a de facto rainy day fund for future welfare costs, in fact there is probably less here than meets the eye. First, as we will discuss in more detail, the data reported by the states is misleading. Second, the reported balances themselves vary greatly among the states, suggesting that some states may not be as prepared to address the fiscal effects an economic downturn may have on their welfare programs without additional federal assistance while others may have saved substantially more than they might need. For example, some states report spending all their federal funds--essentially holding nothing in reserve--while others report accumulated reserves totaling more than their annual block grants. For example, Wyoming reports that nearly 70 percent of the TANF funds it has been awarded since 1997 remain unspent whereas Connecticut reports spending all of its TANF funds. States do not report unspent balances in a consistent manner making it difficult to ascertain how much of these balances is truly uncommitted and available for future contingencies. Therefore, federal policymakers lack reliable information to help assess states' plans for economic contingencies, whether the levels of available funds are adequate, and whether all states have access to these funds. Department of Health and Human Services' (HHS) regulations require that if a state has allocated a portion of its TANF grant to a rainy day fund, the state should report these balances as unobligated. But, state rainy day funds for welfare programs represent only a portion of the total reported unobligated balances. These balances can represent funds the state has saved for a rainy day, funds for which the state has made no spending plans, or funds the state has committed for activities in future years. For example, in developing a budget for a new child care program, officials in Wisconsin assumed that once the program was fully subscribed it would require all available resources--including any unobligated TANF funds from previous fiscal years. State officials said that even though at the end of federal fiscal year 2000 the state reported $40 million TANF funds as unobligated, the state has programmed these funds to pay child care subsidies to low-income families in future reporting periods. This is a case where a reported unobligated balance provides very little information about whether these funds are committed or simply unbudgeted. States also report unspent TANF funds as unliquidated obligations, which means that, to varying degrees, an underlying commitment exists for the funds either through a contract for services for eligible clients or to a county for expenses it will incur in operating a county-administered welfare program. But it is unclear how much of what is currently obligated is committed for future needs. For example, both California and Colorado have county-administered welfare systems. These states pass most of their annual block grant directly to the counties. As caseloads have continued to decline in both states, the budgets over-estimated expenditures leaving considerable balances unspent. Although these funds remain in the U.S. Treasury until a county needs to spend them, they remain as unliquidated obligations committed to the counties. California reports that it has over $1.6 billion in unliquidated TANF obligations. But the state reports no unobligated balances, implying that all these funds are earmarked. Recently, California amended its state statute to allow the state to deobligate some of these funds, if necessary, and make them available to other counties. Likewise, as of September 30, 2000 Colorado reports about $95 million in unliquidated obligations, but passes virtually all TANF resources to the counties. As of June 30, 2000 the state estimated that counties hold about $67 million in reserves--or about 70 percent of the total unliquidated obligations--for future contingencies. As highlighted in the above examples, the difference between unobligated balances and unliquidated obligations is often unclear and varies by state. Significant portions of California's and Colorado's unspent funds are not yet actually committed for specific expenditures but these facts cannot be determined based on the aggregate data, in part because of the way HHS requires states to report funds. Reporting a significant share of their unspent balances as unliquidated obligations implies that there is an underlying commitment on these funds when, in fact, these funds are no more committed than the funds Wisconsin must report in its unobligated balances but which are budgeted for expected outlays in Wisconsin's child care subsidy program. Even though some states might consider their unobligated balances for TANF to be rainy day funds, it does not appear that the amounts reserved were based on any kind of contingency planning or analysis. For example, 5 of the 10 states we studied told us that they consider a portion of the funds left at the U.S. Treasury to be rainy day funds for unanticipated program needs. But the levels of the reserves established in those five states were not determined through a fiscal planning process that reflects budgetary assumptions about projected future needs. Instead, these states' statutes merely designate all TANF funds not already appropriated by the state legislature for other purposes as constituting the state's welfare rainy day fund, a method that clearly is not based on anticipated needs or contingencies. The lack of transparency regarding states' plans for their unspent TANF funds prompted us, in 1998, to recommend that HHS and the states work together to explore options for enhancing the information available regarding these balances. Although HHS, the National Governor's Association (NGA), and the National Conference of State Legislatures (NCSL) all agreed with us that more information regarding unspent TANF balances would be useful, little progress has been made implementing this recommendation and HHS' final regulations, issued on April 12, 1999 did not address this issue. States were already concerned that the TANF reporting requirements would pose a substantial burden on state program administration and argued that adding another reporting requirement to allow states to signal their intentions for their unspent balances would only add to those burdens. However, the lack of useful information on these balances continues to weaken the effectiveness of congressional oversight over TANF funding issues, including how well prepared states may be to address a fiscal downturn. Our 1998 recommendation proposed a strategy that state and federal officials had tried before and found to be successful. In 1981, a number of categorical grants were block granted to states to provide maximum flexibility in developing and managing programs, along the same lines that TANF was designed in 1996. However, due to variations in the way states reported information to the federal government on activities funded by some of these block grants, Congress had no national picture of the grants' impact. States and some national organizations recognized that these aggregate data were important and developed their own strategies to collect the data. We found that a cooperative data collection approach was easier to implement when (1) there was federal funding to support data collection activities, (2) national-level staff worked with state officials, and (3) state officials helped in systems design. We continue to believe that better information on the status of these unspent balances is crucial to effective oversight and could even enhance states' incentives to save some of their TANF funds. Absent credible information on balances, there may be a greater risk that Congress could take action to recoup TANF funds--a prospect that has prompted some states to draw down and spend their TANF funds rather than leave them in the Treasury. Although many states have healthy general rainy day funds from which all programs would compete for funds during times of fiscal stress, only one of the states in our review, Maryland, has earmarked state funds in a reserve specifically for contingencies in its welfare program. Setting aside state funds in reserve for welfare requires tradeoffs for state decisionmakers among competing needs for the funds during a downturn. In addition, any funds a state sets aside for future welfare contingencies cannot count toward a states' maintenance of effort in the year they are reserved--in order to qualify as MOE, the funds must be spent. Therefore, it is a very expensive proposition indeed for a state to budget both for a welfare reserve and to meet its MOE because it then would have far fewer resources available to finance other state priorities. Maryland found a way to transfer the costs of saving state funds to the federal government. In state fiscal year 2001, the state identified nine program accounts with annual expenditures of state funds totaling about $30 million that, under the broad and flexible rules governing TANF expenditures, could be funded with federal funds. In developing the budget, the state replaced these state funds with federal funds. Instead of using the "freed-up" state funds for nonwelfare activities the state used them to establish a dedicated reserve for its welfare program. While the ability to carry forward TANF balances is likely viewed as the principle mechanism by which states can prepare for a rainy day, PRWORA also created two safety-net mechanisms for states to access additional federal resources in the event of a recession or other emergency--the $2 billion Contingency Fund for State Welfare Programs (Contingency Fund) and the $1.7 billion Federal Loan Fund for State Welfare Programs (Loan Fund). The Contingency Fund is authorized through 2001, at which time it expires. The President's fiscal year 2002 budget proposal did not include a request to reauthorize the Contingency Fund. Because of a provision in the Adoption and Safe Families Act of 1997 that reduced the TANF Contingency Fund by $40 million, the current balance in the Contingency Fund is $1.96 billion. States are deemed "needy" and eligible to receive funds from the Contingency Fund if they trigger one of two criteria: (1) the state's unemployment rate exceeds 6.5 percent for 3 months and is equal to at least 110 percent of its rate in the same period of the previous year or (2) its average monthly food stamp caseload for the most recent 3-month period is equal to at least 110 percent of the average monthly caseload from the same 3-month period in fiscal year 1994 or 1995. Once eligible, a state must certify that it has increased its own current spending to prewelfare reform levels before it can gain access to the fund. Requiring states to increase their own financial stake in their welfare programs before giving them additional federal funds is, in principle, a reasonable approach that seeks to balance both the federal government's interest in ensuring that states in trouble have access to additional funds and its interest in ensuring that states have done everything possible to address the shortfalls before turning to the federal treasury. Not only does the statute require states to bring their spending up to the prewelfare reform levels at a time when states are experiencing fiscal stress, but PRWORA establishes a different and more challenging base for the Contingency Fund's MOE. While a state's MOE requirement under the basic TANF program can include state funds expended under certain state programs and child care expenditures, the MOE requirement for the Contingency Fund does not include these items. Because states spend a significant share of their MOE funds on activities that do not qualify as Contingency Fund MOE expenditures, state budget officials told us that, rather than shifting their spending priorities to meet the Contingency Fund MOE, they would find other ways to manage deficits in their TANF budgets before they could consider turning to the Contingency Fund. In 1997 eight states qualified for contingency funds.However, only two states requested and were awarded contingency funds--North Carolina and New Mexico. In the end, only New Mexico complied with the Fund's requirements and accepted $2 million. No state has used the Fund since 1997. Equally important as the requirement that states raise their own financial commitment in order to gain access to additional federal funds is a requirement that states share in all additional program costs--even beyond the MOE requirements. Requiring a match encourages states to be more cost-conscious than if the costs of an expanding caseload were covered only with federal dollars. While the Contingency Fund requires states to match all federal dollars at the states' federal medical assistance percentage (FMAP) rate the statute goes a step further. The statute limits the monthly draws to one-twelfth of 20 percent of a state's annual block grant. This limitation requires a complex annual reconciliation process to certify that the state meets its matching requirement but also that it did not receive more than its monthly proportional share of contingency funds (see figure 1). Prorating a state's draws from the Contingency Fund-- especially if the state qualifies for a period that spans two federal fiscal years--reduces the share of federal funds to which it is entitled. This effectively increases the matching requirement (even higher than required under AFDC), thus raising the state's costs for gaining access to the funds. Unlike the Contingency Fund, the Loan Fund does not have triggers. Instead, states that have not incurred penalties for improper use of TANF funds are eligible for loans from the Loan Fund. Such loans are to have a maturity of no more than 3 years at an interest rate comparable to the current average market yield on outstanding marketable obligations of the U.S. Treasury with comparable maturities. Some state officials told us that they are eligible for better financing terms in the tax-exempt municipal bond market. More important, officials in some states indicated that borrowing specifically for social welfare programs in times of fiscal stress would not receive popular support. In summary, neither the Contingency Fund--as currently designed--nor the Loan Fund is likely to be used by states in a fiscal crisis to obtain more resources for their welfare programs. The Loan Fund is most likely the wrong mechanism to provide assistance to states in a fiscal crisis. However, if the Contingency Fund is reauthorized, Congress could also contemplate improvements to enhance its usefulness in addressing budgetary shortfalls in states' welfare programs that, at the same time, could provide stronger incentives for states to save for a rainy day. Although PRWORA struck a new fiscal balance between the federal government and the states in terms of welfare spending, both the states and the federal government have a significant interest in preparing the program to meet challenges in times of fiscal distress. Contingency planning is about being prepared for the unknown--as the economy shows possible signs of weakening, we need to begin to think about how prepared we are to maintain this important aspect of the nation's safety net. Although many view the states' large unspent TANF balances as the de facto contingency fund, these balances vary across states; this implies that some states may be better prepared for a recession than others. More important, current reporting requirements do not give us reliable, consistent information regarding states' actual plans for these monies. According to NGA, few states have engaged in a systematic fiscal planning process to project their needs under a variety of economic scenarios. While we don't know how states' welfare programs will respond to a weakened economy, we know both the federal government and the states have a responsibility to ensure the viability of TANF in good times and bad. Before addressing how contingency planning can be improved for the future, the federal government needs better information on states' current plans. At the same time, Congress could consider ways to both strengthen federal contingency mechanisms and give states greater incentives to save for the future. In 1998, we recommended that the Secretary of Health and Human Services explore with the states various options to enhance information regarding states' plans for their unused TANF balances. We said that such information could include explicit state plans for setting aside TANF-funded reserves for the future, provide more transparency regarding these funds and enhance provide states with an opportunity to more explicitly consider their long- term fiscal plans for TANF. Although HHS concurred with our recommendation, to date, we have seen no progress in this area. We continue to believe that Congress would benefit from more complete information on states' plans for future contingencies, including unspent TANF balances. While states often face burdens with respect to federal financial reporting requirements, states have historically recognized the benefits of cooperative data collection and reporting efforts and worked successfully with federal agencies to collect data that can give oversight officials a broad, national perspective of how they are using federal block grant funds. Allowing for more transparency regarding states' fiscal plans for TANF funds could enhance congressional oversight over the multi-year timeframe of the grant and provide states with an opportunity to more explicitly consider their long- term fiscal plans for the program. While the opportunity to more clearly signal their intentions for these funds could prompt states to save, Congress must have some assurance that states' estimates of their contingency needs were developed using credible, realistic estimating procedures. In order for a state to report to the federal government a balance in a rainy day fund, and in order for the federal government to have some level of confidence in such a figure, the federal government could give states guidance on how it could designate its TANF balances as a valid rainy day fund. Such guidance could include requirements that a state rainy day fund (1) include criteria both for estimating the appropriate reserve balances and for releasing funds and (2) be auditable. This guidance could help states signal that much of these balances are, in fact, committed. Furthermore, requiring that reserves be determined by credible, transparent estimating procedures would help provide better estimates of the potential need for federal contingency funds. The Contingency Fund, as currently designed, has not proven to be an inviting option to the states that have actually experienced fiscal stress to date. Should Congress decide to reauthorize the Contingency Fund, consideration could be given to approaches that could both improve the usefulness of the fund for hard-pressed states as well as ensure that states contribute their fair share to future welfare costs. Such approaches could include (1) eliminating the more restrictive the Contingency Fund-MOE and substituting the more flexible basic TANF-MOE and (2) eliminating the Monthly Payment Limitation (MPL) on the amount of contingency funds to which each state has access. These actions could help strengthen the role of the Contingency Fund in state contingency budgeting. Realigning the MOE and eliminating the MPL would make the Contingency Fund more accessible and, therefore, more responsive. If states had better access to federal contingency funds, they might be more likely to use the money when needed. However, greater accessibility must be balanced by fiscal responsibility. It is important to be mindful of this balance so as not to make it too easy for states to access federal contingency funds because they might be less likely to save for a rainy day on their own, which could pose risks to the federal Treasury. The changes discussed above would still require states to increase their own spending to pre-TANF levels (i.e., meet a 100 percent MOE) to gain access to the Contingency Fund--a higher level than they must maintain for the regular TANF program--as well as provide a matching share for the additional federal funds. By broadening the fiscal base that states can draw upon to meet this higher MOE, these changes might not only make the fund more accessible in times of need but prompt states to save their own funds in anticipation of accessing the federal funds. There are other options that could strengthen states' incentives to save. For example, Congress could (1) allow states to count rainy day funds towards their MOE and (2) allow states to draw down their entire TANF grant and save these funds in their own treasuries. Allowing states to count rainy day funds towards their MOE would give them a greater incentive to save. However, "maintenance of effort" implies an actual expenditure, and is a critical aspect of PRWORA. If states save their own funds instead of spending them, they might be more likely to draw down all of their TANF dollars now to replace the state dollars they save for the future. However, this outcome can be mitigated by limiting the amount of rainy day funds that states could count towards their MOE. In addition, as we suggested earlier when discussing the TANF balances saved by states, states could also be required to certify that state rainy day funds are in fact auditable and include criteria for estimating and releasing the funds. Some state officials have argued that their incentive to save TANF funds for the future could be bolstered by allowing states to keep unspent TANF funds in their own accounts rather than at the U.S. Treasury. They believe that this might reduce incentives for Congress to rescind unspent balances since the outlays would be recognized earlier at the time of the grant award, not when the money is actually spent for a program need. State officials also told us that this would alleviate the perceived pressure to spend TANF funds rather than save them. However, it is important to note that, regardless of where these federal funds are "stored," states are accountable for these funds. As such, Congress still needs consistent, reliable, and auditable information on these funds. There are significant issues associated with this proposal. First, if states draw down all unspent balances in the current year, the rate of outlays recorded for the TANF program would shift forward. Accordingly, the federal budget surplus would be proportionately lower in the near term. Second, the federal government would incur interest costs while states could realize interest earnings. The Cash Management Improvement Act of 1990 (CMIA) helps ensure that neither the states nor the federal government incur unnecessary interest costs or forgo interest income in the course of federal grant disbursement by prohibiting states from drawing down funds until they are needed. If Congress permitted, notwithstanding CMIA, states to draw down their TANF balances to establish reserves, it could also require states to reimburse the U.S. Treasury for any interest they earn on the drawdowns. This would maintain the spirit of the CMIA by preserving fiscal neutrality for the federal government and the states, since the states could use interest earnings they gain on investing the drawdowns to reimburse the Treasury. Essentially, states would have to justify why TANF deserves an exemption from a governmentwide grant policy that settled years of intergovernmental conflicts between federal and state administrators. The permanent nature of the appropriation to each state as well as the significant devolution of responsibilities to states for addressing the program's fiscal risks may argue for such a change, but other federal interests would have to be weighed as well. For example, some may argue that CMIA promotes transparency by ensuring that states' unspent balances remain in the federal Treasury rather than in state treasuries. This concern could be addressed through federal reporting on states' expenditures and reserves. In conclusion, the TANF program has established a new fiscal partnership that has supported the transition to work-based welfare reforms. Because the partnership has yet to be tested in times of fiscal stress, now is the time for both federal and state governments to consider actions to prepare for more uncertain times and the possibility of higher program costs. Although TANF currently contains certain mechanisms to provide a fiscal cushion, the options we have presented provide an opportunity to promote greater assurance that all states will be poised to respond to future fiscal contingencies affecting their TANF programs. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have at this time.
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This testimony discusses states' plans for operating their Temporary Assistance for Needy Families (TANF) programs in the event of an economic downturn. GAO found that the data available on the levels and adequacy of states' reserves is insufficient and misleading. Furthermore, most states have done little planning for economic contingencies. Many states cite obstacles to saving money for possible economic downturns. Although TANF funds can be set aside in a budgetary reserve, state officials said that they are concerned that the accumulation of unspent TANF funds might signal that the funds are not needed. Another option for states would be to save their own funds in a general purpose rainy day account, but state officials said that welfare would have to compete with other state priorities when these funds are released from state treasuries. There are now federal contingency mechanisms for states to access additional federal resources in the event of a recession or other emergency--the Contingency Fund for State Welfare Programs and the Federal Loan for State Welfare Programs. However, states generally found these programs too complex and restrictive, and would most likely find other ways to sustain their welfare programs.
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NATO was formed in 1949 to promote stability in the North Atlantic area (see app. I for NATO's North Atlantic Treaty) by uniting member nations' efforts for collective defense and the preservation of peace and security. After expanding three times over the years, NATO currently has 16 members. With the collapse of the Soviet Union, the dissolution of the Warsaw Pact, and German reunification, NATO redefined its strategic concept at its Rome summit in 1991 to reflect the post-Cold War geopolitical landscape. The new strategic concept articulated a new conventional military force structure for NATO, greater emphasis on crisis management and conflict prevention, less reliance on nuclear forces, and committed the Alliance to pursuing greater cooperation with its former adversaries to the east. NACC, which includes all 16 NATO nations, all former members of the Warsaw Pact, Albania, and four observer states, held its first formal meeting in December 1991, the same month that the Soviet Union dissolved. NACC holds at least one regular meeting per year with consultations on such matters as political and security-related issues, defense planning questions, key aspects of strategy, force and command structures, democratic concepts of civilian-military relations. NACC work plans and discussions have broadened to include such topics as nuclear disarmament, crisis management, cooperation in peacekeeping, and progress on the PFP program. NATO initiated PFP in January 1994 to (1) expand and intensify political and military cooperation in Europe, (2) extend European stability eastward, (3) diminish threats to peace, and (4) build better relationships with former Communist countries through practical cooperation and commitment to democratic principles. Participation in the program does not require an intention to become a NATO member nor does it guarantee future membership in the Alliance, although, according to the Secretary of Defense, PFP is "the pathway to NATO membership for those partners that wish to join the Alliance." Currently, 27 countries have joined PFP, and many have already agreed to Individual Partnership Programs, which spell out specific cooperative activity programs to take place between NATO and the partner. As of August 1995, NATO members and PFP partners had held 24 joint exercises providing practical military cooperation. NATO civil budget funding pays for NATO's own administrative, security, and communications costs related to NACC and PFP, and for the construction of new facilities for partner countries at NATO civilian and military headquarters. Table 1 shows NATO civil budget funding for outreach activities from 1991 through 1996. In September 1995, NATO released an internal study of the rationale behind the enlargement and the way it should occur. In this study, NATO identified the following goals: (1) enhancing stability and security in the Euro-Atlantic area, (2) eliminating the old Cold War barriers without creating new ones between the East and West, (3) encouraging democratic and economic reforms in aspiring NATO members, (4) emphasizing common defense and extending its benefits and increasing transparency in defense planning and military budgets, (5) reinforcing the tendency towards integration and cooperation in Europe, (6) strengthening the Alliance's ability to contribute to international security through peacekeeping activities, and (7) strengthening the trans-Atlantic partnership. The study defined the standards that aspiring members must be committed to meet before membership is offered. Militarily, these nations must commit to meeting minimum NATO standards of interoperability. Politically, aspiring NATO members are expected to establish civilian control over their militaries, a new concept for most of the former Warsaw Pact states. More subjectively, applicant nations must demonstrate a commitment to democratic values, as embodied in the NATO treaty. Aspiring members must also strive to peacefully eliminate internal ethnic disputes or territorial disputes with neighbors. Finally, new members must agree not to prevent other aspiring nations from joining NATO. Although the study articulated enlargement goals and new member entrance requirements, it did not assess any individual nation's progress toward NATO membership. In fact, NATO members have not yet established a timetable for enlargement or who will be invited to join. The enlargement study also discussed how an aspiring member will join NATO. According to the study and NATO and U.S. Mission to NATO officials, the steps to be taken will be as follows. The process would begin with an informal invitation from NATO's North Atlantic Council to the prospective member to enter into accession negotiations with NATO. Before this invitation is given, there must be unanimous consent among all of the current NATO members. If even one disagrees, the invitation cannot be offered. Once an invitation is made, the prospective member must make a formal commitment to join. NATO and the prospective member would negotiate a protocol of accession that sets forth in detail what each party expects of the other and any special or unique circumstances pertaining to the prospective member's future membership. An example of special circumstances could include the provision that no NATO nuclear weapons could be deployed on the country's territory during peacetime. The North Atlantic Council must approve the accession protocol and if it does not, the protocol must be amended until it meets Council approval. If it fails to do so, the process can be stopped and the prospective member's bid to join NATO is effectively ended. Once the protocol is approved, it is signed by the North Atlantic Council and the prospective member. The accession protocol must then by ratified by the governments of all the current members and the prospective member and then enters into force. For example, in the United States, this will require a two-thirds majority in the Senate to amend and ratify the treaty. If the protocol is ratified by all members and the aspiring member, a formal invitation is made to the prospective member to accede to the North Atlantic (or Washington) Treaty. Once the aspiring member signs and gives the treaty to the U.S. government, it is considered a full member of NATO. If the accession protocol is not ratified by all 16 current members, the prospective member may not sign the Washington Treaty. At this point, the accession protocol could be amended again and resubmitted or the process can be terminated. In addition to its contribution through NATO common budgets, the United States provided about $53 million in fiscal year 1995 to PFP member countries through five bilateral programs that help to enhance their military equipment and operations. As table 2 shows, the fiscal year 1996 amount for these programs increased to about $125 million. This increase will largely support cooperative activities with PFP member countries. All of these programs, except PFP assistance, predate discussion of NATO enlargement. None were specifically designed to enhance the prospects of NATO membership. However, DOD believes it plays an important role in enhancing prospective new members' capabilities, and as indicated, the Secretary of Defense has described PFP as the pathway to NATO membership. The United States has provided $130 million in bilateral support to the PFP program over 2 years. This funding assists PFP member countries to participate in NATO's PFP exercises and helps them to obtain equipment through the Foreign Military Financing program. In addition, it is hoped that the program will foster stability in Eastern Europe through the development of civilian-controlled militaries and exposure to U.S. and other NATO members' military policies and procedures. Further, DOD believes that U.S. bilateral funding of PFP lends credibility to the program and will encourage other countries to put forth a portion of their small budgets for PFP. Fiscal year 1995 bilateral funding for PFP assistance included $19.25 million for exercises and $10.75 million for interoperability programs. The $100 million of PFP assistance (under the Warsaw Initiative) provided to member countries in fiscal year 1996 allocates $60 million to the State Department to fund Foreign Military Financing in support of the Warsaw Initiative and $40 million to DOD to support individual partner participation in joint exercises and programs to enhance NATO-PFP interoperability. Poland is expected to be the recipient of the largest amount of aid in fiscal year 1996, $25 million. The Czech Republic, Hungary, Romania, and Ukraine are each expected to receive $10 million in U.S. bilateral PFP assistance, while Russia is expected to be offered $7 million in PFP assistance, including $5 million to help Russian troops participate in PFP exercises. Seventeen other nations may also receive some U.S. bilateral PFP assistance. Table 3 shows fiscal year 1996 bilateral PFP funding by country. The fiscal year 1996 Foreign Operations appropriation includes Foreign Military Financing funding, $60 million of which the State Department intends to use to support the Warsaw Initiative. Foreign Military Financing is a grant and loan program that provides financing for the acquisition of military articles, services, and training through the Foreign Military Sales system. This funding is provided through the State Department to support transfers of equipment to enhance the interoperability of partner forces with NATO, such as tactical radios, night vision equipment, and command, control, and communications upgrades. In addition, this funding is intended to support English language instruction and training to familiarize partner defense officials with U.S. and NATO defense structure, doctrine, and operations. Of the $40 million of PFP funds provided through DOD in fiscal year 1996, some is intended to pay for PFP member nations' incremental costs incurred as a result of participation in training exercises between U.S. forces and PFP partner nations. These funds are intended to be a temporary measure to encourage partner governments to allocate a share of their national budgets for participation in PFP. For example, according to U.S. officials, Poland, Hungary, and the Czech Republic included PFP funding in their 1995 budgets. Through August 1995, there were 24 PFP exercises hosted at various locations in Europe and the United States. The first of the exercises, Cooperative Bridge, was held in Poland in mid-September 1994. Cooperative Nugget, held August 11 through 26, 1995, at the Joint Readiness Training Center at Fort Polk, Louisiana, was the first PFP exercise hosted by the United States. In addition to exercises, the $40 million provided through DOD will also fund (1) studies in support of the Regional Airspace Initiative, (2) the Defense Resource Management Study, and (3) PFP Information Management System. The first two of these initiatives were originally funded from other DOD accounts, but now are consolidated into the PFP assistance program. At this time, DOD officials are uncertain as to what portion of the $40 million will be allocated to each of these programs due to limitations prohibiting these funds from being used to purchase equipment that will be transferred to a foreign country. The Regional Airspace Initiative is intended to modernize civilian and military air traffic control, air sovereignty, and airspace management of Central and Eastern European nations. According to DOD officials, the initiative supports the U.S. policy that advocates peacetime control of national airspace by civil authorities, civil and military cooperation, and information exchange throughout the region to build regional confidence and security. Regional Airspace Initiative studies provide Central and Eastern European nations, as well as the United States, with an architecture for system modernization which will make air travel safer for all nations flying in the region. The Defense Resource Management Study is an Office of the Secretary of Defense-sponsored and -managed initiative to help emerging Eastern European democracies develop defense planning, programming, and budgeting systems compatible with those of NATO countries. The Office of the Secretary of Defense makes available teams of analysts to advise their host country counterparts on compiling force capability and cost data and analyzing alternative force structures. Fiscal year 1995 funding supported such studies in Bulgaria, Romania, Hungary, and Albania. The PFP Information Management System is intended to develop basic communications capabilities with cooperating nations and international organizations. It is intended to assist PFP members to become more interoperable with NATO. A processing center at Caserne Daumerie, Belgium, will provide capabilities such as real-time dial-up voice communications, data conferencing, imagery storage and exchange, and electronic mail. According to DOD, partner countries must pay a share of the costs to participate in the PFP Information Management System. In fiscal year 1995, $4 million of Office of the Secretary of Defense/Joint Staff funds supported DOD costs associated with the PFP Information Management System. The Joint Contact Team Program is a bilateral effort, conducted by the U.S. European Command, in coordination with U.S. embassy and host nation military personnel, to ensure constructive military activities and to model successful civil-military relations in a democracy. Rather than conducting formal training or supplying equipment, military liaison teams exchange ideas, share concepts, and demonstrate operational methods to host nation military personnel. The Joint Contact Team Program is executed by the Joint Chiefs of Staff, in coordination with the Defense Security Assistance Agency. Funding for the Joint Contact Team Program in Europe increased from $6 million in fiscal year 1993 to $10 million in fiscal year 1994. In fiscal year 1995, $10 million was provided through the Foreign Operations appropriation. For fiscal year 1996, $15 million was allocated by DOD to support the Joint Contact Team Program as a Traditional Commander-in-Chief Activity in the European theater (see app. II for a country-by-country breakdown of fiscal year 1995 Joint Contact Team Program funding). Established in the late 1950s, the International Military Education and Training program provides military education and training on a grant basis to allied and friendly nations' militaries for such things as (1) increasing their exposure to the proper role of the military in a democratic society, including human rights issues, and to U.S. professional military education and (2) helping to develop the capability to teach English. In fiscal year 1991, DOD began implementation of the congressionally directed Expanded International Military Education and Training program, which addresses management of military establishments and budgets, civilian control of military, and military justice and codes of conduct. It is available to civilian and military officials, including nondefense agency civilians. Also in 1991, Central and Eastern European countries began to receive International Military Education and Training funding. Program funds are largely used to transport, train, and provide a supplemental living allowance for foreign students at military training facilities in the United States, or to send training instructors in-country. Funds have also been used to purchase English language laboratory equipment at in-country facilities. The International Military Education and Training program is funded through the Foreign Operations appropriation. Recipient nations are selected by the State Department with input from the Joint Chiefs of Staff and DOD. DOD implements the program through the Defense Security Assistance Agency. Total worldwide International Military Education and Training program funding in fiscal year 1995 was $26.35 million. Of this amount, about $6 million went to PFP member countries. The fiscal year 1996 appropriation for the program totals $39 million, of which $10.2 million is designated for PFP member countries (see app. III for a country-by-country breakdown of funding for fiscal years 1995 and 1996). According to U.S. European Command officials, some of the fiscal year 1996 International Military Education and Training money allocated to the U.S. European Command is expected to be used for the purchase of language laboratory equipment in Europe. Excess Defense Articles are those items owned by the U.S. government that are in excess of approved retention levels. These items may be transferred to a foreign country through the Foreign Military Sales program or by grant transfer. The recipient nation is generally responsible for the cost of transporting the items, upgrading them to meet their needs, maintaining the articles, and disposing of them when they have outlived their usefulness. The fiscal year 1996 Foreign Operations Appropriations Act included authority for DOD funds to be used to pay packing, crating, handling, and transportation costs for nonlethal excess defense articles for PFP countries. In fiscal year 1995, $6.63 million worth of excess items was authorized for transfer to PFP countries (see app. IV for a country-by-country breakdown of these transfers). The types of items transferred included surface vehicles, aircraft, and communications equipment. The total value of fiscal year 1996 transfers will not be available from DOD until fiscal year 1997. If NATO increases its membership, it will likely have to provide an undetermined amount of common funding to help the new member nations. Commonly funded programs receive money from one of three NATO common budgets, funded by NATO member contributions. The largest of these is the NATO Security Investment Program, formerly known as the Infrastructure Program. The United States provides 23.3 percent of NATO infrastructure project funding, the highest of any member state. NATO funding for infrastructure projects in new member nations would be limited to facilities and command, control, and communications systems for those forces made available and accepted for NATO use. According to U.S. officials, funding would also be limited to providing only the infrastructure that (1) is required to meet NATO interoperability standards, (2) qualifies under the strict eligibility rules for common funding, and (3) is afforded a high-priority by NATO military authorities. According to U.S. officials, NATO funding for new members would probably be gradual, would vary considerably, and would probably not exceed a total of $50 million for any individual nation during the first 3 to 5 years of their membership in NATO. Table 4 shows an illustrative example of the costs of required systems that may be funded by NATO. These are only some of the many potential costs. NATO may also consider funding the construction of fuel pipeline extensions, reinforcement and mobilization facilities, ammunition and fuel bunkers, port handling facilities, transportation infrastructure (such as rail and road systems), and facilities for any forward deployed forces in new members' territory, provided these projects are afforded a high priority by NATO authorities. Ultimately, NATO will need to determine the systems and facilities to be provided to new members. However, neither NATO nor the United States know what the total costs of enlargement will be to NATO or individual members, both current and new. NATO will make a case-by-case analysis of its military needs and the requirements of new members as they join. NATO's commonly funded infrastructure program is capped at an approximately $800-million annual ceiling. This means that common funding will be limited for new members, unless NATO removes the ceiling or current members contribute more. According to officials at the U.S. Mission to NATO, most NATO members have generally reduced defense budgets in recent years, and it is unlikely that they would make larger contributions to the infrastructure fund in the near term. However, according to these officials, most of NATO's commonly funded projects will be completed by the end of 1997. This could allow common funds to be directed to projects in new member states if the budget remained at $800 million. In commenting on the draft of this report, DOD indicated that the backlog of NATO commonly funded projects will continue past the planning period. We were unable to verify which of these scenarios is accurate. Many of the costs resulting from NATO enlargement would be expected to be borne by the new members themselves. The total potential costs that could be incurred by each new NATO member to upgrade its military capabilities cannot be fully determined at this time because NATO has yet to define country-specific military requirements. New member countries may have to spend millions of dollars teaching English language skills, developing tactical communications systems (other than those funded by NATO), and learning NATO military doctrine. In addition, some nations may need to change their force structure or purchase new equipment to be compatible with those of NATO. Interoperability with NATO is a specific goal of PFP and its joint exercises. Interoperability is gaining increased importance under NATO's Joint Combined Task Force concept, which envisions NATO allies operating with non-NATO nations in military operations using NATO forces and command and control assets. Most of the former Warsaw Pact nations may have to change from a divisional structure to a brigade-based structure to make their ground forces more compatible with NATO forces. For example, according to Polish and U.S. officials, Poland is reducing the level of its armed forces and transitioning to a brigade-based structure for its army. In addition, Poland is forming an airmobile brigade that will have a rapid reaction capability, a capability called for in NATO's new strategic concept. Poland intends for this brigade to be as interoperable with similar NATO forces as possible, whether Poland is a member of NATO or not. New members will also be expected to bear the costs of participating in NATO--such as maintaining a mission at NATO headquarters and contributing to NATO's three commonly funded budgets. Like current NATO members, new member states' participation in NATO commonly funded budgets will be on a cost-share basis negotiated with NATO. According to U.S. officials, most of the aspiring NATO members are facing financial constraints and can realistically expect to do very little on their own in the next several years to make their military systems compatible with NATO's systems. For example, according to U.S. officials, the Czech defense budget is only about $1 billion. The most that may be expected of these nations is gradual movement toward interoperability. For example, the Czechs have a 10-year modernization plan to upgrade their equipment and become interoperable with NATO forces. In commenting on the draft of this report, the State Department emphasized the U.S. leadership role in support of NATO's enlargement process and the link between PFP membership and a partner state's readiness for potential NATO membership. We have made changes reflecting these points in the report. State Department officials also indicated that estimates of the amount NATO may have to pay to support new members are "extremely soft, unsubstantiated numbers," and characterized them as pure speculation. The figures were provided to us by officials at the U.S. mission to NATO and represent the best available information at this time. DOD indicated that our description of the purpose of DOD funding support for the Warsaw Initiative needed to be changed and we have modified the report in response to this concern. Specifically in regard to the Regional Airspace Program, DOD stated that the intent of the Regional Airspace Program is to provide information to U.S. consumers. However, DOD previously provided documents stating that the purpose of the program is "for modernizing . . . airspace management for nations of the Central and Eastern European region." DOD also indicated that our characterization of the Security Investment Program funding is incorrect. DOD contends that the "backlog of NATO commonly funded projects will continue past the planning period." Officials at DOD and at the U.S. Mission to NATO provided conflicting information. We modified our report to clarify that the information as presented was provided by officials at the U.S. Mission to NATO. DOD and the Department of State provided also technical corrections that have been incorporated in the report where appropriate. State and DOD comments are presented in their entirety in appendixes V and VI, respectively. To develop the information in this report, we interviewed officials and reviewed documents at the U.S. Mission to NATO, the U.S. European Command, the Defense Intelligence Agency, DOD, and State. We also conducted field work in Prague and Warsaw, where we interviewed and obtained information from U.S. embassy officials and Czech and Polish officials from the Ministries of Defense and Foreign Affairs. We performed our work from April 1995 to March 1996 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publically announce its contents earlier, we plan no further distriubution until 15 days after its issue date. At that time, copies of the report will be sent to other appropriate congressional committees and the Secretaries of Defense and State. We will also make copies available to other parties upon request. Please contact me at (202) 512-4128 if you or your staff have any questions concerning this report. Major contributors to this report were F. James Shafer, David J. Black, Charnel F. Harlow, and Michelle F. Kidd. The Parties to this Treaty reaffirm their faith in the purposes and principles of the Charter of the United Nations and their desire to live in peace with all peoples and all governments. They are determined to safeguard the freedom, common heritage and civilization of their peoples, founded on the principles of democracy, individual liberty and the rule of law. They seek to promote stability and well-being in the North Atlantic area. They are resolved to unite their efforts for collective defense and for the preservation of peace and security. The Parties undertake, as set forth in the Charter of the United Nations, to settle any international disputes in which they may be involved by peaceful means in such a manner that international peace and security, and justice, are not endangered, and to refrain in their international relations from the threat or use of force in any manner inconsistent with the purposes of the United Nations. The Parties will contribute toward the further development of peaceful and friendly international relations by strengthening their free institutions, by bringing about a better understanding of the principles upon which these institutions are founded, and by promoting conditions of stability and well-being. They will seek to eliminate conflict in their international economic policies and will encourage economic collaboration between any or all of them. In order more effectively to achieve the objectives of this Treaty, the Parties, separately and jointly, by means of continuous and effective self-help and mutual aid, will maintain and develop their individual and collective capacity to resist armed attack. The Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened. The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all; and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognized by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area. Any such armed attack and all measures taken as a result thereof shall immediately be reported to the Security Council. Such measures shall be terminated when the Security council has taken the measures necessary to restore and maintain international peace and security. For the purposes of Article 5, an armed attack on one or more of the Parties is deemed to include an armed attack: on the territory of any of the Parties in Europe or North America, on the Algerian Departments of France, on the territory of Turkey or on the islands under the jurisdiction of any of the Parties in the North Atlantic area north of the Tropic of Cancer; on the forces, vessels, or aircraft of any of the Parties, when in or over these territories or any other area in Europe in which occupation forces of any of the Parties were stationed on the date when the Treaty entered into force or the Mediterranean Sea or the North Atlantic area north of the Tropic of Cancer. The Treaty does not affect, and shall not be interpreted as affecting, in any way the rights and obligations under the Charter of the Parties which are members of the United Nations, or the primary responsibility of the Security Council for the maintenance of international peace and security. Each Party declares that none of the international engagements now in force between it and any other of the Parties or any third state is in conflict with the provisions of this Treaty, and undertakes not to enter into any international engagement in conflict with this Treaty. The Parties hereby establish a council, on which each of them shall be represented, to consider matters concerning the implementation of this Treaty. The council shall be so organized as to be able to meet promptly at any time. The council shall set up such subsidiary bodies as may be necessary; in particular it shall establish immediately a defense committee which shall recommend measures for the implementation of Articles 3 and 5. The Parties may, by unanimous agreement, invite any other European state in a position to further the principles of this Treaty and to contribute to the security of the North Atlantic area to accede to this Treaty. Any state so invited may become a Party to the Treaty by depositing its instrument of accession with the Government of the United States of America. The Government of the United States of America will inform each of the Parties of the deposit of each such instrument of accession. This Treaty shall be ratified and its provisions carried out by the Parties in accordance with their respective constitutional processes. The instruments of ratification shall be deposited as soon as possible with the Government of the United States of America, which will notify all the other signatories of each deposit. The Treaty shall enter into force between the states which have ratified it as soon as the ratification of the majority of the signatories, including the ratification of Belgium, Canada, France, Luxembourg, the Netherlands, the United Kingdom, and the United States, have been deposited and shall come into effect with respect to other states on the date of the deposit of their ratifications. After the Treaty has been in force for 10 years, or at any time thereafter, the Parties shall, if any of them so requests, consult together for the purpose of reviewing the Treaty, having regard for the factors then affecting peace and security in the North Atlantic area, including the development of universal as well as regional arrangements under the Charter of the United Nations for the maintenance of international peace and security. After the Treaty has been in force for 20 years, any Party may cease to be a Party 1 year after its notice of denunciation has been given to the Government of the United States of America, which shall inform the Governments of the other Parties of the deposit of each such notice of denunciation. This Treaty, of which the English and French texts are equally authentic, shall be deposited in the archives of the Government of the United States of America. 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Pursuant to a congressional request, GAO reviewed the North Atlantic Treaty Organization's (NATO) future enlargement and plans to include the newly democratic states of the former communist bloc, focusing on: (1) actions NATO plans to take to enlarge itself; (2) U.S. bilateral assistance programs that enhance the military operations and capabilities of aspiring NATO members; and (3) the potential costs of enlargement to NATO and the new members. GAO found that: (1) in accordance with its 1991 strategic concept, NATO has initiated two programs designed to reach out to its former adversaries to the east, the North Atlantic Cooperation Council (NACC) and the Partnership for Peace (PFP) program; (2) in September 1995, NATO released an internal study examining the rationale for enlarging NATO and how it might occur; (3) NATO members have not yet established a timetable for enlargement or decided who will be invited to join; (4) the United States has five bilateral assistance programs that help to improve the operational capabilities of potential NATO members and other countries of Central and Eastern Europe and the Newly Independent States, these programs are bilateral PFP assistance (the Warsaw Initiative), Foreign Military Financing, the International Military Education and Training program, the Joint Contact Team Program, and Excess Defense Articles transfers; (5) all but the bilateral PFP assistance predate discussion of NATO's future enlargement; (6) in fiscal year (FY) 1995, the United States provided about $54 million in bilateral assistance to PFP member states through the five bilateral assistance programs and, in FY 1996, the United States will provide about $125 million; (7) this increase in assistance largely supports PFP bilateral assistance for cooperative activities with these nations and, of the total $179 million, about $130 million (or 73 percent) represents support for the PFP program; (8) neither NATO nor the United States knows what the total costs of enlargement will be to NATO or individual members, both current and new; increased membership will place new financial burdens on NATO's commonly funded infrastructure programs and on the new members themselves; (9) many of the costs of enlargement would be expected to be borne by the new members, some of whom may lack the ability to fund the changes necessary for their militaries to become interoperable with NATO forces; (10) the cost that each new member may incur cannot be fully determined because NATO has not yet defined country-specific military requirements; and (11) U.S. officials anticipate that these nations may require bilateral or multilateral financial assistance from the United States and other NATO members.
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Mr. Chairman and Members of the Subcommittee: We are pleased to be here today to participate in the Subcommittee's oversight hearing on the U.S. Postal Service. My testimony will (1) focus on the performance of the Postal Service and the need for improving internal controls and protecting revenue in an organization that takes in and spends billions of dollars each year and (2) highlight some of the key reform and oversight issues that continue to challenge the Postal Service and Congress as they consider how U.S. mail service will be provided in the future. I will also provide some observations from our ongoing work relating to labor-management relations at the Postal Service and other areas. My testimony is based on our ongoing work and work that we completed over the past year. First, I would like to discuss both the reported successes and some of the remaining areas of concern related to the Postal Service's performance. Last year, the Postal Service reported that it had achieved outstanding financial and operational performance. Financially, the Postal Service had the second most profitable year in its history. According to the Postal Service's 1996 annual report, its fiscal year 1996 net income was $1.6 billion. Similarly, with regard to mail delivery service, the Postal Service continued to meet or exceed its goals for on-time delivery of overnight mail. Most recently, the Postmaster General announced that, during 1996, the Postal Service delivered 91 percent of overnight local residential mail on time or better. Additionally, during fiscal year 1996, the Postal Service's volume exceeded 182 billion pieces of mail and generated more than $56 billion in revenue. While these results are encouraging, other performance data suggest that some areas of concern warrant closer scrutiny. For example, last year's delivery of 2-day and 3-day mail--at 80 and 83 percent respectively--did not score as high as overnight delivery. Such performance has raised a concern among some customers that the Postal Service's emphasis on overnight delivery is at the expense of 2-day and 3-day mail. Additionally, although its mail volume continues to grow, the Postal Service is concerned that customers increasingly are turning to its competitors or alternative communications methods. In 1996, mail volume increased by about one-half of the Service's anticipated increase in volume. showed that its 1996 operating expenses increased 4.7 percent compared to a 3.9 percent increase in operating revenues. Labor costs, which include pay and benefits, continued to account for almost 80 percent of the Postal Service's operating expenses, and the Postal Service expects that its costs for compensation and benefits will grow more than 6 percent in 1997. Moreover, controlling costs will be critical with regard to capital investments in 1997, as the Postal Service plans to commit $6 billion to capital improvements. Over the next 5 years, the Service plans to devote more than $14 billion in capital investments to technology, infrastructure improvements, and customer service and revenue initiatives. The Postal Service's continued success in both operational and financial performance will depend heavily on its ability to control operating costs, strengthen internal controls, and ensure the integrity of its services. However, we found several weaknesses in the Postal Service's internal controls that contributed to unnecessary increased costs. We reported in October 1996 that internal controls over Express Mail Corporate Accounts (EMCA) were weak or nonexistent, which resulted in the potential for abuse and increasing revenue losses over the past 3 fiscal years. Specifically, we found that some mailers obtained express mail services using invalid EMCAs and that the Postal Service did not collect the postage due. Consequently, in fiscal year 1995, the Postal Service lost express mail revenue of about $800,000 primarily because it had not verified EMCAs that were later determined to be invalid. at customers' locations to be checked for valid EMCA numbers before they are accepted into the mail system. Similarly, we reported in June 1996 that weaknesses in the Postal Service's controls for accepting bulk business mail prevented it from having reasonable assurance that all significant amounts of postage revenue due were received when mailers claimed presort/barcode discounts. We reported that during fiscal year 1994, as much as 40 percent of required bulk mail verifications were not performed. Bulk mail totaled almost one-half of the Postal Service's total revenue of $47.7 billion in fiscal year 1994. At the same time, we found that less than 50 percent of the required follow-up verifications to determine the accuracy of the clerk's work were being performed by the supervisors. In response to our recommendations, the Postal Service is developing new and strengthening existing internal controls to help prevent revenue losses in bulk mailings. For example, the Postal Service plans to improve the processes used in the verification of mail, including how units are staffed, how verifications are performed, and how results of acceptance work are reported and reviewed. Another area of recent concern has been the overall integrity of the Postal Service's acquisitions. We concluded, in our January 1996 report, that the Postal Service did not follow required procedures for seven real estate or equipment purchases. We estimated that these seven purchases resulted in the Postal Service's expending about $89 million on penalties, unusable, or marginally usable property. Three of the seven purchases involved ethics violations arising from the contracting officers' failure to correct situations in which individuals had financial relationships with the Postal Service and with certain offerors. We also pointed out that the Office of Government Ethics was reviewing the Postal Service's ethics program and reported that all areas of the program required improvement. The Office of Government Ethics subsequently made a number of recommendations designed to ensure that improvement of the Postal Service's ethics program continues through more consistent oversight and management support. Since our January 1996 report, the Office of Government Ethics has completed three reviews to follow up on its open recommendations. Recently, the Postal Service developed guidance for avoiding conflicts of interest and filing financial disclosure reports as well as established procedures to ensure that the Office of Government Ethics is notified about all conflict-of-interest violations that are referred to the Department of Justice. As a result of these actions, the Office of Government Ethics closed its remaining open recommendations. Additionally, strengthening program oversight is essential to effective mail delivery. We found that the Postal Service did not exercise adequate oversight of its National Change of Address (NCOA) program. We reported that the Postal Service took a positive step toward dealing with the inefficiencies of processing misaddressed mail. However, at the same time, we found that the NCOA program was operating without clear procedures and sufficient oversight to ensure that the program was operating in compliance with the privacy provisions of federal laws. Accordingly, we recommended that the Postal Service strengthen oversight of NCOA by developing and implementing written oversight procedures. In response to our recommendation, the Postal Service developed written oversight procedures for the NCOA program. Most recently, we issued a report that describes how the Postal Service closes post offices and provides information on the number closed since 1970--over 3,900 post offices. We also provided information on the number of appeals and their dispositions, as well as some information about the communities where post offices were closed in fiscal years 1995 and 1996. Generally, the Postal Service initiated the closing process after a postmaster vacancy occurred through retirement, transfer, or promotion or after the termination of the post office building's lease. In each case, the Postal Service proposed less costly alternative postal services to the affected community, such as establishing a community post office operated by a contractor or providing postal deliveries through rural routes and cluster boxes. changes to the Private Express Statutes. These Statutes were set up to ensure that the Postal Service has enough revenue to provide universal access to postal services to the general public and that certain mail, such as First-Class, will bear a uniform rate. In our September 1996 report, we emphasized the importance of recognizing the Statutes' underlying purpose and determining how changes may affect universal mail service and uniform rates. Most important among the potential consequences is that relaxing the Statutes could open First-Class mail services to additional competition, thus possibly affecting postal revenues and rates and the Postal Service's ability to carry out its public service mandates. However, at the same time, the American public could benefit through improved service. It will be important to take into account the possible consequences for all stakeholders in deciding how mail services will be provided to the American public in the future. Another key reform issue is the future role of the Postal Service in the constantly changing and increasingly competitive communications market. For example, the use of alternative communications methods such as electronic mail, faxes, and the Internet continues to grow at phenomenal rates in the United States and is beginning to affect the Postal Service markets. At the same time, the Postal Service's competitors continue to challenge it for major shares of the communications market. According to the Postmaster General, the Postal Service has been losing market share in five of its six product lines. It seems reasonable to assume that these alternative communications methods are likely to be used more and more. In addition, international mail has become an increasingly vital market in which the Postal Service competes. In our March 1996 report, we pointed out that, although the Postal Service has more flexibility in setting international rates, it still lost business to competitors because rates were not competitive and delivery service was not reliable. We also identified several issues surrounding the Postal Service's role in the international mail arena that remain unresolved. Chief among them is the appropriateness of the Postal Service's pricing practices in setting rates for international mail services. We also reviewed postal reform in other countries to learn about their experiences. Recently, we issued a report on Canada's efforts since 1981 to reform its postal service, the Canada Post Corporation (CPC). Although CPC retained basic letter mail services at a uniform rate, it also reduced the frequency of mail delivery to some businesses, as well as in urban and rural areas. CPC uses a regulatory rate-making process that includes the opportunity for public comment and government approval for basic domestic and international single-piece letters. However, postage rates for other mail services can be approved by CPC without issuing regulations or obtaining government approval. Some of the key concerns that have been raised by CPC customers include CPC's closure of rural post offices and its conversion of others to private ownership. In addition, CPC's competitors have expressed concern about whether CPC is cross-subsidizing the prices of its courier services with monopoly revenues. The Canadian government has responded to these concerns by continuing its moratorium on post office closings and directing CPC to discontinue delivery of unaddressed advertising mail. The government is also considering a call for additional government oversight of CPC. Mr. Chairman, as you are aware, we also have a number of ongoing reviews related to postal reform. For example, in concert with your focus on the future role of the Postal Service, we are currently reviewing the role and structure of the Postal Service's Board of Governors in order to determine its strengths and weaknesses. The Board of Governors is responsible for directing and controlling the expenditures of the Postal Service, reviewing its practices, participating in long-range planning, and setting policies on all postal matters. In addition to obtaining the views of current and former Board members, we plan to provide information on the role and structure of Boards in other types of government-created organizations. Another issue important to postal reform that we are reviewing involves access to mailboxes. More specifically, we plan to provide information on (1) public opinions on the issue of mailbox restrictions; (2) views of the Postal Service and other major stakeholders; and (3) this country's experience with mailbox security and enforcement of related laws, compared with the experiences in selected other countries. oversight is labor-management relations. As the Postal Service focuses on the significant challenges it faces to compete in today's communications marketplace, unresolved labor-management relations disputes continue to hinder efforts to improve productivity. Generally, the long-standing labor-management problems we identified in 1994 still remain unresolved, despite the initiatives that have been established to address them. For example, the number of grievances requiring formal arbitration has increased almost 76 percent, from about 51,000 in fiscal year 1993 to over 90,000 in fiscal year 1996. These difficulties continue to plague the Service primarily because the major postal stakeholders (the Postal Service, four major unions, and three management associations) cannot all agree on common approaches for addressing their problems. We continue to believe that until the major postal stakeholders develop a framework agreement that would outline common objectives and strategies, efforts to improve labor-management relations will likely continue to be fragmented and difficult to sustain. The Government Performance and Results Act (GPRA) provides a mechanism that may be useful in focusing a dialogue that could lead to a framework agreement. GPRA provides a legislatively based mechanism for the major stakeholders, including Congress, to jointly engage in discussions that focus on an agency's mission and on establishing goals, measuring performance, and reporting on mission-related accomplishments. GPRA can be instrumental to the Postal Service's efforts to better define its current and future role. GPRA also emphasizes the need for stakeholders to recognize and address key internal and external factors that could affect the ability to achieve future goals. The GPRA consultation process provides the major postal stakeholders and Congress with opportunities to better understand the Service's mission, proposed goals, and most importantly, the strategies to be used in attaining these goals, especially those that relate to the long-standing labor-management relations problems that challenge the Service. Given these challenges, GPRA provides a forum for stakeholders to participate in developing and reaching consensus on strategies for attaining results-oriented goals. June 1, 1997, on how the Service can best achieve the three major goals identified in the Federal Register notice. This comment period provides an opportunity for those who might be affected by decisions relating to the future of the Postal Service to voice their views on the strategies to be used by the Postal Service. Other forums may also be appropriate to further discuss issues that may be pertinent to specific stakeholders during this stage of the implementation process. As results-oriented goals are established, the related discussions can also provide a foundation for the stakeholders to reach consensus on a framework agreement. Successful labor-management relations will be critical to achieving the Postal Service's goals. The Postal Service and Congress will need results-oriented goals and sound performance information to most effectively address some of the policy issues that surround the Postal Service's performance in a dynamic communications market. Recognizing that the changes envisioned by GPRA do not come quickly or easily, sustained oversight by the Postal Service and Congress will be necessary. Finally, several other areas will likely continue to require the attention of both the Postal Service and Congress. One such area is the Postal Service's automation efforts. The Postal Service has spent billions of dollars to ensure that an increase in productivity and an adequate return on planned investments are realized. Another area is the Postal Service's 5-year capital investment plan for 1997-2001. It calls for investing $14.3 billion, of which $3.6 billion is designated for technology investments. Also included is $6.6 billion for planned infrastructure improvements such as maintaining and improving over 35,000 postal facilities and upgrading the vehicle fleet of more than 200,000 vehicles. In addition, customer satisfaction at both the residential and business levels will continue to be a critical area as the Postal Service strives to improve customer service in order to remain competitive. The Postal Service has made considerable progress in improving its financial and operational performance. Sustaining this progress will be dependent upon ensuring that the key issues we identified, such as controlling costs, protecting revenues, and clarifying the role of the Postal Service in an increasingly competitive communications market, are effectively addressed by the Postal Service and Congress. Mr. Chairman, this concludes my prepared statement. I have attached a list of our Postal Service products issued since January 1996. I would be pleased to respond to any questions you or members of the Subcommittee may have. U.S. Postal Service: Information on Emergency Suspensions of Operations at Post Offices (GAO/GGD-97-70R, April 23, 1997). U.S. Postal Service: Information on Post Office Closures, Appeals, and Affected Communities (GAO/GGD-97-38BR, Mar. 11, 1997). Postal Reform in Canada: Canada Post Corporation's Universal Service and Ratemaking (GAO/GGD-97-45BR, Mar. 5, 1997). U.S. Postal Service: Revenue Losses From Express Mail Accounts Have Grown (GAO/GGD-97-3, Oct. 24, 1996). Postal Service: Controls Over Postage Meters (GAO/GGD-96-194R, Sept. 26, 1996). Inspector General: Comparison of Certain Activities of the Postal IG and Other IGs (GAO/AIMD-96-150, Sept. 20, 1996). Postal Service Reform: Issues Relevant to Changing Restrictions on Private Letter Delivery (GAO/GGD-96-129A/B, Sept. 12, 1996). U.S. Postal Service: Improved Oversight Needed to Protect Privacy of Address Changes (GAO/GGD-96-119, Aug. 13, 1996). U.S. Postal Service: Stronger Mail Acceptance Controls Could Help Prevent Revenue Losses (GAO/GGD-96-126, June 25, 1996). U.S. Postal Service: Unresolved Issues in the International Mail Market (GAO/GGD-96-51, Mar. 11, 1996). Postal Service: Conditions Leading to Problems in Some Major Purchases (GAO/GGD-96-59, Jan. 18, 1996). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed: (1) the performance of the Postal Service (USPS) and the need for improving internal controls and protecting revenue in an organization that takes in and spends billions of dollars each year; (2) key reform and oversight issues that continue to challenge USPS and Congress as they consider how U.S. mail service will be provided in the future; and (3) its ongoing work relating to labor-management relations at USPS and other issues. GAO noted that: (1) USPS reported that fiscal year (FY) 1996 represented the second year in a row that its financial performance was profitable and operational performance improved; (2) USPS's 1996 net income was $1.6 billion and it delivered 91 percent of overnight mail on time; (3) additionally, for FY 1996, USPS's volume exceeded 182 billion pieces of mail and generated more than $56 billion in revenue; (4) while these results are encouraging, other performance data suggest that some areas warrant closer scrutiny; (5) last year's delivery of 2-day and 3-day mail, at 80 and 83 percent respectively, did not score as high as overnight delivery; (6) the concern among customers is that USPS's emphasis on overnight delivery is at the expense of 2-day and 3-day mail; (7) additionally, although its mail volume continues to grow, USPS is concerned that customers increasingly are turning to its competitors or alternative communications methods; (8) in 1996, mail volume increased by about one-half of USPS's anticipated increase in volume; (9) containing costs is another key challenge that GAO has reported on previously; (10) GAO has also found several weaknesses in USPS's internal controls that contributed to increased costs; (11) USPS's continued success in both financial and operational performance will depend heavily on controlling operating costs, strengthening internal controls, and ensuring the integrity of its services; (12) the prospect that pending postal legislation may place USPS in a more competitive arena with its private sector counterparts has prompted congressional consideration of some key reform issues; (13) these issues include how proposed changes to the Private Express statutes may affect universal mail service, postal revenues, and rates; (14) another reform issue is the future role of USPS in an increasingly competitive, constantly changing communications market; (15) congressional oversight remains a key tool for improving the organizational performance of USPS; (16) one of the most important areas for oversight is labor-management relations; (17) despite the initiatives that have been established to address them, the long-standing labor-management relations problems GAO identified in 1994 remain unresolved; (18) the Government Performance and Results Act provides an important avenue for stakeholders in reaching a consensus for addressing such problems; and (19) also, USPS's automation efforts will continue to require the attention of both USPS and Congress to ensure that increased productivity and an adequate return on investments are realized.
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The two main areas of fraud, waste, and abuse involve (1) overpayment of food stamp benefits and (2) trafficking. Concerning the first area, overpayments occur when ineligible persons are provided food stamps and when eligible persons are provided more than they are entitled to receive. In 1996, for example, the states overpaid recipients an estimated $1.5 billion--or 6.92 percent--of the approximately $22 billion in food stamps issued. Overpayments occur for two reasons. First, recipients make errors, either inadvertent or intentional, in providing information to the state caseworker about the recipient household's size, income, assets, or other pertinent information needed to determine the household's eligibility and benefit level. Second, state caseworkers make errors in determining either an applicant's eligibility for food stamps or the appropriate level of benefits. According to 1996 data, recipient errors accounted for 57 percent of the overpayments--36 percent were unintentional errors and 21 percent were intentional. The remaining 43 percent of the overpayments were caused by caseworkers' errors. It should be noted that errors by participants and caseworkers can also result in underpayments. FCS' data show that food stamp recipients were underpaid approximately $518 million in fiscal year 1996. In March 1997, we reported on one specific example of food stamp overpayments--payments involving violations of the federal regulations that prohibit inmates of correctional institutions from participating in the Food Stamp Program. By matching automated food stamp and prison records in four states--California, Florida, New York, and Texas--we identified over 12,000 inmates who were included in the households receiving food stamps in fiscal year 1995. These households improperly collected an estimated $3.5 million in food stamps. Subsequently, in August 1997, the Balanced Budget Act of 1997 (P. L. 105-33, Aug. 5, 1997) included a provision directing the states to ensure that individuals who are under federal, state, or local detention for more than 30 days are not participating in the Food Stamp Program. In response to a request from the Senate Committee on Agriculture, Nutrition, and Forestry, we are currently examining the potential for computer matching to identify other ineligible populations participating in the program. With respect to trafficking--the second main area of fraud, waste and abuse--program regulations specify that participants must use food stamps only to purchase food items from the retailers authorized by FCS to accept food stamps. Once they receive them, authorized retailers are required to forward food stamps directly to financial institutions for redemption. However, numerous federal and state officials told us that food stamps have essentially become a second currency exchanged by some recipients for cash or non-food items. Trafficked food stamps may change hands several times, but all food stamps must eventually flow through an authorized retailer because only such a retailer can redeem food stamps for cash from the government. Numerous retailers are caught each year accepting food stamps from recipients, giving them a discounted value of the stamps in cash (for example, 70 cents on the dollar), and then redeeming the stamps at full face value from the government. Data on the extent of trafficking between parties prior to reaching authorized retailers are unavailable. However, a 1995 FCS study estimated that up to $815 million, or about 4 percent of the food stamps issued, was exchanged for cash by authorized retailers during fiscal year 1993. The study found that supermarkets, where over three-fourths of all food stamps are redeemed, have low trafficking rates compared with other types of retailers. The trafficking rate reported for publicly owned supermarkets (i.e., a company whose stock trades publicly) was less than 0.1 percent of food stamp redemptions, and the rate reported for privately owned supermarkets was 2.6 percent. By comparison, the trafficking rate for small, privately owned food retailers and privately owned retailers that do not stock a full line of food was 15.1 percent of the food stamps they redeemed. The Food Stamp Program is administered by USDA's FCS in partnership with the states. FCS provides nationwide criteria for determining who is eligible for assistance and the amount of benefits recipients are entitled to receive. The states are responsible for the day-to-day operation of the program, including meeting with applicants and determining their eligibility and benefit levels. In making these decisions, state caseworkers rely on documentation provided by households and information obtained in interviews with the applicants. FCS is also responsible for authorizing retailers to redeem food stamps as well as for monitoring program compliance by the approximately 190,000 stores currently authorized to redeem food stamps. FCS and USDA's OIG are responsible for investigating retailers suspected of violating program regulations. The OIG performs all the criminal investigations of the Food Stamp Program conducted by USDA and coordinates investigative activities with other federal agencies. Others--such as the Federal Bureau of Investigation (FBI), the U.S. Postal Service, and the U.S. Secret Service--as well as the states assist in combatting fraud. The Food Stamp Program's Quality Control (QC) System is FCS' primary tool for evaluating the states' performance in issuing benefits and determining the level of overpayments. Under the QC System, the states must review a sample of their household cases each year to determine the accuracy of the eligibility and benefit determinations made by state caseworkers and the extent of payment errors--both overpayments and underpayments. FCS reviews a subsample of each state's sample to ensure the accuracy of the states' efforts. FCS then determines the official error rate for each state and a national error rate. If an individual state's error rate exceeds the national error rate, FCS can sanction the state by requiring it to reimburse the federal government for a portion of the erroneous payments. On the other hand, states that have low error rates are eligible for additional reimbursement from the federal government--referred to as enhanced funding. According to USDA's data, overpayments in the Food Stamp Program have declined since 1993. At the national level, the overpayment error rate has decreased from 8.27 percent in fiscal year 1993 to 6.92 percent in fiscal year 1996. The 1996 overpayment error rate is the lowest level ever achieved in the program. Since 1995, FCS has increased its emphasis on achieving payment accuracy and has employed various initiatives to assist the states in reducing the number of errors. The Congress appropriated over $3 million for these initiatives. Specifically, FCS' activities include sponsoring national, regional, and state conferences; providing direct technical assistance to the states; and facilitating the exchange of state information on effective strategies for determining accurate payments. As we reported in 1995, while technical assistance and related steps are undoubtedly useful, the single most critical factor in reducing overpayments is the commitment of the managers of the states' Food Stamp Programs to aggressively address the error rate problem. Supplementing its efforts to help the states reduce errors, FCS has implemented a new strategy for conducting its sanction activities. Historically, for a variety of reasons, the states with high error rates paid little of the sanction penalties FCS imposed. Beginning in 1996, FCS reached agreement with some of these states regarding more than $404 million in penalties owed for unacceptable error rates that occurred in fiscal years 1992 through 1996. FCS agreed to reduce this penalty to $135 million and entered into settlement agreements with these states that establish performance goals tied to payment accuracy. Of the $135 million sanction liability, the states are required to invest almost $35 million in activities that directly lead to the reduction of their error rates. If a state meets its performance goals as set out in the agreement, its share of the remaining $100 million liability will be waived. According to FCS, as a result of these settlements, the states are more actively engaged in activities to reduce errors, which should continue to have a positive effect on improving payment accuracy. With respect to trafficking, our 1995 report stated that FCS' controls and procedures for authorizing and monitoring the retailers that participate in the Food Stamp Program did not deter or prevent retailers from trafficking in food stamps. Stores that did not meet eligibility criteria were being admitted to the program because the process for authorizing them was flawed. The single most effective deterrent to preventing ineligible retailers from being authorized is a preauthorization on-site visit. However, because of insufficient time or resources, FCS made few visits before authorizing stores to participate in the program. Furthermore, FCS' monitoring process was inadequate to detect authorized retailers that were violating program regulations. Reports on retailers' activities, such as total food sales and food stamp redemptions, were often untimely or inaccurate and of limited utility in identifying retailers' trafficking. In addition, we reported that FCS had only 46 investigators nationwide to conduct investigations of retailers suspected of trafficking or violating other program regulations. Since our report, FCS has initiated several actions to reduce trafficking in the program. For example, FCS has contracted with a number of different companies to make 35,000 to 40,000 store visits by the end of fiscal year 1998. These visits will be made primarily to new stores requesting approval to participate in the program and to stores requesting reauthorization to participate in the program. In addition, FCS reports that it has improved its Store Tracking and Redemption System by, for example, developing a profile that enables FCS to better identify stores that may be trafficking in food stamps or selling ineligible items. The system also includes information on sanctions taken against the stores that violate program regulations. The system is used to screen all new applications for participation in the program in order to keep ineligible retailers from returning to the program during a period in which they are disqualified. The system is also used to monitor stores' redemptions and to identify retailers for investigation or other administrative actions. For the states using EBT systems, FCS has developed an automated system that identifies transaction patterns in EBT data that indicate trafficking violations. In addition to FCS' oversight activities, USDA's OIG investigates retailers that illegally use food stamp benefits and coordinates its investigative activities with other federal and state agencies. For example, the OIG is currently looking at food stamp trafficking with state and local agencies in about 30 locations nationwide. The OIG has also taken an active role in monitoring and reviewing EBT systems and developing the automated system to analyze EBT data to identify fraud in the Food Stamp Program. Outside of USDA, a number of federal investigative agencies also play a role in the process. For example, the FBI investigates criminal violations of USDA programs if the violation has involved bribery, organized crime, or major fraud perpetrated by federal employees. The FBI focuses its investigations on links between food stamp trafficking and other criminal activities under the Bureau's jurisdiction, such as narcotics, terrorism, and white-collar crime. The U.S. Postal Inspection Service has primary responsibility for enforcing laws concerning property in the custody of the U.S. Postal Service. The Postal Inspection Service's main investigative focus for the Food Stamp Program is the theft of food stamps and EBT cards from the Postal Service's custody prior to receipt by the food stamp recipient. Finally, the U.S. Secret Service investigates food stamp counterfeiting and makes recommendations on security measures relating to EBT cards. States are responsible for investigating and prosecuting individuals suspected of falsifying information in order to obtain food stamps and misusing their food stamps--such as selling their stamps for cash. States sometimes work with FCS or USDA's OIG to investigate retailers' fraud and abuse in the program. In an effort to supplement federal efforts to investigate retailers, FCS has used State Law Enforcement Bureau agreements. Under these agreements, FCS provides the states with food stamp coupons to use in conducting their own trafficking investigations. FCS has established agreements with 32 states, but only 10 states have conducted sustained efforts against food stamp trafficking. Food stamp benefits have historically been distributed in the form of printed coupons. In Reading, Pennsylvania, in 1984, however, FCS piloted the use of an alternative delivery system--EBT. Since this pilot, there has been increasing interest in moving to EBT systems. Under such systems, recipients receive plastic debit cards to obtain their food stamps and pay for purchases through point-of-sale terminals installed at check-out counters in food stores. At the time of the purchase, recipients enter a personal identification number. The EBT computer then verifies that sufficient funds exist in the recipient's food stamp account, debits the purchase amount from the recipient's account, and credits it to the retailer's account. At the end of each business day, the authorized sales are totaled and funds are transferred electronically to the retailer's bank account. Currently, 11 states have implemented EBT systems statewide. Eight of these states deliver multiple program benefits with their EBT system, including other federal and state programs. Additionally, 16 states use EBT systems in selected counties. All the remaining states are in the process of implementing EBT systems. Collectively, EBT systems supply almost 20 percent of all food stamps. By eliminating paper coupons that may be lost, sold without any record of the sale, or stolen, EBT systems can help cut back on food stamp fraud. EBT systems reduce the likelihood of benefit theft. Of most importance, however, EBT systems create an electronic record of each food stamp transaction, making it easier to identify and document instances where food stamp benefits are trafficked. EBT data include the following information on each transaction: the exact time of day, the amount, the recipient's identity, the store's identity, and the specific cash register in the store. Reviewers can use these data to identify suspicious transactions or transaction patterns. Since 1991, USDA's OIG has opened 234 cases involving food stamp trafficking as a result of analyzing EBT data. The stores involved in these cases redeemed over $70 million in EBT food stamps, of which the OIG identified over $27 million as being fraudulent. The August 1996 Welfare Reform Act explicitly states that EBT data alone can be used as evidence to take action against retailers violating the Food Stamp Act. As a result, FCS can now use EBT data to levy administrative sanctions against retailers caught trafficking, such as permanently barring them from the program and imposing fiscal penalties, without the expense of criminal investigation and prosecution. The legislation also mandated nationwide implementation of EBT systems by October 1, 2002. While EBT systems make a major contribution to reducing certain aspects of food stamp fraud, they will not eliminate all fraud. Even in states where EBT systems have been implemented statewide, trafficking is still occurring. In such cases, a store owner accepts a card, gives the recipient a discounted value of the benefits in the recipient's account in cash, then claims the full value of the benefits from the government. Furthermore, because EBT systems are simply another vehicle for distributing benefits, they cannot correct fraud, waste, and abuse that occurs during the process of determining eligibility and benefit levels. Unless better ways are found to verify applicant-supplied information and to avoid errors made by state caseworkers, individuals will continue to receive benefits to which they are not entitled, regardless of whether these benefits are distributed by coupon or EBT systems. In addition, moving to EBT systems is not without costs. Substantial investments must be made in computer systems, point-of-sale terminals, and other hardware. FCS reported that initially EBT systems were more expensive to operate than conventional coupon systems. More recent estimates suggest that EBT systems have become more cost competitive. EBT costs are expected to continue to diminish as the technology becomes more widely used. In any event, however, as we reported in 1994 and continue to believe today, EBT systems will likely be most cost effective if they are used to deliver food stamps in conjunction with other federal and state assistance programs such as Temporary Assistance to Needy Families and the Special Supplemental Nutrition Program for Women, Infants and Children. In this way, overhead costs can be spread across a larger program volume and serve the purposes of multiple programs. Thank you again for the opportunity to appear before you today. We would be pleased to answer any questions you may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed fraud, waste, and abuse in the Food Stamp Program, focusing on: (1) the nature and extent of the problem; (2) the roles and responsibilities of the major federal agencies involved in minimizing it; and (3) the potential of electronic benefits transfer (EBT), a system of benefit delivery that replaces the traditional food stamp coupons with a debit card, to reduce it. GAO noted that: (1) fraud, waste, and abuse in the Food Stamp program takes two primary forms: (a) overpayments to food stamp recipients; and (b) the use of food stamps to obtain cash or other non-food items, a process known as trafficking; (2) according to the Department of Agriculture (USDA), in fiscal year (FY) 1996, about $1.5 billion was paid out to individuals who either should not have received any food stamps at all or received more than they were entitled to receive; (3) these overpayments represented nearly 7 percent of the approximately $22 billion in food stamps provided; (4) overpayments are caused by both inadvertent and intentional errors made by recipients and errors made by state caseworkers; (5) program regulations specify that recipients use food stamps only to purchase food from authorized retailers; (6) USDA recently estimated that up to $815 million in food stamps, approximately 4 percent of the food stamps issued, were traded for cash in FY 1993 through retail stores; (7) numerous retailers are caught each year paying recipients a discounted value of the stamps and then redeeming the stamps at full face value; (8) there are no reliable data on the extent of trafficking that occurs before food stamps are redeemed by an authorized retailer; (9) the Food and Consumer Service (FCS) administers the Food Stamp Program in partnership with the states, which are responsible for the day-to-day operation of the program, including determining applicants' eligibility and benefit levels; (10) FCS provides criteria for determining eligibility and the amount recipients are entitled to receive; (11) FCS monitors the accuracy of state benefit determinations and operates a system of incentives and sanctions to encourage states to reduce the errors; (12) FCS approves retailers to participate in the program and monitors and investigates their activities to identify those potentially violating program regulations; (13) USDA's Inspector General devotes a substantial share of its audit and investigative resources to identifying program irregularities, especially trafficking; (14) EBT systems have the potential to reduce some aspects of the fraud, waste, and abuse in the Food Stamp Program, but not others; (15) by providing a clear paper trail of all food stamp transactions, EBT systems help reviewers identify trafficking activities and remove or prosecute retailers engaged in such activities; (16) EBT systems also address problems associated with food stamp theft; and (17) EBT cannot address problems associated with determining eligibility or benefit levels.
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Active and reserve Marine Corps artillery units use the M198 howitzer for all direct support, general support, and reinforcing artillery missions. Army light cavalry units use the M198 for direct support, whereas airborne and airmobile infantry units use the M198 only for general support and reinforcing missions. The M198 howitzers, first delivered to the services in 1979, are approaching the end of their 20-year service life. Marine Corps and Army users of the M198 want to replace the 15,600-pound howitzer with a lighter-weight weapon to ease the operational burden on crews and to improve air and ground mobility. The Marines have found it difficult to tow the M198 over soft terrain, and only their heavy-lift helicopter can move the weapon by air. With the Marine Corps leading the development of a new light-weight howitzer, in September 1995, the two services signed a joint operational requirements document calling for a 155-mm howitzer that (1) weighs 9,000 pounds or less and (2) fires munitions at least 30, but preferably 40, kilometers. Initially, the Marine Corps wanted to accelerate development of a light-weight howitzer to enable fielding by 2001 or earlier but found that acceleration would be too costly. The Marine Corps now plans to field the first light-weight howitzers in fiscal year 2002, and the Army in fiscal year 2005. The Marine Corps wants to buy 598 of the light-weight howitzers and the Army 347. Development and procurement of these weapons is estimated to cost about $1.4 billion. Marine Corps and Army users of the M198 howitzer have reported a variety of recurring maintenance problems. Some of the more serious problems have been resolved. According to the Marine Corps and Army weapon system managers, solutions have been identified for most of the other problems, but funds have not been provided to make the fixes. Data compiled from Marine Corps and Army equipment readiness reports indicate that despite these problems, the availability of the M198 has not been substantially affected. Although some units reported availability dropping below 70 percent in some instances, this condition was usually corrected within a few months. In 1994, a joint Marine Corps and Army team of experts visited five major active duty Marine Corps and Army artillery units to identify and quantify the problems with the M198 howitzer, as reported by using units. This team found 15 recurring problems. The most serious recurring problems reported were the following: Trunnion bearings were worn or had disintegrated. Worn or disabled bearings affect the alignment of the gun tube and the accuracy of projectiles fired from the howitzer. Improper alignment could cause projectiles to miss the target and could endanger friendly troops. When firing the howitzer with the maximum powder charge, cracks were discovered in the towers of the upper carriage. These towers hold the gun tube in place. If the cracks in the towers are too severe, the gun tube could back up too far during recoil and injure the crew. Travel locks crack and sometimes break when the M198 is being towed. If the locks were to break completely during movement of the M198, the gun tube could fall to the ground. Broken travel locks may damage the M198's elevation mechanism and equilibrators and make the weapon inoperable. Leaks found in recoil mechanism seals could limit howitzer operations. A properly operating recoil mechanism absorbs the shock of the weapon when it is fired and returns the tube to the proper position. Severe leaks might cause metal contact, which could result in seizure of parts and general failure of the recoil mechanism. Tires are prone to blowouts because they were not rated to carry the weight of the howitzer. According to the Army weapons manager, during 1994, users of the M198 reported about 25 to 30 blowouts a month. When a blowout occurs, the howitzer cannot be fired, and crews must either wait for a new tire to be mounted by direct support maintenance personnel or use one of the prime mover's tires. In addition, delays in the delivery of certain parts have had an adverse effect on the availability of the M198 fleet. According to the Army and Marine Corps weapons managers who are responsible for maintaining the M198 howitzer, problems with the trunnion bearings, upper carriage towers, and recoil mechanisms have been or are being resolved. They also said that they have identified potential fixes to the travel locks and the tires but have not been provided the funds to implement them. Trunnion bearings can now be replaced by maintenance units located near the users. Until recently, only depot-level repair shops could replace these bearings, but authority to replace the bearings was delegated to the Marine Corps' fourth echelon maintenance units and the Army's general support units, which are generally collocated with users. In January 1994, the Marine Corps and the Army completed a modification intended to keep upper carriage towers from cracking. According to the M198 weapons managers, users have not reported any cracks in the towers since the repairs were completed. According to the Department of Defense (DOD), the cause of recoil mechanism leaks is not entirely understood. For howitzers in long-term storage, leaks have been attributed primarily to seals that failed if the mechanism was not exercised regularly. Exercisers for the recoil mechanism are being developed and are expected to be fielded by June 1996. However, the cause of leaks found in howitzers used on a daily basis has not been determined. According to the Army weapons manager, the Army's Armament and Chemical Acquisition and Logistics Activity (ACALA) has considered installing a shock-absorbing system on the M198 to resolve the problem of cracks in the travel lock area. However, ACALA has not been provided the estimated $750,000 needed to fully study this potential solution. The manager said that although the Army and Marine Corps could simply strengthen the travel lock area, stress would be transferred to other points of the howitzer that could be more difficult to identify and repair. Users have asked for better tires for the M198. According to the Army weapon system manager, several manufacturers have recently offered the Army tires that may be capable of supporting the weight of the M-198. The Army is testing these tires. However, the weapons manager has not been provided funds to buy them. Although recurring maintenance problems are reported, availability data reported by using units to Marine Corps and Army weapons system managers indicate that the M198 fleet has a high availability rate. The availability rate reported by Army users from January 1989 through August 1995 averaged about 93 percent. During the same period the availability rate reported by Marine Corps M198 units averaged 89 percent. Army artillery unit officials said that the M198 could have relatively high equipment availability rates and recurring maintenance problems at the same time. If a problem can be repaired within 24 hours, it is not reflected in equipment readiness reports. Our examination of one active Army battalion's maintenance records (June 1993 to March 1995) showed that seven of its 24 M198s had problems that rendered them inoperable for more than 10 days. Of the seven, two were inoperable for 30 and 39 days, respectively. However, according to the maintenance officer of this battalion, a majority of the problems were fixed within 24 hours. There is no consistent view regarding the state of the M198. Some users of the M198 believe that these weapons will not last until a new howitzer is fielded in fiscal year 2002. Officials of the Army's 18th Field Artillery Brigade expressed concern that the howitzer may not last its expected 20-year service life without a significant life-extension or product improvement program. They said that to reduce maintenance problems and extend the service life of the M198, about half of their oldest weapons are being sent to ACALA to be rebuilt and are being replaced with newer M198s from lower priority Army Reserve and National Guard units. Similarly, the Marine Corps has begun to rotate newer M198s from maritime prepositioning stocks to active artillery units. According to the 1st Marine Division, the M198's 20-year service life is overly optimistic because maintenance problems already identified may be symptomatic of other problems that have not yet been identified. In addition, a former artillery battalion commander of the division noted that the division's M198s receive the greatest use because in addition to providing direct support, general support, and reinforcing missions, they also lend their M198s to other Marine artillery units for training in the rough terrain of 29 Palms, California. Contrary to the views of Army and Marine Corps users, the Army's M198 weapons manager told us that the M198 can be maintained in service indefinitely, since direct or general support repair facilities can replace almost all parts, and enough M198-unique parts are available to meet the services' peacetime needs for 2-1/2 years. However, according to DOD, nonavailability of common user parts procured and distributed by the Defense Logistics Agency has created some significant delays in the repair of some M198s. The Marine Corps' weapons manager does not believe that the M198s can be sustained indefinitely but said that recent initiatives to repair major problems have improved the availability of the howitzer. Availability rates for the Marines' M198s have remained above 91 percent from May through August 1995. According to users, Marine Corps doctrine, and systems development officials, poor mobility of the M198 is the main reason requiring its replacement. A new, light-weight howitzer, currently in development, is expected to be easier to operate and move on the ground and in the air. However, a howitzer weighing 9,000 pounds may not be capable of firing munitions any farther than the M198. To achieve ranges beyond those of the M198, the new howitzer would have to be made heavier, or a new family of extended-range munitions would need to be developed. The XM982, an extended-range rocket-assisted projectile currently being developed under a separate program and expected to be usable in the new howitzer, may achieve the desired 40-kilometer range. The 5-ton truck assigned as the Marine Corps' prime mover of the M198 has difficulty towing the 15,600-pound howitzer over soft terrain such as sand. According to an artillery systems development official, although the Gulf War was the perfect situation for artillery because there was no mud, the Marine Corps found it difficult to move the M198 by land and air during Operation Desert Storm. To resolve the problem, the Marine Corps is remanufacturing its 5-ton truck fleet with a stonger power train and a 22,000-pound towing capacity, which will allow it to move the M198 over most types of terrain. This program is funded, and the first remanufactured vehicles are expected to be delivered in fiscal year 2001. The Marines can now airlift the M198 only with its CH-53E heavy-lift helicopter and only under optimal weather conditions. The Marine Corps has assumed that its new medium-lift aircraft now in engineering and manufacturing development, the MV-22 Osprey, will be able to lift the new light-weight howitzer. However, Osprey prototypes have not demonstrated that they can lift the required 8,300 pounds or demonstrated their ability to lift actual cargo. Program officials are optimistic that the Osprey will be able to lift a 9,000-pound load safely but told us that they do not know whether a howitzer can be made sufficiently aerodynamic and stable to allow for its safe movement by the Osprey. Although it uses the same truck, the Army has had fewer problems towing the M198 than the Marine Corps. The Army's 18th Airborne Corps successfully transported the M198 in the sand throughout Operation Desert Storm. Army and Marine Corps officials told us that the reason for the difference may lie in how the two services use the M198. The Marine Corps uses the M198 for direct support and general support missions. The direct support mission requires the M198 units to closely follow supported units, often over difficult terrain. The Army uses the M198 only for general support missions, which may allow firing units to avoid difficult terrain. The Army has no problem lifting the M198 with its medium-lift CH-47D helicopter, a system the Marine Corps does not own. The CH-47D can lift up to 22,000 pounds of cargo and easily carries the M198, its crew, and a limited load of ammunition, in all but the hottest weather. The Army and Marine Corps have been testing two light-weight howitzer prototypes, and a third is expected to be available for a shoot-off in fiscal year 1996. While these prototypes are expected to meet the weight requirement, they probably will not fire beyond 30 kilometers. DOD said that targets beyond 30 kilometers can be attacked with the extended range Multiple Launch Rocket System, by aircraft, or by a new rocket-assisted projectile currently in development. According to the Joint Operational Requirements Document (JORD) for a new light-weight howitzer, it must be able to fire projectiles 30 kilometers, which is the same range as the M198's. The Army agreed to this range, although it had initially desired a light-weight howitzer with a range of up to 40 kilometers to enable counterfire against other countries' artillery that can currently fire to that distance. The JORD now states that 40 kilometers is the desired range. However, views within the Marine Corps artillery community have differed on what the range should be. On one hand, several Marine Corps officials told us that mobility is the primary reason for wanting a lighter-weight howitzer. Those artillerymen with a direct support mission favored mobility over range. On the other hand, artillerymen with general support and reinforcing missions said they need additional range to accomplish their counterfire mission. One artillery battalion commander told us that the Marine Corps should not invest in a new howitzer that will not fire projectiles to distances significantly greater than the M198. Not having the mobility problems of the Marine Corps, the Army had wanted to take a more measured approach to the development of a light-weight howitzer to gain additional range. However, according to an official of the Program Executive Office for the light-weight howitzer development program, the Army concluded that insistence on a 40-kilometer range could delay the howitzer's development up to 3 years. To avoid such a delay, the Army and Marine Corps agreed that the JORD would specify a minimum range of 30 kilometers and a desired range of 40 kilometers. According to DOD, technical and simulation work led to the determination that the optimal range for a towed weapons system is 30 kilometers. The JORD working group, composed of user representatives and technical experts, determined that a towed howitzer weighing 9,000 pounds and firing 40 kilometers was not technically feasible. In addition to requiring a longer development time, achieving a 40-kilometer range would require a propellant development program, which would greatly increase the cost and risk of the light-weight howitzer development program. Under another program, the Army is developing the XM982, a 155-mm rocket-assisted projectile that is expected to fire to a range of 40 kilometers. Since the XM982 is not be a precision-guided projectile, it will not be used for close support missions. If it successfully reaches the desired 40-kilometer range, the XM982 will primarily be used for counterfire missions. In written comments (see app.I) DOD agreed that maintenance problems of the M198 alone do not warrant accelerating a replacement and stated that accelerating the acquisition strategy would be cost prohibitive. DOD disagreed on two counts with our conclusion that even with the remaining problems the M198 availability rate remains high. First, DOD stated that operational reliability of the M198 over the last 2 years provides a much more realistic picture than the average availability we calculated for a 6 year period. Army officials said that operational reliability refers to the reliability of individual parts of the M198. However, according to the Army weapons manager, operational availability data on the M198 fleet is incomplete because it has not been systematically collected. He said that the availability data reported in the Unit Readiness Reporting system remains the most reliable indicator of the condition of the M198 fleet. Second, DOD said that the variability, rather than the average, of the operational reliability and availability should be considered. DOD said that between April 1991 and June 1994, the average availability rate for Army units was 91 percent and for generally the same period the rate for the Marine Corps was 88 percent. However, DOD said that during these periods, the rate dropped to 72 percent in some Army and 69 percent in some Marine Corps units. Our review of Army data indicates that the lowest availability rate reported for the overall M198 fleet was 80.7 percent in the fourth quarter of fiscal year 1991, but that the rate recovered to 91.7 percent the following month. Individual Army battalions and separate batteries reported availability rates as low as 37 percent for any one month, but in all cases, including for school support and reserve component units, availability was restored to levels above 90 percent within 3 months. We did not review availability reports from individual Marine Corps battalions and batteries but analyzed average monthly availability rates of M198s reported to the weapons manager by each of the four Marine Expeditionary Forces (MEF) from May 1993 through September 1995. According to this data, the lowest availability rate was 68.1 percent, as reported by the 2d MEF in June 1993. However, this unit reported a 90.3 percent availability 3 months later. DOD stated that we appear to argue against the need for the light-weight howitzer. We were not asked for and are not offering an opinion about whether a lighter-weight howitzer is needed. Our objectives were to determine whether maintenance problems with the M-198 justify accelerating the development of a replacement and to describe the current light-weight howitzer development program. Technical comments provided by the DOD have been incorporated in this report as appropriate. To obtain information on the current status of the M198 howitzer, we interviewed officials and reviewed documents from the Office of the Assistant Deputy Chief of Staff of the Army for Operations and Plans in Washington, D.C.; the Marine Corps Combat Development and Marine Corps Systems Commands in Quantico, Virginia; the U.S. Army Armament and Chemical Acquisition and Logistics Activity, Rock Island, Illinois; and the Marine Corps Logistics Base, Albany, Georgia. We obtained an operational perspective and discussed maintenance issues with officials from the Army's 18th Airborne Corps and its subordinate units at Fort Bragg, North Carolina, and Fort Campbell, Kentucky, and with officials from artillery and support units of the 1st and 2nd Marine Divisions at 29 Palms, California, and Camp Lejeune, North Carolina. Finally, officials of the Joint Program Management Office, at Picatinny Arsenal, New Jersey; the Army staff; and the Army Field Artillery School, Fort Sill, Oklahoma, provided us with information on the Lightweight 155-mm Howitzer and XM982 development programs. We conducted our review between May and October 1995 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretary of Defense, the Secretaries of the Army and the Navy, and the Commandant of the Marine Corps. Please contact me at (202) 512-3504 if you have questions about this report. The major contributors to this report are listed in appendix II. R. Gaines Hensley, Assignment Manager Connie W. Sawyer, Jr., Senior Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (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 whether the Marine Corps' and Army's reported maintenance problems with the M198 howitzer justify the rapid development of a replacement weapon. GAO found that: (1) by themselves, the maintenance problems with the M198 howitzer do not justify accelerating the development of a replacement; (2) although Army and Marine Corps users of the M198 have experienced recurring maintenance problems with the howitzer, some of these problems have been resolved, and solutions to most of the remaining problems have been identified but not funded; (3) even with these problems, availability of the M198 reported by Army and Marine Corps units over the last 6 years averaged about 93 percent and 89 percent respectively; (4) the Marine Corps believes that the poor mobility of the M198 is a more important reason than maintenance for replacing it with a lighter-weight weapon; (5) however, the anticipated air mobility improvements are dependent on the ability of the MV-22 medium-lift aircraft, now in engineering and manufacturing development, to lift a 9,000-pound howitzer; (6) so far, the developmental aircraft has not shown that it can lift that weight; (7) current light-weight howitzer candidates will fire projectiles to 30 kilometers, the same range as the M198; (8) to achieve the objective firing range of 40 kilometers, the weight of the new howitzer would have to be increased, but an increase in weight could negate mobility improvements; (9) a new munition, the XM982, currently being developed by the Army independent of the light-weight howitzer development program and scheduled to become available in fiscal year 1998, is expected to achieve the desired 40-kilometer range; and (10) however, it has not yet been tested in the competing light-weight howitzer prototypes.
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Historically, most farm programs have been implemented at the county office level. The current county-based delivery structure originated in the 1930s, when the first agricultural acts established farm support programs. At that time, more than one-fourth of all Americans engaged in farming, and the lack of an extensive communication and transportation network limited the geographic boundaries that could be effectively served by a single field office. In addition, most farm programs required farmers to visit the local office to learn about and sign up for these programs. FSA staff assisted farmers in completing the administrative requirements, including the necessary paperwork, associated with the programs. Over the last 60 years, the number of farms in the United States has declined significantly, as has the number of people engaged in farming. Improvements in communication and transportation in rural areas have mitigated some of the problems associated with large distances between farmers and program resources. Additionally, two recent legislative changes have significantly affected USDA's delivery of farm programs. The Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 103-354, Oct. 13, 1994) directed the Secretary of Agriculture to streamline and reorganize USDA to achieve greater efficiency, effectiveness, and economies in its organization and management of programs and activities. In addition, the Federal Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, Apr. 4, 1996) fundamentally changed the federal government's role in supporting production agriculture by replacing traditional commodity programs and reducing many of the administrative requirements related to the remaining agriculture programs. Prior to the 1996 act, farmers participating in federal commodity programs were restricted to planting certain types and amounts of crops. Following the 1996 act, farmers are expected to plant and market crops by considering market conditions rather than by relying on government programs. As a result of the 1994 act, USDA has closed more than 300 offices, or about 14 percent of the 2,773 offices that were operating at the end of 1994. These closures required the farmers served by those offices to travel to a neighboring county for assistance. In addition to these office closings, USDA reduced FSA's nonfederal staff from 13,432 in 1995 to 11,399 in 1997, a reduction of 2,033 employees, or about 15 percent. According to the 1998 budget proposal, USDA is scheduled to close 500 additional offices and reduce FSA's county office staff by an additional 57 percent, from 11,399 employees in 1997 to 4,879 by 2002. The proposal's estimated savings would total more than $1 billion for the 6 years through 2002. To date, USDA's reductions in county office staff have been achieved primarily by reducing the staff at larger county offices and by closing or consolidating smaller county offices (those with three or fewer employees). Furthermore, USDA is undertaking an effort to streamline its administrative activities at the state and national level, which may affect the quality of service farmers receive. In December 1997, the Secretary of Agriculture approved a 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, services supporting civil rights, information technology, and management services (including procurement)--to field-based agencies. USDA also has contracted for an independent study to examine FSA, the Natural Resources Conservation Service, and the Rural Development mission area for opportunities to improve overall customer service and the efficiency of the delivery system. The results of this study, expected to be completed in October 1998, will be incorporated into the future iterations of FSA's strategic plan. Despite recent office closings and staff reductions, most farmers continue to be very satisfied with the quality of service they have been receiving from USDA, according to a USDA survey and our discussions with farmers. In USDA's 1997 national survey, 90 percent of the more than 4,000 respondents said that they were very satisfied with the service they received from their county office and that local staff were responsive to their needs, provided reliable service, and showed empathy towards customers when conducting business. In addition, the participants said that "personalized face-to-face service" was important to them. In fact, when asked to identify alternative ways of doing business with the county office, such as by computer or telephone, nearly 60 percent of the farmers said that they did not want any changes and preferred to continue to conduct most business in person. According to all 60 farmers we spoke with by telephone, the quality of service in late 1997 was the same or better than it was in 1995, despite staff reductions and office closures. These farmers lived in all parts of the nation and had participated in the Conservation Reserve Program, the farm loan programs, and/or the commodity programs. In some cases, these farmers lived in counties in which their local county office had been closed. They stated that the quality of service was high because FSA staff were efficient and knowledgeable. One farmer said that service in the county office was good because the county office employees took the time to become familiar with each farmer's operation. Farmers we spoke with were particularly pleased with FSA staff's performance in the following areas: Completing paperwork. FSA staff have historically completed most farmers' paperwork for the commodity programs for them. FSA staff told us that by completing the paperwork, they reduce the possibility of errors that would occur if farmers completed the paperwork on their own. Many farmers we talked to said that they like having FSA staff fill out their paperwork because it is very complex and they would have difficulty doing it by themselves. Storing and maintaining records. FSA staff maintain farmers' commodity program records because, according to one FSA county executive director, many farmers like FSA to keep their historical farming records, such as acreage reports, on file in case farm programs change and the information is needed to establish eligibility for the new programs. Reminding farmers about key sign-up dates. FSA uses mail and telephone calls to remind farmers of key dates for enrolling in a program because officials are concerned that some farmers may otherwise forget to sign up. One farmer said that he appreciated receiving postcards from his county office when it was time for him to visit the office. Under the commodity programs, for example, FSA staff reminded farmers 15 days prior to the ending date of a sign-up period that they had not enrolled in the current year's programs. Providing prompt walk-in service. At most county offices, farmers can visit without an appointment and receive prompt service for commodity programs. This service could range from answering simple questions to filling out a farmer's paperwork. Farmers like the flexibility of coming into the office when it is convenient for them--when the weather is bad, for instance, without having to make an appointment. In commenting on a draft of this report, FSA officials noted that while the results of USDA's survey and our discussions with farmers indicate that most farmers are satisfied with the service that they receive, some are not. For example, some small and minority farmers involved in the farm loan programs have criticized USDA recently for not providing adequate service. FSA officials stated that they would like to provide a better level of service for participants in the farm loan programs, but they lack adequately trained staff. As of December 1997, FSA had 2,396 offices and 11,399 county office employees. These office and staffing levels reflect the closing of more than 300 offices and staff reductions of about 15 percent since December 1994. If the 1998 budget proposal to further reduce staffing by an additional 50 percent and to close an additional 500 offices were carried out, FSA would average about two to three employees per office, in comparison with the current average of about five. As we have previously reported, county offices need a minimum of two staff just to conduct the administrative functions for maintaining basic office operations, such as obtaining and managing office space and processing the paperwork for the payroll. As a result, FSA staff in these smaller offices will have less time to provide service to farmers than they did when county offices were staffed more fully. The proposed staffing reductions will result in more county office closures than the 500 proposed, according to FSA officials we interviewed. As FSA closes offices, farmers will have to travel farther and visit offices that serve more farmers. Although they stated that they are still receiving quality service, some farmers we spoke with whose county office had recently closed have already experienced the service impacts associated with these changes. For example, according to one farmer--whose current county office is 45 miles away compared with his former office, which was 10 miles away--the staff at the new office did not have personal knowledge of his specific operations, such as the crops he grows, the farming techniques he uses, and the programs in which he normally participates. FSA officials recognize that additional staff reductions and office closings will reduce the level of personalized service to farmers and require them to accept greater responsibility for program requirements, including completing paperwork. At the same time, officials recognize that the 1996 act places more responsibility on farmers for planting and marketing decisions. In this regard, FSA officials told us that they are beginning to talk with farmers and the various groups involved in farming about the types of services FSA should provide in the future. We met with USDA officials, including the Associate Administrator for the Farm Service Agency, the Deputy Administrator for Farm Programs, and the Deputy Administrator for Farm Loan Programs. USDA generally agreed with the information presented in the report. In their comments, however, the officials noted that the services provided to farmers vary among the USDA programs. For example, Farm Service Agency officials stated that because the staff for the farm loan programs are not located in each county, these staff are not able to provide the same level of service that farmers participating in the traditional commodity programs received, such as having their paperwork filled out for them. Furthermore, these officials stated that some small and minority farmers have recently criticized USDA for not providing adequate service. We made changes to the report to reflect these concerns. In addition, USDA provided technical and clarifying comments that we incorporated as appropriate. To determine farmers' opinions of the quality of service FSA provides in county offices, we reviewed selected aspects of the results of USDA's National Customer Service Survey of farmers in 1997. Specifically, we analyzed and summarized responses on (1) the services that matter the most to farmers and (2) farmers' general satisfaction with services provided by USDA's service centers. This survey included over 4,000 farmers nationwide who participated in various farm programs. To verify and update these results, we obtained a database from USDA of the names, location, and phone numbers of farmers who had previously completed a USDA customer service survey. We judgmentally selected 90 farmers who had participated in the Conservation Reserve Program, the farm loan programs, and/or the Acreage Reduction Program in 1995. We were able to contact 60 of these farmers across the nation by telephone to obtain information on the quality of service in FSA county offices in 1997 compared with the quality of service in 1995. Some of these farmers lived in counties in which the local county office had been closed. We also visited FSA officials at headquarters and FSA state and county office officials in eight states to discuss the quality of service farmers currently receive. The offices we visited were located in California, Connecticut, Illinois, Massachusetts, Missouri, Nebraska, North Carolina, and Washington State. In most of these county offices, we met with the county executive director, agricultural credit manager, and farmers from the FSA county committee. We also met with the state executive director in six states and members of the state committee in two states. We conducted our work from October 1997 through April 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 15 days after the date of this letter. At that time, we will provide copies to the House and Senate Committees on Agriculture; other interested congressional committees; the Secretary of Agriculture; and the Director of the 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 were Ronald E. Maxon, Jr.; Fred Light; Renee D. McGhee-Lenart; Paul Pansini; Carol Herrnstadt Shulman; and Janice M. Turner. Robert A. Robinson Director, Food and Agriculture 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 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 impact of actual and proposed staff reductions and office closings by the Farm Service Agency (FSA) on the quality of service to farmers. GAO noted that: (1) FSA's staff reductions and office closures to date do not appear to have affected the quality of service provided to farmers; (2) according to the Department of Agriculture's 1997 customer survey and GAO's recent discussions with farmers and FSA officials, most farmers are highly satisfied with the service they receive from their local office of FSA; (3) farmers are still generally able to receive prompt service when they walk into their county office and have FSA staff complete most of their required paperwork; (4) if FSA's staffing continues to be reduced and county offices are closed, however, the traditional level of service provided to farmers is likely to decrease; and (5) among other things, farmers will be required to accept greater responsibility for program requirements, including completing paperwork; with less assistance from agency staff, however, this change is consistent with changes in the 1996 Federal Agriculture Improvement and Reform Act, which reduces federal controls over production and places more responsibility on farmers for planting and marketing decisions.
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Most individuals diagnosed with ESRD are eligible to receive Medicare benefits under both Medicare Parts A and B. Medicare covers over 80 percent of all individuals with the disease. ESRD treatment options include kidney transplantation and maintenance dialysis. The latter removes substances that would otherwise be filtered through the kidney from the individual's blood. Kidney transplants are not a practical option on a wide scale, as not all patients are candidates for transplant and suitable donated organs are scarce. In contrast, dialysis is the treatment used by most ESRD patients. Dialysis can be administered through two methods: hemodialysis and peritoneal dialysis. During hemodialysis, a machine pumps blood through an artificial kidney, called a hemodialyzer, and returns the cleansed blood to the body. Hemodialysis, the most prevalent treatment method, is generally administered at freestanding facilities that provide dialysis services. The conventional regimen includes hemodialysis three times a week. Peritoneal dialysis--which is generally done in the home--utilizes the peritoneal membrane, which surrounds the patient's abdomen, as a natural blood filter. Patients remove wastes and excess fluids from their abdomen manually throughout the day, or a machine automates the process while they sleep at night. This procedure eliminates the need for the blood to leave the body of the patient and filter through a machine. The use of peritoneal dialysis has declined as a treatment modality over the last decade. One of the complications of ESRD is anemia, a condition in which an insufficient number of red blood cells is available to carry oxygen throughout the body. In ESRD patients, this condition is treated by maintaining at an optimal level the percentage of red blood cells relative to all cells in whole blood (by volume). This measure is known as the hematocrit (Hct) level. The Kidney Disease Outcomes Quality Initiative (KDOQI), established by the National Kidney Foundation, has set the minimum target for ESRD patients' Hct levels at 33 percent and has found insufficient evidence to recommend routinely maintaining Hct levels at 39 percent or greater. ESRD patients receive Epogen to keep their Hct above a minimum level. The Food and Drug Administration (FDA) labeled Epogen for use encompassing a somewhat lower Hct target level ranging from 30 to 36 percent. Recent clinical studies cited by KDOQI indicate that there may be increased patient mortality and morbidity if Hct levels are much higher than 39 percent. Epogen is typically administered to Medicare ESRD patients intravenously. Epogen can also be administered subcutaneously, that is, through an injection under the skin. The subcutaneous method requires less epoetin, but experts note that, because some pain is associated with this method, patients generally prefer intravenous delivery. Medicare's composite rate is designed to cover the cost of services associated with a single dialysis treatment, including nursing and other clinical services, social services, supplies, equipment, and certain laboratory tests and drugs. Under the composite rate, facilities receive a fixed payment, regardless of their actual costs to deliver these services. In 2006, the composite base rate is about $130 for freestanding dialysis facilities. Medicare pays separately for certain drugs and laboratory tests that have become routine treatments since 1983. These drugs include, but are not limited to, epoetin (brand name, Epogen), injectable vitamin D, and injectable iron. Epogen is generally administered to most patients at every dialysis treatment, whereas the other drugs, although routinely provided, are not administered as frequently. Table 1 highlights three separately billable prescription drugs provided routinely to dialysis patients. As table 1 shows, three drugs--iron sucrose, paricalcitol, and epoetin alfa--account for about 87 percent of Medicare spending on separately billable ESRD drugs. Although each of these three drugs is a "sole-source" product--that is, produced by a single manufacturer--two of the three have pharmaceutical alternatives available, whereas the third, epoetin, has no available alternatives in the ESRD market. In recent years, Medicare's method of paying for separately billable ESRD drugs has changed several times. Beginning in 1998, Medicare law required that payment for drugs covered under Part B equal 95 percent of the drug's average wholesale price (AWP). Despite its name, however, AWP was neither an average price nor the price wholesalers charged. It was a price that manufacturers derived using their own criteria; there were no requirements or conventions that AWP reflect the price of an actual sale of drugs by a manufacturer. An analysis we conducted in 2001 on Part B drug prices found that Medicare's AWP-based payments often far exceeded market prices that were widely available to health care providers. The MMA mandated that in 2005 Medicare pay for separately billable ESRD drugs based on their acquisition costs, as determined by the HHS Office of the Inspector General (OIG). Since acquisition costs were not defined in the MMA, the OIG determined a drug's average acquisition cost based on a survey of prices providers paid for the top 10 ESRD drugs, ranked by Medicare expenditures. For 2005, Medicare paid the OIG- determined average acquisition cost for the top 10 ESRD drugs. For 2006, the MMA gave the HHS Secretary discretion to alter the basis of payment for separately billable ESRD drugs. Under this authority, CMS determined that Medicare would pay for the separately billable ESRD drugs using the method required by the MMA to pay physicians for these drugs--that is, 106 percent of the drug's ASP. CMS instructs pharmaceutical manufacturers to report data to CMS on the ASP for each Part B drug sold by the manufacturer, within 30 days after the end of the quarter. For drugs sold at different strengths and package sizes, manufacturers are required to report price and volume data for each product, after accounting for price concessions. CMS then aggregates the manufacturer-reported ASPs to calculate a national ASP for each drug category. ASP rates are calculated and posted every quarter. The rates reflect the sales price on average from 6 months earlier. Since 2003, several legislative and regulatory changes have been implemented affecting Medicare's composite rate for routine ESRD services and payment rates for separately billable ESRD drugs. The changes have increased the composite rate and reduced the subsidy facilities obtained from generous Medicare payments for the separately billable drugs under pre-MMA payment rates. Nevertheless, as long as facilities receive a separate payment for each administration of each drug and the payment exceeds the cost of acquiring the drug, an incentive remains to use more of these drugs than necessary. For Epogen, the most frequently used drug, several months of data indicate that the per-patient use of this drug continues to rise, although at a slower rate than under pre- MMA payment rates. The MMA initiated new Medicare payment provisions addressing the composite rate and payment for separately billable drugs. Prior to the MMA's payment changes, facilities relied on payments for separately billable drugs to subsidize the cost of providing dialysis services covered under the composite rate. In a 2004 report, we found that, in 2001, Medicare's payment for the composite rate was 11 percent lower on average than facilities' average costs to provide the items and services included in the composite rate, whereas Medicare's payment for separately billable drugs was 16 percent higher than facilities' average costs of acquiring these drugs. We concluded that this payment disparity created an incentive for facilities to overuse separately billable drugs, as payments for them compensated for losses on items and services included in the composite rate. Together with the MMA provisions, more recent legislative and regulatory changes have reduced the disparity between Medicare's payments and facilities' average costs for both composite rate services and separately billable drugs. Essentially, these changes lowered payments for separately billable drugs from their pre-MMA amounts, and raised payments for the composite rate. The base composite rate was increased by 1.6 percent in 2005 and 2006 and the composite rate total was further increased through a "drug add-on" payment, which shifted some of the payments for separately billable drugs to the composite rate. In 2005, the add-on equaled 8.7 percent of the updated composite rate. In 2006, the 8.7 percent was replaced with a drug add-on payment of 14.5 percent of the 2006 updated composite rate. (See table 2.) The most significant changes to the ESRD payment system are the changes in payment rates for separately billable drugs. In 2005, Medicare's payment rates based on average acquisition costs were lower than its previous payment rates based on 95 percent of AWP. For example, from 2004 to 2005, the per-unit rate for iron dextran decreased from $17.91 to $10.94 and the per-unit rate for paricalcitol decreased from $5.33 to $4.00. (See table 3.) Since 2006, when the payment method for separately billable drugs changed to ASP + 6 percent, Medicare's payment rates have varied from quarter to quarter but have remained relatively consistent with the lower 2005 payments based on average acquisition costs. Since the implementation of these changes, Medicare spending for individual separately billable ESRD drugs has decreased to varying degrees. Beginning in 2005, when Medicare's payment method for these drugs changed from AWP to average acquisition cost, Medicare expenditures for several separately billable drugs decreased 11.8 percent from 2004. (See table 4.) Specifically, the average payments for iron sucrose and paricalcitol decreased by almost 35 percent and 25 percent, respectively. Similarly, payment for Epogen was lower than it had been for the previous decade, when it was set statutorily at $10 per unit, but the reduction--3.2 percent--was significantly less compared with the other drugs. Because payments to facilities for separately billable drugs are closer to the cost of acquiring these drugs and because composite rate payments have increased, the degree of cross-subsidization to support services provided under the composite rate has diminished, but the incentive to overuse these drugs has not been eliminated. To the extent that facilities can obtain the drugs for less than Medicare's payment rates and that the volume of drugs billed for separately increases facilities' revenue, an incentive remains for facilities to overuse these drugs to maximize revenues. to increase the validity of our he year We restricted the data to the first half of t comparison of previous years to 2006, for which we have only partial data. ote: Data are per ESRD patient with at least one Epogen claim in the first 6 months. We restricted N the utilization data to the first half of the year to make our comparisons consistent with 2006 data, which we only have for the first 6 months of the year. In addition to payment changes, CMS has sought over time to limit expenditures for Epogen by issuing policies that link payment to utilization. That is, Medicare reduces payments when a patient's Hct level reaches a certain percentage. Since 1997, CMS has created three different monitoring policies to encourage the efficient use of Epogen for ESRD patients. Each of these policies has been closely aligned with the clinical guidelines for Hct levels endorsed by the National Kidney Foundation. In 1997, the first policy denied payment when a patient's 3-month rolling average Hct level exceeded 36.5 percent. In 1998, CMS revised the policy so that the maximum level for the 3-month rolling average Hct was 37.5 percent; if a patient exceeded that level, payments were not denied as long as the Epogen dose was reduced 20 percent. In July 2004, CMS issued a proposal for a new monitoring policy. After consultation with the dialysis community, the final policy took effect on April 1, 2006. Under this policy, when a patient's Hct level is above 39.0 percent, the facility must reduce the Epogen dosage by 25 percent of the preceding month's administered amount.43 44 Whether or not the facility reduces the dosage, Medicare pays the facility as though the reduction has occurred--in effect, not rewarding the facility for overutilization. In broad terms, Medicare's policy is to set payment rates that are adequate to ensure beneficiary access to services but do not exceed the costs efficient providers incur to furnish needed care. In prior work on Medicare payment for Part B drugs, which include separately billable ESRD drugs, we noted that the ASP method was practical for setting payment rates compared with Medicare's previous methods to pay for these drugs, but we remained concerned about the appropriateness of the rates set under ASP. The practical aspects of ASP are several: it is based on actual transactions and is a better proxy for providers' acquisition costs than Medicare's previous methods to pay for these drugs; ASP is the most recent publicly available price information, as it is updated quarterly, and is therefore timely for rate-setting purposes; and price data from manufacturers are administratively easier for CMS to collect than obtaining such data from health care providers. Medicare has a process under which facilities can appeal the denial of a claim by showing that it is medically necessary. 42 U.S.C. SS 1395ff (2000). Effective October 2006, CMS revised the monitoring policy to, among other things, clarify its policy for reporting dosage reductions. setting the payment rate for Medicare Part B drugs at 6 percent above AS further complicating efforts to determine the appropriateness of the rate. The ASP payment method is of particular concern with respect to Epogen because it is the only product available in the ESRD market for anemia management. The ASP method relies on market forces to achieve a favorable payment rate for Medicare--that is, one that is sufficient to maintain beneficiary access but not overly generous for providers and therefore wasteful for taxpayers. In principle, under ASP, when two or more clinically similar products exist in a market, market forces could serve to bring prices down, as each manufacturer competes for its own product's market share. In contrast, when a product is available through only one manufacturer, Medicare's rate lacks the moderating influence of competition. For this reason, Medicare's ASP method may not be appropriate for Epogen, which is the product of a single manufacturer has no competitor products in the ESRD market. The lack of price competition may be financially insignificant for noncompetitive products that are rarely used, but for Epogen, which is pervasively and frequently used, the lack of price competition could be having a considerable effect on Medicare spending. Since the introduction of Epogen in the ESRD anemia management market, it has been difficult for competitor products to enter this market. Amgen, Epogen's manufacturer, has held seven patents on Epogen, the first of which was granted in 1987 and the last of which expires in 2015; Amgen has obtained injunctions against pharmaceutical firms seeking to market their anemia management drugs in the United States. However, competitor products may enter the U.S. market in the near future. There are three potential sources of future competition: a drug that currently exists, drugs that are likely to enter the market soon, and products that are under development. Aranesp is a drug that Amgen manufactures and markets to hospitals and physicians to treat anemia in patients with cancer and chronic kidney disease but generally does not market to ESRD facilities. CERA is a drug that the manufacturer--F. Hoffmann LaRoche-- hopes to introduce in the United States sometime in 2007. Certain products currently in development, which are several years away from entering the market, could have a distinct advantage over injectable products, as they are expected to be long-lasting oral therapies. The composite rate for routine dialysis-related services was the first of Medicare's several payment systems that, in broad terms, sets a fixed, prospective rate for a set of clinically related services. Consistent with payment policy, the Congress has required CMS to develop a system tha would no longer pay for each injectable ESRD drug under a separate rat but would bundle payment for these drugs together with other ESRD services under a single rate. A bundled rate would have advantages for achieving efficiency and greater clinical flexibility. CMS's design of a bundled rate is under way but behind schedule, making the implementation of a fully bundled payment system, based on this design, at least several years away. Any payment system changes based on report or demonstration would require legislation. Medicare's approach to paying for most services provided by facilities is to pay for a group--or bundle--of services using a prospectively set rat e. For example, under prospective payment systems, Medicare makes bundled payments for services provided by acute care hospitals, skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities. In creating one payment bundle for a group of associated items and services provided during an episode of care, Medicare encourages providers to operate efficiently, as providers retain the difference if Medicare's payment exceeds the costs they incur to provide the services. Medicare's composite rate for routine dialysis-related services was introduced in 19 and was the program's first bundled rate. MedPAC), and CMS have recommended expanding the bundled payment In recent years, we, the Medicare Payment Advisory Commission ( for ESRD services to include not only the services paid under the composite rate but also the drugs that facilities currently bill for separately. Experts contend that a bundled payment for dialysis-related services would have two principal advantages. First, it would encourage facilities to provide services efficiently; in particular, under a fixed, bundled rate for a defined episode of care, facilities would no longer an incentive to provide more ESRD drugs than clinically necessary. Second, bundled payments would afford clinicians more flexibility in drug or decision making because incentives to prescribe a particular treatment are reduced. For example, certain clinical alternatives are, according to some ESRD experts, advantageous to patients and could result in the use of less Epogen, but these alternatives are not encouraged under the current payment system. Studies have shown that daily hemodialysis--which some experts contend is clinically preferable--reduced the need for Epogen in some ESRD patients with anemia. However, Medicare coverage is limited to three dialysis treatments a week. Under a bundled payment, facilities would have the flexibility to increase the number of weekly dialysis treatments and reduce their use of Epogen. Studies have also shown that patients who receive subcutaneous instead of intravenous injections of epoetin and patients undergoing peritoneal dialysis instead of hemodialysis need less epoetin to manage their anemia. Under t current payment system, which pays facilities for epoetin on a per administration basis, facilities have an incentive to select the epoe delivery method and the dialysis modality that maximize their Metin revenue. Under a bundled payment, facilities would have less incentive tochoose the costlier intravenous over subcutaneous injections of epoetin o r the costlier hemodialysis over peritoneal dialysis. Facility representatives, ESRD experts, and other interested parties w spoke with generally supported a bundled payment for dialysis-related items and services while underscoring the importance of certain elem as part of the bundled payment system. First, facility representatives noted that bundled payments called for a case-mix adjuster--that is, a mechanism to account for the differences in the mix of more expensive and less expensive patients across facilities. Without accounting for t differences, facilities that treated a disproportionate share of costly patients would be financially disadvantaged. Second, some facility representatives noted that an automatic paym update would be needed to adjust the bundled rate for inflation, consisten with Medicare's other bundled payment systems that are updated automatically on an annual basis. They pointed out that the current ESRD t composite rate is Medicare's only payment bundle that does not receive a automatic update. Third, ESRD experts we spoke with noted that, under bundling, the incentive to overuse services is blunted, but the incentive to underu se services is present. For example, facilities could choose to provide too little Epogen to patients with anemia because they would save money providing less of this costly drug. These individuals commented that CMS's monitoring policy, which currently focuses on overutilization of Epogen, would need to refocus its attention on underutiliza under a bundled payment system ESRD patients received appropriate levels of Epogen and other dialysis-related drugs and services. The MMA mandated a two-pronged approach for CMS to study the creation of a bundled payment method. It required CMS to submi to the Congress on a bundled payment system design in October 2005 an start a 3-year bundling demonstration in January 2006. The legislation he linked the two requirements by directing CMS to base the design of t bundling demonstration on the content of the required CMS to obtain input on the demonstration's design and implementation from an advisory panel that included industry and government experts. The report had not been issued nor had the demonstration been launched as of November 2006. Any payment s changes based on CMS's report or demonstration would require legislation. mandated report. It also The report and demonstration efforts, led by two different organizational units in CMS, face similar design considerations. Both must define the ESRD services to be included in a payment bundle, design a case-mix adjustment model to account for differences in patients' use of resources, and develop a payment policy for exceptional cases, known as an outlier policy. However, despite similar goals, each unit has a different focus. Essentially, the unit responsible for the report is designing a bundled payment system that is intended to be implemented programwide and expeditiously, following congressional approval. In contrast, the unit responsible for the demonstration is designing a bundled payment sy that is intended to be implemented on a limited and self-selective basis that is, through facilities' voluntary participation in the demonstration. The time frame for implementing a bundled payment system based on CMS's report is uncertain. Officials could not tell us when the report would be available. Furthermore, additional time is needed for the Congress to review the report and possibly pass legislation based on th report. CMS officials predict that it would take a minimum of 18 fully implement the system, once legislation had been enacted. The start of the bundled payment demonstration is similarly subject uncertain chain of events. Specifically, under MMA, CMS cannot launch its demonstration before considering the information in its mandated report. The rationale for Medicare to continue paying for Epogen and other E drugs outside of a payment bundle has diminished over time. Composite rate updates and add-ons, coupled with the overhaul of payment for P drugs, have moved Medicare toward paying more appropriately for ESRD services. Nevertheless, under the ASP payment method--which pays for separately billable ESRD drugs on a per administration basis--facilities continue to have an incentive to use these drugs more than may be necessary. Paying for Epogen under ASP presents an additional dilemm as a single-source drug in a market with no competitor products, Epo n is not subject to the moderating effects that competition can have o price. In our view, Medicare could realize greater system efficiency if a services, including drugs, were bundled under a single payment. A bundled payment--suitably adjusted for differences across facilities in their mix of patients--would encourage facilities to use drugs more prudently, as they would have no financial incentive to use more than necessary and could retain the difference between Medicare's payment and their costs. At the same time, because treatment choices would be payment neutral, clinicians would have more flexibility to try different treatment combinations of items and services paid for in the bundle. To account for facilities' increased or decreased costs over time, a reexamination of the bundled rate may be necessary periodically. In the case of Epogen, for example, if other competitor products entered the market in the future, the costs facilities would incur to treat anemia could decline. By adjusting the payment bundle accordingly, Medicare could realize the benefits of such cost reductions. CMS's time line is considerably protracted for issuing the mandate on a bundled ESRD payment system and conducting a demonst remains under development. The time needed to complete these steps makes the prospect of implementing such a system several years away. In light of the uncertain time frame for CMS's test of bundling and the potential for bundling to eliminate financial incentives to overuse separately billable drugs, the Congress should consider establishing a bundled payment system for all ESRD services as soon as possible. We invited representatives of drug manufacturers, large and small dialysis facility organizations, and a nephrologist specialty association to review and comment on the draft report. The groups represented were Amgen Inc. (Amgen), F. Hoffmann-La Roche Ltd. (Roche), the Kidney Care Council (KCC), the National Renal Administrators Association (NRAA), and the Renal Physicians Association (RPA). Several of the industry groups noted that the report was well written, thorough, and covered many of the issues affecting dialysis providers. The bulk of the groups' comments focused on three general issues central to the message of our report: the increase in utilization of Epogen over time, the current ASP- based payment system for ESRD drugs, and the implementation of a fully bundled ESRD payment system. First, Amgen, KCC, Roche, and NRAA noted that the report did not ful ly explain why utilization of Epogen has grown over time or why the gro wth rate has slowed in recent years. Amgen stated that the draft report did not sufficiently cover the goal of Epogen therapy--which is to increase patient Hct levels--and its link to improved quality of life for dialysis patients. KCC noted that while the average Epogen dose has increased over time, patient outcomes--as measured by average Hct levels--have also improved. KCC further contended that beca remained relatively flat in recent years, providers are not responding to the incentive to overuse ESRD drugs. Roche maintained that the slow growth in Epogen use over the past few years is attributable to more patients' having achieved Hct levels within the target range. NRAA addedthat the slower growth of Epogen use is positive because it demonstrates that providers use less Epogen as more patients reach the target Hct range. In our report, we discuss the utilization of Epogen rather than the clinica outcomes associated with that utilization. In response to the groups' comments, we have added information that describes the benefits of Epogen therapy as well as data on patient Hct levels prior to the MMA payment changes. Although we do not take a position on whether the drug is overutilized at the levels we report, we stand by our contention that an inherent incentive to maximize revenues exists when items are paid for on a cost-plus (e.g., ASP+6 percent), fee-for-service basis. It is because of the inherent nature of this incentive that we recommend combining payment for ESRD drugs with all dialysis services under a single bundled rate. l Second, all of the groups commented on our discussion in the report of the current ASP-based payment method for separately billable ESRD drugs, with some groups expressing concerns about an abrupt movement to a fully bundled rate. Amgen noted that the ASP method is relatively new and that it is too early to decide whether to move to a fully bundled rate. In addition, Amgen was concerned with our characterization of ASP payment issues associated with Epogen and stated that the entry of a new anemia management product may not necessarily result in reduced prices. Two of the organizations noted that, prior to moving to a bundled rate, a transitional system--one that encourages price competition for anemia management drugs--may be desirable. Roche stated that continuing to use the ASP-based payment system for Epogen could have negative downstream effects on a fully bundled ESRD payment system, as any price increases prior to bundling would be captured in the dollar amounts allocated for anemia management drugs included in the bundle. Similarly, KCC stated that an alternative payment system should be explored prior to bundling. KCC also stated that, as long as there is no viable clinical alternative to Epogen, bundling by itself would not provide for clinical flexibility, nor would bundling alone ensure drug price stability. KCC suggested that a transitional system could involve paying for drugs at ASP and transferring the rate's current 6 percent add-on to the composite rate. In general, both RPA and NRAA viewed the ASP-based payment method for ESRD drugs favorably. RPA specifically referred to the recent legislative and regulatory actions, including the move to an ASP-based rate, as "responsible," because payments for separately billable drugs were lowered while the composite rate was increased. Our dis separately billable drugs in general and on Epogen in particular because of its market domination and the high Medicare expenditures associated withcussion of the ASP-based payment method focuses on payment for it. We agree that the introduction of a competitor product may not res in immediate price reductions, but note that, in principle, competition tends to lower prices over time. Although we acknowledge that there m be a better way to pay for separately billable drugs than ASP+6 percent, our focus is on the need to mitigate the incentives that can undermine the efficient use of resources in ESRD care. Any transitional system that allows separate billing for individual drugs perpetuates the incentive to maximize revenues through utilization of these drugs. We agree that bundling by itself cannot solve problems resulting from the lack of pri competition. However, as noted in our draft report, if price competition w treatment costs for providers and--after adjustments to the bundle for these lower costs--could result in savings for Medicare. ere introduced under a bundled payment system, it could result in lower Finally, representatives from four of the groups expressed concerns about implementation challenges associated with a payment bundle. Consistent with CMS's position and the position of experts cited in our draft report, Amgen and KCC emphasized the importance of appropriate case-mix adjustment in a bundled payment system. KCC underscored the considerable variation in patients' need for Epogen and the role of the case-mix adjuster to ensure adequate compensation for providers treating patients needing unusually high levels of the drug. RPA, NRAA, and KCC were concerned that bundling could limit innovation in the ESRD or that physicians would be reluctant to use any new ESRD drugs that facilities would find to costly to cover within the payment bundle. Consistent with this concern, NRAA noted that the payment bund methodology should have a mechanism to ensure the appropriate incorporation of new technologies and treatment protocols. We agree that an appropriate case-mix adjuster is important to a bundled payment system and noted in the draft report that adjusting for diffe in patients' needs was a key point made by interested parties we contacted. We acknowledge that if the payment bundle does not accou for patient differences, facilities that treat a disproportionate share of costly patients would be financially disadvantaged. We note that CMS has done extensive research on case-mix adjustment in a fully bundled ESRD these payment system and believe that any new system will benefit from efforts. We also agree that a new payment bundle should be periodicallyupdated to reflect the costs of current technologies and treatment protocols. Specific details on the contents of a bun and evaluation over time were beyond the scope of this report. dle, its implementation, As we agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. At that time, we will send copies of this rep ort to the appropriate congressional committees and other interested parties. We will also make copies available to others upon request. This report wi be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-7101 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. A. Bruce Steinwald (202) 512-7101 or [email protected]. Phyllis Thorburn, Assistant Director; Jessica Farb; Hannah Fein; Zachary Gaumer; and Shivani Sharma made key contributions to this report.
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Medicare covers dialysis--a process that removes excess fluids and toxins from the bloodstream--for most individuals with end-stage renal disease (ESRD), a condition of permanent kidney failure. The Centers for Medicare & Medicaid Services (CMS) pays for certain dialysis services under a type of bundled rate, called a composite rate, and, for certain dialysis-related drugs, pays a separate rate per dose each time the drug is administered. These drugs are referred to as "separately billable" and are paid at 6 percent above manufacturers' average sales price (ASP). Recently, the Congress required CMS to explore the creation of a bundled payment for all ESRD services, including separately billable drugs. GAO was asked to examine (1) recent changes in payments for ESRD services, (2) the ASP payment method of setting rates for separately billable ESRD drugs, and (3) CMS efforts to develop a bundled payment method that includes all ESRD drugs. GAO obtained information for this study from CMS, the U.S. Renal Data System, ESRD experts, and previously issued GAO reports. The effect of several legislative and regulatory changes since 2003 has been to raise the composite rate while reducing Medicare's pre-2005 generous payments for separately billable ESRD drugs. In 2005, when the first legislative change was implemented, Medicare expenditures for certain separately billable drugs dropped 11.8 percent. In 2006, Medicare regulation changed the payment for these drugs to a method based on ASP. Since then, Medicare's payment rates have varied from quarter to quarter but have remained relatively consistent with the lower 2005 payment rates. Medicare's cost containment efforts have targeted the most expensive of the separately billable drugs--Epogen--for which program spending totaled $2 billion in 2005. Epogen is used to treat anemia in ESRD patients; most patients receive this drug at nearly every dialysis session. Recent data indicate that Epogen use per patient continues to rise, although more slowly than in previous years. Several unknowns about the composition of ASP and the lack of empirical evidence for the percentage level added to ASP make it difficult for CMS to determine whether the ASP-based payment rates are no greater than necessary to achieve appropriate beneficiary access. Paying for Epogen under the ASP method is of particular concern. The ASP method relies on market forces to moderate manufacturers' prices; but Epogen is the product of a single manufacturer and has no competitor products in the ESRD market. Without competition, the power of market forces to moderate price is absent. For rarely used products, the lack of price competition may be financially insignificant, but for Epogen, which is pervasively and frequently used, the lack of price competition could be having a considerable effect on Medicare spending. In 2003, the Congress required CMS to issue a report and conduct a demonstration of a system that would bundle payment for ESRD services, including drugs that are currently billed separately, under a single rate. The bundled payment approach, used to pay for most Medicare services, encourages providers to operate efficiently, as they retain the difference if Medicare's payment exceeds the costs they incur to provide the services. GAO and others have found that a bundled rate for all ESRD services would have advantages for achieving efficiency and clinical flexibility in treating ESRD patients. CMS's demonstration testing the feasibility of a bundled rate, mandated to start in January 2006, is delayed, as is the completion of the agency's mandated report to the Congress on bundling. The report was due in October 2005; as of November 2006, CMS officials could not tell us when the report would be available.
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Backup aircraft account for about 35 percent of the Air Force's and Navy/Marine Corps' fighter/attack aircraft inventory. Operations and maintenance funds appropriated to support these aircraft are allocated based on the number of combat-designated aircraft, and the test and evaluation, and training aircraft in the backup force. There is no additional allocation for maintenance and attrition aircraft in the backup force. Those backup aircraft are operated and maintained with the same funds. This affects the budget, because maintenance and attrition backup forces siphon off funds from the combat-designated force. DOD's October 1993 Bottom-Up Review: Forces for a New Era required the services to reduce and reshape their forces. The Bottom-Up Review specified 20 Air Force wings, 11 Navy air wings, and 4 Marine Corps air wings. DOD's goals for the services include reducing combat-designated fighter/attack aircraft forces to 2,230 aircraft by 1999, a reduction of 25 percent from 1993 levels. Since 1977, audits by us and DOD have recommended that DOD (1) develop supportable criteria to justify backup aircraft inventories and procurement, (2) reduce the number of these assets, and (3) improve the management and oversight of these aircraft. In 1993, the Chairman, Joint Chiefs of Staff, reported that each service continues to use its own methodology, terminology, and philosophy to determine backup fighter/attack aircraft requirements. The report recommended the services use standard terminology and inventory definitions and thereby help ensure that procurement and maintenance funds be spent only on necessary aircraft. The Federal Managers' Financial Integrity Act (FMFIA) is a mechanism for reporting material management weaknesses, such as unsupported inventory criteria, to agency heads, Congress, and the President. FMFIA also requires a corrective action plan be devised and milestones established to correct identified problems. By fiscal year 1996, the services' force structure plans show significant reductions in combat-designated fighter/attack aircraft. These reductions are summarized in table 1 and appendix I. If these reductions are achieved, the ratio of combat-designated aircraft to backup aircraft will not significantly change. The relative number of combat-designated aircraft will increase slightly compared with backup aircraft, from 64.5 percent of the total active force in fiscal year 1993 to 66.5 percent of the total force in fiscal year 1996. Appendix II shows reductions by type of aircraft. Over many years, there has been concern that the services' criteria for backup fighter/attack aircraft overstate requirements and need to be validated. In most cases, DOD responded that the existing criteria were relevant or that DOD would study the matter. Subsequent studies by others and us have repeatedly found that little has been done to validate the criteria. In 1977, we examined inventories of F-15s and F-14s and found that backup requirements for training, maintenance, and attrition aircraft were overstated. We recommended that Congress require DOD to base its justification for backup aircraft on realistic and supportable data. DOD agreed and responded that a review was underway to validate the requirements.In 1983, we again questioned criteria used by the services to justify backup F-14, F-15, F-16, and F/A-18 training, maintenance, and attrition aircraft. Further, we reported DOD had not initiated a review to validate the criteria. In 1992, the Naval Audit Service reported that the Navy had overstated the need for F-14 training aircraft. In 1993, the Chairman, Joint Chiefs of Staff, reported that the services' requirements for combat-designated and backup aircraft were inconsistent, outdated, and in need of revision. See appendix III for a list and discussion of our previous audits and DOD audits of backup aircraft inventories and criteria. Despite recommendations to validate backup aircraft criteria, the Air Force continues to use unvalidated criteria. The Navy/Marine Corps has made progress toward justifying the number of aircraft needed to support the combat-designated force. The Air Force and the Navy/Marine Corps used standard planning factors or percentages to determine the number of backup aircraft required to support the combat force. More recently, the Navy/Marine Corps has used student volume, flying hour requirements, and aircraft utilization rates to determine the need for training backup aircraft, and a Test and Evaluation Master Plan to determine the need for test and evaluation backup aircraft. Table 2 summarizes the Air Force's and the Navy/Marine Corps' planning factors used to determine the need for backup aircraft. The Air Force plans to spend over $72 billion to procure 442 F-22 fighter/attack aircraft (4 fighter wing equivalents): 288 combat-designated aircraft and 154 backup aircraft. Table 3 shows the breakout of backup F-22 aircraft given (1) backup aircraft required using current Air Force backup aircraft criteria and (2) the procurement plan. If the F-22 experiences the same attrition rate as the F-15, the Air Force will be able to sustain four fighter wing equivalents for 12.5 years with a force of 36 attrition aircraft. Conversely, if the F-22 experiences one-half the attrition rate of the F-15, the Air Force will be able to sustain four fighter wing equivalents for 25 years with a force of 36 attrition aircraft. DOD plans to spend $89 billion to procure 1,000 F/A-18E/F aircraft. The Navy's planned inventory distribution for the F/A-18E/F would continue to increase the relative number of fighter/attack aircraft used for combat versus backup categories. For example in fiscal year 1993, 65 percent of the Navy/Marine Corps fighter/attack aircraft were categorized for combat. In fiscal year 1996 that is planned to increase to 68 percent. The distribution of the planned F/A-18E/F aircraft procurement would increase the fighter/attack combat aircraft proportion to 70 percent. FMFIA requires ongoing evaluations of internal agency management controls and accounting systems and annual reports to the President and Congress on the condition of those systems. FMFIA is not limited to accounting or administrative matters. Rather, it is intended to address the entire range of policies and procedures that management employs to perform its mission efficiently and effectively. In February 1994, the Secretary of Defense directed all Assistant Secretaries of Defense to improve implementation of the FMFIA. Numerous audits by DOD and us, reports, and congressional testimony have shown that the Air Force and the Navy need to validate their backup aircraft criteria. In our view, the lack of valid criteria is a material weakness reportable under the FMFIA. In addition, to the extent that other program analyses rely on backup aircraft criteria, those analyses would share the same weakness. The Navy acknowledged this when it reported aircraft acquisition requirements processes (which used current backup aircraft criteria) as a material management weakness in its fiscal year 1993 and 1994 FMFIA reports. Attrition aircraft are used to replace combat-designated training, and test and evaluation aircraft lost in peacetime mishaps. In 1994, the Air Force Materiel Command developed a concept that could be used to support the services' aircraft needs. Although the report on which that recommendation was based offered no specific cost savings, a 1992 Air Force-sponsored study compared 8 years of storage costs plus reconstitution costs to 8 years of operating costs for selected aircraft, including the F-15 and the F-16. The study concluded that storage and reconstitution costs were only 1.9 percent of the operating and maintenance costs for an F-15 and 2.1 percent of operating and maintenance costs for an F-16. Neither the Air Force nor the Navy/Marine Corps had exercised this option as of 1994. The services' fiscal year 1996 plans show 218 attrition aircraft. Past attrition rates, however, show that some of these aircraft will not be needed for over 7 years. For example, over the past 5 years, the Air Force lost an average of about 17 F-16 aircraft per year to peacetime mishaps. On the basis of this rate, some of those F-16s will not be needed until the year 2002. However, the Air Force operates and maintains those aircraft in the same manner as combat-designated aircraft. That is, attrition aircraft are assigned to active and reserve units and the Air Force uses operation and maintenance funds that are appropriated for combat-designated, training, and test and evaluation aircraft to support attrition aircraft. In essence, funds that are expected to be used to operate and support combat-designated aircraft are being siphoned off to support attrition aircraft. Attrition aircraft operating and maintenance costs are difficult to determine. However, in 1994 the Air Force Logistics Management Agency estimated the annual incremental cost of one attrition F-16 in operating units to be $13,366. In fiscal year 1994, the Air Force provided Air National Guard units about $75,000 for each additional attrition aircraft in excess of the first three aircraft supported by the units. However, individual Guard units estimate annual operation and maintenance costs range from about $120,000 to $400,000 for each aircraft. According to Air National Guard and Air Force officials, as the number of authorized combat-designated aircraft assigned to each unit decreases, supporting attrition aircraft becomes more difficult. One unit has already reported a potential degradation of its combat-designated aircraft operation as a result of attrition aircraft that have been assigned to that unit. We recommend that the Secretary of Defense direct the Secretary of the Air Force to (1) develop and use supportable and consistent criteria to justify backup aircraft inventories and future procurement of backup aircraft as the Navy is doing and (2) report the lack of valid backup fighter/attack aircraft requirements criteria as a material management weakness, in compliance with FMFIA, until these criteria are developed and put in use. We also recommend that the Secretary of Defense direct the Secretary of the Air Force and the Secretary of the Navy to adjust backup aircraft inventories, where needed, to conform to supportable and consistent criteria once established. The comments DOD provided on a draft of this report appear in appendix IV. DOD partially concurred with the report. DOD believes more progress has been made in developing sound backup aircraft criteria than we describe. DOD agreed, however, that additional improvements may be necessary. Accordingly, DOD will undertake a review of the backup aircraft criteria. DOD concurred with our description of the trends in the number of backup aircraft maintained by the services, but commented there were inaccuracies in the report, apparently referring to the process we describe that arrived at the specific number of combat-designated aircraft in the forces. We believe our description of how the number of combat-designated aircraft was determined is accurately summarized, including reference to the Secretary of Defense's January 1994 Annual Report to the President and the Congress. DOD only partially agreed with our analysis of actions taken in response to prior audit recommendations by others and us to validate backup aircraft requirements. According to DOD, both services have recognized a need to review their criteria. We believe this is a positive step. We also believe, however, that, in light of previous, largely unsuccessful efforts by others and us to persuade DOD and the services of the need to formulate valid backup aircraft criteria, actions now underway need to be part of a larger process to ensure those actions are fully implemented. The recommendations in this report are intended to help achieve that objective. The Air Force does not accept that past criticisms of its criteria, or revisions currently being made to its policies, reflect a material weakness reportable under FMFIA. We disagree. The Air Force's and the Navy's lack of supportable criteria has been the long-standing subject of numerous reports and recommendations by others and us for corrective action. Based on those reports, the Navy has identified the aircraft requirements process as a material weakness and established a time frame for corrective action. In light of new Air Force aircraft procurements potentially costing over $72 billion, we continue to believe the lack of valid backup aircraft criteria constitutes a material management weakness and reportable under FMFIA. DOD concurred with our conclusion that the procurement of F-22 and F/A-18E/F aircraft should be based on valid criteria. DOD partially agreed with our conclusion that unneeded attrition aircraft should be placed in storage. DOD, while citing Navy policy to store unneeded aircraft to save costs, noted the Air Force contention that the incremental cost to maintain such aircraft with the active forces is relatively small and these aircraft would be available for emergencies or other temporary needs. However, according to DOD, conclusive cost data is not yet available to support the Air Force's contention. In light of the Navy's retention policy, the analysis discussed in this report that compare storage and reconstitution costs against operating costs, and the need to base backup aircraft requirements on quantifiable needs, we continue to believe unneeded aircraft should not be operated and maintained with funds intended to support the authorized forces. DOD partially concurred with the recommendation that the Secretary of the Air Force develop supportable and consistent criteria to justify backup aircraft inventories and future procurements, and did not concur with a similarly directed recommendation to report backup fighter/attack aircraft requirements criteria as a material management weakness under FMFIA. Further, DOD partially concurred with the recommendation that the Air Force and the Navy adjust backup aircraft inventories to conform to supportable and consistent criteria. Considering the (1) lengthy history of reports concerning the need to strengthen the backup aircraft requirements determination criteria, (2) numerous recommendations to strengthen that process, (3) slow progress in that direction, and (4) planned procurements of costly F-22 and F/A-18E/F aircraft, we are retaining recommendations that identify the known weaknesses, and establish time frames for resolving those weaknesses through the FMFIA mechanism. We analyzed directives and other pertinent documents and interviewed agency officials regarding backup aircraft procurement planning criteria, inventory management requirements, and force reduction goals. We documented past findings and recommendations regarding backup inventories and criteria. We documented changes to backup criteria and other actions taken as a result of prior recommendations. Using the services' fiscal years 1995 and 1996 programming plans and other service provided aircraft inventory data, we documented and compared reductions in combat and backup aircraft inventories for fiscal years 1993 and 1994 and projected inventories for fiscal years 1995 and 1996. We interviewed management officials at the Aerospace Maintenance and Regeneration Center at Davis-Monthan Air Force Base, Arizona, and reviewed studies regarding the potential for storing attrition aircraft until needed. We also visited operational units responsible for operating and maintaining backup aircraft, including active wings and squadrons, a training command, and Air National Guard units, to discuss the impact of these aircraft on unit operations and costs. We reviewed backup aircraft procurement plans to determine whether the standardized backup aircraft planning factors, previously reported as outdated and in need of revision, had been changed. We reviewed FMFIA reports prepared by the Air Force, the Navy, and DOD for fiscal years 1993 and 1994 to determine whether material weaknesses were reported in the area of aircraft requirements. We performed our review between October 1993 and February 1995 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretaries of Defense, the Air Force, and the Navy; the Director of the Office of Management and Budget; and other appropriate congressional committees. We will also make copies available to other interested parties upon request. Please contact me at (202)512-3504 if you have any questions concerning this report. Major contributors to this report are listed in appendix V. F-14 Aircraft Requirements Naval Audit Service (050-S-92, May 19, 1992). The Naval Audit Service reported that the Navy had overstated its need for backup F-14 training and maintenance aircraft. The Navy did not concur with the methodology the Naval Audit Service proposed to calculate training aircraft requirements, nor with a recommendation to reduce F-14 depot maintenance funding. The Navy did concur, in principle, with the recommendation that it develop plans to remove nonessential F-14s from its active inventory. Opportunities to Reduce the Number of Combat Aircraft Purchased for Noncombat Purposes (GAO Testimony, June 2, 1983). We questioned criteria used by services to justify the number of non-combat aircraft required. We questioned the training, maintenance, and attrition categories for the F-14, F-15, F-16, and F/A-18 and reported that the Department of Defense (DOD) had never reviewed support aircraft justifications as it said it would in 1977. DOD stated that, regardless of the justification, the support aircraft were necessary and would be used in war. F-16 Integrated Logistics Support: Still Time to Consider Economical Alternatives (GAO/LCD-80-89, Aug. 20, 1980). We questioned the Air Force's stated requirement for a 10-percent increase in F-16 aircraft to compensate for aircraft in depot maintenance, since the aircraft was designed to eliminate planned depot maintenance. DOD stated that the 10-percent factor had been historically accurate for tactical fighter aircraft. The Congress Should Require Better Justification of Aircraft for Noncombat Missions (GAO/LCD-80-93, July 22, 1980). We recommended to Congress, on the basis of past work, that appropriations be withheld for procurement of F-14s, F-15s, F-16s, F/A-18s, and A-10s until the services justified their noncombat aircraft needs with current and realistic data. Operational and Support Costs of the Navy's F/A-18 Can Be Substantially Reduced (GAO/LCD-80-65, June 6, 1980). We determined that the Navy overstated the need for F/A-18 maintenance backup aircraft because they had not fully factored in the F/A-18's reliability and maintainability characteristics. Unnecessary Procurement of A-10 Aircraft for Depot Maintenance Floats (GAO/LCD-79-431, Sept. 6, 1979). We found that, despite the A-10's design to eliminate depot-level maintenance, the Air Force continued to use the standard 10-percent reserve for maintenance to justify procurement. We recommended that DOD direct the Air Force to come up with more meaningful estimates to justify procurement. The Air Force responded they would study how to develop backup aircraft numbers. However, they generally felt the additional aircraft were needed. Letter to the Secretary of Defense (GAO/LCD-79-420, May 22, 1979). We restated our findings from our 1977 report and recommended that action be taken immediately to affect procurement of F-14s and F-15s. Need to Strengthen Justification and Approval Process for Military Aircraft Used for Training, Replacement, and Overhaul (GAO/LCD-77-423, Oct. 28, 1977). We examined inventories of F-15s and F-14s and found that backup requirements for training, attrition, and maintenance were overstated. We recommended that Congress require DOD to justify requirements for noncombat aircraft on realistic and supportable data. DOD agreed that all programs should be based on supportable data and announced that a review was underway to determine whether this was the case. Hugh E. Brady, Evaluator-in-Charge Frank R. Marsh, Evaluator Jeffrey C. McDowell, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO reviewed the trend in the number of backup aircraft maintained by the Air Force and Navy, focusing on the: (1) actions that the Department of Defense (DOD) and the services have taken in response to prior recommendations to validate backup aircraft requirements; and (2) opportunities to remove unneeded backup aircraft from the force to minimize the cost of operating and maintaining combat-designated aircraft. GAO found that: (1) the Air Force and Navy/Marine Corps operate and maintain about one backup aircraft for every two combat-designated fighter aircraft; (2) the Air Force and Navy/Marine Corps will achieve the Bottom-Up Review's goals to reduce the size of the combat-designated aircraft forces by the end of fiscal year(FY) 1996; (3) the Air Force has not developed supportable plans for structuring and managing backup forces and justifying the procurement of backup aircraft; (4) realistic criteria are needed prior to the procurement of backup aircraft systems to prevent the Air Force and Navy/Marine Corps from buying more aircraft than needed; and (5) if attrition aircraft in excess of short-term needs are stored until needed, the Air Force could reduce operation and maintenance costs.
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FMS is the government's financial manager, central disburser, and collections agency as well as its accountant and reporter of financial information. For fiscal year 2000, the U.S. government disbursed over $1.9 trillion primarily for Social Security and veterans' benefit payments, Internal Revenue Service (IRS) tax refunds, federal employee salaries, and vendor billings. With several exceptions (the largest being the Department of Defense), FMS makes disbursements for most federal agencies. FMS is also responsible for administering the federal government's collections system. In fiscal year 2000, the government collected over $2 trillion in taxes, duties, and fines. In addition, FMS oversees the federal government's central accounting and reporting systems used to reconcile and keep track of the federal government's assets and liabilities. Financial and budget execution information from these central systems is used by FMS to publish financial reports that are available for use by the Congress, the Office of Management and Budget, other federal agencies, and others who make financial decisions on behalf of the U.S. government. FMS maintains multiple financial and information systems to help it process and reconcile moneys disbursed and collected by the various government agencies. These banking, collection, and disbursement systems are also used to process agency transactions, record relevant data, transfer funds to and from the Treasury, and facilitate the reconciliation of those transactions. FMS has three data centers and also has three field operations centers that are responsible for issuing paper check and electronic funds transfer payments. In addition, FMS relies on a network of four contractor data centers and the FRBs to help carry out its financial management responsibilities. Our objectives were to evaluate and test the effectiveness of the computer controls over FMS's key financial management systems and to determine the status of the computer control weaknesses discussed in our fiscal year 1999 audit report. We used a risk-based and rotation approach for testing general and application controls. Under that methodology, every 3 years, each data center and key financial application is subjected to a full-scope review that includes testing in all of the computer control areas defined in our Federal Information System Controls Audit Manual (FISCAM).During the interim years, we focus our testing on the FISCAM areas that we have determined to be at greater risk for computer control weaknesses. See appendix I for the scope and methodology of our fiscal year 2000 review at each of the selected data centers and for the key financial applications. During the course of our work, we communicated our findings to FMS management, which informed us of the actions FMS planned or had taken to address the weaknesses we identified. We performed our work from August 2000 through February 2001 in accordance with U.S. generally accepted government auditing standards. We requested comments on a draft of this report from the Department of the Treasury. The comments are discussed in the "Agency Comments and Our Evaluation" section of this report and reprinted in appendix II. An entity-wide program for security management is the foundation of an entity's security control structure and should establish a framework for continual (1) risk assessments, (2) development and implementation of effective security procedures, and (3) monitoring and evaluation of the effectiveness of security procedures. A well-designed entity-wide security management program helps to ensure that security controls are adequate, properly implemented, and applied consistently across the entity and that responsibilities for security are clearly understood. The overriding reason that computer control problems at FMS continued to exist during fiscal year 2000 is that FMS does not have an effective entity-wide computer security management program (security program). In response to our prior years' recommendation that FMS establish an effective security program, FMS completed its Information Technology Security Handbook for Major Application Systems in late 1999. During fiscal year 2000, the FMS Information Technology Security Policy Manual and Entity-Wide Information Technology Security Program manuals were approved and distributed. In addition, FMS developed an Entity-Wide Information Technology Security Program Implementation Strategy in March 2001. This document discusses FMS's high-level strategy for the full implementation of its security program by a target date of September 30, 2002. In April 2001, FMS completed an internal assessment to determine the effectiveness of its security program and its initiatives. The assessment was performed using the Federal Information Technology Security Assessment Framework (Framework). The Framework provides a method for agency officials (1) to determine the current status of their security programs relative to existing policy and (2) where necessary, establish a target for improvement. The Framework identifies five levels of security program effectiveness--Level 1, Documented Policy; Level 2, Documented Procedures; Level 3, Implemented Procedures and Controls; Level 4, Tested and Reviewed Procedures and Controls; and Level 5, Fully Integrated Procedures and Controls. The five levels measure specific management, operational, and technical control objectives. Each of the five levels contains criteria to determine whether the level is adequately implemented, with each successive level representing a more complete and effective security program. FMS's assessment did not contain an overall determination of the level of effectiveness of its security program. Our review of its assessment found that FMS identified as not being met 29 of the 45 control objectives that should be applied to a secure system and another 15 control objectives in which some aspects of the related performance criteria were identified as being partially met. As discussed above, FMS has taken steps toward improving its security program by developing policy manuals, an implementation strategy, and an internal self-assessment. Through its self-assessment, FMS has identified areas within its existing security program that need improvement in order to achieve a fully implemented Level 5 security program. However, FMS has not yet developed a detailed plan that describes the remedial actions; resources (physical, human capital, and fiscal); target dates; and responsible agency officials needed to correct the shortcomings of its security program. A Level 5 security program is described as a comprehensive and integral part of an agency's organizational culture. The components of a fully integrated Level 5 security program include an active entity-wide security program that achieves cost-effective security, integration of information technology security through all aspects of the information technology life-cycle, understanding and management of security vulnerabilities, continual evaluation of threats and adjustment of controls to the changing security environment, identification of additional or more cost-effective security alternatives as the need arises, measurement of the costs and benefits of security, and establishment of status metrics to assess the effectiveness of the security program that are also met. FMS's entity-wide security control structure has yet to address many of the weaknesses and related significant risks associated with its current and evolving computing environment. Our audits for fiscal years 2000, 1999, 1998, and 1997 have identified significant general computer control weaknesses at each of the FMS data centers. As shown in table 1, these weaknesses have involved each of the six general control areas defined in FISCAM at multiple FMS data centers. If FMS had a fully developed, implemented, and effective security program, weaknesses found in prior years, such as the following, would be less likely to reoccur. For example, at one data center, we found access control weaknesses during our fiscal year 2000 audit that were the same as or very similar to issues that we reported at other data centers in previous years' audits. Although FMS took corrective actions to address the individual prior years' weaknesses found at those specific data centers, FMS did not determine whether these weaknesses also existed at their other data centers that were using the same type of computing platform. Another example involved a data center that performed security violation and sensitive activity monitoring procedures over its legacy environments. However, FMS did not apply these same procedures and requirements to a new computing environment introduced during fiscal year 2000. Until FMS takes a more disciplined and structured approach to computer security through a fully implemented entity-wide security program, there is a significant increased risk that controls will not be adequate, properly implemented, or applied consistently across each of its data centers. Integral to all security programs is a continuous risk assessment process for determining the sensitivity of information and systems, acceptable levels of risk, and specific controls needed to provide adequate security over computer resources and data. Our May 1998 best practices guide on information security management practices at leading nonfederal organizations found that organizations successfully managed their information security risks through an ongoing cycle of risk management activities. During our fiscal year 2000 audit, we found that FMS had not developed a comprehensive entity-wide risk assessment to be used as a basis for establishing appropriate security policies and selecting cost- effective techniques for implementing policies. Documents and approaches that FMS had already developed could be used together to form the foundation of an entity-wide risk assessment. The absence of a comprehensive risk assessment that identifies entity-wide risks could lend itself to practices that are inconsistent with acceptable standards and expose FMS to increased weaknesses and unnecessary risks. General controls are the structure, policies, and procedures that apply to an entity's overall computer operations. General controls establish the environment in which application systems and controls operate. In addition to an entity-wide security management program discussed above, they include access controls, system software controls, application software development and change controls, segregation of duties, and service continuity controls. An effective general control environment would (1) protect data, files, and programs from unauthorized access, modification, and destruction; (2) limit and monitor access to programs and files that control computer hardware and secure applications; (3) prevent the introduction of unauthorized changes to systems and applications software; (4) prevent any one individual from controlling key aspects of computer-related operations; and (5) ensure the recovery of computer processing operations in case of a disaster or other unexpected interruption. In addition to the weaknesses in its security program discussed above, our fiscal year 2000 review of FMS's general computer controls also identified serious new general control weaknesses in access controls and system software. As we previously reported for fiscal years 1998 and 1999, FMS is continuing the process of moving one of its key financial applications to a distributed environment. As of June 30, 2001, FMS reported that approximately 81 percent of the users had converted to a new version of this application, and completion of the new application's implementation was scheduled for September 30, 2001. FMS officials have informed us that they expect that the migration of its key financial application will facilitate the implementation of more effective controls in the future. Our fiscal year 2000 audit found that as of September 30, 2000, FMS had corrected or mitigated the risks associated with 35 of the 61 computer control weaknesses discussed in our prior year's report. However, we are continuing to reaffirm our prior year's recommendations to correct the remaining weaknesses discussed in our fiscal year 1999 report because of the significance of the associated risks and the lack of other effective compensating controls to mitigate those risks. Access controls are designed to limit or detect access to computer programs, data, equipment, and facilities to protect these resources from unauthorized modification, disclosure, loss, or impairment. Such controls include logical and physical security controls. Logical security control measures involve the use of computer hardware and security software programs to prevent or detect unauthorized access by requiring users to input unique user identifications (ID), passwords, or other identifiers that are linked to predetermined access privileges. Logical security controls restrict the access of legitimate users to the specific systems, programs, and files they need to conduct their work and prevent unauthorized users from gaining access to computing resources. Physical security controls include locks, guards, badges, alarms, and similar measures (used alone or in combination) that help to safeguard computer facilities and resources from intentional or unintentional loss or impairment by limiting access to the buildings and rooms where they are housed. Our review of FMS's access controls identified a number of weaknesses at all of the sites we visited. These weaknesses, many of which were included in our prior years' reports, included data centers that had weak network security configurations that allowed us to identify user names and compromise the associated passwords, which resulted in our gaining unauthorized access to the mainframe production environment of a key financial application at one data center, the development environments at another data center, and an unrelated procurement application at a third data center; granted excessive and powerful systems privileges to certain users who did not need such access; did not effectively manage the administration of certain passwords and were not always applying security system parameters so as to provide optimum security or appropriate segregation of duties; and were not effectively monitoring and controlling dial-in access to certain local area networks and the mainframe environments. In addition, physical security controls at three of the five sites we visited were not sufficient to control physical access to these centers. For example, at one data center management was not able to provide us with a list of individuals granted physical access to the building because the security system was not functioning properly. The risks created by these access control weaknesses were heightened because FMS was not adequately managing and monitoring user access activities. Program managers and security personnel did not consistently monitor and evaluate user access rights, security violations, and software security settings at many of the sites visited. Because of these identified access control weaknesses, FMS is also at risk that unauthorized activities, such as corruption of financial data, disclosure of sensitive data, or introduction of malicious programs or unauthorized modifications of software will go undetected. System software coordinates and helps control the input, processing, output, and data storage associated with all of the applications that run on a system. System software includes operating system software, system utilities, program library systems, file maintenance software, security software, data communications systems, and database management systems. Controls over access to and modification of system software are essential to protect the overall integrity and reliability of information systems. During our fiscal year 2000 audit, we found system software weaknesses at four of the five sites we visited. Specifically, we found duplicate software modules in certain libraries, lack of procedures to ensure system software changes were properly documented, and the inability for a system to generate reports needed to monitor user activities. These weaknesses increase the risk of obsolete or inappropriate versions of a program executing and causing unexpected results, unauthorized changes to system software, or unauthorized access to sensitive systems. Controls over the design, development, and modification of application software help to ensure that all programs and program modifications are properly authorized, tested, and approved. Such controls also help prevent security features from being inadvertently or deliberately turned off and processing irregularities or malicious code from being introduced. We found application software development and change control weakness at one of the five FMS sites we visited. As we reported in the prior year, we found during our fiscal year 2000 audit that a significant weakness at the site was that policies and procedures over system design, development, and modification were not established, were inadequate, or were simply not being followed. Without other effective compensating controls in place, failure to implement a disciplined approach to application software development and change controls may result in changes that are not tested, documented, or approved. Another key control for safeguarding programs and data is to ensure that duties and responsibilities for authorizing, processing, recording, and reviewing data, as well as initiating, modifying, migrating, and testing programs, are separated to reduce the risk that errors or fraud will occur and go undetected. Duties that should be appropriately segregated include applications and system programming and responsibilities for computer operations, security, and quality assurance. Policies outlining the supervision and assignment of responsibilities to groups and related individuals should be documented, communicated, and enforced. As we reported in the prior year, we also found during our fiscal year 2000 audit that the programmers at one data center were also serving as backup computer operators, which significantly increases the risk for unauthorized or inappropriate changes to production data and source code or disclosure of sensitive data. An organization's ability to accomplish its mission can be significantly affected if it loses the ability to process, retrieve, and protect information that is maintained electronically. For this reason, organizations should have (1) established procedures for protecting information resources and minimizing the risk of unplanned interruptions and (2) plans for recovering critical operations should interruptions occur. A contingency or disaster recovery plan specifies emergency response, backup operations, and postdisaster recovery procedures to ensure the availability of critical resources and facilitate the continuity of operations in an emergency situation. It addresses how an organization will deal with a full range of contingencies, from electrical power failures to catastrophic events, such as earthquakes, floods, and fires. The plan also identifies essential business functions and ranks resources in order of criticality. To be most effective, a contingency plan should be periodically tested in disaster simulation exercises and employees should be trained in and familiar with its use. Because it is not cost-effective to provide the same level of continuity for all operations, it is important that organizations analyze relevant data and operations to determine which are the most critical and what resources are needed to recover and support them. As discussed in our May 1998 best practices guide, the criticality and sensitivity of various data and operations should be determined and ranked based on an overall risk assessment of the entity's operations. Factors to be considered include the importance and sensitivity of the data and other organizational assets handled or protected by the individual operations and the cost of not restoring data or operations promptly. During our fiscal year 2000 follow-up review of FMS's service continuity, we found that FMS management was still in the process of developing an entity-wide service continuity plan. Consequently, the FMS data centers were still at significant risk that in the event of an emergency or disaster, data center personnel might not be prepared to effectively prioritize recovery activities, integrate recovery steps, or fully recover systems. FMFIA requires ongoing evaluations of the internal control and accounting systems that protect federal programs against fraud, waste, abuse, and mismanagement. It further requires that the heads of federal agencies report annually to the president on the condition of these controls and systems and on their actions to correct the weaknesses identified. During the course of our work, we communicated our general computer control findings to FMS management. As a result, FMS reported its general computer control problems as a material weakness to the Department of the Treasury. The Department of the Treasury reported in its fiscal year 2000 Accountability Report that FMS, along with other Treasury components, had a material weakness in general computer controls designed to safeguard data, protect computer application programs, protect system software from unauthorized access, and ensure continued computer operations. Application controls relate directly to the individual computer programs, which are used to perform certain types of work, such as generating payments or recording transactions in a general ledger. In an effective general control environment, application controls help to further ensure that transactions are valid, properly authorized, and completely and accurately processed and reported. Authorization controls for specific applications, similar to general access controls, should be established to (1) ensure individual accountability and proper segregation of duties, (2) ensure that only authorized transactions are entered into the application and processed by the computer, (3) limit the processing privileges of individuals, and (4) prevent and detect inappropriate or unauthorized activities. Our fiscal year 2000 review of FMS's authorization controls found that a number of the weaknesses discussed in our fiscal years 1998 and 1999 reports remained uncorrected and certain new weaknesses over one key financial application were identified. These weaknesses included inappropriate access to application functions and privileges that were not required by the users' job responsibilities and that in some instances also created an inadequate segregation of duties, users sharing IDs or being assigned multiple IDs without a functional security reports not being consistently monitored or followed up on, application passwords not being properly managed, lack of certain user access request documentation and recertifications, and lack of documented policies and procedures for an application. The authorization control weaknesses described above increase the risk of unauthorized activities such as inappropriate processing of transactions, unauthorized access or disclosure of sensitive data, corruption of financial data, or disruption of operations. Completeness controls are designed to ensure that all transactions are processed and missing transactions are identified. Common completeness controls include the use of record counts and control totals, computer sequence checking, computer matching of transaction data with data in a master or suspense file, and checking of reports for transaction data. Our fiscal year 2000 review of completeness controls over one key FMS financial application found that input data edit and validation procedures were not complete, software needed to monitor modifications to the database was not in place, and application recovery policies and procedures were not written. As a result, there was an increased risk of processing incomplete or erroneous data and disruption of operations. Because the FRBs are integral to the operations of FMS, we assessed the effectiveness of general and application controls that support key FMS financial systems maintained and operated by the FRBs. Overall, we found that the FRBs had implemented effective general and application controls. Our fiscal year 2000 audit procedures identified certain new vulnerabilities in general controls that did not pose significant risks to the FMS financial systems but nonetheless warranted FRB management's attention and action. These included vulnerabilities in general controls over (1) access to data, programs, and computing resources; (2) system software; and (3) service continuity. Our follow-up work found that the FRBs had corrected or mitigated the risks associated with all of the vulnerabilities that were identified in our prior year's report. We provided details of these matters in a separate letter to the Board of Governors of the Federal Reserve System along with our recommendations for improvement. FRB management has informed us that the FRBs have taken or plan to take corrective actions to address the vulnerabilities related to FMS systems that we identified. The pervasiveness of the computer control weaknesses--both old and new--at FMS and its contractor data centers place billions of dollars of payments and collections at risk of loss or fraud. Sensitive data are at risk of inappropriate disclosure, and computer-based operations are at risk of disruption. The severity of these risks magnifies as FMS expands its networked environment through the migration of its financial applications from mainframes to client-server environments. Thus, as FMS provides users greater and easier access to larger amounts of data and system resources, well-designed and effective general and application controls are essential if FMS's operations and computer resources are to be properly protected. It will take a significant and sustained commitment by FMS's management to fully address its serious computer control weaknesses, including fully implementing an effective security program. In our December 14, 2001, Limited Official Use version of this report, we reaffirmed our prior year's recommendations that the secretary of the Treasury direct the commissioner of the Financial Management Service, along with the assistant commissioner for information resources, to fully implement an effective security program, to correct each individual weakness that we identified and address each of the 85 specific recommendations detailed in the December 14, 2001 report, and to work with the FRBs to monitor corrective actions taken to resolve the computer control vulnerabilities related to FMS systems supported by the FRBs that we identified and communicated to the FRBs. In addition, we recommended that FMS develop a detailed plan that describes the remedial actions, resources, target dates, and responsible agency officials to facilitate the implementation of its security program. In commenting on a draft of the Limited Official Use version of this report, FMS stated that it understands that additional improvements are needed and recognizes the importance of having an effective entity-wide security program, as well as strong internal control, given its critical payment, collections, and government-wide accounting responsibilities. FMS also stated that actions were under way to address the individual audit findings. Further, FMS stated that computer security remains one of FMS's top priorities and that it is completely dedicated to fully implementing and maintaining an effective and robust security program. FMS also stated that it has made great strides in eliminating the vulnerabilities caused by old legacy systems and obsolete technology, resulting in a significant reduction in risks that is not reflected in our report. We believe the report adequately reflects such progress for actions taken by FMS during fiscal year 2001. In particular, our report noted that continued progress has been made in the replacement of FMS's key financial application (which is used by federal agencies to account for their disbursement and receipt activities) by a new version of the application on a distributed computing platform. However, our work over the past 4 years has continued to identify serious issues at FMS. As we stated in our report, FMS's entity-wide security control structure has yet to address many of the weaknesses and related significant risks associated with its current and evolving computing environment. For example, we found that FMS's corrective actions were not being implemented on an entity-wide basis. Weaknesses found and corrected in prior years at certain data centers were identified during the current year audit at another data center. These weaknesses in FMS's computer security controls not only affect the effectiveness of computer security over the new applications recently moved to distributed environments, but also FMS's other key financial applications that are used to collect from and pay to the public billions of dollars annually. In its comment letter, FMS pointed out that the general consensus of the members of the Treasury CIO Council is that a computer security program that achieves Level 3 effectiveness (which is reached when computer security procedures and technical controls are implemented) is an appropriate standard and should be the department's objective. However, we believe that an effective entity-wide security program is achieved at Level 5 and is the appropriate level for Treasury given its government-wide responsibilities as financial manager, central disburser, and collections agency as well as accountant and reporter of financial information. The need for Treasury to implement an effective and fully integrated entity- wide security program is further underscored by recent events and reports that critical federal operations and assets continue to be highly vulnerable to computer-based attacks. It is important to note that until an entity has accomplished the Level 4 goal that requires the testing of security procedures and technical controls, it does not have reasonable assurance that the documented controls developed in Levels 1 through 3 have been effectively implemented. A fully integrated Level 5 security program helps to ensure that an organization has incorporated the fundamental activities needed to manage information security risks cost-effectively and is not reacting to individual problems on an adhoc basis only after a problem has been detected. Since FMS's systems process and account for billions of dollars in transactions, we are encouraged that FMS has a goal of continuing to strive for a high level of security effectiveness. While its near term goal of achieving Level 3 effectiveness is commendable, we cannot overemphasize the need for FMS management to make a focused and sustained commitment to accelerate the full implementation of an effective entity-wide security program. We will follow up on these matters during our audit of the federal government's fiscal year 2001 financial statements. In addition to its written comments, the staff of FMS provided technical comments, which have been incorporated as appropriate. We are sending copies of this report to the chairmen and ranking minority members of the Senate Committee on Appropriations; Senate Committee on Finance; Senate Committee on Governmental Affairs; Senate Committee on the Budget; Subcommittee on Treasury and General Government, Senate Committee on Appropriations; House Committee on Appropriations; House Committee on Ways and Means; House Committee on Government Reform; House Committee on the Budget; Subcommittee on Government Efficiency, Financial Management, and Intergovernmental Relations, House Committee on Government Reform; and Subcommittee on Treasury, Postal Service, and General Government, House Committee on Appropriations. We are also sending copies of this report to the commissioner of the Financial Management Service, the inspector general of the Department of the Treasury, the director of the Office of Management and Budget, and other agency officials. Copies will also be made available to others upon request. If you have any questions regarding this report, please contact me at (202) 512-3406. Key contributors to this assignment were Paula M. Rascona, Daniel G. Mesler, and Mickie E. Gray. We used a risk-based and rotation approach for testing general and application controls. Under that methodology, every 3 years each data center and key financial application is subjected to a full-scope review that includes testing in all of the computer control areas defined in the FISCAM. During the interim years, we focus our testing on the FISCAM areas that we have determined to be at greater risk for computer control weaknesses. The scope of our work for fiscal year 2000 included follow-up on weaknesses discussed in our fiscal year 1999 report and a focused review at three data centers of the two general control areas intended to protect data, files, and programs from unauthorized access, modification, and destruction and limit and monitor access to system software programs and files that control computer hardware and secure applications; a focused review at a fourth data center of the three general control areas intended to protect data, files, and programs from unauthorized access, modification, and destruction; prevent the introduction of unauthorized changes to systems and ensure the recovery of computer processing operation in case of a disaster or other unexpected interruption. We limited our work at another data center to a follow-up review of the status of weaknesses discussed in our fiscal year 1999 report. We limited our testing of FMS's entity-wide security program to a comparison of FMS's information security manuals with our executive guide on information security management. We performed a full-scope application control review of one key FMS financial application to determine whether the application is designed to ensure that access privileges (1) establish individual accountability and proper segregation of duties, (2) limit the processing privileges of individuals, and (3) prevent and detect inappropriate or unauthorized activities; data are authorized, converted to an automated format, and entered into the application accurately, completely, and promptly; data are properly processed by the computer and files are updated erroneous data are captured, reported, investigated, and corrected; and files and reports generated by the application represent transactions that actually occur and accurately reflect the results of processing, and reports are controlled and distributed to the authorized users. We limited our work over another seven key financial applications to a follow-up review of the status of weaknesses discussed in our fiscal year 1999 report. To evaluate the general and application controls, we identified and reviewed FMS's information system general and application control policies and procedures; observed controls in operation; conducted tests of controls, which included selecting items using a method in which the results are not projectable to the population; and held discussions with officials at selected FMS data centers to determine whether controls were in place, adequately designed, and operating effectively. We performed network vulnerability assessment testing at three data centers. Through our network security vulnerability assessments, we attempted to access sensitive data and programs. These attempts were performed with the knowledge and cooperation of appropriate FMS officials. The scope of our network vulnerability assessment testing was limited by a fourth data center to a review of a redacted report prepared by other auditors. Because the FRBs are integral to the operations of FMS, we followed up on the status of the FRBs' corrective actions to address vulnerabilities discussed in our fiscal year 1999 report. We assessed general controls over FMS systems that the FRBs maintain and operate, and we evaluated application controls over two key FMS financial applications. To assist in our evaluation and testing of computer controls, we contracted with the independent public accounting firm PricewaterhouseCoopers, LLP. We determined the scope of our contractor's audit work, monitored its progress, and reviewed the related working papers to ensure that the resulting findings were adequately supported. During the course of our work, we communicated our findings to FMS management. We performed our work from August 2000 through February 2001 in accordance with U.S. generally accepted government auditing standards.
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The Financial Management Service's (FMS) overall security control environment continues to be ineffective in identifying, deterring, and responding to computer control weaknesses promptly. Consequently, billions of dollars of payments and collections are at significant risk of loss or fraud, sensitive data are at risk of inappropriate disclosure, and critical computer-based operations are vulnerable to serious disruptions. During its fiscal year 2000 audit, GAO found new general computer control weaknesses in the entity-wide security management program, access controls, and system software. GAO also identified new weaknesses in the authorization and completeness controls over one key FMS financial application. GAO's follow-up on the status of FMS's corrective actions to address weaknesses discussed in its fiscal year 1999 report found that, as of September 30, 2000, FMS had corrected or mitigated the risks associated with 35 of the 61 computer control weaknesses discussed in that report. To assist FMS management in addressing its computer control weaknesses, GAO made four overall recommendations in this public report.
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Title XIX of the Social Security Act establishes Medicaid as a joint federal- state program to finance health care for certain low-income children, families, and individuals who are aged or disabled. Medicaid is an open- ended entitlement program, under which the federal government is obligated to pay its share of expenditures for covered services provided to eligible individuals under each state's federally approved Medicaid plan. States operate their Medicaid programs by paying qualified health care providers for a range of covered services provided to eligible beneficiaries and then seeking reimbursement for the federal share of those payments. CMS has an important role in ensuring that states comply with statutory Medicaid payment principles when claiming federal reimbursements for payments made to institutional and other providers who serve Medicaid beneficiaries. For example, Medicaid payments must be "consistent with efficiency, economy, and quality of care," and states must share in Medicaid costs in proportions established according to a statutory formula. Within broad federal requirements, each state administers and operates its Medicaid program in accordance with a state Medicaid plan, which must be approved by CMS. A state Medicaid plan details the populations a state's program serves, the services the program covers (such as physicians' services, nursing home care, and inpatient hospital care), and the rates of and methods for calculating payments to providers. State Medicaid plans generally do not detail the specific arrangements a state uses to finance the nonfederal share of program spending. Title XIX of the Social Security Act allows states to derive up to 60 percent of the nonfederal share from local sources, as long as the state itself contributes at least 40 percent. Over the last several years, CMS has taken a number of steps to help ensure the fiscal integrity of the Medicaid program. These include making internal organizational changes that centralize the review of states' Medicaid financing arrangements and hiring additional staff to review each state's Medicaid financing. The agency also published in May 2007 a final rule related to Medicaid payment and financing. This rule would, among other things, limit payments to government providers to their cost of providing Medicaid services. The Secretary is prohibited by law from implementing the rule until May 25, 2008. From 1994 to 2005, we have reported numerous times on a number of financing arrangements that create the illusion of a valid state Medicaid expenditure to a health care provider. Payments under these arrangements have enabled states to claim federal matching funds regardless of whether the program services paid for had actually been provided. As various schemes have come to light, Congress and CMS took several actions from 1987 through 2002, through law and regulation, to curtail them (see table 1). Many of these arrangements involve payment arrangements between the state and government-owned or government-operated providers, such as local-government-operated nursing homes. They also involved supplemental payments--payments states made to these providers separate from and in addition to those made at a state's standard Medicaid payment rate. The supplemental payments connected with these arrangements were illusory, however, because states required these government providers to return part or all of the payments to the states. Because government entities were involved, all or a portion of the supplemental payments could be returned to the state through an intergovernmental transfer, or IGT. Financing arrangements involving illusory payments to Medicaid providers have significant fiscal implications for the federal government and states. The exact amount of additional federal Medicaid funds generated through these arrangements is not known, but was in the billions of dollars. For example, a 2001 regulation to curtail misuse of the UPL regulation was estimated to have saved the federal government approximately $17 billion from fiscal year 2002 through fiscal year 2006. In 2003, we designated Medicaid to be a program at high risk of mismanagement, waste, and abuse, in part due to concerns about states' use of inappropriate financing arrangements. States' use of these creative financing mechanisms undermined the federal-state Medicaid partnership as well as the program's fiscal integrity in three ways. First, inappropriate state financing arrangements effectively increased the federal matching rate established under federal law by increasing federal expenditures while state contributions remained unchanged or even decreased. Figure 1 illustrates a state's arrangement in place in 2004 in which the state increased federal expenditures without a commensurate increase in state spending. In this case, the state made a $41 million supplemental payment to a local-government hospital. Under its Medicaid matching formula, the state paid $10.5 million and CMS paid $30.5 million as the federal share of the supplemental payment. After receiving the supplemental payment, however, the hospital transferred back to the state approximately $39 million of the $41 million payment, retaining just $2 million. Creating the illusion of a $41 million hospital payment when only $2 million was actually retained by the provider enabled the state to obtain additional federal reimbursements without effectively contributing a nonfederal share--in this case, the state actually netted $28.5 million as a result of the arrangement. Second, CMS had no assurance that these increased federal matching payments were retained by the providers and used to pay for Medicaid services. Federal Medicaid matching funds are intended for Medicaid- covered services for the Medicaid-eligible individuals on whose behalf payments are made. Under these arrangements, however, payments for such Medicaid-covered services were returned to the states which could then use the returned funds at their own discretion. In 2004, we examined how six states with large supplemental payment financing arrangements involving nursing homes used the federal funds they generated. As in the past, some states deposited excessive funds from financing arrangements into their general funds, which may or may not be used for Medicaid purposes. Table 2 provides further information on how states used their funds from supplemental payment arrangements, as reported by the six states we reviewed in 2004. Third, these state financing arrangements undermined the fiscal integrity of the Medicaid program because they enabled states to make payments to government providers that significantly exceeded their costs. In our view, this practice was inconsistent with the statutory requirement that states adopt methods to ensure that Medicaid payments are consistent with economy and efficiency. Our March 2007 report on a recent CMS oversight initiative to end certain financing arrangements where providers did not retain the payments provides context for CMS's May rule. Responding to concerns about states' continuing use of creative financing arrangements to shift costs to the federal government, CMS has taken steps starting in August 2003 to end inappropriate state financing arrangements by closely reviewing state plan amendments on a state-by-state basis. As a result of CMS initiative, from August 2003 through August 2006, 29 states ended one or more arrangements for financing supplemental payments, because providers were not retaining the Medicaid payments for which states had received federal matching funds. We found CMS's actions under its oversight initiative to be consistent with Medicaid payment principles--for example, that payment for services be consistent with efficiency and economy. We also found, however, that CMS's initiative to end inappropriate financing arrangements lacked transparency, in that CMS had not issued written guidance about the specific approval standards for state financing arrangements. CMS's initiative was a departure from the agency's past oversight approach, which did not focus on whether individual providers were retaining the supplemental payments they received. In contacting the 29 states that ended a financing arrangement from August 2003 through August 2006 under the initiative, only 8 states reported they had received any written guidance or clarification from CMS regarding appropriate and inappropriate financing arrangements. CMS had not used any of the means by which it typically provides information to states about the Medicaid program, such as its published state Medicaid manual, standard letters issued to all state Medicaid directors, or technical guidance manuals, to inform states about the specific standards it used for reviewing and approving states' financing arrangements. State officials told us it was not always clear what financing arrangements CMS would allow and why arrangements approved in the past would no longer be approved. Twenty- four of 29 states reported that CMS had changed its policy regarding financing arrangements, and 1 state challenged CMS's disapproval of its state plan amendment, in part on the grounds that CMS changed its policy regarding payment arrangements without rule making. The lack of transparency in CMS's review standards raised questions about the consistency with which states had been treated in ending their financing arrangements. We consequently recommended that CMS issue guidance to clarify allowable financing arrangements. Our recommendation for CMS to issue guidance for allowable financing arrangements paralleled a recommendation we had made in earlier work reviewing states' use of consultants on a contingency-fee basis to maximize federal Medicaid revenues. Our work found problematic projects where claims for federal matching funds appeared to be inconsistent with CMS's policy or with federal law, or that--as with inappropriate supplemental payment arrangements--undermined Medicaid's fiscal integrity. Several factors contributed to the risk of state projects. Many were in areas where federal requirements had been inconsistently applied, evolving, or not specific. We recommended that CMS establish or clarify and communicate its policies in these areas, including supplemental payment arrangements. CMS responded that clarifying guidance was under development for targeted case management, rehabilitation services, and supplemental payment arrangements. We have recently initiated work to examine CMS's current oversight of certain types of state financing arrangements. We have not reported on CMS's May 2007 rule or other rules related to Medicaid financing issued this year. The extent to which the rule will address concerns about the transparency of CMS's initiative and review standards will depend on how CMS implements it. As the nation's health care safety net, the Medicaid program is of critical importance to beneficiaries and the providers that serve them. The federal government and states have a responsibility to administer the program in a manner that assures expenditures benefit those low-income people for whom benefits were intended. With annual expenditures totaling more than $300 billion per year and growing, accountability for the significant program expenditures is critical to providing those assurances. The program's long-term fiscal sustainability is important for beneficiaries, providers, states, and the federal government. For more than a decade, we have reported on various methods that states have used to inappropriately maximize federal Medicaid reimbursement, and we have made recommendations to end these inappropriate financing arrangements. Supplemental payments involving government providers have resulted in billions of excess federal dollars for states, yet accountability for these payments--assurances that they are retained by providers of Medicaid services to Medicaid beneficiaries--has been lacking. CMS has taken important steps in recent years to improve its financial management of Medicaid. Yet more can be done to enhance the transparency of CMS oversight. Consequently, we believe our recommendations regarding the clarification and communication of allowable financing arrangements remain valid. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or Members of the Committee may have. For future contacts regarding this testimony, please contact Marjorie Kanof at (202) 512-7114 or [email protected]. Katherine Iritani, Assistant Director; Ted Burik; Tim Bushfield; Tom Moscovitch; and Terry Saiki made key contributions to this statement. Medicaid Financing: Federal Oversight Initiative Is Consistent with Medicaid Payment Principles but Needs Greater Transparency. GAO-07-214. Washington, D.C.: March 30, 2007. Medicaid Financial Management: Steps Taken to Improve Federal Oversight but Other Actions Needed to Sustain Efforts. GAO-06-705. Washington, D.C.: June 22, 2006. Medicaid: States' Efforts to Maximize Federal Reimbursements Highlight Need for Improved Federal Oversight. GAO-05-836T. Washington, D.C.: June 28, 2005. Medicaid Financing: States' Use of Contingency-Fee Consultants to Maximize Federal Reimbursements Highlights Need for Improved Federal Oversight. GAO-05-748. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. Medicaid: Intergovernmental Transfers Have Facilitated State Financing Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004. Medicaid: Improved Federal Oversight of State Financing Schemes Is Needed. GAO-04-228. Washington, D.C.: February 13, 2004. Major Management Challenges and Program Risks: Department of Health and Human Services. GAO-03-101. Washington, D.C.: January 2003. Medicaid: HCFA Reversed Its Position and Approved Additional State Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001. Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000. Medicaid: States Use Illusory Approaches to Shift Program Costs to Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994. 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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Medicaid, a joint federal-state program, financed the health care for about 60 million low-income people in fiscal year 2005. States have considerable flexibility in deciding what medical services and individuals to cover and the amount to pay providers, and the federal government reimburses a proportion of states' expenditures according to a formula established by law. The Centers for Medicare & Medicaid Services (CMS) is the federal agency responsible for overseeing Medicaid. Growing pressures on federal and state budgets have increased tensions between the federal government and states regarding this program, including concerns about whether states were appropriately financing their share of the program. GAO's testimony describes findings from prior work conducted from 1994 through March 2007 on (1) certain inappropriate state Medicaid financing arrangements and their implications for Medicaid's fiscal integrity, and (2) outcomes and transparency of a CMS oversight initiative begun in 2003 to end such inappropriate arrangements. GAO has reported for more than a decade on varied financing arrangements that inappropriately increase federal Medicaid matching payments. In reports issued from 1994 through 2005, GAO found that some states had received federal matching funds by paying certain government providers, such as county operated nursing homes, amounts that greatly exceeded established Medicaid rates. States would then bill CMS for the federal share of the payment. However, these large payments were often temporary, since some states required the providers to return most or all of the amount. States used the federal matching funds obtained in making these payments as they wished. Such financing arrangements had significant fiscal implications for the federal government and states. The exact amount of additional federal Medicaid funds generated through these arrangements is unknown, but was in the billions of dollars. Because such financing arrangements effectively increase the federal Medicaid share above what is established by law, they threaten the fiscal integrity of Medicaid's federal and state partnership. They shift costs inappropriately from the states to the federal government, and take funding intended for covered Medicaid costs from providers, who do not under these arrangements retain the full payments. In 2003, CMS began an oversight initiative that by August 2006 resulted in 29 states ending inappropriate financing arrangements. Under the initiative, CMS sought satisfactory assurances that a state was ending financing arrangements that the agency found to be inappropriate. According to CMS, the arrangements had to be ended because the providers did not retain all payments made to them but returned all or a portion to the states. GAO reported in 2007 that, although CMS's initiative was consistent with Medicaid payment principles, it was not transparent in implementation. CMS had not used any of the means by which it normally provides states with information about Medicaid program requirements, such as the published state Medicaid manual, standard letters issued to all state Medicaid directors, or technical guidance manuals. Such guidance could be helpful to inform states about the specific standards it used for reviewing and approving states' financing arrangements. In May 2007, CMS issued a final rule that would limit Medicaid payments to government providers' costs. GAO has not reported on CMS's rule.
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Five ESE sites collectively contain substantial quantities of Category I special nuclear material. These include the following: the Savannah River Site near Aiken, South Carolina, and the Hanford Site in Richland, Washington, which are managed by the Office of Environmental Management; the Idaho National Engineering and Environmental Laboratory and the Argonne National Laboratory-West, which are located in Idaho Falls, Idaho, and are managed by the Office of Nuclear Energy, Science and Technology; and the Oak Ridge National Laboratory in Oak Ridge, Tennessee, which is managed by the Office of Science. Contractors operate each site for ESE. DOE has requested over $300 million in fiscal year 2006 for security at these five sites. Within DOE's Office of Security and Safety Performance Assurance, DOE's Office of Security develops and promulgates orders and policies to guide the department's safeguards and security programs. DOE's overall security policy is contained in DOE Order 470.1, Safeguards and Security Program, which was originally approved in 1995. The key component of DOE's approach to security is the DBT, a classified document that identifies the characteristics of the potential threats to DOE assets. A classified companion document, the Adversary Capabilities List, provides additional information on terrorist capabilities and equipment. The DBT traditionally has been based on a classified, multiagency intelligence community assessment of potential terrorist threats, known as the Postulated Threat. The threat from terrorist groups is generally the most demanding threat contained in the DBT. DOE counters the terrorist threat specified in the DBT with a multifaceted protective system. While specific measures vary from site to site, all protective systems at DOE's most sensitive sites employ a defense-in- depth concept that includes the following: a variety of integrated alarms and sensors capable of detecting intruders; physical barriers, such as fences and antivehicle obstacles; numerous access control points, such as turnstiles, badge readers, vehicle inspection stations, radiation detectors, and metal detectors; operational security procedures, such as a "two person" rule that prevents only one person from having access to special nuclear material; and hardened facilities and vaults. Each site also has a heavily armed protective force that is often equipped with such items as automatic weapons, night vision equipment, body armor, and chemical protective gear. These protective forces are comprised of Security Police Officers who are classified into three groups: Security Police Officer-I, Security Police Officer-II, and Security Police Officer-III. Security Police Officer-Is are only assigned to fixed, armed posts. Generally, very few of these officers are used at ESE sites because of the limited roles they can fill. Security Police Officer-IIs generally are assigned to posts such as access control booths, or to foot or vehicle patrols. Finally, Security Police Officer-IIIs are responsible for operations such as hostage rescue and the recapture and recovery of special nuclear material. According to federal regulations, Security Police Officer-IIIs have more demanding physical fitness and training standards than Security Police Officer-Is or Security Police Officer-IIs. The ESE sites we visited employ about 1,000 Security Police Officer-IIs and Security Police Officer-IIIs. ESE protective forces work for private contractors and are unionized. Protective force duties and requirements, such as physical fitness standards, are explained in detail in DOE Manual 473.2-2, Protective Force Program Manual, as well as in DOE regulations (10 C.F.R. pt. 1046, Physical Protection of Security Interests). DOE issued the current Protective Force Program Manual in June 2000. Although protective forces are expected to comply with the duties and requirements established in DOE policies, deviations from these policies are allowed as long as certain approval and notification criteria are met. In addition to complying with these security requirements, DOE protective systems, including protective forces, also must meet performance standards. For example, DOE sites are required to demonstrate that their protective systems are capable of defending special nuclear material against terrorist forces identified in the DBT. The performance of protective systems is formally and regularly examined through vulnerability assessments. A vulnerability assessment is a systematic evaluation process in which qualitative and quantitative techniques are applied to detect vulnerabilities and arrive at effective protection of specific assets, such as special nuclear material. To conduct such assessments, DOE uses, among other things, subject matter experts, such as U.S. Special Forces; computer modeling to simulate attacks; and force- on-force exercises, in which the site's protective forces undergo simulated attacks by a group of mock terrorists. In addition to their use in evaluating the effectiveness of physical protection strategies, DOE believes force-on- force exercises are the most realistic representation of adversary attacks that can be used to train protective forces. Protective forces at the five ESE sites containing Category I special nuclear material generally meet existing key DOE readiness requirements. Specifically, we determined that ESE protective forces generally comply with DOE standards for firearms proficiency, physical fitness levels, and equipment standardization and that the five ESE sites had the required training programs, facilities, and equipment. In addition, we found that the majority of the 105 protective force members we interviewed at ESE sites generally believe that they currently are ready to perform their mission of protecting the site's special nuclear material. However, we did find some weaknesses at ESE sites that could impair the ability of ESE protective forces to defend their sites. A ready force should possess a sufficient number of experienced, trained, and properly equipped personnel. Through realistic and comprehensive training, these personnel are forged into a cohesive unit that can perform its tasks even under extreme conditions. DOE orders and federal regulations establish the framework for ensuring that DOE protective forces are ready to perform their mission. We found that ESE protective force officers generally believe that they are ready to perform their mission. Specifically, 102 of the 105 officers we interviewed stated that they believed that they, and their fellow officers, understood what was expected of them should the site be attacked by a terrorist group. Moreover, 65 of the 105 officers rated the readiness of their site's protective force as high, while 20 officers rated their protective force as somewhat or moderately ready to defend the site. Only a minority of the officers (16 of 105) we interviewed rated the readiness of their force to defend their sites as low. In addition, the majority of officers we interviewed believed they and the protective force officers with whom they worked on a regular basis have formed a cohesive unit that would be able to perform their most essential mission--that of protecting special nuclear material. For example, of the 105 officers we interviewed, 84 officers responded that they had a high degree of confidence in their fellow officers in the event of a terrorist attack, and 88 reported that their fellow officers would be willing to risk their lives in defense of their site. As called for in DOE's Protective Force Program Manual, readiness is achieved through appropriate training and equipment. Each of the five sites we visited had formally approved annual training plans. Each site generally had the training facilities, such as firearms ranges, classrooms, computer terminals, and exercise equipment, which enabled them to meet their current DOE and federal training requirements. Furthermore, each site maintained computerized databases for tracking individual protective force officers' compliance with training requirements. To determine if these programs and facilities were being used to implement the DOE requirements and federal regulations, we focused on three key areas-- firearms proficiency, physical fitness, and protective force officer equipment. Firearms Proficiency. DOE's Protective Force Program Manual states that protective force officers must demonstrate their proficiency with the weapons that are assigned to them every 6 months. According to the training records of the 105 protective force officers we interviewed, 79 had met this proficiency requirement with their primary weapon, the M-4 or M- 16 semiautomatic rifle. Of the 26 officers who had not met this requirement within the 6 month time frame, 11 officers were all located at one site and 8 of these 11 officers did not meet the requirement until 2 to 5 months after the required time. According to an official at this site, seven of the eight officers could not complete the requirement in a timely fashion because the site's firing range was closed for the investigation of an accidental weapon discharge that had resulted in an injury to a protective force officer. We determined that 2 of the 26 officers did not complete the requirement for medical reasons. We were not given reasons why the remaining officers did not meet the requirement. Physical Fitness. Under DOE regulations, DOE's contractors' protective force personnel who are authorized to carry firearms must meet a minimum standard for physical fitness every 12 months. There are two standards for such personnel--Offensive Combative and Defensive Combative. All Security Police Officer-IIIs, which include DOE special response team members, must meet the Offensive Combative standard, which requires a 1-mile run in no more than 8 minutes 30 seconds and a 40-yard prone-to-running dash in no more than 8 seconds. All other protective officers authorized to carry firearms must meet the Defensive Combative standard, which requires a one-half mile run in no more than 4 minutes 40 seconds and a 40-yard prone-to-running dash in no more than 8.5 seconds. According to the training records of the 105 protective force officers we reviewed, 103 of the 105 protective force officers had met the standard required by federal regulation for their position. Two officers who did not meet the requirement were on medical restriction. The records for another officer showed him as having met the requirement, but additional records provided by the site showed the officer had completed the run in a time that exceeded the standard. Site officials could not provide an explanation for this discrepancy. Protective Officer Equipment. DOE's Protective Force Program Manual sets a number of requirements for protective force equipment. For example, all Security Police Officers are required to carry a minimum set of equipment, including a portable radio, a handgun, and an intermediate force weapon such as a baton. In addition, a mask to protect against a chemical attack must be carried or available to them. All Security Police Officer-IIs and Security Police Officer-IIIs must also have access to personal protective body armor. In addition, firearms must be kept serviceable at all times and must be inspected by a DOE-certified armorer at least twice a year to ensure serviceability. Issued firearms must be inventoried at the beginning of each shift, an inventory of all firearms in storage must be conducted weekly, and a complete inventory of all firearms must be conducted on a monthly basis. Finally, DOE protective forces equipment must be tailored to counter adversaries identified in the DBT. To this end, sites employ a variety of equipment, including automatic weapons, night vision equipment, and body armor. In most cases, each site's protective forces carried or had access to the required minimum standard duty equipment. Most sites demonstrated that they had access to certified armorers, and each site maintained the required firearms maintenance, inspection, and inventory records, often kept in a detailed computerized database. The appropriate policies and procedures were also in place for the inventory of firearms. In addition, some sites have substantially increased their protective forces weaponry since September 11, 2001, or have plans to further enhance these capabilities to meet the 2004 DBT. While protective forces at ESE sites are generally meeting current DOE requirements, we identified some weaknesses in ESE protective force practices that could adversely affect the current readiness of ESE protective forces to defend their sites. These include protective force officers' lack of participation in realistic force-on-force exercises; the frequency and quality of training opportunities; the lack of dependable communications systems; insufficient protective gear, including protective body armor and chemical protective gear; and the lack of armored vehicles. Performance Testing and Training. According to DOE's Protective Force Program Manual, performance tests are used to evaluate and verify the effectiveness of protective force programs and to provide needed training. A force-on-force exercise is one type of performance test during which the protective force engages in a simulated battle against a mock adversary force, employing the weapons, equipment, and methodologies postulated in the DBT. DOE believes that force-on-force exercises are a valuable training tool for protective force officers. Consequently, DOE policy requires that force-on-force exercises be held at least once a year at sites that possess Category I quantities of special nuclear material or Category II quantities that can be rolled up to Category I quantities. However, DOE neither sets standards for individual protective force officers' participation in these exercises, nor requires sites to track individual participation. While 84 of the 105 protective force officers we interviewed stated they had participated in a force-on-force exercise, only 46 of the 84 protective force officers believed that the force-on-force exercises they had participated in were either realistic or somewhat realistic. Additionally, protective force officers often told us that they did not have frequent and realistic tactical training. In this regard, 33 of the 84 protective force officers reported that safety considerations interfered with the realism of the force-on-force exercises, with some protective force officers stating that they were limited in the tactics they could employ. For example, some protective force officers stated that they were not allowed to run up stairwells, climb fences, or exceed the speed limit in patrol vehicles. Contractors' protective force managers agreed that safety requirements limited the kind of realistic force-on-force training that are needed to ensure effective protective force performance. Communications Equipment. According to DOE's Protective Force Program Manual, the radios protective force officers use must be capable of two-way communications, provide intelligible voice communications, and be readily available in sufficient numbers to equip protective force personnel. In addition, a sufficient number of batteries must be available and maintained in a charged condition. Protective force officers at all five of the sites we visited reported problems with their radio communications systems. Specifically, 66 of the 105 protective force officers reported that they did not always have dependable radio communications, with 23 officers identifying sporadic battery life, and 29 officers reporting poor reception at some locations on site as the two most significant problems. In addition, some of the protective force officers believed that radio communications were not sufficient to support their operations and could not be relied on if a terrorist attack occurred. Site security officials at two sites acknowledged that efforts were under way to improve radio communications equipment. In addition, security officials said other forms of communications, such as telephones, cellular telephones, and pagers, were provided for protective forces to ensure that they could communicate effectively. Protective Body Armor. DOE's Protective Force Program Manual requires that Security Police Officer-IIs and -IIIs wear body armor or that body armor be stationed in a way that allows them to quickly put it on to respond to an attack without negatively impacting response times. At one site, we found that most Security Police Officer-IIs had not been issued protective body armor because the site had requested and received in July 2003 a waiver to deviate from the requirement to equip all Security Police Officer-IIs with body armor. The waiver was sought for a number of reasons, including the (1) increased potential for heat-related injuries while wearing body armor during warm weather, (2) increased equipment load that armor would place on protective force members, (3) costs of acquiring the necessary quantity of body armor and the subsequent replacement costs, and (4) associated risks of not providing all Security Police Officer-IIs with body armor could be mitigated by using cover provided at the site by natural and man-made barriers. According to a site security official, this waiver is currently being reviewed because of the increased threat contained in the 2004 DBT. Special Response Team Capabilities. Security Police Officers-IIIs serve on special response teams responsible for offensive operations, such as hostage rescue and the recapture and recovery of special nuclear material. Special response teams are often assigned unique equipment, including specially encrypted radios; body armor that provides increased levels of protection; special suits that enable officers to operate and fight in chemically contaminated environments; special vehicles, including armored vehicles; submachine guns; light machine guns; grenade launchers; and precision rifles, such as Remington 700 rifles and Barrett .50 caliber rifles. These response teams are also issued breaching tools to allow them to reenter facilities to which terrorists may have gained access. Each site with Category I special nuclear material must have a special response team capability available on a continuous basis. However, one ESE site does not have this capability and, instead, relies on another organization, through a formal memorandum of understanding, to provide a special response team. This arrangement, however, has not been comprehensively performance-tested, as called for in the memorandum of understanding. Site officials state that they will soon conduct the first comprehensive performance test of this memorandum of understanding. Chemical Protective Gear. DOE's Protective Force Program Manual specifies that all Security Police Officer-IIs and -IIIs be provided, at a minimum, with protective masks that provide for nuclear, chemical, and biological protection. Other additional chemical protective gear and procedures are delegated to the sites. At the four sites with special response teams, we found that the teams all had special suits that allowed them to operate and fight in environments that might be chemically contaminated. For Security Police Officers-IIs, chemical protective equipment and expectations for fighting in chemically contaminated environments varied. For example, two sites provided additional protective equipment for their Security Police Officer-IIs and expected them to fight in such environments. Another site did not provide additional equipment but expected its Security Police Officer-IIs to evacuate along with other site workers. Finally, the one site that did not have a special response team expected its Security Police Officer-IIs to fight in chemically contaminated environments. However, the site provided no additional protective gear for its officers other than standard-duty issue long-sleeved shirts and the required protective masks. Protective Force Vehicles. We found that ESE sites currently do not have the same level of vehicle protection as National Nuclear Security Administration (NNSA) sites that also have Category I special nuclear material. Specifically, while not a DOE requirement, all NNSA sites with Category I special nuclear material currently operate armored vehicles. However, only one of the five ESE sites with Category I special nuclear material operated armored vehicles at the time of our review. One other ESE site was planning to deploy armored vehicles. To successfully defend against the larger terrorist threat contained in the 2004 DBT by October 2008, DOE and ESE officials recognize that they need to take several actions. These include transforming its current protective force into an elite force, developing and deploying new security technologies, consolidating and eliminating special nuclear material, and making organizational improvements within ESE's security program. However, because these initiatives, particularly an elite force, are in early stages of development and will require a significant commitment of resources and coordination across DOE and ESE, their completion by the October 2008 DBT implementation deadline is uncertain. The status of these initiatives is as follows: Elite Forces. DOE officials believe that the way its sites, including those sites managed by ESE, currently train their contractor-operated protective forces will not be adequate to defeat the terrorist threat contained in the 2004 DBT. This view is shared by most protective force officers (74 out of 105) and their contractor protective force managers who report that they are not at all confident in their current ability to defeat the new threats contained in the 2004 DBT. In response, the department has proposed the development of an elite force that would be patterned after U. S. Special Forces and might eventually be converted from a contractor-operated force into a federal force. Nevertheless, despite broad support, DOE's proposal for an elite force remains largely in the conceptual phase. DOE has developed a preliminary draft implementation plan that lays out high- level milestones and key activities, but this plan has not been formally approved by the Office of Security and Safety Performance Assurance. The draft implementation plan recognizes that DOE will have to undertake and complete a number of complex tasks in order to develop the elite force envisioned. For example, DOE will have to revise its existing protective forces policies to incorporate, among other things, the increased training standards that are needed to create an elite force. Since this proposal is only in the conceptual phase, completing this effort by the October 2008 DBT implementation deadline is unlikely. New Security Technologies. DOE is seeking to improve the effectiveness and survivability of its protective forces by developing and deploying new security technologies. It believes technologies can reduce the risk to protective forces in case of an attack and can provide additional response time to meet and defeat an attack. Sixteen of the 105 protective force officers we interviewed generally supported this view and said they needed enhanced detection technologies that would allow them to detect adversaries at much greater ranges than is currently possible at most sites. However, a senior DOE official recently conceded that the department has not yet taken the formal steps necessary to coordinate investment in emerging security technologies and that the role of technology in helping sites meet the new threats contained in the 2004 DBT by the department's deadline of October 2008 is uncertain. Consolidation and Elimination of Materials. ESE's current strategy to meet the October 2008 deadline relies heavily on consolidating and eliminating special nuclear material between and among ESE sites. For example, the Office of Nuclear Energy, Science and Technology plans to down-blend special nuclear material and extract medically useful isotopes at the Oak Ridge National Laboratory--an Office of Science site. This action would eliminate most of the security concerns surrounding the material. Neither program office, however, has been able to formally agree on its share of additional security costs, which have increased significantly because of the new DBT. In addition, neither ESE nor DOE has developed a comprehensive, departmentwide plan to achieve the needed cooperation and agreement among the sites and program offices to consolidate special nuclear material, as we recommended in our April 2004 report. In the absence of a comprehensive plan, completing most of these consolidation activities by the October 2008 DBT implementation deadline is unlikely. Organizational Improvements. The ESE headquarters security organization is not well suited to meeting the challenges associated with implementing the 2004 DBT. Specifically, there is no centralized security organization within the Office of the Under Secretary, ESE. The individual who serves as the Acting ESE Security Director has been detailed to the Office by DOE's Office of Security and Safety Performance Assurance and has no programmatic authority or staff. This lack of authority limits the Director's ability to facilitate ESE and DOE-wide cooperation on such issues as material down-blending at Oak Ridge National Laboratory and material consolidation at other ESE sites. Mr. Chairman, this concludes my prepared statement. I 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 Gene Aloise at (202) 512-3841. James Noel, Jonathan Gill, Don Cowan, and Preston Heard made key contributions to this testimony. 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A successful terrorist attack on a Department of Energy (DOE) site containing nuclear weapons material could have devastating effects for the site and nearby communities. DOE's Office of the Under Secretary for Energy, Science and Environment (ESE), which is responsible for DOE operations in areas such as energy research, manages five sites that contain weapons-grade nuclear material. A heavily armed security force equipped with such items as automatic weapons protects ESE sites. GAO was asked to examine (1) the extent to which ESE protective forces are meeting DOE's existing readiness requirements and (2) the actions DOE and ESE will need to take to successfully defend against the larger, revised terrorist threat identified in the October 2004 design basis threat (DBT) by DOE's implementation deadline of October 2008. Protective forces at the five ESE sites containing weapons-grade nuclear material generally meet existing key DOE readiness requirements. Specifically, GAO determined that ESE protective forces generally comply with DOE standards for firearms proficiency, physical fitness levels, and equipment standardization and that the five ESE sites had the required training programs, facilities, and equipment. However, GAO did find some weaknesses at ESE sites that could adversely affect the ability of protective forces to defend these sites. For example, despite the importance of training exercises in which protective forces undergo simulated attacks by a group of mock terrorists (force-on-force exercises), DOE neither sets standards for individual protective force officers to participate in these exercises, nor does it require sites to track individual participation. GAO also found that protective force officers at all five of the ESE sites reported problems with their radio communications systems. Specifically, according to 66 of the 105 protective force officers GAO interviewed, they did not always have dependable radio communications as required by the DOE Manual 473.2-2, Protective Force Program Manual. Security officials stated that related improvements were under way. To successfully defend against the larger terrorist threat contained in the 2004 DBT by October 2008, DOE and ESE officials recognize that they will need to take several prompt and coordinated actions. These include transforming its current protective force into an elite, possibly federalized, force, developing and deploying new security technologies to reduce the risk to protective forces in case of an attack, consolidating and eliminating nuclear weapons material between and among ESE sites, and creating a sound ESE management structure that has sufficient authority to ensure coordination across all ESE offices that have weapons-grade nuclear material. However, because these initiatives, particularly an elite force, are in early stages of development and will require significant commitment of resources and coordination across DOE and ESE, their completion by the October 2008 DBT implementation deadline is uncertain.
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Mr. Chairman and Members of the Committee: We are pleased to be here today to discuss the implementation of the Paperwork Reduction Act of 1995. As you requested, we have reviewed selected aspects of the act's implementation by the Office of Management and Budget (OMB) and three agencies--the Internal Revenue Service (IRS), the Environmental Protection Agency (EPA), and the Occupational Safety and Health Administration (OSHA). In your request letter, you noted that participants at last year's White House Conference on Small Business believed these three agencies impose the most significant paperwork burdens on small businesses. We will focus on three main issues today: (1) changes in paperwork burden governmentwide and in the three selected agencies, (2) OMB's responsibility to set goals for reducing such burden and whether agencies will achieve the burden reductions envisioned in the act, and (3) actions each of the three agencies have taken since the passage of the act. We will also discuss some measurement issues Congress needs to consider as it assesses agencies' progress in reducing paperwork burden. First, however, a little background information is needed. The Paperwork Reduction Act of 1995 amended and recodified the Paperwork Reduction Act of 1980, as amended. The 1995 act reaffirmed the principles of the original act and gave new responsibilities to OMB and executive branch agencies. Like the original statute, the 1995 act requires agencies to justify any collection of information from the public by establishing the need and intended use of the information, estimating the burden that the collection will impose on the respondents, and showing that the collection is the least burdensome way to gather the information. at the end of the fiscal year, and agency estimates of the burden for the coming fiscal year. The 1995 act also makes several changes in federal paperwork reduction requirements. For example, it requires OIRA to set goals of at least a 10-percent burden reduction governmentwide for each of fiscal years 1996 and 1997, a 5-percent governmentwide burden reduction in each of the next 4 fiscal years, and annual agency goals that reduce burden to "the maximum practicable" extent. The act also redefines a "collection of information" to include required disclosures of information to third parties and the public, effectively overturning the Supreme Court's 1990 Dole v. United Steelworkers of America decision. Finally, the 1995 act details new agency responsibilities for the review and control of paperwork. For example, it requires agencies to establish a 60-day public notice and comment period for each proposed collection of information before submitting the proposal to OMB for approval. OIRA uses the ICB information to assess whether agencies' burden reduction goals are being met. OIRA classifies changes in burden-hour estimates as caused by either "program changes" or "adjustments." Program changes are additions or reductions to existing paperwork requirements which are imposed either through new statutory requirements or an agency's own initiative. Adjustments are changes in burden estimates caused by factors other than changes in the actual paperwork requirements, such as changes in the population responding to a requirement or agency reestimates of the burden associated with a collection of information. OIRA counts both program changes and adjustments when calculating an agency's burden-hour baseline at the end of each fiscal year. However, OIRA does not count changes that are due to adjustments in determining whether an agency has achieved its burden reduction goal. Figure 1 shows changes in reported burden-hour estimates governmentwide and at IRS between September 30, 1980, and September 30, 1995--the day before the new act took effect. rose dramatically in 1989, and rose every year since then with the exception of 1993. In each year since fiscal year 1989, IRS' paperwork burden has accounted for more than three-quarters of the governmentwide total. Increases or decreases in IRS' total number of burden hours have had a dramatic effect on the governmentwide total. For example, the near tripling of the governmentwide burden-hour estimate during fiscal year 1989 was primarily because IRS changed the way it calculated its information collection burden, which increased its paperwork estimate by about 3.4 billion hours. Because the IRS paperwork burden is such a large portion of the governmentwide total, the success of any governmentwide effort to reduce burden largely depends on reducing the burden imposed by IRS. Figures 2 and 3 show the changes in the paperwork burden at EPA and OSHA, respectively, during the same 1980 to 1995 period. Statement Paperwork Reduction: Burden Reduction Goal Unlikely to Be Met Burden hours (in millions) Statement Paperwork Reduction: Burden Reduction Goal Unlikely to Be Met Burden hours (in millions) EPA's burden-hour estimate rose sharply in the late 1980s, fell somewhat in 1991 (because third-party information collections were no longer being counted as a result of the Dole decision), and rose again between 1991 and 1995. OSHA's burden-hour estimate increased gradually through 1987, rose rapidly in 1988, fell back to its previous level by 1990, and decreased slightly until it rose sharply between 1994 and 1995. Figure 4 shows the month-by-month changes in the governmentwide paperwork burden between September 30, 1994, and March 30, 1996--the period including the date the 1995 act was signed by the President (May 22, 1995) and its effective date (October 1, 1995). 6.90 billion hours on September 30, 1995. IRS increased its burden-hour estimate by more than 147.6 million burden hours (about 3 percent) between August and September; EPA's estimate went up more than 21 million hours (more than 25 percent) during that month. OSHA's burden-hour estimate rose most dramatically shortly before the effective date, from about 1.5 million hours on June 30, 1995, to about 208 million hours on September 30, 1995. Documents we reviewed and officials we talked to indicated that these increases occurred during this period because agencies were trying to get proposed information collections approved before the new act took effect on October 1, 1995. Some of the proposals at OSHA and EPA were third-party and public disclosures that had previously been removed from the agencies' estimates because of the Dole decision. Other proposals, particularly those at OSHA, were third-party and public disclosures that had been added after the Dole decision. By getting these third-party and other proposed information collections approved before the act's effective date, agencies were able to avoid the new requirements imposed by the act, including the 60-day public notice and comment period at the agencies. OIRA approved some of these collections of information for less than 1 year so that the agencies would have to clear the collections under the new process during fiscal year 1996. However, submitting the proposals for review and approval before the act took effect also raised the burden-hour baseline against which the agencies' paperwork reduction goals would be judged. For example, the increase in OSHA's burden-hour baseline from about 1.5 million hours to about 208 million hours between June and September 1995 meant that OSHA had to cut more burden hours to achieve a 10 percent reduction (20.8 million hours) than it would have had to cut before the increase (about 150,000 hours). One of the key features of the Paperwork Reduction Act of 1995 is the requirement that OIRA set both governmentwide and agency-specific burden reduction goals for fiscal year 1996 and for the next 5 fiscal years. However, as of May 31, 1996, OIRA had not set any such goals. More importantly, information that the agencies submitted to OIRA indicated that the burden reduction target that the act specified for fiscal year 1996 is unlikely to be reached. OIRA staff told us that they plan to set the fiscal year 1996 burden reduction goals in a soon-to-be-published ICB. As part of the ICB development process, in September 1995, OIRA asked agencies to project what their burden-hour levels would be at the end of fiscal year 1996. Agencies submitted that information to OIRA between December 1995 and February 1996. OIRA staff said that they will establish a governmentwide burden reduction goal of 10 percent for fiscal year 1996, as the act requires. They also said that agency goals will reflect the end-of-fiscal year 1996 burden-hour estimates that the agencies provided in their ICB submissions unless changed as a result of OIRA review. According to unpublished information we obtained from OIRA and the agencies, the weighted average of the agencies' burden reduction projections is about 1 percent. If these projections are accurate, the fiscal year 1996 goal of a 10-percent reduction in governmentwide paperwork burden that the 1995 act calls for will not be accomplished. Figure 5 shows the actual month-to-month governmentwide paperwork estimates from March 1995 to March 1996 and, according to our calculations, what the number of burden hours would have been by the end of fiscal year 1996 if the 10-percent burden reduction goal had been achieved and what the burden-hour total is expected to be on the basis of agencies' projections. Statement Paperwork Reduction: Burden Reduction Goal Unlikely to Be Met Burden hours (in billions) that will not add up to the governmentwide goal of a 10-percent reduction in burden. "individual agency goals negotiated with OIRA may differ depending on the agency's potential to reduce the paperwork burden such agency imposes on the public. Goals negotiated with some agencies may substantially exceed the Government-wide goal, while those negotiated with other agencies may be substantially less." In addition to setting goals for paperwork reduction, the act requires OIRA to "keep the Congress and congressional committees fully and currently informed of the major activities under this chapter." However, as of May 31, 1996, the OIRA Administrator had not informed Congress or congressional committees (1) about why OIRA has not established any burden reduction goals to date and (2) that agency projections OIRA received at least 3 months ago indicated that the 10 percent governmentwide paperwork reduction goal called for in the act would not be achieved. Both of these issues appear to us to be "major activities" subject to the act's requirement that the OIRA Administrator keep Congress fully and currently informed. Information collection is one method by which agencies carry out their missions, and those missions are established by Congress through legislation. For the past several years, the ICBs have indicated that agencies' burden-hour estimates increased because of congressionally imposed statutory requirements. For example, the fiscal year 1993 ICB noted that title IV of the Clean Air Act Amendments of 1990 established new permitting requirements for emission sources that produce nitrous oxides, resulting in a 1.8 million hour increase to EPA's burden-hour estimate. As a result of such requirements, some agencies contend that they are limited in the amount to which they can reduce their paperwork burden. If agencies' paperwork requirements are truly statutorily mandated, those agencies may not be able to reduce their burden-hour estimates by the amounts envisioned in the 1995 act without changes in the legislation underlying those requirements. However, neither we nor OIRA have assessed the extent to which the paperwork burden agencies impose is directly a consequence of statutory requirements and, therefore, is out of agencies' control. Even though a statute may require an agency to take certain actions, the agency may have discretion regarding whether paperwork requirements need to be imposed and, if so, the manner or frequency with which the information is collected. For example, although several statutes require employers to provide training to employees, OSHA may have discretion to determine whether employers need to submit paperwork to demonstrate their compliance with these provisions. As a part of their ICB submissions to OIRA, EPA, IRS, and OSHA each projected what it believed its total number of burden-hours would be as of September 30, 1996. Each agency also took different steps to reduce its paperwork burden. EPA has its own effort to reduce paperwork that began before the Paperwork Reduction Act of 1995 took effect. EPA has set an internal burden-reduction target and expects to reach that target by the end of this year. Despite these efforts, EPA reported that their burden-hour reductions will be largely offset by increases in statutorily-based information collections. In March 1995, the EPA Administrator committed to reducing the agency's January 1, 1995, estimated paperwork burden by 25 percent by June 1996. Initially, EPA estimated that its January 1995 baseline was about 81 million burden hours, so a 25-percent reduction would bring the agency's total to about 61 million hours. In March of this year, we provided a statement for the record to the House Committee on Small Business indicating that, despite these planned reductions, EPA projected that its burden-hour total would increase to about 117 million hours by September 30, 1996--an increase of about 44 percent from EPA's January 1995 baseline. projection for September 30, 1996, from 117 million hours to about 100 million hours. EPA officials said their projection was revised because some planned information collections would not be approved by OIRA by the end of the fiscal year and because their original estimate did not include all of the burden-hour reductions that EPA now expects to make by the end of the fiscal year. Using EPA's most recent estimates, figure 6 shows EPA's burden-hour baseline as of January 1, 1995, the 25-percent reduction goal that EPA expects to accomplish by December 31, 1996, and the total number of burden hours that EPA currently projects will be in place as of September 30, 1996. As you can see, despite EPA's burden-reduction efforts during this period, EPA's burden-hour estimate at the end of this fiscal year is expected to be about what it was at the start of those efforts. This is because, at the same time EPA has been reducing its January 1995 paperwork inventory, new burden hours have been added to that inventory. According to EPA, those additions are primarily third-party burden hours that are now being counted as a result of the Paperwork Reduction Act of 1995 and new information collections associated with the Clean Air Act Amendments of 1990 and the Residential Lead-Based Paint Hazard Reduction Act of 1992. Statement Paperwork Reduction: Burden Reduction Goal Unlikely to Be Met Burden hours (in millions) Does not include about 9 million hours of third party burden. Does not include about 5 million hours of TRI burden. 5 million hours of burden associated with the Toxic Release Inventory (TRI). Although EPA's efforts to reduce burden hours have been almost totally offset by new information collection requirements, EPA's attempt to reduce its paperwork burden may prevent what would otherwise be a significant increase in the agency's paperwork burden. As of May 1996, EPA said that it had completed reductions of about 15 million hours and had identified about 8 million more hours of burden for elimination. If these figures are accurate, EPA would need to eliminate the 8 million burden hours it had identified and identify and eliminate about 2 million more hours to reach its goal of reducing its 101 million burden-hour baseline by 25 percent. Without the burden-hour reductions EPA says it has accomplished or has in progress, the agency's paperwork burden could have increased by 25 percent by the end of the year. Although EPA's initiative to reduce the burden it imposes is promising, its burden-reduction claims warrant continued scrutiny. As we reported in our March 1996 statement for the record to the House Small Business Committee, some of EPA's February 1996 burden reduction estimates were overstated. For example, EPA initially claimed that a recently adopted TRI reporting option reduced the burden associated with TRI by about 1.2 million hours. However, EPA did not offset this reduction by the additional paperwork burden it created--about 800,000 hours--that would be incurred by those choosing this option. Therefore, the real burden reduction was about 400,000 hours. EPA estimated that it had reduced the burden associated with its land disposal restrictions program by 1.6 million hours, but its January 1, 1995, baseline indicated that the entire program only accounted for about 800,000 hours. to revise its January 1, 1995, baseline from which the burden-hour reductions are being taken. Reducing burden on the taxpayer is one of the primary goals in IRS's Business Master Plan, in which the agency identifies a number of burden-reduction actions that it plans to take. In its ICB submission, IRS said that it plans to reduce its measured paperwork burden by about 50 million hours (0.9 percent) during fiscal year 1996 by simplifying forms and instructions, changing reporting thresholds, and moving eligible taxpayers to "E-Z" versions of required forms. IRS officials said they are limited in the amount to which they can reduce the agency's paperwork burden because most of IRS' information collections are statutorily mandated in the tax code. They said that unless changes are made to the substantive requirements in the code, IRS will not be able to substantially reduce its paperwork burden. IRS officials also said that significant portions of the agency's efforts to reduce its burden focus on types of burden that are not covered by the Paperwork Reduction Act. For example, they said that a major part of the real paperwork burden on the taxpayer comes from responding to IRS notices, and IRS has a major initiative under way to determine which notices can be eliminated, combined, or simplified. However, they said that notices are not covered by the act because they focus on information collected from a single individual in the course of an investigation or inquiry. OSHA officials said that they assumed their agency would be responsible for reducing its burden by 10 percent during fiscal year 1996 as its share of the governmentwide goal. In its 1995 ICB submission to the Department of Labor, OSHA said that it would reduce its fiscal year 1995 paperwork burden by 8.7 million hours (about 4 percent) during fiscal year 1996 by dropping a number of certification requirements. Although OSHA has begun the process of eliminating these certification requirements, in the spring of 1996 OSHA officials told us that the process may not be completed in time to eliminate the requirements by the end of the fiscal year. After submission of its ICB, OSHA officials discovered that they could claim additional burden reductions. OSHA's Process Safety Management of Highly Hazardous Chemicals Standard is a third-party information collection that the agency added to its burden-hour total in August 1995. At that time, OSHA officials estimated the paperwork requirements associated with the standard at 135 million burden hours. In keeping with a schedule established by the standard when it was issued in 1992, the burden imposed on employers declined in May 1996 because they were no longer required to perform certain recordkeeping functions after that date. OSHA officials said that they initially considered the decline in employer responsibilities an adjustment, which could not be counted toward the agency's 10 percent burden reduction goal in their ICB submission. However, they said the Department of Labor paperwork clearance official told them the change should be considered a program change, and therefore should be counted as part of OSHA's paperwork reduction effort. Consequently, OSHA reduced its 135 million burden-hour estimate by 17 million hours--8 percent of OSHA's total fiscal year 1995 burden. As Congress exercises oversight in this area, it is important that it keep in mind several measurement issues. As noted previously, OIRA does not count any adjustments (because of reestimates or population changes) that agencies submit with their information collection requests in determining whether an agency has met its paperwork burden reduction goals. Therefore, an agency that initially submits a high estimate and later revises it downward does not get credit from OIRA for the reduction. Conversely, if an agency initially submits a low paperwork estimate and later increases the estimate, OIRA never counts the increase against the agency for goal attainment purposes. In fact, the governmentwide increase of about 1 billion burden hours between 1990 and 1995 was primarily driven by adjustments that never counted against agencies' goals. OIRA staff told us they were not aware of any evidence that agencies were systematically underestimating the burden associated with their information collections and then revising them upward. interpreting the official burden-hour statistics. Most or all of the burden-hour increase may have actually existed since 1980 when the original Paperwork Reduction Act became effective. If this were the case, the statistics available to policymakers would seriously underestimate the burden actually imposed on the public, and figure 1 would overstate the degree to which paperwork burden actually increased since 1980. The increase in measured burden as a consequence of the inclusion of third-party and public disclosures in September 1995 was similar to the IRS reestimate; the burden already existed but had just not been previously measured. Likewise, the burden felt by the public does not diminish when an agency recalculates a lower estimate of its paperwork burden without eliminating any existing requirements. Relatedly, it is important that Congress be aware that certain elements of agencies' information collection burden are not reflected in some burden-hour estimates. As we mentioned earlier, OIRA does not count about 5 million hours of paperwork burden associated with EPA's TRI reporting form because the form is not submitted for OIRA approval. IRS's burden-hour estimates do not include such information collections as notices involving errors, nonfilings, and delinquencies because they are exempted from coverage under the act. Finally, as we have said in previous reports and testimonies, users of paperwork burden-hour estimates should proceed with great caution. The degree to which such estimates reflect real burden and the factors that cause changes to the burden-hour totals are often unclear. Nevertheless, they are the best indicators of paperwork burden available, and we believe that they can be useful as long as their limitations are borne in mind. Mr. Chairman, this completes our prepared statement. We would be pleased to answer any questions. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed governmentwide implementation of the Paperwork Reduction Act of 1995, and three federal agencies' actions to implement the act. GAO noted that: (1) between 1980 and 1995, reported governmentwide paperwork burden hours increased from about 1.5 billion to 6.9 billion; (2) the Internal Revenue Service (IRS) accounts for most of the federal paperwork burden; (3) IRS accounted for a three-fold increase in 1989 because it changed the way it calculated its information collection burden; (4) governmentwide burden hours increased almost 8 percent in the month before the act's effective date because agencies were trying to get proposed information collection activities approved before that date; (5) as of May 1996, the Office of Management and Budget's Office of Information and Regulatory Affairs had not set burden reduction goals or kept Congress informed about implementation progress; (6) agencies' weighted average burden reduction is likely to be 1 percent for fiscal year (FY) 1996, but the act's FY 1996 reduction goal is 10 percent; (7) agencies believe that statutory mission-related requirements limit their ability to reduce paperwork burdens; and (8) Congress should consider several measurement issues, including counting adjustments toward or against reduction goals, the difference between measured and actual paperwork burdens, and potentially incomplete agency burden estimates.
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the rulemaking record before publication of any proposed or final rule a document clearly identifying the changes made to the draft submitted to OMB's Office of Information and Regulatory Affairs (OIRA), including and separately identifying the changes made at the suggestion or recommendation of OIRA. These requirements are intended to permit the public to understand the source of changes to proposed rules, and are very similar to requirements in section 6 of the executive order. However, whereas the bill requires that the changes be recorded in a single document in the rulemaking record, the order does not specify how agencies must identify the changes for the public. Mr. Chairman, at your and Senator Glenn's request, we have been reviewing the implementation of these executive order provisions at four major regulatory agencies--the Departments of Housing and Urban Development (HUD) and Transportation (DOT), the Department of Labor's Occupational Safety and Health Administration (OSHA), and the Environmental Protection Agency (EPA). Of the 129 regulatory actions that we reviewed in those agencies, fewer than 25 percent had a clear and simple document in the rulemaking docket illustrating the changes made to the rules while at OIRA for review or the changes made at OIRA's recommendation. Where we found documentation, it was either a "redline/strikeout" version of the rule showing the changes made, a memo to the file listing the changes, or a memo certifying that there were no such changes. While some dockets for the other rules had indications of changes made during OIRA's review and by OIRA, it was not clear that all changes had been recorded. Most commonly, however, the rulemaking dockets simply had no information on whether changes had been made to the rules. In those cases it was impossible for us to know whether changes had not been made to the rules, or whether documentation of the changes was missing. In some cases the agencies had clear documents that delineated the changes made to their rules while at or by OIRA, but those documents were not available to the public. For example, the U.S. Coast Guard (USCG) in DOT often prepared detailed summaries of these kinds of changes, but USCG officials said that these summaries were internal communications that were not available to the public. OSHA had comprehensive documentation of their interactions with OIRA, but the information was maintained in files separate from the public docket. OSHA officials said that they would make this information available to the public upon request. However, in order for individuals to request the information they must first know that the documents exist. Also, the dockets varied in the degree to which they could be used by the public to find the information required by the executive order. First, it is important to realize that the docket for a single rule can be extremely voluminous. For example, the docket for one of the rules we reviewed at DOT's Federal Railroad Administration (FRA) contained 17 folders of material, some of which were nearly a foot thick. However, the docket for this rule and all of the others that we examined at FRA, HUD, and some other agencies had no indexes. Therefore, the public would have to review the entire docket to find any documentation of changes made at the suggestion of OIRA or changes in the draft submitted to OIRA. In contrast, the Office of Air and Radiation's docket at EPA had a consistently structured index for all its rules, with specific sections in which information related to OIRA's reviews could be found. At the time of our review, the Office of the Secretary of DOT was automating its dockets so that both indexes and eventually the entire rule making record could be accessed on-line. In testimony last September before this Committee, the OIRA Administrator, acknowledged that agencies had not "been scrupulously attentive" to the executive order's requirement that they document the changes made at OIRA's suggestion or recommendation. She also said, however, that the executive order had "created a more open and accountable review process" and that she had heard "no complaints about accountability and transparency." We believe that these public disclosure requirements in the executive order, combined with the administration's assertion of their effectiveness, have resulted in a public perception that changes made to a regulation while at OIRA and by OIRA are readily identifiable. However, our review indicated that this was usually not the case. Enactment of the public disclosure requirements in S. 981 would provide a statutory foundation for the public's right to regulatory review information. In particular, we believe that the bill's requirement that these rule changes be described in a single document would make understanding regulatory changes much easier for the public. suggestion of OIRA, and how agencies could organize their dockets to best facilitate public access and disclosure. We have also done work relevant to Subchapter III of S. 981, which requires agencies to review existing rules identified by an advisory committee representing a balanced cross section of public and private interests. The agencies must then decide whether to retain, amend, or repeal the rules it reviews. There have been several previous requirements by both Congress and previous presidents that federal agencies review their existing regulations. Most recently, section 5 of Executive Order 12866 required agencies to submit a program to OIRA by December 31, 1993, under which they would periodically review their existing significant regulations to determine whether any should be modified or eliminated. According to the order, the purpose of the review was to make the agencies' regulatory programs more effective, less burdensome, or better aligned with the President's priorities and the principles in the order. On June 12, 1995, the President announced that a page-by-page review of the CFR had resulted in commitments to eliminate 16,000 pages from the 140,000 page CFR and modify another 31,000 pages either through administrative or legislative means. savings, the reduction of burden," would come from the CFR pages that were being revised. Mr. Chairman, at your request we have been further examining the administration's page elimination and revision effort. We found that the four agencies that we reviewed (HUD, DOT, OSHA, and EPA) were adding pages to the CFR at the same time that pages were being deleted. As a result, although the four agencies reported to OMB that they eliminated 5,500 pages from the CFR during this initiative, as of April 30 of this year the agencies' net reduction in CFR pages when page additions are taken into consideration was about 900 pages. Two of the four agencies' CFR parts actually grew during their page elimination effort--DOT by about 300 pages and EPA by nearly 1,000 pages. The four agencies pointed out that pages are often added to the CFR because of statutory requirements or to clarify requirements placed on regulated entities, and that pages are sometimes retained at the request of those entities. Our review of 422 CFR revision efforts in the 4 agencies indicated that about 40 percent should reduce the burden felt by regulated entities, and another 15 percent should make regulations easier to find or to understand. For example, one EPA action that appeared to reduce regulatory burden involved changing the frequency with which states must submit information related to state water quality standards under section 303(d) of the Clean Water Act from every 2 years to every 5 years. Lessening the frequency with which this information must be submitted should reduce the paperwork burden imposed on the states. one OSHA action that appeared to be a minor burden reduction proposed to "eliminate the complexity, duplicative nature, and obsolescence" of certain standards and "write them in plain language." However, about 8 percent of the actions appeared to increase the burden felt by those being regulated, and another 27 percent did not appear to affect regulatory burden at all. For example, OSHA proposed revising its general industry safety standard for training powered industrial truck operators and to add equivalent training requirements for the maritime industries. OSHA estimated that the first year cost of compliance with the proposed standard would be $34.9 million, with annual costs thereafter of $19.4 million. one DOT action that did not appear to affect regulatory burden proposed amending the Transportation Acquisition Regulations to change organizational names and renumber and rename certain sections of the CFR. We could not determine what effect about 9 percent of the actions would have on regulatory burden, either because the information available describing the actions contained elements of both burden reduction and burden increase that could be offsetting or because the information was vague. We recognize that directly measuring changes in regulatory burden is extremely difficult. However, we also believe that the administration's chosen metric of pages in the CFR that are eliminated or revised is a poor proxy for changes in regulatory burden. Eliminating or changing hundreds of pages that are obsolete or rarely enforced can have little practical effect on regulatory burden, whereas slight changes in wording of a single sentence can have a tremendous effect. Enactment of the review requirements in S. 981 would provide a statutory basis for periodic examinations of existing rules. We believe that such examinations are a good idea in that they can determine the continued relevance of regulatory requirements and help ensure that the requirements impose as little burden as possible. Identification of rules for review by the advisory committee that would be established by the bill may lead to more substantive changes than have heretofore been made by the agencies on their own. Although both S. 981 and Executive Order 12866 require agencies to conduct cost-benefit analyses for major rules and to make the results available to the public, the bill goes farther than the order in requiring disclosure of how those analyses are conducted. For example, one of the bill's "findings" states that cost-benefit analyses and risk assessments "should be presented with a clear statement of the analytical assumptions and uncertainties including an explanation of what is known and not known and what the implications of alternative assumptions might be." Section 623 of the bill requires agencies to include an executive summary of the regulatory analyses, including the benefits and costs of reasonable alternatives and "the key assumptions and scientific or economic information upon which the agency relied." In January 1996, OMB issued guidance to executive agencies on preparing the economic analyses called for in Executive Order 12866. Although the OMB guidance provided agencies with substantial flexibility in how such analyses should be conducted, the guidance sounded some of the same themes as S. 981. "Analysis of the risks, benefits, and costs associated with regulation must be guided by the principles of full disclosure and transparency. Data, models, inferences, and assumptions should be identified and evaluated explicitly, together with adequate justifications of choices made, and assessments of the effects of these choices on the analysis. The existence of plausible alternative models or assumptions, and their implications, should be identified." Our previous work examining agencies' cost-benefit analyses indicated that the studies are often not as transparent as either the bill or the OMB guidance contemplates. For example, in our report earlier this year on EPA's analyses that support air quality regulations, we found that certain key economic assumptions--such as discount rates and assumed values of human life--were often not identified. Even in those cases in which the assumptions were identified, the reasons for the values used were not always explained. For example, one analysis assumed a value of life that ranged from $1.6 million to $8.5 million while another--prepared in the same year--assumed a value of life that ranged from $3 million to $12 million. In neither case did the analyses clearly explain why the values were used. We also found that about one-quarter of the analyses that we reviewed examined only one alternative--the regulatory action being considered. S. 981's call for executive summaries in the cost-benefit analyses echoes a recommendation we made 13 years ago. In a 1984 report, we recommended that EPA's cost-benefit analyses include executive summaries that identify (1) all benefits and costs--even those that cannot be quantified; (2) the range of uncertainties associated with the benefits and costs; and (3) a comparison of feasible alternatives. However, about one-half of the 23 EPA analyses supporting air quality regulations that we reviewed last year did not have executive summaries. Mr. Chairman, at your and Senator Glenn's request we are currently evaluating executive agencies' preparation and use of regulatory analyses. Although our work to date has focused primarily on EPA and DOT, we are finding some significant variations both between and within the two agencies' analyses and their presentation of these key components. For example, the base-case discount rates used in the 11 analyses we have reviewed ranged from 2.1 to 7 percent. The reasons for the rate chosen were frequently not explained nor were the implications of using alternative rates discussed in the analyses. As a result, agency decisionmakers, Congress, and the public may not be aware that the results of these analyses could have been significantly different if different assumptions had been used. In several of the analyses we reviewed, various key components were either missing altogether, difficult to find, or located in documents other than the analyses themselves. Some of the analyses consisted of several separate documents that were never consolidated in a clear manner. For example, agency officials told us that one of the economic analyses was actually 12 separate memoranda. We are also finding that many of the analyses are actually cost-effectiveness studies rather than cost-benefit analyses. Cost-effectiveness analyses generally look for ways to meet a given goal at the least cost, while cost-benefit analyses usually involve a systematic identification of all costs and benefits associated with the proposed regulation and alternative approaches. Although cost-effectiveness analyses permit comparison of the costs of regulatory options relative to a given objective, these analyses generally do not address the merits of the objective itself. Agency officials explained that they often prepare cost-effectiveness analyses in cases where Congress has mandated the development of specific regulations--such as new emission standards for locomotives. According to the officials, in such cases it makes more sense to look for the most cost-effective approach to achieve that result rather than assessing all of the benefits and costs of alternative approaches. ozone and particulate matter standards. According to the agency, the more systematic cost-benefit analyses will aid EPA and the states when the standards are implemented--at which time costs can be considered. In addition, the more systematic analyses provide important information to the Congress and the public on the likely costs and benefits of mandates where the agencies are limited in their regulatory decisions. Our findings are similar to those of others who have recently examined cost-benefit studies. In its March 1997 report on economic analyses, the Congressional Budget Office concluded that there is no such thing as a typical analysis, and that even determining what constitutes an economic analysis is difficult. In its July 1997 draft report on governmentwide costs and benefits, OMB said that it found "a wide variety in the type, form, and format" of the information generated and used by the agencies, including "enormous data gaps in the information available on regulatory benefits and costs," problems with establishing baselines, and a lack of consensus on how to value items or qualities not generally traded in the marketplace. OMB concluded that "we need to ensure that the quality of data and analysis used by the agencies improves, that standardized assumptions and methodologies are applied more uniformly across regulatory programs and agencies..." A diverse panel of renowned economists made a similar recommendation in a 1996 paper prepared under the auspices of the American Enterprise Institute, the Annapolis Center, and Resources for the Future. Among other things, the panel recommended that agencies present their results using a standard format that summarizes the key results and highlights major uncertainties. Enactment of the analytical transparency and executive summary requirements in S. 981 would extend and underscore Congress' previous statutory requirements that agencies identify how regulatory decisions are made. We believe that Congress and the public have a right to know what alternatives the agencies considered and what assumptions they made in deciding how to regulate. Although those assumptions may legitimately vary from one analysis to another, the agencies should explain those variations. S. 981 also requires agencies to provide for peer review of all required cost-benefit analyses and risk assessments. Peer review is the critical evaluation of scientific technical work products by independent experts. The bill states that the peer review panels should be "broadly representative and balanced," and that the results of the reviews should be made available to the public. We believe that important economic analyses should be peer reviewed. In response to questions raised at a March 1997 hearing on peer review at EPA, we said that, given the uncertainties associated with predicting the future economic impacts of various regulatory alternatives, the rigorous, independent review of economic analyses should help enhance the products'--and the associated agency decisions'--quality, credibility, and acceptability. However, in our 1996 review of peer review at EPA, whose own policies and procedures call for such reviews, we concluded that implementation of these policies and procedures had been uneven. In some cases important aspects of the agency's peer review policy were not followed or peer review was not conducted at all. Our current work examining regulatory analyses at executive branch agencies is yielding similar evidence. None of the nine EPA analyses that we have reviewed thus far have been peer reviewed, even though all of the associated rules have an estimated annual impact on the economy of at least $100 million. this could be done more often if economic analyses were initiated at the beginning of the rulemaking process. The peer review requirements in S. 981 provide agencies with substantial flexibility. Agency heads may certify that adequate peer review has already been conducted, and avoid the bill's requirements. However, agencies will need to carefully plan for such reviews given the bill's requirement that they be done for each cost-benefit analysis and risk assessment, which must be done at both proposed and final rulemaking. Agencies will also need to ensure that all affected parties are represented on the panels and that panel reports reflect the diversity of opinions that exist. Mr. Chairman, our work has demonstrated that, although there is broad consensus about the value of conducting peer reviews of cost-benefit analyses used in the regulatory process, such reviews are often not done. In our view, systematic peer review as mandated by S. 981 would go a long way toward improving the quality of agencies' cost-benefit analyses. S. 981 contains a number of provisions to improve regulatory management. Requiring agencies to clearly describe in a single document changes made at the suggestion of OIRA or while under OIRA review can improve the transparency of the review process. Establishing advisory committees to identify rules for review could result in the elimination or revision of burdensome requirements. Improving the transparency and understandability of cost-benefit analyses by using executive summaries and other devices will help the public comprehend why regulatory decisions are made. Peer reviews of those analyses can help ensure that regulatory proposals are scientifically grounded. Although other provisions in the bill, such as comparative risk assessment and interagency coordination, may have similarly beneficial results, we have not done specific work in those areas. Passage of S. 981 would provide a statutory foundation for such principles as openness, accountability, and sound science in rulemaking. The key to achieving those principles is successful implementation, which will require strong guidance from OIRA and oversight from this and other Committees in Congress. Enactment of S. 981 would provide a sound basis for that oversight. Mr. Chairman, this completes my prepared statement. I would be pleased to answer any questions. 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 addressed issues in regulatory management as part of consideration of S. 981, the proposed Regulatory Improvement Act of 1997. GAO noted that: (1) S. 981 represents a continuation of efforts that have been made by both the legislative and executive branches to improve the rulemaking process and, as a result, produce better regulations; (2) during the past 20 years, Congress has enacted a series of statutory requirements intended to, among other things, reduce paperwork, lessen regulatory burden on small entities, and curb mandates imposed on state, local, and tribal governments and the private sector; (3) in the same vein, each of the last six presidents has issued executive orders or taken other actions intended to improve the regulatory process; (4) Executive Order 12866, issued in September 1993, is the Clinton administration's statement of policy on regulatory planning and review; (5) the executive order makes the Office of Management and Budget (OMB) responsible for carrying out regulatory reviews and, to the extent permitted by law, for providing guidance to agencies; (6) S. 981 addresses many of the same issues as Executive Order 12866, including cost benefit analysis, agency reviews of existing regulations, interagency coordination, and transparency in the regulatory review process; (7) the bill goes beyond the order's requirements on these issues and adds some new elements to the rulemaking process; (8) GAO's work indicates that some of the executive order's requirements have not always been met; and (9) enactment of S. 981 would help ensure that the underlying purposes of the order's requirements are more consistently achieved by OMB and regulatory agencies and provide a sound basis for congressional oversight of regulatory management issues.
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The Coast Guard has updated policies and processes for major acquisition programs to better reflect best practices and respond to our prior recommendations. The Coast Guard also continues to make progress in reducing its acquisition workforce vacancies, and to some extent is leveraging DOD contracts and expertise to support its major acquisition programs. Some examples are below. Updates to Policies and Processes We found that the Coast Guard revised its Major Systems Acquisition Manual in November 2010 to include a description of the roles and responsibilities of a flag-level Executive Oversight Council, which was formed in 2009 to review programs and provide oversight; aligning roles and responsibilities of independent test authorities to DHS standards, which satisfied one of our prior recommendations; a formal acquisition decision event before a program receives approval for low-rate initial production, which addressed one of our prior recommendations; and a requirement to present an acquisition strategy when DHS is asked to validate the need for a major acquisition program. The Coast Guard has made progress in reducing its acquisition workforce vacancies. From April through November 2010, the percentage of vacancies for government positions dropped from about 20 percent to13 percent. Over the past several years, we have reported on the Coast Guard's efforts to build its in-house acquisition workforce capacity--one of the reasons the Coast Guard initially turned to a contractor as the Deepwater systems integrator was largely because it did not have that in- house capacity. Acquisition workforce vacancies have decreased, but program managers have ongoing concerns about staffing program offices. For example, the HH-65 helicopter program office has funded and filled 10 out of the 33 positions needed. To help make up shortfalls in filling systems engineer and other acquisition workforce positions, the Coast Guard uses support contractors. As of November 2010, the Coast Guard support contractors made up 25 percent of the Coast Guard's acquisition workforce. While we have cited the risks in using support contractors, we previously reported that the Coast Guard has acknowledged these risks and has taken steps to address them, such as releasing guidance on the appropriate oversight of contractors and the work they perform. According to the Coast Guard, it currently has 81 interagency agreements, memorandums of agreement, and other arrangements in place primarily with DOD to support its major acquisition programs. Support from DOD ranges from acquiring products and services from established DOD contracts to using the Navy's engineering and testing expertise. For example, the Coast Guard benefited from discounts by coordinating C- 130J aircraft contracting efforts through the Air Force acquisitions office rather than contracting directly with the aircraft manufacturer. To leverage Navy engineering and testing expertise, most Coast Guard major acquisition programs use the Navy's Commander, Operational Test and Evaluation Forces, to support test activities. Coast Guard program managers, however, do not have a systematic way to gain insight into the existence and details of such agreements. According to Coast Guard contracting officials, the Coast Guard recently began to develop a database of all interagency agreements with DOD and other agencies, but at this point program staff have access to only 5 of the approximately 81 agreements. Today's report contains a recommendation that the Commandant of the Coast Guard take steps to ensure that all interagency agreements are captured in a database or other format and to make this information readily accessible to program staff. DHS agreed with the recommendation. We have previously reported that the Coast Guard has gained insights into the risks it faces in managing its major acquisitions. At the same time, most major programs continue to experience challenges in program execution, resources, and schedule. The Coast Guard assesses program execution using a composite metric that includes the following factors: earned value management, a performance assessment, logistics assessment, testing status, risk assessment, and technical maturity. It also assesses resources using a composite metric that includes several factors, such as budgeting, funding, staffing, and contractor health, that is, contractor personnel and facilities. These challenges are exacerbated by the Coast Guard's budget planning, which includes developing capital investment plans that project outyear funding levels. The Coast Guard has reported that projected funding levels in the fiscal years 2011-2015 capital investment plan were lower than previously planned for some major acquisition programs. This plan includes Deepwater Program assets as well as other acquisitions. Figure 1 illustrates these risks for each major acquisition program. Programs experiencing instability due to reduced projected funding levels. To support its role as systems integrator, the Coast Guard planned to complete a fleet mix analysis in July 2009 to eliminate uncertainty surrounding future mission performance and to produce a baseline for the Deepwater acquisition. We previously reported that the Coast Guard expected this analysis to serve as one tool, among many, in making future capability requirements determinations, including future fleet mix decisions. The analysis, which began in October 2008 and is now termed fleet mix analysis phase 1, was led by the Coast Guard directorate responsible for identifying and providing capabilities. In July 2010, we reported that while the Coast Guard had not yet released the results, officials told us that the analysis considered the 2007 Deepwater baseline to be the "floor" for asset capabilities and quantities and did not impose financial constraints on the outcome. The Coast Guard initiated a second phase of the analysis to impose cost constraints. We recommended in our July 2010 report that since the 2007 DHS-approved baseline of $24.2 billion was no longer feasible because of cost growth, the Coast Guard should conduct a comprehensive review of Deepwater cost, schedule, quantities, and mix of assets needed to meet mission needs, identify trade-offs given fiscal constraints, and report the results to Congress. The Coast Guard's efforts to date have not addressed this recommendation. We recently obtained and analyzed the phase 1 fleet mix analysis. We found that to conduct this analysis, the Coast Guard assessed asset capabilities and mission demands to identify a fleet mix--referred to as the objective fleet mix--that would meet long-term strategic goals. Given the significant increase in the number of assets needed for this objective fleet mix from the approved Deepwater program of record--the $24.2 billion baseline--the Coast Guard developed, based on risk metrics, incremental fleet mixes to bridge the two. Table 1 shows the quantities of assets for each incremental mix, according to the Coast Guard's analysis. Phase 1 also analyzed the performance of these fleet mixes to gain insight into mission performance gaps. However, the analysis was not cost constrained, as noted above. For instance, the Coast Guard estimated that the costs associated with the objective fleet mix could be as much as $65 billion. This is approximately $40 billion higher than the DHS-approved $24.2 billion baseline. As a result, as we reported last year, Coast Guard officials stated that they do not consider the results to be feasible because of cost and do not plan to use them to provide recommendations on a baseline for fleet mix decisions. In May 2010, the Coast Guard undertook phase 2, a cost-constrained fleet mix analysis. Officials responsible for the analysis explained that it will primarily assess the rate at which the Coast Guard could acquire the Deepwater program of record within a high and low bound of annual acquisition cost constraints. They told us that the lower- and upper- bound constraints are, respectively, $1.2 billion and $1.7 billion annually; however, the basis for selecting these cost constraints is not documented. Based on our review of recent budget data, this upper bound for Deepwater is more than Congress has appropriated for the Coast Guard's entire acquisition portfolio in recent years. Moreover, the Coast Guard officials stated that this analysis will not reassess whether the current program of record is the appropriate mix of assets to pursue and will not assess any mixes smaller than the current program of record. Alternative fleet mixes will be assessed, but these mixes are based on purchasing additional assets after the program of record is acquired, if funding remains within the yearly cost constraints. Coast Guard officials stated that they are only analyzing the program of record or a larger fleet mix because they found that the first phase of the analysis validated pursuing, at the minimum, the program of record. The Coast Guard expects to complete its phase 2 analysis in the summer of 2011. Because fleet mix analysis phase 2 will not assess options lower than the program of record, it will not prepare the Coast Guard to make the trade-offs that will likely be needed in the current fiscal climate. Furthermore, it is our understanding that DHS is conducting a study examining the mix of surface assets, which is expected to be completed later this year. As part of our ongoing work, we will continue to monitor these efforts as they relate to the fleet mix analysis. In conclusion, I would like to emphasize several key points as we continue to review the Coast Guard's management of acquisitions. It is important to recognize that the Coast Guard continues to make progress in strengthening its capabilities to manage its acquisition portfolio by updating acquisition policies and practices, reducing vacancies in the acquisition workforce, and leveraging DOD contracts and resources to help support its major acquisitions. Nevertheless, the Coast Guard still faces significant challenges in carrying out these major acquisitions within a fiscally constrained environment, especially given continued cost growth and schedule delays that are exacerbated in part by unrealistic budget plans. Additionally, as costs continue to grow and capabilities are delayed, the Coast Guard has yet to consider the trade-offs in capabilities, quantities, and costs of the Deepwater assets--a significant portion of its major acquisition portfolio--in order to identify an affordable fleet. We expect to continue reviewing and reporting on its progress in this regard. Chairman LoBiondo, Ranking Member Larsen, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the subcommittee may have at this time. If you have any questions on matters discussed in this statement, please contact John P. Hutton 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 statement. Other individuals making key contributions to this testimony include Michele Mackin, Assistant Director; John Neumann, Assistant Director; Jessica Drucker; Laurier Fish; Carlos Gomez; Kristine Hassinger; Morgan Delaney Ramaker; William Russell; Molly Traci; and Rebecca Wilson. The NSC is intended to be the flagship of the Coast Guard's fleet, with an extended on- scene presence, long transits, and forward deployment. The cutter and its aircraft and small boat assets are to operate worldwide. The OPC is intended to conduct patrols for homeland security functions, law enforcement, and search and rescue operations. It will be designed for long-distance transit, extended on-scene presence, and operations with multiple aircraft and small boats. The FRC, also referred to as the Sentinel class, is conceived as a patrol boat with high readiness, speed, adaptability, and endurance to perform a wide range of missions. The MEC sustainment project is intended to improve the cutters' operating and cost performance by replacing obsolete, unsupportable, or maintenance-intensive equipment. The PB sustainment project is intended to improve the boats' operating and cost performance by replacing obsolete, unsupportable, or maintenance-intensive equipment. The MPA is a transport and surveillance, fixed-wing aircraft intended to be used to perform search and rescue missions, enforce laws and treaties, and transport cargo and personnel. The HC-130J is a four-engine turbo-prop aircraft that the Coast Guard has deployed with improved interoperability, Command, Control, Communications, Computer, Intelligence, Surveillance, and Reconnaissance (C4ISR), and sensors to enhance surveillance, detection, classification, identification, and prosecution. The HC-130H is the legacy Coast Guard long-range surveillance aircraft, which the Coast Guard intends to update in multiple segments. HH-65 Multi-mission Cutter Helicopter The HH-65 Dolphin is the Coast Guard's short-range recovery helicopter. It is being upgraded to improve its engines, sensors, navigation equipment, avionics, ability to land on the NSC, and other capabilities in multiple segments. The HH-60 is a medium-range recovery helicopter designed to perform search and rescue missions offshore in all weather conditions. The Coast Guard has planned upgrades to the helicopter's avionics, sensors, radars, and C4ISR systems in multiple segments. The land-based and cutter-based UASs are in the Need phase. The UAS strategy is to range UASs and low altitude cutter-based tactical UASs to fulfill mission requirements while emphasizing (1) commonality with existing Department of Homeland Security and Department of Defense programs, (2) ensuring that projects mature, and (3) where possible, leveraging other government organizations' UAS development and nonrecurring engineering costs. The RB-M is intended to replace the aging 41-foot utility boats and other medium nonstandard boats. The Coast Guard is incrementally acquiring C4ISR capabilities, including upgrades to existing cutters and shore installations, acquisitions of new capabilities, and development of a common operating picture to provide operationally relevant information and knowledge across the full range of Coast Guard operations. CG-LIMS will replace or integrate legacy logistics business processes and their supporting information systems. NAIS is a data collection, processing, and distribution system that provides information to enhance safety of navigation and improve Maritime Domain Awareness. IOC is intended to improve operational capabilities, situational awareness, tactical decision making and joint, coordinated emergency response. Rescue 21 is an advanced command, control, and communications system intended to improve the Coast Guard's search and rescue mission by leveraging direction-finding technology to more accurately locate the source of distress calls. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The U.S. Coast Guard manages a broad major acquisition portfolio. GAO has reported extensively on the Coast Guard's significant challenges with its major acquisition programs, including its Deepwater Program. GAO has also recognized steps the Coast Guard has taken to improve acquisition management. Additionally, GAO has recommended that the Coast Guard complete a review of the Deepwater Program to clarify the mix of assets that are needed to meet mission needs and trade-offs while considering fiscal constraints, because the program had exceeded its $24.2 billion baseline. This testimony updates (1) Coast Guard efforts to manage major acquisitions, (2) challenges programs are facing in the areas of cost and schedule, and (3) the status of the Deepwater fleet mix analysis. This statement is largely based on GAO-11-480 , which is being issued today. In that report, GAO recommended that the Coast Guard formalize its database of agreements with the Department of Defense (DOD). The Department of Homeland Security agreed with the recommendation. This statement also draws from prior GAO reports and ongoing work related to Deepwater. GAO reviewed the first phase of the Coast Guard's fleet mix analysis, contract documents, and budget information. GAO also interviewed Coast Guard officials responsible for conducting the fleet mix analysis. For the new information, GAO obtained Coast Guard views and incorporated technical comments where appropriate The Coast Guard continues to improve its acquisition management capabilities by updating policies, reducing acquisition workforce vacancies, and leveraging DOD contracts. In November 2010, the Coast Guard updated its "Major Systems Acquisition Manual" to further incorporate best practices and respond to prior GAO recommendations, such as aligning the roles and responsibilities of independent test authorities to DHS standards. Additionally, the Coast Guard reduced its acquisition workforce vacancies from about 20 to 13 percent from April through November 2010. Shortfalls in hiring staff for certain key areas persist, though, and some programs continue to be affected by unfilled positions. The Coast Guard has entered into 81 memorandums of agreement and other arrangements--primarily with DOD--to support its major acquisition programs, but program staff currently have access to only 5 of the 81 agreements. Most of the Coast Guard's 17 major acquisition programs continue to experience challenges in program execution, schedule, and resources. Furthermore, the Coast Guard's unrealistic budget planning exacerbates these challenges. When programs receive funding lower than planned, schedule breaches and other problems are more likely to occur. In fact, 4 of the major acquisition programs have reported a baseline breach caused, at least in part, by reduced projected funding levels. Additionally, projected funding levels in the Coast Guard's fiscal years 2012-2016 capital investment plan are significantly higher than budgets previously appropriated or requested and therefore may be unrealistic. This is particularly true given the rapidly building fiscal pressures facing the nation. For example, the Coast Guard plans to request $2.35 billion for acquisitions in fiscal year 2015--including funding for construction of three major Deepwater surface assets--but the agency has not received more than $1.54 billion in any recent year. The Coast Guard has developed action items to address budget planning challenges. In July 2010, GAO recommended that because of significant cost growth in the Deepwater Program, the Coast Guard should review the cost and mix of assets and identify trade-offs given fiscal constraints. The Department of Homeland Security agreed with the recommendation; however, the Coast Guard has not yet implemented it. The Coast Guard began a fleet mix analysis in 2008 that considered the current Deepwater Program to be the "floor" for asset capabilities and quantities and did not impose cost constraints on the various fleet mixes. Consequently, the results will not be used as a basis for trade-off decisions. The Coast Guard has now begun a second analysis, which includes an upper cost constraint of $1.7 billion annually--more than Congress has appropriated for the entire Coast Guard acquisition portfolio in recent years. Further, Coast Guard officials told GAO that this analysis will not assess options lower than the current program of record. It therefore will not prepare the Coast Guard to make the trade-offs that will likely be needed in the current fiscal climate. The Coast Guard expects to complete the analysis this summer.
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Drinking water systems vary by size and other factors, but as illustrated in figure 1, they most typically include a supply source, treatment facility, and distribution system. A water system's supply source may be a reservoir, aquifer, or well, or a combination of these sources. Some systems may also include a dam to help maintain a stable water level, and aqueducts and transmission pipelines to deliver the water to a distant treatment plant. The treatment process generally uses filtration, sedimentation, and other processes to remove impurities and harmful agents, and disinfection processes such as chlorination to eliminate biological contaminants. Chemicals used in these processes, most notably chlorine, are often stored on site at the treatment plant. Distribution systems comprise water towers, piping grids, pumps, and other components to deliver treated water from treatment systems to consumers. Particularly among larger utilities, distribution systems may contain thousands of miles of pipes and numerous access points. Nationwide, there are more than 160,000 public water systems that individually serve from as few as 25 people to 1 million people or more. As figure 2 illustrates, nearly 133,000 of these water systems serve 500 or fewer people. Only 466 systems serve more than 100,000 people each, but these systems, located primarily in urban areas, account for early half of the total population served. Until the 1990s, emergency planning at drinking water utilities generally focused on responding to natural disasters and, in some cases, domestic threats such as vandalism. In the 1990s, however, both government and industry officials broadened the process to account for terrorist threats. Among the most significant actions taken was the issuance in 1998 of Presidential Decision Directive 63 to protect the nation's critical infrastructure against criminal and terrorist attacks. The directive designated the Environmental Protection Agency (EPA) as the lead federal agency to address the water infrastructure and to work with both public and private organizations to develop emergency preparedness strategies. EPA, in turn, appointed the Association of Metropolitan Water Agencies to coordinate the water industry's role in emergency preparedness. During this time, this public-private partnership focused primarily on cyber security threats for the several hundred community water systems that each served over 100,000 persons. The partnership was broadened in 2001 to include both the drinking water and wastewater sectors, and focused on systems serving more than 3,300 people. Efforts to better protect drinking water infrastructure were accelerated dramatically after the September 11 attacks. EPA and the drinking water industry launched efforts to share information on terrorist threats and response strategies. They also undertook initiatives to develop guidance and training programs to assist utilities in identifying their systems' vulnerabilities. As a major step in this regard, EPA supported the development, by American Water Works Association Research Foundation and Sandia National Laboratories, of a vulnerability assessment methodology for larger drinking water utilities. The push for vulnerability assessments was then augmented by the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act). Among other things, the act required each community water system serving more than 3,300 individuals to conduct a detailed vulnerability assessment by specified dates in 2003 or 2004, depending on their size. Since we issued our report in October, several Homeland Security Presidential Directives (HSPDs) were issued that denote new responsibilities for EPA and the water sector. HSPD 7 designates EPA as the water sector's agency specifically responsible for infrastructure protection activities, including developing a specific water sector plan for the National Infrastructure Protection Plan that the Department of Homeland Security must produce. HSPD 9 directs EPA to develop a surveillance and monitoring program to provide early warning in the event of a terrorist attack using diseases, pests, or poisonous agents. EPA is also charged, under HSPD 9, with developing a nationwide laboratory network to support the routine monitoring and response requirements of the surveillance program. HSPD 10 assigns additional responsibilities to EPA for decontamination efforts. To obtain information for our analysis, we conducted a three-phase, Web based survey of 43 experts on drinking water security. In identifying these experts, we sought to achieve balance in terms of area of expertise (i.e., state and local emergency response, engineering, epidemiology, public policy, security and defense, drinking water treatment, risk assessment and modeling, law enforcement, water infrastructure, resource economics, bioterrorism, public health, and emergency and crisis management). In addition, we attempted to achieve participation by experts from key federal organizations, state and local agencies, industry and nonprofit organizations, and water utilities serving populations of varying sizes. To obtain information from the expert panel, we employed a modified version of the Delphi method. The Delphi method is a systematic process for obtaining individuals' views and seeking consensus among them, if possible, on a question or problem of interest. Since first developed by the RAND Corporation in the 1950s, the Delphi method has generally been implemented using face-to-face group discussions. For this study, however, we administered the method through the Internet. We conducted our work in accordance with generally accepted government auditing standards between July 2002 and August 2003. Our panel of experts identified several key physical assets of drinking water systems as the most vulnerable to intentional attack. In general, their observations were similar to those of public and private organizations that have assessed the vulnerability of these systems to terrorist attacks, including the National Academy of Sciences, Sandia National Laboratories, and key industry associations. In particular, as shown in figure 3, nearly 75 percent of the experts (32 of 43) identified the distribution system or its components as among the top vulnerabilities of drinking water systems. Experts also identified overarching issues compromising how well these assets are protected. Chief among these issues are (1) a lack of redundancy in vital systems, which increases the likelihood that an attack could render a system inoperable; and (2) the difficulty many systems face in understanding the nature of the threats to which they are exposed. I would first like to discuss the distribution system, since it was cited most frequently as a key vulnerability by our panelists. The distribution system delivers drinking water primarily through a network of underground pipes to homes, businesses, and other customers. While the distribution systems of small drinking water utilities may be relatively simple, larger systems serving major metropolitan areas can be extremely complex. One such system, for example, measures water use through 670,000 metered service connections, and distributes treated water through nearly 7,100 miles of water mains that range from 2 inches to 10 feet in diameter. In addition to these pipelines and connections, other key distribution system components typically include numerous pumping stations, treated water storage tanks, and fire hydrants. In highlighting the vulnerability of distribution systems, our panelists most often cited their accessibility at so many points. One expert, for example, cited the difficulty in preventing the introduction of a contaminant into the distribution system from inside a building "regardless of how much time, money, or effort we spend protecting public facilities." Experts also noted that since the water in the distribution system has already been treated and is on the way to the consumer, the distribution of a chemical, biological, or radiological agent in such a manner would be virtually undetectable until it was too late to prevent harm. While research on the fate and transport of contaminants within water treatment plants and distribution systems is under way, according to one expert, limited technologies are readily available that can detect a wide range of contaminants once treated water is released through the distribution system for public use. Several other components, though not considered as critical as the distribution system, were still the subject of concern. Nearly half the experts (20 of 43) identified source water as among drinking water systems' top vulnerabilities. One expert noted, for example, that "because of the vast areas covered by watersheds and reservoirs, it is difficult to maintain security and prevent intentional or accidental releases of materials that could have an adverse impact on water quality." Yet some experts cited factors that mitigate the risks associated with source water, including (1) the source water typically involves a large volume of water, which in many cases could dilute the potency of contaminants; (2) the length of time (days or even weeks) that it typically takes for source water to reach consumers; and (3) the source water will go through a treatment process in which many contaminants are removed. Also cited as vulnerabilities were the sophisticated computer systems that drinking water utilities have come to rely upon to manage key functions. These Supervisory Control and Data Acquisition (SCADA) systems allow operators to monitor and control processes throughout their drinking water systems. Although SCADA systems have improved water utilities' efficiency and reduced costs, almost half of the experts on our panel (19 of 43) identified them as among these utilities' top vulnerabilities. Thirteen of the 43 experts identified treatment chemicals, particularly chlorine used for disinfection, as among utilities' top vulnerabilities. Experts cited the inherent danger of storing large cylinders of a chemical on site, noting that their destruction could release toxic gases in densely populated areas. Some noted, however, that this risk has been alleviated by utilities that have chosen to use the more stable liquid form of chlorine instead of the more vulnerable compressed gas canisters that have traditionally been used. Finally, experts identified overarching issues that compromise the integrity of multiple physical assets, or even the entire drinking water system. Among these is the lack of redundancy among vital systems. Many drinking water systems are "linear"--that is, they have single transmission lines leading into the treatment facility and single pumping stations along the system, and often use a single computer operating system. They also depend on the electric grid, transportation systems, and single sources of raw materials (e.g., treatment chemicals). Many experts expressed concern that problems at any of these "single points of failure" could render a system inoperable unless redundant systems are in place. Experts also cited the lack of sufficient information to understand the most significant threats confronting individual utilities. According to the American Water Works Association, assessments of the most credible threats facing a utility should be based on knowledge of the "threat profile" in its specific area, including information about past events that could shed light on future risks. Experts noted, however, that such information has been difficult for utilities to obtain. One expert suggested that the intelligence community needs to develop better threat information and share it with the water sector. Many drinking water utilities have been financing at least some of their security upgrades by passing along the costs to their customers through rate increases. Given the cost of these upgrades, however, the utility industry is also asking that the taxpayer shoulder some of the burden through the appropriations process. Should Congress and the administration agree to this request, they will need to address key issues concerning who should receive the funds and how they should be distributed. With this in mind, we asked our panel of experts to focus on the following key questions: (1) To what extent should utilities' vulnerability and risk assessment information be considered in making allocation decisions? (2) What types of utilities should receive funding priority? and (3) What are the most effective mechanisms for directing these funds to recipients? Regarding the first of these questions, about 90 percent of the experts (39 of 43) agreed "strongly" or "somewhat" that funds should be allocated on the basis of vulnerability assessment information, with some citing the vulnerability assessments (VAs) required by the Bioterrorism Act as the best available source of this information. Several experts, however, pointed to a number of complicating factors. Perhaps the most significant constraint is the Bioterrorism Act's provision precluding the disclosure of any information that is "derived" from vulnerability assessments submitted to EPA. The provision protects sensitive information about each utility's vulnerabilities from individuals who may then use the information to harm the utility. Hence, the law specifies that only individuals designated by the EPA Administrator may have access to the assessments and related information. Yet, according to many of the experts, even those individuals may face constraints in using the information. They may have difficulty, for example, in citing vulnerability assessments to support decisions on allocating security-related funds among utilities, as well as decisions concerning research priorities and guidance documents. Others cited an inherent dilemma affecting any effort to set priorities for funding decisions based on the greatest risk--whatever does not receive attention becomes a more likely target. Regarding the second question concerning the types of utilities that should receive funding priority, 93 percent of the experts (40 of 43) indicated that utilities serving high-density population areas should receive a high or the highest priority in funding (See figure 4.). Fifty-five percent deemed this criterion as the highest priority. Most shared the view of one expert who noted that directing limited resources to protect the greatest number of people is a common factor when setting funding priorities. Experts also assigned high priority to utilities serving critical assets, such as national icons representing the American image, military bases, and key government, academic, and cultural institutions. At the other end of the spectrum, only about 5 percent of the experts (2 of 43) stated that utilities serving rural or isolated populations should receive a high or highest priority for federal funding. These two panelists commented that such facilities are least able to afford security enhancements and are therefore in greatest need of federal support. Importantly, the relatively small percentage of experts advocating priority for smaller systems may not fully reflect the concern among many of the experts for the safety of these utilities. For example, several who supported higher priority for utilities serving high-density populations cautioned that while problems at a large utility will put more people at risk, utilities serving small population areas may be more vulnerable because of weaker treatment capabilities, fewer highly trained operators, and more limited resources. Regarding the mechanisms for distributing federal funds, 86 percent of the experts (37 of 43) indicated that direct grants would be "somewhat" or "very" effective in allocating federal funds (See figure 5.) One expert cited EPA's distribution of direct security-related grant funds in 2002 to larger systems to perform their VAs as a successful initiative. Importantly, 74 percent also supported a matching requirement for such grants as somewhat or very effective. One expert pointed out that such a requirement would effectively leverage limited federal dollars, thereby providing greater incentive to participate. The Drinking Water State Revolving Fund (DWSRF) received somewhat less support as a mechanism for funding security enhancements. About half of the experts (22 of 43) indicated that the fund would be somewhat or very effective in distributing federal funds, but less than 10 percent indicated that it would be very effective. One expert cautioned that the DWSRF should be used only if a process were established that separated funding for security-related needs from other infrastructure needs. Others stated that as a funding mechanism, the DWSRF would not be as practical as other mechanisms for funding improvements requiring immediate attention, but would instead be better suited for longer-term improvements. When experts were asked to identify specific security-enhancing activities most deserving of federal support, their responses generally fell into three categories: (1) physical and technological upgrades to improve security and research to develop technologies to prevent, detect, or respond to an attack, (2) education and training to support, among other things, simulation exercises to provide responders with experience in carrying out emergency response plans, and specialized training of utility security staff; and (3) strengthening key relationships between water utilities and other agencies that may have key roles in an emergency response, such as public health agencies, law enforcement agencies, and neighboring drinking water systems. As illustrated in figure 6, specific activities to enhance physical security and support technological improvements generally fell into nine subcategories. Of these, the development of "near real-time monitoring technologies," capable of providing near real-time data for a wide array of potentially harmful water constituents, received far more support for federal funding than any other subcategory--over 93 percent of the experts (40 of 43) rated this subcategory as deserving at least a high priority for federal funding. More significantly, almost 70 percent (30 of 43) rated it the highest priority--far surpassing the rating of any other category. These technologies were cited as critical in efforts to quickly detect contamination events, minimize their impact, and restore systems after an event has passed. The experts' views were consistent with those of the National Academies of Science, which in a 2002 report highlighted the need for improved monitoring technologies as one of four highest priority areas for drinking water research and development. The report noted that such technologies differ significantly from those currently used for conventional water quality monitoring, stating further that sensors are needed for "better, cheaper, and faster sensing of chemical and biological contaminants." In addition to real-time monitoring technologies, the experts voiced strong support for (1) increasing laboratories' capacity to deal with spikes in demand caused by chemical, biological, or radiological contamination of water supplies, and (2) "hardening" the physical assets of drinking water facilities through improvements such as adding or repairing fences, locks, lighting systems, and cameras and other surveillance equipment. Regarding the latter of these two, however, some experts cited inherent limitations in attempting to comprehensively harden a drinking water facility's assets. In particular, they noted in particular that, unlike nuclear power or chemical plants, a drinking water system's assets are spread over large geographic areas, particularly the source water and distribution systems. Regarding efforts to improve education and training, over 90 percent of the experts (39 of 43) indicated that improved technical training for security-related personnel warrants at least a high priority for federal funding. (See figure 7.) Over 55 percent (24 of 43) indicating that it deserved the highest priority. To a lesser extent, experts supported general training for other utility personnel to increase their awareness of security issues. The panelists also underscored the importance of conducting regional simulation exercises to test emergency response plans, with more than 88 percent (38 of 43) rating this as a high or highest priority for federal funding. Such exercises are intended to provide utility and other personnel with the training and experience needed both to perform their individual roles in an emergency and to coordinate these roles with other responders. Finally, about half the experts assigned at least a high priority to supporting multidisciplinary consulting teams ("Red Teams"), comprising individuals with a wide array of backgrounds, to provide independent analyses of utilities' vulnerabilities. As illustrated in figure 8, experts also cited the need to improve cooperation and coordination between drinking water utilities and certain other organizations as key to improving utilities' security. Among the organizations most often identified as critical to this effort are public health and law enforcement agencies, which have data that can help utilities better understand their vulnerabilities and respond to emergencies. In addition, the experts cited the value of utilities' developing mutual aid arrangements with neighboring utilities. Such arrangements sometimes include, for example, sharing back-up power systems or other critical equipment. One expert described an arrangement in the San Francisco Bay Area--the Bay Area Security Information Collaborative (BASIC)--in which eight utilities meet regularly to address security-related topics. Finally, over 90 percent of the experts (39 of 43) rated the development of common protocols among drinking water utilities to monitor drinking water threats as warranting a high or highest priority for federal funding. Drinking water utilities vary widely in how they perceive threats and detect contamination, in large part because few common protocols exist that would help promote a more consistent approach toward these critical functions. Some experts noted, in particular, the need for protocols to guide the identification, sampling, and analysis of contaminants. In 2002, EPA's Strategic Plan on Homeland Security set forth the goal of significantly reducing unacceptable security risks at water utilities across the country by completing appropriate vulnerability assessments; designing security enhancement plans; developing emergency response plans; and implementing security enhancements. The plan further committed to providing federal resources to help accomplish these goals as funds are appropriated. Key judgments about which recipients should get funding priority, and how those funds should be spent, will have to be made in the face of great uncertainty about the likely targets of attacks, the nature of attacks (whether physical, cyber, chemical, biological, or radiological), and the timing of attacks. The experts on our panel have had to consider these uncertainties in developing their own judgments about these issues. These judgments, while not unanimous on all matters, suggested a high degree of consensus on a number of key issues. We recognize that such sensitive decisions must ultimately take into account political, equity, and other considerations. But we believe they should also consider the judgments of the nation's most experienced individuals regarding these matters, such as those included on our panel. It is in this context that we offer the results presented in this testimony as information for Congress and the administration to consider as they seek the best way to use limited financial resources to reduce threats to the nation's drinking water supply. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of this Subcommittee may have. 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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After the events of September 11, 2001, Congress appropriated over $140 million to help drinking water systems assess their vulnerabilities to terrorist threats and to develop response plans. Utilities are asking for additional funding, however, not only to plan security upgrades but also to support their implementation. This testimony is based on GAO's report, Drinking Water: Experts' Views on How Future Federal Funding Can Best Be Spent to Improve Security ( GAO-04-29 , October 31, 2003). Specifically, GAO sought experts' views on (1) the key security-related vulnerabilities affecting drinking water systems, (2) the criteria for determining how federal funds are allocated among drinking water systems to improve their security, and the methods by which those funds should be distributed, and (3) specific activities the federal government should support to improve drinking water security. GAO's expert panel cited distribution systems as among the most vulnerable physical components of a drinking water utility, a conclusion also reached by key research organizations. Also cited were the computer systems that manage critical utility functions; treatment chemicals stored on-site; and source water supplies. Experts further identified two key factors that constitute overarching vulnerabilities: (1) a lack of the information individual utilities need to identify their most serious threats and (2) a lack of redundancy in vital system components, which increases the likelihood an attack could render an entire utility inoperable. According to over 90 percent of the experts, utilities serving high-density areas deserve at least a high priority for federal funding. Also warranting priority are utilities serving critical assets, such as military bases, national icons, and key academic institutions. Direct federal grants were clearly the most preferred funding mechanism, with over half the experts indicating that such grants would be "very effective" in distributing funds to recipients. Substantially fewer recommended using the Drinking Water State Revolving Fund for security upgrades. When asked to identify specific security-enhancing activities most deserving of federal support, experts' responses generally fell into three categories: (1) physical and technological upgrades to improve security and research to develop technologies to prevent, detect, or respond to an attack (experts most strongly supported developing near real-time monitoring technologies to quickly detect contaminants in treated drinking water on its way to consumers); (2) education and training to support, among other things, simulation exercises to provide responders with experience in carrying out emergency response plans; specialized training of utility security staff; and multidisciplinary consulting teams to independently analyze systems' security preparedness and recommend improvements; and (3) strengthening key relationships between water utilities and other agencies that may have key roles in an emergency response, such as public health agencies, law enforcement agencies, and neighboring drinking water systems; this category also includes developing protocols to encourage consistent approaches to detecting and diagnosing threats.
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The key objectives of U.S. public diplomacy are to engage, inform, and influence overseas audiences. Public diplomacy is carried out through a wide range of programs that employ person-to-person contacts; print, broadcast, and electronic media; and other means. Traditionally, U.S. public diplomacy focused on foreign elites--current and future overseas opinion leaders, agenda setters, and decision makers. However, the dramatic growth in global mass communications and other trends have forced a rethinking of this approach, and State has begun to consider techniques for communicating with broader foreign audiences. The BBG, as the overseer of U.S. international broadcasting efforts, supports U.S. public diplomacy's key objectives by broadcasting fair and accurate information about the United States, while maintaining its journalistic independence as a news organization. The BBG manages and oversees the Voice of America (VOA), WorldNet Television, Radio/TV Marti, Radio Free Europe/Radio Liberty, Radio Farda, the Middle East Television Network (which consists of Radio Sawa and Alhurra, the Board's new Arabic language television station), the Afghanistan Radio Network, and Radio Free Asia. Radio Sawa, Alhurra, and Radio Farda (Iran), provide regional and local news to countries in the Middle East. Together, State and the BBG spend in excess of $1 billion on public diplomacy programs each year. State's public diplomacy budget totaled an estimated $628 million in fiscal year 2004. About 51 percent, or $320 million, is slated for the Fulbright and other educational and cultural exchange programs. The remainder covers mostly salaries and expenses incurred by State and embassy officers engaged in information dissemination, media relations, cultural affairs, speaker programs, publications, and other activities. BBG's budget for fiscal year 2004 is $546 million. This includes more than $42 million for radio and television broadcasting to the Middle East. Since initiating the language service review process in 1999, the Board has reduced the scope of operations of more than 25 language services and reallocated about $19.7 million in funds, with the majority redirected toward Central Asia and the Middle East, including $8 million for Radio Farda service to Iran. Since September 11, 2001, State has expanded its efforts in Muslim- majority countries that are considered strategically important in the war on terrorism. State significantly increased the program funding and number of Foreign Service officers in its bureaus of South Asian and Near Eastern Affairs. State has also launched a number of new initiatives targeting broader, younger audiences--particularly in predominantly Muslim countries--that include expanding exchange programs targeting citizens of Muslim countries, informing foreign publics about U.S. policies in the war on terrorism, and demonstrating that Americans and Muslims share certain values. The BBG has also targeted recent initiatives to support the war on terrorism, including Radio Sawa in the Middle East; the Afghanistan Radio Network; and the new Radio Farda service to Iran. In addition, the Board expanded its presence in the Middle East through the launch of the Alhurra satellite television network in mid-February 2004. The 9/11 Commission recommended that the United States rely on such programs and activities to vigorously defend our ideals abroad, just as the United States did during the Cold War. Since September 11, 2001, the State Department has increased its resources and launched various new initiatives in predominantly Muslim countries. For example, while State's bureau of Europe and Eurasia still receives the largest overall share of overseas public diplomacy resources, the largest percentage increases in such resources since September 11 occurred in State's bureaus of South Asian and Near Eastern Affairs, where many countries have significant Muslim populations. Public diplomacy funding increased in South Asia from $24 million to $39 million and in the Near East from $39 million to $62 million, or by 63 and 58 percent, respectively, from fiscal year 2001 through 2003. During the same period, authorized American Foreign Service officers in South Asia increased from 27 to 31 and in the Near East from 45 to 57, or by 15 percent and 27 percent, respectively. Furthermore, in 2002, State redirected 5 percent of its exchange resources to better support the war on terrorism and to strengthen U.S. engagement with Muslim countries. In 2003, State has continued to emphasize exchanges with Muslim countries through its Partnership for Learning Program--designed to target young and diverse audiences through academic and professional exchanges such as the Fulbright, International Visitor, and Citizen Exchange programs. According to State, under this program, 170 high school students from predominantly Islamic countries have already arrived and are living with American families and studying at local high schools. State has also carried out increased exchanges through its Middle East Partnership Initiative, which includes computer and English language training for women newly employed by the Afghan government and a program to assist women from Arab countries and elsewhere in observing and discussing the U.S. electoral process. In addition, State is expanding its American Corners program, as recommended by the Advisory Group on Public Diplomacy in October 2003. This program uses space in public libraries and other public buildings abroad to provide information about the United States. In fiscal year 2004, State is planning to establish 58 American Corners in the East and South Asia. In fiscal year 2005, State plans to open 10 in Afghanistan and 15 in Iraq. State's Office of International Information Programs has also developed new initiatives to support the war on terrorism, including a print and electronic pamphlet titled The Network of Terrorism, distributed in 36 languages via hard copy, the Web, and media throughout the world, which documented the direct link between the September 11 perpetrators and al Qaeda; and a publication titled Iraq: From Fear to Freedom to inform foreign audiences of the administration's policies toward Iraq. Several of the BBG's new initiatives focus on reaching large audiences in priority markets and supporting the war on terrorism. The first of these programs, Radio Sawa in the Middle East, was launched in March 2002 using modern, market-tested broadcasting techniques and practices, such as the extensive use of music formats. Radio Sawa replaced the poorly performing VOA Arabic service, which had listening rates at around 2 percent of the population. According to BBG survey research, Radio Sawa is reaching 51 percent of its target audience and is ranked highest for news and news trustworthiness in Amman, Jordan. Despite such results, it remains unclear how many people Radio Sawa reaches throughout the entire Middle East because audience research has been performed only in selected markets. Further, the State Inspector General and the Advisory Group on Public Diplomacy for the Arab and Muslim World have raised questions about whether Radio Sawa has focused more on audience size and composition than on potential impact on attitudes in the region. The BBG has also launched the Afghanistan Radio Network and a language service to Iran called Radio Farda. Estimated costs for these three initiatives through fiscal year 2003 are about $116 million. In addition, the Board started Alhurra, an Arabic language television network in the Middle East, in mid-February 2004. While the growth in programs to the Muslim world marks the recognition of the need to increase diplomatic channels to this population, there still is no interagency strategy to guide State's and all federal agencies' communication efforts and ensure consistent messages to overseas audiences. In addition, as of June 2004, State still lacked a comprehensive and commonly understood public diplomacy strategy to guide its programs. We agree with the 9/11 Commission recommendation that the U.S. government must define its message. State also is not systematically or comprehensively measuring progress toward its public diplomacy goals. In addition, we found that , although BBG has a strategic plan, the plan lacks a long-term strategic goal or related program objective to gauge the Board's success in increasing audience size. Further, the BBG's plan contains no measurable program objectives to support the plan's strategic goals or to provide a basis for assessing the Board's performance. Since our report, however, the Board revised its strategic plan and has improved its ability to gauge its program effectiveness measures by adding broadcast credibility and audience awareness measures. The Board also plans to add additional performance measures, such as whether broadcast entities are achieving their mandated missions. No interagency public diplomacy strategy has been implemented that lays out the messages and means for governmentwide communication efforts to overseas audiences. The absence of an interagency strategy complicates the task of conveying consistent messages and thus achieving mutually reinforcing benefits. State officials told us that, without such a strategy, the risk of making communication mistakes that are damaging to U.S. public diplomacy efforts is high. They also said that the lack of a strategy diminishes the efficiency and effectiveness of governmentwide public diplomacy efforts. Our fieldwork in Egypt and Morocco underlined the importance of interagency coordination. Embassy officers there told us that only a very small percentage of the population was aware of the magnitude of U.S. assistance provided to their countries. Egypt is the second largest recipient of U.S. assistance in the world, with assistance totaling more than an estimated $1.9 billion in 2003. Assistance to Morocco totaled more than $13 million in 2003. Most interagency communication coordination efforts have been ad hoc in recent years. Immediately after September 11, 2001, the White House, State Department, Department of Defense, and other agencies coordinated various public diplomacy efforts on a day-to-day basis, and the White House established a number of interim coordination mechanisms. One such mechanism was the joint operation of the Coalition Information Centers in Washington, London, and Islamabad, set up during the early stages of U.S. military operations in Afghanistan in 2001. The centers were designed to provide a rapid response capability for correcting inaccurate news stories, proactively dealing with news items likely to generate negative responses overseas, and optimizing reporting of news favorable to U.S. efforts. In January 2003, the President established a more permanent coordination mechanism, the White House Office of Global Communications, which is intended to coordinate strategic communications from the U.S. government to overseas audiences. The President also established the Strategic Communication Policy Coordinating Committee, co-chaired by the State Department and the National Security Council and to work closely with the Office of Global Communications, to ensure interagency coordination in disseminating the U.S. message across the globe. Although it is the committee's long-term objective to develop a National Communications Strategy, according to recent conversations with U.S. officials, the committee has not met since March 2003. After September 11, State acknowledged the need for a strategy that integrates all of its diverse public diplomacy activities and directs them toward common objectives, but to date, that strategy is still in the development stage. State officials told us that such a strategy is particularly important because State's public diplomacy operation is fragmented among the various organizational entities within the agency. Public affairs officers who responded to our survey indicated that the lack of a strategy has hindered their ability to effectively execute public diplomacy efforts overseas. More than 66 percent of public affairs officers in one region reported that the quality of strategic guidance from the Office of the Undersecretary at the time of our review (10/01-3/03) was generally insufficient or very insufficient. More than 40 percent in another region reported the same. We encountered similar complaints during our overseas fieldwork. For example, in Morocco, the former public affairs officer stated that so little information had been provided from Washington on State's post-September 11 public diplomacy strategy that he had to rely on newspaper articles and guesswork to formulate his in- country public diplomacy plans. During our audit work, we learned that private sector public relations efforts and political campaigns use sophisticated strategies to integrate complex communication efforts involving multiple players. Although State's public diplomacy efforts extend beyond the activities of public relations firms, many of the strategic tools that such firms employ are relevant to State's situation. While it is difficult to establish direct links between public diplomacy programs and results, other U.S. government agencies and the private sector have best practices for assessing information disseminating campaigns, including the need to define success and how it should be measured. Executives from some of the largest public relations firms in the United States told us that initial strategic decisions involve establishing the scope and nature of the problem, identifying the target audience, determining the core messages, and defining both success and failure. Subsequent steps include conducting research to validate the initial decisions, testing the core messages, carrying out pre-launch activities, and developing information materials. Each of these elements contains numerous other steps that must be completed before implementing a tactical program. Further, progress must be measured continuously and tactics adjusted accordingly. We also found that State is not systematically and comprehensively measuring progress toward its public diplomacy goals. Its overseas performance measurement efforts focus on anecdotal evidence and program outputs, rather than gauging progress toward changing foreign publics' understanding and attitudes about the United States. Some posts judge the effectiveness of their public diplomacy efforts by simply counting the number of public diplomacy activities that occur in their host country--for example, the number of speeches given by the ambassador or the number of news articles placed in the host-country media. While such measures shed light on the level of public diplomacy activity, they reveal little in the way of overall program effectiveness. State currently has no reporting requirements in place to determine whether posts' performance targets are actually met. At one overseas post we visited, the post had identified polling data showing that only 22 percent of the host country's citizens had a favorable view of the United States--a figure the post used as a baseline with yearly percentage increases set as targets. However, a former public affairs officer at the post told us that he did not attempt to determine or report on whether the post had actually achieved these targets because there was no requirement to do so. Officials at the other two overseas posts we visited also cited the lack of any formal reporting requirement for following up on whether they met their annual performance targets. An official in State's Office of Strategic and Performance Planning said that they have now begun to require posts to report on whether they have met performance targets. Furthermore, public affairs officers at U.S. embassies generally do not conduct systematic program evaluations. About 79 percent of the respondents to our survey reported that staffing at their missions was insufficient to conduct systematic program evaluations. Many officers also reported that staffing at posts was insufficient to carry out the long-range monitoring required to adequately measure program effectiveness. Even if sufficient staffing were available, State would still have difficulty conducting long-range tracking of exchange participants because it lacks a database with comprehensive information on its various exchange program alumni. State had planned to begin building a new worldwide alumni database with comprehensive data linking all of its various exchange programs. However, Bureau of Educational and Cultural Affairs officials told us they had received insufficient funds to do so, and thus are seeking to improve existing information systems for individual exchange programs. In contrast to State's lack of strategy, BBG has introduced a market-based approach to international broadcasting that aims to generate large listening audiences in priority markets that the Board believes it must reach to effectively meet its mission. Early implementation of this strategy has focused on markets relevant to the war on terrorism, in particular the Middle East. The Board's vision is to create a flexible, multimedia, research-driven U.S. international broadcasting system that addresses the many challenges we noted in our report, including an organizational structure that consists of several broadcast entities with differing missions, broadcast approaches, and constituencies. In conducting our work on the BBG strategic plan, we found that the plan did not include a single goal or related program objective designed to gauge progress toward increasing audience size, even though its strategy focuses on the need to reach large audiences in priority markets. We also found that the plan lacked measurable program objectives to support its strategic goals, including a broadcaster credibility measure. The Board has taken several steps to address the recommendations we made in our report. First, the Board created a single strategic goal to focus on the key objective of maximizing impact in priority areas of interest to the United States and made audience size a key performance measure. Second, the Board has added broadcast credibility and plans to add the additional performance measures we recommended, including audience awareness and whether broadcast entities are achieving their mandated missions. Mr. Chairman, I have discussed the expansion of U.S. public diplomacy resources to areas of the world thought to breed terrorist activities and the need for a more cohesive, integrated U.S. public diplomacy strategy with measurable indicators of progress. There are other challenges our government faces in executing successful public diplomacy activities. According to public affairs officers, these challenges include insufficient time and staffing resources to conduct public diplomacy tasks. In addition, many public affairs officers reported that the time available to attend public diplomacy training is inadequate. Furthermore, a significant number of Foreign Service officers involved in public diplomacy efforts overseas lack sufficient foreign language skills. The Board's key challenge in executing its strategy is how to generate large audiences while dealing with a number of media market, organizational, and resources issues. More than 40 percent of the public affairs officers we surveyed reported that the amount of time they had to devote exclusively to executing public diplomacy tasks was insufficient. During our overseas fieldwork, officers told us that, while they manage to attend U.S. and other foreign embassy receptions and functions within their host country capitals, it was particularly difficult to find time to travel outside the capitals to interact with ordinary citizens. More than 50 percent of those responding to our survey reported that the number of Foreign Service officers available to perform public diplomacy duties was inadequate. Although State increased the actual number of Americans in public diplomacy positions overseas from 414 in fiscal year 2000 to 448 in fiscal year 2002, State still had a shortfall of public diplomacy staff in 2002, based on the projected needs identified in State's 2002 overseas staffing model. In 2002, State's overseas staffing model projected the need for 512 staff in these positions; however, 64 of these positions, or 13 percent, were not filled. In addition, about 58 percent of the heads of embassy public affairs sections reported that Foreign Service officers do not have adequate time for training in the skills required to effectively conduct public diplomacy. We reported in 2002 that as part of its Diplomatic Readiness Initiative, State has launched an aggressive recruiting program to rebuild the department's total workforce. Under this initiative, State requested 1,158 new employees above attrition over the 3-year period for fiscal years 2002 through 2004, and according to State officials, the department has met its hiring goals under this initiative for fiscal years 2002 and 2003. However, it does not have numerical targets for specific skill requirements such as language proficiency or regional expertise. Although State officials are optimistic that enough new hires are being brought in to address the overall staffing shortage, there are no assurances that the recruiting efforts will result in the right people with the right skills needed to meet specific critical shortfalls. Insufficient foreign language skills pose another problem for many officers. As of December 31, 2002, 21 percent of the 332 Foreign Service officers filling "language-designated" public diplomacy positions overseas did not meet the foreign language speaking requirements of their positions. The highest percentages not meeting the requirements were in the Near East, where 30 percent of the officers did not meet the requirement. Although State had no language-designated positions for South Asia, it had eight language-preferred positions, none of which was filled by officers who had reading or speaking capability in those languages. It is important to note that most of the foreign languages required in these two regions, such as Arabic and Urdu, are considered difficult to master. In contrast, 85 percent of the officers filling French language-designated positions and 97 percent of those filling Spanish language-designated ones met the requirements. Officers' opinions on the quality of the foreign language training they received also varied greatly by region. The Advisory Group on Public Diplomacy noted this challenge and recommended an increase in public diplomacy staff dedicated to issues of the Arab and Muslim world, with specific emphasis on enhancing fluency in local languages. Foreign Service officers posted at the overseas embassies we visited and other State officials told us that having fluency in a host country's language is important for effectively conducting public diplomacy. The foreign government officials with whom we met in Egypt, Morocco, and the United Kingdom agreed. They noted that, even in countries where English is widely understood, speaking the host country's language demonstrates respect for its people and its culture. In Morocco, officers in the public affairs and other sections of the embassy told us that, because their ability to speak Arabic was poor, they conducted most embassy business in French. French is widely used in that country, especially in business and government. However, embassy officers told us that speaking Arabic would provide superior entree to the Moroccan public. The ability to speak country-specific forms of Arabic and other more obscure dialects would generate even more goodwill, especially outside the major cities. According to the department, the largest and most significant factor limiting its ability to fill language-designated positions is its long-standing staffing shortfall, which State's Diplomatic Readiness Initiative is designed to fill. Other planned actions include bolstering efforts to recruit job candidates with target language skills, sending language training supervisors to posts to determine ways to improve training offerings, and developing a new "language continuum" plan to guide efforts to meet the need for higher levels of competency in all languages, especially those critical to national security concerns. The Broadcasting Board of Governors has its own set of public diplomacy challenges, key among them is how to gain large audiences in priority markets while dealing with (1) a collection of outdated and noncompetitive language services, (2) a disparate organizational structure consisting of seven separate broadcast entities and a mix of federal agency and grantee organizations that are managed by a part-time Board of Governors, and (3) the resource challenge of broadcasting in 97 language services to more than 125 broadcast markets worldwide. Although its strategic plan identifies a number of solutions to the competitive challenges the Board faces and provides a new organizational model for U.S. international broadcasting, we found that the Board's plan did not include specifics on implementation strategies, resource requirements, project time frames, or a clear vision of the Board's intended scope of operations. The Board recently completed a review of the overlap issue and identified six approaches to addressing the problem while still meeting the discrete missions of the Voice of America and other broadcast entities. All of the Board's overlapping services were assessed against this analytical framework, and more than $9.7 million in potential savings for priority initiatives were identified. However, the Board has yet to revise its strategic plan to include details on implementation strategies, resource requirements, and project timeframes for the various initiatives supporting its overarching strategic goal of increasing program impact. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the subcommittee may have at this time. For future contacts regarding this testimony, please call Jess Ford or Diana Glod at (202) 512-4128. Individuals making key contributions to this testimony included Robert Ball, Lynn Cothern, and Michael ten Kate. 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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Polls taken in Islamic countries after 9/11 suggested that many or most people had a favorable view of the United States and its fight against terrorism. By 2003, opinion research indicated that foreign publics, especially in countries with large Muslim populations, viewed the United States unfavorably. GAO issued two studies in 2003 that examined (1) changes in U.S. public diplomacy resources and programs since September 11, 2001, within the State Department (State) and the Broadcasting Board of Governors (BBG); (2) the U.S. government's strategies for its public diplomacy programs and measures of effectiveness; and (3) the challenges that remain in executing U.S. public diplomacy efforts. GAO made several recommendations to State and the BBG to address planning and performance issues. Both agencies agreed with these recommendations and have made some progress in implementing them. On July 22, 2004, the 9/11 Commission released its report and recommendations. Two of the Commission's recommendations relate to the management of U.S. public diplomacy. For this testimony, GAO was asked to discuss its prior work as it relates to these recommendations. Since September 11, 2001, State has expanded its public diplomacy efforts in Muslim-majority countries considered to be of strategic importance in the war on terrorism. It significantly increased resources in South Asia and the Near East and launched new initiatives targeting broader, younger audiences--particularly in predominantly Muslim countries. These initiatives are consistent with the 9/11 Commission's recommendation that the United States rebuild its scholarship, library, and exchange programs overseas. Since 9/11, the BBG has initiated several new programs focused on attracting larger audiences in priority markets, including Radio Sawa and Arabic language television in the Middle East, the Afghanistan Radio Network, and Radio Farda in Iran. The 9/11 Commission report highlights these broadcast efforts and recommends that funding for such efforts be expanded. While State and BBG have increased their efforts to support the war on terrorism, we found that there is no interagency strategy to guide State's, BBG's, and other federal agencies' communication efforts. The absence of such a strategy complicates the task of conveying consistent messages to overseas audiences. Likewise, the 9/11 Commission recommended that the United States do a better job defining its public diplomacy message. In addition, we found that State does not have a strategy that integrates and aligns all its diverse public diplomacy activities. State, noting the need to fix the problem, recently established a new office of strategic planning for public diplomacy. The BBG did have a strategic plan, but the plan lacked a long-term strategic goal or related program objective to gauge the Board's success in increasing audience size, the key focus of its plan. We also found that State and the BBG were not systematically and comprehensively measuring progress toward the goals of reaching broader audiences and increasing publics' understanding about the United States. The BBG subsequently made audience size a key performance goal and added broadcaster credibility and plans to add other performance measures that GAO recommended. In addition, State and BBG face several internal challenges in carrying out their programs. Challenges at State include insufficient public diplomacy resources and a lack of officers with foreign language proficiency. State officials are trying to address staffing gaps through increased recruitment. The BBG also faces a number of media market, organizational, and resource challenges that may hamper its efforts to generate large audiences in priority markets. It has developed a number of solutions to address these challenges.
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Scientists have discovered that changes in the earth's climate are induced by the increasing concentrations of certain gases in the earth's atmosphere--some naturally occurring, others human-induced--that have the potential to significantly alter the planet's heat and radiation balance. These so-called "greenhouse gases" trap some of the sun's energy and prevent it from returning to space. The trapped energy warms the earth's climate, much like glass in a greenhouse. Over the past century, humans have contributed to the greenhouse effect, particularly by burning fossil fuels, which increased atmospheric carbon dioxide and other greenhouse gases. The effects of a warmer climate could have important consequences for human health and welfare by, among other things, altering weather patterns, changing crop yields, and leading to the flooding of coastal areas. According to the Department of Energy's Energy Information Administration (EIA), in 2001, the most recent year for which data are available, the United States and other developed nations accounted for just under half (47 percent) of the world's emissions of carbon dioxide--the most prevalent greenhouse gas. The other emissions came from economically developing nations, including China, India, and Mexico (40 percent), and from nations with economies in transition (13 percent) in Europe and the Former Soviet Union. EIA projects that, over the next 2 decades, carbon dioxide emissions from each of the three nation groups will increase; however, carbon dioxide emissions from developing nations will increase most dramatically, surpassing those of developed nations by 2015, as shown in figure 1. More specifically, figure 2 shows actual and projected carbon dioxide emissions for the seven nations in our study. Growth in emissions between 2001 and 2025 is projected to range from 29 million metric tons for the United Kingdom to 1,012 for China. The seven nations in our study also differ greatly in terms of their population and per capita income (an indicator of economic development). For example, population ranged from about 60 million in the United Kingdom to nearly 1.3 billion in China, and per capita income ranged from $2,540 in India to $36,300 in the United States. (See table 1.) Under the Framework Convention, the United States and the other parties generally agreed to implement policies and measures aimed at returning "individually or jointly to their 1990 levels these anthropogenic [human- caused] emissions" of greenhouse gases not covered by another treaty, the Montreal Protocol. The six primary gases covered by the Framework Convention are carbon dioxide, nitrous oxide, methane, and three synthetic gases--sulfur hexafluoride, hydrofluorocarbons, and perfluorocarbons. Emissions of these gases are generally not measured because doing so would be too costly; consequently, they must be estimated. In this regard, the IPCC, at the parties' request, developed detailed guidance on methodologies for nations to use when estimating their emissions and revised that guidance twice, most recently in 1999. Both developed and developing nations are required to follow this guidance--Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories--when preparing their inventories. In addition, in 2000, the IPCC published--also at the parties' request--its Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories, which contains information on prioritizing tasks to arrive at the best possible estimates using finite resources as well as advice on establishing quality assurance programs, among other things. The nations have been encouraged, but not required, to follow the good practice guidance. The parties to the Framework Convention also agreed to report periodically to the Secretariat on their levels of greenhouse gas emissions. For Annex I nations, those reports are extensive. Annually, each Annex I nation is required to submit inventory data--in a common reporting format the parties themselves agreed to--as well as a national inventory report that explains how the data in the common reporting format were derived. The common reporting format calls for data for each of the six emissions sectors--energy, industrial processes, solvent and other product use, agriculture, land-use change and forestry, and waste--as well as for the data on the major sources that contribute to emissions from each sector. The inventory data are to reflect a nation's most recent reporting year as well as all previous years back to the base year, which is 1990. For each year, the common reporting format calls for 42 tables containing over 8,100 items that are sector-specific numbers; data summarized across sectors; and other information, such as trends from the base year to the current reporting year, recalculations of prior years' data, and reasons certain emissions were not estimated. The parties require that data be submitted in the common reporting format to facilitate comparison across nations and to make it easier to review the data. Because an inventory contains data from the base year to the most recent reporting year, each year's submission is larger than the last. The 2003 reporting format called for approximately 98,000 items of inventory data and other information from 1990 through 2001. The national inventory report, the second component of the submission, should be detailed and complete enough to enable reviewers to understand and evaluate the inventory. The report should include, among other things, descriptions of the methods used to estimate the data, the rationale for selecting the methods used, and information about the complexity of methods and the resulting precision of the estimates; information on quality assurance procedures used; discussion of any recalculations affecting previously submitted inventory data; and information on improvements planned for future inventories. Each year, when Secretariat staff receive Annex I nations' submissions, they perform an initial check to determine whether the submissions are complete and then synthesize the information to facilitate comparison across nations. Teams of expert reviewers--comprising members chosen by the parties for their sector expertise as well as to achieve broad geographic representation--also use this synthesized information to identify issues requiring clarification during their reviews of individual submissions. From 2000 through 2002, the parties tested the usefulness of three methods of conducting expert reviews on selected submissions from Annex I nations. The first type of review, called a desk review, consists of about 10 experts spending about 4 weeks in their respective nations reviewing information on the same three nations' inventories. For this type of review, the experts communicate with each other and the nation being reviewed via the Internet and telephone. The second type of review, called a centralized review, involves about 10 experts spending about a week at the Secretariat's headquarters in Bonn, Germany, jointly reviewing between four and six nations' inventories. The third review type, called an in- country review, consists of a team of about 5 experts spending a week in the nation whose inventory is being reviewed, jointly examining the nation's inventory and supporting information. The Secretariat chose inventories of different levels of completeness to undergo desk and centralized reviews; only nations that volunteered for an in-country review received one. During the 3-year test period, the experts examined the data and supporting information the nations used to prepare the inventories via all three types of reviews. For example, the experts determined whether a nation calculated its emissions estimates using formulas from published data sources or formulas specified by the parties. The experts also verified the information provided in response to questions raised in previous reviews. Finally, the experts summarized the inventories' strengths and weaknesses; made recommendations for improvement, if warranted; and presented their findings in reports that were both published and posted on the Internet. For Annex I nations' submissions to be reviewed by the experts, the submissions must meet two criteria. Since 2000, the experts have reviewed only submissions that presented their data in the common reporting format, and, beginning with the 2003 submissions, the experts will review only submissions that include the national inventory report. According to the parties to the Framework Convention, the goal of the expert reviews is to identify areas in the inventories needing improvement; for this reason, the experts' reports do not rate the overall quality of the submissions, and the reports do not identify some findings as being more important than others. According to the Secretariat, since 1998, Annex I nations' submissions have steadily and substantially improved in their timeliness and completeness, and the expert review process has contributed to the improved quality of recent submissions. Non-Annex I nations' requirements for format and frequency of reporting differ from those for Annex I nations. Although all parties to the Framework Convention are to develop their inventories using the revised 1996 IPCC guidelines and submit the inventories to the Secretariat, non- Annex I nations' inventories are not stand-alone documents. Rather, a non- Annex I nation's inventory is a component of its national communication, which is a report it must submit to the Secretariat that discusses all of the steps the nation is taking or plans to take to implement the Framework Convention. In addition, non-Annex I nations are not required to use the common reporting format or to submit a national inventory report. Moreover, non-Annex I nations are not required to submit an inventory each year but may instead negotiate the frequency of their submissions. To date, most non-Annex I nations negotiated a deadline for only one inventory. To help the non-Annex I nations develop and report their inventories, the developed nations of Annex I provide financial assistance that is disbursed through the convention's financial mechanism, the Global Environment Facility. The facility, which funds various types of environmental projects in developing nations, disburses the funds, including those to assist non-Annex I nations with their emissions reporting, through implementing agencies, such as the United Nations Development Program. The implementing agencies, in turn, disburse the funds to the nations on a schedule and according to terms negotiated by the agency and each nation. The inventory reviews and the extent to which the results are reported also differ for Annex I and non-Annex I nations. Reviews of Annex I nations' submissions focus on compliance with reporting standards, and the results are made publicly available in considerable detail. In contrast, because non-Annex I nations are generally in the early stages of developing their inventories and have limited resources to do so, assessments of their submissions, and the resulting reports, focus largely on providing a forum for the non-Annex I nations to exchange information on common reporting problems and best practices. Consequently, while the Secretariat makes reports on the results of non-Annex I assessments publicly available, it does so in summary format and provides only a few nation-specific details in tables that accompany the aggregated reports. The most recent expert reviews of inventories submitted by the four developed nations found that the U.K. and U.S. inventories contained most of the required elements, but the German and Japanese inventories were missing certain critical elements. Experts reviewed inventories variously submitted from 2000 through 2002 by each of the four developed nations in our study. The inventories submitted by Japan and Germany in 2000 and 2001, respectively, each received a centralized review. Two U.K. inventories were reviewed: the one submitted in 2000 received an in-country review, and the one submitted in 2002 received a desk review. The inventory that the United States submitted in 2000 received both an in-country review and a desk review. Although the experts planned to conduct reviews of all Annex I nations' inventories submitted in 2003, no results were available at the time of our study. The reviews of the submissions of the United Kingdom and the United States found they were largely complete and noted only relatively minor problems. For example, the reviews of the two nations' 2000 submissions noted that neither submission included information on quality assurance procedures. Although the good practice guidance calls for including such information in the national inventory report, the nations were encouraged, but not required, to follow the good practice guidance for the 2000 submissions. Nonetheless, the experts included the lack of quality assurance documentation as a finding of the reviews. Because the problems noted were relatively minor, the suggestions for improving future submissions constituted refinements rather than recommendations for large-scale changes. For example, the experts' report on the 2000 U.K. submission suggested archiving the documentation supporting the national inventory report in one location or on the Web. Similarly, the report on the desk review of the 2000 U.S. submission suggested that more details on the methods and factors used to estimate emissions for the land-use change and forestry sector would allow more complete assessment of that sector's data. In contrast, the reviews of the German and Japanese submissions found them to be missing some critical components, and the experts' reports made suggestions for improvement that were fundamental in nature. For example, the review of Germany's 2001 submission found it contained only summary-level and trend data; it did not include any of the sector-specific data tables or recalculations of prior years' data called for by the common reporting format. Furthermore, the national inventory report was missing, so the reviewers could not determine whether problems noted in previous inventories had been addressed. Although the review of the Japanese 2000 submission found most of the data required by the common reporting format was included, like the German submission, this one lacked the national inventory report. As a result of these shortcomings, the experts suggested that Germany submit a complete set of data for all of the required years and sectors and that both nations submit the national inventory report. Additional details on the findings of the six expert reviews are contained in appendix I. Although none of the four Annex I nations' latest submissions--for 2003-- had undergone an expert review as of November 2003, Secretariat staff had performed initial completeness checks on each of them. They found that all four nations' submissions contained most of the required data as well as the required national inventory reports. The Secretariat has not assessed any inventories from China and India because, as of November 2003, neither nation had submitted one. The Secretariat assessed Mexico's 2001 submission, but the Secretariat's practice is to issue one report on the findings of its assessments of all the inventories submitted during the year, with few nation-specific details. Therefore, the Secretariat made public little information about the results of its assessments that could be directly tied to Mexico. According to the Secretariat, China and India are preparing their initial inventories, to be submitted as part of their first national communications. Under article 12, paragraph 5, of the Framework Convention, non-Annex I nations' first inventories are due to the Secretariat "within three years of the entry into force of the Framework Convention or of the availability of financial resources" from the developed nations in Annex I. According to the Secretariat, funding was approved for China in May 2000 and for India in December 1999, and the first disbursements of funds took place in November 2001 for China and in July 2001 for India. According to the Secretariat, the due dates for their first greenhouse gas inventories are no later than November 2004 for China and July 2004 for India. Mexico submitted inventories in 1997 and 2001. Although 106 developing nations had submitted their initial inventories as of November 2003, Mexico is the only nation to have submitted more than one. Secretariat staff assessed Mexico's 2001 inventory, along with those of 51 other non- Annex I nations that submitted inventories that year. In keeping with its practice of reporting on its assessments of non-Annex I nations' inventories as a group, the report for 2001 contained only limited details that could be linked specifically to Mexico's inventory. In particular, the Secretariat reported that Mexico had improved its estimates of emissions from the energy, agriculture, and land-use change and forestry sectors. It also reported that Mexico could further improve its inventory by establishing systematic procedures for preparing the inventory annually and by including estimates for the solvent-use sector. Otherwise, the Secretariat reported only generally on the results of the assessments of submissions of the 52 non-Annex I nations' inventories. Mexico's 2001 submission contained estimates for 1994, 1996, and 1998. According to an EPA official who is knowledgeable about Mexico's inventory, the 2001 Mexico inventory is of reasonably high quality, especially considering the limited resources Mexico has dedicated to developing it. According to its submission, Mexico followed the IPCC estimating guidelines and good practice guidance in preparing the inventory. The EPA official further commented that Mexico's 2001 submission is among the best of those of the developing nations, and in some cases--for example, in presentation of its carbon dioxide emissions data--is equal to those of some developed nations. On the other hand, according to that official, Mexico did not (1) comply with the IPCC estimating guidelines in developing the land-use change and forestry sector data, (2) adequately estimate data for the three synthetic gases, or (3) provide adequate documentation explaining the inventory. Furthermore, Mexico developed its two inventories independent of each other, without establishing a process that would systematically make documentation and data additions and revisions as needed. Consequently, in the opinion of the EPA official, it was difficult for Mexico to build upon its previous efforts when preparing its second inventory. As required for the 2003 submissions, the four developed nations categorized their confidence in their emissions data as either high, medium, or low. All four nations reported their confidence in the data as generally high. To improve the usefulness of nations' assessments of data confidence, however, beginning with the 2004 submissions, developed nations must quantify their confidence assessments. As previously explained, the parties to the Framework Convention have constructed an extensive system of estimating and reporting requirements, buttressed by periodic reviews, to help nations produce inventory data that are of high quality. The parties do not attempt, on the basis of the reviews or any other means, to assign a grade or otherwise rate any nation's success in producing high-quality data. However, as one means of helping developed nations identify areas where their data can be strengthened, the parties require each nation to assess its confidence in the accuracy of its own data. Specifically, the nations are required annually to analyze the quality of the data they report (called an uncertainty analysis) for each gas and for each major source of emissions and removals in each of the six sectors. To do this, the nations have been encouraged, but not required, to use the quantitative methods of uncertainty analysis included in the IPCC good practice guidance. Alternatively, they could rely on qualitative means to determine their confidence in these data. In either case, they have been required to report whether they had high, medium, or low confidence in each estimate of emissions of each of the six gases by each major source of those emissions. The nations have not been required to report on their confidence in the accuracy of the inventory data as a whole. The parties did not provide further criteria for nations to use when determining which of the three categories was most appropriate. As required, all four developed nations reported high, medium, or low ratings of confidence in their estimates for their 2001 emissions by source. To determine the confidence each nation had in its inventory data as a whole, we calculated the proportion of each nation's data that corresponded to each of the three rating categories. According to our calculations, all four nations rated their confidence in their inventory data as a whole as generally high, with the high-confidence ratings ranging from about 75 percent for the United States to about 96 percent for Japan. The high-confidence ratings occurred largely because the lion's share of each nation's total emissions is carbon dioxide from fuel combustion, which can be estimated with a relatively high level of confidence. Table 2 shows each nation's ratings for total emissions by gigagrams of carbon dioxide equivalent, which is the unit of measurement used by the parties to the Framework Convention to allow comparisons among greenhouse gases, which differ in their effects on the atmosphere and expected lifetimes. Although the national inventory reports contained some information about the nations' confidence in their data, none of the nations explained the criteria they used to determine the high-, medium-, and low-confidence ratings they reported. In November 2002, the parties decided to require developed nations to use the quantitative methods in the IPCC good practice guidance to develop estimates of data uncertainty beginning with the 2004 submissions. Instead of designating high, medium, or low ratings of confidence, under the new requirements, developed nations must quantify their uncertainty in their emissions estimates for each gas by each major source using 95 percent confidence levels. In addition, they must combine the source uncertainty estimates into a quantified uncertainty estimate for the inventory as a whole and estimate the uncertainty in the trend between the base year and the most recent year. The IPCC good practice guidance provides detailed instructions for nations to follow to produce the quantitative estimates of data uncertainty. The guidance also describes two methods for combining quantitative uncertainty estimates--one consisting of relatively simple statistical calculations that result in a numerical uncertainty estimate, and the other using computer simulation to calculate the estimates. The computer simulation is a more sophisticated method and should result in more accurate estimates; however, according to the EPA official responsible for compiling the U.S. inventory, the computer simulation also is more costly than the simpler method. Because of this, the good practice guidance states that the nations must use the simpler of the two methods to produce their combined uncertainty estimates; in addition, they are encouraged to use the more sophisticated method when sufficient resources and expertise are available. For example, in its 2003 inventory submission, the United Kingdom used both methods from the good practice guidance to quantitatively estimate its confidence in its 2001 emissions data as a whole. Using the simpler method, the United Kingdom reported an uncertainty value of 17 percent for its inventory data as a whole; that is, the United Kingdom was 95 percent confident that total emissions were between 17 percent less and 17 percent more than the total of about 660,452 gigagrams of carbon dioxide equivalent it estimated for the year. In contrast, using the more sophisticated method, the United Kingdom reported an uncertainty value of 13 percent, indicating it was 95 percent confident that total emissions were between 13 percent less and 13 percent more than the year's total estimate. According to the EPA official responsible for compiling the 2003 U.S. inventory, the high, medium, and low categorizations reflect the early days of developing inventories, before the IPCC had developed its good practice guidance on quantitative methods. Prior to the guidance, the parties recognized that nations would vary in their ability to perform quantitative uncertainty analysis. The parties instituted the three-part categorization in an effort to obtain information that was comparable across nations that were using different methods for assessing data uncertainty. The parties have moved to the quantitative methods because the three-part categorization approach yielded limited information about data uncertainty. For example, a nation could have uncertainty estimates of 35 percent and 60 percent but could have categorized both estimates as medium. The quantitative estimates provide information about the uncertainty of the various components of the inventory, thereby helping nations identify areas in which improvements would have the greatest effect on the accuracy of the inventory as a whole. In addition, the quantified estimates make the uncertainty analyses more consistent and understandable across nations. According to the Secretariat, the quantified uncertainty analysis also better enables expert reviewers to determine if nations are targeting their improvements in the appropriate areas. To improve the quality of data on greenhouse gas emissions, the parties to the Framework Convention are refining their requirements for both Annex I and non-Annex I nations. In addition, they are bolstering the review processes for Annex I nations. The changes are to begin to take effect over the next few years. The parties currently have no plans to change the way that non-Annex I nations' inventories are assessed. The parties have revised their requirements for both Annex I and non- Annex I nations, with the changes taking effect over the next few years. The revisions fall mainly into two areas: procedures for estimating emissions and procedures for reporting those estimates. The parties have revised both the estimating and reporting requirements for Annex I nations. Regarding estimating, for example, beginning with the 2004 submissions, Annex I nations will be required to use both the 1996 IPCC estimating guidelines and the 2000 IPCC good practice guidance. Previously, Annex I nations were required to use only the 1996 estimating guidance and were encouraged, but not required, to use the good practice guidance. Regarding reporting, the parties have specified in greater detail than before the information that should be included in Annex I nations' national inventory reports and in the data tables in the common reporting format. For example, nations should include explanations of how they recalculated their previous years' data and, as previously discussed, the methods they used to quantify their confidence in the data in their national inventory reports. In their reports, nations should document that they prepared their estimates in accordance with the IPCC good practice guidance or explain why they did not; for example, an explanation is required if they used a more sophisticated methodology than that specified in the guidance. The nations should also cross-reference the information in the national inventory report to explain the estimates reported in the data tables. Furthermore, Annex I nations must submit their national inventory reports following a specified format designed to facilitate review of the inventories. The parties also revised the reporting requirements for non-Annex I nations that submit inventories in 2003 or later. Non-Annex I nations that had not submitted an inventory prior to 2003 must include data in their initial inventories for either 1990 or 1994 to establish an inventory baseline. Those submitting their second inventories should provide data for 2000 as well. This is in contrast to the requirement that Annex I nations submit data for all years, from 1990 to the present. Similarly, the parties specified that non- Annex I nations should report data for carbon dioxide, methane, and nitrous oxide and encouraged reporting of the other three gases-- hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. In contrast, Annex I nations are required to report data for all six gases. According to the manager of the 2003 U.S. inventory, the estimating and reporting requirements for non-Annex I nations are less demanding to encourage those nations to report because those nations generally have fewer resources available for reporting. In addition, the parties have requested that the IPCC continue to improve its guidance on estimating. Currently, the good practice guidance does not address estimating emissions and removals for the land-use change and forestry sector. According to the EPA official who managed the 2003 U.S. inventory, the IPCC deferred guidance on estimating emissions and removals because it was developing a special report on them, which was subsequently published in 2000. On the basis of that report, the IPCC began drafting new good practice guidance for estimating emissions and removals for the land-use change and forestry sector, which is due to be completed in late 2003. As part of this effort, the IPCC is also refining the data tables for the land-use change and forestry sector. In addition, according to the same EPA official, the IPCC is merging the 1996 guidelines with its good practice guidance and expects to complete the effort by 2007. The parties are strengthening the expert review process for Annex I nations' submissions by conducting more reviews and standardizing the review processes. Beginning with the 2003 submissions, each of the 39 Annex I nations will undergo one of the three types of expert reviews each year: an in-country review once every 5 years and either a desk review or a centralized review in each of the intervening years. This requirement contrasts with the practices of the past 3 years, when the experts performed from 8 to 21 expert reviews in a year. Furthermore, to standardize the reviews, the parties have spelled out, in greater detail than before, the elements that are to be examined during reviews and have developed a standardized format for reporting the results of the reviews. In addition, according to EPA inventory managers, in another effort to make the expert reviews more uniform, the Secretariat is developing a handbook and a training program for the expert reviewers and has specified the composition and responsibilities of the teams of expert reviewers. According to the Secretariat, the parties have no plans to change the assessment process for non-Annex I nations' inventories, but the new reporting guidance for non-Annex I nations would facilitate changes to the assessment process, should the parties decide to institute them. To examine the results of the most recent expert reviews of the greenhouse gas inventories submitted by the four economically developed nations included in our study--Germany, Japan, the United Kingdom, and the United States--we reviewed and analyzed the Secretariat's status reports showing the results of its initial reviews (called stage 1 reviews by the Secretariat) of the most recently submitted inventories (2003). We also reviewed the reports on the parties' most recent expert reviews (called in- depth reviews by the Secretariat) of the four nations' inventories (2000 for Japan, 2000 and 2002 for the United Kingdom, 2000 for the United States, and 2001 for Germany) and related documentation on reporting requirements and review processes issued by the Secretariat. We interviewed officials at EPA who manage the U.S. greenhouse gas inventory and serve as inventory experts for the parties, as well as officials from the State Department's Bureau of Oceans and International Environmental and Scientific Affairs who are responsible for policy issues related to the Framework Convention. In addition, we reviewed and analyzed the limited information provided to us by the Secretariat in response to questions we posed. To describe the results of any assessments of inventories of the three developing nations included in our study--China, India, and Mexico--we reviewed and analyzed the Secretariat's reports on its assessments of inventories submitted by non-Annex I nations, including the latest inventory submitted by Mexico (2001); related documentation on non- Annex I nation reporting requirements and assessment processes; and other Secretariat information documenting which non-Annex I nations have submitted inventories. We also interviewed the officials at EPA and the Department of Energy who are most familiar with the three nations' efforts to compile and report their inventories, as well as the cognizant officials from the State Department. To determine the extent to which the developed nations have confidence in their data, we analyzed the confidence information each nation provided in its 2003 submission. To describe any changes in assessing confidence in the data that are to take effect in the future, we examined documentation from the Secretariat and the relevant sections of the four developed nations' 2003 submissions. To describe the steps the parties are taking to improve the quality of future inventory data and determine when those improvements might be in place, we reviewed and analyzed documentation of the parties' new estimating, reporting, and review requirements; interviewed cognizant EPA officials; and reviewed and analyzed the limited information on this issue submitted to us by the Secretariat in response to questions we posed. We performed our work between November 2002 and November 2003 in accordance with generally accepted government auditing standards. We provided a draft of this report to the Secretary of State, the Administrator of EPA, and the Framework Convention Secretariat for review and comment. EPA provided clarifying comments, which we incorporated where appropriate. We did not receive comments from the State Department or the Framework Convention Secretariat. As arranged with your offices, we plan no further distribution of this report until 30 days after the date of this letter, unless you publicly announce its contents earlier. At that time, we will send copies of this report to interested congressional committees; the Chairmen and Ranking Minority Members, Senate Committee on Appropriations, House Committee on Appropriations, Senate Committee on Governmental Affairs, and House Committee on Government Reform; the EPA Administrator; and the Secretary of State. We will make copies available upon request to other interested parties. This report will also be available at no cost on GAO's Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please call me at (202) 512-3841. I can also be reached at [email protected]. Key contributors to this report are listed in appendix II. The six expert review reports we examined did not follow identical formats; however, they generally highlighted the experts' findings and suggestions for improvement in a summary section at the beginning of each report. The experts noted instances of noncompliance with the reporting requirements. In addition, the experts noted some instances in which the nations did not comply with the Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories, even though following the good practice guidance was not a requirement at the time that the inventories were submitted. The summary-level findings and suggestions for each of the six expert reviews we examined are listed in table 3. In addition to the individuals named above, Simin Ho and Karla Springer made key contributions to this report. Nancy Crothers, Sandra Edwards, Barbara Johnson, Karen Keegan, Andria Key, Charlotte Moore, Chris Moriarity, Katherine Raheb, and Anne Rhodes-Kline also made important contributions. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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In 1992, the United States and other parties, including both developed and developing nations, agreed to try to limit dangerous human interference with the climate by participating in the United Nations Framework Convention on Climate Change. The parties agreed, among other things, to report on their emissions of carbon dioxide and five other gases whose buildup in the atmosphere is believed to affect the climate. The parties developed standards for these reports and processes for periodically evaluating the reports. Expert teams selected by the parties review the developed nations' reports; staff of the Framework Convention's administrative arm (the Secretariat) assess developing nations' reports. GAO agreed to describe the results of the most recent reviews and assessments of reports from selected economically developed and developing nations, as well as the parties' plans to improve the reports. For the developed nations, GAO agreed to study four geographically dispersed nations with high levels of emissions--Germany, Japan, the United Kingdom, and the United States. For the developing nations, GAO studied China, India, and Mexico, which also have high emissions levels and are geographically dispersed. These nations are not representative of others; therefore, GAO's findings cannot be generalized. In their most recent reviews, expert teams found that the United Kingdom's 2000 and 2002 reports on greenhouse gas emissions and the United States's 2000 report were largely complete, although the teams noted minor findings, such as the lack of information on quality assurance methods, which the nations were encouraged, but not required, to include in their submissions. In contrast, they found that Germany's 2001 and Japan's 2000 reports lacked critical elements, such as the required documentation that was essential to understanding them. Preliminary checks found that all four nations' 2003 reports were largely complete. Secretariat staff have not assessed inventories from China and India because these nations have not submitted them. According to Secretariat records, China and India plan to submit inventories in February 2004 and November 2003, respectively. Secretariat staff assessed Mexico's most recent inventory, but they reported few details about it because their policy is to consolidate the findings of all the developing nations' inventories submitted during a year. To improve the inventories, the parties are changing the reporting standards and review process. For example, starting in 2004, developed nations must present their inventory reports in a standardized format to facilitate review, and developing nations must report data for more years and gases than before. Also, in 2003, the parties began conducting more rigorous reviews of developed nations' inventories, but no such changes for developing nations are planned.
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Federal agency collection or use of personal information is governed primarily by two laws: the Privacy Act of 1974 and the privacy provisions of the E-Government Act of 2002. The Privacy Act places limitations on agencies' collection, disclosure, and use of personal information maintained in systems of records. The act describes a record as any item, collection, or grouping of information about an individual that is maintained by an agency and contains his or her name or another personal identifier. The act defines a "system of records" as a group of records under the control of any agency from which information is retrieved by the name of the individual or by an individual identifier. The Privacy Act requires that when agencies establish or make changes to a system of records, they must notify the public through a system-of- records notice in the Federal Register that identifies, among other things, the categories of data collected, the categories of individuals about whom information is collected, the intended "routine" uses of data, and procedures that individuals can use to review and correct personally identifiable information. Several provisions of the act require agencies to define and limit collection and use of personal information to predefined purposes. For example, it requires that, to the greatest extent practicable, personal information should be collected directly from the individual when it may affect that person's rights or benefits under a federal program. It also requires agencies to indicate whether the individual's disclosure of the information is mandatory or voluntary; the principal purposes for which the information is intended to be used; the routine uses that may be made of the information; and the effects on the individual, if any, of not providing the information. Further, in handling information they have collected, agencies are generally required to allow individuals to review their records, request a copy of their record, and request corrections to their information, among other things. The E-Government Act of 2002 was passed, among other reasons, to enhance the protection for personal information in government information systems or information collections by requiring that agencies conduct privacy impact assessments (PIA). PIAs are analyses of how personal information is collected, stored, shared, and managed in a federal system. Title III of the E-Government Act, known as the Federal Information Security Management Act of 2002 (FISMA), established a framework designed to ensure the effectiveness of security controls over information resources that support federal operations and assets. According to FISMA, each agency is responsible for, among other things, providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of information collected or maintained by or on behalf of the agency and information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency. These protections are to provide federal information and systems with integrity--preventing improper modification or destruction of information, confidentiality--preserving authorized restrictions on access and disclosure, and availability-- ensuring timely and reliable access to and use of information. The privacy protections incorporated in the Privacy Act are based primarily on the Fair Information Practices--a set of widely recognized principles for protecting the privacy of personal information first developed by an advisory committee convened by the Secretary of Health, Education and Welfare in 1972 and revised by the Organization for Economic Cooperation and Development (OECD) in 1980. These practices underlie the major provisions of the Privacy Act and privacy laws and related policies in many countries, including Germany, Sweden, Australia, and New Zealand, as well as the European Union. They are also reflected in a variety of federal agency policy statements, beginning with an endorsement of the OECD principles by the Department of Commerce in 1981. The OECD version of the principles is shown in table 1. The Privacy Act gives the Office of Management and Budget (OMB) responsibility for developing guidelines and providing assistance to and oversight of agencies' implementation of the act. OMB also has responsibility under the E-Government Act for developing PIA guidance and ensuring agency implementation of the PIA requirement. In July 1975, OMB issued guidance for implementing the provisions of the Privacy Act and has periodically issued additional guidance since then. OMB has also issued guidance on other data security and privacy-related issues including federal agency website privacy policies, interagency sharing of personal information, designation of senior staff responsible for privacy, data breach notification, and safeguarding personally identifiable information. Technological developments since the Privacy Act became law in 1974 have radically changed the way information is organized and shared among organizations and individuals. Such advances have rendered some of the provisions of the Privacy Act and the E-Government Act of 2002 inadequate to fully protect all personally identifiable information collected, used, and maintained by the federal government. For example, we reported in 2010 on privacy challenges associated with agencies using Web 2.0 technologies, such as web logs ("blogs"), social networking websites, video- and multimedia-sharing sites, and "wikis." While the Privacy Act clearly applies to personal information maintained in systems owned and operated by the federal government, agencies often take advantage of commercial Web 2.0 offerings, in which case they have less control over the systems that maintain and exchange information, raising questions about whether personal information contained in those systems is protected under the act. While OMB subsequently issued guidance to federal agencies for protecting privacy when using web-based technologies, we reported in June 2011 that agencies had made mixed progress in updating privacy policies and assessing privacy risks associated with their use of social media services, as required by OMB's guidance. A number of agencies had not updated their privacy policies or conducted PIAs relative to their Accordingly, use of third-party services such as Facebook and Twitter.we recommended that 8 agencies update their privacy policies and that 10 agencies conduct required PIAs. Most of the agencies agreed with our recommendations; however, 5 have not yet provided evidence that they have updated their privacy policies and 4 have not yet provided documentation that they have conducted PIAs. Another technology that has been increasingly used is data mining, which is used to discover information in massive databases, uncover hidden patterns, find subtle relationships in existing data, and predict future results. Data mining involves locating and retrieving information, including personally identifiable information, in complex ways. In September 2011, we reported that the Department of Homeland Security (DHS) needed to improve executive oversight of systems supporting counterterrorism. We noted that DHS and three of its component agencies--U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and U.S. Citizenship and Immigration Services--had established policies that largely addressed the key elements and attributes needed to ensure that their data mining systems were effective and provided necessary privacy protections. However, we also noted, among other things, that DHS faced challenges in ensuring that all of its privacy-sensitive systems had timely and up-to- date PIAs. We recommended that that DHS develop requirements for providing additional scrutiny of privacy protections for sensitive information systems that are not transparent to the public through PIAs and investigate whether the information-sharing component of a certain data-mining system, the U.S. Immigration and Customs Enforcement Pattern Analysis and Information Collection program, should be deactivated until a PIA is approved that includes the component. DHS has taken action to address both of these recommendations. Given the challenges in applying privacy laws and overseeing systems that contain personally identifiable information, the role of executives in federal departments and agencies charged with oversight of privacy issues is of critical importance. In 2008 we reported on agencies' designation of senior officials as focal points with overall responsibility for privacy.organizational structures used by agencies to address privacy requirements and assess whether senior officials had oversight over key functions. Although federal laws and OMB guidance require agencies to designate a senior official for privacy with privacy oversight responsibilities, we found that the 12 agencies we reviewed had varying organizational structures to address privacy responsibilities and that Among other things, we were asked to describe the designated senior privacy officials did not always have oversight of all key privacy functions. Without such oversight, these officials may be unable to effectively serve as agency central focal points for information privacy. We recommended that six agencies take steps to ensure that their senior agency officials for privacy have oversight of all key privacy functions. Of the six agencies to which recommendations were made, four have provided evidence that they have fully addressed our recommendations. In 2008, we issued a report on the sufficiency of privacy protections afforded by existing laws and guidance, in particular the Privacy Act, the E-Government Act, and related OMB guidance.that while these laws and guidance set minimum requirements for agencies, they may not consistently protect personally identifiable information in all circumstances of its collection and use throughout the federal government and may not fully adhere to key privacy principles. We identified issues in three major areas: Applying privacy protections consistently to all federal collection and use of personal information. The Privacy Act's definition of a system of records, which sets the scope of the act's protections, does not always apply whenever personal information is obtained and processed by federal agencies. For example, if agencies do not retrieve personal information by identifier, as may occur in data-mining systems, the act's protections do not apply. We previously reported that among the 25 agencies surveyed, the most frequently cited reason for collections of records not being considered Privacy Act systems of records was that the agency did not use a personal identifier to retrieve the information. Factors such as these have led experts to agree that the Privacy Act's system-of-records construct is too narrowly defined. An alternative for addressing these issues could include revising the system-of-records definition to cover all personally identifiable information collected, used, and maintained systematically by the federal government. GAO, Privacy Act: OMB Leadership Needed to Improve Agency Compliance, GAO-03- 304 (Washington, D.C.: June 30, 2003). specified purpose. Yet current laws and guidance impose only modest requirements for describing the purposes for personal information and limiting how it is used. For example, agencies are not required to be specific in formulating purpose descriptions in their public notices. While purpose statements for certain law enforcement and antiterrorism systems might need to be phrased broadly enough so as not to reveal investigative techniques or the details of ongoing cases, very broadly defined purposes could allow for unnecessarily broad ranges of uses, thus calling into question whether meaningful limitations had been imposed. Examples for alternatives for addressing these issues include setting specific limits on the use of information within agencies and requiring agencies to establish formal agreements with external government entities before sharing personally identifiable information. Establishing effective mechanisms for informing the public about privacy protections. According to the openness principle, the public should be informed about privacy policies and practices, and the accountability principle calls for those who control the collection or use of personal information to be held accountable for taking steps to ensure privacy protection. Public notices are a primary means for establishing accountability for privacy protections and giving individuals a measure of control over the use of their personal information. Yet concerns have been raised that Privacy Act notices may not serve this function well. Although the Federal Register is the government's official vehicle for issuing public notices, an expert panel convened for GAO questioned whether system-of-records notices published in the Federal Register effectively inform the public about government uses of personal information. Among others, options for addressing concerns about public notices could include setting requirements to ensure that purpose, collection, and use limitations are better addressed in the content of privacy notices and revising the Privacy Act to require that all notices be published on a standard website. Addressing these three areas could provide a number of benefits. First, ensuring that privacy protections are applied consistently to all federal collection and use of information could help ensure that information not retrieved by identifier (such as may occur in data-mining applications, for example) is protected in the same way as information retrieved by identifier. Further, limiting the use of personally identifiable information to a stated purpose could help ensure a proper balance between allowing government agencies to collect and use such information and limiting that collection and use to what is necessary and relevant. Lastly, a clear and effective notice can provide individuals with critical information about what personal data are to be collected, how they are to be used, and the circumstances under which they may be shared. An effective notice can also provide individuals with information they need to determine whether to provide their personal information (if voluntary), or who to contact to correct any errors that could result in an adverse determination about them. We noted that some of these issues--such as those dealing with limitations on use and mechanisms for informing the public--could be addressed by OMB through revisions of or supplements to existing guidance. However, we further stressed that unilateral action by OMB would not have the benefit of public deliberations regarding how best to strike an appropriate balance between the government's need to collect, process, and share personally identifiable information and the rights of individuals to know about such collections and be assured that they are only for limited purposes and uses. Accordingly, we suggested that Congress consider amending applicable laws, such as the Privacy Act and E-Government Act, according to the alternatives we outlined, including revising the scope of the laws to cover all personally identifiable information collected, used, and maintained by the federal government; setting requirements to ensure that the collection and use of personally identifiable information is limited to a stated purpose; and establishing additional mechanisms for informing the public about privacy protections by revising requirements for the structure and publication of public notices. In commenting on a draft of our report, OMB officials noted that they shared our concerns about privacy and listed guidance that the agency has issued in the areas of privacy and information security. The officials stated that they believed it would be important for Congress to consider potential amendments to the Privacy and E-Government Acts in the broader contexts of other privacy statutes and that it would be important for Congress to evaluate fully the potential impact of revisions. In addition, in October 2011, you, the Chairman, introduced a bill to amend the Privacy Act. This bill--The Privacy Act Modernization for the Information Age Act of 2011--would, among other things, revise the Privacy Act to cover all personally identifiable information collected, used, and maintained by the federal government and ensure that collection and use of personally identifiable information is limited to a stated purpose. However, revisions to the Privacy and E-Government Acts have not yet been enacted. In addition to relevant privacy laws and federal guidance, a key component of protecting citizens' personal information is ensuring the security of agencies' information systems and the information they contain by, among other things, preventing data breaches and reporting those breaches when they occur. In 2006, in the wake of a security breach at the Department of Veterans Affairs resulting in the compromise of personal data on millions of U.S. veterans, we testified on preventing and responding to improper disclosures of personal information in the federal government. We observed that agencies can take a number of actions to help guard against the possibility that databases of personally identifiable information are compromised. In particular, we noted two key steps agencies should take: Develop PIAs whenever information technology is used to process personal information. These assessments are a tool for agencies to fully consider the privacy implications of planned systems and data collections before implementation, when it may be easier to make critical adjustments. Ensure the implementation of a robust information security program as required by FISMA. Such a program includes periodic risk assessments; security awareness training; security policies, procedures, and practices, as well as tests of their effectiveness; and procedures for addressing deficiencies and for detecting, reporting, and responding to security incidents. We also noted that data breaches could be prevented by limiting the collection of personal information, limiting the time such data are retained, limiting access to personal information and training personnel accordingly, and considering the use of technological controls such as encryption when data need to be stored on mobile devices. OMB subsequently issued guidance that specifies minimum agency practices for using encryption to protect personally identifiable information. Memorandums M-06-15, Safeguarding Personally Identifiable information, and M-06-16, Protection of Sensitive Agency Information, reiterated existing agency responsibilities to protect personally identifiable information, and directed agencies to encrypt data on mobile computers and devices and follow National Institute of Standards and Technology (NIST) security guidelines regarding personally identifiable information that is accessed outside an agency's physical perimeter. In addition, OMB issued memorandum M-07-16, Safeguarding Against and Responding to the Breach of Personally Identifiable Information, which restated the M-06-16 recommendations as requirements and also required the use of NIST-certified cryptographic modules for encrypting sensitive information In 2008, we reported on the extent to which 24 major agencies had implemented encryption technologies. We found that agencies' implementation of encryption and development of plans to implement encryption of sensitive information varied, and that from July through September 2007, the agencies collectively reported that they had not yet installed encryption technology on about 70 percent of their laptop computers and handheld devices. Accordingly, we made recommendations to selected agencies to strengthen practices for planning and implementing the use of encryption. The agencies generally agreed with the recommendations and we have assessed that 6 of the 18 recommendations have been addressed. Despite preventive measures, data breaches can still occur, and when they do it is critical that proper response policies and procedures be in place. We testified in 2006 that notification to individuals affected by data breaches and/or the public has clear benefits, such as allowing people to take steps to protect themselves from identity theft. Such notification is consistent with agencies' responsibility to inform individuals about how their information is being accessed and used, and it promotes accountability for privacy protection. GAO-06-833T. information to US-CERT within 1 hour of discovery of the incident. In addition, OMB memorandum M-07-16 requires agencies to develop and implement breach notification policies governing how and under what circumstances affected parties are notified in the event of a data breach. Further, in a memorandum issued in September 2006, OMB recommended that agencies establish a core management group responsible for responding to the loss of personal information. OMB also established requirements for reporting breaches within the government. In memorandum M-06-20, FY 2006 Reporting Instructions for the Federal Information Security Management Act and Agency Privacy Management, OMB asked agencies to identify in their annual FISMA reports any physical or electronic incidents involving the loss of or unauthorized access to personally identifiable information. Agencies are also required to report numbers of incidents for the reporting period, the number of incidents the agency reported to US-CERT, and the number reported to law enforcement. In 2007 we reported that while requiring agencies to notify affected consumers of a data breach may encourage better security practices and help mitigate potential harm, it also presents certain costs and challenges. Federal banking regulators and the President's Identity Theft Task Force had advocated a notification standard--the conditions requiring notification--that was risk based, allowing individuals to take appropriate measures where the risk of harm existed, while ensuring they are only notified in cases where the level of risk warrants such action. Use of such a risk-based standard could avoid undue burden on organizations and unnecessary and counterproductive notifications to consumers about breaches that present little risk. Over the last several years, we have continued to report that federal agency systems are vulnerable to cyber attacks and the potential compromise of sensitive information, including personally identifiable For fiscal year 2011, agency inspector general and GAO information.assessments of information security controls revealed that most major federal agencies had weaknesses in most of five major categories of information system controls. Further, over the past several years, we and agency inspectors general have made hundreds of recommendations to resolve similar previously identified significant control deficiencies. We have also recommended that agencies fully implement comprehensive, agency-wide information security programs as required by FISMA, including by correcting weaknesses in specific areas of their programs. The effective implementation of these recommendations will strengthen the security posture at these agencies, which will in turn help ensure the protection of personally identifiable information they collect and use. Federal agencies have also reported increasing numbers of security incidents that placed sensitive information at risk, with potentially serious impacts on federal operations, assets, and people. Over the past 6 years, the number of incidents reported by federal agencies to US-CERT has increased from 5,503 incidents in fiscal year 2006 to 42,887 incidents in fiscal year 2011, an increase of nearly 680 percent. (See fig. 1.) Of the incidents occurring in 2011, 15,560 involved unauthorized disclosure of personally identifiable information, a 19 percent increase over the 13,017 personally identifiable information incidents that occurred in 2010. Reported attacks and unintentional incidents involving federal, private and critical infrastructure systems involve a wide range of incidents including data loss or theft, computer intrusions, and privacy breaches, underscoring the need for improved security practices. The following examples from news media and other public sources illustrate some of the risks: In May 2012, the Federal Retirement Thrift Investment Board reported a sophisticated cyber attack on a computer belonging to a third party, which provided services to the Thrift Savings Plan. As a result of the attack, 123,000 participants had their personal information accessed. According to the board, the information accessed included 46,587 individuals' names, addresses, and Social Security numbers, and 79,614 individuals' Social Security numbers and other Thrift Savings Plan-related information. In April 2012, hackers breached a server at the Utah Department of Health to access thousands of Medicaid records. Included in the breach were Medicaid recipients and clients of the Children's Health Insurance Plan. About 280,000 people had their Social Security numbers exposed. In addition, another 350,000 people listed in the eligibility inquiries may have had other sensitive data stolen, including names, birth dates, and addresses. In March 2012, a news wire service reported that the senior commander of the North Atlantic Treaty Organization (NATO) had been the target of repeated cyber attacks using Facebook that were believed to have originated in China. According to the article, hackers repeatedly tried to dupe those close to the commander by setting up fake Facebook accounts in his name in the hope that his acquaintances would make contact and answer private messages, potentially divulging sensitive information about the commander or themselves. In March 2012, it was reported that Blue Cross Blue Shield of Tennessee paid out a settlement of $1.5 million to the U.S. Department of Health and Human Services arising from potential violations stemming from the theft of 57 unencrypted computer hard drives that contained protected health information of over 1 million individuals. Incidents such as these illustrate that sensitive personally identifiable information remains at risk and that improved protections are needed to ensure the privacy of information collected by the government. While OMB has taken steps through the guidance I described to set requirements for agencies to follow, it is unclear the extent to which all agencies, including smaller agencies such as the Federal Retirement Thirst Investment Board, are adhering to OMB's guidelines. In summary, ensuring the privacy and security of personal information collected by the federal government remains a challenge, particularly in light of the increasing dependence on networked information systems that can store, process, and transfer vast amounts of data. These challenges include updating federal laws and guidance to reflect current practices for collecting and using information while striking an appropriate balance between privacy concerns and the government's need to collect information from individuals. They also involve implementing sound practices for securing and applying privacy protection principles to federal systems and the information they contain. Without sufficient attention to these matters, Americans' personally identifiable information remains at risk. Chairman Akaka, Ranking Member Johnson, and members of the Subcommittee, this concludes my statement. I would be happy to answer any questions you have at this time. If you have any questions regarding this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected]. Other key contributors to this statement include John de Ferrari, Assistant Director; Melina Asencio; Sher'rie Bacon; Anjalique Lawrence; Kathleen Lovett Epperson; Lee McCracken; David Plocher; and Jeffrey Woodward. Cybersecurity: Challenges in Securing the Electricity Grid. GAO-12-926T. Washington, D.C.: July, 17, 2012. Cybersecurity: Threats Impacting the Nation. GAO-12-666T. Washington, D.C.: April 24, 2012. Information Security: Additional Guidance Needed to Address Cloud Computing Concerns. GAO-12-130T. Washington, D.C.: October 6, 2011. Information Security: Weaknesses Continue Amid New Federal Efforts to Implement Requirements. GAO-12-137. Washington, D.C.: October 3, 2011. Personal ID Verification: Agencies Should Set a Higher Priority on Using the Capabilities of Standardized Identification Cards. GAO-11-751. Washington, D.C.: September 20, 2011. Data Mining: DHS Needs to Improve Executive Oversight of Systems Supporting Counterterrorism. GAO-11-742. Washington, D.C.: September 7, 2011. Cybersecurity: Continued Attention Needed to Protect Our Nation's Critical Infrastructure. GAO-11-865T. Washington, D.C.: July 26, 2011. Defense Department Cyber Efforts: DOD Faces Challenges in Its Cyber Activities. GAO-11-75. Washington, D.C.: July 25, 2011. Information Security: State Has Taken Steps to Implement a Continuous Monitoring Application, but Key Challenges Remain. GAO-11-149. Washington, D.C.: July 8, 2011. Social Media: Federal Agencies Need Policies and Procedures for Managing and Protecting Information They Access and Disseminate. GAO-11-605. Washington, D.C.: Jun 28, 2011. Cybersecurity: Continued Attention Needed to Protect Our Nation's Critical Infrastructure and Federal Information Systems. GAO-11-463T. Washington, D.C.: March 16, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Information Security: Federal Agencies Have Taken Steps to Secure Wireless Networks, but Further Actions Can Mitigate Risk. GAO-11-43. Washington, D.C.: November 30, 2010. Cyberspace Policy: Executive Branch Is Making Progress Implementing 2009 Policy Review Recommendations, but Sustained Leadership Is Needed. GAO-11-24. Washington, D.C.: October 6, 2010. Privacy: OPM Should Better Monitor Implementation of Privacy-Related Policies and Procedures for Background Investigations. GAO-10-849. Washington, D.C.: September 7, 2010. Information Management: Challenges in Federal Agencies' Use of Web 2.0 Technologies. GAO-10-872T. Washington, D.C.: July 22, 2010. Cyberspace: United States Faces Challenges in Addressing Global Cybersecurity and Governance. GAO-10-606. Washington, D.C.: July 2, 2010. Cybersecurity: Continued Attention Is Needed to Protect Federal Information Systems from Evolving Threats. GAO-10-834T. Washington, D.C.: June 16, 2010. Information Security: Federal Guidance Needed to Address Control Issues with Implementing Cloud Computing. GAO-10-513. Washington, D.C.: May 27, 2010. Information Security: Concerted Effort Needed to Consolidate and Secure Internet Connections at Federal Agencies. GAO-10-237. Washington, D.C.: March 12, 2010. Cybersecurity: Progress Made but Challenges Remain in Defining and Coordinating the Comprehensive National Initiative. GAO-10-338. Washington, D.C.: March 5, 2010. National Cybersecurity Strategy: Key Improvements Are Needed to Strengthen the Nation's Posture. GAO-09-432T. Washington, D.C.: March 10, 2009. Health Information Technology: HHS Has Taken Important Steps to Address Privacy Principles and Challenges, Although More Work Remains. GAO-08-1138, Washington, D.C.: September 17, 2008. Information Security: Federal Agency Efforts to Encrypt Sensitive Information Are Under Way, but Work Remains. GAO-08-525. Washington, D.C.: June 27, 2008. Privacy: Congress Should Consider Alternatives for Strengthening Protection of Personally Identifiable Information. GAO-08-795T. Washington, D.C.: June 18, 2008. Privacy: Agencies Should Ensure That Designated Senior Official Have Oversight of Key Functions. GAO-08-603. Washington, D.C.: May 30, 2008. Privacy: Alternatives Exist for Enhancing Protection of Personally Identifiable Information. GAO-08-536. Washington, D.C.: May 19, 2008. Health Information Technology: Efforts Continue but Comprehensive Privacy Approach Needed for National Strategy. GAO-07-988T. Washington, D.C.: June 19, 2007. Personal Information: Data Breaches are Frequent, but Evidence of Resulting Identity Theft Is Limited; However, the Full Extent is Unknown. GAO-07-737. Washington, D.C.: June 4, 2007. Privacy: Lessons Learned about Data Breach Notification. GAO-07-657. Washington, D.C.: April 30, 2007. Homeland Security: Continuing Attention to Privacy Concerns Is Needed as Programs Are Developed. GAO-07-630T. Washington, D.C.: March 21, 2007. Health Information Technology: Early Efforts Initiated but Comprehensive Privacy Approach Needed for National Strategy. GAO-07-238. Washington, D.C.: January 10, 2007. Privacy: Preventing and Responding to Improper Disclosures of Personal Information. GAO-06-833T. Washington, D.C.: June 8, 2006. Data Mining: Agencies Have Taken Key Steps to Protect Privacy in Selected Efforts, but Significant Compliance Issues Remain. GAO-05- 866. Washington, D.C.: August 15, 2005. Privacy Act: OMB Leadership Needed to Improve Agency Compliance. GAO-03-304. Washington, D.C.: June 30, 2003. 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 government collects and uses personal information on individuals in increasingly sophisticated ways, and its reliance on information technology (IT) to collect, store, and transmit this information has also grown. While this enables federal agencies to carry out many of the government's critical functions, concerns have been raised that the existing laws for protecting individuals' personal information may no longer be sufficient given current practices. Moreover, vulnerabilities arising from agencies' increased dependence on IT can result in the compromise of sensitive personal information, such as inappropriate use, modification, or disclosure. GAO was asked to provide a statement describing (1) the impact of recent technology developments on existing laws for privacy protection in the federal government and (2) actions agencies can take to protect against and respond to breaches involving personal information. In preparing this statement, GAO relied on previous work in these areas as well as a review of more recent reports on security vulnerabilities. Technological developments since the Privacy Act became law in 1974 have changed the way information is organized and shared among organizations and individuals. Such advances have rendered some of the provisions of the Privacy Act and the E-Government Act of 2002 inadequate to fully protect all personally identifiable information collected, used, and maintained by the federal government. For example, GAO has reported on challenges in protecting the privacy of personal information relative to agencies' use of Web 2.0 and data-mining technologies. While laws and guidance set minimum requirements for agencies, they may not protect personal information in all circumstances in which it is collected and used throughout the government and may not fully adhere to key privacy principles. GAO has identified issues in three major areas: Applying privacy protections consistently to all federal collection and use of personal information. The Privacy Act's protections only apply to personal information when it is considered part of a "system of records" as defined by the act. However, agencies routinely access such information in ways that may not fall under this definition. Ensuring that use of personally identifiable information is limited to a stated purpose. Current law and guidance impose only modest requirements for describing the purposes for collecting personal information and how it will be used. This could allow for unnecessarily broad ranges of uses of the information. Establishing effective mechanisms for informing the public about privacy protections. Agencies are required to provide notices in the Federal Register of information collected, categories of individuals about whom information is collected, and the intended use of the information, among other things. However, concerns have been raised whether this is an effective mechanism for informing the public. The potential for data breaches at federal agencies also pose a serious risk to the privacy of individuals' personal information. OMB has specified actions agencies should take to prevent and respond to such breaches. In addition, GAO has previously reported that agencies can take steps that include assessing the privacy implications of a planned information system or data collection prior to implementation; ensuring the implementation of a robust information security program; and limiting the collection of personal information, the time it is retained, and who has access to it, as well as implementing encryption. However, GAO and inspectors general have continued to report on vulnerabilities in security controls over agency systems and weaknesses in their information security programs, potentially resulting in the compromise of personal information. These risks are illustrated by recent security incidents involving individuals' personal information. Federal agencies reported 13,017 such incidents in 2010 and 15,560 in 2011, an increase of 19 percent. GAO previously suggested that Congress consider amending applicable privacy laws to address identified issues. GAO has also made numerous recommendations to agencies over the last several years to address weaknesses in policies and procedures related to privacy and to strengthen their information security programs.
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MTSA was landmark legislation that mandated a quantum leap in security preparedness for America's maritime ports. Prior to the terrorist attacks of September 11, 2001, federal attention at ports tended to focus on navigation and safety issues, such as dredging channels and environmental protection. While the terrorist attacks initially focused the nation's attention on the vulnerability of its aviation system, it did not take long for attention to fall on the nation's ports as well. Besides being gateways through which dangerous materials could enter the country, ports represent attractive targets for other reasons: they are often large and sprawling, accessible by water and land, close to crowded metropolitan centers, and interwoven with highways, roads, factories, and businesses. Security is made more difficult by the many stakeholders, public and private, involved in port operations. These stakeholders include local, state, and federal agencies; multiple law enforcement jurisdictions; transportation and trade companies; and factories and other businesses. Passed in November 2002, MTSA imposed an ambitious schedule of requirements on a number of federal agencies. MTSA called for a comprehensive security framework--one that included planning, personnel security, and careful monitoring of vessels and cargo. (See table 2 for examples of key MTSA activities.) MTSA tasked the Secretary of DHS, and the Secretary in turn has tasked the Coast Guard, with lead responsibility for the majority of its requirements. Timetables were often daunting. For example, one of the Coast Guard's responsibilities was to develop six interim final rules implementing MTSA's operational provisions in sufficient time to receive public comment and to issue a final rule by November 25, 2003. Adding to the difficulty has been the need to implement MTSA against the backdrop of the most extensive federal reorganization in over a half- century. Most of the agencies with MTSA responsibilities were reorganized into the Department of Homeland Security in March 2003, less than 5 months after MTSA enactment. Among the 22 agencies in the new department were some relatively new organizations, such as TSA. Other more longstanding agencies, including the Coast Guard, U.S. Customs Service, and Immigration and Naturalization Service, were transferred from a variety of executive departments. This vast recombination of organizational cultures introduced new chains of command and reporting responsibilities. MTSA implementation also involved coordination with other executive agencies, including the Departments of State, Transportation, and Justice. Since the passage of MTSA in 2002 the responsible agencies--primarily the Coast Guard, TSA, and BCBP in DHS, along with MARAD in the Department of Transportation--have made strides in implementing the act's security provisions. MTSA called for actions in 46 key areas we identified. Thus far, we have received information from the responsible agencies on 43 of these areas. Of the 43 areas, work is done in 2 (issuing interim rules and developing training for maritime security personnel), and under way in 40 others. These agencies also reported that cooperation and coordination has been extensive throughout the course of their activities. A major achievement has been the Coast Guard's publication on July 1, 2003, of six interim rules on the provisions where it had lead responsibility. The rules set requirements for many of the provisions delegated to the Coast Guard under MTSA. The rules, which included sections on national maritime security initiatives, area maritime security, vessel security, facility security, outer continental shelf facility security, and automatic identification systems, were published approximately 8 months after MTSA was enacted. Doing so kept the Coast Guard on schedule for meeting MTSA's requirement to receive public comment and issue the final rules by the end of November 2003. The rules provided a comprehensive description of industry-related maritime security requirements and the cost-benefit assessments of the entire set of rules. The Coast Guard plans to publish the final rules before November 25, 2003, after receiving and acting on comments to the interim rules. Another Coast Guard accomplishment was the establishment of Maritime Safety and Security Teams called for under MTSA. These teams, which can be rapidly deployed where needed, are designed to provide antiterrorism protection for strategic shipping, high-interest vessels, and critical infrastructure. The Coast Guard has already deployed four teams--in Seattle and Galveston and near Norfolk and Los Angeles. The Coast Guard will deploy teams in New York City and near Jacksonville this year, and six more teams have been requested in the president's budget in 2004. These are to be located in San Diego, Honolulu, Boston, San Francisco, New Orleans, and Miami. Other agencies in DHS have also made progress in their implementation of MTSA provisions. Responding to MTSA's requirement for the development of biometric transportation security identification cards that would allow only authorized persons access to secure areas of vessels or facilities, TSA is currently testing several different technology credentialing systems on sample cards. The agency will begin testing prototypes of the entire security card process, including conducting background checks, collecting biometric information on workers, verifying cardholders' identities, and issuing cards in early 2004. TSA plans to start issuing about 5 to 6 million new cards per year in the middle of 2004. Developing all of the policies and programs to make this system work is still under way and will continue to pose challenges to continued progress. Another DHS agency, BCBP, was delegated the responsibility for issuing regulations for electronic transmission of cargo information to BCBP by October 1, 2003; BCBP published its proposed rule on July 23, 2003. BCBP was waiting for comments on the proposed rule, and BCBP officials told us that they expect to publish the rule on time. MARAD has also made progress in its requirements. Among the provisions for which MARAD is responsible are developing standards and curricula for the training of maritime security personnel. MARAD submitted a Report to Congress, dated May 2003, containing the standards and curriculum called for by MTSA in the form of model course frameworks for seven categories of maritime security professionals. As an extension of the MTSA project, MARAD also produced three model maritime security courses for the International Maritime Organization (IMO). An IMO validation team has reviewed drafts of these courses, which found little need for change. Agency officials told us that cooperation and coordination on MTSA implementation has been strong. Coast Guard officials said that they had developed channels of communication with other relevant agencies, and they said these other agencies were supportive in implementing provisions for which they did not have primary responsibility. In the work we have conducted at ports since the September 11th attacks, we have noted an increasing level of cooperation and coordination at the port level. However, ensuring smooth coordination as the many aspects of MTSA implementation continue is a considerable challenge. Additional work will be needed to determine the extent to which this spirit of cooperation continues to be translated into effective actions at the level where programs must be implemented. While progress is being made, our preliminary work has identified five areas that merit attention and further oversight. Three relate primarily to security issues: (1) the limited number of ports that will be covered by the vessel identification system, (2) questions about the scope and quality of port security assessments, and (3) the Coast Guard's plans not to individually approve security plans for foreign vessels. The remaining two relate primarily to operational and efficiency matters: (1) potential duplication of maritime intelligence efforts and (2) inconsistency with Port Security Grant Program requirements. The main security-related issue involves the implementation of a vessel identification system. MTSA called for the development of an automatic identification system. Coast Guard implementation calls for a system that would allow port officials and other vessels to determine the identity and position of vessels entering or operating within the harbor area. Such a system would provide an "early warning" of an unidentified vessel or a vessel that was in a location where it should not be. To implement the system effectively, however, requires considerable land-based equipment and other infrastructure that is not currently available in many ports. As a result, for the foreseeable future, the system will be available in less than half of the 25 busiest U.S. ports. The identification system, called the Automatic Identification System (AIS), uses a device aboard a vessel to transmit a unique identifying signal to a receiver located at the port and to other ships in the area. This information gives port officials and other vessels nearly instantaneous information about a vessel's identity, position, speed, and course. MTSA requires that vessels in certain categories install tracking equipment between January 1, 2003, and December 31, 2004, with the specific date dependent on the type of vessel and when it was built. The only ports with the necessary infrastructure to use AIS are those that have waterways controlled by Vessel Traffic Service (VTS) systems. Similar to air traffic control systems, VTS uses radar, closed circuit television, radiophones, and other technology to allow monitoring and management of vessel traffic from a central shore-based location. The Coast Guard currently plans to install AIS receiving equipment at the 10 locations with VTS systems. More than half of the 25 busiest ports, such as Philadelphia, Baltimore, Miami, Charleston, Tampa, and Honolulu, do not have VTS systems; hence, AIS will be inoperable at these locations for the foreseeable future. When AIS will be operable at these other ports depends heavily on how soon the Coast Guard can put an extensive amount of shore-based infrastructure in place. For the present, the Coast Guard is requiring AIS equipment only for (1) vessels on international voyages and (2) vessels navigating waterways under VTS control. Some of these international ships will be calling on ports that will not have AIS equipment. In such cases, the transmitters aboard the vessels will be of no use for the ports, because they will not have equipment to receive the signals. Cost is a major factor in the full implementation of AIS. Expanding coverage will require substantial additional investment, both public and private. The Coast Guard's budget request for fiscal year 2004 includes $40 million for shore-based AIS equipment and related infrastructure--an amount that covers only current VTS areas. According to a Coast Guard official, wider-reaching national implementation of AIS would involve installation and training costs ranging from $62 million to $120 million. Also, the cost of installing AIS equipment aboard individual ships averages about $10,000 per vessel, which is to be borne by the vessel owner or operator. Some owners and operators, particularly of domestic vessels, have complained about the cost of equipping their vessels. Another security-related issue involves the Coast Guard's efforts to address MTSA's security planning requirements through a series of security assessments of individual ports. Security assessments are intended to be in-depth examinations of security threats, vulnerabilities, consequences, and conditions throughout a port, including not just transportation facilities, but also factories and other installations that pose potential security risks. The Coast Guard had begun these assessments before MTSA was passed and decided to continue the process, changing it as needed to meet MTSA planning requirements, which include developing area security plans based on the evaluation of specific facilities throughout the port. At the request of the Subcommittee on Coast Guard and Maritime Transportation, House Committee on Transportation and Infrastructure, we have been examining these assessments, which are being conducted by an outside contractor. Our preliminary work has surfaced several potential concerns, which we are still in the process of reviewing. One concern involves an apparent truncation of the review process for ensuring that the assessment methodology will deliver what MTSA requires. When MTSA took effect, the outside contractor already completed the first 10 of 55 planned assessments. The Coast Guard directed the contractor to modify the assessment methodology to take MTSA's planning requirements into account, and it decided that the next two assessments would be a pilot test of the revised methodology. The Coast Guard plans to use the pilot test to evaluate lessons learned, so that additional modifications can be made before any further contracts are signed. Instead of waiting to see what changes might be needed as a result of the pilot projects, however, the contractor has apparently started the scoping phase for the next six port assessments. Scoping is a significant part of the new methodology, and as such, it is a major determinant in the nature and breadth of the issues to be addressed, as well as the assessment's cost. The contractor has also reportedly sought to negotiate and sign contracts to review the next six ports. Since the pilot projects will not be completed until at least October 2003, it seems premature to reach decisions about the scope of the assessments and sign contracts for them. The revised methodology needs to be reviewed so that any needed changes are reflected in the next contract. A second concern that has surfaced involves the scope and quality of the assessments themselves. As part of our work, we have interviewed port stakeholders to obtain their views on the process. At one port, where the assessment has been completed and the report issued, stakeholders said they had not been given an opportunity to comment on the report, which contained factual errors and did not include an assessment of railroads and the local power generating plant. At the other port, where the assessment was still in process, local Coast Guard personnel and port stakeholders noted that a survey instrument referred to the wrong port, asked questions they regarded as not pertaining to security, and was conducted in ways that raised concerns about credibility. Many of these stakeholders saw little usefulness in the assessments, believing that they added little to what the stakeholders had already learned from conducting their own more extensive security reviews of individual facilities or installations. They said the assessments focused on the same systems that had already been reviewed and would have greater value if they were focused on matters that had not already been thoroughly studied, such as the potential for waterborne assault. Coast Guard officials at the two ports said, however, that in their view the assessments would provide such benefits as a more comprehensive perspective on port operations and vulnerabilities and validate their need for additional assets and people to provide adequate security. Ensuring that the assessments are of high quality is important not only for their effectiveness as security instruments, but also because of their cost. For the most part, assessments have been conducted only at medium-sized ports, and even there they are costing $1 million or more per assessment. Concerns have been raised about the proposed approach for meeting MTSA's requirement that the Secretary of DHS approve vessel security plans for all vessels operating in U.S. waters. Vessel security plans include taking such steps as responding to assessed vulnerabilities, designating security officers, conducting training and drills, and ensuring that appropriate preventive measures will be taken against security incidents. To implement this MTSA requirement the Coast Guard has stated, in general, that it is not the Coast Guard's intent to individually approve vessel security plans for foreign vessels. Separate from MTSA, an international agreement requires vessels to carry on board a vessel security plan that is approved by the vessel's country of registry--its "flag" state--to ensure that an acceptable security plan is in place. The Coast Guard provides that it will deem a flag state approval of a vessel security plan to constitute the MTSA-required Secretary approval of MTSA vessel security plans. However, MTSA does not mention any role for foreign nations in the Secretary's required approval of vessel security plans, and some concerns have been raised about the advisability of allowing flag states--some with a history of lax regulation--to ensure the security of vessels traveling to the United States. The international requirement for a security plan is contained in the International Ship and Port Facility Security (ISPS) Code. Under this requirement, which was adopted about the same time that MTSA was enacted and will go into effect on July 1, 2004, the vessel's flag state is responsible for reviewing and certifying the vessel's security plan. Prior to this time, the vessels' flag state had already been responsible for ensuring that its vessels met safety requirements. Critics of using this approach for MTSA-required security plans have pointed out that in the past, some flag states had a spotty record of enforcing safety requirements. Rather than individually approving security plans for vessels overseen by foreign flag states, the Coast Guard plans an extensive monitoring effort as part of its oversight of vessels bound for U.S. waters. However, the Coast Guard's interim rule stated that, as part of an aggressive port state control program, the Coast Guard would verify that foreign vessels have an approved, fully implemented security plan, as well as tracking the performance of owners, operators, flag administrations, charters, and port facilities. Coast Guard officials have said that they are working from existing procedures, in that their security effort is modeled after their safety program. They also said, however, that they have no contingency plans in case stronger measures than those called for in their current plans are required. The concerns are limited mainly to foreign flag vessels. Vessels registered in the United States will have their security plans reviewed and approved by the Coast Guard. It has been reported that the Coast Guard estimates that review and approval of security plans for domestic vessels and facilities will require 150 full-time personnel and cost $70 million as part of its 2004 budget. Turning to issues that are related more to program efficiency and management than to security concerns, one issue that has arisen involves potential duplication in the area of maritime intelligence. MTSA required the Secretary of Homeland Security to implement a system to collect, integrate, and analyze information on vessels operating on or bound for U.S. waters. The Secretary of DHS in turn delegated responsibilities to TSA and the Coast Guard. There appears to be potential for duplication by TSA and the Coast Guard in these efforts. The duplication concerns center on the new Integrated Maritime Information System (IMIS) required under the Secretary's delegations. The Secretary of DHS delegated primary responsibility for this system to TSA, and TSA was appropriated $25 million to develop it. Coast Guard officials have voiced concerns that TSA's efforts in developing the overall system are duplicating existing Coast Guard efforts that are more extensive and better funded. According to these officials, IMIS is very similar to the Coast Guard's Intelligence Coordination Center (ICC) Coastwatch program, an effort that has 10 times the amount of funding appropriated for IMIS, involves 100 more staff members, and has staff already in place with considerable intelligence analysis capability. Coast Guard officials questioned whether TSA's smaller effort could yield information of similar quality. Coast Guard officials also expressed concerns about potential duplication of effort at the port level. TSA's tests of the system would place TSA personnel at the port level. Coast Guard personnel noted that these efforts seemed similar to the Coast Guard's Field Intelligence Support Teams, as well as teams from the legacy agencies, the Customs Service and the Immigration and Naturalization Service, that also operate at the port level. Coast Guard officials said that they saw little sharing of the intelligence at that level. While we have not yet had the opportunity to observe the intelligence arms of TSA and the Coast Guard in action to more fully evaluate the potential for duplication of effort, it does appear that some potential duplication exists. From conversations with TSA and Coast Guard officials, we could discern little difference in a number of their information and integration efforts. Aside from potential inefficient use of resources, this possible duplication may also limit either agency from obtaining a complete intelligence picture and detecting potential threats. The final issue involves TSA's implementation of MTSA's grant program. MTSA required the Secretary of Transportation to establish a program of grants to ports and other entities to implement area and facility-specific security plans. Prior to the enactment of MTSA, TSA, in partnership with MARAD and the Coast Guard, already had begun a port security grant program in February 2002. This program was originally intended to fund security assessments and enhanced operational security at ports and facilities, and two rounds of grants were funded before MTSA was enacted in November 2002. TSA officials told us that, rather than creating a new grant program to specifically respond to MTSA, they are adapting the existing program to meet MTSA requirements. Under this approach, some time will elapse before all of the grant requirements specified under MTSA are in place. The existing grant program differs from MTSA requirements in several respects. Most significantly, the existing grant program does not require cost-sharing, while MTSA does. MTSA grant provisions state that for projects costing more than $25,000, federal funds for any eligible project shall not exceed 75 percent of the total cost. A TSA official said that, in starting to fold MTSA grants into the existing program for the third round of grants, TSA was still disbursing moneys from a prior appropriation, and the language of that legislation limited its ability to make changes that would meet MTSA requirements. As a result, TSA encouraged cost-sharing but did not require it. While TSA limited its changes for the first three rounds of grants, in the future continued deviation from MTSA cost- sharing requirements would keep federal dollars from reaching as many projects as possible. By not requiring a grantee to share in the financial burden, TSA does not take into account the applicant's ability to participate in the funding. If applicants have such ability, the result is that available federal dollars are not effectively leveraging as many projects as possible. There are two additional areas where TSA's current grant program differs from MTSA provisions. First, the current grant program does not specifically correspond to the stated purpose of MTSA's grant funding, which is to implement area and facility-specific security plans. TSA officials told us that in round three, they would give preference to regulated facilities and vessels that were already required to have security assessments and plans in place. As a result, the grants would likely be for mitigating identified vulnerabilities rather than developing plans. Second, in the application instructions for the current program, TSA said that recurring costs for personnel and operations and maintenance costs were not eligible for funding. MTSA specifically includes these costs. TSA officials said that for later rounds of grants during fiscal year 2004, they would discuss potential changes in the Port Security Grant Program with the Coast Guard and MARAD. These potential changes would include requiring that all grant proposals be designed to meet MTSA port security grant requirements. The officials said, however, that before making any changes, they would look for specific directions accompanying currently pending appropriations for fiscal year 2004. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions that you or other members of the committee may have. For information about this testimony, please contact Margaret Wrightson, Director, Homeland Security and Justice Issues, at (415) 904-2000. Individuals making key contributions to this testimony include Jonathan Bachman, Jason Berman, Steven Calvo, Matthew Coco, Rebecca Gambler, Geoffrey Hamilton, Christopher Hatscher, Lori Kmetz, Stan Stenersen, and Randall Williamson. 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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After the events of September 11, 2001, concerns were raised over the security of U.S. ports and waterways. In response to the concerns over port security, Congress passed the Maritime Transportation Security Act in November 2002. The act created a broad range of programs to improve the security conditions at the ports and along American waterways, such as identifying and tracking vessels, assessing security preparedness, and limiting access to sensitive areas. A number of executive agencies were delegated responsibilities to implement these programs and other provisions of the act. The Senate Committee on Commerce, Science, and Transportation asked GAO to conduct a review of the status of the agencies' efforts to implement the security requirements of the act. This testimony reflects GAO's preliminary findings; much of GAO's work in the area is still under way. Agencies responsible for implementing the security provisions of the Maritime Transportation Security Act have made progress in meeting their requirements. Thus far, GAO has obtained information about 43 of 46 specific action areas, and efforts are under way in 42 of them. For example, the Coast Guard, the Department of Homeland Security agency with lead responsibility for most of the assignments, has published six interim rules covering responsibilities ranging from security of port facilities to vessel identification systems. Two other agencies within the new department--the Transportation Security Administration and the Bureau of Customs and Border Protection--have actions under way in such areas as establishing an identification system for millions of port workers and setting information requirements for cargo. The Maritime Administration, a Department of Transportation agency, has already completed or is well into implementing such responsibilities as developing training for security personnel. While much has been accomplished, GAO's review found five areas of concern. Three relate primarily to security issues: (1) only a limited number of ports covered by vessel identification system; (2) questions about the scope and quality of port security assessments; and (3) concerns related to approving security plans for foreign vessels. Two relate primarily to organizational and operational matters: (1) potential duplication of maritime intelligence efforts; and (2) inconsistency with Port Security Grant Program requirements.
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Medicare Part D coverage is provided through private sponsors that offer a choice of PDPs with different costs and coverage. The largest sponsors offer PDPs to beneficiaries throughout the United States and generally have experience in providing Medicare coverage and with call center operations. Under Part D, each PDP may offer the standard prescription drug benefit or coverage that is different, but at least actuarially equivalent, to the standard benefit. According to the Medicare Payment Advisory Commission, for 2006, 9 percent of PDPs offer the standard benefit, 48 percent offer a basic plan that has the same actuarial value as the standard benefit but with a different design, and 43 percent offer enhanced coverage that exceeds the standard benefit. Therefore, the specific premium, deductible, and copayment or coinsurance amounts, as well as the coverage gap--the period during which beneficiaries must pay 100 percent of their drug costs--of each PDP may vary. In addition, MMA and CMS regulations require plan formularies--the list of drugs a PDP covers--to meet certain standards, but within these standards, the drugs that are covered and the utilization management tools that are used to control costs may vary. If beneficiaries' drugs are not on their PDP's formulary, rather than paying full (retail) price for them, beneficiaries may switch to a similar drug that is on the formulary. Beneficiaries may also request that the plan make an exception to the formulary and cover their drugs. If the PDP denies that request, CMS regulations require that beneficiaries generally be able to appeal the decision to the sponsor. Although certain drugs may be on a PDP's formulary, they may be subject to one or more of several utilization management tools--the most common of which are prior authorization, quantity limits, step therapy, and generic substitution. For drugs subject to prior authorization, beneficiaries need approval from their PDP before they can fill their prescription and for drugs subject to quantity limits, the plan limits the amount of the drug it covers over a certain period of time. For drugs subject to step therapy, the PDP requires that the beneficiary first try a less expensive drug for their condition before it will cover the beneficiary's prescribed drug. Finally, generic substitution means that when there is a generic substitute available, the PDP will automatically provide the generic, unless the beneficiary's doctor specifically orders the brand-name drug. To help cover costs under Part D, Medicare provides subsidies to certain low-income beneficiaries. For example, Medicare beneficiaries for whom Medicaid pays their Medicare Part B premium automatically receive the full low-income subsidy. This subsidy provides the beneficiary with reduced copayment amounts, covers any deductible, provides drug coverage during the coverage gap, and helps pay their PDP premium, up to a certain amount. Other Medicare beneficiaries, however, must apply for the low-income subsidy through the Social Security Administration, and may receive only a partial subsidy. For 2006, 79 sponsors are offering over 1,400 PDPs, each of which has been approved by CMS to ensure that it meets established standards. Ten of these sponsors are offering PDPs in all 34 PDP regions, and they account for nearly 62 percent of PDPs nationwide. The largest PDP sponsors are either in the commercial insurance or pharmacy benefit management and services sectors and generally have prior experience with call center operations. In addition, the largest PDP sponsors all have some prior experience with Medicare. Most offered a Medicare prescription drug discount card or partnered with a company and most offer Medicare Advantage plans. Almost all of the calls we placed were answered by a CSR with minimal delay. A limited number of calls were not answered by CSRs, mainly due to disconnections. Further, we found that most CSRs with whom we spoke were easy to understand, polite, and professional, and many provided helpful suggestions and information. Call centers generally provided prompt service in answering our calls. The wait time to reach a CSR was generally short--46 percent of the 864 calls CSRs fielded were answered in less than 1 minute and 96 percent of the calls were answered in less than 5 minutes (see fig. 1). Only 9 calls (1 percent) were answered in 10 minutes or more, with the longest wait time being 25 minutes (1 call). For a small number of calls--36 of the 900 calls we placed (4 percent)--we did not receive an answer to our questions because we did not reach a CSR. For almost all of these calls (33), this occurred because we were disconnected. CSRs generally provided courteous service. Our callers noted that many were helpful and friendly, and we found that CSRs were easy to understand, polite, and professional in 98 percent of the calls. In addition, if a CSR did not know or could not answer a question, many provided additional resources for obtaining the answer, most commonly during calls on the low-income subsidy (question 3). While CSRs did not provide an answer for over one-third of the calls for this question, in over 80 percent of these cases, CSRs suggested another source the caller could contact to obtain the answer--most commonly Medicare or the Social Security Administration. Many CSRs also provided callers with helpful suggestions that related to our questions. For example, during question 1 calls on the PDP comparison for a low-utilization beneficiary, CSRs provided information about a mail-order option to obtain drugs in 22 percent of the calls. For question 2 on the PDP comparison for a high-utilization beneficiary, CSRs provided the caller with information about lower-cost drugs in 41 percent of the calls and inquired as to whether the beneficiary was eligible for the low-income subsidy in 24 percent of the calls. CSRs at the 10 PDP sponsor call centers we contacted provided accurate and complete responses to about one-third of the calls they fielded, although the accuracy and completeness rates for each of the 10 sponsor call centers and for each of the five questions varied. CSRs were unable to provide an answer for 15 percent of the questions posed, primarily those related to plan costs. In addition, we found that CSRs within the same call centers sometimes provided inconsistent responses to our questions. Excluding the 4 percent of calls for which we did not reach a CSR, we obtained accurate and complete responses to 34 percent of the calls--294 of 864--and obtained incomplete responses to another 29 percent of the calls (see fig. 2). The overall accuracy and completeness rates for each of the 10 PDP sponsor call centers varied widely, ranging from 20 to 60 percent (see fig. 3). Only 1 sponsor call center had an overall accuracy and completeness rate of greater than 50 percent and 2 sponsor call centers had rates of 25 percent or less. No sponsor's call center consistently had the highest or lowest accuracy and completeness rate for all questions. For example, although 1 call center had the highest accuracy and completeness rate for both question 1 (the PDP comparison for a low- utilization beneficiary) and question 2 (the PDP comparison for a high- utilization beneficiary), it had the second-lowest accuracy and completeness rate for question 4 (nonformulary drugs). Variation across call centers was due, in part, to differences in the resources that CSRs said were available to them. For example: In response to questions 1 and 2, CSRs at two call centers indicated that they were able to compute the annual cost of the least expensive plan because they had access to a computerized "cost calculator." However, CSRs at other call centers stated that they could not compute an annual cost because they did not have access to such a resource. We located cost calculators on the Web sites of seven sponsors, each of which had call center CSRs who stated that they did not know or could not calculate an annual cost. CSRs at six different sponsor call centers stated that they could not calculate the annual cost of the least expensive plan because they did not have access to the retail prices of the beneficiary's drugs. In contrast, CSRs at two other call centers stated that they did have access to these prices, and were able to use them in calculations. For each of the five questions, accuracy and completeness rates varied, but were generally low. They ranged from 14 to 60 percent (see fig. 4). Relatively few CSRs were able to accurately identify the least costly plan and calculate its annual cost. In addition, the annual cost estimates that CSRs provided were often substantially different from the plans' actual costs. For example: For the low-utilization beneficiary (question 1), about 1 in 3 responses were incomplete; that is, CSRs identified the least costly plan, but either inaccurately calculated its annual cost or stated that they could not provide any annual cost. Over half of the CSRs that provided an inaccurate response quoted a cost that was greater than the actual cost. For the high-utilization beneficiary (question 2), about 3 in 10 responses were incomplete. Among the 23 CSRs that correctly identified the least costly plan, but gave an inaccurate annual cost, almost all provided a quote that was less than the actual cost, and in 11 cases over $1,000 less. About two-thirds of the CSRs were unable to accurately report whether the sponsor offered a PDP for which a Medicare beneficiary that received help from Medicaid would not have to pay a premium (question 3). Specifically, CSRs fielding this call answered inaccurately 31 percent of the time and did not provide an answer 35 percent of the time. For most of the inaccurate answers, CSRs stated that a certain PDP would not require a premium from the beneficiary, but, in fact, it would. Other inaccurate responses showed a poor understanding of the low-income subsidy benefit; for example, two CSRs incorrectly stated that the low-income subsidy did not help offset the premium at all. Half of the CSRs responding to question 4 incompletely described the options available to a beneficiary taking a nonformulary drug. Of the incomplete responses, about 4 in 5 CSRs mentioned that the beneficiary could request an exception to have the plan cover the nonformulary drug, but not that the beneficiary could switch to a drug that the plan covers. In addition, 15 percent of CSR responses included neither possibility, with many CSRs stating that the beneficiary's only option would be to pay full price for nonformulary drugs. Finally, CSRs accurately described at least two utilization management tools in 60 percent of our calls for question 5--the highest accuracy and completeness rate of our five questions. Other CSRs identified, but could not accurately describe, specific tools. For example, one CSR incorrectly stated that quantity limits--a limit on the amount of a drug that the plan will cover over a certain period of time--means that a pharmacy may not have enough of a drug to fill the beneficiary's prescription. Overall, CSRs stated that they did not know or could not answer our question for 15 percent of the calls. This was most common for the questions related to PDP costs (the PDP comparison for a low-utilization beneficiary, the PDP comparison for a high-utilization beneficiary, and the low-income subsidy). For question 2 calls regarding the PDP comparison for a high-utilization beneficiary, 30 percent of the CSRs stated that they were unable to tell the caller which PDP would cost the beneficiary the least annually. In contrast, only 8 percent of CSRs provided this response for question 1 on the low-utilization beneficiary. This difference in the percentage of calls for which an answer was provided is likely due to the added complexity of comparing PDPs and calculating the annual cost for a beneficiary using eight drugs versus a beneficiary using three drugs. However, reliance on at least five drugs is common in the Medicare population. Question 3 regarding the low-income subsidy had the highest "no answer provided" rate--35 percent. Of the CSRs that did not provide an answer to this question, almost all stated that they did not know the subsidy amount the beneficiary would receive. Because they did not recognize that beneficiaries with both Medicare and Medicaid automatically receive the full low-income subsidy, they could not effectively determine whether that subsidy would cover the sponsor's PDP premiums. CSRs within the same call center sometimes provided inconsistent responses to our five questions. For example, within each of six different call centers, among CSRs who accurately identified the least costly plan for the low-utilization beneficiary (question 1), some CSRs calculated an accurate annual cost, some calculated an inaccurate annual cost, and others stated that they could not calculate an annual cost. In response to question 2 regarding the high-utilization beneficiary, different CSRs within five call centers identified each of their sponsor's PDPs as the least costly. In addition, in response to questions 1 and 2, CSRs at three call centers told us that it was against the sponsor's policies to identify any of their plans as having the lowest annual cost. However, other CSRs at each of these call centers did not cite this policy and did identify a plan as having the lowest annual cost. In part, these inconsistencies were due to differences in CSRs' knowledge about their sponsor's plans. For example, CSRs' varying knowledge related to the low-income subsidy question (question 3) produced contradictory responses. Within each of the 10 sponsor call centers, different CSRs answered accurately, inaccurately, or stated that they did not know or could not answer the question. When asked about the options for a beneficiary using nonformulary drugs (question 4), different CSRs within each of 6 sponsor call centers stated that a beneficiary could either switch to a covered drug or apply for an exception, stated only that the beneficiary could switch to a covered drug, stated only that the beneficiary could apply for an exception, or stated neither possibility. Among CSRs that stated neither possibility, the specific responses differed. For example, at 1 of the above call centers, although five CSRs answered the question accurately, one erroneously stated that the beneficiary's only option was to pay full price for nonformulary drugs, and another erroneously stated that any drugs not covered by the PDP would be covered under Medicare Part B. In answering question 5 on utilization management tools, different CSRs within the same call center provided varying descriptions of the utilization management tools PDPs use. For example, although four CSRs within one call center provided accurate descriptions of at least two tools, three other CSRs within this call center each provided a different, and inaccurate, description of utilization management tools. At another call center, two CSRs stated that they could not describe any tools without knowing the specific drugs the beneficiary was taking--even though eight other CSRs at that call center were able to accurately describe at least one tool without knowing the beneficiary's drugs. Our calls to 10 of the largest PDP sponsors' call centers show that Medicare beneficiaries face challenges in obtaining the information needed to make informed choices about the PDP that best meets their needs. Call center CSRs are expected to provide answers to drug benefit questions and comparative information about their sponsors' PDP offerings. Yet we received accurate and complete responses to only about one-third of our calls. In addition, responses to the same question varied widely, both across and within call centers. Sponsor call centers' poor performance on our five questions raises questions about whether the information they provide will lead beneficiaries to choose a PDP that costs them more than expected or has coverage that is different than expected. Rather than consider PDP options solely on the basis of the call centers' information, callers may benefit from consulting other information sources available on Medicare Part D when seeking to understand and compare PDP options. CMS reviewed a draft of this report and provided written comments, which appear in appendix I. In its comments, CMS characterized our analysis as based on inaccurate, incomplete, and subjective methods that limit the report's relevance and validity. However, CMS went on to say that despite its view on the study's limitations, GAO is right to be concerned about whether beneficiaries are getting effective service from plan call centers. CMS asserted that our questions did not reflect the usual questions received by PDP sponsor call centers. As noted in the draft report, we selected topics that were addressed in the Frequently Asked Questions section of the Medicare.gov Web site and regarded by policy experts and beneficiary advocates as important to making an informed plan choice. Furthermore, at a May 2006 meeting with CMS officials, the agency's Deputy Administrator stated that CSRs should be able to accurately answer all of the specific questions we posed during the study. CMS also stated that we asked for information that CSRs are not required to provide. Specifically, for questions 1 and 2 on PDP comparisons for low and high-utilization beneficiaries, CMS stated that it does not require sponsor call centers to provide information on the annual costs of their PDPs. However, while not necessarily required, agency officials had indicated that the information we sought from CSRs was within the scope of plan sponsor customer service efforts. In a discussion held before we conducted our March calls, CMS officials told us that the agency had not established any requirements regarding the specific types of information plan CSRs must be able to provide, but that it was reasonable to expect CSRs to give callers accurate information on the topics we included in our review. In addition, as noted in the draft report, some call centers were relatively successful in providing accurate and complete answers to questions 1 and 2, indicating that call center CSRs can handle such questions appropriately. One call center's CSRs answered the question accurately and completely in 88 percent of the calls for the low-utilization beneficiary, and one call center's CSRs responded correctly in 81 percent of the calls for the high-utilization beneficiary. In addition, we found that 7 of the 10 PDP sponsors had cost calculators on their Web sites that could have been used to answer these questions. CMS commented that, to be counted as providing a complete response to questions 1 and 2 on PDP comparisons, we expected CSRs to recommend a specific plan to the caller, a practice that often constitutes "steering," which is prohibited under Medicare marketing guidance. As noted in the draft report, our callers identified themselves as family members wishing to assist beneficiaries in choosing a drug plan. Providing assistance to beneficiaries--which is encouraged by CMS--generally consists of learning the characteristics of various PDPs and assessing their relative merits given the potential enrollee's needs. This is clearly allowed in CMS's Marketing Guidelines, which distinguish between assistance based on objective information and steering to a drug plan for financial gain. CMS also took issue with how we counted a specific CSR response to questions 1 and 2. The agency incorrectly claimed that a CSR's referral to 1-800-MEDICARE was categorized as an incomplete response. As noted in the draft report, we categorized responses as incomplete if the CSR accurately named the lowest annual cost plan, but either inaccurately calculated or could not provide the annual cost. If the CSR did not answer the question and instead referred the caller to 1-800-MEDICARE for information on PDPs, we classified the response as "no answer provided." CMS stated that the wording of question 3 on the low-income subsidy was inaccurate and therefore misleading. This question specifies that the beneficiary automatically qualifies for extra help because Medicaid pays part of her Medicare premiums. According to CMS, the wording of question 3 is incorrect because only Medicare pays the drug premium for low-income beneficiaries and Medicaid would fully (not partly) pay the Part B premium. However, CMS's comment conflicts with the information we obtained from its Medicare.gov Web site in developing the wording and answer for this question. Using the Web-based PDP finder tool on this Web site, the user can select one of several options specifying why the beneficiary qualified for extra help. We selected the option specifying that the beneficiary automatically qualified for extra help because they receive "help from State paying Medicare premiums." We agree that only Medicare, and not Medicaid, pays the Medicare Part D premium for low- income beneficiaries and Medicaid would fully (not partly) pay the Part B premium. Therefore, for such a beneficiary, Medicaid would pay part of the beneficiary's Medicare premiums. CMS also stated that, for certain questions, many reasonable answers were not counted as correct. The agency cited our question regarding a beneficiary's options should he or she be prescribed a nonformulary drug, and asserted that our criteria for a correct response--switching to a covered drug or asking for an exception--was too limited. The agency stated that other reasonable answers should have been counted as correct because we conducted our calls at a time when all plans covered all Part D drugs. We obtained the answer to this question from a script that CMS approved for use by CSRs operating its 1-800-MEDICARE help line. In addition to the two options we used as criteria for an accurate and complete answer, the script mentioned that PDPs are required to provide beneficiaries with temporary transitional coverage (generally for 30 days after enrollment) of drugs not on the PDP's formulary. However, according to CMS, the purpose of this temporary coverage is to provide beneficiaries with sufficient time to switch to another drug or to request an exception to the formulary. Therefore, in specifying our criteria for an accurate and complete answer, we chose to include only the two options that CMS sees as longer-term solutions for the beneficiary. CMS stated that we did not examine certain features of the support services that plan sponsors' call centers are required to provide, such as hours of operation, wait times, disconnection rates, and language services. It also noted requirements that plans report a range of performance measures, such as beneficiary complaint rates and timeliness of exceptions and appeals decisions. As noted in the draft report, the scope of our review was limited to the accuracy and completeness of information disseminated to the public by PDP sponsors' call centers--a feature of plan customer service for which CMS has established no performance requirements. Finally, CMS believes that, as written, our study provides little practical guidance of value in improving the drug benefit and that our conclusion-- that callers may benefit from consulting other information sources available on Medicare Part D when seeking to understand and compare PDP options--is obvious. In quoting our conclusion, CMS omitted the key part of the paragraph preceding the quoted phrase where we state that "sponsor call centers' poor performance on our five questions raises questions about whether the information they provide will lead beneficiaries to choose a PDP that costs them more than expected or has coverage that is different than expected. . . ." We continue to believe that plan sponsors should be accountable for the accuracy of their information and make maintaining effective call centers a priority. CMS also provided us with detailed, technical comments, which we incorporated where appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. We will then send copies to the Administrator of CMS, appropriate congressional committees, and other interested parties. We will also make copies available to others upon request. This report is also available at no charge on GAO's Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (312) 220-7600 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 contributions to this report are listed in appendix II. In addition to the contact named above, Rosamond Katz, Assistant Director; Manuel Buentello; Jennifer DeYoung; and Joanna L. Hiatt made major contributions to this report. Other contributors include Lori D. Achman, Diana B. Blumenfeld, Gerardine Brennan, Laura Brogan, Lisa L. Fisher, M. Peter Juang, Martha R.W. Kelly, Ba Lin, and Michaela M. Monaghan.
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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established a voluntary outpatient prescription drug benefit, known as Medicare Part D. Private sponsors have contracted with the Centers for Medicare & Medicaid Services (CMS) to provide this benefit and are offering over 1,400 stand-alone prescription drug plans (PDP). Depending on where they live, beneficiaries typically have a choice of 40 to 50 PDPs, which vary in cost and coverage. MMA required each PDP sponsor to staff a toll-free call center, which serves as a key source of the information that beneficiaries need to make informed choices among PDPs. GAO examined (1) whether PDP sponsors provide prompt, courteous, and helpful service to Medicare beneficiaries and others and (2) the extent to which PDP sponsor call centers provide accurate and complete information to Medicare beneficiaries and other callers. To address these objectives, we made 900 calls to 10 of the largest PDP sponsor call centers during March 2006, posing one of five questions about their Part D plans during each call. We tracked the amount of time it took to reach a customer service representative (CSR), the number of calls that did not reach a CSR, and the appropriateness and clarity of CSRs' language. We developed criteria for determining accurate and complete responses based on CMS information. Call center service was generally prompt and courteous, and many CSRs offered helpful suggestions and information. GAO reached a representative in less than 1 minute for 46 percent of the calls CSRs fielded and in less than 5 minutes for 96 percent of the calls fielded. While GAO did not reach CSRs for 4 percent of the calls it placed, mainly because of disconnections, GAO found that 98 percent of CSRs with whom GAO spoke were easy to understand, polite, and professional. In addition, many CSRs provided helpful suggestions related to GAO's questions, such as details about a mail-order option to obtain drugs or lower-cost drugs. However, CSRs at 10 of the largest PDP sponsor call centers did not consistently provide accurate and complete responses to GAO's five questions, which GAO developed using information from CMS and other sources. GAO obtained accurate and complete responses to about one-third of the 864 calls for which GAO reached a CSR. The overall accuracy and completeness rate for each call center ranged from 20 to 60 percent. CSRs were unable to answer 15 percent of the questions posed, primarily those related to plan costs. Furthermore, CSRs within the same call center sometimes provided inconsistent answers. For example, in response to questions about PDP cost comparisons for specified sets of drugs, CSRs at 3 call centers told GAO that it was against the sponsors' policies to identify any of their plans as lowest cost. However, other CSRs at each of these call centers did not cite this policy and did identify a plan as lowest cost. In commenting on a draft of this report, CMS criticized the analysis as based on inaccurate, incomplete, and subjective methods that limit the report's relevance and validity. GAO maintains that its methods are sound and its findings are accurate. CMS officials told GAO at a May 2006 meeting that CSRs should have been able to accurately answer the questions GAO posed.
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Since the 1940s, the U.S. government has assisted private voluntary organizations' (PVO) overseas activities. After World War II, as PVOs responded to emergency needs in Europe, the U.S. government began donating excess property and supplies and financing shipping costs to assist PVOs' efforts. The Congress authorized donations of commodities in 1954. Public Law (P.L.) 480, as amended, authorized commodity donations to voluntary agencies for distribution overseas to meet emergency and nonemergency food needs. Although still heavily involved in the provision of emergency assistance overseas, since the mid-1960s PVOs have gradually shifted their emphasis from charitable relief to development activities. The PVO community is comprised of diverse organizations from the traditional voluntary relief and development agencies to family planning organizations, labor institutes, and cooperatives. PVOs range from organizations with budgets of a few thousand dollars and narrow objectives, such as the Pan-American Association of Eye Banks, to large operations with worldwide programs and multimillion dollar budgets, such as the Cooperative for Assistance and Relief Everywhere, Inc. (CARE) and Catholic Relief Services. Literature on PVOs' development activities describes some of the qualities that PVOs exhibit: familiarity with local populations and ability to work with the poor at the community level, innovation in approaches and flexibility in responding to development needs, lower cost compared to government-to-government aid programs, staff dedicated to the PVOs' mission and willing to work under difficult conditions, long-term commitment to development, and ability to work with INGOs to strengthen local development capabilities. Additionally, development literature suggests that PVOs are generally weak in the areas of strategic planning, realistic planning for sustainability, and working with each other on common goals. Since the United States began providing foreign aid, its approach to development has changed several times. During the 1960s, the U.S. Agency for International Development (USAID) undertook large infrastructure projects such as dams and road construction. Then, in the early 1970s, USAID gave priority to addressing the basic human needs of the populations of developing countries. In the 1980s, USAID took a more macroeconomic approach to development, emphasizing economic growth through policy reform and a stronger private sector. None of the approaches proved to be the panacea for development problems. USAID's current approach involves both macroeconomic reforms (legal, policy, and regulatory) and direct assistance to the poor in developing countries--to help them take advantage of economic and development opportunities. Thus, USAID has increasingly relied on PVOs to provide direct assistance while it focuses on macrolevel reforms through policy dialogue. In early 1995, USAID announced plans to increase the proportion of resources that it channels through nongovernmental organizations, including PVOs. Other recent proposals have advocated providing development assistance through a foundation that would distribute funds to PVOs and other nongovernmental organizations. Although its record of success has been mixed, USAID has access to developing countries' governments and the technical expertise to assist them in such areas as policy analysis, sectoral reform, privatization, national programming, and structural adjustment. On the other hand, PVOs have demonstrated that they have a comparative advantage in providing direct assistance to meet varied development needs--often in areas underserved by governments. In 1993, the U.S. government provided about $1.7 billion of aid through PVOs, including $414 million in food commodities and freight. PVOs received $813 million from USAID in grants and contracts. Other U.S. government agencies provided another $439 million to PVO programs. For example, the Department of State contributes to PVOs for refugee assistance and the Department of Agriculture contributes surplus commodities for humanitarian assistance. PVOs and INGOs must register with USAID to receive grants for development assistance activities directly from USAID. As of October 1994, 419 PVOs were registered with USAID. To be registered, a PVO or INGO must, among other requirements, be a nonprofit and nongovernmental entity receiving funds from private voluntary in that it receives voluntary contributions of money, staff time, or in-kind support from the public; and engaged in or anticipating becoming engaged in voluntary charitable or development assistance operations overseas of a nonreligious nature, which are consistent with the purposes and objectives set forth in the Foreign Assistance Act and P.L. 480. USAID both supports PVOs' independent activities and uses PVOs as intermediaries to carry out projects that USAID initiates in keeping with its own priorities. The Office of Private and Voluntary Cooperation, in the Bureau for Humanitarian Response, is the focal point for USAID work with PVOs, although other offices within USAID--including regional bureaus; the Bureau for Global Programs, Field Support and Research; the Office of Foreign Disaster Assistance, and the Office of Food for Peace--also work directly with PVOs. In countries where USAID maintains missions, PVOs can apply to the missions for funding for specific development projects in the host country. In addition to programs that are specifically restricted to registered PVOs, PVOs may also compete for other grants and contracts awarded by missions and USAID/Washington, D.C., bureaus. The objectives of our review were to examine (1) PVOs' role in delivering USAID-funded foreign assistance; (2) potential issues and implications of increasing their role in delivering assistance, including accountability issues; (3) the success of their projects in achieving their objectives; and (4) the extent to which these organizations are dependent on U.S. government funding. We employed a combination of methods to address these issues, including (1) an extensive review of development literature to document the role PVOs play in the development spectrum (see selected bibliography), (2) discussions with U.S. and foreign government officials and PVO representatives, (3) case studies of selected projects in eight countries, (4) a collection of descriptive data on PVOs and their projects within each case study country, and (5) an analysis of financial data on PVO resources. For the case studies, we selected eight countries: Ecuador, Ghana, Honduras, Indonesia, Nepal, Niger, Romania, and Thailand. We selected these countries on the basis of the following criteria: (1) geographic balance, (2) size and diversity of PVO programs, and (3) whether PVOs used food aid in the country. We used a structured data collection instrument to collect basic descriptive data on PVO and INGO activities between 1991 and 1994. To review the success of PVOs in meeting their objectives and enhancing sustainable development, we conducted 26 case studies, including at least 2 projects in each country carried out by different PVOs in different development sectors. We used project design, implementation, and evaluation documentation; on-site observations of projects; and extensive interviews with USAID, PVO, and host government officials to assess projects as more or less successful relative to the projects' success in meeting their objectives, including developing local capacity. To determine the degree to which projects met their objectives, we considered factors such as whether (1) projects were meeting agreed-upon measurable benchmarks or indicators within agreed costs and time frames and (2) outcomes achieved project goals. In many cases, indicators were not quantifiable, so we based our judgment on on-site observations of projects and interviews with USAID and PVO officials about intended project outcomes. We supplemented the fieldwork undertaken specifically to answer this request with information generated in the course of our other work in the last 3 years, including reports on P.L. 480 titles II and III and PVOs' role in food aid. To assess the degree to which PVOs depend on federal funding, we examined data on private and federal funding published in Voluntary Foreign Aid Programs, an annual publication of USAID's Bureau for Humanitarian Response. We analyzed the data from 1982 to 1992, the last year for which complete information was available, after converting dollar amounts into constant 1992 dollars. We did not independently verify the published information, although we worked with USAID to resolve apparent errors in the data. We performed our work from November 1993 through April 1995 in accordance with generally accepted government auditing standards. PVOs, as a group, work in many different sectors--from providing health services to pollution control to microenterprise development. They often work in remote areas where governments cannot or do not provide services. Some PVOs use U.S. volunteers to deliver technical services or assistance to developing countries. PVOs sponsor projects in many different sectors, including agriculture, education, environment, health and child survival, and small-enterprise development, designed to address the many needs of people in developing countries. Almost 30 percent of 274 USAID-funded PVO and INGO projects operating in the 8 countries in our review included health activities. Natural resources management, private sector development, and democracy were the next most frequently addressed issues--about 15 percent of projects addressed each of these issues. Other projects focused on labor, agriculture, and education, among other sectors. In several cases, PVO projects provided services in areas not served by the host government. The 26 projects we examined in detail represent the diverse areas of needs PVOs try to address. For example, one of the USAID-supported PVO projects addressed health and nutritional needs of children in Ghana. In Romania, several projects focused on the needs of institutionalized and orphaned children, while another PVO worked with state-owned enterprises to abate pollution. Projects in Nepal, Honduras, and Thailand sought to increase economic opportunities for women who traditionally have few opportunities for economic advancement--two by providing credit and technical assistance to microenterprises owned by women or employing women and one by providing scholarships to girls so they could continue their schooling. (See fig. 2.1 for a project supported by CARE in Thailand.) In Ghana, we examined a PVO agroforestry project. In Honduras and Indonesia, our sample included PVO projects to help communities to build water and sewer systems. PVO food aid projects we visited in Ghana, Honduras, and Indonesia either directly distributed food to beneficiaries or sold commodities to generate funds for development projects. Direct feeding projects included mother-child health projects that targeted malnourished children and pregnant or lactating women and school feeding projects in poor regions. Food-for-work projects are generally assumed to be self-targeting to the poorest because the work is generally difficult and the wages low. (See figs. 2.2 and 2.3 for food-for-work projects in Honduras and Ghana.) PVOs often conducted projects in remote areas not adequately served by the governments of developing countries. For example, in Ecuador, Catholic Relief Services and Project HOPE conducted child survival projects that provided immunizations and education on hygiene and nutrition to rural areas. (See fig. 2.4 for a child survival project in Ecuador.) In Niger, Africare provided training for community health workers in Diffa, an isolated area more than 900 kilometers from Niamey, the capital of Niger. Save the Children/Honduras and CARE in Indonesia were assisting in construction of water and sewer systems in remote areas. (See fig. 2.5 for a water system project in Honduras.) In Nepal, PVOs provide most medical services. USAID officials told us that PVOs fill critical voids in health and community development. About 15 percent of PVOs registered with USAID in 1993 used American volunteers in their overseas programs, according to information contained in USAID's report on voluntary foreign assistance. Some PVOs coordinate volunteer service abroad to provide specialized services or technical assistance not available in developing countries, which, according to these PVOs, would be costly to provide through contractors. For example, health sector PVOs, such as Operation Smile International and Project ORBIS International, coordinate medical volunteers to provide medical care and train health workers. The Farmer-to-Farmer program in the former Soviet Union and worldwide included 8 PVOs and cooperatives and the Peace Corps that coordinated over 1,300 volunteer assignments to provide expertise on agricultural production and processes in over 60 developing countries worldwide and expected to field about 1,700 volunteers to the newly independent states of the former Soviet Union. The International Executive Service Corps and Volunteers in Overseas Cooperative Assistance recruit volunteers to provide consulting services to private sector businesses in developing countries. According to information supplied by the International Executive Service Corps, it delivered almost 75,000-person days of assistance in 1994 through its offices in 50 countries at an average cost of $439 per day. According to PVO representatives, volunteers are generally well received by the citizens of the developing country because they are viewed as experts who volunteer their time and are not perceived as having the political agendas sometimes associated with bilateral assistance or the profit motive of contractors. (See fig. 2.6 for a volunteer project in Romania.) However, the use of volunteers presents potential problems. For example, lack of language skills and cultural sensitivity on the part of volunteers and inability to adapt to living conditions in developing countries have limited the success of some volunteer experiences. Project evaluations and USAID and PVO officials noted that clear expectations on the parts of both the volunteers and the recipients of their services are critical to the success of the visit. They also stressed the importance of an in-country structure to (1) identify specific needs so that volunteers with appropriate skills can be found and (2) continue contact with recipients of the assistance to facilitate implementation of volunteers' recommendations. While a few PVOs have begun to work with governments of developing countries on policy reforms, many believe they have a humanitarian mission and would prefer to focus on person-to-person aid rather than work with large institutions. PVOs have a comparative advantage in being able to work directly with the poor, or with organizations that represent the poor, than major donors can. Some PVOs prefer not to interact with host governments and, as outside entities, may not have access or leverage within a country's government. In addition, many PVOs do not want to be seen as linked too closely to the U.S. government. Thus, providing economic assistance exclusively through nongovernmental organizations could limit the degree to which the United States can use such aid to achieve foreign policy interests other than supporting democratic development. In addition, channeling U.S. aid exclusively through PVOs also seems inconsistent with the current view of many U.S. government leaders that there should be a close link between the provision of U.S. assistance and specific U.S. foreign policy interests. Former foreign policy officials testified before the Senate Committee on Foreign Relations in March 1995 that "bilateral foreign assistance programs should be directly related to specific, identifiable U.S. foreign policy interests." Currently, the Congress looks to USAID to ensure that U.S. assistance is used efficiently and effectively. In recent years, USAID has encouraged PVOs and INGOs to develop stronger financial management skills that would help ensure accountability for resources. Regulations requiring external audits, such as Office of Management and Budget Circulars A-110 and A-133, have also led PVOs to focus on improving financial management systems. USAID and InterAction believe the PVO community generally has taken seriously its responsibility to improve financial and program management.However, some PVOs and particularly INGOs still have difficulties in meeting U.S. accountability standards. For example, USAID's Inspector General recently reviewed PVO activities in the West Bank/Gaza and found that while PVOs generally had the capability to implement USAID programs, two of the six needed to improve program monitoring, two needed to improve financial management, and four did not maintain adequate inventory records of USAID-funded commodities. Additionally, a recent audit of a PVO project in El Salvador discovered that funds had been misappropriated through false village banks and dummy loans. As of September 1995, $118,000 in USAID funds had not been recovered. The PVO reported that the USAID mission, the PVO, and the INGO have been working closely to address weaknesses that were exposed once the problem was discovered. Providing assistance funds directly to PVOs or through a foundation, as suggested in some of the reform proposals, would eliminate a key accountability mechanism from the U.S. foreign assistance program, and the Congress would have to accept more risk and less accountability for funds expended. We used criteria from development literature as the basis for our detailed assessment of 26 PVO projects: (1) progress toward meeting objectives and (2) building local capacity. While all projects experienced some unanticipated challenges in implementation, 20 of the 26 projects were making progress toward meeting all or most of their objectives. These projects resulted in accomplishments such as construction of water systems, improved provision of health care, and increased incomes for participants. Two projects were having major difficulties in attaining their objectives due to design or implementation problems. We were unable to assess the progress of four projects because their objectives and associated PVO or USAID evaluations were too general. We found no correlation between the size, geographic region, or sectoral emphasis of a PVO and its ability to achieve project objectives. In recent years, PVOs have begun working extensively with local groups that carry out projects, offering technical assistance and training to build institutional capacity designed to increase local capacity, rather than doing the projects with their own staffs. Most projects we reviewed included some activities designed to improve local capacity. (App. I contains the details of our 26 case studies.) The 20 projects in our case study that were making progress toward their objectives reflected a combination of the factors identified in development literature as being necessary for successful projects: good design and clear objectives, experience in the country and the development sector, qualified management and staff, and local participation. The following examples illustrate some of these factors: In Nepal, a $328,000 female education scholarship project sponsored by the Asia Foundation used a tested design and had local participation through its INGO partner, which had strong leadership that found creative solutions to problems the project encountered. As a result of the project, girls' school attendance increased in every district where the project was implemented. USAID provided Katalysis $1.75 million to strengthen local INGOs in three countries, including Honduras. In Honduras, the INGO partner conducted projects aimed at increasing participants' incomes. Katalysis provided technical assistance for the INGO in a wide range of areas such as long-range planning, information management systems, and fund raising. The PVO had good project design, which included local input and clear objectives, and had capable staff. The INGO ultimately designed and carried out a project that increased incomes of beneficiaries. In Ecuador, USAID provided $1.5 million to Project HOPE to develop a community health model with the goal of reducing sickness and death in children and women of childbearing age. The PVO had expertise in the sector and prior work in the country. The project had good management and design, and active community participation. The project was effective in increasing participation and extending health care coverage. (Fig. 3.1 shows a parade and banner advertising diarrhea prevention and treatment.) In Indonesia, USAID provided about $2.05 million in food aid to CARE to be sold to fund a pilot rural water and sanitation project. The project's objectives were to increase access and use of water and sanitation facilities among villages in rural Indonesia and demonstrate that rural communities could develop and self-finance improved facilities. The PVO used proven technical approaches and the design included measurable objectives. Rather than working with an INGO, CARE employed local staff to work directly with the communities to plan and carry out the construction of water systems, including designing and building the appropriate system. (Fig. 3.2 shows the resulting water reservoir that is filled by gravity from a spring 400 meters away.) The communities agreed to take responsibility for sustaining the improvements. An outside evaluation of the program concluded that CARE's approach was successful in creating sustainable water sanitation systems. Beneficiaries of the project in one village told us that the incidence of cholera had decreased since the system was built and that villagers could spend the 2 hours a day they had spent hauling water on more productive activities. The projects that were having the most difficulties suffered from poor design, inadequate project management, and lack of participation by the local community. The following describes some of the problems evident in the projects we examined: In Romania, USAID contributed $200,000 to a $1.02 million World Vision health care project to improve the delivery of primary health care services. The project was delayed almost a year due to internal management problems and difficulties in recruiting suitable staff. Further, the PVO met with difficulties in working with Ministry of Health officials because of changes in leadership there. A mid-term evaluation concluded that the achievements of the project at that date were mixed and could not always be clearly linked to project goals or to activities carried out. The final evaluation of the program, conducted after our fieldwork, noted that the conditions we observed had changed and the project achieved its objectives. The evaluation cited accomplishments in improving health knowledge, attitudes, and behaviors. In Niger, USAID provided Africare $1.8 million for a project to train community health workers in child survival techniques such as oral rehydration, growth monitoring, and nutrition. The project was delayed over 6 months due to difficulties in recruiting project personnel. The project design was flawed in that it was not integrated into the Ministry of Health's program, so no local level officials took responsibility. Further, although Ministry of Health nurses were trained, the nurses refused to train village health workers unless they received additional pay to ensure their cooperation. When USAID and the PVO were unwilling to provide additional pay, project activities were slowed. Supervision of project personnel and monitoring of field activities were inadequate, and Peace Corps volunteers working with the project complained that the PVO did not provide them adequate guidance. There was little community participation in the village health program the project set up. Africare stated that the problems identified in the draft had been addressed and that the project is now an integral part of Ministry of Health activities. PVO projects are not immune to some of the traditional problems in development, including difficulties identifying and retaining qualified staff and lack of support from local and national governments, as the following examples show: In Ecuador, Catholic Relief Services had difficulties implementing its infant growth monitoring activities because the beneficiaries could not read and were unable to keep accurate records. In Romania, USAID provided Project Concern International $1 million to (1) train Romanians in obstetric and neonatal health care and (2) establish a model facility for institutionalized adolescents who can be assisted to function independently. The project successfully renovated a facility (see fig. 3.3) and trained staff for a transitional living center to teach handicapped adolescents independent living and job skills. However, the PVO encountered resistance from Romanian institutions that were reluctant to release adolescents into the private center. At the time of our visit, only 6 children lived at the center designed and staffed to accommodate 40 residents. Project Concern was working with the Romanian government and institutional officials to resolve such problems. One concern about development projects is their sustainability. Sustainability is often affected by the level of local participation in planning and carrying out project activities. USAID has encouraged PVOs to work closely in implementing projects with local counterpart organizations, including national and local governments and INGOs, to strengthen the in-country development capacity. Those projects that respond to the development priorities of the intended beneficiaries have been shown to have the best prospects for sustainability, according to development literature. Since strengthening local capacity is fundamental to a country's long-term social and economic development, we examined the extent to which local persons and groups were involved in planning and carrying out project activities. Of the 241 projects in our inventory for which the information was available, 146 (61 percent) involved one or more INGOs. INGOs were project implementors in at least one-third of the projects. For example, Private Agencies Collaborating Together provided technical assistance to local organizations that worked directly with street children in Thailand. In Indonesia, the National Cooperative Business Association supported local cooperatives in export-oriented businesses in furniture and spices (see fig. 3.4). Efforts to involve INGOs in planning and carrying out projects were apparent in most of the 26 projects we reviewed in detail. Twenty-one projects involved at least one local governmental or nongovernmental organization in carrying out activities. Five projects focused specifically on strengthening INGOs, primarily by providing technical assistance and training to local organizations. Three projects focused on strengthening some aspect of the developing countries' government service delivery mechanisms. For example, in Ecuador, Project HOPE worked with the Ministry of Health to train community health workers, and in Romania, World Vision worked with the Ministry of Health to improve primary health strategies and service delivery. In Honduras, CARE worked with the Ministry of Education on a school feeding program that included daily meals to nearly 298,000 poor children at 3,743 schools. Others worked directly with community groups, in some cases organizing residents for a particular purpose. Beneficiaries of assistance, including community groups, were more likely to be involved in implementing projects and adapting existing designs to local conditions than they were to be involved in the design process. One project we examined in Ghana demonstrates the need for local involvement in planning and designing projects. In this case, USAID provided the Adventist Development and Relief Agency about $459,000 in fiscal year 1993 in food commodities and cash grants to support a project to establish self-financing nurseries to grow and sell seedlings that villagers would plant for later harvest and sale. However, the project did not have local participation in design and did not take into account key environmental and economic factors, including lack of demand for seedlings. The project, according to an independent evaluation, was "conceptualized, was designed, and is managed by outsiders (both expatriate and Ghanaian) to funnel into villages a commodity (wood trees) that was and is low on the scale of locally perceived priorities." While the project set up the nurseries and trained local staff paid with donated food, the lack of demand for seedlings made it unlikely that the nurseries could be self-sustaining. Further, the Peace Corps workers that had initially set up and managed the nurseries were supposed to turn management responsibilities over to the beneficiaries. However, no time period was set for a phase over of responsibilities and, according to an outside evaluator, there was no clearly defined withdrawal scenario in project documents. According to project evaluations, no nurseries had been turned over to local management 3 years after the project started. USAID and the PVO have informed us that the problems identified during our fieldwork have been addressed and that the project is showing positive results. The PVO hopes to turn management of the project over to local workers beginning in 1996. During our fieldwork, USAID officials in Washington and the field noted that some PVOs have been more successful than others in developing INGOs and turning over direct service activities to the local organizations. According to USAID officials, PVOs that have developed expertise in and networks for charitable service delivery in particular countries have tended to move less quickly toward working with INGOs than PVOs that see their role as enabling INGOs to serve their local communities. Despite their status as private, nongovernmental organizations, many PVOs receive significant amounts of federal funding. However, we found that PVOs generally are less dependent on government funding than they were a decade or more ago--although some individual PVO in-country projects are funded entirely by USAID. While federal spending on PVOs has increased in absolute terms since 1982, the percentage of total PVO resources coming from the federal government has decreased 13 percent (for PVOs that receive federal funds), from 42 percent in 1982 to 29 percent in 1992. This is because private donations have increased at a much faster rate than federal funding. PVOs must be registered with USAID to receive direct funding for purposes other than disaster assistance. In 1992, 231 registered PVOs received federal funding--an 83-percent increase from the 1982 total of 126. To qualify for development assistance funding, PVOs must show a minimum level of private funding (20 percent). This "privateness" calculation represents PVOs' total resources and not their contributions to the costs of specific projects. Our analyses of data for PVOs that receive federal funding show that reliance on government funding declined for many federally-supported PVOs between 1982 and 1992. Total private funding for PVOs receiving federal funds grew from $1.3 billion in 1982 to $3.4 billion in 1992 (in constant 1992 dollars), a 160-percent increase. In contrast, federal funding for PVOs fluctuated over this period--dropping to a low of $0.9 billion in 1984 and peaking at $1.5 billion in 1992, a 41-percent increase from the 1982 level of $1.07 billion (see fig. 4.1). The median level of private funding for PVOs that received federal funding more than doubled, growing from $1.3 million in 1982 to $2.7 million in 1992, after peaking at $3.4 million in 1989. Appendix II shows the distribution of PVOs by levels of federal funding from 1982 to 1992, and appendix III shows PVOs' federal funding as a share of total funding in 1982 and 1992. While federally supported PVOs received a median of 36 percent of their total support from federal sources in 1982, in 1992 they received 23 percent. The median amount of federal funding, in constant 1992 dollars, for PVOs that received any federal funding decreased 31 percent, from $929,487 to $639,136 after peaking at $1.5 million in 1986 (see fig. 4.2). This decline was partly due to the increase in the number of PVOs that received federal funding and the relatively smaller increase in federal funding for PVOs. A smaller percentage of PVOs depended on government funding for a substantial portion of their resources in 1992 than in 1982. In 1982, the 44 percent that received federal funding received at least half of their total funding from government sources; in 1992, only 24 percent did. Similarly, the proportion of PVOs that received 80 percent or more of their funding from the government declined from 22 percent to 10 percent (see fig. 4.3). However, some PVOs still received a large percentage of their resources from the U.S. government. For example, Catholic Relief Services and CARE have consistently received the largest amounts of federal support among PVOs, much of it in the form of food aid. Catholic Relief Services received 69 percent of its total revenues from the U.S. government in 1982 and 76 percent in 1992. Catholic Relief Services pointed out that if food aid is deducted from the 1992 figures, the percentage of U.S. government resources would be reduced from 76 percent to 38 percent. CARE also received significant U.S. support--60 percent of its 1992 revenues came from the U.S. government, although this is a decrease from 78 percent in 1982. Total resources for PVOs that received federal funding grew from a median of $3.6 million in 1982 to $5.2 million in 1992 (in constant 1992 dollars), peaking in 1986 at $7.3 million. In 1992, five PVOs had resources totaling over $200 million, and all of them received federal funding. Three of these PVOs were also the largest PVOs in 1982. The share of total federal funding going to the top 5 percent of federally funded PVOs decreased from about 71 percent in 1982 (when 6 PVOs received $762.4 million) to about 59 percent in 1992 (when 11 PVOs received $893.6 million). The 5 percent of PVOs that got the smallest amounts of federal funding received less than $12,800 each in 1982 and less than $10,850 in 1992, or 0.005 and 0.006 percent of federal funding in the respective years. In addition, 153 registered PVOs did not receive any federal funding in 1992, compared to 18 in 1982. The preceding data on PVOs' total financial resources provides a view of decreasing financial dependence on the U.S. government, but it is also necessary to examine how PVOs work with USAID on specific projects to understand the issue of dependency. Although virtually all PVOs have some private resources, PVOs must make choices about how much of their private funding to devote to USAID projects and how much to spend on self-determined, self-supported activities. Until July 1994, USAID generally required PVOs to contribute at least 25 percent toward the costs of PVO projects supported through USAID grants. This cost-sharing requirement was meant to ensure that PVOs were committed to their USAID-funded projects and to enhance the likelihood that project activities and benefits would be sustained after USAID funding ends. The requirement was also seen as a means of mobilizing additional funding for projects and a mechanism to prevent PVO financial and programmatic dependence on USAID. However, PVO officials told us that cost sharing at the 25-percent level was often difficult on large dollar-value projects, especially for smaller PVOs. For example, a $2 million USAID project might require a $500,000 contribution from the grantee. In addition, because PVOs did not always want to use private resources to meet USAID's priorities, USAID's choice of PVO partners was sometimes limited. Because of these problems, USAID changed its policy to encourage, but not require, cost sharing for these grants. USAID's new policy allows more flexibility in determining the cost-sharing level: it encourages the "largest reasonable and possible" level of cost sharing without specifying any minimum. This policy change makes USAID treatment of PVOs more consistent with its treatment of other grantees, such as universities and other nonprofit organizations, which are not required to make any minimum level of financial contribution to USAID-funded projects. USAID stated that the purpose of the revision of the cost-sharing policy was to standardize and streamline policy and process, not to eliminate USAID's preference for PVOs' 25-percent contributions to USAID activities. USAID stated it does not expect overall PVO contributions to USAID activities to lessen as a result of this policy.
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Pursuant to a congressional request, GAO reviewed private voluntary organizations' (PVO) role in delivering federally funded foreign assistance, focusing on the: (1) implications of increasing PVO role in delivering assistance; (2) success of PVO projects in achieving their objectives; and (3) extent to which PVO are dependent on U.S. government funding. GAO found that: (1) the PVO community encompasses organizations of varying sizes, missions, geographic focuses, and capabilities, and they work to address varied development needs; (2) PVOs serve as a complement to traditional government-to-government assistance and can be a mechanism to strengthen indigenous community-level organizations; (3) while PVOs have demonstrated that they are generally effective in carrying out community-based development projects, most have not had wide experience in working with governments and institutions on sectoral and macroeconomic policy reforms necessary to create an environment favorable to development; (4) twenty of the 26 PVO projects GAO reviewed were making progress toward their objectives, and good project design, competent in-country staff, and local participation were factors common to the most successful projects; (5) PVOs are increasingly using local groups to carry out projects, which should increase the local capacity for development; (6) most projects GAO reviewed included local capacity building, which is critical to long-term development and sustainability; (7) accountability for Agency for International Development (AID) assistance funds has been a continuing concern, and over the last decade, AID has encouraged and assisted PVOs to improve their program and financial management systems; (8) providing increased amounts of foreign aid directly through PVOs or through a foundation, as suggested in some reform proposals, would remove a key accountability mechanism from the U.S. foreign assistance programs; (9) although some individual PVO projects may be funded entirely by AID, PVOs, as a group, have become less dependent on U.S. funding; (10) federal funding as a share of total funding for PVOs receiving federal support dropped from 42 percent to 29 percent between 1982 and 1992; and (11) U.S. funding for PVOs has increased, but private resources have increased faster.
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Producing the Memorial Day and Fourth of July concerts involves obtaining funding; determining each concert's artistic program; arranging for performing artists, talent, and production staff; and arranging for the television broadcast of the concerts. CCI received both federal and nonfederal funding to support the production of the 2012 through 2014 Memorial Day and Fourth of July concerts. CCI received federal funding from NPS through a cooperative agreement. As shown in figure 1, funding provided through the cooperative agreement included funding that NPS received through an interagency agreement with the Department of the Army (Army) and funding from NPS's own budget through the National Capital Area Performing Arts Program. CCI obtained nonfederal funding through corporate sponsorship agreements, grant agreements with the Corporation for Public Broadcasting, and license agreements from the Public Broadcasting Service (PBS). CCI also received funding from other sources, such as interest revenue, but these sources represent a minor portion of total funding. CCI received from $8.5 million to $9.2 million and disbursed from $8.3 million to $8.9 million each year to produce the 2012 through 2014 Memorial Day and Fourth of July concerts. We found that CCI received funding for the 2012 through 2014 Memorial Day and Fourth of July concerts ranging from $8.5 million to $9.2 million each year. For purposes of our report, we classified funding into three categories: federal, nonfederal, and other funding sources. These three categories are presented in table 1. As shown in figure 2, CCI's receipts for the 2012 Memorial Day and Fourth of July concerts totaled $8.5 million, $8.7 million for the 2013 concerts and $9.2 million for the 2014 concerts. Over the 3-year period, the percentage of funding CCI received from federal sources slightly decreased, even though the dollar amount remained consistent. The amount of funding CCI received from nonfederal sources over the 3-year period increased slightly in both dollar value and percentage. The increases were mainly attributable to an increase in funding received through the license agreements with PBS. Other funding sources remained consistent over the 3-year period. CCI disbursed from $8.3 million to $8.9 million each year to produce the 2012 through 2014 Memorial Day and Fourth of July concerts, approximately 1.1 to 3.7 percent less than the annual funding received. CCI retains the excess of receipts over disbursements to use toward future concerts in accordance with the cooperative agreements to produce the concerts. CCI records transactions in its accounting system under three main account series (i.e., Memorial Day concert, Capitol Fourth concert, and general and administrative) and uses detailed subaccounts to classify transaction types. We used the account descriptions from the subaccounts to classify disbursement transactions into six categories to present the types of disbursements made in producing the concerts. These six categories are presented and defined in table 2. As shown in figure 3, CCI disbursed $8.4 million for the 2012 Memorial Day and Fourth of July concerts, $8.3 million for the 2013 concerts and $8.9 million for the 2014 concerts. Over the 3-year period, there were few changes among the proportion of disbursements made by CCI in the overall production of the Memorial Day and Fourth of July concerts. Production staff is CCI's largest disbursement category, and it accounted for 31 percent of all disbursements across the 3-year period. The largest change in proportion occurred in 2013 when technical equipment rose 3 percent. According to CCI, this was due to upgrades made to the band shell. During our review, we found that the receipt transactions tested for all 3 years were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year. Similarly, we found that the disbursement sample items tested for all 3 years were supported by adequate documentation and recorded in the appropriate year. However, we found that CCI did not effectively follow its existing policy for documenting the approval of payments made by check in 2013. We found that all receipt transactions tested (21 transactions for 2012, 27 transactions for 2013, and 25 transactions for 2014) were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year. Specifically, we found that the receipt transactions tested were supported by signed cooperative agreements or contracts and deposit records. We traced all federal and nonfederal receipts tested to their respective cooperative agreements or contracts and verified the amounts agreed without exception. We also found that all receipt transactions tested were classified appropriately in the accounting system and recorded in the appropriate year. During our review, we found that all disbursement sample items tested (66 transactions per year) were supported by adequate documentation and recorded in the appropriate year, but management approval controls over certain payments were not implemented effectively for one of the years tested. All disbursement transactions tested were supported by contracts or vendor invoices and payment records, and management approval controls over payments were implemented effectively for the populations tested in 2012 and 2014. However, in 2013, we found 3 transactions that were not approved in accordance with CCI's policy. CCI's Procurement and Accounts Payable Policy, section D, provides that invoices less than $500 may be approved and paid for with just one signature on the related check. For all other payments made by check, the checks should be signed by two of the following authorized managers: President, Vice President, Chief Financial Officer, or Treasurer. There are, however, temporary exemptions to the two-signature rule. For each year under review, CCI provided us with the memos that establish these exemptions, titled "Accounts Payable Policy Temporary Exemptions." These memos state that for certain periods, specifically, July through October, authorized managers may be out of the office and not available to satisfy the two-signature requirement on checks equal to or over $500. In such instances, a list of vendors with amounts due is to be e-mailed or faxed to one of the out of office managers for approval. CCI is to retain the e-mail or fax containing the approval as evidence of a secondary approval for checks equal to or over $500 issued with only one signature during the July through October time frame. In 2013, we found 3 transactions totaling over $12,000 that were paid with checks over $500 that contained only one signature, and the dates on these 3 checks did not fall within the stated policy exemption period. For 1 of the 3 checks, CCI provided us with an e-mail approval. However, this was not consistent with CCI's exemption policy as the check was approved and issued in December 2013, which fell outside of the exemption period. For the other 2 checks, no explanation or evidence of secondary approval on the check was provided. Furthermore, while the test of the 2012 population demonstrated effective implementation of management approval controls over payments, we identified one error that also related to a missing signature on a check outside the exemption period. Because of the large dollar value of the error ($43,550) and related risks of improper payments, fraud, and abuse, we believe the error warrants management's attention. These errors occurred, in part, because CCI's Procurement and Accounts Payable Policy has not been updated since November 2008 and does not include all internal control activities to be performed when authorized management may be out of the office and regular check authorization procedures cannot be followed. CCI issued separate memos documenting exemption periods for each of the years under review. However, these memos were not incorporated into CCI's policy. Furthermore, these memos only covered a certain time frame each year, but instances were occurring outside these stated time frames. CCI added that where checks had only one signature, the associated invoices had been approved. While we received copies of the invoices showing approval, the signatures on the invoices did not include a date. Therefore, we were not able to determine whether these transactions were approved prior to payment and, as a result, could not rely on the invoice approval as a compensating control. In addition, CCI's Procurement and Accounts Payable Policy does not refer to replacing check signatures with invoice approvals. Without incorporating all control activities over payment approvals into its policy and procedures, CCI increases its risk that the control activities will not be implemented consistently and that improper payments, fraud, and abuse may not be prevented or detected. CCI, a private nonprofit organization, relies on federal and nonfederal funding to put together concerts that honor military services and celebrate America's independence. Over the 3-year period of our review, the amount of funding CCI received increased slightly, mainly attributable to a nonfederal source, and disbursements were slightly less than funds received. CCI's 2012 through 2014 concert receipts were adequately documented, properly approved by authorized management, and recorded in the appropriate year. In addition, CCI's 2012 through 2014 concert disbursements were adequately documented and recorded in the appropriate year. However, we identified certain disbursements in 2013 that were not properly authorized in accordance with CCI's policy. Without incorporating all control activities over payment approvals into its policy and procedures, CCI increases its risk that improper payments, fraud, and abuse could not be prevented or detected. We recommend that CCI's Chief Financial Officer update its existing Procurement and Accounts Payable Policy to fully document CCI's management approval controls over payments made by check, including exemptions to regular procedures. This should include approval procedures to be followed during periods when only one authorized manager is available to sign checks for payment. We provided a draft of this report to CCI for comment. In its written comments, reprinted in appendix II, CCI stated that it views our report as a favorable review of its finances. For the four disbursements we found in which there was only one signature on a check, CCI stated in its comments that it provided us with records that indicated that these disbursements were properly approved by management. However, as noted in this report, checks outside of the exemption period should have two signatures per CCI's policy. While CCI provided invoices which it stated showed evidence of approval for these disbursements, as we noted in this report, the associated invoices did not have an approval date and CCI's policy does not make reference to replacing check signatures with invoice approvals. Nonetheless, CCI stated that its Board of Directors will take appropriate action to address our recommendation. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 3 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, Capital Concerts, Inc., 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) 512-3406 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. Our objectives were to examine (1) how much funding, federal and nonfederal, was received and used by Capital Concerts, Inc. (CCI) for the 2012 through 2014 Memorial Day and Fourth of July concerts and (2) to what extent CCI's recorded receipts and disbursements related to these concerts were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year. The scope of our audit was limited to the receipts and disbursements of CCI as the majority of funding received and disbursed to produce the Memorial Day and Fourth of July concerts held on U.S. Capitol Grounds rests with this organization. Other minimal costs are incurred by the National Park Service and the National Symphony Orchestra. To examine how much funding, federal and nonfederal, was received and used by CCI for the Memorial Day and Fourth of July concerts, we obtained the populations of receipt and disbursement transactions from CCI's accounting system for 2012 through 2014. To verify the completeness and accuracy of these populations, we performed data reliability procedures by reconciling population totals to the trial balances and then comparing the trial balances to the audited financial statements. We then used the account descriptions in CCI's accounting system to classify the transactions into categories for reporting purposes. CCI classifies revenue on its financial statements as public support, license fee, earnings on deferred compensation/retirement plan, royalty fees and other income, and interest income. For the purposes of this report and to provide the requesters more useful information about the sources of funding received, we chose to categorize revenues as federal funding, nonfederal funding, and other funding sources. To classify transactions into these three categories, we used the revenue subaccount descriptions. We obtained CCI management's concurrence with our classifications. CCI classifies expenses on its financial statements into three categories: Memorial Day concert, Capitol Fourth concert, and general and administrative. These three categories do not capture the various types of disbursement activities CCI undertakes. CCI uses over 500 different subaccounts to classify its disbursements. To provide the requesters with more useful information, we categorized disbursements into six categories: production staff, technical crew and postproduction, technical equipment, talent, promotion, and other administrative and miscellaneous. To classify transactions into these six categories, we used the disbursement subaccount descriptions. We obtained CCI management's concurrence with our classifications. To examine to what extent CCI's recorded receipts and disbursements related to the Memorial Day and Fourth of July concerts were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year, we met with officials from CCI to discuss the specific nature and characteristics of their organization's receipts and use of concert-related funding. We also discussed the manner in which they record and track concert-related receipts and disbursements in their system of records, obtained their receipt and disbursement policies and procedures, and performed walk-throughs to gain an understanding of the flow of information throughout the organization. Based on the understanding we gained, we developed data collection instruments to test the receipts and disbursements. To identify our populations for testing, we first obtained from CCI all transactions that made up total recorded revenue and those that made up total recorded expenses for each year. We then removed transactions that canceled each other (offset transactions), and for receipts we also removed transactions with abnormal balances (debit transactions) and reviewed these transactions separately to determine the nature of the transactions and why they occurred. After removing these, the remaining transactions for each year made up the populations used for the sampling methodology described below. For receipts, we selected the largest receipt transactions that collectively represented at least 95 percent of the total dollar value of each year's population. We chose this methodology because the receipt transactions that made up at least 95 percent of the total receipts population consisted mainly of a few high-dollar value transactions, and the remaining approximately 5 percent consisted of several low-dollar value transactions that were primarily interest receipts, which were not relevant to the scope of our audit. For the 3-year period we reviewed, a total of 73 individual receipt transactions were tested. Table 3 describes the total transaction count and dollar value of each population and the total number of transactions tested. To perform detailed testing on receipts, we verified that (1) the transaction amount agreed to supporting documentation, such as cooperative agreements, contracts, and deposit records; (2) the supporting documentation had evidence of approval; and (3) the transaction was accurately recorded in the appropriate year. For disbursements, using an attribute sampling method, we selected a random sample of disbursement transactions for each year under review. We chose this methodology because of the large volume of transactions in our populations and the nature of the testing we were to perform. We planned our testing to be 95 percent confident with a tolerable error rate of 7 percent. Table 4 describes the total transaction count and dollar value of each population and the total number of sampled transactions selected for testing. To perform detailed testing on disbursements, we verified that (1) the transaction amount agreed to supporting documentation, such as contracts, vendor invoices, and payment records; (2) the supporting documentation had evidence of approval; and (3) the transaction was accurately recorded in the appropriate year. For the 3 years under review, disbursements made by checks represented approximately 59 to 77 percent of our sample items, and disbursements made by electronic fund transfers represented approximately 23 to 41 percent of our sample items. Therefore, for evidence of approval, we reviewed different documentation for each payment type. For payments made by check, we obtained check images from the bank to assess whether signatures by managers authorized to sign checks were evident and in accordance with CCI's policy. For payments made by electronic fund transfer, we verified other document sources, such as employment records for payroll transactions, and expense reports for petty cash reimbursements and credit card transactions to assess whether electronic fund transfers were approved by the appropriate manager prior to disbursement. We conducted this performance audit from December 2015 to October 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. Appendix II: Comments from Capital Concerts, Inc. In addition to the contact named above, Nina M. Rostro (Assistant Director), Sharon Byrd, Natasha Guerra, Brian Harechmak, Jason Kelly, and Joseph Willert made key contributions to this report.
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CCI, a private nonprofit organization in the District of Columbia, has produced the annual Memorial Day and Fourth of July concerts held on the U.S. Capitol Grounds for over 25 years and over 35 years, respectively. GAO was asked to audit all concerts hosted by CCI for the past 3 years. This report examines (1) how much funding, federal and nonfederal, was received and used by CCI for the 2012 though 2014 Memorial Day and Fourth of July concerts and (2) to what extent CCI's recorded receipts and disbursements related to these concerts were supported by adequate documentation, approved by authorized management, and recorded in the appropriate year. GAO performed data reliability procedures over CCI's 2012 through 2014 receipt and disbursement transactions, classified transactions by funding sources, obtained CCI management's concurrence with the classifications, and selected transactions for each year to test key controls. Capital Concerts, Inc. (CCI) received both federal and nonfederal funding to support the production of the Memorial Day and Fourth of July concerts held on the U.S. Capitol Grounds from 2012 through 2014. CCI received federal funding through a cooperative agreement with the Department of the Interior's National Park Service (NPS) that included funding that NPS received through an interagency agreement with the Department of the Army and funding from NPS's own budget through the National Capital Area Performing Arts Program. CCI obtained nonfederal funding through corporate sponsorship agreements, grant agreements with the Corporation for Public Broadcasting, and license agreements from the Public Broadcasting Service. CCI also received funding from other sources, such as interest revenue, but these transactions represent a minor portion of total funding. CCI received funding for the 2012 through 2014 Memorial Day and Fourth of July concerts ranging from $8.5 million to $9.2 million each year. CCI disbursed from $8.3 million to $8.9 million each year to produce these concerts, approximately 1.1 to 3.7 percent less than the annual funding received. Procurement and Accounts Payable Policy has not been updated since November 2008 and does not include all internal control activities over payment approvals. Without incorporating all control activities over payment approvals into its policy and procedures, CCI increases its risk that the control activities will not be implemented consistently and that improper payments, fraud, and abuse may not be prevented or detected. GAO recommends that CCI update its existing policy to fully document CCI's management approval controls over payments made by check, including exemptions to regular procedures. The update should include approval procedures to be followed during periods when only one authorized manager is available to sign checks for payment. In commenting on a draft of this report, CCI maintained that all disbursements were properly approved but GAO disagreed as noted in the report. CCI stated it will take appropriate action to address GAO's recommendation.
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Congress authorized the five-year MPNDI pilot program in Section 866 of the NDAA for Fiscal Year 2011 with the intent to test whether streamlined acquisition procedures, similar to those available for commercial items, can serve as an effective incentive for "nontraditional defense contractors" to innovate in areas useful to DOD. Congress extended authority for the pilot program through December 31, 2019 in Section 814 of the National Defense Authorization Act for Fiscal Year 2014. Section 866 defined a number of terms for the purposes of the pilot program, such as MPNDI and nontraditional defense contractor, as shown in table 1. Section 866 also required that contracts awarded under the pilot program meet a number of contract requirements as outlined in table 2. To help encourage nontraditional defense contractors to offer items to DOD under streamlined procedures, Congress exempted contracts awarded under the pilot program from the requirement to submit certified cost or pricing data and from the federal Cost Accounting Standards, two requirements that have previously been identified as increasing contractor costs or discouraging such companies from competing for federal contracts. Certified cost or pricing data, by regulation, is to be provided to the government by contractors and subcontractors, at certain threshold contract levels unless an exception applies, to support their proposed prices and to certify that the data are accurate, complete, and current. Certified cost or pricing data documentation requirements can be extensive. Cost Accounting Standards are mandatory for use by executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of, disputes generally concerning all negotiated prime contract and subcontract procurements with the government in excess of the thresholds for submission of certified cost or pricing data. Congress required that DOD provide information on contracts awarded under the pilot program not later than 60 days after the end of each fiscal year in which the pilot program is in effect. Each report is to include the contractor, the item or items to be acquired, the military purpose to be served by the item(s), the amount of the contract, and the actions taken to ensure that the price paid is fair and reasonable. Attracting contractors that do not traditionally pursue government contracts due to the cost and impact of complying with government procurement requirements has been a longstanding concern within the government. Congress and others have taken various steps, including creation of the MPNDI pilot program, to address these concerns. For example, in 1996 Congress established a commercial item test program to provide contracting officers with additional procedural discretion and flexibility to acquire commercial items. Commercial items and services are those generally available in the commercial marketplace in contrast with items developed to meet specific federal government requirements. Commercial items are generally exempt from the requirement to provide certified cost or pricing data or comply with cost accounting standards. Similarly, Congress provided DOD the authority to enter into "other transactions" to take advantage of technological advances made by the private sector. Other transactions are generally not subject to federal laws and regulations governing standard procurement contracts. Further, in May 2013, the Deputy Secretary of Defense asked the Defense Business Board to begin studying ways to encourage broader participation in DOD acquisitions from the private sector for the purpose of encouraging innovation. DOD reported that it has not awarded any contracts using the authority provided by the pilot program since it was initiated in 2011. As a result, the pilot program has not resulted in DOD obtaining items that otherwise might not have been available to it nor assisted DOD in the rapid acquisition and fielding of capabilities to meet urgent operational needs. Our review of input provided by the military departments and defense agencies to DPAP and our interviews with DOD program and contracting officials identified a number of factors that may be contributing to the lack of use of the pilot program, including limited awareness of the program, challenges in meeting all the criteria needed to use the program, and the ability to use other flexibilities to obtain needed items. DOD has not taken steps to address these concerns, however, which may continue to limit the future use of the pilot program. DOD initiated the pilot program in June 2011 through an interim rule to the DFARS. Under this interim rule, DOD created DFARS subpart 212.71, which generally reiterated the pilot program requirements as prescribed by Section 866. The subpart provided that a new clause, DFARS 252.212-7002, be used in all solicitations that would meet the criteria of the pilot program. The subpart also required that departments and agencies prepare a consolidated annual report to provide information about contracts awarded under the pilot program authority and submit it by October 31 of each year. The interim rule was finalized without change in January 2012. The military departments also provided varying levels of guidance that generally reiterated the pilot program rules as stated in DFARS. For example, the Navy Marine Corps Acquisition Regulation Supplement requires that contracts awarded under the pilot program during the preceding fiscal year be reported annually to the Deputy Assistant Secretary of the Navy for Acquisition and Procurement. Air Force Materiel Command restated the requirements of the pilot program in their February 2012 and April 2014 Contracting Bulletins, which are distributed to contracting personnel across the command, and also issued corresponding training slides that restated the requirements of the pilot program. In addition, during the course of our audit, the Army distributed a policy alert on the proper use of the pilot program by restating the requirements. Over the past three years, the Under Secretary of Defense for Acquisition, Technology and Logistics has reported to Congress that DOD has not awarded contracts under the authority provided by the pilot program during each of the prior fiscal years. To prepare its annual reports, DPAP requests data from each of the military departments, defense agencies, and other defense offices on all instances of use of the pilot program during the relevant fiscal year. Each DOD component is required to provide information for each contract awarded under the pilot program, including the contractor, item(s) acquired, price, military purpose served by the item(s) acquired, and steps taken to ensure fair and reasonable pricing. DPAP also requires the components to report if they have not used the pilot program during the course of the prior fiscal year. DOD's annual reports found, and our discussions with military department and defense agency officials confirmed, that DOD has not used the authority from fiscal years 2011 to 2013. As a result, the pilot program has not resulted in DOD obtaining items that otherwise might not have been available to it nor assisted in the rapid acquisition and fielding of capabilities to meet urgent operational needs. The absence of contracts awarded under the pilot program precludes us from determining how DOD protected the government's interests in paying fair and reasonable prices for the item(s) acquired. Our review of the input provided by the defense components, as well as our information from interviews with policy, program, and contracting officials at the 11 components we contacted, identified a number of issues that may be contributing to the lack of use of the pilot program, including limited awareness of the pilot program, challenges in meeting all the criteria required to use the pilot program, and the ability to use other flexibilities to obtain needed items. DOD is aware of a number of issues but has no ongoing efforts to address them. The following examples illustrate these issues. Limited awareness of the pilot program: In several instances, DOD officials from commands and contracting activities that we interviewed were generally unaware of the pilot program prior to our review, noting that the program had not been well publicized or could only cite its inclusion into DFARS. For example, the program officials from the Army's Rapid Equipping Force told us that they were notified of the pilot program on October 1, 2014 as a result of our review. Similarly, program officials from the Joint Improvised Explosive Device Defeat Organization were unaware of the pilot program until we had contacted them for information. Further, the Air Force noted in its response to the fiscal year 2014 DPAP data call on the pilot program that the program had not been well publicized within the department and identified this issue as one of several reasons why the program had not been used. Challenges in meeting all the criteria required to use the pilot program: Program and contracting officials from commands and contracting activities we interviewed stated that it was difficult to identify proposed acquisitions that met all the requirements for using the pilot program. Officials from 5 of the 11 offices that we spoke with provided examples or told us that in their experience the items they acquire generally need to be modified for government use and therefore may not meet the requirement that the item was developed exclusively at private expense. For example, officials from the Army Rapid Equipping Force told us about a 2011 need to identify and field a sensor package that could measure, collect, and store data on improvised explosive device blast pressure experienced by soldiers inside and outside of vehicles. These officials noted that doing so would enable the Army to advance research and treatment on mild traumatic brain injuries. The Army determined that no existing nondevelopmental items suitably measured such forces, so they modified an existing commercial item to meet the need, which in turn was deployed to Afghanistan in June 2012. In another example, a contracting official from the Air Force Materiel Command identified a commercially-available airplane landing system that was modified by the government for military-use. In its response to the fiscal year 2014 DPAP data call, the Air Force noted that the many requirements of the pilot program that must be met, such as delivery within nine months, use of nontraditional contractors, the required use of competitive procedures, and the restriction not to exceed $50 million, limited the applicability of the program. Additionally, several DOD officials cited the requirement to use competitive procedures as a limiting factor. DPAP officials noted that Section 866 requires the use of "competitive procedures" without further definition. These officials noted that 10 U.S.C. 2302 defines competitive procedures as acquisitions conducted under full and open competition--that is, under which all responsible bidders or offerors are eligible to compete. As such, DPAP officials did not believe that the use of Section 866 allowed acquisitions to be conducted using one of the exceptions to competitive procedures, such as awarding a contract on a sole-source basis. However, some DOD officials stated that they thought the program may be more useful if exceptions to competition could be used. They noted that the ability to use exceptions to competition would make one of the key features of the pilot program--the exemption from the need to provide certified cost and pricing data--more applicable because certified cost and pricing data would generally apply to contracts that are awarded non- competitively. The ability to use other flexibilities to obtain needed items: Contracting officials from the military departments with whom we spoke identified other existing authorities--such as commercial item acquisition procedures--that they would use to acquire items that they identified as potentially covered by the pilot program. In several cases, officials provided examples of nondevelopmental items developed at private expense that they acquired through competitive commercial item acquisition procedures. As such, DOD would generally be precluded from obtaining certified cost or pricing data or from requiring the contractor to adhere to federal cost accounting standards, two benefits that the pilot program was to provide to attract commercial firms. For example, during our interview with the Naval Surface Warfare Center, contracting officials initially identified data recorders as potentially meeting the requirements of the pilot program but ultimately concluded that acquisition of these recorders would most likely be acquired as a commercial item. Further, in another example, DPAP officials told us that military purpose aviation fuel tanks were acquired as a commercial item rather than under the pilot program, because DOD determined the fuel tanks met the definition of a commercial item. As we found in our February 2014 report on DOD's commercial item test program, DOD contracting officers have many tools in their toolkit and the decision regarding the appropriate contracting method for a commercial item is left to the contracting officers' discretion. We found that several factors influence the contracting officer's decision, such as the estimated value of the contract at award, the urgency of the requirement, the availability of existing contracts or contracting vehicles, as well as the nature of the item or service being acquired. GAO has issued several reports on DOD's urgent needs processes. See, for example, GAO, Warfighter Support: DOD's Urgent Needs Processes Need a More Comprehensive Approach and Evaluation for Potential Consolidation, GAO-11-273 (Washington, D.C.: Mar. 1, 2011); and GAO, Warfighter Support: Improvements to DOD's Urgent Needs Processes Would Enhance Oversight and Expedite Efforts to Meet Critical Warfighter Needs, GAO-10-460 (Washington, D.C.: Apr. 30, 2010). some modifications to the design. As a result, these officials were not certain whether the items could have been acquired using the pilot program. DPAP officials noted that they are aware of many of these issues, but have no ongoing efforts to specifically address them. GAO's prior work has identified several sound management practices when developing, implementing, and assessing pilot programs, including developing objectives that link to the goals of the pilot and ensuring the results of the In the case of the MPNDI pilot pilot are communicated to stakeholders.program, DOD has not proactively identified opportunities to use the pilot program in areas useful to DOD--a goal of the pilot--such as by identifying how the authority might help DOD attract nontraditional contractors to fill needs in specific industries, technologies, or for certain capabilities that are not met by existing authorities. The pilot program was also intended to test whether streamlined acquisition procedures, similar to those available for commercial items, can serve as an incentive for "nontraditional defense contractors" to innovate in areas useful to DOD. DOD has not determined whether the pilot program provides new flexibilities or the opportunity to use streamlined acquisition procedures that are not already available under other authorities. Lastly, DOD's prior annual reports to Congress have not identified whether there are specific requirements under the pilot program, such as the need to award contracts competitively, that might hinder its use. Taking action to identify how the pilot program authority may assist in (1) attracting nontraditional contractors, (2) testing the use of new flexibilities or streamlined procedures, and (3) identifying and reporting to Congress on specific requirements of the pilot program that may hinder its use, could better position DOD to determine whether the pilot program provides meaningful value to the department. DOD has had a longstanding concern to better involve commercial and small business companies so that it can acquire innovative solutions to meet military requirements. Congress created and later extended the MPNDI pilot program as a way of providing additional flexibilities to assist DOD in acquiring needed items, to spur innovation and participation from nontraditional defense contractors, such as by using streamlined acquisition procedures or eliminating certain requirements that had been identified as barriers to attracting firms that traditionally did not do business with DOD. However, DOD has not yet used the program in the 3 years since it was initiated. Determining whether the pilot program provides meaningful value to the department requires that DOD do more than make the authority available for use by its personnel. In that regard, DOD has not provided assistance to its program and contracting officials to help identify opportunities to use the pilot program as currently structured, nor has it reported to Congress on issues that hinder its use, such as the requirement to use competitive procedures. Further, DOD identified a number of existing authorities that enabled them to acquire needed goods and services quickly from the private sector. Identifying whether there are targets of opportunities in terms of industries, technologies or capabilities that remain untapped, or gaps in existing authorities or procedures that could be met, or limitations in the pilot program's current structure that hinder its use can help shape the future of the pilot program. Unless DOD takes such action, the remaining 5 years of the authority may not produce results that differ from those reported over the past 3 years. If so, DOD will have missed an opportunity to make an informed decision as to whether authority provided under the pilot program would provide value to the department. On the other hand, if DOD concludes, on the basis of a robust pilot program, that the authority does not add value, then that conclusion should stand. To maximize the potential value of the MPNDI pilot program, we recommend that the Under Secretary of Defense for Acquisition, Technology and Logistics take the following three actions: identify how this authority, as currently structured, may assist DOD in attracting nontraditional contractors in specific industries, technologies, or capabilities; identify whether there are opportunities to test flexibilities or streamlined procedures that are not otherwise available under existing authorities; and if DOD believes changes are needed to the current structure of the pilot program to increase its utility, to identify such issues in its subsequent annual reports to Congress. We provided a draft of this report to DOD for comment. In its written comments, which are reprinted in appendix II, DOD concurred with each of our recommendations. DOD stated that it found meeting all the criteria needed to use the authority, and in particular, the need to use "competitive procedures," as limiting the department's ability to effectively use the pilot program authority and its ability to test flexibilities or streamlined procedures not otherwise available to the department. DOD stated it would identify such issues in future reports to Congress. DOD also stated it would continue to examine how the pilot program may assist in attracting nontraditional contractors, but did not specify how it would do so. As we indicated in the report, identifying potential targets of opportunity, such as specific industries, technologies, or capabilities gaps where the program's use may provide an additional incentive for nontraditional contractors to do business with DOD, can help shape the future of the pilot program. DOD also provided technical comments, which we incorporated in the report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense for Acquisition, Technology and Logistics, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or [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. Section 866 of the National Defense Authorization Act (NDAA) for Fiscal Year 2011 mandated that GAO assess DOD's use of the pilot program. Specifically, Section 866 mandated that GAO assess whether the pilot program (1) enabled DOD to acquire items that otherwise might not have been available to DOD; (2) assisted the department in the rapid acquisition and fielding of capabilities needed to meet urgent operational needs; and (3) protected the interests of the United States in paying fair and reasonable prices for the item or items acquired. This report addresses the extent to which DOD awarded contracts that met these goals and issues potentially affecting use of the pilot program. To determine the extent to which DOD awarded contracts under the pilot program that met these goals, we reviewed Section 866 of the NDAA and other applicable laws, the Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation Supplement (DFARS), DOD's annual reports to Congress on the pilot program from fiscal years 2011 to 2013 (the most recent fiscal year for which DOD submitted a report at the time of our review), DOD's preliminary data gathered in preparation for its fiscal year 2014 report, and DOD's implementing guidance. To test whether DOD's annual reports accurately reflected the use of the pilot program, we requested data from the military departments (Office of the Assistant Secretary of the Air Force (Acquisition); Office of the Assistant Secretary of the Army for Acquisition, Logistics and Technology; and the Office of the Deputy Assistant Secretary of the Navy (Acquisition and Procurement)) on contracts that included the DFARS clause 252.212- 7002, Pilot Program for Acquisition of Military-Purpose Nondevelopmental Items, which is to be included on contracts awarded under the pilot program. This effort identified 105 contracts awarded from fiscal years 2011 to 2013 that included the clause. The military departments, however, subsequently determined that none of the contracts identified had used the pilot program authority, and provided us information on how they identified the contracts that included the clause, the steps they took to verify the information in their contracting systems with cognizant contracting officials, and the steps they were taking to correct these errors, including modifying the contracts to delete the clause and issuing additional guidance. Based on the actions taken by the military departments in response to our request for data, we determined that the data, as originally provided to the defense committees, of DOD's reported use of the authority from fiscal years 2011 to 2013 were sufficiently reliable for the purposes of this report. We interviewed DOD and military department officials to determine how they implemented the pilot program, including the extent to which the pilot program enabled DOD to acquire items that otherwise might not have been available to DOD and assisted DOD in the rapid acquisition and fielding of capabilities to meet urgent operational needs. To identify issues that potentially affected the use of the pilot program, we reviewed the input provided by the military departments and defense agencies to the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics-Defense Procurement and Acquisition Policy (DPAP) to help support the preparation of the fiscal year 2013 annual report to Congress and reviewed the input to the fiscal year 2014 report that had been submitted to DPAP as of December 5, 2014. We also collected information and interviewed officials from DOD, the military departments, a command and contracting activity within each military department, and other defense organizations. Selected commands, activities, and defense organizations included the Air Force Materiel Command; Air Force Life Cycle Management Center; Army Program Executive Office for Command, Control and Communications-Tactical; Army Program Manager Tactical Radios; Naval Sea Systems Command; Naval Surface Warfare Center-Port Hueneme Division; Army Rapid Equipping Force; the Joint Improvised Explosive Device Defeat Organization; the Joint Rapid Acquisition Cell; Special Operations Command-Special Operations Research, Development, and Acquisition Center; and Central Command-Joint Theatre Support Contracting Command. These 11 components were selected based on various factors, including potential use of the pilot program, knowledge of the pilot program, and fulfillment of urgent operational needs. Further, we collected information and met with officials from Department of the Navy- Office of Small Business Programs and the Program Executive Office for Simulation, Training and Instrumentation. We also met with representatives from an industry group to gather their views on the pilot program. Section 866 of the NDAA also required that we assess the extent to which the pilot program protected the interests of the U.S. in paying fair and reasonable prices for the item(s) acquired, but we determined that there was not sufficient information available to make such an assessment. To help determine whether DOD followed sound management practices when developing, implementing and evaluating the pilot program, we used GAO's prior work on pilot programs as criteria. These practices include developing objectives that link to the goals of the pilot and ensuring the results of the pilot are communicated to stakeholders. We conducted this performance audit from September 2014 to January 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, Janet McKelvey (Assistant Director), James Kim, Dina Shorafa, Marie Ahearn, Virginia Chanley, Julia Kennon, Pete Anderson, and Cary Russell made key contributions to this report.
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Section 866 of the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 established a pilot program authorizing DOD to award contracts for MPNDI to nontraditional defense contractors--companies that had not contracted with DOD for at least a year. The pilot program was designed to streamline acquisition procedures and to serve as an incentive for nontraditional defense contractors to innovate in areas useful to DOD. Section 866 mandated that GAO assess DOD's use of the pilot program to acquire items that otherwise might not have been available to DOD, assisted in meeting urgent operational needs, and protected the interests of the U.S. in paying fair and reasonable prices. This report addresses the extent to which DOD awarded contracts that met these goals and issues potentially affecting use of the pilot program. To conduct this work, GAO reviewed applicable laws, the Federal Acquisition Regulation, the Defense Federal Acquisition Regulation Supplement, DOD's annual reports to Congress on the pilot program from fiscal years 2011 to 2013, and DOD's implementing guidance. GAO collected information from DOD, the military departments, and selected defense organizations. Since the Department of Defense (DOD) implemented a pilot program in 2011 to award contracts for military purpose nondevelopmental items (MPNDI), it has not awarded any contracts using the authority. An MPNDI is generally an item that meets a validated military requirement and has been developed exclusively at private expense. GAO's analysis identified a number of issues that may be contributing to the lack of use of the pilot program, including the following: Limited awareness of the pilot program : In several instances, DOD officials from commands and contracting activities that GAO interviewed were unaware of the pilot program prior to GAO's review. Further, the Air Force noted that the program had not been well publicized within the department. Challenges in meeting all the criteria required to use the pilot program : DOD program and contracting officials that GAO contacted stated that it was difficult to identify proposed acquisitions that could meet all the criteria for using the pilot program, which include that the items must be developed at private expense, the initial lot of items be delivered within nine months after contract award, contractors be nontraditional defense contractors, competitive procedures be used, and contracts are $50 million or less. The ability to use other flexibilities to obtain needed items: Contracting officials from the military departments with whom GAO spoke identified other existing authorities--such as commercial item acquisition procedures--that they would use to acquire items they identified as potentially covered by the pilot program. DOD officials told GAO that they were aware of these issues but had no ongoing efforts to address them. GAO's prior work has identified several sound management practices to effectively implement or assess pilot programs, including developing objectives that link to the goals of the pilot and ensuring the results of the pilot are communicated to stakeholders. In the case of the MPNDI pilot program, DOD has not proactively identified opportunities to use the pilot program in areas useful to DOD--a goal of the pilot--such as by identifying specific industries, technologies or capability gaps where its use may provide an additional incentive for nontraditional defense contractors to do business with DOD. Additionally, DOD has not determined whether the pilot program provides new flexibilities or the opportunity to use streamlined acquisition procedures that are not already available under other authorities. Lastly, DOD's annual reports to Congress have not identified whether there are specific requirements under the pilot program, such as the need to award contracts competitively, that might hinder its use. Determining whether the pilot program provides meaningful value to the department requires that DOD do more than make the authority available for use by its personnel. Unless DOD takes action to identify opportunities to use the authority and report on issues hindering its use, DOD may miss an opportunity to make an informed decision as to whether the authority provided under the pilot program would provide value to the department. GAO recommends that DOD identify how the pilot program can help DOD attract nontraditional contractors, to test flexibilities or streamlined procedures not otherwise available under existing authorities, and include issues hindering its use in its annual reports to Congress. DOD concurred with GAO's recommendations.
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The Results Act requires that strategic plans include six broad elements--mission statements, general goals and objectives, strategies for achieving goals, a description of the relationship between general goals and annual performance goals, key external factors, and a description of the actual use and planned use of program evaluations. When we reviewed the draft plans that 27 agencies provided to Congress for consultation, we found that all but six of the plans were missing at least one required element and that about a third were missing two of the six required elements. In addition, just over a fourth of the plans failed to cover at least three of the required elements. Moreover, we found that many of the elements that the plans included contained weaknesses--some that were more significant than others. We noted in our September report that complete strategic plans were crucial if they were to serve as a basis for guiding agencies' operations and help congressional and other policymakers make decisions about activities and programs. On the basis of our preliminary reviews of major agencies' September plans, it appears that, on the whole, the agencies made a concerted effort during August and September to improve their plans. For example, all of the September plans we reviewed contained at least some discussion of each element required by the Act. And, in many cases, those elements that had been included in the draft plans for consultation were substantially improved. This improvement is in large part a reflection of the dialogue that occurred between the agencies and Congress and is therefore also a reflection of the value of the Results Act requirement for such consultations. These plans appear to provide a workable foundation for the next phase of the Results Act's implementation--annual performance planning and measurement. As Congress and agencies build on the strategic planning and other Results Act efforts undertaken thus far, our work suggests that several critical issues will have to be addressed if the Results Act is to succeed in improving the management of federal agencies. Among these critical issues are the need to (1) clearly establish a strategic direction for agencies by improving goal-setting and performance measurement; (2) improve the management of crosscutting program efforts by ensuring that those programs are appropriately coordinated; and (3) ensure that agencies have the data systems and analytic capacity in place to better assess program results and costs, improve management and performance, and establish accountability. The forthcoming annual performance planning and measurement and performance-reporting phases of the Results Act provide important opportunities to address these long-standing management issues. It appears that agencies generally have taken the first steps toward establishing a strategic direction in their September plans, which should be useful to agencies as they move to the next phase of performance-based management--that is, performance planning and measurement. However, the strategic plans are still very much works in progress, and agencies will likely need to revisit their strategic planning efforts as they develop the forthcoming annual performance plans. As agencies develop those plans, they will need to ensure that goals and strategies are appropriate given the current fiscal environment and that goal-setting and performance measurement efforts form the basis for managing program products, services, and daily activities. We found that agencies need to continue to make progress in refining goals and objectives to better specify the results that they intend to achieve. For example, the Department of Health and Human Services has made progress over the last few months in developing objectives that, for the most part, are results-oriented and measurable. However, ensuring that goals are as results-oriented as they can be and are expressed in a manner that enables a subsequent assessment of whether the goals were achieved is a continuing challenge for agencies and Congress. As an agency develops its performance plan, which is to contain the annual goals it will use to track progress toward its longer term strategic goals, it likely will identify opportunities to revise and clarify those strategic goals in order to provide a better grounding for the direction of the agency. In addition, as an agency seeks to further refine its goals, it also will need to ensure that it can articulate linkages between strategies, programs, and initiatives to achieve those goals. We noted some improvements in the September plans; however, we found that those plans did not always establish clear linkages between goals, objectives, and strategies. The annual performance plans represent the next chance for agencies to establish such linkages so that agency managers and Congress will be better able to judge whether an agency is making annual progress toward achieving strategic goals. Thus, as agencies and Congress begin to implement annual performance planning, it will be particularly important to reinforce linkages among goals and activities. Specifically, our work has shown that the successful implementation of performance-based management as envisioned by the Results Act will require agencies to link the goals and performance measures of each organizational level to successive levels and ultimately to the strategic plan's long-term goals so that the strategic goals and objectives drive the agencies' day-to-day activities. Therefore, agencies' annual performance plans will be most useful if the annual goals contained in those plans show clear and direct relationships in two directions--to the goals in the strategic plans and to operations and activities within the agency. Concerning the plans' discussions of agencies' operations and activities, in some cases, the September strategic plans improved on the draft plans and now provide a better basis for understanding how the agency plans to accomplish many of its goals. For example, the plan for the Department of Energy (DOE) contains a section on resource requirements that provides a helpful discussion of the money, staff, workforce skills, and facilities that the agency plans to employ to meet its goals. The plan explains that DOE's strategies for its goal of supporting national security are to include changes in the skills of its workforce and in the construction of new experimental test facilities. On the whole, however, agencies' consideration of the resources necessary to achieve goals is one particular area where continuing improvement efforts are needed. The annual performance planning process offers an opportunity for substantial progress in this area. While some of the plans we reviewed contain separate sections on resources, including financial and human resources, the sections sometimes lack a discussion of information, capital, and other resources that are critical to achieving goals. For example, few plans discuss physical capital resources, such as facilities and equipment. Although many agencies may not rely heavily on physical capital resources, some of those that do, such as the General Services Administration (GSA) and the National Park Service, a component of the Department of the Interior, appear to provide relatively little focused discussion on their capital needs and usage. Another area that is critical to agencies striving to improve operations is information technology. The government's track record in employing information technology to improve operations and address mission-critical problems is poor, and the strategic plans we reviewed often contain only limited discussions of technology issues. For example, GSA's plan does not explicitly discuss major management problems or identify which problems could have an adverse impact on the agency's meeting its goals and objectives. The plan does not address, for instance, how GSA plans to ensure that its information systems meet computer security requirements. The lack of such a discussion in the GSA and other plans is of particular concern because without it agencies cannot be certain that they are (1) addressing the federal government's information technology problems and (2) better ensuring that technology acquisition and use are targeted squarely on program results. Linking performance goals to the federal government's budget and appropriations processes is another area where establishing clear linkages will be especially important as agencies and Congress move to implementation of the annual performance planning and measurement phase of the Results Act. Unlike previous federal initiatives, the Results Act requires agencies to plan and measure performance using the same structures that form the basis for their budget requests. This critical design element is meant to ensure a simple, straightforward link among plans, budgets, and performance information and the related congressional oversight and resource allocation processes. However, the extent to which existing budget structures are suitable for Results Act purposes will likely vary widely and therefore will require coordinated and recurring attention by Congress and the agencies. A focus on results, as envisioned by the Results Act, implies that federal programs that contribute to the same or similar results should be closely coordinated to ensure that goals are consistent and, as appropriate, program efforts are mutually reinforcing. This suggests that federal agencies are to look beyond their organizational boundaries and coordinate with other agencies to ensure that their efforts are aligned. We have found that uncoordinated program efforts can waste scarce funds, confuse and frustrate program customers, and limit the overall effectiveness of the federal effort. During the summer of 1996, in reviewing early strategic planning efforts, OMB alerted agencies that augmented interagency coordination was needed at that time to ensure consistency among goals in crosscutting programs areas. It appears that the agencies did not consistently follow OMB's advice because the draft strategic plans we reviewed this summer often lacked evidence that agencies in crosscutting program areas had worked with other agencies to ensure goals were consistent, strategies coordinated, and, as appropriate, performance measures similar. Since then, however, the agencies appear to have begun the necessary coordination. Some September plans, for example, often contained references to other agencies that shared responsibilities in a crosscutting program area or discussed the need to coordinate their programs with other agencies. For example, the September plan of the Environmental Protection Agency (EPA) contains an appendix that lists the federal agencies with which EPA coordinated. This appendix describes the major steps in the coordination process and lists by strategic goal the agencies with which greater integration and review of efforts will be needed. Similarly, the Department of Transportation's plan contains a table that shows the contributions of other federal agencies to each of its major mission areas. coordination to ensure that those responsibilities are being effectively managed. The next phases of the Results Act implementation continue to offer a structured framework to address crosscutting issues. For example, the Act's emphasis on results-based performance measures as part of the annual performance planning process should lead to more explicit discussions concerning the contributions and accomplishments of crosscutting programs and encourage related programs to develop common performance measures. As agencies work with OMB to develop their annual performance plans, they can consider the extent to which agency goals are complementary and the need for common performance measures to allow for cross-agency evaluations. The Results Act's requirement that OMB prepare a governmentwide performance plan that is based on the agencies' annual performance plans also can be used to facilitate the identification of program overlap, duplication, and fragmentation. If agencies and OMB use the annual planning process to highlight crosscutting program issues, the individual agency performance plans and the governmentwide performance plan should provide Congress with the information needed to identify agencies and programs addressing similar missions. Once these programs are identified, Congress can consider the associated policy, management, and performance implications of crosscutting program issues. This information should also help identify the performance and cost consequences of program fragmentation and the implications of alternative policy and service delivery options. These options, in turn, can lead to decisions concerning department and agency missions and the allocation of resources among those missions. provide important information about why the program did or did not succeed as planned and suggest ways to improve it. We have cited a 1994 survey that reported on the widespread absence of a program evaluation capacity within the federal government. Therefore, it is not surprising that agencies did not consistently discuss in their September plans how they intended to use program evaluations to help develop those plans. However, of greater concern, many agencies also did not discuss how they planned to use evaluations in the future to assess progress and did not offer a schedule for future evaluations as envisioned by the Results Act. The National Science Foundation's September plan contains a noteworthy exception to this trend. The plan discusses how the agency used evaluations to develop key investment strategies, action plans, and its annual performance plan. It also discusses future evaluations and provides a general schedule for their implementation. The absence of sound program performance and cost data and the capacity to use those data to improve performance are among the major barriers to the effective implementation of the Results Act. Efforts under the CFO Act have shown that most agencies are still years away from generating reliable, useful, relevant, and timely financial information, which is urgently needed to make our government fiscally responsible. The widespread lack of available program performance information is equally troubling. For example, we surveyed managers in the largest federal agencies and found that fewer than one-third of those managers reported that results-oriented performance measures existed to a great or very great extent for their programs. agencies were experiencing as a result of their reliance on outside parties for performance information. Agencies are required under the Results Act to describe in their annual performance plans how they will verify and validate the performance information that will be collected. This section of the performance plan can provide important contextual information for Congress and agencies. For example, this section can provide an agency with the opportunity to alert Congress to the problems the agency has had or anticipates having in collecting needed results-oriented performance information and the cost and data quality trade-offs associated with various collection strategies. The discussion in this section can also provide Congress with a mechanism for examining whether the agency currently has the data to confidently set performance improvement targets and will later have the ability to report on its performance. More broadly, continuing efforts to implement the CFO Act also are central for ensuring that agencies resolve their long-standing problems in generating vital information for decisionmakers. In that regard, the Federal Accounting Standards Advisory Board (FASAB) has developed a new set of accounting concepts and standards that underpin OMB's guidance to agencies on the form and content of their agencywide financial statements. As part of that effort, FASAB developed managerial cost accounting standards that were to be effective for fiscal year 1997. However, because of serious agency shortfalls in cost accounting systems, the CFO Council--an interagency council of the CFOs of the major agencies--requested an additional 2 years before the standard would be effective. FASAB recommended extending the date by 1 year, to fiscal year 1998, with a clear expectation that there would be no further delays. The FASAB cost accounting standards promise to improve decisionmaking if successfully implemented. These standards are to provide decisionmakers with information on the costs of all resources used and the costs of services provided by others to support activities or programs. Such information would allow for comparisons of costs to various levels of program performance. Over the longer term, the program performance information that agencies are to generate under the Results Act should be a valuable new resource for Congress to use in its program authorization, oversight, budget, and appropriation responsibilities. To be most useful in these various contexts, that information needs to be consolidated with budget data and critical financial and program cost data, which agencies are to produce and have audited under the CFO Act. Accountability reports--building on CFO Act requirements--are to bring together program performance information with audited financial information to provide congressional and other decisionmakers with a more complete picture of the results, operational effectiveness, and costs of agencies' operations. For the first time, decisionmakers are to be provided with annual "report cards" on the costs, management, and effectiveness of federal agencies. In summary, Mr. Chairman, because of the progress that agencies have made in developing their strategic plans over the last several months, these plans generally should provide a workable foundation for the agencies' continuing efforts to move to a more performance-based form of management. Much of this progress appears to have been the result of the active participation of Members and congressional staff in consulting on those plans. While difficult implementation challenges remain, by taking advantage of the consultation process, Congress and the agencies established the basis for continued progress in implementing the Results Act and ensuring that efforts under the Act provide the information that agency and congressional decisionmakers need to improve the management of the federal government. The Results Act establishes an iterative process for performance-based management, with the foundation being the agency's strategic plan. The next step--the annual performance plans--offer the opportunity for Congress and the agencies to continue to clarify goals and ensure that proper strategies are in place to achieve those goals. Agencies' annual plans and the governmentwide performance plan prepared by the President can form the basis for agency and congressional decisionmaking about the best way to manage crosscutting program efforts. Finally, the annual plans, and later accountability reports, provide mechanisms for highlighting and addressing issues centering on the collection and analysis of program performance and cost information. We look forward to continuing to support Congress' efforts to improve the management of the federal government. Over the last few years, we have issued a number of products on the key steps and practices needed to improve the management of the federal government. These key steps and practices are based on best practices in private sector and public sector organizations. For example, last May we issued a guide for congressional staff to use as they assessed the strategic plans that agencies provided as part of the consultations required by the Results Act. In the coming months, we will issue a companion guide for reviewing annual performance plans. We also will continue to examine the effectiveness of agencies' efforts under the Results Act and will program work on other issues associated with the implementation of the Act. This concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the Committee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed (1) the strategic plans that agencies submitted to Congress and the Office of Management and Budget in September; and (2) how Congress and the agencies can build on those plans to more effectively implement the Government Performance and Results Act. GAO noted that: (1) because of the progress that agencies have made in developing their strategic plans over the last several months, these plans generally should provide a workable foundation for the agencies' continuing efforts to move to a more performance-based form of management; (2) much of this progress appears to have been the result of the active participation of members and congressional staff in consulting on those plans; (3) while difficult implementation challenges remain, by taking advantage of the consultation process, Congress and the agencies established the basis for continued progress in implementing the Results Act and ensuring that efforts under the act provide the information that agency and congressional decisionmakers need to improve the management of the federal government; (4) the Results Act establishes an iterative process for performance-based management, with the foundation being the agency's strategic plan; (5) the next step--annual performance plans--offers the opportunity for Congress and the agencies to continue to clarify goals and ensure that proper strategies are in place to achieve those goals; (6) agencies' annual plans and the governmentwide performance plan prepared by the President can form the basis for agency and congressional decisionmaking about the best way to manage crosscutting program efforts; and (7) the annual plans, and later accountability reports, provide mechanisms for highlighting and addressing issues centering on the collection and analysis of program performance and cost information.
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As computer technology has advanced, federal agencies have become dependent on computerized information systems to carry out their operations and to process, maintain, and report essential information. Virtually all federal operations are supported by computer systems and electronic data, and agencies would find it difficult, if not impossible, to carry out their missions, deliver services to the public, and account for their resources without these cyber assets. Information security is thus especially important for federal agencies to ensure the confidentiality, integrity, and availability of their systems and data. Conversely, ineffective information security controls can result in significant risk to a broad array of government operations and assets, as the following examples illustrate: Computer resources could be used for unauthorized purposes or to launch attacks on other computer systems. Sensitive information, such as personally identifiable information, intellectual property, and proprietary business information could be inappropriately disclosed, browsed, or copied for purposes of identity theft, espionage, or other types of crime. Critical operations, such as those supporting critical infrastructure, national defense, and emergency services, could be disrupted. Data could be added, modified, or deleted for purposes of fraud, subterfuge, or disruption. Government officials are increasingly concerned about attacks from individuals and groups with malicious intent, such as criminals, terrorists, and adversarial foreign nations. For example, in February 2009, the Director of National Intelligence testified that foreign nations and criminals have targeted government and private sector networks to gain a competitive advantage and potentially disrupt or destroy them, and that terrorist groups have expressed a desire to use cyber attacks as a means to target the United States. The growing connectivity between information systems, the Internet, and other infrastructures creates opportunities for attackers to disrupt telecommunications, electrical power, and other critical infrastructures. As government, private sector, and personal activities continue to move to networked operations, digital systems add ever more capabilities, wireless systems become more ubiquitous, and the design, manufacture, and service of information technology have moved overseas, the threat will continue to grow. Federal law and policy establish DHS as the focal point for efforts to protect our nation's computer-reliant critical infrastructures --a practice known as cyber critical infrastructure protection, or cyber CIP. In this capacity, the department has multiple cybersecurity-related roles and responsibilities. In 2005, we identified, and reported on, 13 key cybersecurity responsibilities. They include, among others, (1) developing a comprehensive national plan for CIP, including cybersecurity; (2) developing partnerships and coordinating with other federal agencies, state and local governments, and the private sector; (3) developing and enhancing national cyber analysis and warning capabilities; (4) providing and coordinating incident response and recovery planning, including conducting incident response exercises; and (5) identifying, assessing, and supporting efforts to reduce cyber threats and vulnerabilities, including those associated with infrastructure control systems. Within DHS, the National Protection and Programs Directorate has primary responsibility for assuring the security, resiliency, and reliability of the nation's cyber and communications infrastructure. DHS is also responsible for securing its own computer networks, systems, and information. FISMA requires the department to develop and implement an agencywide information security program to provide security for the information and information systems that support the operations and assets of the agency. Within DHS, the Chief Information Officer is responsible for ensuring departmental compliance with federal information security requirements. FISMA tasks NIST--a component within the Department of Commerce-- with responsibility for developing standards and guidelines, including minimum requirements, for (1) information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of the agency and (2) providing adequate information security for all agency operations and assets, except for national security systems. The act specifically required NIST to develop, for systems other than national security systems, (1) standards to be used by all agencies to categorize all their information and information systems based on the objectives of providing appropriate levels of information security, according to a range of risk levels; (2) guidelines recommending the types of information and information systems to be included in each category; and (3) minimum information security requirements for information and information systems in each category. NIST also is required to develop a definition of and guidelines for detection and handling of information security incidents as well as guidelines developed in conjunction with the Department of Defense and the National Security Agency for identifying an information system as a national security system. Within NIST, the Computer Security Division of the Information Technology Laboratory is responsible for developing information security related standards and guidelines. FISMA also requires NIST to take other actions that include: conducting research, as needed, to determine the nature and extent of information security vulnerabilities and techniques for providing cost- effective information security; developing and periodically revising performance indicators and measures for agency information security policies and practices; evaluating private sector information security policies and practices and commercially available information technologies, to assess potential application by agencies to strengthen information security; and assisting the private sector, in using and applying the results of its activities required by FISMA. In addition, the Cyber Security Research and Development Act required NIST to develop checklists to minimize the security risks for each hardware or software system that is, or likely to become, widely used within the federal government. FISMA also requires the Office of Management and Budget (OMB) to develop policies, principles, standards, and guidelines on information security and to report annually to Congress on agency compliance with the requirements of the act. OMB has provided instructions to federal agencies and their inspectors general for preparing annual FISMA reports. These instructions focus on metrics related to the performance of key control activities such as developing a complete inventory of major information systems, providing security training to personnel, testing and evaluating security controls, testing contingency plans, and certifying and accrediting systems. FISMA reporting provides valuable information on the status and progress of agency efforts to implement effective security management programs. Because the threats to federal information systems and critical infrastructure have persisted and grown, President Bush in January 2008 began to implement a series of initiatives--commonly referred to as the Comprehensive National Cybersecurity Initiative aimed primarily at improving DHS's and other federal agencies' efforts to protect against intrusion attempts and anticipate future threats. Since then, President Obama (in February 2009) directed the National Security Council and Homeland Security Council to conduct a comprehensive review to assess the United States' cyber security related policies and structures. The resulting report, "Cyberspace Policy Review: Assuring a Trusted and Resilient Information and Communications Infrastructure," recommended, among other things, appointing an official in the White House to coordinate the nation's cybersecurity policies and activities, creating a new national cybersecurity strategy, and developing a framework for cyber research and development. In addition, we testified in March 2009 that a panel of experts identified 12 key areas of the national cybersecurity strategy requiring improvement, such as developing a national strategy that clearly articulates strategic objectives, goals, and priorities; bolstering the public/private partnership; and placing a greater emphasis on cybersecurity research and development. We have reported since 2005 that DHS has yet to comprehensively satisfy its key responsibilities for protecting computer-reliant critical infrastructures. Our reports included about 90 recommendations that we summarized into key areas, including those listed in table 1, that are essential for DHS to address in order to fully implement its responsibilities. DHS has since developed and implemented certain capabilities to satisfy aspects of its responsibilities, but the department still has not fully implemented our recommendations, and thus further action needs to be taken to address these areas. In July 2008, we identified that cyber analysis and warning capabilities included (1) monitoring network activity to detect anomalies, (2) analyzing information and investigating anomalies to determine whether they are threats, (3) warning appropriate officials with timely and actionable threat and mitigation information, and (4) responding to the threat. These four capabilities are comprised of 15 key attributes, including establishing a baseline understanding of the nation's critical network assets and integrating analysis work into predictive analyses of broader implications or potential future attacks. We concluded that while DHS's United States Computer Emergency Readiness Team (US-CERT) demonstrated aspects of each of the key attributes, it did not fully incorporate all of them. For example, as part of its monitoring, US-CERT obtained information from numerous external information sources; however, it had not established a baseline of the nation's critical network assets and operations. In addition, while it investigated whether identified anomalies constituted actual cyber threats or attacks as part of its analysis, it did not integrate its work into predictive analyses of broader implications or potential future attacks, nor did it have the analytical or technical resources to analyze multiple, simultaneous cyber incidents. The organization also provided warnings by developing and distributing a wide array of attack and other notifications; however, these notifications were not consistently actionable or timely-- i.e., providing the right information to the right persons or groups as early as possible to give them time to take appropriate action. Further, while the team responded to a limited number of affected entities in its efforts to contain and mitigate an attack, recover from damages, and remediate vulnerabilities, it did not possess the resources to handle multiple events across the nation. We also concluded that without fully implementing the key attributes, US- CERT did not have the full complement of cyber analysis and warning capabilities essential to effectively perform its national mission. As a result, we made 10 recommendations to the department to address shortfalls associated with the 15 attributes in order to fully establish a national cyber analysis and warning capability. DHS concurred and agreed to implement 9 of our 10 recommendations. In a September 2007 report and October 2007 testimony, we reported that DHS was sponsoring multiple control systems security initiatives, including an effort to improve control systems cybersecurity using vulnerability evaluation and response tools. However, DHS had not established a strategy to coordinate the various control systems activities across federal agencies and the private sector, and it did not effectively share information on control system vulnerabilities with the public and private sectors. Accordingly, we recommended that DHS develop a strategy to guide efforts for securing control systems and establish a rapid and secure process for sharing sensitive control system vulnerability information. In response, DHS recently began developing a strategy and a process to share sensitive information. We reported and later testified in 2006 that the department had begun a variety of initiatives to fulfill its responsibility for developing an integrated public/private plan for Internet recovery in case of a major disruption. However, we determined that these efforts were not comprehensive or complete. As such, we recommended that DHS implement nine actions to improve the department's ability to facilitate public/private efforts to recover the Internet. In October 2007, we testified that the department had made progress in implementing our recommendations; however, seven of the nine had not been completed. For example, it revised key plans in coordination with private industry infrastructure stakeholders, coordinated various Internet recovery-related activities, and addressed key challenges to Internet recovery planning. However, it has not, among other things, finalized recovery plans and defined the interdependencies among DHS's various working groups and initiatives. In other words, it has not completed an integrated private/public plan for Internet recovery. As a result, we concluded that the nation lacked direction from the department on how to respond in such a contingency. We also noted that these incomplete efforts indicated that DHS and the nation were not fully prepared to respond to a major Internet disruption. To date, an integrated public/private plan for Internet recovery does not exist. In June 2008, we reported on the status of DHS's efforts to establish an integrated operations center that it agreed to adopt per recommendations from a DHS-commissioned expert task force. We determined that while DHS had taken the first step towards integrating two operations centers-- the National Coordination Center Watch and US-CERT, it had yet to implement the remaining steps, complete a strategic plan, or develop specific tasks and milestones for completing the integration. We concluded that until the two centers were fully integrated, DHS was at risk of being unable to efficiently plan for and respond to disruptions to communications infrastructure and the data and applications that travel on this infrastructure, increasing the probability that communications will be unavailable or limited in times of need. As a result, we recommended that the department complete its strategic plan and define tasks and milestones for completing remaining integration steps so that we are better prepared to provide an integrated response to disruptions to the communications infrastructure. DHS concurred with our first recommendation and stated that it would address the second recommendation as part of finalizing its strategic plan. In September 2008, we reported on a major DHS-coordinated cyber attack exercise called Cyber Storm, which occurred in 2006 and included large-scale simulations of multiple concurrent attacks involving the federal government, states, foreign governments, and private industry. We determined that DHS had identified eight lessons learned from this exercise, such as the need to improve interagency coordination groups and the exercise program. We also concluded that while DHS had demonstrated progress in addressing the lessons learned, more needed to be done. Specifically, while the department completed 42 of the 66 activities identified to address the lessons learned, it identified 16 activities as ongoing and 7 as planned for the future. In addition, DHS provided no timetable for the completion dates of the ongoing activities. We noted that until DHS scheduled and completed its remaining activities, it was at risk of conducting subsequent exercises that repeated the lessons learned during the first exercise. Consequently, we recommended that DHS schedule and complete the identified corrective activities so that its cyber exercises can help both public and private sector participants coordinate their responses to significant cyber incidents. DHS agreed with the recommendation. To date, DHS has continued to make progress in completing some identified activities but has yet to do so for others. In 2007, we reported and testified on the cybersecurity aspects of CIP plans for 17 critical infrastructure sectors, referred to as sector-specific plans. Lead federal agencies, referred to as sector-specific agencies, are responsible for coordinating critical infrastructure protection efforts with the public and private stakeholders in their respective sectors. DHS guidance requires each of the sector-specific agencies to develop plans to address how the sectors' stakeholders would implement the national plan and how they would improve the security of their assets, systems, networks, and functions. We determined that none of the plans fully addressed the 30 key cybersecurity-related criteria described in DHS guidance. Further, while several sectors' plans fully addressed many of the criteria, others were less comprehensive. In addition to the variations in the extent to which the plans covered aspects of cybersecurity, there was also variance among the plans in the extent to which certain criteria were addressed. Consequently, we recommended that DHS request that the sector-specific agencies, fully address all cyber-related criteria by September 2008 so that stakeholders within the infrastructure sectors will effectively identify, prioritize, and protect the cyber aspects of their CIP efforts. We are currently reviewing the progress made in the sector specific plans. We testified in March 2009 regarding the need to bolster public/private partnerships associated with cyber CIP. According to panel members, there are not adequate economic and other incentives (i.e. a value proposition) for greater investment and partnering with owners and operators of critical cyber assets and functions. Accordingly, panelists stated that the federal government should provide valued services (such as offering useful threat or analysis and warning information) or incentives (such as grants or tax reductions) to encourage action by and effective partnerships with the private sector. They also suggested that public and private sector entities use means such as cost-benefit analyses to ensure the efficient use of limited cybersecurity-related resources. We are also currently initiating a review of the status of the public/private partnerships in cyber CIP. Besides weaknesses relating to external cybersecurity responsibilities, DHS had not secured its own information systems. In July 2007, we reported that DHS systems supporting the US-VISIT program were riddled with significant information security control weaknesses that place sensitive information--including personally identifiable information--at increased risk of unauthorized and possibly undetected disclosure and modification, misuse, and destruction, and place program operations at increased risk of disruption. Weaknesses existed in all control areas and computing device types reviewed. For example, DHS had not implemented controls to effectively prevent, limit, and detect access to computer networks, systems, and information. To illustrate, it had not (1) adequately identified and authenticated users in systems supporting US-VISIT, (2) sufficiently limited access to US-VISIT information and information systems, and (3) ensured that controls adequately protected external and internal network boundaries. In addition, it had not always ensured that responsibilities for systems development and system production had been sufficiently segregated, and had not consistently maintained secure configurations on the application servers and workstations at a key data center and ports of entry. As a result, intruders, as well as government and contractor employees, could potentially bypass or disable computer access controls and undertake a wide variety of inappropriate or malicious acts. These acts could include tampering with data; browsing sensitive information; using computer resources for inappropriate purposes, such as launching attacks on other organizations; and disrupting or disabling computer-supported operations. According to the department, it has started remediation activities to strengthen security over these systems and implement our recommendations. In January 2009, we briefed congressional staff on security weaknesses associated with the development of systems supporting the Transportation Security Administration's (TSA) Secure Flight program. Specifically, TSA had not taken sufficient steps to ensure that operational safeguards and substantial security measures were fully implemented to minimize the risk that the systems will be vulnerable to abuse and unauthorized access from hackers and other intruders. For example, TSA had not completed testing and evaluating key security controls, performed disaster recovery tests, or corrected high- and moderate-risk vulnerabilities. Accordingly, we recommended that TSA take steps to complete security testing, mitigate known vulnerabilities, and update key security documentation prior to initial operations. TSA subsequently undertook a number of actions to complete these activities. In May 2009, we concluded that TSA had generally met its requirements related to systems information security and satisfied our recommendations. NIST has taken steps to address its FISMA-mandated responsibilities by developing a suite of required security standards and guidelines as well as other publications that are intended to assist agencies in developing and implementing information security programs and effectively managing risks to agency operations and assets. In addition to developing specific standards and guidelines, NIST developed a set of activities to help agencies manage a risk-based approach for an effective information security program. These activities are known as the NIST Risk Management Framework. Several special publications support this framework and collectively provide guidance that agencies can apply to their information security programs for selecting the appropriate security controls for information systems--including the minimum controls necessary to protect individuals and the operations and assets of the organization. NIST has developed and issued the following documents to meet its FISMA mandated responsibilities: Federal Information Processing Standards Publication 199, Standards for Security Categorization of Federal Information and Information Systems, February 2004. This standard addresses NIST's requirement for developing standards for categorizing information and information systems. It requires agencies to categorize their information systems as low-impact, moderate-impact, or high-impact for the security objectives of confidentiality, integrity, and availability. The security categories are based on the harm or potential impact to an organization should certain events occur which jeopardize the information and information systems needed by the organization to accomplish its assigned mission, protect its assets, fulfill its legal responsibilities, maintain its day-to-day functions, and protect individuals. Security categories are to be used in conjunction with vulnerability and threat information in assessing the risk to an organization. Special Publication 800-60 Volume I, revision 1, Volume I: Guide for Mapping Types of Information and Information Systems to Security Categories, August 2008. This guide is to assist federal government agencies with categorizing information and information systems. It is intended to help agencies consistently map security impact levels to types of (1) information (e.g., privacy, medical, proprietary, financial, investigation); and (2) information systems (e.g., mission critical, mission support, administrative). Furthermore, it is intended to facilitate application of appropriate levels of information security according to a range of levels of impact or consequences that might result from the unauthorized disclosure, modification, or use of the information or information system. Federal Information Processing Standards Publication 200, Minimum Security Requirements for Federal Information and Information Systems, March 2006. This is the second of the mandatory security standards and specifies minimum security requirements for information and information systems supporting the executive agencies of the federal government and a risk-based process for selecting the security controls necessary to satisfy the minimum security requirements. Specifically, this standard specifies minimum security requirements for federal information and information systems in 17 security-related areas. Federal agencies are required to meet the minimum security requirements through the use of the security controls in accordance with NIST Special Publication 800-53. Special Publication 800-61, revision 1, Computer Security Incident Handling Guide, March 2008. This publication is intended to assist organizations in establishing computer security incident response capabilities and handling incidents efficiently and effectively. It provides guidelines for organizing a computer security incident response capability; handling incidents from initial preparation through post-incident lessons learned phase; and handling specific types of incidents, such as denial of service, malicious code, unauthorized access, and inappropriate usage. Special Publication 800-59, Guideline for Identifying an Information System as a National Security System, August 2003. The purpose of this guide is to assist agencies in determining which, if any, of their systems are national security systems as defined by FISMA and are to be governed by applicable requirements for such systems. Special Publication 800-55, revision 1, Performance Measurement Guide for Information Security, July 2008. The purpose of this guide is to assist in the development, selection, and implementation of measures to be used at the information system and program levels. These measures indicate the effectiveness of security controls applied to information systems and supporting information security programs. Special Publication 800-30, Risk Management Guide for Information Technology Systems, July 2002. This guide provides a foundation for the development of an effective risk management program, containing both the definitions and the practical guidance necessary for assessing and mitigating risks identified within IT systems. It also provides information on the selection of cost-effective security controls that can be used to mitigate risk for the better protection of mission-critical information and the IT systems that process, store, and carry this information. Special Publication 800-18, revision 1, Guide for Developing Security Plans for Federal Information Systems, February 2006. This guide provides basic information on how to prepare a system security plan and is designed to be adaptable in a variety of organizational structures and used as a reference by those having assigned responsibility for activities related to security planning. NIST is also in the process of developing, updating, and revising a number of special publications related to information security, including the following: Special Publication 800-37, revision 1, Guide for Security Authorization of Federal Information Systems, August 2008. This publication is intended to, among other things, support the development of a common security authorization process for federal information systems. According to NIST, the new security authorization process changes the traditional focus from the stove-pipe, organization-centric, static-based approaches and provides the capability to more effectively manage information system-related security risks in highly dynamic environments of complex and sophisticated cyber threats, ever increasing system vulnerabilities, and rapidly changing missions. The process is designed to be tightly integrated into enterprise architectures and ongoing system development life cycle processes, promote the concept of near real-time risk management, and capitalize on current and previous investments in technology, including automated support tools. Special Publication 800-39, second public draft, Managing Risk from Information Systems An Organizational Perspective, April 2008. The purpose of this publication is to provide guidelines for managing risk to organizational operations and assets, individuals, other organizations, and the nation resulting from the operation and use of information systems. According to NIST, the risk management concepts described in the publication are intentionally broad-based, with the specific details of assessing risk and employing appropriate risk mitigation strategies provided by supporting NIST security standards and guidelines. Special Publication 800-53, revision 3, Recommended Security Controls for Federal Information Systems and Organizations, June 2009. This publication has been updated from the previous versions to include a standardized set of management, operational, and technical controls intended to provide a common specification language for information security for federal information systems processing, storing, and transmitting both national security and non national security information. Draft IR-7502, The Common Configuration Scoring System (CCSS): Metrics for Software Security Configuration Vulnerabilities. This publication defines proposed measures for the severity of software security configuration issues and provides equations that can be used to combine the measures into severity scores for each configuration issue. In addition, NIST has other ongoing and planned activities that are intended to enhance information security programs, processes, and controls. For example, it is supporting the development of a program for credentialing public and private sector organizations to provide security assessment services for federal agencies. To support implementation of the credentialing program and aid security assessments, NIST is participating or will participate in the following initiatives: Training includes development of training courses, NIST publication quick start guides, and frequently asked questions to establish a common understanding of the standards and guidelines supporting the NIST Risk Management Framework. Product and Services Assurance Assessment includes defining criteria and guidelines for evaluating products and services used in the implementation of controls outlined in NIST SP 800-53. Support Tools includes identifying or developing common protocols, programs, reference materials, checklists, and technical guides supporting implementation and assessment of SP 800-53-based security controls in information systems. Mapping initiative includes identifying common relationships and the mappings of FISMA standards, guidelines, and requirements with International Organization for Standardization (ISO) standards for information security management, quality management, and laboratory testing and accreditation. These planned efforts include implementing a program for validating security tools. NIST collaborated with a broad constituency--federal and nonfederal--to develop documents to assist information security professionals. For example, NIST worked with the Office of the Director of National Intelligence, the Department of Defense, and the Committee on National Security Systems to develop a common process for authorizing federal information systems for operation. This resulted in a major revision to NIST Special Publication 800-37, currently issued as an initial public draft. NIST also collaborated with these organizations on Special Publication 800-53 and Special Publication 800-53A to provide guidelines for selecting and specifying security controls for federal government information systems and to help agencies develop plans and procedures for assessing the effectiveness of these controls. NIST also interacted with the DHS to incorporate guidance on safeguards and countermeasures for federal industrial control systems in Special Publication 800-53. NIST is also working with public and private sector entities to establish specific mappings and relationships between the security standards and guidelines developed by NIST and the ISO and International Electrotechnical Commission Information Security Management System standard. For example, the latest draft of Special Publication 800-53 introduces a three-part strategy for harmonizing the FISMA security standards and guidelines with international security standards including an updated mapping table for security controls. NIST also undertook other information security activities, including developing Federal Desktop Core Configuration checklists and continuing a program of outreach and awareness through organizations such as the Federal Computer Security Program Managers' Forum and the Federal Information Systems Security Educators' Association. Through NIST's efforts, agencies have access to additional tools and guidance that can be applied to their information security programs. Despite federal agencies reporting increased compliance in implementing key information security control activities for fiscal year 2008, opportunities exist to improve the metrics used in annual reporting. The information security metrics developed by OMB focus on compliance with information security requirements and the implementation of key control activities. OMB requires federal agencies to report on key information security control activities as part of the FISMA-mandated annual report on federal information security. To facilitate the collection and reporting of information from federal agencies, OMB developed a suite of information security metrics, including the following: percentage of employees and contractors receiving security awareness percentage of employees with significant security responsibilities receiving specialized security training, percentage of systems tested and evaluated annually, percentage of systems with tested contingency plans, percentage of agencies with complete inventories of major systems, and percentage of systems certified and accredited. In May 2009, we testified that federal agencies generally reported increased compliance in implementing most of the key information security control activities for fiscal year 2008, as illustrated in figure 1. However, reviews at 24 major federal agencies continue to highlight deficiencies in their implementation of information security policies and procedures. For example, in their fiscal year 2008 performance and accountability reports, 20 of 24 major agencies noted that their information system controls over their financial systems and information were either a material weakness or a significant deficiency. In addition, 23 of the 24 agencies did not have adequate controls in place to ensure that only authorized individuals could access or manipulate data on their systems and networks. We also reported that agencies did not consistently (1) identify and authenticate users to prevent unauthorized access; (2) enforce the principle of least privilege to ensure that authorized access was necessary and appropriate; (3) establish sufficient boundary protection mechanisms; (4) apply encryption to protect sensitive data on networks and portable devices; and (5) log, audit, and monitor security- relevant events. Furthermore, those agencies also had weaknesses in their agencywide information security programs. An underlying reason for the apparent dichotomy of increased compliance with security requirements and continued deficiencies in security controls is that the metrics defined by OMB and used for annual information security reporting do not generally measure the effectiveness of the controls and processes that are key to implementing an agencywide security program. Results of our prior and ongoing work indicated that, for example, annual reporting did not always provide information on the quality or effectiveness of the processes agencies use to implement information security controls. Providing information on the effectiveness of controls and processes could further enhance the usefulness of the data for management and oversight of agency information security programs. In summary, DHS has not fully satisfied aspects of its key cybersecurity responsibilities, one of which includes its efforts to protect our nation's cyber critical infrastructure and still needs to take further action to address the key areas identified in our recent reports, including enhancing partnerships with the private sector. In addition, although DHS has taken actions to remedy security weaknesses in its Secure Flight program, it still needs to address our remaining recommendations for strengthening controls for systems supporting the US-VISIT program. In taking these actions, DHS can improve its own information security as well as increase its credibility to external parties in providing leadership on cybersecurity. NIST has developed a significant number of standards and guidelines for information security and continues to assist organizations in implementing security controls over their systems and information. While NIST's role is to develop guidance, it remains the responsibility of federal agencies to effectively implement and sustain sufficient security over their systems. Developing and using metrics that measure how well agencies implement security controls can contribute to increased focus on the effective implementation of federal information security. Chairman Wu, this concludes my statement. I would be happy to answer questions at the appropriate time. If you have any questions regarding this report, please contact Gregory C. Wilshusen, Director, Information Security Issues at (202) 512-6244 or by e- mail at [email protected]. Other key contributors to this report include Michael Gilmore (Assistant Director), Charles Vrabel (Assistant Director), Bradley Becker, Larry Crosland, Lee McCracken, and Jayne Wilson. 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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Federal laws and policy have assigned important roles and responsibilities to the Department of Homeland Security (DHS) and the National Institute of Standards and Technology (NIST) for securing computer networks and systems. DHS is charged with coordinating the protection of computer-reliant critical infrastructure--much of which is owned by the private sector--and securing its own computer systems, while NIST is responsible for developing standards and guidelines for implementing security controls over information and information systems. GAO was asked to describe cybersecurity efforts at DHS and NIST--including partnership activities with the private sector--and the use of cybersecurity performance metrics in the federal government. To do so, GAO relied on its reports on federal information security and federal efforts to fulfill national cybersecurity responsibilities. Since 2005, GAO has reported that DHS has yet to comprehensively satisfy its key cybersecurity responsibilities, including those related to establishing effective partnerships with the private sector. Shortcomings exist in key areas that are essential for DHS to address in order to fully implement its cybersecurity responsibilities. DHS has since developed and implemented certain capabilities, but still has not fully satisfied aspects of these responsibilities and needs to take further action to enhance the public/private partnerships needed to adequately protect cyber critical infrastructure. GAO has also previously reported on significant security weaknesses in systems supporting two of the department's programs, one that tracks foreign nationals entering and exiting the United States, and one for matching airline passenger information against terrorist watch-list records. DHS has corrected information security weaknesses for systems supporting the terrorist watch-list, but needs to take additional actions to mitigate vulnerabilities associated with systems tracking foreign nationals. NIST plays a key role in providing important information security standards and guidance. Pursuant to its responsibilities under the Federal Information Security Management Act (FISMA), NIST has developed standards specifying minimum security requirements for federal information and information systems; and provided corresponding guidance that details the controls necessary for securing those systems. It has also been working with both public and private sector entities to enhance information security requirements. The resulting guidance and tools provided by NIST serve as important resources for federal agencies that can be applied to information security programs. As GAO recently testified in May, opportunities exist to improve the metrics used to assess agency information security programs. According to the performance metrics established by the Office of Management and Budget (OMB), agencies reported increased compliance in implementing key information security control activities. However, GAO and agency inspectors general continue to report significant weaknesses in controls. This dichotomy exists in part because the OMB-defined metrics generally do not measure how well controls are implemented. As a result, reported metrics may provide an incomplete picture of an agency's information security program.
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Created in 2010, CDCI was one of the later TARP programs and was intended to help mitigate the adverse impact that the financial crisis was having on communities underserved by traditional banks. CDCI is structured much like the TARP Capital Purchase Program (CPP), in that both provide capital to financial institutions by purchasing preferred equity and subordinated debt from them. However, CDCI differs from CPP in several important ways. First, CDCI provided financial assistance only to CDFIs, which provide financial services to low- and moderate-income, minority, and other underserved communities. Second, CDCI also provided assistance to credit unions, unlike CPP, which provided capital only to banks. Finally, CDCI provided more favorable capital terms to its participants than CPP did. Specifically, CDCI investments have an initial dividend or interest rate of 2 percent, compared with 5 percent under CPP. The dividend or interest rate increases to 9 percent after eight years under CDCI, compared with five years under CPP. Treasury finalized the last of its $570 million in CDCI investments in September 2010, just prior to the expiration of its TARP purchasing authority. The 84 participating institutions included 36 banks and 48 credit unions. Twenty-eight of the 36 banks were former CPP participants that were in good standing in that program and thus were allowed to refinance their CPP shares for a lower rate in CDCI. Of these 28 banks, 10 received additional disbursements under CDCI. As shown in table 1, CDCI terms varied depending on the type of institution receiving the capital. In general, banks received capital by issuing to Treasury preferred stock representing not more than 5 percent of their risk-weighted assets. The capital they received in return was generally treated as tier 1 capital for regulatory purposes, with a perpetual term. Federal banking regulators classify capital as either tier 1--currently the highest-quality form of capital--or tier 2, which is weaker in absorbing losses. Credit unions issued unsecured subordinated debentures totaling not more than 3.5 percent of their total assets. In exchange, Treasury provided participating credit unions with secondary capital that boosted their net worth until 5 years before the maturity date, at which point it would begin amortizing at 20 percent per year. All institutions participating in CDCI are required to make quarterly dividend or interest payments to Treasury. After 8 years, the initial dividend or interest rate of 2 percent increases to 9 percent. As of April 30, 2014, 68 of the original 84 CDCI institutions remained in the program. Fifteen institutions (six banks and nine credit unions) had exited through repayment, while one institution had exited as a result of its subsidiary bank's failure. Three of the banks and at least one of the credit unions that had exited the program did so when they merged with or were acquired by institutions that were not certified CDFIs. CDCI terms required them to repay their investments, as non-CDFIs were not eligible for the program. Two of the 68 remaining institutions had begun to repay the principal on the investments they had received, while the other remaining institutions had paid only dividends and interest. Repayments and income from dividends and interest to date have amounted to less than a quarter of Treasury's $570.1 million investment in 2010 (see fig. 1). As of April 30, 2014, the outstanding investment balance for CDCI was $467.4 million, reflecting repayments and write-offs totaling $102.7 million. Specifically, as of this date, Treasury had received approximately $96.0 million in principal repayments from CDCI recipients. As a result of the failure of Premier Bancorp, Inc.'s subsidiary, in January 2013 Treasury wrote off nearly all of its $6.8 million investment in Premier, whose assets were liquidated when its banking subsidiary entered receivership. Treasury also did not collect more than $300,000 in unpaid dividends and interest for Premier. CDCI participants have also paid $38.3 million in dividends and interest. Treasury has lowered its estimates of the program's lifetime cost over the last 2 years as market conditions have improved and institutions have begun to repay their investments. As of November 2010, Treasury estimated the program's lifetime cost at about $290 million. As of February 28, 2014, Treasury estimated the program's lifetime cost at $80 million. According to representatives from the remaining CDCI institutions we spoke to, factors such as access to capital, the benefits of CDCI capital, and CDCI program terms affected participants' decisions to remain in or exit the program. Specifically, we interviewed a nonprobability sample of 8 banks and 9 credit unions remaining in the program as well as organizations representing the banks and credit unions participating in CDCI. Representatives of CDCI participant institutions and bank and credit union organizations told us that a key factor in participants' decision to remain in or exit CDCI was their ability to access other sources of capital. Representatives of a few of the CDCI institutions, as well as representatives of two organizations representing CDCIs, said that CDCI had been one of the few sources of external capital for small community banks and credit unions since the financial crisis and economic downturn. Representatives of the same organizations and a few other CDCI institutions explained that for many CDFI banks and credit unions, access to credit could be difficult and expensive. Some bank representatives said they were waiting to see whether the credit market improved closer to 2018 before making a decision on the timing of repayments. Some credit union representatives noted that they would pursue grants or nonmember deposits to replace the CDCI capital. One bank representative, as well as a bank organization representative and an investor in CDFIs, noted that the structure of the CDCI agreement gave Treasury priority status over other investors, making it difficult for these banks to attract additional investors and find replacement capital. This structure would be an issue if a bank was attempting to raise capital in smaller amounts than its CDCI capital, as the bank would have to balance the interests of both Treasury and new investors. Representatives from CDCI institutions we interviewed also mentioned several benefits of maintaining their CDCI capital. First, they stated that CDCI had allowed them to meet customer demand and provide access to services they would otherwise not have been able to provide. For example, three bank representatives we interviewed said the CDCI capital allowed them to purchase bank branches that were struggling or closing in underserved communities. They said that these purchases allowed them to ensure that residents of these communities had access to financial services. Several representatives noted that the CDCI capital allowed them to increase their lending. According to a representative of one credit union, the capital helped fund a loan so that a grocery store in a neighborhood that had previously lacked one could be built. Two bank representatives and a credit union representative also noted that the capital had allowed them to make residential mortgage loans. As one of the representatives noted, other financial institutions were decreasing this type of lending during the financial crisis and economic downturn. Second, several representatives we interviewed noted that the 2 percent rate on the CDCI capital was lower than the rates they could obtain in private capital markets. Therefore, regardless of their current capacity to fully repay Treasury, they planned to keep the capital as long as it remained less expensive than alternative capital. Finally, regulations reflecting Basel III regulatory capital reforms that are scheduled to take effect in 2015 will increase the percentage of capital that banks must hold. Three bank representatives noted that the increased capital requirements would make them more likely to hold their CDCI capital. Representatives from bank and credit union organizations and participating institutions also told us that changing program terms would influence institutions' decisions about exiting the program. The scheduled increase in the CDCI dividend rate (from 2 percent to 9 percent) that will take effect in 2018 is a key factor for institutions in deciding when to exit. Representatives from several CDCI institutions we interviewed told us that they would like to repay Treasury before the increase takes effect. However, a few of the representatives from remaining institutions who we interviewed were uncertain about their ability to find other sources of inexpensive capital before the increase in 2018. A representative of one of the bank organizations stated that a good number of remaining CDCI banks would likely struggle to pay dividends at the higher rate while maintaining services to their communities. In addition, we found that for credit unions, the treatment of CDCI funds as secondary capital may also affect repayment schedules. Credit unions with 2018 maturity dates on their CDCI securities (approximately half of the remaining credit unions, according to Treasury) have had to begin counting a portion of their capital as debt. Treasury representatives explained that as a result of this regulatory capital rule, it was likely that many of these institutions would pursue repayment before 2018. Three credit union representatives we interviewed whose CDCI securities had a maturity date of 2018 stated that they hoped to either increase their earnings or find alternative sources of secondary capital in time to replace the CDCI capital. Treasury officials stated that they had not yet determined an exit strategy for CDCI but were studying various alternatives and would need to consider the interests of participating institutions and taxpayers. The officials noted that CDCI differed from CPP because of the mission of the participating institutions, which focused on communities and populations lacking access to credit, banking, and other financial services. To date, Treasury has had a number of meetings with participating banks and with organizations representing the banks in the program and said that it was aware that these organizations were also looking at alternatives for the banks' exit from CDCI. Treasury officials said that they had not yet held similar meetings with organizations representing credit unions but planned to do so. In addition, Treasury officials said that they would meet with the federal financial regulators to discuss options. Treasury officials added that any decision would need to balance the mission of CDCI with the need to protect the taxpayers' investment. Treasury officials stated that, like CPP, CDCI would wind down as participants (1) repaid their investments; and (2) in some cases, restructured them. While they had not yet determined what approach they would use for CDCI participants that did not follow either of these courses, Treasury officials said that they were exploring a number of options. Treasury has used auctions to sell some of its investments in CPP institutions. According to representatives of one organization we spoke with, some CDCI participants expressed concern that Treasury would also use the auction method for CDCI after announcing its auction strategy for CPP in 2012. These representatives noted that participants' mission to serve communities that lacked access to financial services might suffer if investors such as hedge funds bought their securities from Treasury, because the investors' interests would not necessarily align with the institutions' interests. Similarly, representatives from the same organization told us that several CDCI banks and credit unions were classified as minority depository institutions and that some of these institutions had concerns that auctions could weaken their status as such. The Federal Deposit Insurance Corporation (FDIC) defines a minority depository institution as any federally insured depository institution with 51 percent or more minority ownership of its voting stock, or a majority of the Board of Directors is minority and the community that the institution serves is predominantly minority. NCUA requires a federally insured credit union's percentage of both minority members and minority management officials to exceed 50 percent for minority depository institution status. Treasury officials told us that they were aware of the issues that auctions could present for CDCI institutions and had not determined whether they would incorporate auctions into their CDCI exit strategy. Further, when concerns first surfaced in 2012, after auctions were announced for CPP, Treasury issued a public statement clarifying that it had not yet determined what exit strategies would be used for CDCI. Treasury officials also told us that a few minority depository institutions had been part of the CPP auction process and that Treasury consulted with FDIC on this matter for the CPP auctions. According to FDIC officials, FDIC was notified of the details of these auctions before they were finalized, and the officials stated that none of the CPP auctions affected the designation of any minority depository institutions. Most CDCI institutions have paid dividends and interest to Treasury on a timely basis, with only a small percentage missing payments over the life of the program. In addition, few of the remaining CDCI banks and credit unions are considered troubled by FDIC or NCUA. Moreover, remaining CDCI banks generally are financially stronger than certified CDFI banks that did not participate in the program, but remaining CDCI credit unions are generally weaker than nonparticipating CDFI credit unions. The number of CDCI institutions with missed quarterly dividend or interest payments has been generally low, representing, on average, about 4 percent of all remaining institutions over the life of the program. The percentage of remaining institutions with missed payments has ranged from about 1 percent to 7 percent (one to six institutions). Since November 2010 (the first quarter that dividend and interest payments were due), nine institutions (seven banks and two credit unions) have missed at least one quarterly payment. Of those institutions, three banks have missed at least eight payments, the threshold at which Treasury has the right to elect directors to their boards. As of April 30, 2014, Treasury had not appointed directors to the board of any CDCI banks, but it had sent an observer to one bank and requested to send an observer to a second bank. Two of the three banks with eight or more missed payments were up to date on their payments as of April 30, 2014, while the third was not. Institutions can elect whether to pay dividends and interest and may choose not to pay for a variety of reasons, including decisions that they or their federal and state regulators make to conserve cash and maintain (or increase) capital levels. However, investors may view a company's ability to pay dividends as an indicator of its financial strength and may see failure to pay full dividends as a sign of financial weakness. Very few of the remaining CDCI institutions were included on FDIC's or NCUA's most recent lists of "problem" or "troubled" banks or credit unions. The designation of these institutions as "problem" or "troubled" is, in large part, derived from the Uniform Financial Institutions Rating System, commonly known as CAMELS. Stated differently, these lists designate institutions with weaknesses that threaten their continued financial viability. Federal and state regulators generally do not allow institutions on these lists to make dividend payments in an effort to preserve their capital and promote safety and soundness. The financial health of remaining banks and credit unions differed relative to institutions that did not participate in CDCI. We examined various measures that described banks' and credit unions' capital adequacy, profitability, asset quality, and ability to cover losses. We analyzed quarterly regulatory reports from December 31, 2013 (the most recent reporting period for which data were available for both banks and credit unions) on the 68 institutions remaining in the program as of April 30, 2014. We then compared the data to information on nonparticipating CDFI-certified banks and credit unions. On several measures of financial strength, remaining CDCI banks tended to be financially stronger than certified CDFI banks that did not participate in CDCI (non-CDCI banks) (see table 2). We found that the median asset size of CDCI banks as of December 31, 2013, was nearly three times that of non-CDCI banks ($387.4 million for CDCI banks compared with $143.3 million for non-CDCI banks). While only 1 of the 29 remaining CDCI banks (about 3 percent) had assets of less than $100 million, 32 of the 97 non-CDCI banks (33 percent) had assets in this range. Remaining CDCI banks also had lower median Texas Ratios than non-CDCI banks. The Texas Ratio helps determine a bank's likelihood of failure by comparing its troubled loans to its capital. The higher the ratio, the more likely the institution is to fail. As of December 31, 2013, remaining CDCI banks had a median Texas Ratio of 29.01, compared with 35.05 for non-CDCI banks. Remaining CDCI banks performed better than non-CDCI banks with regard to profitability and asset quality. Specifically, remaining CDCI banks had a better median return on average assets, a measure of profitability relative to total assets and management's efficiency at using its assets to generate earnings. As of December 31, 2013, remaining CDCI banks had a median return on average assets of 0.73, compared with 0.40 for non-CDCI banks. While 1 of the 29 remaining CDCI banks (about 3 percent) had a negative return on average assets, 32 of the 97 non-CDCI banks (33 percent) had negative values for this ratio, indicating that the non-CDCI banks had more challenges with regard to managing their assets. In addition, remaining CDCI banks generally held better performing assets than non-CDCI banks. For example, remaining CDCI banks had a lower median percentage of noncurrent loans than non- CDCI banks. As of December 31, 2013, a median of 2.35 percent of loans for remaining CDCI banks were not current, compared with 3.35 percent for non-CDCI banks. However, remaining CDCI banks had a slightly higher median ratio of net charge-offs to average loans than non-CDCI banks (0.35 compared with 0.30). Remaining CDCI banks also held more regulatory capital as a percentage of assets than non-CDCI banks. Regulators require minimum amounts of capital to lessen an institution's risk of default and improve its ability to sustain operating losses. Regulatory capital can be measured in several ways, but we focused on tier 1 capital, which includes both a tier 1 capital ratio and common equity tier 1 ratio, because it is the most stable form of regulatory capital. The tier 1 risk-based capital ratio shows tier 1 capital as a share of risk-weighted assets; the common equity tier 1 risk-based capital ratio shows tier 1 common equity as a share of total risk-weighted assets. Tier 1 common equity generally does not include CDCI or other TARP funds. Both ratios were higher for the remaining CDCI banks than for non-CDCI banks, suggesting that the CDCI banks were in a somewhat better position to avoid financial losses. As of December 31, 2013, remaining CDCI banks had a median tier 1 capital ratio of 15.88, compared with 13.67 for the non-CDCI banks. The median common equity tier 1 ratio for the remaining CDCI banks was 14.44, compared with 13.50 for non-CDCI banks. Finally, remaining CDCI banks had higher reserves for covering losses compared with non-CDCI banks. Higher reserves suggest that the banks are better positioned to withstand losses. As of December 31, 2013, the median ratio of reserves to nonperforming loans was about one-third greater for remaining CDCI banks as for non-CDCI banks (61.30 compared with 41.68). However, similar percentages of banks in each group (about 14 percent of CDCI banks and about 18 percent of non- CDCI banks) had ratios of reserves to nonperforming loans exceeding 100.00. In other words, these banks had at least one dollar of reserves for every potential dollar of losses on nonperforming loans. CDCI credit unions had lower assets and were generally weaker than nonparticipating certified CDFI credit unions (non-CDCI credit unions) on several measures that regulators commonly use to assess the financial health of these institutions. Specifically, as of December 31, 2013, CDCI credit unions had a median asset size of $19.3 million, compared with $29.9 million for non-CDCI credit unions (see table 3). While the largest CDCI credit union had assets of less than $300 million, 6 of the 126 non- CDCI credit unions had assets exceeding $1.0 billion. Remaining CDCI credit unions were less profitable than non-CDCI credit unions and held slightly more poorly performing assets. As of December 31, 2013, remaining CDCI credit unions also had a median return on average assets of 0.27, compared to 0.53 for non-CDCI credit unions. A greater percentage of the remaining CDCI credit unions than non-CDCI credit unions had a negative return on average assets (about 26 percent, or 10 of 39 CDCI credit unions, compared to about 19 percent, or 24 of 126 non-CDCI credit unions). A negative return on average assets means that the credit union's earnings did not cover its operating expenses and cost of funds. In addition, remaining CDCI credit unions held more poorly performing assets than non-CDCI credit unions. For example, remaining CDCI credit unions had a delinquent loan ratio of 1.78, compared to 1.43 for non-CDCI credit unions. However, remaining CDCI credit unions had a slightly lower median ratio of net charge-offs to average loans than non- CDCI credit unions (0.54 compared with 0.61), indicating slightly more effective lending and collection practices. Remaining CDCI credit unions also had less capital as a percentage of total assets than non-CDCI credit unions. Specifically, remaining CDCI credit unions had a lower median net worth ratio--net worth as a percentage of total assets--than non-CDCI credit unions. Net worth mitigates fluctuations in earnings, supports growth, and provides protection against insolvency. As of December 31, 2013, CDCI credit unions had a median net worth ratio of 7.35, compared with 9.98 for non- CDCI credit unions. For purposes of capital adequacy, a net worth of 7 percent or greater of total assets is considered well-capitalized. Forty-one percent of the remaining credit unions (16 of 39) had net worth ratios less than 7 percent, while only about 10 percent of non-CDCI credit unions (12 of 126) fell below the 7 percent threshold. Finally, CDCI credit unions were at slightly greater risk of experiencing a decline in net worth from delinquent loans than non-CDCI credit unions. For a credit union, declining net worth is similar to a bank's having lower reserves for covering losses. As of December 31, 2013, remaining CDCI credit unions had a median ratio of total delinquent loans to net worth of 9.18, compared to 8.30 for non-CDCI credit unions. We provided a draft of this report to Treasury, FDIC, and NCUA for their review and comment. Treasury provided written comments that we have reprinted in appendix II. In its written comments, Treasury concurred with our findings, noting that the report provides constructive insights into Treasury's efforts to help CDFIs and the communities they serve cope with the effects of the financial crisis. Treasury stated that it continues to explore various exit strategies for its CDCI investments and that any decision would need to balance the mission of CDCI, which focuses on communities and populations that lack access to certain financial services, with the need to protect the taxpayers' investment. NCUA also provided written comments that we have reprinted in appendix III. NCUA agreed with our representation of credit union information. Treasury, FDIC, and NCUA also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Special Inspector General for TARP, interested congressional committees and members, Treasury, FDIC, and NCUA. The report also is 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 A. Nicole Clowers 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 IV. This report examines (1) the financial status of the Department of the Treasury's (Treasury) Community Development Capital Initiative (CDCI), including repayments and other proceeds, investments outstanding, and the estimated lifetime cost of the program; (2) factors affecting participants' decisions to remain in or leave the program and Treasury's exit strategy; and (3) the financial condition of institutions remaining in CDCI. To assess the financial status of CDCI, we analyzed data from Treasury. In particular, we used Treasury's April 2014 Monthly Report to Congress and April 2014 Dividends and Interest Report to determine the dollar amounts of principal, dividends, and interest; outstanding investments; the number of remaining and former participants; and the estimated lifetime cost of the program. To examine factors affecting participants' decisions to remain in or leave the program and Treasury's exit strategy, we selected and attempted to contact a nonprobability, judgmental sample of 9 of the 29 banks and 12 of the 40 credit unions remaining in CDCI as of March 31, 2014. To draw the sample, we split the remaining institutions into banks and credit unions and divided each list of institutions into four groups according to their total asset size as of September 30, 2013. We selected the largest three banks and the largest credit union. We then randomly ordered the other institutions based on asset size categories and selected the first two to five institutions in each category, depending on the total number of institutions in that category. We selected and attempted to contact 9 banks and 12 credit unions. These samples reflected each institution type's proportions in the total list of 69 remaining institutions and reflected a variety of geographic areas. We were able to conduct interviews by phone with managers at 8 of the 9 banks and 9 of the 12 credit unions. These interviews consisted of a brief set of questions about each institution's negative and positive experiences with CDCI, their plans for repayment, and factors affecting those plans. The results of our interviews cannot be generalized to all remaining CDCI banks and credit unions. We also interviewed officials from the National Credit Union Administration (NCUA), associations that represent banks and credit unions that received CDCI capital, and an organization that invests in some of the CDCI banks, to obtain their observations on the same topics. Specifically, we met with representatives of the Community Development Bankers Association, the National Bankers Association, the National Federation of Community Development Credit Unions, the National Association of Federal Credit Unions, and the National Community Investment Fund. Finally, we reviewed Treasury reports and public statements and interviewed Treasury officials to obtain information on CDCI and Treasury's exit strategy. To assess the financial condition of institutions that received investments under CDCI, we used data from Treasury's Dividends and Interest reports from November 2010 through February 2014 (the most recent month in which quarterly payments were due) to determine the extent to which participants had missed payments throughout the life of the program. We also obtained from the Federal Deposit Insurance Corporation (FDIC) the number of remaining CDCI banks (as of Feb. 28, 2014) on its problem bank list. Similarly, we obtained information from NCUA on the number of remaining CDCI credit unions it considered "troubled" as of March 13, 2014. In addition, we used SNL Financial (a private service that disseminates data from quarterly regulatory reports, among other information) to obtain regulatory financial data on the 68 remaining CDCI banks and credit unions and on comparison groups of institutions that were eligible for but did not participate in CDCI. To identify the comparison groups, we used Treasury's CDFI Fund's list of certified CDFIs as of February 28, 2014. This list included 127 banks, thrifts, and depository institution holding companies, as well as 176 credit unions. We chose to limit our comparison groups to certified CDFIs rather than the universe of banks and credit unions because they shared a community development mission and generally have smaller asset sizes. SNL Financial had data on all of the 127 CDFI banks, thrifts, and depository institution holding companies ("banks") and 171 of the 176 CDFI credit unions. We divided the bank and credit union lists into three groups each: (1) those remaining in CDCI, (2) those that had exited CDCI, and (3) those that had never participated in CDCI. We defined remaining CDCI institutions as those with their full or partial investments outstanding; this group included the 29 banks and 39 credit unions. For both the bank and credit union analyses, we excluded the institutions that had exited CDCI because of the small size of these groups of institutions. For example, six banks had exited CDCI as of April 30, 2014, but SNL Financial only had current data on three of them because the others had been acquired. Similarly, SNL Financial had current data only on seven of the nine credit unions that had exited as of April 30, 2014. We determined that the median values for these small groups would not provide a meaningful illustration of the financial condition of exited institutions. The final comparison groups included 97 non-CDCI banks and 126 non-CDCI credit unions. We conducted separate analyses for banks and credit unions because the two types of institutions file different regulatory reports and have different financial indicators. For our bank analysis, we used financial measures that were similar to those we had identified in our previous reporting on banks participating in Treasury's Capital Purchase Program (CPP). These measures help demonstrate an institution's financial health as it relates to a number of categories, including profitability, asset quality, capital adequacy, and loss coverage. For our credit union analysis, we obtained information from NCUA on the measures it typically uses to assess credit unions' financial health. We selected at least one measure in each of the four categories (profitability, asset quality, capital adequacy, and loss coverage) we used for the bank analysis. We chose to present median values. We determined that the financial information used in this report, including the CDCI program data from Treasury and the financial data on banks and credit unions from SNL Financial, was sufficiently reliable to assess the status and condition of CDCI and institutions that participated in the program. For the data from Treasury, we tested Treasury's internal controls over financial reporting as they related to our annual audit of the Troubled Asset Relief Program (TARP) financial statements and found the information to be sufficiently reliable based on the results of our audits of fiscal years 2010 through 2013 financial statements. We assessed the reliability of the SNL Financial data by performing manual testing of required data elements and reviewing existing information about the data and the system that produced them. In addition, we have assessed the reliability of SNL Financial data as part of previous studies and found the data to be reliable for the purposes of our review. We verified that no changes had been made that would affect the data's reliability. We conducted this performance audit from February 2014 to June 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Kay Kuhlman (Assistant Director), Lisa Reynolds (Analyst-in-Charge), Emily Chalmers, William Chatlos, Chris Forys, Marc Molino, and Patricia Moye made significant contributions to this report.
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Treasury established CDCI under the Troubled Asset Relief Program (TARP) in February 2010 to help banks and credit unions certified as Community Development Financial Institutions (CDFI) maintain their services to underserved communities in the aftermath of the 2007-2009 financial crisis. Treasury invested a total of $570 million in 84 eligible institutions by September 2010. TARP's authorizing legislation mandates that GAO report every 60 days on TARP activities, including CDCI. This report examines (1) the financial status of CDCI; (2) factors affecting participants' decisions to remain in or leave the program and Treasury's exit strategy; and (3) the financial condition of institutions remaining in the program. To assess the program's status, GAO reviewed Treasury reports on CDCI. GAO also used regulatory financial data to compare the financial condition of banks and credit unions remaining in CDCI with those that would have been eligible but did not participate. In addition, GAO interviewed staff from Treasury and NCUA, associations representing CDCI participants, and representatives of a nonprobability sample of CDFI banks and credit unions that participated in CDCI. GAO selected banks and credit unions based on asset size and geography. GAO is making no recommendations in this report. In comments on a draft of this report, Treasury and NCUA concurred with our findings. As of April 30, 2014, 82 percent of the Department of the Treasury's (Treasury) $570 million total investment in eligible banks and credit unions through the Community Development Capital Initiative (CDCI) was still outstanding. Sixteen institutions have exited the program, leaving 29 banks and 39 credit unions, respectively, in the program. Treasury had received repayments and investment income of $134.3 million, but has also recorded a $6.7 million write-off based on the failure of one participant's subsidiary. As of February 28, 2014 (most recent information available), Treasury estimated a lifetime cost of $80 million for CDCI, down from an estimated cost of $290 million in November 2010. Representatives of participant banks and credit unions GAO interviewed said that access--or lack thereof--to similar forms of capital was a key factor in institutions' willingness or ability to exit the program. They noted that CDCI continued to be one of the few sources of capital for small banks and credit unions. In addition, they listed program terms, such as the scheduled increase in the dividend or interest rate from 2 percent to 9 percent in 2018, as considerations. Treasury has not yet announced an exit strategy for CDCI but said it will consider the interests of the financial institutions and taxpayers as they consider options for winding down the program. For example, they noted that any strategy would need to take into account how the wind down of the program may impact the community development mission of the remaining participants. The financial health of the remaining CDCI banks and credit unions is mixed. For example, few CDCI institutions have missed their dividend or interest payments to Treasury since 2010. The Federal Deposit Insurance Corporation and National Credit Union Administration (NCUA) had identified very few of the remaining banks and credit unions as exhibiting serious financial, operational, or managerial weaknesses as of March 2014. GAO's analysis of financial data found that banks remaining in CDCI tended to be more profitable, held stronger assets, and had higher capital and reserve levels when compared to non-CDCI banks that were eligible for the program but did not participate. However, remaining credit unions were less profitable, held slightly more poorly performing assets, and had lower capital levels and less protection against losses than non-CDCI credit unions that were eligible for the program but did not participate.
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