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Since the enactment of key financial management reforms in the 1990s, the federal government has made significant progress in improving financial management activities and practices. As shown in appendix I, 20 of 24 Chief Financial Officers (CFO) Act agencies were able to attain unqualified audit opinions on their fiscal year 2009 financial statements. In contrast, only 6 CFO Act agencies received unqualified audit opinions for fiscal year 1996. Also, accounting and financial reporting standards have continued to evolve to provide greater transparency and accountability over the federal government's operations, financial condition, and fiscal outlook. Further, we were able to render unqualified opinions on the 2009, 2008, and 2007 Statements of Social Insurance. Given the importance of social insurance programs like Medicare and Social Security to the federal government's long-term fiscal outlook, the Statement of Social Insurance is critical to understanding the federal government's financial condition and fiscal sustainability. Although this progress is commendable, the federal government did not maintain adequate systems or have sufficient, reliable evidence to support certain significant information reported in the U.S. government's accrual- based consolidated financial statements. Underlying material weaknesses in internal control, which generally have existed for years, contributed to our disclaimer of opinion on the U.S. government's accrual-based consolidated financial statements for the fiscal years ended 2009 and 2008. Those material weaknesses relate to the federal government's inability to satisfactorily determine that property, plant, and equipment and inventories and related property, primarily held by the Department of Defense (DOD), were properly reported in the accrual-based consolidated financial statements; reasonably estimate or adequately support amounts reported for certain liabilities, such as environmental and disposal liabilities, or determine whether commitments and contingencies were complete and properly reported; support significant portions of the total net cost of operations, most notably related to DOD, and adequately reconcile disbursement activity at certain federal entities; adequately account for and reconcile intragovernmental activity and balances between federal entities; ensure that the federal government's accrual-based consolidated financial statements were (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in conformity with U.S. generally accepted accounting principles (GAAP); and identify and either resolve or explain material differences between certain components of the budget deficit reported in Treasury's records, which are used to prepare the Reconciliation of Net Operating Cost and Unified Budget Deficit and Statement of Changes in Cash Balance from Unified Budget and Other Activities, and related amounts reported in federal entities' financial statements and underlying financial information and records. In addition to the material weaknesses that contributed to our disclaimer of opinion on the accrual-based consolidated financial statements, we found three other material weaknesses in internal control. These other material weaknesses were the federal government's inability to determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce improper payments, identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and effectively manage its tax collection activities. The material weaknesses discussed in our audit report continued to (1) hamper the federal government's ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government's ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities; (3) impair the federal government's ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an efficient and effective manner. Also, many of the CFO Act agencies continue to struggle with financial systems that are not integrated and do not meet the needs of management for reliable, useful, and timely financial information. Often, agencies expend major time, effort, and resources to develop information that their systems should be able to provide on a daily or recurring basis. Three major impediments continued to prevent us from rendering an opinion on the U.S. government's accrual-based consolidated financial statements: (1) serious financial management problems at DOD that have prevented DOD's financial statements from being auditable, (2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and (3) the federal government's ineffective process for preparing the consolidated financial statements. Additional impediments, such as certain entities' fiscal year 2009 financial statements that, as of the date of our audit report, received disclaimers of opinion or were not audited, also contributed to our inability to render an opinion on the U.S. government's accrual-based consolidated financial statements. Extensive efforts by DOD and other entity officials and cooperative efforts between entity chief financial officers, Treasury officials, and Office of Management and Budget (OMB) officials will be needed to resolve these obstacles to achieving an opinion on the U.S. government's accrual-based consolidated financial statements. Given DOD's significant size and complexity, the resolution of its serious financial management problems is an essential element in further improving financial management governmentwide and ultimately to achieving an opinion on the U.S. government's consolidated financial statements. Reported weaknesses in DOD's financial management and other business operations adversely affect the reliability of DOD's financial data; the economy, efficiency, and effectiveness of its operations; and its ability to produce auditable financial statements. DOD continues to dominate GAO's list of high-risk programs designated as vulnerable to waste, fraud, abuse, and mismanagement. Eight of the high-risk areas are specific to DOD and include DOD's overall approach to business transformation, and financial and contract management. To effectively transform its business operations, DOD management must have reliable financial information. Without it, DOD is severely hampered in its ability to make sound budgetary and programmatic decisions, monitor trends, make adjustments to improve performance, reduce operating costs, or maximize the use of resources. DOD continues to take steps toward addressing the department's long- standing financial management weaknesses. The current DOD Comptroller's focus on improving the department's budgetary information and asset accountability will result in a change in emphasis within the Financial Improvement and Audit Readiness (FIAR) Plan, DOD's plan for improving its financial management. The emphasis is now on two areas-- first, strengthening information and processes supporting the department's Statements of Budgetary Resources; and second, improving the accuracy and reliability of management information pertaining to the department's mission-critical assets, including weapons systems, real property, and general equipment, and validating improvement through existence and completeness testing. Budgetary and asset-accountability information is widely used by DOD managers at all levels. As such, its reliability is vital to daily operations and management. In this regard, the Marine Corps recently began an audit of its fiscal year 2010 Statement of Budgetary Resources. DOD intends to share with the other services the approaches and lessons learned from the Marine Corps audit. A concentrated focus such as the DOD Comptroller's emphasis on budget and asset information may increase the department's ability to show incremental progress toward achieving auditability in the short term. In response to GAO's recommendations, the department has also put in place a process to improve standardization and comparability of financial management improvement efforts among the military services. The success of this process will depend on top management support and oversight, as well as high-quality planning and effective implementation at all levels. GAO, Financial Management: Achieving Financial Statement Auditability in the Department of Defense, GAO-09-373 (Washington, D.C.: May 6, 2009). develop standardized guidance for financial improvement plans by components of the department; establish a baseline of financial management capabilities and weaknesses at the component level; provide results-oriented metrics for measuring and reporting quantifiable results toward addressing financial management define the oversight roles of the Chief Management Officer (CMO) of the department, the CMOs of the military services, and other appropriate elements of the department to ensure that the FIAR requirements are carried out; assign to appropriate officials and organizations at the component level accountability for carrying out specific elements of the FIAR develop mechanisms to track budgets and expenditures for implementation of the FIAR requirements; and develop a mechanism to conduct audits of the military intelligence programs and agencies and submit the audited financial statements to Congress in a classified manner. We are encouraged by continuing congressional oversight of DOD's business transformation and financial management improvement efforts and the commitment of DOD's leaders to implementing sustained improvements in the department's ability to produce reliable, useful, and timely information for decision making and reporting. We will continue to monitor DOD's progress in addressing its financial management weaknesses and transforming its business operations. As part of this effort, we are also monitoring DOD's specific actions to achieve financial statement auditability for its components. Federal entities are unable to adequately account for and reconcile intragovernmental activity and balances. For both fiscal years 2009 and 2008, amounts reported by federal entity trading partners for certain intragovernmental accounts were not in agreement by significant amounts. Although OMB and Treasury require the CFOs of 35 federal entities to reconcile, on a quarterly basis, selected intragovernmental activity and balances with their trading partners, a substantial number of the entities did not adequately perform those reconciliations for fiscal years 2009 and 2008. In addition, these entities are required to report to Treasury, the entity's inspector general, and GAO on the extent and results of intragovernmental activity and balance-reconciliation efforts as of the end of the fiscal year. A significant number of CFOs were unable to adequately explain or support the material differences with their trading partners. Many cited differing accounting methodologies, accounting errors, and timing differences for their material differences with their trading partners. Some CFOs simply indicated that they were unable to explain the differences with their trading partners with no indication as to when the differences would be resolved. As a result of these circumstances, the federal government's ability to determine the impact of these differences on the amounts reported in the accrual-based consolidated financial statements is significantly impaired. GAO has identified and reported on numerous intragovernmental activities and balances issues and has made several recommendations to Treasury and OMB to address those issues. Treasury and OMB have generally taken or plan to take actions to address these recommendations. Treasury continues to take steps to help resolve material differences in intragovernmental activity and balances. For example, beginning in the third quarter of 2009, Treasury required entities to perform additional reconciliations related to certain intragovernmental appropriations and transfer activity. Resolving the intragovernmental transactions problem remains a difficult challenge and will require a strong commitment by federal entities to fully implement guidance regarding business rules for intragovernmental transactions issued by OMB and Treasury as well as continued strong leadership by OMB and Treasury. While further progress was demonstrated in fiscal year 2009, the federal government continued to have inadequate systems, controls, and procedures to ensure that the consolidated financial statements are consistent with the underlying audited entity financial statements, properly balanced, and in conformity with GAAP. For example, Treasury's process did not ensure that the information in the Statement of Operations and Changes in Net Position, Reconciliations of Net Operating Cost and Unified Budget Deficit, and Statements of Changes in Cash Balance from Unified Budget and Other Activities was fully consistent with the underlying information in federal entities' audited financial statements and other financial data. To make the fiscal years 2009 and 2008 consolidated financial statements balance, Treasury recorded net increases of $17.4 billion and $29.8 billion, respectively, to net operating cost on the Statement of Operations and Changes in Net Position, which it labeled "Unmatched transactions and balances." An additional net $8 billion and $11 billion of unmatched transactions were recorded in the Statement of Net Cost for fiscal years 2009 and 2008, respectively. Treasury is unable to fully identify and quantify all components of these unreconciled activities. Treasury's reporting of certain financial information required by GAAP continues to be impaired. Due to certain material weaknesses noted in our audit report--for example, commitments and contingencies related to treaties and other international agreements--Treasury is precluded from determining if additional disclosure is required by GAAP in the consolidated financial statements, and we are precluded from determining whether the omitted information is material. Further, Treasury's ability to report information in accordance with GAAP will also remain impaired until federal entities, such as DOD, can provide Treasury with complete and reliable information required to be reported in the consolidated financial statements. A detailed discussion of additional control deficiencies regarding the process for preparing the consolidated financial statements can be found on pages 226 through 229 of the Financial Report. During fiscal year 2009, Treasury, in coordination with OMB, continued implementing corrective action plans and made progress in addressing certain internal control deficiencies we have previously reported regarding the process for preparing the consolidated financial statements. Resolving some of these internal control deficiencies will be a difficult challenge and will require a strong commitment from Treasury and OMB as they continue to execute and implement their corrective action plans. While not as significant as the major impediments noted above, financial management problems at the Department of Homeland Security (DHS), the National Aeronautics and Space Administration (NASA), and the Department of State (State) also contributed to the disclaimer of opinion on the federal government's accrual-based consolidated financial statements for fiscal year 2009. About $48 billion, or about 2 percent, of the federal government's reported total assets as of September 30, 2009, and approximately $101 billion, or about 3 percent, of the federal government's reported net cost for fiscal year 2009 relate to these three agencies. According to auditors for DHS, NASA, and State, these agencies continue to have reported material weaknesses in internal control. While the auditors for DHS and NASA noted certain progress in financial reporting, each of the three agency auditors also reported that they were unable to provide opinions on the financial statements because they were not able to obtain sufficient evidential support for amounts presented in certain financial statements. For example, only selected DHS financial statements were subjected to audit, and the auditors stated that DHS was unable to provide sufficient evidence to support certain financial statements balances at the Coast Guard and Transportation Security Administration; auditors for NASA identified issues related to internal control in its property accounting, principally relating to assets capitalized in prior years; and auditors for State reported that the department was unable to provide sufficient support for the amounts presented in the fiscal year 2009 Combined Statement of Budgetary Resources and the property and equipment balance. The auditors for DHS, NASA, and State made recommendations to address control deficiencies at the agencies, and management for these agencies generally expressed commitment to resolve the deficiencies. It will be important that management at each of these agencies remain committed to addressing noted control deficiencies and improving financial reporting. The federal government reported a net operating cost of $1.3 trillion and a unified budget deficit of $1.4 trillion for fiscal year 2009, significantly higher than the amounts in fiscal year 2008. As of September 30, 2009, debt held by the public increased to 53 percent of gross domestic product (GDP). These increases are primarily the result of the effects of the recession and the costs of the federal government's actions to stabilize the financial markets and to help promote economic recovery. In December 2007, the United States entered what has turned out to be its deepest recession since the end of World War II. Between the fourth quarter of 2007 and the third quarter of 2009, GDP fell by about 2.8 percent. The nation's unemployment rate rose from 4.9 percent in 2007 to 10.2 percent in October 2009, a level not seen since April 1983. Federal tax revenues automatically decline when GDP and incomes fall, and at the same time, spending on unemployment benefits and other income-support programs automatically increases. As of September 30, 2009, the federal government's actions to stabilize the financial markets and to promote economic recovery resulted in an increase in reported federal assets of over $500 billion (e.g., Troubled Asset Relief Program (TARP) equity investments, and investments in the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and mortgage-backed securities guaranteed by them), which is net of about $80 billion in valuation losses. In addition, the federal government reported incurring additional significant liabilities (e.g., liquidity guarantees to Fannie Mae and Freddie Mac) and related net cost resulting from these actions. Because the valuation of these assets and liabilities is based on assumptions and estimates that are inherently subject to substantial uncertainty arising from the uniqueness of certain transactions and the likelihood of future changes in general economic, regulatory, and market conditions, actual results may be materially different from the reported amounts. In addition, the federal government's financial condition will be further affected as its actions continue to be implemented in fiscal year 2010 and later. For example, several hundred billion dollars of the total estimated $862 billion cost under the American Recovery and Reinvestment Act of 2009 (Recovery Act) remain to be disbursed. Also, continued implementation of TARP, which was extended through October 3, 2010, is likely to result in additional cost, and the Federal Housing Administration (FHA) mortgage guarantee program could result in additional cost. Consequently, the ultimate cost of the federal government's actions and their effect on the federal government's financial condition will not be known for some time. Further, there are risks that the federal government's financial condition could be affected in the future by other factors, including the following: Several initiatives undertaken in 2009 by the Federal Reserve to stabilize the financial markets have led to a significant change in the reported composition and size of the Federal Reserve's balance sheet, including the purchase of over $900 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and the Government National Mortgage Association as of the end of 2009. If the Federal Reserve sells these securities at a loss, additional federal government deposits at the Federal Reserve may be needed, future payments of Federal Reserve earnings to the federal government may be reduced, or both. Although the Recovery Act provided some fiscal relief to the states, expected continued state fiscal challenges could place pressure on the federal government to provide further relief to them. Looking ahead, the federal government will need to determine the most expeditious manner in which to bring closure to its financial stabilization initiatives while optimizing its investment returns. In addition to managing these actions, problems in the nation's financial sector have exposed serious weaknesses in the current U.S. financial regulatory system, which, if not effectively addressed, may cause the system to fail to prevent similar or even worse crises in the future. The current system, which was put into place over the past 150 years, is fragmented and complex and simply has not kept pace with the major financial structures, innovations, and products that emerged during the years leading up to the recent financial crisis. Consequently, meaningful financial regulatory reform is of utmost concern. In crafting and evaluating proposals for financial regulatory reform, it will be important for Congress and others to be mindful of the need to use a framework that facilitates a comprehensive assessment of the relative strengths and weaknesses of each proposal. GAO has previously set forth such a framework that involves nine key elements that are critically important in establishing the most effective and efficient financial regulatory system possible: (1) clearly defined regulatory goals; (2) appropriately comprehensive; (3) systemwide focus; (4) flexible and adaptive; (5) efficient and effective; (6) consistent consumer and investor protection; (7) regulator provided with independence, prominence, authority, and accountability; (8) consistent financial oversight; and (9) minimal taxpayer exposure. The economic downturn and the nature and magnitude of the actions taken to stabilize the financial markets and to promote economic recovery will continue to shape the federal government's near-term budget and debt outlook. Actions taken to stabilize financial markets--including aid to the automotive industry--increased borrowing and added to the federal debt. The revenue decreases and spending increases enacted in the Recovery Act also added to borrowing and debt. As shown in figure 1, the President's budget projects debt held by the public growing from 53.0 percent of GDP in fiscal year 2009 to 63.6 percent by the end of fiscal year 2010 and 68.6 percent by the end of fiscal year 2011. While deficits are projected to decrease as federal support for states and the financial sector winds down and the economy recovers, the increased debt and related interest costs will remain. Further, all of this takes place in the context of the current long-term fiscal outlook. The federal government faced large and growing structural deficits--and hence rising debt--before the instability in financial markets and the economic downturn. While the drivers of the long-term fiscal outlook have not changed, the sense of urgency has. As table 1 shows, many of the pressures highlighted in GAO's simulations, including health care cost growth and the aging population, have already begun to affect the federal budget--in some cases sooner than previously estimated--and the pressures only grow in the coming decade. For example, Social Security cash surpluses have previously served to reduce the unified budget deficit; however, the Congressional Budget Office (CBO) recently estimated that due to current economic conditions the program will run small temporary cash deficits for the next 4 years and then, similar to the Trustees' estimates, run persistent cash deficits beginning in 2016. The fluctuation and eventual disappearance of the Social Security cash surplus will put additional pressure on the rest of the federal budget. With the passage of time the window to address this challenge narrows. The federal government is on an unsustainable long-term fiscal path driven on the spending side primarily by rising health care costs and known demographic trends. The Statement of Social Insurance, for example, shows that the present value of projected scheduled benefits exceed earmarked revenues for social insurance programs (e.g., Social Security and Medicare) by approximately $46 trillion over the 75-year period. Since GAO's long-term fiscal simulations include projections of revenue and expenditures for all federal programs, they present a comprehensive analysis of the sustainability of the federal government's long-term fiscal outlook. Figures 2, 3, and 4 show the results of our most recent long-term fiscal simulations that were issued in March 2010. Absent a change in policy, federal debt held by the public as a share of GDP could exceed the historical high reached in the aftermath of World War II by 2020 (see fig. 2) --10 years sooner than our simulation showed just 2 years ago. As a result, the administration and Congress will need to apply the same level of intensity to the nation's long-term fiscal challenge as they have to the recent economic and financial market issues. Although the economy is still fragile, there is wide agreement on the need to begin to change the long-term fiscal path as soon as possible without slowing the recovery because the magnitude of the changes required grows with time. Congress recently enacted a return to statutory PAYGO--a budgetary control requiring that the aggregate impact of increases in mandatory spending or reductions in revenue generally be offset. Although this can prevent further deterioration of the fiscal position, it does not deal with the existing imbalance. In February, the President established a commission to identify policies to change the fiscal path and stabilize the debt-to-GDP ratio. One quantitative measure of the long-term fiscal challenge is called the "fiscal gap." The fiscal gap is the amount of spending reductions or tax increases, over a certain time period such as 75 years, that would be needed to keep debt as a share of GDP at or below today's ratio. Another way to say this is that the fiscal gap is the amount of change needed to prevent the kind of debt explosion implicit in figure 2. The fiscal gap can be expressed as a share of the economy or in present value dollars. Under GAO's Alternative simulation, closing the fiscal gap would require spending cuts or tax increases, or some combination of the two averaging 9.0 percent of the entire economy over the next 75 years, or about $76.4 trillion in present value terms. To put this in perspective, closing the gap solely through revenue increases would require annual increases in federal tax revenues of about 50 percent on average, or to do it solely through spending reductions would require annual reductions in federal program spending (i.e., in all spending except for interest on the debt held by the public, which cannot be directly controlled) of about 34 percent on average over the entire 75-year period. Policymakers could phase in policy changes so that tax increases or spending cuts or both would grow over time allowing time for the economy to recover and for people to adjust to the changes. However, the longer action to deal with the long-term outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Comprehensive long-term fiscal projections will be required in the federal government's financial statements beginning in fiscal year 2010, under a new accounting standard. Such reporting will include information about the long-term fiscal condition of the federal government and annual changes therein, and will expand upon the information currently provided in the Management's Discussion and Analysis section of the Financial Report. It is not only the federal government that faces a long-term fiscal challenge. Figure 4 shows the federal and combined federal, state, and local surpluses and deficits as a share of GDP from our most recent simulation results. In closing, even though progress has been made in improving federal financial management activities and practices, much work remains given the federal government's near-and long-term fiscal challenges and the need for Congress, the administration, and federal managers to have reliable, useful, and timely financial and performance information to effectively meet these challenges. The need for such information and transparency in financial reporting is clearly evident. The recession and the federal government's unprecedented actions intended to stabilize the financial markets and to promote economic recovery have significantly affected the federal government's financial condition, especially with regard to certain of its investments and increases in its liabilities and net operating cost. Importantly, while such increases are reported in the U.S. government's consolidated financial statements for fiscal year 2009, the valuation of certain assets and liabilities is based on assumptions and estimates that are inherently subject to substantial uncertainty arising from the uniqueness of certain transactions and the likelihood of future changes in general economic, regulatory, and market conditions. Going forward, a great amount of attention will need to be devoted to ensuring (1) that sufficient internal controls and transparency are established and maintained for all financial stabilization and economic recovery initiatives; and (2) that all related financial transactions are reported on time, accurately, and completely. Further, sound decisions on the current and future direction of all vital federal government programs and policies are more difficult without reliable, useful, and timely financial and performance information. In this regard, for DOD, the challenges are many. We are encouraged by DOD's efforts toward addressing its long-standing financial management weaknesses and its efforts to achieve auditability. Consistent and diligent top management oversight toward achieving financial management capabilities, including audit readiness, will be needed. Moreover, the civilian CFO Act agencies must continue to strive toward routinely producing not only annual financial statements that can pass the scrutiny of a financial audit, but also quarterly financial statements and other meaningful financial and performance data to help guide decision makers on a day-to-day basis. Federal entities need to improve the government's financial management systems to achieve this goal. Moreover, of utmost concern are the federal government's long-term fiscal challenges that result from large and growing structural deficits that are driven on the spending side primarily by rising health care costs and known demographic trends. This unsustainable path must be addressed soon by policymakers. Finally, I want to emphasize the value of sustained congressional interest in these issues, as demonstrated by this Subcommittee's leadership. It will be key that, going forward, the appropriations, budget, authorizing, and oversight committees hold the top leadership of federal entities accountable for resolving the remaining problems and that they support improvement efforts. Madam Chairwoman and Ranking Member Bilbray, this concludes my prepared statement. I would be pleased to respond to any questions that you or other members of the Subcommittee may have at this time. For further information regarding this testimony, please contact Jeanette M. Franzel, Managing Director, and Gary T. Engel, Director, Financial Management and Assurance, at (202) 512-2600, as well as Susan J. Irving, Director, Federal Budget Analysis, Strategic Issues, at (202) 512-6806. Key contributions to this testimony were also made by staff on the Consolidated Financial Statement audit team.
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GAO annually audits the consolidated financial statements of the U.S. government (CFS). Congress and the President need reliable, useful, and timely financial and performance information to make sound decisions and conduct effective oversight of federal government programs and policies. The federal government began preparing the CFS 13 years ago. Over the years, certain material weaknesses in internal control over financial reporting have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. Unless these weaknesses are adequately addressed, they will, among other things, continue to (1) hamper the federal government's ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; and (2) affect the federal government's ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities. This testimony presents the results of GAO's audit of the CFS for fiscal year 2009 and discusses certain of the federal government's significant near- and long-term fiscal challenges. For the third consecutive year, GAO rendered an unqualified opinion on the Statement of Social Insurance (SOSI). Given the importance of social insurance programs like Medicare and Social Security to the federal government's long-term fiscal outlook, the SOSI is critical to understanding the federal government's financial condition and fiscal sustainability. Three major impediments continued to prevent GAO from rendering an opinion on the federal government's consolidated financial statements other than the SOSI: (1) serious financial management problems at the Department of Defense, (2) federal entities' inability to adequately account for and reconcile intragovernmental activity and balances, and (3) an ineffective process for preparing the consolidated financial statements. In addition to the material weaknesses underlying these major impediments, GAO noted material weaknesses involving improper payments estimated to be at least $98 billion for fiscal year 2009, information security, and tax collection activities. The recession and the federal government's unprecedented actions intended to stabilize the financial markets and to promote economic recovery have significantly affected the federal government's financial condition. The resulting substantial investments and increases in liabilities, net operating cost, the unified budget deficit, and debt held by the public are reported in the U.S. government's consolidated financial statements for fiscal year 2009. The ultimate cost of these actions and their impact on the federal government's financial condition will not be known for some time in part because the valuation of these assets and liabilities is based on assumptions and estimates that are inherently uncertain. Looking ahead, the federal government will need to determine the most expeditious manner in which to bring closure to its financial stabilization initiatives while optimizing its investment returns. In addition, problems in the nation's financial sector have exposed serious weaknesses in the current U.S. financial regulatory system. If those weaknesses are not adequately addressed, we could see similar or even worse crises in the future. Consequently, meaningful financial regulatory reform is of utmost concern. The federal government faces a long-term fiscal challenge resulting from large and growing structural deficits that are driven on the spending side primarily by rising health care costs and known demographic trends. GAO prepares long-term fiscal simulations that include projections of revenue and expenditures for all federal programs. As a result, these simulations present a comprehensive analysis of the sustainability of the federal government's long-term fiscal outlook. Many of the pressures highlighted in GAO's simulations, including health care cost growth and the aging population, have already begun to affect the federal budget--in some cases sooner than previously estimated--and the pressures only grow in the coming decade. For example, Social Security cash surpluses have previously served to reduce the unified budget deficit; however, the Congressional Budget Office recently estimated that due to current economic conditions the program will run small temporary cash deficits for the next 4 years and then, similar to the Trustees' estimates, run persistent cash deficits beginning in 2016. The fluctuation and eventual disappearance of the Social Security cash surplus will put additional pressure on the rest of the federal budget.
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DOD has reported to Congress since fiscal year 2004 on several items related to its training ranges in response to section 366 of the Bob Stump National Defense Authorization Act for Fiscal Year 2003. The act as subsequently amended required annual progress reports to be submitted at the same time as the President submitted the administration's annual budget for fiscal years 2005 through 2018. The provision that we evaluate the plans submitted pursuant to section 366 within 90 days of receiving the report from DOD has also been extended through fiscal year 2018. In our prior reviews of DOD's Sustainable Ranges Reports, we found that DOD did not address certain required elements when it initially submitted its comprehensive plan in 2004. Further, we noted that it took DOD some time to develop a plan consistent with the basic requirements of section 366. Over time, we found that as DOD reported annually on its progress in implementing its comprehensive plan, it continued to improve its Sustainable Ranges Reports, and it has reported on the actions it has taken in response to prior GAO recommendations. Specifically, in 2013 we reported that DOD had implemented all 13 of the recommendations we had made since 2004 for expanding and improving DOD's reporting on sustainable ranges. Further, DOD has progressed from using four common goals and milestones to using seven shared goals for which the services have developed their own actions and milestones that are tailored to their missions. We have reported that these new goals and milestones are more quantifiable and now are associated with identified time frames. DOD's 2017 Sustainable Ranges Report met the annual statutory reporting requirements to describe DOD's progress in implementing its sustainable ranges plan and any actions taken or to be taken in addressing constraints caused by limitations on the use of military lands, marine areas, and airspace. In its 2017 report, DOD provided updates to the plan that were required by the act. These updates included: (1) proposals to enhance training range capabilities and address any shortfalls in current resources; (2) goals and milestones for tracking planned actions and measuring progress in the implementation of its training range sustainment plan; and (3) projected funding requirements for implementing its planned actions. In our review of DOD's 2017 Sustainable Ranges Report, we found that, as required by statute, DOD reported on its proposals to enhance training range capabilities and address any shortfalls in resources. DOD developed these proposals by evaluating current and future training range requirements and the ability of current DOD resources to meet these requirements. In its 2017 report, DOD revalidated its 2015 individual range capability and encroachment assessments and the current and future military service training range requirements. To do so, DOD updated the report sections pertaining to each military service's issues related to range capability, encroachment, and special interests to the military service. For instance, regarding the Marine Corps, the report noted, among other things, that the Marine Corps has identified the need for an aviation training range on the East Coast of the United States capable of supporting precision-guided munitions training. The report states that the Marine Corps selected the expansion of Townsend Bombing Range in Georgia as the best alternative for securing this East Coast capability after a thorough assessment of area capabilities. The report notes that a record of decision to expand Townsend was signed in January 2014, and that a formal airspace proposal supporting the land expansion has been submitted to the Federal Aviation Administration. The report further stated that full operational capability is now planned for December 2019. In its 2017 report, DOD also reported on seven evolving activities and emerging issues, all of which were reported in its 2016 report. These seven activities and issues were as follows: (1) new sustainable range initiative-related influences and actions; (2) budget reductions impacting range capability; (3) foreign investment and national security; (4) threatened and endangered and candidate species; (5) demand for electromagnetic spectrum; (6) continued growth in domestic use of unmanned aircraft systems; and (7) offshore energy. DOD's 2017 report outlined some actions being taken to mitigate the challenges these issues may present for DOD test and training ranges. For example, in response to new sustainable range initiative-related influences, DOD responded to a recommendation in Senate Armed Services Committee Report 114-49 to include a review of the general capabilities, critical issues, and future capabilities necessary to support Special Operations Forces (SOF) range requirements. The 2017 Sustainable Ranges Report is the first to incorporate SOF-specific range issues. Foreign investment and its effects on national security continue to be an evolving issue faced by DOD. In an April 2016 report, we evaluated the extent to which DOD made progress in its efforts to assess the national security risks and effects of foreign encroachment. In that review, we found that DOD had made limited progress in addressing foreign encroachment on federally managed land since we had last reported on the subject in December 2014. We also found that DOD has begun to take some steps toward assessing the national security risks and effects of foreign encroachment, but had not yet fully implemented the recommendations from our December 2014 report, which were as follows: (1) that DOD should develop and implement guidance for conducting a risk assessment on foreign encroachment and (2) that DOD should collaborate with other federal agencies to obtain additional information on transactions near ranges. DOD concurred with both recommendations. According to the 2017 report, DOD is pursuing opportunities to obtain information related to foreign investment and transactions in proximity to DOD mission-essential locations from agencies with land management authority as well as conducting a risk assessment related to those locations. In addition, DOD reported that it is considering seeking legislative relief to enhance data-collection and data- sharing practices regarding foreign investment in the proximity of DOD mission-essential locations as an avenue to mitigate national security- related encroachment, and it has engaged the various federal land managers to expound on potential issues related to DOD concerns. In its 2017 Sustainable Ranges Report, DOD used goals and milestones to address the statutory requirement to describe its progress in implementing its comprehensive training range sustainment plan. DOD has seven goals, as follows, in support of this plan: (1) mitigate encroachment pressures on training activities from competing operating space; (2) mitigate electromagnetic spectrum competition; (3) meet military airspace challenges; (4) manage increasing military demand for range space; (5) address affects resulting from new energy infrastructure and renewable energy; (6) anticipate climate change effects; and (7) sustain excellence in environmental stewardship. Using these goals as a common framework, each military service developed its own milestones and needed actions for reaching those milestones. In DOD's 2017 Sustainable Ranges Report, each service provided updates to its milestones and actions based on annual assessment data. The report included the following examples: The Army has ongoing actions to mitigate electromagnetic spectrum competition on ranges. For example, the Army reported that installation of fiber optic cabling has been completed at approximately 20 installations to support wireless networks and targeting control systems in order to mitigate electromagnetic spectrum interference on ranges. The Navy has ongoing interactions with Bureau of Ocean Energy Management state renewable energy task forces to support assessments of proposed wind energy developments to minimize effects on Navy and DOD offshore readiness. The Marine Corps has ongoing actions to engage in regulatory and legislative processes at the local, state, and national levels on issues that may affect range sustainability or readiness. The Marine Corps is also exploring partnerships to meet natural resource regulatory responsibilities. The Air Force is engaged in ongoing development of the Center Scheduling Enterprise flight scheduling system for use at Air Force Ranges. In addition, the Air Force is developing an interface between its flight scheduling system and the Army/Marine Corps Range Facility Management Support System, to facilitate scheduling across military services. In the 2017 Sustainable Ranges Report, DOD met the statutory requirement to track its progress in implementing the comprehensive plan by identifying the funding requirements needed to accomplish its goals. DOD delineated the following four funding categories to be used by the services to project their range sustainment efforts: (1) modernization and investment; (2) operations and maintenance; (3) environmental; and (4) encroachment. The funding requirements section of the 2017 report includes descriptions and specific examples for each funding category, as well as actual funding levels for fiscal year 2016 and requested funding levels for fiscal years 2017 through 2021. For example, the encroachment category is described as funding dedicated to actions optimizing accessibility to ranges by minimizing restrictions that do or could limit range activities, including outreach and buffer projects. Specific examples of encroachment funding include Army Compatible Use Buffer program administration and support and encroachment planning efforts. The report also provides an explanation of any fluctuations occurring over the 5-year funding period covered in the report. For example, the Air Force's requested funding for the modernization and investment category fluctuated from $48.3 million in fiscal year 2017 to $236.8 million in fiscal year 2020 to $185.6 million in fiscal year 2021. The Air Force attributes this planned fluctuation to a decision to infuse funding in range infrastructure to research, develop, procure, and sustain advanced threat emitters, range communications/networks, and datalink systems, among other things. We are not making recommendations in this report. In oral comments on a draft of this report, DOD agreed with our findings and did not have any further comments. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretaries of the Army, Navy, and Air Force, and Commandant of the Marine Corps; and the Deputy Assistant Secretary of Defense for Readiness. 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 concerning this report, please contact me at (202) 512-4523 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. In addition to the contact named above, Maria Storts (Assistant Director), Kerstin Hudon, Liza Bartlett, Michael Silver, Alexandra Gonzalez, and John Wren made key contributions to this report. Military Training: DOD Met Annual Reporting Requirements in Its 2016 Sustainable Ranges Report. GAO-16-627 Washington, D.C.: June 15, 2016. Defense Infrastructure: DOD Has Made Limited Progress in Assessing Foreign Encroachment Risks on Federally Managed Land. GAO-16-381R. Washington, D.C.: April 13, 2016. Military Training: DOD's Annual Sustainable Ranges Report Addressed Statutory Reporting Requirements. GAO-15-537. Washington, D.C.: June 17, 2015. Defense Infrastructure: Risk Assessment Needed to Identify If Foreign Encroachment Threatens Test and Training Ranges. GAO-15-149. Washington, D.C.: December 16, 2014. Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for Potential Impacts. GAO-14-446. Washington D.C.: May 30, 2014. Military Training: DOD Met Annual Reporting Requirements for Its 2014 Sustainable Ranges Report. GAO-14-517. Washington, D.C.: May 9, 2014. Military Training: DOD Met Annual Reporting Requirements and Continued to Improve Its Sustainable Ranges Report. GAO-13-648. Washington, D.C.: July 9, 2013. Military Training: DOD Met Annual Reporting Requirements and Improved Its Sustainable Ranges Report. GAO-12-879R. Washington, D.C.: September 12, 2012. Military Training: DOD's Report on the Sustainability of Training Ranges Meets Annual Reporting Requirements but Could Be Improved. GAO-12-13R. Washington, D.C.: October 19, 2011. Military Training: DOD Continues to Improve Its Report on the Sustainability of Training Ranges. GAO-10-977R. Washington, D.C.: September 14, 2010. Military Training: DOD's Report on the Sustainability of Training Ranges Addresses Most of the Congressional Reporting Requirements and Continues to Improve with Each Annual Update. GAO-10-103R. Washington, D.C.: October 27, 2009. Improvement Continues in DOD's Reporting on Sustainable Ranges, but Opportunities Exist to Improve Its Range Assessments and Comprehensive Plan. GAO-09-128R. Washington, D.C.: December 15, 2008. Military Training: Compliance with Environmental Laws Affects Some Training Activities, but DOD Has Not Made a Sound Business Case for Additional Environmental Exemptions. GAO-08-407. Washington, D.C.: March 7, 2008. Improvement Continues in DOD's Reporting on Sustainable Ranges, but Opportunities Exist to Improve Its Range Assessments and Comprehensive Plan. GAO-08-10R. Washington, D.C.: October 11, 2007. Improvement Continues in DOD's Reporting on Sustainable Ranges but Additional Time Is Needed to Fully Implement Key Initiatives. GAO-06-725R. Washington, D.C.: June 20, 2006. Military Training: Funding Requests for Joint Urban Operations Training and Facilities Should Be Based on Sound Strategy and Requirements. GAO-06-193. Washington, D.C.: December 8, 2005. Some Improvements Have Been Made in DOD's Annual Training Range Reporting but It Still Fails to Fully Address Congressional Requirements. GAO-06-29R. Washington, D.C.: October 25, 2005. Military Training: Actions Needed to Enhance DOD's Program to Transform Joint Training. GAO-05-548. Washington, D.C.: June 21, 2005. Military Training: Better Planning and Funding Priority Needed to Improve Conditions of Military Training Ranges. GAO-05-534. Washington, D.C.: June 10, 2005. Military Training: DOD Report on Training Ranges Does Not Fully Address Congressional Reporting Requirements. GAO-04-608. Washington, D.C.: June 4, 2004. Military Training: Implementation Strategy Needed to Increase Interagency Management for Endangered Species Affecting Training Ranges. GAO-03-976. Washington, D.C.: September 29, 2003. Military Training: DOD Approach to Managing Encroachment on Training Ranges Still Evolving. GAO-03-621T. Washington, D.C.: April 2, 2003. Military Training: DOD Lacks a Comprehensive Plan to Manage Encroachment on Training Ranges. GAO-02-614. Washington, D.C.: June 11, 2002. Military Training: DOD Needs a Comprehensive Plan to Manage Encroachment on Training Ranges. GAO-02-727T. Washington, D.C.: May 16, 2002. Military Training: Limitations Exist Overseas but Are Not Reflected in Readiness Reporting. GAO-02-525. Washington, D.C.: April 30, 2002.
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DOD relies on its training ranges within the United States and overseas to help prepare its forces for combat and complex missions around the globe. Section 366 of the Bob Stump National Defense Authorization Act for Fiscal Year 2003 required DOD to submit a comprehensive plan on its efforts to address training constraints caused by limitations on the use of military lands, airspace, and marine areas in the United States and overseas for training. The act, as amended, further required DOD to provide annual progress reports on its efforts through 2018. The act also included a provision for GAO to submit annual evaluations of DOD's reports. This report assesses the extent to which DOD's 2017 Sustainable Ranges Report met statutory reporting requirements. To conduct this work, GAO reviewed DOD's 2017 report and compared it with the statutory reporting requirements. GAO also interviewed cognizant DOD and military service officials regarding preparations made to complete the 2017 report. The Department of Defense's (DOD) 2017 sustainable ranges report met the annual statutory reporting requirements to describe DOD's progress in implementing its plan to sustain training ranges and any additional actions taken or planned for addressing training constraints caused by limitations on the use of military lands, marine areas, and airspace. DOD's 2017 report provides updates to the plan required by the act, specifically (1) proposals to enhance training range capabilities and address any shortfalls; (2) goals and milestones to describe DOD's progress in implementing its comprehensive training range sustainment plan; and (3) projected funding requirements for each of the military services to implement their planned actions. In the report, DOD used goals and milestones to address the statutory requirement to describe its progress in implementing its comprehensive training range sustainment plan. Using these goals as a common framework, each military service developed its own milestones and needed actions for reaching those milestones. The report also identifies evolving activities and emerging issues related to training range sustainability, and it includes actions taken to mitigate them. GAO is not making recommendations in this report. DOD agreed with GAO's findings without further comment.
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The objective of the Clean Water Act is to restore and maintain the chemical, physical, and biological integrity of the nation's waters. The Congress established a series of national goals and policies to achieve this objective, including what is referred to as "fishable/swimmable" water quality. That is, whenever attainable, the quality of the water should be such that it provides for the protection of fish, shellfish, wildlife, and recreation in and on the water. To help meet national water quality goals, the act established the NPDES program, which limits the discharge of pollutants through two basic approaches--one based on technology and the other on water quality. Under the technology-based approach, facilities must stay within the discharge limits attainable under current technologies for treating water pollution. EPA has issued national minimum technology requirements for municipal facilities and 50 categories of industrial dischargers. The states' and EPA's permitting authorities use these requirements to establish discharge limits for specific pollutants. In contrast, under the water-quality-based approach, facilities must meet discharge limits derived from states' water quality standards, which generally consist of (1) "designated uses" for the water bodies (e.g., propagation of fish and wildlife, drinking water, and recreation) and (2) narrative or numeric criteria to protect the designated uses. Narrative criteria are generally statements that describe the desired water quality goal, such as "no toxics in toxic amounts." Numeric criteria for specific pollutants are generally expressed as concentration levels and target certain toxic pollutants that EPA has designated as "priority pollutants." In addition to adopting water quality standards, the states may also establish policies concerning certain technical factors that affect the implementation of the standards in the discharge permits. For example, many states have adopted policies for (1) establishing mixing zones (limited areas where discharges mix with receiving waters and where the numeric criteria can be exceeded), (2) determining the amount of available dilution (the ratio of the low flow of the receiving waters to the flow of the discharge), and (3) considering background concentration (the levels of pollutants already present in the receiving waters). When the states' and EPA's permitting authorities are deciding how extensively the pollutants should be controlled in a facility's permit, they first look to the technology-based standards. If the discharge limits derived by applying these standards are not low enough to protect the designated uses of the applicable water body, the permitting authorities turn to the state's water quality standards to develop more stringent limits. To achieve the tighter limits, a facility may have to install more advanced treatment technology or take measures to reduce the amounts of pollutants needing treatment. For additional information on the role of EPA's headquarters and regional offices and the state agencies in establishing standards and implementing them in permits, see appendix I. As agreed with your office, this report focuses on the water-quality-based approach to controlling pollution and the way the states' and EPA's permitting authorities are implementing water quality standards in the NPDES permits issued to "major" facilities. As of July 1995, approximately 59,000 municipal and industrial facilities nationwide had received permits under the NPDES program, and about 6,800 of these permits were for major facilities, including about 4,000 municipal facilities and 2,800 industrial dischargers. Our review of the data on municipal permits for five commonly discharged toxic pollutants disclosed that decisions about whether and how to control pollutants differed both from state to state and within states. In some instances, differences in the limits themselves, or in the standards and policies used to derive the limits, have led to concerns between neighboring states. Using EPA's Permits Compliance System database, we extracted data on the 1,407 permits issued to municipal wastewater treatment facilities nationwide between February 5, 1993, and March 21, 1995, to determine what types of controls, if any, the states' and EPA's permitting authorities had imposed in these facilities' discharge permits for five toxic metal pollutants--cadmium, copper, lead, mercury, and zinc. We found that when the permitting authorities decided that some type of control was warranted, some consistently established numeric discharge limits in their permits, and others imposed monitoring requirements in all or almost all cases. For example, North Carolina issued 93 permits during our review period and, whenever it determined that a pollutant warranted controls, it always established numeric discharge limits rather than impose monitoring requirements. Other states, such as New York and West Virginia, also consistently established numeric limits for controlling the five pollutants we examined. In contrast, New Jersey issued 44 permits during our review period and, except for 1 permit that contained a limit for copper, the state always imposed monitoring requirements instead of discharge limits when the state determined that controls were warranted. Oregon, among other states, made similar decisions, as did EPA's Region VI when it wrote permits for Louisiana, a state not authorized to issue NPDES permits. We also found that some states, such as Vermont and Arkansas, had not imposed discharge limits or monitoring requirements in the following instances in which EPA's regional officials said that such controls may be warranted. In Vermont, none of the discharge permits for major municipal facilities contained discharge limits or monitoring requirements for the five metals. However, at our request, the cognizant EPA regional staff (in Region I) reviewed 4 of the 15 municipal permits issued by Vermont and determined that for 2 of the facilities, limits or monitoring requirements would probably be appropriate. Vermont officials agreed to review the permits and consider additional requirements. Arkansas, with one exception, had not imposed either limits or monitoring requirements in its municipal permits for the toxic metals we examined. State officials are allowing these facilities to continue operating under "old" permits rather than reissuing them. The officials told us that if the permits were to be formally reopened, the state would be obligated to apply EPA-imposed water quality standards for the metals. Arkansas officials believe that these standards are too stringent and that the facilities would engage the state in a costly appeal process if limits were imposed. Officials from the cognizant EPA regional office (Region VI) said that the Arkansas permits should contain discharge limits but that EPA does not have the authority to impose such limits in a state authorized to issue permits when the state simply declines to reissue them. EPA's only recourse would be to take back responsibility for the program--an unrealistic option. For facilities, both monitoring requirements and discharge limits can be costly to implement. According to officials in EPA's Permits Division, the costs of monitoring depend on the frequency of required sampling and on the types of pollutants that must be tested. The costs of installing advanced treatment equipment to meet discharge limits are usually much higher. These officials also said that because of these differences in cost, the facilities that are subject to monitoring requirements generally enjoy an economic advantage over the facilities that must meet discharge limits, all other things being equal. Furthermore, the facilities that are subject to neither type of control enjoy an economic advantage over the facilities that must comply with limits or monitoring requirements. Overall, our analysis disclosed that for each of the five pollutants, about 30 percent of the permits contained limits or monitoring requirements, while about 70 percent contained neither type of control. According to EPA's permitting regulations and guidance, there can be legitimate reasons for imposing no controls over some pollutants: Generally, either the facilities are not discharging the pollutants or their discharges are deemed too low to interfere with the designated uses of the applicable water bodies. See appendix II for a summary of the control decisions across the nation for the five toxic pollutants included in our analysis and for additional discussion of the reasons for not imposing limits or monitoring requirements on some pollutant discharges. Appendix III presents a state-by-state breakdown of the 1,407 permits included in our analysis. EPA and the states agree that differences in the numeric limits for specific pollutants can and do exist--not only from state to state, but from water body to water body. To illustrate these differences, we extracted data on numeric limits as part of our analysis of EPA's data on municipal permits. Specifically, from the 1,407 permits for municipal facilities issued nationwide between February 5, 1993, and March 21, 1995, we identified those facilities discharging into freshwater (1) whose permits contained discharge limits for one or more of the five toxic metals and (2) whose plant capacity, or design flow, was included in EPA's database. For each of the five pollutants, we found significant differences in the amounts that facilities were allowed to discharge across the nation--even for facilities of similar capacity. In the case of zinc, both the highest and the lowest limits were established in the same state. Figure 1 shows the results of our analysis. As figure 1 indicates, differences in the numeric limits for the same pollutant can be significant--in the case of mercury, about 775 times greater at one facility than at another facility of similar capacity. We discuss the causes of the differences in discharge limits later in this report. Variations in the discharge limits, or in the standards and procedures used to derive these limits, have been a source of concern, particularly when neighboring jurisdictions share water bodies and the differences are readily apparent to the permitting authorities and discharging facilities, as the following examples illustrate: In 1995, an industrial facility in Pennsylvania challenged a discharge limit for arsenic because Pennsylvania's numeric criterion was 2,500 times more stringent than that used by the neighboring state of New York, into which the discharge flowed. Among other things, the discharger argued that having to comply with the more stringent criterion created an economic disadvantage for the company. Eventually, Pennsylvania agreed to reissue the permit with a monitoring requirement for arsenic instead of a discharge limit. The state has also revised its water quality standards using the less stringent criterion. Oklahoma challenged the 1985 permit that EPA issued to an Arkansas municipal wastewater treatment facility that discharges into a tributary of the Illinois River. One of the key issues in the case was Oklahoma's contention that the facility's permit, which was based on Arkansas's water quality standards, contained limits that would violate Oklahoma's water quality standards when the facility's discharge moved downstream. As a result, Oklahoma officials maintained, the river would not achieve its designation as "outstanding natural resource water," a special classification designed to protect high-quality waters. Although EPA has the authority to ensure that discharges in the states located upstream do not violate the water quality standards in the states located downstream, the agency determined that this case did not warrant such action, in part because the discharge allowed under the permit would not produce a detectable violation of Oklahoma's standards. In 1992, the Supreme Court ruled that EPA's issuance of the Arkansas permit was reasonable. Concerns among states about differences in water quality standards and the policies that affect their implementation may become more common in the future. According to a recent analysis by the U.S. Geological Survey,many states receive more than half of their water pollution from neighboring states. While much of this pollution may be attributed to diffuse--or "nonpoint"--sources, such as agricultural runoff, according to an official from the U.S. Geological Survey, the discharges from municipal and industrial facilities allowed under permits also contribute to interstate pollution. Both the act and EPA's regulations give the states and EPA considerable flexibility in implementing the NPDES program. The permitting authorities differ considerably in how they assess the likelihood that states' water quality standards will be exceeded, as well as in how they decide what controls are warranted. If they decide that discharge limits are warranted, these limits can differ widely because of differences in the (1) states' water quality standards and (2) implementation policies that come into play when the permitting authorities "translate" general water quality standards into limits for specific facilities in specific locations. We found differences in how the permitting authorities determine that a pollutant has the "reasonable potential" to violate a state's water quality standard and prevent the designated use of a water body from being achieved. In EPA's Region I, for example, the permitting officials believe that one or two samples indicating the potential for a violation may suffice to justify imposing a discharge limit. In contrast, given the same evidence, officials in EPA's Region VI generally impose requirements for monitoring in order to collect data over a longer period of time--up to the 5-year life of the permit. Officials in the Permits Division at EPA headquarters agreed that there are differences in how the states' and EPA's permitting authorities decide whether and how to impose controls over pollutant discharges. The officials said that a key element in these differences is the amount and type of data the authorities require to determine reasonable potential; some permitting authorities are comfortable with establishing discharge limits on the basis of limited information, while others want to collect more data and impose monitoring requirements. To assist the states and EPA's regional offices, EPA has issued national guidance, including a suggested methodology and other options for determining reasonable potential. However, Permits Division officials emphasized that the law and applicable regulations provide for flexibility in decisions on reasonable potential and other aspects of the NPDES program. The states have exercised the flexibility available within the Clean Water Act and EPA's regulations to (1) adopt different water quality standards and (2) apply different policies in implementing these standards in permits. As a result of these differences, discharge limits can vary significantly even, as illustrated earlier, for facilities of similar capacity. In the case of states' water quality standards, the designated use assigned to a particular water body can affect how stringent a facility's discharge limit will be. For example, if a facility is discharging into a water body designated for recreational use, the discharge limits are likely to be less stringent than they would be if the water body were designated for use as a drinking water supply. Water quality standards also differ in terms of the numeric criteria the states adopt to ensure that the designated uses of the water will be achieved or maintained. EPA has provided guidance to the states on developing these criteria. Some states have adopted EPA's numeric criteria (e.g., a human health criterion for mercury that allows for no more than 0.144 micrograms per liter) as their own, and others have developed different criteria that reflect regional conditions and concerns. For example, Texas modified EPA's criteria to account for higher rates of fish consumption in the state. Another significant source of differences in the states' water quality standards is the cancer risk level that is selected for carcinogenic pollutants. For example, Connecticut typically bases its numeric criteria for these pollutants on a risk level of 1 excess cancer case per 1 million people, while Arkansas bases its criteria on a risk level of 1 excess cancer case per 100,000 people. Thus, Connecticut's criteria are 10 times more stringent than Arkansas's. Many states have established implementation policies that can significantly affect the application of water quality standards in establishing the discharge limits for individual facilities. These policies address technical factors such as mixing zones, dilution, and background concentration. The states differ in their policies for mixing zones--limited areas where the facilities' discharges mix with the receiving waters and numeric criteria can be exceeded. The states' policies can influence the stringency of the discharge limits by restricting where such zones are allowed and/or by defining their size and shape. In Texas, for instance, the size of mixing zones in streams is typically limited to an area 100 feet upstream and 300 feet downstream from the discharge point; other states apply different standards or do not allow mixing zones in some types of water bodies. In general, the discharge limits will be less stringent for a facility located in a state that allows mixing zones than for a facility in a state that requires facilities to meet numeric criteria at the end of the discharge pipe. The states' policies on dilution--the ratio of the low flow of the receiving waters to the flow of the discharge--can also influence the stringency of the discharge limits. In general, the larger the volume of the receiving waters available to dilute, or reduce the concentration of, the pollutants being discharged, the less stringent the discharge limit. Thus, all other things being equal, the discharge limit for a facility located on the Mississippi River will be less stringent than the limit for a similar facility located on a smaller river. The states also use different assumptions in computing the flow of a facility's discharge (e.g., the highest monthly average during the preceding 2 years or the highest 30-day average expected during the life of the permit) and the low flow of the receiving waters (e.g., the lowest average flow during 7 consecutive days within the past 10 years or the lowest 1-day flow that occurs within 3 years). The states also have different policies on background concentration--the level of pollutants already present in the receiving waters as a result of naturally occurring pollutants, permitted discharges from upstream, spills, unregulated discharges, or some combination of these sources. In general, the higher the level of the background concentration, the more stringent the discharge limit will be because the extent of the existing pollution affects the amounts that facilities may discharge without violating the water quality standards. Connecticut, for example, assumes background concentrations of zero in deriving limits, while Colorado uses actual data. All other things being equal, the discharge limits established by Connecticut will be less stringent than those set by Colorado whenever the actual background concentration is greater than zero. EPA, through its regional offices, periodically reviews the states' water quality standards; if it determines that the standards are inconsistent with the requirements of the Clean Water Act--because, for example, the standards do not adequately protect the designated uses of the water or are not scientifically defensible--it disapproves them. However, EPA does not consistently review policies that could significantly affect the implementation of the standards in permits, either when a state submits its standards for approval or when an EPA regional office reviews individual permits before they are issued. As a result of an apparent inconsistency in EPA's regulations, some states are not including the relevant implementation policies when they submit their water quality standards to EPA for review and approval. According to the regulations, the states must submit to EPA for review information on the designated uses of their waters and the numeric or narrative criteria for specific pollutants as well as "information on general policies" that may affect the application or implementation of the standards. However, EPA's regulations also provide that the states may exercise discretion over what general policies they include in their standards. In EPA's regions I and VI, for example, program officials believe that (1) the states are under no obligation to submit their implementation policies, such as their policies on considering background concentration, for EPA's review and (2) EPA cannot require the states to do so. Officials at EPA's headquarters and regional offices acknowledge that there is some confusion about what information the states must submit for review. EPA officials maintain that even if the agency has not reviewed the states' implementation policies in the course of approving the standards, it can control the use of these policies when EPA's regional offices review individual permits and have the opportunity to disapprove those permits that do not adequately protect water quality. However, on average EPA's regional offices review only about 10 percent of the permits issued to major facilities by the 40 states authorized to issue permits. Moreover, EPA is considering a new initiative that will eliminate reviews of permits before issuance and will instead provide for postissuance reviews of a sample of permits. According to the Acting Director of EPA's Permits Division, such reviews are a better use of EPA's resources because they require less staff time and EPA's reviewers will not be pressured to meet deadlines for public comment. However, he said that, as a general rule, EPA will not reopen permits. Thus, identified problems may not be addressed until the permits come up for renewal, usually every 5 years. If EPA becomes aware of a significant problem, the regional office will work with the applicable state to attempt to remedy the situation. Because EPA relies on its regional offices to oversee the states' implementation policies, it does not maintain national information on these policies. Moreover, except for some efforts by its regional offices, EPA has not assessed the impact of the differences among the states. EPA headquarters officials told us that although such an assessment might be useful, they have no plans to conduct one, in part because they do not have the resources or a specific legislative requirement to do so. In some instances, EPA's regional offices have tried to identify and resolve differences in the states' implementation policies because they have been concerned about the extent of these differences. However, some states have resisted these initiatives on the basis that they should not be required to comply with policies that are not required nationwide. EPA is considering regulatory changes that could enhance the agency's ability to monitor the states' implementation policies. According to a March 1995 draft of an advance notice of proposed rulemaking, EPA plans to solicit comments on, among other things, the kind of information on implementation policies that the states should be required to submit for EPA's approval. In the case of mixing zones, for example, EPA is seeking comments on whether the states should be required to describe their methods for determining the location, size, shape, and other characteristics of the mixing zones that they will allow. The Chief of EPA's Water Quality Standards Branch told us that although other priorities could postpone the rulemaking, EPA has not revised the applicable regulations since 1983, and some changes are therefore needed. While potential regulatory changes are as yet undefined, the Office of Water has embarked on a strategy for watershed management that could, by itself, achieve greater consistency among the states' NPDES programs, including the standards and policies the states use to derive the discharge limits for the facilities within the same watershed. Watershed management means identifying all sources of pollution and integrating controls on pollution within hydrologically defined drainage basins, known as watersheds. Under this approach, all of the stakeholders in a watershed's area--including federal, state, and local regulatory authorities; municipal and industrial dischargers; other potential sources of pollution; and interested citizens--agree on how best to restore and maintain water quality within the watershed. In March 1994, the Permits Division of EPA's Office of Water published its NPDES Watershed Strategy to describe the division's plans for incorporating the NPDES program's functions into the broader watershed management approach. Although the strategy does not specifically discuss interstate watersheds, EPA officials believe that the states will identify such areas and, where reasonable, coordinate the issuance of NPDES permits. EPA officials believe that as a practical matter, the watershed management approach will cause the states to resolve differences in their standards and implementation policies as they attempt to issue NPDES permits consistently in shared water bodies and watersheds. We provided copies of a draft of this report to EPA for its review and comment, and on December 15, 1995, EPA provided us with comments from its Acting Director, Permits Division, Office of Water. In addition to some technical and editorial suggestions, which we incorporated as appropriate, EPA had the following two comments. According to EPA, the results-in-brief section of the draft drew too stark a picture of the limitations of EPA's reviews of the states' programs. EPA said that its regional offices do review the states' standards and implementation policies and that they do consider the impact of variations among the states in their reviews. Nevertheless, EPA said that its reviews of the states' implementation policies could be more exhaustive and that more could be done to help ensure appropriate levels of consistency among the states, assuming adequate resources. We revised that section of the report to better recognize the extent of EPA's reviews of the states' standards and implementation policies, and to better pinpoint the limitations of these reviews. EPA also said that the results-in-brief section of the draft could leave the impression that the only reason for differences among the states is that the Clean Water Act provides for flexibility, when inherent differences in surface waters across the country could themselves result in different standards and water-quality-based permitting requirements among the states. We revised that section of the report to recognize this reason for differences. We performed most of our work at the Permits Division and the Water Quality Standards Branch, Office of Wastewater Management, EPA headquarters; EPA Region I in Boston, Massachusetts, Region VI in Dallas, Texas, and Region VIII in Denver, Colorado; and state NPDES program offices in Arkansas, Colorado, Connecticut, Massachusetts, Texas, and Utah. We conducted our review from July 1994 through December 1995 in accordance with generally accepted government auditing standards. For a more detailed description of our scope and methodology, see appendix IV. As arranged with your office, unless you announce its contents earlier, we plan no further distribution of this report until 10 days after the date of this letter. At that time, we will send copies to the Administrator, EPA; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others on request. Please call me on (202) 512-6112 if you or your staff have any questions. Major contributors to this report are listed in appendix V. Figure I.1 illustrates the roles and responsibilities of the Environmental Protection Agency (EPA) and the state agencies in developing water quality standards and implementing them in the permits issued to municipal and industrial wastewater treatment facilities under the National Pollutant Discharge Elimination System program (NPDES). Office of Science and Technology (National guidance/standards) (Permit policies and Implementation) Engineering and Analysis Division issues national technology standards for municipal and industrial facilities. Health and Ecological Criteria Division issues chemical-specific numeric water quality criteria as guidance for states to use in adopting water quality standards. Standards and Applied Sciences Division issues regulations and guidance for states to use in implementing their water quality standards. Permits Division issues national guidance and regulations for states and EPA regions to use in issuing NPDES permits. Approve states' water quality standards. Oversee states' NPDES programs, including reviewing state-issued NPDES permits for compliance with the appropriate standards. Issue permits for states that do not have authorized NPDES programs. Adopt water quality standards, including designated uses and numeric criteria for specific pollutants. Issue permits to municipal and industrial dischargers. EPA issues guidance on water quality criteria for specific pollutants that the states may use in developing numeric criteria for their water quality standards. States may also use other data to develop their numeric criteria as long as these criteria are scientifically defensible. The states' water quality standards--and any policies that affect the implementation of these standards--are subject to EPA's approval. In determining whether water-quality-based controls are warranted, the states' and EPA's permitting authorities (1) analyze a facility's wastewater to identify the type and amount of pollutants being discharged and (2) determine whether these levels of pollutants will cause, have a "reasonable potential" to cause, or will contribute to causing the facility's discharge to exceed the state's water quality criteria. This assessment has one of three possible effects on a facility's permit: It may result in (1) a discharge limit, if the amount of pollutants being discharged violates, is likely to violate, or will contribute to violating the criteria that protect the receiving waters; (2) a requirement for monitoring to gather additional data in order to determine whether a limit is warranted; or (3) neither a limit nor a monitoring requirement, if the amount of pollutants being discharged will not violate, is unlikely to violate, or will not contribute to violating the criteria that protect the receiving waters. For each of the five toxic metal pollutants included in our analysis, figure II.1 shows the number of permits that contained discharge limits, the number that contained monitoring requirements, and the number that contained neither type of control. Municipal wastewater treatment facilities receive wastewater from several sources, including industry, commercial businesses, and households. This wastewater is likely to include toxic pollutants, primarily from industrial sources whose waste must be pretreated to reduce or eliminate such pollutants before it enters the municipal treatment facilities. According to officials in EPA's Permits Division, a major reason for the lack of discharge limits and monitoring requirements is the existence of effective pretreatment programs. These officials believe that because such programs play an important role in reducing the level of toxic pollutants entering municipal treatment facilities, the lack of controls disclosed in our analysis is not surprising. They consider our findings to be an indication that the pretreatment programs are working as intended. However, other factors suggest that additional controls may be warranted. First, officials from EPA's Permits Division acknowledge that in some cases, the permitting authorities have been slow to impose controls in municipal permits on the discharges of toxic metals or to adopt numeric criteria for such metals in their water quality standards. In addition, the pretreatment programs primarily focus on industrial customers and, as we reported in 1991, nonindustrial wastes from both commercial and residential sources can be a significant source of toxic pollutants entering municipal wastewater treatment facilities. According to the most comprehensive study cited in the report (a 1979 EPA survey of municipal treatment facilities in four major cities), nonindustrial sources contribute nearly 70 percent of the copper and over 30 percent of the lead, mercury, and zinc entering the municipal facilities. Our report also cited other, more recent studies that identified significant contributions of toxic metals from nonindustrial sources. The following table, based on data extracted from EPA's Permits Compliance System database, shows the types of controls, if any, imposed by the states' and EPA's permitting authorities for the five toxic metals in all of the permits issued to major municipal wastewater treatment facilities from February 5, 1993 through March 21, 1995. For each of the five pollutants, the table lists (1) "Limits"--the number of permits that contained discharge limits for the selected pollutants, (2) "Monitor"--the number of permits that required facilities to monitor the level of pollutants in their discharge, and (3) "None"--the number of permits that contained no controls. To obtain nationwide information on variations in whether and how pollutants are controlled in discharge permits, we extracted information from EPA's Permits Compliance System database on the 1,407 permits issued to major municipal wastewater treatment facilities from February 5, 1993, through March 21, 1995. We analyzed these data to determine the type of controls, if any, on five toxic metal pollutants typically discharged by municipal facilities (cadmium, copper, lead, mercury, and zinc). For the permits that contained discharge limits for the five selected pollutants, we obtained those limits to determine the range for each pollutant at facilities of similar capacity. For the permits that contained the highest and lowest limits, we verified the information in EPA's database with the applicable EPA regional office. As agreed with the requester's office, we did not attempt to determine the appropriateness of the differences in discharge limits because such an assessment would have been too complex and time-consuming. We confined our analysis of variations in the discharge limits to municipal facilities because EPA's Permits Compliance System database does not contain information that distinguishes between technology-based and water-quality-based discharge limits for industrial facilities. However, because EPA has not issued any technology-based standards for toxic pollutants that are applicable to municipal facilities, the discharge limits for such pollutants were derived from water-quality-based standards. According to EPA, water-quality-based controls are considered for virtually all major facilities, and an estimated 30 percent of the permits for these facilities nationwide actually contain limits based on water quality. To obtain information on the causes of the variations in the states' NPDES permits, we interviewed the EPA officials responsible for the NPDES and Water Quality Standards programs at the agency's headquarters in Washington, D.C., and regional offices in Boston, Massachusetts (Region I); Philadelphia, Pennsylvania (Region III); Chicago, Illinois (Region V); Dallas, Texas (Region VI); and Denver, Colorado (Region VIII). We reviewed the applicable provisions of the Clean Water Act, EPA's regulations, and guidance on NPDES permits and water quality standards. We also interviewed state officials in Arkansas, Colorado, Connecticut, Massachusetts, Pennsylvania, Texas, and Utah and reviewed documents on these states' water quality standards, implementation policies, and NPDES permitting activities. To obtain information on EPA's role in monitoring the policies and procedures that the states use in deriving discharge limits, we reviewed applicable regulations and guidance, including EPA's preliminary draft of an advance notice of proposed rulemaking on potential revisions to the agency's regulation on water quality standards and EPA's NPDES Watershed Strategy. We also discussed EPA's oversight authority with officials from EPA's Permits Division, Water Quality Standards Branch, Office of General Counsel, and selected regional offices. In addition, we discussed oversight issues with selected states, environmental groups, and municipal and industrial associations. We also obtained limited information from EPA's Office of Wetlands, Oceans, and Watersheds and Office of General Counsel; additional states and EPA's regional offices; the U.S. Geological Survey; the U.S. Fish and Wildlife Service; environmental groups, including the National Wildlife Federation and the Environmental Defense Fund; and various associations representing state regulators and municipal and industrial dischargers. Ellen Crocker, Core Group Manager Maureen Driscoll, Evaluator-in-Charge Les Mahagan, Senior Evaluator Linda Choy, Senior Program 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 (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO reviewed the Environmental Protection Agency's (EPA) authority to permit municipal wastewater treatment facilities to discharge pollutants into surface waters, focusing on: (1) differences in how EPA and the states control discharges of specific pollutants; and (2) EPA oversight of state water quality standards and policies. GAO found that: (1) controls over the discharge of pollutants in surface waters vary by state; (2) differences in state water pollutant controls are a concern to neighboring states that share water bodies; (3) differences in state controls exist because surface waters differ greatly throughout the country and EPA regulations allow for flexibility in the way states assess and control water pollution; (4) EPA has limited oversight of state water quality standards, since it does not maintain sufficient information on state implementation policies or assess the impact of variations among states and it reviews relatively few permits; and (5) EPA plans to enhance its reviews of state implementation policies and increase its emphasis on controlling pollution within watersheds.
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The size and cost of operating the federal vehicle fleet has been a subject of concern for many years. In 1986, Congress enacted legislation that required agencies, among other things, to collect and analyze the costs of their motor vehicle operations, including acquisition decisions, in order to improve the management and efficiency of their fleets and to reduce costs. Two years later, we reported that most agencies had not conducted the required studies. In 1992, an interagency task force identified obstacles to cost-efficient fleet management, including the continued lack of compliance with the 1986 legislative requirements, and stated that agencies lacked basic information to effectively and efficiently manage their fleets. In 1994, we reported, among other things, that successful fleet practices included oversight at the headquarters level to ensure that uniform written policies and guidance are provided throughout the organization and fleet management information systems to provide accurate data about the fleet. We also reported that agencies need to conduct periodic reviews to ensure their fleets are the right size and composition. The vehicle fleets at the agencies we reviewed are widely dispersed. For example, the Army and Navy operate vehicles throughout the world, while the Veterans Affairs fleet is spread across medical centers, national cemeteries, and other locations throughout the country. The approximate number of vehicles operated by the agencies included in our review is shown in figure 1. The Office of Governmentwide Policy within GSA develops policies, disseminated through the Federal Management Regulation, and bulletins for agency vehicle fleet management. Federal agencies, however, are responsible for managing their own fleets, including making decisions about the number and type of vehicles they need and how to acquire them. OGP also collects data from agencies via the Federal Automotive Statistical Tool (FAST) concerning fleet size, composition, and costs. Although GSA uses these data in annual reports to OMB on the government's fleet size and costs, GSA officials told us that much of the data are inaccurate because of the different systems agencies use to collect and report information. The agencies we reviewed cannot ensure that their vehicle fleets are the right size and composition to meet their missions because of a lack of attention to key fleet management practices. In particular, agencies generally have not established policies with clearly defined utilization criteria related to the mission of a vehicle to ensure that decisions to acquire and retain vehicles are based on a validated need. In addition, agencies have not implemented periodic assessments to determine whether they have the right number and type of vehicles in the fleet. Some agencies have begun to recognize the need to pay more attention to fleet management and are taking steps to review their guidelines in an effort to provide better criteria to determine vehicle needs and to manage their fleets more efficiently. Industry practice for cost-efficient fleets includes establishing policies and procedures that contain clearly defined utilization criteria related to the mission of a vehicle. These criteria are then used to conduct periodic assessments of the fleet to identify underutilized vehicles. As previously noted, our 1994 report highlighted the importance of these fleet management practices. However, as shown in figure 2, most of the agencies we reviewed do not have clearly defined criteria and have not conducted periodic fleet assessments. We did not include DHS in this chart because the agency is still developing most of its fleet management guidelines, policies, and vehicle utilization standards. The lack of appropriate utilization criteria means that local level officials--who usually make the decisions to acquire and retain vehicles-- are not basing their decisions on a validated need. Some agencies establish the number of miles traveled, such as the 12,000 miles per year in GSA's guidance, as a criterion to measure vehicle utilization. However, this criterion is not appropriate for the mission of some vehicles, such as those used for utility work, medical transportation, or security. Therefore, agency officials often ignore mileage standards. None of the agencies assigned a value to other criteria, such as number of trips per day or hours on station, to measure vehicle use when mileage is not an appropriate measure. Following are some examples of cases we found where the application of specific criteria related to the mission of a vehicle would give local fleet managers a more accurate basis on which to make decisions about fleet size: At one Veterans Affairs medical center, vehicles are used to transport veterans from their homes to outpatient rehabilitation activities in a metropolitan area outside of Boston. Veterans Affairs officials told us that using only a mileage standard to justify the need for the vehicles is inappropriate because they are used within a confined area. The officials agreed that a better measure would be the number of trips or the number of veterans served. The Department of Defense prescribes that the military services establish utilization measures, such as passengers carried or hours used, to measure the need for a vehicle when mileage is not appropriate. However, neither Army nor Navy guidelines incorporate these types of utilization criteria. Natural Resources Conservation Service policy includes only one criterion to establish fleet size, which is a ratio of employees to vehicles. The definition of employees includes full- and part-time employees and volunteers, regardless of roles or job description. Further, agencies generally do not conduct periodic assessments of their fleets. Decisions about whether to acquire and retain vehicles are made at the local level with little or no headquarters oversight. These local-level decisions are frequently based on the availability of funds rather than on a validated need. For example, directors of Veterans Affairs medical centers and state conservationists at the Natural Resources Conservation Service determine whether or not to acquire vehicles based on the availability of funds. The Army allows local commanders to acquire vehicles with available funds without further justification within established allocation levels. However, these levels have not been reviewed since 1991, 13 years ago. The Navy and the Forest Service conduct periodic assessments of fleet size, but the results of the assessments are either not enforced or not conducted in a systematic manner. The Navy's Transportation Equipment Management Centers (TEMC) conduct utilization assessments to recommend fleet inventory levels for Navy commands, yet the commands are not required to implement the recommended inventory levels. The Forest Service's guidelines contain instructions for a systematic review of vehicle utilization at local sites, but these reviews are not consistently performed at the locations we visited, and the local sites are not required to report the results of the reviews to agency headquarters. Some agencies have begun to focus more attention on fleet management practices that they believe will improve the efficiency of their fleets. At the start of fiscal year 2004, the Army and Navy reorganized to centralize the management of facilities and equipment, including vehicles that are not related to combat forces, at various commands and installations. The Navy established the Naval Installations Command and the Army established the Installation Management Agency for this purpose. Navy and Army officials told us that these organizations should result in increased attention to fleet management, including the enforcement of the TEMCs's recommended inventory level in the Navy and the revision of outdated vehicle allocation levels in the Army. Officials told us that these organizations will provide more centralized oversight of the Army and Navy vehicle fleets, but individual commands will continue to determine the need for vehicles within the established inventory objectives or allocation levels. At the time of our review, it was too early to determine the impact these reorganizations will have on improving fleet management practices. In addition, some agencies are reviewing their guidelines in an attempt to include more specific requirements for fleet management. For example, Veterans Affairs officials told us that they are developing a vehicle manual with detailed guidance on how to measure utilization and hope to issue it in the fall of 2004. Department of Defense officials are in the process of revising the department's guidelines and are considering requiring the application of utilization criteria tied to the mission of a vehicle to determine the need for vehicles. In early 2003, DHS established a Fleet Commodity Council to review strategic sourcing issues, including how the department can leverage its purchasing power when acquiring vehicles. The council, made up of agency fleet managers, meets quarterly. In addition, departmentwide fleet management policies and guidelines are being developed and will include criteria for justifying and assessing vehicle fleet sizes. Our work and reviews by inspectors general identified numerous instances where agencies had an excessive number of vehicles in their fleets. If these vehicles were disposed of, agencies could realize savings ranging from thousands to millions of dollars, as illustrated in the following examples: In February 2004, the Department of the Interior's Inspector General reported that a significant portion of the department's fleet of approximately 36,000 vehicles is underutilized and estimated savings of $34 million. At the end of fiscal year 2003, Navy reviews of selected activities estimated fleet savings of $3.7 million per year if installations reduced their fleets based on recommendations from these reviews. In 2003, a U.S. Army Audit Agency report identified one Army garrison that had retained 99 excess vehicles in its fleet. A 2001 Veterans Affairs' Inspector General report noted that accountability over the department's owned vehicles at a medical center could not be reasonably assured. For example, agency auditors found one vehicle that had been parked behind a laundry facility and had not been moved since it was purchased in 1997. The report described the acquisition of the vehicle as unjustified. Appendix VII contains additional examples of reports that highlight potential savings if unnecessary vehicles were eliminated from agencies' fleets. In other cases, locations have reduced their fleet size--primarily because of pressure to cut their budgets--and consequently realized savings, as illustrated in the following examples: A Navy command decreased its fleet from 156 to 105 vehicles over the course of a year, resulting in savings of about $12,000 per month. A Navy official explained that the decrease in vehicles was driven by cuts in the command's budget. A Veterans Affairs medical center, in an effort to find potential savings, reduced its fleet by 12 vehicles, with estimated savings of about $57,000 per year. In the 1990s, a Forest Service region eliminated 500 leased vehicles when the agency reduced its workforce due to budget reductions, according to a regional official. However, because these reductions were not based on the application of utilization criteria to identify vehicle needs, there is no guarantee that the fleets are the right size to meet the agencies' missions. Industry practice for cost-efficient fleets also calls for an assessment of the type of vehicles being acquired. Savings can be realized by changing the composition of the fleet--buying vehicles that are less expensive and less costly to operate and maintain. We found cases where local level officials had taken this step. For example, in assessing the need for vehicles to expand community outreach services, program officials at a Veterans Affairs medical center are replacing 15 passenger vans with less expensive sedans and minivans that will still allow them to accomplish the program's goals. In another case, a local Navy fleet manager was able to help a security organization reduce its fleet costs by using less expensive trucks for carrying dogs used by law enforcement officials. As a result of a review of governmentwide fleet practices, GSA's Office of Governmentwide Policy (OGP) and OMB are taking actions to require agencies to better manage and improve the cost-efficiency of their fleets. In 2002, OGP initiated a review of federal agencies' fleet management practices in cooperation with OMB. Twenty-one agencies responded to a GSA survey, which found, among other things, that the vast majority of agencies lack utilization criteria by which to determine vehicle needs and identify underutilized vehicles. The survey further found that many agencies have little control over fleet budgets and allocation levels for vehicles and lack effective fleet management information systems. Based on the survey results, OGP is currently revising the Federal Management Regulation to require agencies to improve fleet management practices by, among other things, (1) appointing a central fleet manager, (2) periodically reviewing fleet size, and (3) funding a fleet management information system. In 1994, we reported that the primary role of a central fleet manager is to establish and monitor written policies, collect and analyze fleet data, and look for opportunities to improve fleet operations. OGP officials believe that effective fleet management requires centralizing control at the headquarters level over all decisions related to fleet size. Thus, OGP will require agencies to appoint a senior management official with decision-making authority and control over all aspects of the agency's fleet program, including the entire fleet budget and approval of local-level decisions. However, we anticipate strong opposition to this requirement, based on our discussions with agency officials outside of GSA. Many of the headquarters officials we interviewed believe that local-level fleet managers, given the right tools, are in the best position to make decisions on the need for vehicles and that centralized oversight, rather than control over the budgets and decision making, would be more appropriate. The revised regulation will also require agencies to develop criteria against which to evaluate the need for vehicles and to use these criteria in performing annual fleet assessments. OGP officials told us that the regulation will not include examples of the different criteria that could be used to determine vehicle needs. Instead, this type of information will be incorporated in GSA bulletins issued periodically to agencies and posted on the GSA Web site. Based on the results of the 2002 survey, OGP had planned to recommend that agencies base their decisions about the need for vehicles on a staff-to-vehicle ratio; however, officials told us they will require agencies to consider other measures more appropriate to a vehicle's mission. As discussed above, industry practices include establishing multiple utilization criteria, such as mileage, number of trips per day and hours on station, because of the differing nature of agency missions. OGP further intends to require agencies to fund a fleet management information system that would allow them to accurately collect information on the cost to acquire, operate, and maintain their fleets. This initiative will allow agencies to better forecast fleet funding and make well-founded decisions about when to replace vehicles. OGP plans to issue guidelines defining the minimum functional requirements for the system. Officials we spoke with at Defense, DHS, and Veterans Affairs stated that they believe that developing a fleet management system is important, but they are at varying stages of exploring options, requesting bids from contractors, and requesting funding. While OGP believes it has the authority to require agencies to follow its regulation and guidelines, enforcement will be another matter. OGP officials plan to work with agencies in a cooperative effort, through workshops and federal fleet conferences, to help them implement the requirements in the upcoming regulation, which they expect to issue in October 2004. They are also considering issuing "report cards" on the progress agencies are making in implementing and following the revised regulation. OMB has also taken steps to hold agencies accountable for more effective fleet management practices. In 2002, OMB began requiring agencies, as part of their budget submission, to report the size, composition, and cost of their fleets for the current year and to project costs for the next 3 fiscal years. The narrative in the report must also detail the reasons for any significant changes in fleet size, discuss the methodology used to assign vehicles, and identify any impediments to managing the fleets. Recognizing the difficulties with collecting reliable data, GSA and OMB plan to work with agencies to improve their data collection and reporting. Officials believe that as agencies move to better fleet management information systems, the data will improve. Despite long-standing concerns over the size of the federal fleet, the agencies we reviewed still do not know if their fleets are the right size and composition. Until agencies develop and apply utilization criteria tied to the mission of the vehicles in their fleets, they will not know how many vehicles they need to meet their missions. Moreover, by not using such criteria to assess their fleets periodically, agencies are missing the potential opportunity to identify excess vehicles, reduce their fleets, and save money. While some agencies have started to take actions to improve fleet management, at this time it is unclear how successful these efforts will be in providing more efficient fleet management. Because of its role in providing fleet management policy, GSA's Office of Governmentwide Policy is in a position to take the lead in assisting agencies to develop appropriate utilization criteria and to assess their fleet size and composition. That office, in conjunction with OMB, has taken steps to focus attention at a governmentwide level on the need to improve fleet management practices. However, the plan to require agencies to centralize budget control over their fleets is a contentious one, and it remains to be seen how agencies will respond once the draft regulation is issued. In the meantime, additional measures are needed to ensure that the federal government's fleet does not contain excessive numbers of vehicles. To help agencies determine the appropriate size and composition of their fleets, we recommend that the Administrator of GSA direct the Office of Governmentwide Policy to include in the revised Federal Management Regulation the following two requirements for agencies develop utilization criteria related to the missions of the vehicles and conduct periodic assessments of the number and type of vehicles in their fleets using these criteria. To bring further attention to the potential budget impact of retaining excessive vehicles, we recommend that the Director of OMB require agencies, as part of the new reporting requirement in their budget submissions, to report on (1) the criteria they used to determine the need for vehicles and (2) the results of fleet assessments they have conducted. To ensure that agency fleets are the right size and composition to meet their missions, we recommend that the Secretaries of the Departments of Agriculture, Defense, Homeland Security, and Veterans Affairs take the following three actions establish guidance and policies that include clearly defined utilization criteria to be used in validating the need for vehicles based on their missions; require fleet managers to use these criteria in determining the need for vehicles and in conducting periodic fleet assessments; and establish effective oversight mechanisms to ensure that the utilization criteria are defined and fleet assessments are carried out. We received written comments on a draft of this report from GSA and the Departments of Agriculture, Defense, Homeland Security, and Veterans Affairs, and we received oral comments from OMB. All of the agencies generally concurred with our findings and recommendations. The written comments are reproduced in appendixes II through VI. GSA noted that the primary contributor to the lack of progress in fleet management improvement has been the absence of strong management support for fleet reform and the consequent lack of resources for acquiring management information systems. GSA observed, however, that many agencies are becoming more aware of these issues. GSA also noted that although our report discusses three revisions to the Federal Management Regulation that GSA is in the process of drafting, these three revisions are part of a comprehensive package of 10 recommendations for fleet management reform that came out of GSA's Federal Fleet Review Initiative. We focused our review on the key revisions directly related to the justification for acquiring and retaining vehicles. GSA also stated that, while it agrees that local managers are best qualified to know their requirements, only a central manager can provide the consistent oversight, policy, and budget review that has been lacking in many agencies, and it is this deficiency GSA seeks to address by its requirement that each agency appoint a senior management official with decision-making authority and control over all aspects of the agency's fleet program, including the fleet budget. As we note in our report, during the course of our audit work, it was clear that the agency officials we spoke with were opposed to GSA's position on this matter. We did not assess the ramifications of GSA's proposal as part of our review. In addition, GSA expressed disappointment that we did not recommend that agencies fund a fleet management information system. Because we found that agencies are in different stages of implementing such systems, and because GSA already plans to require such systems in its revised Fleet Management Regulation, we did not believe it was necessary for us to recommend this action. The Departments of Agriculture and Veterans Affairs agreed with our recommendations but raised concerns about GSA's planned revision to the Federal Management Regulation that would require agencies to centralize budget authority for fleet management. Veterans Affairs strongly opposes such a requirement. It noted that, in a system as large and complex as the department's, such a massive administrative responsibility would be unwieldy and inefficient and would require significant additional resource support. The department believes that oversight at the local level is the preferred approach to fleet management. Agriculture noted that the budget is a complex process involving detailed review and comparison of vehicle costs. It stated that changing priorities, such as national emergencies, require intense local management of the fleet to ensure a high state of mission-readiness and that, therefore, increased centralization of the budget process would not be in the best interest of overall fleet efficiency and mission success. As we point out in our report, the issue of centralized budget authority is a contentious one. It will need to be addressed by the agencies, OMB, and GSA. Agriculture also expressed concern that our recommendation on the need to establish utilization criteria would lead to a set of national criteria that all local fleet managers would be required to use. That is not the intent of our recommendation. Our recommendation is aimed at having each agency establish utilization criteria based on the specific mission of the vehicles in its fleet. Where a single criterion such as mileage, for example, is inappropriate, local officials need to have alternative criteria available, such as hours on station or number of clients served, to validate the need for vehicles. We believe it is the responsibility of agencies to establish clearly defined utilization criteria and guidelines to allow local officials to appropriately apply these criteria. The Department of Homeland Security (DHS) agreed with our recommendations and emphasized that it has undertaken efforts, in a relatively short time frame, to establish a departmentwide fleet management program. It noted that the process used by its Bureau of Customs and Border Protection for assessing vehicle utilization based on a variety of factors is considered a best practice and will be extended to the rest of the department. In addition, DHS stated that an updated management directive on motor vehicle management sets forth the requirement for maintaining systems for effective control and accountability of motor vehicle assets and for maintaining the minimum number of vehicles needed to meet requirements. The directive is currently being reviewed within the department. In DHS's view, these two actions meet the requirement to establish effective oversight mechanisms to ensure that fleet utilization criteria are defined and fleet assessments are carried out and reviewed on a regular basis. While these are positive actions, DHS needs to ensure that oversight is maintained and that periodic fleet assessments are conducted using the appropriate criteria. Veterans Affairs stated that it will address our recommendations with several planned initiatives which, when completed, should rectify identified weaknesses. For example, the department will convene a national work group to develop a broad-based fleet management operations manual that will include a section that defines utilization criteria based on vehicle missions. The department is also reviewing various options for establishing a systemwide software application to be used as an oversight tool for managing the fleet. The Department of Defense agreed with our recommendations. It stated that action will be taken to ensure that utilization criteria, which may be comprised of existing mileage goals or other appropriate criteria, will apply to all nontactical vehicles. It will also require components to review their vehicle inventories annually against fleet assessments and to conduct on-site surveys or inspections on a minimum 3-year cycle (resources permitting) with the purpose of purging or fully justifying underutilized vehicles. In oral comments, OMB representatives told us that they agree with our findings and recommendations and will consider incorporating the recommended changes to agencies' reporting requirements in new guidance for the fiscal year 2006 budget cycle. 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 issue date. At that time, we will send copies of this report to other interested congressional committees; the Administrator of GSA; the Director of OMB; and the Secretaries of Defense, Army, Navy, Agriculture, Veterans Affairs, and Homeland Security. We will make copies of this report 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 staffs have any questions regarding this report, please contact me at 202-512-4841 or [email protected], or Michele Mackin, Assistant Director at 202-512-4309 or [email protected]. Major contributors to this report include Marie Ahearn, Benjamin Howe, Emma Quach, Richard Silveira, and Tatiana Winger. To determine the extent to which agencies can ensure that their fleets are the right size, we obtained and analyzed agency policies and guidelines on fleet management from the Departments of Agriculture, Army, Navy, Defense, Homeland Security, and Veterans Affairs. These agencies, according to GSA data, have some of the largest fleets in the government. Because the Department of Homeland Security was only recently formed, its organizational elements continue to operate their vehicle fleets under the policies of their legacy agencies. Therefore, we limited our review to the department's efforts to leverage its buying power through a strategic sourcing initiative for vehicles and to the steps it is taking to establish departmentwide guidelines on fleet management. Although the Department of the Interior also has a large fleet, we did not include it in our review because the Inspector General recently issued a report on that department's vehicle fleet. We did not assess agencies' policies on vehicle operation, maintenance or disposal. To illustrate how local, state and regional officials determine the need for vehicles, we selected local, state and regional offices based on location and number of vehicles within each agency. We obtained and analyzed information and interviewed fleet managers and other officials responsible for fleet management at these locations to identify the controls, oversight, and criteria used to determine the need for vehicles. Following are the locations we contacted or where we conducted our work. Washington, D.C. Wildlife Service, Athens, Ga. Wildlife Service, Wash. Veterinary Service, Iowa Veterinary Services, Conyers, Ga. Veterinary Service, Eastern Regional Office, Raleigh, N.C. Washington, D.C. Southern Region, Atlanta, Ga. Chattahoochee-Oconee National Forest, Gainesville, Ga. Daniel Boone National Forest, Ky. Land Between the Lakes National Recreational Area, Ky. Pacific Northwest Region, Oreg. Siuslaw and Willamette National Forests, Oreg. Office of Asset Management, Washington, D.C. Federal Law Enforcement Training Center, Glynco, Ga. Customs and Border Protection, Washington, D.C. Transportation Security Administration, Arlington, Va. Office of the Assistant Deputy Under Secretary of Defense (Transportation Policy), Washington, D.C. Headquarters, Department of the Army, Office of the Assistant Chief of Staff for Installation Management, Washington, D.C. Fort Belvoir, Va. United States Military Academy, West Point, N.Y. Fort Carson, Colo. Naval Facilities Engineering Command, Washington Navy Yard, D.C. Navy Public Work Center, Washington, D.C. Navy Public Works Center, Norfolk, Va. Naval Air Station, Joint Reserve Base, Fort Worth, Tex. Navy Public Works Center, Jacksonville, Fla. Naval Station Newport, Newport, R.I. Pacific Division, Naval Facilities Engineering Command, Transportation Equipment Management Center, Pearl Harbor, Hawaii Atlantic Division, Naval Facilities Engineering Command, Transportation Equipment Management Center, Norfolk, Va. Headquarters, Washington, D.C. Medical Center, Bedford, Mass. Medical Center, Baltimore, Md. Medical Center, Jamaica Plain, Boston, Mass. Medical Center, Brockton, Mass. We reviewed prior GAO and other audit agency reports, reviewed other public documents, and contacted the following offices of inspectors general Department of Energy, Department of Defense, Department of Veterans Affairs, Department of Justice, Department of Treasury, Department of Transportation, Department of Homeland Security, Department of the Interior, and Department of Agriculture. We also contacted officials from the Naval Audit Service and the Army Audit Agency. To identify industry standards for efficient fleet management, we discussed the fleet management practices contained in our 1994 report and the use of utilization criteria with three industry fleet management consultants, one of whom was a contributor to our 1994 report. We selected these consultants based on their experience dealing with the fleet management practices in both the public and private sectors. We also talked with the manager of the Fleet Information Resource Center of the National Association of Fleet Administrators. To identify governmentwide steps to improve fleet management, we collected, analyzed, and discussed information obtained from officials at the Office of Management and Budget's Office of Transportation/GSA Branch, GSA's Office of Governmentwide Policy, and GSA's Office of Vehicle Acquisition and Leasing Services, which runs the leasing program. We also discussed with GSA officials the Office of Governmentwide Policy's proposed revisions to the regulation on fleet management. We conducted our review from September 2003 to April 2004 in accordance with generally accepted government auditing standards. U.S. Army Garrison Japan does not effectively use its nontactical fleet. Utilization data were only available for 430 of the 633 vehicles at the Garrison, and 235 of these vehicles had low utilization. The reviewers identified about 99 excess vehicles, representing about 16 percent of the fleet. Report did not estimate potential savings; however, it noted that for the 99 excess vehicles, the estimated replacement cost was about $3.8 million and maintenance cost was about $42,000. Transportation Motor Pool Operations, 8th U.S. Army, December 1997. No estimate on potential savings. 34 vehicles (representing 33 percent of 61 vehicles (representing 39 percent of the fleet), and 203 vehicles (representing 54 percent of the fleet) Activities did not always effectively use their nontactical support vehicles. Vehicle usage goals set by the command were considerably below Department of the Army goals. About $109,600 if activities met command's usage goals; $465,100 if they met the Army's goals. Navy Transportation Equipment Management Center (TEMC), Atlantic Division Selected Navy Transportation Equipment Management Center reviews. At the end of fiscal year 2003, Navy reviews of selected activities estimated cost avoidance of $3.7 million per year if installations reduced their fleets by a total of 775 vehicles to meet the recommended inventory level. $3.7 million per year cost avoidance. Management of Non-tactical (Administrative) Transportation Vehicles, March 1998. Auditors found that 6,605 of the 24,387 vehicles in the review were not needed. The Navy did not have a systematic mechanism within the transportation management structure to enforce Navy policy on fleet management. $19.8 million annually. Government Vehicle Usage at Naval Air Station Patuxent River, Md., December 1998. The Air Station retained 79 assigned vehicles that were not needed to support mission requirements because the Public Works Transportation Department did not have a systematic and continuous process for the review and evaluation of vehicle assignments. In addition, 141 of the 359 vehicle assignments were without required justification. Report did not specify amount, but noted that the Naval Air Station had unnecessary administrative transportation costs as a result of excess vehicles. Department of Veterans Affairs, Office of Inspector General Review of Selected Construction Contracts, Purchase Card Activities, and Vehicle Administration at Veteran's Affairs Medical Center (VAMC), Clarksburg, West Virginia, January 2001. Auditors could not account for all vehicles at the facility. Poor supervision contributed to a lack of accountability and records were incomplete and inaccurate. Poor business decisions were made during the trade and acquisition of vehicles. In one example, an acquisition was not justified because the vehicle had been parked behind a laundry facility and not moved since it was purchased in 1997. In fact, the keys were missing at the time of the review. Not addressed as a whole. The purchase price of the one vehicle that did not move was $1,800. U.S. Department of Energy (DOE), Office of Inspector General, Office of Audit Services The size of the fleet was not appropriate because Richland had not established or implemented controls required by DOE's Property Management Regulation. The review found that 85 percent of 1,332 vehicles were used less than DOE's mileage standards, and Richland could potentially reduce its fleet by 559 vehicles. $1.7 million annually. The allotment of 516 on-site discretionary vehicles was too large because the vehicles were measured in mileage instead of number of trips, which was the standard for this laboratory. None of the 31 randomly selected on-site discretionary vehicles met the standard of 9.2 trips per day. Livermore would need to reduce its fleet by 363 vehicles to meet the established usage standard. $690,000 annually. Vehicle Fleet Management at the Idaho National Engineering and Environmental Laboratory, March 1999. The light vehicle fleet was larger than necessary. The review found that 45 percent of the light vehicles were used significantly less than the mileage standards and that Idaho could potentially reduce its fleet by 86 vehicles. $321,000 annually in operation, maintenance and replacement costs. The department and its bureaus were not effectively managing its approximately 36,000-vehicle fleet. A significant portion of the department's fleet was underutilized (44 percent). $34 million annually. Selected Administrative Activities at the Colorado State Office, Bureau of Land Management, March 1996. The state office did not complete its required annual review and was not managing its vehicle fleet efficiently. The review found that 20 of the 60 owned or leased vehicles were underutilized and recommended a fleet reduction of up to 6 GSA vehicles. $22,000 annually for the 6 returned GSA vehicles.
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Federal agencies spend about $1.7 billion annually to operate a fleet of about 387,000 vehicles. During the last decade, concerns have been raised about whether agencies have more vehicles than they need. In an April 2002 letter to federal agencies, the Office of Management and Budget stated that the size of the federal fleet seemed excessive. GAO was asked to determine (1) the extent to which agencies ensure that their fleets are the right size to meet agency missions, (2) whether potential savings could result from the disposal of unneeded vehicles, and (3) what actions are being taken on a governmentwide basis to improve fleet management practices. GAO focused its review on the justification for acquiring and retaining vehicles at the Departments of Agriculture, Army, Homeland Security, Navy, and Veterans Affairs. Because of a lack of attention to key vehicle fleet management practices, the agencies GAO reviewed cannot ensure their fleets are the right size or composition to meet their missions. Industry practices for cost-efficient fleets include the development of utilization criteria related to the mission of a vehicle and periodic fleet assessments using these criteria to determine the appropriate fleet size and composition. If unneeded vehicles are identified, they are disposed of. However, the agencies GAO reviewed have not established policies that contain clearly defined utilization criteria that would allow them to determine the number and type of vehicles they need. Further, agencies are not routinely conducting periodic fleet assessments. Two agencies, the Navy and the Forest Service within the Department of Agriculture, conduct assessments; however, these assessments are either inconsistently applied or the results are not enforced. Some agencies have begun to recognize the need to revise their guidelines to provide better criteria for determining their vehicle needs. GAO's work and reviews by inspectors general identified numerous instances where agencies were retaining vehicles they did not need, with potential savings ranging from thousands to millions of dollars if these vehicles were eliminated. For example, the Department of the Interior's Inspector General reported that a significant portion of the department's 36,000 vehicles were underutilized and estimated savings of $34 million annually if these vehicles were disposed of. GSA's Office of Governmentwide Policy and the Office of Management and Budget have recently taken a number of actions to require agencies to better manage and improve the cost-efficiency of their fleets. The Office of Governmentwide Policy is currently revising the Federal Management Regulation to require agencies to (1) appoint a central fleet manager with control over all aspects of fleet management, including fleet budgets, which are now generally controlled at the local level; (2) establish utilization criteria and periodically review fleet size; and (3) fund a fleet management information system. The Office of Governmentwide Policy plans to work in a cooperative effort with agencies to implement the revised regulation. However, based on discussions with officials from the agencies GAO reviewed, GAO anticipates that GSA will face opposition to its requirement for centralized budget control over the fleets. In 2002, the Office of Management and Budget began requiring agencies to report, as part of their budget submissions, the size, composition, and cost of their fleets for the current year and to project costs for the next 3 fiscal years.
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Any discussion about the role of the federal government, about the design and performance of federal activities, and about the near-term federal fiscal outlook takes place in the context of two dominating facts: a demographic tidal wave is on the horizon, and it combined with rising health care costs threatens to overwhelm the nation's fiscal future. The aging of baby boomers--and increased life expectancy--is a major driver of spending for Social Security, Medicare, and Medicaid. Absent structural reforms in these programs, budgetary flexibility will continue to shrink and eventually disappear. Our long-range budget simulations make it clear that the status quo is not sustainable. The numbers just do not add up. The fiscal gap is too great for any realistic expectation that the country can grow its way out of the problem. The failure to reexamine the retirement and health care programs driving the long term will put the nation on an unsustainable fiscal course, absent major changes in tax and/or spending policies. In addition, the failure to reprioritize other claims in the budget will make it increasingly difficult to finance the rest of government, let alone respond to compelling new priorities and needs. As figure 1 below shows, overall budgetary flexibility has been shrinking for some time. In the last 2 decades, mandatory spending--excluding net interest--has jumped by nearly 10 percentage points to consume more than half of the federal budget. *OMB current services estimate. Our long-term budget simulations continue to show that to move into the future with no changes in retirement and health programs is to envision a very different role for the federal government--a government that does little more than mail checks to the elderly and pay interest on the debt. Figure 2 below shows the picture if the tax reductions enacted last year are not permitted to sunset and discretionary spending keeps pace with the economy. By midcentury federal revenues may only be adequate to pay Social Security and interest on the federal debt. (See fig. 2.) Importantly, we would still have a significant long-range fiscal gap even if the tax reductions do sunset as provided for under current law, although the gap would be smaller. While the long-term picture has not been pretty for a number of years, it is worsening and the long-term crunch is getting closer. Further, the shift from surplus to deficit means the nation will move into the future in a weaker fiscal position than was previously the case. Metrics and mechanisms need to be developed to facilitate consideration of the long-term implications of existing and proposed policies or programs. We are currently doing work on how to describe the range and measurement of fiscal exposures--from explicit liabilities such as environmental cleanup requirements and federal pensions to the more implicit obligations presented by life-cycle costs of capital acquisition or disaster assistance. Although they dwarf all other programs in long-term trends, Social Security, Medicare, and Medicaid are not the only programs in the budget where looking beyond the 10-year budget window presents a very different cost picture. For example, federal insurance may appear costless in its first year, but when an insured event occurs, the budgetary impact can be significant. Social Security and health programs dominate our fiscal future but they are not the only reason to examine what government does and how it does it. Difficult as it may seem to deal with the long-term challenges presented by known demographic trends, policymakers must not only address these entitlement programs but also reexamine other budgetary priorities in light of the changing needs of this nation in the 21st century. Given the size of the long-term gap it will be necessary to work on several fronts at once. There is also a need to reexamine existing programs, policies, and activities. It is all too easy to accept "the base" as given and to subject only new proposals to scrutiny and analysis. As we have discussed previously, many federal programs, policies, and activities--their goals, their structures, and their processes--were designed decades ago to respond to earlier challenges. In previous testimony, I noted that the norm should be to reconsider the relevance or "fit" of any federal program, policy, or activity in today's world and for the future. Such a review might identify programs that have proven to be outdated or persistently ineffective, or alternatively could prompt appropriate updating and modernizing activities through such actions as improving program targeting and efficiency, consolidation, or reengineering of processes and operations. This includes looking at a program's relationship to other programs. Budgeting has been the primary process used to resolve the large number of often-conflicting objectives that citizens seek to achieve through government action. It provides an annual forum for a debate about competing claims and new priorities. However, such a debate will be needlessly constrained if only new proposals and activities are on the table. A fundamental review of existing programs, policies, and operations can create much-needed fiscal flexibility to address emerging needs by ferreting out programs that have proven to be outdated, poorly targeted, inefficient in their design and management, or superceded by other programs. It is always easier to subject proposals for new activities or programs to greater scrutiny than existing ones. It is easy to treat existing activities as "given" and force new proposals to compete only with each other. Such an approach would move the nation further from, rather than nearer to, budgetary surpluses. In looking forward it is important to reflect on how much things have changed. We have a fiduciary and stewardship responsibility to today's and tomorrow's taxpayers to do so. For perspective, students who started college this past fall were 9-years old when the Soviet Union broke apart and have no memory of the Cold War; they have always known microcomputers and AIDS. We must strive to maintain a government that is effective and relevant to a changing society--a government that is as free as possible of outmoded commitments and operations that can inappropriately encumber the future. Debate about what government should do in the 21st century and how it should do business is fundamental to achieving this objective. In rethinking federal missions and strategies, it is important to examine not just spending programs alone but the wide range of other tools the federal government uses to address national objectives. These tools include direct loans and loan guarantees, tax preferences (shown in the budget as tax expenditures), and regulations. Sometimes these tools work at cross- purposes. The outcomes achieved by these various tools are in a very real sense highly interdependent and are predicated on the response by a wide range of other actors--including other levels of government and private employers whose involvement has become more critical to the implementation and achievement of federal policy objectives. These tools differ in transparency--spending programs are more visible than tax preferences. The choice and design of these tools are critical in determining whether and how these third parties will address federal objectives. Any review of the base of existing policy should address this broader picture of federal involvement. For example, in fiscal year 2000, the federal health care and Medicare budget functions included $37 billion in discretionary budget authority, $319 billion in entitlement outlays, $5 million in loan guarantees, and $91 billion in tax expenditures. (See fig. 3.) Good information--which is more than just budget numbers--helps to inform debate. This information, however, should be understandable not only by government officials but also by the public. Homeland security is a good example of both the need for public education and the challenges presented by changing priorities. Zero security risk is not an attainable goal; proposals to reduce risk must be evaluated on numerous dimensions--their dollar cost and their impact on other goals and values. Decisions on the level of resources, the allocation of those resources, and on how to balance security against other societal goals and values are necessary. However, absent public information in understandable form, related decisions may not be accepted. There will always be disagreements on these issues, but public education and reliable information move the debate to a more informed plane. Before the events of last September no one could have reasonably anticipated the array of new and challenging demands on federal programs and claims on future budgets for homeland security concerns. These compelling new budgetary claims illustrate the necessity of periodically reexamining the base through a disciplined, performance-based process. As you debate resources for homeland security--both how much and how to allocate them--you will be making risk assessments; the initiatives funded should be designed to achieve the most effective protection at a reasonable and affordable cost. As you consider the portfolio of homeland security programs for the future, the homeland security challenge may also provide a window of opportunity to rethink approaches to long-standing problems and concerns. For example, we have previously noted the poor coordination and inefficient use of resources that occur as a result of overlapping and duplicative food safety programs, but it is the potential threat from bioterrorism that gives new meaning and urgency to this issue and the interrelationship of related federal programs. Finally, the challenges of financing the new homeland security needs may provide the necessary impetus for a healthy reprioritization of federal programs and goals. The current crisis might, for instance, warrant reconsideration of the federal role in assisting state and local law enforcement. Given the challenges associated with fighting terrorism, is it still appropriate to involve the federal government in what have traditionally been state and local law enforcement responsibilities? While this kind of oversight and reexamination is never easy, it is facilitated by the availability of credible performance information focusing on the outcomes achieved with budgetary resources. Performance-based budgeting can help enhance the government's capacity to assess competing claims in the budget by arming budgetary decision makers with better information on the results of both individual programs as well as entire portfolios of tools and programs addressing common performance outcomes. Although not the answer to vexing resource trade-offs involving political choice, performance budgeting does promise to modify and inform the agenda of questions by shifting the focus of debates from inputs to outcomes and results. Over the last decade, the Congress enacted a statutory framework to improve the performance and accountability of the executive branch and to enhance both executive branch and congressional decision making. Through continued attention by the Congress and the executive branch, some of the intended benefits of this framework are now beginning to emerge. GPRA expanded the supply of results-oriented performance information generated by federal agencies. In the 10 years since GRPA was enacted, agencies have improved the focus of their planning and the quality of their performance information. However, developing credible information on outcomes achieved through federal programs remains a work in progress, as agencies struggle, for example, to define their contribution to outcomes, which in many cases are influenced only partially by federal funds. Linking performance to budgeting raises the stakes associated with the measures and performance goals developed by agencies. For performance data to more fully inform resource allocations, decision makers must feel comfortable with the appropriateness and accuracy of the outcome information and measures presented--i.e., that they are comprehensive and valid indicators of a program's outcomes. Otherwise, decisions might be guided by misleading or incomplete information, which ultimately will discourage the use of this information in resource allocations. GPRA was premised on a cycle where measures and goals were established and validated during a developmental period before they were subjected to the crucible of the budget process. In working to strengthen the linkages between resources and results, efforts across the federal establishment must be redoubled to ensure that the measures used are grounded in a firm analytic and empirical base. A way should be found to provide independent assurance about both the choice of measures and the quality of the data used. In attempting to link resources to results, it also will be important to measure the full costs of the resources associated with performance goals using a consistent definition of costs between and among programs. In looking ahead, the integration of reliable cost accounting data into budget debates needs to become a key part of the performance budgeting agenda. Although clearly much more remains to be done, together, the GPRA and Chief Financial Officers (CFO) Act initiatives have laid the foundation for performance budgeting by establishing infrastructures in the agencies to improve the supply of information on performance and costs. Sustained leadership attention will be required to build on this foundation. In addition, however, improving the supply of information is in and of itself insufficient to sustain performance management and achieve real improvements in management and program results. Rather, the improved supply needs to be accompanied by a demand for that information by decision makers and managers alike. Integrating management issues with budgeting is absolutely critical for progress in government performance and management. Recent history tells us that management reforms of the past--Planning-Programming- Budgeting-System, Management by Objectives, and Zero-Base-Budgeting-- failed partly because they did not prove to be relevant to budget decision makers in the executive branch or the Congress. Such integration is obviously important to ensuring that management initiatives obtain the resource commitments and sustained commitment by agencies needed to be successful. Moreover, the budget process is the only annual process in the federal government where programs and activities come up for regular review and reexamination. Thus there is a compelling need to ensure that trade-offs are informed by reliable information on results and costs. Ultimately, performance budgeting seeks to improve decision making by increasing the understanding of the links between requested resources and expected performance outcomes. Although performance budgeting can reasonably be expected to change the nature of resource debates, it is equally important to understand what it cannot do. Previous management reforms have been doomed by inflated and unrealistic expectations, so it is useful to be clear about current goals. Performance budgeting can help shift the focus of budgetary debates and oversight activities by changing the agenda of questions asked in these processes. Performance information can help policymakers address a number of questions such as whether programs are: contributing to their stated goals, well-coordinated with related initiatives at the federal level or elsewhere, and targeted to those most in need of services or benefits. It can also provide information on what outcomes are being achieved, whether resource investments have benefits that exceed their costs, and whether program managers have the requisite capacities to achieve promised results. However, performance budgeting should not be expected to provide the answers to resource allocation questions in some automatic or formula- driven process. Since budgeting is the allocation of resources, it involves setting priorities--making choices among competing claims. In its broadest sense the budget debate is the place where competing claims and claimants come together to decide how much of the government's scarce resources will be allocated across many compelling national purposes. Performance information is an important factor--but only one factor and it cannot substitute for difficult political choices. There will always be a debate about the appropriate role for the federal government and the need for various federal programs and policies--and performance information cannot settle that debate. It can, however, help move the debate to a more informed plane--one in which the focus is on competing claims and priorities. In fact, it raises the stakes by shifting the focus to what really matters--lives saved, children fed, successful transitions to self- sufficiency, individuals lifted out of poverty. In this context, performance questions do not have a single budgetary answer. Performance problems may well prompt budget cuts or program eliminations, but they may also inspire enhanced investments and reforms in program design and management if the program is deemed to be of sufficiently high priority to the nation. Conversely, even a program that is found to be exceeding its performance expectations can be a candidate for budgetary cuts if it is a lower priority than other competing claims in the process. The determination of priorities is a function of competing values and interests that may be informed by performance information but also reflects such factors as equity, unmet needs, and the appropriate role of the federal government in addressing these needs. How would "success" in performance budgeting be defined? Simply increasing the supply of performance information is not enough. If the information is not used--i.e., if there is insufficient demand--the quality of the information will deteriorate and the process either will become rote or will wither away. However, for the reasons noted, the success of performance budgeting cannot be measured merely by the number of programs "killed" or a measurement of funding changes against performance "grades." Rather, success must be measured in terms of the quality of the discussion, the transparency of the information, the meaningfulness of that information to key stakeholders, and how it is used in the decision-making process. If members of the Congress and the executive branch have better information about the link between resources and results, they can make the trade-offs and choices cognizant of the many and often competing claims on the federal fisc. While budget reviews have always involved discussions of program performance, such discussions have not always been conducted in a common language or with transparency. This year, however, OMB has introduced a formal assessment tool into the deliberations. The PART--the Program Assessment Rating Tool--is the central element in the performance budgeting piece of the President's Management Agenda. The PART will be applied during the fiscal year 2004 budget cycle to "programs" selected by OMB with input from and discussion with agencies. The PART includes general questions in each of four broad topics to which all programs are subjected: (1) program purpose and design, (2) strategic planning, (3) program management, and (4) program results (i.e., whether a program is meeting its long-term and annual goals). In addition to the general questions that apply to all, programs are subjected to more specific questions depending on which of seven mechanisms or approaches are used for delivery. OMB arrives at a profile for each program by reviewing information from budget submissions, agency strategic and annual performance plans, program evaluations, and other sources. OMB also makes an overall assessment whether the program is "effective" or "ineffective." While the PART's program-by-program approach fits with OMB's agency- by-agency budget reviews, it is not well-suited to addressing cross-cutting issues or to looking at broad program areas in which several programs address a common goal. Although the evaluation of programs in isolation may be revealing, it is often critical to understand how each program fits with a broader portfolio of tools and strategies to accomplish federal missions and performance goals. Such an analysis is necessary to capture whether a program complements and supports other related programs, whether it is duplicative and redundant, or whether it actually works at cross-purposes with other initiatives. In such areas as low-income housing or health care, the outcomes achieved by federal policy are the result of the interplay of a complex array of tools including those on the spending side of the budget as well as the tax code and regulations. The PART does promise to build on GPRA by using the performance information generated through the planning and reporting process to more directly feed into budgetary decisions. Potentially, the PART can complement GPRA's focus on increasing the supply of credible performance information by promoting the demand for this information in the budget formulation process. The recognition of the different types of performance issues associated with different governmental tools is important and reflects the key role that tools play in shaping accountability and results. As with performance budgeting in general, no assessment tool can magically resolve debates or answer questions. Rather, it is likely to be a useful screen to help identify programs for further evaluation. Its greatest contribution may turn out to be its use to focus discussions between OMB and the agencies about a given agency's progress towards planned performance; about what progress has been made toward achieving specific goals and objectives of a given program or programs; and about what tools and strategies might be used to bring about improvements. Where the information provided is adequate, it has the potential to inform budget decisions with respect to particular programs. It is possible that a program may be a candidate for cuts or elimination--or for increases. However, these overall judgments will not define the process. For example, the PART section on program management may illuminate ways in which program operations could be improved. And the section on program design may identify design changes that could increase effectiveness, such as better targeting of existing funds. Using PART is likely to prompt a more robust discussion on program priorities and achievements between OMB, the agencies, and potentially with the Congress. The PART also may increase the attention paid to evaluation and performance information among federal agencies and third parties involved with implementing federal initiatives. As the information improves, it may become more useful to the Congress, especially to budget, appropriations, and authorizing committees. To the extent that the assessment is an important factor in resource allocations, agencies are likely to increase the attention given to evaluation and the gathering and reporting of performance information. The fact that a program's PART score suffers from the absence of information may provide added impetus for agencies to enhance their evaluation and information-gathering capabilities. As with other management reforms, it will be important that initiatives such as PART be sustained over time if they are to be taken seriously by both agencies and the Congress. At the same time, the PART contains inherent limitations. These will not be in-depth evaluations, and evidence suggests that information for many programs will be incomplete. While no assessment tool can provide definitive answers to the question "should we continue this activity," at the initial stage PART is likely to raise questions--that is, point to the need for further inquiry and analysis--rather than provide definitive answers. The profiles of a program across each section of the instrument are likely to be more informative than the total scores across the entire instrument. Caution should be taken in relying on "bottom line" judgments or ratings for programs with multiple performance goals and mixed performance records. Further, the achievement of federal/national policy goals often depends on the actions not only of the federal government but also of other levels of government and/or nongovernmental actors. GPRA required the President to prepare and submit to the Congress a governmentwide performance plan to highlight broader cross-cutting missions. Unfortunately, this was not done in the President's fiscal year 2003 budget; we hope that the President's upcoming fiscal year 2004 budget does include such a plan. Over time the usefulness of PART will depend on what follows the initial screens: how the results are pursued; whether the scope is broadened to cover more tools; whether a cross-cutting approach is employed; and improvements in evaluative, performance, and cost information on key programs. Ultimately, success will be measured by how the results of the more extensive analyses affect the resource allocation process and budget decisions over time. The basis for the effective application of the rating tool is the foundation of performance and evaluation information on federal programs. The gaps and weaknesses identified by the PART review exercise may help pinpoint aspects of the federal evaluation infrastructure that need to be strengthened. By highlighting available information on program performance, OMB's rating tool should promote discussions of both what is known and what is not known about a program's performance. Under GPRA, agencies expanded their store of data on program achievements and associated benefits for the American people. While this is necessary, it is not sufficient to answer all key questions about program effectiveness. Many programs are designed to be one part of a broader effort, working alongside other federal, state, local, nonprofit, and private initiatives to promote particular outcomes. Although information on the outcomes associated with a particular program may be collected, it is often difficult to isolate a particular program's contribution to those outcomes. Moreover, some desired outcomes take years to achieve; tracking progress on an annual basis may be difficult. Additionally, where federal program responsibility has devolved to the states, federal agencies' ability to influence program outcomes diminishes. At the same time, dependence on states and others for data with which to evaluate programs grows. The PART may be used to facilitate this kind of cross-cutting perspective. After programs have been filtered through the PART process, programs could be grouped into related categories for further evaluation in a more holistic fashion. Further understanding of these performance issues requires an in-depth evaluation of the factors contributing to the program results. Targeted evaluation studies can also be specifically designed to detect important program side effects or to assess the comparative advantages of current programs to alternative strategies for achieving a program's goals. Unfortunately, there is reason to be concerned about the capacity of federal agencies to produce evaluations of their programs' effectiveness. Many program evaluation offices are small, have other responsibilities, and produce only a few effectiveness studies annually. Even where the value of evaluations is recognized, they may not be considered a funding priority. Agencies struggled in the first years of performance reporting to provide measures of the outcomes of their program activities. Many have failed to address known weaknesses in the quality of their performance data. Our work has shown that systematic program evaluations--and units responsible for producing them--have been concentrated in a few agencies. Although many federal programs attempt to influence complex systems or events outside the immediate control of government, few studies deployed the rigorous research methods required to attribute changes in underlying outcomes to program activities. Increased evaluation capacity may require more resources, but over the longer term, failing to discover and correct performance problems can be much more costly. Therefore, the question of investment in improved evaluation capacity is one that must be considered in budget deliberations both within the executive branch and in the Congress. More broadly, Mr. Chairman and Madam Chair, such investments need to be viewed as part of a broader initiative to improve the accountability and management capacity of federal agencies and programs. The federal government needs to undergo a transformation to meet the performance expectations of the American public. Such an effort requires fundamental shifts in current human capital policies, organizational structures, governmental tools, and performance and financial accountability approaches. Fifty years of past efforts to link resources with results has shown that any successful effort must involve the Congress as a partner. In fact, the administration acknowledged that performance and accountability are shared responsibilities that must involve the Congress. It will only be through the continued attention of the Congress, the administration, and federal agencies that progress can be sustained and, more importantly, accelerated. The Congress has, in effect, served as the institutional champion for many previous performance management initiatives, such as GPRA and the CFO Act, by providing a consistent focus for oversight and reinforcement of important policies. Ultimately, the success of the PART initiative will be reflected in whether and how the Congress uses the results of these reviews in the congressional budget, appropriations, authorization, and oversight processes. As a key user, the Congress also needs to be considered a partner in shaping the PART review process at the outset. More generally, effective congressional oversight can help improve federal performance by examining the program structures agencies use to deliver products and services to ensure that the best, most cost-effective mix of strategies is in place to meet agency and national goals. As part of this oversight, the Congress should consider the associated policy, management, and policy implications of cross-cutting programs. Given this environment, the Congress should also consider the need for mechanisms that allow it to more systematically focus its oversight on problems with the most serious and systemic weaknesses and risks. At present, the Congress has no direct mechanism to provide a congressional perspective on governmentwide performance issues. The Congress has no established mechanism to articulate performance goals for the broad missions of government, to assess alternative strategies that offer the most promise for achieving these goals, or to define an oversight agenda targeted on the most pressing cross-cutting performance and management issues. The Congress might consider whether a more structured oversight mechanism is needed to permit a coordinated congressional perspective on governmentwide performance matters. Such a process might also facilitate congressional input into the OMB PART initiative. For example, although the selection of programs and areas for review is ultimately the President's decision, such choices might be informed and shaped by congressional views and perspectives on performance issues. One possible approach would involve developing a congressional performance resolution identifying the key oversight and performance goals that the Congress wishes to set for its own committees and for the government as a whole. Such a resolution could be developed by modifying the current congressional budget resolution, which is already organized by budget function. Initially, this may involve collecting the "views and estimates" of authorization and appropriations committees on priority performance issues for programs under their jurisdiction and working with such cross-cutting committees as the House Committee on Governmental Reform and the House Committee on Rules. Obviously, a "congressional performance resolution" linked to the budget resolution is only one approach to achieve the objective of enhancing congressional oversight, but regardless of the approach taken, the Congress should assess whether its current structures and processes are adequate to take full advantage of the benefits arising from the reform agenda under way in the executive branch. Ultimately, what is important is not the specific approach or process, but rather the intended result of helping the Congress better promote improved fiscal, management, and program performance through broad and comprehensive oversight and deliberation.
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This testimony discusses efforts to link resources to results--also known as "performance budgeting." During the past decade, Congress and several administrations have put in place a structure for increasing the focus on and accountability for government performance. Federal agencies have been working to carry out the Government Performance Act, which requires the development of periodic strategic and annual performance plans and reports. Absent structural change in a number of major entitlement programs, budgetary flexibility will continue to decline and eventually disappear--while demands for new federal resources to address such emerging challenges as homeland security and other issues become more compelling and pressing. Given the country's longer-range fiscal imbalance, there is also a need to broaden the measures and focus of the federal budget process to accommodate these goals. The nation's fiscal challenges escalate rapidly just beyond the 10-year budget projection period. As a result, new metrics and mechanisms are needed to better highlight the longer-term implications of existing programs and proposed new fiscal commitments. Furthermore, in order to address emerging challenges, it is necessary to address both retirement and health programs encumbering the nation's fiscal future, in addition to reexamining the base of existing programs--both discretionary programs and other entitlements--to free up resources to address new needs in a rapidly changing society. Such an examination should be cross-cutting and comprehensive in nature--all relevant policy tools and federal programs, including tax preferences, should be "on the table" in addressing such policy areas as low-income housing or health care financing and delivery. Although such a comprehensive reassessment will take time and may have to be addressed in phases, it is critically important that it occur. An extensive public education effort will be required to fully inform the American people about a long-term outlook under current policy portfolio as well as the alternative choices that are available.
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Manufacturer drug coupon programs reduce or eliminate out-of-pocket costs for specific drugs and are typically available to privately insured patients regardless of income. Drug manufacturers provide these discounts to patients through several mechanisms. For example, manufacturers may provide patients with debit cards to be activated at the point of sale. Alternatively, manufacturers may pay the patient's coupon discount amount directly to a provider, who would reduce the patient's out-of-pocket cost accordingly. Manufacturers inform patients and providers of coupon programs in a variety of ways, such as distributing promotional materials, operating program websites and patient hotlines, and sending field representatives to communicate program information to providers. The effect of coupon programs on patients can differ depending on whether programs are associated with single-source or multi-source drugs, and changes in patient behavior may in turn lead to increased drug sales by manufacturers. For single-source drugs, which are only available from one manufacturer and may not have lower-cost, pharmaceutically equivalent alternatives, such programs can help patients afford their medications and have been shown to improve patient adherence to specialty drug regimens. For multi-source drugs, which are available from more than one manufacturer, coupon programs may encourage patients to request, and providers to prescribe, more expensive drugs instead of generics and other lower-cost, pharmaceutically equivalent alternatives. These changes in patient behaviors could benefit drug manufacturers financially while potentially increasing costs for health insurers. Specifically, manufacturers gain revenue from the sale of drugs received by patients who might have quit a drug regimen or chosen a lower-cost alternative in the absence of a coupon program. Additionally, manufacturers may be able to charge higher prices to purchasers than the market could sustain without these programs. Although the use of drug coupon programs to induce or reward use of certain drugs is unlawful in federal health care programs such as Medicare, beneficiaries who cannot afford their medications may be eligible to obtain financial assistance from other sources. For example, Medicare beneficiaries may be able to receive medications or assistance with out-of-pocket costs from independent charity patient assistance programs. Medicare beneficiaries with low income may also be eligible to enroll in Medicaid, the joint federal-state program that finances health insurance coverage for certain categories of low-income and medically needy individuals. Medicare Part B covers drugs and biologicals that are generally administered by a physician or under a physician's direct supervision, including drugs administered in a physician's office or hospital outpatient department. Drugs covered under Part B include injectable drugs, oral cancer drugs if the same drug is available in injectable form, and drugs infused or inhaled through durable medical equipment. Medicare and its beneficiaries make payments for Part B drugs to providers, such as physicians and hospitals, which first purchase the drugs from manufacturers or other sellers. Medicare generally pays 80 percent of a set payment rate for a drug, while beneficiaries are responsible for the remaining 20 percent. For most Part B drugs, Medicare sets payment rates at a drug's ASP plus an additional 6 percent. To set these rates, CMS collects quarterly data from drug manufacturers on the volume of sales and ASP for each drug. Sales data that manufacturers report must be net of all rebates, discounts, and other price concessions to purchasers, including physicians, hospitals, and wholesalers. Manufacturers are not required to report sales net of coupon discounts or other financial assistance provided by manufacturers directly to patients. CMS, as part of its ongoing efforts to evaluate Medicare's methodology for setting Part B drug payment rates, recently issued a proposed rule to test alternatives to this payment method. Various studies have pointed out that Medicare's current methodology for setting Part B drug payment rates as a fixed percentage above ASP may give providers a financial incentive to prescribe more expensive drugs. This is among the shortcomings of the current ASP-based payment method that CMS's proposed payment model is designed to address. The first phase of the proposed payment model would change the payment rate for drugs paid based on ASP from ASP plus 6 percent to ASP plus 2.5 percent plus a flat fee. The second phase would implement value-based pricing strategies, such as varying prices based on drugs' clinical effectiveness and decreasing beneficiary coinsurance for drugs deemed high in value. In 2015, drug manufacturers offered coupon programs to privately insured patients for 29 of the 50 high-expenditure Medicare Part B drugs in our analysis. Coupon programs were typically open to privately insured patients regardless of income. Programs for 3 of the drugs required patients to have incomes below a certain amount, with maximum annual incomes of approximately $100,000. Coupon programs varied in the discount amounts that patients could receive in 2015. Most programs had a maximum annual discount, which ranged across programs from $400 to $42,000 per year. Until patients reached that maximum discount, they could pay as low as $0 to $50 per coupon use. These amounts could represent a small fraction of patients' full out-of-pocket cost for a prescription. For example, privately insured patients using the drug Yervoy were required to pay an estimated $571, on average, per prescription without the drug's coupon program, compared to paying $25 under the coupon program. (See table 1 for examples of drug coupon programs and app. III for more information on out-of-pocket costs for drugs with coupon programs.) Factors that can affect privately insured patients' use of coupons include patient out-of-pocket cost requirements and the extent of manufacturer outreach to patients and providers. For example, whether patients are required to pay out-of-pocket costs for a drug can affect whether patients use coupon programs, as patients without such costs do not need these programs. On average, across drugs in our analysis with coupon programs in 2013, we estimated that 50 percent of privately insured patients did not have out-of-pocket costs, and this percentage ranged from 8 to 76 percent, depending on the drug. The amount of patient out- of-pocket costs can also affect the discount amount patients receive, because coupon discounts are directly related to patients' out-of-pocket costs. Other factors, including manufacturer outreach to providers and patients, could also explain variation in coupon program use. For example, some manufacturers told us that they reach out to patients directly regarding coupon programs, while others told us that they communicate directly only with providers. With respect to patients' use of available drug coupon programs, we determined that 21 of the 50 high-expenditure Part B drugs had coupon programs in 2013, and these drugs accounted for 50 percent of Part B spending paid based on ASP. We were able to obtain data on coupon discounts from manufacturers for 18 of these drugs. An estimated 19 percent of the 509,000 privately insured patients who used these 18 drugs in 2013 also used a coupon program. The percentage of these patients who used a coupon program ranged from 1 to over 90 percent, depending on the drug, with coupon programs for all but 2 drugs being used by less than 40 percent of patients. Coupon discounts reported by manufacturers of the 18 drugs totaled $205 million in 2013. Individual patients who used coupon programs for these drugs received an average annual discount of $2,051. This discount ranged from $1,000 to over $7,000 per year for 13 of the 18 drugs and was $800 or less for the remaining 5 drugs. Medicare's market-based methodology for setting Part B drug payment rates may be less suitable for drugs with coupon programs than for other Part B drugs that are paid based on ASP. Because ASP does not account for coupon discounts between manufacturers and patients, the ultimate consumers of these drugs, the ASP for drugs with coupons exceeds the effective market price a manufacturer receives for a drug purchase. For example, in figure 1, the ASP reported by the manufacturer was $1,000; however, the effective market price the manufacturer received for the drug--net of the coupon discount the manufacturer provided to the patient--was actually $300 less, or $700. We estimated that, for the 18 drugs for which we obtained coupon discount data in 2013, ASP exceeded the effective market price by an average of 0.7 percent. Medicare spending for these 18 drugs could have been $69 million lower if ASP had been equal to the effective market price manufacturers received. ASP exceeded the effective market price for some drugs by much more than the 0.7 percent average, which suggests that the ASP-based payment method may be even less suitable for these drugs. For example, for 5 of the 18 drugs, ASP exceeded the effective market price by an estimated 2.7 percent, on average, and ranged from 1.4 to 7.8 percent depending on the drug (see fig. 2). Part B spending for these 5 drugs combined could have been an estimated $50 million lower if ASP equaled the effective market price. The drugs for which ASP exceeded the effective market price by the highest percentage either had high rates of coupon use relative to other drugs, a high average annual discount, or both. For example, the drug in figure 2 with the highest percentage (Drug A) had the highest average annual discount per patient ($7,100) and the second highest percentage of patients who used a coupon (53 percent). (For more detail on the data and methodology for these estimates, see app. II.) Upward trends in the use of coupon programs suggest that drug coupons could have an even greater effect in the future on the suitability of Medicare's methodology for setting Part B drug payment rates. A recent study found that coupon use more than doubled between 2011 and 2014. Several manufacturers we interviewed told us that the number of patients using coupon programs and the discount amounts that patients receive have increased over time. In addition, to the extent that drug prices continue to increase and translate into higher out-of-pocket costs for privately insured patients, this could increase patients' use of drug coupons and the discount amounts they receive. CMS currently lacks data on coupon discounts, which are necessary for evaluating the implications of coupon programs for Medicare's Part B payment rate methodology. CMS lacks the authority to collect data from drug manufacturers on coupon discounts to patients because the authority to collect information relating to ASP is based on manufacturer sales to purchasers. In addition, these data are proprietary and are not readily available from other sources. Standards for internal control in the federal government require agencies to have access to quality information to achieve their objectives, which for CMS entails having the information necessary to evaluate the implications coupon programs may have for Medicare's methodology for setting Part B drug payment rates. Without data on coupon discounts, CMS lacks information that could inform its ongoing efforts to evaluate alternatives to this payment rate methodology. The high spending on Part B drugs based on ASP--approximately $20 billion in 2013--underscores the need to ensure that Medicare pays appropriately for these drugs. Various studies have noted previously that payments to providers under the current ASP-based payment methodology could lead providers to prescribe more costly drugs. Our findings in this report indicate that the shortcomings of this payment system go beyond problems with the incentives associated with payments to providers. In particular, even if Medicare Part B drug payments accurately reimburse providers' costs and do not introduce inappropriate incentives, Medicare still may be paying more than necessary for drugs with coupon programs because the ASP for these drugs exceeds the effective market price that manufacturers ultimately received. Furthermore, upward trends in coupon program use and drug prices suggest that Medicare's Part B drug payment rate methodology could become less suitable over time for drugs with coupon programs. These trends emphasize the need for regular monitoring of the implications that coupon programs may have for this methodology as CMS works to propose an alternative payment system. However, the agency lacks the authority to collect data on coupon discounts and therefore lacks important information that could inform its ongoing efforts to design and evaluate alternative approaches. To determine the suitability of Medicare's Part B drug payment rate methodology for drugs with coupon programs, Congress should consider granting CMS the authority to collect data from drug manufacturers on coupon discounts for Part B drugs paid based on ASP and requiring the agency to periodically collect these data and report on the implications that coupon programs may have for this methodology. We provided a draft of this product to HHS. HHS provided us with 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 to the appropriate congressional committees, the Secretary of Health and Human Services, and the Administrator of the Centers for Medicare & Medicaid Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Aflibercept injection (ophthalmic) Injection, IVIG Bivigam (C9130) Gammaplex injection (J1557) Gamunex-C/Gammaked (J1561) Octagam injection (J1568) Flebogamma injection (J1572) Zoledronic acid (J3487) Reclast injection (J3488) Zoledronic acid 1mg (Q2051) Medicare expenditures paid based on ASP, 2013 (dollars in millions) Drug description(s) Healthcare Common Procedure Coding System (HCPCS) code(s) Darbepoetin alfa, non- ESRD (J0881) Darbepoetin alfa, ESRD use (J0882) Leuprolide acetate /3.75 MG (J1950) Leuprolide acetate suspension (J9217) Xyntha inj (J7185) Factor vii recombinant (J7192) Hyalgan/supartz inj per dose (J7321) Euflexxa inj per dose (J7323) Brand name(s) Adriamycin, Doxil Doxorubicin hcl injection Drug description(s) Healthcare Common Procedure Coding System (HCPCS) code(s) Medicare expenditures paid based on ASP, 2013 (dollars in millions) (J9000) Doxil injection (J9002) Imported Lipodox inj (Q2049) Doxorubicin inj 10mg (Q2050) Apligraf skin sub (Q4101) Dermagraft skin sub (Q4106) Graftjacket skin sub (Q4107) Also includes Flebogamma 10% DIF, Flebogamma 5% DIF, Gamunex, Gamunex-C, and Octagam. Also includes Kogenate FS BIO-SET, Recombinate, ReFacto, and Xyntha. This appendix describes the data and methods we used in our study. To identify coupon programs associated with high-expenditure Medicare Part B drugs, we used 2013 Medicare claims data--the most recent full year of data available at the time we began our analysis (2015)--to develop a list of the 50 highest-expenditure Part B drugs paid based on the average sales price (ASP) methodology. We identified drugs based on their Healthcare Common Procedure Coding System (HCPCS) codes. Each HCPCS code refers to one or more brand or generic products, which are identified by their national drug codes (NDC). The drugs we identified for our analysis had multiple HCPCS codes if the codes shared one or more NDCs for products that were pharmaceutically equivalent, defined by the Food and Drug Administration as those with the same active ingredient(s), dosage form, route of administration, and strength or concentration. Our final list of the 50 highest-expenditure drugs accounted for 85 percent of Part B spending in 2013 for drugs paid based on ASP. (For the complete list of these 50 drugs, see app. I.) We identified which of the 50 high-expenditure Part B drugs had coupon programs, either at the time of our analysis (2015) or in 2013, based on information from manufacturers and their websites. If we were unable to identify a coupon program for a drug and did not receive information from its manufacturer, we recorded that the drug did not have a coupon program. Some drugs in our analysis comprised multiple NDCs. As a result, some drugs we analyzed had a coupon program for one product but did not have programs for other products, while other drugs had multiple coupon programs. To describe the extent to which privately insured patients used coupon programs, we obtained data from Truven Health Analytics' MarketScan®️ Commercial Claims and Encounters Database on the estimated number of privately insured patients nationally who used drugs with coupon programs in 2013 (to correspond with the year of available Medicare claims data) and the out-of-pocket costs these patients incurred. We also obtained data for 2013 from drug manufacturers on coupon use-- specifically, the number of patients who used each program and the average annual coupon discount provided. We calculated the percentage of patients taking a drug who used a coupon program by dividing the number of patients who used a coupon program by the estimated total number of patients who used the drug. To calculate the average of this percentage across all drugs in our analysis for which we obtained data on coupon use, we weighted each drug's percentage by the total number of patients who used the drug. We calculated the total amount of coupon discounts provided in 2013 for each drug by multiplying the number of patients who used the program by the average discount provided. To calculate the average annual coupon discount across all drugs for which we obtained data on coupon use, we weighted the average annual discount for each drug by the number of patients who used the coupon program. In addition to data on coupon use, we collected information from manufacturers on the mechanisms through which manufacturers provide coupon discounts to patients and on the ways in which manufacturers inform patients and providers about drug coupon programs. The ASP for a drug in 2013, as calculated above, is equal to the average of the quarterly ASPs in 2013 reported to CMS by drug manufacturers, weighted by the units of the drug sold in a given quarter. Total sales net of manufacturer price concessions to purchasers, as defined by ASP. We then calculated the percentage by which ASP exceeded the effective market price in 2013 for each drug and across all drugs with coupon discount data in our analysis. To calculate this percentage across all drugs in the analysis, we weighted the percentage for each drug based on the drug's Medicare spending from July 2013 through June 2014, which is the time period during which changes in ASP in 2013 would take effect. Finally, to estimate what Medicare spending from July 2013 through June 2014 could have been if a drug's ASP accounted for coupon discounts, we multiplied the drug's actual Medicare spending during this time by the percentage by which ASP in 2013 could have decreased if it had equaled the effective market price. We then calculated the difference between this spending estimate and actual Medicare spending for the same time period for each drug and across all drugs in our analysis with coupon discount data. Average annual out-of-pocket cost among patients with out-of-pocket costs (in 2015 dollars) Actemra Advate, Helixate FS, Kogenate FS, and various other brands Alimta Eligard, Lupron Depot, Lupron Depot-PED Faslodex Flebogamma, Gammaked, Gammaplex, and various other brands Gammagard Liquid 1,965 Values are based on 2013 data from Truven Health Analytics and have been adjusted for inflation to 2015 dollars using the Consumer Price Index for All Urban Consumers. In addition to the contact named above, William Black (Assistant Director), Ramsey Asaly, Namita Bhatia-Sabharwal, George Bogart, Muriel Brown, William A. Crafton, Kelsey Kennedy, Dan Lee, Maria Maguire, Lauren Metayer, and Beth Morrison made key contributions to this report. Medicare Part B: CMS Should Take Additional Steps to Verify Accuracy of Data Used to Set Payment Rates for Drugs. GAO-16-594. Washington, D.C.: July 1, 2016. Medicare Part B: Expenditures for New Drugs Concentrated among a Few Drugs, and Most Were Costly for Beneficiaries. GAO-16-12. Washington, D.C.: October 23, 2015. Medicare: Information on Highest-Expenditure Part B Drugs. GAO-13-739T. Washington, D.C.: June 28, 2013. Medicare: High-Expenditures Part B Drugs. GAO-13-46R. Washington, D.C.: October 12, 2012. Medicare Part B Drugs: CMS Data Source for Setting Payments Is Practical but Concerns Remain. GAO-06-971T. Washington, D.C.: July 13, 2006.
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Use of drug coupons in the private sector has increased in recent years. GAO was asked to study coupon programs for drugs covered by Medicare Part B, including any implications for Part B spending. This report (1) identifies coupon programs associated with high-expenditure Part B drugs and describes the extent to which privately insured patients use coupons and (2) examines, for drugs with coupon programs, the suitability of the Part B drug payment rate methodology. GAO identified high-expenditure Part B drugs using 2013 Medicare claims data--the latest available at the time of the analysis--and collected information from manufacturers on coupon program characteristics in 2015. GAO also analyzed coupon use and patient costs for drugs using 2013 data from manufacturers and private insurers; estimated how Part B spending could have differed if ASP had accounted for coupon discounts in 2013; reviewed federal laws and regulations; and interviewed CMS officials. In 2015, manufacturers of 29 of the 50 high-expenditure Medicare Part B drugs GAO analyzed offered coupon programs, which reduce the costs patients incur for specific drugs. Part B drugs are typically administered by a physician. Coupon programs are prohibited in the Medicare program but are generally available to privately insured patients. GAO obtained data on coupon discounts for 18 drugs. GAO estimated that 19 percent of privately insured patients who received these drugs used coupons in 2013, but coupon use varied widely depending on the drug--from 1 percent to over 90 percent. Medicare's methodology for setting Part B payment rates to providers may be less suitable for drugs with coupon programs than for drugs without them. The methodology for most Part B drugs is based on the average sales price (ASP), which is defined by law as the amount physicians and other purchasers pay manufacturers for the drug, net of discounts and rebates to those purchasers. Medicare and its beneficiaries spent $20 billion on Part B drugs paid based on ASP in 2013. As ASP does not account for coupon discounts to patients, the discounts reduce the effective market price that manufacturers receive for drugs with coupon programs. GAO estimated that, for the 18 drugs for which it obtained coupon discount data, the ASP exceeded the effective market price by an estimated 0.7 percent in 2013. Part B spending for these drugs could have been an estimated $69 million lower if ASP equaled the effective market price. ASP exceeded the effective market price by more than 1.0 percent for 5 of the 18 drugs, suggesting that the ASP-based methodology may be even less suitable for these drugs. Upward trends in coupon program use and drug prices suggest that these programs could cause the methodology for setting Part B drug payment rates to become less suitable over time for drugs with coupon programs. However, the Centers for Medicare & Medicaid Services (CMS) lacks the authority to collect coupon discount data from manufacturers and thus lacks important information that could inform its ongoing efforts to evaluate alternatives to this methodology. To determine the suitability of the Part B drug payment rate methodology for drugs with coupon programs, Congress should consider (1) granting CMS authority to collect data from drug manufacturers on coupon discounts for Part B drugs paid based on ASP; and (2) requiring CMS to periodically collect these data and report on the implications of coupon programs for this methodology. The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.
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TBI is the injury most likely to result in death or permanent disability. Recent Centers for Disease Control and Prevention (CDC) data indicate that each year approximately 50,000 people die, 210,000 are hospitalized and survive, and 70,000 to 90,000 individuals are disabled due to a TBI. CDC cautions that these numbers underestimate the numbers of individuals sustaining a TBI because they exclude individuals seen in emergency departments or other outpatient settings but not admitted to the hospital. Other researchers estimate that for each person who dies of TBI, 5 people are hospitalized and 27 are examined in emergency rooms without overnight hospitalization. Almost one-half of all TBIs result from transportation-related incidents. Most of the remainder result from falls, assaults, sports and recreation, and firearm-related injuries. Younger adults generally are more likely to be injured than older adults. Adult males sustain a TBI more than twice as frequently as women, and blacks are more likely than whites or Hispanics to sustain a TBI and to die from their injury. People at the lowest income levels are at the greatest risk of sustaining a TBI. Adults with TBI frequently have difficulty with executive skills, such as managing time, money, and transportation. They also have difficulty with short-term memory, concentration, judgment, and organization, which are necessary to function independently in the community. Adults with TBI often have normal intelligence but are unable to transfer learning from one environment to another. Both the private and public sectors finance acute care services to adults with TBI. When the individual progresses past the acute phase, private health insurance typically limits coverage of rehabilitation therapies and does not cover long-term care or community-based support services. As families exhaust their financial resources, the public sector pays for a greater share of the services received. Federal funding is available for medical and social support services under Medicaid, vocational rehabilitation services provided through state VR agencies, and for independent living services. (See app. III for a summary of the broad categories of services provided through these programs by at least one of the states we contacted.) Medicaid provides health care for about 37 million disabled, blind, or elderly people and low-income families. At the state level, Medicaid operates as a health insurance program under a state plan covering both required and state-selected optional health care services. Generally, state plan benefits must be provided in the same amount, duration, and scope to all Medicaid beneficiaries. With the exception of nursing facility care, most services provided under the standard Medicaid program are medically oriented. Standard Medicaid programs generally do not provide many of the long-term community-based support services needed by many adults with TBI. To provide long-term home and community-based services for broad groups of Medicaid beneficiaries--such as the elderly disabled or physically disabled, including adults with TBI--states generally have used 1915(c) waivers. There are currently over 200 home and community-based waiver programs serving more than 250,000 individuals nationwide. Under these waivers, states, with HCFA approval, can waive one or more of the requirements for statewideness, income and resource standards, comparability of services, and equal provision of services, as long as the average per capita cost of providing these services will not exceed the cost of institutional care. States select the services, the service definition, the target population, and the number of individuals included under each HCFA-approved home and community-based waiver. Examples of services that can be provided under these waivers are personal care, homemaker, and nonmedical transportation services. Adults with TBI might benefit from some home and community-based services covered under broad-based waivers. However, these individuals often are unable to qualify for such services because the preadmission screening process may be oriented to physical rather than cognitive disabilities. For example, Colorado Medicaid reports that most adults with TBI are unlikely to qualify for the broad-based waiver for elderly and physically disabled individuals because the assessment weighs physical factors more heavily than cognitive factors. Pennsylvania has a home and community-based waiver for personal attendant services, but beneficiaries with cognitive impairment are excluded. In addition, home and community-based waivers targeted to individuals who are aged or physically disabled generally do not cover services needed by cognitively impaired individuals, such as cognitive rehabilitation. States generally use Medicaid home and community-based waivers to target Medicaid services to small groups of adults with TBI. Missouri, however, narrowly targets services from its standard Medicaid program to persons with TBI. Home and community-based waivers can be used by states to target select services to smaller, more specific groups of individuals, such as adults with TBI. HCFA reports that, as of June 1997, a total of 15 states have applied for and received TBI waivers. These programs are small, covering an estimated 2,478 individuals and $118 million in expenditures in 1996. Four of the states we contacted--Colorado, Minnesota, New Hampshire, and New Jersey--have TBI home and community-based waivers to compensate for the difficulty some adults with TBI experience in accessing services. In addition to services covered, the four waivers vary in terms of the target population, the number of individuals served, expenditures per individual, and the services covered. (See table 1.) The TBI waivers for three of the four states--Minnesota, New Hampshire, and New Jersey--target people in nursing facilities and similar institutions or at risk of institutional placement. Many of these individuals will likely require home and community-based services like those covered by the waiver for the remainder of their lives. In contrast, Colorado's waiver targets adults with TBI in the hospital who receive post-hospital waiver services so that they can be discharged more quickly. Colorado estimates that individuals will receive services under the TBI waiver for 2 years; after that time, they will receive, if necessary, services under the home and community-based waiver for the elderly, blind, and disabled, which covers a less intense level of services. Minnesota's TBI waiver covers two levels of home and community-based care: (1) for individuals at risk of nursing home placement and (2) for individuals at risk of placement in neurobehavioral units in hospitals. Some waiver services are covered by all four states: case management, personal care, respite care, environmental modifications, transportation, behavior modification programs, and day treatment or day care programs.Some type of alternative residential setting, cognitive rehabilitation, assistive technology, independent living training, specialized medical equipment and supplies, and mental health services are covered by three of the four states. Many of the services covered under the TBI waivers are similar to services required by other people with physical disabilities or chronic illnesses, such as personal care services or extended physical, occupational, and speech therapies. Some, however, are particularly useful to adults with TBI, such as cognitive rehabilitation or behavioral programming. (See app. IV for a comprehensive list of services covered under Colorado's, Minnesota's, New Hampshire's, and New Jersey's TBI waivers.) Fewer than 500 individuals are covered by these waivers in the four states, with large variation among the states in the number covered, ranging from 36 served in Colorado to 231 served in Minnesota. The actual cost per person also varies widely, ranging from less than $10,000 per person in Colorado to almost $80,000 in New Hampshire. The differences in actual cost per person reflect differences in the target population. For example, according to Colorado Medicaid, the lower cost per person reflects the fact that the waiver targets individuals who, although they receive costly treatment following discharge from the hospital, receive these services for only a short period of time. In contrast, New Hampshire reports that their higher cost per person reflects their target population, who are more disabled than TBI waiver recipients in other states and whom other states generally do not place in the community. In its standard Medicaid program, Missouri includes a package of services targeted specifically to adults with TBI, including neuropsychological, psychological, vocational, and recreational services, as well as physical, occupational, and speech therapies. Adults with TBI receive this service package for 6 to 12 months. In state fiscal year 1996, Missouri Medicaid provided its TBI service package to an average of 19 persons each month at a cost totaling almost $614,000. Missouri Medicaid officials chose to narrowly target these services to adults with TBI under the standard Medicaid program because this was administratively simpler than a home and community-based waiver. VR and ILS--Department of Education programs administered by the states--provide services to disabled adults, including adults with TBI, to support their reentry into the community. VR programs provide vocational rehabilitation services to help disabled individuals prepare for and obtain employment. ILS provides training, peer support, advocacy, and referral through a decentralized system of federally funded ILS programs to help people with disabilities live independently. Both programs are financed by a combination of federal and state funds--totaling roughly $2.5 billion in 1996--and receive referrals from a variety of sources. VR provides vocational rehabilitation services to individuals with disabilities, including adults with TBI, to prepare them for and support them during their transition to employment. To be eligible, individuals must have a documentable disability that impedes employment but does not preclude the ability to work and must demonstrate a need for vocational rehabilitation services. Eligible individuals and VR counselors develop an individualized plan that includes an employment objective and services needed to reach that objective. These services can include rehabilitative therapies and supported employment services, which provide individuals who are integrated into a work setting post-employment support--such as job coaching or on-the-job training--to help facilitate their transition to employment. VR generally can provide supported employment services, for a maximum of 18 months; after this time, states must either find additional funds to pay for continuing services or discontinue the services. Adults with TBI, however, may still need these services to continue working. All federally funded ILS centers are required to provide four core services--independent living skills training, peer support, advocacy, and referral--to individuals with disabilities, including adults with TBI, on a continuing basis. Whether a center purchases additional services for consumers is determined locally. As a result, there is likely to be variation in whether ILS offers other services, such as personal assistant services or home modification, from state to state and within a state. ILS emphasizes peer support and consumer-directed action. The adult with TBI is provided information and peer support to determine his or her specific needs as well as referrals and advocacy from an ILS specialist. Trainers--generally individuals with similar disabilities--help the consumer identify barriers and ways to get around them. In some of the states we contacted, TBI experts expressed concern about the ILS model of consumer-directed needs assessment. Adults with TBI often do not recognize their own limitations and lack executive skills to coordinate services. Medicaid, VR, and ILS expenditures for adults with TBI are small relative to total program expenditures. Total Medicaid expenditures for adults with TBI are unknown, but the expenditures for TBI home and community-based waiver services alone in three of the four states with these waivers are greater than the combination of VR expenditures for adults with TBI and all ILS expenditures. States with small Medicaid programs targeted specifically to adults with TBI are able to identify the costs of these programs. VR agencies are able to identify the costs of services to adults with TBI. However, the costs of adults with TBI served by ILS or the entire Medicaid program cannot be determined. Medicaid waiver expenditures for 1996 vary widely, from $300,000 in Colorado to $6.6 million in New Jersey; VR and ILS expenditures vary less. (See table 2 for federal and state expenditures in these programs.) Five states that we contacted--Arizona, Florida, Massachusetts, Missouri, and Pennsylvania--have developed programs funded exclusively by the state to provide services to a generally small number of adults with TBI.These programs--which obtain services from other programs and pay only for services that cannot be financed otherwise--are more flexible than Medicaid waiver programs. For example, Massachusetts' program has a sliding fee scale for services, which would not be permitted under Medicaid. Florida and Missouri have no income requirement for case management services, although Missouri restricts other services to those whose income is at or below 185 percent of poverty. While case management is a key component of each of these programs,the funds available to purchase services vary widely, as do the number of people served. (See table 3.) The states' administration of their programs varies somewhat with regard to program referral, restrictions, and oversight. Four programs receive referrals from individuals, families, providers, advocates, and other state agencies. Florida's program, however, receives notification from a central registry--to which admitting hospitals are mandated to report--of all individuals with a TBI who are hospitalized overnight. Individuals reported to the central registry are assigned to case managers, who provide the individual and his or her family with information on all available resources. The Florida program tries to refer as many individuals as possible to the vocational rehabilitation program with the objective of returning them to work. Four of the five states--Arizona, Florida, Massachusetts, and Missouri--do not place limits on the length of time services can be provided. In contrast, Pennsylvania places time--and cost--limits on services provided. In Pennsylvania, adults with TBI are limited to 36 months for case management services and 2 years for rehabilitation services. To date, however, Pennsylvania has only enforced its cost limit, which is $125,000 per year per person for rehabilitation. Four of the five states--Pennsylvania is the exception--have legislatively mandated that their state-funded programs have an advisory council to provide guidance and oversight. These advisory councils are generally composed of representatives of persons with TBI, state agencies concerned with TBI, and experts in the field. Some adults with TBI encounter substantial barriers in accessing services that will support their reintegration into the community. Although the states we contacted have developed strategies to expand such services, a small number of individuals relative to the number of adults with TBI are generally served by these programs. For example, in 1996, Colorado provided services under its TBI Medicaid waiver to 36 adults and Missouri served 223 in its state-funded program; GAO analysis shows that Colorado and Missouri have 4,006 and 5,578 individuals, respectively, who sustain a TBI each year. Florida is the exception. In 1996, Florida served more than 3,100 individuals with TBI, and the state estimates that 1,829 residents sustain a TBI each year. We asked program representatives and experts to describe individuals who have the greatest difficulty in accessing services from these and other programs and the consequences of being unable to access services. These experts most frequently identified three groups: individuals who are cognitively impaired but lack physical impairments, individuals without personal advocates, and individuals with problematic behaviors. They reported that many of these people ultimately end up homeless or in nursing homes, institutions for mental illness, prisons, and other institutions. Individuals who are cognitively impaired but lack physical disabilities are less likely than those with more visible impairments to obtain services. Experts repeatedly told us that adults with TBI who walk, talk, and look "normal" are refused services, even though they cannot maintain themselves in the community without help. Cognitively impaired people frequently lack executive skills--such as managing time, money, and other aspects of daily living--and have difficulty functioning independently. This difficulty will most likely last throughout their lifetime. These individuals frequently do not qualify for Medicaid waiver services under programs for the physically disabled because they have little to no difficulty in bathing, dressing, eating, or other activities of daily living used to assess disability. The services needed by these adults with TBI--which may include someone to remind them to pay the bills or provide assistance in figuring out their bank balance--are relatively low-cost but crucial to their ability to live in the community. The lack of executive skills also complicates the ability of adults with TBI to negotiate the various service delivery systems. People without someone to act as their personal advocate have difficulty obtaining services from multiple programs. We repeatedly heard that an adult with TBI without an effective and knowledgeable advocate would probably not receive services. People without social support systems or whose social support systems fail also fall into this category. Adults with TBI often return to their parents' home following hospital discharge. Even those married at injury may be cared for by their parents, since many married adults with TBI divorce post-injury. TBI advocates report that parents who have been the primary caregiver frequently are unable to continue to provide care due to exhaustion, aging, or death. As a result, individuals cared for by their parents for years suddenly appear, trying to obtain services to remain in the community. People with problematic behaviors--such as aggression, destructiveness, or participation in illegal activities--generally do not have the skills required to return to the community and usually require expensive treatment in residential environments with a great deal of structure. Without treatment, these individuals are the most likely to become homeless, be committed to a mental institution, or be sentenced to prison. A number of providers, such as day treatment or outpatient rehabilitation programs and nursing homes, often will not accept people with behavioral problems, either because of potential disruption to their programs or because they claim that Medicaid reimbursement rates do not compensate them for the resources needed to care for these individuals. For example, we were told about one person who had been discharged from 14 nursing homes in 6 months due to behavioral problems. Some of the states we contacted do not have programs for adults with TBI who have behavioral problems. Minnesota funds treatment for limited numbers of individuals with the most severe behaviors, but funding at a lower level may be inadequate to provide services for those less severely affected. With faster emergency response and advances in technology and treatment, the number of persons surviving a TBI has increased. A substantial number of adults with TBI are cognitively impaired and some have physical disabilities; however, their longevity is usually not affected. As a result, individuals with permanent disability require long-term supportive services to remain in the community. The nine states we contacted deliver long-term community-based services to adults with TBI through Medicaid or state-funded programs. As shown by our analysis of Medicaid programs targeted specifically to adults with TBI and state-financed programs, few adults with TBI are being served by these programs. Based on state reports of the number of individuals who sustain a TBI in a year, the gap between the number receiving long-term services and the estimated number of disabled adults with TBI remains wide. We provided a draft of this report to the Administrator of HCFA. We also provided draft reports to officials at the Department of Education, CDC, National Institutes of Health, the Health Resources and Services Administration, and the Brain Injury Association; Medicaid officials; vocational rehabilitation officials in each of five states with Medicaid programs specifically targeting adults with TBI; and officials of the five state-funded programs for persons with TBI. A number of these officials provided technical or clarifying comments, which we incorporated as appropriate. In addition, CDC pointed out the need for data and referral systems by which persons with TBI-related disability are identified and referred for services. CDC suggested that components of such systems might include, for example, population-based registries of persons sustaining acute TBI (developed in conjunction with state TBI surveillance systems) and guidelines for acute care providers and hospitals pertaining to follow-up service referral for patients with TBI. In many or most jurisdictions, such systems do not exist, with the result that many persons with TBI-related disabilities--especially those who have sustained less severe injuries--may be unaware of the availability of services. CDC's comments reinforce our conclusions that the need for services among people with TBI appears to greatly exceed the services delivered. We will send copies of this report to the Secretaries of the Departments of Health and Human Services and Education, the Administrator of HCFA, state officials in the nine states we interviewed, appropriate congressional committees, and other interested parties. We will also make copies available to others upon request. Please contact me on (202) 512-7114 or Phyllis Thorburn on (202) 512-7012 if you or your staff have any questions. Major contributors to this report are Sally Kaplan and Mary Ann Curran. The Congress passed the Traumatic Brain Injury Act of 1996 (P.L. 104-166) to expand efforts to identify methods of preventing TBI, expand biomedical research efforts to prevent or minimize the severity of dysfunction as a result of TBI, and to improve the delivery and quality of services through state demonstration projects. The legislation authorizes CDC to carry out projects to reduce the incidence of TBI, the National Institutes of Health (NIH) to grant awards for basic and applied TBI research, and the Health Resources and Services Administration (HRSA) to carry out demonstration projects to improve access to services for the assessment and treatment of TBI. A total of $24.5 million for fiscal years 1997 through 1999 was authorized for the act. In response to the authorizations included in the Traumatic Brain Injury Act, CDC issued grants to 11 states in July 1997 to develop new TBI surveillance projects and planned to submit reports to the Congress on surveillance projects in spring 1998 and in 1999. A grant to develop an additional state TBI registry is scheduled to be awarded in summer 1998. NIH plans to conduct a TBI consensus development conference in October 1998. The consensus panel will address the epidemiology, consequences, treatment, and outcomes of TBI and make recommendations regarding rehabilitation practices and research needs. HRSA awarded demonstration project grants to 21 states, which became effective October 1997. We focused our study on post-acute services provided to individuals who sustain a TBI as adults. We defined post-acute services as those provided after hospital discharge. In most of the states we contacted, individuals injured at age 22 or older are considered differently than individuals injured prior to age 22, who receive services from programs for persons with a developmental disability. Based on a review of the literature and interviews with individuals knowledgeable about TBI, we assembled a list of 35 states that have developed programs targeted to persons with TBI. From that list, we selected nine states: four with Medicaid TBI home and community-based waivers and five with state programs providing direct services to adults with TBI. We selected the TBI waiver states with the largest (New Hampshire) and second smallest (Colorado) estimated per capita cost for 1996. Figure III.1 provides an overview of the broad categories of services provided to adults with TBI by standard Medicaid programs, by broad-based and TBI Medicaid home and community-based waivers, and by VR and ILS programs. Although there is substantial overlap among the general categories of service, there are differences in the groups to whom services are targeted, the requirements to obtain them, and the length of time services are provided. Figure IV.1 shows the specific services offered to adults with TBI by four of the states that we contacted--Colorado, Minnesota, New Hampshire, and New Jersey--under their TBI home and community-based Medicaid waivers. Case management is a Medicaid administrative function in Colorado. PT, OT, ST are physical, occupational, and speech therapies. Other services include substance abuse counseling, home health care, family support services, crisis response, community support, supported employment, or night supervision. 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 federal and state efforts to provide services the individuals with traumatic brain injury (TBI), focusing on the: (1) primary federal and state programs that provide adults with TBI services to help them function more independently; (2) strategies that states have developed to enhance access to TBI-related services; and (3) circumstances believed to be most frequently associated with difficulty in obtaining services. GAO noted that: (1) adults with TBI receive services to facilitate their reintegration into the community primarily from three federal-state programs: Medicaid, vocational rehabilitation (VR), and Independent Living Services (ILS); (2) Medicaid provides medical, rehabilitation, and social support services to poor individuals with disabilities; (3) VR agencies provide services to individuals with disabilities to prepare them for and support them during the transition to employment; (4) ILS programs provide skills training to individuals with disabilities to facilitate their independence in the community; (5) all three programs are financed by a combination of federal and state funds and serve a range of individuals with disabilities, only a small number of whom have a TBI; (6) because most of the services covered by standard Medicaid programs are medical, all states have expanded Medicaid services through home and community-based waivers, which permit them to offer additional services--such as homemaker services, adult day care, and nonmedical transportation--to persons at risk of institutionalization; (7) these Medicaid waivers generally target long-term community-based services to a broad population, such as the physically disabled or disabled elderly; (8) recognizing the difficulties adults with TBI experience in accessing services, each of the states GAO contacted have developed various strategies to target services to adults with TBI; (9) five target Medicaid services specifically to limited numbers of adults with TBI; (10) despite these strategies, service gaps are likely--the number of adults with TBI who are provided services remains small relative to estimates of the total number; (11) according to program representatives and experts, those most likely to have difficulty accessing services are: (a) individuals with cognitive impairment but who lack physical disabilities; (b) individuals without an effective advocate to negotiate the social service system or without a social support system; and (c) individuals with problematic or unmanageable behaviors, such as aggression, destructiveness, or participation in illegal behaviors; and (12) without treatment, individuals with problematic or unmanageable behaviors are the most likely to become homeless, institutionalized in a mental facility, or imprisoned.
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Section 861 of the NDAA for FY2008 directed the Secretary of Defense, the Secretary of State, and the USAID Administrator to sign a memorandum of understanding (MOU) related to contracting in Iraq and Afghanistan. The law specified a number of issues to be covered in the MOU, including the identification of common databases to serve as repositories of information on contract and contractor personnel. The NDAA for FY2008 required the databases to track at a minimum: a brief description of the contract, its total value, and whether it was awarded competitively, and for contractor personnel working under contracts in Iraq or Afghanistan, total number employed, total number performing security functions, and total number who have been killed or wounded. In July 2008, DOD, State, and USAID signed an MOU in which they agreed the Synchronized Predeployment and Operational Tracker (SPOT) would be the system of record for the statutorily-required contract and contractor personnel information. The MOU specified SPOT would include information on DOD, State, and USAID contracts with more than 14 days of performance in Iraq or Afghanistan or valued at more than the simplified acquisition threshold, which the MOU stated was $100,000, as well as information on the personnel working under those contracts. While DOD is responsible for all maintenance and upgrades to the SPOT database, each agency agreed in the MOU to ensure that data elements related to contractor personnel, such as the number of personnel employed on each contract in Iraq or Afghanistan, are accurately entered into SPOT by its contractors. SPOT is designed to track contractor personnel by name and record information such as the contracts they are working under, deployment dates, and next of kin. Contract data elements, such as value and extent of competition, are to be imported into SPOT from the Federal Procurement Data System - Next Generation (FPDS- NG), the federal government's system for tracking information on contracting actions. The need for information on contracts and contractor personnel to inform decisions and oversee contractors is critical given DOD, State, and USAID's extensive reliance on contractors to support and carry out their missions in Iraq and Afghanistan. We have reported extensively on the management and oversight challenges of using contractors to support contingency operations and the need for decision makers to have accurate, complete, and timely information as a starting point to address those challenges. Although much of our prior work has focused on DOD, the lessons learned can be applied to other agencies relying on contractors to help carry out their missions. The agencies' lack of complete and accurate information on contractors supporting contingency operations may inhibit planning, increase costs, and introduce unnecessary risk, as illustrated in the following examples: Limited visibility over contractors obscures how extensively agencies rely on contractors to support operations and help carry out missions. In our 2006 review of DOD contractors supporting deployed forces, we reported that a battalion commander in Iraq was unable to determine the number of contractor-provided interpreters available to support his unit. Such a lack of visibility can create challenges for planning and carrying out missions. Further, knowledge of who is on their installation, including contractor personnel, helps commanders make informed decisions regarding force protection and account for all individuals in the event of hostile action. Without incorporating information on contractors into planning efforts, agencies risk making uninformed programmatic decisions. As we noted in our 2004 and 2005 reviews of Afghanistan reconstruction efforts, when developing its interim development assistance strategy, USAID did not incorporate information on the contractor resources required to implement the strategy. We determined this impaired USAID's ability to make informed decisions on resource allocations for the strategy. A lack of accurate financial information on contracts impedes agencies' ability to create realistic budgets. As we reported in July 2005, despite the significant role of private security providers in enabling Iraqi reconstruction efforts, neither State, DOD, nor USAID had complete data on the costs associated with using private security providers. Agency officials acknowledged such data could help them identify security cost trends and their impact on the reconstruction projects, as increased security costs resulted in the reduction or cancellation of some projects. Lack of insight into the contract services being performed increases the risk of paying for duplicative services. In the Balkans, where billions of dollars were spent for contractor support, we found in 2002 that DOD did not have an overview of all contracts awarded in support operations. Until an overview of all contractor activity was obtained, DOD did not know what the contractors had been contracted to do and whether there was duplication of effort among the contracts that had been awarded. Costs can increase due to a lack of visibility over where contractors are deployed and what government support they are entitled to. In our December 2006 review of DOD's use of contractors in Iraq, an Army official estimated that about $43 million was lost each year to free meals provided to contractor employees at deployed locations who also received a per diem food allowance. Many recommendations from our prior work on contractors supporting contingency operations focused on increasing agencies' ability to track contracts and contractor personnel so that decision makers--whether out in the field or at headquarters--can have a clearer understanding of the extent to which they rely on contractors, improve planning, and better account for costs. While actions have been taken to address our recommendations, DOD, State, and USAID officials have told us that their ability to access information on contracts and contractor personnel to inform decisions still needs improvement. Specifically, information on contracts and the personnel working on them in Iraq and Afghanistan may reside solely with the contractors, be stored in a variety of data systems, or exist only in paper form in scattered geographical regions. These officials indicated that the use of SPOT has the potential to bring some of this dispersed information together so that it can be used to better manage and oversee contractors. DOD, State, and USAID have made progress in implementing SPOT. However, as we reported last month, DOD, State, and USAID's on-going implementation of SPOT currently falls short of providing agencies with information that would help facilitate oversight and inform decision making, as well as fulfill statutory requirements. Specifically, we found that the agencies have varying criteria for deciding which contractor personnel are entered into the system and, as a result, not all required contractor personnel have been entered. While the agencies have used other approaches to obtain personnel information, such as periodic contractor surveys, these approaches have provided incomplete data that should not be relied on to identify trends or draw conclusions. In addition, SPOT, which was intended to serve as a central repository of information on contracts performed in Iraq or Afghanistan, currently lacks the capability to track required contract information as agreed to in the MOU. DOD, State, and USAID have been phasing in the MOU requirement to use SPOT to track information on contracts and the personnel working on them in Iraq and Afghanistan. In January 2007, DOD designated SPOT as its primary system for collecting data on contractor personnel deployed with U.S. forces and directed contractor firms to enter personnel data for contracts performed in Iraq and Afghanistan. State started systematically entering information for both Iraq and Afghanistan into SPOT in November 2008. In January 2009, USAID began requiring contractors in Iraq to enter personnel data into SPOT. However, USAID has not yet imposed a similar requirement on its contractors in Afghanistan and has no time frame for doing so. In implementing SPOT, DOD, State, and USAID's criteria for determining which contractor personnel are entered into SPOT varied and were not consistent with those contained in the MOU, as the following examples illustrate: Regarding contractor personnel in Iraq, DOD, State, and USAID officials stated the primary factor for deciding to enter contractor personnel into SPOT was whether a contractor needed a SPOT- generated letter of authorization (LOA). However, not all contractor personnel, particularly local nationals, in Iraq need LOAs and agency officials informed us that such personnel were not being entered into SPOT. For Afghanistan, DOD offices varied in their treatment of which contractor personnel should be entered into SPOT. Officials with one contracting office stated the need for an LOA determined whether someone was entered into SPOT. As a result, since local nationals generally do not need LOAs, they are not in SPOT. In contrast, DOD officials with another contracting office stated they follow DOD's 2007 guidance on the use of SPOT. According to that guidance, contractor personnel working on contracts in Iraq and Afghanistan with more than 30 days of performance and valued over $25,000 are to be entered into SPOT--as opposed to the MOU threshold of 14 days of performance or a value over $100,000. These varying criteria and practices stem, in part, from differing views on the agencies' need to collect and use data on certain contracts and the personnel working on them. For example, some DOD officials we spoke with questioned the need to track contractor personnel by name as opposed to their total numbers given the cost of collecting detailed data compared to the benefit of having this information. However, DOD officials informed us that the agencies did not conduct any analyses of what the appropriate threshold should be for entering information into SPOT given the potential costs and benefits of obtaining such information prior to establishing the MOU requirements. As a result of the varying criteria, the agencies do not have an accurate or consistent picture of the total number of contractor personnel in Iraq and Afghanistan. Although officials from all three agencies expressed confidence that SPOT data were relatively complete for contractor personnel who need LOAs, they acknowledged SPOT does not fully reflect the number of local nationals working on their contracts. Agency officials further explained ensuring SPOT contains information on local nationals is challenging because their numbers tend to fluctuate due to the use of day laborers and local firms do not always track the individuals working for them. Absent robust contractor personnel data in SPOT, DOD, State, and USAID have relied on surveys of their contractors to obtain information on the number of contractor personnel. However, we determined the resulting data from these surveys are similarly incomplete and unreliable and, therefore, should not be used to identify trends or draw conclusions about the number of contractor personnel in each county. Additionally, officials from all three agencies stated that they lack the resources to verify the information reported by the contractors, particularly for work performed at remote sites where security conditions make it difficult for U.S. government officials to regularly visit. According to DOD officials, the most comprehensive information on the number of DOD contractor personnel in Iraq and Afghanistan comes from the U.S. Central Command's (CENTCOM) quarterly census. As shown in table 1, DOD's census indicated there were 200,807 contractors working in Iraq and Afghanistan as of the second quarter of fiscal year 2009, which is 83,506 more than what was reported in SPOT. However, DOD officials acknowledged the census numbers represent only a rough approximation of the actual number of contractor personnel in each country. For example, an Army-wide review of fiscal year 2008 third quarter data determined approximately 26,000 contractors were not previously counted. Information on these contractors was included in a subsequent census. As a result, comparing third and fourth quarter data would incorrectly suggest that the number of contractors increased, while the increase is attributable to more accurate counting. Conversely, there have also been instances of contractor personnel being double counted in the census. Although State reported most of its contractor personnel are currently entered into SPOT, the agency relied on periodic inquiries of its contractors to obtain a more complete view of contractor personnel in the two countries. State reported 8,971 contractor personnel were working on contracts in Iraq and Afghanistan during the first half of fiscal year 2009. Even relying on a combination of data from SPOT and periodic inquiries, it appeared State underreported its contractor personnel numbers. For example, although State provided obligation data on a $5.6 million contract for support services in Afghanistan, State did not report any personnel working on this contract. USAID relied entirely on contractor surveys to determine the number of contractor personnel working in Iraq and Afghanistan. The agency reported 16,697 personnel worked on its contracts in Iraq and Afghanistan during the first half of fiscal year 2009. However, we identified a number of contracts for which contractor personnel information was not provided, including contracts to refurbish a hydroelectric power plant and to develop small and medium enterprises in Afghanistan worth at least $6 million and $91 million, respectively. Although some information on contracts is being entered into SPOT, the system currently lacks the capability to accurately import and track the contract data elements as agreed to in the MOU. While the MOU specifies contract values, competition information, and descriptions of the services being provided would be pulled into SPOT from FPDS-NG, this capability is not expected to be available until 2010. Once the direct link is established, pulling FPDS-NG data into SPOT may present challenges because of how data are entered. While contract numbers are the unique identifiers that will be used to match records in SPOT to those in FPDS- NG, SPOT users are not required to enter the numbers in a standardized manner. In our review of SPOT data, we identified that at least 12 percent of the contracts had invalid contract numbers and, therefore, could not be matched to records in FPDS-NG. Additionally, using contract numbers alone may be insufficient since specific task orders are identified through a combination of the contract and task order numbers. However, SPOT users are not required to enter task order numbers. For example, for one SPOT entry that only had the contract number without an order number, we found that DOD had placed 12 different orders--ranging from a few thousand dollars to over $129 million--against that contract. Based on the information in SPOT, DOD would not be able to determine which order's value and competition information should be imported from FPDS-NG. As SPOT is not yet fully operational as a repository of information on contracts with performance in Iraq and Afghanistan, DOD, State, and USAID relied on a combination of FPDS-NG, agency-specific databases, and manually compiled lists of contract actions to provide us with the contract information necessary to fulfill our mandate. None of the agencies provided us with a cumulative listing of all their contract actions for Iraq and Afghanistan. Instead, they provided a total of 48 separate data sets that we then analyzed to identify almost 85,000 contracts with performance in Iraq and Afghanistan that totaled nearly $39 billion in obligations in fiscal year 2008 and the first half of fiscal year 2009. Our analyses involved compiling the data from the multiple sources, removing duplicate entries, and standardizing the data that were reported. To address the shortcomings we identified in the agencies' implementation of SPOT, we recommended in our October 2009 report that the Secretaries of Defense and State and the USAID Administrator jointly develop and execute a plan with associated timeframes for their continued implementation of the NDAA for FY2008 requirements, specifically ensuring that the agencies' criteria for entering contracts and contractor personnel into SPOT are consistent with the NDAA for FY2008 and with the agencies' respective information needs for overseeing contracts and contractor personnel; revising SPOT's reporting capabilities to ensure that they fulfill statutory requirements and agency information needs; and establishing uniform requirements on how contract numbers are to be entered into SPOT so that contract information can accurately be pulled from FPDS-NG as agreed to in the MOU. In commenting on our recommendation, DOD and State disagreed with the need for a plan to address the issues we identified. They cited ongoing coordination efforts and anticipated upgrades to SPOT as sufficient. While USAID did not address our recommendation, it similarly noted plans to continue meeting with DOD and State regarding SPOT. We believe continued coordination among the three agencies is important. They should work together to implement a system that is flexible across the agencies but still provides detailed information to better manage and oversee contractors. However, they also need to take the actions contained in our recommendation if the system is to fulfill its potential. By jointly developing and executing a plan with time frames, the three agencies can identify the concrete steps they need to take and assess their progress in ensuring the data in SPOT are sufficiently reliable to fulfill statutory requirements and their respective agency needs. Absent such a plan and actions to address SPOT's current shortcomings, the agencies will be reliant on alternative sources of data--which are also unreliable and incomplete. As a result, they will continue to be without reliable information on contracts and contractor personnel that can be used to help address some longstanding contract management challenges. Messrs. Chairmen, this concludes my prepared statement. I would be happy to respond to any questions you or the other commissioners may have. For further information about this statement, please contact John P. Hutton (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Johana R. Ayers, Assistant Director; Noah Bleicher; Raj Chitikila; Christopher Kunitz; Heather Miller; and Morgan Delaney Ramaker. 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This statement discusses ongoing efforts by the Department of Defense (DOD), the Department of State (State), and the U.S. Agency for International Development (USAID) to track information on contractor personnel and contracts in Iraq and Afghanistan. Reliable, meaningful data on contractors and the services they provide are necessary to inform agency decisions on when and how to effectively use contractors, provide support services to contractors, and ensure that contractors are properly managed and overseen. The importance of such data is heightened by the unprecedented reliance on contractors in Iraq and Afghanistan and the evolving U.S. presence in the two countries. The statement focuses on (1) how information on contractor personnel and contracts can assist agencies in managing and overseeing their use of contractors and (2) the status of DOD, State, and USAID's efforts to track statutorily-required information on contractor personnel and contracts in Iraq and Afghanistan, as well as our recent recommendations to address the shortcomings we identified in their efforts. This statement is drawn from our October 2009 report on contracting in Iraq and Afghanistan, which was mandated by section 863 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA for FY2008), and a related April 2009 testimony. Our prior work was prepared in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audits to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The need for information on contracts and contractor personnel to inform decisions and oversee contractors is critical given DOD, State, and USAID's extensive reliance on contractors to support and carry out their missions in Iraq and Afghanistan. The agencies' lack of complete and accurate information on contractors supporting contingency operations may inhibit planning, increase costs, and introduce unnecessary risk, as illustrated in the following examples: (1) Limited visibility over contractors obscures how extensively agencies rely on contractors to support operations and help carry out missions; (2) Without incorporating information on contractors into planning efforts, agencies risk making uninformed programmatic decisions; (3) A lack of accurate financial information on contracts impedes agencies' ability to create realistic budgets; (4) Lack of insight into the contract services being performed increases the risk of paying for duplicative services; and (5) Costs can increase due to a lack of visibility over where contractors are deployed and what government support they are entitled to. DOD, State, and USAID have made progress in implementing the Synchronized Predeployment and Operational Tracker (SPOT). However, as we reported last month, DOD, State, and USAID's on-going implementation of SPOT currently falls short of providing agencies with information that would help facilitate oversight and inform decision making, as well as fulfill statutory requirements.
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With the 21st century challenges we are facing, it is more vital than ever to maximize the performance of federal agencies in achieving their long-term goals. The federal government must address and adapt to major trends in our country and around the world. At the same time, our nation faces serious long-term fiscal challenges. Increased pressure also comes from world events: both from the recognition that we cannot consider ourselves "safe" between two oceans--which has increased demands for spending on homeland security--and from the U.S. role in combating terrorism in an increasingly interdependent world. To be able to assess federal agency performance and hold agency managers accountable for achieving their long-term goals, we need to know what the level of performance is. GPRA planning and reporting requirements can provide this essential information. Our country's transition into the 21st century is characterized by a number of key trends, including the national and global response to terrorism and other threats to our personal and national security; the increasing interdependence of enterprises, economies, markets, civil societies, and national governments, commonly referred to as globalization; the shift to market-oriented, knowledge-based economies; an aging and more diverse U.S. population; rapid advances in science and technology and the opportunities and challenges created by these changes; challenges and opportunities to maintain and improve the quality of life for the nation, communities, families, and individuals; and the changing and increasingly diverse nature of governance structures and tools. As the nation and government policymakers grapple with the challenges presented by these evolving trends, they do so in the context of rapidly building fiscal pressures. GAO's long-range budget simulations show that this nation faces a large and growing structural deficit due primarily to known demographic trends and rising health care costs. The fiscal pressures created by the retirement of the baby boom generation and rising health costs threaten to overwhelm the nation's fiscal future. As figure 1 shows, by 2040, absent reform or other major tax or spending policy changes, projected federal revenues will likely be insufficient to pay much beyond interest on publicly held debt. Further, our recent shift from surpluses to deficits means the nation is moving into the future in a weaker fiscal position. The United States has had a long-range budget deficit problem for a number of years, even during recent years when we had significant annual budget surpluses. Unfortunately, the days of surpluses are gone, and our current and projected budget situation has worsened significantly. The bottom line is that our projected budget deficits are not manageable without significant changes in "status quo" programs, policies, processes, and operations. Doing nothing is simply not an option, nor will marginal efforts be enough. Difficult choices will have to be made. Clearly, the federal government must start to exercise more fiscal discipline on both the spending side and the tax side. While many spending increases and tax cuts may be popular, they may not all be prudent. However, there is not a single solution to the problems we face; a number of solutions are needed. It will take the combined efforts of many parties over an extended period for these efforts to succeed. GPRA, which was enacted 10 years ago, provides a foundation for examining agency missions, performance goals and objectives, and results. While this building effort is far from complete, it has helped create a governmentwide focus on results by establishing a statutory framework for performance management and accountability. The necessary infrastructure has been built to generate meaningful performance information. For example, through the strategic planning requirement, GPRA has required federal agencies to consult with the Congress and key stakeholders to reassess their missions and long-term goals as well as the strategies and resources they will need to achieve their goals. It also has required agencies to articulate goals for the upcoming fiscal year that are aligned with their long-term strategic goals. Finally, agencies are required to report annually on their progress in achieving their annual performance goals. Therefore, information is available about current missions, goals, and results. Our prior assessments of the quality of agency planning and reporting documents indicate that significant progress has been made in meeting the basic requirements of GPRA. For example, we found improvements in agencies' strategic plans, such as clearer mission statements and long-term goals. Also, after we found many weaknesses in agencies' first annual performance plans, subsequent plans showed improvements, such as the frequent use of results-oriented goals and quantifiable measures to address performance. Finally, a high and increasing percentage of federal managers we surveyed in 1997 and 2000 reported that there were performance measures for the programs with which they were involved. Those managers who reported having performance measures also increasingly reported having outcome, output, and efficiency measures. We will be updating our analysis of the quality of agency planning and reporting efforts and our survey of federal managers as part of our 10-year retrospective review of GPRA. The report will be available next month. As we move further into the 21st century, it becomes increasingly important for the Congress, OMB, and other executive agencies to consider how the federal government can maximize performance and results, given the significant fiscal limitations I have described. GPRA can help address this question by linking the results that the federal government seeks to achieve to the program approaches and resources that are necessary to achieve those results. The performance information produced by GPRA's planning and reporting infrastructure can help build a government that is better equipped to deliver economical, efficient, and effective programs that can help address the challenges facing the federal government. Clearly, federal agencies have made strides in laying the foundation of planning and performance information that will be needed to address our 21st century challenges. We are now moving to a more difficult but more important phase of GPRA implementation, that is, using results-oriented performance information as a routine part of agencies' day-to-day management, and congressional and executive branch decision making. To achieve a greater focus on results and maximize performance, federal agencies will need to make greater use of GPRA documents, such as strategic plans, to guide how they do business every day--both internally, in terms of guiding individual employee efforts, as well as externally, in terms of coordinating activities and interacting with key stakeholders. However, much work remains before this framework is effectively implemented across the government, including (1) transforming agencies' organizational cultures to improve decision making and strengthen performance and accountability, (2) developing meaningful, outcome- oriented performance goals and measures and collecting useful performance data, (3) addressing widespread mission fragmentation and overlap, and (4) using performance information in allocating resources. The cornerstone of federal efforts to successfully meet current and emerging public demands is to adopt a results orientation, that is, to develop a clear sense of the results an agency wants to achieve as opposed to the products and services (outputs) an agency produces and the processes used to produce them. Adopting a results orientation requires transforming organizational cultures to improve decision making, maximize performance, and ensure accountability--it entails new ways of thinking and doing business. This transformation is not an easy one and requires investments of time and resources as well as sustained leadership commitment and attention. Our prior work on GPRA implementation has found that many agencies face significant challenges in establishing an agency-wide results- orientation. Federal managers we surveyed have reported that agency leaders do not consistently demonstrate a strong commitment to achieving results. Furthermore, these managers believed that agencies do not always positively recognize employees for helping the agency accomplish its strategic goals. In addition, we have reported that high-performing organizations seek to shift the focus of management and accountability from activities and processes to contributions and achieving results. However, although many federal managers in our survey reported that they were held accountable for the results of their programs, only a few reported that they had the decision making authority they needed to help the agencies accomplish their strategic goals. Finally, although managers we surveyed increasingly reported having results-oriented performance measures for their programs, the extent to which these managers reported using performance information for any of the key management activities we asked about mostly declined from earlier survey levels. To be positioned to address the array of challenges we face, federal agencies will need to transform their organizational cultures so that they are more results-oriented, customer-focused, and collaborative. Leading public organizations here in the United States and abroad have found that strategic human capital management must be the centerpiece of any serious change management initiative and efforts to transform the cultures of government agencies. Performance management systems are integral to strategic human capital management. Such systems can be key tools to maximizing performance by aligning institutional performance measures with individual performance and creating a "line of sight" between individual and organizational goals. Leading organizations use their performance management systems as a key tool for aligning institutional, unit, and employee performance; achieving results; accelerating change; managing the organization day to day; and facilitating communication throughout the year so that discussions about individual and organizational performance are integrated and ongoing. Another key challenge to achieving a governmentwide focus on results is that of developing meaningful, outcome-oriented performance goals and collecting performance data that can be used to assess results. Performance measurement under GPRA is the ongoing monitoring and reporting of program accomplishments, particularly progress toward preestablished goals. It tends to focus on regularly collected data on the level and type of program activities, the direct products and services delivered by the program, and the results of those activities. For programs that have readily observable results or outcomes, performance measurement may provide sufficient information to demonstrate program results. In some programs, however, outcomes are not quickly achieved or readily observed, or their relationship to the program is uncertain. In such cases, more in-depth program evaluations may be needed, in addition to performance measurement, to examine the extent to which a program is achieving its objectives. However, our work has raised concerns about the capacity of federal agencies to produce evaluations of program effectiveness. Few of the agencies we reviewed deployed the rigorous research methods required to attribute changes underlying outcomes to program activities. Yet we have also seen how some agencies have profitably drawn on systematic program evaluations to improve their measurement of program performance or understanding of performance and how it might be improved. For example, to improve performance measurement, two agencies we reviewed used the findings of effectiveness evaluations to provide data on program results that were otherwise unavailable. Our work has also identified substantial, long-standing limitations in agencies' abilities to produce credible data and identify performance improvement opportunities that will not be quickly or easily resolved. For example, policy decisions made when designing federal programs, particularly intergovernmental programs, may make it difficult to collect timely and consistent national data. In administering programs that are the joint responsibility of state and local governments, the Congress and the executive branch continually balance the competing objectives of collecting uniform program information to assess performance with giving states and localities the flexibility needed to effectively implement intergovernmental programs. While progress has been made by federal agencies in laying a foundation of performance information for existing program activities and structures, the federal government has not realized the full potential of GPRA to address program areas that cut across federal agency boundaries. The government has made strides in this area in recent years. For example, in reviewing agencies' crosscutting plans in the area of wildland fire management, we found that both the Department of the Interior and the Forest Service, within the Department of Agriculture, discussed their joint participation in developing plans and strategies to address the growing threats to our forests and nearby communities from catastrophic wild fires. The Congress could make greater use of agency performance information to identify potential fragmentation, overlap, and duplication among federal programs. Virtually all of the results that the federal government strives to achieve require the concerted and coordinated efforts of two or more agencies. Our work has shown that mission fragmentation and program overlap are widespread, and that crosscutting federal program efforts are not well coordinated. For example, we have reported that seven federal agencies administer 16 programs that serve the homeless population, with the Department of Housing and Urban Development responsible for most of the funds. We have also frequently commented on the fragmented nature of our food safety system, with responsibility split between the Food Safety and Inspection Service within the Department of Agriculture, the Food and Drug Administration within the Department of Health and Human Services, and 10 other federal agencies. Crosscutting program areas that are not effectively coordinated waste scarce funds, confuse and frustrate program customers, and undercut the overall effectiveness of the federal effort. GPRA offers a structured and governmentwide means for rationalizing these crosscutting efforts. The strategic, annual, and governmentwide performance planning processes under GPRA provide opportunities for each agency to ensure that its goals for crosscutting programs complement those of other agencies; program strategies are mutually reinforcing; and, as appropriate, common performance measures are used. If GPRA is effectively implemented, the governmentwide performance plan and the agencies' annual performance plans and reports should provide the Congress with information on agencies and programs addressing similar results. Once these programs are identified, the Congress can consider the associated policy, management, and performance implications of crosscutting programs as part of its oversight of the executive branch. A key objective of GPRA is to help the Congress, OMB, and other executive agencies develop a clearer understanding of what is being achieved in relation to what is being spent. Linking planned performance with budget requests and financial reports is an essential step in building a culture of performance management. Such an alignment infuses performance concerns into budgetary deliberations, prompting agencies to reassess their performance goals and strategies and to more clearly understand the cost of performance. For the fiscal year 2005 budget process, OMB called for agencies to prepare a performance budget that can be used for the annual performance plan required by GPRA. Credible outcome-based performance information is absolutely critical to fostering the kind of debate that is needed. Linking performance information to budgeting carries great potential to improve the budget debate by changing the kinds of questions and information available to decision makers. However, performance information will not provide mechanistic answers for budget decisions, nor can performance data eliminate the need for considered judgment and political choice. If budget decisions are to be based in part on performance data, the integrity, credibility, and quality of these data and related analyses become more important. Moreover, in seeking to link resources to results, it will be necessary to improve the government's capacity to account for and measure the total costs of federal programs and activities. GPRA expanded the supply of performance information generated by federal agencies. OMB's Program Assessment Rating Tool (PART) proposes to build on GPRA by improving the demand for results-oriented information in the budget. It has the potential to promote a more explicit discussion and debate between OMB, the agencies, and the Congress about the performance of selected programs. Presumably, PART will identify expectation gaps, questions, and areas where further inquiry and analysis would be most useful. Fifty years of past efforts to link resources with results has shown that any successful effort must involve the Congress as a partner. In fact, the administration acknowledged that performance and accountability are shared responsibilities that must involve the Congress. It will only be through the continued attention of the Congress, the administration, and federal agencies that progress can be sustained and, more important, accelerated. Ultimately, the success of GPRA will be reflected in whether and how the Congress uses agency performance information in the congressional budget, appropriations, authorization, and oversight processes. As a key user of performance information, the Congress also needs to be considered a partner in shaping agency goals at the outset. More generally, effective congressional oversight can help improve federal performance by examining the program structures agencies use to deliver products and services to ensure that the best, most cost-effective mix of strategies is in place to meet agency and national goals. As part of this oversight, the Congress should consider the associated policy, management, and policy implications of crosscutting programs. Information produced in response to GPRA can be useful for congressional oversight as well as program management. As I have testified before, there are several ways that GPRA could be enhanced to provide better governmentwide information. First, there are many users of agencies' performance information--the Congress, the public, and the agency itself. One size does not fit all. To improve the prospect that agency performance information will be useful to and used by these different users, agencies need to consider the different information needs and how to best tailor their performance information to meet those needs. This might entail the preparation of simplified and streamlined plans and reports for the Congress and other external users. Second, we have previously reported that GPRA could provide a tool to reexamine federal government roles and structures governmentwide. GPRA requires the President to include in his annual budget submission a federal government performance plan. The Congress intended that this plan provide a "single cohesive picture of the annual performance goals for the fiscal year." The governmentwide performance plan could help the Congress and the executive branch address critical federal performance and management issues, including redundancy and other inefficiencies in how we do business. It could also provide a framework for any restructuring efforts. Unfortunately, this provision has not been fully implemented. If the governmentwide performance plan were fully implemented, it could also provide a framework for congressional oversight. For example, in recent years, OMB has begun to develop common measures for similar programs, such as job training. By focusing on broad goals and objectives, oversight could more effectively cut across organization, program, and other traditional boundaries. Such oversight might also cut across existing committee boundaries, which suggests that the Congress may benefit from using specialized mechanisms to perform oversight (i.e., joint hearings and special committees). Third, a strategic plan for the federal government, along with key national indicators to assess the government's performance, could provide an additional tool for governmentwide reexamination of existing programs, as well as proposals for new programs. If fully developed, a governmentwide strategic plan can potentially provide a cohesive perspective on the long- term goals of the federal government and provide a much needed basis for fully integrating, rather than merely coordinating, a wide array of federal activities. Successful strategic planning requires the involvement of key stakeholders. Thus, it could serve as a mechanism for building consensus. Further, it could provide a vehicle for the President to articulate long-term goals and a road map for achieving them. In addition, a strategic plan can provide a more comprehensive framework for considering organizational changes and making resource decisions. In addition to the annual budget resolution on funds, the Congress could also have a performance resolution that specifies performance expectations. Developing a strategic plan for the federal government would be an important first step in articulating the role, goals, and objectives of the federal government. It could help provide critical horizontal and vertical linkages. Horizontally, it could integrate and foster synergies among components of the federal government as well as help to clarify the role of the federal government vis-a-vis other sectors of our society. Vertically, it could provide a framework of federal missions and goals within which individual federal agencies could align their own missions and goals that would cascade down to individual employees. It also could link to a set of key national performance indicators. A set of key national indicators could also help to assess the overall position and progress of our nation in key areas, frame strategic issues, support public choices, and enhance accountability. Developing a key national indicator system goes beyond any one sector (e.g., public, private, or nonprofit). It requires designing and executing a process whereby diverse elements of society can participate in formulating key questions and choosing indicators in a way that increases consensus over time. Such a system will take time to develop. The federal government is an important and vital player in establishing such indicators. Fourth, the traditional oversight that the Congress provides to individual organizations, programs, and activities has an important role in eliminating redundancy and inefficiencies. Important benefits can be achieved through focused oversight if the right questions are asked about performance and management. Six key questions for program oversight are as follows: Does the program make sense given 21st century trends and challenges, including whether it is appropriate as an initiative of the federal government? Are there clear performance goals, measures, and data with which to track progress? Is the program achieving its goals? If not, why not? Does the program duplicate or even work at cross purposes with related programs and tools? Is the program targeted properly? Is the program financially sustainable and are there opportunities for instituting appropriate cost-sharing and recovery mechanisms? Can the program be made more efficient through reengineering or streamlining processes or restructuring organizational roles and responsibilities? Fifth, creating the results-oriented cultures needed to make GPRA a useful management tool depends on committed, top-level leadership and sustained attention to management issues. A chief operating officer (COO) could provide the sustained management attention essential for addressing key infrastructure and stewardship issues and could facilitate the transformation process. Establishing a COO position in selected federal agencies could provide a number of benefits. A COO would be the focal point for elevating attention on management issues and transformational change, integrating various key management and transformation efforts, and instituting accountability for addressing management issues and leading transformational change. A COO would provide a single organizational position for key management functions, such as human capital, financial management, information technology, acquisition management, and performance management as well as for transformational change initiatives. To be successful, in many cases, a COO will need to be among an agency's top leadership (e.g., deputy secretary or under secretary). However, consistent with the desire to integrate responsibilities, the creation of a senior management position needs to be considered with careful regard to existing positions and responsibilities so that it does not result in unnecessary "layering" at an agency. Consideration also should be given to providing a term appointment, such as a 5--7 year term. A term appointment would provide sustained leadership. No matter how the positions are structured, it is critical that the people appointed to these positions have proven track records in similar positions and be vested with sufficient authority to achieve results. To further clarify expectations and responsibilities, the COO should be subject to a clearly defined, results-oriented performance contract with appropriate incentives, rewards, and accountability mechanisms. For selected agencies, a COO should be subject to a Senate confirmation. In creating such a position, the Congress might consider making certain subordinate positions, such as the chief financial officer, not subject to Senate confirmation. In view of the broad trends and long-term fiscal challenges facing the nation, there is a need to consider how the Congress, OMB, and executive agencies can make better use of GPRA's planning and accountability framework to maximize the performance of not only individual programs and agencies but also the federal government as whole in addressing these challenges. The Congress can play a vital role in increasing the demand for such performance information by monitoring agencies' performance results, asking critical questions about goals not achieved, and considering whether adjustments are needed to maximize performance in the future. The large and growing fiscal gap means that tough, difficult choices will have to be made. Doing nothing is not an option. The Congress and the administration will need to use every tool at their disposal to address these challenges. In addressing these challenges, it will be important to set clear goals, involve all key players, and establish viable processes that will lead to positive results. Credible, timely, results-oriented performance information will be vital to this decisionmaking. Mr. Chairman, this concludes my prepared statement. We in GAO take our responsibility to assist in these crucial efforts very seriously. I would be pleased to respond to any questions that you or other Members of the Committee 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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Congress asked GAO to discuss the Government Performance and Results Act's (GPRA) success in shifting the focus of government operations from process to results and to evaluate the extent to which agency managers have embraced GPRA as a management tool. Further, Congress was interested in any recommendations GAO may have to improve the effectiveness of GPRA. GAO is conducting a comprehensive review of the effectiveness of GPRA since its enactment, including updating the results of our federal managers survey. The results of this review will be available next month. GPRA, which was enacted in 1993, provides a foundation for examining agency missions, performance goals and objectives, and results. While this building effort is far from complete, it has helped create a government-wide focus on results by establishing a statutory framework for management and accountability. This framework can improve the performance and accountability of the executive branch and enhance executive branch and congressional decisionmaking. In view of the broad trends and long-term fiscal challenges facing the nation, there is a need to consider how the Congress, the Office of Management and Budget, and executive agencies can make better use of GPRA's planning and accountability framework to maximize the performance of not only individual programs and agencies, but also of the federal government as whole in addressing these challenges. The necessary infrastructure has been built to generate meaningful performance information. For example, through the strategic planning requirement, GPRA has required federal agencies to consult with the Congress and key stakeholders to reassess their missions and long-term goals as well as the strategies and resources they will need to achieve their goals. It also has required agencies to articulate goals for the upcoming fiscal year that are aligned with their long-term strategic goals. Finally, agencies are required to report annually on their progress in achieving their annual performance goals. Therefore, information is available about current missions, goals, and results. We are now moving to a more difficult but more important phase of GPRA implementation, that is, using results-oriented performance information as a part of agencies' day-to-day management, and congressional and executive branch decision-making. However, much work remains before this framework is effectively implemented across the government, including (1) transforming agencies' organizational cultures to improve decisionmaking and strengthen performance and accountability, (2) developing meaningful, outcome-oriented performance goals and measures and collecting useful performance data, and (3) addressing widespread mission fragmentation and overlap. Furthermore, linking planned performance with budget requests and financial reports is an essential step in building a culture of performance management. Such an alignment can help to infuse performance concerns into budgetary deliberations. However, credible outcome-based performance information is critical to foster the kind of debate that is needed.
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VA's health care system is divided into 22 regional Veterans Integrated Service Networks (VISN), which serve as the basic budgetary and decision-making units for determining how best to provide services to veterans at medical centers and community-based outpatient clinics located within their geographic boundaries. Spread throughout the 22 VISNs are 172 medical centers, each headed by a director who manages administrative functions, along with a chief of staff who manages clinical functions for the entire medical center. VA medical centers also have designated managers for each area of care, such as primary and specialty care. Within each area of care, there may be many clinics, which can vary in purpose and size. For example, VA has clinics that manage the care of patients who are taking prescription medication for blood clots, and, due to their more limited scope, these clinics might have a small number of providers and staff. On the other hand, VA's primary care clinics--where physicians are responsible for the routine health needs of a caseload of patients--tend to have a relatively larger number of providers and staff. In addition, specialty care clinics, such as gastroenterology and urology, could provide patients with specific care within that specialty, such as treatment for hepatitis C and prostate cancer. In 1996, the Congress required VA to ensure that veterans enrolled in its health care system receive timely care. For outpatient care, VA established its "30-30-20" goals: routine primary care appointments are to be scheduled within 30 days from the date of request, as are specialty care appointments, and patients are to be seen within 20 minutes of their scheduled appointment time. Following reports of long waiting times from VA's medical centers and clinics, veterans' service organizations, veterans, the Inspector General, and us--VA began two initiatives to help identify and address waiting times problems. First, VA contracted with IHI, a Boston-based contractor, to help develop strategies to reduce waiting times. As part of this project, 134 teams from VA medical centers across the nation worked on reducing waiting times for appointments in selected primary or specialty care clinics. Over half of these teams focused on primary care. Second, VA began collecting patient waiting times data from its outpatient scheduling system--the Veterans Health Information Systems and Technology Architecture (VISTA), one of VA's main computer systems for clinical, management, and administrative functions. Over the past few years, VA made several modifications to its appointment scheduling software to develop more reliable data on waiting times. In March 2001, VA began using these waiting times data to identify clinics that failed to meet its 30-day standard. While most veterans using the primary care clinics we visited were able to get an appointment within 30 days, many seeking specialty care often had to wait longer than 30 days for a referral. Clinics with long waiting times often had poor scheduling procedures or did not use their staff efficiently. The chiefs of primary care at the 10 VA medical centers we visited reported that 15 of their 17 primary care clinics--or about 88 percent-- met VA's 30-day timeliness standard. The other two clinics reported waiting times of 56 and 61 days. However, chiefs of specialty care at the clinics we visited reported that patients with nonurgent needs often wait in excess of VA's 30-day standard (see fig. 1). The longest reported waiting times were in gastroenterology and optometry. At one location, veterans had to wait 282 days--more than 9 months--for an optometry appointment. These long waiting times were often the result of high percentages of patients not showing up for appointments, poor scheduling procedures, and inefficient use of staff. When veterans do not keep their appointments, some of the limited appointment slots are lost and are unavailable for other veterans. This could extend waiting times overall. Almost 60 percent of the 71 primary and specialty care clinics we visited had a no-show rate of 20 percent or greater. Gastroenterology had the highest average no- show rate at 29 percent. At one gastroenterology clinic, half of the scheduled patients did not show up for their appointments. Urology had the lowest average no-show rate at 18 percent. According to one clinic chief, patients failed to keep appointments because their health condition improved or they forgot about the appointment because it was scheduled so far into the future. Some clinics' scheduling procedures may actually encourage no-shows. For example, some clinics schedule appointments several months in advance. Although most clinics remind patients of their appointments--by mail or telephone--we found that some reminder systems were not sufficient to ensure that patients kept their appointments. For example, over 30 percent of the clinics we visited automatically rescheduled no- shows, and some did not follow up with the veterans to determine why they had missed the original appointments. In addition, in one clinic, staff told us that the patient often was not informed of this new appointment, making it likely that the patient would miss the new appointment as well. We found that inefficient use of staff could also limit the number of available appointment slots, contributing to long waiting times. For example, some specialists told us that they were treating patients who could be seen in primary care. Specifically, one chief of dermatology told us that she receives new patient referrals for conditions that could easily be treated in primary care, such as dry skin. In addition, several chiefs of orthopedics told us that they continue to see patients with conditions such as rheumatoid arthritis and back pain because the patients request appointments, even after their conditions have stabilized. Furthermore, shortages of nonprovider staff at some clinics also resulted in the inefficient use of physician time. For example, one orthopedic clinic did not have a cast technician, so an orthopedic surgeon had to apply and remove patient casts. At another clinic, a shortage of clerks resulted in nurses' assuming clerical duties--such as scheduling, admitting, and discharging patients--and physicians' assuming tasks that nurses would otherwise have handled, such as escorting patients to the examination room. As physicians assumed duties that could more appropriately have been fulfilled by nonphysician personnel, the number of appointments that could have been scheduled each day might have been reduced. When one appointment is linked to or dependent on another, scheduling and staffing problems can further compound delays. For example, two chiefs of orthopedics told us that patients who are scheduled for an x-ray prior to their orthopedic appointment sometimes arrive late to the orthopedic clinic or without an x-ray as a result of delays in the x-ray clinic. Because orthopedic surgeons typically must have x-rays to properly assess the severity of a patient's condition, patients who do not have x- rays often must reschedule their orthopedic appointments, wasting the original appointment and filling another future appointment slot on the schedule. While most of the clinics we visited continue to experience waiting times problems, several have reported success in reducing their waiting times-- primarily by improving their scheduling processes or making better use of staff. One VA medical center combined these and other strategies, and as a result, all but one of its clinics that we reviewed had reduced their waiting times to less than 30 days. According to the chiefs of several clinics we visited, their improved waiting times were, in part, the result of their increasing the number of available patient appointments. To make more appointments available, these clinics reduced the number of no-shows and reduced physician involvement in certain services. Some clinics also added more providers. To increase the likelihood that patients would show up for their appointments, the clinics we visited used various strategies, such as the following. One ophthalmology and optometry clinic reduced its no-show rate from 45 percent to 22 percent by having scheduling clerks call patients a few days in advance to remind them of their appointments. When making these calls, clerks found that some patients had forgotten their appointments and would likely have missed them had they not received the reminder call. Some patients, however, said that they did not plan to keep the appointments. In these cases, clerks were typically able to schedule another patient into the time slot and thus increase the number of patients that the provider could see each day and thereby reduce the number of days it took veterans to get appointments. A primary care clinic at another medical center reduced its no-show rate from 22 percent to about 12 percent through two actions. First, it changed its medical resident rotation rate to once every 3 years, allowing patients to develop relationships with the residents assigned to their care. The chief of this clinic told us that she believes that the patients are more comfortable knowing that they will see the same provider on each visit and so are more likely to keep their appointments. Second, this primary care clinic also used open access scheduling--an IHI technique--to reduce its no-show rate. The basic premise of open access scheduling is to schedule nonurgent appointments within 30 days to reduce the likelihood that patients would miss their appointments. For those patients needing appointments past the 30-day time frame, the center sends reminder notices near the time the patient needs to call in to schedule the appointment. According to this center's director of ambulatory care, lower no-show rates have helped to reduce patient waiting times for primary care. Further, to accommodate urgent patients who need same-day appointments, the medical center holds open the last two appointment slots for each provider in each clinic day. Clinics also freed up appointments by reducing provider involvement in services that do not require one-on-one physician-patient interaction. Providers in one medical center's primary care clinic now use an automated telephone system to convey the results of blood and other lab tests to patients when the test results are normal. The system automatically calls patients and instructs them to call the system back and enter a preassigned password to retrieve messages from their providers about the results of their tests--which patients can access at any time. The gastroenterology clinic at another medical center initiated group education classes for patients diagnosed with hepatitis C. In these classes, patients can receive information and ask questions about the virus. A primary care clinic at another medical center developed an innovative approach to educating patients newly diagnosed with chronic diseases, such as diabetes. Once diagnosed, each patient is given a "prescription" to take to the clinic's medical library, where the patient receives medical literature and other media on the disease. Providers at this clinic told us that patients who fill their library prescriptions know more about managing their own conditions and thus need less time with a physician. Chiefs of 12 clinics told us that they hired more providers--both physician and nonphysician--to increase the number of available appointments, thereby reducing waiting times. A urology clinic at one medical center hired a full-time urologist, and, according to the clinic's chief, this action--along with others such as providing education seminars for primary care physicians---helped reduce the clinic's waiting time from over 1 year to 30 days, over a period of several years. Another urology clinic hired a full-time physician's assistant to help in its general and procedure clinic. According to the chief of the clinic, clinic efficiency and the number of patients seen each day have increased because the physician's assistant can independently see patients. One eye care clinic hired a part-time optometrist, which helped to reduce the waiting times for patients requiring nonurgent appointments. Some clinic chiefs told us that, through the use of referral guidelines, they were able to increase the number of available specialty appointments by reducing the number of scheduled patients whose medical needs could more appropriately be met by a primary care provider. Some clinics have computerized their referral guidelines, which provides easy access to the guidelines, expedites referrals, and helps ensure that needed tests and exams are completed in advance. Efficiencies such as these enable clinics to increase the number of daily appointments available and help reduce waiting times. Half of the 54 specialty care clinics we visited had referral guidelines for primary care providers to use when determining whether to refer a patient to a specialist. For example, an orthopedics clinic at one medical center we visited implemented referral guidelines in September 1999 to encourage orthopedists to refer patients back to primary care after their orthopedic needs have been met. Seventeen months after the guidelines were implemented, the clinic's waiting times dropped from 200 days to 54 days. Referral guidelines also often indicate which laboratory tests need to be ordered by the primary care provider before a patient is referred to the specialist. According to the director of ambulatory care at another medical center--which established facilitywide referral guidelines--before the guidelines were implemented, primary care providers would notify specialists that patients were being referred. However, these referrals often did not include the primary care provider's assessment of the patient's condition. As a result, the specialists were required to spend time performing routine tests to assess patients' conditions. This same medical center requires its primary care providers to use a computerized checklist program, which prompts them to complete specific steps for each referral to a specialist. The referral is then reviewed for completeness and accuracy by a medical center team, and, if it meets the criteria, is sent forward to the specialist within a 24-hour period or less. According to medical center officials, this process has greatly reduced the number of unnecessary patient referrals and has helped to make the time that specialists spend with patients more productive. While the use of patient referral guidelines at the sites we visited varied from clinic to clinic and from one medical center to another, many officials told us that clearly defined and strictly adhered-to guidelines would help reduce the number of specialty referrals for conditions that could more appropriately be handled by a primary care provider and would maximize the time that specialists spend with patients. Yet half of the 54 specialty clinics we visited did not have any form of referral guidelines, and waiting times at these clinics were 25 percent longer than those clinics that had referral guidelines. Some chiefs of specialty and primary care told us that while they believe that referral guidelines could help them better manage their workload and increase the number of available appointment slots, they did not have time to establish such guidelines. One medical center significantly reduced its waiting times by using multiple strategies, phased in over a 4-year period, that completely restructured its health care delivery system. According to the medical center's director of ambulatory care, because of these changes, along with the hiring of a modest number of primary care providers, waiting times for primary care appointments have been reduced from an average of 35 days to an average of 20 days. In addition, waiting times for specialty care met the 30-day standard in all but one of the specialties we reviewed. For example, waiting times in urology were reduced from 3 months to 7 days, and waiting times in ophthalmology were reduced from more than a year to about 7 days. Before these strategies were implemented, the medical center operated under a "traditional" health care delivery model within VA--screening new patients in the emergency room and compensating for high no-show rates by overbooking appointments and allowing patients to walk in for care, regardless of the level of urgency. Based on information received during the VA-sponsored national collaborative with IHI, the medical center adopted several strategies to more effectively manage its patient workload. In addition to increasing available appointments and implementing referral guidelines, the medical center adopted three key features: the primary care model, walk-in triage, and centralized appointment scheduling. The primary care model. Almost all of the medical center's nonurgent patient care workload was shifted into primary care. Until 4 years ago, none of the veterans seeking care at this medical center were assigned to a primary care provider; now, about 97 percent are. Primary care providers are now expected to provide comprehensive, ongoing medical care and preventive health measures. They are also expected to coordinate patients' other health care needs, doing more diagnosis and treatment themselves before referring patients to specialists. For example, if a patient makes a request to see an orthopedist for a knee problem or a urologist for suspected prostate cancer, the primary care provider is expected to review the patient's records, order and review the results of needed tests, refer the patient to a specialist only when needed, and oversee and coordinate the patient's care. Walk-in triage. According to officials at the medical center, delivering nonurgent care on a walk-in basis (without a scheduled appointment)--a practice common at many VA medical centers--limits the number of appointments that can be scheduled because providers spend time on unscheduled walk-in patients instead of scheduled patients. They also said that treating walk-in patients is not in the best interest of the patients or providers because the treatment is episodic and lacks continuity of care; consequently, providers do not get to know the patients and are less involved in their overall health. The medical center now triages walk-in patients, with a nurse assessing them to determine whether they need emergency, urgent, or nonurgent care. If their conditions require care in the emergency room or urgent care clinic, they are seen immediately. However, if their conditions require nonurgent care, they are referred to a scheduling clerk, who schedules an appointment for them within 30 days. According to the medical center's director of ambulatory care, this approach helps to better ensure that patients are seen in the appropriate setting, maximizing the delivery of primary care and ensuring that patients with urgent symptoms, such as blurred vision, loss of breath, or acute pain, still receive the most timely care possible. Centralized appointment scheduling. Prior to centralized scheduling, clerks in each of the medical center's clinics scheduled patient appointments, resulting in a wide variety of scheduling practices. With centralized scheduling, patient appointments for all clinics are now scheduled from one administrative office. According to the center's director of ambulatory care, implementing a centralized scheduling system also allowed the individual clinic clerks more time to focus on other functions, including patient intake at appointment time and patient discharge activities such as recording patient visit information into encounter forms. According to the center's director of ambulatory care, implementing any of these strategies could result in reduced waiting times, but she believed that combining all of the strategies had the most significant effect. Although VA has set a performance goal for network directors and has contracted with IHI, it has generally relied on its medical centers nationwide to develop and implement strategies to reduce their own waiting times. However, clinic officials we talked to noted that more guidance and direction from VA on implementing and using referral guidelines could help them in their efforts to reduce waiting times. In addition, some chiefs of specialty and primary care clinics were unaware of the successes that other medical centers have had in reducing waiting times and told us that they would find such information useful in developing their own strategies. However, VA has not provided clinics with referral guidelines, nor has it assessed or disseminated ways to improve patient waiting times that have worked at some clinics. VA also lacks a systematic process for determining the causes of long waiting times, for monitoring clinics' progress in reducing waiting times, and for helping those centers and clinics that continue to have long waiting times. Clinic officials told us that while IHI's strategies for reducing waiting times have been useful, they could benefit from more guidance and direction from VA--including referral guidelines and information on best practices--to help them implement these strategies. In April 1998, VA established a requirement that all medical centers and community-based outpatient clinics adopt a primary care model--a system in which patients use primary care providers to manage their care. In implementing a primary care model, VA strongly suggested that its health care facilities establish guidelines for primary care providers to follow in deciding when to refer patients to specialty care. According to the chief of primary care at one medical center we visited, the center's guidelines for referrals to urology and gastroenterology have resulted in improved communication between these specialists and primary care providers, fewer inappropriate referrals, more complete information on patients who have been referred, and ultimately shorter waiting times for patients in these two specialty clinics. However, the chief of primary care also told us that the medical center had not developed referral guidelines for the three other specialty care areas that we reviewed. Overall, we found that half of the 54 specialty care clinics we visited have implemented referral guidelines. Further, the existence and use of referral guidelines varied within a medical center and even within a specialty. For example, in one medical center, only the urology clinic had developed referral guidelines. In another medical center, referral guidelines were not available for two of the five specialty care areas that we reviewed. Several of the chiefs of primary and specialty care we spoke to indicated that implementing referral guidelines would help reduce the number of inappropriate referrals and the time specialists spend with patients, but they did not have the time to develop such guidelines and would like headquarters to do so. Although headquarters officials told us that they believe that providing minimum guidelines could serve as a framework for medical centers and clinics to build on and could help standardize the referral process, VA has not yet developed a national set of referral guidelines for its medical centers and clinics to use. Clinic officials also told us that they could benefit from learning about other clinics' successes--especially those achieved through VA's initial project with IHI. In July1999, IHI began working with 134 teams from various medical centers across the nation, representing 160 different clinics. Nine of the 10 medical centers we visited had teams that participated in the IHI project--including the medical center that had reduced waiting times by implementing a primary care model, referral guidelines, centralized appointment scheduling, and a system for triaging walk-ins. However, as of July 2001, none of the 134 teams' findings have been summarized and publicized, leaving the medical centers and clinics nationwide to independently determine how to implement IHI's strategies for reducing waiting times. In March 2001, VA entered into a second contract with IHI to identify and disseminate information on clinics' best practices for reducing waiting times. According to an official from VA headquarters, this second contract should help VA communicate and share, nationwide, the results of medical centers and clinics that have had success in reducing waiting times. When VA established its 30-day waiting times standard for primary and specialty care over 5 years ago, it also established the objective that clinics meet this standard by 1998. However, until several months ago, VA had problems collecting accurate and reliable patient waiting times data. The deficiencies in the data limited its ability to identify clinics that were not meeting its 30-day timeliness standard. After several modifications to its national data collection software package, VA can now identify those clinics that exceed the 30-day standard systemwide. In September 1999, VA began holding its network directors responsible for meeting the 30-day waiting times standard for six clinic types. As of March 2001, VA data showed that about half of VA's nearly 17,500 clinics for these six clinic types were meeting VA's 30-day standard (see table 1). According to a headquarters' official, VA is planning to notify, in several phases, clinics whose waiting times have not met the 30-day standard. VA has begun by notifying clinics whose waiting times exceed 120 days and, in the next phase, plans to notify clinics whose waiting times exceed 90 days. In March 2001, VA reported that 948 of its clinics had waiting times of 120 days or more in the six medical care areas that VA is using to measure VISN director performance. VA has also developed new waiting time performance objectives to be met by 2003: 90 percent of nonurgent primary care patients and 90 percent of patients with nonurgent specialty care referrals are to be seen within 30 days. However, VA has not developed an analytic framework for identifying root causes and tracking progress for solving these clinics' waiting times problems. Consequently, over 8,700 clinics for the six areas in which waiting times are longer than 30 days are left to independently develop a process for identifying these root causes. Moreover, while VA distributed a report showing waiting times data to each of its networks, it did not require networks to develop corrective actions for medical centers and clinics that failed to meet the 30-day waiting times standard. As a result, VA cannot be sure that medical center management is making progress to meet this standard. Some of the 71 clinics in the 10 medical centers we visited have successfully begun to address their waiting times problems for patients-- often by implementing IHI's strategies--and several are meeting VA's 30- day goal to provide nonurgent, outpatient primary and specialty care. However, many veterans continue to experience long waits for appointments, especially for certain types of care--despite VA's initial objective to have its medical centers and clinics meet the 30-day standard by 1998. While VA's two contracts with IHI are important first steps needed to expedite solving its waiting times problems systemwide, the Department could provide more guidance and direction to medical centers and clinics to reduce patient waiting times. In particular, VA has not established national referral guidelines--with local discretion, as appropriate--even though many centers and clinics told us that they need such guidelines but do not have the time to develop them. In addition, VA has not provided medical centers and clinics with an analytic framework for identifying the root causes of their long waiting times. Such a framework could greatly help those centers and clinics that need assistance. Until VA develops a systematic approach for identifying, analyzing, and monitoring waiting times problems, veterans will continue to be at risk of experiencing long waits in their access to nonurgent primary and specialty care. To help ensure that clinics meet VA's 30-day waiting times standard, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to take the following actions: Create a national set of referral guidelines for medical centers to use when referring patients from primary care to specialty care as well as guidelines for specialty clinics to follow in returning patients to primary care when they no longer need specialty care. Strengthen oversight by developing an agencywide process for determining the causes of waiting times problems; implementing corrective actions, where needed; and requiring periodic progress reports from clinics with long waiting times until they meet VA's national standards. We provided VA a draft of our report for its review. In its comments, VA agreed with our findings and concurred with both of our recommendations (see appendix II). In response to our first recommendation, VA acknowledged the need to develop national referral guidelines for specialty care and has charged its newly formed National Waiting Time Steering Committee to address this issue. In response to our second recommendation, VA stated that its ongoing collaboration with IHI should provide an analytic roadmap for facilities to use in analyzing their waiting time problems. In addition, VA is working with IHI to develop a reporting instrument for clinics to use in monitoring waiting time progress. As arranged with your office, unless you announce its contents earlier, we plan no further distribution of this report until 30 days after its date. At that time, we will send copies to the Secretary of Veterans Affairs, appropriate congressional committees, and other interested parties. We will make copies available to others upon request. Please contact me at (202) 512-7101 if you or your staffs have any questions. Another contact and key contributors to this report are listed in appendix III. To determine the extent to which clinics are meeting VA's 30-day appointment standard for outpatient primary and specialty care and to learn about approaches some clinics have used to improve waiting times, we visited 10 medical centers selected to include a variety of different-size medical centers, with relatively high, medium, and low numbers of patient visits, located across the United States. The results of the site selection are reflected in figure 2. At these locations, we visited in total 71 clinics--17 primary care clinics and 54 clinics in five specialty areas: dermatology, gastroenterology, eye care (ophthalmology and optometry), orthopedics, and urology--within 10 VA medical centers. We selected these specialties, using data from VA's national VISTA database for April, May and June 2000, because the data showed that these areas had some of the highest waiting times for scheduled outpatient clinic appointments compared to other VA specialty areas. During these site visits, we interviewed the medical center directors and chiefs of staff, when available, and clinic management and staff, including scheduling clerks and information resource managers. We also reviewed documents that these medical centers and clinics provided, such as examples of referral guidelines that primary care providers use before referring patients to specialists. We also spoke with VA headquarters officials. To identify VA's efforts to help medical centers and clinics deliver timely care, we interviewed VA headquarters, medical center, and clinic officials and reviewed documents relating to VA's past and current projects with IHI. We also reviewed VA's Annual Performance Report Fiscal Year 2000 and other documents detailing VA's goals to reduce its waiting times for appointments. To assess VA's progress in improving the accuracy of waiting times data, we reviewed VA's VISTA waiting time data for July 2000 through March 2001 and reviewed documentation of VA's changes to the VISTA scheduling software, but we did not verify these data. We also interviewed chiefs of primary and specialty care clinics at the 10 medical centers we visited and obtained clinic waiting times data from these officials. Apart from data verification, we conducted our work from August 2000 through July 2001 in accordance with generally accepted government auditing standards. In addition to the contact named above, James Espinoza, Lisa Gardner, Sigrid McGinty, Karen Sloan, Bradley Terry, and Alan Wernz made key contributions to this report. Major Management Challenges and Program Risks: Department of Veterans Affairs (GAO-01-255, Jan. 1, 2001). Veterans' Health Care: VA Needs Better Data on Extent and Causes of Waiting Times (GAO/HEHS-00-90, May 31, 2000). VA Health Care: Progress and Challenges in Providing Care to Veterans (GAO/T-HEHS-99-158, July 15, 1999). Veterans' Affairs: Progress and Challenges in Transforming Health Care (GAO/T-HEHS-99-109, Apr. 15, 1999). VA Health Care: More Veterans Are Being Served, but Better Oversight Is Needed (GAO/HEHS-98-226, Aug. 28, 1998). VA Health Care: Status of Efforts to Improve Efficiency and Access (GAO/HEHS-98-48, Feb. 6, 1998). Veterans' Health Care: Veterans' Perceptions of VA Services and VA's Role in Health Care Reform (GAO/HEHS-95-14, Dec. 23, 1994). VA Health Care: Restructuring Ambulatory Care System Would Improve Services to Veterans (GAO/HRD-94-4, Oct. 15, 1993).
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The Department of Veterans Affairs (VA) runs one of the nation's largest health care systems. In fiscal year 2000, roughly four million patients made 39 million outpatient visits to more than 700 VA health care facilities nationwide. However, excessive waiting times for outpatient care have been a long-standing problem. To ensure timely access to care, VA established a goal that all nonurgent primary and specialty care appointments be scheduled within 30 days of request and that clinics meet this goal by 1998. Yet, three years later, reports of long waiting times persist. Waiting times at the clinics in the 10 medical centers GAO visited indicate that meeting VA's 30-day standard is a continuing challenge for many clinics. Although most of the primary care clinics GAO visited (15 of 17) reported meeting VA's standard for nonurgent, outpatient appointments, only one-third of the specialty care clinics visited (18 of 54) met VA's 30-day standard. For the remaining two-thirds, waiting times ranged from 33 days at one urology clinic to 282 days at an optometry clinic. Although two-thirds of the specialty clinics GAO visited continued to have long waiting times, some were making progress in reducing waiting times, primarily by improving their scheduling processes and making better use of their staff. These successes were often the result of medical centers' and clinics' working with the Institute for Healthcare Improvement (IHI)--a private contractor VA retained in July 1999--to develop strategies to reduce patient waiting times. Medical centers and clinics participating in VA's IHI project have received valuable information and strategies for successfully reducing waiting times. However, VA has not provided guidance to its medical centers on how to implement IHI strategies, and VA has only recently contracted with IHI to disseminate best practices agency-wide. VA has not developed other national guidance to help clinics reduce waiting times. Although clinics that did not have guidelines could have benefited from headquarters' assistance, VA has not established a national set of referral guidelines. Moreover, VA lacks an analytic framework for its medical centers and clinics to use in determining the root causes of lengthy waits.
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The Aviation and Transportation Security Act (ATSA) established TSA as the primary federal agency with responsibility for securing the nation's civil aviation system. This responsibility includes the screening of all passengers and property transported from and within the United States by commercial passenger aircraft. In accordance with ATSA, all passengers, their accessible property, and their checked baggage are screened pursuant to TSA-established procedures at the more than 450 airports at which TSA performs, or oversees the performance of, security screening operations. These procedures generally provide, among other things, that passengers pass through security checkpoints where their person, identification documents, and accessible property, are checked by screening personnel. Since its implementation, in 2009, Secure Flight has changed from a program that identifies passengers as high risk solely by matching them against federal government watch lists--primarily the No Fly List, comprised of individuals who should be precluded from boarding an aircraft, and the Selectee List, composed of individuals who should receive enhanced screening at the passenger security checkpoint--to one that uses additional lists and risk-based criteria to assign passengers to a risk category: high risk, low risk, or unknown risk. In 2010, following the December 2009 attempted attack on a U.S.-bound flight, which exposed gaps in how agencies used watch lists to screen individuals, TSA began using risk-based criteria to create additional lists for Secure Flight screening. These lists are composed of high-risk passengers who may not be in the Terrorist Screening Database (TSDB), but who TSA has determined should be subject to enhanced screening procedures.Further, in 2011, TSA began screening passengers against additional identities in the TSDB that are not included on the No Fly or Selectee Lists. In addition, as part of TSA Pre™️, a 2011 program through which TSA designates passengers as low risk for expedited screening, TSA began screening against several new lists of preapproved low-risk travelers. TSA also began conducting TSA Pre™️ risk assessments, an activity distinct from matching against lists that uses the Secure Flight system to assign passengers scores based upon their travel-related data, for the purpose of identifying them as low risk for a specific flight. According to TSA officials, AIT systems, also referred to as full-body scanners, provide enhanced security benefits compared with those of walk-through metal detectors by identifying nonmetallic objects and liquids. Following the deployment of AIT, the public and others raised privacy concerns because AIT systems produced images of passengers' bodies that image operators analyzed to identify objects or anomalies that could pose a threat to an aircraft or to the traveling public. To mitigate those concerns, TSA began installing automated target recognition (ATR) software on deployed AIT systems in July 2011.with ATR (AIT-ATR) automatically interpret the image and display anomalies on a generic outline of a passenger instead of displaying images of actual passenger bodies. Screening officers use the generic image of a passenger to identify and resolve anomalies on-site in the presence of the passenger. TSA PreTM is intended to allow TSA to devote more time and resources at the airport to screening the passengers TSA determined to be higher or unknown risk, while providing expedited screening to those passengers determined to pose a lower risk to the aviation system. To assess whether a passenger is eligible for expedited screening, TSA considers, in general, (1) inclusion on an approved TSA PreTM list of known travelers; (2) results from the automated TSA PreTM risk assessments of all passengers; and (3) real-time threat assessments of passengers, known as Managed Inclusion, conducted at airport checkpoints. Managed Inclusion uses several layers of security, including procedures that randomly select passengers for expedited screening and a combination of behavior detection officers (BDO), who observe passengers to identify high-risk behaviors at TSA-regulated airports; passenger-screening canine teams; and explosives trace detection (ETD) devices to help ensure that passengers selected for expedited screening have not handled explosive material. TSA also shares responsibility with airports to vet airport workers to ensure they do not pose a security threat. Pursuant to TSA's Aviation Workers program, TSA, in collaboration with airport operators and FBI, is to complete applicant background checks--known as security threat assessments--for airport facility workers, retail employees, and airline employees who apply for or are issued a credential for unescorted access to secure areas in U.S. airports. In September 2014, we reported on three issues affecting the effectiveness of TSA's Secure Flight program--(1) the need for additional performance measures to capture progress toward Secure Flight program goals, (2) Secure Flight system matching errors, and (3) mistakes screening personnel have made in implementing Secure Flight at the screening checkpoint. TSA has taken steps to address these issues but additional action would improve the agency's oversight of the Secure Flight program. Need for additional performance measures: In September 2014, we found that Secure Flight had established program goals that reflect new program functions since 2009 to identify additional types of high-risk and also low-risk passengers; however, the program performance measures in place at that time did not allow TSA to fully assess its progress toward achieving all of its goals. For example, one program goal was to accurately identify passengers on various watch lists. To assess performance toward this goal, Secure Flight collected various types of data, including the number of passengers TSA identifies as matches to high- and low-risk lists, but did not have measures to assess the extent of system matching errors--for example, the extent to which Secure Flight is missing passengers who are actual matches to these lists. We concluded that additional measures that address key performance aspects related to program goals, and that clearly identify the activities necessary to achieve goals, in accordance with the Government Performance and Results Act, would allow TSA to more fully assess progress toward its goals. Therefore, we recommended that TSA develop such measures, and ensure these measures clearly identify the activities necessary to achieve progress toward the goal. DHS concurred with our recommendation and, according to TSA officials, as of April 2015, TSA's Office of Intelligence and Analysis was evaluating its current Secure Flight performance goals and measures and determining what new performance measures should be established to fully measure progress against program goals. Secure Flight system matching errors: In September 2014, we found that TSA lacked timely and reliable information on all known cases of Secure Flight system matching errors, meaning instances where Secure Flight did not identify passengers who were actual matches to these lists. TSA officials told us at the time of our review that when TSA receives information related to matching errors of the Secure Flight system, the Secure Flight Match Review Board reviews this information to determine if any actions could be taken to prevent similar errors from happening again. We identified instances in which the Match Review Board discussed system matching errors, investigated possible actions to address these errors, and implemented changes to strengthen system performance. However, we also found that TSA did not have readily available or complete information on the extent and causes of system matching errors. We recommended that TSA develop a mechanism to systematically document the number and causes of the Secure Flight system's matching errors, in accordance with federal internal control standards. DHS concurred with our recommendation, and as of April 2015, TSA had developed such a mechanism. However, TSA has not yet demonstrated how it will use the information to improve the performance of the Secure Flight system. Mistakes at screening checkpoint: We also found in September 2014 that TSA had processes in place to implement Secure Flight screening determinations at airport checkpoints, but could take steps to enhance these processes. Screening personnel at passenger screening checkpoints are primarily responsible for ensuring that passengers receive a level of screening that corresponds to the level of risk determined by Secure Flight by verifying passengers' identities and identifying passengers' screening designations. To carry out this responsibility, among other steps, screening personnel are to confirm that the data included on the passenger's boarding pass and in his or her identity document (such as a driver's license) match one another, and review the passenger's boarding pass to identify his or her Secure Flight passenger screening determination. TSA information from May 2012 through February 2014 that we assessed indicates that screening personnel made errors at the checkpoint in screening passengers consistent with their Secure Flight determinations. TSA officials at five of the nine airports where we conducted interviews stated they conducted after-action reviews of such screening errors and used these reviews to take action to address the root causes of those errors. However, we found that TSA did not have a systematic process for evaluating the root causes of these screening errors across airports, which could allow TSA to identify trends across airports and target nationwide efforts to address these issues. Officials with TSA's Office of Security Operations told us in the course of our September 2014 review that evaluating the root causes of screening errors would be helpful and stated they were in the early stages of forming a group to discuss these errors. However, TSA was not able to provide documentation of the group's membership, purpose, goals, time frames, or methodology. Therefore, we recommended in September 2014 that TSA develop a process for evaluating the root causes of screening errors at the checkpoint and then implement corrective measures to address those causes. DHS concurred with our recommendations and has developed a process for collecting and evaluating data on the root causes of screening errors. However, as of April 2015, TSA had not yet shown that the agency has implemented corrective measures to address the root causes. In March 2014, we reported that, according to TSA officials, checkpoint security is a function of technology, people, and the processes that govern them, however we found that TSA did not include each of those factors in determining overall AIT-ATR system performance. Specifically, we found that TSA evaluated the technology's performance in the laboratory to determine system effectiveness. However, laboratory test results provide important insights but do not accurately reflect how well the technology will perform in the field with actual human operators. Additionally, we found that TSA did not assess how alarms are resolved by considering how the technology, people, and processes function collectively as an entire system when determining AIT-ATR system performance. AIT-ATR system effectiveness relies on both the technology's capability to identify threat items and its operators to resolve those threat items. At the time of our review, TSA officials agreed that it is important to analyze performance by including an evaluation of the technology, operators, and processes, and stated that TSA was planning to assess the performance of all layers of security. According to TSA, the agency conducted operational tests on the AIT-ATR system, as well as follow-on operational tests as requested by DHS's Director of Operational Test and Evaluation, but those tests were not ultimately used to assess effectiveness of the operators' ability to resolve alarms, as stated in DHS's Director of Operational Test and Evaluation's letter of assessment on the technology. Transportation Security Laboratory officials also agreed that qualification testing conducted in a laboratory setting is not always predictive of actual performance at detecting threat items. Further, laboratory testing does not evaluate the performance of screening officers in resolving anomalies identified by the AIT-ATR system or TSA's current processes or deployment strategies. Given that TSA was seeking to procure the second generation of AIT systems, known as AIT-2, we reported that DHS and TSA would be hampered in their ability to ensure that future AIT systems meet mission needs and perform as intended at airports unless TSA evaluated system effectiveness based on both the performance of the AIT-2 technology and screening officers who operate the technology. We recommended that TSA measure system effectiveness based on the performance of the AIT- 2 technology and screening officers who operate the technology while taking into account current processes and deployment strategies. TSA concurred and reported taking steps to address this recommendation. Specifically, in January 2015, DHS stated that TSA's Office of Security Capabilities evaluated the AIT-2 technology and screening officer as a system during an operational evaluation. However, TSA has not yet provided sufficient documentation showing that this recommendation has been fully addressed. In December 2014, we reported that, according to TSA officials, TSA tested the security effectiveness of the individual components of the Managed Inclusion process--such as BDOs and ETD devices--before implementing Managed Inclusion, and TSA determined that each layer alone provides an effective level of security. However, in our prior body of work, we identified challenges in several of the layers used in the Managed Inclusion process, raising questions regarding their effectiveness. For example, in our November 2013 report on TSA's behavior detection and analysis program, we found that although TSA had taken several positive steps to validate the scientific basis and strengthen program management of its behavior detection and analysis program, TSA had not demonstrated that behavioral indicators can be used to reliably and effectively identify passengers who may pose a threat to aviation security. Further, TSA officials stated that they had not yet tested the security effectiveness of the Managed Inclusion process as it functions as a whole, as TSA had been planning for such testing over the course of the last year. TSA documentation showed that the Office of Security Capabilities recommended in January 2013 that TSA test the security effectiveness of Managed Inclusion as a system. We reported in December 2014 that according to officials, TSA anticipated that testing would begin in October 2014 and estimated that testing could take 12 to 18 months to complete. We have also previously reported on challenges TSA has faced in designing studies and protocols to test the effectiveness of security systems and programs in accordance with established methodological practices, such as in the case of the AIT systems discussed previously and in our evaluation of BDO effectiveness. In our December 2014 report, we concluded that ensuring the planned effectiveness testing of the Managed Inclusion process adheres to established evaluation design practices would help TSA provide reasonable assurance that the effectiveness testing will yield reliable results. In general, evaluations are most likely to be successful when key steps are addressed during design, including defining research questions appropriate to the scope of the evaluation, and selecting appropriate measures and study approaches that will permit valid conclusions. As a result, we recommended that to ensure TSA's planned testing yields reliable results, the TSA Administrator take steps to ensure that TSA's planned effectiveness testing of the Managed Inclusion process adheres to established evaluation design practices. DHS concurred with our recommendation and began taking steps toward this goal. Specifically, DHS stated that TSA plans to use a test and evaluation process--which calls for the preparation of test and evaluation framework documents including plans, analyses, and a final report describing the test results-- for its planned effectiveness testing of Managed Inclusion. In December 2011, we found that, according to TSA, limitations in its criminal history checks increased the risk that the agency was not detecting potentially disqualifying criminal offenses as part of its Aviation Workers security threat assessments for airport workers. Specifically, we reported that TSA's level of access to criminal history record information in the FBI's Interstate Identification Index excluded access to many state records such as information regarding sentencing, release dates, and probation or parole violations, among others. As a result, TSA reported that its ability to look into applicant criminal history records was often incomplete. We recommended that the TSA and the FBI jointly assess the extent to which this limitation may pose a security risk, identify alternatives to address any risks, and assess the costs and benefits of pursuing each alternative. TSA and the FBI have since taken steps to address this recommendation. For example, in 2014, the agencies evaluated the extent of any risk and, according to TSA and FBI officials, concluded that the risk of incomplete information did exist and could be mitigated through expanded access to state-supplied records. TSA officials reported that the FBI has since taken steps to expand the criminal history record information available to TSA when conducting its security threat assessments for airport workers and others. Chairman Johnson, Ranking Member Carper, and members of the committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. For questions about this statement, please contact Jennifer Grover at (202) 512-7141 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), Claudia Becker, Michele Fejfar, and Tom Lombardi. Key contributors for the previous work that this testimony is based on are listed in each product. 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 the attacks of September 11, 2001 exposed vulnerabilities in the nation's aviation system, billions of dollars have been spent on a wide range of programs designed to enhance aviation security. Securing commercial aviation remains a daunting task, and continuing fiscal pressure highlights the need for TSA to determine how to allocate its finite resources for the greatest impact. GAO previously reported on TSA's oversight of its aviation security programs, including the extent to which TSA has the information needed to assess the programs. This testimony focuses on TSA's oversight of aviation security measures including, among other things (1) Secure Flight, (2) Advanced Imaging Technology, and (3) Managed Inclusion. This statement is based on reports and testimonies issued from December 2011 through May 2015. For prior work, GAO analyzed TSA documents and interviewed TSA officials, among other things. The Transportation Security Administration (TSA) has taken steps to improve oversight of Secure Flight--a passenger prescreening program that matches passenger information against watch lists and assigns each passenger a risk category--but could take further action to address screening errors. In September 2014, GAO reported that TSA lacked timely and reliable information on system matching errors--instances where Secure Flight did not identify passengers who were actual matches to watch lists. GAO recommended that TSA systematically document such errors to help TSA determine if actions can be taken to prevent similar errors from occurring. The Department of Homeland Security (DHS) concurred and has developed a mechanism to do so, but has not yet shown how it will use this information to improve system performance. In September 2014, GAO also found that screening personnel made errors in screening passengers at the checkpoint at a level consistent with their Secure Flight risk determinations and that TSA did not have a systematic process for evaluating the root causes of these errors across airports. GAO recommended that TSA develop a process for evaluating the root causes and implement corrective measures to address them. DHS concurred and has developed such a process but has not yet demonstrated implementation of corrective measures. In March 2014, GAO found that TSA performance assessments of certain full-body scanners used to screen passengers at airports did not account for all factors affecting the systems. GAO reported that the effectiveness of Advanced Imaging Technology (AIT) systems equipped with automated target recognition software (AIT-ATR)--which displays anomalies on a generic passenger outline instead of actual passenger bodies--relied on both the technology's capability to identify potential threat items and its operators' ability to resolve them. However, GAO found that TSA did not include these factors in determining overall AIT-ATR system performance. GAO also found that TSA evaluated the technology's performance in the laboratory--a practice that does not reflect how well the technology will perform with actual human operators. In considering procurement of the next generation of AIT systems (AIT-2), GAO recommended that TSA measure system effectiveness based on the performance of both the technology and the screening personnel. DHS concurred and in January 2015 reported that it has evaluated the AIT-2 technology and screening personnel as a system but has not yet provided sufficient documentation of this effort. In December 2014, GAO found that TSA had not tested the effectiveness of its overall Managed Inclusion process--a process to assess passenger risk in real time at the airport and provide expedited screening to certain passengers--but had plans to do so. Specifically, GAO found that TSA had tested the effectiveness of individual components of the Managed Inclusion process, such as canine teams, but had not yet tested the effectiveness of the overall process. TSA officials stated that they had plans to conduct such testing. Given that GAO has previously reported on TSA challenges testing the effectiveness of its security programs, GAO recommended that TSA ensure its planned testing of the Managed Inclusion process adhere to established evaluation design practices. DHS concurred and has plans to use a test and evaluation process for its planned testing of Managed Inclusion. GAO has previously made recommendations to DHS to strengthen TSA's oversight of aviation security programs. DHS generally agreed and has actions underway to address them. Consequently, GAO is not making any new recommendations in this testimony.
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Based on state responses to our survey, we estimated that nearly 617,000, or about 89 percent of the approximately 693,000 regulated tanks states manage, had been upgraded with the federally required equipment by the end of fiscal year 2000. In comparison, EPA data at that time showed that about 70 percent of the total number of tanks its regions regulate on tribal lands had been upgraded, but the accuracy of this data varied among the regions. For example, one region reported that it had no information on the actual location of some of the 300 tanks it was supposed to regulate and therefore could not verify whether these tanks had been upgraded. Even though most tanks have been upgraded, we estimated from our survey data that more than 200,000 of them, or about 29 percent, were not being properly operated and maintained, increasing the risk of leaks. EPA's most current program data from the end of fiscal year 2002 show that these conditions have not changed significantly; tank compliance rates range from an estimated 19 to 26 percent. However, program managers estimate these rates are too high because some states have not inspected all tanks or reported their data in a consistent manner. The extent of operational and maintenance problems we identified at the time of our survey varied across the states, as figure 1 illustrates. Some upgraded tanks also continue to leak, in part because of operational and maintenance problems. For example, in fiscal year 2000, EPA and the states confirmed a total of more than 14,500 leaks or releases from regulated tanks, with some portion coming from upgraded tanks. EPA's most recent data show that the agency and states have been able to reduce the rate of new leaks by more than 50 percent over the past 3 years. The states reported a variety of operational and maintenance problems, such as operators turning off leak detection equipment. The states also reported that the majority of problems occurred at tanks owned by small, independent businesses; non-retail and commercial companies, such as cab companies; and local governments. The states attributed these problems to a lack of training for tank owners, installers, operators, removers, and inspectors. These smaller businesses and local government operations may find it more difficult to afford adequate training, especially given the high turnover rates among tank staff, or may give training a lower priority. Almost all of the states reported a need for additional resources to keep their own inspectors and program staff trained, and 41 states requested additional technical assistance from the federal government to provide such training. EPA has provided states with a number of training sessions and helpful tools, such as operation and maintenance checklists and guidelines. According to program managers, the agency recognizes that many states, because of their tight budgets, are looking for cost-effective ways of providing training, such as Internet-based training. To expand on these efforts, we recommended that EPA regions work with their states to identify training gaps and develop strategies to fill these gaps. In addition, we suggested that the Congress consider increasing the amount of funds it provides from the trust fund and authorizing states to spend a limited portion on training. According to EPA's program managers, only physical inspections can confirm whether tanks have been upgraded and are being properly operated and maintained. However, at the time of our survey, only 19 states physically inspected all of their tanks at least once every 3 years-- the minimum that EPA considers necessary for effective tank monitoring. Another 10 states inspected all tanks, but less frequently. The remaining 22 states did not inspect all tanks, but instead generally targeted inspections to potentially problematic tanks, such as those close to drinking water sources. In addition, one of the three EPA regions that we visited did not inspect tanks located on tribal land at this rate. According to EPA program managers, limited resources have prevented states from increasing their inspection activities. Officials in 40 states said that they would support a federal mandate requiring states to periodically inspect all tanks, in part because they expect that such a mandate would provide them needed leverage to obtain the requisite inspection staff and funding from their legislatures. Figure 2 illustrates the inspection practices states reported to us in our survey. While EPA has not established any required rate of inspections, it has been encouraging states to consider other ways to increase their rate of inspections, for example by using third-party inspectors, and a few have been able to do so. However, to obtain more consistent coverage nationwide, we suggested that the Congress establish a federal requirement for the physical inspections of all tanks on a periodic basis, and provide states authority to spend trust fund appropriations on inspection activities as a means to help states address any staff or resource limitations. In addition to more frequent inspections, a number of states said that they needed additional enforcement tools to correct problem tanks. As figure 3 illustrates, at the time of our survey, 27 states reported that they did not have the authority to prohibit suppliers from delivering fuel to stations with problem tanks, one of the most effective tools to ensure compliance. According to EPA program managers, this number has not changed. EPA believes, and we agree, that the law governing the tank program does not give the agency clear authority to regulate fuel suppliers and therefore prohibit their deliveries. As a result, we suggested that the Congress consider (1) authorizing EPA to prohibit delivery of fuel to tanks that do not comply with federal requirements, (2) establishing a federal requirement that states have similar authority, and (3) authorizing states to spend limited portions of their trust fund appropriations on enforcement activities. At the end of fiscal year 2002, EPA and states had completed cleanups of about 67 percent (284,602) of the 427,307 known releases at tank sites. Because states typically set priorities for their cleanups by first addressing those releases that pose the most risks, states may have already begun to clean up some of the worst releases to date. However, states still have to ensure that ongoing cleanups are completed for another 23 percent (99,427) and that cleanups are initiated at a backlog of 43,278 sites. EPA has also established a national goal of completing 18,000 to 23,000 cleanups each year through 2007. However, in addition to their known workload, states may likely face a potentially large but unknown future cleanup workload for several reasons: (1) as many as 200,000 tanks may be unregistered or abandoned and not assessed for leaks, according to an EPA estimate; (2) tens of thousands of empty and inactive tanks have not been permanently closed or had leaks identified; and (3) some states are reopening completed cleanups in locations where MTBE was subsequently detected. This increasing workload poses financial challenges for some states. In the June 2002 Vermont survey of state funding programs, nine states said they did not have adequate funding to cover their current program costs, let alone unanticipated future costs. For example, while tank owners and operators have the financial responsibility for cleaning up contamination from their tanks, there are no financially viable parties responsible for the abandoned tanks that states have not yet addressed. In addition, MTBE is being detected nationwide and its cleanup is costly. States reported that it could cost more to test for MTBE because additional steps are needed to ensure the contamination is not migrating farther than other contaminants, and MTBE can cause longer plumes of contamination, adding time and costs to cleanups. If there are no financially viable parties responsible for these cleanups, states may have to assume more of these costs.
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Nationwide, underground storage tanks (UST) containing petroleum and other hazardous substances are leaking, thereby contaminating the soil and water, and posing health risks. The Environmental Protection Agency (EPA), which implements the UST program with the states, required tank owners to install leak detection and prevention equipment by the end of 1993 and 1998 respectively. The Congress asked GAO to determine to what extent (1) tanks comply with the requirements, (2) EPA and the states are inspecting tanks and enforcing requirements, (3) upgraded tanks still leak, and (4) EPA and states are cleaning up these leaks. In response, GAO conducted a survey of all states in 2000 and issued a report on its findings in May 2001. This testimony is based on that report, as well as updated information on program performance since that time. GAO estimated in its May 2001 report that 89 percent of the 693,107 tanks subject to UST rules had the leak prevention and detection equipment installed, but that more than 200,000 tanks were not being operated and maintained properly, increasing the chance of leaks. States responding to our survey also reported that because of such problems, even tanks with the new equipment continued to leak. EPA and the states attributed these problems primarily to poorly trained staff. While EPA is working with states to identify additional training options, in December 2002, EPA reported that at least 19 to 26 percent of tanks still have problems. EPA and states do not know how many upgraded tanks still leak because they do not physically inspect all tanks. EPA recommends that tanks be inspected once every 3 years, but more than half of the states do not do this. In addition, more than half of the states lack the authority to prohibit fuel deliveries to problem tanks--one of the most effective ways to enforce compliance. States said they did not have the funds, staff, or authority to inspect more tanks or more strongly enforce compliance. As of September 2002, EPA and states still had to ensure completion of cleanups for about 99,427 leaks, and initiation of cleanups at about another 43,278. States also face potentially large, but unknown, future workloads in addressing leaks from abandoned and unidentified tanks. Some states said that their current program costs exceed available funds, so states may seek additional federal support to help address this future workload.
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BLM's mission is to manage public lands and resources to best serve the needs of the American people. The Bureau, which is part of the Department of the Interior (DOI), has 210 state, district, and resource area offices that manage about 270 million acres of public lands located in 28 states, primarily in the West and Alaska (see figure 1). BLM's offices also manage another 300 million acres of subsurface mineral resources that underlie lands administered by other government agencies or are owned by private interests. BLM's fiscal year 1995 appropriation totaled $1.24 billion. In fulfilling its mission, BLM develops land-use plans to balance multiple uses and competing demands, including ecosystem management, timber harvesting, mining, oil and gas production, watershed management, wildlife management, and recreation. It also designates and maintains land of critical environmental concern and is responsible for a major section of the National Spatial Data Infrastructure. In performing these functions, BLM maintains over 1 billion documents, including land surveys and surveyor notes, tract books, land patents, mining claims, oil and gas leases, and land and mineral case files. According to BLM, many of these paper documents are deteriorating, and some are illegible. Most of the documents are manually maintained and stored in a number of locations, although some have been entered into various databases since the 1970s. During the early 1980s, BLM found it could not handle the case processing workload associated with a peak in the number of applications for oil and gas leases. BLM recognized that to keep up with the increased demand it needed to automate its manual records and case processing activities. Thus, the Bureau began planning to acquire an automated land and mineral case processing system (ALMRS). At that time, BLM estimated the life-cycle cost of such a case processing system would be about $240 million. In 1988, BLM expanded the scope of ALMRS to include a land information system (LIS). This system was to provide automated information systems and geographic information systems technology (GIS) support for other land management functions, such as land use and resource planning. BLM then combined the LIS with a project to modernize the Bureau's computer and telecommunications equipment. BLM estimated the total life-cycle cost of this combined project to be $880 million. According to DOI and ALMRS project officials, the Office of Management and Budget (OMB) directed BLM to scale down the combined project in 1989 because of the projected high cost. The project, which was renamed ALMRS/Modernization, was reduced to three major components--the ALMRS Initial Operating Capability (ALMRS IOC), Geographic Coordinate Data Base (GCDB), and modernization of BLM's computer and telecommunications infrastructure and rehost of selected management and administrative systems. Estimated life-cycle costs were cut to $575 million. In 1993, BLM reduced the ALMRS/Modernization 10-year life-cycle cost estimate from $575 million to $403 million, after the system development and deployment contract was awarded at a lower cost than had been anticipated. BLM has designated the ALMRS/Modernization project as a mission-critical system to (1) automate land and mineral records and case processing activities and (2) provide information to support land and resource management activities. The project is a large-scale effort that is expected to provide an efficient means to record, maintain, and retrieve land description, ownership, and use information to support BLM, other federal programs, and interested parties. It is to accomplish this by (1) establishing a common information technology platform,(2) increasing public access to BLM records through the Internet, (3) integrating multiple databases into a single geographically referenced database, (4) shortening the time to complete case processing activities, and (5) replacing costly manual records with automated records. Appendix II provides an overview of the planned ALMRS/Modernization architecture. As noted above, the ALMRS/Modernization consists of three components--ALMRS IOC, GCDB, and technology modernization and rehost of selected systems. The ALMRS IOC component is to provide (1) support for case processing activities, including recording valid mining claims, processing mineral patents, and granting rights-of-way for roads and power corridors and (2) information for land and resource management activities, including timber sales and grazing leases. The GCDB component is the database that will contain geographic coordinates and survey information for land parcels. Other databases, such as those containing land and mineral records, will be integrated with GCDB. The information technology modernization and rehost component consists of installing computer and telecommunications equipment and converting selected management and administrative systems to a relational database system that will be used throughout the Bureau. Between fiscal years 1983 and 1995, about $296.2 million had been appropriated for ALMRS/Modernization. According to project officials, obligations for ALMRS/Modernization totaled $262.8 million from 1983 through April 30, 1995. They expect obligations to equal appropriations by September 30, 1995. In 1993, OMB and BLM agreed to annual funding limits for ALMRS/Modernization through fiscal year 2002. As agreed, total spending was not to exceed $403 million for fiscal years 1983 through 2002. However, to stay within the limit for fiscal year 1995, BLM delayed the initial hardware installation for the Alaska and Wyoming state, district, and resource area offices. Also, BLM estimates that it will exceed the fiscal year 1996 limit of $69.5 million by $25.2 million. BLM expects to obtain the $25.2 million from other parts of its operations. According to ALMRS/Modernization project officials, the increase is attributable to several factors, but primarily because of requirements that were added after contract award. These requirements include system engineering studies for system architecture and system security issues, a requirement to integrate BLM's remaining older personal computers and local area networks with the new ALMRS/Modernization systems, changes to more easily accommodate land record automation requirements of other Interior bureaus and federal agencies, and more training for users and technical staff. In addition, the ALMRS/Modernization project office now believes that operations and maintenance costs in fiscal years 1997 through 2002 will be more than the OMB and BLM funding agreement for that category. BLM is currently working on a new operations and maintenance estimate. BLM has completed most of the initial installation of computer and telecommunications equipment and has met most of its ALMRS IOC, GCDB, and rehost milestones thus far. As the ALMRS IOC development nears completion over the next several months, tasks will become more complex as the system is integrated and tested. BLM has taken action to maintain its tight development schedule, but slippages could still occur because there is little schedule time available to correct unanticipated problems. Also, BLM has recently taken action to obtain an independent assessment of the ALMRS IOC to help ensure that its requirements are met. BLM has been meeting most of its schedule milestones for the initial installation of ALMRS IOC and modernization computer and telecommunications hardware. Thus far, BLM has installed (1) a mix of ALMRS IOC, office automation, E-mail, GIS servers, and telecommunications equipment primarily in eight state offices and their subordinate district and resource area offices and (2) about 4,400 of the planned 6,073 workstations in these offices. The Bureau plans to install 730 more workstations and other equipment in fiscal year 1995 at the Idaho and Utah state offices, their subordinate offices, and a support office. However, initial hardware installation for Alaska and Wyoming state and subordinate offices has been delayed because of a shortage of hardware funds in fiscal year 1995, according to ALMRS/Modernization project officials. BLM recently rescheduled the installation of servers and 951 workstations for these locations to fiscal year 1996. The collection and validation of land and mineral data for ALMRS IOC are on schedule for all ten state offices. The land and mineral data files are to be converted to INFORMIX after the installation and testing of final hardware upgrades and ALMRS IOC software. The development of ALMRS IOC software, which BLM divided into three phases or "builds," is currently on schedule. Build 1, which consists of about 46,000 lines of code, was developed and successfully tested on time. BLM and the prime contractor have been working on about 124,000 lines of code for build 2. They expect to complete the software integration test for build 2 on September 12, 1995. BLM and the prime contractor estimate that about 120,000 lines of code will be developed in build 3 to complete the ALMRS IOC software. The software produced in builds 1, 2, and 3 will be integrated to form ALMRS IOC. As to the GCDB component, nine state offices are meeting or are ahead of the data collection milestones set in 1993. One state office, Montana, is behind schedule. The final test of the software to convert existing data files to INFORMIX is scheduled to be completed by January 12, 1996. BLM plans to convert the GCDB data files when ALMRS IOC is deployed in each state office. Finally, the administrative systems rehost effort is on schedule with all 13 of the planned software applications and related databases converted from COBOL to INFORMIX. Three of these applications have been rehosted to the ALMRS/ Modernization equipment and are operational, one is in the process of being rehosted, six have been tested and accepted and will be rehosted, and three have undergone testing and are expected to be accepted soon. According to the Deputy Project Manager, BLM plans to update the systems before deploying them to satisfy users' change requests that were held in abeyance while the systems were being converted to INFORMIX. Figure 2 shows future milestones for the software integration tests of builds 2 and 3, qualification test for ALMRS IOC (functionality and integration), acceptance of ALMRS IOC, and final installation of ALMRS IOC hardware upgrades and software. As the ALMRS/Modernization nears the final testing and implementation stages, the project work will become more complex and the schedule more demanding. The final tests will include assessing the ALMRS IOC software to determine whether it meets design specifications, software units properly interface with other units, software responds correctly and consistently to users, and hardware and software operate as expected at pilot sites and under various levels of workload. As with all development efforts, the actual performance of the new software systems will not be known until they are completed, fully tested, and deployed. Developing realistic project schedules is critical to managing the successful development of large software systems. The General Services Administration has found that setting realistic project schedules is one of the ten most important factors in successfully developing large, complex federal computer systems. ALMRS/Modernization project officials and an Interior Senior Technical Analyst stated that the milestones were not based on an assessment of the time and resources needed, but instead were based on the need to complete the project by the end of fiscal year 1996--the deadline established in the OMB and BLM agreement. Nevertheless, project officials said they have been committed to completing the development and deployment of ALMRS as scheduled. Our analysis of the project schedule showed that several critical milestones are very close together with little recovery time available to deal with unanticipated problems that may be encountered. Therefore, slippages in the ALMRS/Modernization development and testing schedule could occur and impact project cost and completion plans. Similarly, slippages in the deployment of ALMRS IOC and database conversions could also impact project costs and completion plans because of the short installation periods scheduled for each state. As shown in table 1, BLM was allowing only 15 to 20 working days to perform the final installation of ALMRS IOC and convert databases in each state. ALMRS/Modernization project officials and an Interior Senior Technical Analyst agreed that both the development and testing milestones and deployment and database conversion milestones are very tight with little tolerance for slippages. Interior and BLM have been taking a number of actions to closely monitor the project status and schedule to avoid slippages. Interior Information Resources Management (IRM) officials have been conducting periodic oversight reviews and have required project officials to address project schedule issues. BLM has also established a consolidated project schedule that includes BLM's and the prime contractor's tasks to estimate and monitor the entire project schedule. Finally, BLM advanced the date for the software integration test for build 2 to provide additional time to deal with any unexpected problems. BLM recently revised the installation schedule because of an anticipated reduction in funding for fiscal year 1996. Specifically, the Bureau rescheduled the final ALMRS IOC installation and database conversions from fiscal year 1996 to 1997. Verification and validation of software is widely accepted and advocated by Federal Information Processing Standards Publication 132. Verification and validation is a formal process to assess the products of each system's life-cycle phase, including concept, requirements, design, testing, implementation and installation, and operations and maintenance. Typically, the assessments are performed by someone not involved in developing the software to help ensure that the software meets the organization's requirements, that software development and maintenance costs will not escalate unexpectedly, and that software quality is acceptable. Recently, project officials decided to obtain an independent verification and validation of ALMRS IOC software in response to direction from the House Committee on Appropriations. This action should help ensure that the software meets BLM's stated requirements and provides the support expected from this mission-critical system. Stress testing automated systems before deploying them is a common industry practice. Such testing is done to ensure that the entire system will successfully process workloads expected during peak operating periods and determine the point at which major system resources (e.g., servers, workstations, storage devices, and local and wide area networks) will be exhausted. BLM plans to perform a 30-day acceptance test of the ALMRS IOC at pilot sites to assess functionality and performance in an operational setting. During this period, BLM also plans to stress test the ALMRS IOC (i.e., state and district office ALMRS IOC servers, terminals, and workstations) in a network environment. If ALMRS IOC performs successfully at the end of the test, BLM will accept and install it throughout all of its offices. However, BLM's stress-test plans cover only the ALMRS IOC. The plans do not examine how the entire ALMRS/Modernization--including ALMRS IOC, office automation, E-mail, administrative systems, and various departmental, state, and district applications in a network environment--will perform under peak workload conditions. While ALMRS IOC is the largest and most significant component in the initial deployment of BLM's modernization effort, other systems and applications are expected to place considerable demand on the ALMRS/Modernization computer systems and communications networks. By limiting the stress testing to ALMRS IOC, BLM will deploy the ALMRS/Modernization nationwide without knowing whether it can perform as intended during peak workloads. To date, the Bureau has been completing most of the project tasks according to the schedule milestones established in 1993. However, the project schedule could slip because there is little time available to deal with unexpected problems. Further, over the next several months, BLM and the prime contractor will be working on the more difficult tasks of completing, integrating, and testing ALMRS IOC. BLM's recent action to obtain independent verification and validation of ALMRS IOC software should help ensure that BLM's requirements are met. However, the Bureau's plan to stress test the ALMRS IOC portion of the modernized system is not sufficient. Stress testing only a portion of the modernized system will not provide assurance that all of the systems and technology to be deployed can successfully process the workloads expected during peak operating periods. We recommend that the Director, BLM, ensure that the entire ALMRS/Modernization is thoroughly stress tested before it is deployed throughout the Bureau. In commenting on a draft of this report, BLM stated that it agreed with our conclusions and recommendation. The Bureau said it now plans to stress test the entire ALMRS/ Modernization to ensure that all systems and technology can process the workloads expected during peak operating conditions. As previously noted, the Bureau said it has contracted for an independent verification and validation of the ALMRS IOC software in response to direction by the House Committee on Appropriations to perform a verification and validation test. BLM also suggested some clarifications and provided additional information for our report. We have incorporated these suggestions and information as appropriate. As arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the date of this letter. At that time, we will provide copies to the Secretary of the Interior; the Director, Bureau of Land Management; the Director, Office of Management and Budget; and interested congressional committees. We will also make copies available to others upon request. Please call me at (202) 512-6253 if you or your staff have any questions concerning this report. Other major contributors are listed in appendix III. To ascertain BLM's progress in developing and implementing the ALMRS/Modernization, we reviewed ALMRS/Modernization project documents, DOI reports, a Department of the Treasury report, BLM studies on ALMRS/Modernization project development, General Services Administration IRM publications, Federal Information Processing Standards Publication 132, OMB Circular A-130, and GAO reports on large-scale systems development projects. We also attended departmental project reviews at the ALMRS/Modernization project office in Lakewood, Colorado, and reviewed the minutes of four prior project reviews. We discussed the planned capabilities of the system, technical complexity, and development progress with prime contractor officials, a DOI Senior Technical Analyst, and ALMRS/Modernization project officials responsible for systems engineering, software development, and project management. We also discussed with ALMRS/Modernization project officials and BLM Headquarters officials the planning and development history of ALMRS/Modernization, testing plans, and efforts to follow industry practices. We analyzed project milestones against current progress, and reviewed the remaining tasks for their complexity. We reviewed and analyzed ALMRS/Modernization project estimates and fiscal year 1996 budget justifications and documentation. We also compared BLM's fiscal year 1996 budget request for the ALMRS/Modernization with its cost estimate for fiscal year 1996. We reviewed BLM's options paper for ALMRS/Modernization operations and maintenance funding through fiscal year 2001 and discussed it with the ALMRS/Modernization Deputy Project Manager and the project budget analyst. We interviewed ALMRS/Modernization project officials and a Department Senior Technical Analyst on ALMRS/Modernization total project budget and milestones. Budget estimates were collected from the ALMRS/Modernization Deputy Project Manager, budget analysts, and other BLM Headquarters representatives. These estimates were confirmed by the Department's IRM office; however, we did not independently verify the accuracy of the estimates. Our work was performed between March 1995 and August 1995, in accordance with generally accepted government auditing standards. We performed our work at the Department's IRM headquarters and BLM headquarters in Washington, D.C., and at the ALMRS/Modernization Project Office and prime contractor's office in Lakewood, Colorado. We requested comments on a draft of this report from the Director, Bureau of Land Management. In response, we received comments from the Chief, Office of Information Resources Management/Modernization, Bureau of Land Management. We have incorporated these comments as appropriate. The ALMRS/Modernization system--slated for deployment at approximately 200 BLM sites around the country--is to be implemented on a common information technology platform. The platform will be composed of servers, terminals, workstations, switching hubs, multiplexers, modems, and firewalls interconnected via local, state, and national-level networks. As planned, the ALMRS environment will initially support existing automated systems, including legacy local area networks and microcomputers. BLM expects that a typical state office installation will consist of several servers supporting major application groups--ALMRS IOC and related databases, office automation applications, GIS applications and related GCDB databases, and E-mail. A typical state office is to provide land and mineral resource data through the state ALMRS IOC server to district and resource area offices. State offices are to be interconnected via a Department of the Interior network. Each district or resource area office is to have its own GIS and office automation servers. BLM users are to access applications via terminals and workstations interconnected through the local, state, and DOI networks. The public is to have access to selected ALMRS information in public access rooms equipped with stand-alone ALMRS IOC servers and terminals. The public access systems are expected to be isolated from the state and district office ALMRS IOC systems for security purposes. BLM is also planning to provide connections to the Internet. The Bureau plans to protect each state office with a firewall system--a security device designed to protect the BLM systems from intrusion by hackers. Figure II.1 shows a high-level overview of the ALMRS/Modernization environment. Accounting and Information Management Division, Washington, D.C. David G. Gill, Assistant Director Mirko J. Dolak, Technical Assistant Director Marcia C. Washington, Senior Information Systems Analyst The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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 Bureau of Land Management's (BLM) modernization of its Automated Land and Mineral Record System (ALMRS), focusing on: (1) BLM progress in developing and implementing ALMRS modernization; and (2) potential modernization risks. GAO found that: (1) although BLM initiated ALMRS planning in the early 1980s, it did not award the modernization contract until 1993 because of numerous changes in the project's concept and scope; (2) BLM has installed most of its initial computer and telecommunications equipment and has met most of its schedule milestones, but it is deferring some equipment deployment until fiscal year (FY) 1996 and FY 1997 because of a lack of funds; (3) project costs are expected to exceed the FY 1996 spending limit by $25.5 million due to added system requirements; (4) schedule slippages may occur because ALMRS modernization is becoming more complicated and BLM has allocated little time to deal with unanticipated problems; and (5) although BLM has recently obtained independent verification and validation of new ALMRS software to ensure that it meets BLM needs, BLM does not plan to stress test the entire ALMRS modernization project to access its ability to meet anticipated peak workloads.
| 4,990 | 276 |
In 1999, the Congress enacted the D.C. College Access Act for the purpose of expanding higher education opportunities for college-bound D.C. residents in an effort to stabilize D.C.'s population and tax base. The act created the D.C. TAG Program, a residency-based tuition subsidy program, which allows D.C. residents to attend participating public universities and colleges nationwide at in-state tuition rates. UDC is not eligible to participate in the TAG Program because in-state tuition rates are already available for D.C. residents. The TAG Program also provides smaller grants for students to attend private institutions in the D.C. metropolitan area and private HBCUs in Maryland and Virginia. An eligible institution may participate in the grant program only if the institution has formally signed a Program Participation Agreement with the mayor of the District of Columbia. Students attending a participating public institution can receive a tuition subsidy of up to $10,000 per year (calculated as the difference between in-state and out-of-state tuition rates), with a total cap of $50,000 per student. D.C. residents attending private institutions in the D.C. metropolitan area and private HBCUs in Maryland and Virginia may receive an annual grant award of up to $2,500 per year, with a total cap of $12,500 per student. The grant funding can be applied only to a student's tuition and fee costs and must not supplant other grant funding that the student is eligible to receive. As a result, the tuition assistance grant must be considered as the final or "last dollar" that is added to a student's financial aid package. Since the grant can be applied only to tuition and fees, other costs associated with college attendance, such as room and board fees and transportation costs, must be paid by other means. The D.C. government received $17 million in each of fiscal years 2000 and 2001 to implement the grant program and to provide grants to qualified applicants. As of August 2001, the TAG Program disbursed approximately $11 million for grants and administration. Consequently, the D.C. government maintains a grant balance of approximately $23 million. The act (P.L. 106-98) states that the funding shall remain available until expended. The TAG Program office engaged in a variety of publicity and outreach efforts to both D.C. residents and eligible institutions to promote the TAG Program in its first year of operation. Efforts to inform potential applicants about the TAG Program included staff visits to public and private high schools in D.C., information about the program mailed to every D.C. public high school senior, radio advertisements, and marketing posters at subway and bus stations around the city. TAG Program staff also worked with staff at the D.C. College Access Program (D.C. CAP) to provide information to D.C. public schools about the grant. The D.C. CAP is a nonprofit organization, funded by a consortium of 17 private sector companies and foundations, whose intent is to complement the TAG Program by encouraging D.C. public high school students to enter and graduate from college. D.C. CAP provides D.C. public school students with support services both before and during college, including placing college advisors in each public high school beginning in academic year 2000-01, assisting students with college and financial aid applications, and providing both information resources at D.C. public high schools and educational planning workshops for students and parents. TAG Program staff provided training and information about the grant to D.C. CAP college advisors. In order to inform eligible institutions about the grant program, staff mailed information to the president and financial aid officer of each public institution and eligible private institution. In addition, the Secretary of Education sent a letter to each chief executive officer of public higher education undergraduate institutions nationwide in July 2000, providing information about the grant program and urging institutions to sign a Program Participation Agreement with the mayor of the District of Columbia. Currently, if a grant-eligible applicant decides to attend an eligible but nonparticipating institution, the TAG Program staff contact the institution and provide information on the program as well as on the participation agreement. However, according to the TAG Program director, the applicant and his or her family often play a vital role in persuading the institution to sign an agreement with the program. In order to be eligible for the grant, an applicant must meet certain criteria, including graduation from any high school or attainment of a secondary school equivalency diploma after January 1998 and enrollment or acceptance for enrollment in an undergraduate program at an eligible institution. Applicants must also be domiciled in D.C. for 12 consecutive months prior to the start of their freshman year of college and must continue to maintain their primary residence in D.C. throughout the grant period. In academic year 2000-01, approximately 3,500 individuals applied for the grant and 70 percent, or approximately 2,500 individuals, met the eligibility criteria. Twenty-two percent of the applicants, on the other hand, were found ineligible for the grant, and about 8 percent of the applications were pending or inactive at the time of our review. The reasons for which applicants were found ineligible include not meeting the statutory requirements pertaining to graduation and domicile. All of the wards in D.C. were represented in the applicant pool. Although D.C. comprises 8 wards, most of the applicants resided in wards 4, 5, and 7, which are located primarily in the northeast and southeast quadrants of D.C. The greatest percentage of college-age residents applying for the grant came from these three wards. Figure 1 shows the percentage of college-age residents in each D.C. ward that applied for the grant. About 1,900 eligible applicants used the grant to attend 152 participating public and private institutions in academic year 2000-01. Almost half of the applicants came directly from high school, with nearly 70 percent of the applicants who recently graduated from high school coming from a D.C. public high school. The remaining applicants were already enrolled in college. Approximately 97 percent of the grant recipients for whom data was available enrolled in college full-time. Eighty-six percent of TAG recipients attended a 4-year institution, and 14 percent attended a 2-year college. Seventy-six percent of the eligible applicants who used the grant attended a public institution, with an average grant per fall and spring semester of nearly $2,900, whereas the remaining 24 percent attended a private institution with an average grant per fall and spring semester of approximately $1,200. Overall, 18 percent of the applicants attended an open-admission institution, and almost 40 percent enrolled at a public or private HBCU. Figure 2 provides more detailed information on the number of TAG recipients who attended college in each state in academic year 2000-01. Initially, the act included only public institutions and private HBCUs in Maryland and Virginia, as well as private institutions in the D.C. metropolitan area, as eligible to participate in the TAG Program. In May 2000, the program was expanded to include all public colleges and universities nationwide. Not all of these colleges and universities participate in the program, however, though they are eligible to do so. Currently, 514 public and private institutions have formally agreed to participate. Participating institutions are located in every state, D.C., and Puerto Rico. Sixty-two participating institutions are located in D.C., Maryland, and Virginia. Appendix II provides a list of the institutions that had signed a participation agreement with the D.C. government as of December 10, 2001. Before the program's nationwide expansion, the TAG Program office promulgated the initial regulations for administration of the program. In the fall of 2000, four large public institutions--the University of California, the University of Florida, the University of Michigan, and the State University of New York--refused to sign the Program Participation Agreement, claiming that the regulations were overly burdensome. Subsequently, in December 2000, the TAG Program office revised the regulations, and all four institutions signed the agreement. Current proposed legislation, H.R. 1499, would make changes to the TAG Program, including modifying some of the student eligibility requirements. The bill would expand eligibility for the grant to include D.C. residents who both begin their college education more than 3 years after they graduated from high school and who graduated from high school prior to January 1, 1998, provided that they are currently enrolled in an eligible institution. Eligible applicants would be required to meet the citizenship and immigration requirements currently specified in the Higher Education Act of 1965. The bill would expand the list of eligible institutions to include private HBCUs nationwide. In addition, the bill would require the D.C. Government to establish a dedicated account for TAG Program funding and would clarify the use of administrative funding by the program office. The bill passed the House of Representatives in July 2001, and was amended by and passed the Senate in December 2001; the amended bill is currently pending before the House. The Department of Education's Inspector General (IG) completed an audit of the TAG Program finances in August 2001. The IG's audit provided findings in the areas of administrative funding and interest income and made recommendations to address each of these issues. Of the nearly 2,500 applicants who were eligible for the tuition assistance grant, 21 percent--or 516 applicants--did not use the grant in academic year 2000-01 and some of these applicants may have faced barriers due to college entrance requirements and the absence of minority outreach programs. Whether college enrollment caps had any impact on college access for these applicants is unclear. According to the parents who responded to our parent survey, eligible applicants did not use the grant for a variety of reasons, including decisions to postpone college attendance or enroll in an ineligible school and rejection for admission at schools participating in the TAG Program. College entrance requirements may have been a barrier to college access for some eligible applicants who did not use the grant in academic year 2000-01. Entrance requirements vary at postsecondary institutions--from only requiring a high school diploma or equivalent to reviewing a combination of high school GPA, SAT or other college entrance examination scores, and essays. Since data on college entrance requirements were not readily available, we used average freshmen high school GPA and SAT scores as a proxy for college entrance requirements. We requested GPA and SAT scores for 290 of the 516 eligible applicants who did not use the grant--those who had recently graduated from a D.C. public high school--from D.C. public school officials and compared these data to high school GPA and SAT scores for entering freshmen at the 62 institutions that the applicants were interested in attending. Although the average high school GPA for entering freshmen at a majority of the 62 institutions was 3.0 or higher, the average GPA for 183 of the applicants for whom data were available was 2.36. Furthermore, whereas the median combined SAT score for 150 of the applicants for whom data were available was 735, entering freshmen at a majority of these institutions had median combined SAT scores higher than 735. For example, these institutions reported median combined SAT scores between 800 and 1400. The absence of minority outreach programs at these institutions may have also been a barrier to college access for some of the D.C. public school students who were eligible for, but did not use, the grant. Approximately 97 percent of D.C. public school students are considered members of a racial minority, but outreach programs specifically geared toward minority students existed at only 24 of the institutions, excluding those that are considered an HBCU, that these applicants expressed interest in attending, and for which data were available. For example, the University of Arizona's minority outreach efforts include favorable consideration of minority status in financial aid decisions. At Catholic University of America, outreach efforts include allowing a limited number of talented minority high school seniors to take college courses free of charge. Our survey of all participating institutions, beyond the institutions that D.C. public school students were interested in attending, showed that other minority outreach efforts include recruiting visits to high schools with large minority student populations and waiving of out-of-state enrollment cap restrictions for minority applicants. Whether caps on the number of out-of-state residents who can enroll at an institution served as a barrier to college access for these eligible TAG applicants is unclear. Some public postsecondary institutions have policies that limit the percentage of undergraduates who may enroll from outside the state or who may be admitted as freshmen to the institution. For example, the University of Virginia allows 35 percent of undergraduate students to enroll from outside Virginia, while the University of North Carolina at Chapel Hill caps out-of-state enrollment for undergraduates at 18 percent. Such policies exist at about 21 percent of the 62 institutions for which data were available. The parents of some eligible applicants provided a variety of reasons why the applicants did not use the TAG funding during academic year 2000-01. Of the 213 parents who provided information on eligible applicants, 31 percent indicated that their son or daughter applied to but did not enroll in a college or university, 15 percent indicated that their child decided not to apply to college, and 54 percent indicated that their son or daughter attended a college or university in academic year 2000-01. Most of the grant-eligible applicants who did not use the grant attended institutions that were not eligible to participate in the TAG Program, and their parents indicated that the institution chosen best met their child's educational or financial needs. Examples of ineligible colleges these applicants attended included UDC and private HBCUs outside D.C., Maryland, or Virginia. Most parents of grant-eligible applicants who applied to but did not enroll in a college indicated that their child either wanted to postpone college or did not enroll due to personal reasons. For example, one parent told us that her daughter delayed college because of the birth of a child, while another parent told us that her son wanted to wait to improve his SAT scores. Fifty-one students were not accepted to an eligible TAG college or university, and of these students, 10 of those were not accepted by any college or university. Due to a low response rate of 42 percent, however, our results cannot be considered generalizable to all of the parents in our survey. The change in enrollment at UDC during the first year of the TAG Program was minimal, and UDC appears to be serving a different freshman population than the population served by the TAG Program. Fall semester enrollment has remained stable since 1998, and in academic year 2000-01, 18 students left UDC and used the grant funding to attend a TAG- participating college or university. The UDC officials we spoke with believed that the TAG Program would likely have little impact on UDC's enrollment level, in part because of the diverse student population that UDC serves. UDC enrollment has changed little since the TAG Program began offering grants to D.C. residents. Between the 1999-00 and 2000-01 academic years, total undergraduate enrollment at UDC increased by about 1 percent. As shown in figure 3, UDC enrollment for fall 2000, the first semester that tuition assistance grants were awarded, was 5,008, close to the enrollment for the previous two fall semesters. In addition, entering freshmen enrollment has remained fairly stable over the past 3 years. Freshmen enrollment increased 0.4 percent--from 1,859 to 1,867--between the 1999- 00 and 2000-01 academic years. UDC officials we interviewed believed that because the TAG Program was in only its first year, it had not affected enrollment at UDC. They expressed concern, however, that students cannot use the grant to attend UDC and noted that a grant could prove beneficial, because many UDC students rely on financial aid to pay for tuition costs, even though tuition rates are low. In the first year of the TAG Program, fewer than 20 students left UDC to use the tuition assistance grant. Overall, 136 TAG applicants were enrolled at UDC when they applied for the grant. Of that number, only 18 students determined to be eligible for the grant used the funding to attend a school other than UDC in academic year 2000-01. During academic year 2000-01, the average freshman entering UDC differed markedly from the average TAG recipient entering college as a freshman. For example, the average age of freshmen entering UDC was 29 years, compared with an average age of almost 20 years for TAG recipients entering college as freshmen. In addition, whereas most UDC freshmen were enrolled as part-time students, almost all freshmen that received the tuition assistance grant were enrolled as full-time students. Finally, a higher percentage of TAG freshmen recipients graduated from a high school in D.C., Maryland, or Virginia, compared with UDC freshmen. These differences in the two populations suggest that UDC and the TAG Program draw on different student populations. In fact, the UDC officials we spoke with felt that the impact of the TAG Program would not be large because of the differing groups of college students that UDC and the TAG Program serve. Table 1 shows the profiles of UDC and TAG college freshmen for academic year 2000-01. Although most concerns about administration of the TAG Program that were initially raised by four large institutions were largely resolved by the revision of the regulations in December 2000, some administrative issues exist that may hinder program operations. Our review of the TAG Program identified issues with the procedure that TAG staff use to determine eligibility for the grant when applicants list on their grant applications only ineligible institutions as schools they are interested in attending. We also found that unclear and potentially misleading information about participating institutions is being disseminated by the TAG Program office in both an informational pamphlet to TAG applicants and in letters sent to eligible applicants. Some concerns about the initial TAG Program voiced by four participating institutions have been resolved. Some officials at these four institutions initially expressed apprehension regarding the institutional requirements contained in the original program regulations. For example, the officials whom we spoke with at the four institutions felt that program requirements--including the requirements that institutions conduct an annual compliance audit, maintain records that duplicate those held by the TAG Program office, and confirm student eligibility--would be burdensome for their institutions. University officials whom we spoke with at these institutions indicated that most of their initial concerns were resolved when program regulations were revised in December 2000. In fact, all four institutions have now signed a Program Participation Agreement with the mayor of the District of Columbia, formally agreeing to participate in the grant program. In general, the few remaining administrative concerns mentioned by the university officials we spoke with did not appear to be problematic at the majority of the institutions that enrolled tuition assistance grant recipients in academic year 2000-01. For example, although officials from two of the four universities stated that administering the grant required the time- consuming task of creating a separate financial aid process, officials from 74 percent of the participating institutions that we surveyed indicated that they did not have to create a new process for TAG students. Furthermore, officials from more than half of the participating institutions reported that the administration of the grant did not require additional university staff time. Among those who said that it took longer to administer the grants than to determine financial aid for students not receiving the grants, the majority indicated that the administration process took less than 10 minutes longer. Some of the university officials that we interviewed indicated that the program regulation requiring that their institutions wait to bill the TAG Program office until the end of the drop/add period--sometimes as long as 30 days after the start of classes--resulted in late payment for schools. According to the officials, waiting for grant payments contravenes the practice at many institutions--some of which are bound by state law--to collect tuition and fees before the first day of class. At the University of California, for example, officials told us that this regulation required that the institution provide a loan to the student to cover tuition costs for the period between the first day of classes and the university's receipt of the grant funding from the TAG Program office. However, whereas approximately 57 percent of the participating institutions have such a statutory or institutional requirement, nearly 70 percent of the institutions we surveyed stated that similar delays in tuition payments affect students in other grant programs. TAG Program officials said that they will review the possibility of changing the drop/add requirement for academic year 2002-03. In addition, while three of the schools we interviewed initially felt that the record-keeping requirements for the TAG Program were more burdensome than was necessary for a relatively small program, more than two-thirds of the participating institutions indicated that the record keeping was not significantly different from that for other financial aid programs they administer. In the first year of the grant program, some applicants who were found ineligible for the grant did not receive a full and consistent review of their eligibility factors by TAG staff. Nearly half of all applicants who were deemed ineligible were so assessed because they listed on their grant applications only ineligible institutions as schools they were likely to attend. TAG staff told us that because of the volume of grant applications received in the first year, the staff did not verify all eligibility factors for applicants listing only ineligible institutions on their applications. TAG staff stated that these applicants were sent a letter of ineligibility solely on the basis of the applicants' listing of ineligible schools on their applications. According to TAG staff, they informed the applicants by telephone that because the institutions they listed were ineligible for the grant program, the applicants would receive a letter of ineligibility for the grant. From the applicants who were deemed ineligible because they listed ineligible institutions, we randomly selected 75 files to review in depth. Our review indicated that the TAG staff might not have checked the domicile criterion for 55 percent of applicants or the graduation criterion for 11 percent of applicants. Furthermore, our review showed that for nearly 40 percent of applicants, no record existed of their being contacted by telephone. For the current year of the grant program--academic year 2001-02--TAG staff members have indicated that they will discontinue their attempts to contact by telephone those applicants who list only ineligible institutions. Instead, these applicants will automatically receive ineligibility letters. In addition, the TAG Program office is disseminating unclear and misleading information to potential applicants regarding which postsecondary institutions have agreed to participate in the grant program. The TAG Program office provides potential applicants with a pamphlet that is meant to inform the applicant as to which colleges and universities he or she can attend with the grant. However, this pamphlet lists approximately 2,000 postsecondary institutions as "participating," even though just 514 of these institutions have formally agreed to participate in the grant program by signing a Program Participation Agreement with the mayor of the District of Columbia. According to the TAG Program director, this pamphlet lists all of the institutions that are eligible to participate in the TAG Program--rather than just those that have agreed to participate--to provide applicants with information on the full range of institutions they could theoretically attend with the grant. The director felt that listing only the participating institutions might discourage individuals from applying for the grant. Misleading information is also provided to grant-eligible TAG applicants in the award letter. This letter is to be either sent or taken as proof of grant eligibility to the college or university the eligible applicant decides to attend. However, the letter states that the TAG Program office will pay tuition "at any U.S. public college or university that you attend," without informing the applicant that not all of these institutions have agreed to participate in the TAG Program. Therefore, an applicant choosing to attend an institution that is eligible but not currently participating may experience difficulty or delay with receiving the grant because of the time it could take to convince the institution to participate in the program-- possibly occurring after the applicant has enrolled at the institution. In addition, eligible applicants who, for example, list one eligible institution and one ineligible institution on their grant application receive a standard letter of eligibility, which does not inform the applicant that one of the institutions may not be eligible for the grant. Therefore, this applicant may not be aware that he or she will not receive the grant if he or she chooses to attend the ineligible institution listed on his or her grant application. The TAG Program director believes that the letter sent to applicants is clear in that it states that the grant can only be used at eligible institutions. TAG Program officials said that they are currently reviewing TAG Program operations and procedures. Since the establishment of the TAG Program, D.C. residents have more resources available to attend college if they choose an eligible institution that agrees to participate in the grant program. However, although the TAG Program's purpose is to expand higher education opportunities for D.C. residents, a few of the program's procedures may inadvertently discourage and hinder some D.C. residents from receiving grant money. The practice of determining that applicants are ineligible when they list only ineligible institutions on their grant applications could deny applicants who meet the student eligibility requirements the resources that they need for college solely because of the institutions they expressed an interest in attending. This practice is also troublesome given that at the time applicants submit their grant applications to the TAG office, they are not required to have enrolled at or even submitted a college application to the postsecondary institutions they list on their applications. In addition, the award letter and pamphlet that do not clearly notify applicants that an institution in which they are interested is ineligible or not participating in the TAG Program, may confuse applicants who then choose to attend ineligible or nonparticipating institutions. These factors could lead to frustration among applicants and may cause some D.C. residents to discontinue their efforts to obtain grant assistance to attend a postsecondary institution. We recommend that the mayor of the District of Columbia direct the TAG Program office to Change the current applicant eligibility determination process to ensure that (1) all applicants receive a full review to determine their eligibility to receive the grant, (2) eligible applicants who indicate interest only in ineligible institutions are made aware in their award letters that the institutions listed on their applications are ineligible and that an eligible school must be selected for the applicants to receive the tuition assistance grant, and (3) all letters sent to eligible applicants indicate which institutions have already formally agreed to participate in the grant program. Indicate clearly in the pamphlet promoting the TAG Program which eligible postsecondary institutions have already formally agreed to participate in the grant program. We obtained comments on a draft of this report from the U.S. Department of Education, the mayor of the District of Columbia, and UDC. The comments from the mayor and UDC are reproduced in appendixes III and IV, respectively. Education only provided technical clarifications, which we incorporated when appropriate. UDC also provided technical clarifications that we incorporated when appropriate. The mayor of the District of Columbia generally agreed with the findings of our report and concurred with our recommendation that the TAG Program office conduct a full review of all applicants to determine their eligibility to receive the grant. However, as to our recommendation that the TAG Program office clearly indicate to applicants which eligible postsecondary institutions have signed a Program Participation Agreement, the mayor disagreed, stating that advertising only those institutions that have formally agreed to participate would decrease the accessibility of the program. The mayor stated that students would become discouraged if they saw that the institutions they were interested in attending were not listed in TAG Program literature. Our recommendation, however, does not preclude the TAG Program office from providing applicants a list of all institutions that are potentially eligible to participate in the program, but rather recommends that the TAG Program office separately identify those institutions that have formally agreed to participate. By providing this additional information, we believe that potential applicants will be better informed about the status of the postsecondary institutions they are interested in attending. We do not believe that this additional information would discourage D.C. residents from applying for the grant program and may avoid confusion for those eligible applicants who choose to apply to currently nonparticipating institutions. Finally, the mayor disagreed with the title of the report, commenting that the title is not borne out by the contents of the report. We changed the title to address his concerns. Many of the comments made by UDC were related to the potential impact of the TAG Program on UDC and the funding levels of the TAG Program. UDC stated that although enrollment levels have not significantly changed as a result of the implementation of the TAG Program, UDC officials believe the TAG Program may have impacted the quality of the entering freshmen at UDC and that the institution is losing some of the better- prepared college-bound students in D.C. to institutions that are participating in the TAG Program. While we recognize the importance of analyzing student quality, such an analysis was outside the scope of the mandate and the request. UDC further believes that the reporting of the average age and enrollment status of UDC freshmen does not tell the complete story of the type of student that is served by the institution. They stated that UDC students range in age from 17 years to 55 years and that most students must work full-time to meet personal and family responsibilities. We focused our comparison of UDC and TAG Program freshmen on average student age, enrollment status, and location of high school the student graduated from because these were among the only data available from both UDC and the TAG Program that allowed a direct comparison of the types of students that each were serving. UDC officials also provided updated data on the location of high schools attended by UDC entering freshmen, which we incorporated. Regarding the funding of the TAG Program, UDC believed that an examination of the funding levels for the TAG Program were needed and suggested that any unused funding for the TAG Program could be reallocated to UDC to enhance education programs and scholarships for UDC students. In addition, UDC commented that further examination of various aspects of the TAG Program were necessary, including an analysis of graduation outcomes for TAG Program participants, the impact of the TAG Program on the quality of UDC students and UDC's program and services, as well as the financial impact of the TAG Program on D.C. residents. While we recognize that these issues are important, they were not within the scope of the mandate or the request. We are sending copies of this report to the House Committee on Government Reform, the Senate Committee on Governmental Affairs, and other interested committees; the Secretary of Education; and other interested parties. Copies will also be made available to others upon request. Please contact me at (202) 512-8403 or Diana Pietrowiak, Assistant Director, at (202) 512-6239 if you or your staff have any questions concerning this report. Other GAO contacts and staff acknowledgments are listed in appendix V. A variety of data sources allowed us to examine different aspects of the D.C. Tuition Assistance Grant (TAG) Program. We wanted to explore several issues, such as the extent to which TAG-eligible applicants who did not use the tuition assistance grant faced barriers to college access, how student enrollment at the University of the District of Columbia (UDC) has changed since the TAG Program began, whether UDC and TAG serve similar freshmen populations, and whether there are program administration issues that could potentially hinder the TAG Program operations. We selected data sources that would allow us to examine these issues. To review and summarize general information on TAG applicants, we obtained a database from the TAG Program office listing applicant data, such as name of high school attended, year of college enrollment, and date of birth. These data, which we did not verify, represent the only information available on TAG applicants. To determine whether eligible applicants who did not use the tuition assistance grant may have faced barriers to college access, we obtained data from the TAG Program office on applicants who applied and were found eligible for the grant, but did not use the grant in academic year 2000-01. We then analyzed the academic qualifications of some of these eligible applicants and compared these data with similar data on average freshmen at the postsecondary institutions they listed on their TAG applications as colleges they would most likely attend. To do this, we requested the grade point average (GPA) and Scholastic Aptitude Test (SAT) scores for 290 of the eligible applicants--those who had recently graduated from a D.C. public high school--from D.C. public school officials and obtained data for some of these graduates. We compared the available data on the D.C. public school students to GPA and SAT data we obtained for average freshmen at the 62 institutions these applicants were interested in attending from Barron's Profiles of American Colleges, 2001; Peterson's 4 Year Colleges, 2001; and Peterson's 2 Year Colleges, 2001. To determine whether access barriers may have existed at the 62 institutions, we obtained data on the presence of minority outreach programs and the use of out-of-state enrollment caps from a college survey that we developed as part of our review. To further identify barriers to college access, we sought to determine why the eligible applicants did not use the grant. To do this, we developed and administered a survey for the parents of all 516 eligible applicants who did not participate in the TAG Program. We chose to survey parents rather than the eligible applicants, because current contact information for the parents was readily available. We received responses from 42 percent of the parents surveyed, and from these responses we obtained general information on the reasons these applicants did not use the tuition assistance grant. To obtain information on how student enrollment at UDC changed during the initial year of the TAG Program and what types of students UDC and TAG serve, we obtained student data from UDC, including enrollment numbers, age, enrollment status, and information on high schools from which UDC students graduated. To compare the average UDC student with the average TAG recipient, we analyzed data for TAG recipients, including age, enrollment status, and high schools attended, who entered their freshmen year of college in academic year 2000-01. To determine whether program administration issues exist that could potentially hinder program operations, we interviewed the four financial aid directors from the institutions that initially voiced concerns regarding the administration of the TAG Program--the University of California, the University of Florida, the University of Michigan, and the State University of New York. We also conducted a survey of 140 institutions that administered the grant in academic year 2000-01. We received responses from 84 percent of the institutions in our survey. In addition, to develop an understanding of the program operations and procedures, we interviewed managers and staff of the TAG Program office as well as officials in the office of the D.C. Chief Financial Officer. We also interviewed U.S. Department of Education officials to obtain their views on the TAG Program. Furthermore, we reviewed 75 randomly selected files of ineligible applicants to determine whether TAG officials had conducted a full eligibility review of applicants who had listed ineligible colleges or universities on their applications. In addition to those named above, the following individuals made important contributions to this report: Cathy Hurley, Ben Jordan, James Rebbe, Jay Smale, and James P. Wright.
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Twenty-one percent of grant-eligible applicants who did not use the District of Columbia's tuition assistance grant (TAG) funding to attend a participating college or university may have encountered such barriers as college entrance requirements and the absence of minority outreach programs. Whether enrollment caps at colleges posed a barrier for applicants is unclear. In the program's first year, 516 of the nearly 2,500 eligible applicants did not use the grants. About 21 percent of the institutions in which applicants expressed interest restrict the number of out-of-state students that they will accept, although the extent to which this played a role in limiting access to these institutions is unclear. Enrollment at the University of the District of Columbia (UDC) changed little during the TAG program's first year. The TAG program and UDC appeared to serve different freshmen populations, which may account for the TAG program's minimal impact on UDC enrollment. Although concerns about TAG program administration were largely resolved with the revision of program regulations in December 2000, other administrative issues may hinder program operations, including the determination of applicant eligibility and the distribution of information on institutions participating in the program.
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The Postal Reorganization Act of 1970 granted the Postal Service its independent status and allowed the Service to develop its own purchasing rules and regulations. Although it had the authority for greater flexibility, the Service followed prevailing federal practices until 1988 when it adopted a new procurement manual designed to take advantage of the best public and private purchasing practices. Compared to federal purchasing requirements, the Service's rules were designed to give contracting officers more discretion in meeting the needs of operating customers. For example, the federal policy of "full and open competition," as required for most federal contracts by the Competition in Contracting Act of 1984 was replaced with a policy of "adequate competition," and postal contracting officers may limit competition to selected or prequalified offerors. In 1991, we reported that there had been no problems from the adoption of the new purchasing rules but that they also had not been used enough to be declared a success. After a 1986 conviction of one of the Postal Board of Governors for fraud in a major purchase of automation equipment, the Senate and House postal oversight committees requested that we examine Postal Service purchasing practices. We reported that while the Postal Service routinely applied accepted internal controls to deter fraud, this did not guarantee that purchases could not be compromised by collusion or errors in judgment. Total purchases by the Postal Service in 1994 amounted to $4.6 billion, including $2.4 billion for facilities and equipment, and $2.2 billion for transportation. The proposed purchase of a capital and expense (i.e., noncapital) item costing $7.5 million or more is to be reviewed by a Capital Investment Committee, made up of Service executives and the Postmaster General. The Postal Board of Governors must also review proposed capital purchases costing $10 million or more. Board of Governors' approval is not required for purchases of expense items, including supplies or services such as transportation. However, if the expense item purchase exceeds $10 million, the Board of Governors is to receive an "information letter" on the purchase. Service officials said that the Board of Governors may review certain purchases because of their significance or unusual nature, regardless of the amount. In 1994, the Board of Governors reviewed 16 projects. Three of the seven purchases we reviewed involved ethics problems. The Postal Service is covered by the Ethics in Government Act of 1978. Under this act, the Service is required to provide an ethics program to implement the act and related governmentwide regulations. The Office of Government Ethics periodically reviews the adequacy of executive agency ethics programs, including the Service. Concerned about the adequacy of the Postal Service's procurement program, the Chairman of the former House Post Office and Civil Service Committee asked us to determine (1) if previously reported problems with several Postal Service purchases were due to any underlying causes that should be addressed through a legislative solution, and if not, (2) whether additional procedural safeguards could be employed by the Service to minimize future occurrences of such problems. Following the 1995 congressional reorganization and the elimination of the House Post Office and Civil Service Committee, we agreed to report to the newly formed Subcommittee on the Postal Service of the House Government Reform and Oversight Committee. To address the objectives, we reviewed our and other published reports on these purchases, as well as contract files and associated records. We discussed the purchases with the Service's purchasing personnel and executives and collected general purchasing and performance data. To understand the oversight process for major purchases, we obtained information from and interviewed responsible officials at the Board of Governors, the Capital Investment Committee, and the Postal Inspection Service. We also discussed recent developments in federal purchasing reform and contract oversight and compliance with the former Assistant Administrator for Acquisition Policy of the General Services Administration. Because three of the seven purchases involved ethics problems, we reviewed recent Office of Government Ethics reports on the Service's ethics program and discussed the program with Office of Government Ethics officials. The Postmaster General provided written comments on a draft of this report. His comments are discussed on page 11 and reprinted in appendix II. Our work was done between August 1994 and May 1995 in accordance with generally accepted government auditing standards. The problems encountered in the seven purchases we reviewed had various causes, but certain practices recurred. These included officials agreeing to forgo required checks and reviews in the purchase process and failing to resolve conflict-of-interest situations, both real and apparent. Problems with real estate transactions were apparently due to shortcutting important integrity safeguards through a mistaken sense of urgency. Contributing factors were the belief, not always correct, that other parties were interested in the properties or that offers to sell in areas where suitable sites were scarce were good opportunities. For example, in the St. Louis case, space was needed to house a data processing center that was being displaced from the main post office to make room for automation equipment. Because of an internal breakdown in communication, the facilities officials responsible for finding a new site were not aware of the moving date until a few months beforehand. Outright purchase would normally have been used; however, because capital funds were not available at the time, field real estate specialists arranged to acquire the building through a lease/purchase agreement. The Capital Investment Committee approved the project, which was then canceled by the Chairman of that Committee because of the General Counsel concerns about the financing arrangements between the Service and the building's seller. The next day the real estate specialists were directed to immediately, and without time to prepare, renegotiate the purchase from lease/purchase to an outright purchase. Congressional and Postal Inspection Service reports on this purchase further disclosed the following: The Capital Investment Committee was not given an opportunity to approve the purchase. The purchase was seriously misrepresented before the Board of Governors, including erroneous information that the Service needed to close the deal quickly because another party was anxious to buy the building. The Postal Service paid $12.5 million to the seller who had acquired the building for $4 million earlier the same day. In another case, the Postal Service accepted an unsolicited offer for purchase of a building in the Bronx, NY, on the basis that suitable sites in the area were hard to find, and the building presumably could be used as a general mail facility to solve severe mail processing capacity limitations in the area. However, the building was acquired before complete suitability assessments were made. The building was later determined to be unusable for its intended purpose because it did not have sufficient room for automated mail processing equipment. The building is used for Priority Mail and other mail processing from the main post office. In December 1995, when commenting on our proposed report, Service officials said that the Capital Investment Committee had approved $5 million for design work on the building and that the Postmaster General's and Board of Governors' approval will also be requested. When most of the seven purchases occurred, the purchasing function was not organized in a way that fostered contracting officers' independence. This was according to a 1993 study by the Logistics Management Institute entitled "Consolidating Postal Contracting," which was commissioned by the Postal Service. At the time, the contracting function was fragmented into independent groups for purchasing, transportation, and facilities. This structure, according to the study, led to inconsistent accountability over the performance and integrity of the contracting process. The study also found that contracting officers were not sufficiently independent because many of them reported directly to those officials who required the contracted products or services. Not only did this make it extremely difficult for contracting officers to exercise independent judgment and follow Postal Service policies, but the soundness of contracting decisions could be subordinated to their timeliness. No compliance or contract file reviews of major pending purchases were being made in any of the three groups, and contracting personnel in facilities and transportation were inadequately trained to handle their responsibilities. In some cases, contracting was a secondary duty assigned to individuals with other program responsibilities. The study recommended that the Postal Service establish a single purchasing executive, reporting to the Postmaster General, with management authority over the three separate purchasing groups. The study also stated that the new purchasing executive could resolve other weaknesses, such as training and the independence of the contracting workforce. Three of the seven purchases involved ethics violations. The most severe, discussed below, were two similar instances in which the contracting officer failed to correct situations where individuals had financial relationships with the Postal Service and with certain offerors. In the 1992 award of a 10-year contract for air transportation, a consultant, who was helping the Postal Service review the proposals, informed the Service that he had a job offer that he might accept from one of the offerors to the solicitation. The Service's General Counsel advised the contracting officer that the consultant should either decline the job offer or be removed from the evaluation team. The contracting officer instead approved an arrangement whereby the consultant should merely remain out of contact with the offeror until after the contract was awarded. The offeror won the contract, which was then challenged by a losing offeror. The court set aside the contract because of the conflict of interest that existed when the proposals were evaluated. The Service incurred extra costs of $10 million, paid to the original winning offeror for start-up costs incurred, and $8 million annually for a more costly replacement contract. In another case, during the development and purchase of automated barcode sorting systems, the Postal Service first retained a consultant in 1990 for software development. Shortly thereafter, the consultant sought permission from the Service to offer related support to the barcode system supplier. The Service responded by inserting conflict-of-interest clauses into its contract with the consultant that prohibited him from entering into contracts with the system supplier. However, the Service did not enforce the clauses, and the consultant was retained under contract by the supplier. Despite advice from the Service's General Counsel that the contract with the consultant should not be renewed, the arrangement continued while the Service tested and solicited proposals for upgraded barcode sorters. A contract was awarded to the same supplier in March 1993. The losing offeror claimed it had been put at a competitive disadvantage and damaged by the dual relationship of the consultant with the Service and the supplier. An arbitration panel agreed and ordered the Service to pay $22.2 million to the losing firm. According to the Office of Government Ethics, the Postal Service's control of its ethics environment has been of concern. Since 1991, the Office has made three reviews of the Service's program because of the Service's persistent problems; typically, executive branch agencies are reviewed once every 5 years. In 1991, the Office reported that its recommendations from a 1987 report had not been implemented although the Service reported that actions had been taken to resolve those deficiencies. Improvements needed were timely collection and review of public financial disclosure statements, revisions to the confidential reporting system, development of a formal ethics education and training program, establishment of a program monitoring system, and additional staff resources. The long-standing problems in the Service's ethics program were primarily attributed to a lack of strong support by top management and inadequate staff resources. The Office requested that the Service report its progress in correcting the deficiencies by March 1991 and every 60 days until the recommendations were implemented. In 1993, the Office reported that many of its earlier recommendations remained to be acted upon and that, while some progress was being made by ethics officials, overall the Postal Service did not have an effective ethics program. The General Counsel advised the Office in April 1993 that the Service had been unable to devote sufficient resources to the ethics program. As part of an overall downsizing of the Service, headquarters staffing dropped by about 30 percent from August 1992 through April 1993. On August 9, 1995, the Office reported that some improvements had been made but that more work was needed to develop an effective program. The Postal Service still had difficulty in administering a program that complied with applicable laws and regulations. All areas of the program were found to require improvement. The Office recommended that the Service ensure that written procedures for administering the public and private financial disclosure systems are prepared as required by the Ethics in Government Act of 1978, disclosure reports are filed in a timely manner, late filing fees are collected or that late filers request waivers from the Office, ethics orientation for new employees be improved to comply with the Office's governmentwide ethics regulations, ethics officials improve their coordination with the Postal Inspection Service about the resolution of conflict-of-interest situations, and the Office is notified about conflict-of-interest violations that are referred to the Department of Justice. In an October 3, 1995, letter to the Office of Government Ethics, the Postal Service's General Counsel expressed overall agreement with the recommendations and outlined actions taken or planned to address each of the Office's recommendations to improve the Service's ethics programs. According to the General Counsel, the preparation of written procedures for financial disclosure was a top priority and would be finished in early 1996. The General Counsel said that a backlog of unreviewed public financial disclosure reports had been eliminated, late-filed reports had been investigated, and procedures for ensuring timely filing of future reports and handling of late filing fees and related waivers were being considered. Other actions taken included an increase in ethics program staff resources by (1) adding two ethics positions under the General Counsel, (2) designating an ethics coordinator for each headquarters department whose duties include administering training and financial disclosure requirements, and (3) designating 170 ethics resource individuals in field units to handle routine questions. The General Counsel said actions were also taken to improve ethics awareness. These actions included (1) development of an introductory ethics orientation video, which was shown to about 700,000 employees nationwide in 1993 and 1994; (2) distribution of a letter from the Postmaster General to all postal employees in 1993, providing the names and telephone numbers of ethics advisors; and (3) training of up to 7,000 employees who filed financial disclosure reports each year in 1993, 1994, and 1995 to meet Office of Government Ethics regulations. The actions included steps to improve ethics awareness of contracting officers and other employees with significant procurement responsibilities, such as mandatory all-day ethics training for 1,100 such employees in 1993, and 2-1/2 hours of ethics training for the same number in 1994. Regarding the resolution of apparent conflict-of-interest cases, the General Counsel's office and the Postal Inspection Service agreed to quarterly coordination meetings, and the Postal Service set up an ethics advisory council to help resolve possible conflict-of-interest situations. The General Counsel was not aware of any referrals of conflict-of-interest cases to Justice in the past 3 years. The seven purchases totaled about $1.33 billion. We estimate that the Postal Service expended about $89 million for penalties or unusable and marginally used property, portions of which could be recovered if the properties were leased or sold. The expended amount consists of $32 million in penalties to injured parties to compensate them for damages caused by the conflicts of interest during the awards for air transportation and automation equipment; $12.5 million for the St. Louis building, which as of August 1995, the Postal Service was in the process of trying to lease or sell; $14.7 million for a site in Queens, which is unusable due to contamination; $29.5 million for the Bronx building, which is essentially unusable for its intended purpose. In November 1993, in response to the previously mentioned 1993 study of purchasing practices, the Postal Service placed the three independent procurement groups under one purchasing executive to ensure more consistent control over purchasing operations. This official has established goals to better train, qualify, and educate contracting professionals to handle more abstract decisionmaking under the more flexible discretion they are allowed. Recognizing the need for additional review and other processes to reduce errors, the purchasing office plans to adopt additional higher levels of review, including requirements for contracting officers to document the policy and business rationales for the particular purchasing decisions. In keeping with presidential initiatives emphasizing performance reviews that focus more on results rather than conformance to regulations, the Postal Service's purchasing office hopes to build better quality into its purchasing cycle. The purchasing office also recognizes the need for additional self-assessments within its purchasing office. Details of this approach are still under study, as is how the independence of contracting officers from those with program responsibility will ultimately be defined. Problems occurred in the purchasing function for the purchases we reviewed mainly because Postal Service officials circumvented internal controls to speed up the purchasing process and failed to adequately deal with known or potential ethics violations. We believe that the changes that the Service has made to improve major acquisition integrity are steps in the right direction. The consolidation of the three independent purchasing units under a single responsible purchasing executive should help ensure more consistent management of major purchases, as should the other plans to improve the purchasing process and the training and ethics awareness of purchasing personnel. The Office of Government Ethics' recommendations, concurred in by the Service, are designed to ensure that improvement in the program continues through more consistent oversight and strong management support. If implemented, the Service's actions should complement its other initiatives. The most well-designed purchase program can be compromised if officials choose to avoid controls to satisfy perceived operational exigencies, as occurred with many of the purchases that we reviewed. However, we believe that top management's continued support of these reform initiatives could help improve procurement integrity and help prevent the recurrence of such problems. Responding to our report, the Postmaster General said that the consolidation of purchasing activities in 1993 was a significant step forward. He said that the Service is continuing with a number of improvements, including contracting officer qualification standards, enhanced training programs, improved methods of monitoring major purchases, and renewed emphasis on ethics awareness. He believes that the separation of contracting officers from operational organizations will result in an enhanced awareness of contractual and legal issues, as well as better overall decisionmaking. The Postmaster General recognized that the purchasing process had been compromised, not because of fundamental defects in the Postal Service's purchasing policies, but because officials chose to deviate from those policies. He emphasized the need for the Service to have the purchasing flexibility envisioned in the Postal Reorganization Act of 1970 and that if errors in judgment or flaws in the purchasing methods are discovered, the Service will move rapidly to correct them and prevent any recurrence. A copy of the Postmaster General's letter of December 18, 1995, is included as appendix II. We are sending copies of this report to the Postmaster General, the Postal Service Board of Governors, and other congressional committees that have responsibilities for Postal Service issues. Copies will also be made available to others upon request. The major contributors to this report are listed in appendix III. If you have any questions about this report, please call me on (202) 512-8387. The desire to secure a site for a general mail facility to resolve long-standing mail processing problems overrode environmental concerns and prudent financial management. Two sites were purchased when one was needed. The Phelps-Dodge site proved unusable because of hazardous waste contamination, and a provision requiring the seller to clean up the site before transfer of title was removed from the final purchase agreement. This left the Postal Service with a site that it cannot use or sell without additional costs or concessions. Cleanup of the site was suspended in 1987 when contamination was found to be more widespread than expected. The Postal Service was in litigation to get the seller to clean up the site so that it can be sold. The Postal Service accepted an unsolicited offer for this building before fully assessing its suitability and performing a cash flow analysis. A building was needed to alleviate severe mail processing problems in the area, and reportedly no other such sites or buildings were on the market. The building was subsequently deemed unusable as a general mail facility because it did not have enough room for automated sorting equipment. The building housed Priority Mail processing and other operations from the main post office. As a courtesy, Postal Service officials accepted meals and travel from a German firm affiliated with the successful offeror. These actions violated the law and governmentwide and postal standards of conduct. While the actions created the appearance of a conflict of interest, they were not sufficient to invalidate the award. Equipment delivery under the contract was scheduled to be completed by the end of fiscal year 1997. In selecting the location for this hub, the Postal Service did not give the same weight to the selection criteria that it stated in the solicitation. While the winning location (Indianapolis) was a top competitor for the award, because of this and other deficiencies in the evaluation process, we were unable to determine which competitor would have won if the evaluation had been consistent with the request for proposal. Air hub was in service. A breakdown in the review and approval process for this real estate purchase caused procurement safeguards to be circumvented and many failures to occur. The most notable was that the Postal Service paid a real estate development firm $12.5 million for a building that the firm had acquired earlier the same day for $4 million. The building temporarily housed the data processing center. The Service planned to rent or sell the building. (continued) Contrary to the advice of the Postal Service's legal department, the contracting officer failed to resolve a conflict of interest on the part of an individual who helped evaluate the contract proposals and at the same time had a job offer pending from the successful offeror. As a result of the conflict of interest, the award was set aside by the courts and a replacement contract was awarded to one of the unsuccessful offerors. The Service paid $10 million to the original winning offeror to settle its claim under the contract, which was then set aside. Also, the new contract cost $8 million more annually than the old contract (both were for 10 years). Air service was in operation. The contracting officer failed to correct an apparent conflict-of-interest situation involving an individual who was a technical consultant on this equipment to both the Service and the winning offeror. The dispute was submitted to an arbitration panel, which awarded $22.2 million in damages to the unsuccessful offeror. Final delivery under the contract was scheduled for 1996. POSTAL SERVICE: Decisions to Purchase Two Properties in Queens, New York (GAO/GGD-92-107BR, July 17, 1992). V. Bruce Goddard, Senior Attorney The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (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 whether changes are needed in the Postal Service's purchasing program, focusing on whether: (1) certain problem purchases were due to some underlying causes that should be addressed through legislation; and (2) the Service should implement additional procedural safeguards to minimize future occurrences of such problems. GAO found that: (1) the problems encountered during the seven purchases reviewed were due to Postal officials' poor judgment, circumventions of existing internal controls, and failure to resolve conflicts of interest; (2) many contracting officers could not exercise independent judgment, since they reported directly to those officials who required the products or services; (3) the Service has taken action to increase oversight and accountability over its purchasing process and to safeguard against such future occurrences; (4) in response to recommendations by the Office of Government Ethics, the Service has outlined actions it is taking to improve its ethics program which should help prevent the recurrence of such purchasing problems; (5) a formal ethics education and training program for contracting officers and personnel is underway; (6) the Service has established one purchasing executive with management authority over the three separate Postal purchasing groups; and (7) the Service plans to adopt a requirement for more explicit documentation of and rationale for contracting officers' business and policy actions.
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IAEA is an independent organization affiliated with the United Nations. Its governing bodies include the General Conference, composed of representatives of the 138 IAEA member states, and the 35-member Board of Governors, which provides overall policy direction and oversight. The Secretariat, headed by the Director General, is responsible for implementing the policies and programs of the General Conference and Board of Governors. The United States is a permanent member of the Board of Governors. IAEA derives its authority to establish and administer safeguards from its statute, the Treaty on the Non-proliferation of Nuclear Weapons and regional nonproliferation treaties, bilateral commitments between states, and project agreements with states. Since the NPT came into force in 1970, it has been subject to review by signatory states every 5 years. The 1995 NPT Review and Extension conference extended the life of the treaty indefinitely, and the latest review conference occurred in May 2005. Article III of the NPT binds each of the treaty's 184 signatory states that had not manufactured and exploded a nuclear device prior to January 1, 1967 (referred to in the treaty as non-nuclear weapon states) to conclude an agreement with IAEA that applies safeguards to all source and special nuclear material in all peaceful nuclear activities within the state's territory, under its jurisdiction, or carried out anywhere under its control. The five nuclear weapons states that are parties to the NPT--China, France, the Russian Federation, the United Kingdom, and the United States--are not obligated by the NPT to accept IAEA safeguards. However, each nuclear weapons state has voluntarily entered into legally binding safeguards agreements with IAEA, and has submitted designated nuclear materials and facilities to IAEA safeguards to demonstrate to the non- nuclear weapon states their willingness to share in the administrative and commercial costs of safeguards. (App. I lists states that are subject to safeguards, as of August 2006.) India, Israel, and Pakistan are not parties to the NPT or other regional nonproliferation treaties. India and Pakistan are known to have nuclear weapons programs and to have detonated several nuclear devices during May 1998. Israel is also believed to have produced nuclear weapons. Additionally, North Korea joined the NPT in 1985 and briefly accepted safeguards in 1992 and 1993, but expelled inspectors and threatened to withdraw from the NPT when IAEA inspections uncovered evidence of undeclared plutonium production. North Korea announced its withdrawal from the NPT in early 2003, which under the terms of the treaty, terminated its comprehensive safeguards agreement. IAEA's safeguards objectives, as traditionally applied under comprehensive safeguards agreements, are to account for the amount of a specific type of material necessary to produce a nuclear weapon, and the time it would take a state to divert this material from peaceful use and produce a nuclear weapon. IAEA attempts to meet these objectives by using a set of activities by which it seeks to verify that nuclear material subject to safeguards is not diverted to nuclear weapons or other proscribed purposes. For example, IAEA inspectors visit a facility at certain intervals to ensure that any diversion of nuclear material is detected before a state has had time to produce a nuclear weapon. IAEA also uses material-accounting measures to verify quantities of nuclear material declared to the agency and any changes in the quantities over time. Additionally, containment measures are used to control access to and the movement of nuclear material. Finally, IAEA deploys surveillance devices, such as video cameras, to detect the movements of nuclear material and discourage tampering with IAEA's containment measures. The Nuclear Suppliers Group was established in 1975 after India tested a nuclear explosive device. In 1978, the Suppliers Group published its first set of guidelines governing the exports of nuclear materials and equipment. These guidelines established several requirements for Suppliers Group members, including the acceptance of IAEA safeguards at facilities using controlled nuclear-related items. In 1992, the Suppliers Group broadened its guidelines by requiring countries receiving nuclear exports to agree to IAEA's safeguards as a condition of supply. As of August 2006, the Nuclear Suppliers Group had 45 members, including the United States. (See app. II for a list of signatory countries.) IAEA has taken steps to strengthen safeguards by more aggressively seeking assurances that a country is not pursuing a clandestine nuclear program. In a radical departure from past practices of only verifying the peaceful use of a country's declared nuclear material at declared facilities, IAEA has begun to develop the capability to independently evaluate all aspects of a country's nuclear activities. The first strengthened safeguards steps, which began in the early 1990s, increased the agency's ability to monitor declared and undeclared activities at nuclear facilities. These measures were implemented under the agency's existing legal authority under comprehensive safeguards agreements and include (1) conducting short notice and unannounced inspections, (2) collecting and analyzing environmental samples to detect traces of nuclear material, and (3) using measurement and surveillance systems that operate unattended and can be used to transmit data about the status of nuclear materials directly to IAEA headquarters. The second series of steps began in 1997 when IAEA's Board of Governors approved the Additional Protocol. Under the Additional Protocol, IAEA has the right, among other things, to (1) receive more comprehensive information about a country's nuclear activities, such as research and development activities, and (2) conduct "complementary access," which enables IAEA to expand its inspection rights for the purpose of ensuring the absence of undeclared nuclear material and activities. Because the Additional Protocol broadens IAEA's authority and the requirements on countries under existing safeguards agreements, each country must take certain actions to bring it into force. For each country with a safeguards agreement, IAEA independently evaluates all information available about the country's nuclear activities and draws conclusions regarding a country's compliance with its safeguards commitments. A major source of information available to the agency is data submitted by countries to IAEA under their safeguards agreements, referred to as state declarations. Countries are required to provide an expanded declaration of their nuclear activities within 180 days of bringing the Additional Protocol into force. Examples of information provided in an Additional Protocol declaration include the manufacturing of key nuclear-related equipment; research and development activities related to the nuclear fuel cycle; the use and contents of buildings on a nuclear site; and the location and operational status of uranium mines. The agency uses the state declarations as a starting point to determine if the information provided by the country is consistent and accurate with all other information available based on its own review. IAEA uses various types of information to verify the state declaration. Inspections of nuclear facilities and other locations with nuclear material are the cornerstone of the agency's data collection efforts. Under the Additional Protocol, IAEA has the authority to conduct complementary access at any place on a site or other location with nuclear material in order to ensure the absence of undeclared nuclear material and activities, confirm the decommissioned status of facilities where nuclear material was used or stored, and resolve questions or inconsistencies related to the correctness and completeness of the information provided by a country on activities at other declared or undeclared locations. During complementary access, IAEA inspectors may carry out a number of activities, including (1) making visual observations, (2) collecting environmental samples, (3) using radiation detection equipment and measurement devices, and (4) applying seals. In 2004, IAEA conducted 124 complementary access in 27 countries. In addition to its verification activities, IAEA uses other sources of information to evaluate countries' declarations. These sources include information from the agency's internal databases, open sources, satellite imagery, and outside groups. The agency established two new offices within the Department of Safeguards to focus primarily on open source and satellite imagery data collection. Analysts use Internet searches to acquire information generally available to the public from open sources, such as scientific literature, trade and export publications, commercial companies, and the news media. In addition, the agency uses commercially available satellite imagery to supplement the information it receives through its open source information. Satellite imagery is used to monitor the status and condition of declared nuclear facilities and verify state declarations of certain sites. The agency also uses its own databases, such as those for nuclear safety, nuclear waste, and technical cooperation, to expand its general knowledge about countries' nuclear and nuclear- related activities. In some cases, IAEA receives information from third parties, including other countries. Department of State and IAEA officials told us that strengthened safeguards measures have successfully revealed previously undisclosed nuclear activities in Iran, South Korea, and Egypt. Specifically, IAEA and Department of State officials noted that strengthened safeguards measures, such as collecting and analyzing environmental samples, helped the agency verify some of Iran's nuclear activities. The measures also allowed IAEA to conclude in September 2005 that Iran was not complying with its safeguards obligations because it failed to report all of its nuclear activities to IAEA. As a result, in July 2006, Iran was referred to the U.N. Security Council, which in turn demanded that Iran suspend its uranium enrichment activities or face possible diplomatic and economic sanctions. In August 2004, as a result of preparations to submit its initial declaration under the Additional Protocol, South Korea notified IAEA that it had not previously disclosed nuclear experiments involving the enrichment of uranium and plutonium separation. IAEA sent a team of inspectors to South Korea to investigate this case. In November 2004, IAEA's Director General reported to the Board of Governors that although the quantities of nuclear material involved were not significant, the nature of the activities and South Korea's failure to report these activities in a timely manner posed a serious concern. IAEA is continuing to verify the correctness and completeness of South Korea's declarations. IAEA inspectors have investigated evidence of past undeclared nuclear activities in Egypt based on the agency's review of open source information that had been published by current and former Egyptian nuclear officials. Specifically, in late 2004, the agency found evidence that Egypt had engaged in undeclared activities at least 20 years ago by using small amounts of nuclear material to conduct experiments related to producing plutonium and highly enriched uranium. In January 2005, the Egyptian government announced that it was fully cooperating with IAEA and that the matter was limited in scope. IAEA inspectors have made several visits to Egypt to investigate this matter. IAEA's Secretariat reported these activities to its Board of Governors. Despite these successes, a group of safeguards experts recently cautioned that a determined country can still conceal a nuclear weapons program. IAEA faces a number of limitations that impact its ability to draw conclusions--with absolute assurance--about whether a country is developing a clandestine nuclear weapons program. For example, IAEA does not have unfettered inspection rights and cannot make visits to suspected sites anywhere at any time. According to the Additional Protocol, complementary access to resolve questions related to the correctness and completeness of the information provided by the country or to resolve inconsistencies must usually be arranged with at least 24- hours advanced notice. Complementary access to buildings on sites where IAEA inspectors are already present are usually conducted with a 2-hour advanced notice. Furthermore, IAEA officials told us that there are practical problems that restrict access. For example, inspectors must be issued a visa to visit certain countries, a process which cannot normally be completed in less than 24 hours. In some cases, nuclear sites are in remote locations and IAEA inspectors need to make travel arrangements, such as helicopter transportation, in advance, which requires that the country be notified prior to the visit. A November 2004 study by a group of safeguards experts appointed by IAEA's Director General evaluated the agency's safeguards program to examine how effectively and efficiently strengthened safeguards measures were being implemented. Specifically, the group's mission was to evaluate the progress, effectiveness, and impact of implementing measures to enhance the agency's ability to draw conclusions about the non-diversion of nuclear material placed under safeguards and, for relevant countries, the absence of undeclared nuclear material and activities. The group concluded that generally IAEA had done a very good job implementing strengthened safeguards despite budgetary and other constraints. However, the group noted that IAEA's ability to detect undeclared activities remains largely untested. If a country decides to divert nuclear material or conduct undeclared activities, it will deliberately work to prevent IAEA from discovering this. Furthermore, IAEA and member states should be clear that the conclusions drawn by the agency cannot be regarded as absolute. This view has been reinforced by the former Deputy Director General for Safeguards who has stated that even for countries with strengthened safeguards in force, there are limitations on the types of information and locations accessible to IAEA inspectors. There are a number of weaknesses that hamper IAEA's ability to effectively implement strengthened safeguards. IAEA has only limited information about the nuclear activities of 4 key countries that are not members of the NPT--India, Israel, North Korea, and Pakistan. India, Israel, and Pakistan have special agreements with IAEA that limit the agency's activities to monitoring only specific material, equipment, and facilities. However, since these countries are not signatories to the NPT, they do not have comprehensive safeguards agreements with IAEA, and are not required to declare all of their nuclear material to the agency. In addition, these countries are only required to declare exports of nuclear material previously declared to IAEA. With the recent revelations of the illicit international trade in nuclear material and equipment, IAEA officials stated that they need more information on these countries' nuclear exports. For North Korea, IAEA has even less information, since the country expelled IAEA inspectors and removed surveillance equipment at nuclear facilities in December 2002 and withdrew from the NPT in January 2003. These actions have raised widespread concern that North Korea diverted some of its nuclear material to produce nuclear weapons. Another major weakness is that more than half, or 111 out of 189, of the NPT signatories have not yet brought the Additional Protocol into force, as of August 2006. (App. I lists the status of countries' safeguards agreements with IAEA). Without the Additional Protocol, IAEA must limit its inspection efforts to declared nuclear material and facilities, making it harder to detect clandestine nuclear programs. Of the 111 countries that have not adopted the Additional Protocol, 21 are engaged in significant nuclear activities, including Egypt, North Korea, and Syria. In addition, safeguards are significantly limited or not applied in about 60 percent, or 112 out of 189, of the NPT signatory countries--either because they have an agreement (known as a small quantities protocol) with IAEA, and are not subject to most safeguards measures, or because they have not concluded a comprehensive safeguards agreement with IAEA. Countries with small quantities of nuclear material make up about 41 percent of the NPT signatories and about one-third of the countries that have the Additional Protocol in force. Since 1971, IAEA's Board of Governors has authorized the Director General to conclude an agreement, known as a small quantities protocol, with 90 countries and, as of August 2006, 78 of these agreements were in force. IAEA's Board of Governors has approved the protocols for these countries without having IAEA verify that they met the requirements for it. Even if these countries bring the Additional Protocol into force, IAEA does not have the right to conduct inspections or install surveillance equipment at certain nuclear facilities. According to IAEA and Department of State officials, this is a weakness in the agency's ability to detect clandestine nuclear activities or transshipments of nuclear material and equipment through the country. In September 2005, the Board of Governors directed IAEA to negotiate with countries to make changes to the protocols, including reinstating the agency's right to conduct inspections. As of August 2006, IAEA amended the protocols for 4 countries--Ecuador, Mali, Palau, and Tajikistan. The application of safeguards is further limited because 31 countries that have signed the NPT have not brought into force a comprehensive safeguards agreement with IAEA. The NPT requires non-nuclear weapons states to conclude comprehensive safeguards agreements with IAEA within 18 months of becoming a party to the Treaty. However, IAEA's Director General has stated that these 31 countries have failed to fulfill their legal obligations. Moreover, 27 of the 31 have not yet brought comprehensive safeguards agreements into force more than 10 years after becoming party to the NPT, including Chad, Kenya, and Saudi Arabia. Last, IAEA is facing a looming human capital crisis that may hamper the agency's ability to meet its safeguards mission. In 2005, we reported that about 51 percent, or 38 out of 75, of IAEA's senior safeguards inspectors and high-level management officials, such as the head of the Department of Safeguards and the directors responsible for overseeing all inspection activities of nuclear programs, are retiring in the next 5 years. According to U.S. officials, this significant loss of knowledge and expertise could compromise the quality of analysis of countries' nuclear programs. For example, several inspectors with expertise in uranium enrichment techniques, which is a primary means to produce nuclear weapons material, are retiring at a time when demand for their skills in detecting clandestine nuclear activities is growing. While IAEA has taken a number of steps to address these human capital issues, officials from the Department of State and the U.S. Mission to the U.N. System Organizations in Vienna have expressed concern that IAEA is not adequately planning to replace staff with critical skills needed to fulfill its strengthened safeguards mission. The Nuclear Suppliers Group, along with other multilateral export control groups, has helped stop, slow, or raise the costs of nuclear proliferation, according to nonproliferation experts. For example, as we reported in 2002, the Suppliers Group helped convince Argentina and Brazil to accept IAEA safeguards on their nuclear programs in exchange for expanded access to international cooperation for peaceful nuclear purposes. The Suppliers Group, along with other multilateral export control groups, has significantly reduced the availability of technology and equipment available to countries of concern, according to a State Department official. Moreover, nuclear export controls have made it more difficult, more costly, and more time consuming for proliferators to obtain the expertise and material needed to advance their nuclear program. The Nuclear Suppliers Group has also helped IAEA verify compliance with the NPT. In 1978, the Suppliers Group published the first guidelines governing exports of nuclear materials and equipment. These guidelines established several member requirements, including the requirement that members adhere to IAEA safeguards standards at facilities using controlled nuclear-related items. Subsequently, in 1992, the Nuclear Suppliers Group broadened its guidelines by requiring that members insist that non-member states have IAEA safeguards on all nuclear material and facilities as a condition of supply for their nuclear exports. With the revelation of Iraq's nuclear weapons program, the Suppliers Group also created an export control system for dual-use items that established new controls for items that did not automatically fall under IAEA safeguards requirements. Despite these benefits, there are a number of weaknesses that could limit the Nuclear Suppliers Group's ability to curb nuclear proliferation. Members of the Suppliers Group do not share complete export licensing information. Specifically, members do not always share information about licenses they have approved or denied for the sale of controversial items to nonmember states. Without this shared information, a member country could inadvertently license a controversial item to a country that has already been denied a license from another Suppliers Group member state. Furthermore, Suppliers Group members did not promptly review and agree upon common lists of items to control and approaches to controlling them. Each member must make changes to its national export control policies after members agree to change items on the control list. If agreed- upon changes to control lists are not adopted at the same time by all members, proliferators could exploit these time lags to obtain sensitive technologies by focusing on members that are slowest to incorporate the changes and sensitive items may still be traded to countries of concern. In addition, there are a number of obstacles to efforts aimed at strengthening the Nuclear Suppliers Group and other multilateral export control regimes. First, efforts to strengthen export controls have been hampered by a requirement that all members reach consensus about every decision made. Under the current process, a single member can block new reforms. U.S. and foreign government officials and nonproliferation experts all stressed that the regimes are consensus-based organizations and depend on the like-mindedness or cohesion of their members to be effective. However, members have found it especially difficult to reach consensus on such issues as making changes to procedures and control lists. The Suppliers Group reliance on consensus decision making will be tested by the United States request to exempt India from the Suppliers Group requirements to accept IAEA safeguards at all nuclear facilities. Second, since membership with the Suppliers Group is voluntary and nonbinding, there are no means to enforce compliance with members' nonproliferation commitments. For example, the Suppliers Group has no direct means to impede Russia's export of nuclear fuel to India, an act that the U.S. government said violated Russia's commitment. Third, the rapid pace of nuclear technological change and the growing trade of sensitive items among proliferators complicate efforts to keep control lists current because these lists need to be updated more frequently. To help strengthen these regimes, GAO recommended in October 2002, that the Secretary of State establish a strategy that includes ways for Nuclear Suppliers Group members to improve information sharing, implement changes to export controls more consistently, and identify organizational changes that could help reform its activities. As of June 2006, the Nuclear Suppliers Group announced that it has revised its guidelines to improve information sharing. However, despite our recommendation, it has not yet agreed to share greater and more detailed information on approved exports of sensitive transfers to nonmember countries. Nevertheless, the Suppliers Group is examining changes to its procedures that assist IAEA's efforts to strengthen safeguards. For example, at the 2005 Nuclear Suppliers Group plenary meeting, members discussed changing the requirements for exporting nuclear material and equipment by requiring nonmember countries to adopt IAEA's Additional Protocol as a condition of supply. If approved by the Suppliers Group, the action would complement IAEA's efforts to verify compliance with the NPT. Reducing the formidable proliferation risks posed by former Soviet weapons of mass destruction (WMD) assets is a U.S. national security interest. Since the fall of the Soviet Union, the United States, through a variety of programs, managed by the Departments of Energy, Defense (DOD), and State, has helped Russia and other former Soviet countries to secure nuclear material and warheads, detect illicitly trafficked nuclear material, eliminate excess stockpiles of weapons-usable nuclear material, and halt the continued production of weapons-grade plutonium. From fiscal year 1992 through fiscal year 2006, the Congress appropriated about $7 billion for nuclear nonproliferation efforts. However, U.S. assistance programs have faced a number of challenges, such as a lack of access to key sites and corruption of foreign officials, which could compromise the effectiveness of U.S. assistance. DOE's Material Protection, Control, and Accounting (MPC&A) program has worked with Russia and other former Soviet countries since 1994 to provide enhanced physical protection systems at sites with weapons- usable nuclear material and warheads, implement material control and accounting upgrades to help keep track of the quantities of nuclear materials at sites, and consolidate material into fewer, more secure buildings. GAO last reported on the MPC&A program in 2003. At that time, a lack of access to many sites in Russia's nuclear weapons complex had significantly impeded DOE's progress in helping Russia to secure its nuclear material. We reported that DOE had completed work at only a limited number of buildings in Russia's nuclear weapons complex, a network of sites involved in the construction of nuclear weapons where most of the nuclear material in Russia is stored. According to DOE, by the end of September 2006, the agency will have helped to secure 175 buildings with weapons-usable nuclear material in Russia and the former Soviet Union and 39 Russian Navy nuclear warhead sites. GAO is currently re-examining DOE's efforts, including the progress DOE has made since 2003 in securing nuclear material and warheads in Russia and other countries and the challenges DOE faces in completing its work. While securing nuclear materials and warheads where they are stored is considered to be the first layer of defense against nuclear theft, there is no guarantee that such items will not be stolen or lost. Recognizing this fact, DOE, DOD, and State, through seven different programs, have provided radiation detection equipment since 1994 to 36 countries, including many countries of the former Soviet Union. These programs seek to combat nuclear smuggling and are seen as a second line of defense against nuclear theft. The largest and most successful of these efforts is DOE's Second Line of Defense program (SLD). We reported in March 2006 that, through the SLD program, DOE had provided radiation detection equipment and training at 83 sites in Russia, Greece, and Lithuania since 1998. However, we also noted that U.S. radiation detection assistance efforts faced challenges, including corruption of some foreign border security officials, technical limitations of some radiation detection equipment, and inadequate maintenance of some equipment. To address these challenges, U.S. agencies plan to take a number of steps, including combating corruption by installing communications links between individual border sites and national command centers so that detection alarm data can be simultaneously evaluated by multiple officials. The United States is also helping Russia to eliminate excess stockpiles of nuclear material (highly enriched uranium and plutonium). In February 1993, the United States agreed to purchase from Russia 500 metric tons of highly enriched uranium (HEU) extracted from dismantled Russian nuclear weapons over a 20-year period. Russia agreed to dilute, or blend- down, the material into low enriched uranium (LEU), which is of significantly less proliferation risk, so that it could be made into fuel for commercial nuclear power reactors before shipping it to the United States. As of June 27, 2006, 276 metric tons of Russian HEU--derived from more than 11,000 dismantled nuclear weapons--have been downblended into LEU for use in U.S. commercial nuclear reactors. Similarly, in 2000, the United States and Russia committed to the transparent disposition of 34 metric tons each of weapon-grade plutonium. The plutonium will be converted into a more proliferation-resistant form called mixed-oxide (MOX) fuel that will be used in commercial nuclear power plants. In addition to constructing a MOX fuel fabrication plant at its Savannah River Site, DOE is also assisting Russia in constructing a similar facility for the Russian plutonium. Russia's continued operation of three plutonium production reactors poses a serious proliferation threat. These reactors produce about 1.2 metric tons of plutonium each year--enough for about 300 nuclear weapons. DOE's Elimination of Weapons-Grade Plutonium Production program seeks to facilitate the reactors' closure by building or refurbishing two fossil fuel plants that will replace the heat and electricity that will be lost with the shutdown of Russia's three plutonium production reactors. DOE plans to complete the first of the two replacement plants in 2008 and the second in 2011. When we reported on this program in June 2004, we noted that DOE faced challenges in implementing its program, including ensuring Russia's commitment to shutting down the reactors, the rising cost of building the replacement fossil fuel plants, and concerns about the thousands of Russian nuclear workers who will lose their jobs when the reactors are shut down. We made a number of recommendations, which DOE has implemented, including reaching agreement with Russia on the specific steps to be taken to shut down the reactors and development of a plan to work with other U.S. government programs to assist Russia in finding alternate employment for the skilled nuclear workers who will lose their jobs when the reactors are shut down. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the Subcommittee may have at this time. For future contacts regarding this testimony, please contact Gene Aloise at (202) 512-3841 or Joseph Christoff at (202) 512-8979. R. Stockton Butler, Miriam A. Carroll, Leland Cogliani, Lynn Cothern, Muriel J. Forster, Jeffrey Phillips, and Jim Shafer made key contributions to this testimony. Beth Hoffman Leon, Stephen Lord, Audrey Solis, and Pierre Toureille provided technical assistance. Although North Korea concluded a comprehensive safeguards agreement with IAEA in 1992, it announced its withdrawal from the NPT in January 2003. Secures radiological sources no longer needed in the U.S. and locates, identifies, recovers, consolidates, and enhances the security of radioactive materials outside the U.S. Global Nuclear Material Threat Reduction Eliminates Russia's use of highly enriched uranium (HEU) in civilian nuclear facilities; returns U.S. and Russian-origin HEU and spent nuclear fuel from research reactors around the world; secures plutonium-bearing spent nuclear fuel from reactors in Kazakhstan; and addresses nuclear and radiological materials at vulnerable locations throughout the world. Provides replacement fossil-fuel energy that will allow Russia to shutdown its three remaining weapons-grade plutonium production reactors. Develops and delivers technology applications to strengthen capabilities to detect and verify undeclared nuclear programs; enhances the physical protection and proper accounting of nuclear material; and assists foreign national partners to meet safeguards commitments. Provides meaningful employment for former weapons of mass destruction weapons scientists. Provides material protection, control, and accounting upgrades to enhance the security of Navy HEU fuel and nuclear material. Provides material protection, control, and accounting upgrades to nuclear weapons, uranium enrichment, and material processing and storage sites. Enhances the security of proliferation-attractive nuclear material in Russia by supporting material protection, control, and accounting upgrade projects at Russian civilian nuclear facilities. Develops national and regional resources in the Russian Federation to help establish and sustain effective operation of upgraded nuclear material protection, control and accounting systems. Negotiates cooperative efforts with the Russian Federation and other key countries to strengthen the capability of enforcement officials to detect and deter illicit trafficking of nuclear and radiological material across international borders. This is accomplished through the detection, location and identification of nuclear and nuclear related materials, the development of response procedures and capabilities, and the establishment of required infrastructure elements to support the control of these materials. HEU Transparency Implementation project Monitors Russia to ensure that low enriched uranium (LEU) sold to the U.S. for civilian nuclear power plants is derived from weapons-usable HEU removed from dismantled Russian nuclear weapons. Disposes of surplus domestic HEU by down-blending it. Surplus U.S. Plutonium Disposition project Disposes of surplus domestic plutonium by fabricating it into mixed oxide (MOX) fuel for irradiation in existing, commercial nuclear reactors. Supports Russia's efforts to dispose of its weapons-grade plutonium by working with the international community to help pay for Russia's program. Provides training and equipment to assist Russia in determining the reliability of its guard forces. Enhances the safety and security of Russian nuclear weapons storage sites through the use of vulnerability assessments to determine specific requirements for upgrades. DOD will develop security designs to address those vulnerabilities and install equipment necessary to bring security standards consistent with those at U.S. nuclear weapons storage facilities. Nuclear Weapons Transportation Assists Russia in shipping nuclear warheads to more secure sites or dismantlement locations. Assists Russia in maintaining nuclear weapons cargo railcars. Funds maintenance of railcars until no longer feasible, then purchases replacement railcars to maintain 100 cars in service. DOD will procure 15 guard railcars to replace those retired from service. Guard railcars will be capable of monitoring security systems in the cargo railcars and transporting security force personnel. Provides emergency response vehicles containing hydraulic cutting tools, pneumatic jacks, and safety gear to enhance Russia's ability to respond to possible accidents in transporting nuclear weapons. Meteorological, radiation detection and monitoring, and communications equipment is also included. Combating Nuclear Smuggling: Challenges Facing U.S. Efforts to Deploy Radiation Detection Equipment in Other Countries and in the United States. GAO-06-558T. Washington, D.C.: March 28, 2006. Combating Nuclear Smuggling: Corruption, Maintenance, and Coordination Problems Challenge U.S. Efforts to Provide Radiation Detection Equipment to Other Countries. GAO-06-311. Washington, D.C.: March 14, 2006. Nuclear Nonproliferation: IAEA Has Strengthened Its Safeguards and Nuclear Security Programs, but Weaknesses Need to Be Addressed. GAO- 06-93. Washington, D.C.: October 7, 2005. Preventing Nuclear Smuggling: DOE Has Made Limited Progress in Installing Radiation Detection Equipment at Highest Priority Foreign Seaports. GAO-05-375. Washington, D.C.: March 31, 2005. Nuclear Nonproliferation: DOE's Effort to Close Russia's Plutonium Production Reactors Faces Challenges, and Final Shutdown is Uncertain. GAO-04-662. Washington, D.C.: June 4, 2004. Weapons of Mass Destruction: Additional Russian Cooperation Needed to Facilitate U.S. Efforts to Improve Security at Russian Sites. GAO-03- 482. Washington, D.C.: March 24, 2003. Nonproliferation: Strategy Needed to Strengthen Multilateral Export Control Regimes. GAO-03-43. Washington, D.C.: October 25, 2002. Nuclear Nonproliferation: U.S. Efforts to Help Other Countries Combat Nuclear Smuggling Need Strengthened Coordination and Planning. GAO-02-426. Washington, D.C.: May 16, 2002. Nuclear Nonproliferation: Implications of the U.S. Purchase of Russian Highly Enriched Uranium. GAO-01-148. Washington, D.C.: December 15, 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 International Atomic Energy Agency's (IAEA) safeguards system has been a cornerstone of U.S. efforts to prevent nuclear weapons proliferation since the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) was adopted in 1970. Safeguards allow IAEA to verify countries' compliance with the NPT. Since the discovery in 1991 of a clandestine nuclear weapons program in Iraq, IAEA has strengthened its safeguards system. In addition to IAEA's strengthened safeguards program, there are other U.S. and international efforts that have helped stem the spread of nuclear materials and technology that could be used for nuclear weapons programs. This testimony is based on GAO's report on IAEA safeguards issued in October 2005 (Nuclear Nonproliferation: IAEA Has Strengthened Its Safeguards and Nuclear Security Programs, but Weaknesses Need to Be Addressed, GAO-06-93 [Washington, D.C.: Oct. 7, 2005]). This testimony is also based on previous GAO work related to the Nuclear Suppliers Group--a group of more than 40 countries that have pledged to limit trade in nuclear materials, equipment, and technology to only countries that are engaged in peaceful nuclear activities--and U.S. assistance to Russia and other countries of the former Soviet Union for the destruction, protection, and detection of nuclear material and weapons. IAEA has taken steps to strengthen safeguards, including conducting more intrusive inspections, to seek assurances that countries are not developing clandestine weapons programs. IAEA has begun to develop the capability to independently evaluate all aspects of a country's nuclear activities. This is a radical departure from the past practice of only verifying the peaceful use of a country's declared nuclear material. However, despite successes in uncovering some countries' undeclared nuclear activities, safeguards experts cautioned that a determined country can still conceal a nuclear weapons program. In addition, there are a number of weaknesses that limit IAEA's ability to implement strengthened safeguards. First, IAEA has a limited ability to assess the nuclear activities of 4 key countries that are not NPT members--India, Israel, North Korea, and Pakistan. Second, more than half of the NPT signatories have not yet brought the Additional Protocol, which is designed to give IAEA new authority to search for clandestine nuclear activities, into force. Third, safeguards are significantly limited or not applied to about 60 percent of NPT signatories because they possess small quantities of nuclear material, and are exempt from inspections, or they have not concluded a comprehensive safeguards agreement. Finally, IAEA faces a looming human capital crisis caused by the large number of inspectors and safeguards management personnel expected to retire in the next 5 years. In addition to IAEA's strengthened safeguards program, there are other U.S. and international efforts that have helped stem the spread of nuclear materials and technology. The Nuclear Suppliers Group has helped to constrain trade in nuclear material and technology that could be used to develop nuclear weapons. However, there are a number of weaknesses that could limit the Nuclear Suppliers Group's ability to curb proliferation. For example, members of the Suppliers Group do not always share information about licenses they have approved or denied for the sale of controversial items to nonmember states. Without this shared information, a member country could inadvertently license a controversial item to a country that has already been denied a license from another member state. Since the early 1990s, U.S. nonproliferation programs have helped Russia and other former Soviet countries to, among other things, secure nuclear material and warheads, detect illicitly trafficked nuclear material, and eliminate excess stockpiles of weapons-usable nuclear material. However, these programs face a number of challenges which could compromise their ongoing effectiveness. For example, a lack of access to many sites in Russia's nuclear weapons complex has significantly impeded the Department of Energy's progress in helping Russia secure its nuclear material. U.S. radiation detection assistance efforts also face challenges, including corruption of some foreign border security officials, technical limitations of some radiation detection equipment, and inadequate maintenance of some equipment.
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In our December 2009 report, we found that law enforcement agencies we surveyed generally reported finding FinCEN's services and products useful, citing direct access to BSA data, on-site liaisons, and access to financial information on people or organizations suspected of being involved in significant money laundering or terrorist financing activities-- known as the 314(a) process--as those that are among the most useful. However, we found that FinCEN could (1) better inform law enforcement of the types of complex analytic products that it can provide, (2) more clearly define the types of requests for complex analytic support that it will accept, and (3) actively solicit input on the development of complex analytic products in order to help law enforcement better utilize FinCEN's expertise and enhance the value of the products it provides to law enforcement. Finally, we found that while FinCEN has taken initial steps to more actively solicit law enforcement input on proposed regulatory actions, FinCEN lacks a mechanism to allow law enforcement agencies to submit sensitive information regarding the potential impact of proposed regulatory actions on financial crimes investigations. Law enforcement agencies cited direct access to BSA Data, the 314(a) process, and on-site liaisons as the most useful services FinCEN provides. Most law enforcement agencies responding to our survey (16 out of 20) cited direct access to BSA data as most useful and 19 out of 22 agencies responding indicated that BSA data was the FinCEN service they used most often. Liaisons from three of FinCEN's top five federal law enforcement customers noted that direct access to the BSA database provides law enforcement a means to access these data in order to help identify, deter, and detect money laundering or other potential financial crimes related to a range of criminal activity. As a result of the Uniting and Strengthening America By Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), FinCEN also introduced a new tool to further assist federal law enforcement agencies in their investigations of financial crimes. This tool, developed by FinCEN in response to Section 314(a) of the USA PATRIOT Act, enables federal law enforcement agencies to reach out to financial institutions across the country for potential information related to financial crimes investigations. FinCEN facilitates the 314(a) process through the use of a secure communications system. This system allows law enforcement to quickly locate financial data, such as open accounts and financial transactions related to ongoing investigations of persons, entities, or organizations suspected of being involved in significant money laundering or terrorist financing activities. Federal law enforcement agencies reported that the 314(a) process is a key service offered by FinCEN that provides case-specific and timely information to support ongoing law enforcement investigations. Specifically, all 11 federal agencies we surveyed that had a basis to judge the 314(a) process responded that it was either very or extremely helpful. Finally, law enforcement agencies reported that being able to maintain agency liaisons on-site at FinCEN is another valuable service FinCEN provides, facilitating law enforcement agency access to FinCEN's services and products. Specifically, all 9 of the federal law enforcement agencies responding to the questionnaire that indicated they had on-site liaisons reported that it was extremely helpful. FinCEN has sought to increase its production of more complex analytic products, which law enforcement agencies report are also helpful in financial crimes investigations. As more law enforcement agencies gained the ability to directly access the BSA data and conduct their own searches of the data, their reliance on FinCEN to conduct basic queries on their behalf has decreased. We reported that from 2004 through 2007, requests to FinCEN to conduct such queries decreased 80 percent from 2,048 to 409.As a result, FinCEN has identified a need to redefine its role in supporting law enforcement agencies and to enhance the value and relevance of its analytic work. As part of this effort, in recent years FinCEN has sought to increase its production of more sophisticated complex analytic products. These products range from complex tactical case support requiring large-scale BSA data analysis, to a variety of strategic projects, studies, and trend analyses intended to identify and explain money laundering methodologies or assess threats posed by large- scale money laundering and terrorist financing activities. For example, in 2007 FinCEN provided a study to one law enforcement agency that identified currency flows between the United States and another country which helped this agency to identify potential patterns in drug trafficking. Based on responses to our survey and interviews, law enforcement agencies reported general satisfaction with FinCEN's analytic products. For example, when asked why they requested analytic support from FinCEN, 15 out of 17 agencies that indicated they had made such requests reported that they did so because they believed FinCEN has unique expertise related to analyzing the BSA data. Additionally, liaisons from all of FinCEN's top five federal law enforcement customers specifically highlighted technical reference manuals as one of the most useful complex analytic products FinCEN produces. FinCEN's technical reference manuals provide practical information on a variety of issues, including how particular financial transfer or payment mechanisms may be used to launder money. FinCEN could better inform law enforcement about the types of complex analytic products it can provide and when those products become available. We reported that according to liaisons from three of FinCEN's top five federal law enforcement customers, FinCEN does not provide detailed information about each type of product that would help law enforcement agencies to fully understand the various types of support FinCEN can provide. Senior ALD officials also acknowledged that they could clarify and better communicate to their law enforcement customers the various types of complex analytic products FinCEN can provide. In addition, in both interviews and in response to open-ended survey questions, officials from 7 of the 25 law enforcement agencies we surveyed, including three of FinCEN's top five federal law enforcement customers, also indicated that they would like more information about when completed products become available. These liaisons noted that because FinCEN does not actively communicate with them about when completed products are available, they may not be aware of all of FinCEN's products that could be useful in their investigations of financial crimes. Similarly, an official from one of FinCEN's top five federal law enforcement customers noted that, in some cases, analyses FinCEN conducts for one customer might also be useful to the investigations of other financial crimes. In an internal report generated by ALD staff in August 2008, ALD officials acknowledged that law enforcement liaisons reported that they would like FinCEN to provide clear guidance on the dissemination of its products. FinCEN officials also noted that they typically observe the "third-party rule" on dissemination of information obtained from the requesting agency and, in some cases, this may limit their ability to share products that are completed in response to a request from a single customer. The rule generally provides that information properly released by one agency to another agency cannot be released by the recipient agency to a third agency without prior knowledge and consent of the agency that originally provided the information. The third-party rule applies to all data and information FinCEN receives from the agencies with which it works on a specific project. However, officials further stated that they are committed to looking for ways to better publicize FinCEN's analytic work and will continue to do so within the framework of adequately protecting the information provided to them. While we recognize the need for FinCEN to protect sensitive information, establishing a process to clarify and communicate to law enforcement when and under what circumstances FinCEN can or will attempt to share analytic products with other law enforcement customers will help ensure that it is effectively carrying out its mission to support the investigation and prosecution of financial crimes. We recommended that FinCEN clarify and communicate to law enforcement agencies the various types of complex analytic products FinCEN can provide and establish a process for informing law enforcement agencies about the availability of these products. FinCEN agreed with our recommendation and outlined plans it would take in order to improve communication with law enforcement regarding the services, products, and capabilities FinCEN offers. In response to our report, FinCEN officials stated that they would compile an inventory of analytic products historically produced, those FinCEN should produce, and those requested by law enforcement. FinCEN officials reported that it would consult with law enforcement partners to refine its recommendations, and then categorize and describe the types of analytic products for law enforcement. In April 2010, we obtained updated information from FinCEN on the status of its efforts to address our recommendations. Specifically, FinCEN officials stated that its Office of Law Enforcement Support (OLE) created a draft "Menu of Products and Services" which is intended to clarify the types of products and services FinCEN's analytical operation can provide. According to FinCEN officials, OLE also created a draft "Menu of Resources" which describes the data sources and other tools available to FinCEN analysts that can be utilized in the course of their analytical support operations. These officials explained that, while these documents are still in draft form, once they are finalized, they will be distributed to its law enforcement customers through FinCEN's Secure Outreach Portal, on their intranet, and through direct and e-mail contact between FinCEN personnel and external agencies. Defining the types of requests for complex analytic support that FinCEN will accept could also help law enforcement better utilize FinCEN's expertise in analyzing the BSA data. While FinCEN has informed law enforcement that it is now focusing the support it provides predominantly on those requests that it considers to be for complex analytic support, we found that it could better inform law enforcement about its decision-making process regarding what requests it will accept or reject. Law enforcement agencies may submit requests for complex analysis in support of specific investigations; however, in interviews with officials from FinCEN's top five federal law enforcement customers, liaisons from two of these agencies stated that they did not fully understand what types of cases FinCEN is willing and able to support. Furthermore, in response to an open-ended survey question on FinCEN's analytic support, officials from two other law enforcement agencies reported that they do not fully understand FinCEN's decision-making process for accepting or rejecting requests for support. These agencies indicated that while they understand that FinCEN has limited staff and resources to dedicate to analytic support, FinCEN has not been consistent in responding to their requests for support and does not always provide explanations why specific requests were rejected. In addition, in the internal report generated by ALD staff in August 2008, ALD officials acknowledged confusion among law enforcement customers about the types of requests FinCEN will accept, as well as law enforcement agencies' concern that FinCEN does not sufficiently explain the reasons for declining specific requests for support. Senior officials acknowledged the report's findings and as a first step, reorganized ALD in October 2009 in order to realign resources to better meet law enforcement's needs. For example, FinCEN officials reported that they created a new office within ALD that is responsible for providing proactive analysis of BSA data and communicating regularly with law enforcement agents in the field. The officials stated that they believe the creation of this office will allow them to leverage analytical assets and abilities across FinCEN to better inform all of their partners within the law enforcement, intelligence, regulatory, and financial communities. ALD also identified the development and implementation of processes to improve communication with its law enforcement customers as a 2010 priority. We recommended that FinCEN complete a plan, including identifying the specific actions FinCEN will take to better assess law enforcement needs, and make the division's operations more transparent to FinCEN's law enforcement customers. This plan should include a mechanism for FinCEN to communicate to law enforcement agencies its decision-making process for selecting complex analytic products to pursue and why FinCEN rejects a request. FinCEN agreed with our recommendation and stated that in October 2009, it began an effort to address communication with law enforcement on three levels: analytical products, workflow process, and outreach. The teams assessing workflow processes and outreach efforts will make recommendations that will include provisions for better assessment of law enforcement needs and more insight into FinCEN's decision-making on complex analytical products. In April 2010, FinCEN officials reported that they have taken steps to collect information about law enforcement customer's priorities, needs, and plans. For example, FinCEN officials reported plans to create a survey to capture law enforcement agencies' specific investigative focus and needs. Furthermore, the officials stated that personnel from the Office of Law Enforcement Support working in consultation with law enforcement representatives drafted a new data collection form for documenting requests for analytic support from law enforcement. FinCEN officials also reported that they have established a process for reviewing and responding to requests and informing the requester of FinCEN's final decision. According to FinCEN officials, once requests have been reviewed, completed forms will be scanned and retained for future reference so that requestors may be informed as to why requests were accepted or denied. Actively soliciting input on the development of complex analytic products could help FinCEN enhance their value to law enforcement agencies. While FinCEN communicates with its law enforcement customers about a variety of issues, we reported that the agency could enhance the value of its complex analytic work by more actively soliciting law enforcement's input about ongoing or planned analytic work. In interviews with officials from FinCEN's top five federal law enforcement customers, liaisons from all five agencies reported that FinCEN does not consistently seek their input about ongoing or planned analytic work. Four of the liaisons stated that, as a result, they do not have regular opportunities to provide FinCEN with meaningful input about what types of products would be useful to them, potentially creating a gap between the products the agency generates and the products that its law enforcement customers need and want. Similarly, three other law enforcement liaisons noted that FinCEN does not provide them with regular opportunities to make proposals regarding the types of complex analytic products FinCEN should undertake. According to FinCEN officials, while the agency primarily relies on ad hoc communication with law enforcement agencies--such as talking with law enforcement representatives located on-site, with law enforcement representatives at conferences, or with individual agents in the field--FinCEN does not have a systematic process for soliciting input from law enforcement agencies on the development of its complex analytic work. In their August 2008 internal report, ALD officials acknowledged the concerns of its law enforcement customers regarding their lack of opportunities to provide input on FinCEN's planned complex analytic work, and that FinCEN does not always solicit or incorporate law enforcement input in the selection of these products. As a solution, the internal report recommended that the law enforcement roundtable be used as a forum to discuss proposals for analytic products with FinCEN's law enforcement customers. While this is a productive step, relying solely on the roundtable may not allow opportunities for some of FinCEN's other law enforcement stakeholders to provide input because the roundtable is typically only attended by federal law enforcement customers. Furthermore, not all of FinCEN's federal law enforcement customers are able to regularly attend these meetings. FinCEN does use annual surveys and feedback forms to obtain feedback from law enforcement on the usefulness of some completed products, although these surveys and forms are not designed to obtain detailed information on the full range of services and products FinCEN provides. For example, the annual surveys do not cover other analytic products such as FinCEN's strategic analysis reports or its technical reference guides. Actively soliciting stakeholder input and providing transparency with regard to decision making are GAO-identified best practices for effectively meeting stakeholder needs. Incorporating these best practices could help FinCEN maximize the usefulness of its support. FinCEN officials emphasized that law enforcement also has a responsibility to provide constructive input on FinCEN's services and products. While we recognize that communication between FinCEN and its law enforcement customers is a shared responsibility, actively soliciting stakeholder input will allow FinCEN to capture stakeholder interests and better incorporate law enforcement perspectives into the development of complex analytic products. As a result, we recommended that FinCEN establish a systematic process for actively soliciting input from law enforcement agencies and incorporating this input into the selection and development of its analytic products. FinCEN agreed with this recommendation and outlined efforts it plans to undertake in response to our findings. In October 2009, according to FinCEN officials, ALD established an Office of Trend and Issue Analysis (OTI) which is to focus on the development of strategic-level analysis of Bank Secrecy Act data. FinCEN officials also reported that ALD reassigned a number of its field representatives to OLE in order to better utilize their experience and to enhance communication with law enforcement customers. Finally, FinCEN stated that it also plans to design an institutional process for collecting the kind of information required to gain broader insight into its law enforcement partners' priorities. In providing updates on their efforts to address our recommendations, FinCEN officials stated that they are making a concerted effort to engage their law enforcement customers at a variety of o rganization levels to determine their key priorities and how FinCEN can est support their priorities and strategic goals. FinCEN has taken initial steps to more actively solicit law enforcement input on proposed regulatory actions, but lacks a mechanism for collecting sensitive information about these actions. Regulatory changes instituted by FinCEN can affect the content or structure of BSA data used in law enforcement investigations as well as law enforcement's efforts to indict and prosecute financial crimes. However, we reported that liaisons from four of FinCEN's top five federal law enforcement customers reported concerns that their agencies do not have sufficient opportunities to provide input when FinCEN is considering proposed regulatory changes. The internal report ALD generated in August 2008 also recognized that changes to BSA regulations have the potential to alter the kind of information that financial institutions report. The report also acknowledged federal law enforcement agencies' concerns that FinCEN does not generally engage them in the identification and resolution of regulatory issues that might influence law enforcement operations. According to senior FinCEN officials, the agency recognizes the need to do a better job of obtaining law enforcement input on proposed regulatory changes in the future and did so in one recent case. Specifically, in developing regulations in 2009 related to stored value cards, such as prepaid debit cards and gifts cards, FinCEN held multiple meetings with representatives from its top five federal law enforcement customers specifically designed to obtain their input and provide recommendations on developing the proposed regulation. FinCEN also used the law enforcement roundtable to inform agencies about the planned regulatory changes. FinCEN's efforts to actively solicit law enforcement input in this case are encouraging, and continuing such efforts would help ensure that law enforcement input is considered before regulatory changes are made. Once FinCEN has decided to move forward with a proposed regulatory change, it follows the process laid out in the Administrative Procedure Act (APA) for obtaining official comments on the proposal from interested stakeholders including regulators, financial institutions, and law enforcement agencies. The APA prescribes uniform standards for rulemaking and most federal rules are promulgated using the APA- established informal rulemaking process, also known as "notice and comment" rulemaking. Generally, a notice of proposed rulemaking (NPRM) is published in the Federal Register announcing an agency's intent to promulgate a rule to the public. However, we reported that liaisons from four of FinCEN's top five federal law enforcement customers reported that the public record is not always the most appropriate venue for providing comments on proposed regulatory changes because their comments often contain law enforcement sensitive information. According to these officials, raising these concerns in a public forum may compromise key investigative techniques or strategies used in ongoing investigations. According to FinCEN officials, at the time of our review, they did not have a systematic process for soliciting law enforcement- sensitive comments on proposed regulatory changes in a nonpublic docket. The importance of stakeholder input in the process of proposing regulatory changes is well established--it is the basis for the public comment period in the NPRM process. In order to improve FinCEN's efforts to receive important information necessary to making decisions about proposed regulatory changes, we recommended that FinCEN develop a mechanism to collect law enforcement sensitive information from law enforcement agencies during the public comment period of the NPRM process. FinCEN agreed with our recommendation and stated that it would determine and implement appropriate ways to communicate to the law enforcement community its ability to receive and use law enforcement sensitive information in this context. In April 2010, FinCEN officials stated that they have developed an approach for collecting law enforcement sensitive information during the public notice and comment period of the NPRM process without making the comments publicly available. According to FinCEN officials, FinCEN will advise law enforcement, through the law enforcement liaisons, that they may provide law enforcement sensitive information at the time of publication of each NPRM and inform them that FinCEN will not post those comments or make them publicly available. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have. For questions about this statement, please contact Eileen R. Larence at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. In addition to the contact above, individuals making key contributions to this statement include Kirk Kiester, Assistant Director; Samantha Carter, and Linda Miller. Additionally, key contributors to our December 2009 report include Hugh Paquette, Miriam Hill, David Alexander, George Quinn, Jr., Billy Commons, Jan Montgomery, and Sally Williamson. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Financial investigations are used to combat money laundering and terrorist financing, crimes that can destabilize national economies and threaten global security. The Financial Crimes Enforcement Network (FinCEN), within the Department of the Treasury, supports law enforcement agencies (LEAs) in their efforts to investigate financial crimes by providing them with services and products, such as access to financial data, analysis, and case support. This statement discusses the extent to which the law enforcement community finds FinCEN's support useful in its efforts to investigate and prosecute financial crimes. This statement is based on work GAO completed and issued in December 2009. In December 2009, we reported that the majority of 25 LEAs GAO surveyed found FinCEN's support useful in their efforts to investigate and prosecute financial crimes, but FinCEN could enhance its support by better informing LEAs about its services and products and actively soliciting their input. Of the 20 LEAs that responded to a question GAO posed about which FinCEN services they found most useful, 16 LEAs cited direct access to Bank Secrecy Act data--records of financial transactions possibly indicative of money laundering that FinCEN collects--as the most valuable service FinCEN provides. Additionally, 11 federal LEAs cited a tool that allows federal LEAs to reach out, through FinCEN, to financial institutions nationwide to locate financial information related to ongoing investigations as a key service offered by FinCEN. To further enhance the value and relevance of its analytic work to LEAs, FinCEN has sought to increase development of complex analytic products, such as reports identifying trends and patterns in money laundering. Sixteen law enforcement agencies GAO surveyed reported that they generally found these complex analytic products useful. However, we reported that three of five LEAs that are among FinCEN's primary federal customers stated that FinCEN does not provide detailed information about the various types of complex analytic products it can provide. Three of FinCEN's primary customers also stated that they would like more information about when completed products become available. In December 2009, we recommended that FinCEN clarify the types of complex analytic products it can provide to LEAs. FinCEN agreed with our recommendation and in April 2010 outlined plans to improve communication with law enforcement regarding FinCEN's services, products, and capabilities. All five LEAs also reported that FinCEN does not actively seek LEAs' input about ongoing or planned analytic products, though four of these LEAs believed that doing so could improve the quality and relevance of the products FinCEN provides to its customers. We recommended that FinCEN establish a process for soliciting input regarding the development of its analytic products. FinCEN agreed with our recommendation and in April 2010 outlined a number of steps it plans to take to better assess law enforcement needs, including ongoing efforts to solicit input from LEAs. Finally, liaisons from four of FinCEN's top five federal LEAs reported that their agencies do not have sufficient opportunities to provide input when FinCEN is considering regulatory changes because their comments often contain sensitive information that may compromise investigative techniques or strategies used in ongoing investigations. We recommended that FinCEN develop a mechanism to collect sensitive information regarding regulatory changes from LEAs. In April 2010, FinCEN reported that it developed an approach for collecting sensitive information without making the comments publicly available.
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The September 11, 2001, terrorist attacks had a devastating effect on the U.S. financial markets with significant loss of life, extensive physical damage, and considerable disruption to the financial district in New York. Damage from the collapse of the World Trade Center buildings caused dust and debris to blanket a wide area of lower Manhattan, led to severe access restrictions to portions of lower Manhattan for days, and destroyed substantial portions of the telecommunications and power infrastructure that served the area. Telecommunications service in lower Manhattan was lost for many customers when debris from the collapse of one the World Trade Center buildings struck a major Verizon central switching office that served approximately 34,000 business and residences. The human impact was especially devastating because about 70 percent of the civilians killed in the attacks worked in the financial services industry, and physical access to the area was severely curtailed through September 13, 2001. Although most stock exchanges and clearing organizations escaped direct damage, the facilities and personnel of several key broker-dealers and other market participants were destroyed or displaced. Market participants and regulators acknowledged that the reopening of the stock and options markets could have been further delayed if any of the exchanges or clearing organizations had sustained serious damage. The stock and options exchanges remained closed as firms, that were displaced by the attacks attempted to reconstruct their operations and reestablish telecommunications with their key customers and other market participants. In the face of enormous obstacles, market participants, infrastructure providers, and the regulators made heroic efforts to restore operations in the markets. Broker-dealers that had their operations disrupted or displaced either relocated their operations to backup facilities or other alternative facilities. These facilities had to be outfitted to accommodate normal trading operations and to have sufficient telecommunications to connect with key customers, clearing and settlement organizations, and the exchanges and market centers. Some firms did not have existing backup facilities for their trading operations and had to create these facilities in the days following the crisis. For example, one broker-dealer leased a Manhattan hotel to reconstruct its operations. Firms were not only challenged with reconstructing connections to their key counterparties but, in some cases, they also had the additional challenge of connecting with the backup sites of counterparties that were also displaced by the attacks. The infrastructure providers also engaged in extraordinary efforts to restore operations. For example, telecommunications providers ran cables above ground rather than underground to speed up the restoration of service. By Friday September 14, 2001, exchange officials had concluded that only 60 percent of normal market trading liquidity had been restored and that it would not be prudent to trade in such an environment. In addition, because so many telecommunications circuits had been reestablished, market participants believed that it would be beneficial to test these telecommunications circuits prior to reopening the markets. Officials were concerned that without such testing, the markets could have experienced operational problems and possibly have to close again, which would have further shaken investor confidence. The stock and options markets reopened successfully on Monday, September 17, 2001 and achieved record trading volumes. Although the government securities markets reopened within 2 days, activity within those markets was severely curtailed, as there were serious clearance and settlement difficulties resulting from disruptions at some of the key participants and at one of the two banks that clear and settle government securities. Some banks had important operations in the vicinity of the attacks, but the impact of the attacks on the banking and payment systems was much less severe. Regulators also played a key role in restoring market operations. For example, the Federal Reserve provided over $323 billion in funding to banks between September 11 and September 14, 2001, to prevent organizations from defaulting on their obligations and creating a widespread solvency crisis. SEC also granted regulatory relief to market participants by extending reporting deadlines and relaxed the rules that restrict corporations from repurchasing their shares. The Department of the Treasury also helped to address settlement difficulties in the government securities markets by conducting a special issuance of 10-year Treasury notes. Although financial market participants, regulators, and infrastructure providers made heroic efforts to restore the functioning of the markets as quickly as they did, the attacks and our review of 15 key financial market organizations--including 7 critical ones--revealed that financial market participants needed to improve their business continuity planning capabilities and take other actions to better prepare themselves for potential disasters. At the time of the attacks, some market participants lacked backup facilities for key aspects of their operations such as trading, while others had backup facilities that were too close to their primary facilities and were thus either inaccessible or also affected by the infrastructure problems in the lower Manhattan area. Some organizations had backup sites that were too small or lacked critical equipment and software. In the midst of the crisis, some organizations also discovered that the arrangements they had made for backup telecommunications service were inadequate. In some cases, firms found that telecommunication lines that they had acquired from different providers had been routed through the same paths or switches and were similarly disabled by the attacks. The 15 stock exchanges, ECNs, clearing organizations, and payment systems we reviewed had implemented various physical and information security measures and business continuity capabilities both before and since the attacks. At the time of our work--February to June 2002--these organizations had taken such steps as installing physical barriers around their facilities to mitigate effects of physical attacks from vehicle-borne explosives and using passwords and firewalls to restrict access to their networks and prevent disruptions from electronic attacks. In addition, all 15 of the organizations had developed business continuity plans that had procedures for restoring operations following a disaster; and some organizations had established backup facilities that were located hundreds of miles from their primary operations. Although these organizations have taken steps to reduce the likelihood that their operations would be disrupted by physical or electronic attacks and had also developed plans to recover from such events, we found that some organizations continued to have some limitations that would increase the risk of their operations being impaired by future disasters. This issue is particularly challenging for both market participants and regulators, because addressing security concerns and business continuity capabilities require organizations to assess their overall risk profile and make business decisions based on the trade-offs they are willing to make in conducting their operations. For example, one organization may prefer to invest in excellent physical security, while another may choose to investment less in physical security and more in developing resilient business continuity plans and capabilities. Our review indicated that most of the 15 organizations faced greater risk of operational disruptions because their business continuity plans did not adequately address how they would recover if large portions of their critical staff were incapacitated. Most of the 15 organizations were also at a greater risk of operations disruption from wide-scale disasters, either because they lacked backup facilities or because these facilities were located within a few miles of their primary sites. Few of the organizations had tested their physical security measures, and only about half were testing their information security measures and business continuity plans. Securities and banking regulators have made efforts to examine operations risk measures in place at the financial market participants they oversee. SEC has conducted reviews of exchanges, clearing organizations, and ECNs that have generally addressed aspects of these organizations' physical and information security and business continuity capabilities. However, reviews by SEC and the exchanges at broker-dealers generally did not address these areas, although SEC staff said that such risks would be the subject of future reviews. Banking regulators also reported that they review such issues in the examinations they conduct at banks. Regulators also have begun efforts to improve the resiliency of clearing and settlement functions for the financial markets. In August 2002, the Federal Reserve, Office of the Comptroller of the Currency, and SEC jointly issued a paper entitled the Draft Interagency White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System. This paper sought industry comment on sound business practices to better ensure that clearance and settlement organizations would be able to resume operations promptly after a wide-scale regional disaster. The regulators indicated that the sound practices would apply to a limited number of organizations that perform important clearing functions, as well as to between 15 and 20 banks and broker-dealers that also perform clearing functions with sizeable market volumes. The regulators that developed the white paper appropriately focused on clearing functions to help ensure that settlement failures do not lead to a broader financial crisis. However, the paper did not similarly address restoring critical trading activities in the various financial markets. The regulators that developed the paper believed that clearing functions were mostly concentrated in single entities for most markets or in a very few entities for others and thus posed a greater potential for disruption. In theory, multiple stock exchanges and other organizations that conduct trading activities could substitute for each other in the event of a crisis. Nevertheless, trading on the markets for corporate securities, government securities, and money market instruments is also vitally important to the economy; and the United States deserves similar assurance that trading activities also would be able to resume when appropriate--smoothly and without excessive delay. The U.S. economy has demonstrated that it can withstand short periods during which markets are not trading. After some events occur, having markets closed for some limited time could be appropriate to allow emergency and medical relief activities, permit operations to recover, and reduce market overreaction. However, long delays in reopening the markets could be harmful to the economy. Without trading, investors lack the ability to accurately value their securities and cannot adjust their holdings. The September 11, attacks demonstrated that the ability of markets to recover could depend on the extent to which market participants have made sound investments in business continuity capabilities. Without clearly identifying strategies for recovery, determining the sound practices needed to implement these strategies, and identifying the organizations that could conduct trading under these strategies, the risk that markets may not be able to resume trading in a fair and orderly fashion and without excessive delays is increased. Goals and strategies for resuming trading activities could be based on likely disaster scenarios and could identify the organizations that are able to conduct trading in the event that other organizations could not recover within a reasonable time. Goals and strategies, along with guidance on business continuity planning practices, and more effective oversight would (1) provide market participants with the information they need to make better decisions about improving their operations, (2) help regulators develop sound criteria for oversight, and (3) assure investors that trading on U.S. markets could resume smoothly and in a timely manner. SEC has begun developing a strategy for resuming stock trading for some exchanges, but the plan is not yet complete. For example, SEC has asked the New York Stock Exchange (NYSE) and NASDAQ to take steps to ensure that their information systems can conduct transactions in the securities that the other organizations normally trade. However, under this strategy NYSE does not plan to trade all NASDAQ securities, and neither exchange has fully tested its own or its members' abilities to trade the other exchanges' securities. Given the increased threats demonstrated by the September 11 attacks and the need to assure that key financial market organizations are following sound practices, securities and banking regulators' oversight programs are important mechanisms to assure that U.S. financial markets are resilient. SEC oversees the key clearing organizations and exchanges through its Automation Review Policy (ARP) program. The ARP program--which also may be used to oversee adherence to the white paper's sound practices-- currently faces several limitations. SEC did not implement this ARP program by rule but instead expected exchanges and clearing organizations to comply with various information technology and operations practices voluntarily. However, under a voluntary program, SEC lacks leverage to assure that market participants implement important recommended improvements. While the program has prompted numerous improvements in market participants' operations, we have previously reported that some organizations did not establish backup facilities or improve their systems' capacity when the SEC ARP staff had identified these weaknesses. Moreover, ARP staff continue to find significant operational weaknesses at the organizations they oversee. An ARP program that draws its authority from an issued rule could provide SEC additional assurance that exchanges and clearing organizations adhere to important ARP recommendations and any new guidance developed jointly with other regulators. To preserve the flexibility that SEC staff considers a strength of the current ARP program, the rule would not have to mandate specific actions but could instead require that the exchanges and clearing organizations engage in activities consistent with the ARP policy statements. This would provide SEC staff with the ability to adjust their expectations for the organizations subject to ARP, as technology and industry best practices evolve, and provide clear regulatory authority to require actions as necessary. SEC already requires ECNs to comply with ARP guidance; and extending the rule to the exchanges and clearing organizations would place them on similar legal footing. In an SEC report issued in January 2003, the Inspector General noted our concern over the voluntary nature of the program. Limited resources and challenges in retaining experienced ARP staff also have affected SEC's ability to more effectively oversee an increasing number of organizations and more technically complex market operations. ARP staff must oversee various industrywide initiatives, such as Year 2000 or decimals pricing, and has also expanded to cover 32 organizations with more complex technology and communications networks. However, SEC has problems retaining qualified staff, and market participants have raised concerns about the experience and expertise of ARP staff. The SEC Inspector General also found that ARP staff could benefit from increased training on the operations and systems of the entities overseen by the ARP program. At current staff levels, SEC staff report being able to conduct examinations of only about 7 of the 32 organizations subject to the ARP program each year. In addition, the intervals between examinations were sometimes long. For example, the intervals between the most recent examinations for seven critical organizations averaged 39 months.
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The September 11, 2001, terrorist attacks exposed the vulnerability of U.S. financial markets to wide-scale disasters. Because the markets are vital to the nation's economy, GAO's testimony discusses (1) how the financial markets were directly affected by the attacks and how market participants and infrastructure providers worked to restore trading; (2) the steps taken by 15 important financial market organizations to address physical security, electronic security, and business continuity planning since the attacks; and (3) the steps the financial regulators have taken to ensure that the markets are better prepared for future disasters. The September 11, 2001, terrorist attacks severely disrupted U.S. financial markets as the result of the loss of life, damage to buildings, loss of telecommunications and power, and restrictions on access to the affected area. However, financial market participants were able to recover relatively quickly from the terrorist attacks because of market participants' and infrastructure providers' heroic efforts and because the securities exchanges and clearing organizations largely escaped direct damage. The attacks revealed limitations in the business continuity capabilities of some key financial market participants that would need to be addressed to improve the ability of U.S. markets to withstand such events in the future. GAO's review of 15 stock exchanges, clearing organizations, electronic communication networks, and payments system providers between February and June 2002 showed that all were taking steps to implement physical and electronic security measures and had developed business continuity plans. However, some organizations still had limitations in one or more of these areas that increased the risk that their operations could be disrupted by future disasters. Although the financial regulators have begun efforts to improve the resiliency of clearance and settlement functions within the financial markets, they have not fully developed goals, strategies, or sound practices to improve the resiliency of trading activities. In addition, the Securities and Exchange Commission's (SEC) technology and operations risk oversight, which is increasingly important, has been hampered by program, staff, and resource issues. GAO's report made recommendations designed to better prepare the markets to deal with future disasters and to enhance SEC's technology and operations risk oversight capabilities.
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Substantial questions remain on the efficacy and potential environmental impacts of proposed geoengineering approaches, in part, because geoengineering research and field experiments to date have been limited. According to the experts we spoke with, research related to proposed SRM geoengineering approaches is sparse. According to recent studies, much of the research into SRM approaches to date has been limited to modeling studies to assess the effects of either injecting sulfur aerosols into the stratosphere or brightening clouds to reduce incoming solar radiation at the earth's surface and produce a cooling effect. For example, one study found that combining a reduction of incoming radiation with high levels of atmospheric carbon dioxide could have substantial impacts on regional precipitation--potentially leading to reductions that could create drought in some areas. Based on our literature review and interviews with experts to date, only one study has been published for a field experiment related to SRM technologies--a Russian experiment that injected aerosols into the middle troposphere. : Update and Recommendations (Paris: 2007). commercial applications of technology exist for injecting and monitoring the long-term storage of carbon dioxide in geologic formations. The IEA stated that the oldest of these started as a private-sector project in 1996 and now continues under funding from the European Commission. However, these projects are primarily associated with public and private initiatives to study, develop, and promote carbon capture and storage technologies as a greenhouse gas emissions reduction strategy, rather than the large scale that would be required to significantly alter the climate through geoengineering. Similarly, some ocean fertilization experiments using iron have been conducted as part of existing marine research studies or small-scale commercial operations. One expert familiar with these experiments noted that, while they improved scientific understanding of the role of iron in regulating ocean ecosystems and carbon dynamics, they were not specifically designed to determine the implications of ocean fertilization with iron as a geoengineering approach for large-scale removal of carbon dioxide from the atmosphere. Due to the limited amount of geoengineering research conducted to date, the experts we interviewed stated that a sustained program of additional research would be needed to address the significant uncertainties regarding the effectiveness and potential impacts of geoengineering approaches. Additionally, these experts noted that for certain approaches where transboundary impacts would be likely during field experiments, international cooperation for research would be necessary. Specifically, recent studies highlight the limitations of current models to accurately predict the environmental impact of SRM technologies at a regional scale--which would be necessary to accurately gauge potential impacts that might interfere with agricultural production for certain regions. Furthermore, studies indicate that, even for the most tested methods applicable to geoengineering, such as geological sequestration and ocean fertilization with iron, uncertainties remain surrounding the potential cost, effectiveness, and impacts of pursuing these approaches at a scale sufficient to reduce the amount of carbon in the atmosphere. Due to the potential for disparities in environmental outcomes from using these technologies--similar to the expected regional variation in climate change impacts--experts that we spoke with said that the political, ethical, legal, and economic issues surrounding the potential impacts of geoengineering technologies warranted close examination. These experts generally agreed that the policy implications for SRM and CDR approaches were very different. For example, certain SRM approaches, such as atmospheric aerosol injection, are generally perceived as being less costly to implement and would act more quickly to reduce temperatures than CDR approaches. However, these approaches are also associated with a greater risk of environmental impacts that cross national boundaries-- which would have political, ethical, legal, and economic ramifications. Furthermore, according to several of these experts, the policy implications of SRM approaches are complicated by the fact that there are likely to be both positive and negative outcomes for nations or regions, and that one nation, group, or individual could conceivably take unilateral action to deploy one of these technologies. Experts emphasized that it is important to begin studying how the United States and the international community might address the ramifications of unilateral deployment of an SRM approach that would result in gains for some nations and losses for others. In contrast, with the exception of ocean fertilization, two of the experts we interviewed stated that most CDR approaches, such as air capture, would have limited impacts across national boundaries and could, therefore, mostly involve discussions with domestic stakeholders about societal, economic, and political impacts similar to those of existing climate change mitigation strategies. However, the Royal Society study noted that large- scale deployment of CDR approaches such as widespread afforestation-- planting of forests on lands that historically have not been forested--or methods requiring substantial mineral extraction--including land or ocean-based enhanced weathering--may have unintended and significant impacts within and beyond national borders. Our observations to date indicate that federal agencies such as DOE, National Science Foundation (NSF), U.S. Department of Agriculture (USDA), and others have funded some research and small-scale technology testing relevant to proposed geoengineering approaches on an ad-hoc basis. Some examples are as follows: For SRM approaches, DOE, through its Sandia National Laboratories, has sponsored a study investigating the potential unintended consequences and economic impacts of sulfur aerosol injection. Additionally, DOE has contributed a small amount of funding for modeling studies related to cloud-brightening and stratospheric aerosol SRM approaches at its Pacific Northwest National Laboratory--an effort that is primarily funded by the University of Calgary. For CDR approaches, DOE has sponsored research in both land-based and ocean-based carbon storage, including small-scale demonstration projects of geological sequestration as part of its Regional Carbon Sequestration Partnerships. In conjunction with other partners, DOE also provided funding for a study on carbon dioxide air capture technologies. NSF has funded projects relevant to both SRM and CDR approaches. For SRM approaches, NSF has sponsored some modeling studies for stratospheric aerosol injection and for a space-based SRM approach. NSF has also funded research investigating the ethical issues related to SRM approaches. For CDR approaches, NSF is supporting projects related to carbon storage in geological formations, saline aquifers, and biomass. Relevant to CDR approaches, USDA has supported research that examined land-based carbon storage approaches, such as biochar--a way to draw carbon from the atmosphere and sequester it in charcoal created from biomass--through its Agricultural Research Service, and carbon sequestration in soil and biomass as part of its Economic Re Service. National Aeronautics and Space Administration (NASA) funded a research study investigating the practicality of using a solar shield in space to deflect sunlight and reduce global temperatures as part of its former independent Institute for Advanced Concepts program. Additionally, scientists at NASA's Ames Research Center, independent of headquarters, held a conference on SRM approaches in 2006, in conjunction with the Carnegie Institution of Washington. EPA has also sponsored research related to the economic implications of SRM geoengineering approaches through its National Center for Environmental Economics. In addition to these efforts, federal officials noted that a large fraction of the existing federal research and observations on basic climate change and earth science could be relevant to improving understanding about proposed geoengineering approaches and their potential impacts. For instance, according to federal officials, ongoing research conducted by USGCRP agencies related to understanding atmospheric circulation and aerosol/cloud interactions could help improve understanding about the potential effectiveness and impacts of proposed SRM approaches. Similarly, these officials said that basic research conducted by USGCRP agencies into oceanic chemistry could help address uncertainty about the potential effectiveness and impacts of CDR approaches, such as ocean fertilization. Staff from federal offices coordinating the U.S. response to climate change--CEQ, OSTP, and USGCRP--stated that they do not currently have a geoengineering strategy or position. Additionally, a USGCRP official stated that, while the USGCRP could establish an interagency working group to coordinate a federal effort in geoengineering research, such a group is not currently necessary because of the small amount of federal funding specifically directed toward these activities. In the event that the federal government decides to fund a coordinated geoengineering research strategy, our review of relevant studies and interviews with experts to date identified some key factors for policymakers to consider when designing a federal strategy for geoengineering research. For example, the Royal Society study noted that when there is a likelihood of transboundary impacts, such as the discussed SRM approaches, as well as one discussed CDR approach, ocean fertilization, transparency and international cooperation are key factors for pursuing geoengineering research. This point was reiterated by several experts at a recent panel discussion at the American Advancement for Science annual meeting. However, a couple of experts we interviewed noted that federal research for geoengineering approaches without likely transboundary impacts could be conducted independently of other countries, as is the case with the majority of currently proposed CDR approaches, such as air capture. Additionally, due to the variety of geoengineering approaches, several of the experts we interviewed recommended that federal geoengineering research should be an interdisciplinary effort across multiple agencies, and should be led by a multiagency coordinating body, such as OSTP or USGCRP. Recent GAO work offers insights on key considerations for assessing risk and managing technology-based research programs. For example, we have reported on the advantages of using a formal risk-management approach and applying an anticipatory perspective when making decisions under substantial uncertainty. Specifically, we reported that outlining the various alternative policy responses and the risks and uncertainties associated with pursuing each alternative is particularly important when prospective interventions require long lead times, high-stakes outcomes would likely result, and a delayed intervention would make impacts difficult to contain or reverse--conditions that could be considered relevant to the risks associated with climate change impacts. Furthermore, our review of DOE's FutureGen project--a program that partners with the electric power industry to design, build, and operate the world's first coal- fired, zero-emissions power plant--found that a comprehensive assessment of the costs, benefits, and risks of each technological option is an important factor when developing a strategic plan for technology-based research. Existing federal laws and international agreements were not enacted or negotiated with the purpose or intent to cover geoengineering activities, but according to legal experts and federal officials, several existing federal laws and international agreements could apply to geoengineering research and deployment, depending upon the type, location, and sponsor of the activity. Domestically, however, interviews with agency officials to date and our past work indicate that federal agencies have not yet assessed their statutory authority to regulate geoengineering activities, and those that have done so have identified regulatory gaps. Examples include the following: EPA has authority under the Safe Drinking Water Act to regulate underground injections of various substances and is using this authority to develop a rule that would govern the underground injection of carbon dioxide for geological sequestration, which could be relevant to future CDR approaches. EPA issued a proposed rule on geological sequestration in July 2008. EPA officials told us that the final rule is currently scheduled to be issued in the fall of 2010. However, as EPA officials noted, the rulemaking was not intended to resolve many questions concerning how other environmental statutes may apply to injected carbon dioxide, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERLCA) and the Resource Conservation and Recovery Act of 1976 (RCRA), which apply to hazardous substances and wastes, respectively. The White House recently established an interagency task force on carbon capture and storage to propose a plan to overcome the barriers to widespread deployment of these technologies. The plan will address, among other issues, legal barriers to deployment and identify areas where additional statutory authority may be necessary. Under the Marine Protection, Research and Sanctuaries Act of 1972, as amended, certain persons are generally prohibited from dumping material, including material for ocean fertilization, into the ocean without a permit from EPA. Although EPA officials told us that the law's ocean dumping permitting process is sufficient to regulate certain ocean fertilization activities, including research projects, they noted that the law was limited to disposition of materials for fertilization by vessels or aircraft registered in the United States, vessels or aircraft departing from the United States, federal agencies, or disposition of materials for fertilization conducted in U.S. territorial waters, which extend 12 miles from the shoreline or coastal baseline. Consequently, a domestic company could conduct ocean fertilization outside of EPA's regulatory jurisdiction and control if, for example, the company's fertilization activities took place outside U.S. territorial waters from a foreign-registered ship that embarked from a foreign port. Additionally, agency officials and legal experts noted that other laws such as the National Environmental Policy Act of 1969 (NEPA) could also apply to certain geoengineering activities. For example, NEPA requires federal agencies to evaluate the likely environmental effects of certain major federal actions by using an environmental assessment or, if the projects likely would significantly affect the environment, a more detailed environmental impact statement. A geoengineering activity could well constitute a major federal action requiring a NEPA analysis. Although some geoengineering approaches, such as geological sequestration of carbon dioxide in underground formations, would not involve international agreements because the activities and their effects would be confined to U.S. territory, other SRM and CDR approaches would. Legal experts we spoke with identified a number of existing international agreements that could apply to geoengineering activities but none directly address the issue of geoengineering. Our initial work indicates that parties to two international agreements have taken action to address geoengineering activities, but it is still uncertain whether and how other existing international agreements that legal experts have identified as potentially relevant could apply to geoengineering. In our work to date, legal experts have identified a number of existing international agreements, such as the 1985 Vienna Convention for the Protection of the Ozone Layer and the 1967 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, that could be relevant for injection of sulfate aerosols into the stratosphere and placement in outer space of material to reflect sunlight, respectively. However, these agreements were not drafted with the purpose or intent of applying to geoengineering activities and the parties to those treaties have not determined whether or how the agreement should apply to relevant geoengineering activities. Moreover, once the parties make such determinations, they may have limited applicability because international agreements generally are only legally binding on countries that are parties to the agreement. For example, the 1996 Protocol to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (also known as the London Protocol) generally prohibits the dumping of wastes or other matter into the ocean except for the wastes and matter listed in the London Protocol and for which a party to the agreement has issued a dumping permit that meets the Protocol's permitting requirements. In 2006, the parties to the London Protocol agreed to amend the Protocol to include, in certain circumstances, geological sequestration of carbon dioxide in sub-seabed geological formations on the list of wastes and other matter that could be dumped. However, only the 37 countries that are a party to the London Protocol and who have not objected to the amendment would be legally bound by it. In two instances, the parties to international agreements have issued decisions but not amended the agreements regarding the agreement's application to ocean fertilization, including research projects. Generally these decisions by the parties are not considered to be legally binding, although they would aid in interpreting the international agreement. Specifically, the two instances are: Over the course of the last 2 years, parties to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matters and the London Protocol to the Convention have decided that the scope of these agreements include ocean fertilization activities for legitimate scientific research. Accordingly, they have asked the treaties' existing scientific bodies to develop an assessment framework for countries to use in evaluating whether research proposals are legitimate scientific research and, therefore, permissible under the agreements. In addition, the parties have agreed that ocean fertilization activities other than legitimate scientific research are contrary to the aims of the agreements and should not be allowed. Meanwhile, the parties are considering a potentially legally binding resolution or amendment to the London Protocol concerning ocean fertilization. In 2009, the parties to the Convention on Biological Diversity issued a decision requesting that parties to the Convention ensure that ocean fertilization activities, except for certain small-scale scientific research within coastal waters, do not take place until there is an adequate scientific basis on which to justify such activities and a global, transparent, and effective control and regulatory mechanism is in place. The decision also urged the same from governments not party to the agreement. In our interviews with legal experts to date, they suggested that governance of geoengineering research should be separated from the governance of deployment because scientists and policymakers lack critical information about geoengineering that would inform governance of deployment. The legal experts we spoke with all agreed that some type of regulation of geoengineering field experiments was necessary, but had different views as to the structure of such regulation. For example, some suggested a comprehensive international governance regime for all geoengineering research with transboundary impacts, under the auspices of the United Nations Framework Convention on Climate Change or another entity, while others suggested that existing international agreements, such as the London Convention and Protocol, could be adapted and used to address the geoengineering approaches that fall within their purview. The scientific and policy experts we spoke with largely echoed the same themes and issues that the legal experts raised. Interviews with scientific experts to date suggest that governance issues related to geoengineering research with the potential for transboundary impacts should be addressed in a transparent, international manner in consultation with the scientific community. Some scientific and policy experts noted that the approach adopted by parties to the London Protocol engaged the scientific community about developing guidelines for assessing legitimate scientific research proposals that are not contrary to the treaties' aims, rather than prohibiting the scientific research necessary to determine the efficacy and impacts of ocean fertilization. Regarding geoengineering deployment, some scientific and policy experts noted that similar to the difficulties presented by achieving international consensus in carbon mitigation strategies--where there are definite "winners and losers" in terms of economic and environmental benefits--establishing a governance regime over geoengineering deployment for certain approaches may be equally challenging due to questions about whether deployment is warranted, how to determine an appropriate new environmental equilibrium, and compensation for adverse impacts, among other issues. Mr. Chairman, this concludes my prepared statement. We look forward to helping this committee and Congress as a whole better understand this important issue. I would be pleased to respond to any questions that you or other members of the committee may have at this time. For further information about this testimony, please contact Frank Rusco, Director, Natural Resources and Environment at (202) 512-3841, or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Contributors to this testimony include: John Stephenson, Director; Tim Minelli, Assistant Director; Ana Ivelisse Aviles; Charles Bausell Jr.; Frederick Childers; Judith Droitcour; Lorraine Ettaro; Brian Friedman; Cindy Gilbert; Gloria Hernandezsaunders; Eric Larson; Eli Lewine; Madhav Panwar; Timothy Persons; Jeanette Soares; Joe Thompson; and Lisa Van Arsdale. 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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Key scientific assessments have underscored the urgency of reducing emissions of carbon dioxide to help mitigate potentially negative effects of climate change; however, many countries with significant greenhouse gas emissions, including the United States, China, and India, have not committed to binding limits on emissions to date, and carbon dioxide levels continue to rise. Recently, some policymakers have raised questions about geoengineering--large-scale deliberate interventions in the earth's climate system to diminish climate change or its potential impacts--and its role in a broader strategy of mitigating and adapting to climate change. Most geoengineering proposals fall into two approaches: solar radiation management (SRM), which offset temperature increases by reflecting a small percentage of the sun's light back into space, and carbon dioxide removal (CDR), which address the root cause of climate change by removing carbon dioxide from the atmosphere. Today's testimony focuses on GAO's preliminary observations on (1) the state of the science regarding geoengineering approaches and their effects, (2) federal involvement in geoengineering activities, and (3) the views of experts and federal officials about the extent to which federal laws and international agreements apply to geoengineering. To address these issues, GAO reviewed scientific literature and interviewed federal officials and scientific and legal experts. Substantial uncertainties remain on the efficacy and potential environmental impacts of proposed geoengineering approaches, because geoengineering research and field experiments to date have been limited. GAO's review of relevant studies and interviews with experts to date found that relatively few modeling studies for SRM approaches have been published, and only limited small-scale testing--primarily of carbon storage activities relevant to CDR approaches--have been performed. Consequently, the experts GAO spoke with stated that a sustained effort of coordinated and cooperative research would be needed to determine whether proposed geoengineering approaches would be effective at a scale necessary to reduce temperatures and to attempt to anticipate and respond to potential unintended consequences--including the political, ethical, and economic issues surrounding the use of certain approaches. Specifically, just as the effects of climate change in general are expected to vary by region, so would the effects of certain large-scale geoengineering efforts, therefore, potentially creating relative winners and losers and thus sowing the seeds of future conflict. Federal agencies have funded some research and small demonstration projects of certain technologies related to proposed geoengineering approaches; but these efforts have been limited, fragmented, and not coordinated as part of a federal geoengineering strategy. Officials from interagency bodies coordinating the federal response to climate change stated that their offices (1) have not developed a coordinated research strategy, (2) do not have a position on geoengineering, and (3) do not believe is it necessary to coordinate efforts due to the limited federal investment to date. In the event that the federal government decides to expand geoengineering research, GAO's interviews with experts suggest that transparency and international cooperation are key factors for any geoengineering research that poses a risk of environmental impacts beyond our borders. Further, GAO's past work indicates that a comprehensive assessment of costs and benefits that includes all relevant risks and uncertainties is a key component in strategic planning for technology-based research. According to legal experts and federal agency officials, some existing federal laws and international agreements could apply to geoengineering research and deployment. However, some federal agencies have not yet assessed their authority to regulate geoengineering, and those that have done so have identified regulatory gaps. Although legal experts have identified some relevant international agreements and parties to two agreements have taken actions to address geoengineering, it is not certain whether and how other agreements would apply. Most scientific and legal experts GAO spoke with distinguished the governance of research from governance of deployment and noted that governance of geoengineering research with transboundary impacts, such as SRM approaches, should be addressed at the international level in a transparent manner and in consultation with the scientific community. However, the experts' views on the details of governance varied.
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Long-term care includes many types of services needed when a person has a physical or mental disability. Individuals needing long-term care may have difficulty performing some activities of daily living (ADL) without assistance, such as bathing, dressing, toileting, eating, and moving from one location to another. They may have mental impairments, such as Alzheimer's disease, that necessitate supervision to avoid harm to themselves or others or require assistance with tasks such as taking medications. Although a chronic physical or mental disability may occur at any age, the older an individual becomes, the more likely a disabling condition will develop or worsen. Nearly one-seventh of the nation's current elderly population--an estimated 5.2 million--have a limitation in either ADLs; instrumental activities of daily living (IADL) such as preparing food, doing housekeeping, and handling finances; or both. More than one-third of these people have limitations in two or more ADLs. Long-term care encompasses a wide array of care settings and services, not only institutional care provided by nursing homes for individuals with more extensive care needs but also home and community-based care. Nearly 80 percent of the elderly requiring assistance with ADLs or IADLs live at home or in community-based settings, while more than 20 percent live in nursing homes or other institutions. The majority of long-term care is provided by unpaid family caregivers to elderly individuals living either in their own homes or with their families. However, a growing minority of the elderly receives paid assistance from various sources. For example, state Medicaid programs have increased significantly the number of beneficiaries receiving in-home or community services. In addition, alternatives to nursing home care, such as assisted-living arrangements, are developing that have long-term care services available. Long-term care needs are an especially significant concern for women. Women represent 7 of 10 unpaid caregivers, three-quarters of nursing home residents 65 years and older, and two-thirds of home health care users. Given their longer life expectancies and the fact that married women usually outlive their spouses, many women face a greater risk of needing long-term care by a paid caregiver. The baby boom generation, about 76 million people born between 1946 and 1964, will contribute significantly to the growth in the number of elderly individuals who need long-term care and in the amount of resources required to pay for it. The oldest baby boomers are now in their fifties. In 2011, the first of the baby boomers born in 1946 will turn 65 years old and become eligible for Medicare. The Medicaid program, which pays for many health care services for low-income elderly, including nursing home care, will also begin to be affected. Baby boomers are likely to have a disproportionate effect on the demand for long-term care because more are expected to live to advanced ages, when need is most prevalent. The first baby boomers reach age 85 in 2030. In 2000, individuals aged 65 or older made up 12.7 percent of our nation's total population. By 2020, that percentage will increase by nearly one- third to 16.5 percent--one in six Americans--and will represent nearly 20 million more seniors than there are today. By 2040, the number of seniors aged 85 years and older will more than triple to 14 million (see fig. 1). long-term care may have increased. Others contend that better treatment and prevention could decrease the time period at the end of life when long-term care is needed. Baby boomers may also have a disproportionate effect on the demand for paid services. Many baby boomers will have fewer options besides paid long-term care providers because a smaller proportion of this generation may have a spouse or adult children to provide unpaid caregiving. This likelihood stems from the geographic dispersion of families and the large percentage of women who work outside the home, which may reduce the number of unpaid caregivers available to elderly baby boomers. In 1999, spending for nursing home and home health care was about $134 billion. Individuals needing care and their families paid for almost 25 percent of these expenditures out-of-pocket, public programs (predominantly Medicaid and Medicare) funded 61 percent, private insurance (including long-term care insurance as well as services paid by traditional health insurance) accounted for about 10 percent, and other private sources paid the remaining 5 percent (see fig. 2). These amounts, however, do not include the many hidden costs of long-term care. For example, they do not include wages lost when an unpaid family caregiver takes time off from work to provide assistance. An estimated 60 percent of the disabled elderly living in communities rely exclusively on their families and other unpaid sources for their care. Medicaid, a joint federal-state health financing program for low-income individuals, continues to be the largest public funding source for long-term care. Within broad federal guidelines, states design and administer Medicaid programs that include coverage for certain mandatory services, such as skilled nursing facility care, and other optional coverage, including home and community-based services. Long-term care services under Medicaid are not limited to adults--about 1 million children with special needs also receive long-term care services from Medicaid. Although most Medicaid long-term care expenditures are for nursing home care, in the last two decades the proportion of expenditures for home and community- based care has increased. By fiscal year 1998, the number of Medicaid recipients receiving home health or home and community-based services was similar to the number of Medicaid recipients receiving nursing facility services. How much service Medicaid provides varies among states, and Medicaid financing can be vulnerable to shifts in state revenues. State Medicaid programs have, by default, become the major form of insurance for long-term care. About two-thirds of nursing home residents in 1998 relied on Medicaid to help pay for their care, but Medicaid provides insurance only after individuals have become nearly impoverished by "spending down" their assets. Medicaid eligibility for many elderly persons results from having become poor as the result of depleting assets to pay for nursing home care, which costs an average of $55,000 per year. must have less than $2,000 in countable assets to become eligible for Medicaid coverage. An overall increase in wealth among the elderly means that a smaller proportion of elderly individuals will initially qualify for Medicaid--and others will need to become impoverished before they qualify. MetLife Mature Market Institute survey, 2000. This survey also found that nursing home costs vary widely by geographic region, from nearly $33,000 per year in Hibbing, Minnesota, to more than $100,000 per year in the Borough of Manhattan in New York City. number and costs of eligible individuals served under Medicaid in home and community-based settings. All states now have home and community- based waivers, and more than 200 waiver programs served more than 450,000 individuals nationwide in fiscal year 1998. Medicaid expenditures for home and community-based waivers increased an average of 29 percent per year from 1988 to 1999, reaching over $10 billion in 1999. The extent of services provided varies considerably among the states. Medicaid per capita expenditures for home care in 1999 ranged from a low of about $8 in Mississippi to a high of nearly $230 in New York. Medicaid is a significant share of state budgets--comprising 20 percent on average. Dependence on state budgets makes Medicaid financing vulnerable to states' fiscal health. States generally must maintain balanced budgets without deficits, and their revenues often decline in periods of low or negative economic growth. A recent fiscal survey of states showed that about one-half of states are expecting declines in revenue growth for 2001 to 2002, and a few states are reducing current-year appropriations and making other adjustments to maintain balanced budgets. At the same time, one- half of the states estimate that Medicaid spending will exceed their current projections. With declining revenue and increasing Medicaid expenditures, maintaining balanced budgets in states may require constraining Medicaid expenditures, including the large share represented by long-term care services. While Medicare primarily covers acute care, in the early 1990s it also became a de facto payer for some long-term care services. However, as spending for both skilled nursing facility services and home health care became the fastest growing components of Medicare, the Congress in the Balanced Budget Act of 1997 (BBA) introduced new payment systems for nursing facilities and home health providers to control this spending. care costs and therefore limits its nursing home coverage to short-term, post-acute stays of up to 100 days per spell of illness following hospitalization. Medicare nursing home spending increased from $1.7 billion in 1990 to $10.4 billion in 1998 and declined to $9.6 billion in 1999. Since 1989, Medicare became a significant funding source of home care, financing $8.7 billion in care in 1999--or more than one-fourth of the home care purchased for the elderly. Court decisions and legislative changes in coverage essentially transformed the Medicare home health benefit from one focused on patients needing acute, short-term care after hospitalization to one that primarily served chronic, long-term care patients. By 1994, only about one-fourth of home health visits covered by Medicare occurred within 60 days following a hospitalization. As a result, Medicare, on a de facto basis, financed an increasing amount of long-term care through its home health care benefit. Both the number of beneficiaries receiving home health care and the number of visits per user more than doubled from 1989 to 1996. From 1990 to 1997, the average annual growth rate for Medicare home health care spending was 25.2 percent--more than 3 times the growth rate for Medicare spending as a whole. This increase in the use of these services cannot be explained by any increase in the incidence of illness among Medicare beneficiaries. In response to concerns about the growth in spending for Medicare services, including skilled nursing facility and home health services, the BBA included provisions to slow Medicare spending growth. The BBA required prospective payment systems (PPS) to be implemented for Medicare services provided through home health care agencies and skilled nursing facilities, replacing retrospective, cost-based reimbursement systems that did not provide adequate incentives to control costs. The skilled nursing facility PPS began to be implemented in July 1998 and will be completely phased in this year. See Medicare Home Health Care: Prospective Payment System Could Reverse Recent Declines in Spending (GAO/HEHS-00-176, Sept. 8, 2000). payments with patient needs. home health visits per user than those currently being provided. As a result, the PPS can support a large expansion of services. However, PPS incentives are intended to reward efficiency and control use of services. Because criteria for what constitutes appropriate home health care do not exist, it may be difficult for Medicare to ensure that patients receive all necessary services. How home health agencies respond to the PPS and its incentives could have major implications for the amount of future Medicare funding for home health care, the services provided, and whether Medicare remains a significant payer of long-term care. Many baby boomers will have more financial resources in retirement than their parents and may therefore be better able to absorb some long-term care costs. However, long-term care will represent a catastrophic cost for a relatively small portion of families. Private insurance can provide protection for such catastrophes because it spreads the risk among larger numbers of persons. Private long-term care insurance has been viewed as a means of both reducing potential catastrophic financial losses for the elderly and relieving some of the financing burden now shouldered by public long-term care programs. Some observers also believe private long- term care insurance could give individuals a greater choice of services to satisfy their long-term care needs. However, less than 10 percent of elderly individuals and even fewer near-elderly individuals (those aged 55 to 64) have purchased long-term care insurance. The National Association of Insurance Commissioners' (NAIC) most recent data show that approximately 4.1 million persons were insured through long-term care policies in 1998, compared with 1.7 million persons in 1992. about two-thirds of the elderly--about 23 million individuals--have private Medicare supplemental (Medigap) insurance policies for non- Medicare-covered expenses such as copayments, deductibles, and prescription drugs. See Medicare: Refinements Should Continue to Improve Appropriateness of Provider Payments (GAO/T-HEHS-00-160, July 19, 2000). The accuracy of these policy numbers is dependent upon the accuracy of the information filed by the insurers themselves with the NAIC. boomers continue to believe they will never need such coverage. A recent survey of the elderly and near elderly found that only about 40 percent believed that they or their families would be responsible for paying for their long-term care. Some mistakenly believed that public programs, including Medicaid and Medicare, or their own health care insurance would provide comprehensive coverage for the services they need. This low perceived need for protection decreases demand for long-term care insurance. People also may be concerned about whether they can afford such insurance now or in the future when their premiums may increase and their retirement incomes may have decreased. Some employers offer employees a voluntary group policy option for long- term care insurance, but this market remains small and includes predominantly large employers. Usually employers do not pay for any of the costs of these policies, but group policies have lower administrative costs than individually purchased policies, which can result in lower premiums. One study estimated that 6 to 9 percent of eligible employees took advantage of employer-provided group long-term care insurance where it was available. Last year, the Congress passed legislation to offer unsubsidized, optional group long-term care insurance to federal employees and retirees beginning by fiscal year 2003. This initiative will likely establish the largest group offering of long-term care insurance and could significantly expand this market. A qualified long-term care insurance plan is defined as a contract that covers only long-term care services; does not pay for services covered under Medicare; is guaranteed to be renewable; does not provide for a cash surrender value or other money that can be paid, assigned, pledged as collateral for a loan, or borrowed; applies all refunds of premiums and all policyholder dividends or similar amounts as a reduction in future premiums or to increase future benefits; and meets certain consumer protection standards. Also, payments received from a qualified plan are considered medical expenses and are excluded from gross income for determining income taxes. Per diem policies that pay on the basis of disability rather than reimbursing for services used are subject to a cap of $180 per day per person in 1998. Out-of-pocket expenses for long-term care are allowed as itemized deductions along with other medical expenses if they exceed 7.5 percent of adjusted gross income. of these NAIC long-term care insurance standards. These three standards require policies to (1) not make prior hospitalization a condition for coverage, (2) have an outline of the coverage the policy provides, and (3) be guaranteed to be renewable and noncancelable except for nonpayment of premiums. In addition, all but one state adheres to the NAIC definition of long-term care insurance (policies that provide coverage for at least 12 months for necessary services provided in settings other than acute-care hospital units), and all but two states adhere to the preexisting conditions standard. Overall, HIAA identified 14 NAIC provisions specified for long- term care policies to be tax-qualified under HIPAA that had been adopted by at least 35 states as of July 1998. Many elderly and near-elderly individuals question the affordability and the value of long-term care insurance relative to the premiums charged. Long-term care insurance costs vary depending on the policyholder's age at the time of purchase, optional benefits and terms selected, and the insurer. Premiums for a 65-year-old are typically about $1,000 per year and can be much higher for more generous coverage or for older buyers. The affordability of long-term care insurance determines to a great extent its market and is a key factor in individuals' decisions to purchase and retain a long-term care insurance policy. Although assessing whether individuals can afford a policy is subjective, some studies estimate that long-term care insurance is affordable for only 10 to 20 percent of the elderly. Affordability is even more of an issue for married couples, who must each purchase individual coverage. While some insurers offer discounts to married couples when both purchase long-term care coverage, elderly couples are still likely to pay at least several thousand dollars annually for long-term care coverage. Those who consider and decide against purchasing long-term care insurance say they are skeptical about whether private policies will give adequate coverage. Those who do find long-term care insurance affordable when purchased may later decide it is not if their financial circumstances change or the premiums increase. An industry group estimates that 55 to 65 percent of all long-term care insurance policies sold as of June 1998 remain in force. purchased when he or she was 65, and about 6 to 10 times higher than if the policy had been purchased at age 50. Unfamiliarity with the concept and uncertainty of the value of long-term care insurance may deter some people from purchasing a policy. A relatively low premium at age 45 may nonetheless seem high for a risk that may not be realized for 40 years. Concerns about the cost of premiums relative to the value of policies may be a factor deterring purchases, especially when premiums for a similar policy for the same individual can vary widely. For example, a 65-year-old in Wisconsin can pay $857 to $2,061 per year for a long-term care insurance policy depending on the carrier, even if the terms are similar. Consumers deserve complete and accurate information about any insurance product that they purchase, and sales of long-term care policies are not likely to increase significantly unless consumers are given adequate and understandable information to assess them. If long-term care insurance is to help address the baby boom generation's future long- term care needs, individuals must understand what they are buying and what future changes, if any, they may face in their policy's coverage or premiums. While NAIC's model standards have helped address prior deficiencies in the terms of long-term care policies, whether these have been sufficient to assure consumers that long-term care products are reliable and the terms of the products are easily understood and will be fulfilled. Recently, NAIC further amended its models in response to concerns about dramatic premium increases that some long-term care policyholders experienced. Annual premiums for individual basic long-term care insurance policies marketed in Wisconsin as of October 1999, with a $100 per-day nursing home benefit, $50 per-day home health benefit, lifetime benefits, a 90- or 100-day elimination period, and no optional benefits. In 1993, we reported on a number of problems in the long-term care insurance market, including those related to disclosure standards, inflation protection options, clear and uniform definitions of services, eligibility criteria, grievance procedures, nonforfeiture of benefits, options for upgrading coverage, and sales commission structures that potentially created incentives for marketing abuses. See Health Care Reform: Supplemental and Long-Term Care Insurance (GAO/T-HRD-94-58, Nov. 9, 1993). than 700 percent--even though they believed that their premiums would not increase as long as they held their policies. In states that adopt the new NAIC model amendments, insurers will have to provide written information to prospective purchasers explaining that a policy's premium may increase in the future, why premium increases may occur, what options a policyholder has in the event of an increase, and the 10-year rate history for their policies. In states that adopt the model, consumers will also have to specifically acknowledge that they understand their policy's premiums may increase, and insurers must explain any contingent benefit available to policyholders who let their policies lapse because of a substantial rate increase. Additionally, NAIC adopted amendments to better ensure that long-term care insurers price their policy premiums to be sufficient over the lifetime of the policy, so as to minimize the need for future premium increases. As a further consumer protection, these amendments require insurers to reimburse policyholders when any rate increase is found to be unnecessary and allow state insurance commissioners to ban an insurer from the long-term care market if the insurer has a pattern of offering initial policy purchasers inadequate premium rates. For the new NAIC model provisions to become effective, states must choose to adopt them as part of their statutes or regulations. An NAIC official reported that some states have begun considering legislation or regulations reflecting the revised NAIC models but that states will vary in whether and how quickly they adopt particular portions. The aging of the baby boomers will greatly increase the nation's elderly population in the next 3 decades and thus increase the population who need long-term care services. The need for these services will become more critical after 2030, when this population reaches age 85 and older, which is the age group with the greatest need for long-term care. Recent legislation authorizing a new federal employees' long-term care insurance offering and proposals that would establish new tax subsidies for the purchase of private long-term care insurance aim to increase the role private insurance plays in financing long-term care. Increased confidence in long-term care insurance and the availability of affordable, reliable products are also crucial components of private insurance if it is expected to play a larger role in financing future generations' long-term care needs. Chairman Grassley and Ranking Member Baucus, this concludes my prepared statement. I will be happy to answer any questions that you or Members of the Committee have at this time. For more information regarding this testimony, please contact Kathryn G. Allen at (202) 512-7118 or John Dicken at (202) 512-7043. Opal Winebrenner and Carolyn Yocom also made key contributions to this statement.
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The confluence of the aging baby boom generation, longer life expectancies, and evolving options for providing and financing long-term care services will require substantial public and private investment in long-term care and the development of sufficient capacity to serve this growing population. Spending for long-term care was about $134 billion in 1999. Medicaid and Medicare paid for nearly 58 percent of these services, contributing about $59 billion and $18 billion, respectively. Private long-term care insurance was viewed as a possible way to reduce catastrophic financial risk for the elderly needing long-term care and to relieve some of the financing burden now shouldered by public long-term care programs. Yet private insurance represents only about 10 percent of long-term care spending. Questions remain about the affordability of policies and the value of the coverage relative to the premiums charged. Although many states have adopted standards for long-term care policies, it is uncertain whether these standards have bolstered consumer confidence in the reliability of long-term care insurance. If long-term care insurance is to have a more significant role in addressing the baby boom generation's upcoming chronic health care needs, consumers must view the policies being offered as reliable, affordable products with benefits and limitations that are easy to understand.
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For the period 1991 through 1996, 49 countries were assessed about $688 million. The United States' share was about $174 million, or about 25 percent of the total. Appendix I shows the assessments, payments, and outstanding balances for all 49 countries as of January 31, 1997. For the 3-year period 1997 through 1999, the Parties to the Protocol approved $466 million in new assessments. The United States' share of the new assessment is about $39 million for each of these 3 years. For 1997, the list of contributors has been reduced to 34 countries primarily because countries that had not ratified the 1990 amendments (which established the Fund) were deleted from the list of contributors. There is substantial variability among the countries in paying their assessments. As of January 31, 1997, 22 countries had fully paid their assessments for 1991 through 1996, 13 countries (including the United States) had paid most of their assessments, 3 had paid less than half, and 11 had not paid anything. The countries that had not paid any part of their assessments were primarily those of the former Soviet Union. These countries, because of their economic position, are referred to as "economies in transition." While not eligible for funding support from the Multilateral Fund, they are eligible to receive assistance for their efforts to phase out ozone-depleting substances from the Global Environment Facility. Cumulatively, as of January 31, 1997, of the $688 million assessed for the period 1991 through 1996, about $550 million, or about 80 percent, had been paid. Countries can pay their assessed contributions with cash or promissory notes, or by providing bilateral assistance to recipient countries. In 1993, the Parties to the Montreal Protocol agreed that promissory notes would be acceptable as payment of a country's contribution to the Fund. Since that time, five countries have used promissory notes to pay at least part of their assessments, deferring the actual outlay of cash. In essence, these contributors benefit from the time value of money between the date a note is provided to the Fund and the date it is cashed. While the Fund can cash promissory notes at any time to meet its needs, the general practice is to cash the notes in six equal payments over a 3-year period. We estimate that based on current U.S. Treasury borrowing rates and the Fund's general practice for cashing the notes over time, the U.S. government could save between $2 million and $3 million on each of its annual contributions to the Multilateral Fund by using the promissory notes. Although the U.S. government makes its payments to the Fund in cash, the Department of the Treasury currently administers over 10 international accounts using letters of credit, which also defer payments, similar to promissory notes. Since the establishment of the Multilateral Fund in 1991 through May 1997, the Fund's Executive Committee has approved a total of 1,810 projects in more than 100 countries and allocated about $570 million to fund these projects. The geographical distribution of projects supported by the Multilateral Fund shows that the Asia and Pacific region has both the largest number of approved projects, 826, and the greatest share of approved funding--over $330 million or almost 60 percent of the total funding approved. China has been the Fund's largest recipient with almost $150 million, or 26 percent, of all approved funding. The dominant share of projects and approved funding represented by the Asia and Pacific region is explained by the region's rapidly expanding economies and population and by its current consumption and enormous potential for the use of ozone-depleting substances. Six of the 10 top recipients of aid from the Multilateral Fund are countries in the Asia and Pacific region, which together have been allocated nearly 50 percent of the total approved funding. The Latin American and Caribbean region ranks next with 473 projects having total approved funding of almost $130 million or nearly 23 percent of all funding approved to date, followed by the Africa region with 320 projects and approved funding of about $67 million. Europe has the smallest number of projects--56--with approved funding of about $21 million. This reflects the fact that relatively few European countries are eligible for assistance. The Fund also supports a category of projects, known as global projects, that transcend regional boundaries. As of May 31, 1997, the Fund had approved 135 global projects with a total allocation of almost $22 million. The table below shows funding for the top 10 recipient countries; appendix II provides a breakdown of approved funding by regions and by types of projects. There are seven broad purposes or categories for which the projects have been funded: (1) country program preparation, (2) institutional strengthening, (3) technical assistance, (4) training, (5) demonstration projects, (6) project preparation, and (7) investment projects. Preparation of a country program is generally the starting point for a country that is seeking the Fund's assistance in converting to non-ozone-depleting technologies. A country program sets out a country's strategy for phasing out ozone-depleting substances. It provides basic information on the use of ozone-depleting substances, the institutional framework for controlling them, relevant industry and government involvement, an action plan with time frames and budgets, and a list of specific projects requiring financial support from the Multilateral Fund. To date more than $7 million has been approved for the preparation of 108 country programs. Institutional strengthening projects build a country's capacity to phase out ozone-depleting substances. The establishment of a national ozone unit within the country's national government is frequently a key element of this activity with the goal of satisfying the basic need for institutional, legal, and regulatory capacity to support the implementation of national phaseout plans. As of the most recent meeting of the Fund's Executive Committee (May 1997), a total of 97 institutional strengthening projects had been approved in 81 recipient countries with a total approved funding of slightly more than $15 million. Technical assistance, training, and demonstration projects constitute vehicles for transferring state-of-the-art technologies to recipient countries to help them meet their phaseout obligations under the Montreal Protocol. As of May 31, 1997, 394 demonstration, technical assistance, and training projects had been approved by the Fund's Executive Committee, with a combined approved funding level of over $60 million. Project preparation, which involves developing projects for conversion from ozone-depleting to ozone-benign technologies, is an important prerequisite for investment projects. As of May 31, 1997, the Multilateral Fund had approved a total of 383 project preparation activities with a total approved funding level of over $30 million. Project preparation activities typically result in the development of a group of investment project proposals. Investment projects are the largest category of projects and the most important from the standpoint of protecting the stratospheric ozone layer. These projects, which account for slightly over 80 percent of total approved funding, assist business entities in recipient countries in converting domestic and commercial refrigeration, manufacturing, firefighting, and other economic sectors from processes that use ozone-depleting substances to technologies and products that are not ozone-depleting or are at least significantly less so. A typical investment project in the refrigeration sector, for example, may involve eliminating CFCs in the manufacture of domestic refrigerators and freezers. It may also include conversion to CFC-free technology in the manufacture (or "blowing") of the polyurethane foam used in insulating the refrigerators and freezers. To date, 813 investment projects, with funding allocations of about $458 million, have been approved in 55 countries in all major regions of the world. When fully implemented, projects approved to date are expected to phase out the annual use of almost 84,000 metric tons of ozone-depleting potential. This is about 40 percent of the estimated ODP-weighted consumption of ozone-depleting substances in Article 5 countries. Appendix IV provides a breakdown of ODP metric tons to be phased out by type of project and by implementing agency as of May 31, 1997. As of December 31, 1996, however, only 20,487 ODP metric tons had actually been phased out. This difference is attributable to two factors. First, because of time lags between project approvals and the start of project implementation, the number of projects actually in progress or completed at a particular point in time is significantly smaller than the total number of projects approved by the Multilateral Fund's Executive Committee. Second, projects that are under way, particularly investment projects, often take longer to complete than originally projected. As of December 31, 1996, only 688, or 45 percent of the 1,537 projects approved since 1991 had been completed. Of the approved funding of $485 million for these projects, only $197 million (41 percent) had been disbursed, leaving an undisbursed balance of about $288 million for completion of those projects. Planned spending commitments by the four implementing agencies in 1997 total about $128 million, meaning that less than half of the undisbursed funds approved for projects through 1996 is expected to be disbursed by the end of 1997. Some of the reasons cited for delays in project implementation and completion include the following: Recipients attempted to renegotiate projects after Executive Committee approval. The business entity needed more time to secure financing from counterparts. The grant recipients decided to change project specifications. The business entity chose to delay conversion until competitors' projects were approved by the Executive Committee. The business entity wanted government regulations passed before allowing implementation to proceed. The bidding process resulted in higher costs than budgeted for the project. Delays in the start of projects and slower than anticipated progress once they have begun have concerned the Multilateral Fund's Executive Committee. In May 1997, the Executive Committee required the implementing agencies to submit reports, by the next meeting of the Executive Committee, for projects (1) where no disbursement has occurred for 18 months after project approval and (2) that remained uncompleted 12 months after the prescribed completion date. Information from these reports will be used to develop guidelines to ensure that the project preparation process includes measures to prevent delays in implementation or completion in the future. The Executive Committee also decided projects that have had their funding requests significantly reduced during the review process could not proceed until the intended recipients confirm that they have additional funding available to allow for prompt project implementation. Summary data on project type, approved funding, and project status are detailed in appendix III. The Multilateral Fund has a number of mechanisms in place that are designed to ensure that funds are properly accounted for and that the amount of funds allocated to specific projects is reviewed and verified. When it was established in 1991, the Fund accepted the accounting and auditing mechanisms of the implementing agencies and relied primarily on the implementing agencies' long-established institutional procedures. According to a 1995 report by COWIconsult, an international consultant, the implementing agencies have elaborate procedures, long experience in accounting for financial resources used in developing countries, and well-established auditing mechanisms. The report stated that the study team found no evidence that the agencies' procedures were less elaborate, implementation less careful, or auditing less thorough for activities financed by the Multilateral Fund. UNEP serves as the Fund's treasurer. As a part of its agreement with the Executive Committee, UNEP is responsible for obtaining and distributing contributions, entering into agreements with the implementing agencies, and submitting the Fund's accounts to the Executive Committee for each calendar year. UNEP receives certified and/or audited reports from the implementing agencies, which provide aggregate expenditure or disbursement figures. These figures are reported annually to the Executive Committee. Because the Multilateral Fund is considered to be an integral part of UNEP's and the United Nations' accounts, its audits are the sole responsibility of the Internal and External Audit of the United Nations. The report of the United Nations Board of Auditors for the 2-year period ending December 31, 1995, reported findings and made recommendations related to UNEP's program and financial management, procurement, and other areas, but the overall results revealed no material weaknesses or errors considered material to the accuracy, completeness, or validity of the financial statements as a whole. The auditors rendered an opinion that the financial statements presented fairly UNEP's financial position and the results of its operations for that financial period; the statements were prepared in accordance with the stated accounting policies; and transactions were in accordance with the financial regulations and legislative authority. In addition, the implementing agencies are required to provide the Fund's Executive Committee with an annual progress report on the implementation of approved work programs and activities related to country programs and projects. These reports include information on project approvals and disbursements; updates on project completions; global and regional project highlights; performance indicators; status of agreements and project preparation, by country; and administrative issues (operational, policy, financial, and others). Finally, each recipient country is required to report annually to the Executive Committee on the progress of the implementation of its country program. With regard to individual projects, the Multilateral Fund has developed a multilevel review process: The implementing agencies review project proposals to ensure that they meet eligibility criteria and arrange for external technical and cost reviews of investment projects before submitting them to the Fund Secretariat. The Secretariat determines whether the proposals meet eligibility and policy requirements and checks the proposed costs against data on past costs and suppliers' estimates. It may also consult with outside experts on technical and cost issues before making a recommendation to the Executive Committee. The Executive Committee's Project Review Subcommittee examines the recommended proposals and reports to the full committee. The Executive Committee's individual members consider the Subcommittee's report and may also assess the projects independently, sometimes requesting a fresh round of external technical and cost reviews before the Committee makes its final funding decisions. The project review process frequently results in significant alterations to projects, cost reductions, and in outright rejection of some projects. These alterations may be agreed to by the Secretariat and the implementing agency before a proposal is submitted to the Executive Committee, or they may occur during the meetings of the Project Review Subcommittee or the Executive Committee itself. Most often, the dialogue on these issues occurs mainly between the implementing agencies and the Fund Secretariat. The 1995 COWIconsult report concluded that the project review process introduces a strong element of discipline into the project development and approval procedure. COWIconsult reviewed a sample of 23 projects submitted to the Fund Secretariat and found that the Secretariat's views appeared to carry great weight with the Executive Committee in that the review process resulted in cost reductions in 13 of the 23 projects, with an overall average reduction of 20 percent. Moreover, in 6 of the 23 projects reviewed there was a very significant difference in the amount of support originally requested and the final request reviewed by the Secretariat and the Executive Committee. Overall, the study concluded that the review process results in significant but not excessive reductions in the approved costs of projects supported by the Fund. We also reviewed a sample of projects to determine the current effect of the review process on the cost of projects, and as a result, on the cost-effectiveness of the Fund's expenditures for them. We selected a sample of 10 projects approved by the Executive Committee in 1996 that comprised 7 investment projects, 2 technical assistance projects, and 1 institutional strengthening project. Each of the four implementing agencies was represented by two projects in the sample, which also included two bilateral projects. For seven of the projects, we found reductions ranging from 9 to almost 70 percent resulting from the review by the Secretariat staff, whose recommendations were generally endorsed by the Executive Committee. The overall average reduction for these seven projects amounted to 48 percent. However, this average is heavily influenced by major reductions on two very large investment projects made between the original submissions and the final approvals. Even the one bilateral investment project we reviewed had experienced a 23-percent reduction as a result of the review process. The three remaining projects were approved by the Executive Committee as originally submitted. An important consequence of the reduction in approved funding for these projects was that their cost-effectiveness, expressed in terms of dollar cost per kilogram of ozone-depleting substances eliminated, improved significantly. In the cases of the two projects with the largest percentage reductions in cost, the cost-effectiveness ratios went from $8.91/kg to $2.80/kg and from $6.95/kg to $4.12/kg, respectively. A third project had a similarly impressive improvement in cost-effectiveness, going from $6.42/kg to $3.97/kg. In addition to the control and review mechanisms and practices already in place, the Executive Committee has realized that it could strengthen its oversight by requiring project completion reports and developing a project monitoring and evaluation system. The Multilateral Fund is currently developing a uniform format for project completion reports that is expected to be submitted to the Executive Committee for its review before the end of 1997. In addition, a Subcommittee on Monitoring, Evaluation, and Finance was recently established to address the need for a monitoring and evaluation system. The Subcommittee developed a monitoring and evaluation program to be implemented over the next year. When fully implemented, the system may help the Executive Committee enhance the Fund's effectiveness by drawing on lessons learned from completed projects. In addition to funds allocated for projects of various types, the Multilateral Fund pays the implementing agencies for administrative support costs associated with project implementation. These costs include, among other things, staff, office space, office equipment, and supplies; accounting, audit, and procurement services; management backup; and travel needed to properly oversee project implementation. In the case of UNDP, UNEP, and UNIDO, payment for administrative support has, by agreement with the Fund, been fixed at a flat 13-percent of the amount approved by the Executive Committee for projects' implementation. In the case of the World Bank, up until mid-1995, reimbursement for administrative support was based on actual expenditures reported by the Bank. But, from that time forward, the Bank also has been compensated for administrative support on the 13-percent flat fee basis. This level of administrative support costs is generally consistent with prevailing administrative cost allowances within the United Nations system. Nevertheless, in 1994 some members of the Executive Committee began to question the continued appropriateness of a uniform 13-percent fee paid to the implementing agencies. They expressed the view that with the initial start-up phase of operations completed and with experience gained in implementing a wide assortment of projects and activities, the continued payment of administrative support at this level could result in unnecessarily high costs to the Multilateral Fund. At its March 1994 meeting, the Executive Committee requested that the Secretariat perform an analysis of each implementing agency's administrative costs. The Secretariat contracted with a consultant to perform this study, who reported in September 1994 that the administrative cost levels were not excessive. In fact, the consultant's report concluded that the flat 13-percent administrative support fee had been insufficient to cover all of the costs that the implementing agencies might legitimately have charged the Fund and, as a result, the agencies were, in effect, subsidizing part of the cost of projects. However, the report recognized that over time the Fund's administrative costs could be expected to decline as a percentage of overall project costs as a result of getting past the high cost of start-up, greater experience and resulting increased efficiency, economies of scale, and other factors. In November 1996, the Parties to the Montreal Protocol directed the Executive Committee to work toward the goal, over the next 3 years, of reducing agency support costs to an average of below 10 percent to make more funds available for other activities. In February 1997, the Executive Committee decided that an independent consultant should be recruited to work with the Secretariat and implementing agencies to identify options and approaches for reducing the overall level of administrative costs, focusing on revising the current uniform, fee-based system. The Chief Officer of the Fund's Secretariat informed us that a consultant has recently been selected to carry out this work and is expected to submit a report in September 1997. He said the Secretariat and the Executive Committee will be working over the next 3 years, in consultation with the implementing agencies, to reduce administrative support costs to an overall average of less than 10 percent. Because of the potential for considerable interest savings, we recommend that the Administrator of the Environmental Protection Agency and the Secretary of State implement an alternative payment method such as promissory notes or letters of credit for the U.S. contribution to the Multilateral Fund and seek the assistance of the Department of the Treasury in implementing this recommendation. In commenting on a draft of this testimony, the Environmental Protection Agency and the Department of State agreed in concept to our recommendation and are exploring options for using an alterative payment method. Mr. Chairman, this concludes my prepared remarks. At this point, I would be glad to respond to any questions you or Members of the Subcommittee may have. Country program preparation, institutional strengthening, and project preparation projects do not directly contribute to the phaseout of ozone-depleting substances. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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GAO discussed its work on the Montreal Protocol Multilateral Fund, focusing on: (1) principal contributors to the Fund; (2) principal recipients of disbursements made from the Fund; (3) the purposes for which disbursements were made; (4) what has been accomplished with these disbursements; and (5) the controls and accountability mechanisms in place to ensure proper use of money disbursed from the Fund. GAO noted that: (1) the United States is the largest contributor to the Multilateral Fund, accounting for about 25 percent of the contributions; (2) for 1997 through 1999, the United States is expected to contribute about $39 million per year; (3) GAO estimates that the United States could avoid interest expenses of between $2 million and $3 million associated with its annual contributions by using an alternative payment method; (4) from its establishment in 1991 through May 1997, the Multilateral Fund has allocated about $570 million for projects in more than 100 Article 5 countries; (5) China has been the largest recipient, accounting for almost $150 million or 26 percent of the total; (6) there are seven broad purposes for which projects have been funded, but over 80 percent of the funds have been for investment projects, which help businesses to convert their operations from the use of ozone-depleting substances and to cease the production of goods containing them; (7) projects approved to date are projected to phase out the annual use of about 84,000 ozone-depleting potential-weighted metric tons of ozone-depleting substances, or about 40 percent of the estimated consumption of ozone-depleting substances, in Article 5 countries; (8) the Multilateral Fund has a number of mechanisms in place that are designed to ensure that funds are properly accounted for and that the amounts of funds allocated to specific projects are reviewed and verified; (9) the Multilateral Fund currently pays a 13-percent administrative fee to the implementing agencies for their costs associated with project implementation; and (10) however, efforts are under way to evaluate the appropriateness of the fees, with the goal of reducing the support costs to about 10 percent over the next 3 years.
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FDA is responsible for regulating the marketing of medical devices to provide reasonable assurance of their safety and effectiveness for human use. As part of its regulatory responsibility, FDA reviews applications from manufacturers that wish to market their medical devices in the United States. Prior to marketing new devices, manufacturers must apply for FDA marketing approval through either the premarket notification (also referred to as 510(k)) process, or the premarket approval (PMA) process, a more rigorous regulatory review. New devices are subject to PMA, unless they are substantially equivalent to an already marketed device, in which case they need to comply only with the premarket notification requirements. Applications for premarket notification are generally reviewed more quickly than applications for PMA and do not usually require clinical data. Medical devices are regulated using a three-part classification system and are subject to different levels of control based upon their classifications as class I, II, or III devices. Class I devices are generally those with the lowest risk for use by humans and require the least regulatory oversight. These devices are subject to general controls, which include standards for good manufacturing practices, and requirements related to manufacturer registration, maintenance of records, and reporting. Examples of class I devices are patient examination gloves, canes, and crutches. Class II devices are generally of higher risk and are also subject to general controls; however, FDA can establish special controls for these devices, such as development and dissemination of guidance documents, mandatory performance standards, and postmarket surveillance. Examples of class II devices are blood glucose test systems and infusion pumps. Class III devices typically pose the greatest risk and thus have the highest level of regulation. This classification includes most devices that support or sustain human life, are of substantial importance in preventing impairment of human health, or present a potential unreasonable risk of illness or injury. Because general and special controls may not be sufficient to ensure safety and effectiveness, these devices, with limited exceptions, must obtain PMA. To obtain PMA, the manufacturer must provide FDA with sufficient valid scientific evidence providing reasonable assurance that the device is safe and effective for its intended use. Once approved, changes to the device affecting safety or effectiveness require the submission and approval of a supplement to its PMA. Examples of class III devices include automatic external defibrillators and implantable infusion pumps used to administer medication. Some class III devices are provided as part of a hospital visit; Medicare pays for these devices through the hospital inpatient or outpatient prospective payment systems. Five categories of class III devices, however, can be provided in physicians' offices or prescribed by physicians for use in the home; Medicare pays for these devices through the DME fee schedule. In 2004, Medicare payments for class III devices under the DME fee schedule were $53.2 million, which represented less than 1 percent of total DME payments. The Medicare DME fee schedule payment rate for a device is based on either the manufacturer's retail price or historic reasonable Medicare charges, which CMS considers equivalent measures. MMA provided for a 0 percent annual update for most Medicare DME fee schedule payment rates from 2004 through 2008. However, under MMA, class III devices were excluded from the 0 percent update and received payment updates equal to the annual percentage increase in the CPI-U in 2004, 2005, and 2006. For these devices, MMA provides, in 2007 for a payment update as determined by the Secretary of Health and Human Services, and in 2008, for a payment update equal to the annual percentage increase in the CPI-U. We found that with limited exceptions, manufacturers of class III devices have higher premarketing costs than do manufacturers of class II devices. Manufacturers of class III devices pay higher FDA user fees for review of their devices, because of the more complex FDA review required prior to marketing, than do manufacturers of class II devices. According to FDA data, compared to class II manufacturers, class III manufacturers have a longer period before approval during the FDA application process, which lengthens the time before they can market their devices and begin receiving revenue. FDA requires that manufacturers submit clinical data for class III devices, but only occasionally requires the same for class II devices. In addition, class III manufacturers stated they incur higher premarketing costs for other research and development than do manufacturers of class II devices. However, class II manufacturers also stated that they incur substantial premarketing costs related to other research and development. Because we did not evaluate proprietary data on other premarketing research and development costs, we could not determine whether a difference in other premarketing research and development costs exists between class III and class II manufacturers. Manufacturers of class III devices pay higher FDA user fees for review of their devices, because of the more complex FDA review required prior to marketing, than do manufacturers of class II devices. Specifically, manufacturers of class III devices subject to this review pay the FDA user fee for PMA, which in 2005 was $239,237 for each PMA. Most PMA supplements, which must be filed when a manufacturer makes a change to a class III device that affects its safety or effectiveness, also require payment of a fee, which ranged from $6,546 to $239,237. Manufacturers of class II devices pay the FDA user fee for each premarket notification, which in 2005 was $3,502. When a manufacturer makes a change to a class II device, a new premarket notification application must be filed; there is no supplement process for these devices. Manufacturers of class III devices have a longer period before approval during the FDA application process, which they stated delays the marketing of their devices and the receipt of revenue. According to ODE's 2004 Annual Report, in 2004, the average time for PMA review was 503 days while the average time for premarket notification review was 100 days. These average times include the total time a PMA or premarket notification was under review by FDA and the time the manufacturer used in responding to any FDA requests for additional information. FDA requires that class III manufacturers submit clinical data, for which manufacturers incur costs. FDA only occasionally requires the submission of clinical data for class II devices. Specifically, FDA requires manufacturers of class III devices to submit clinical data as part of the PMA process to provide reasonable assurance that the devices are safe and effective for their intended uses. During its review of a device's PMA application, FDA may require that the manufacturer provide additional information, which may require submission of additional clinical data. Manufacturers of class III devices stated that to collect clinical data, they conducted costly animal studies, human preclinical studies, and human clinical trials. Manufacturers of class II devices must satisfy premarket notification requirements; that is, they must submit documentation that a device is substantially equivalent to a legally marketed device. An FDA official stated that manufacturers of class II devices may be required to provide clinical data. They may be required to provide these data, for example, to demonstrate that modifications they have made to a device would not significantly affect its safety or effectiveness, or if a device is to be marketed for a new or different indication. According to FDA, 10 to 15 percent of premarket notification applications include clinical data. Manufacturers of class III devices we spoke with stated that in addition to collecting clinical data, they incur higher premarketing costs related to other research and development, such as labor costs and manufacturing supplies related to designing a device, than do manufacturers of other classes of devices. They stated that class III devices are highly innovative, complex products that require costly premarketing research and development to produce. One class III manufacturer we spoke with stated that approximately 10 percent of its revenue between 2002 and 2005 was invested in premarketing research and development. Another class III manufacturer stated that approximately 4 percent of its operating budget is spent on premarketing research and development. However, manufacturers of class II devices we spoke with also stated that they incur substantial premarketing costs related to research and development. Specifically, we spoke with a manufacturer of an insulin pump and two manufacturers of continuous positive airway pressure devices, each of which stated it incurs substantial research and development costs. One class II manufacturer stated that 10 to 15 percent of a device's total cost was attributable to research and development. Another class II manufacturer stated that approximately 7 to 10 percent of its revenue is spent on research and development. Because we did not evaluate proprietary data for other premarketing research and development costs, we were unable to determine whether a difference in other premarketing research and development costs exists between class III and class II manufacturers. The CMS rate-setting methodology for Medicare's DME fee schedule accounts for the premarketing costs of class II and class III devices in a consistent manner. The fee schedule payment rate for an item of DME, regardless of device classification, is based on either historic Medicare charges or the manufacturer's retail price, which CMS has determined are equivalent measures. Manufacturers of both class II and class III devices we spoke with stated that when setting their retail prices, they take into account all premarketing costs necessary to bring the device to market. CMS has two DME fee schedule rate-setting methodologies: one method is for items that belong to a payment category covered by Medicare at the time the DME fee schedule was implemented in 1989, and one method is for items added to the DME fee schedule after 1989 that are not covered by an existing payment category. Regardless of its classification as a class I, II, or III device, the payment rate for an item of DME covered by Medicare when the DME fee schedule was implemented in 1989 is based on its average reasonable Medicare charge from July 1, 1986, through June 30, 1987, for some items, and July 1, 1986, through December 31, 1986, for other items (both referred to as the base year). Historically, these payment rates have been updated by a uniform, statutorily set, percentage, which is usually based on the annual percentage increase in the CPI-U. Generally, for items added to the fee schedule after 1989 that are not covered by an existing payment category, CMS does not have historic Medicare charges upon which to base the payment rate. CMS has determined that in these cases, the manufacturer's retail price is a sufficient substitute to calculate the fee schedule payment amount, and CMS considers the payment amount that results from this methodology to be equivalent to historic reasonable Medicare charges. To determine the payment rate, CMS obtains the manufacturer's retail price for the new item and uses a formula based on the cumulative annual percentage increase in the CPI-U to deflate the price to what it would have been in the base year. Using a formula based on the statutory DME fee schedule payment updates since the base year, CMS then inflates the base year price to the year in which the item was added to the fee schedule. In succeeding years, the item is updated by the applicable DME fee schedule update. The cumulative updates applied to DME are lower than the corresponding CPI-U increases because, in certain years, the statutory update was less than the CPI-U increase. Therefore, the payment rate of a device is generally lower than its retail price. Manufacturers of class III devices we spoke with, whose devices accounted for over 96 percent of class III DME payments in 2004, stated that when setting their retail prices, they take into account the premarketing costs of complying with federal agencies' requirements, including the costs of collecting clinical data, and the costs of research and development. Manufacturers of class II devices similarly stated that they take into account the premarketing costs of complying with federal agencies' requirements and of research and development, including any clinical data they may be required to collect. From 2004 through 2006, MMA provided for a payment update to the DME fee schedule for class III devices equal to the annual percentage increase in the CPI-U. In addition, for these devices, for 2007, MMA provided for a payment update to be determined by the Secretary of Health and Human Services, and for 2008, a payment update equal to the annual percentage increase in the CPI-U. From 2004 through 2008, for class II devices, however, MMA provided for a 0 percent payment update. Manufacturers of class III devices, with limited exceptions, have higher premarketing costs than manufacturers of class II devices, specifically, higher costs related to FDA user fees and submission of clinical data. However, class III and class II manufacturers we spoke with stated they take these premarketing costs, as well as premarketing research and development costs, into account when setting their retail prices. Because the initial payment rates for all classes of devices on the Medicare DME fee schedule are based on these retail prices or an equivalent measure, they account for the costs of class III and similar class II devices in a consistent manner. Distinct updates for two different classes of devices are unwarranted. The Congress should consider establishing a uniform payment update to the DME fee schedule for 2008 for class II and class III devices. We recommend that the Secretary of Health and Human Services establish a uniform payment update to the DME fee schedule for 2007 for class II and class III devices. We received written comments on a draft of this report from HHS (see app. II). We also received oral comments from six external reviewers representing industry organizations. The external reviewers were the Advanced Medical Technology Association (AdvaMed), which represents manufacturers of medical devices, and representatives from five class III device manufacturers--the four manufacturers of osteogenesis stimulators and one manufacturer of both implantable infusion pumps and automatic external defibrillators. In commenting on a draft of this report, HHS agreed with our recommendation to establish a uniform payment update to the DME fee schedule for 2007 for class II and class III devices. The agency did not comment on whether the Congress should consider establishing a uniform payment update to the DME fee schedule for 2008 for these devices. HHS agreed with our finding that the costs of class II and class III DME have been factored into the fee schedule amounts for these devices, noting that CMS is committed to effectively and efficiently implementing DME payment rules. It stated that our report did a thorough job of reviewing Medicare payment rules associated with the costs of furnishing class III devices. HHS also provided technical comments, which we incorporated where appropriate. Industry representatives who reviewed a draft of this report did not agree or disagree with our matter for congressional consideration or our recommendation for executive action. They did, however, express concern that we did not recommend a specific update percentage for class III devices. Our report recommends a uniform payment update to the DME fee schedule for class II and class III devices; we believe that this recommendation satisfies the requirement in MMA to make recommendations on the appropriate update percentage for class III devices. Two manufacturers of class III devices commented on the class II device manufacturers we interviewed. One manufacturer stated that it would have been more appropriate to interview manufacturers of class II devices that are not similar to class III devices in terms of complexity. The other manufacturer expressed concern that we did not speak with more class II manufacturers. The four osteogenesis stimulator manufacturers expressed concern that we did not examine costs they incur after they market a device. Specifically, several stated that they incur labor costs for services provided to beneficiaries and physicians, research and development costs related to FDA-required surveillance on osteogenesis stimulators' safety, and research and development costs to improve or find new uses for a device. In addition, one manufacturer stated that it conducts costly research and development for some products that never come to market. Concerning comments about the class II manufacturers we interviewed, as noted in the draft report, our conclusion that class III devices have higher premarketing costs than do manufacturers of class II devices is based on FDA requirements and FDA data that apply to class III and class II manufacturers and not on information obtained from class III and class II manufacturers. According to FDA data, manufacturers of class III devices pay higher FDA user fees and have a longer period of time before approval during the FDA application process. FDA also requires that all class III manufacturers submit clinical data, for which manufacturers incur costs, and only occasionally requires the submission of clinical data for class II devices. Regarding manufacturers' concerns that we did not examine all of their device-related costs, we included these costs in our analysis, where appropriate. With respect to labor costs for services provided to beneficiaries and physicians, to the extent that suppliers do perform these services, the costs are known prior to marketing the device and can be taken into account when setting their retail price. Two class III manufacturers we spoke with volunteered that they take these labor costs into account when setting retail prices prior to the device going to market. Regarding research and development costs for FDA-required surveillance, both class III and class II devices may be subject to surveillance on a case- by-case basis; prior to marketing, FDA notifies manufacturers that a device will be subject to postmarket surveillance. Also prior to marketing the device, manufacturers must submit, for FDA approval, a plan to conduct the required surveillance. As noted in the draft report, both class III and class II device manufacturers stated, that when setting their retail prices, they take into account the premarketing costs of complying with federal agencies' requirements. With respect to research and development costs to improve or find new uses for a device after it is marketed, these are costs incurred to modify an existing device or develop a new device. Costs incurred for a future device are premarketing costs related to that device and not costs related to marketing the existing device. Finally, we did not examine research and development costs for products that do not come to market because these costs do not directly relate to items on the Medicare DME fee schedule; therefore, it would be inappropriate to consider them when reporting on the appropriate update percentage to items on the fee schedule. Industry representatives raised several issues that went beyond the scope of our report. These issues included the appropriateness of the DME rate- setting methodology, payment incentives that may lead providers to use one site of service over another, and incentives for manufacturers to bring new devices to the market. Reviewers also made technical comments, which we incorporated where appropriate. We are sending copies of this report to the Secretary of Health and Human Services, the Administrators of CMS and FDA, and appropriate congressional committees. We will also make copies available to others on request. In addition, the report is available at no charge on GAO's Web site at http://www.gao.gov. If you or your staffs have any questions, please contact me at (202) 512- 7119 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. To address our objectives, we interviewed officials from the Centers for Medicare & Medicaid Services (CMS); the Food and Drug Administration (FDA); two of the four durable medical equipment (DME) regional carriers, the contractors responsible for processing DME claims; and the Statistical Analysis DME Regional Carrier, the contractor that provides data analysis support to CMS. To examine the premarketing costs of devices, we obtained the fees that FDA charges for device review, known as user fees, which are published on the FDA Web site. We also reviewed the FDA device approval process, and data on device review times from FDA's Office of Device Evaluation's 2004 Annual Report. We interviewed the four manufacturers of osteogenesis stimulators and one manufacturer of both implantable infusion pumps and automatic external defibrillators, all class III medical devices, about the types of costs they incur in producing the devices, including FDA fees for device review and the costs of research and development, both for any clinical data the manufacturer is required to submit and for other research and development costs, such as labor costs related to designing a device. These class III manufacturers' devices accounted for over 96 percent of class III Medicare DME payments in 2004. We also spoke with a manufacturer of insulin pumps and two manufacturers of continuous positive airway pressure devices, class II devices on the DME fee schedule that CMS identified as similar to the class III devices on the schedule in terms of complexity. We did not evaluate proprietary data to determine whether a difference in other premarketing research and development costs exists between the two types of manufacturers. To determine how the DME fee schedule accounts for premarketing costs, we interviewed CMS officials and reviewed CMS documents on the DME fee schedule rate-setting methodology. We interviewed representatives from the Advanced Medical Technology Association; the American Academy of Orthopedic Surgeons; the American Society of Interventional Pain Physicians; and two private insurance companies. We conducted our work from December 2004 through February 2006 in accordance with generally accepted government auditing standards. In addition to the contact named above, Nancy A. Edwards, Assistant Director; Joanna L. Hiatt; and Andrea E. Richardson made key contributions to this report.
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Medicare fee schedule payments for durable medical equipment (DME) that the Food and Drug Administration (FDA) regulates as class III devices, those that pose the greatest potential risk, increased by 215 percent from 2001 through 2004. From 2004 through 2006, and for 2008, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) provided for a payment update for class III DME equal to the increase in the consumer price index for all urban consumers (CPI-U). For 2007, MMA requires the Secretary of Health and Human Services to determine the payment update. MMA also requires that other DME receive a 0 percent update from 2004 through 2008. MMA directed GAO to report on an appropriate payment update for 2007 and 2008 for class III DME. In this report, GAO (1) examined whether class III devices have unique premarketing costs and (2) determined how the fee schedule rate-setting methodology accounts for the premarketing costs of such devices. GAO found that manufacturers of class III devices, with limited exceptions, have higher premarketing costs than do manufacturers of class II devices that are similar to class III devices. Premarketing costs consist of FDA user fees and research and development costs, both for any clinical data the manufacturer is required to submit and for other research and development costs. Manufacturers of class III devices pay higher FDA user fees, because of the more complex FDA review required prior to marketing, than do manufacturers of class II devices. Specifically, the user fee for class III devices subject to this review in 2005 was $239,237, while the fee for class II devices in 2005 was $3,502. The FDA application and approval process takes longer for class III manufacturers, which lengthens the time it takes before they can market their devices and begin receiving revenue. FDA requires that manufacturers submit clinical data for class III devices, but only occasionally requires the same for class II devices. In interviews with GAO, class III manufacturers stated that they incur higher premarketing costs for other research and development, such as labor costs related to designing a device, compared to manufacturers of class II devices. Class II manufacturers also told GAO that they incur substantial costs related to other research and development. GAO did not evaluate proprietary data to determine whether a difference in other premarketing research and development costs exists between the two types of manufacturers. GAO found that the Medicare DME fee schedule rate-setting methodology accounts for the respective premarketing costs of class II and class III devices in a consistent manner. Regardless of device classification, the Medicare DME fee schedule payment rate for a device is based on either the manufacturer's retail price or historic reasonable Medicare charges, which the Centers for Medicare & Medicaid Services considers equivalent measures. In interviews with GAO, manufacturers of class III devices stated that when setting their retail prices, they take into account the premarketing costs of complying with federal regulatory requirements, including the costs of required clinical data collection and other research and development. These manufacturers accounted for over 96 percent of class III DME payments in 2004. Manufacturers of class II devices also stated that they take into account these costs when setting retail prices.
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OMB Circular A-126 sets forth executive branch policy with respect to the management and use of government aviation assets. The purpose of the circular is to minimize cost and improve the management of government aircraft. The circular provides that government aircraft must be operated only for official purposes. Under the circular, there are three kinds of official travel: Travel to meet mission requirements: Mission requirements are defined as "activities that constitute the discharge of an agency's official responsibilities," and the circular provides examples of these kinds of activities. For purposes of the circular, mission requirements do not include official travel to give speeches, attend conferences or meetings, or make routine site visits. Required use travel: Agencies are permitted to use government aircraft for nonmission travel where it is required use travel--which is travel that requires the use of government aircraft to meet bona fide communications needs, security requirements, or exceptional scheduling requirements of an executive agency. Other travel for the conduct of agency business: Government aircraft are also available for other travel for the conduct of agency business when no commercial airline or aircraft is reasonably available to fulfill the agency requirement or the actual cost of using a government aircraft is not more than the cost of using commercial airline or aircraft service. In addition to other requirements for federal agencies, the circular directs agencies that use government aircraft to report semiannually to GSA each use of such aircraft for nonmission travel by senior federal officials, members of the families of such officials, and any nonfederal travelers, with certain exceptions. The circular provides that the format of the report is to be specified by GSA, but must list all travel during the preceding 6-month period and include the following information: the name of each such traveler, the official purpose of the trip, and the destination(s), among other things. The circular provides for one exception to these reporting requirements: Agencies using the aircraft are not required to report classified trips to GSA, but must maintain information on those trips for a period of 2 years and have the data available for review as authorized. In addition, in a memorandum to the heads of executive departments and agencies and employees of the Executive Office of the President, the President specifically directed that "all use of Government aircraft by senior executive branch officials shall be documented and such documentation shall be disclosed to the public upon request unless classified." The OMB bulletin implementing this memorandum explains that "it is imperative that we not spend hard-earned tax dollars in ways that may appear to be improper." GSA has issued regulations applicable to federal aviation activities. The FTR implements statutory requirements and executive branch policies for travel by federal civilian employees and others authorized to travel at government expense. The FMR generally pertains to the management of federal property and includes a specific part on management of government aircraft. As shown in table 1, the FTR specifically exempts from reporting trips that are classified, but does not contain any exemption for reporting by intelligence agencies. In contrast, the FMR states that intelligence agencies are exempt from the requirement to report to GSA on government aircraft. According to senior GSA officials, although the exemption for intelligence agencies is contained in the FMR--which largely deals with the management of federal property--it applies to reporting requirements in the FTR for senior federal officials who travel on government aircraft. Through issued executive branch documents, agencies are required to provide data about senior federal official nonmission travel--except for classified trips--to GSA, and GSA has been directed to collect this specified information. Accordingly, through its regulations, GSA has directed agencies to report required information on senior federal official travel; however, its regulations allow certain trips not to be reported, in addition to classified trips. Specifically, GSA exempted intelligence agencies from reporting any information on senior federal travel on government aircraft regardless of whether it is classified or unclassified. This is inconsistent with executive branch requirements we indentified. GSA has not articulated a basis--specifically, a source of authority or rationale--that would allow it to deviate from collecting what it has been directed to collect by the President and OMB. This could undermine the purposes of these requirements, which include aiding in the oversight of the use of government aircraft and helping to ensure that government aircraft are not used for nongovernmental purposes. Further, GSA officials stated that it is the agency's practice to implement regulations that do not introduce real or potential conflicts with other authorities. According to GSA senior officials, the agency is unable to identify the specific historical analysis for inclusion of the intelligence agencies' reporting exemption in the FMR. GSA added the exemption for intelligence agency reporting of information on government aircraft to the FMR in 2002; however, there is no explanation for the inclusion of the exemption in the regulation or implementing rule. GSA senior officials told us that the exemption for intelligence agencies enabled intelligence agencies to comply with Executive Order 12333, which requires the heads of departments and agencies with organizations in the intelligence community or the heads of such organizations, as appropriate, to "protect intelligence and intelligence sources and methods from unauthorized disclosure with guidance from the Director of Central Intelligence." However, GSA has not articulated how an exemption for senior federal official travel data for nonmission purposes is necessary for agencies to Identifying an adequate basis for comply with Executive Order 12333.the intelligence agency reporting exemption or removing the exemption from its regulations if an adequate basis cannot be identified could help GSA ensure its regulations for senior federal official travel comply with executive branch requirements. GSA aggregates the data reported by agencies on senior federal travel to produce publically available reports describing the use of government aircraft by senior federal officials and how government aircraft are used to support agency missions. Specifically, these Senior Federal Travel Reports provide analysis on the number of trips taken by senior federal officials, the costs of such trips, the number of agencies reporting, and the number and costs of trips taken by cost justification. The reports also list those departments, agencies, bureaus, or services that report no use of senior federal official travel during the reporting time frame. According to the reports, they are intended to provide transparency and better management and control of senior federal official use of government aircraft and the ability to examine costs as they relate to trip use justifications. Specifically, according to the FBI, the exemption contained in FMR SS 102-33.385 applies to all data on government aircraft stated in FMR SS 102-33.390, which includes senior federal travel information. The FBI also determined that the exemption applies to all of the FBI, not just the intelligence elements, and includes all flights, both mission and nonmission. did not indicate that additional flights may have been omitted on the basis of GSA's exemption for intelligence agencies. GSA senior officials told us that they cannot identify which organizations, components, or offices of departments or agencies within the intelligence community do not report senior federal official travel data to GSA. These officials stated that this is because they do not distinguish between instances where an agency reports no information because the agency is invoking the exemption and instances where the agency reports no information for some other reason, such as that no flights were taken on agency aircraft. Asking agencies to identify instances where they are invoking the exemption would better position GSA to collect and report on this information. Standards for Internal Control in the Federal Government calls for agencies to establish controls, such as those provided through policies and procedures, to provide reasonable assurance that agencies and operations comply with applicable laws and regulations. These standards also call for the accurate and timely recording of transactions and events to help ensure that all transactions are completely and accurately recorded, as well as for an agency to have relevant, reliable, and timely Further, GSA officials stated that it could be possible communications. to obtain follow-up information from agencies that did not provide travel data in order to determine why agencies had not reported data. Collecting additional information on which agencies are invoking the exemption and including such information in its reports could help ensure more complete reporting on the use of government aircraft, which could help provide GSA with reasonable assurance that its Federal Official Travel Reports are accurate and also provide the public a more comprehensive understanding of these trips. departments and agencies, the only exception for the reporting of this kind of travel is for classified trips. However, GSA has established an exception to these reporting requirements that is inconsistent with the executive branch requirements that gave GSA authority to collect senior federal travel data. GSA has not identified the basis--specifically, a source of authority or rationale--for this exemption as applied to senior federal official travel for nonmission purposes that would allow for it to deviate from executive branch specifications. Identifying an adequate basis for the intelligence agency reporting exemption or removing the exemption from its regulations if an adequate basis cannot be identified could help GSA ensure its regulations for senior federal official travel comply with executive branch requirements. In addition, collecting additional information on which agencies or organizations within the federal government are utilizing this exemption, and including such information in its Senior Federal Travel Reports, could help provide GSA with reasonable assurance that its published reports using these data are accurate. We recommend that the Administrator of GSA take the following two actions: To help ensure that GSA regulations comply with applicable executive branch requirements, identify an adequate basis for any exemption that allows intelligence agencies not to report to GSA unclassified data on senior federal official travel for nonmission purposes. If GSA cannot identify an adequate basis for the exemption, GSA should remove the exemption from its regulations. To help ensure the accuracy of its Senior Federal Official Travel Reports, collect additional information from agencies on instances where travel is not being reported because of an exemption for intelligence agencies, as opposed to some other reason, and include such information in its reports where departmental data do not include trips pursuant to an agency's exercise of a reporting exemption. We provided a draft of this report to GSA for review and comment. GSA provided written comments which are reprinted in appendix I and summarized below. In commenting on our report, GSA concurred with both of the recommendations and identified actions to address them. In response to our recommendation that GSA identify an adequate basis for the intelligence agency exemption as applied to senior federal official travel for nonmission purposes, or remove it from its regulations, GSA stated that it will remove the exemption. Specifically, GSA stated that it will remove section 102.33.390(b) in Subpart E of the FMR, "Reporting Information on Government Aircraft." This action will remove the reporting requirement related to senior federal official travel from the FMR and such reporting will continue to be governed by the FTR. As a consequence, the exemption for intelligence agencies, which is only contained in the FMR, will no longer be applicable to unclassified data on senior federal official travel for nonmission purposes. In response to our recommendation that GSA collect and report additional information from agencies on instances where travel is not being reported because of an exemption for intelligence agencies, GSA stated that it will add indicator data elements for agencies to identify when classified data is withheld from the senior federal official travel data they submit to GSA. These actions, when fully implemented, will address both of our recommendations. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Attorney General and other interested parties. This report will also be available at no charge on GAO's website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9627 or [email protected]. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. In addition to the contact named above, Chris Currie, Assistant Director; Chris Ferencik, Analyst in Charge; Janet Temko, Senior Attorney; and Mary Catherine Hult made significant contributions to the work.
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The federal government owns or leases over 1,700 aircraft to accomplish a wide variety of missions. Federal agencies are generally required to report trips taken by senior federal officials on their aircraft to GSA unless the trips are classified pursuant to executive branch requirements. In February 2013, GAO reported on DOJ senior executives' use of DOJ aviation assets for nonmission purposes for fiscal years 2007 through 2011. GAO identified several issues with respect to the implementation of a provision of GSA regulations that exempts intelligence agencies from reporting information about government aircraft to GSA and that provision's application to unclassified data on senior federal official travel for nonmission purposes. GAO was asked to review GSA's oversight of executives' use of government aircraft for nonmission purposes. This report addresses the extent to which (1) GSA's reporting exemption for intelligence agencies is consistent with executive branch requirements and (2) GSA ensures the accuracy of its reporting on the use of government aircraft by senior federal officials. GAO reviewed relevant executive branch requirements and GSA regulations, as well as data submitted by DOJ to GSA on trips taken by senior federal officials on DOJ aircraft and interviewed GSA officials. The exemption in General Services Administration (GSA) regulations that allows intelligence agencies not to report unclassified data on senior federal official travel for nonmission purposes is not consistent with executive branch requirements, and GSA has not provided a basis for deviating from these requirements. Specifically, executive branch documents--including Office of Management and Budget (OMB) Circular A-126, OMB Bulletin 93-11, and a 1993 presidential memorandum to the heads of all executive departments and agencies--require agencies to report to GSA, and for GSA to collect data, on senior federal official travel on government aircraft for nonmission purposes, except for trips that are classified. As a result, GSA is not collecting all specified unclassified data as directed, and GSA has not provided a basis for deviating from executive branch requirements. Identifying an adequate basis for the intelligence agency reporting exemption or removing the exemption from its regulations if a basis cannot be identified could help GSA ensure its regulations for senior federal official travel comply with executive branch requirements. GSA aggregates data on senior federal official travel to create publically available Senior Federal Official Travel Reports that, among other things, provide transparency of senior federal officials' use of government aircraft. However, GSA does not determine which agencies' travel is not reported under the exemption for intelligence agencies. For example, in February 2013 GAO found that the Federal Bureau of Investigation (FBI)--which is a member of the intelligence community--did not report to GSA, based on the intelligence agency exemption, information for 395 unclassified nonmission flights taken by the Attorney General, FBI Director, and other Department of Justice (DOJ) executives from fiscal years 2009 through 2011. However, GSA's Senior Federal Official Travel Reports GAO reviewed for those years provided information on flights for other DOJ components but did not indicate that additional flights may have been omitted on the basis of GSA's exemption for intelligence agencies. GSA senior officials stated that they do not collect this information because they do not distinguish between instances where an agency reports no information because it is invoking the exemption or some other reason, such as that no flights were taken on its aircraft. However, these officials also stated that it could be possible to obtain follow-up information from agencies that did not provide travel data in order to determine why agencies had not reported data. Consistent with Standards for Internal Control in the Federal Government , if GSA collected additional information from agencies on instances where nonmission travel was not reported because of the exemption for intelligence agencies, as opposed to some other reason, and included such information in its reports, it could help GSA ensure the accuracy of its Senior Federal Official Travel Reports. GAO recommends that GSA identify the basis of its reporting exemption, and collect additional information when travel is not being reported. GSA concurred and identified actions to address our recommendations.
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Amtrak was created by the Rail Passenger Service Act of 1970 to operate and revitalize intercity passenger rail service. Prior to Amtrak's creation, such service was provided by private railroads, which had lost money, especially after World War II. The act, as amended, gave Amtrak a number of goals, including providing modern, efficient intercity passenger rail service; giving Americans an alternative to automobiles and airplanes to meet their transportation needs; and minimizing federal operating subsidies. Through fiscal year 1998, the federal government has provided Amtrak with over $20 billion in operating and capital subsidies, excluding $2.2 billion from the Taxpayer Relief Act. In December 1994, at the request of the administration, Amtrak established a goal of eliminating federal operating subsidies for Amtrak by 2002. To meet this goal and respond to continually growing losses and a widening gap between operating deficits and federal operating subsidies, Amtrak developed strategic business plans. These plans have attempted to increase revenues and control costs through such actions as expanding mail and express service and adjusting routes and service frequency. Amtrak also has restructured its organization into strategic business units. The Congress provided additional financial assistance to Amtrak in the Taxpayer Relief Act of 1997, enacted in August 1997. This act makes a total of about $2.2 billion available to Amtrak in 1998 and 1999 to acquire capital improvements, pay certain equipment maintenance expenses, and pay principal and interest on certain debt, among other things. In addition, the Amtrak Reform and Accountability Act of 1997, enacted in December 1997, makes certain reforms to Amtrak's operations. These reforms include, among other things, (1) eliminating current labor protection arrangements on May 31, 1998; (2) repealing the ban on contracting out nonfood and beverage work; and (3) placing a $200 million cap on the amount of liability claims that can be paid as the result of an Amtrak accident. Amtrak's financial condition has continued to deteriorate despite its efforts over the past 4 years to reduce losses. While Amtrak has reduced its net losses from about $892 million in fiscal year 1994 (in 1997 dollars)to $762 million in fiscal year 1997, it has not been able to close the gap between total revenues and expenses. (See fig. 1.) For example, while intercity passenger-related revenues grew by about 4 percent last year, intercity passenger-related expenses grew by about 7 percent. Notably, the net loss for fiscal year 1997 would have been much greater if Amtrak had not earned about $63 million, primarily from the one-time sales of real estate and telecommunications rights-of-way in the Northeast Corridor. Amtrak's net loss for fiscal year 1998 will likely be substantially worse than in 1996 and 1997. In March 1998, Amtrak projected that the net loss for this year will be about $845 million, or $56 million more than budgeted. Amtrak's financial deterioration can be seen in other measures as well. For example, Amtrak's working capital--the difference between current assets and current liabilities--generally declined between fiscal years 1995 and 1997, from a deficit of $149 million to a deficit of $300 million. As figure 2 shows, at the end of fiscal year 1997, Amtrak's working capital was the lowest it had been over the last 9 years. Declining working capital jeopardizes a company's ability to pay its bills as they come due. The decline in working capital reflects an increase in accounts payable, short-term debt, and capital lease obligations, among other items. Amtrak's poor financial condition has also affected its cash flow and its need to borrow money to make ends meet. In fiscal year 1997, Amtrak had to borrow $75 million to meet its operating expenses. The prospects in fiscal year 1998 are worse. Amtrak originally planned a cash-flow deficit of $100 million in fiscal year 1998; however, in January 1998, Amtrak increased this estimate to $200 million. This projected increase is primarily due to (1) reductions in expected revenues from Amtrak's pilot express program ($47 million); (2) a liability for the wage increases provided by Amtrak's recent agreement with the Brotherhood of Maintenance of Way Employees ($35 million); and, (3) an increase in accounts payable that resulted from deferring fiscal year 1997 payables to fiscal year 1998 ($16 million). Amtrak began borrowing in February 1998 to make ends meet. Amtrak will continue to face challenges to its financial health. Despite efforts to improve revenues and cut costs, the railroad continues to lose more money than it planned. This situation may get worse. Amtrak's recent agreement with the Brotherhood of Maintenance of Way Employees is expected to increase Amtrak's fiscal year 1998 labor costs by between $3 million to $5 million. According to Amtrak, extending this type of settlement to all of its labor unions could cost between $60 million and $70 million more each year than is currently planned, from fiscal years 1999 through 2002. Amtrak's plans to reduce its financial losses by "growing" its way to financial health--that is, increasing revenues, rather than cutting train routes--may also encounter difficulty. These plans depend, at least in part, on expanding mail and express services. However, Amtrak's efforts to increase its express business have been frustrated and it has had to reduce anticipated revenues in its express pilot program by $47 million. As a result, in January 1998 Amtrak increased its projected overall loss for fiscal year 1998 from $52 million to $99 million. Another Amtrak initiative--establishing high-speed rail service between New York City and Boston--also will not provide immediate financial benefits. In establishing high-speed rail transportation between these two cities, Amtrak expects to decrease travel time from 4-1/2 hours to 3 hours and significantly increase revenue and ridership. Amtrak's goals are for the high-speed rail program to begin providing positive net income in fiscal year 2000. Amtrak will also continue to find it difficult to take actions to reduce costs, such as making route and service adjustments. During fiscal year 1995, Amtrak was successful in reducing and eliminating some routes and saving an estimated $54 million. In fiscal year 1997, Amtrak was less successful in taking such actions. Amtrak does not currently plan to reduce any more routes. Instead, it plans to fine-tune its route network. For example, in February 1998, Amtrak added a fourth train per week between Chicago and San Antonio on the Texas Eagle route, in part to accommodate expanded mail and express business. Amtrak is also planning to begin daily passenger rail service between Los Angeles and Las Vegas by January 1999. In explaining the rationale for attempting to increase revenues through fine-tuning Amtrak's routes rather than through cutting back on service, Amtrak and Federal Railroad Administration (FRA) officials pointed to Amtrak's mission of maintaining a national route system. They noted that such a system will consist of routes with a range of profitability, including poorer-performing routes that provide needed linkages to better-performing routes. Furthermore, poorer-performing routes may provide public benefits, such as serving small cities and rural areas. These officials stressed that cutting the routes with the worst performance could damage the national network and cause the loss of revenue on connecting routes. Amtrak has just begun a market analysis that could result in several alternatives for a national intercity passenger rail network. The decision to make route adjustments is a difficult one, even though Amtrak's data show that only one of the railroad's 40 routes (Metroliners between Washington, D.C., and New York City) covers all its operating costs. For the remaining 39 routes, Amtrak loses an average of $53 for each passenger. Amtrak data show that it loses over $100 per passenger on 14 of these routes, and only 5 routes covered their train costs in fiscal year 1997. However, Amtrak encounters opposition when it proposes to discontinue routes because of the desire by a range of interests to see passenger train service continued in potentially affected communities. In addition, Amtrak maintains that every route that covers its variable costs (costs of running trains) makes a contribution toward its substantial fixed costs. Finally, simply pruning Amtrak's worst-performing routes could exacerbate Amtrak's financial condition because eliminating one route is likely to affect ridership on connecting routes that are perhaps performing better. As a result of the Taxpayer Relief Act and funds requested through the appropriations process, record amounts of federal funds could be available to fund Amtrak's capital improvement needs. However, Amtrak projects that it will still be short of the funds it believes are necessary to meet these needs. In addition, Amtrak plans to use a substantial portion of these funds to meet maintenance needs--needs that have traditionally been considered operating expenses. Finally, recently enacted reform legislation will likely have little financial impact in the short term. Capital investments will continue to play a critical role in supporting Amtrak's business plans and ultimately in maintaining Amtrak's viability. Such investment will not only help Amtrak retain revenues by improving the quality of service but will also be important in facilitating the revenue growth predicted in the business plans. Although Amtrak stands to receive historic levels of federal capital funds in the next few years, it is not likely that sufficient funds will be available to meet Amtrak's identified capital investment needs. Amtrak's September 1997 strategic business plan identified about $5.5 billion in capital investment needs from fiscal years 1998 through 2003. This amount includes such items as completing the high-speed rail program between New York and Boston (about $1.7 billion), making infrastructure-related investments (about $900 million), and overhauling existing equipment (about $500 million). However, federal funding from the Taxpayer Relief Act, the fiscal year 1998 capital appropriation, and the President's proposed fiscal year 1999 budget--along with about $800 million that Amtrak anticipates receiving from state, local, and private financing--would provide about $5.0 billion, or about $500 million short of the $5.5 billion that it states that it needs for capital funding. Amtrak plans to use a substantial amount of these federal funds for maintenance expenses, such as preventative maintenance, rather than for high-yield capital investments. The use of these available federal funds for maintenance expenses could have long-term financial impacts on Amtrak. In particular, such use would reduce the amount of money available to Amtrak to acquire new equipment and/or acquire those capital improvements necessary to reduce costs and/or increase revenues. In this regard, the President's proposed fiscal year 1999 budget would allow Amtrak to use capital grant funds for maintenance purposes, such as overhauling rail rolling stock and providing preventative maintenance. The administration believes such flexibility would allow Amtrak to manage its capital grant appropriation more efficiently and make clearer trade-offs between maintenance and capital investment costs. Amtrak's March 1998 revised strategic business plan indicates that it plans to use $511 million (82 percent) of the $621 million in capital grant funds proposed in the President's fiscal year 1999 budget for maintenance expenses. In total, Amtrak plans to use $1.8 billion (65 percent) of $2.8 billion in capital grants under the President's budget proposal to pay maintenance expenses from fiscal years 1999 through 2003. In addition, Amtrak plans to temporarily use some of the Taxpayer Relief Act funds for the allowed maintenance of the existing equipment used in intercity passenger rail service. To help stay within its credit limits,Amtrak plans to temporarily use $100 million in Taxpayer Relief Act funds for a portion of allowed maintenance expenses in fiscal year 1998, according to Amtrak's March 1998 revised strategic business plan. Amtrak's use of a portion of its federal capital grant for maintenance expenses, as is currently allowed for transit, is expected to enable it to repay this $100 million. Amtrak also plans to temporarily use $317 million and $200 million in Taxpayer Relief Act funds in 1999 and 2000, respectively, for a portion of allowed maintenance expenses. In this way, Amtrak expects to reduce its cash flow deficits to $100 million in each of those years. Amtrak officials told us that the Taxpayer Relief Act funds, including these repayments, will ultimately be used for investments that have a high rate-of-return and that are highly leveraged. According to Amtrak, temporarily using a portion of Taxpayer Relief Act funds for allowed equipment maintenance will help the corporation avoid additional borrowing from its credit lines over the original planned amount. Amtrak believes using Taxpayer Relief Act funds for this purpose will help keep it below its maximum short-term credit limit. Amtrak officials told us that using a portion of the federally appropriated capital grant funds for maintenance will provide stability for Amtrak over the next several years, thus averting a possible bankruptcy. This stability will provide Amtrak with some breathing room to (1) determine how to address the capital shortfall and (2) complete a market analysis that would result in several alternatives for a national intercity passenger rail network. The Amtrak Reform and Accountability Act was also designed to address Amtrak's poor financial condition by making certain reforms to Amtrak's operations to help Amtrak better control and manage its costs. For example, the act eliminates, as of May 31, 1998, existing labor protection arrangements for employees who lose their jobs as the result of a discontinuation of service (currently eligible employees may be entitled to up to 6 years of compensation) and requires Amtrak and its unions to negotiate new arrangements; repeals the statutory ban on contracting out work (except food and beverage service, which can already be contracted out) and makes contracting out subject to negotiations by November 1999; and places a $200 million cap on the amount of liability claims (including punitive damages) that can be paid as the result of an Amtrak accident. The reforms contained in this act may have little, if any, immediate effect on Amtrak's financial performance for several reasons. First, Amtrak officials pointed out that no route closures are currently planned. Therefore, no new labor protection costs are expected to be incurred. Amtrak officials also noted that the existing labor protection arrangements for employees affected by route closures have primarily resulted in payments of wage differentials because many eligible employees were transferred to lower-paying jobs. According to Amtrak, in the past 5 years, only 5 employees have received severance pay and 11 employees are currently in arbitration over this issue. Second, the ban on contracting out work need not be negotiated until November 1, 1999. Amtrak officials believe that while the repeal of the ban may provide long-term flexibility, including flexibility in union negotiations and in controlling costs, the repeal is not likely to have much effect before November 1999. Finally, Amtrak believes the $200 million limit on liability claims may have limited financial effect because this cap is significantly higher than amounts Amtrak has historically paid on liability claims. Amtrak and FRA officials believe the benefits of these reforms are unclear at this time. These reforms may not result in measurable financial savings as much as in additional flexibility in negotiating with labor unions and in addressing the freight railroads' concerns over such issues as liability payments. The act also made other changes that have the potential for a significant impact on Amtrak's future. First, the act replaced the current board of directors with a "Reform Board." Second, it established an independent commission--the Amtrak Reform Council--to evaluate Amtrak's financial performance and make recommendations for cost containment, productivity improvements, and financial reforms. If at any time after December 1999 the Council finds that Amtrak is not meeting its financial goals or that Amtrak will require operating funds after December 2002, then the Council is to submit to the Congress, within 90 days, an action plan for a restructured national intercity passenger rail system. In addition, under such circumstances, Amtrak is required to develop and submit an action plan for the complete liquidation of the railroad. Mr. Chairman, in 1995, we concluded that the Congress needed to decide on the nation's expectations for intercity passenger rail service and the scope of Amtrak's mission in providing that service. These decisions require defining a national route network, determining the extent to which the federal government would contribute funds, and deciding on the way any remaining deficits would be covered. In 1997, we concluded that, as currently constituted, Amtrak will need substantial federal operating and capital support well into the future. Whether Amtrak will be able to improve its financial position in the near term is doubtful. If not, the Congress will be asked to continue to provide substantial sums of money each year to support Amtrak. If the Congress is not willing to provide such levels of funds, then Amtrak's future could be radically different, or Amtrak may not exist at all. We believe that this is the right time for Amtrak's new Reform Board to work with the Congress to consider and act on the issues that will chart Amtrak's future. Mr. Chairman, this concludes my testimony. I would be happy to respond to any questions that you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO discussed: (1) Amtrak's financial performance during fiscal year (FY) 1997 and during the first quarter of FY 1998; (2) challenges Amtrak will face in improving its financial health; and (3) the potential impact that recently enacted legislation may have on Amtrak's financial condition. GAO noted that: (1) Amtrak's financial condition continues to deteriorate; (2) although Amtrak has been able to reduce its net losses (total expenses less total revenues) from about $892 million in FY 1994 to about $762 million in FY 1997, the 1997 loss would have been $63 million higher were it not for one-time increases in revenue from the sales of real estate and access rights for telecommunications; (3) in March 1998, Amtrak projected that its net loss for FY 1998 could be about $845 million--about $56 million more than planned; (4) Amtrak will continue to face challenges in improving its financial health; (5) Amtrak hopes to improve its financial health by increasing revenues through such actions as expanding mail and express service (delivery of higher-value, time-sensitive goods) and instituting high-speed rail service between New York City and Boston; (6) however, Amtrak has had to substantially scale back its net revenue projections for express business, and positive net income from the high-speed rail program will not occur for another 2 years; (7) Amtrak does not currently plan to reduce routes, even though one of its routes--the Metroliner service between Washington, D.C., and New York City--makes money; (8) instead it plans to fine-tune its route network and conduct a comprehensive market analysis; (9) federal funding and recently enacted reforms will not solve Amtrak's financial problems; (10) although the Taxpayer Relief Act of 1997, FY 1998 capital appropriations, and the President's proposed FY 1999 budget, if enacted, will provide Amtrak with historic levels of capital support, this support will fall short of Amtrak's identified capital needs by about $500 million; (11) in addition, Amtrak plans to use $1.8 billion of the $2.8 billion in requested federal capital grant funds to pay maintenance expenses between FY 1999 and FY 2003; (12) the use of funds for this purpose would substantially reduce the remaining level of funds available to acquire new equipment or make the capital improvements necessary to reduce Amtrak's cost and/or increase revenues; (13) therefore, such use will have a negative impact over the long term; and (14) furthermore, the Amtrak Reform and Accountability Act of 1997 significantly changed Amtrak's operations, but these reforms will provide few, if any, immediate financial benefits.
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An ASC patient may acquire an HAI from bacteria or viruses contaminating, for example, the hands of a health care worker or a needle or tube used to deliver medicine, fluids, or blood. These bacteria or viruses may include those responsible for such illnesses as staphylococcus infections and hepatitis. Two agencies in HHS have activities under way to prevent, control, or monitor HAIs. CDC--a key HHS agency for research and programs designed to prevent HAIs--has issued 13 guidelines relevant to infection control and prevention in health care settings. In these guidelines, which are based on scientific evidence, CDC recommends practices for implementation to prevent HAIs. Practices recommended to prevent or control HAIs include, for example, appropriate isolation of infected patients in health care facilities, proper sterilization of equipment, appropriate provision of antibiotics to patients before surgery, annual vaccination of health care personnel for influenza, and hand washing or the use of alcohol-based hand rubs. CMS is responsible for ensuring that ASCs that are certified as suppliers of Medicare-covered services comply with its requirements for infection control. For most ASCs, this occurs through the state-administered standard survey process conducted by state survey agencies under contract with CMS. ASCs may choose instead to undergo accreditation by a CMS-approved accrediting organization. CMS-approved accreditation programs for ASCs have standards that meet or exceed Medicare's standards. Accrediting organizations are to conduct periodic surveys of ASCs to assess their compliance with the standards established by the accrediting organization, including those related to infection control. The state survey agency or accrediting organization assesses compliance through direct observation of activities in the facility and review of its policy documents. If an ASC opts for the CMS state-administered survey process, a state surveyor uses CMS's survey guidance to conduct the state's compliance review of the ASC. We identified five disparate sources of HAI data, all of which differed from one another in the types of HAI information they collected. However, none obtained its data from a nationally representative random sample of ASCs, and therefore none could be used to develop national estimates of HAI outcomes or compliance with infection control practices that affect the risk of acquiring HAIs in ASCs. Two federal data sources--CDC's NHSN and CMS's ASC pilot study--provided the most detailed information on HAI outcomes and infection control practices, respectively. We identified five disparate data sources that currently collect data on HAIs in ASCs. HHS operates two of these data sources--CDC's NHSN and CMS's ASC pilot study. Two are maintained by professional associations-- the Ambulatory Surgery Center Association's Outcomes Monitoring Project and the American Association for Accreditation of Ambulatory Surgical Facilities, Inc. (AAAASF) Internet-based Quality Assurance and Peer Review Reporting System. Finally, the state of Missouri collects data on HAIs in ASCs through its Missouri State HAI Reporting System. (See table 1.) The five data sources do not provide nationally representative information on HAIs in ASCs. In order to provide a basis for a nationwide estimate of risks of HAIs in ASCs, a data source would need to collect its data from a nationally representative random sample. None of the five data sources does so, and therefore it is not possible to generalize from their results to the nationwide population of ASCs or patients that they treat. Consequently, each of these data sources provides information only about the facilities that actually submit data to it and cannot reliably be used to describe other facilities. In terms of their coverage across ASCs, each of these data sources collects information on HAIs from a relatively small proportion of the 5,100 ASCs in the United States. The coverage ranges from the 26 ASCs that most recently reported data to the state of Missouri to about 650 ASCs reporting to the Ambulatory Surgery Center Association's database. Moreover, which ASCs are included in each of the databases is determined by highly variable criteria. They include, depending on the database, a decision by the individual ASC to voluntarily participate, membership of the ASC in a particular professional association, and selection of an ASC based on its geographic location in a particular state. For example, all the ASCs in the ASC pilot study are from Maryland, North Carolina, or Oklahoma because those states volunteered to participate in the study, and the ASCs covered by the two professional organizations and the state source are taken from narrowly defined subsets of ASCs, that is, from member ASCs or from ASCs within a certain geographical area, respectively. The five data sources also vary in the type and level of detail of the information they collect. NHSN, AAAASF, and Missouri's system collect data on individual patients, and the ASC pilot study and the Ambulatory Surgery Center Association's database collect data that are aggregated to the facility level. Four of the five data sources--all but the ASC pilot study--collect information on patient outcomes, specifically rates of SSIs. However, of those four, only the federal NHSN and state of Missouri databases employ standard CDC definitions to identify cases with SSIs based on these criteria. The two professional association databases leave identification of SSIs to individual physician judgment. Both professional association databases also collect information on one or more process measures. One of these databases focuses on a practice intended to prevent SSIs--the routine use of antibiotics prior to surgery--and the other collects information on the treatment of SSIs. The ASC pilot study collects data solely on process measures. The most detailed data are provided by the two federal data sources, NHSN--the most widely recognized source of outcome data on HAIs--and the ASC pilot study. The pilot study collects data on a broad range of process measures assessing the implementation of infection control practices, such as those intended to prevent the transmission of infections through appropriate hand hygiene, injection, and sterilization procedures. A key feature of NHSN is that it collects clinically sophisticated and standardized data on HAI outcomes. Facilities that participate in NHSN, including ASCs, agree to collect and submit information on HAI outcomes, such as SSIs, according to defined protocols and standardized definitions. CDC developed detailed protocols for NHSN that specify the medical record and laboratory data needed to identify and categorize HAIs in accordance with CDC's standardized definitions. These protocols are widely accepted by infection control professionals because they make the data in NHSN clinically relevant and comparable across the facilities submitting data to NHSN. At the same time, the data collection procedures used by NHSN can be labor intensive and technically complex for some users. For example, one expert reported that ASCs found data submission to NHSN to be time-consuming and that an ASC might opt out of the program if its demands on staff time and other resources became excessive. Although the number of ASCs currently submitting data to NHSN is unknown, it is likely to be small. NHSN has national open enrollment for multiple types of facilities. However, until September 2008 only hospitals and outpatient hemodialysis centers could enroll in NHSN. In September 2008, CDC launched a new release of NHSN that enabled freestanding ASCs that were separate from hospitals to enroll. Enrollment of ASCs may increase over time, especially if more states enact programs mandating public reporting of HAIs by ASCs using NHSN. According to a CDC official, CDC has a facility survey under way that will enable it to determine the number of ASCs that enroll in NHSN, but this official does not expect to have results available from this survey until spring 2009. Nonetheless, independent of the number of ASCs that participate in NHSN, the processes by which ASCs enroll make NHSN data nonrepresentative of ASCs nationwide. Some ASCs enroll in NHSN voluntarily, and others are required to enroll by mandate of their state government. Because NHSN uses voluntary and mandatory selection procedures, the selection of ASCs for participation in NHSN is nonrandom. This lack of random selection precludes a projection of its results to any ASCs that do not participate and generalization to the national population of ASCs. The ASC pilot study examined the potential for using CMS's standard surveys to collect information on ASCs' implementation of specific infection control practices. Under the pilot study, CMS modified the standard survey process by introducing two innovations--the incorporation of a CDC-developed infection control assessment tool and direct observation by the surveyor of a single patient's care from start to finish of the patient's stay. CDC officials also provided training for state surveyors on using the tool and developed plans to analyze the infection control data obtained with the tool. A CMS official told us that CMS would consider making changes to CMS's standard survey process for ASCs after reviewing planned CMS and CDC analyses of the pilot study results. The surveys conducted under the pilot study collected more detailed information on practices that affect the risk of HAIs in ASCs than have previous surveys of ASCs. CMS's current survey process requires surveyors to ascertain whether an ASC's written policies and procedures address certain general topics pertaining to infection control. In doing so, surveyors assess the implementation of these policies and procedures and an ASC's overall maintenance of a sanitary environment through direct observation and interviews with ASC staff. If surveyors find that either the content of those policies and procedures or their implementation by ASC staff is insufficient to meet CMS's infection control standard, they submit a deficiency report to CMS that provides a detailed narrative describing the particular conditions or activities in the ASC that created that deficiency. In contrast, the pilot study's infection control assessment tool focused on specific CDC-recommended infection control practices. The tool is a 12-page document that includes dozens of specific infection control practices, involving such topics as environmental cleaning, disinfection, sterilization, and injection safety. CDC researchers who developed the tool included those practices that they had found were most critical for the prevention of HAIs in the ASC setting. CMS modified the tool to indicate when responses to the tool's questions identified a violation of the ASC health and safety standards for infection control. During the course of the pilot study, surveyors recorded on the tool itself whether or not ASC staff appropriately implemented each of those practices, based on a combination of on-site interviews and observation. For each survey in the pilot, surveyors submitted a completed tool to CMS, along with the usual statements of deficiency for those ASCs where the surveyors found inadequate compliance with the infection control or other standards. Collecting completed tools for every surveyed ASC made it possible to produce standardized quantitative data on the extent of compliance with each of the practices assessed by the tool across all ASCs surveyed for the pilot study. The tool provides detailed guidance to surveyors on how to assess the implementation of these practices. In addition, the training provided by CDC officials on how to use the tool included the principles of disease transmission to prepare the state surveyors to observe ASC practices with a "sharp eye" for serious mistakes that could lead to the transmission of HAIs. State officials from the pilot states reported positive assessments of the pilot survey process and noted that during the pilot surveyors observed unsafe practices that they would not have detected using the current survey guidance. These practices included ASC staff using single-use medication vials for multiple patients and failing to properly sterilize equipment. State officials reported that surveys conducted under the pilot study took additional time and staff resources, although specific amounts varied. In all three states, surveyors conducted a standard survey for a given ASC in addition to completing the infection control assessment tool and observing a patient's care from start to finish. For the two states that had previously conducted standard surveys of ASCs, one found that implementing the pilot study's two innovations required substantial additional staff resources, and the other found that, with practice, only a modest amount of additional resources was needed. CMS and CDC officials reported that they intended to separately analyze the results of the pilot study, each agency having a different focus. Specifically, a CMS official reported that CMS would analyze the effect of the pilot study's innovations on CMS's ability to assess the level of compliance of ASCs in the pilot states with Medicare's health and safety standards, including the standard pertaining to infection control. In addition, from its interviews with state officials, CMS has obtained information on what techniques were effective for using the infection control assessment tool and related CDC training. CMS's review would identify where lapses in infection control practices were found by surveyors in the pilot states and use these data to strengthen CMS's ASC survey guidance, which CMS is currently in the process of updating. CDC officials reported that their analysis of the pilot study would focus on deriving a baseline understanding of how safely care was being delivered in ASCs, by determining the prevalence of lapses in specific infection control practices. These officials stated that CDC would use the analysis to identify "hot spots" for infection control errors for which it could target future recommendations and trainings. Neither CDC nor CMS officials have determined a timeline for the completion of their respective activities. As of October 2008, surveyors in the pilot states had finished their surveys and submitted the information they collected to CMS to be analyzed separately by CMS and CDC. Officials from both agencies estimated that their analyses of the survey results would be available in fiscal year 2009, but said they did not have any written plan or timeline for completing their analyses. A CMS official reported that agency officials planned to consider making some changes to CMS's standard survey process for ASCs after reviewing the CMS and CDC analyses but did not intend to continue the pilot study's data collection. This official reported that CMS was considering adopting the practice of directly observing patients from start to finish that was tested in the pilot study. This official also stated that CMS was considering whether to use the infection control assessment tool simply as a prompt for surveyors in assessing compliance with its infection control standard. The official noted that the tool provided precise guidance that had previously been lacking on specific practices that surveyors should examine in assessing compliance with the infection control standard. Under the pilot study, the assessment tool allowed surveyors to record ASC compliance with specific infection control practices in a quantifiable manner. In contrast, if the tool is used as a prompt, the surveyors would report only the instances where ASCs were found to be out of compliance with the standard as a whole, giving a narrative description of the reasons why, as they currently do under the standard survey process. CMS officials told us that they did not intend to continue using the tool to collect data, as was done in the pilot study. Even if CMS were to continue the pilot study's data collection methods, it still would not be able to use these data to make estimates about the prevalence of safe and unsafe infection control practices in ASCs nationwide. CMS's current policy for selecting ASCs to survey eschews random selection in favor of an approach that seeks to maximize the impact of limited survey resources, including targeting ASCs considered most likely to represent a greater risk for quality issues and selecting those that have not been surveyed within a given time interval. Specifically, in selecting ASCs for these surveys, CMS requires state survey agencies to give highest priority to ASCs that have not been surveyed in 6 years or more or that have had recent compliance problems. State survey agencies survey about half of ASCs every 3 to 4 years, but some ASCs go much longer between surveys--20 percent more than 6 years and 8 percent more than 10 years. CMS officials told us they were concerned that the level of ASC survey activity in recent years had not been sufficient to provide meaningful and current data on ASC performance across the board, including infection control issues. As a result, for fiscal year 2009 CMS increased the number of highest-priority surveys that it funded states to conduct on ASCs from 5 to 10 percent of ASCs each year. However, because this larger number of surveys does not include randomly selected ASCs, the results would still not provide information that could be generalized to ASCs nationwide. Experts we interviewed noted that the ASC environment presented challenges to the feasibility of collecting outcome data. Some of these challenges relate to the difficulties in identifying ASC patients who develop HAIs. The experts told us that patients tend to be in outpatient facilities for a relatively short time because ASC procedures generally take little time to perform. Because HAIs are not likely to develop until after a patient leaves an ASC, the opportunity to observe patients and collect HAI data is limited. The experts also told us that the opportunity to collect HAI outcome data might be further limited because rather than returning to the ASC if a complication develops following a procedure, patients often seek follow-up care from their primary care physician, a hospital emergency department, or an urgent care center. Consequently, the ASC might never know that an HAI occurred, and so would be unable to report it. Experts noted that a general lack of infection control professionals in ASCs presents a challenge to the feasibility of collecting either outcome or process data. According to the experts, ASCs rarely have a designated infection control professional, which is a health care worker trained to lead infection control efforts in a health care facility. CDC officials told us that, as with NHSN, data collection for HAIs has been historically designed for hospitals with the understanding that, unlike most ASCs, hospitals have infection control professionals responsible for collecting such data. The lack of such an individual presents a challenge to the feasibility of collecting either type of data, especially when such data are technically complex or the data collection processes are labor intensive. Employing an infection control professional would require ASCs to devote time and resources to an area that they have traditionally thought to be low risk. The experts we interviewed generally agreed that collecting process data on HAIs in ASCs is more feasible and potentially more useful than collecting data on outcomes. Several experts said it was more feasible to collect data on HAIs by focusing on process measures rather than outcome measures because unsafe practices may be observed with less effort and technical training than is needed to identify individual cases of HAIs. A CMS official reported that because of the relatively short time that patients are in the facility, the ASC environment lends itself well to the methodology of tracing a patient through his or her entire experience at the ASC as a means for observing specific practices, such as those related to infection control. The experts also noted that gathering such process data could provide useful guidance to ASCs. For example, such data could point to areas for specific remedial training on preventive activities, such as training on the proper use of single-dose vials and the appropriate procedures for sterilizing equipment. The increasing volume of procedures and evidence of infection control lapses in ASCs create a compelling need for current and nationally representative data on HAIs in ASCs in order to reduce their risk. Because HAIs generally only occur after a patient has left an ASC, data on the occurrence of these infections--outcome data--are difficult to collect. But data on the implementation of CDC-recommended infection control practices--process data--in ASCs can be collected more easily and can provide critical information on why HAIs are occurring and what can be done to help prevent them. One federal data source, the ASC pilot study, has shown the potential for using process data to increase the understanding of HAIs in ASCs. The pilot study tested the addition of an infection control assessment tool to collect detailed data on recommended practices during the course of a CMS standard survey. With the tool, specially trained state surveyors were able to identify serious lapses in recommended practices. Such lapses, which increased patients' risks of developing HAIs, had not previously been detected through CMS's standard surveys. The pilot study had the added benefit of not relying on ASCs to submit HAI data themselves with their limited staff resources. The results of the ASC pilot study demonstrate the feasibility of collecting data on the prevalence of specific infection control practices while conducting surveys of ASCs. Although detailed analyses of the data obtained during the pilot by CDC and CMS are pending, officials in the three pilot states and at CMS uniformly reported positive assessments of the process developed by CMS and CDC to collect these data during the course of standard ASC surveys by state surveyors. However, CMS has no plans to continue collecting such data following the completion of the ASC pilot surveys. If CMS and CDC do not build on their experiences with and analyses of the pilot to continue collecting such data from a subset of ASC surveys using an instrument such as the infection control assessment tool, then HHS is losing an opportunity to take advantage of the existing ASC survey process to collect information on the prevalence of infection control practices on an ongoing basis. Collecting detailed data on the prevalence of infection control practices is only part of what is needed to increase the understanding of the problem of HAIs in ASCs nationwide. The ability of HHS to use CMS's standard survey process to collect nationally representative process data on infection control practices in ASCs and to make estimates about the prevalence of safe and unsafe infection control practices in ASCs nationwide also depends on introducing random selection for ASC surveys. The larger the number of randomly selected ASCs surveyed, the greater the precision that would be achieved for those results. For standard surveys, CMS currently selects those ASCs deemed most likely to have quality problems or that have not been surveyed within a given time interval and does not select any randomly from the national population of ASCs. However, CMS has recently expanded the number of ASC surveys that it conducts, and HHS could choose to have CMS select some ASCs randomly for standard surveys while continuing to target others. In determining the number of ASCs to be randomly selected, HHS could weigh the value of obtaining more precise information from a larger number of randomly selected ASCs against the value of targeting surveys to those ASCs that may be more likely to have quality deficiencies. HHS could determine the number of ASCs it would need to select at random to generate meaningful national estimates to help identify where lapses in infection control practices by ASCs across the country were most likely to be putting patients at risk of contracting HAIs. To obtain nationally representative and standardized information on the extent to which ASCs implement specific infection control practices that reduce the risk of transmitting HAIs to their patients, we recommend that the Acting Secretary of HHS develop and implement a written plan to use the data collection instrument and methodology tested in the ASC pilot study, with appropriate modifications based on the CDC and CMS analyses of that study, to conduct recurring periodic surveys of randomly selected ASCs. We provided a draft of this report to HHS for comment. In response, the Acting Administrator of CMS provided written comments, and we have reproduced these comments in appendix I. CMS also provided technical comments, which we have incorporated as appropriate. In its written comments, CMS stated that it concurred with our recommendation to HHS. CMS stated that it would use the results from the pilot study to evaluate the value and feasibility of incorporating the infection control assessment tool into the standard ASC survey process. The agency stated that if its evaluation resulted in a decision to use the infection control survey tool on an ongoing basis, then it would explore with CDC whether CDC would be able to continue to provide training and data analysis of the completed infection control assessment tools, as CDC did for the pilot study. Given such support from CDC, CMS stated that it would be willing to establish a process for randomly selecting at least some ASCs in each state for ASC surveys. We agree that implementing our recommendation requires analysis of the pilot study to determine appropriate modifications to the data collection tool and collaboration within HHS. However, given the risks of HAIs in ASCs and the compelling need for current and nationally representative data on them, it is important that the department follow our recommendation to develop and implement a written plan to ensure that it collects such data using recurring periodic surveys of randomly selected ASCs. 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 Acting Secretary of HHS and other interested parties. The 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 about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. In addition to the contact named above, key contributors to this report were William Simerl, Assistant Director; Jennel Harvey; Eric Peterson; Roseanne Price; and Andrea E. Richardson.
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Health-care-associated infections (HAI) are a leading cause of death. Recent high-profile cases of HAIs in ambulatory surgical centers (ASC) due to lapses in recommended infection control practices may indicate a more widespread problem in ASCs, but the prevalence of such lapses is unknown. The Department of Health and Human Services' (HHS) Centers for Medicare & Medicaid Services (CMS) and other entities collect data on HAIs, including process data on the use of recommended practices and outcome data on HAI incidence. CMS conducts standard surveys on about half of ASCs every 3 to 4 years, assessing compliance with its standard on infection control. In this report, GAO examines the availability of data on HAIs in ASCs nationwide. GAO interviewed subject-matter experts, agency officials, and trade and professional group officials. Disparate sources of data on HAIs in ASCs are available, but none provide information on the extent of the problem nationwide. Such data are useful for guiding federal policies aimed at preventing the lapses in infection control practices--such as reusing syringes and drawing medication to be injected into multiple patients from single-dose vials--that can lead to increased risk of HAIs for patients. GAO identified five data sources--two operated by HHS, two by professional organizations, and one by a state government--all of which differ from one another in the type of HAI information they collect. In order to make nationwide estimates of HAIs and lapses in related infection control practices in ASCs, a data source would need to collect its data from a nationally representative random sample of ASCs. However, none of the five sources does so. The two professional organizations and the state source collect data from narrowly defined subsets of ASCs. The most detailed data are provided by the two federal sources, one of which collects outcome data and the other process data. Experts GAO interviewed said it was more feasible for ASCs to collect process data than outcome data. The Centers for Disease Control and Prevention's (CDC) National Healthcare Safety Network collects detailed, standardized data on HAI outcomes that are comparable across hospitals and other health care facilities, but it has only recently begun to collect data on ASCs and it is not set up to collect nationally representative data. The other HHS data source, a CMS ASC pilot study conducted in three states, collects detailed process data on practices that affect the risk of HAIs. The pilot study tested the application of two innovations--a CDC-developed infection control assessment tool and direct observation by the surveyor of a single patient's care from start to finish of the patient's stay--during the course of CMS's standard surveys of selected ASCs. These innovations allowed surveyors to identify serious lapses in CDC-recommended infection control practices that would not have been detected during CMS's standard surveys of selected ASCs. A CMS official told GAO that CMS officials would consider making changes to CMS's standard survey process after reviewing planned CMS and CDC analyses of the pilot study results but did not expect to collect standardized quantitative data on the extent of compliance with specific infection control practices using a data collection instrument, as was done with the assessment tool for the pilot. Even if CMS were to continue the pilot's data collection methods, the data would not be generalizable to ASCs nationwide--and thus could not provide information on the extent of the lapses--because ASCs are selected for surveys on the basis of their perceived risk for quality issues and the length of time since they were last surveyed, rather than through random selection. A random sample--the size of which CMS could determine--could generate national estimates that would identify those infection control practices where lapses by ASCs across the country were most likely to put their patients at risk of contracting HAIs.
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EULs are typically long-term leases of federal land or buildings to public sector or private sector companies. Some agencies with EUL authority are authorized to accept in-kind consideration, such as improvements to agency properties or construction of new facilities in place of cash rent. There is no government-wide definition of an enhanced use lease and agencies' EUL authorities and guidance vary, as these examples illustrate: VA was authorized to enter into EULs for up to 75 years with public and private entities for leases that contributed to VA's mission and would enhance the use of the property for cash or in-kind consideration; however, this authority expired on December 31, 2011. Prior to the expiration of VA's EUL authority, VA entered into 92 EULs that remain active. In August 2012, VA's EUL authority was reauthorized through December 2023, but the current authority allows VA to enter into EULs up to 75 years only for the provision of supportive housing for veterans or their families that are at risk of homelessness or are homeless. VA may accept cash consideration, or it may enter into an EUL without receiving consideration, and it is prohibited from entering into leasebacks. VA may not enter into an EUL without advanced written certification from OMB that the lease complies with the statutory requirements. VA reports annually on the details, benefits, and costs of its EUL program. The annual report states that it gives a transparent view of the measureable outcomes of the cost-effective benefits to veterans that the EUL program provides. NASA is authorized to enter into EULs of agency properties for cash consideration or, if the EULs involve the development of renewable energy production facilities, in-kind consideration. NASA may not enter into leasebacks. NASA policy requires that EULs relate to and support the agency's mission of research, education, and exploration. The agency's longest EUL term is 95 years. NASA's EUL authority expires in December 2017. NASA reports annually to Congress on its EUL program's status, proceeds, expenditures, and effectiveness. State is authorized to enter into EULs for its properties acquired in foreign countries for diplomatic and consular establishments.longest EUL term is 99 years and expires in 2090. According to State officials, the agency does not have a formal EUL program. It has only State's utilized EULs in three instances. State uses EULs on a case by case basis when directed by Congress to retain properties or when it does not consider disposal a desirable option due to the strategic or historic value of an asset. For example, State was required to retain the Palazzo Corpi building in Istanbul, Turkey.its property inventory and monitors the transactions and the cash flows but does not report externally on its EUL program. State carries the EULs in USDA is authorized to demonstrate whether enhanced use leasing of agency real property at its Beltsville Agricultural Research Center and the National Agricultural Library for cash consideration will enhance the use of the leased property. The authority requires that EULs be consistent with the USDA's mission and have terms no longer than 30 years. USDA's EUL authority expires in June 2013. USDA reported to Congress on the management and performance measures associated with its EUL demonstration program and is required to report on the success of the program upon completion in 2013. Table 1 shows how the four agencies we reviewed used EULs. OMB coordinates and provides guidance on federal real property management government-wide in its role as Chair of the Federal Real Property Council, which is composed of federal real property-holding agencies. For example, OMB Circular A-11 provides general guidance on evaluating the performance of federal programs and on the budgetary treatment of federal leases, including EULs and leaseback arrangements. OMB's guidance does not provide specific information about the treatment of EULs, but does require EULs with leasebacks above certain threshold amounts be submitted to OMB for their budgetary-scoring impact. OMB's instructions also outline how budget authority for the cost of leasing an asset is to be recorded in the budget, depending on how risk is shared between the government and the lessee, for three types of leases: operating leases, capital leases, and lease purchases. Agency officials told us that EULs provide a variety of benefits to the government in addition to better utilization of underutilized federal property. The commonly cited benefits include enhanced mission activities, cash rent revenue, and value received through in-kind consideration. Officials from the four agencies we reviewed said that EULs contribute to their ability to conduct mission-related activities; for example: VA officials said that EULs provide the agency mission-related benefits such as veterans' priority placement for housing. For example, according to VA, its EUL with Vancouver Housing Authority in Washington to develop a previously vacant site at a VA medical center campus supports the agency's strategic goals of (a) eliminating homelessness among veterans by providing housing and (b) reducing its inventory of vacant and underutilized capital assets. NASA officials said that EULs provide the agency mission-related benefits, such as research and development of aerospace technologies. For example, according to a NASA official, NASA's EUL with a company that researches and develops battery systems for electric vehicles advances the agency's mission of developing new power and propulsion systems for vehicles used in space launches. State officials said that EULs provide mission-related benefits by allowing the department to maintain properties symbolic of U.S. history and diplomacy. For example, State declared the historically significant Talleyrand building in Paris excess (see fig. 1) but chose not to dispose of it because the building had served as the administrative headquarters for the Marshall Plan, the postwar American reconstruction plan for Western Europe. According to State Department officials, State's EUL lessee supports the agency's mission by maintaining the building and retaining space inside of it for the George C. Marshall Center including a permanent exhibit commemorating the Marshall Plan. USDA officials said that the agency's EUL program allows it to better utilize property while also collaborating with researchers on mission- related goals. For example, USDA officials told us that its EUL of greenhouse space at its Beltsville Agricultural Research Center has allowed the agency to advance its mission of developing more efficient crops because the lessee conducts research at the EUL site directly linked to this goal. According to USDA officials, each EUL lessee is required to have a formal collaborative research agreement with the agency. All four agencies we reviewed reported cash benefits from EULs. Individual EULs can generate millions of dollars for the federal government, but most EULs generate small amounts of cash revenue. For example, the average VA EUL generated about $25,000 in cash revenue in fiscal year 2011.the four agencies in our review received in fiscal year 2011. Based on recent agency experiences, EULs may be a viable option for redeveloping underutilized federal real property when disposal is not possible or desirable, but agencies raised issues pertaining to EULs that affect their use or budgetary treatment. First, NASA has reported that the limitation on its authority to accept in-kind consideration has limited its ability to encourage use of EULs and investments in underutilized NASA property. Second, recognizing potential budget impacts associated with EUL leasebacks and other long-term commitments has proved challenging for VA. Although the results of our review cannot be generalized to all agencies, these challenges provide illustrative examples of the types of issues that can affect a federal agency's decision or ability to use EULs. According to NASA officials, in-kind consideration is critical for encouraging lessees to invest in agency properties. NASA's ability to accept in-kind consideration expired at the end of 2008; it was restored on a limited basis in 2011 exclusively for renewable energy projects. NASA officials said that this limitation in the agency's ability to accept in- kind consideration has hindered its ability to enter into EULs that could improve the property. In particular, according to the NASA officials, prospective lessees are reluctant to make capital improvements that will have to be conveyed to the government at the end of the lease without receiving other compensation, such as a reduction in cash rent. For example, a lessee, as previously discussed, agreed to invest $11 million in infrastructure projects that would benefit the company during the lease but benefit the government during and after the lease in return for a reduction in the lessee's cash rent payments. Representatives from NASA and the lessee told us that this provision was critical to successfully negotiating the EUL. VA officials said that assessing and recognizing the budget impacts of EULs is complicated and maybe interpreted differently by agencies with EUL authority. In particular, VA EULs can include long-term commitments that are recognized in the federal budget in different ways. OMB's Circular No. A-11 guidance specifies that lease obligations be recorded when the contract is signed; sufficient budget authority must be available at that time to cover the obligation. However, the obligated amount that is to be recorded differs by type of lease. For capital leases and lease purchases, OMB Circular A-11 states that the amount obligated should equal the net present value of these lease payments over the full term of the lease. For operating leases, OMB Circular A-11 states that agencies should record an amount equal to the total payments under the full term of the lease or the first year's lease payments plus cancellation costs.VA views EUL leasebacks as operating leases and consequently does not obligate the total amount of these commitments upfront in its budget. VA's leaseback costs are nearly $16 million annually (see table 3), but VA and CBO disagree on the extent to which VA should account for the budget impacts for EULs that could include long-term government commitments. For example, VA's leaseback costs for its Chicago West Side EUL were about $3.5 million in fiscal year 2011. VA regards its underlying office and parking purchase agreements as 2-year operating leases, as opposed to capital leases or lease purchases. VA officials said that the department is properly treating the office and parking purchase agreements as operating leases, because VA can cancel the office and parking leasebacks at the end of each 2-year agreement. However, in a 2003 report to Congress on the budgetary treatment of leases, CBO found that VA used this enhanced use lease to obtain a $60 million regional headquarters building and parking facility. The CBO report stated that VA entered into a 35-year enhanced use lease for a four-acre site with an owner trust, with VA as the sole named beneficiary. VA subsequently leased back space in the building and the parking facility that the lessee constructed on the site. The CBO report also stated that: VA's lease payments played a crucial role in allowing the lessee to borrow funds. VA is committed to a two-year lease of 95 percent of the space in the building and 95 percent of the parking facility; almost all of the lessee's revenue will initially come from VA. The initial two-year lease is automatically renewed unless the VA takes specific steps at the end of the lease period to halt it. In addition, as long as VA chooses to occupy any portion of the facility it must make payments that are sufficient to cover amortization and interest on the lessee's debt. VA also has the right to purchase the building from the lessee at any time for a price that would cover payments on the lessee's debt. Thus, VA has a long-term commitment to cover the lessee's capital costs even if it reduces its occupancy in the building, and this, together with an implicit right to renew the lease, would appear to make the arrangement either a lease-purchase or, if the trust is not viewed as a separate entity from VA, a government purchase financed by federal borrowing. As such, CBO concluded in its report that the intent of the West Side EUL project was to provide VA with capital assets (an office building and parking facilities for VA staff) without recording the cost of the purchase upfront in the budget. In general, we have also consistently stated that the full costs of the government's commitments should be reflected upfront in the budget.officials said the agency made changes in subsequent EULs to address and in their view eliminate CBO's early concerns related to EULs with leasebacks. Agencies have shown that EULs have the potential to produce mission- related and financial benefits for otherwise underutilized federal real property, but the costs and benefits of these programs are not fully understood, given different agency practices in accounting for EUL costs. Some EULs bring in large amounts of cash rent, such as the State Department's $20.6 million Istanbul EUL and NASA's $147.7 million EUL, but most EULs have much more modest benefits to the government where the costs could more easily outweigh the benefits. For example, the average VA EUL earned about $25,000 in cash revenue last year-- financial benefits that could be outweighed by consultant, termination, and leaseback costs, which agencies have not consistently attributed to their EUL programs. Lacking clear guidance and failing to incorporate all of the costs related to agencies' EUL programs could cause agencies to overstate the net benefits of these programs when reporting the performance of their EUL programs or making decisions about future EULs. To promote transparency about EULs, improve decision-making regarding EULs, and ensure more accurate accounting of EUL net benefits, we recommend that OMB work with VA, NASA, State, and USDA, and any other agencies with EUL authority, to ensure that agencies consistently attribute all costs associated with EULs (such as consulting, termination, and leaseback costs) to their EUL programs, as appropriate. We provided a draft of this report to the Deputy Director for Management of OMB and the Secretaries of Veterans Affairs, State, and Agriculture and the Administrator of NASA for review and comment. In commenting on a draft of this report, OMB generally agreed with GAO's observations and recommendation. OMB emphasized that Circular No. A-11 provides guidance on budget scoring and is not intended to address the costs and benefits of EULs. We amended our recommendation to reflect that there are a variety of ways to ensure that the costs of EULs are consistently tracked and reported. Veterans Affairs, State, Agriculture, and NASA generally agreed with our conclusions and the agencies provided technical comments, which we incorporated as appropriate. See appendix III for VA's comments along with our responses to the technical comments. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Deputy Director for Management of OMB and the Secretaries of Veterans Affairs, State, and Agriculture, and the Administrator of NASA. Additional copies will be sent to interested congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs maybe found on the last page of this report. Major contributors to this report are listed in appendix IV. Our objectives were to determine: (1) To what extent do agencies attribute the full benefits and costs of their EULs in their assessments of their EUL programs? (2) What have been the experiences of agencies in using their EUL authority? To address these both of these objectives we reviewed prior GAO reports on enhanced use leasing and capital financing, and contacted the Office of Management and Budget (OMB), Congressional Budget Office (CBO) and 11 agencies: (1) Veterans Affairs (VA), (2) National Aeronautics and Space Administration (NASA), (3) Department of State (State), (4) Department of Agriculture (USDA), (5) General Services Administration (GSA), (6) Department of Energy (Energy), (7) Department of Interior (Interior), (8) Department of Justice (DOJ), (9) United States Postal Service (USPS), (10) St. Lawrence Seaway Development Corporation (SLSDC), and (11) Tennessee Valley Authority (TVA) based on size or evidence of EUL authority. We identified the 11 agencies based on our review of property data and documents from: (1) The 7 largest civilian real property holding agencies, by total square footage, as of fiscal year 2010, as listed in the Federal Real Property Profile, (2) GSA's Real Property Authorities for Federal Agencies (2008), (3) Agencies' Authorities Regarding EULs and Real Property Sales from GAO-09-283R, and (4) interviews with officials from agencies identified in the above 3 sources to determine if they used EULs and if they knew of any other agencies that used EULs. Using information from the 11 agencies we contacted, we selected the 4 agencies (VA, NASA, State and USDA) that have used their EUL authority to enter into EULs. We selected 16 case study EULs from the four agencies that have EULs based on a range of lease purposes (e.g., leasing of vacant land for development and leasing unused office space); estimated financial benefits (e.g., cash benefits and in-kind consideration); and varying geographic locations. The case studies were located in Chicago, IL; North Chicago, IL; Mountain Home, TN; Vancouver, WA; Somerville, NJ; Moffett Field, CA; Beltsville, MD; Fort Howard, MD; Paris, France; Istanbul, Turkey, and Singapore. Because the 16 case studies were selected based on a non-probability sample, observations made based on our review of the 16 case study locations do not support generalizations about other EUL sites. Rather, the observations made provided specific, detailed examples of issues that were described by agency officials and lessees. We also interviewed agency officials at the local level and headquarters locations, and reviewed relevant laws describing agencies' EUL authorities and agency documentation, including agencies' regulations and guidance on enhanced use leasing. We visited the 9 case studies located in the U.S. to observe the properties firsthand, interviewed agency officials and lessees about their experience with EULs at these locations, and reviewed documentation regarding these properties. The case study EULs were located at NASA's Ames Research Center in Moffett Field, California, VA sites in Maryland, New Jersey and Washington state, and a USDA agricultural research center in Beltsville, Maryland. For the three State case studies we did not visit, we interviewed headquarters officials and reviewed relevant documentation including site-visit reports. For the four VA sites we did not visit in Chicago, Illinois, Chicago (West Side), Illinois; North Chicago, Illinois; and Mountain Home, Tennessee, we reviewed the agreements between VA and its lessees and the past work of the Congressional Budget Office and the VA's Office of Inspector General. We also interviewed OMB, CBO, and GSA officials to better understand government-wide views, guidance, and practices on enhanced use leasing. We conducted this performance audit from October 2011 to December 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. As shown in table 3, we reviewed 16 case study EULs. We reviewed 8 VA EULs, 4 from NASA, 3 from State, and 1 from USDA. 1. VA suggested changing this paragraph related to its energy programs. We edited the paragraph to align with the related text in the body of the report to which we added context on the different types of EULs that can include long-term government commitments, including those types described in VA's comment. 2. We made the changes suggested by VA. 3. VA indicated that it already reports its consultant costs associated with its EULs as part of its overall management costs. We continue to believe that VA should report all EUL costs as part of its EUL program specifically, including consultant costs. 4. VA indicated that it attributed termination costs to its overall program--but not its EUL program. We continue to believe that VA should report all EUL costs as part of its EUL program, including termination costs. 5. VA indicated that its leaseback of the second bay at Somerville was not identified at the time of lease execution, but this contention is not supported by the lease agreements. In addition to the contact named above, Keith Cunningham, Assistant Director; Amy Abramowitz; Melissa Bodeau; Carol Henn; Hannah Laufe; James Leonard; Sara Ann Moessbauer; Lisa G. Shibata; and Crystal Wesco made key contributions to his report.
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The federal government owns underutilized properties that are costly to operate, yet challenges exist to closing and disposing of them. To obtain value from these properties, some agencies have used EULs, which are generally long-term agreements to lease property from the federal government in exchange for cash or non-cash consideration. However, agencies also incur costs for EUL programs. We have previously reported that agencies should include all costs associated with programs' activities when assessing their values. This report addresses (1) the extent to which agencies attribute the full benefits and costs of their EULs in their assessments of their EUL programs and (2) the experiences of agencies in using their EUL authority. GAO reviewed property data and documents from the largest civilian including four agencies that use federal real property agencies EULs--VA, NASA, the Department of State, and the Department of Agriculture--and applicable laws, and regulations and guidance. GAO visited nine sites where agencies were using EULs. Agency officials told us that enhanced use leases (EUL) help them utilize their underutilized property better; commonly cited benefits include enhanced mission activities, cash rent revenue, and value received through in-kind consideration. However, some agencies we reviewed do not include all costs associated with their EULs when they assess the performance of their EUL programs. Guidance from the Office of Management and Budget (OMB) does not specify what costs agencies should include in their EUL evaluations, resulting in variance among agencies. For example, the Department of Veterans Affairs (VA) and the Department of State do not consistently attribute EUL-related costs of consultant staff who administer the leases, and VA does not attribute various administrative costs that offset EUL benefits. Without fully accounting for all EUL costs, agencies may overstate the net benefits of their EUL programs. Based on recent agency experiences, EULs may be a viable option for redeveloping underutilized federal real property when disposal is not possible or desirable, but two agencies raised issues pertaining to EUL use that affect their use or budgetary treatment. First, National Aeronautics and Space Administration (NASA) officials said that the limit on its authority to receive in-kind consideration as part of its EUL program has limited its ability to encourage the use of EULs for underutilized NASA property. Specifically, NASA officials said prospective lessees are reluctant to make costly capital improvements to a property that will have to be returned to the government at the end of the lease without other compensation, such as a reduction in cash rent. Second, VA and CBO disagree on the extent to which VA should account for the budget impacts for EULs that could include long-term government commitments. VA has made multi-year commitments with certain EULs without fully reporting them in its budget. Assessing and recognizing the budget impacts of EULs is complicated and may be interpreted differently by agencies with EUL authority. In particular, VA EULs can include long-term commitments that are recognized in the federal budget in different ways. To promote transparency about EULs, improve decision-making regarding EULs and ensure more accurate accounting of EUL benefits, GAO recommends that OMB coordinate with affected agencies to ensure that agencies consistently attribute all relevant costs associated with EULs to their EUL programs. Agencies generally agreed with our findings and recommendation.
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Specialty hospitals have become a subject of debate among health care policymakers. One issue concerns physician ownership of specialty hospitals and whether such ownership might inappropriately affect physicians' clinical decision-making and referral behavior. A related issue concerns the potential for specialty hospitals to benefit financially by treating patients who are less severely ill, and therefore less costly, while leaving general hospitals responsible for a mix of patients who need more care and are more expensive to treat. Our April 2003 report provided information on both issues: the extent of physician ownership at specialty hospitals and the relative severity of patients' illnesses at specialty and general hospitals. Much of the concern about specialty hospitals centers on physician ownership issues. Federal law generally prohibits physicians from referring Medicare patients for specific health care services to facilities in which they (or their immediate family members) have financial interests.This prohibition, a key component of the Medicare self-referral or Stark law (named after its chief sponsor in the House of Representatives, Representative Pete Stark) was enacted after several studies found that physicians with ownership interests in separate clinical laboratories, diagnostic imaging centers, or physical therapy providers tended to make more referrals to them and order substantially more services at higher costs. The Stark law contains an exception that is relevant in the case of referrals to specialty hospitals. The law includes an exception that permits physicians who have an ownership interest in an entire hospital and who also are authorized to perform services there to refer patients to that hospital. The premise is that any referral or decision made by a physician who has a stake in an entire hospital would produce little personal economic gain because hospitals tend to provide a diverse and large group of services. However, the Stark law does prohibit physicians who have ownership interest only in a hospital subdivision from referring patients to that subdivision. With respect to specialty hospitals, the concern exists that, as these hospitals are usually much smaller in size and scope than general hospitals and closer in size to hospital departments, the exception to Stark could allow physician owners to influence their hospitals'--and therefore their own--financial gain through practice patterns and referrals. The question of favorable patient selection--the contention that specialty hospitals treat a more financially favorable selection of patients as compared to general hospitals--has added to the debate about the advantages and drawbacks of specialty hospitals. This issue is linked to the way hospitals are paid. The fixed-rate, lump-sum payments that Medicare and many other health care payers typically make to hospitals for inpatient care for patients with a given diagnosis, regardless of the costs of serving particular patients, are designed to promote efficiency by discouraging hospitals from providing unnecessary services as a way to boost revenues. However, these lump-sum payments foster undesirable incentives, as hospitals may gain financially by serving a disproportionate share of lower-cost patients with the same diagnoses. Medicare's hospital payment system rules illustrate this principle. Under its system of prospective payments, Medicare pays a predetermined rate for each hospital discharge, based on the patient's diagnosis and whether the patient received surgery. In other words, the payments reflect an average bundle of services that the beneficiary is expected to receive as an inpatient for a particular diagnosis. Discharges are classified according to a list of DRGs. DRG payment rates are based on the expected cost of the diagnosis group's typical case compared with the cost for all Medicare inpatient cases. The DRG payment is not adjusted for within-DRG differences in severity of illness. Therefore, hospitals have a financial incentive to treat as many patients as possible whose costs are low relative to the costs of the average patient in each DRG. Our April 2003 study found that 21 out of 25 specialty hospitals treated a lower percentage of patients who were severely ill compared with patients in the same diagnosis categories treated at general hospitals in the same urban areas. For example, in an urban area in Texas, 3 percent of an orthopedic hospital's patients with that hospital's most common diagnoses were classified as severely ill, as compared with 8 percent of patients with the same diagnoses treated by the area's more than four dozen general hospitals. In an urban area in Arizona, about 17 percent of a cardiac hospital's patients with that hospital's most common diagnoses were classified as severely ill, as compared to 22 percent of patients with the same diagnoses treated by the area's more than two dozen general hospitals. Not all specialty hospitals treated patients who were, by comparison, less sick. Two of the 25 specialty hospitals treated a higher percentage of severely ill patients and two others treated about the same percentage as area general hospitals. In examining the illness severity differences between specialty and general hospitals, we did not determine the clinical or economic importance of these differences. For-profit status is a salient characteristic of specialty hospitals we identified. More than 90 percent of the specialty hospitals that have opened since 1990 were for-profit. Overall, 74 percent of specialty hospitals are for-profit, as compared to about 20 percent of all general hospitals. (See table 1.) For-profit status varied somewhat by specialty type, ranging from 78 percent of orthopedic hospitals to 65 percent of women's hospitals. In our April 2003 report, we found that 70 percent of the more than 100 specialty hospitals in existence or under development had some degree of physician ownership. Among specialty hospitals with any degree of physician ownership, physicians' combined ownership shares averaged slightly more than 50 percent of the hospital. Physicians' combined ownership tended to be somewhat smaller at cardiac hospitals (31 percent) and larger at surgical hospitals (70 percent). The degree of individual physician ownership varied by hospital, but was generally low. At approximately half of all specialty hospitals with physician ownership, the average share owned by an individual physician was less than 2 percent. The share of a specialty hospital owned in the aggregate by the physicians in a revenue-sharing group practice could be much higher. At more than half of the specialty hospitals with physician owners, physicians in a single group practice owned more than 25 percent of the hospital. The majority of physicians who worked in specialty hospitals had no ownership interest in the facilities. Overall, approximately 73 percent of physicians with admitting privileges to specialty hospitals were not investors in their hospitals. (See fig. 1.) The percentage of admitting physicians who were investors varied by specialty hospital type, ranging from about 7 percent at women's hospitals to about 44 percent at surgical hospitals. We identified three basic business structures for specialty hospitals. Our survey results indicated that about one-third of specialty hospitals were independent. Most of these hospitals were orthopedic or surgical and 76 percent had some degree of physician ownership. Approximately one-third of specialty hospitals were owned in part by a specialty hospital chain. Among this group, most hospitals were cardiac or orthopedic and 76 percent had some degree of physician ownership. The remaining one-third of specialty hospitals were owned or operated in part by local general hospitals. Almost half (48 percent) of the hospitals in this last group, which varied in specialty type, had some degree of physician ownership. In 2001, specialty hospitals accounted for approximately $871 million, or 1 percent, of Medicare's spending on hospital inpatient services. Nearly two- thirds of this amount went to cardiac hospitals. (See table 2.) Although 28 states had at least one existing specialty hospital, about two- thirds of the 100 specialty hospitals we identified were located in 7 states. The specialty hospitals that are planned to open over the next few months or years will reinforce this pattern of concentration. Specialty hospital location was associated with regulatory and demographic conditions that may facilitate or encourage hospital development. Specialty hospitals are concentrated in seven states: Arizona, California, Kansas, Louisiana, Oklahoma, South Dakota, and Texas. Texas, with 20 specialty hospitals, had almost twice as many specialty hospitals as the state with the second highest number of specialty hospitals, California, with 11. States such as Oklahoma (9), Kansas (8), and South Dakota (7), although smaller in area and population than California, had nearly as many specialty hospitals. The remaining 21 states with specialty hospitals had between 1 and 4 specialty hospitals each. (See fig. 2.) The specialty hospitals that are planned to open over the next few months or years will tend to reinforce the existing pattern of geographic concentration. In June 2003, at least 26 specialty hospitals were under development in 10 states. (See fig. 3.) Nine of the 10 states that had one or more specialty hospitals under development already had at least 1 existing specialty hospital. About 60 percent of specialty hospitals under development were located in three states: Texas had 7; California, 5; and Louisiana, 4. Seven other states had 1 or 2 specialty hospitals that were under development as of June 2003. Based on the specialty hospitals known to be under development, the number of surgical hospitals will increase by 65 percent and the number of cardiac hospitals will increase by approximately 40 percent in the next few months or years. Seven cardiac hospitals, 2 orthopedic hospitals, and 17 surgical hospitals are under development. The location of specialty hospitals is strongly correlated to whether states allow hospitals to add beds or build new facilities without first obtaining state approval for such health care capacity increases. All of the specialty hospitals that are under development and 96 percent of the specialty hospitals that opened from 1990 to June 2003 are located in such states. (See table 3.) State requirements for prior approval to increase health care capacity are commonly referred to as certificate of need (CON) laws or requirements. Federal legislation enacted in 1975 to promote comprehensive planning and development of hospitals and other health care resources conditioned funding to states on their establishment of CON requirements. At that time, many policymakers contended that CON requirements could prevent the construction of unnecessary capacity and help control health care costs. CON opponents argued that such requirements could stifle competition and lead to higher health care costs. Whether CON requirements achieved their objectives was inconclusive,and in 1986 the federal legislation was repealed. Subsequently, several states dropped their CON requirements. In 2002, 37 states maintained CON requirements to varying degrees. Overall, 83 percent of all specialty hospitals, 55 percent of general hospitals, and 50 percent of the U.S. population are located in states without CON requirements. Eighty-five percent of specialty hospitals are located in urban areas, a distribution that is roughly proportional to that of the U.S. population. An urban location was slightly more prevalent among women's hospitals (90 percent) and slightly less prevalent among cardiac hospitals (78 percent). Specialty hospitals also tended to locate in counties where the population growth rate from April 1990 through April 2000 far exceeded the national average of 11.1 percent. About 43 percent of specialty hospitals that opened in 1990 or later are located in counties where the population grew by 20 percent or more between the 1990 and 2000 decennial censuses.There did not appear to be a consistent relationship between specialty hospital location and a relative abundance or shortage of local health care resources, as measured by physicians per capita or hospital beds per capita. Relative to general hospitals, specialty hospitals, as a group, were much less likely to have emergency departments, saw fewer patients in their emergency departments, treated smaller percentages of Medicaid patients, and derived a smaller share of their revenues from inpatient services. However, there were important differences among the four specialty hospital types in these and other service indicators, such as the extent to which hospitals' emergency departments focused on certain medical conditions or procedures. Several differences with respect to emergency departments highlight the contrast between specialty hospitals and general hospitals and also the contrast among the four types of specialty hospitals. The four specialty hospital types were less likely than general hospitals to have emergency departments, but the prevalence of emergency departments varied by specialty hospital type. Overall, 45 percent of specialty hospitals had emergency departments, compared with 92 percent of general hospitals. (See fig. 4.) The prevalence of emergency departments in specialty hospitals ranged from 72 percent of the cardiac hospitals to 33 percent of the orthopedic hospitals. The emergency departments at specialty hospitals treated less than one- tenth the median number of patients treated at the emergency departments of general hospitals. (See table 4.) The number of patients treated at general hospitals' emergency departments remained greater when hospital size was accounted for: the median number of patients treated per bed per month was about 12 at general hospitals' emergency departments and slightly less than 3 at specialty hospitals' emergency departments. Based on the responses to our 2003 survey, the emergency departments at specialty hospitals often appeared to have missions that were focused on certain medical conditions or procedures. For example, 95 percent of the patients at orthopedic hospitals' emergency departments were orthopedic patients, and 93 percent of the patients at surgical hospitals' emergency departments were surgical patients. The median percentage of emergency department patients who fit within the hospital's field of specialization was lower at cardiac hospitals (57 percent). Specialty hospital types varied in how many had a physician around-the- clock in their emergency departments. Overall, 63 percent of specialty hospitals that had emergency departments, and that responded to our staffing questions, reported having a physician staffing the department 24 hours a day. (See table 5.) Cardiac hospitals were the most likely to have 24-hour physician staffing. Eleven of the 13 cardiac hospitals responded to our survey question. All 11--100 percent--indicated that they had 24-hour physician staffing of their emergency departments. Response rates to the staffing question were far lower among other specialty hospital types-- approximately 60 percent of the orthopedic and surgical hospitals with emergency departments, and 30 percent of the women's hospitals with emergency departments, answered the staffing question. Among the surgical and orthopedic hospitals with emergency departments that did respond, one-third or less reported having a physician in the department 24 hours per day. Two of the three women's hospitals that provided staffing information reported having a physician in their emergency departments 24 hours per day. The contrast between specialty and general hospitals was also marked with respect to the share of public program inpatients treated and inpatient services provided. Relative to general hospitals in the same urban areas, specialty hospitals in our HCUP sample tended to treat a lower percentage of Medicaid inpatients among all patients with the same types of conditions. (See fig 5.) For example, Medicaid beneficiaries constituted 28 percent of obstetric and gynecological (OB/GYN) patients at women's hospitals, but 37 percent of the OB/GYN patients at area general hospitals. The pattern for Medicare inpatients served differed somewhat from that for Medicaid patients. Relative to area general hospitals, cardiac hospitals tended to have larger shares of Medicare cardiac patients. (See fig. 6.) Medicare patients constituted similar shares of surgical patients at surgical specialty and area general hospitals and of gynecological patients at women's specialty and area general hospitals. In contrast, orthopedic hospitals served a lower percentage of Medicare orthopedic inpatients than did area general hospitals. Dissimilarity between specialty and general hospitals was noticeable in the mix of inpatient and outpatient revenues. For the four specialty hospital types, hospitals that responded to our survey reported that inpatient revenues accounted for about 46 percent of their total revenues, compared with about 57 percent of total revenues for general hospitals. (See fig. 7.) However, percentage of inpatient business varied substantially by specialty hospital type. For example, about 25 percent of surgical hospitals' revenues were derived from their inpatient business. Their mix of services may, in part, reflect the fact that some of these hospitals started as ambulatory surgical centers--distinct facilities that perform outpatient surgery exclusively--and later added inpatient capacity. The percentage of inpatient revenues at orthopedic hospitals (approximately 37 percent) was somewhat higher than the percentage at surgical hospitals. Inpatient revenues made up about 58 percent of total revenues at the women's hospitals, which was similar to the proportion at area general hospitals (57 percent). In contrast, cardiac hospitals derived 85 percent of their revenues from their inpatient business. Although a general hospital typically had more beds than a specialty hospital had, the focused mission of a specialty hospital often resulted in its treating more patients with a given condition. Financially, specialty hospitals overall tended to perform about as well as general hospitals did on their Medicare inpatient business. However, for-profit specialty hospitals did not do as well, on average, as for-profit general hospitals. When the costs from all lines of business and the revenues from all payers were considered, specialty hospitals tended to outperform general hospitals. Specialty hospitals in our HCUP sample were generally not small relative to general hospitals when the comparison was based upon the number of patients treated for specific conditions. For example, 1 cardiac hospital treated nearly 4,000 cardiac patients in 2000. Among the 26 general hospitals that also treated cardiac patients in the same urban area, the median number treated was approximately 2,000. Each of the 7 cardiac hospitals in our HCUP sample treated more patients than the median general hospital's cardiac practice in the specialty hospitals' market areas. A similar relationship to general hospitals existed among the HCUP orthopedic and women's hospitals. Six of the 8 orthopedic hospitals and 6 of the 7 women's hospitals treated more patients than were treated in the comparable departments of the median general hospitals in their markets. In contrast, 2 of the 3 surgical hospitals performed fewer inpatient surgical procedures relative to the general hospitals in their markets. In some cases, a specialty hospital treated far more patients with certain conditions than did any of the general hospitals in the same urban area. For example, 1 orthopedic hospital in our HCUP sample treated approximately 7,400 orthopedic patients in 2000. In contrast, the largest number of orthopedic patients treated at any of the 73 general hospitals in the same urban area was just over 3,000. In all, 4 of the 25 HCUP specialty hospitals--1 cardiac, 2 orthopedic, and 1 women's--had higher patient volumes than did the comparable departments at all of the general hospitals in their markets. These hospitals represent the extreme end of the relative size spectrum. The median cardiac and orthopedic hospitals treated somewhat more than twice the number of patients treated in the comparable departments of the median general hospital in their markets. The median women's hospital was about 80 percent larger in patient volume than the median comparable department at general hospitals in the area. Specialty hospitals' market shares, measured as the percentage of inpatient claims in an urban area, were much higher when only claims within a particular specialty field were included instead of all inpatient claims. (See fig. 8.) In markets that had from 5 to 26 general hospitals that treated cardiac patients, cardiac hospitals had a median market share of 15 percent of the cardiac patients. The median market share was 8 percent among women's hospitals, in markets that contained from 7 to 86 general hospitals, and 5 percent among orthopedic hospitals, in markets that contained from 10 to 86 general hospitals. Surgical hospitals' median market share of 4 percent was the smallest among the four specialty hospital types. However, there was wide variation in the market shares of individual hospitals--especially among women's hospitals. For example, 1 women's hospital had a 2 percent market share while another had a 47 percent market share. Financially, specialty hospitals tended to perform about as well as general hospitals did on their Medicare inpatient business in fiscal year 2001--the most recent year for which this information is available. Medicare inpatient margins--which are used to gauge a hospital's financial performance on Medicare inpatient business--averaged 9.4 percent at specialty hospitals and 8.9 percent at general hospitals. (See table 6.) Among for-profit hospitals--both specialty and general hospitals--average Medicare inpatient margins were higher. However, for-profit general hospitals had average Medicare inpatient margins (14.6 percent) that exceeded those at for-profit specialty hospitals (12.4 percent). When revenues and costs from all lines of business and all payers were included, the average financial performance of specialty hospitals exceeded that of general hospitals. Total facility margins--constructed similarly to Medicare inpatient margins--averaged 6.4 percent among all specialty hospitals and 3.1 percent among all general hospitals. Among both specialty hospitals and general hospitals, the average total margin at for-profit hospitals was higher than the total margin among all hospitals. We obtained comments from officials representing ASHA--a specialty hospital association--and from officials representing the MedCath Corporation and NSH--two major specialty hospital chains. The officials generally agreed with the information in our report and offered their views on reasons for key differences between specialty and general hospitals. Their comments, summarized below, largely pertained to our findings regarding hospital location, presence and utilization of emergency departments, and hospitals' financial performance. Unless otherwise noted, the following comments reflect the positions of all three organizations. In response to our finding that, on average, the number of physicians per capita and the number of hospital inpatient beds per capita are the same in communities with and without specialty hospitals, MedCath officials said that they have a national strategy in which they project communities' health care needs several years into the future and use the results to help them choose potential locations for new cardiac hospitals. MedCath officials said that this explains why specialty hospitals tend to locate in areas experiencing rapid population growth. An ASHA official said that, among the association's members, the decision to build a specialty hospital begins with physicians in a community and their perception of the community's health care needs. Specialty hospital representatives stressed that the existence and utilization of an emergency department is primarily a function of the mission of a particular hospital. They said that a specialty hospital might not include an emergency department if the hospital's intended role in a community does not call for one. NSH officials noted that nonprofit general hospitals receive tax advantages in return for providing certain community services, including emergency care. MedCath officials said that, because nonprofit hospitals are required to fulfill certain social needs, our comparisons involving emergency departments and treatment of Medicaid patients should have been made between for-profit specialty hospitals and for-profit general hospitals. ASHA officials added that state law may dictate whether a hospital has an emergency department. MedCath officials noted that our results showed that, on average, specialty hospitals' margins are similar to for-profit general hospitals' margins. They said that this financial performance was the result of a business model that emphasizes efficiency and cost control in the delivery of quality health care. Overall, MedCath officials said that our findings showed that specialty hospitals should be no cause for concern. Specifically, the officials said that there are relatively few specialty hospitals, specialty hospitals account for a very small fraction of total Medicare inpatient hospital spending, such hospitals are concentrated in a few states and in areas where there is a need for such hospitals, and their business model leads to profits that are similar to the profits earned by for-profit general hospitals. Representatives from all three organizations, while generally agreeing with the information in our report, emphasized the important role that specialty hospitals play in efficiently providing quality health care. We agree that, on a national level, specialty hospitals have a small presence. However, in the communities in which they locate, specialty hospitals may treat a relatively large share of patients who have specific medical conditions or need specific medical procedures. For the share of the market that those patients represent, specialty hospitals are often among the larger competitors that general hospitals face. In addition, the number of specialty hospitals is growing rapidly. In the next few months or years, the number of specialty hospitals that we identified is expected to increase by at least 25 percent. The policy issue regarding emergency care may be one that is focused more on access to such care and less on whether every specialty hospital should have an emergency department. Although some specialty hospitals--especially cardiac hospitals--provide at least a limited amount of emergency care, individuals who need emergency care typically must obtain treatment at general hospitals. Critics of specialty hospitals are concerned that such facilities may erode the financial health of general hospitals and impair their ability to provide emergency care and meet other basic community needs, such as stand-by capacity to respond to communitywide disasters. In this report, we did not attempt to determine the financial effect that specialty hospitals may have on neighboring general hospitals. Finally, we previously reported that the 25 urban specialty hospitals that we studied in six states tended to treat patients who were less severely ill relative to patients treated at neighboring general hospitals. Because we did not analyze the economic impact of such a pattern, we cannot determine the extent to which the financial performance of specialty hospitals may be due to patient mix, the efficient delivery of health care, or other factors. We are sending copies of this report to appropriate congressional committees and other interested parties. We will also make copies available to others upon request. This report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staffs have any questions, please call me at (202) 512-7101 or James Cosgrove at (202) 512-7029. Other contributors to this report include Hannah Fein, Zachary Gaumer, and Ariel Hill. This appendix provides additional information on the key aspects of our analysis. First, it lists the criteria we used to define specialty hospitals and the process we followed to identify them. Second, it discusses the survey used to collect a variety of information from the universe of specialty hospitals. Third, it describes key data sources and methodological approaches used in each subanalysis. Finally, it address issues related to data reliability and limitations. Although a standard definition for a specialty hospital does not exist, a reasonable approach is to define specialty hospitals as those that predominately treat certain diagnoses or perform certain procedures. For this report, we classified a hospital as a specialty hospital if the data indicated that two-thirds or more of its inpatient claims were in one or two major diagnosis categories (MDC) or two-thirds or more of its inpatient claims were for surgical diagnosis- related groups (DRG). Because our study focused on private, short-term acute care hospitals, we eliminated from consideration hospitals that were government-owned and those that tended to provide long-term care or otherwise had missions very different from those of short-term, acute care general hospitals. Thus, we excluded government-owned hospitals; hospitals for which the majority of inpatient claims were for MDCs that related to rehabilitation, psychiatry, alcohol and drug treatment, children, or newborns; and hospitals with fewer than 10 claims per bed per year. Of the hospitals that met our criteria, 100 could be classified into four specialization categories: cardiac, orthopedic, surgical, and women's.Twenty-six specialty hospitals were also identified as under development and scheduled to open in the next few months or years. An additional 6 hospitals specialized in a variety of other areas--such as eye or ear, nose, and throat procedures--but were not included in this analysis. For this report, we focused on the specialty hospitals in the four major categories listed above. We applied our criteria to inpatient discharge data from two different data sources: the 2001 Medicare Provider Analysis Review (MedPAR) file and the 2000 Healthcare Cost and Utilization Project (HCUP) state inpatient data from six states. Medicare and HCUP data both have distinct advantages and disadvantages. The MedPAR file contains patient information from virtually all of the nation's hospitals, but only for Medicare patients. Patients covered by Medicare are predominately age 65 or older. Consequently, some conditions--such as those that affect women of childbearing age--may be underrepresented, or not represented at all, in the MedPAR file. Thus, it is likely that an identification based on the MedPAR file undercount the number of hospitals that specialize in treating such conditions. In contrast to Medicare data, HCUP data provide information on all of a hospital's patients. However, HCUP data are available for hospitals in only 29 states, and each state's data must be purchased separately. We obtained HCUP data from the following six states: Arizona, California, New Jersey, New York, North Carolina, and Texas. These states were selected because Medicare data identified them as having potentially large concentrations of specialty hospitals. To identify specialty hospitals that opened too recently to be included in the Medicare or HCUP data, we obtained information from the American Surgical Hospital Association, the American Federation of Hospitals, and two national specialty hospital chains: National Surgical Hospitals and MedCath Corporation. These organizations also provided information on the 26 specialty hospitals that are under development. From January 2003 through March 2003, we conducted a survey of 100 cardiac, orthopedic, surgical, and women's hospitals that we identified as being operational. The survey gathered basic hospital address information and posed questions pertaining to the types of services offered at each hospital, hospital size, physician ownership, partnership structure, and the extent of emergency department services. Eighty percent of the specialty hospitals that received our survey responded. Information pertaining to physician ownership of specialty hospitals was drawn from hospital responses to our 2003 specialty hospital survey. Among the questions related to physician ownership, hospital representatives were asked about the number of physician owners, the overall percentage of the hospital owned by physicians, the largest share owned by a single physician, the overall number of admitting physicians, and the largest combined percentage of the hospital owned by physicians in a single revenue-sharing group practice. Information pertaining to the business structure of each specialty hospital was drawn from responses to our 2003 specialty hospital survey. Hospitals were grouped into one of three categories-independent freestanding hospitals, hospitals associated with a hospital chain, or hospitals associated with a local general hospital--based on their responses to questions regarding hospital affiliation. We identified state, county, and zip code location of existing specialty hospitals and those under development through a four-part process. First, we identified the name and identification number of each specialty hospital by using the Centers for Medicare & Medicaid Service's (CMS) MedPAR file or the HCUP dataset. Second, we located these names and identification numbers in CMS's Medicare Provide of Services File (POS), because it contains the most current location information available. If these hospitals were not found in POS , we used the American Hospital Association's (AHA) 2003 Annual Survey for the same purpose. Third, when specialty hospitals were not found in the CMS or AHA databases, we located as much information as possible using the Internet or direct telephone contact. Fourth, our specialty hospital survey (2003) provided county location information and other missing address or location information. Data from the American Health Planning Association (AHPA) were used to determine which states require hospitals to obtain state approval before they may add beds or build new facilities. State regulations that require prior approval for state health care capacity increases are commonly referred to as certificate of need (CON) requirements. AHPA's document, "2002 Relative Scope and Review Thresholds of CON Regulated Services," listed 37 states that have one or more of the approximately 30 different types of CON requirements. For the purposes of this report, we considered a state to have CON requirements if it required prior approval for new acute care beds. We used data from the Dartmouth Atlas of Health Care to determine the number of available beds per capita and physicians per capita in a hospital referral region (HRR). HRRs represent regional health care markets for tertiary medical care. Each HRR contains at least one hospital that performed major cardiovascular procedures or neurosurgery. We analyzed the overall relationship between specialty hospital location and health system resources by comparing the average number of beds and physicians per 1,000 people in HRRs with and without specialty hospitals. We relied on several data sources to obtain information pertaining to the provision of emergency care at specialty and general hospitals. To determine whether a specialty hospital had an emergency department, we primarily relied upon the hospital's response to our specialty hospital survey. When that information was missing, we used the information contained in CMS's POS file or contacted the hospital's administrator. As a result, our finding regarding the percentage of specialty hospitals with emergency departments is based on data from all of the 100 specialty hospitals that we identified. The information pertaining to the existence of emergency departments at general hospitals was drawn from AHA's 2003 Annual Survey of Hospitals. Emergency department utilization data for specialty hospitals were obtained from hospital responses to the specialty hospital survey, while utilization data for general hospitals were drawn from our 2002 general hospital survey. We obtained information on specialty hospitals' staffing of emergency departments from our specialty hospital survey. Comparable staffing information for general hospitals was not readily available. To determine the mean percentage of Medicare and Medicaid patients at specialty and general hospitals, we analyzed 2000 HCUP data from Arizona, California, New Jersey, New York, North Carolina, and three of five regions in Texas. Our analysis of HCUP data for these six states identified 25 specialty hospitals and 396 general hospitals in 18 urban areas. For each specialty hospital type, we first computed the percentage of specialty hospital claims within that type's field of specialization that were paid by Medicaid. For example, we calculated the percentage of cardiac hospitals' cardiac claims that were paid by Medicaid. We then computed the percentage of general hospital claims in the same field of specialization that were paid by Medicaid. Only general hospitals located in urban areas with a relevant specialty hospital were included. Continuing the previous example, we calculated the percentage of cardiac claims paid by Medicaid at general hospitals located in urban areas with a cardiac hospital. We followed a similar process for computing the percentage of Medicare claims at specialty and general hospitals. Using 2000 HCUP data, we computed a local inpatient market share for each of the 25 urban specialty hospitals in our six HCUP states. The number of inpatient claims at each specialty hospital was divided by the total number of inpatient claims at all hospitals--both specialty and general--in the same metropolitan statistical area (MSA) . We then determined the median market share for specialty hospitals, by specialty type. We followed a similar process to determine the local market shares of specialty hospitals within their fields of specialization. For example, we compared the number of cardiac claims at a cardiac hospital to the total number of cardiac claims at all hospitals within the same MSA. We used data from CMS's 2001 Hospital Cost Report (HCR) to calculate Medicare and total margins for specialty and general hospitals. Although not yet complete, the 2001 HCR file includes information from 55 specialty hospitals and approximately 84 percent (5,166) of the individual hospital records contained in the 1999 HCR file. To calculate the profit margins of specialty and general hospitals, we utilized a formula created by the Medicare Payment Advisory Commission (MedPAC). We used a variety of data sources in our analysis; the three primary sources were our 2003 specialty hospital survey, 2000 HCUP data for six states, and CMS's 2001 HCR file. In each case, we determined that the data were sufficiently reliable to address the report's objectives. Overall, 80 percent of specialty hospitals responded to GAO's 2003 survey, although response rates for certain questions were sometimes lower. In cases where question responses were unclear, we contacted the hospital administrators to resolve any ambiguity. Because we did not independently verify the information, the report identifies data from the survey as self-reported. HCUP data are widely used for research purposes. Although the HCUP data we used represent a subset of the available HCUP data, the subset contains one-quarter of all of the specialty hospitals that we identified nationwide. HCR data are routinely used by the MedPAC to estimate hospital margins and recommend updates to Medicare's hospital payment rates. We followed the same procedures used by the MedPAC to estimate hospital margins from these data. The 2001 file we used was 84 percent complete at the time of our analysis. We compared these data to data from prior years and consulted with MedPAC experts to determine that this degree of completeness would produce reliable margin estimates.
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The recent growth in specialty hospitals that are largely for-profit and owned, in part, by physicians, has been controversial. Advocates of these hospitals contend that the focused mission and dedicated resources of specialty hospitals both improve quality and reduce costs. Critics contend that specialty hospitals siphon off the most profitable procedures and patient cases, thus eroding the financial health of neighboring general hospitals and impairing their ability to provide emergency care and other essential community services. Critics also contend that physician ownership of specialty hospitals creates financial incentives that may inappropriately affect physicians' clinical and referral behavior. In April 2003, GAO reported on certain aspects of specialty hospitals, including the extent of physician ownership and the relative severity of patients treated (GAO-03-683R). For this report, GAO was asked to examine (1) state policies and local conditions associated with the location of specialty hospitals, (2) how specialty hospitals differ from general hospitals in providing emergency care and serving a community's other medical needs, and (3) how specialty and general hospitals in the same communities compare in terms of market share and financial health. The 100 existing specialty hospitals identified by GAO--hospitals that focus on cardiac, orthopedic, or women's medicine or on surgical procedures--are geographically concentrated in areas where state policy facilitates hospital growth. Although 28 states have at least 1 specialty hospital, approximately two-thirds of the 100 specialty hospitals are located in 7 states. At least an additional 26 specialty hospitals were under development in 2003 and will tend to reinforce the existing pattern of geographic concentration. Specialty hospitals are much more likely to be found in states where hospitals are permitted to add beds or build new facilities without first obtaining state approval for such health care capacity increases. Relative to general hospitals, specialty hospitals, as a group, were much less likely to have emergency departments, treated smaller percentages of Medicaid patients, and derived a smaller share of their revenues from inpatient services. For example, 45 percent of specialty hospitals, but 92 percent of general hospitals, had emergency departments. There were, however, important differences among the four specialty hospital types in these and other service indicators. Although general hospitals typically have more beds than specialty hospitals, the focused mission of specialty hospitals often resulted in their treating more patients in their given fields of specialization. Financially, specialty hospitals tended to perform about as well as general hospitals did on their Medicare inpatient business. However, specialty hospitals tended to outperform general hospitals when the costs from all lines of business and the revenues from all payers were considered. Officials from three specialty hospital organizations commented on a draft of this report. They generally agreed with the report's information and commented on key differences between specialty and general hospitals.
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FAA is responsible for ensuring safe, orderly, and efficient air travel in and around the United States. NWS supports FAA by providing aviation-related forecasts and warnings at air traffic facilities across the country. Among other support and services, NWS provides four meteorologists at each of FAA's 21 en route centers to provide on-site aviation weather services. This arrangement is defined and funded under an interagency agreement. In performing its primary mission to ensure safe air travel, FAA reported that air traffic in the national airspace system exceeded 43 million flights and 745 million passengers in 2008. In addition, at any one time, as many as 7,000 aircraft--both civilian and military--could be aloft over the United States. In 2004, FAA's Air Traffic Organization was formed to, among other responsibilities, improve the provision of air traffic services. More than 34,000 employees within FAA's Air Traffic Organization support the operations that help move aircraft through the national airspace system. The agency's ability to fulfill its mission depends on the adequacy and reliability of its air traffic control systems, as well as weather forecasts made available by NWS and automated systems. These resources reside at, or are associated with, several types of facilities: air traffic control towers, terminal radar approach control facilities, air route traffic control centers (en route centers), and the Air Traffic Control System Command Center. The number and functions of these facilities are as follows: 510 air traffic control towers manage and control the airspace within about 5 miles of an airport. They control departures and landings, as well as ground operations on airport taxiways and runways. 163 terminal radar approach control facilities provide air traffic control services for airspace within approximately 40 miles of an airport and generally up to 10,000 feet above the airport, where en route centers' control begins. Terminal controllers establish and maintain the sequence and separation of aircraft. 21 en route centers control planes over the United States--in transit and during approaches to some airports. Each center handles a different region of airspace. En route centers operate the computer suite that processes radar surveillance and flight planning data, reformats the data for presentation purposes, and sends it to display equipment used by controllers to track aircraft. The centers control the switching of voice communications between aircraft and the center, as well as between the center and other air traffic control facilities. Four of these en route centers also control air traffic over the oceans. The Air Traffic Control System Command Center manages the flow of air traffic within the United States. This facility regulates air traffic when weather, equipment, runway closures, or other conditions place stress on the national airspace system. In these instances, traffic management specialists at the command center take action to modify traffic demands in order to keep traffic within system capacity. See figure 1 for a visual summary of the facilities that control and manage air traffic over the United States. The mission of NWS--an agency within the Department of Commerce's National Oceanic and Atmospheric Administration (NOAA)--is to provide weather, water, and climate forecasts and warnings for the United States, its territories, and its adjacent waters and oceans to protect life and property and to enhance the national economy. In addition, NWS is the official source of aviation- and marine-related weather forecasts and warnings, as well as warnings about life-threatening weather situations. The coordinated activities of weather facilities throughout the United States allow NWS to deliver a broad spectrum of climate, weather, water, and space weather services in support of its mission. These facilities include 122 weather forecast offices located across the country that provide a wide variety of weather, water, and climate services for their local county warning areas, including advisories, warnings, and forecasts; 9 national prediction centers that provide nationwide computer modeling to all NWS field offices; and 21 center weather service units that are located at FAA en route centers across the nation and provide meteorological support to air traffic controllers. As an official source of aviation weather forecasts and warnings, several NWS facilities provide aviation weather products and services to FAA and the aviation sector. These facilities include the Aviation Weather Center, weather forecast offices located across the country, and 21 center weather service units located at FAA en route centers across the country. The Aviation Weather Center located in Kansas City, Missouri, issues warnings, forecasts, and analyses of hazardous weather for aviation. Staffed by 55 personnel, the center develops warnings of hazardous weather for aircraft in flight and forecasts of weather conditions for the next 2 days that could affect both domestic and international aviation. The center also produces a Collaborative Convective Forecast Product, a graphical representation of expected thunderstorms or related conditions at 2, 4, and 6 hours. This is used by FAA to manage aviation traffic flow across the country. The Aviation Weather Center's key products are described in table 1. NWS's 122 weather forecast offices issue terminal area forecasts for approximately 632 locations every 6 hours or when conditions change, consisting of the expected weather conditions significant to a given airport or terminal area, and are primarily used by commercial and general aviation pilots. The terminal area forecasts are updated every 3 hours for 35 key airports and every 2 hours for the airports in New York, Atlanta, and Chicago. NWS's center weather service units are located at each of FAA's 21 en route centers and operate 16 hours a day, 7 days a week (see fig. 2). Each center weather service unit usually consists of three meteorologists and a meteorologist-in-charge who provide strategic advice and aviation weather forecasts to FAA traffic management personnel. Governed by an interagency agreement, FAA currently reimburses NWS approximately $13 million annually for this support. The meteorologists at the center weather service units use a variety of systems to gather and analyze information compiled from NWS and FAA weather sensors. Key systems used to compile weather information include FAA's Weather and Radar Processor, FAA's Integrated Terminal Weather System, FAA's Corridor Integrated Weather System, and a remote display of NWS's Advanced Weather Interactive Processing System. Meteorologists at several center weather service units also use NWS's National Centers--Advanced Weather Interactive Processing System. Table 2 provides a description of key systems. NWS meteorologists at the en route centers provide several products and services to the FAA staff, including meteorological impact statements, center weather advisories, periodic briefings, and on-demand consultations. These products and services are described in table 3. In addition, center weather service unit meteorologists receive and disseminate pilot reports, provide input every 2 hours to the Aviation Weather Center's creation of the Collaborative Convective Forecast Product, train FAA personnel on how to interpret weather information, and provide weather briefings to nearby terminal radar approach control facilities and air traffic control towers. In recent years, FAA has undertaken multiple initiatives to assess and improve the performance of the center weather service units. Studies conducted in 2003 and 2006 highlighted concerns with the lack of standardization of products and services at NWS's center weather service units. To address these concerns, the agency sponsored studies that determined that weather data could be provided remotely using current technologies, and that private sector vendors could provide these services. In 2005, the agency requested that NWS restructure its aviation weather services by consolidating its center weather service units to a smaller number of sites, reducing personnel costs, and providing products and services 24 hours a day, 7 days a week. NWS subsequently submitted a proposal for restructuring its services, but FAA declined the proposal citing the need to refine its requirements. In December 2007, FAA issued revised requirements and asked NWS to respond with proposals defining the technical and cost implications of three operational concepts. The three concepts involved (1) on-site services provided within the existing configuration of offices located at the 21 en route centers, (2) remote services provided by a reduced number of regional facilities, and (3) remote services provided by a single centralized facility. NWS responded with three proposals, but FAA rejected these proposals in September 2008, noting that while elements of each proposal had merit, the proposed costs were too high. FAA requested that NWS revise its proposal to bring costs down while stating a preference to move toward a single center weather service unit with a backup site. As a separate initiative, NWS began a series of improvements in order to address FAA's key concerns. Specifically, in April 2008, the agency initiated a program to improve the consistency of the center weather service units' products and services. This program involved standardizing the technology, collaboration, and training for all 21 center weather service units and conducting site visits to evaluate and provide feedback to each unit. NWS reported that it completed these efforts in 2009. A summary of FAA's key concerns and NWS's efforts to address them is included in appendix II. After two requests for deadline extensions on a new proposal, NWS provided FAA with an updated proposal in June 2009 based on the two-site approach FAA had requested in September 2008. FAA responded to NWS's proposal by requesting more information and stated that the agencies would work together to resolve issues. From September through November 2009, the agencies completed a series of meetings to address issues from the proposal and agreed that NWS would resubmit its proposal in December 2009 to consolidate the service units. In December 2009, FAA revised its requirements to reflect the agencies' efforts aimed at improving center weather service operations. However, NWS did not submit its proposal in December 2009 to consolidate the center weather service units. According to NWS officials, they decided not to submit the proposal because (1) the NWS labor union and others raised concerns about consolidating offices, (2) NWS could implement technical improvements more quickly under the current organizational structure, and (3) the agency wanted to focus its efforts and resources on future weather system development rather than restructuring existing operations. Table 4 provides a chronology of the agencies' assessment and improvement efforts. In January 2008, we reported on concerns about inconsistencies in products and quality among center weather service units. We noted that while both NWS and FAA have responsibilities for assuring and controlling the quality of aviation weather observations, neither agency monitored the accuracy and quality of the aviation weather products provided at center weather service units, performed annual evaluations of aviation weather services provided at en route centers, and provided feedback to the center weather service units. We recommended they do so. The Department of Commerce agreed with our recommendations, and the Department of Transportation stated that FAA planned to revise its requirements and that these would establish performance measures and evaluation procedures. In September 2009, we reported that the agencies were considering plans to consolidate 20 of the 21 existing center weather service units to two locations, but it was not clear whether and how the changes would be implemented. Moreover, we reported that NWS and FAA faced challenges in their efforts to improve the aviation weather structure, including achieving interagency collaboration, defining FAA's requirements, and aligning any changes with the Next Generation Air Transportation System. We also identified three challenges the agencies would face in implementing their plans--developing a feasible schedule that includes adequate time for stakeholder involvement, undertaking a comprehensive demonstration to ensure no services are degraded, and effectively reconfiguring the infrastructure and technologies. We recommended that the agencies address these challenges, and NOAA and the Department of Transportation agreed with our recommendations. After developing and shelving four different proposals for restructuring the center weather service units over the last 5 years, NWS and FAA have reached agreement on how to improve aviation weather services. In March 2010, NWS proposed maintaining the current 21 center weather service units collocated at en route centers, increasing staffing at the Aviation Weather Center in order to provide remote services during the service units' off-hours, and developing a new collaborative weather product. NWS estimated that these improvements would cost FAA about $3 million per year. This is in addition to the annual cost of maintaining the existing 21 centers. NWS also estimated that it would be able to implement the proposal within 21 months. FAA responded that it was not prepared to accept the proposal because of the increased costs. Subsequently, in July 2010, FAA and NWS reached an agreement on the steps the two agencies would take to improve aviation weather services. Specifically, FAA proposed and NWS agreed to continue the current center weather service units at each of the 21 en route centers through September 2011 and to take immediate steps to improve aviation weather services by (1) having the service units provide forecasts at 10 key FAA terminal radar approach control facilities and (2) providing around-the- clock coverage at all of the en route centers by having the local weather forecast office support the en route centers when the center weather service units are closed for the night--a practice that currently is used at selected en route centers. In addition, the agencies agreed to establish a joint team to baseline current capabilities and develop firm requirements for NWS products and services supporting FAA's air traffic flow management out through 2015. The agencies expect that the joint team will establish an implementation plan by November 2010 and then begin to implement it. However, the agencies' documentation of this agreement does not address the future locations of the center weather service units, or provide details and a schedule for the proposed improvements to services. As a result, it is not clear what will happen to the 21 service units after September 2011, when the immediate improvements in services will be in place, whether there are any costs associated with these steps, whether the benefits outweigh the costs, and who will pay for them. Until this agreement is further defined in writing and formalized between the two agencies, the risks remain that the agencies will misjudge their responsibilities and not fulfill their agreements. According to best practices in the federal government and in industry, organizations should measure performance in order to evaluate the success or failure of their activities and programs. Performance measurement involves identifying performance goals and measures, establishing performance baselines by tracking performance over time, identifying targets for improving performance, and measuring progress against those targets. In January 2008, we recommended that NWS and FAA develop performance measures and track metrics for the products and services provided by center weather service units and that they provide feedback to the center weather service units so that they could improve their performance. Further, in September 2009, we recommended that the agencies approve their draft performance measures and establish performance baselines so that they could understand the effects of any changes from restructuring aviation weather services. Over the past year, NWS has made progress in identifying performance measures, tracking performance on selected measures, and reporting on the selected measures; however, the agency is not yet tracking or reporting on all applicable performance measures. In December 2008, FAA provided NWS five performance measures of center weather service unit performance. Under the current interagency agreement, NWS is required to track and report to FAA on these measures. In addition, in its last two proposals, NWS proposed additional measures, two of which could be tracked under the current organizational structure and using current products. We previously recommended that NWS immediately identify the current level of performance of the proposed measures that could be identified under the current organizational structure, so that they will have a performance baseline to compare to should they decide to implement operational changes. The agency agreed with this recommendation. Table 5 describes the performance areas applicable to the current center weather service unit structure. NWS has started tracking performance for three of the seven measures and is partially tracking a fourth. Specifically, NWS has tracked data on each center weather service unit's (1) participation in the Collaborative Convective Forecast Product, (2) organizational service provision, and (3) customer satisfaction. Further, it has partially tracked data on format consistency, by collecting data on one of two required products. However, the agency has not tracked data on the other measures for a number of reasons. For example, the agency did not track the format consistency for the second of the two required products because, until recently, the briefing has not had a consistent format. Also, the agency is not tracking training completion because it has not yet determined what standardized training will be provided. For the forecast accuracy measure, agency officials stated that they do not currently have the means to track this measure, but that they are developing a tool to do so. Of the measures it is tracking, NWS has established baselines and reported its results on two measures and has partially done so for two other measures. Specifically, NWS has established baselines on each center weather service unit's participation in the Collaborative Convective Forecast Product and its organizational service provision. In addition, NWS has partially established a baseline on the format consistency measure in that it has historical data for one of the two required products. However, because it has not tracked the format consistency of the second product, NWS has not established a complete baseline for that measure. Further, while NWS has calculated customer satisfaction scores from its 2009 site evaluations, it does not yet have a reliable baseline because it has not yet matured its approach to documenting this measure. Specifically, NWS changed its approach during its 2010 site evaluations, which will make it harder to compare scores from year to year. Moreover, the agency mixed positive and negative findings to come up with its rating scores for some sites, thereby rendering the 2009 scores at selected sites ineffective at measuring a site's performance. Figure 3 identifies NWS's efforts to track data, develop baselines, and report on the performance measurement areas. It is important for NWS and FAA to track performance in the identified measures in order to understand the value currently provided and to assess the impact of any changes they make to operations. Reporting also helps improve performance. For example, after reporting on its performance in product participation and organizational service provision for 2009, NWS noted significant improvements in 2010. Until the agencies track and develop a performance baseline for all applicable measures, they will be limited in their ability to evaluate progress that has been made and whether or not they are achieving their goals. In addition, until NWS regularly reports on its performance, the agencies lack the information they need to determine what is working well and what needs to be improved. Moreover, as the agencies refine their approach to performance measurement, it will be important to revisit and refine the performance measures to ensure an appropriate mix of process- and outcome-oriented measures. For example, NWS could consider measuring the number of aircraft incidents attributed to inaccurate aviation weather forecasts or the number of weather-related delays as a percentage of all delays. In September 2009, we identified three challenges that FAA and NWS faced in modifying the current aviation weather structure: (1) achieving interagency collaboration, (2) defining requirements, (3) aligning changes with the Next Generation Air Transportation System (NextGen)--a long- term initiative to increase the efficiency of the national airspace system. The agencies have taken initial steps to collaborate, refine requirements, and look for ways to align their plans with NextGen, but they have not yet fully addressed the challenges. Until these fundamental challenges are addressed, the agencies are unlikely to achieve significant improvements in the aviation weather services provided at en route centers. We have previously reported on key practices that can help enhance and sustain interagency collaboration. The practices generally consist of two or more agencies defining a common outcome, establishing joint strategies to achieve the outcome, agreeing upon agency roles and responsibilities, establishing compatible policies and procedures to operate across agency boundaries, and developing mechanisms to monitor, evaluate, and report the results of collaborative efforts. In September 2009, we reported that NWS and FAA had not defined a common outcome for modifying the aviation weather services provided at en route centers, established joint strategies, or agreed upon their respective responsibilities. We recommended that the agencies complete these activities. NOAA and the Department of Transportation agreed with our recommendation. Since September 2009, NWS and FAA have made progress in defining a common outcome, but have not yet established joint strategies to achieve the outcome or agreed upon agency responsibilities. Specifically, in July 2010, the two agencies defined a common outcome when they reached an agreement to continue the current center weather service unit configuration at each of the 21 en route centers and to take immediate steps to improve aviation weather services. The two agencies also plan to form a team that will develop an implementation plan by November 2010. However, the agreement does not provide the details needed to establish joint strategies and only provides general agency responsibilities. Until the agencies establish joint strategies and agree on respective agency responsibilities, it may prove difficult to move forward in efforts to improve aviation weather services. According to best practices of leading organizations, requirements describe the functionality needed to meet user needs and perform as intended in the operational environment. A disciplined process for developing and managing requirements can help reduce the risks associated with developing or acquiring a system or product. In September 2009, we reported that FAA's requirements were unstable and recommended that the agencies establish and finalize requirements for aviation weather services at en route centers. NOAA and the Department of Transportation agreed with our recommendation. FAA updated its requirements in December 2009 based on the work that the two agencies did in the fall of 2009. However, these changes were nullified by the more recent decision to continue with 21 center weather service units. In July 2010, the two agencies agreed to establish a joint team to develop firm requirements for NWS products and services supporting FAA's air traffic flow management out to 2015, including those provided by the center weather service units. While this is an important step, significant work remains to be done to revise these requirements. Until the requirements are in place, the agencies may find it difficult to move forward in efforts to improve aviation weather services. In September 2009, we reported that neither FAA nor NWS had ensured that their restructuring plans fit with the national vision for NextGen--a long-term initiative to transition FAA from the current radar-based system to an aircraft-centered, satellite-based system. We recommended that the agencies ensure that any proposed organizational changes are aligned by seeking a review by the Joint Planning and Development Office, the office responsible for planning and coordinating NextGen. NOAA and the Department of Transportation agreed with our recommendation. Among other agreements in July 2010, the two agencies plan to work together to develop requirements and an implementation plan that extends through 2015--the NextGen Midterm Operating Capability date--by November 2010. However, because this plan has not been developed or approved, it is not clear that future actions will be aligned with NextGen. As NWS and FAA discuss the current proposal and plan improvements to aviation weather services, it will be important for the agencies to continue to ensure alignment with the long-term goals of NextGen. After many years of proposals and counterproposals for improving the center weather service units, NWS and FAA recently agreed to continue the current center weather service unit configuration at each of the 21 en route centers through September 2011 and to take immediate steps to improve aviation weather services. However, many questions remain about what will happen, when, and at what cost. Given the long history of unresolved issues between FAA and NWS regarding the center weather service units, it is more important than ever that the two agencies be extremely clear on what their commitments entail. An important component of any effort to improve operations is a solid understanding of current performance. While NWS has made progress in measuring the performance of the center weather service units, is not adequately documenting performance baselines or reporting on several of its performance measures. Further, the agency has begun efforts to measure customer satisfaction, but the process is immature, and the results are unreliable. Specifically, NWS has changed its approach to the annual evaluations making it difficult to compare performance from year to year, and its scoring process mixes positive and negative findings for several sites. As a result, the scores may not accurately reflect each center's performance. Until NWS has a solid understanding of the current level of performance, it will be limited in its ability to evaluate what progress has been made and whether or not it is achieving its goals. As the agencies move forward with plans to make aviation weather services more efficient, they continue to face challenges, including a record of false starts on interagency collaboration, unstable requirements, and a lack of assurance that operational changes will align with the future vision of NextGen. Until these challenges are fully addressed, the agencies will likely find it difficult to make meaningful changes in aviation weather services. To improve the aviation weather products and services provided at FAA's en route centers, we are making three recommendations to the Secretaries of Commerce and Transportation. Specifically, we recommend that the Secretaries direct the NWS and FAA Administrators to define, document, and sign the agencies' recent agreements on (1) the locations of the center weather service units, (2) immediate improvements in aviation weather services and operating hours, and (3) the development of an implementation plan for improvements through 2015; ensure that NWS regularly tracks progress, documents performance baselines, and reports on its format consistency, forecast accuracy, and training performance measures; and ensure that NWS develops a reliable customer satisfaction baseline by refining the questions used during annual evaluations, so that comparable information is collected from year to year, and revising the scoring process to ensure that scores accurately reflect each center's performance. In addition, we are reiterating our prior recommendations to the two agencies to address key challenges in achieving interagency collaboration, defining requirements, and aligning any organizational changes with plans for NextGen. We received written comments on a draft of this report from the Secretary of Commerce, who transmitted NOAA's comments (see app. III). In its comments, NOAA stated that our report is generally representative of challenges facing NWS and FAA in the execution of aviation weather services provided by the center weather service units. The agency agreed with our recommendations and identified plans to implement selected parts of the recommendations. Specifically, NOAA reiterated its plan to form a joint NWS/FAA team to determine weather requirements for traffic flow management and to implement products and services through the year 2015. NOAA stated that this team's results will serve as additional documentation of the agreements. In addition, NOAA reported that it plans to begin measuring format consistency in September 2010 and forecast accuracy in December 2010. NOAA also noted that it was using 2009 site evaluations as the basis for its scoring and that the 2009 results would serve as a baseline for comparison to 2010 and subsequent results. However, as we discuss in the report, our analysis of the 2009 site evaluations and scoring process found that the results were not reliable because the process for collecting information on customer service was inconsistent, and the scores did not always accurately reflect the centers' performance. As a result, the 2009 scores are not useful as a baseline or as a feedback tool. Moving forward, as NOAA analyzes the results from its ongoing 2010 site evaluations, it will be important to ensure that the scores accurately reflect each center's performance. Further, in future years, it will be important to ensure that comparable information is collected from year to year so that a reliable performance baseline can be established. The Department of Transportation's Director of Audit Relations provided comments on a draft of this report via e-mail. In those comments, he noted that the department agreed to consider our recommendations. Both departments also provided technical comments that 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 appropriate congressional committees, the Secretary of Commerce, the Secretary of Transportation, the Director of the Office of Management and Budget, and other interested parties. The report also 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 about this report, please contact me at (202) 512-9286 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our objectives were to (1) determine the status of the agencies' efforts to restructure aviation weather services and products, (2) assess the agencies' progress in establishing performance baselines in order to measure the effect of any changes, and (3) evaluate plans to address key challenges. To determine the status of the agencies' efforts to restructure aviation weather services and products, we analyzed Federal Aviation Administration (FAA) and National Weather Service (NWS) documentation, including FAA's requirements for center weather service units, the interagency agreement between FAA and NWS, and NWS's proposals to meet FAA needs for center weather service units. We also interviewed officials from both agencies to discuss their plans and status in reaching a decision on proposed changes. To assess the agencies' progress in establishing performance baselines, we identified the agencies' previous efforts to establish baselines and evaluated the extent to which they have made progress in doing so. We analyzed NWS's approach to measuring center weather service unit performance and compared its performance measurement practices with guidance and best practices in performance management identified by government and industry. Specifically, we assessed the agencies' actions taken to identify performance measures, track them, establish baselines of performance, and report on those baselines. We also assessed the reliability of the performance data that NWS reported. Specifically, for the customer satisfaction measurements, we analyzed supporting data and calculated customer satisfaction scores using NWS's guidance for developing scores. We then compared the scores we calculated with NWS's scores. In instances where our scores did not match NWS's, we interviewed agency officials in order to determine why NWS's scores did not match our own, focusing on four sites with the largest number of findings. We found that the agency's customer satisfaction data was not reliable. For the other reported measures, we evaluated supporting data and interviewed responsible agency officials to determine the agency's processes for validating the data. We found that the data reported for these performance measures was sufficient to meet our reporting purposes. To evaluate plans to address key challenges identified in our prior report, we reviewed agency documents including FAA requirements, an NWS proposal, plans for the Next Generation Air Transportation System (NextGen), and FAA's response to NWS's proposal. We compared agency efforts with leading practices in industry and government on interagency collaboration and system development. In addition, we interviewed the FAA contracting officer's technical representative for the center weather service units to discuss the challenges the agency would have in implementing NWS's proposal, as well as the agency's plans to ensure requirements were stabilized. We also interviewed NWS officials to discuss their plans for aligning their system development initiatives with NextGen. We also interviewed the co-chair of the weather working group of the Joint Planning and Development Office to determine whether the office had reviewed NWS's proposal and if the office had concerns about the proposal's impact on NextGen. We conducted our work at National Oceanic and Atmospheric Administration (NOAA) and FAA facilities in the Washington, D.C., metropolitan area. We conducted this performance audit from October 2009 to September 2010, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Table 6 lists concerns that FAA identified in a series of studies between 2003 and 2006, as well as the steps that NWS has taken to address these concerns. In addition to the individual named above, Colleen Phillips, Assistant Director; Neil Doherty; Rebecca Eyler; Joshua Leiling; and Jessica Waselkow made key contributions to this report.
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The National Weather Service's (NWS) weather products are a vital component of the Federal Aviation Administration's (FAA) air traffic control system. In addition to providing aviation weather products developed at its own facilities, NWS also provides on-site staff at each of FAA's en route centers--the facilities that control high-altitude flight outside the airport tower and terminal areas. NWS's on-site staff is called a center weather service unit. For several years, NWS and FAA have been exploring options for improving the aviation weather services provided at en route centers. GAO agreed to (1) determine the status of the agencies' efforts to restructure aviation weather services, (2) assess the agencies' progress in establishing performance baselines in order to measure the effect of any changes, and (3) evaluate plans to address key challenges. To do so, GAO evaluated agency progress and plans and compared agency efforts with leading practices. After developing and shelving four proposals for restructuring the center weather service units over the last 5 years, in July 2010, senior NWS and FAA officials agreed to continue the current center weather service units at each of the 21 en route centers through September 2011 and to take immediate steps to improve aviation weather services by (1) having the service units provide forecasts for 10 key FAA terminal radar facilities and (2) having nearby weather forecast offices support FAA's en route centers when the service units are closed for the night. In addition, the agencies agreed to establish a joint team to baseline current capabilities and develop firm requirements for aviation weather services supporting air traffic flow management. While this agreement is important, the details have not been fully defined. Thus, it is not yet clear what will happen to the 21 service units after September 2011, when the immediate improvements in services will be in place, whether there are any costs associated with these steps, and who will pay for them. Until the two agencies further define their plans, the risk remains that the agencies will misjudge their responsibilities and not fulfill their agreements. FAA and NWS have made progress in identifying performance measures for the weather service units located at FAA en route centers, and NWS is beginning to track its service units' performance. However, NWS has not yet tracked, established baselines for, and reported to FAA on all applicable performance measures. Specifically, of seven possible performance measures, NWS is tracking performance for three of the measures and partially tracking a fourth measure. Of these four measures, the agency has established a sound baseline and reported on two of these measures and has made partial progress on two others. The agency is not tracking performance, documenting baselines, or reporting on three of the measures because it has not yet determined how to track them. Without an understanding of the current level of performance of the identified measures, the agencies will be limited in their ability to evaluate what progress has been made. In addition, until NWS regularly reports on its performance, the agencies lack the information they need to determine what is working well and what needs to be improved. In September 2009, GAO identified three challenges in modifying NWS's aviation weather services provided at FAA's en route centers: achieving interagency collaboration, defining requirements, and aligning changes with the Next Generation Air Transportation System (NextGen)--a long-term initiative to increase the efficiency of the national airspace system. The agencies have not yet fully addressed these challenges. Specifically, while senior agency officials recently agreed on how to proceed, work remains to be done to refine requirements, develop and execute an implementation plan, and to ensure that improvements are aligned with the long-term vision for NextGen. Until these fundamental challenges are addressed, the agencies are unlikely to achieve significant improvements in the aviation weather services provided at en route centers. GAO recommends that the Departments of Commerce and Transportation define their agreements, refine performance management processes, and address key challenges. In commenting on a draft of this report, Commerce agreed with GAO's recommendations and identified plans to address them; Transportation agreed to consider the recommendations.
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Through its development and use of PART, OMB has more explicitly infused performance information into the budget formulation process; increased the attention paid to evaluation and to performance information; and ultimately, we hope, increased the value of this information to decision makers and other stakeholders. By linking performance information to the budget process, OMB has provided agencies with a powerful incentive for improving both the quality and availability of performance information. The level of effort and involvement by senior OMB officials and staff clearly signals the importance of this strategy in meeting the priorities outlined in the PMA. OMB should be credited with opening up for scrutiny--and potential criticism--its review of key areas of federal program performance and then making its assessments available to a potentially wider audience through its Web site. As OMB and others recognize, performance is not the only factor in funding decisions. Determining priorities--including funding priorities--is a function of competing values and interests. Accordingly, we found that while PART scores were generally positively related to proposed funding changes in discretionary programs, the scores did not automatically determine funding changes. That is, for some programs rated "effective" or "moderately effective" OMB recommended funding decreases, while for several programs judged to be "ineffective" OMB recommended additional funding in the President's budget request with which to implement changes. In fact, the more important role of PART was not its use in making resource decisions, but in its support for recommendations to improve program design, assessment, and management. As shown in figure 1, we found that 82 percent of PART's recommendations addressed program assessment, design, and management issues; only 18 percent of the recommendations had a direct link to funding matters. OMB's ability to use PART to identify and address future program improvements and measure progress--a major purpose of PART--depends on its ability to oversee the implementation of PART recommendations. As OMB has recognized, following through on these recommendations is essential for improving program performance and ensuring accountability. Currently, OMB plans to assess an additional 20 percent of all federal programs annually. As the number of recommendations from previous years' evaluations grows, a system for monitoring their implementation will become more critical. However, OMB does not have a centralized system to oversee the implementation of such recommendations or evaluate their effectiveness. The goal of PART is to evaluate programs systematically, consistently, and transparently. OMB went to great lengths to encourage consistent application of PART in the evaluation of government programs, including pilot testing the instrument, issuing detailed guidance, and conducting consistency reviews. Although there is undoubtedly room for continued improvement, any tool is inherently limited in providing a single performance answer or judgment on complex federal programs with multiple goals. Performance measurement challenges in evaluating complex federal programs make it difficult to meaningfully interpret a bottom-line rating. OMB published both a single, bottom-line rating for PART results and individual section scores. It is these latter scores that are potentially more useful for identifying information gaps and program weaknesses. For example, one program that was rated "adequate" overall got high scores for purpose (80 percent) and planning (100 percent), but poor scores in being able to show results (39 percent) and in program management (46 percent). In a case like this, the individual section ratings provided a better understanding of areas needing improvement than the overall rating alone. In addition, bottom-line ratings may force raters to choose among several important, but disparate goals and encourage a determination of program effectiveness even when performance data are unavailable, the quality of those data is uneven, or they convey a mixed message on performance. Any tool that is sophisticated enough to take into account the complexity of the U.S. government will always require some interpretation and judgment. Therefore it is not surprising that OMB staff were not fully consistent in interpreting complex questions about agency goals and results. In addition, the limited availability of credible evidence on program results also constrained OMB's ability to use PART to rate programs' effectiveness. Many PART questions contain subjective terms that are open to interpretation. Examples include terminology such as "ambitious" in describing sought-after performance measures. Because the appropriateness of a performance measure depends on the program's purpose, and because program purposes can vary immensely, an ambitious goal for one program might be unrealistic for a similar but more narrowly defined program. Without further guidance, it is unclear how OMB staff can be expected to be consistent. We found inconsistencies in how the definition of acceptable performance measures was applied. Our review surfaced several instances in which OMB staff inconsistently defined appropriate measures--outcome versus output--for programs. Agency officials also told us that OMB staff used different standards to define measures as outcome-oriented. Outputs are the products and services delivered by the program whereas outcomes refer to the results of outputs. For example, in the employment and training area, OMB accepted short-term outcomes, such as obtaining high school diplomas or employment, as a proxy for long-term goals for the Department of Health and Human Services' Refugee Assistance program, which aims to help refugees attain economic self-sufficiency as soon as possible. However, OMB did not accept the same employment rate measure as a proxy for long-term goals for the Department of Education's Vocational Rehabilitation program because it had not set long-term targets beyond a couple of years. In other words, although neither program contained long- term outcomes, such as participants gaining economic self-sufficiency, OMB accepted short-term outcomes in one instance but not the other. The yes/no format employed throughout most of the PART questionnaire resulted in oversimplified answers to some questions. Although OMB believes it helped standardization, the yes/no format was particularly troublesome for questions containing multiple criteria for a "yes" answer. Agency officials have commented that the yes/no format is a crude reflection of reality, in which progress in planning, management, or results is more likely to resemble a continuum than an on/off switch. We found several instances in which some OMB staff gave a "yes" answer for successfully achieving some but not all of the multiple criteria, while others gave a "no" answer when presented with a similar situation. For example, OMB judged the Department of the Interior's (DOI) Water Reuse and Recycling program "no" on whether a program has a limited number of ambitious, long-term performance goals, noting that although DOI set a long-term goal of 500,000 acre-feet per year of reclaimed water, it failed to establish a time frame for when it would reach the target. However, OMB judged the Department of Agriculture's and DOI's Wildland Fire programs "yes" on this question even though the programs' long-term goals of improved conditions in high-priority forest acres are not accompanied by specific time frames. The lack of program performance information also creates challenges in effectively measuring program performance. According to OMB, about half of the programs assessed for fiscal year 2004 lacked "specific, ambitious long-term performance goals that focus on outcomes" and nearly 40 percent lacked sufficient "independent, quality evaluations." Nearly 50 percent of programs assessed for fiscal year 2004 received ratings of "results not demonstrated" because OMB decided that program performance information, performance goals, or both were insufficient or inadequate. While the validity of these assessments may be subject to interpretation and debate, our previous work has raised concerns about the capacity of federal agencies to produce evaluations of program effectiveness as well as credible data. PART was designed for and is used in the executive branch budget preparation and review process. As a result, the goals and measures used in PART must meet OMB's needs. By comparison, GPRA--the current statutory framework for strategic planning and reporting--is a broader process involving the development of strategic and performance goals and objectives to be reported in strategic and annual plans and reports. OMB said that GPRA plans were organized at too high a level to be meaningful for program-level budget analysis and management review. OMB acknowledges that GPRA was the starting point for PART, but as I will explain, it appears that OMB's emphasis is shifting such that over time the performance measures developed for PART and used in the budget process may also come to drive agencies' strategic planning processes. The fiscal year 2004 PART process came to be a parallel competing structure to the GPRA framework as a result of OMB's desire to collect performance data that better align with budget decision units. OMB's most recent Circular A-11 guidance clearly requires both that each agency submit a performance budget for fiscal year 2005 and that this should replace the annual GPRA performance plan. These performance budgets are to include information from the PART assessments, where available, including all performance goals used in the assessment of program performance done under the PART process. Until all programs have been assessed using PART, the performance budget will also include performance goals for agency programs that have not yet been assessed. OMB's movement from GPRA to PART is further evident in the fiscal year 2005 PART guidance stating that while existing GPRA performance goals may be a starting point during the development of PART performance goals, the GPRA goals in agency GPRA documents are to be revised, as needed, to reflect OMB's instructions for developing the PART performance goals. Lastly, this same guidance states that GPRA plans should be revised to include any new performance measures used in PART and that unnecessary measures should be deleted from GPRA plans. Although there is potential for complementary approaches to GPRA and PART, the following examples clearly illustrate the importance of carefully considering the implications of selecting a unit of analysis, including its impact on the availability of performance data. They also reveal some of the unresolved tensions between the President's budget and performance initiative--a detailed budget perspective--and GPRA--a more strategic planning view. Experience with the PART highlighted the fact that defining a "unit of analysis" useful for both program-level budget analysis and agency planning purposes can be difficult. For example, disaggregating programs for PART purposes could ignore the interdependence of programs recognized by GPRA by artificially isolating programs from the larger contexts in which they operate. Agency officials described one program assessed with the PART--Projects for Assistance in Transition from Homelessness--that was aimed at a specific aspect of homelessness, that is, referring persons with emergency needs to other agencies for housing and needed services. OMB staff wanted the agency to produce long-term outcome measures for this program to support the PART review process. Agency officials argued that chronically homeless people require many services, and that this federal program often supports only some of the services needed at the initial stages of intervention. GPRA--with its focus on assessing the relative contributions of related programs to broader goals--is better designed to consider crosscutting strategies to achieve common goals. Federal programs cannot be assessed in isolation. Performance needs also to be examined from an integrated, strategic perspective. One way of improving the links between PART and GPRA would be to develop a more strategic approach to selecting and prioritizing areas for assessment under the PART process. Targeting PART assessments based on such factors as the relative priorities, costs, and risks associated with related clusters of programs and activities addressing common strategic and performance goals not only could help ration scarce analytic resources but also could focus decision makers' attention on the most pressing policy and program issues. Moreover, such an approach could facilitate the use of PART assessments to review the relative contributions of similar programs to common or crosscutting goals and outcomes established through the GPRA process. We have previously reported that stakeholder involvement appears critical for getting consensus on goals and measures. In fact, GPRA requires agencies to consult with Congress and solicit the views of other stakeholders as they develop their strategic plans. Stakeholder involvement can be particularly important for federal agencies because they operate in a complex political environment in which legislative mandates are often broadly stated and some stakeholders may strongly disagree about the agency's mission and goals. The relationship between PART and its process and the broader GPRA strategic planning process is still evolving. As part of the executive branch budget formulation process, PART must clearly serve the President's interests. Some tension about the amount of stakeholder involvement in the internal deliberations surrounding the development of PART measures and the broader consultations more common to the GPRA strategic planning process is inevitable. Compared to the relatively open-ended GPRA process, any budget formulation process is likely to seem closed. Yet, we must ask whether the broad range of congressional officials with a stake in how programs perform will use PART assessments unless they believe the reviews reflect a consensus about performance goals among a community of interests, target performance issues that are important to them as well as the administration, and are based on an evaluation process that they have confidence in. Similarly, the measures used to demonstrate progress toward a goal, no matter how worthwhile, cannot serve the interests of a single stakeholder or purpose without potentially discouraging use of this information by others. Accordingly, if PART is to be accepted as other than one element in the development of the President's budget proposal, congressional understanding and acceptance of the tool and analysis will be important. Congress has a number of opportunities to provide its perspective on performance issues and performance goals, such as when it establishes or reauthorizes a new program, during the annual appropriations process, and in its oversight of federal operations. In fact, these processes already reflect GPRA's influence. Reviews of language in public laws and committee reports show an increasing number of references to GPRA- related provisions. What is missing is a mechanism to systematically coordinate a congressional perspective. In our report, we have suggested steps for both OMB and the Congress to take to strengthen the dialogue between executive officials and congressional stakeholders. We have recommended that OMB reach out to key congressional committees early in the PART selection process to gain insight about which program areas and performance issues congressional officials consider warrant PART review. Engaging Congress early in the process may help target reviews with an eye toward those areas most likely to be on the agenda of the Congress, thereby better ensuring the use of performance assessments in resource allocation processes throughout government. We have also suggested that Congress consider the need to develop a more systematic vehicle for communicating its top performance concerns and priorities; develop a more structured oversight agenda to prompt a more coordinated congressional perspective on crosscutting performance issues; and use this agenda to inform its authorization, appropriations, and oversight processes. The PART process is the latest initiative in a long-standing series of reforms undertaken to improve the link between performance information and budget decisions. Although each of the initiatives of the past appears to have met with an early demise, in fact, subsequent reforms were strengthened by building on the legacy left by their predecessors. Prior reforms often failed because they were not relevant to resource allocation and other decision making processes, thereby eroding the incentives for federal agencies to improve their planning, data, and evaluations. Unlike many of those past initiatives, GPRA has been sustained since its passage 10 years ago, and evidence exists that it has become more relevant than its predecessors. PART offers the potential to build on the infrastructure of performance plans and information ushered in by GPRA and the law's intent to promote the use of these plans in resource allocation decision making. GPRA improved the supply of plans and information, while PART can prompt greater demand for this information by decision makers. Potentially, enhancing interest and use may bring about greater incentives by agencies to devote scarce resources to improving their information and evaluations of federal programs as well. Increasing the use and usefulness of performance data is not only important to sustain performance management reforms, but to improve the processes of decision making and governance. Many in the U.S. believe there is a need to establish a comprehensive portfolio of key national performance indicators. This will raise complex issues ranging from agreement on performance areas and indicators to getting and sharing reliable information for public planning, decision making, and accountability. In this regard, the entire agenda of management reform at the federal level has been focused on shifting decision making and agency management from process to results. Although the PART is based on changing the orientation of budgeting, other initiatives championed by Congress and embodied in the PMA are also devoted to improving the accountability for performance goals in agency human capital management, financial management, competitive sourcing, and other key management areas. In particular, we have reported that human capital--or people--is at the center of any serious change management initiative. Thus, strategic human capital management is at the heart of government transformation. High- performing organizations strengthen the alignment of their GPRA strategic and performance goals with their daily operations. In that regard, performance management systems can be a vital--but currently largely unused tool--to align an organization's operations with individual day-to- day activities. As we move forward to strengthen government performance and accountability, effective performance management systems can be a strategic tool to drive internal change and achieve desired results. The question now is how to enhance the credibility and use of the PART process as a tool to focus decisions on performance. In our report, we make seven recommendations to OMB and a suggestion to Congress to better support the kind of collaborative approach to performance budgeting that very well may be essential in a separation of powers system like ours. Our suggestions cover several key issues that need to be addressed to strengthen and help sustain the PART process. We recommend that the OMB Director take the following actions: Centrally monitor agency implementation and progress on PART recommendations and report such progress in OMB's budget submission to Congress. Governmentwide councils may be effective vehicles for assisting OMB in these efforts. Continue to improve the PART guidance by (1) expanding the discussion of how the unit of analysis is to be determined to include trade-offs made when defining a unit of analysis, implications of how the unit of analysis is defined, or both; (2) clarifying when output versus outcome measures are acceptable; and (3) better defining an "independent, quality evaluation." Clarify OMB's expectations to agencies regarding the allocation of scarce evaluation resources among programs, the timing of such evaluations, as well as the evaluation strategies it wants for the PART, and consider using internal agency evaluations as evidence on a case-by- case basis--whether conducted by agencies, contractors, or other parties. Reconsider plans for 100 percent coverage of federal programs and, instead, target for review a significant percentage of major and meaningful government programs based on such factors as the relative priorities, costs, and risks associated with related clusters of programs and activities. Maximize the opportunity to review similar programs or activities in the same year to facilitate comparisons and trade-offs. Attempt to generate, early in the PART process, an ongoing, meaningful dialogue with congressional appropriations, authorization, and oversight committees about what they consider to be the most important performance issues and program areas that warrant review. Seek to achieve the greatest benefit from both GPRA and PART by articulating and implementing an integrated, complementary relationship between the two. In its comments on our report, OMB outlined actions it is taking to address several of these recommendations, including refining the process for monitoring agencies' progress in implementing the PART recommendations, seeking opportunities for dialogue with Congress on agencies' performance, and continuing to improve executive branch implementation of GPRA plans and reports. Our recommendations to OMB are partly directed at fortifying and enhancing the credibility of the PART itself and the underlying data used to make the judgments. Decision makers across government are more likely to rely on PART data and assessments if the underlying information and the rating process are perceived as being credible, systematic, and consistent. Enhanced OMB guidance and improved strategies for obtaining and evaluating program performance data are vital elements. The PART process can be made more sustainable if the use of analytic resources at OMB and the agencies is rationalized by reconsidering the goal of 100 percent coverage of all federal programs. Instead, we suggest a more strategic approach to target assessments on related clusters of programs and activities. A more targeted approach stands a better chance of capturing the interest of decision makers throughout the process by focusing their attention on the most pressing policy and program issues on how related programs and tools affect broader crosscutting outcomes and goals. Unfortunately, the governmentwide performance plan required by GPRA has never been engaged to drive budgeting in this way. Improving the integration of inherently separate but interrelated strategic planning and performance budgeting processes can help support a more strategic focus for PART assessments. GPRA's strategic planning goals could be used to anchor the selection and review of programs by providing a foundation to assess the relative contribution of related programs and tools to broader performance goals and outcomes. Finally, refining the PART questionnaire and review process, and improving the quality of data are important, but the question of whose interests drive the process is perhaps paramount in our system. Ultimately, the impact of PART on decision making will be a function not only of the President's decisions, but of congressional decisions as well. Much is at stake in the development of a collaborative performance budgeting process. Not only might the PART reviews come to be disregarded absent congressional involvement, but more important, Congress will lose an opportunity to use the PART process to improve its own decision making and oversight processes. This is an opportune time for the executive branch and Congress to carefully consider how agencies and committees can best take advantage of and leverage the new information and perspectives coming from the reform agenda under way in the executive branch. Ultimately, the specific approach or process is not important. We face a long-term fiscal imbalance, which will require us to reexamine our existing policies and programs. It is all too easy to accept "the base" as given and to subject only new proposals to scrutiny and analysis. The norm should be to reconsider the relevance or "fit" of any federal program, policy, or activity in today's world and for the future. Mr. Chairman, this concludes my prepared statement. I would be pleased to answer any questions you or the other members of the Committee may have at this time. For future contacts regarding this testimony, please call Paul L. Posner, Managing Director, Federal Budget Issues, at (202) 512-9573. Individuals making key contributions to this testimony included Denise M. Fantone and Jacqueline Nowicki. 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 Office of Management and Budget's (OMB) Program Assessment Rating Tool (PART) is meant to provide a consistent approach to evaluating federal programs during budget formulation. The subcommittee asked GAO to discuss our recent report, Performance Budgeting: Observations on the Use of OMB's Program Assessment Rating Tool for the Fiscal 2004 Budget (GAO-04-174) and strategies for improving PART and furthering the goals envisioned by the Government Performance and Results Act of 1993 (GPRA). PART helped structure OMB's use of performance information for internal program and budget analysis and stimulated agency interest in budget and performance integration. Moreover, it illustrated the potential to build on GPRA's foundation to more actively promote the use of performance information in budget decisions. OMB deserves credit for inviting scrutiny of its federal program performance reviews and sharing them on its Web site. Much of PART's potential value lies in its program recommendations but follow through will require sustained commitment by agencies and OMB. OMB devoted considerable effort to developing PART, but diagnosing problems and rating programs are only the beginning of PART's ambitious agenda. Implementing change and providing oversight takes time; OMB needs to be mindful of this as it considers capacity and workload issues in the PART. As is to be expected in the first year of any reform, PART is a work in progress and we noted in our report where OMB might make improvements. Any tool that is sophisticated enough to take into account the complexity of the U.S. government will require exercising some judgment. Therefore it is not surprising that we found inconsistencies in OMB staff interpreting and applying PART. PART provides an opportunity to more efficiently use scarce analytic resources, to focus decision makers' attention on the most pressing policy issues, and to consider comparisons and trade-offs among related programs by more strategically targeting PART assessments based on such factors as the relative priorities, costs, and risks associated with related clusters of programs and activities. PART assessments underscored long-standing gaps in performance and evaluation information throughout the federal government. By reaching agreement on areas in which evaluations are most essential, decision makers can help ensure that limited resources are applied wisely. The relationship between PART and the broader GPRA strategic planning process is still evolving. Although PART can stimulate discussion on program-specific performance measurement issues, it is not a substitute for GPRA's strategic, longer-term focus on thematic goals, and department- and governmentwide crosscutting comparisons. Although PART and GPRA serve different needs, a strategy for integrating the two could help strengthen both. Federal programs are designed and implemented in dynamic environments where competing program priorities and stakeholders' needs must be balanced continually and new needs addressed. PART clearly serves OMB's needs but questions remain about whether it serves the various needs of other key stakeholders. If PART results are to be considered in the congressional debate it will be important for OMB to (1) involve congressional stakeholders early in providing input on the focus of the assessments; (2) clarify any significant limitations in the assessments and underlying performance information; and (3) initiate discussions with key congressional committees about how they can best leverage PART information in congressional authorization, appropriations, and oversight processes.
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In 1936, following the enactment of the Social Security Act of 1935, the newly-formed Social Security Board (which later became SSA) created the 9-digit SSN to uniquely identify and determine Social Security benefit entitlement levels for U.S. workers. Originally, the SSN was not intended to serve as a personal identifier but, due to its universality and uniqueness, government agencies and private sector entities now use it as a convenient means of identifying people. The number uniquely links identities across a very broad array of public and private sector information systems. As of September 2016, SSA had issued approximately 496 million unique SSNs to eligible individuals. In 2006, the President issued an Executive Order establishing the Identity Theft Task Force to strengthen efforts to protect against identity theft. Because the unauthorized use of SSNs was recognized as a key element of identity theft, the task force assessed the actions the government could take to reduce the exposure of SSNs to potential compromise. In April 2007, the task force issued a strategic plan, which advocated a unified federal approach, or standard, for using and displaying SSNs. The plan proposed that OPM, OMB, and SSA play key roles in restricting the unnecessary use of the numbers, offering guidance on substitutes that are less valuable to identity thieves, and promoting consistency when the use of SSNs was found to be necessary or unavoidable. In response to the recommendations of the Identity Theft Task Force, OPM, OMB, and SSA undertook several actions aimed at reducing or eliminating the unnecessary collection, use, and display of SSNs. However, in our draft report, we determined that these actions have had limited success. OPM took several actions in response to the task force recommendations. Using an inventory of its forms, procedures, and systems displaying SSNs that it had developed in 2006, the agency took action to change, eliminate, or mask the use of SSNs on OPM approved/authorized forms, which are used by agencies across the government for personnel records. In addition, in 2007, OPM issued guidance to other federal agencies on actions they should take to protect federal employee SSNs and combat identity theft. The guidance reminded agencies of existing federal regulations that restricted the collection and use of SSNs and also specified additional measures. In addition to issuing this guidance, in January 2008, OPM proposed a new regulation regarding the collection, use, and display of SSNs that would have codified the practices outlined in its 2007 guidance and that also required the use of an alternate identifier. However, in January 2010, after reviewing comments it had received, OPM withdrew the notice of proposed rulemaking because the agency determined that it would be impractical to issue the rule without an alternate governmentwide employee identifier in place. In 2015, OPM briefly began exploring the concept of developing and using multiple alternate identifiers for different programs and agencies. As envisioned, an SSN would be collected only once, at the start of an employee's service, after which unique identifiers specific to relevant programs, such as healthcare benefits or training, would be assigned as needed. However, officials from OPM's Office of the Chief Information Officer stated that work on the initiative was suspended in 2016 due to a lack of funding. In May 2007, OMB issued a memorandum officially requiring agencies to review their use of SSNs in agency systems and programs to identify instances in which the collection or use of the number was superfluous. Agencies were also required to establish a plan, within 120 days from the date of the memorandum, to eliminate the unnecessary collection and use of SSNs within 18 months. Lastly, the memorandum required agencies to participate in governmentwide efforts, such as surveys and data calls, to explore alternatives to SSN use as a personal identifier for both federal employees and in federal programs. Since issuing its May 2007 memorandum requiring the development of SSN reduction plans, OMB has instructed agencies to submit updates to their plans and documentation of their progress in eliminating unnecessary uses of SSNs as part of their annual reports originally required by the Federal Information Security Management Act of 2002 and now required by the Federal Information Security Modernization Act of 2014 (FISMA). The Identity Theft Task Force recommended that, based on the results of OMB's review of agency practices on the use of SSNs, SSA should establish a clearinghouse of agency practices and initiatives that had minimized the use and display of SSNs. The purpose of the clearinghouse was to facilitate the sharing of "best" practices--including the development of any alternative strategies for identity management-- to avoid duplication of effort, and to promote interagency collaboration in the development of more effective measures for minimizing the use and display of SSNs. In 2007, SSA established a clearinghouse on an electronic bulletin board website to showcase best practices and provided agency contacts for specific programs and initiatives. However, according to officials in SSA's Office of the Deputy Commissioner, the clearinghouse is no longer active. The officials added that SSA did not maintain any record of the extent to which the clearinghouse was accessed or used by other agencies when it was available online. Further, the officials said SSA has no records of when or why the site was discontinued. Based on their responses to our questionnaire on SSN reduction efforts in our draft report, all of the 24 CFO Act agencies reported taking a variety of steps to reduce such collection, display, and use. However, officials involved in the reduction efforts at these agencies stated that SSNs cannot be completely eliminated from federal IT systems and records. In some cases, no other identifier offers the same degree of universal awareness or applicability. Even when reductions are possible, challenges in implementing them can be significant. In our draft report, three key challenges were frequently cited by these officials: Statutes and regulations require collection and use of SSNs. In their questionnaire responses and follow-up correspondence with us, officials from 15 agencies who were involved in their agencies' SSN reduction efforts noted that they are limited in their ability to reduce the collection of SSNs because many laws authorize or require such collection. These laws often explicitly require agencies to use SSNs to identify individuals who are engaged in transactions with the government or who are receiving benefits disbursed by federal agencies. Interactions with other federal and external entities require use of the SSN. In their questionnaire responses and follow-up correspondence with us, officials from 16 agencies noted that the necessity to communicate with other agencies and external entities limited their reduction efforts. Federal agencies must be able to cite a unique, common identifier to ensure that they are matching their information to the correct records in the other entities' systems in order to exchange information about individuals with other entities, both within and outside the federal government. The SSN is typically the only identifier that government agencies and external partners have in common that they can use to match their records. Technological hurdles can slow replacement of SSNs in information systems. In their questionnaire responses and follow-up correspondence with us, officials from 14 agencies who were involved in their agency SSN reduction efforts cited the complexity of making required technological changes to their information systems as a challenge to reducing the use, collection and display of SSNs. Our preliminary results indicate that SSN reduction efforts in the federal government also have been limited by more readily addressable shortcomings. Lacking direction from OMB, many agencies' reduction plans did not include key elements, such as time frames and performance indicators, calling into question the plans' utility. In addition, OMB has not required agencies to maintain up-to-date inventories of SSN collections and has not established criteria for determining when SSN use or display is "unnecessary," leading to inconsistent definitions across the agencies. Finally, OMB has not ensured that all agencies have submitted up-to-date status reports on their SSN reduction efforts and has not established performance measures to monitor progress on those efforts. Agency SSN Reduction Plans Lacked Key Elements, Limiting Their Usefulness As previously mentioned, in May 2007, OMB issued a memorandum requiring agencies to develop plans to eliminate the unnecessary collection and use of SSNs, an objective that was to be accomplished within 18 months. OMB did not set requirements for agencies on creating effective plans to eliminate the unnecessary collection and use of SSNs. However, other federal laws and guidance have established key elements that performance plans generally should contain, including: Performance goals and indicators: Plans should include tangible and measurable goals against which actual achievement can be compared. Performance indicators should be defined to measure outcomes achieved versus goals. Measurable activities: Plans should define discrete events, major deliverables, or phases of work that are to be completed toward the plan's goals. Timelines for completion: Plans should include a timeline for each goal to be completed that can be used to gauge program performance. Roles and responsibilities: Plans should include a description of the roles and responsibilities of agency officials responsible for the achievement of each performance goal. Our preliminary results show that the majority of plans that the 24 CFO Act agencies originally submitted to OMB in response to its guidance lacked key elements of effective performance plans. For example, only two agencies (the Departments of Commerce and Education) developed plans that addressed all four key elements. Four agencies' plans did not fully address any of the key elements, 9 plans addressed one or two of the elements, and the remaining 9 plans addressed three of the elements. Agency officials stated that, because OMB did not set a specific requirement that SSN reduction plans contain clearly defined performance goals and indicators, measurable activities, timelines for completion, or roles and responsibilities, the officials were not aware that they should address these elements. Yet, without complete performance plans containing clearly defined performance goals and indicators, measurable activities, timelines for completion, and roles and responsibilities, it is difficult to determine what overall progress agencies have achieved in reducing the unnecessary collection and use of SSNs and the concomitant risk of exposure to identity theft. Continued progress toward reducing that risk is likely to remain difficult to measure until agencies develop and implement effective plans. Not all agencies maintain an up-to-date inventory of their SSN collections Developing a baseline inventory of systems that collect, use, and display SSNs and ensuring that the inventory is periodically updated can assist managers in maintaining an awareness of the extent to which they collect and use SSNs and their progress in eliminating unnecessary collection and use. Standards for Internal Control in the Federal Government state that an accurate inventory provides a detailed description of an agency's current state and helps to clarify what additional work remains to be done to reach the agency's goal. Of the 24 CFO Act agencies we reviewed, 22 reported that, at the time that they developed their original SSN reduction plans in fiscal years 2007 and 2008, they compiled an inventory of systems and programs that collected SSNs. However, as of August 2016, 6 of the 24 agencies did not have up-to-date inventories: 2 agencies that had no inventories initially and 4 agencies that originally developed inventories but subsequently reported that those inventories were no longer up-to-date. These agencies did not have up-to-date inventories, in part, because OMB M-07-16 did not require agencies to develop an inventory or to update the inventory periodically to measure the reduction of SSN collection and use. However, OMB has issued separate guidance that requires agencies to maintain an inventory of systems that "create, collect, use, process, store, maintain, disseminate, disclose, or dispose of PII." This guidance states that agencies are to maintain such an inventory, in part, to allow them to reduce PII to the minimum necessary. Without enhancing these inventories to indicate which systems contain SSNs and using them to monitor their SSN reduction efforts, agencies will likely find it difficult to measure their progress in eliminating the unnecessary collection and use of SSNs. Agency definitions of "unnecessary" collection and use have been inconsistent Achieving consistent results from any management initiative can be difficult when the objectives are not clearly defined. Standards for Internal Control in the Federal Government state that management should define objectives in measurable terms so that performance toward achieving those objectives can be assessed. Further, measurable objectives should generally be free of bias and not require subjective judgments to dominate their measurement. In our draft report, we noted that of the 24 CFO Act agencies, 4 reported that they had no definition of "unnecessary collection and use" of SSNs. Of the other 20 agencies, 8 reported that their definitions were not documented. Officials from many agencies stated that the process of reviewing and identifying unnecessary uses of SSNs was an informal process that relied on subjective judgments. These agencies did not have consistent definitions of the "unnecessary collection and use" of SSNs, in part, because OMB M-07-16 did not provide clear criteria for determining what would be an unnecessary collection or use of SSNs, leaving agencies to develop their own interpretations. Given the varying approaches that agencies have taken to determine whether proposed or actual collections and uses of SSNs are necessary, it is doubtful that the goal of eliminating unnecessary collection and use of SSNs is being implemented consistently across the federal government. Until guidance for agencies is developed in the form of criteria for making decisions about what types of collections and uses of SSNs are unnecessary, agency efforts to reduce the unnecessary use of SSNs likely will continue to vary, and, as a result, the risk of unnecessarily exposing SSNs to identity theft may not be thoroughly mitigated. Agencies have not always submitted up-to-date status reports, and OMB has not set performance measures to monitor agency efforts In its Fiscal Year 2008 Report to Congress on Implementation of the Federal Information Security Management Act of 2002, OMB recognized that agencies' SSN reduction plans needed to be monitored. OMB reported that the reduction plans that agencies submitted for fiscal year 2008 displayed varying levels of detail and comprehensiveness and stated that agency reduction efforts would require ongoing oversight. Subsequently, OMB required agencies to report on the progress of their SSN reduction efforts through their annual FISMA reports. However, preliminary findings in our draft report show that annual updates submitted by the 24 CFO Act agencies as part of their FISMA reports from fiscal year 2013 through fiscal year 2015 did not always include updated information about specific agency efforts and results achieved, making it difficult to determine the status of activities that had been undertaken. Further, the annual updates did not include performance metrics. OMB did not establish specific performance metrics to monitor implementation of planned reduction efforts. Its guidance asked agencies to submit their most current documentation on their plans and progress, but it did not establish performance metrics or ask for updates on achieving the performances metrics or targets that agencies had defined in their plans. Although in 2016, OMB began requesting additional status information related to agency SSN reduction programs, it did not establish metrics for measuring agency progress in reducing the unnecessary collection and use of SSNs. Without performance metrics, it will remain difficult for OMB to determine whether agencies have achieved their goals in eliminating the unnecessary collection and use of SSNs or whether corrective actions are needed. In conclusion, based on preliminary information from our study of federal SSN reduction efforts, the initiatives that the 24 CFO Act agencies have undertaken show that it is possible to identify and eliminate the unnecessary use and display of SSNs. However, it is difficult to determine what overall progress has been made in achieving this goal across the government. Not all agencies developed effective SSN reduction plans, maintained up-to-date inventories of their SSN collection and use, or applied consistent definitions of "unnecessary" collection, use, and display of SSNs. Further, agencies have not always submitted up-to-date status reports to OMB, and OMB has not established performance measures to monitor agency efforts. Until OMB and agencies adopt better and more consistent practices for managing their SSN reduction processes, overall governmentwide reduction efforts will likely remain limited and difficult to measure; moreover, the risk of SSNs being exposed and used to commit identity theft will remain greater than it need be. Accordingly, our draft report contains five recommendations to OMB to improve the consistency and effectiveness of governmentwide efforts to reduce the unnecessary use of SSNs and thereby mitigate the risk of identity theft. Specifically, the report recommends that OMB: specify elements that agency plans for reducing the unnecessary collection, use, and display of SSNs should contain and require all agencies to develop and maintain complete plans; require agencies to modify their inventories of systems containing PII to indicate which systems contain SSNs and use the inventories to monitor their reduction of unnecessary collection and use of SSNs; provide criteria to agencies on how to determine unnecessary use of SSNs to facilitate consistent application across the federal government; take steps to ensure that agencies provide up-to-date status reports on their progress in eliminating unnecessary SSN collection, use, and display in their annual FISMA reports; and establish performance measures to monitor agency progress in consistently and effectively implementing planned reduction efforts. Chairman Johnson and Hurd, Ranking Members Larson and Kelly, and Members of the Subcommittees, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you have any questions regarding this statement, please contact Gregory C. Wilshusen at (202) 512-6244 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are John A. de Ferrari (assistant director), Marisol Cruz, Quintin Dorsey, David Plocher, Priscilla Smith, and Shaunyce Wallace. 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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SSNs are key pieces of identifying information that potentially may be used to perpetrate identity theft. Thieves find SSNs valuable because they are the identifying link that can connect an individual's information across many agencies, systems, and databases. This statement summarize GAO's draft report that: (1) describes what governmentwide initiatives have been undertaken to assist agencies in eliminating their unnecessary use of SSNs and (2) assesses the extent to which agencies have developed and executed plans to eliminate the unnecessary use and display of SSNs and have identified challenges associated with those efforts. For the draft report on which this testimony is based, GAO analyzed documentation, administered a questionnaire, and interviewed officials from the 24 CFO Act agencies that led or participated in SSN elimination efforts. In its draft report, GAO noted that several governmentwide initiatives aimed at eliminating the unnecessary collection, use, and display of Social Security numbers (SSN) have been underway in response to recommendations that the presidentially appointed Identity Theft Task Force made in 2007 to the Office of Personnel Management (OPM), the Office of Management and Budget (OMB), and the Social Security Administration (SSA). However, these initiatives have had limited success. In 2008, OPM proposed a new regulation requiring the use of an alternate federal employee identifier but withdrew its proposed regulation because no such identifier was available. OMB required agencies to develop SSN reduction plans and continues to require annual reporting on SSN reduction efforts. SSA developed an online clearinghouse of best practices associated with the reduction of SSN use; however, the clearinghouse is no longer available online. All 24 agencies covered by the Chief Financial Officers (CFO) Act developed SSN reduction plans and reported taking actions to curtail the use and display of the numbers. Nevertheless, in their responses to GAO's questionnaire and follow-up discussions, the agencies cited impediments to further reductions, including (1) statutes and regulations mandating the collection of SSNs, (2) the use of SSNs in necessary interactions with other federal entities, and (3) technological constraints of agency systems and processes. Further, poor planning by agencies and ineffective monitoring by OMB have limited efforts to reduce SSN use. Lacking direction from OMB, many agencies' reduction plans did not include key elements, such as time frames and performance indicators, calling into question their utility. In addition, OMB has not required agencies to maintain up-to-date inventories of their SSN holdings or provided criteria for determining "unnecessary use and display," limiting agencies' ability to gauge progress. In addition, OMB has not ensured that agencies update their annual progress nor has it established performance metrics to monitor agency efforts to reduce SSN use. Until OMB adopts more effective practices for guiding agency SSN reduction efforts, overall governmentwide reduction will likely remain limited and difficult to measure, and the risk of SSNs being exposed and used to commit identity theft will remain greater than it need be. GAO's draft report contains five recommendations to OMB to require agencies to submit complete plans for ongoing reductions in the collection, use, and display of SSNs; require inventories of systems containing SSNs; provide criteria for determining "unnecessary" use and display of SSNs; ensure agencies update their progress in reducing the collection, use, and display of the numbers in annual reports; and monitor agency progress based on clearly defined performance measures.
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The Early Detection Program is implemented through cooperative agreements between the CDC and 68 grantees--health departments in the 50 states, the District of Columbia, and the 5 U.S. territories, as well as 12 American Indian/Alaska Native tribal organizations. The program funds breast and cervical cancer screening services for women who are uninsured or underinsured, have an income equal to or less than 250 percent of the federal poverty level (FPL), and are aged 40 through 64 for breast cancer screenings or aged 18 through 64 for cervical cancer screenings. Within these eligibility criteria, CDC prioritizes certain groups for screening and individual program grantees may target certain groups or broaden eligibility. Breast cancer screening consists of clinical breast exams and mammograms. Cervical cancer screening consists of pelvic exams and the Pap test. While screening services represent the core of the Early Detection Program, program providers must also provide diagnostic testing and follow-up services for women whose screening tests are abnormal. The CDC funds cannot be used to pay for treatment; however, for women diagnosed with breast or cervical cancer, program providers must provide referrals for appropriate treatment services and case management services, if determined necessary. The Early Detection Program, which was reauthorized by Congress in 2007, is funded through annual appropriations to the CDC. According to CDC officials, in fiscal year 2008, total funding for the program was approximately $182 million. To implement the program, the CDC solicits applications to select Early Detection Program grantees every 5 years. All grantees must submit an annual request for funding to CDC. According to CDC officials, annual budgets are awarded based on performance and other factors. By law, grantees must match every $3 in federal contribution with at least $1 in non-federal contribution. Grantee matching funds may support the screening or non-screening components of the program. At least 60 percent of the awarded funds must be used for direct clinical services; the remainder may be used for other program functions including program management, education, outreach, quality assurance, surveillance, data management, and evaluation. Some grantees have also acquired additional state or local resources for their programs. Early Detection Program grantees typically have a network of local providers such as community health centers and private providers that deliver the screening and diagnostic services to women. Under the Treatment Act states may extend Medicaid eligibility to women who are under age 65, uninsured, otherwise not eligible for Medicaid, and who have been (1) screened under the CDC-funded Early Detection Program and (2) found to be in need of treatment for breast or cervical cancer including precancerous conditions. All 51 states chose to implement this optional Medicaid eligibility category. In doing so they were required to provide full Medicaid coverage to eligible women screened under the Early Detection Program and found in need of treatment for breast or cervical cancer. States must provide Medicaid coverage for the period when the woman needs treatment for breast or cervical cancer. In guidance provided to states, CMS and CDC define "screened under the program" as, at a minimum, offering Medicaid eligibility to women whose clinical services under the Early Detection Program were provided all or in part with CDC funds. Accordingly, CDC officials stated that any state offering Medicaid coverage under the Treatment Act would be required, at a minimum, to offer coverage to women screened with CDC funds, provided the women met all other eligibility requirements. The guidance also allows states to use a broader definition of "screened under the program," which includes extending Medicaid eligibility to (1) women screened by a CDC-funded provider within the scope of the state's Early Detection Program, even if CDC funds did not pay for the particular service, or (2) women screened by a non- CDC-funded provider whom the state has elected to include as part of its Early Detection Program. The CDC's Early Detection Program screened about half a million or more women for breast and cervical cancer annually from 2002 through 2006. In 2006, the program screened 579,665 women. There were 331,672 women screened with mammography and 4,026 breast cancers detected. There were 350,202 women screened with a Pap test and 5,110 cervical cancers and precursor lesions detected. Almost half of all women screened by the Early Detection Program in 2006 were screened by grantees in 10 states. (See app. II for information by grantee.) A number of factors determined how many women were screened by a grantee, including the CDC funding awarded, the availability of other resources, and clinical costs (for example, the use of more costly screening technologies such as digital mammography). Over the 5-year period from 2002 through 2006, the Early Detection Program screened 1.8 million low-income, uninsured women. About 1.1 million women were screened for breast cancer, and 18,937 breast cancers were detected. Similarly, about 1.1 million women were screened for cervical cancer, and 22,377 cervical cancers and precursor lesions were detected. The age and race of women screened reflect the Early Detection Program's policies that prioritize breast cancer screening for women 50 to 64 years old and cervical cancer screening for women 40 to 64 years old. Thus, women who received a mammogram tended to be older, with 71 percent age 50 or older. Women who received a Pap test tended to be younger, with 55 percent under age 50. (See fig. 1.) The program also targets racial and ethnic minorities, who tend to have lower screening rates for breast and cervical cancer, so more than half the women screened were racial or ethnic minorities. (See fig. 2.) Most states extend Medicaid eligibility under the Treatment Act to more women than is minimally required--those whose screening or diagnostic services were paid for with CDC funds. As of October 2008, 17 states reported applying only this minimum definition in determining Medicaid eligibility under the Treatment Act. Of the states that extend eligibility, 15 states extend Medicaid eligibility to women served by a CDC-funded provider, whether or not CDC funds were used to pay for services. The remaining 19 states further extend eligibility to women who were screened and diagnosed by non-CDC-funded providers. (See fig. 5.) Seventeen states offer Medicaid eligibility only to women screened or diagnosed with CDC funds. Fifteen of these states require a woman to have received at least one CDC-funded screening or diagnostic service to be considered "screened under the program." Two states, Florida and the District of Columbia, require that both the screening and diagnostic services be paid for with CDC funds for women to be eligible for Medicaid. Fifteen states extend Medicaid eligibility to women screened or diagnosed by a CDC-funded provider. In these states, women whose services were paid for with state or other funds, but delivered by a provider receiving some CDC grant funds, are considered eligible for Medicaid if they need treatment. This allows states that fund their Early Detection Programs above the contribution required to receive the CDC grant to extend eligibility to women screened by a program provider but with other funds. Nineteen states further extend Medicaid eligibility to women screened or diagnosed by a non-CDC-funded provider. Some of these states designate specific providers. For example, Iowa extends eligibility to women whose services were provided by Komen-funded providers. Other states consider women eligible for Medicaid under the Treatment Act if they were screened by any qualified provider. Among the states that limit Medicaid eligibility to women served only with CDC funds (17 states) or that extend eligibility to women served by a CDC- funded provider (15 states), some have alternate pathways to Medicaid eligibility for women initially screened or screened and diagnosed outside the Early Detection Program. In most of these states, women initially screened outside the program can qualify for Medicaid if they later receive their diagnostic services with CDC funds. Only four states reported they do not allow women who have been screened outside the program to receive diagnostic services under the program to qualify for Medicaid. In most of the states that limit Medicaid eligibility to women served with CDC funds or that extend eligibility to women served by a CDC-funded provider, once a woman who received her screening and diagnostic services outside the Early Detection Program is diagnosed with cancer, she cannot access Medicaid coverage under the Treatment Act. However, Early Detection Program directors in 6 of these states reported that women diagnosed outside the program can be rescreened under the program to qualify for Medicaid, and in 11 states women can qualify for Medicaid by receiving additional diagnostic services from a program provider. Although rescreening or providing additional diagnostic services is inefficient and may be medically unnecessary, program rules in some states require a woman to have received at least one CDC-funded service to qualify for Medicaid. Whether a woman can access Medicaid through one of these alternate pathways depends on her obtaining a referral and on the availability of funds and providers to deliver the additional screening and diagnostic services. In implementing the Treatment Act, most states reported they require a confirmed diagnosis of breast cancer, cervical cancer, or precancerous lesions to meet the requirement that women be in need of cancer treatment services. Two states, Missouri and New Hampshire, indicated that a woman may be enrolled in Medicaid in order to receive certain diagnostic procedures, such as a biopsy or magnetic resonance imaging. A third state, Oklahoma, indicated that an abnormal screening test alone met the standard of needing treatment and qualified a woman for Medicaid coverage. In Oklahoma, women with an abnormal mammogram or Pap test are enrolled in Medicaid for their diagnostic services, and Medicaid coverage ends if they are found to not have a cancer diagnosis. As of October 2008, 20 states had adopted presumptive eligibility--an option allowed by the Treatment Act--to help women get treatment sooner by provisionally enrolling them in Medicaid while their full application is being processed. Among the states that do not have presumptive eligibility, Early Detection Program directors reported that the average length of time it takes a woman to be enrolled once their application has been submitted did not exceed 30 days, with an overall state average of 9 days. In most states, whether or not they have adopted presumptive eligibility, a separate visit to the Medicaid office is not required for a woman to be enrolled in Medicaid under the Treatment Act. Early Detection Program staff receive application materials and then forward applications to the Medicaid agency for approval. Medicaid enrollment under the Treatment Act varied widely in 2006, ranging from fewer than 100 women in each of South Dakota, Delaware, and Hawaii to more than 9,300 women in California. (See table 1.) Enrollment was concentrated in a few states, with California, Oklahoma, and Georgia accounting for more than half of all Treatment Act enrollees in 2006. However, Treatment Act enrollees are a small share of Medicaid enrollees overall--less than 0.5 percent--with a median enrollment of 395 across 39 states reporting data for 2006. Enrollment may be affected by state policies and practices for initial and ongoing eligibility under the Treatment Act. In general, states with the highest enrollment and highest enrollment as a share of population adopted the broadest definition of "screened under the program" by extending Medicaid eligibility to women served by non-CDC funded providers. In 2006, median enrollment was 639 in these states, or an average of 124 enrollees per 100,000 women 40 to 64 years old. In contrast, median enrollment was 265 in states that limit eligibility to women served with CDC funds or by a CDC-funded provider. In these states an average of 44 women were enrolled for every 100,000 women 40 to 64 years old. Medicaid enrollment of women covered under the Treatment Act has grown in most states. Seven states experienced growth greater than 70 percent, while one state reported a significant decline from 2004 to 2006. (See app. III.) From 2004 to 2006, the median rate of enrollment growth was 40 percent among the 35 states reporting data for both years. States that shifted to broader definitions of "screened under the program" generally experienced higher than average growth. Among states that initially applied the minimum definition of screened under the program, but later broadened eligibility to include women screened by non-CDC- funded providers, enrollment growth averaged 67 percent from 2004 to 2006. For example, in 2004 South Carolina limited Medicaid eligibility to women served with CDC funds, but in July 2005 it extended coverage to women served by any qualified provider in the state. Its enrollment grew from 162 women in 2004 to 614 women in 2006. Enrollment in Medicaid under the Treatment Act can also be affected by state policies and practices for periodic redetermination of Medicaid eligibility. Practices for redetermining eligibility can range from a statement by the beneficiary that she continues to need treatment to a verbal or signed statement by the health provider of the beneficiary's treatment status. For example, in West Virginia, Medicaid enrollment declined from 709 in 2004 to 247 in 2006 after the state imposed stricter redetermination requirements in 2004. As with enrollment, average per capita Medicaid spending under the Treatment Act also varies widely across states (see fig. 6). Among the 39 states reporting Medicaid enrollment and spending data for 2006, total monthly spending per Treatment Act enrollee averaged $1,067, ranging from $584 in Oklahoma to $2,304 in Colorado. Federal funds accounted for more than two-thirds of this spending. The average monthly state share in per enrollee was $307, ranging from $131 in Oklahoma to $806 in Colorado. Colorado. States receive an enhanced federal matching assistance percentage, which is the amount the federal government reimburses states for expenditures incurred in providing services to women enrolled in Medicaid under the Treatment Act. In 2006, these percentages, for expenditures for women enrolled in Medicaid under the Treatment Act, ranged from 65 percent to 83 percent. Some of the variation in average total spending per Treatment Act enrollee may be accounted for by differences in state Medicaid reimbursement rates and variation in states' Medicaid benefit packages. It may also be affected by the relative proportion of breast and cervical cancer patients. For example, a 2007 study using state Medicaid claims data from 2003 in Georgia found that spending for breast cancer patients averaged more than twice that for cervical cancer patients. In 2003, annual Medicaid spending was $20,285 for each woman with breast cancer, but $9,845 for each woman with cervical cancer. State eligibility policies and practices can also affect average spending. For example, Oklahoma, the state with the lowest monthly per person spending under the Treatment Act, enrolls women in Medicaid based on the results of an abnormal screening test alone. Thus, according to an Oklahoma official, many women in Oklahoma are enrolled in Medicaid only for diagnostic services and do not subsequently incur costs for cancer treatment. At $584 per month in 2006, average Medicaid spending per Treatment Act enrollee in Oklahoma is the lowest of the 39 states for which we have data. West Virginia has reduced its overall enrollment from 709 in 2004 to 247 in 2006 by taking a proactive approach to disenrolling women if they have completed their cancer treatment, and cannot otherwise qualify for Medicaid. The state requires more than just a woman's self-certification of her continued need for treatment; case managers actively follow women receiving treatment, and a registered nurse evaluation is required to certify their continued need for treatment and Medicaid eligibility. While total spending in West Virginia declined 50 percent in 2006, average monthly per enrollee spending increased by 19 percent, from $894 to $1,064. Among states that limit Medicaid eligibility under the Treatment Act to women screened with CDC funds or that extend Medicaid eligibility to women screened by a CDC-funded provider, few statewide alternatives to Medicaid coverage for treatment are available to low-income, uninsured women who are screened and diagnosed outside of the Early Detection Program. Early Detection Program directors in four states reported having state-funded programs as an alternative to Medicaid. These programs pay specifically for breast or cervical cancer treatment or more broadly provide health insurance coverage or free or reduced-fee health care. The Maryland Breast and Cervical Cancer Diagnosis and Treatment Program pays specifically for breast and cervical cancer diagnosis and treatment services, according to our survey. Maryland residents who are within 250 percent of the FPL, are uninsured or meet other health insurance criteria, and were screened for breast or cervical cancer by any medical provider, may be eligible for this program. The Delaware Cancer Treatment Program can pay for treatment of breast or cervical cancer, according to our survey. Delaware residents who have been diagnosed with cancer on or after July 1, 2004, have no comprehensive health insurance coverage, and have household incomes less than 650 percent of the FPL may be eligible for free cancer treatment for up to 2 years under this program. The state charity hospital system in Louisiana--which provides free health care services for low-income, uninsured residents below 200 percent of the FPL--can provide free breast and cervical cancer treatment, according to our survey. The hospital system also provides reduced-fee care to individuals with incomes above 200 percent of the FPL. The Healthy Indiana Plan provides health insurance coverage for state residents who are 19 to 64 years old, earn less than 200 percent of the FPL, have been uninsured for the past 6 months, and do not have access to employer-sponsored health insurance coverage, according to our case study. A program official stated that the benefit package was similar to that of Medicaid and included the same provider network. Since the program's implementation in January 2008, enrollment has been higher than expected, and needed treatment could be delayed because the enrollment process may take 60 to 90 days. Early Detection Program directors, advocacy groups, and providers reported in our survey and case studies that some local resources were available as alternatives to Medicaid to pay for treatment of breast or cervical cancer. These include donated care, funding from local charity organizations, and county assistance. Physicians may donate free health care services to low-income, uninsured individuals. Fourteen states reported through our survey having donated care available as a resource for breast or cervical cancer treatment. For example, Project Access has networks of physicians in Virginia that provide donated care to eligible residents in local areas. Local charity organizations can provide resources to pay for breast or cervical cancer treatment, and 20 states reported through our survey having charity funds available. For example, Anthem Blue Cross Blue Shield and Komen for the Cure affiliates in Indiana provide funding for breast or cervical cancer treatment services for low-income, uninsured women. County indigent funds, public assistance programs, and county hospitals can cover some health care costs for low-income, uninsured individuals in some areas. Eleven states reported having some county indigent funds or other public assistance programs available, according to our survey. In Florida, county hospitals provide breast and cervical cancer screening and diagnostic services, as well as funding for treatment costs, for low-income, uninsured women. However, the availability of these resources varied by locality, and 21 Early Detection Program directors reported as much in our survey. Furthermore, in our case studies, several officials and providers cited concerns over the availability of treatment resources on a local level. For example, an Early Detection Program official in Indiana told us that densely populated areas of the state, such as North Central Indiana and South Bend, had multiple treatment resources, but women living in rural areas had limited access to them. A Komen for the Cure official in Indiana stated there was only 1 county hospital to serve low-income, uninsured residents in a 21-county region. We also spoke with the executive director of a Komen affiliate in Florida who said that some areas of the state, such as West Palm Beach and Tallahassee, had limited treatment resources, while southern areas had more accessible resources. Furthermore, physicians we spoke to in Virginia stated that treatment alternatives vary by location in the state, and some areas have problems with access to care. Although not required, some Early Detection Program staff help women screened outside the program and ineligible for Medicaid under the Treatment Act find local treatment resources, as reported in two of our case study states. Officials said they encouraged these women to contact local or county hospitals or referred them to available local programs. In addition, three Early Detection Program directors surveyed reported having programs that track the treatment process for women screened outside the Early Detection Program. Furthermore, in some states, charity organizations have programs to provide referrals to low-income, uninsured women for local treatment resources. We learned from advocacy group representatives in our case study states that Komen for the Cure and the American Cancer Society operate cancer resource hotlines and health insurance information hotlines women can call for information about local cancer treatment resources. They also fund patient navigators who provide counseling and support services, which include finding local programs for women ineligible for Medicaid under the Treatment Act. The Department of Health and Human Services (HHS) reviewed a draft of this report and provided comments on our findings, which are reprinted in appendix IV. Overall, HHS concurred with our description of the Early Detection Program. HHS indicated that the data we provided on states' implementation of the Treatment Act, including eligibility options, Medicaid enrollment, and treatment cost data were useful. Finally, HHS noted that the information contained in our report will be used to make improvements to better serve low-income women. HHS also provided technical comments, which we incorporated as appropriate. As we 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. At that time, we will send copies of this report to the Secretary of Health and Human Services, the Director of CDC, the Administrator of CMS, appropriate congressional committees, and other interested parties. The report also is available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. To determine how many eligible women have been screened by the Early Detection Program, we compared the number of women screened by the Early Detection Program with the number of low-income, uninsured women eligible to be screened, including those who were screened by another provider or were not screened by any provider. We analyzed data from the Centers for Disease Control and Prevention's (CDC) Minimum Data Elements (MDE) to determine the number of women screened by the Early Detection Program. Program grantees report these data to the CDC twice a fiscal year (October and April). MDE data include data for some women whose services were paid for in part with state or other nonfederal funding. We analyzed MDE data for calendar years 2002 through 2006, including information in total and by grantee on the number of women screened by the Early Detection Program--those who had mammograms and Pap tests--and the number of breast cancers and cervical cancers or precursor lesions detected. We also analyzed the age, race, and ethnicity distributions of the women screened. The Early Detection Program has policies and procedures for standardizing and assessing the quality of the MDE data submitted by grantees. We found the data to be sufficiently reliable for our purposes by reviewing these policies and procedures and the results of an MDE data validation study. We then compared the number of women screened by the Early Detection Program to the number of women potentially eligible for screening, which we determined with data collected from the Medical Expenditure Panel Survey (MEPS), administered by the Agency for Healthcare Research and Quality. For our analysis of women receiving mammograms, we pooled MEPS data for 2005 and 2006 because the U.S. Preventive Services Task Force recommends that women receive a mammogram every 1 to 2 years. We identified how many women were 40 to 64 years old--the age group generally eligible for a mammogram by the Early Detection Program--as well as low income and uninsured. We defined low income as at or below 250 percent of the federal poverty level (FPL) because federal guidelines allow the Early Detection Program to pay for services to women whose income is at or below this level. According to MEPS, women are considered uninsured if they indicated for each of the 12 months of the year that they were not covered under any type of health insurance for the entire month. Although underinsured women are eligible for screenings provided by the Early Detection Program, we were not able to identify this population in MEPS. Next, we determined how many of these potentially eligible low-income, uninsured women 40 to 64 years old received a mammogram in 2005 to 2006. We then compared this number with the number of women that the Early Detection Program screened with a mammogram in 2005 to 2006. For our analysis of women receiving Pap tests, we pooled MEPS data for 2004, 2005, and 2006 because the U.S. Preventive Services Task Force recommends that women receive a Pap test at least every 3 years. We identified how many women were 18 to 64 years old--the age group generally eligible for a Pap test by the Early Detection Program--as well as low-income and uninsured, using the above criteria. We determined how many women meeting these criteria received a Pap test in 2004 to 2006. We compared this number with the number of women that the Early Detection Program screened with a Pap test in 2004 to 2006. In our analyses of women receiving mammograms and Pap tests, we did not examine why women did not receive either of these screening tests, because it was beyond the scope of this report. We determined that the MEPS data were sufficiently reliable for our purposes by speaking with knowledgeable agency officials at the Agency for Healthcare Research and Quality, reviewing related documentation, and comparing our results with CDC and U.S. Census data. To determine how states have implemented the Treatment Act, we conducted a Web-based survey of Early Detection Program directors in the 51 states. We reviewed federal guidelines for implementing the Treatment Act, and interviewed Early Detection Program directors and other officials in selected states to gather information to design the survey questions. We reviewed previous studies of the Treatment Act conducted by George Washington University in 2004 under contract with the CDC and by Susan G. Komen for the Cure (Komen for the Cure) in 2007. We determined that the Early Detection Program directors were knowledgeable about their states' Medicaid eligibility policies and practices for the Treatment Act based on this review and discussions with CDC and Centers for Medicare and Medicaid Services (CMS) officials. The survey included both closed-ended and open-ended questions on characteristics of the Early Detection Program, implementation of the Treatment Act, Medicaid eligibility criteria, and the Medicaid enrollment process. We pretested the survey at CDC's national meeting of Early Detection Program directors in Atlanta, Georgia, on September 9, 2008. The survey was fielded during October 2008, and we obtained a 100 percent response rate from all 50 states and the District of Columbia. Survey responses were edited for logic and appropriate skip patterns. We reviewed survey responses for outliers and followed up with officials in selected states to verify the accuracy of responses. To determine the number of women enrolled in state Medicaid programs under the Treatment Act and average state spending for this coverage, we analyzed enrollment and spending data from CMS's Medicaid Statistical Information System (MSIS) as presented in the MSIS State Summary Datamart. The MSIS contains state-submitted Medicaid enrollment and claims data, including each person's basis of eligibility, use of services, basic demographic characteristics, and payments made to providers. We used MSIS data on the number of women enrolled in Medicaid with the Treatment Act as their basis of eligibility by state for fiscal years 2004 and 2006. We then calculated the average per person monthly spending by state for fiscal year 2006 using MSIS data on total spending for Medicaid enrollees under the Treatment Act and the total number of months of eligibility accounted for by all enrollees during the year. Our analysis was limited to 38 states for 2004 and 39 states for 2006 because MSIS data on enrollment and spending were not available for all states or for all years. According to CMS, data from the remaining states either were not reported separately for Treatment Act eligibility or had not yet passed CMS's data quality control process. In addition, we could not separately determine both the number of women enrolled in Medicaid and Medicaid costs for women by diagnosis (breast cancer, cervical cancer, or precancerous conditions) because enrollment data reported in the MSIS State Summary Datamart are not broken down by diagnostic category. We worked with CMS officials to establish the reliability of the data used in our analysis. States submit their MSIS data quarterly to CMS. The data are submitted to a system of quality control edit checks. Data files that exceed prescribed error tolerance limits are rejected and must be resubmitted by states until they are determined acceptable by CMS. Following the quality review process, data are then posted to CMS's public Web site. We also reviewed MSIS documentation including user manuals, design specifications, a data dictionary, and known MSIS data anomalies. We also interviewed knowledgeable CMS officials and followed up with states whose reported enrollment and per capita spending data appeared as outliers when we arrayed the data for all states. We determined that the data were sufficiently reliable for our purposes based on our review. To identify alternatives available to low-income, uninsured women who need treatment for breast or cervical cancer, but who are not covered under the Treatment Act, we obtained general information from our Web- based survey of Early Detection Program directors (described above). We targeted the relevant survey questions to states that limited Medicaid eligibility under the Treatment Act to women screened or diagnosed with CDC funds or that extend Medicaid eligibility to women screened by a CDC-funded provider. Our findings were limited by responses to a narrowly-worded survey question on statewide programs for breast and cervical cancer diagnosis and treatment and may not necessarily account for all available statewide or state-funded programs. We also conducted case studies of three states that limited Medicaid eligibility under the Treatment Act to women screened or diagnosed with CDC funds only: Florida, Indiana, and Virginia. We chose these states because their rate of screening eligible women was lower than the national average. In each state, we interviewed: Early Detection Program directors and other officials; representatives from Komen for the Cure, American Cancer Society local chapters, and other state or local organizations; and health care providers. We developed a protocol for each interview with semistructured interview questions and obtained detailed examples of available alternatives to Medicaid under the Treatment Act. Our findings are illustrative examples and thus are not generalizable, because the officials we surveyed and interviewed may not have had complete knowledge of all available local resources, and because available resources may vary by state. We conducted our work from May 2008 to May 2009 in accordance with all sections of GAO's Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any findings and conclusions. In addition to the contact named above, Jennifer Grover, Assistant Director; Anne Dievler; Eric Anderson; Seta Hovagimian; Dan Ries; Hemi Tewarson; Timothy J. Walker; and Suzanne Worth made key contributions to this report.
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Tens of thousands of women die each year from breast or cervical cancer. While screening and early detection through mammograms and Pap tests--followed by treatment--can improve survival, low-income, uninsured women are often not screened. In 1990, Congress authorized the Centers for Disease Control and Prevention (CDC) to fund screening and diagnostic services for such women, which led CDC to establish the National Breast and Cervical Cancer Early Detection Program. The Breast and Cervical Cancer Prevention and Treatment Act of 2000 was also enacted to allow states to extend Medicaid eligibility to women screened under the Early Detection Program and who need breast or cervical cancer treatment. Screened under the program is defined, at a minimum, as screening paid for with CDC funds. GAO examined the Early Detection Program's screening of eligible women, states' implementation of the Treatment Act, Medicaid enrollment and spending under the Treatment Act, and alternatives available to women ineligible for Medicaid under the Treatment Act. To do this, GAO compared CDC data on women screened by the Early Detection Program from 2002 to 2006 with federal estimates of the eligible population, surveyed program directors on the 51 states' (including the District of Columbia) implementation of the Treatment Act, analyzed Medicaid enrollment and spending data, and conducted case studies in selected states. The CDC's Early Detection Program providers screen more than half a million low-income, uninsured women a year for breast and cervical cancer, but many eligible women are screened by other providers or not screened at all. Comparing CDC screening data with federal estimates of low-income, uninsured women, GAO estimated that from 2005 through 2006, 15 percent of eligible women received a mammogram from the Early Detection Program, while 26 percent were screened by other providers and 60 percent were not screened. For Pap tests, GAO estimated that from 2004 through 2006, 9 percent were screened by the program, 59 percent by other providers, and 33 percent were not screened. Most states extend Medicaid eligibility under the Treatment Act to more women than is minimally required. As of October 2008, 17 states met the minimum requirement to offer Medicaid eligibility to women whose screening or diagnostic services were paid for with CDC funds; 15 extended eligibility to women screened or diagnosed by a CDC-funded provider, whether CDC funds paid specifically for these services or not; and 19 states further extended eligibility to women who were screened or diagnosed by a non-CDC-funded provider. In most of the states that offer Medicaid eligibility only to women served with CDC funds or by a CDC-funded provider, if a woman is screened and diagnosed with cancer outside the Early Detection Program, she cannot access Medicaid coverage under the Treatment Act. Medicaid enrollment and average spending under the Treatment Act vary across states. In 2006, state enrollment ranged from fewer than 100 women to more than 9,300. Median enrollment was 395 among the 39 states reporting data, with most experiencing enrollment growth from 2004 to 2006. Among the 39 states, average monthly spending per enrollee was $1,067, ranging from $584 to $2,304. Spending may vary due to several factors, including differences in state eligibility policies and practices and Medicaid benefit plan design. Few statewide alternatives to Medicaid coverage are available to low-income, uninsured women who need breast or cervical cancer treatment but are ineligible for Medicaid under the Treatment Act. Early Detection Program directors in only four of the states with more limited eligibility standards reported having a statewide program that pays for cancer treatment or provides broader health insurance or free or reduced-fee care. And while several sources identified possible local resources as alternatives--donated care, funding from local charity organizations, and county assistance--the availability and applicability of these resources varies by area. For example, an Early Detection Program official in Indiana told us that densely populated areas of the state had multiple treatment resources, but women living in rural areas had limited access to them.
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Basic training is the initial training provided to military recruits upon entering service into one of the military services. While the program and length of instruction varies somewhat among the services, the intent of the training is to transform male and female recruits from civilians into military service members. Basic training typically consists of physical conditioning; learning the military service's core values, history and tradition; weapons qualification; instilling discipline; and nuclear, biological, and chemical protection training along with other training needed for initial entry into the services. The training varies in length--typically 6.4 weeks in the Air Force, 9 weeks in the Army and Navy, and 12 weeks in the Marine Corps. Following completion of basic training, recruits attend advanced individual training to further enhance skills in particular areas of interest (military occupational specialties). Upon arriving at a basic training location, recruits are processed and are generally housed for several days in reception barracks pending their assignment to a training unit and their primary barracks for the duration of the basic training period. For the most part, the housing accommodations within existing barracks are typically the same, regardless of male or female occupancy. DOD standards dictate space requirements of 72 square feet of living space per recruit, but the actual space provided is often less than that for the services, particularly during the summer months when a surge of incoming recruits usually occurs. In the Navy and Air Force, male and female recruits are housed on different floors in the buildings. In the Army, Fort Jackson and Fort Leonard Wood are the only locations where both male and female recruits undergo basic training, and they are housed separately in the same buildings, sometimes on the same floor. In the Marine Corps, all female recruits receive basic training at Parris Island, and they are housed in separate barracks. While the barracks across the services differ in design, capacity, and age, it is common for the barracks to have 2 or 3 floors with central bathing areas and several "open bays" housing from 50 to 88 recruits each in bunk beds. Some of the barracks, such as the Army's "starships" and the Air Force barracks, are large facilities that house over 1,000 recruits. Others, especially those constructed in the 1950s and early 1960s, are smaller with recruit capacities of about 240 or less. Table 1 provides an overall summary of the number and age of the military services' recruit barracks, along with the number of recruits trained in fiscal year 2001. As shown in the table, the Army has the largest number of barracks--over 60 percent of the total across the services--and trains nearly one-half of the recruits entering the military. The Army also uses temporary barracks, referred to as "relocatables," to accommodate recruits at locations where capacity is an issue. Figure 1 depicts an exterior view of recruit barracks at Lackland Air Force Base, Texas, an "open bay" living space at the Marine Corps Recruit Depot at Parris Island, South Carolina, and an Army temporary (relocatable) barracks at Fort Sill, Oklahoma. Until recently, DOD had no readiness reporting system in place for its defense installations and facilities. In fiscal year 2000, DOD reported to the Congress for the first time on installation readiness as an integral element of its overall Defense Readiness Reporting System. At the core of the system is a rating classification, typically referred to as a "C" rating. The C- rating process is intended to provide an overall assessment that considers condition and capacity for each of nine facility classes (e.g., "operations and training," and "community and housing") on a military installation. Recruit training barracks fall within the community-and-housing facility class. The definitions for the C-ratings are as follows: C-1--only minor facility deficiencies with negligible impact on capability to perform missions; C-2--some deficiencies with limited impact on capability to perform C-3--significant facility deficiencies that prevent performing some C-4--major facility deficiencies that preclude satisfactory mission accomplishment. Each service has the latitude to develop its own processes in establishing C-ratings for its facilities. The services' systems for assessing the condition of facilities are: the Army's Installation Status Report; the Air Force's Installations' Readiness Report; the Navy's Installation Readiness Reporting System; and the Marine Corps' Commanding Officer's Readiness Reporting System. These systems generally provide aggregate assessments of the physical condition of facilities based on periodic facility inspections. The Department subsequently aggregates the services' reports and submits an overall assessment for each facility class to the Congress in the Department's Quarterly Readiness Report. The majority of the services' basic training installations had given their recruit barracks a C-3 rating, indicating they have significant deficiencies. Despite the acceptable outward appearance and generally good condition of most barracks' exteriors, our visits to the training locations confirmed that most barracks had significant (C-3) or major (C-4) deficiencies requiring repair or facility replacement. Our site visits confirmed the existence of significant deficiencies, but we also noted some apparent inconsistencies in service ratings of their facilities' condition. Conditions varied by location. Among barracks in poor conditions, we observed a number of typical heating and air conditioning, ventilation, and plumbing- related deficiencies that formed the basis of the services' ratings for their barracks. Base officials told us that, although these deficiencies had an adverse impact on the quality of life for recruits and were a burden on trainers, they were able to accomplish their overall training mission. At the same time, we noted recent improvements had been made to some recruit barracks at various locations. We observed that, overall, the services' recruit training barracks had significant or major deficiencies, but that conditions of individual barracks vary by location. In general, we observed that the Army's, Navy's, and Marine Corps' Parris Island barracks were in the worst physical condition. Table 2 shows the services' overall rating assessments for the recruit barracks by specific location and the typical deficiencies in those barracks that form the basis of the ratings. With the exception of Parris Island, all locations reported either C-3 or C-4 ratings for their barracks. These ratings are relatively consistent with the ratings of other facilities within the DOD inventory. Recent defense data show that nearly 70 percent of all DOD facilities are rated C-3 or C-4. Further, as shown in appendix 2, the C-ratings for recruit training barracks are not materially different from the ratings of other facilities at the training locations we visited. The C-ratings depicted in table 2 show the overall condition of the recruit barracks at a specific location, but the condition of any one building within a service and at a specific location could differ from the overall rating. The Army, with the greatest number of barracks, had the most problems. For the most part, the Army's barracks were in overall poor condition across its training locations, but some, such as a recently renovated barracks at Fort Jackson and a newly constructed reception barracks at Fort Leonard Wood, were in better condition. Similarly, the Navy barracks, with the exception of a newly constructed reception barracks in 2001, were in a similar degraded condition because the Navy, having decided to replace all of its barracks, had limited its maintenance expenditures on these facilities in recent years. Of the Marine Corps locations, Parris Island had many barracks in poor condition, the exception being a recently constructed female barracks. The barracks at San Diego and Camp Pendleton were generally in much better shape. The Air Force's barracks, particularly five of eight barracks that had recently been renovated, were in generally better condition than the barracks at most locations we visited. Our visits to the basic training locations confirmed that most of the barracks had significant or major deficiencies, but we found some apparent inconsistencies in the application of C-ratings to describe the condition of the barracks. For example, as a group, the barracks at the Marine Corps Recruit Depot, Parris Island, were the highest rated--C2--among all the services' training barracks. The various conditions we observed, however, suggested that they were among the barracks with the worst physical condition we had seen. Marine Corps officials acknowledged that, although they had completed a recent inspection of the barracks and had identified significant deficiencies, the updated data had not yet been entered into the ratings database. As a result, the rating was based on outdated data. On the other hand, the barracks at the Marine Corps Recruit Depot, San Diego, were rated C-3, primarily due to noise from the San Diego airport that is next to the depot. Otherwise, our observations indicated that these barracks appeared to be in much better physical condition than those at Parris Island because they were renovating the San Diego barracks. After we completed our work, the Marine Corps revised its Parris Island and San Diego barracks' ratings to C-4 and C-2, respectively, in its fiscal year 2002 report. The Air Force barracks were rated C-3, but we observed them to be among those barracks in better physical condition and in significantly better condition than the Army barracks that were rated C- 3. And the Navy's C-4 rating for its barracks was borne out by our visits. Similar to the Marine Corps Parris Island and the Army barracks, we found in general that the Navy barracks were in the worst physical condition. In our discussions with service officials, we learned that the services use different methodologies to arrive at their C-ratings. For example, except the Army, the services use engineers to periodically inspect facility condition and identify needed repair projects. The Army uses building occupants to perform its inspections using a standard inspection form. Further, except the Army, the services consider the magnitude of needed repair costs for the barracks at the training locations in determining the facilities' C-ratings. While these methodological differences may produce inconsistencies in C-ratings across the services, we did not specifically review the impact the differences may have on the ratings in this assignment. Instead, we are continuing to examine consistency issues regarding service-wide facility-condition ratings as part of our broader ongoing work on the physical condition and maintenance of all DOD facilities. Our visits to all 10 locations where the military services conduct basic training confirm that most barracks have many of the same types of deficiencies that are shown in table 2. The most prevalent problems included a lack of or inadequate heating and air conditioning, inadequate ventilation (particularly in bathing areas), and plumbing-related deficiencies. Inadequate heating or air conditioning in recruit barracks was a common problem at most locations. The Navy's barracks at Great Lakes, for example, had no air conditioning, and base officials told us that it becomes very uncomfortable at times, especially in the summer months when the barracks are filled with recruits who have just returned from training exercises. During our visit, the temperature inside several of the barracks we toured ran above 90 degrees with little or no air circulation. Base officials also told us that the excessive heat created an uncomfortable sleeping situation for the recruits. At the Marine Corps Recruit Depot at Parris Island, several barracks that had been previously retrofitted to include air conditioning had continual cooling problems because of improperly sized equipment and ductwork. Further, we were told by base officials that a high incidence of respiratory problems affected recruits housed in these barracks (as well as in some barracks at other locations), and the officials suspected mold spores and other contaminants arising from the filtration system and ductwork as a primary cause. At the time of our visit, the Marine Corps was investigating the health implications arising from the air-conditioning system. And, during our tour of a barracks at Fort Sill, Army personnel told us that the air conditioning had been inoperable in one wing of the building for about 2 years. Inadequate ventilation in recruit barracks, especially in central bathing areas that were often subject to overcrowding and heavy use, was another common problem across the services. Many of the central baths in the barracks either had no exhaust fans or had undersized units that were inadequate to expel moisture arising from shower use. As a result, mildew formation and damage to the bath ceilings, as shown in figure 2, were common. In barracks that had undergone renovation, however, additional ventilation had been installed to alleviate the problems. Plumbing deficiencies were also a common problem in the barracks across the services. Base officials told us that plumbing problems--including broken and clogged toilets and urinals, inoperable showers, pipe leaks, and slow or clogged drainpipes and sinks--were recurring problems that often awaited repairs due to maintenance-funding shortages. As shown in figures 3 and 4, we observed leaking drainpipes and broken or clogged bath fixtures in many of the barracks we visited. In regard to the broken fixtures, training officials told us that the problems had exacerbated an undesirable situation that already existed in the barracks--a shortage of fixtures and showers to adequately accommodate the demands of recruit training. These officials told us that because of the inadequate bath facilities for the high number of recruits, they often had to perform "workarounds"--such as establishing time limits for recruits taking showers--in order to minimize, but not eliminate, adverse effects on training time. Base officials at most of the locations we visited attributed the deteriorated condition of the recruit barracks to recurring inadequate maintenance, which they ascribed to funding shortages that had occurred over the last 10 years. Without adequate maintenance, facilities tend to deteriorate more rapidly. In many cases that officials cited, they were focusing on emergency repairs and not performing routine preventative maintenance. Our analysis of cost data generated by DOD's facility sustainment model showed, for example, that Fort Knox required about $38 million in fiscal year 2002 to sustain its base facilities. However, base officials told us they received about $10 million, or 26 percent, of the required funding. Officials at other Army basic training sites also told us that they receive less funding, typically 30 to 40 percent, than what they considered was required to sustain their facilities. Army officials told us that, over time, the maintenance funding shortfalls at their training bases have been caused primarily by the migration of funding from maintenance accounts to support other priorities, such as the training mission. While most barracks across the services had significant deficiencies, others were in better condition, primarily because they had recently been constructed or renovated. Those barracks that we observed to be in better condition were scattered throughout the Army, Air Force, and Marine Corps locations. Even at those locations where some barracks were in very poor condition, we occasionally observed other barracks in much better condition. For example, at Parris Island, the Marine Corps recently completed construction of a new female recruit barracks. At Fort Jackson, the Army repaired windows, plumbing, and roofs in several "starship" barracks and similar repairs were underway in two other starships. Figures 5 and 6 show renovated bath areas at Lackland Air Force Base in Texas and the Marine Corps Recruit Depot at San Diego. The services' approaches to recapitalize their recruit barracks vary and are influenced by their overall priorities to improve all facilities. The Marine Corps and Air Force are focusing primarily on renovating existing facilities while the Navy plans to construct all new recruit barracks. The Army also expects to renovate and construct recruit barracks, but the majority of the funding needed to support these efforts is not expected to be programmed and available until after 2008 because of the priority placed on improving bachelor enlisted quarters. Table 3 summarizes the services' recapitalization plans. The Navy has placed a high priority on replacing its 16 recruit barracks by fiscal year 2009 at an estimated cost of $570 million using military construction funds. The Navy recently completed a new recruit reception barracks, and the Congress has approved funding for four additional barracks. Two barracks are under construction with occupancy expected later this year (see fig. 7), and the contract for 2 more barracks was awarded in May 2002. The Navy has requested funds for another 2 barracks in its fiscal year 2003 military construction budget submission and plans to request funds for the remaining 9 barracks in fiscal years 2004 through 2007. The Navy expects construction on the last barracks to be completed by 2009. Navy officials told us that other high-priority Navy-wide efforts (e.g., providing quality bachelor enlisted quarters and housing for sailors while ships are in homeport) could affect the Navy's recapitalization efforts for recruit barracks. The Army projects an estimated $1.7 billion will be needed to renovate or replace much of its recruit training barracks, but most of the work is long- term over the next 20 years, primarily because renovating and replacing bachelor enlisted quarters has been a higher priority in the near-term. Through fiscal year 2003, the Army expects to spend about $154 million for 2 new barracks--1 each at Fort Jackson and Fort Leonard Wood. Army officials stated that barracks at these locations were given priority over other locations because of capacity shortfalls at these installations. After fiscal year 2003, the Army estimates spending nearly $1.6 billion in military construction funds to recapitalize other recruit barracks--about $359 million to renovate existing barracks at several locations and about $1.2 billion to build new barracks at all locations, except Fort Sill. Only Forts Jackson and Leonard Wood are expected to receive funding for new barracks through fiscal year 2007. Further, the Army does not expect to begin much additional work until after 2008, when it expects to complete the renovation or replacement of bachelor enlisted quarters. As a result, Army officials stated that the remaining required funding for recruit barracks would most likely be requested between 2009 and 2025. The Marine Corps has a more limited recruit barracks recapitalization program, primarily because it has placed a high priority on renovating or replacing bachelor enlisted quarters in the near-term. The three recruit training installations plan to renovate their existing recruit barracks and construct two additional barracks at Parris Island and San Diego. The Marine Corps expects to spend about $40 million in operation and maintenance funds to renovate existing barracks at its training locations by fiscal year 2004. The renovations include replacing the bath and shower facilities, replacing hot water and heating and air conditioning systems, and upgrading the electrical systems. The Marine Corps also expects to spend at least $16 million in military construction for the new barracks by fiscal year 2009. The Air Force has placed a high priority on renovating, rather than replacing its recruit barracks in the near-term. It expects to spend about $89 million--primarily operation and maintenance funds-- to renovate its existing barracks and convert another facility for use as a recruit barracks. As of April 2002, the Air Force had renovated 5 of its existing 8 barracks and expected to complete the remaining renovations by 2006. The renovations include upgrading heating, ventilation, and air-conditioning systems as well as installing new windows and improving the central baths. Due to expected increases in the number of recruits, the Air Force has also identified an additional building to be renovated for use as a recruit barracks. The Air Force intends to complete this renovation in fiscal year 2003. Officials at Lackland Air Force Base stated they are currently drafting a new base master plan, which identifies the need to build new recruit barracks starting around 2012. We requested comments on a draft of this report from the Secretary of Defense. An official from the Office of the Deputy Under Secretary of Defense (Installations & Environment) orally concurred with the information in our report and provided technical comments that we incorporated as appropriate. We performed our work at the Office of the Secretary of Defense and the headquarters of each military service. We also visited each military installation that conducts recruit basic training--Fort Jackson, South Carolina; Fort Benning, Georgia; Fort Knox, Kentucky; Fort Leonard Wood, Missouri; Fort Sill Oklahoma; Great Lakes Naval Training Center, Illinois; Lackland Air Force Base, Texas; Marine Corps Recruit Deport, Parris Island, South Carolina; Marine Corps Recruit Depot, San Diego, California; and Camp Pendleton, California. In discussing recruit barracks, we included barracks used to house recruits attending the Army's One Station Unit Training. This training, which is conducted at select basic training locations for recruits interested in specific military occupational specialties, combines basic training with advanced individual training into one continuous course. To assess the physical condition of recruit barracks, we reviewed the fiscal year 2000 and 2001 installation readiness reports and supporting documentation for the ten installations that conduct basic training. We also toured several barracks at each installation and photographed conditions of the barracks. Finally, we interviewed officials at the services' headquarters and each installation regarding the process used to inspect facilities, collect information to support the condition rating, and the underlying reasons for the current condition of the facilities. To determine the services' plans to sustain and recapitalize recruit barracks, we reviewed the services' plans for renovating its existing barracks and constructing new barracks. In addition, we interviewed officials in the headquarters of each service responsible for managing installations and programming operation and maintenance and military construction funds. We conducted our work from March through May 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretaries of Defense, the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; and the Director, Office and Management and Budget. In addition, the report will available at no charge on GAO's Web site at www.gao.gov and to others upon request. Please contact me on (202) 512-8412 if you or your staff have any questions regarding this report. Key contributors to this report were Michael Kennedy, James Reifsnyder, Richard Meeks, Laura Talbott, and R.K. Wild. The military services conduct recruit basic training at ten installations in the United States. The Army has the most locations--five, with Fort Jackson, South Carolina, training the most Army recruits. The Marine Corps conducts its training at two primary locations--Parris Island, South Carolina on the east coast and San Diego in the west. Further, about 4 weeks (consisting of weapons qualification and field training exercises) of the Marine Corps' 12-week basic training course at San Diego is conducted at Camp Pendleton because of training space limitations at its San Diego location. The Navy and Air Force conduct their basic training at one location each--Great Lakes, Illinois, and Lackland Air Force Base in San Antonio, Texas, respectively. Under DOD's installation readiness reporting system, military installation facilities are grouped into nine separate facility classes. Recruit barracks are part of the "community and housing" facility class. Figure 9 depicts the fiscal year 2001 C-ratings for each of the nine facility classes, as well as for the recruit barracks component of the "community and housing" facility class, at each basic training location. 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 daily E-mail alert for newly released products" under the GAO Reports heading.
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The Department of Defense reports that is has been faced with difficulties adequately maintaining its facilities to meet mission requirements. Facilities have been aging and deteriorating as funds needed to sustain and recapitalize the facilities have fallen short of requirements. GAO's review of the services' condition assessments in conjunction with visits to the basic training locations showed that most barracks were in need of significant repair, although some barracks were in better condition than others. GAO found that the exteriors of each service's barracks were generally in good condition and presented an acceptable appearance, but the barracks' infrastructure often had persistent repair problems because of inadequate maintenance. The services' approaches to recapitalize their recruit barracks vary and are influenced by their overall priorities to improve all facilities. Although the Navy, Air Force, and Marine Corps are addressing many of their recapitalization needs in the near-term, most of the Army's plans are longer term.
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The public faces a high risk that critical services provided by the government and the private sector could be severely disrupted by the Year 2000 computing crisis. Financial transactions could be delayed, flights grounded, power lost, and national defense affected. Moreover, America's infrastructures are a complex array of public and private enterprises with many interdependencies at all levels. These many interdependencies among governments and within key economic sectors could cause a single failure to have adverse repercussions. Key economic sectors that could be seriously affected if their systems are not Year 2000 compliant include information and telecommunications; banking and finance; health, safety, and emergency services; transportation; power and water; and manufacturing and small business. The information and telecommunications sector is especially important. In testimony in June, we reported that the Year 2000 readiness of the telecommunications sector is one of the most crucial concerns to our nation because telecommunications are critical to the operations of nearly every public-sector and private-sector organization. For example, the information and telecommunications sector (1) enables the electronic transfer of funds, the distribution of electrical power, and the control of gas and oil pipeline systems, (2) is essential to the service economy, manufacturing, and efficient delivery of raw materials and finished goods, and (3) is basic to responsive emergency services. Reliable telecommunications services are made possible by a complex web of highly interconnected networks supported by national and local carriers and service providers, equipment manufacturers and suppliers, and customers. In addition to the risks associated with the nation's key economic sectors, one of the largest, and largely unknown, risks relates to the global nature of the problem. With the advent of electronic communication and international commerce, the United States and the rest of the world have become critically dependent on computers. However, there are indications of Year 2000 readiness problems in the international arena. For example, a June 1998 informal World Bank survey of foreign readiness found that only 18 of 127 countries (14 percent) had a national Year 2000 program, 28 countries (22 percent) reported working on the problem, and 16 countries (13 percent) reported only awareness of the problem. No conclusive data were received from the remaining 65 countries surveyed (51 percent). In addition, a survey of 15,000 companies in 87 countries by the Gartner Group found that the United States, Canada, the Netherlands, Belgium, Australia, and Sweden were the Year 2000 leaders, while nations including Germany, India, Japan, and Russia were 12 months or more behind the United States. The Gartner Group's survey also found that 23 percent of all companies (80 percent of which were small companies) had not started a Year 2000 effort. Moreover, according to the Gartner Group, the "insurance, investment services and banking are industries furthest ahead. Healthcare, education, semiconductor, chemical processing, agriculture, food processing, medical and law practices, construction and government agencies are furthest behind. Telecom, power, gas and water, software, shipbuilding and transportation are laggards barely ahead of furthest-behind efforts." The following are examples of some of the major disruptions the public and private sectors could experience if the Year 2000 problem is not corrected. Unless the Federal Aviation Administration (FAA) takes much more decisive action, there could be grounded or delayed flights, degraded safety, customer inconvenience, and increased airline costs. Aircraft and other military equipment could be grounded because the computer systems used to schedule maintenance and track supplies may not work. Further, the Department of Defense (DOD) could incur shortages of vital items needed to sustain military operations and readiness. Medical devices and scientific laboratory equipment may experience problems beginning January 1, 2000, if the computer systems, software applications, or embedded chips used in these devices contain two-digit fields for year representation. According to the Basle Committee on Banking Supervision--an international committee of banking supervisory authorities--failure to address the Year 2000 issue would cause banking institutions to experience operational problems or even bankruptcy. Recognizing the seriousness of the Year 2000 problem, on February 4, 1998, the President signed an executive order that established the President's Council on Year 2000 Conversion led by an Assistant to the President and composed of one representative from each of the executive departments and from other federal agencies as may be determined by the Chair. The Chair of the Council was tasked with the following Year 2000 roles: (1) overseeing the activities of agencies, (2) acting as chief spokesperson in national and international forums, (3) providing policy coordination of executive branch activities with state, local, and tribal governments, and (4) promoting appropriate federal roles with respect to private-sector activities. 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. 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. 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. Nevertheless, 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. However, unless agency progress improved dramatically, a substantial number of mission-critical systems will not be compliant in time. In addition to slow governmentwide progress in fixing systems, our reviews of federal agency Year 2000 programs have found uneven progress. Some agencies are significantly behind schedule and are at high risk that they will not fix their systems in time. Other agencies have made progress, although risks continue and a great deal of work remains. The following are examples of the results of some of our recent reviews. Last month, we testified about FAA's progress in implementing a series of recommendations we had made earlier this year to assist FAA in completing overdue awareness and assessment activities. These recommendations included assessing how the major FAA components and the aviation industry would be affected if Year 2000 problems were not corrected in time and completing inventories of all information systems, including data interfaces. Officials at both FAA and the Department of Transportation agreed with these recommendations, and the agency has made progress in implementing them. In our August testimony, we reported that FAA had made progress in managing its Year 2000 problem and had completed critical steps in defining which systems needed to be corrected and how to accomplish this. However, with less than 17 months to go, FAA must still correct, test, and implement many of its mission-critical systems. It is doubtful that FAA can adequately do all of this in the time remaining. Accordingly, FAA must determine how to ensure continuity of critical operations in the likely event of some systems' failures. In October 1997, we reported that while the Social Security Administration (SSA) had made significant progress in assessing and renovating mission-critical mainframe software, certain areas of risk in its Year 2000 program remained. Accordingly, we made several recommendations to address these risk areas, which included the Year 2000 compliance of the systems used by the 54 state Disability Determination Services that help administer the disability programs. SSA agreed with these recommendations and, in July 1998, we reported that actions to implement these recommendations had either been taken or were underway.Further, we found that SSA has maintained its place as a federal leader in addressing Year 2000 issues and has made significant progress in achieving systems compliance. However, essential tasks remain. For example, many of the states' Disability Determination Service systems still had to be renovated, tested, and deemed Year 2000 compliant. Our work has shown that much likewise remains to be done in DOD and the military services. For example, our recent report on the Navy found that while positive actions have been taken, remediation progress had been slow and the Navy was behind schedule in completing the early phases of its Year 2000 program. Further, the Navy had not been effectively overseeing and managing its Year 2000 efforts and lacked complete and reliable information on its systems and on the status and cost of its remediation activities. We have recommended improvements to DOD's and the military services' Year 2000 programs with which they have concurred. In addition to these examples, our reviews have shown that many agencies had not adequately acted to establish priorities, solidify data exchange agreements, or develop contingency plans. Likewise, more attention needs to be devoted to (1) ensuring that the government has a complete and accurate picture of Year 2000 progress, (2) setting governmentwide 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 not yet been established. These governmentwide priorities need to be 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. Further, while individual agencies have been identifying mission-critical systems, this has not always been done on the basis of a determination of the agency's most critical operations. 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. Other entities have recognized the need to set priorities. For example, Canada has established 48 national priorities covering areas such as national defense, food production, safety, and income security. Second, business continuity and 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. Our recently issued guidance aims to help agencies ensure such continuity of operations through contingency planning. 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 as 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 (USDA) reported 15 systems as compliant, even though these were replacement systems that were still under development or were planned for development. (The department removed these systems from compliant status in its August 1998 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, will 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. We have set forth a structured approach to testing in our recently released exposure draft. In our April 1998 report on governmentwide Year 2000 progress, we made a number of recommendations to the Chair of the President's Council on Year 2000 Conversion aimed at addressing these problems. These included establishing governmentwide priorities and ensuring that agencies set 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 inspectors general or other independent organizations in reviewing Year 2000 progress, and designating lead agencies responsible for ensuring that 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 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 fully addressed--principally with respect to setting national priorities and end-to-end testing. State and local governments also face a major risk of Year 2000-induced failures to the many vital services--such as benefits payments, transportation, and public safety--that they provide. For example, food stamps and other types of payments may not be made or could be made for incorrect amounts; date-dependent signal timing patterns could be incorrectly implemented at highway intersections, and safety severely compromised, if traffic signal systems run by state and local governments do not process four-digit years correctly; and criminal records (i.e., prisoner release or parole eligibility determinations) may be adversely affected by the Year 2000 problem. Recent surveys of state Year 2000 efforts have indicated that much remains to be completed. For example, a July 1998 survey of state Year 2000 readiness conducted by the National Association of State Information Resource Executives, Inc., found that only about one-third of the states reported that 50 percent or more of their critical systems had been completely assessed, remediated, and tested. In a June 1998 survey conducted by the USDA's Food and Nutrition Service, only 3 and 14 states, respectively, reported that the software, hardware, and telecommunications that support the Food Stamp Program, and the Women, Infants, and Children program, were Year 2000 compliant. Although all but one of the states reported that they would be Year 2000 compliant by January 1, 2000, many of the states reported that their systems are not due to be compliant until after March 1999 (the federal government's Year 2000 implementation goal). Indeed, 4 and 5 states, respectively, reported that the software, hardware, and telecommunications supporting the Food Stamp Program, and the Women, Infants, and Children program would not be Year 2000 compliant until the last quarter of calendar year 1999, which puts them at high risk of failure due to the need for extensive testing. State audit organizations have identified other significant Year 2000 concerns. For example, (1) Illinois' Office of the Auditor General reported that significant future efforts were needed to ensure that the year 2000 would not adversely affect state government operations, (2) Vermont's Office of Auditor of Accounts reported that the state faces the risk that critical portions of its Year 2000 compliance efforts could fail, (3) Texas' Office of the State Auditor reported that many state entities had not finished their embedded systems inventories and, therefore, it is not likely that they will complete their embedded systems repairs before the year 2000, and (4) Florida's Auditor General has issued several reports detailing the need for additional Year 2000 planning at various district school boards and community colleges. State audit offices have also made recommendations, including the need for increased oversight, Year 2000 project plans, contingency plans, and personnel recruitment and retention strategies. In the course of these field hearings, states and municipalities have testified about Year 2000 practices that could be adopted by others. For example: New York established a "top 40" list of priority systems having a direct impact on public health, safety, and welfare, such as systems that support child welfare, state aid to schools, criminal history, inmate population management, and tax processing. According to New York, "the Top 40 systems must be compliant, no matter what." The city of Lubbock, Texas, is planning a Year 2000 "drill" this month. To prepare for the drill, Lubbock is developing scenarios of possible Year 2000-induced failures, as well as more normal problems (such as inclement weather) that could occur at the change of century. Louisiana established a $5 million Year 2000 funding pool to assist agencies experiencing emergency circumstances in mission-critical applications and that are unable to correct the problems with existing resources. Regarding Illinois, according to the state's Year 2000 Internet World Wide Web site, it had created a repository of information on vendor claims regarding the Year 2000 compliance of software packages in use by various state agencies. In addition, Illinois' Treasurer's Office announced in July 1998 the creation of a Year 2000 Initiative task force composed of public and private officials from 10 regions in the state. This task force is charged with monitoring the progress of all financial vendors doing business with Illinois. To fully address the Year 2000 risks that states and the federal government face, data exchanges must also be confronted--a monumental issue. As computers play an ever-increasing role in our society, exchanging data electronically has become a common method of transferring information among federal, state, and local governments. For example, SSA exchanges data files with the states to determine the eligibility of disabled persons for disability benefits. In another example, the National Highway Traffic Safety Administration provides states with information needed for driver registrations. As computer systems are converted to process Year 2000 dates, the associated data exchanges must also be made Year 2000 compliant. If the data exchanges are not Year 2000 compliant, data will not be exchanged or invalid data could cause the receiving computer systems to malfunction or produce inaccurate computations. Our recent report on actions that have been taken to address Year 2000 issues for electronic data exchanges revealed that federal agencies and the states use thousands of such exchanges to communicate with each other and other entities. For example, federal agencies reported that their mission-critical systems have almost 500,000 data exchanges with other federal agencies, states, local governments, and the private sector. To successfully remediate their data exchanges, federal agencies and the states must (1) assess information systems to identify data exchanges that are not Year 2000 compliant, (2) contact exchange partners and reach agreement on the date format to be used in the exchange, (3) determine if data bridges and filters are needed and, if so, reach agreement on their development, (4) develop and test such bridges and filters, (5) test and implement new exchange formats, and (6) develop contingency plans and procedures for data exchanges. At the time of our review, much work remained to ensure that federal and state data exchanges will be Year 2000 compliant. About half of the federal agencies reported during the first quarter of 1998 that they had not yet finished assessing their data exchanges. Moreover, almost half of the federal agencies reported that they had reached agreements on 10 percent or fewer of their exchanges, few federal agencies reported having installed bridges or filters, and only 38 percent of the agencies reported that they had developed contingency plans for data exchanges. Further, the status of the data exchange efforts of 15 of the 39 state-level organizations that responded to our survey was not discernable because they were not able to provide us with information on their total number of exchanges and the number assessed. Of the 24 state-level organizations that provided actual or estimated data, they reported, on average, that 47 percent of the exchanges had not been assessed. In addition, similar to the federal agencies, state-level organizations reported having made limited progress in reaching agreements with exchange partners, installing bridges and filters, and developing contingency plans. However, we could draw only limited conclusions on the status of the states' actions because data were provided on only a small portion of states' data exchanges. To strengthen efforts to address data exchanges, we made several recommendations to OMB. In response, OMB agreed that it needed to increase its efforts in this area. For example, OMB noted that federal agencies had provided the General Services Administration with a list of their data exchanges with the states. In addition, as a result of an agreement reached at an April 1998 federal/state data exchange meeting,the states were supposed to verify the accuracy of these initial lists by June 1, 1998. OMB also noted that the General Services Administration is planning to collect and post information on its Internet World Wide Web site on the progress of federal agencies and states in implementing Year 2000 compliant data exchanges. In summary, federal, state, and local efforts must increase substantially to ensure that major service disruptions do not occur. Greater leadership and partnerships are essential if government programs are to meet the needs of the public at the turn of the century. Mr. Chairman, 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. FAA Systems: Serious Challenges Remain in Resolving Year 2000 and Computer Security Problems (GAO/T-AIMD-98-251, August 6, 1998). Year 2000 Computing Crisis: Business Continuity and Contingency Planning (GAO/AIMD-10.1.19, August 1998). Internal Revenue Service: Impact of the IRS Restructuring and Reform Act on Year 2000 Efforts (GAO/GGD-98-158R, August 4, 1998). Social Security Administration: Subcommittee Questions Concerning Information Technology Challenges Facing the Commissioner (GAO/AIMD-98-235R, July 10, 1998). Year 2000 Computing Crisis: Actions Needed on Electronic Data Exchanges (GAO/AIMD-98-124, July 1, 1998). Defense Computers: Year 2000 Computer Problems Put Navy Operations at Risk (GAO/AIMD-98-150, June 30, 1998). Year 2000 Computing Crisis: A Testing Guide (GAO/AIMD-10.1.21, Exposure Draft, June 1998). Year 2000 Computing Crisis: Testing and Other Challenges Confronting Federal Agencies (GAO/T-AIMD-98-218, June 22, 1998). 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). 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. A recorded menu will provide information on how to obtain these lists.
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GAO discussed the year 2000 computer system risks facing the nation, focusing on: (1) GAO's major concerns with the federal government's progress in correcting its systems; (2) state and local government year 2000 issues; and (3) critical year 2000 data exchange issues. GAO noted that: (1) the public faces a high risk that critical services provided by the government and the private sector could be severely disrupted by the year 2000 computing crisis; (2) 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; (3) overall, the government's 24 major departments and agencies are making slow progress in fixing their systems; (4) in May 1997, the Office of Management and Budget (OMB) reported that about 21 percent of the mission-critical systems for these departments and agencies were year 2000 compliant; (5) in May 1998, these departments reported that 40 percent of the mission-critical systems were year 2000 compliant; (6) unless progress improves dramatically, a substantial number of mission-critical systems will not be compliant in time; (7) in addition to slow governmentwide progress in fixing systems, GAO's reviews of federal agency year 2000 programs have found uneven progress; (8) some agencies are significantly behind schedule and are at high risk that they will not fix their systems in time; (9) other agencies have made progress, although risks continue and a great deal of work remains; (10) governmentwide priorities in fixing systems have not yet been established; (11) these governmentwide priorities need to be 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; (12) business continuity and contingency planning across the government has been inadequate; (13) in their May 1998 quarterly reports to OMB, only four agencies reported that they had drafted contingency plans for their core business processes; (14) OMB's assessment of the status of federal year 2000 progress is predominantly based on agency reports that have not been consistently reviewed or verified; (15) GAO found cases in which agencies' systems compliance status as reported to OMB had been inaccurate; (16) end-to-end testing responsibilities have not yet been identified; (17) state and local governments also face a major risk of year 2000-induced failures to the many vital services that they provide; (18) recent surveys of state year 2000 efforts have indicated that much remains to be completed; and (19) at the time of GAO's review, much work remained to ensure that federal and state data exchanges will be year 2000 compliant.
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Actions can also include compliance and monitoring, such as reviewing disclosures by exporters of possible export control violations, prelicense checks, and postshipment verifications. See GAO, Export Controls: Post-Shipment Verification Provides Limited Assurance That Dual-use Items Are Being Properly Used, GAO-04-357 (Washington, D.C.: Jan. 12, 2004); and Defense Trade: Arms Export Control System in the Post 9/11 Environment, GAO-05-234 (Washington, D.C.: Feb. 16, 2005). investigate, and take punitive action against potential violators of U.S. export control laws. These authorities provide the Federal Bureau of Investigation (FBI) and Immigration and customs Enforcement (ICE) with overlapping jurisdiction to investigate defense potential violations, and FBI, ICE, and Commerce's Office of Export Enforcement (OEE) with overlapping jurisdiction to investigate dual-use potential violations. Inspections of items scheduled for export are routinely conducted at U.S. air, sea, and land ports, as part of the U.S. Customs and Border Protection (CBP) officer's responsibilities for enforcing U.S. import and export control laws and regulations at our nation's ports of entry. CBP's enforcement activities include inspection of outbound cargo through a risk-based approach using CBP's automated targeting systems to assess the risk of each shipment, review and validation of documentation presented for licensable items, detention of questionable shipments, and seizure of shipments and issuance of monetary penalties for items that are found to be in violation of U.S. export control laws. According to CBP officials, almost 3 million shipments per month are exported from the United States. Investigations of potential violations of export control laws for dual-use items are conducted by agents from OEE, ICE, and FBI. Investigations of potential export control violations involving defense items are conducted by ICE and FBI agents. OEE and ICE are authorized to investigate potential violations of dual-use items. ICE is also authorized to investigate potential violations of defense items. The FBI has authority to investigate any criminal violation of law not exclusively assigned to another agency, and is mandated to investigate and oversee export control violations with a counterintelligence concern. The investigative agencies have various tools for investigating potential violations (see table 2) and establishing cases for potential criminal or administrative punitive actions. Punitive actions, which are either criminal or administrative, are taken against violators of export control laws and regulations, and may involve U.S. or foreign individuals and companies. Criminal violations are those cases where the evidence shows that the exporter willfully violated export control laws. U.S. Attorneys' Offices prosecute export control enforcement criminal cases in consultation with Justice's National Security Division. These cases can result in imprisonment, fines, forfeitures, and other penalties. Punitive actions for administrative violations can include fines, suspension of an export license, or denial or debarment from exporting, and are imposed primarily by State or Commerce, depending on whether the violation involves the export of a defense or a dual-use item. For example, Commerce can impose the administrative sanction of placing parties acting contrary to the national security or foreign policy interests of the United State on a list that prevents their receipt of items subject to Commerce controls. The Treasury's Office of Foreign Assets Control (OFAC) administers and enforces economic sanctions programs primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. In some cases, both criminal and administrative penalties can be levied against an export control violator. In fiscal year 2010, Justice data showed that 56 individuals or companies were convicted of criminal violations of export control laws.and Commerce reported more than $25.4 million in administrative fines and penalties for fiscal year 2010. In 2011, over a third of the major U.S. export control enforcement and embargo-related criminal prosecutions involved the illegal transfer of U.S. military, nuclear, or technical data to Iran and China. Agencies use some form of a risk-based approach when allocating resources to export control enforcement as their missions are broader than export controls. As agencies can use these resources for other activities based on need, tracking resources used solely on export control enforcement activities is difficult. Only OEE allocates all of its resources exclusively to export control enforcement as that is its primary mission, and State and the Treasury have relatively few export control enforcement staff to track. Agencies' risk-based resource allocation approach incorporates a variety of information, including workload and threat assessment data, but has not generally included data on resources used for export control enforcement activities as agencies did not implement systems to fully track this information until recently. Given the overlapping jurisdiction of several enforcement agencies, in some cities agencies have voluntarily created local task forces that bring together enforcement resources to work collectively on cases--informally leveraging resources. Agencies determine their missions based on statutes, policy, and directives, and articulate their fundamental mission in their strategic plans.with senior agency officials, agencies with primary export control enforcement responsibility have multiple missions that extend beyond export controls as shown in table 3, except for OEE. As such, these agencies are faced with balancing multiple priorities when allocating staff resources. Based on our review of these documents as well as discussions enforcement, and as such, is the only agency that has been able to fully track the resources used on these activities. To formulate its budget and allocate its investigators, OEE conducts threat assessments with a priority related to weapons of mass destruction, terrorism, and unauthorized military use; and analyzes export control enforcement case workload, including the prior year's investigative statistics of arrests, indictments, and convictions. OEE also recently completed a field office expansion study to decide which cities would be the best locations for additional OEE field offices. In this study, OEE considered the volume of licensed and unlicensed exports and the type of high-tech items exported from different areas of the United States, and concluded that Atlanta, GA; Cincinnati, OH; Phoenix, AZ; and Portland, OR, were optimal locations, but has not received budget approval for expansion. CBP reemphasized outbound operations in the creation of its Outbound Enforcement Division in March 2009 to help prevent terrorist groups, rogue nations, and other criminal organizations from obtaining defense and dual-use commodities; enforce sanctions and trade embargoes; and increase exporter compliance. CBP determines the number of staff to allocate to outbound inspections through a risk- based approach based on prior workload and a quarterly threat matrix--which includes the volume of outbound cargo and passengers, port threat assessments, and the numbers and types of seizures and arrests at the ports for items such as firearms and currency. As of fiscal year 2010, CBP had allocated approximately 660 officers for outbound enforcement activities, but these officers can be used for other than export control-related activities at any time, when needed. For example, the Port of Baltimore has officers assigned to perform outbound activities at both the airport and seaport, some of which focus on the enforcement of controlled shipments in the seaport environment. According to the Port Director, any of these officers can be redirected at any time and often are assigned to the airport during the busy airline arrival times, to perform inbound inspection duties--based on priorities. Further, CBP does not track the hours that its officers across the country spend on export control enforcement activities, but is in the process of implementing a system to do so. CBP officials stated that determining the right mix of officers is complex and changes to its tracking system should allow for better planning and accounting for resources used for outbound activities in the future. ICE's Homeland Security Investigations, Counter-Proliferation Investigations Unit focuses on preventing sensitive U.S. technologies and weapons from reaching the hands of adversaries and conducts export control investigations. To determine how many investigators it should allocate to this unit, ICE uses information including operational threat assessments and case data from the previous year, by field office, on total numbers of arrests, indictments, convictions, seizures, and investigative hours expended on export control investigations. For example, it assigns a tier level for each of its 70 field offices, based on threat assessments--ranging from 1 for the highest threat, resulting in a larger number of agents assigned to these offices; to 5 for the lowest threat, with a lower number of agents assigned. To further prioritize resources, in 2010, ICE established Counter Proliferation Investigations Centers in selected cities throughout the United States, with staff focused solely on combating illegal exports and illicit procurement networks seeking to acquire vital U.S. technology. ICE concluded that it needed to form these centers to combat the specialized nature of complex export control cases and determined that its previous method of distributing resources needed refinement, noting that some ICE field office managers had difficulty in balancing numerous competing programmatic priorities and initiatives. According to ICE officials, they plan to mitigate these concerns by having staff and facilities focused solely on export control enforcement cases, which will allow ICE to track and use this information to better determine future resource needs. The FBI, with both an investigative and intelligence mission, does not allocate resources solely for export control enforcement and officials told us they view these activities as a tool to gain intelligence that may lead to more robust cases. Nevertheless, cases involving export controls are primarily led by agents within the Counterintelligence Division. To determine the number of agents to allocate to this division, the FBI uses a risk management process and threat assessments. Several years ago, the FBI established at least one Counterintelligence squad in each of its 56 field offices. In July 2011, the FBI established a Counterproliferation Center, merging its Counterintelligence Division and its Weapons of Mass Destruction Directorate to better focus their efforts and resources. The FBI is in the process of implementing new codes within its resource tracking system to obtain better information on agents' distribution of work, which will include time spent on investigations of defense and dual- use items. U.S. Attorneys' Offices have discretion to determine the resources that they will allocate to export control enforcement cases, based on national priorities and the individual priorities of the 94 districts. These priorities include law enforcement concerns for their district and leads from investigative agencies. In response to the risk associated with national security, which includes export control enforcement cases, staffing for national security activities has increased and several districts have created national security sections within their office. In 2008, the Executive Office for U.S. Attorneys provided codes for charging time and labeling cases to obtain better information on the U.S. Attorneys' Office distribution of work and those resources used for export control enforcement. However, some Assistant U.S. Attorneys told us that the time-keeping system is complicated as there are multiple codes and sub-categories in the tracking system and determining the correct codes is often subjective, making it difficult to track time spent on export control enforcement cases. Senior agency officials acknowledged this concern and are working with the U.S. Attorneys' Offices to provide better guidance to improve the accuracy of attorney time charges. Other offices, such as State's Office of the Legal Adviser for Political- Military Affairs and Commerce's Office of the Chief Counsel for the Bureau of Industry and Security assist the enforcement agencies by providing legal support. For example, Commerce's Office of the Chief Counsel pursues administrative enforcement actions against individuals and entities, but also reviews and advises on OEE recommendations for other administrative actions, such as temporary denials of licenses. In addition, DDTC and OFAC pursue administrative enforcement actions against violators. For example, OFAC administers and enforces U.S. economic and trade sanctions against designated foreign countries. While not all of staff in these offices are allocated to export control enforcement, these offices have relatively few staff to track. In addition to a domestic presence, most export control enforcement agencies also allocate resources overseas, but only Commerce allocates resources exclusively to export control enforcement. For example, Commerce maintains Export Control Officers in six locations abroad; Beijing and Hong Kong, China; Abu Dhabi, UAE; New Delhi, India; Moscow, Russia; and Singapore, to support its dual-use export control enforcement activities. Given that these officers have regional responsibilities, they cover additional locations. For example, the Export Control Officer assigned to Singapore also covers Malaysia and Indonesia. While other agencies have field locations in many overseas locations, these resources are to support the agencies' broader missions and can be used for other duties based on the overseas mission priorities. For example, ICE has 70 offices in 47 foreign countries with more than 380 government and contract personnel which support all ICE enforcement activities, including export control. They can also be called upon to support various other DHS mission priorities. Specifically, the ICE agents we met with at the U.S. Embassy in Abu Dhabi also conduct activities in support of the full DHS mission and a great portion of their time is spent on visa security and a lesser amount on export control enforcement activities. The export control enforcement investigative agencies often have offices located in the same cities or geographic areas. In many of these cities, agencies' officials said that they informally leverage each others' tools, authorities, and resources to coordinate investigations and share intelligence through local task forces allowing them to use resources more efficiently and avoid duplicating efforts or interfering with each other's cases. In 2007, Justice's National Export Enforcement Initiative encouraged local field offices with a significant export control threat to create task forces or other alternatives to coordinate enforcement efforts in their area. Since then, almost 20 U.S. Attorneys' Offices have created task forces of their own initiative or in conjunction with another enforcement agency, primarily in cities where these agencies are co- located to facilitate the investigation and prosecution of export control cases. Figure 1 shows the location of investigative agencies' major field offices, as well as the location of export control enforcement task forces. Most of the task force members we met with in Baltimore, Los Angeles, and San Francisco stated that they see benefits beyond the coordination of cases, including investigating cases together and sharing resources. Baltimore's Counterproliferation Task Force: ICE and the U.S. Attorneys' Office created this Task Force in 2010 and it has representatives from each of the enforcement agencies located in the area, as well as the defense and intelligence communities. Task force officials stated that they develop and investigate export control cases together and, to enhance interagency collaboration, ICE has supplied work space, allowing agents from other agencies to work side-by-side to pursue leads and conduct investigations. Officials emphasized that the task force enables smaller agencies with fewer resources to leverage the work and expertise of the others to further their investigations and seek prosecutions. Sometimes the task force structures reap benefits that individual agencies cannot reach on their own, as exemplified by the Baltimore Counterproliferation Task Force. Among successes was a Maryland man sentenced to 8 months in prison followed by 3 years of supervised release for illegally exporting export-controlled night vision equipment. Los Angeles' Export and Anti-proliferation Global Law Enforcement (EAGLE) Task Force: The U.S. Attorney established this Task Force in 2008 as a result of Justice's counter-proliferation initiatives. Its purpose is to coordinate and develop expertise in export control investigations. Currently, there are over 80 members from 17 Los Angeles-based federal agencies. According to a task force official, the EAGLE task force has resulted in increased priority on export control investigations and improved interagency cooperation since it was established. For instance, the enforcement agencies are now more effectively sharing information in their respective databases. A task force official noted that enhanced access to these databases allows agencies to reduce duplication of license determination requests and to easily retrieve information on a particular person or commodity's history using the search options. Additionally, through the task force structure, ICE and OEE agents have worked together to conduct additional outreach to industry affiliates. San Francisco's Strategic Technology Task Force: According to officials, this task force was formed by FBI in 2004, with a primary focus on conducting joint export control outreach activities to academia and industry with the other investigative agencies (ICE and OEE). This task force also includes participation by the military service intelligence units and other law enforcement agencies. FBI task force leaders stated that this task force has helped to coordinate outreach activities as well as to generate investigative leads. According to an agent from the FBI's San Jose field office, that office has a performance goal to conduct 90 percent of their export control-related investigations jointly with investigative agencies at ICE and Commerce. Although successful cases of joint collaboration among agencies can yield positive enforcement outcomes, as reported by the offices in the three cities we visited, the extent to which these alliances are effective is primarily dependent on personal dynamics of a given region, agency, and law enforcement culture. In addition, these local agency task forces for export control enforcement vary in structure, are voluntary, and do not exist nationwide. For example, while multiple investigative agencies have local offices in Chicago and Dallas with export control enforcement agents, agencies do not have a local task force in these cities to regularly coordinate on export control cases. While agency officials shared examples of agencies informally leveraging each other's resources, officials told us that they do not factor in such resources when planning their own agency allocations for a variety of reasons, including each agency's separate budgets and missions, which do not generally consider those of other agencies. Enforcement agencies face several challenges in investigating illicit transshipments, both domestically and overseas--including license determination delays; limited access in some overseas locations; and a lack of effectiveness measures that reflect the complexity and qualitative benefits of export control cases. Recognizing broader challenges in export control enforcement, the President announced the creation of a national export enforcement coordination center, which may help agencies address some of the challenges described below, but detailed plans to do so have yet to be developed. The current export control enforcement system poses several challenges that potentially reduce the effectiveness of activities and limit the identification and investigation of illicit transshipments. Export control enforcement agencies seek to keep defense and dual-use items from being illegally exported through intermediary countries or locations to an unauthorized final destination, such as Iran, but agencies face challenges that can impact their ability to investigate export control violations, both domestically and overseas. First, license determinations--which confirm whether an item is controlled and requires a license, and thereby help confirm whether an export control violation has occurred--can sometimes be delayed, potentially hindering investigations and prosecutions. Second, investigators have limited access to secure communications and cleared staff in several domestic field offices, which can limit their ability to share timely and important information. Third, agencies have limited access to ports and facilities overseas. Fourth, agencies lack consistent data to quantify and identify trends and patterns in illicit transshipments of U.S. export-controlled items. Lastly, investigative agencies lack measures of effectiveness that fully reflect the complexity and qualitative benefits of export control cases. License Determination Delays. To confirm whether a defense or dual-use item is controlled and requires a license, inspectors, investigators, and prosecutors request license determinations from the licensing agencies of State and Commerce. These license determinations are integral to enforcement agencies' ability to seize items, pursue investigations, or seek prosecutions. DHS's Exodus Command Center operates the Exodus Accountability Referral System--an ICE database that initiates, tracks, and manages enforcement agency requests for license determinations from the licensing agencies.identifies three different levels of license determinations: initial (to seize an item or begin an investigation), pre-trial (to obtain a search warrant, among other things), and trial (to be used during trial proceedings). The Exodus Command Center has established internal timeliness goals for receiving responses to requests for initial determinations within 3 days; pre-trial certifications within 45 days; and trial certifications within 30 days. However, as shown in table 5, these goals are often not met, which can create barriers for enforcement agencies in seizing shipments before they depart the United States; obtaining search warrants; and making timely arrests. Given the wide-ranging mission of most of the agencies involved in export control enforcement, it is essential that agencies track resources expended on export control inspections, investigations, and prosecutions to assess how these resources are contributing to fulfilling their missions and are focused on the highest priorities in export control enforcement. While agencies, such as DHS and Justice, have recognized the need to better track their resources, a more comprehensive approach, including enhanced measures of effectiveness, could help these and other enforcement agencies assess workload and efficiency in making resource allocations and in determining whether changes are warranted. The creation of the Export Enforcement Coordination Center presents such an opportunity for the entire export control enforcement community. The center has the potential to become more than a co-location of enforcement agencies, but can be a conduit to more effectively manage export control resources. As the center's operation progresses, it has the opportunity to address ongoing challenges in export control enforcement, including reducing potential overlap in investigations, and help agencies to work as efficiently as possible, maximize available intelligence and agency investigative data, and measure the effectiveness of U.S. export control enforcement activities. Challenges presented by delays in license determinations can affect the inspection, investigation, and prosecution of export control cases but may be outside of the mission of the center since they primarily involve the licensing agencies. Having goals for processing license determinations can help establish transparency and accountability in the process. Given that the licensing agencies and the Exodus Command Center have not agreed to timeliness goals for responding to such requests, these agencies may benefit from collaborating to help improve the effectiveness of the process. To better inform management and resource allocation decisions, effectively manage limited export control enforcement resources, and improve the license determination process, we are making the following four recommendations: We recommend that the Secretary of Homeland Security and the Attorney General, as they implement efforts to track resources expended on export control enforcement activities, use such data to make resource allocation decisions. We recommend that the Secretaries of Commerce and Homeland Security as they develop and implement qualitative measures of effectiveness, ensure that these assess progress towards their overall goal of preventing or deterring illegal exports. We recommend that the Secretary of Homeland Security, in consultation with the departmental representatives of the Export Enforcement Coordination Center, including Commerce, Justice, State, and the Treasury leverage export control enforcement resources across agencies by building on existing agency efforts to track resources expended, as well as existing agency coordination at the local level; establish procedures to facilitate data sharing between the enforcement agencies and intelligence community to measure illicit transshipment activity; and develop qualitative and quantitative measures of effectiveness for the entire enforcement community to baseline and trend this data. We recommend that the Secretaries of Commerce and State, in consultation with the Secretary of Homeland Security, the Attorney General, and other agencies as appropriate, establish agreed upon timeliness goals for responding to license determination requests considering agency resources, the level of determination, the complexity of the request, and other associated factors. We provided a draft copy of this report to Commerce, DHS, DOD, Justice, State, and Treasury for their review and comment. Commerce, DHS, Justice, and State concurred with the report's recommendations and, along with DOD, provided technical comments which we incorporated as appropriate. Treasury did not provide any comments on the report. As multiple agencies have responsibilities for export control enforcement, several of our recommendations call for these agencies to work together to effectively manage limited export control enforcement resources and to improve the license determination process. In their comments, Commerce and State agreed to work in consultation with DHS and Justice to establish timeliness goals for license determinations. In its comments, DHS stated its intent to work with the other agencies to improve the license determination process as well as take steps to deploy its resources in the most effective and efficient manner and provided target dates for completing these actions. In particular, DHS noted that ongoing tracking efforts by CBP and ICE will be used to improve their knowledge of resources expended on export control enforcement activities and that they will periodically review this information to determine the overall direction of the export control program. Additionally, DHS stated its intent to establish a working group with other agencies to develop performance measures related to export control enforcement to help estimate the effectiveness of all associated law enforcement activity. Written comments from Commerce, DHS, and State are reprinted in appendixes II, III, and IV, respectively. We are sending copies of this report to interested congressional committees, as well as the Secretaries of Commerce, Defense, Homeland Security, State, and Treasury as well as the Attorney General. We will also make copies available to others upon request. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions on matters discussed in 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 that made key contributions to this report is listed in appendix V. To determine how agencies allocate staff resources for export control enforcement activities, we interviewed cognizant officials and examined relevant documents such as agencies' budgets, strategic plans, memorandum, and other documentation on resources. We interviewed officials about their resources at the headquarters of Commerce, DHS, Justice, State, and the Treasury. We also discussed with DOD officials their role in providing investigative support to agencies responsible for export control enforcement. We developed and used a set of structured questions to interview each agency's resource planners to determine how they allocate resources, what information and factors they consider in resource allocation decisions, what their enforcement priorities are, whether they track resources expended on enforcement, if they had conducted an analysis of their resource need, and if they consider or leverage other agencies' resources. We obtained applicable criteria including the Office of Management and Budget Circular A-11 and departmental guidance on resource allocation and tracking. We also reviewed previous GAO and inspector general reports regarding the Government Performance and Results Act (GPRA), as amended, and resource management for enforcement programs. To determine current resource levels, we obtained geographic locations of all domestic staff conducting export control enforcement, actual expenditures on export control enforcement activities, and information on staffing levels from each agency for fiscal years 2006 through 2010. We did not independently verify the accuracy of agency information on expenditures and staffing levels obtained, but we corroborated this information with cognizant agency officials. We considered agencies' overall resources for the broad enforcement authorities and the resources allocated to export control enforcement specifically. Finally, we analyzed agencies' budget requests, expenditures, and staff hours to determine agencies current resource commitment and how agencies have allocated resources to export control enforcement activities. To determine challenges that agencies face in investigating illicit transshipments and the potential impact of export control reform initiatives on enforcement activities, we interviewed cognizant officials, examined and analyzed relevant export control documents and statutes, and conducted sites visits both domestically and overseas. We interviewed officials about their enforcement priorities at the headquarters of Commerce, DHS, Justice, and State. We also discussed with DOD officials their role in providing license determination support to agencies responsible for export control enforcement. We developed and used a set of structured questions to interview enforcement agency officials in selected domestic and overseas locations and observed export enforcement operations at those locations that had air, land, and seaports. We selected sites to visit based on various factors, including geographical areas where all enforcement agencies were represented with a large percentage of investigative caseload; areas with a mix of defense and high-tech companies represented; ports with a high volume of trade of U.S. commodities; a large presence of aerospace, electronics, and software industries, and based on headquarters officials' recommendations on key areas of export control enforcement activities both domestically and abroad. On the basis of these factors, we visited Irvine, Long Beach, Los Angeles, Oakland, San Francisco, and San Jose, CA; Washington, D.C.; and Baltimore, MD domestically. Internationally, we interviewed United States Embassy and Consulate officials and host government authorities in Hong Kong, Singapore, and in Abu Dhabi and Dubai in the United Arab Emirates (UAE). We received briefings on the export control systems from the Hong Kong Government's Trade and Industry Department, Customs and Excise Tax Department, from Singapore's Ministry of Foreign Affairs, Singapore's Immigration and Customs Authority; as well as toured ports at these locations. We also received a briefing from the Hong Kong Customs Airport Command on air cargo and air-to-air transshipment of strategic commodities and visited the DHL Hub at the Hong Kong International Airport. In the UAE, we visited the Government of Sharjah, Department of Seaports & Customs, Hamriyah Free Zone Authority and met with the Director and Security and Safety Manager to discuss the Hamriyah Free Zone. We reviewed the findings and recommendations of past GAO reports, documentation from enforcement agencies, and interviewed U.S. government officials from these agencies as well as their field offices. We also met with several agency representatives of the Export Control Reform Task Force and reviewed recent White House press releases on the export reform initiatives. Further, we examined Federal Register notices on changing regulations related to the export control reform initiative. We conducted this performance audit from February 2011 through March 2012, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Belva Martin, (202) 512-4841 or [email protected]. In addition to the contact names above, John Neumann, Assistant Director; Lisa Gardner; Desiree Cunningham; Jungjin Park; Marie Ahearn; Roxanna Sun; Robert Swierczek; and Hai Tran made key contributions to this report.
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The U.S. government controls the export of sensitive defense and dual-use items (having both military and commercial use). The five agencies primarily responsible for export control enforcement--the Departments of Commerce, Homeland Security (DHS), Justice, State and the Treasury--conduct inspections and investigations, and can levy punitive actions against violators. A challenging aspect of export control enforcement is the detection of illicit transshipments--the transfer of items from place of origin through an intermediary country to an unauthorized destination, such as Iran. In 2010, the President announced reforms to the U.S. export control system to address weaknesses found by GAO and others. GAO was asked to address how the export control enforcement agencies allocate resources, as well as the challenges they face and the potential impact of export control reform on enforcement activities. GAO reviewed documents and met with enforcement agency officials as well as with U.S. and foreign government and company officials in Hong Kong, Singapore, and the United Arab Emirates, which have a high volume of trade and have been identified as potential hubs for illicit transshipments. Agencies use a risk-based approach, including workload and threat assessment data, to allocate resources, but most do not fully track those used for export control enforcement activities. As their missions are broader than export controls, agencies can use staff resources for other activities based on need, making tracking resources used solely for export control enforcement difficult. Only Commerce's Office of Export Enforcement allocates its resources exclusively to export control enforcement as that is its primary mission. Other agencies, such as State and the Treasury, have relatively few export control enforcement staff to track. While several agencies acknowledge the need to better track export enforcement resources and have taken steps to do so, they do not know the full extent of their use of these resources and do not use this information in resource allocation decisions. In some cities, agencies are informally leveraging export enforcement resources through voluntarily created local task forces that bring together enforcement resources to work collectively on export control cases. Enforcement agencies face several challenges in investigating illicit transshipments, both domestically and overseas, which potentially reduce the effectiveness of enforcement activities and limit the identification and investigation of illicit transshipments. These include: License Determination Delay s. License determinations--which confirm whether an item is controlled and requires a license, and thereby help confirm whether an export control violation has occurred--are often not timely, potentially hindering investigations and prosecutions. Limited Secure Communications and Cleared Staff . Investigators have limited access to secure communications and staff with high-level security clearances in several domestic field offices, limiting investigators' ability to share timely and important information. Lack of Trend Data on Illicit Transshipments . While there is a good exchange of intelligence between enforcement agencies and the intelligence community--to seize shipments and take other actions against export control violators--officials noted that no formal process or means existed for these groups to collectively quantify and identify statistical trends and patterns relating to information on illicit transshipments. Lack of Effectiveness Measures Unique to the Complexity of Export Controls . Investigative agencies lack measures of effectiveness that fully reflect the complexity and qualitative benefits of export control cases. Some of these challenges may be addressed by ongoing export control reform initiatives, but reform presents both opportunities and challenges. Revising the control list could simplify the license determination process, but could also result in the need for increased enforcement activity overseas to validate the recipient of the items as fewer items may require U.S. government approval in advance of shipment. As most staff located overseas have other agency and mission-related priorities, their availability may be limited. The newly created national Export Enforcement Coordination Center is intended to help agencies coordinate their export control enforcement efforts as well as share intelligence and law enforcement information related to these efforts. However, it is unclear whether the center will address all of the challenges GAO found, as detailed plans for its operations are under development. GAO recommends that Commerce, DHS, Justice, and State take steps individually and with other agencies through the national Export Enforcement Coordination Center to better manage export control enforcement resources and improve the license determination process. Agencies agreed with GAO's recommendations.
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This section describes the factors affecting recent LNG activities in the United States, the liquefaction process, DOE's responsibilities for authorizing export applications, FERC's responsibilities for authorizing export facilities, and positions of those supporting or opposing the export of LNG. According to the Congressional Research Service, in the early 2000s, natural gas production in the United States was declining as energy demand was increasing and, as recently as the mid-to-late 2000s the United States was projected to be a growing natural gas importer. In addition to four onshore import terminals that were already operational, natural gas companies built five LNG onshore import facilities in the latter half of the 2000s to meet the expected need for natural gas imports. However, technology enhancements improved the extraction of natural gas from shale formations and resulted in a dramatic increase in domestic natural gas production. These technology enhancements allow companies to extract natural gas from shale formations that were previously considered to be inaccessible because traditional techniques did not yield sufficient amounts for economically viable production. According to Energy Information Administration (EIA) data, between 2007 and 2013, domestic natural gas withdrawals increased by 22 percent, driven primarily by increased withdrawals from shale formations. According to EIA, increases in natural gas supplies generally cause prices to drop. Specifically, between 2007 and 2013, the price of natural gas in the United States decreased by nearly 50 percent. As the price of natural gas in the United States declined, prices in Europe and Asia remained considerably higher. In July 2014, FERC estimated that prices of LNG imported to Europe and Asia during August of 2014 would be about 100 and 250 percent higher than prices in the United States, respectively. These price differences have motivated U.S companies to apply to export natural gas. The majority of U.S. trade in natural gas is by pipeline with Canada and Mexico; however, over long distances separated by water, natural gas is generally converted to LNG and transported by specialized tanker ship. To convert natural gas to LNG, companies pretreat the natural gas to remove components that would freeze during the liquefaction process and contaminate the LNG.through a complex system called a liquefaction train that cools the natural gas to -260 degrees Fahrenheit, converting it to a liquid state. This process reduces the volume of the gas by 600 times. Once liquefied, the After the gas is pretreated, it is processed natural gas is stored in large tanks until it is offloaded to a ship for transport. Once the ship reaches its destination, it is offloaded to tanks for storage or converted to natural gas for distribution by pipeline.illustrates some of the common components of an LNG export facility. Under Section 3 of the NGA, the import or export of LNG and the construction or expansion of LNG facilities requires authorization from DOE. In 1984, DOE delegated the responsibility to approve or deny applications for LNG facilities to FERC. Under Section 3, an authorization is to be granted unless DOE finds that approving the export or import is inconsistent with the public interest. According to DOE, Section 3(a) of the NGA creates a rebuttable presumption that a proposed export of natural gas is in the public interest--that is, it places the burden on those opposing an application to demonstrate that an export is inconsistent with the public interest. The NGA also authorizes DOE to attach terms and conditions necessary to protect the public interest. DOE evaluates public interest under Section 3, and can conduct studies or other reviews to support its public interest determination. In the Energy Policy Act of 1992, Congress amended the NGA to require DOE to use a different standard for the review of applications for export to countries with FTAs with the United States (FTA countries). Specifically, under Section 3(c) of the NGA, DOE must treat applications to export LNG to FTA countries as consistent with the public interest, and DOE is to approve these applications without modification or delay. These FTA applications therefore do not require the same public interest review as non-FTA applications. DOE started to receive applications to export LNG in 2010 and, since then, it has approved 37 of 42 applications to export LNG to FTA countries. During this same period, DOE approved 9 (3 final and 6 conditional) of 35 applications to export LNG to non-FTA countries. Most major importers of LNG are non-FTA countries such as Japan and India, among others. As previously mentioned, this report discusses DOE's process to review applications to export to non-FTA countries. In keeping with its obligation to authorize LNG facility siting and construction under the NGA, FERC reviews applications to construct and operate LNG export facilities. FERC's review is considered a federal action and subject to the National Environmental Policy Act (NEPA). NEPA requires federal agencies to assess the projected effects of major federal actions that significantly affect the environment. Prior to the NEPA review, the law requires applicants to communicate with FERC for a minimum of 6 months--known as pre-filing--before submitting an application. FERC acts as the lead agency for the environmental review required by NEPA, prepares the NEPA environmental documentation, and coordinates and sets the schedule for all federal authorizations. The outcome of this review is an environmental document, also called the NEPA document, which provides the commissioners with staff's assessment of the environmental impacts from facility construction and operation. DOE and FERC consider comments from the public during the application review process, and these comments reflect a range of perspectives on the potential benefits or harm from exports. Proponents maintain that LNG exports are consistent with U.S. free trade policies and will provide an economic boon for the United States, resulting in increased employment and an improved trade balance among other things. They assert that the increased availability of natural gas resources will prevent a significant increase in natural gas prices. Opponents have expressed numerous environmental and economic concerns about LNG exports. For example, opponents have expressed concern that exports will increase hydraulic fracturing and its associated environmental effects, as well as increase greenhouse gas emissions from the production and consumption of natural gas.that exports will increase domestic natural gas prices, hurting the public and the growing industrial and manufacturing sectors that are sensitive to natural gas prices. Opponents have also stated that the primary beneficiaries of LNG exports will be a small segment of society involved in natural gas development and trade, and that most segments of society Other opponents have expressed concern will lose economically. Evaluating whether exports of LNG to non-FTA countries are consistent with the public interest is beyond the scope of this report. Since 2010, DOE has granted final approval to 3 applications and conditional approval to 6 others. DOE considers a range of factors to determine whether approving an export application is in the public interest. As of mid-September 2014, DOE has granted 3 final approvals for applications to export LNG, including the Sabine Pass application in 2012 and the Cameron LNG and Carib Energy applications in September 2014. Sabine Pass is the only LNG export facility currently under construction in the United States and is expected to begin operations in late 2015. In August 2011, after DOE conditionally approved exports from Sabine Pass, DOE commissioned a study of the cumulative effects of additional LNG exports on the economy and the public interest.approve any conditional applications during the 16-month period of the DOE did not study. The study was completed in December 2012. Since then, DOE has conditionally approved 7 applications, including the Cameron LNG application that it granted final approval in September 2014 (See fig. 2). DOE also approved the Carib Energy application in September 2014. DOE's export approvals, as of late August 2014, amount to 10.56 billion cubic feet of natural gas per day in the form of LNG; for comparison, Qatar, the world's largest exporter of LNG, exported about 10 billion cubic feet per day in 2012. According to DOE, when determining whether approval of an application is in the public interest, DOE focuses on (1) the domestic need for natural gas, (2) whether the proposed export threatens the security of domestic natural gas supplies, and (3) whether the arrangement is consistent with DOE's policy of promoting market competition along with other factors bearing on the public interest, such as environmental concerns. In passing the NGA, Congress did not define "public interest;" however, in 1984, DOE developed policy guidelines establishing criteria that the agency uses to evaluate applications for natural gas imports. The guidelines stipulate that, among other things, the market--not the government--should determine the price and other contract terms of imported natural gas. In 1999, DOE began applying these guidelines to natural gas exports. DOE's review of export applications is not a standardized process, according to agency officials; rather, it is a case-by-case deliberation, where each application is considered separately from others. DOE's review process begins when an applicant submits documentation to DOE requesting permission to export LNG. DOE examines applications one at a time, and it issues a notice of application in the Federal Register to invite persons interested in the application to comment, protest, or Applicants are then given an opportunity to respond to intervene.comments. DOE's internal review includes an examination of the application and analysis of public interest using public comments and applicant responses, the criteria outlined in its policy guidelines, the NGA, DOE's study of the effects of additional LNG exports, and past DOE authorizations. As discussed above, the NGA authorizes DOE to attach terms and conditions necessary to protect the public interest. To further inform its public interest review, DOE commissioned the study of the potential effects of additional exports on the economy. Since the study was released in December 2012, DOE has used it to support its public interest review for each of its application approval documents, including referencing the study's conclusion that LNG exports would have a net positive effect on the economy. After considering the evidence, DOE issues an order denying the application or granting the application on condition of a satisfactory completion of the NEPA review by FERC. DOE includes the reasoning behind its decision in each order. DOE may also modify the request in an order, such as by limiting the approved export amount or duration. Once DOE conditionally approves an application, it does not grant a final approval until it has reviewed FERC's NEPA document and reconsidered its public interest determination in light of relevant environmental information. Under NEPA, DOE must give appropriate consideration to the environmental effects of its decisions; FERC's NEPA document provides the basis for this consideration. 79 Fed. Reg. 32261 (June 4, 2014). The change would also supersede the precedence order. According to the DOE notice, DOE could still choose to implement the policy of issuing conditional orders at a later date. According to DOE officials, this change would allow them to use agency resources more efficiently because they would conduct a single review of each application instead of separate reviews for conditional and final approvals. In addition, the proposal would allow projects that are more commercially advanced to be reviewed by DOE once FERC has issued a NEPA document. Since 2010, FERC approved 3 facility applications, including 2 in 2014, and is currently reviewing 14 applications. FERC's reviews of LNG export facility applications are a multiyear analysis of the potential environmental and safety effects of the facility that involves other federal, state, and local agencies. FERC approved applications to construct and operate the Sabine Pass LNG export facility in April 2012, the Cameron facility in June 2014, and the Freeport facility in July 2014. As of late August 2014, FERC was reviewing 14 applications (See fig. 3). FERC has issued three final NEPA documents in 2014, including for the Cameron and Freeport facilities, and expects to complete one more by the end of 2014. FERC officials said that they could not discuss when the Commission would act on these facility applications. As shown above, FERC's review of applications to construct LNG export facilities can take 2 to 3 years or more.reviews are lengthy because of the complexity of the facilities and number of permits and reviews required by federal and state law. For example, applicants must model the effects of LNG spills from pipes and storage tanks on areas around the facility under a variety of scenarios. One of the applicants we spoke with said that the number of variables involved in modeling a single scenario could require up to a week of computer processing. FERC's review process is technically complex and includes the following three phases. Pre-filing. According to FERC officials, the pre-filing phase is intended to allow applicants to communicate freely with FERC staff and stakeholders to identify and resolve issues before the applicant formally files an application with FERC. Under Commission regulations issued pursuant to the Energy Policy Act of 2005, applicants are required to pre-file with FERC a minimum of 6 months before formally filing. The pre-filing phase can vary significantly depending on project specifics; the Freeport and Lake Charles applications were in the pre-filing phase for over 19 months, while the Cameron application was in the pre-filing phase for about 7 months. FERC officials said that the duration of each phase can vary depending on the site specific characteristics of the proposed facility and responsiveness of the applicant to requests for information from FERC. The pre-filing period also involves public outreach by the applicant and FERC, and FERC allows public comments during this period. An applicant completes the pre-filing period when it has submitted the required documentation to FERC and formally filed. This documentation includes a series of 13 resource reports that consist of, among other things, detailed information on project engineering and design, air and water quality, and fish and wildlife, as well as a description of the anticipated environmental effects of the project and proposed mitigation measures. One applicant told us that the resource reports it submitted to FERC consisted of over 12,000 pages. Application review. The application review phase includes FERC's review of the application and development of the environmental document required by NEPA. FERC officials told us that they start the review phase after an applicant has successfully completed the pre-filing process and submits an application. FERC reviews, among other things, facility engineering plans and safety systems identified by the applicant; environmental effects from the construction and operation of the facility; and, potential alternatives to the proposed project. FERC develops a NEPA document with input from relevant agencies that elect to participate, called cooperating agencies, as well as other stakeholders. FERC officials told us that, depending on the location of the proposed facility and amount of construction, FERC prepares either an environmental impact statement (EIS) or environmental assessment (EA). FERC will prepare an EA if it believes the review will find no significant impact on the environment from the project. For example, FERC prepared an EA for the Sabine Pass facility because the proposed facility was within the footprint of an existing LNG import facility and previously the subject of an EIS. FERC officials told us that the agency generally prepares an EIS for proposed facilities that would extend beyond the footprint of an existing import facility. After an EIS or EA is drafted, FERC solicits comments from federal agencies and the public on the document.those into a final EIS or EA, as necessary. The final EIS or EA will recommend any environmental and safety mitigation measures to be FERC reviews agency and public comments and integrates completed during various stages of the project. FERC staff submits the final NEPA document and other staff analyses to FERC commissioners for consideration. FERC commissioners consider the entire record of the proceeding, including the NEPA document, to determine whether to approve a project. Post-authorization. The post-authorization phase includes FERC oversight of plant construction and operations. After FERC approves a project but before an applicant can start construction, the applicant must develop a plan describing how it will meet any conditions and mitigation measures identified in FERC's approval. FERC oversees construction and ensures that these conditions are met. The Coast Guard and DOT also oversee construction to ensure compliance with their respective regulations. FERC conducts compliance and site inspections during construction at least every 8 weeks. Following construction, the applicant must receive written authorizations from the Commission to begin operations at the facility. Once the facility is operational, FERC conducts annual inspections and requires semiannual status reports from the facility operator. As the lead agency responsible for the environmental and safety review of LNG export facilities under NEPA, FERC works with federal, state, and local agencies to develop the NEPA document. In some cases, such as with the Corps and DOE, agencies will adopt and use the NEPA document in issuing their respective permits related to the export facility. In addition, FERC regulations require applicants to consult with the appropriate federal, state, and local agencies to ensure that all environmental effects are identified.obtains the appropriate federal permits or consultations with these agencies. Major federal participants in FERC's LNG facility review include the following: FERC ensures that the applicant Coast Guard. The Coast Guard requires applicants to assess the effects of a new facility on a bordering waterway. The applicant provides the assessment to the Coast Guard for validation and review before filing its FERC application, and the Coast Guard advises FERC on the suitability of the waterway for the LNG marine traffic associated with the facility. The Coast Guard and DOT also assist FERC's review of safety and security of the facility. PHMSA. PHMSA is an agency within DOT responsible for establishing national policy relating to pipeline safety and hazardous material transportation, including the authority to establish and enforce safety standards for onshore LNG facilities. To assist FERC's assessment of whether a facility would affect public safety, FERC regulations require applicants to show that their facility design would comply with PHMSA regulations for hazardous liquids vapor dispersion and fires. Applicants submit models of vapor dispersion to FERC, and FERC consults with PHMSA to ensure that the models comply with PHMSA regulations. The Corps. Under section 404 of the Clean Water Act, operations that discharge dredged or fill material into U.S. waters are required to obtain a permit from the Corps. Discharges under this permit must have a state certification to ensure the discharge meets water quality standards. In addition, under section 10 of the Rivers and Harbors Act of 1899, the Corps has regulatory authority to oversee construction activities within the navigable waters of the United States, and applicants may be required to obtain a permit from the Corps. Environmental Protection Agency (EPA). Applicants may be required under the Clean Air Act (CAA) to receive air permits for the construction and operation of LNG facilities. State environmental agencies generally issue these permits, but EPA can issue the permits if a state is not authorized to issue permits, or under other limited circumstances. EPA also comments on the FERC draft and final EIS, as required by the CAA. Applicants may also be required by law to consult with these and other federal agencies, such as the National Oceanic and Atmospheric Administration and the Fish and Wildlife Service, to ensure their applications comply with federal laws such as the Endangered Species Act, the Migratory Bird Treaty Act, the Magnuson-Stevens Fishery Conservation and Management Act, and the Fish and Wildlife Coordination Act. In addition to federal permits and consultations, applicants may also be required to obtain other permits under state and local law. Because of the wide variety of projects, locations, and state and local laws, permitting requirements vary by project. The applicant is responsible for identifying the necessary permits and consultations and reporting these to FERC as part of the pre-filing process. In addition to issuing most air permits and water quality certifications, states and local agencies have other permitting and consultation responsibilities, such as to consult with applicants to ensure compliance with the Coastal Zone Management Act and the National Historic Preservation Act. We provided a draft of this product to FERC and the DOE for their review and comment. DOE and FERC provided technical comments, which we incorporated throughout the report as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 5 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Chairman of FERC, the Secretary of Energy, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. For the purposes of this report, GAO developed table 1 below to allow us to use a single name to refer to related applications to the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DOE). Table 1 lists (1) the names of applicants that submitted requests to FERC to construct liquefied natural gas (LNG) export facilities, (2) the names of applicants that submitted requests to DOE to export LNG from those facilities, and (3) the name GAO used to refer to these applications. In some cases, multiple companies filed jointly for one application. In addition to the individual named above, Christine Kehr (Assistant Director), Cheryl Harris, and David Messman made key contributions to this report. Important contributions were also made by Mark Braza, Michael Kendix, Alison O'Neill, Dan Royer, and Barbara Timmerman.
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Technological advances in hydraulic fracturing and horizontal drilling have resulted in a dramatic increase in the amount of natural gas that can be produced domestically. DOE is responsible for reviewing applications to export LNG--natural gas cooled to a liquid state for transport--and, under the Natural Gas Act, must approve an application unless it finds that approval is not consistent with the public interest. Since 2010, DOE has received 35 applications to export LNG that must address the public interest question. In addition, under NEPA, FERC is required to assess how LNG export facilities may affect the environment and is responsible for granting approval to build and operate export facilities. Since 2010, FERC has received 17 applications to construct export facilities. GAO was asked to report on the federal process for reviewing applications to export LNG. This report describes (1) the status of applications to export LNG and DOE's process to review them and (2) the status of applications to build LNG export facilities and FERC's process to review them. GAO reviewed laws, regulations, and guidance; examined export approvals; visited LNG facilities; and interviewed federal and state agency officials and industry representatives, including LNG export permit applicants. GAO is not making any recommendations in this report. Since 2010, of 35 applications it has received that require a public interest review, the Department of Energy (DOE) has approved 3 applications to export liquefied natural gas (LNG) and 6 applications are conditionally approved with final approval contingent on the Federal Energy Regulatory Commission's (FERC) issuance of a satisfactory environmental review of the export facility. DOE considers a range of factors to determine whether each application is in the public interest. After the first application was conditionally approved in 2011, DOE commissioned a study to help it determine whether additional LNG exports were in the public interest. Since the 16-month study was published in December 2012, DOE issued 7 conditional approvals (one of which became final) and 1 other final approval (see fig. below). In August 2014, DOE suspended its practice of issuing conditional approvals; instead, DOE will review applications after FERC completes its environmental review. DOE LNG Export Application Status Since 2010, FERC has approved 3 LNG export facilities for construction and operation, including 2 facilities in 2014, and is reviewing 14 applications (see fig. below). FERC's review process is, among other things, designed to fulfill its responsibilities under the National Environmental Policy Act (NEPA). Before submitting an application to FERC, applicants must enter an initial stage called pre-filing to identify and resolve potential issues during the earliest stages of a project. Of the 14 applications, 5 are in the pre-filing stage at FERC and not shown in the figure below. FERC conducts an environmental and safety review with input from other federal, state and local agencies. FERC LNG Export Facility Application Status
| 4,731 | 615 |
Congress authorized ITEF in December 2014 to provide assistance, including training and equipment, to military and other security forces of, or associated with, the government of Iraq, including Kurdish and Tribal Security Forces or other local security forces with a national security mission. As of December 31, 2016, DOD had obligated about $2.2 billion of the $2.3 billion Congress appropriated for ITEF in fiscal years 2015 and 2016 and had disbursed about $2 billion. See figure 1 for examples of equipment that DOD purchased with these funds, according to DOD documents. The process for providing ITEF-funded equipment to Iraq's security forces generally falls into three phases: (1) acquisition and shipment, (2) staging in Kuwait and Iraq, and (3) transfer to the government of Iraq or the Kurdistan Regional Government (see fig. 2). Multiple DOD components are responsible for ensuring the visibility and accountability of ITEF-funded equipment throughout the ITEF equipping process up until U.S. personnel in Iraq transfer the equipment to vetted officials from the government of Iraq or the Kurdistan Regional Government. For example: In addition to maintaining SCIP, DSCA oversees program administration for the ITEF program and provides overall guidance to DOD components through its Security Assistance Management Manual (SAMM) and associated policy memos. CJTF-OIR manages the ITEF program for the U.S. Central Command (USCENTCOM) and maintains overall responsibility for providing ITEF assistance to Iraq's security forces. DOD's primary implementing agency, USASAC--supported by other DOD agencies--maintains overall responsibility for case development, execution, and closure. The Department of State's OSC-I supports CJTF-OIR through each phase of the ITEF equipping process. It is also responsible for communicating ITEF program objectives to government of Iraq or Kurdistan Regional Government officials. The 1st TSC, in coordination with CJTF-OIR and OSC-I, receives, stages, and transports ITEF-funded equipment in Kuwait and Iraq and oversees the transfer of the equipment to vetted government of Iraq or Kurdistan Regional Government officials in Iraq. DOD generally administers ITEF-funded equipment purchases as individual building partnership capacity cases within the U.S. government's Foreign Military Sales (FMS) infrastructure. An individual case may have multiple--sometimes thousands--of requisitions or procurement actions. DOD assigns a unique case identification number for each case so that DOD entities can track the case throughout the equipping process. According to DSCA documents, SCIP is designed to provide end-to-end transit visibility, including the status of defense articles and services, of FMS and building partner capacity cases to designated U.S. government personnel and representatives of foreign countries. It consolidates case data, including transportation information, into one place so that customers and program managers can have readily available information on the status of their cases. The portal imports case-related data from other DOD data systems containing logistics and transportation information, and SCIP users can also report data directly in SCIP. It is accessible over the Internet to authorized users anywhere in the world. SCIP includes a variety of different features for tracking defense articles and services, including equipment, which are organized into 13 different groups. Two of these 13 groups are the Security Cooperation Management Suite (SCMS) group and the Case Execution group (see fig. 3). The SCMS group--SCIP's management reporting system--provides program managers and participants for Iraq and other countries with customizable and ad hoc management reports on the status of FMS and building partnership capacity cases. SCMS is populated with data from other groups within SCIP, DOD external data systems, and SCIP users. The Case Execution group contains the Enhanced Freight Tracking System (EFTS), a tracking system within SCIP containing building partner capacity and FMS shipment information. DSCA designed EFTS to serve as the single, authoritative tracking system for FMS and building partner capacity shipments. EFTS supplements and pulls shipment information from external DOD data systems. DOD personnel can also report shipment information, including transfer dates of equipment to the foreign government, directly in EFTS. According to a DSCA official, EFTS data should be captured in SCMS. Figure 3 below shows the relationship between EFTS and SCMS, including how each is populated. DOD components do not ensure that SCIP consistently captures key transportation dates of equipment funded by ITEF during each of the three phases of the ITEF equipping process. According to the DSCA SAMM, DOD components should use SCIP to identify the status and track the transportation of all building partner capacity materiel, such as ITEF. Furthermore, USCENTCOM ordered the 1st TSC, in coordination with a USASAC program manager, to ensure that ITEF-funded equipment transfer information is properly recorded in SCIP. Our analysis of completed ITEF-funded requisitions in SCMS, SCIP's management reporting system, found that SCMS captured about 11 percent of 2,264 key transportation dates in all three equipping phases. DOD officials said that SCMS is not capturing such dates because of potential interoperability and data reporting issues in SCIP and other DOD data systems. Although DOD officials in Kuwait stated that they had begun to report some ITEF-funded equipment transfer dates in SCIP, DOD officials and contractors have had difficulty locating these dates in SCIP. DOD also could not fully account for ITEF-funded equipment transferred to the government of Iraq or the Kurdistan Regional Government because of missing or incomplete transfer documentation. Our analysis of 566 completed ITEF-funded equipment requisitions recorded in SCIP's SCMS found that DOD components are not following the SAMM to consistently capture key transportation dates of ITEF- funded equipment in phase 1 of the ITEF equipping process in SCIP. For example, we found that only 256 of the 1,132 key transportation dates in phase 1 (about 23 percent) were captured in SCIP's SCMS as of February 10, 2017. Specifically, 256 of the 566 requisitions included the date the equipment arrived at the last point of departure in the United States, and none of the 566 requisitions included the date the equipment was shipped from the United States to Kuwait or Iraq (see fig. 4). DSCA officials responsible for the management of SCIP's SCMS attributed this lack of data to three potential issues related to interoperability in SCIP and external DOD data systems and data reporting in SCIP. First, SCMS may not be importing data correctly from other DOD data systems used by DOD components to track ITEF-funded equipment in phase 1. Second, SCMS may not be importing transportation data correctly from EFTS within SCIP as intended. Third, DOD components may not be reporting key transportation dates in EFTS or SCMS. For example, according to USASAC officials, USASAC does not report any ITEF-funded transportation dates in EFTS or SCMS because they rely on other DOD data systems for this information which officials said should be captured in SCIP. While USASAC provides some visibility on the transportation of ITEF-funded equipment to Kuwait or Iraq by case in daily tracking reports it produces based on information from other DOD data systems, these reports do not provide end-to-end transit visibility of the equipment from acquisition to transfer to the government of Iraq or the Kurdistan Regional Government. We did not independently determine the root cause for why these key transportation dates were not consistently captured in SCMS. By not ensuring that these key transportation dates in phase 1 are captured in SCIP's SCMS, DOD components do not have readily available information to maintain visibility over and account for all ITEF-funded equipment. Our analysis of 566 completed ITEF-funded requisitions recorded in SCIP's SCMS as of February 10, 2017 found that DOD components are not following the SAMM to capture the arrival dates of ITEF-funded equipment to Kuwait or Iraq in phase 2 of the ITEF equipping process in SCIP. Specifically, none of the 566 requisitions included the date the equipment arrived at U.S. staging facilities in Kuwait or Iraq (see fig. 5). DSCA officials responsible for managing SCIP's SCMS said that they did not know why the arrival dates of ITEF-funded equipment were not being captured in SCMS and cited the same potential interoperability and data reporting issues for the lack of data in phase 2 as they did in phase 1. Also, USASAC officials responsible for overseeing the delivery of ITEF- funded equipment to Kuwait or Iraq said that they do not report the arrival dates of the equipment in SCIP, as they rely on other DOD data systems for this information, which they said should feed into SCIP. USASAC's daily tracking reports contain some information on the arrival dates of ITEF-funded equipment that officials said they obtain from other DOD data systems, but this information is not captured in SCMS and therefore is not readily accessible to DOD program managers. USASAC officials said that they do not track ITEF-funded equipment beyond its arrival to Kuwait or Iraq as they consider shipment complete once it arrives in Kuwait or Iraq and the 1st TSC, in coordination with CJTF-OIR, receives the equipment. According to 1st TSC officials responsible for the receiving, storing, and transporting of ITEF-funded equipment in Kuwait and Iraq, the 1st TSC does not report in SCIP and has no plans to report the arrival dates of ITEF-funded equipment to Kuwait or Iraq because it is not required to do so. These officials said that guidance in the SAMM does not assign specific responsibilities to the 1st TSC, and that the 1st TSC has not been directed by USCENTCOM to implement any policies or procedures outlined in the SAMM. 1st TSC officials said that they use their own internal spreadsheets to account for on-hand quantities of equipment at U.S. staging facilities in Kuwait and Iraq. In March 2017, 1st TSC officials said that they implemented the U.S. Army's automated Global Combat Support System--a logistics and financial management system that does not feed into SCIP, according to 1st TSC officials--to account for the on- hand quantities of ITEF-funded equipment in Kuwait and Iraq. A September 2016 DOD Inspector General report found that DOD did not have accurate, up-to-date records on the quantity and location of ITEF- funded equipment in Kuwait and Iraq and lacked effective controls for maintaining visibility and accountability of ITEF-funded equipment in Kuwait and Iraq. The DOD Inspector General recommended that the 1st TSC use automated systems to account for and provide complete visibility of ITEF-funded equipment. We did not independently determine the root cause for why the arrival dates of ITEF-funded equipment to Kuwait or Iraq were not consistently captured in SCMS. Without up-to- date information in SCIP's SCMS on the arrival dates of ITEF-funded equipment, DOD components will not have access to timely and relevant management information at a key stage of the ITEF equipping process. Our analysis of 566 completed ITEF-funded requisitions recorded in SCIP's SCMS as of February 10, 2017 found that DOD components had not consistently followed the SAMM or a USCENTCOM order to capture the transfer dates of ITEF-funded equipment to the government of Iraq or the Kurdistan Regional Government in phase 3 of the ITEF equipping process in SCIP. Specifically, none of the 566 requisitions included the transfer date of the equipment to the government of Iraq or the Kurdistan Regional Government (see fig. 6). Between August 2016 and April 2017, DOD took steps to report the transfer dates of some ITEF-funded equipment in EFTS as required by the DSCA SAMM; however, DOD officials and contractors have had difficulty locating these dates in EFTS because of a lack of clear procedures for reporting these dates. In August 2016, after we informed OSC-I officials of a reporting requirement in the DSCA SAMM, 1st TSC officials said that they began reporting ITEF-funded equipment transfer dates to the government of Iraq or the Kurdistan Regional Government of previously transferred equipment in EFTS within SCIP. Soon thereafter, in October 2016, USCENTCOM issued an order requiring the 1st TSC, in coordination with a USASAC program manager, to ensure that ITEF- funded equipment transfer information is properly recorded in EFTS. According to 1st TSC officials, in late December 2016, 1st TSC began reporting the transfer dates of any new equipment transfers in EFTS as they occurred, in addition to continuing to report the transfer dates of previously transferred equipment in EFTS. In February 2017, however, when we asked the DSCA contractor responsible for the management of EFTS to provide us with the transfer dates of ITEF-funded equipment that 1st TSC officials said they had reported in EFTS, the contractor could not locate the transfer dates. The DSCA contractor said that EFTS does not contain a dedicated data field for capturing the transfer dates of building partnership capacity materiel, including ITEF-funded equipment, and DSCA has not provided guidance on what data field should be used to capture these dates. As a result, he did not know which data field the 1st TSC had used to report the transfer dates. In addition, our review of the 1st TSC's written procedures for ensuring the accountability and transferring of ITEF-funded equipment found that they did not specify under which data field ITEF-funded equipment transfer dates should be reported. In April 2017, 1st TSC officials identified the data field in EFTS that they were using to report the transfer dates of ITEF-funded equipment and provided evidence that they had reported transfer dates for about 5,000 ITEF-funded equipment requisitions in EFTS as of March 2017. According to DSCA officials, SCMS should automatically capture all transfer dates of equipment reported in EFTS. DSCA officials responsible for the management of SCMS said that SCMS may not importing the transfer dates from EFTS as intended because of interoperability issues with EFTS. By not capturing the transfer dates of ITEF-funded equipment in SCMS or EFTS, DOD components' visibility over the amount of ITEF-funded equipment transferred to the government of Iraq is limited. Furthermore, DSCA officials said that SCIP users may need additional guidance for reporting all key transportation dates in SCIP. These officials said that they held a symposium in January 2017 to discuss general interoperability and reporting issues within SCIP and planned to provide additional guidance on the roles of DOD components for reporting data to EFTS and SCMS but did not specify a time frame for doing so. The 1st TSC cannot fully account for ITEF-funded equipment transferred to the government of Iraq or the Kurdistan Regional Government because of missing or incomplete transfer documentation. 1st TSC officials said that they are missing an unknown number of hand-completed U.S. transfer and receipt forms used to document the transfer of ITEF-funded equipment. According to the 1st TSC's standard operating procedures for ensuring the accountability of ITEF-funded equipment, 1st TSC officials are required to complete a U.S. transfer and receipt form to document the transfer of ITEF-funded equipment to a government of Iraq or Kurdistan Regional Government official. The command developed these procedures in November 2015--about 6 months after ITEF-funded equipment began arriving in Kuwait and Iraq, according to 1st TSC officials--and updated the procedures in April 2016 and November 2016. In January 2017, 1st TSC officials said that they were missing the required U.S. transfer and receipt forms for some equipment transfers, based on their review of the transfer documentation. 1st TSC officials said that they would not know the amount of equipment with missing transfer and receipt forms until they completed their analysis of the documents, which 1st TSC officials and a USASAC program manager located in Kuwait estimated could take until the summer of 2017. Moreover, we found that the majority of the U.S. transfer and receipt forms the 1st TSC had on hand as of April 2016 were not complete. We reviewed all of the U.S. transfer and receipt forms documenting ITEF- funded equipment transfers that the 1st TSC had on hand as of April 2016. Of the 284 U.S. transfer and receipt forms dated between March 2015 and April 2016 that we reviewed, we found that almost all of the forms were signed by a government of Iraq or Kurdistan Regional Government official but more than half of the forms did not contain the date of transfer of the equipment (see fig. 7). The 1st TSC also provided 48 internal memos dated between October 2015 and February 2016 from a 1st TSC official seeking to reconcile discrepancies he found in the documentation, such as missing serial numbers for weapons. In one memo, the official said that the required U.S. transfer and receipt form documenting the transfer of ammunition was missing. 1st TSC officials acknowledged that they did not know whether these forms represented the total number of ITEF-funded equipment items transferred to the government of Iraq or the Kurdistan Regional Government as of April 2016. Without complete transfer documentation, 1st TSC officials cannot accurately determine how much ITEF-funded equipment has been transferred to the government of Iraq or the Kurdistan Regional Government, nor can they ensure that this equipment was transferred to the appropriate foreign official. In addition, we found that most of the transfer documentation lacked case identifier information, which would help ensure that DOD personnel are able to track ITEF-funded equipment throughout the equipment process. Of the 284 U.S. transfer and receipt forms we reviewed, only 95 contained unique case identifier information. The director of the 1st TSC's equipping team said that the lack of case identifier information on the transfer documentation has significantly slowed his team's progress in reporting the transfer dates of previously transferred ITEF-funded equipment to EFTS. As a result, the director said that he issued a verbal order in August 2016 requiring 1st TSC personnel to include case identifier information on the transfer and receipt forms documenting the transfer of equipment as well as on DOD orders to move ITEF-funded equipment within Kuwait and Iraq. He said that including the case identifier information would help ensure that 1st TSC personnel could link equipment items with their case information in SCIP. The 1st TSC's Standard Operating Procedures for ensuring the accountability of ITEF-funded equipment, however, do not include this requirement. The Standards for Internal Control in the Federal Government require management to complete timely reviews of significant changes to an entity's process and procedures and ensure that the entity's policies and procedures achieve its objectives. 1st TSC officials said in March 2017 that they would begin the process of updating their Standard Operating Procedures to reflect their recent implementation of the U.S. Army's Global Combat Support System for accounting for ITEF-funded equipment in late April 2017. 1st TSC personnel rotate in and out of Kuwait and Iraq about every 9 months with the last rotation of 1st TSC personnel having occurred in December 2016, according to 1st TSC officials. Without accurate and up-to-date written procedures, new personnel may not be aware of the verbal order, thus increasing the risk that they will not follow the order and limiting the 1st TSC's ability to account for the equipment. ISIS continues to be a major threat to both Iraq and Syria and to U.S. interests in the region. The congressional appropriation of $2.3 billion for ITEF in fiscal years 2015 and 2016 has enabled DOD to provide critical equipment to Iraq's security forces for their counter-ISIS efforts. However, DOD's ability to maintain visibility and accountability over ITEF-funded equipment remains limited. DOD designed SCIP to help DOD components maintain end-to-end visibility of DOD equipment, including ITEF-funded equipment, but DOD components do not use SCIP as intended because of potential interoperability and data reporting issues within SCIP and other DOD data systems. In addition, missing and incomplete ITEF-funded equipment transfer documentation further affects DOD's ability to maintain complete visibility and accountability over ITEF- funded equipment. Since 1st TSC personnel rotate about every 9 months, it is essential that the 1st TSC maintain updated standard operating procedures that reflect significant changes to its processes for ensuring the accountability of ITEF-funded equipment, including documenting a verbal order that unique case identifiers be included on transfer documentation so that 1st TSC personnel are able to properly record ITEF-funded transfer dates in SCIP. Without timely and accurate transit information on the status of ITEF-funded equipment, DOD cannot ensure that the equipment has reached its intended destination, nor can DOD program managers conduct effective oversight of the ITEF program. To ensure that DOD program managers have the necessary information to maintain complete visibility and accountability of ITEF-funded equipment in SCIP, we recommend that the Secretary of Defense take the following four actions: 1. Identify the root causes, such as potential interoperability and data reporting issues within SCIP and other DOD data systems, for why DOD components are not ensuring that ITEF-funded equipment transportation dates are captured in SCIP. 2. Develop an action plan with associated milestones and time frames for addressing the root causes for why DOD components are not ensuring that ITEF-funded equipment transportation dates are captured in SCIP. 3. Develop written procedures that specify under which data field ITEF- funded equipment transfer dates should be captured in EFTS in SCIP. 4. Update the 1st TSC's written standard operating procedures to include the 1st TSC commander's verbal order requiring the inclusion of unique equipment case identifier information for ITEF-funded equipment on transfer documentation. We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix II, DOD concurred with three recommendations and partially concurred with a fourth recommendation. DOD also provided technical comments, which we incorporated as appropriate. DOD concurred with our first two recommendations, to identify why DOD components are not ensuring that ITEF-funded equipment transportation dates are captured in SCIP and to develop an action plan for addressing these issues. The department commented that it had begun identifying the root causes of the data reporting issues in SCIP and would provide GAO the reasons for these issues within 30 days of the issuance of GAO's report. The department also commented that it would develop an action plan with a timeline to measure progress in addressing the root causes and would notify GAO when these were addressed. DOD also concurred with the recommendation that the 1st TSC update its written standard operating procedures to include a verbal order requiring the inclusion of unique equipment case identifier information for ITEF-funded equipment transfer documentation. The department said that the 1st TSC planned to update its written procedures to include this verbal order by May 31, 2017. DOD partially concurred with our recommendation that DOD develop written procedures for reporting ITEF-funded equipment transfer dates in EFTS in SCIP. The department commented that the relevant organizations have most, if not all, of the written procedures that are necessary for reporting these dates in EFTS. However, the department said it would coordinate with all interested parties to ensure that the required written procedures exist and to update those documents if needed. GAO continues to believe that additional written procedures are needed and modified the language of our recommendation to specify that DOD include in its written procedures the EFTS data field in which ITEF- funded equipment transfer dates should be captured. Although the 1st TSC has written procedures on how personnel can upload some transfer information into SCIP, the procedures do not clearly state which data field in EFTS should be used to capture the transfer dates of ITEF-funded equipment to the government of Iraq or the Kurdistan Regional Government. As a result, DOD personnel and contractors have had difficulty locating these dates, which 1st TSC officials said they have uploaded to EFTS. Providing clear procedures on the data field to be used to capture ITEF-funded equipment transfer dates would help ensure that DOD personnel responsible for managing ITEF are able to locate these dates in EFTS as needed. We are sending copies of this report to the appropriate congressional committees and to the Secretary of Defense and the Secretary of State. In addition, the 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) 512-6991 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. This review examines the extent to which the Department of Defense (DOD) maintains visibility and accountability over Iraq Train and Equip (ITEF)-funded equipment from acquisition through transfer to the government of Iraq or Kurdistan Regional Government. To examine the extent to which DOD maintains visibility and accountability of ITEF-funded equipment, we reviewed DOD guidance in the Defense Security Cooperation Agency (DSCA)'s Security Assistance Management Manual (SAMM), including a requirement to report the transfer dates of building partner capacity materiel in the Enhanced Freight Tracking System (EFTS) within the Security Cooperation Information Portal (SCIP) or to DSCA. We interviewed DOD officials from DOD components responsible for managing or tracking ITEF-funded equipment through different phases of the equipping process to understand their processes for providing visibility over ITEF-funded equipment. These components included the Combined Joint Task Force- Operation Inherent Resolve (CJTF-OIR), U.S. Army Security Assistance Command (USASAC), U.S. Army TACOM Life Cycle Management Command, and the 1st Theater Sustainment Command (1st TSC). We reviewed USASAC, U.S. Army TACOM Life Cycle Management Command, and U.S. Army Joint Munitions Command's status reports on ITEF-funded equipment. We also interviewed officials from the Department of State's Office of Security Cooperation-Iraq to understand their role in providing visibility of ITEF-funded equipment. In addition, to determine the extent to which DOD components ensured that SCIP captured key transportation dates of ITEF-funded equipment, we analyzed data from SCIP's Security Cooperation Management Suite (SCMS) by running two reports from SCMS on February 10, 2017. First, we ran a report to determine the total universe of cases and their corresponding requisitions for which ITEF funds had been obligated. We determined that this universe consisted of 13,674 ITEF- funded equipment requisitions. Second, we ran a report to determine how many of the 13,674 ITEF- funded equipment requisitions had all items and services delivered and performed. Specifically, we ran a report of cases and their corresponding requisitions that DOD had marked in SCMS as "supply/services complete" because DOD considered all of the items and services delivered and performed for these requisitions. Using this designation, we determined that 566 ITEF-funded equipment requisitions were marked as "supply/services complete." In using the term requisitions, we mean lines of data entries in SCMS by case that contain a unique combination of requisition numbers and/or transportation control numbers. In our analysis, we noted some requisition numbers that applied to multiple lines of entries as well as some transportation control numbers that applied to multiple lines of entries; however, we found no exact duplicates by entry. Our analysis focused on completeness of these records, which is where we found the deficiencies noted in the body of this report. It was beyond the scope of this review to assess the accuracy of the requisition numbers, transportation control numbers, and any dates entered into SCMS. In addition, we were not able to determine the extent to which ITEF-funded equipment cases and their corresponding requisitions were properly marked as "supply/services complete" in SCMS. One reason why DOD only marked 566 of the 13,674 ITEF-funded equipment lines of requisitions as "supply/services complete" could be that DOD had one or more requisitions on a case that had not yet been delivered or performed, which prevented DOD from closing the case and marking all of the requisitions associated with the case as "supply/services complete." Also, DOD may have had some ITEF-funded equipment cases and corresponding requisitions that should have been marked as "supply/services complete" but were not. We determined that we could proceed with assessing the extent to which the 566 ITEF-funded equipment requisitions that had been marked as "supply/services complete" in SCMS had recorded key transportation dates of equipment in SCMS for each of the three phases of the ITEF equipping process because DOD considered all of the items and services delivered and performed for these requisitions. We selected data fields in SCMS for each requisition that would capture key transportation dates of ITEF- funded equipment in each of the three phases of the ITEF equipping process. These included: "Arrive Port of Embarkation" data field to determine whether SCMS captured the arrival date of equipment at the last point of departure in the United States in phase 1 of the ITEF equipping process, "Depart Port of Embarkation" data field to determine whether SCMS captured the departure date for equipment shipped from the United States in phase 1 of the ITEF equipping process, "Arrive Country" data field to determine whether SCMS captured the arrival date of equipment in Kuwait or Iraq, and "Customer Receipt" data field to determine whether SCMS captured the transfer date of equipment to the government of Iraq or the Kurdistan Regional Government. We verified that our selection and interpretation of these data fields were correct by reviewing DSCA-issued guidance on SCIP and consulting with DSCA officials. In addition, we probed the 1st TSC officials' assertion that they had reported about 2,000 ITEF-funded equipment requisition transfer dates in SCIP between August 2016 and January 2017 by interviewing the contractor responsible for SCIP's EFTS, in which these dates would have been reported. We also reviewed additional data from him. It was beyond the scope of this review to determine the extent to which the 13,674 ITEF-funded equipment requisitions had been correctly marked as complete for supply and services, as such an analysis would have required a reconciliation of SCIP computerized records against source documents and other supporting materials. However, we did determine that the 566 requisitions marked as complete for supply and services were lacking key information, which we reported. In the body of this report, we detail how the lack of complete key information means that these data cannot be used to maintain visibility and accountability of ITEF-funded equipment. To determine the extent to which DOD accounts for ITEF-funded equipment transferred to the government of Iraq or the Kurdistan Regional Government, we reviewed 1st TSC transfer documentation. We requested all U.S. transfer and receipt forms that the 1st TSC used to document ITEF-funded equipment transfers to the government of Iraq or the Kurdistan Regional Government and were provided with 284 forms dated between March 2015 and April 2016. We reviewed these 284 forms to check whether they contained key information, such as signatures and unique case identifiers. When determining whether the forms contained transfer dates, we created a decision rule of only counting those dates that were legible because the purpose of this review was to assess DOD's accountability over the equipment transferred. We were unable to determine whether we were provided with all the equipment transfer and receipt forms for this period because DOD does not maintain the information that would have allowed us to do this. Specifically, the data problems that we have noted in SCIP, in particular the problem of missing entries, prevented us from making that determination. We also reviewed the 1st TSC's November 2015, April 2016, and November 2016 standard operating procedures for ensuring the accountability of ITEF-funded equipment as well as CJTF-OIR's June 2016 standard operating procedures for the management of ITEF. In addition, we traveled to Kuwait and Iraq to interview DOD officials from the 1st TSC and CJTF-OIR to understand their roles, responsibilities, and processes for ensuring the accountability of ITEF-funded equipment. We conducted this performance audit from September 2016 to May 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, Judy McCloskey (Assistant Director), Kira Self (Analyst in Charge), Ashley Alley, Martin De Alteriis, Lynn Cothern, Neil Doherty, Mattias Fenton, B. Patrick Hickey, and Jeff Isaacs made key contributions to this report. Iraq: Status of DOD Efforts to Train and Equip Iraq's Security Forces. GAO-17-32C. Washington, D.C.: April 7, 2017. Combating Terrorism: U.S. Footprint Poses Challenges for the Advise and Assist Mission in Iraq. GAO-17-220C. Washington, D.C.: November 22, 2016. Iraq: State and DOD Need to Improve Documentation and Record Keeping for Vetting of Iraq's Security Forces. GAO-16-658C. Washington, D.C.: September 30, 2016. Countering ISIS: DOD Should Develop Plans for Responding to Risks and for Using Stockpiled Equipment No Longer Intended for Syria Train and Equip Program. GAO-16-670C. Washington, D.C.: September 9, 2016. Defense Logistics: DOD Has Addressed Most Reporting Requirements and Continues to Refine Its Asset Visibility Strategy. GAO-16-88. Washington, D.C.: December 22, 2015. Yemen: DOD Should Improve Accuracy of Its Data on Congressional Clearance of Projects as it Reevaluates Counterterrorism Assistance. GAO-15-493. Washington, D.C.: April 28, 2015. High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. Countering Overseas Threats: DOD and State Need to Address Gaps in Monitoring of Security Equipment Transferred to Lebanon. GAO-14-161. Washington, D.C.: February 26, 2014. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 2013. Security Assistance: DOD's Ongoing Reforms Address Some Challenges, but Additional Information is Needed to Further Enhance Program Management. GAO-13-84. Washington, D.C.: November 16, 2012.
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In 2014, Congress authorized the creation of ITEF to provide equipment and other assistance to Iraq's security forces, including the Kurdistan Regional Government forces, to counter the expansion of the Islamic State of Iraq and Syria. As of December 2016, DOD had disbursed about $2 billion of the $2.3 billion Congress appropriated for ITEF in fiscal years 2015 and 2016 to purchase, for example, personal protective equipment, weapons, and vehicles for these forces. DOD's web-based SCIP provides U.S. government personnel and others transportation information on DOD equipment imported from other DOD data systems or reported by SCIP users. GAO was asked to review DOD's accountability of ITEF-funded equipment. This report assesses the extent to which DOD maintains visibility and accountability of ITEF-funded equipment from acquisition through transfer to the government of Iraq or the Kurdistan Regional Government. GAO analyzed DOD guidance, procedures, SCIP data, and transfer documentation and interviewed officials from DOD agencies with a role in the ITEF equipping process in the United States, Kuwait, and Iraq. The Department of Defense (DOD) maintains limited visibility and accountability over equipment funded by the Iraq Train and Equip Fund (ITEF). Specifically, DOD is not ensuring that the Security Cooperation Information Portal (SCIP) is consistently capturing key transportation dates of ITEF-funded equipment. DOD guidance states that DOD components should use SCIP to identify the status and track the transportation of all building partner capacity materiel, such as ITEF. DOD also issued an order in October 2016 requiring DOD components to ensure that equipment transfer dates are recorded in SCIP. The process for providing the equipment to Iraq's security forces generally falls into three phases: (1) acquisition and shipment, (2) staging in Kuwait and Iraq, and (3) transfer to the government of Iraq or the Kurdistan Regional Government. However, for the 566 ITEF-funded requisitions marked as complete in SCIP's management reporting system as of February 2017, GAO found that the system captured one of two key transportation dates for 256 of the requisitions in phase 1, and none of the transportation dates for these requisitions in phase 2 or phase 3 (see figure). DOD officials attributed the lack of key transportation dates in SCIP's management reporting system to potential interoperability and data reporting issues in all three equipping phases. Interoperability issues. DOD officials said that SCIP's management reporting system may not be importing transportation data correctly from other DOD data systems or from another shipment tracking system feature in SCIP. Data reporting issues. DOD officials said they are not reporting the arrival dates of equipment to Kuwait or Iraq because they rely on other DOD data systems and are not required to do so. DOD officials said they have had difficulty ensuring that SCIP has captured equipment transfer dates. In addition, DOD cannot fully account for ITEF-funded equipment transfers because of missing or incomplete transfer documentation. Without timely and accurate transit information, DOD cannot ensure that the equipment has reached its intended destination, nor can program managers conduct effective oversight of ITEF-funded equipment. GAO is making four recommendations that include identifying the root causes for addressing why DOD is not capturing ITEF-funded equipment transportation dates in SCIP and developing an action plan to address these issues. DOD generally concurred with GAO's recommendations and stated that it would develop a plan.
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The Homeland Security Act of 2002 provides the basis for DHS responsibilities in the protection of the nation's critical infrastructure. The act assigns DHS responsibility for developing a comprehensive national plan for securing critical infrastructure and for recommending the measures necessary to protect the key resources and critical infrastructure of the United States in coordination with other agencies and in cooperation with state and local government agencies and authorities, the private sector, and other entities. Other legislation enacted over the last decade has produced major changes in the nation's approach to maritime security. Much of the federal framework for port security is contained in the Maritime Transportation Security Act of 2002 (MTSA). The MTSA establishes requirements for various layers of maritime security, including requiring a national security plan, area security plans, and facility and vessel security plans. DHS has placed some responsibility for this and other MTSA requirements with the Coast Guard. In October 2006, the Security and Accountability for Every Port Act of 2006 (SAFE Port Act) further refined the nation's port security framework, For creating and codifying certain port security programs and initiatives.example, the SAFE Port Act required the development of protocols for resumption of trade following a transportation security incident, as well as Salvage Response Plans. DHS emphasizes the importance of resilience through key documents like the NIPP, QHSR, and directives. As the lead federal agency for the Marine Transportation System, the Coast Guard is responsible for facilitating the recovery of the system following a significant transportation disruption and working with maritime stakeholders in the resumption of trade. The Coast Guard is also the Sector-Specific Agency (SSA) for the Maritime subsector of the Transportation sector and coordinates the preparedness activities among the sector's partners to prevent, protect against, respond to, and recover from all hazards that could have a debilitating effect on homeland security, public health and safety, or economic well-being. IP is responsible for working with public and private sector critical infrastructure partners and leads the coordinated national effort to mitigate risk to the nation's critical infrastructure. IP also has the overall responsibility for coordinating implementation of the NIPP across 18 critical infrastructure sectors; overseeing the development of 18 Sector- Specific Plans; providing training and planning guidance to SSAs and owners and operators on protective measures to assist in enhancing the security of critical infrastructure within their control; and helping state, local, tribal, territorial, and private sector partners develop the capabilities to mitigate vulnerabilities and identifiable risks to their assets. IP's Protective Security Coordination Division provides programs and initiatives to enhance critical infrastructure protection and resilience and reduce risk associated with all-hazards incidents. To carry out these responsibilities, IP has deployed PSAs in 50 states and Puerto Rico, with deployment locations based on population density and major concentrations of critical infrastructure. One PSA duty is to coordinate and conduct voluntary assessment services to assist critical infrastructure owners and operators in reviewing and strengthening their security posture. Specifically, PSAs coordinate and carry out various IP protective programs such as the Enhanced Critical Infrastructure Protection (ECIP) initiative, which is a voluntary program focused on forming or maintaining partnerships between DHS and critical infrastructure owners and operators of high-priority assets and systems, as well as other assets of significant value. The PSAs also coordinate and participate in Site Assistance Visit vulnerability assessments to identify security gaps and provide options for consideration to mitigate these identified gaps. These assessments are on-site, asset-specific, nonregulatory assessments conducted at the request of asset owners and operators. Port operations involve a complicated system of systems, which operates across multiple sectors. The port area consists of many assets that are interdependent with other sectors, such as power and water, to continue normal operations. For example, container terminals have large energy needs to operate the cranes that load and unload cargo. In most cases, backup generators cannot produce enough power to keep these cranes operational, so reliable energy production and transportation are vital to maintaining normal port operations. Similarly, refinery, chemical plant, cruise line, ferry, and other port operations also have high energy and water needs. In addition, many port operations rely heavily upon trucking and rail transportation to move personnel and cargo in and out of the port area. Furthermore, the availability of a functional labor force and information technology support--which may be located within or outside of a port area--is important for port stakeholders' operations. Similarly, many businesses and communities rely on the port for their normal operations. Energy, food, and product shipments are vital to port operations, port stakeholders, and the broader community. Interruptions in the supply chain often have secondary and tertiary impacts that may not be immediately obvious to businesses and communities. Figure 1 illustrates some of the key stakeholders within a port and the importance of their interactions. Understanding the interdependencies among various port area stakeholders and other critical partners outside the port area is necessary to ensure and enhance a port's resilience. National high-level documents currently promote resilience as a key national goal. Specifically, two key White House documents emphasize resilience on a national level--Presidential Policy Directive 8 (PPD-8) and the National Strategy for Global Supply Chain Security. PPD-8 defines resilience as the ability to adapt to changing conditions and withstand and rapidly recover from disruption due to emergencies. The National Strategy for Global Supply Chain Security endorses building a layered defense, addressing threats early, and fostering a resilient system that can absorb and recover rapidly from unanticipated disruptions. Key federal entities, including DHS, are currently working to develop frameworks or other strategies for implementing the goals and objectives of these documents, which should provide greater insights into how they plan to strengthen national resilience. Since 2009, DHS has also emphasized the concept of resilience through two high-level documents--the NIPP and QHSR. The NIPP identifies resilience as a national objective for critical infrastructure protection and defines resilience as the ability to resist, absorb, recover from, or successfully adapt to adversity or a change in conditions. The QHSR identifies ensuring resilience to disaster as one of the nation's five homeland security missions.resilience as fostering individual, community, and system robustness, adaptability, and capacity for rapid recovery. According to DHS, resilience is one of the foundational elements for a comprehensive approach to homeland security; thus, its missions and programs designed to enhance national resilience span the department. Accordingly, DHS is currently developing a policy to bring a cohesive understanding of resilience to its components and establish resilience objectives. DHS took steps to foster departmentwide resilience initiatives by creating two internal entities--the Resilience Integration Team (RIT) and the Office of Resilience Policy (ORP). In April 2010, DHS formed RIT to develop new initiatives that support the overarching resilience mission set forth in the QHSR. To date, RIT has been the key DHS-wide working group charged with developing and disseminating resilience concepts.According to agency officials, RIT brings together subject matter experts from all components whose missions affect resilience in some manner for monthly meetings. DHS formed ORP in March 2012 to coordinate and promulgate resilience strategies throughout the department. In 2010, RIT officials surveyed components about how their activities addressed resilience in an attempt to gauge components' understanding of resilience, as discussed in the QHSR. According to RIT officials, component responses showed that component resilience actions were very diverse and represented stovepiped efforts that were still "works in progress." ORP officials told us that these differing approaches to implementing and identifying resilience efforts were part of the reason they saw a need for one DHS resilience policy. Specifically, ORP saw a need to establish a policy that provides component agencies with a single, consistent, departmentwide understanding of resilience; clarifies and consolidates the concepts from the four high-level guiding documents discussed above; and helps components understand how their activities address DHS's proposed resilience objectives. The policy is currently in draft status, and ORP officials hope to have an approved policy in place later this year. Although DHS is developing a policy to establish a departmentwide resilience framework, DHS officials stated that they currently have no plans to develop an implementation strategy for DHS's resilience policy. An implementation strategy that defines goals, objectives, and activities could help ensure that the policy is adopted consistently and in a timely manner by components, and that all components share common priorities and objectives. Additionally, an implementation strategy with specific milestones could help hold ORP and DHS components accountable for taking actions to address resilience objectives identified in the new policy in a timely manner. ORP officials acknowledged that an implementation strategy could be beneficial because it could provide concrete steps for employing DHS's new resilience policy and harmonizing component efforts. In previous work, we identified key characteristics that should be included in a strategy, as discussed below. Goals, subordinate objectives, activities, and performance measures set clear desired results and priorities, specific milestones, and outcome-related performance measures while giving implementing parties flexibility to pursue and achieve those results within a reasonable time frame. Organizational roles, responsibilities, and mechanisms for coordinating their efforts identify the relevant departments, components, or offices and, where appropriate, the different sectors, such as state, local, private, or international sectors. The strategy would also clarify implementing organizations' relationships in terms of leading, supporting, and partnering. Resources, investments, and risk management identify, among other things, the sources and types of resources and investments associated with the strategy, and where those resources and investments should be targeted. As DHS implements its resilience policy, an implementation strategy with these characteristics could provide ORP with a clear and more complete picture of how DHS components are implementing this policy, as well as how the various programs and activities are helping to enhance critical infrastructure resilience in their areas of responsibility. For example, establishing desired results and priorities, such as departmentwide resilience objectives, could help components better understand and communicate how their actions and strategies fulfill those policy objectives. It could also help ORP maintain awareness of various component actions and how these actions align with the policy while also helping components identify which actions are most critical to addressing these objectives. Additionally, milestones could help to ensure that ORP is receiving timely input from components regarding their actions to address resilience objectives, and help ORP and components determine whether adjustments to the policy are needed. Furthermore, as part of the strategy, developing performance measures, such as the number of components that have reported back on resilience efforts, would help provide ORP with more complete information for gauging the level of component acceptance of the policy and understanding of how components' actions address resilience objectives. Moreover, identifying relevant government entities and implementing organizations could provide components with clear expectations for collaborating with other partners inside and outside of DHS, and reporting this collaboration back to ORP. This step could also clearly define departmental components responsible for promoting resilience by identifying critical stakeholders and subject matter experts within and outside of DHS. Moreover, clarifying relationships among components, other government entities, and private partners could foster a greater understanding of their dependence on one another and provide valuable perspective for ORP. Finally, identifying the types of resources and investments needed, and where they should be targeted, could help provide guidance to the implementing components to manage resources and lead them to consider where resources should be invested now and in the future based on balancing risk reductions and costs. ORP officials stated that they have focused initial efforts on developing the resilience policy, and had not given consideration to developing an implementation strategy for this policy. Going forward, we believe that focusing efforts on developing an implementation strategy that includes the elements we identified could benefit DHS components' efforts to enhance resilience. The Coast Guard works with asset owners and operators to assess and enhance various aspects of port critical infrastructure resilience--such as security protection, port recovery, and risk analysis efforts, as described in table 1. In general, officials from the seven Coast Guard sectors we interviewed and various industries at the three ports we visited cited the efforts depicted in table 1 as helpful in addressing or raising awareness of resilience-related issues (e.g., port security and recovery). Their views on the value of some of these key efforts are summarized below. AMSCs. Coast Guard officials we met with at each of the seven sectors stated that they maintain working relationships with port stakeholders via the AMSCs and other groups, which provide a forum for regular communication among port stakeholders on issues related to security and recovery--key elements of resilience. At the three ports we visited, industry stakeholders also cited the importance of the AMSCs in raising awareness of security or resilience issues. In addition, our prior work has illustrated the importance of AMSCs in facilitating information sharing at the port level. One example of Coast Guard efforts to promote resilience at the local level through the AMSC is occurring at Sector Delaware Bay. Coast Guard officials there reported working with members of the local maritime exchange to develop a guide to business continuity planning--an important element in enhancing resilience. According to sector officials, the guide was developed to assist smaller businesses in the port area that lacked the capability or funds to develop a business continuity plan in- house. Delaware Bay officials reported that they have shared this template with other Coast Guard sectors as well. Port security exercises. Officials from six of the seven sectors and industry officials at the three ports we visited cited the importance of addressing recovery and resilience planning issues through various training exercises, whether sponsored by the Coast Guard or other entities. For example, officials in one Coast Guard sector spoke about the importance of a training exercise focused on waterway recovery in getting intermodal stakeholders (such as container terminal operators) to think beyond impacts on their own facilities and consider the resilience of the port area as a whole (e.g., how the port would meet the needs of partners dependent on its shipping services). PSGP. Officials at five of the seven Coast Guard sectors--as well as industry stakeholders at the three ports we visited--cited the PSGP as an important means of addressing risk management and resilience issues in port areas. For example, one river pilots' association reported that it used PSGP funds to expand the use of a radar system for tracking vessels and provided access to the information to the Coast Guard, police, and other authorities. Thus, this system could both increase portwide awareness and aid in recovery efforts following an incident. In addition, officials at four Coast Guard sectors, as well as industry stakeholders, pointed to the PRMP as helpful in identifying security gaps and priorities to be addressed. MSRAM. Coast Guard officials have stated that, as part of the evolution of MSRAM, it is taking preliminary steps to make MSRAM more helpful in assessing resilience. Specifically, the agency is considering ways to use MSRAM data and other tools to help mitigate the criticality or risk levels of key critical infrastructure while also improving its estimates of secondary economic impacts of an event. According to MSRAM program officials, these efforts are in very early stages. While not focused specifically on ports, IP assists critical infrastructure owners and operators of individual assets throughout the nation in understanding their own level of resilience through voluntary assessments and surveys. IP also conducts assessments of regional resilience in some areas of the country. As discussed earlier, IP employs voluntary assessments and security surveys aimed at helping these owners and operators identify and potentially address vulnerabilities, among other things. In addition, IP has two key efforts designed to help enhance resilience--its Resilience Index/Assessment Methodology and Regional Resiliency Assessment Program (RRAP), described below. Resilience Index/Assessment Methodology. IP has developed a Resilience Index for its vulnerability assessments and security surveys. This index is intended to provide the levels of resilience at critical infrastructure, guide prioritization of resources for improving critical infrastructure, and also provide information to owners/operators about their facility's standing relative to those of similar sector assets and how they may increase resilience. IP is also in the process of developing a new Resilience Assessment Methodology to improve DHS's ability to assess asset-level resilience, inform regional resilience efforts, and measure progress in enhancing resilience. RRAP. These assessments are conducted to assess vulnerability to help improve resilience and allow for an analysis of infrastructure "clusters" and systems in various regions. This program, which uses vulnerability assessments and surveys, along with other tools, has included ports as a transportation hub element of a larger regional analysis, but has not yet been applied to focus solely on a port. The RRAP evaluates critical infrastructure on a regional level to examine vulnerabilities, threats, and potential consequences from an all- hazards perspective to identify dependencies, interdependencies, cascading effects, resilience characteristics, and gaps. For example, an RRAP review could involve compiling information from reviews of critical infrastructure assets--such as electricity providers and transport companies--to form an overall assessment of a key transportation and energy corridor within a state. The RRAP assessments are conducted by DHS officials, including PSAs in collaboration with SSAs; other federal officials; state, local, territorial, and tribal officials; and the private sector, depending upon the sectors and assets selected as well as a resilience subject matter expert or experts. The results of the RRAP are to be used to enhance the overall security posture of the assets, surrounding communities, and the geographic region covered by the project. According to DHS officials, the results of specific asset-level assessments conducted as part of the RRAP are made available to asset owners and operators and other partners (as appropriate), but the final analysis and report are delivered to the state where the RRAP occurred. Further, according to DHS, while it continues to perform surveys and assessments at individual assets, prioritizing efforts to focus on regional assessments allows DHS to continue to meet evolving threats and challenges. IP officials also informed us that through the RRAPs, the focus of its vulnerability assessment efforts has evolved over the years from a single- facility assessment to an approach that integrates the results of multiple single-facility assessments to inform a regional analysis of resilience and security through the study of dependencies and interdependencies between and among asset operators. IP officials stated that the Coast Guard participates in RRAPs that include a maritime component. The officials have also informed us that the results of Coast Guard reports and assessments are included in the Resiliency Assessment (the RRAP final report) for RRAPs that include a maritime component, and the information is appropriately derived to alleviate any information-sharing concerns. IP also reports that it has done some ECIPs/Site Assistance Visits at facilities associated with ports (e.g., refineries, storage facilities, and marine terminals). In addition, officials we spoke with from four Coast Guard sectors and PSAs representing five areas report maintaining relationships with one another through the AMSCs or other venues to facilitate information sharing. While the Coast Guard and IP have collaborated on some regional resilience assessments, there may be opportunities for further collaboration and use of existing tools to conduct portwide resilience assessment efforts. For example, IP and the Coast Guard could leverage some of the expertise and tools discussed above--such as the RRAP approach--to develop assessments of the overall resilience of one or more specific port areas. Currently, many of the Coast Guard's formal security assessments (i.e., facility security plan reviews and MSRAM) are focused on asset-level security. For example, our prior work on MSRAM demonstrates that this tool assesses security risks to individual assets, not regions or systems of assets. In addition, the facility security plan reviews are not voluntary, but are conducted to fulfill regulatory requirements. In contrast, IP's RRAP allows for a broader, more systemic analysis of resilience, and industry provides information to IP on a voluntary basis. IP officials stated that IP has not conducted any RRAPs focused exclusively on ports, and does not intend to, because of the Coast Guard's role as lead agency for ensuring port safety, recovery planning, and security, and because IP has limited resources for conducting additional RRAPs. However, IP has conducted RRAPs of regional corridors that have a nexus to a port or waterside critical infrastructure assets. For example, one recent RRAP review focused on a regional transportation and energy corridor and discussed the critical importance of a local port in providing fuel, medicine, and other "life-sustaining" goods throughout the state. The report found, among other things, that the port had no emergency power- generating capability; thus, a disruption to the power grid supporting port operations could seriously affect distribution of these life-sustaining goods to state residents. The report recommended that the port work to establish an agreement with another local entity to secure emergency power supplies. This work illustrates the potential vulnerabilities--and mitigation steps--that could be identified through a port-focused resilience review. In addition, NIAC supports further use of RRAPs, reporting that the RRAP is viewed in the field as a "model of collaboration" in understanding regional and community resilience and recommended that its use be expanded "as quickly as feasible." ORP officials have also stated that having Coast Guard and IP leverage resources and collaborate on systematic portwide resilience assessments could be beneficial. In addition, during the course of our review, we learned of a state-led, ongoing effort to assess portwide resilience at one port area that could prove to be an example of beneficial collaboration that enhances the understanding of port resilience. The New Jersey Office of Homeland Security and Preparedness is leading an effort to develop a computer- based decision support tool that could model the impacts of various disruptions on all critical infrastructure owners and operators within the New York/New Jersey port area. The project team--in collaboration with federal, state, local, and private stakeholders--is examining data from critical facilities and prior assessments to develop decision-making tools to model various scenarios. In addition, according to involved officials, the model is designed to be expandable and transferrable to other ports. Project officials stated that cooperation by critical industry stakeholders has been a key factor in the project's development so far. These officials stated that they hope to develop three key tools: (1) a decision support tool that identifies port area vulnerabilities; (2) a port recovery and resumption-of-trade plan that helps to develop strategic issues to be addressed; and (3) a compendium of specific recommendations in the area of resilience, some aimed at specific facilities, some requiring portwide cooperation to address. Various stakeholder groups have noted that in addition to the development of tools to enhance resilience, collaboration among partners is also key because of the expertise that each party can contribute to a better understanding of resilience. For example, NIAC and the State, Local, Tribal, and Territorial Government Coordinating Council have reported on a general lack of understanding by state and local community partners of the nature of interdependencies among infrastructure sectors and across communities. Both organizations recommended that IP take a lead role in developing tools and techniques that could help community partners at the state and local levels identify and assess infrastructure interdependencies. We have reported in the past on how collaborating agencies can better identify and address needs by leveraging one another's' resources to obtain additional benefits that would not be available if they were working separately.also states that program management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving Standards for Internal Control in the Federal Government its goals. Thus, a collaborative effort between the Coast Guard and IP to assess portwide resilience--leveraging tools and assessment approaches developed by either component, which could include MSRAM and the RRAP--could yield benefits. Specifically, the Coast Guard's assessments of port/maritime assets coupled with IP's assessments of other critical infrastructure with a port nexus could lead to a better understanding of the interdependencies critical to keeping a port operational. DHS officials have stated that any collaborative efforts to assess portwide resilience must take into account the difference between the Coast Guard's regulatory and IP's voluntary missions. For example, certain information gathered by IP from industry through voluntary assessments, surveys, or programs such as RRAP cannot be shared with the Coast Guard (or other federal entities) for regulatory purposes, though it can be shared for conducting other types of analyses, such as port security reviews.structuring any such collaboration, DHS would have to protect such information. DHS's support for enhancing resilience is already evident in IP's voluntary assessments, as well as DHS's involvement in and endorsement of the New York/New Jersey port area project. Identifying opportunities to leverage tools and resources to collaboratively conduct portwide resilience assessments could enhance stakeholders' understanding of interdependencies with other port partners, and help to focus scarce resources to enhance resilience for the port area. This understanding is important to maintaining port operations, thus minimizing the potential adverse economic impact on the U.S. economy in the event of a disruption in port operations. DHS has taken initial steps to emphasize the concept of resilience among its components by developing a resilience policy. This has been an important step and is appropriately intended to provide component agencies with a single, consistent, departmentwide understanding of resilience. Developing an implementation strategy for this new policy is the next key step that could help strengthen DHS's resilience efforts. For example, an implementation strategy that identifies goals and objectives could help DHS components to identify, among other things, the actions that are most critical to addressing DHS's policy objectives. Similarly, an implementation strategy that identifies responsible entities and their roles, as well as specific milestones and performance measures, could provide components with clear expectations for collaborating with other partners, and enhance DHS's awareness of components' understanding and implementation of the policy. This collective information, in turn, would allow DHS to better assess the progress being made by its components in addressing DHS resilience objectives. At the port level, U.S. ports, waterways, and vessels are part of a major economic engine, and a significant disruption to this system could have a widespread impact on the U.S. economy, as well as global shipping, international trade, and the global economy. Coast Guard and IP actions have addressed some aspects of critical infrastructure resilience, but the Coast Guard and IP could take additional action to enhance their collaboration and use existing tools and resources to promote portwide resilience. For example, IP and the Coast Guard could leverage existing expertise and tools--such as IP's RRAP approach--to develop assessments of the overall resilience of one or more port areas. Having relevant agencies collaborate and leverage one another's resources to conduct joint portwide resilience assessments could further all stakeholders' understanding of interdependencies with other port partners, and better direct scarce resources to enhance port resilience. To better ensure consistent implementation of and accountability for DHS's resilience policy, we recommend that the Secretary of Homeland Security direct the Assistant Secretary for Policy to develop an implementation strategy for this new policy that identifies the following characteristics and others that may be deemed appropriate: steps needed to achieve results, by developing priorities, milestones, and performance measures; responsible entities, their roles compared with those of others, and mechanisms needed for successful coordination; and sources and types of resources and investments associated with the strategy, and where those resources and investments should be targeted. To allow for more efficient efforts to assess portwide resilience, the Secretary of Homeland Security should direct the Assistant Secretary of Infrastructure Protection and the Commandant of the Coast Guard to look for opportunities to collaborate to leverage existing tools and resources to conduct assessments of portwide resilience. In developing this approach, DHS should consider the use of data gathered through IP's voluntary assessments of port area critical infrastructure or regional RRAP assessments--taking into consideration the need to protect information collected voluntarily--as well as Coast Guard data gathered through its MSRAM assessments, and other tools used by the Coast Guard. We provided a draft of this report to the Secretary of Homeland Security for review and comment. In its written comments reprinted in appendix I, DHS concurred with both of our recommendations. With regard to our first recommendation, that DHS develop an implementation plan for its forthcoming resilience policy, DHS stated that while its RIT has worked to draft a resilience policy including findings and policy statements from key strategic documents such as the QHSR, the department has yet to commence developing an implementation strategy. DHS also noted that it has undertaken a range of activities that support resilience and that further avenues--such as an implementation strategy--are under consideration. Developing an implementation strategy for its resilience policy that addresses the steps needed to achieve results; identifies entities responsible for implementing the policy, their roles, and coordination mechanisms; and determines the resources and investments associated with the strategy would address the intent of our recommendation. With regard to our second recommendation, that DHS seek opportunities for IP and the Coast Guard to collaborate in assessing portwide resilience, DHS stated that the two components would work with ORP in defining their roles in contributing to port resilience. DHS also stated that the RIT would create a subcommittee this fiscal year to provide a forum for discussing the harmonization of resilience activities and programs across DHS. These proposed actions appear to be positive steps in enhancing IP and Coast Guard collaboration that would address the intent of this recommendation. DHS provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Homeland Security, applicable congressional committees, and other interested parties. This report is also available at no charge on GAO's website at http://www.gao.gov. If you or your staffs have questions about this report, please contact me at (202) 512-9610 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 II. Stephen L. Caldwell, (202) 512-9610 or [email protected]. In addition to the contact named above, Dawn Hoff, Assistant Director, and Adam Couvillion, Analyst-in-Charge, managed this assignment. Adam Anguiano, Michele Fejfar, Eric Hauswirth, Tracey King, and Jessica Orr made significant contributions to the work. Maritime Security: Progress and Challenges 10 Years after the Maritime Transportation Security Act. GAO-12-1009T. Washington, D.C.: September 11, 2012. Critical Infrastructure Protection: DHS Could Better Manage Security Surveys and Vulnerability Assessments. GAO-12-378. Washington, D.C.: May 31, 2012. Maritime Security: Coast Guard Efforts to Address Port Recovery and Salvage Response. GAO-12-494R. Washington, D.C.: April 6, 2012. Coast Guard: Security Risk Model Meets DHS Criteria, but More Training Could Enhance Its Use for Managing Programs and Operations. GAO-12-14. Washington, D.C.: November 17, 2011. Port Security Grant Program: Risk Model, Grant Management, and Effectiveness Measures Could Be Strengthened. GAO-12-47. Washington, D.C.: November 17, 2011. Critical Infrastructure Protection: DHS Has Taken Action Designed to Identify and Address Overlaps and Gaps in Critical Infrastructure Security Activities. GAO-11-537R. Washington, D.C.: May 19, 2011. Maritime Security: DHS Progress and Challenges in Key Areas of Port Security. GAO-10-940T. Washington, D.C.: July 21, 2010. Critical Infrastructure Protection: DHS Efforts to Assess and Promote Resiliency Are Evolving but Program Management Could Be Strengthened. GAO-10-772. Washington, D.C.: September 23, 2010. Critical Infrastructure Protection: Update to National Infrastructure Protection Plan Includes Increased Emphasis on Risk Management and Resilience. GAO-10-296. Washington, D.C.: March 5, 2010. Maritime Security: The SAFE Port Act: Status and Implementation One Year Later. GAO-08-126T. Washington, D.C.: October 30, 2007. Port Risk Management: Additional Federal Guidance Would Aid Ports in Disaster Planning and Recovery. GAO-07-412. Washington, D.C.: March 28, 2007. Risk Management: Further Refinements Needed to Assess Risks and Prioritize Protective Measures at Ports and Other Critical Infrastructure. GAO-06-91. Washington, D.C.: December 15, 2005. Maritime Security: New Structures Have Improved Information Sharing, but Security Clearance Processing Requires Further Attention. GAO-05-394. Washington, D.C.: April 15, 2005.
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U.S. ports are part of an economic engine handling more than $700 billion in merchandise annually, and a disruption to port operations could have a widespread impact on the global economy. DHS has broad responsibility for protection and resilience of critical infrastructure. Within DHS, the Coast Guard is responsible for the maritime environment, and port safety and security, and IP works to enhance critical infrastructure resilience. Recognizing the importance of the continuity of operations in critical infrastructure sectors, DHS has taken initial steps to emphasize the concept of resilience. GAO was asked to review port resilience efforts. This report addresses the extent to which (1) DHS has provided a road map or plan for guiding resilience efforts, and (2) the Coast Guard and IP are working with port stakeholders and each other to enhance port resilience. To address these objectives, GAO analyzed key legislation and DHS documents and guidance. GAO conducted site visits to three ports, selected based on geography, industries, and potential threats; GAO also interviewed DHS officials and industry stakeholders. Information from site visits cannot be generalized to all ports, but provides insights. The Department of Homeland Security (DHS) is developing a resilience policy, but an implementation strategy is a key next step that could help strengthen DHS resilience efforts. DHS defines resilience as the ability to resist, absorb, recover from, or adapt to adversity, and some high-level documents currently promote resilience as a key national goal. Specifically, two key White House documents emphasize resilience on a national level--the 2011 Presidential Policy Directive 8 and the 2012 National Strategy for Global Supply Chain Security. Since 2009, DHS has emphasized the concept of resilience and is currently in the process of developing a resilience policy, the initial steps of which have included creating two internal entities--the Resilience Integration Team and the Office of Resilience Policy (ORP). According to ORP officials, they saw a need to establish a policy that provides component agencies with a single, consistent, departmentwide understanding of resilience that clarifies and consolidates resilience concepts from high-level guiding documents, and helps components understand how their activities address DHS's proposed resilience objectives. ORP officials hope to have an approved policy in place later this year. However, DHS officials stated that currently there are no plans to develop an implementation strategy for this policy. An implementation strategy that defines goals, objectives, and activities; identifies resource needs; and lays out milestones is a key step that could help ensure that DHS components adopt the policy consistently and in a timely manner. For example, an implementation strategy with goals and objectives could provide ORP with a more complete picture of how DHS components are implementing this policy. The Coast Guard and the Office of Infrastructure Protection (IP) work with stakeholders to address some aspects of critical infrastructure resilience, but they could take additional collaborative actions to promote portwide resilience. The Coast Guard is port focused and works with owners and operators of assets, such as vessels and port facilities, to assess and enhance various aspects of critical infrastructure resilience in ports--such as security protection, port recovery, and risk analysis efforts. In contrast, IP, through its Regional Resiliency Assessment Program (RRAP), conducts assessments with a broader regional focus, but is not port specific. An RRAP assessment is conducted to assess vulnerability to help improve resilience and allow for an analysis of infrastructure "clusters" and systems in various regions--for example, a regional transportation and energy corridor. The Coast Guard and IP have collaborated on some RRAP assessments, but there may be opportunities for further collaboration to conduct port-focused resilience assessments. For example, IP and the Coast Guard could collaborate to leverage existing expertise and tools--such as the RRAP approach--to develop assessments of the overall resilience of specific port areas. Having relevant agencies collaborate and leverage one another's resources to conduct joint portwide resilience assessments could further all stakeholders' understanding of interdependencies with other port partners, and help determine where to focus scarce resources to enhance resilience for port areas. GAO recommends that DHS develop an implementation strategy for its resilience policy and that the Coast Guard and IP identify opportunities to collaborate to leverage existing tools and resources to assess port resilience. DHS concurred with GAO's recommendations.
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During the storage and distribution of the billions of pounds of food consumed annually in the United States, some food is damaged or contaminated because of mishandling, accidents (e.g., fires, explosions, or truck and train accidents), or natural and man-made disasters (e.g., earthquakes, hurricanes, floods, or riots). Food that is adulterated or contaminated is generally destroyed. However, if the food is determined to be safe, it may be salvaged and "reconditioned" for consumption. Both FDA and the U.S. Department of Agriculture (USDA) are responsible for ensuring that all food shipped or received in interstate commerce is safe for consumption. FDA enters into contracts or initiates cooperative agreements with state authorities to inspect food manufacturers and warehouses, including operations to salvage food. According to FDA officials, state and local authorities are the most effective regulatory bodies for monitoring such operations because (1) FDA has no authority to place an embargo on hazardous food; (2) the states have intensive regulatory coverage of food warehouses and retail establishments, where most food salvaging operations occur; and (3) FDA has concentrated its resources on issues that pose a higher risk to public health, such as monitoring the blood supply and the safety of medical devices. USDA directly monitors meat and poultry salvaging operations using its own inspectors or designates states to perform inspections when they have inspection programs that meet requirements at least equal to federal laws. When a major disaster occurs, states may contact FDA and/or USDA field offices for assistance and advice. However, FDA's operational procedures state that in unusual circumstances, such as those involving the interstate movement of merchandise or areas in which state or local political ramifications are anticipated, FDA may assume the primary role in overseeing salvaging operations. On December 28, 1991, a major disaster occurred when a fire began in a storage cave of approximately 100 acres owned by Americold Services Corporation in Kansas City, Kansas. This man-made limestone cave is the largest underground food storage facility in the world, with freezers, coolers, and dry storage areas accessible by truck and rail. Figure 1 shows the layout of the Americold cave, including the location of the fire. When the fire began, about 245 million pounds of food was stored in the cave. Of that amount, about 159 million pounds was owned by about 110 private food companies; USDA owned the remaining 86 million pounds. The products stored in the cave included dry milk, cheese, butter, fruit, nuts, and other dry goods, as well as canned and frozen meats, vegetables, and fruits. The fire started in an area of the cave containing grocery items, including cleaning compounds, pesticides, paper goods, and cooking oil. The fire reached temperatures approaching 2,000 degrees Fahrenheit and, despite continuous fire-fighting efforts, burned for about 2 months. (See fig. 2.) The fire was confined to one section of the cave, but smoke flowed throughout the cave, exposing food to smoke residue for a prolonged period. According to FDA, this event was unique in that no other fire had involved such a large quantity of food that was exposed to smoke for such a long time. Following the fire, the Kansas Department of Health and the Environment (KDHE) met with FDA and other federal, state, and local agencies to determine a course of action for protecting the public health and supervising the salvaging operations. It was decided that KDHE should take the lead in overseeing the salvaging, with assistance from FDA's district office in Kansas City. Such an arrangement is typical in routine salvaging operations. According to FDA's records, contaminants found in the air and on surfaces in the cave included toluene, benzene, and phenol--substances cited by the Environmental Protection Agency as being carcinogenic and causing genetic changes and mutations. Because of the potential risk to public health from these contaminants, KDHE, with advice from FDA, placed an embargo on all of the stored food. The embargo was to continue until the owners of the food presented KDHE with evidence, based on laboratory analysis, that the food was suitable for consumption. In many instances, ownership of the food transferred to insurance companies and, ultimately, to food salvagers. The insurers and salvagers were eager to begin salvaging operations and, according to KDHE officials, placed pressure on KDHE to release the food. The salvaging operations began almost immediately and continued for over 2 years. Table 1 summarizes the final disposition of the food stored in the cave. Over 143 million pounds of food was sent to landfills to be destroyed, and about 102 million pounds was released for reconditioning and consumption. Most of the 102 million pounds of food salvaged from the fire was released to the public with little apparent controversy. However, in December 1993, about 2 years after the fire began, a series of articles in the Kansas City Star raised questions about the release of food to a Minnesota food salvager. About 3.7 million pounds of food was shipped to this salvager, and all but about 100,000 pounds was eventually sold to the public. Appendix I provides a chronology of the key events in the release of the food to this salvager. Our review of food salvaging activities following the fire--particularly those involving the shipment of food to Minnesota--found two problems from which lessons can be learned to improve future salvaging operations. First, FDA did not adequately share information with KDHE about past problems it had experienced with a food owner's consultant and his laboratories. This consultant's laboratory test results were used to demonstrate to KDHE the safety of food later released to the public. Second, FDA did not communicate its guidance on food sampling to the KDHE officials responsible for overseeing the salvaging operations. FDA relies on such guidance internally to ensure the integrity of analytical data from private laboratories. Both of these problems suggest the need for FDA to be more proactive in helping states manage food salvaging following major disasters. KDHE allowed several million pounds of food salvaged from the Americold fire to be sent to Minnesota on the basis of laboratory results submitted by a consultant to one of the food owners. KDHE officials subsequently learned from FDA that this consultant and his laboratories had been under investigation by FDA and that two of his laboratories were on FDA's "nonacceptance" list. However, FDA did not provide this information in a timely manner either to its Kansas City District Office or to the KDHE investigators overseeing the salvaging of the food. In April 1992, KDHE asked FDA's Kansas City District Office for advice on the consultant's plans for sampling and testing food that had been stored in the Americold cave. The consultant had been hired by a food owner to sample and test the food for chemical and smoke residues. FDA's district office raised several concerns about the consultant's plans. However, it provided no information to KDHE about the past performance of the consultant or his laboratories. This information was known within FDA but was not shared with the FDA investigator advising KDHE. FDA's Division of Field Science in Washington, D.C., maintains and periodically distributes to FDA district offices a "nonacceptance" list of some private laboratories. According to FDA officials, the list provides information about private laboratories that at least one FDA district office has found to be unacceptable for performing certain or all analytical tests. FDA's district offices may use this information in deciding whether to accept or reject analyses from a particular laboratory. Much of this information is based on enforcement activities in FDA's program for monitoring imported food. FDA's information indicated that two of the consultant's laboratories were unacceptable for performing any analyses. The investigator from FDA's district office said that he was unaware that such a list existed until June 13, 1992, when he learned of it from a visiting FDA scientist. A month later, he advised KDHE not to accept test results from the consultant's laboratories. However, the consultant informed KDHE that the analyses were being performed by another laboratory that KDHE, on the basis of discussions with the Minnesota Department of Agriculture, had determined to be reputable. This laboratory was not affiliated with the consultant. On the basis of this information and subsequent laboratory results indicating that the tested food was not contaminated, KDHE allowed the food to be shipped, under embargo, to a Minnesota salvager. KDHE officials later learned from FDA that the consultant himself was the subject of an ongoing FDA investigation concerning the falsification of laboratory data. They said that if they had known this earlier, they would not have allowed the food to be shipped to Minnesota. After the food shipments to Minnesota began, the Minnesota Department of Agriculture asked FDA to test a truckload of cheese. Minnesota state food inspectors were concerned because the containers were covered with dust and smelled of smoke. FDA's test results showed that some hazardous chemicals, including toluene, were present in the cheese. However, according to an FDA official, the levels of chemicals found did not pose a health hazard. The remaining food held by the salvager was retested by a private laboratory, judged to be safe for consumption, and eventually sold to the public. Officials from KDHE and the Minnesota Department of Agriculture told us that no illnesses have been attributed to this food. FDA has published guidance on food sampling to ensure the credibility, accuracy, and reliability of analytical data from private laboratories. This guidance, which primarily concerns FDA's regulation of imported foods, was provided to KDHE's state laboratory but not to the KDHE officials managing the food salvaging operations. The food sampling processes KDHE used in the salvaging operations following the fire lacked some important controls, thereby creating the risk that unsafe food might be released to the public. For example, food owners selected food samples without a KDHE official or other disinterested third party present. In addition, the consultant discussed earlier maintained control over food samples that were to be tested for chemical residues. Although it has no legislative regulatory authority over private laboratories, FDA has internal guidance to help ensure that laboratories performing analyses of FDA-regulated commodities submit scientifically sound data. In March 1992, FDA provided Kansas with its Laboratory Procedures Manual, which spells out recommended sampling controls that FDA uses in monitoring imported foods. Among other things, the guidance recommends that scientific data supplied by private laboratories be obtained by using sound methods of sampling and analysis and that sampling be performed by a disinterested, objective third party. The KDHE officials responsible for overseeing the food salvaging operations said, however, that they were not aware of this guidance because it had been provided only to KDHE's state laboratory. They also noted that the FDA officials assisting them had not brought this guidance to their attention. They said that if they had been aware of the guidance, they would have required all food owners to hire a disinterested third party to perform food sampling and ensured that the chain of custody over food samples was secured. In discussing FDA's participation in overseeing the salvaging activities following the Americold fire, FDA officials said they viewed their role as limited to that of a consultant. According to one FDA official, FDA's role was limited to providing information to KDHE when requested, and FDA was not to anticipate what issues needed to be addressed. KDHE had to make decisions about the release of potentially contaminated food under stressful conditions, including pressure from food owners to expeditiously release the food for salvaging. KDHE relied on FDA, which has considerable experience in dealing with food safety issues, for advice and guidance. However, although the Americold fire was a major disaster with potentially serious consequences resulting from the release of improperly tested food, FDA continued to view its role as that of a consultant-- primarily responding to specific requests from KDHE for advice. Such an interpretation may be appropriate for routine salvaging activities; however, this was not a routine operation. Over the years, FDA has developed considerable nationwide experience and expertise in food safety. We believe that in future disasters of this magnitude, in which so much is at stake and improper decisions can adversely affect food safety, FDA should proactively draw upon this expertise and provide stronger leadership in working with states to maintain the safety of the food supply. We recommend that FDA more actively assist states in managing food salvaging operations following major disasters. At a minimum, FDA should ensure that (1) the information it has about private food testing laboratories and key personnel is communicated to state officials responsible for monitoring food salvaging operations after a major disaster and (2) these state officials are made aware of FDA's guidance for maintaining the integrity of the food sampling process. In commenting on a draft of this report, FDA disagreed with our conclusions and recommendations. FDA described the assistance it provided KDHE and said it had worked very closely with KDHE officials to ensure that the public health was protected and that unsafe food did not reach consumers. FDA stated that following a series of meetings, it was agreed that KDHE was the agency most suited to take the lead in the day-to-day supervision of the salvaging operations and that FDA's Kansas City District Office would support KDHE in any way required. Overall, FDA said it believed its actions in assisting KDHE were correct and appropriate. With regard to our first recommendation, FDA stated that it would be inappropriate to routinely distribute its "nonacceptance" list of private laboratories to states, noting that (1) FDA does not have a regulatory mechanism for declaring a laboratory or analyst unacceptable, (2) the list could be misconstrued and used inappropriately, and (3) more aggressive distribution of the list could jeopardize FDA's ability to maintain and internally disseminate information about the laboratories' performance. With regard to our second recommendation--ensuring that appropriate state officials are made aware of FDA's guidance on food sampling--FDA said it had provided KDHE with this guidance. FDA maintained that it is the state agency's responsibility to ensure that individual employees receive copies of pertinent FDA documents. We recognize that FDA supported KDHE in dealing with the salvaging operations subsequent to the Americold fire and have added information to the report to more fully describe the nature of that assistance. However, we continue to believe that lessons learned from the Americold experience can make FDA's support more effective in future disasters--the overall lesson being that FDA needs to provide stronger, more proactive leadership in assisting states in the aftermath of major disasters. Our report notes that KDHE took the lead in overseeing salvaging operations, with FDA's Kansas City District Office acting in a consultant's role--primarily responding to requests from KDHE for assistance--and that such an arrangement was typical in routine salvaging operations. However, the Americold fire and the subsequent salvaging operations were not routine. As FDA itself noted, "this event was unique in that no other fire has involved such a large quantity of food that was exposed to smoke for such a prolonged period of time." It may be appropriate, in routine circumstances, for FDA to wait until states seek advisory information from it. However, in major disasters, we believe that FDA needs to draw upon its nationwide experience and expertise in food safety and more proactively provide relevant information to state officials responsible for dealing with such an event. Regarding our recommendation that FDA share with states information about private laboratories and key personnel, we recognize that FDA's "nonacceptance" list is not intended to be a means of certifying a laboratory or declaring it unacceptable and that FDA believes it has no regulatory authority to do so. Furthermore, we understand FDA's concern that aggressive dissemination of the list could result in inappropriate use of the information on it. Nevertheless, as discussed in our report, the list may contain information of great relevance to state officials making critical decisions affecting the safety of the food supply. To balance the risk of further disseminating FDA's list with that of withholding potentially important information on it, we have worded our recommendation to say that following major disasters, FDA should communicate information it has about private food testing laboratories and key personnel to state officials responsible for monitoring food salvaging operations. Thus, we are not recommending that the list itself be disseminated, but rather information on the list as well as any other relevant information about the performance of laboratories and key personnel. The form in which FDA wishes to convey this information, as well as any caveats attached to it, is left to FDA's discretion. Under these circumscribed conditions, we believe that FDA can maintain adequate control over the information to ensure that it is not inappropriately used. With regard to our second recommendation concerning communicating FDA's guidance on food sampling to appropriate state officials, FDA explained that it had provided its Laboratory Procedures Manual, containing guidance on food sampling controls, to KDHE's state laboratory, which was not directly involved in food salvaging following the Americold fire. The KDHE officials who were overseeing the salvaging operations were unaware of this guidance, and FDA did not bring it to their attention. We believe that FDA officials assisting states in major disasters should take the initiative to ensure that state officials who are managing the food salvaging operations be made aware of key FDA guidance, such as that pertaining to the food sampling process. Appendix II contains the complete text of FDA's comments, along with our responses. To obtain information on the food salvaging that occurred after the Americold fire and to identify the lessons learned, we interviewed FDA officials in Washington, D.C., Kansas, and Minnesota; USDA officials in Washington, D.C., and Kansas; and state health officials in Kansas and Minnesota. In addition, we interviewed a food salvager located in Minnesota. We reviewed FDA, USDA, and state records on the Americold fire at the locations listed above. We also reviewed laws and regulations applicable to food salvaging. We conducted our review from June 1994 through January 1995 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days after the date of this letter. At that time, we will provide copies to the appropriate agency heads and interested congressional committees. We will also make copies available to others upon request. Please call me at (202) 512-5138 if you or your staff have any questions. Major contributors to this report are listed in appendix III. The owner of 3.7 million pounds of food hired a consultant to sample and test the food to determine if it could be salvaged. The Minnesota Department of Agriculture agreed to accept food shipped under Kansas's embargo to a Minnesota salvager. FDA's Kansas City District Office notified KDHE that the consultant's laboratories were on FDA's "nonacceptance" list and advised KDHE not to accept their results. KDHE agreed to accept laboratory results from the consultant after he told them that another laboratory had performed the analyses. KDHE began allowing food shipments to a Minnesota salvager under KDHE's embargo after the laboratory results showed that the food was safe for human consumption. KDHE recommended that Minnesota's Department of Agriculture perform organoleptic (sight, smell, taste) evaluations when the food arrived and agreed to lift the embargo upon the Minnesota Department of Agriculture's recommendation. The Minnesota Department of Agriculture placed a voluntary hold on a cheese shipment and asked FDA to test the cheese. However, the salvager sold the cheese before the laboratory results arrived. FDA's laboratory results showed that the cheese had contained small amounts of chemicals, including toluene. FDA determined that the chemical levels were not sufficient to warrant action to seize the food. The Minnesota Department of Agriculture required the Minnesota food salvager to retest all the food from Kansas still in storage. The retested food was judged safe for human consumption. No illnesses have been attributed to the food shipped to the Minnesota salvager. The following are GAO's comments on the Food and Drug Administration's letter dated January 12, 1995. 1. FDA said the primary purpose of the "nonacceptance" list is to assist the agency's district offices in reviewing analyses submitted to demonstrate whether products offered for import meet FDA's requirements. FDA stated that many district offices have little involvement in decisions about imported products and therefore have little reason to become familiar with the list. We believe that individuals located in district offices, regardless of whether they are responsible for domestic or imported commodities, have reason to become familiar with the list, particularly when advising state agencies that may be using these same laboratories and analysts. Furthermore, FDA's guidance was updated in June 1994 so that laboratories and analysts who have submitted unacceptable analysis for both domestic and imported commodities are included on the list. Therefore, we made no changes to the report. 2. FDA's Kansas City District Office advised KDHE, on July 13, 1992, not to accept results from the consultant's laboratories but did not provide information about the consultant's past performance. KDHE subsequently learned that the consultant had been under investigation for submitting false testing data to FDA. We have changed the chronology to show the date that KDHE was notified about the consultant's laboratories. 3. Food was shipped to the Minnesota salvager on the basis of laboratory results presented to KDHE, not the Minnesota Department of Agriculture, as stated in FDA's comments. 4. Our report recognizes that no illnesses have been attributed to consuming food from the cave fire. However, we have no evidence to support FDA's claim that no dangerous products were consumed, nor have we been provided with test results showing that residue levels did not exceed levels of the same chemicals found in similar food that had not been exposed to the fire. FDA officials told us that they performed laboratory analysis on only two samples of food and did not perform the sampling and testing required by FDA's own procedures to ensure that the entire lot of food was safe for consumption. The food was sold by the salvager before the tests were completed. 5. GAO visited another FDA office to determine whether food salvaging had occurred following the 1993 Midwest flood. FDA noted that GAO found no deficiencies in FDA's activities, which, it said, were generally similar to those following the Americold fire. We visited an FDA office in the area affected by the flood and were informed that no salvaging requiring the use of private food testing laboratories was performed. Therefore, this event was not similar to the Americold fire. We did not revise the report. 6. FDA stated that our draft report implied that FDA's Kansas City District Office did not impress upon KDHE that the consultant was not acceptable and notes that both FDA's district office and KDHE had ample reason early on to question the consultant's capability. We continue to believe that FDA did not adequately share information about the consultant's past performance. While the district office raised questions about the consultant's sampling and testing plan, it provided no information to KDHE reflecting its concerns about the consultant's past performance. This information was available elsewhere within FDA, but was not shared with the district office officials who were advising KDHE. In fact, KDHE officials later learned that the consultant was the subject of an ongoing FDA investigation. They said that had they known this earlier, they would not have allowed food to be shipped to the Minnesota salvager. We did not revise the report. 7. FDA contends that KDHE officials are familiar with proper techniques for collecting and safeguarding samples. KDHE officials agreed that this is true for samples collected by their own food inspectors. However, they said that they rarely use private laboratories in their routine food inspection activities and that FDA has much more experience in dealing with private laboratories. We have recommended in our report that following major disasters, FDA ensure that state officials responsible for overseeing food salvaging operations are made aware of FDA's guidance for maintaining the integrity of the food sampling process. 8. Our report acknowledges that FDA's guidance on third-party sampling is a recommendation, not a requirement. However, KDHE officials said that had they known of FDA's guidance, they would have required all food owners to hire a disinterested third party to perform food sampling and ensure that the chain of custody over food samples was secured. 9. We have added this sentence to the background section of our report. 10. We agreed with this comment and removed the word "health." 11. We agreed with this comment and have revised the report. 12. According to FDA's Investigations Operations Manual, subchapter 940, paragraph 942, "Except in unusual circumstances, FDA responsibilities are to assist the state and local health agencies in removing, destroying or reconditioning affected merchandise. In situations involving interstate movement of merchandise; large interstate firms; areas in which state or local political ramifications are anticipated; or when state or local health officials so request; FDA may assume the primary role in the operation." We included this statement to show that in major disasters, FDA may take on a stronger leadership role if it chooses to do so. We do not say, nor do we mean to imply, that KDHE was in any way influenced by political ramifications. 13. We agreed with this comment and have revised the report. 14. We agreed with this comment and have revised the report. 15. We agreed with this comment and have revised the report. 16. We believe that the Americold fire--an event that FDA described as "unique in that no other fire has involved such a large quantity of food that was exposed to smoke for such a prolonged period of time" and that resulted in the destruction of over 143 million pounds of food--can appropriately be described as a major disaster. Similarly, we do not question the fact that FDA supported KDHE. However, we believe that its support could have been more effective had it provided stronger, more proactive leadership. 17. We agreed with this comment and have revised the report. Alan R. Kasdan, Assistant General Counsel The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (301) 258-4097 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO provided information on the events surrounding a fire at a food storage warehouse in Kansas, focusing on the: (1) disposition of food salvaged from the facility; and (2) lessons learned from the incident that could be used to improve regulation of the food salvaging industry. GAO found that: (1) over half of the affected food was destroyed and the remaining 102 million pounds of food was released to the public after Kansas determined its salvageability; (2) about 3.7 million pounds of food was shipped to a salvager on the basis of laboratory results furnished by a consultant who was under investigation by the Food and Drug Administration (FDA); (3) although no illnesses were attributed to the food salvaged from the Kansas fire, potential public health risks were increased by shortcomings in FDA regulation of salvaged food; (4) FDA did not share important information with Kansas regarding its past problems with the consultant and his laboratories; and (5) FDA did not provide Kansas with guidance on food sampling controls that would have been useful in its oversight of the salvaging.
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Social Security provides retirement, disability, and survivor benefits to insured workers and their dependents. Insured workers are eligible for reduced benefits at age 62, and full retirement benefits between age 65 and 67, depending on the worker's year of birth. Social Security retirement benefits are based on the worker's age and career earnings, are fully indexed for price inflation after retirement, and replace a relatively higher proportion of wages for career low-wage earners. Social Security's primary source of revenue is the Old Age, Survivors, and Disability Insurance (OASDI) portion of the payroll tax paid by employers and employees. This Social Security tax is 6.2 percent of earnings up to an established maximum, paid by both employers and employees. One of Social Security's most fundamental principles is that benefits reflect the earnings on which workers have paid Social Security taxes. Thus, Social Security provides benefits that workers have earned, in part, due to their contributions and those of their employers. At the same time, Social Security helps ensure that its beneficiaries have adequate incomes and do not have to depend on welfare. Toward this end, Social Security's benefit provisions redistribute income in a variety of ways--from those with higher lifetime earnings to those with lower ones, from those without dependents to those with dependents, from single earners and two-earner couples to one-earner couples, and from those who live shorter lives to those who live longer. These effects result from the program's focus on helping ensure adequate incomes. Such effects depend, to a great extent, on the universal and compulsory nature of the program. According to the Social Security trustees' 2007 intermediate (or best estimate) assumptions, Social Security's cash flow is expected to turn negative in 2017. In addition, all of the accumulated Treasury obligations held by the trust funds are expected to be exhausted by 2041. Social Security's long-term financing shortfall stems primarily from the fact that people are living longer and having fewer children. As a result, the number of workers paying into the system for each beneficiary has been falling and is projected to decline from 3.3 today to 2.2 by 2030. Reductions in promised benefits and/or increases in program revenues will be needed to restore the long-term solvency and sustainability of the program. About one-fourth of public employees do not pay Social Security taxes on the earnings from their government jobs. Historically, Social Security did not require coverage of government employment because some government employers had their own retirement systems. In addition, there was concern over the question of the federal government's right to impose a tax on state governments. However, the remaining three-fourths of public employees are now covered by Social Security, as well as virtually all private sector workers. The 1935 Social Security Act mandated coverage for most workers in commerce and industry; at that time, such workers comprised about 60 percent of the workforce. Subsequently, the Congress extended Social Security coverage to most of the excluded groups, including many state and local employees, military personnel, members of Congress, and federal civilian employees hired after January 1, 1984. In 1950, Congress enacted legislation allowing voluntary coverage to state and local government employees not covered by public pension plans, and in 1955, extended voluntary coverage to those already covered by plans as well. Initially, public employers could opt in and out of the Social Security program under these provisions. Since 1983, however, public employers have not been permitted to withdraw from the program once they have opted in and their employees are covered. Also, in 1990, Congress made coverage mandatory for most state and local employees not covered by public pension plans. Nevertheless, the most recent data from SSA indicates that in 2005, about 6.8 million state and local government employees were still not covered by Social Security. Coverage varies widely across states. In some states, such as New York and Vermont, virtually all government employees are covered; in other states, such as Massachusetts and Ohio, less than 5 percent of government employees are covered. Seven states--California, Colorado, Illinois, Louisiana, Massachusetts, Ohio, and Texas--account for nearly 70 percent of the noncovered state and local government payroll. In addition, SSA estimates that about half a million federal government employees are not covered. These are civilian employees hired before January 1, 1984, who continue to be covered under the Civil Service Retirement System. Most full-time public employees participate in defined benefit pension plans. Minimum retirement ages for full benefits vary, but many state and local employees can retire with full benefits at age 55 with 30 years of service. Retirement benefits also vary, but they are generally based on a specified benefit rate for each year of service and the member's final average salary over a specified time period, usually 3 years. For example, plans with a 2 percent rate replace 60 percent of a member's final average salary after 30 years of service. State and local government workers also generally have a survivor annuity option and disability benefits, and many receive cost-of-living increases after retirement. In addition, in recent years, the number of defined contribution plans--such as 401(k) plans and the Thrift Savings Plan for federal employees--has been growing. There has been little movement toward adopting defined contribution plans as the primary pension plans for state and local workers, but such plans have become fairly universally available as supplemental voluntary tax-deferred savings plans. Even though noncovered employees may have many years of earnings on which they do not pay Social Security taxes, they can still be eligible for Social Security benefits based on their spouses' or their own earnings in covered employment. According to SSA, nearly all noncovered state and local employees become entitled to Social Security as spouses, dependents, or workers. However, their noncovered status for the bulk of their earnings complicates the program's ability to target benefits in the ways it is intended to do. To address the fairness issues that arise with noncovered public employees, the Congress has enacted two provisions: (1) the Government Pension Offset (GPO) regarding spouse and survivor benefits, and (2) the Windfall Elimination Provision (WEP) regarding retired worker benefits. Both provisions apply only to those beneficiaries who receive pensions from noncovered employment. However, the provisions have been difficult to administer because they depend on having complete and accurate information on noncovered earnings and pensions--information that has proven difficult to get. Also, the provisions are a source of confusion and frustration for public employees and retirees. Under the GPO provision, enacted in 1977, SSA must reduce Social Security benefits for those receiving noncovered government pensions when their entitlement to Social Security is based on another person's (usually a spouse's) Social Security coverage. Their Social Security benefits are to be reduced by two-thirds of the amount of their government pension. Spouse and survivor benefits were intended to provide some Social Security protection to spouses with limited working careers. The GPO provision reduces spouse and survivor benefits to persons who do not meet this limited working career criterion because they worked long enough in noncovered employment to earn their own pension. Under the WEP, enacted in 1983, SSA must use a modified formula to reduce the Social Security benefits people receive when they have had a lengthy career in noncovered employment. The Congress was concerned that the design of the Social Security benefit formula provided unintended windfall benefits to workers who had spent most of their careers in noncovered employment, as the formula replaces a relatively higher proportion of wages for low earners than for high earners, and those with lengthy careers in noncovered employment appear on SSA's records as low earners. To administer the GPO and WEP, SSA needs to know whether beneficiaries receive pensions from noncovered employment. However, SSA cannot apply these provisions effectively and fairly because it lacks this information. In a report we issued in 1998, we recommended that SSA perform additional computer matches with the Office of Personnel Management to get noncovered pension data for federal retirees. In response to our recommendation, SSA performed the first such match in 1999 and planned to continue to conduct the matches on a recurring basis. We estimated that correcting the errors identified through such matches will generate hundreds of millions of dollars in savings. However, SSA still lacks the information it needs for state and local governments, and therefore, it cannot apply the GPO and the WEP for state and local government employees to the same extent it can for federal employees. The resulting disparity in the application of these two provisions is yet another source of unfairness in the calculation of Social Security benefits for public employees. In our testimony before the Subcommittee on Social Security, House Committee on Ways and Means, in May 2003 and again in June 2005, we recommended that the Congress consider giving the Internal Revenue Service (IRS) the authority to collect the information that SSA needs on government pension income, a task that could perhaps be accomplished through a simple modification to a single form. Earlier versions of the Social Security Protection Act of 2004 contained such a provision, but this provision was not included when the final version of the bill was approved and signed into law. As long as the GPO and WEP remain in effect, we continue to believe that the IRS should be given the authority to collect the information that SSA needs on government pension income to administer these provisions accurately and fairly. The GPO and the WEP have been a continuing source of confusion and frustration for the more than 7.3 million government workers affected. Critics of the measures contend that the provisions are basically inaccurate and often unfair. For example, critics of the GPO contend that the two-thirds reduction is imprecise and could be based on a more rigorous formula. According to a recent analysis conducted by the Congressional Research Service, the GPO formula slightly overestimates the reduction that some individuals (particularly higher earners) would otherwise receive if they worked in Social Security-covered employment, and greatly underestimates the reduction that others (particularly lower earners) would receive. In the case of the WEP, opponents argue that the formula adjustment is an arbitrary and inaccurate way to estimate the value of the windfall and causes a relatively larger benefit reduction for lower-paid workers. In recent years, various proposals to change Social Security have been offered that would affect public employees. Some proposals specifically address the GPO and the WEP and would either revise or eliminate them. Other proposals would make Social Security coverage mandatory for all state and local government employees. A variety of proposals have been offered to either revise or eliminate the GPO or the WEP. While we have not studied these proposals in detail, I would like to offer a few observations to keep in mind as you consider them. First, repealing these provisions would be costly in an environment where the Social Security trust funds already face long-term solvency issues. According to current SSA estimates, eliminating the GPO entirely would cost $41.7 billion over 10 years and increase the long-range deficit by about 3 percent. Similarly, SSA estimates that eliminating the WEP would cost $40.1 billion, also increasing Social Security's long-range deficit by 3 percent. Second, in thinking about the fairness of the provisions and whether or not to repeal them, it is important to consider both the affected public employees and all other workers and beneficiaries who pay Social Security taxes. For example, SSA has described the GPO as a way to treat spouses with noncovered pensions in a manner similar to how it treats dually entitled spouses, who qualify for Social Security benefits on both their own and their spouses' work records. In such cases, spouses may not receive both the benefits earned as a worker and the full spousal benefit; rather, they receive the higher amount of the two. If the GPO were eliminated or reduced for spouses who had paid little or no Social Security taxes on their lifetime earnings, it might be reasonable to ask whether the same should be done for dually entitled spouses who have paid Social Security on all their earnings. Otherwise, such couples would be worse off than couples who were no longer subject to the GPO. And far more spouses are subject to the dual entitlement offset than to the GPO; as a result, the costs of eliminating the dual entitlement offset would be commensurately greater. Making coverage mandatory for all state and local government employees has been proposed to help address the program's financing problems. According to Social Security actuaries' 2005 estimate, requiring all newly hired state and local government employees to begin paying into the system would reduce the 75-year actuarial deficit by about 11 percent. Expanding coverage to currently noncovered workers increases revenues relatively quickly and improves solvency for some time, since most of the newly covered workers would not receive benefits for many years. In the long run, benefit payments would increase as the newly covered workers started to collect benefits; however, overall, this change would represent a small net gain for solvency. In addition to considering solvency effects, the inclusion of mandatory coverage in a comprehensive reform package would need to be grounded in other considerations. In recommending that mandatory coverage be included in reform proposals, the 1994-1996 Social Security Advisory Council stated that mandatory coverage is basically "an issue of fairness." Its report noted that "an effective Social Security program helps to reduce public costs for relief and assistance, which, in turn, means lower general taxes. There is an element of unfairness in a situation where practically all contribute to Social Security, while a few benefit both directly and indirectly but are excused from contributing to the program." Another advantage of mandatory Social Security coverage is that it could improve benefits for the affected workers, but it could also increase pension costs for state and local governments. The effects on public employees and employers would depend on how states and localities changed their noncovered pension plans in response to mandatory coverage. For example, by gaining coverage, workers would benefit from Social Security's automatic inflation protection, full benefit portability, and dependent benefits, which are not available in many public pension plans. Also, the GPO and the WEP would no longer apply and so could be phased out over time. With mandatory coverage, the costs for state and local governments would likely increase, adding to the fiscal challenges that already lie ahead for many. If states and localities provided pension benefits that are similar to the benefits provided employees already covered by Social Security, studies indicate that their retirement costs could increase by as much as 11 percent of payroll. Alternatively, states and localities that wanted to maintain level spending for retirement under mandatory coverage would likely need to reduce some pension benefits. Thus, while workers' benefits may be enhanced in some ways by gaining Social Security, their total contribution rate may increase, and the benefits they receive under their previously noncovered pension plans may be reduced. Additionally, states and localities could require several years to design, legislate, and implement changes to current pension plans, and mandating Social Security coverage for state and local employees could elicit constitutional challenges. Also, mandatory coverage would not immediately address the issues and concerns regarding the GPO and the WEP, as these provisions would continue to apply to existing employees and beneficiaries for many years to come before eventually becoming obsolete. Finally, state and local governments would have to administer two different systems-one for existing noncovered employees and another for newly covered employees--until the provisions no longer applied to anyone or were repealed. In conclusion, there are no easy answers to the difficulties of equalizing Social Security's treatment of covered and noncovered workers. Any reductions in the GPO or the WEP would ultimately come at the expense of other Social Security beneficiaries and taxpayers. Mandating universal coverage would promise eventual elimination of the GPO and the WEP, but at potentially significant cost to affected state and local governments, and even so, the GPO and the WEP would continue to apply for many years to come unless they were repealed. As long as the GPO and the WEP remain in effect, it will be important to administer the provisions as effectively and equitably as possible. SSA has found it difficult to administer these provisions because they depend on complete and accurate reporting of government pension income, which is not currently available. The resulting disparity in the application of these two provisions is a continuing source of unfairness for Social Security beneficiaries, both covered and noncovered. GAO has previously recommended that the Congress consider giving IRS the authority to collect the information that SSA needs on government pension income to administer the GPO and WEP provisions accurately and fairly. GAO continues to believe that this important issue warrants further consideration by the Congress. Mr. Chairman, this concludes my statement, I would be happy to respond to any questions you or other members of the subcommittee may have. For further information regarding this testimony, please contact Barbara D. Bovbjerg, Director, Education, Workforce, and Income Security Issues at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Michael Collins and Margie Shields. State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs. GAO-07-1156. Washington, D.C.: September 24, 2007. State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade. GAO-07-1080SP. Washington, D.C.: July 18, 2007. Social Security: Coverage of Public Employees and Implications for Reform. GAO-05-786T. Washington, D.C.: June 9, 2005. Social Security Reform: Answers to Key Questions. GAO-05-193SP. Washington, D.C.: May 2005. Social Security: Issues Relating to Noncoverage of Public Employees. GAO-03-710T. Washington, D.C.: May 1, 2003. Social Security: Congress Should Consider Revising the Government Pension Offset "Loophole." GAO-03-498T. Washington, D.C.: Feb. 27, 2003. Social Security Administration: Revision to the Government Pension Offset Exemption Should Be Considered. GAO-02-950. Washington, D.C.: Aug. 15, 2002. Social Security Reform: Experience of the Alternate Plans in Texas. GAO/HEHS-99-31, Washington, D.C.: Feb. 26, 1999. Social Security: Implications of Extending Mandatory Coverage to State and Local Employees. GAO/HEHS-98-196. Washington, D.C.: Aug. 18, 1998. Social Security: Better Payment Controls for Benefit Reduction Provisions Could Save Millions. GAO/HEHS-98-76. Washington, D.C.: April 30, 1998. Federal Workforce: Effects of Public Pension Offset on Social Security Benefits of Federal Retirees. GAO/GGD-88-73. Washington, D.C.: April 27, 1988. 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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Social Security covers about 96 percent of all U.S. workers; the vast majority of the remaining 4 percent are public employees. Although these noncovered workers do not pay Social Security taxes on their government earnings, they may still be eligible for Social Security benefits through their spouses' or their own earnings from other covered employment. Social Security has provisions--the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP)--that attempt to take noncovered employment into account when calculating the Social Security benefits for public employees. However, these provisions have been difficult to administer and critics contend that the provisions themselves are often unfair. The Committee asked GAO to discuss the issues regarding the coverage of public employees under Social Security, the provisions to take noncovered employment into account, and the proposals to modify those provisions. There are no easy answers to the difficulties of equalizing Social Security's treatment of covered workers and noncovered public employees. About one-fourth of public employees--primarily state and local government workers--are not covered by Social Security and do not pay Social Security taxes on their government earnings. Nevertheless, these workers may still be eligible for Social Security benefits through their spouses' or their own earnings from other covered employment. To address concerns with how noncovered workers are treated compared with covered workers, Social Security has provisions in place to take noncovered employment into account and reduce Social Security benefits for public employees. To be administered fairly and accurately, both these provisions require complete and accurate reporting of government pension income, which is not currently available. The resulting disparity in the application of the provisions is a continuing source of confusion and frustration for affected workers. Thus, various changes that would affect the GPO and WEP provisions have been proposed, such as: eliminate the GPO and WEP provisions. This would simplify administration and avoid concerns about unfair treatment among public employees. However, any reductions in the GPO or the WEP would widen Social Security's financial gap and would raise concerns about unfair treatment of public employees compared with other workers. Extend mandatory coverage. If all newly hired state and local government employees who are not currently covered were to become covered, the need for the GPO and WEP could be phased out over time. In 2005, Social Security actuaries estimated that mandating coverage for these employees would reduce the 75-year actuarial deficit by about 11 percent. While mandatory coverage could enhance retirement benefits for the affected workers, it could also result in significant costs to the affected state and local governments. As long as the GPO and the WEP remain in effect, it will be important to administer the provisions effectively and equitably based on accurate and complete information on both covered and noncovered employment.
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As I observed when I first testified on the DOD proposal in April, many of the basic principles underlying DOD's civilian human capital proposals have merit and deserve the serious consideration they are receiving. Secretary Rumsfeld and the rest of DOD's leadership are clearly committed to transforming how DOD does business. Based on our experience, while DOD's leadership has the intent and the ability to transform DOD, the needed institutional infrastructure is not in place within a vast majority of DOD organizations. Our work looking at DOD's strategic human capital planning efforts and looking across the federal government at the use of human capital flexibilities and related human capital efforts underscores the critical steps that DOD needs to take to properly develop and effectively implement any new personnel authorities. In the absence of the right institutional infrastructure, granting additional human capital authorities will provide little advantage and could actually end up doing damage if the authorities are not implemented properly. The following provides some observations on key provisions of the proposed National Security Personnel System Act in relation to the House version of the National Defense Authorization Act for Fiscal Year 2004. First, I offer some comments on the overall design for a new personnel system at DOD. Second, I provide comments on selected aspects of the proposed system. The House version of DOD's authorization bill would allow the Secretary of Defense to develop regulations with the Director of OPM to establish a human resources management system for DOD. The Secretary of Defense could waive the requirement for the joint issuance of regulations if, in the Secretary's judgment and subject to the decision of the President, it is "essential to the national security"--which was not defined in the proposed bill. As an improvement, the proposed National Security Personnel System Act also requires that the new personnel system be jointly developed by the Secretary of Defense and the Director of OPM, but does not allow the joint issuance requirement to be waived. This approach is consistent with the one the Congress took in creating the Department of Homeland Security. The proposed National Security Personnel System Act requires the Secretary of Defense to phase in the implementation of NSPS beginning in fiscal year 2004. Specifically, the new personnel authorities could be implemented for a maximum of 120,000 of DOD's civilian employees in fiscal year 2004, up to 240,000 employees in fiscal year 2005, and more than 240,000 employees in a fiscal year after fiscal year 2005, if the Secretary of Defense determines that, in accordance with the bill's requirement that the Secretary and the Director of OPM jointly develop regulations for DOD's new human resources management system, the Department has in place a performance management system and pay formula that meets criteria specified in the bill. We strongly support a phased approach to implementing major management reforms, whether with the human capital reforms at DOD or with change management initiatives at other agencies or across the government. We suggest that OPM, in fulfilling its role under this section of the bill, certify that DOD has a modern, effective, credible, and, as appropriate, validated performance management system with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms, in place to support performance-based pay and related personnel decisions. The proposed National Security Personnel System Act states that the Secretary of Defense may establish an employee appeals process that is fair and ensures due process protections for employees. The Secretary of Defense is required to consult with the Merit Systems Protection Board (MSPB) before issuing any regulations in this area. The DOD appeals process must be based on legal standards consistent with merit system principles and may override legal standards and precedents previously applied by MSPB and the courts in cases related to employee conduct and performance that fails to meet expectations. The bill would allow appeal of any decision adversely affecting an employee and raising a substantial question of law or fact under this process to the Merit Systems Protection Board under specific standards of review, and the Board's decision could be subject to judicial review, as is the case with other MSPB decisions. This proposal affords the employee review by an independent body and the opportunity for judicial review along the lines that we have been suggesting. The proposed National Security Personnel System Act does not include an evaluation or reporting requirement from DOD on the implementation of its human capital reforms, although DOD has stated that it will continue its evaluation of the science and technology reinvention laboratory demonstration projects when they are integrated under a single human capital framework. We believe an evaluation and reporting requirement would facilitate congressional oversight of NSPS, allow for any midcourse corrections in its implementation, and serve as a tool for documenting best practices and sharing lessons learned with employees, stakeholders, other federal agencies, and the public. Specifically, the Congress should consider requiring that DOD fully track and periodically report on the implementation and results of its new human capital program. Such reporting could be on a specified timetable with sunset provisions. These required evaluations could be broadly modeled on the evaluation requirements of OPM's personnel demonstration program. Under the demonstration project authority, agencies must evaluate and periodically report on results, implementation of the demonstration project, cost and benefits, impacts on veterans and other Equal Employment Opportunity groups, adherence to merit principles, and the extent to which the lessons from the project can be applied elsewhere, including governmentwide. The reports could be done in consultation with or subject to review of OPM. There is widespread understanding that the basic approach to federal pay is outdated and that we need to move to a more market- and performance- based approach. Doing so will be essential if we expect to maximize the performance and assure the accountability of the federal government for the benefit of the American people. DOD has said that broad banded performance management and pay for performance systems will be the cornerstone of its new system. Reasonable people can and will debate and disagree about the merits of individual reform proposals. However, all should be able to agree that a modern, reliable, effective, and validated performance management system with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms, must serve as the fundamental underpinning of any successful results-oriented pay reform. We are pleased that both the House version of DOD's fiscal year 2004 authorization bill and the proposed National Security Personnel System Act contain statutory safeguards and standards along the lines that we have been suggesting to help ensure that DOD's pay for performance efforts are fair to employees and improve both individual and organizational performance. The statutory standards described in the National Security Personnel System Act proposal are intended to help ensure a fair, credible, and equitable system that results in meaningful distinctions in individual employee performance; employee involvement in the design and implementation of the system; and effective transparency and accountability measures, including appropriate independent reasonableness reviews, internal grievance procedures, internal assessments, and employee surveys. In our reviews of agencies' performance management systems--as in our own experience with designing and implementing performance-based pay reform for ourselves at GAO--we have found that these safeguards are key to maximizing the chances of success and minimizing the risk of failure and abuse. The proposed National Security Personnel System Act also takes the essential first step in requiring DOD to link the performance management system to the agency's strategic plan. Building on this, we suggest that DOD should also be required to link its performance management system to program and performance goals and desired outcomes. Linking the performance management system to related goals and desired outcomes helps the organization ensure that its efforts are properly aligned and reinforces the line of sight between individual performance and organizational success so that an individual can see how her/his daily responsibilities contribute to results and outcomes. The proposed National Security Personnel System Act includes a detailed list of elements that regulations for DOD's broad band pay program must cover. These elements appear to be taken from DOD's experience with its civilian acquisition workforce personnel demonstration project as well as the plan, as described in an April 2, 2003 Federal Register notice to integrate all of DOD's current science and technology reinvention laboratory demonstration projects under a single human capital framework. Many of the required elements in the proposed National Security Personnel System Act are entirely appropriate, such as a communication and feedback requirement, a review process, and a process for addressing performance that fails to meet expectations. However, other required elements, such as "performance scores", appear to imply a particular approach to performance management that, going forward, may or may not be appropriate for DOD, and therefore may have the unintended consequence of reducing DOD's flexibility to make adjustments. Congress has an important and continuing role to play in the design and implementation of the federal government's personnel policies and procedures. Congress should consider how best to balance its responsibilities with agencies' needs for the flexibility to respond to changing circumstances. Finally, under the proposed act, for fiscal years 2004 through 2008, the overall amount allocated for compensation for civilian employees of an organizational or functional unit of DOD that is included in NSPS shall not be less than the amount of civilian pay that would have been allocated to such compensation under the General Schedule. After fiscal year 2008, DOD's regulations are to provide a formula for calculating an overall amount, which is to ensure that employees in NSPS are not disadvantaged in terms of the overall amount of pay available as a result of their conversion into NSPS while providing DOD with flexibility to accommodate changes in the function of the organization, the mix of employees performing those functions, and other changes that might affect pay levels. Congress has had a longstanding and legitimate interest in federal employee pay and compensation policies and, as a result, there are provisions consistent with that interest in the National Security Personnel System Act. However, as currently constructed, the proposed bill may have the unintended consequence of creating disincentives, until fiscal year 2009, for DOD to ensure that it has the most effective and efficient organizational structure in place. This is because, based on our understanding of the bill's language, if DOD were to reorganize, outsource, or undertake other major change initiatives through 2008 in an organizational or functional unit that is part of NSPS, DOD may still be required to allocate an overall amount for compensation to the reorganized unit based on the number and mix of employees in place prior to conversion into NSPS. In other words, if priorities shift and DOD needs to downsize a unit in NSPS significantly, it may still be required that the downsized unit's overall compensation level remain the same as it would have been in the absence of the downsizing. While pay protections during a transition period are generally appropriate to build employee support for the changes, we believe that, should the Congress decide to require overall organizational compensation protection, it should build in additional flexibilities for DOD to make adjustments in response to changes in the size of organizations, mix of employees, and other relevant factors. The current allowable total annual compensation limit for senior executives would be increased up to the Vice President's total annual compensation (base pay, locality pay, and awards and bonuses) in the proposed National Security Personnel System Act and the House National Defense Authorization Act for Fiscal Year 2004. In addition, the highest rate of (base) pay for senior executives would be increased in the House version of the authorization bill. The Homeland Security Act provided that OPM, with the concurrence of the Office of Management and Budget, certify that agencies have performance appraisal systems that, as designed and applied, make meaningful distinctions based on relative performance before an agency could increase its total annual compensation limit for senior executives. While the House version of DOD's fiscal year 2004 authorization bill would still require an OPM certification process to increase the highest rate of pay for senior executives, neither the proposed National Security Personnel System Act nor the House bill would require such a certification for increasing the total annual compensation limit for senior executives. To be generally consistent with the Homeland Security Act, we believe that the Congress should require that OPM certify that the DOD senior executive service (SES) performance management system makes meaningful distinctions in performance and employs the other practices used by leading organizations to develop effective performance management systems, including establishing a clear, direct connection between (1) SES performance ratings and rewards and (2) the degree to which the organization achieved its goals. DOD would be required to receive the OPM certification before it could increase the total annual compensation limit and/or the highest rate of pay for its senior executives. The National Security Personnel System Act contains a number of provisions designed to give DOD flexibility to help obtain key critical talent. It allows DOD greater flexibility to (1) hire experts and pay them special rates for temporary periods up to six years, and (2) define benefits for certain specialized overseas employees. Specifically, the Secretary would have the authority to establish a program to attract highly qualified experts in needed occupations with the flexibility to establish the rate of pay, eligibility for additional payments, and terms of the appointment. These authorities give DOD considerable flexibility to obtain and compensate individuals and exempt them from several provisions of current law. Consistent with our earlier suggestions, the bill would limit the number of experts employed at any one time to 300. The Congress should also consider requiring that these provisions only be used to fill critically needed skills identified in a DOD strategic human capital plan, and that DOD report on the use of the authorities under these sections periodically. As I mentioned at the outset of my statement today, the consideration of human capital reforms for DOD naturally suggests opportunities for governmentwide reform as well. The following provides some suggestions in that regard. We believe that the Congress should consider providing governmentwide authority to implement broad banding, other pay for performance systems, and other personnel authorities whereby whole agencies are allowed to use additional authorities after OPM has certified that they have the institutional infrastructures in place to make effective and fair use of those authorities. To obtain additional authority, an agency should be required to have an OPM-approved human capital plan that is fully integrated with the agency's strategic plan. These plans need to describe the agency's critical human capital needs and how the new provisions will be used to address the critical needs. The plan should also identify the safeguards or other measures that will be applied to ensure that the authorities are carried out fairly and in a manner consistent with merit system principles and other national goals. Furthermore, the Congress should establish statutory principles for the standards that an agency must have in place before OPM can grant additional pay flexibilities. The standards for DOD's performance management system contained in the National Security Personnel System Act are the appropriate place to start. An agency would have to demonstrate, and OPM would have to certify, that a modern, effective, credible, and, as appropriate, validated performance management system with adequate safeguards, including reasonable transparency and appropriate accountability mechanisms, is in place to support more performance-based pay and related personnel decisions before the agency could put the new system in operation. OPM should be required to act on any individual certifications within prescribed time frames (e.g., 30-60 days). Consistent with our suggestion to have DOD evaluate and report on its efforts, agencies should also be required to evaluate the use of any new pay or other human capital authorities periodically. Such evaluations, in consultation with or subject to review of OPM, could be broadly modeled on the evaluation requirements of OPM's personnel demonstration program. Additional efforts should be undertaken to move the SES to an approach where pay and rewards are more closely tied to performance. This is consistent with the proposed Senior Executive Service Reform Act of 2003. Any effort to link pay to performance presupposes that effective, results-oriented strategic and annual performance planning and reporting systems are in place in an agency. That is, agencies must have a clear understanding of the program results to be achieved and the progress that is being made toward those intended results if they are to link pay to performance. The SES needs to take the lead in matters related to pay for performance. We believe it would be highly desirable for the Congress to establish a governmentwide fund where agencies, based on a sound business case, could apply to OPM for funds to be used to modernize their performance management systems and ensure that those systems have adequate safeguards to prevent abuse. Too often, agencies lack the performance management systems needed to effectively and fairly make pay and other personnel decisions. The basic idea of a governmentwide fund would be to provide for targeted investments needed to prepare agencies to use their performance management systems as strategic tools to achieve organizational results and drive cultural change. Building such systems and safeguards will likely require making targeted investments in agencies' human capital programs, as our own experience has shown. (If successful, this approach to targeted investments could be expanded to foster and support agencies' related transformation efforts, including other aspects of the High Performing Organization concept recommended by the Commercial Activities Panel.) Finally, we also believe that the Congress should enact additional targeted and governmentwide human capital reforms for which there is a reasonable degree of consensus. Many of the provisions in the proposed Federal Workforce Flexibility Act of 2003 and the governmentwide human capital provisions of the House version of DOD's fiscal year 2004 authorization bill fall into this category. Since we designated strategic human capital management as a governmentwide high-risk area in January 2001, the Congress, the administration, and agencies have taken steps to address the federal government's human capital shortfalls. In a number of statements before the Congress over the last 2 years, I have urged the government to seize on the current momentum for change and enact lasting improvements. Significant progress has been--and is being--made in addressing the federal government's pressing human capital challenges. But experience has shown that in making major changes in the cultures of organizations, how it is done, when it is done, and the basis on which it is done can make all the difference in whether we are ultimately successful. DOD and other agency-specific human capital reforms should be enacted to the extent that the problems being addressed and the solutions offered are specific to particular agencies. A governmentwide approach should be used to address certain flexibilities that have broad-based application and serious potential implications for the civil service system, in general, and OPM, in particular. This approach will help to accelerate needed human capital reform in DOD and throughout the rest of the federal government. Chairman Collins and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have. For further information about this statement, please contact Derek B. Stewart, Director, Defense Capabilities and Management, on (202) 512- 5140 or at [email protected]. For further information on governmentwide human capital issues, please contact J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or at [email protected]. Major contributors to this testimony included William Doherty, Bruce Goddard, Hilary Murrish, Lisa Shames, Edward H. Stephenson, Martha Tracy, and Michael Volpe. 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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People are at the heart of an organization's ability to perform its mission. Yet a key challenge for the Department of Defense (DOD), as for many federal agencies, is to strategically manage its human capital. DOD's proposed National Security Personnel System would provide for wide-ranging changes in DOD's civilian personnel pay and performance management and other human capital areas. Given the massive size of DOD, the proposal has important precedent-setting implications for federal human capital management. This testimony provides GAO's observations on DOD human capital reform proposals and the need for governmentwide reform. GAO strongly supports the need for government transformation and the concept of modernizing federal human capital policies both within DOD and for the federal government at large. The federal personnel system is clearly broken in critical respects--designed for a time and workforce of an earlier era and not able to meet the needs and challenges of today's rapidly changing and knowledge-based environment. The human capital authorities being considered for DOD have far-reaching implications for the way DOD is managed as well as significant precedent-setting implications for the rest of the federal government. GAO is pleased that as the Congress has reviewed DOD's legislative proposal it has added a number of important safeguards, including many along the lines GAO has been suggesting, that will help DOD maximize its chances of success in addressing its human capital challenges and minimize the risk of failure. More generally, GAO believes that agency-specific human capital reforms should be enacted to the extent that the problems being addressed and the solutions offered are specific to a particular agency (e.g., military personnel reforms for DOD). Several of the proposed DOD reforms meet this test. In GAO's view, the relevant sections of the House's version of the National Defense Authorization Act for Fiscal Year 2004 and the proposal that is being considered as part of this hearing contain a number of important improvements over the initial DOD legislative proposal. Moving forward, GAO believes it would be preferable to employ a governmentwide approach to address human capital issues and the need for certain flexibilities that have broad-based application and serious potential implications for the civil service system, in general, and the Office of Personnel Management, in particular. GAO believes that several of the reforms that DOD is proposing fall into this category (e.g., broad banding, pay for performance, re-employment and pension offset waivers). In these situations, GAO believes it would be both prudent and preferable for the Congress to provide such authorities governmentwide and ensure that appropriate performance management systems and safeguards are in place before the new authorities are implemented by the respective agency. Importantly, employing this approach is not intended to delay action on DOD's or any other individual agency's efforts, but rather to accelerate needed human capital reform throughout the federal government in a manner that ensures reasonable consistency on key principles within the overall civilian workforce. This approach also would help to maintain a level playing field among federal agencies in competing for talent and would help avoid further fragmentation within the civil service.
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The federal government's information resources and technology management structure has its foundation in six laws: the Federal Records Act, the Privacy Act of 1974, the Computer Security Act of 1987, the Paperwork Reduction Act of 1995,the Clinger-Cohen Act of 1996, and the Government Paperwork Elimination Act of 1998. Taken together, these laws largely lay out the information resources and technology management responsibilities of the Office of Management and Budget (OMB), federal agencies, and other entities, such as the National Institute of Standards and Technology. In general, under the government's current legislative framework, OMB is responsible for providing direction on governmentwide information resources and technology management and overseeing agency activities in these areas, including analyzing major agency information technology investments. Among OMB's responsibilities are ensuring agency integration of information resources management plans, program plans, and budgets for acquisition and use of information technology and the efficiency and effectiveness of interagency information technology initiatives; developing, as part of the budget process, a mechanism for analyzing, tracking, and evaluating the risks and results of all major capital investments made by an executive agency for information systems; directing and overseeing implementation of policy, principles, standards, and guidelines for the dissemination of and access to public information; encouraging agency heads to develop and use best practices in reviewing proposed agency information collections to minimize information collection burdens and maximize information utility and benefit; and developing and overseeing implementation of privacy and security policies, principles, standards, and guidelines. Agencies, in turn, are accountable for the effective and efficient development, acquisition, and use of information technology in their organizations. For example, the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996 require agency heads, acting through agency CIOs, to better link their information technology planning and investment decisions to program missions and goals; develop and implement a sound information technology architecture; implement and enforce information technology management policies, procedures, standards, and guidelines; establish policies and procedures for ensuring that information technology systems provide reliable, consistent, and timely financial or program performance data; and implement and enforce applicable policies, procedures, standards, and guidelines on privacy, security, disclosure, and information sharing. Another important organization in federal information resources and technology management--the CIO Council--was established by the President in July 1996. Specifically, Executive Order 13011 established the CIO Council as the principal interagency forum for improving agency practices on such matters as the design, modernization, use, sharing, and performance of agency information resources. The Council, chaired by OMB's Deputy Director for Management with a Vice Chair selected from among its members, is tasked with (1) developing recommendations for overall federal information technology management policy, procedures, and standards, (2) sharing experiences, ideas, and promising practices, (3) identifying opportunities, making recommendations for, and sponsoring cooperation in using information resources, (4) assessing and addressing workforce issues, (5) making recommendations and providing advice to appropriate executive agencies and organizations, and (6) seeking the views of various organizations. Because it is essentially an advisory body, the CIO Council must rely on OMB's support to see that its recommendations are implemented through federal information management policies, procedures, and standards. With respect to Council resources, according to its charter, OMB and the General Services Administration are to provide support and assistance, which can be augmented by other Council members as necessary. CIOs or equivalent positions exist at the state level and in other countries, although no single preferred model has emerged. The specific roles, responsibilities, and authorities assigned to the CIO or CIO-type position vary, reflecting the needs and priorities of the particular government. This is consistent with research presented in our ExecutiveGuide:Maximizing theSuccessofChiefInformationOfficers--LearningfromLeading Organizations,which points out that there is no one right way to establish a CIO position and that leading organizations are careful to ensure that information management leadership positions are appropriately defined and implemented to meet their unique business needs. Regardless of the differences in approach, the success of a CIO will typically rest on the application of certain fundamental principles. While our executive guide was specifically intended to help individual federal agencies maximize the success of their CIOs, several of the principles outlined in the guide also apply to the establishment of a governmentwide CIO. In particular, our research of leading organizations demonstrated that it is important for the organization to employ enterprisewide leaders who embrace the critical role of information technology and reach agreement on the CIO's leadership role. Moreover, the CIO must possess sufficient stature within the organization to influence the planning process. We have not evaluated the effectiveness of state and foreign government CIOs or equivalent positions; however, these positions appear to apply some of these same principles. With respect to the states, according to the National Association of State Information Resource Executives, the vast majority have senior executives with statewide authority for IT. State CIOs are usually in charge of developing statewide IT plans and approving statewide technical IT standards, budgets, personnel classifications, salaries, and resource acquisitions although the CIO's authority depends on the specific needs and priorities of the governors. Many state CIOs report directly to the state's governor with the trend moving in that direction. In some cases, the CIO is guided by an IT advisory board. As the president of the National Association of State Information Resource Executives noted in prior testimony before this Subcommittee, "IT is how business is delivered in government; therefore, the CIO must be a party to the highest level of business decisions . . . needs to inspire the leaders to dedicate political capital to the IT agenda." National governments in other countries have also established a central information technology coordinating authority and, like the states, have used different implementation approaches in doing so. Preliminary results of a recent survey conducted by the International Council for Information Technology in Government Administration indicate that 8 of 11 countries surveyed have a governmentwide CIO, although the structure, roles, and responsibilities varied. Let me briefly describe the approaches employed by three foreign governments to illustrate this variety. Australia's Department of Communications, Information Technology and the Arts has responsibility for, among other things, (1) providing strategic advice and support to the government for moving Australia ahead in the information economy and (2) developing policies and procedures and helping to coordinate crosscutting efforts toward e-government. The United Kingdom's Office of the E-Envoy acts in a capacity analogous to a "national government" CIO in that it works to coordinate activities across government and with public, private, and international groups to (1) develop a legal, regulatory and fiscal environment that facilitates e- commerce, (2) help individuals and businesses take full advantage of the opportunities provided by information and communications technologies, (3) ensure that the government of the United Kingdom applies global best practices in its use of information and communications technologies, and (4) ensure that government and business decisions are informed by reliable and accurate e-commerce monitoring and analysis. Canada's Office of the CIO is contained within the Treasury Board Secretariat, a crosscutting organization whose mission is to manage the government's human, financial, information, and technology resources. The CIO is responsible for determining and implementing a strategy that will accomplish governmentwide IT goals. Moreover, the CIO is to (1) provide leadership, coordination and broad direction in the use of IT; (2) facilitate enterprisewide solutions to crosscutting IT issues; and (3) serve as technology strategist and expert adviser to Treasury Board Ministers and senior officials across government. The CIO also develops a Strategic Directions document that focuses on the management of critical IT, information management, and service delivery issues facing the government. This document is updated regularly and is used by departments and agencies as a guide. While these countries' approaches differ in terms of specific CIO or CIO- type roles and responsibilities, in all cases the organization has responsibility for coordinating governmentwide implementation of e- government and providing leadership in the development of the government's IT strategy and standards. As you know, the Congress is currently considering legislation to establish a federal CIO. Specifically, two proposals before this Subcommittee--H.R. 4670, the Chief Information Officer of the United States Act of 2000, and H.R. 5024, the Federal Information Policy Act of 2000--share a common call for central IT leadership from a federal CIO, although they differ in how the roles, responsibilities, and authorities of the position would be established. Several similarities exist in the two bills: Both elevate the visibility and focus of information resources and technology management by establishing a federal CIO who (1) is appointed by the President with the advice and consent of the Senate, (2) reports directly to the President, (3) is a Cabinet-level official, and (4) provides central leadership. The importance of such high level visibility should not be underestimated. Our studies of leading public and private- sector organizations have found that successful CIOs commonly are full members of executive management teams. Both leave intact OMB's role and responsibility to review and ultimately approve agencies' information technology funding requests for inclusion in the President's budget submitted to the Congress each year. However, both require the federal CIO to review and recommend to the President and the Director of OMB changes to the IT budget proposals submitted by agencies. As we have previously testified before your Subcommittee, an integrated approach to budgeting and feedback is absolutely critical for progress in government performance and management.Certainly, close coordination between the federal CIO and OMB would be necessary to coordinate the CIO's technical oversight and OMB's budget responsibilities. Finally, both bills establish the existing federal CIO Council in statute. Just as with the Chief Financial Officers' Council, there are important benefits associated with having a strong statutory base for the CIO Council. Legislative foundations transcend presidential administrations, fluctuating policy agendas, and the frequent turnover of senior appointees in the executive branch. Having congressional consensus and support for the Council helps ensure continuity of purpose over time and allows constructive dialogue between the two branches of government on rapidly changing management and information technology issues before the Council. Moreover, as prime users of performance and financial information, having the Council statutorily based can help provide the Congress with an effective oversight tool in gauging the progress and impact of the Council on advancing effective involvement of agency CIOs in governmentwide IT initiatives. The two bills also set forth duties that are consistent with, and expand upon, the duties of the current CIO Council. For example, the Council would be responsible for coordinating the acquisition and provision of common infrastructure services to facilitate communication and data exchange among agencies and with state, local, and tribal governments. While the bills have similarities, as a result of contrasting approaches, the two bills have major differences. In particular, H.R. 5024 vests in the federal CIO the information resources and technology management responsibilities currently assigned to OMB as well as oversight of related activities of the General Services Administration and promulgation of information system standards developed by the National Institute of Standards and Technology. On the other hand, H.R 4670 generally does not change the responsibilities of these agencies; instead it calls on the federal CIO to advise agencies and the Director of OMB and to consult with nonfederal entities, such as state governments and the private sector. Appendix I provides more detail on how information resources and technology management functions granted to the federal CIO compare among the two bills, and with OMB's current responsibilities. Let me turn now to a few implementation issues associated with both of these bills. One such issue common to both is that effective implementation will require that appropriate presidential attention and support be given to the new federal CIO position and that adequate resources, including staffing and funding, be provided. As discussed below, each bill likewise has unique strengths and challenges. H.R. 4670: This bill creates an Office of Information Technology within the Executive Office of the President, headed by a federal CIO, with a limit of 12 staff. Among the duties assigned to the CIO are (1) providing leadership in innovative use of information technology, (2) identifying opportunities and coordinate major multi-agency information technology initiatives, and (3) consulting with leaders in information technology management in state governments, the private sector, and foreign governments. OMB's statutory responsibilities related to information resources and technology management would remain largely unchanged under this bill. One strength of this bill is that it would allow a federal CIO to focus full- time attention on promoting key information technology policy and crosscutting issues within government and in partnership with other organizations without direct responsibility for implementation and oversight, which would remain the responsibility of OMB and the agencies. Moreover, the federal CIO could promote collaboration among agencies on crosscutting issues, adding Cabinet-level support to efforts now initiated and sponsored by the CIO Council. Further, the federal CIO could establish and/or buttress partnerships with state, local, and tribal governments, the private sector, or foreign entities. Such partnerships were key to the government's Year 2000 (Y2K) success and could be essential to addressing other information technology issues, such as critical infrastructure protection, since private-sector systems control most of our nation's critical infrastructures (e.g., energy, telecommunications, financial services, transportation, and vital human services). A major challenge associated with H.R. 4670's approach, on the other hand, is that federal information technology leadership would be shared. While the CIO would be the President's principal adviser on these issues, OMB would retain critical statutory responsibilities in this area. For example, both the federal CIO and OMB would have a role in overseeing the government's IT and interagency initiatives. Certainly, it would be crucial for the OMB Director and the federal CIO to mutually support each other and work effectively together to ensure that their respective roles and responsibilities are clearly communicated. Without a mutually constructive working relationship with OMB, the federal CIO's ability to achieve the potential improvements in IT management and cross-agency collaboration would be impaired. H.R. 5024: This bill establishes an Office of Information Policy within the Executive Office of the President and headed by a federal CIO. The bill would substantially change the government's existing statutory information resources and technology management framework because it shifts much of OMB's responsibilities in these areas to the federal CIO. For example, it calls for the federal CIO to develop and oversee the implementation of policies, principles, standards, and guidance with respect to (1) information technology, (2) privacy and security, and (3) information dissemination. A strength of this approach would be the single, central focus for information resources and technology management in the federal government. A primary concern we have with OMB's current structure as it relates to information resources and technology management is that, in addition to their responsibilities in these areas, both the Deputy Director for Management and the Administrator of the Office of Information and Regulatory Affairs (OIRA) have other significant duties, which necessarily restrict the amount of attention that they can give to information resources and technology management issues.For example, much of OIRA is staffed to act on 3,000 to 5,000 information collection requests from agencies per year, review about 500 proposed and final rules each year, and to calculate the costs and benefits of all federal regulations. A federal CIO, like agency CIOs, should be primarily concerned with information resources and technology management. This bill would clearly address this concern. Another important strength of H.R. 5024 is that the federal CIO would be the sole central focus for information resources and technology management and could be used to resolve potential conflicts stemming from conflicting perspectives or goals within the executive branch agencies. In contrast, a major challenge associated with implementing H.R. 5024 is that by removing much of the responsibility for information resources and technology management from OMB, the federal CIO could lose the leverage associated with OMB's budget-review role. A strong linkage with the budget formulation process is often a key factor in gaining serious attention for management initiatives throughout government, and reinforces the priorities of federal agencies' management goals. Regardless of approach, we agree that strong and effective central information resources and technology management leadership is needed in the federal government. A central focal point such as a federal CIO can play the essential role of ensuring that attention in these areas is sustained. Increasingly, the challenges the government faces are multidimensional problems that cut across numerous programs, agencies, and governmental tools. Although the respective departments and agencies should have the primary responsibility and accountability to address their own issues--and both bills maintain these agency roles-- central leadership has the responsibility to keep everybody focused on the big picture by identifying the agenda of governmentwide issues needing attention and ensuring that related efforts are complementary rather than duplicative. Another task facing central leadership is serving as a catalyst and strategist to prompt agencies and other critical players to come to the table and take ownership for addressing the agenda of governmentwide information resources and technology management issues. In the legislative deliberations on the Clinger-Cohen Act, we supported strengthened central management through the creation of a formal CIO position for the federal government.A CIO for the federal government could provide a strong, central point of coordination for the full range of governmentwide information resources management and technology issues, including (1) reengineering and/or consolidating interagency or governmentwide process and technology infrastructure; (2) managing shared assets; and (3) evaluating attention, progress evaluations, and assistance provided to high-risk, complex information systems modernization efforts. In particular, a federal CIO could provide sponsorship, direction, and sustained focus on the major challenges the government is facing in areas such as critical infrastructure protection and security, e-government, and large-scale IT investments. For example, to be successful, e-government initiatives designed to improve citizen access to government must overcome some of the basic challenges that have plagued information systems for decades - lack of executive level sponsorship, involvement, and controls; inadequate attention to business and technical architectures; adherence to standards; and security. In the case of e-government, a CIO could (1) help set priorities for the federal government; (2) ensure that agencies consider interagency web site possibilities, including how best to implement portals or central web access points that provide citizens access to similar government services; and (3) help establish funding priorities, especially for crosscutting e-government initiatives. The government's success in combating the Year 2000 problem demonstrated the benefit of strong central leadership. As our Year 2000 lessons learned report being released today makes clear, the leadership of the Chair of the President's Council on Year 2000 Conversion was invaluable in combating the Year 2000 problem.Under the Chair's leadership, the government's actions went beyond the boundaries of individual programs or agencies and involved governmentwide oversight, interagency cooperation, and cooperation with partners, such as state and local governments, the private sector, and foreign governments. It is important to maintain this same momentum of executive-level attention to information management and technology decisions within the federal government. The information issues confronting the government in the new Internet-based technology environment rapidly evolve and carry significant impact for future directions. A federal CIO could maintain and build upon Y2K actions in leading the government's future IT endeavors. Accordingly, our Y2K lessons learned report calls for the Congress to consider establishing a formal chief information officer position for the federal government to provide central leadership and support. Consensus has not been reached within the federal community on the need for a federal CIO. Department and agency responses to questions developed by the Chairman and Ranking Minority Member of the Senate Committee on Governmental Affairs regarding opinions about the need for a federal CIO found mixed reactions. In addition, at our March 2000 Y2K Lessons Learned Summit, which included a broad range of public and private-sector IT managers and policymakers, some participants did not agree or were uncertain about whether a federal CIO was needed. Further, in response to a question before this Subcommittee on the need for a federal IT leader accountable to the President, the Director of OMB stated that OMB's Deputy Director for Management, working with the head of the Office of Information and Regulatory Affairs, can be expected to take a federal information technology leadership role. The Director further stated that he believed that "the right answer is to figure out how to continue to use the authority and the leadership responsibilities at the Office of Management and Budget to play a lead role in this area." In conclusion, Mr. Chairman, the two bills offered by members of this Subcommittee both deal with the need for central leadership, while addressing the sharing of responsibilities with OMB in different ways. Both bills offer different approaches to problems that have been identified and should be dealt with in order to increase the government's ability to use the information resources at its disposal effectively, securely, and with the best service to the American people. Regardless of approach, a central focal point such as a federal CIO can play the essential role of ensuring that attention to information technology issues is sustained. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other members of the Subcommittee may have at this time. For information about this testimony, please contact me at (202) 512-6240 or by e-mail at [email protected]. Individuals making key contributions to this testimony include John Christian, Lester Diamond, Tamra Goldstein, Linda Lambert, Thomas Noone, David Plocher, and Tomas Ramirez. OMB's Current FunctionsDevelop, as part of the budget process, a mechanism for analyzing, tracking, and evaluating the risks and results of all major capital investments made by an executive agency for information systems. Review and recommend to the President and the Director of OMB changes to budget and legislative proposals of agencies. Review and recommend to the President and the Director of OMB changes to budget and legislative proposals of agencies. Implement periodic budgetary reviews of agency information resources management activities to ascertain efficiency and effectiveness of IT in improving agency mission performance. Advise and assist the Director of OMB in developing, as part of the budget process, a mechanism for analyzing, tracking, and evaluating the risks and results of all major capital investments made by an executive agency for information systems. Take actions through the budgetary and appropriations management process to enforce agency accountability for information resources management and IT investments, including the reduction of funds. Implement periodic budgetary reviews of agency information resources management activities to ascertain efficiency and effectiveness of IT in improving agency mission performance. Serves as the Chairperson of the CIO Council, established by the bill in statute. Request that the Director of OMB take action, including involving the budgetary or appropriations management process, to enforce agency accountability for information resources management and IT investments, including the reduction of funds. Serves as the Chairperson of the CIO Council, established by the bill in statute. The Deputy Director for Management serves as the Chairperson of the CIO Council, which was created by Executive Order. In consultation with the Administrator of the National Telecommunications and Information Administration, develop and implement procedures for the use and acceptance of electronic signatures by agencies by April 21, 2000. Advise the Director of OMB on electronic records. In consultation with the Director of OMB and the Administrator of the National Telecommunications and Information Administration, develop and implement procedures for the use and acceptance of electronic signatures by agencies by October 1, 2000. OMB's Current Functionspracticable. Develop and implement procedures to permit private employers to store and file electronically with agencies forms containing information pertaining to the employees of such employers. In consultation with the Director of OMB, develop and implement procedures to permit private employers to store and file electronically with agencies forms containing information pertaining to the employees of such employers. In consultation with the Administrator of the National Telecommunications and Information Administration study and periodically report on the use of electronic signatures. In consultation with the Director of OMB and the Administrator of the National Telecommunications and Information Administration study and periodically report on the use of electronic signatures. Provide direction and oversee activities of agencies with respect to the dissemination of and public access to information. Advise the Director of OMB on information dissemination. Assisted by the CIO Council and others, monitor the implementation of the requirements of the Government Paperwork Elimination Act, the Electronic Signatures in Global and National Commerce Act and related laws. Provide direction and oversee activities of agencies with respect to the dissemination of and public access to information. Foster greater sharing, dissemination, and access to public information. Foster greater sharing, dissemination, and access to public information. Develop and oversee the implementation of policies, principles, standards, and guidance with respect to information dissemination. Develop and oversee the implementation of policies, principles, standards, and guidance with respect to information dissemination. Cause to be established and oversee an electronic Government Information Locator Service (GILS). Develop, coordinate, and oversee the implementation of uniform information resources management policies, principles, standards, and guidelines. Cause to be established and oversee an electronic GILS. Advise the Director of OMB on information resources management policy. Develop, coordinate, and oversee the implementation of uniform information resources management policies, principles, standards, and guidelines. OMB's Current Functionsimplementation of best practices in information resources management. implementation of best practices in information resources management. Oversee agency integration of program and management functions with information resources management functions. Oversee agency integration of program and management functions with information resources management functions. In consultation with the Administrator of General Services, the Director of the National Institute of Standards and Technology, the Archivist of the United States, and the Director of the Office of Personnel Management, develop and maintain a governmentwide strategic plan for information resources management. In consultation with the Director of OMB, the Administrator of General Services, the Director of the National Institute of Standards and Technology, the Archivist of the United States, the Director of the Office of Personnel Management, and the CIO Council, develop and maintain a governmentwide strategic plan for information resources management. Initiate and review proposals for changes in legislation, regulations, and agency procedures to improve information resources management practices. Initiate and review proposals for changes in legislation, regulations, and agency procedures to improve information resources management practices. Monitor information resources management training for agency personnel. Monitor information resources management training for agency personnel. Keep the Congress informed on the use of information resources management best practices to improve agency program performance. Keep the Congress informed on the use of information resources management best practices to improve agency program performance. Periodically review agency information resources management activities. Periodically review agency information resources management activities. Report annually to the Congress on information resources management. Serve as the principal adviser to the President on matters relating to the development, application, and management of IT by the federal government. OMB's Current Functionspolicies, principles, standards, and guidelines for IT functions and activities. Ensure that agencies integrate information resources plans, program plans, and budgets for acquisition and use of technology. Advise the President on opportunities to use IT to improve the efficiency and effectiveness of programs and operations of the federal government. information resources by the federal government. Advise the Director of OMB on IT management. Develop and oversee the implementation of policies, principles, standards, and guidelines for IT functions and activities, in consultation with the Secretary of Commerce and the CIO Council. Provide direction and oversee activities of agencies with respect to the acquisition and use of IT. Report annually to the President and the Congress on IT management. Promote the use of IT by the federal government to improve the productivity, efficiency, and effectiveness of federal programs. Promulgate, in consultation with the Secretary of Commerce, standards and guidelines for federal information systems. Promote agency investments in IT that enhance service delivery to the public, improve cost-effective government operations, and serve other objectives critical to the President. Oversee the effectiveness of, and compliance with, directives issued under section 110 of the Federal Property and Administrative Services Act (which established the Information Technology Fund). Review the federal information system standards setting process, in consultation with the Secretary of Commerce, and report to the President. Direct the use of the Information Technology Fund by the Administrator of General Services. Provide advice and assistance to the Administrator of the Office of Federal Procurement Policy regarding IT acquisition. Coordinate OIRA policies regarding IT acquisition with the Office of Federal Procurement Policy. Consult with leaders in state governments, the private sector, and foreign governments. Oversee the development and implementation of computer system standards and guidance issued by the Secretary of Commerce through the National Institute of Standards and Technology. Ensure that agencies integrate information resources plans, program plans, and budgets for acquisition and use of technology. Provide direction and oversee activities of agencies with respect to the acquisition and use of IT. Designate agencies, as appropriate, to be executive agents for governmentwide acquisitions of IT. Promote the use of IT by the federal government to improve the productivity, efficiency, and effectiveness of federal programs. Compare agency performance in using IT. Encourage use of performance- based management in complying with IT management requirements. Establish minimum criteria within 1 year of enactment to be used for independent evaluations of IT programs and management processes. OMB's Current Functionsrespect to the performance of investments made in IT. Direct agencies to develop capital planning processes for managing major IT investments. Services with regard to the provision of any information resources-related services for or on behalf of agencies, including the acquisition or management of telecommunications or other IT or services. Direct agencies to analyze private sector alternatives before making an investment in a new information system. Direct the use of the Information Technology Fund by the Administrator of General Services. Direct agencies to undertake an agency mission reengineering analysis before making significant investments in IT to support these missions. Oversee the effectiveness of, and compliance with, directives issued under section 110 of the Federal Property and Administrative Services Act (which established the Information Technology Fund). Oversee the development and implementation of computer system standards and guidance issued by the Secretary of Commerce through the National Institute of Standards and Technology. Designate agencies, as appropriate, to be executive agents for governmentwide acquisitions of IT. Compare agency performance in using IT. Encourage use of performance- based management in complying with IT management requirements. Evaluate agency practices with respect to the performance of investments made in IT. Direct agencies to develop capital planning processes for managing major IT investments. OMB's Current Functionssystem. Conduct pilot projects with selected agencies and nonfederal entities to test alternative policies and practices. Assess experiences of agencies, state and local governments, international organizations, and the private sector in managing IT. Provide leadership in the innovative use of technology by agencies through support of experimentation, testing, and adoption of innovative concepts and technologies, particularly with regard to multi- agency initiatives. Direct agencies to undertake an agency mission reengineering analysis before making significant investments in IT to support these missions. Conduct pilot projects with selected agencies and nonfederal entities to test alternative policies and practices. Provide leadership in the innovative use of technology by agencies through support of experimentation, testing, and adoption of innovative concepts and technologies, particularly with regard to multi- agency initiatives. Ensure the efficiency and effectiveness of interagency IT initiatives. Identify opportunities and coordinate major multiagency IT initiatives. Assess experiences of agencies, state and local governments, international organizations, and the private sector in managing IT. Ensure the efficiency and effectiveness of interagency IT initiatives. Issue guidance to agencies regarding interagency and governmentwide IT investments to improve the accomplishment of common missions and for the multiagency procurement of commercial IT items. Apply capital planning, investment control, and performance management requirements to national security systems to the extent practicable. Consult with the heads of agencies that operate national security systems. Issue guidance to agencies regarding interagency and governmentwide IT investments to improve the accomplishment of common missions and for the multiagency procurement of commercial IT items. Consult with the heads of agencies that operate national security systems. Review agency collections of information to reduce paperwork burdens on the public. Advise the Director of OMB on paperwork reduction. Apply capital planning, investment control, and performance management requirements to national security systems to the extent practicable. Provide advice and assistance to agencies and to the Director of OMB to promote efficient collection of information and the reduction of paperwork burdens on the public. OMB's Current FunctionsProvide direction and oversee activities of agencies with respect to privacy, confidentiality, security, disclosure, and sharing of information. Advise the Director of OMB on privacy, confidentiality, security, disclosure, and sharing of information. Provide direction and oversee activities of agencies with respect to privacy, confidentiality, security, disclosure, and sharing of information. Develop and oversee the implementation of policies, principles, standards, and guidelines on privacy, confidentiality, security, disclosure and sharing of agency information. Develop and oversee the implementation of policies, principles, standards, and guidelines on privacy, confidentiality, security, disclosure and sharing of agency information. Oversee and coordinate compliance with the Privacy Act, the Freedom of Information Act, the Computer Security Act, and related information management laws. Oversee and coordinate compliance with the Privacy Act, the Freedom of Information Act, the Computer Security Act, and related information management laws. Require federal agencies, consistent with the Computer Security Act, to identify and afford security protections commensurate with the risk and magnitude of the harm resulting from the loss, misuse, or unauthorized access to or modification of agency information. Require federal agencies, consistent with the Computer Security Act, to identify and afford security protections commensurate with the risk and magnitude of the harm resulting from the loss, misuse, or unauthorized access to or modification of agency information collected or maintained. Review agency computer security plans required by the Computer Security Act. Oversee agency compliance with the Privacy Act. Establish governmentwide policies for promoting risk-based management of information security as an integral component of each agency's business operations. Direct agencies to use best security practices, develop an agencywide security plan, and apply information security requirements throughout the information system life cycle. Review agency computer security plans required by the Computer Security Act. Oversee agency compliance with the Privacy Act. OMB's Current FunctionsProvide direction and oversee activities of agencies with respect to records management activities. Advise the Director of OMB on records management. Provide direction and oversee activities of agencies with respect to records management activities. Provide advice and assistance to the Archivist of the United States and the Administrator of General Services to promote coordination of records management with information resources management requirements. Provide advice and assistance to the Archivist of the United States and the Administrator of General Services to promote coordination of records management with information resources management requirements. Review agency compliance with requirements and regulations. Review agency compliance with requirements and regulations. Oversee the application of records management policies, principles, standards, and guidelines in the planning and design of information systems. Provide direction and oversee activities of agencies with respect to statistical activities. Advise the Director of OMB on statistical policy and coordination. Oversee the application of records management policies, principles, standards, and guidelines in the planning and design of information systems. Provide direction and oversee activities of agencies with respect to statistical activities. Coordinate the activities of the federal statistical system. Coordinate the activities of the federal statistical system. Ensure that agency budget proposals are consistent with systemwide priorities for maintaining and improving the quality of federal statistics. Consult with the Director of OMB to ensure that agency budget proposals are consistent with systemwide priorities for maintaining and improving the quality of federal statistics. Develop and oversee governmentwide statistical policies, principles, standards, and guidelines. Develop and oversee governmentwide statistical policies, principles, standards, and guidelines. Evaluate statistical program performance and agency compliance with governmentwide statistical policies, principles, standards, and guidelines. Evaluate statistical program performance and agency compliance with governmentwide statistical policies, principles, standards, and guidelines. Promote the sharing of information collected for statistical purposes. Promote the sharing of information collected for statistical purposes. Coordinate U.S. participation in international statistical activities. OMB's Current Functionsinternational statistical activities. Establish an Interagency Council on Statistical Policy, headed by an appointed chief statistician. Establish an Interagency Council on Statistical Policy, headed by an appointed chief statistician. Provide opportunities for training in statistical policy. Provide opportunities for training in statistical policy. H.R. 4670 specifically authorizes the CIO to advise the Director of OMB to "ensure effective implementation of the functions and responsibilities assigned under chapter 35 of title 44, United States Code." These functions include electronic records (through the Government Paperwork Elimination Act of 1998), information dissemination, information resources management policy, information technology management, paperwork reduction, privacy and security, records management, and statistical policy and coordination. (512023)
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Pursuant to a congressional request, GAO discussed the creation of a federal chief information officer (CIO), focusing on the: (1) structure and responsibilities of existing state and foreign governmentwide CIO models; (2) federal CIO approaches proposed by two bills; and (3) type of leadership responsibilities that a federal CIO should possess. GAO noted that: (1) GAO has not evaluated the effectiveness of state and foreign government CIOs or equivalent positions--however, these positions appear to apply some of the same principles outlined in GAO's CIO executive guide; (2) state CIO are usually in charge of developing statewide information technology (IT) plans and approving statewide IT standards, budgets, personnel classifications, salaries, and resource acquisitions; (3) national governments in other countries have also established a central IT coordinating authority and have different implementation approaches in doing so; (4) Congress is considering legislation to establish a federal CIO; (5) two proposals--H.R. 4670, the Chief Information Officer of the United States Act of 2000, and H.R. 5024, the Federal Information Policy Act of 2000--share a common call for central IT leadership from a federal CIO, although they differ in how the roles, responsibilities, and authorities of the position would be established; (6) regardless of approach, strong and effective central information resources and technology management leadership is needed in the federal government; (7) a central focal point such as a federal CIO can play the essential role of ensuring that attention in these areas is sustained; (8) although the respective departments and agencies should have the primary responsibility and accountability to address their own issues--and both bills maintain these agency roles--central leadership has the responsibility to keep everybody focused on the big picture by identifying the agenda of governmentwide issues needing attention and ensuring that related efforts are complementary rather than duplicative; (9) another task facing central leadership is serving as a catalyst and strategist to prompt agencies and other critical players to come to the table and take ownership for addressing the agenda of governmentwide information resources and technology management issues; (10) a federal CIO could provide sponsorship, direction, and sustained focus on the major challenges the government is facing in areas such as critical infrastructure protection and security, e-government, and large-scale IT investments; and (11) consensus has not been reached within the federal community on the need for a federal CIO.
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In light of delays in completing security clearance background investigations and adjudicative decisions, as well as a significant backlog of clearances to be processed, Congress passed the Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA), which set objectives and established requirements for improving the personnel security clearance process, including improving the timeliness of the clearance process, achieving interagency reciprocity, establishing an integrated database to track investigative and adjudicative information, and evaluating available technology for investigations and adjudications. In July 2008, Executive Order 13467 designated the DNI as the Security Executive Agent, who is responsible for developing uniform and consistent policies and procedures to ensure the effective, efficient, and timely completion of background investigations and adjudications relating to determinations of eligibility for access to classified information and eligibility to hold a sensitive position. Additionally, the order designated the Director of OPM as the Suitability Executive Agent. Determinations of suitability for government employment include consideration of aspects of an individual's character or conduct. Accordingly, the Suitability Executive Agent is responsible for developing and implementing uniform and consistent policies and procedures to ensure the effective, efficient, and timely completion of investigations and adjudications relating to determinations of suitability. The order also established a Suitability and Security Clearance Performance Accountability Council, commonly known as the Performance Accountability Council, to be the government-wide governance structure responsible for driving implementation and overseeing security and suitability reform efforts. Further, the executive order designated the Deputy Director for Management at the Office of Management and Budget (OMB) as the chair of the council and states that agency heads shall assist the Performance Accountability Council and Executive Agents in carrying out any function under the order, as well as implementing any policies or procedures developed pursuant to the order. The relevant orders and regulations that guide the process for designating national security positions include executive orders and federal regulations. For example, Executive Order 10450, which was originally issued in 1953, makes the heads of departments or agencies responsible for establishing and maintaining effective programs for ensuring that civilian employment and retention is clearly consistent with the interests of national security. Agency heads are also responsible for designating positions within their respective agencies as sensitive if the occupant of that position could, by virtue of the nature of the position, bring about a material adverse effect on national security. In addition, Executive Order 12968, issued in 1995, makes the heads of agencies--including executive branch agencies and the military departments--responsible for establishing and maintaining an effective program to ensure that access to classified information by each employee is clearly consistent with the interests of national security. This order also states that, subject to certain exceptions, eligibility for access to classified information shall only be requested and granted on the basis of a demonstrated, foreseeable need for access. Further, part 732 of Title 5 of the Code of Federal Regulations provides requirements and procedures for the designation of national security positions, which include positions that (1) involve activities of the government that are concerned with the protection of the nation from foreign aggression or espionage, and (2) require regular use of or access to classified national security information. Part 732 of Title 5 of the Code of Federal Regulations also states that most federal government positions that could bring about, by virtue of the nature of the position, a material adverse effect on national security must be designated as a sensitive position and require a sensitivity level designation. The sensitivity level designation determines the type of background investigation required, with positions designated at a greater sensitivity level requiring a more extensive background investigation. Part 732 establishes three sensitivity levels--special-sensitive, critical- sensitive, and noncritical-sensitive--which are described in figure 1. According to OPM, positions that an agency designates as special- sensitive and critical-sensitive require a background investigation that typically results in a top secret clearance. Noncritical-sensitive positions typically require an investigation that supports a secret or confidential clearance. OPM also defines non-sensitive positions that do not have a national security element, but still require a designation of risk for suitability purposes. That risk level informs the type of investigation required for those positions. Those investigations include aspects of an individual's character or conduct that may have an effect on the integrity or efficiency of the service. As previously mentioned, DOD and DHS grant the most security clearances. Figure 1 illustrates the process used by both DOD and DHS to determine the need for a personnel security clearance for a federal civilian position generally used government-wide. During the course of our 2012 review, we found that the executive branch had not issued clearly defined policy guidance for determining when a federal civilian position needs a security clearance. In the absence of such guidance, agencies are using a position designation tool that OPM designed to determine the sensitivity and risk levels of civilian positions that, in turn, inform the type of investigation needed. Further, we found that OPM's position designation tool lacked input from the DNI and that audits had revealed problems with the use of OPM's tool, leading to some incorrect position designations. The first step in the personnel security clearance process is to determine if the occupant of a federal position needs a security clearance to effectively and efficiently conduct work. However, we found in July 2012 that the DNI had not provided agencies with clearly defined policy through regulation or other guidance to help ensure that executive branch agencies use appropriate and consistent criteria when determining if positions require a security clearance. According to Executive Order 13467, issued in June 2008, the DNI, as the Security Executive Agent, is responsible for developing uniform policies and procedures to ensure the effective, efficient, and timely completion of investigations and adjudications relating to determinations of eligibility for access to classified information or to hold a sensitive position. Further, the order states that agency heads shall assist the Performance Accountability Council and Executive Agents in carrying out any function under the order, as well as implementing any policies or procedures developed pursuant to the order. Although agency heads retain the flexibility to make determinations regarding which positions in their agency require a security clearance, the DNI, in its capacity as Security Executive Agent, is well positioned to provide guidance to help align the personnel security clearance process. Determining the requirements of a federal position includes assessing both the risk and sensitivity level associated with a position, which includes consideration of whether that position requires access to classified information and, if required, the level of access. Security clearances are generally categorized into three levels of access: top secret, secret, and confidential. The level of classification denotes the degree of protection required for information and the amount of damage that unauthorized disclosure could reasonably be expected to cause to national defense or foreign relations. In the absence of clearly defined guidance to help ensure that executive branch agencies use appropriate and consistent criteria when determining if positions require a personnel security clearance, agencies are using an OPM-designed tool to determine the sensitivity and risk levels of civilian positions which, in turn, inform the type of investigation needed. We reported in July 2012 that in order to assist with position designation, the Director of OPM--the Executive Agent for Suitability-- has developed a process that includes a position designation system and corresponding automated tool to guide agencies in determining the proper sensitivity level for the majority of federal positions. This tool-- namely, the Position Designation of National Security and Public Trust Positions--enables a user to evaluate a position's national security and suitability requirements so as to determine a position's sensitivity and risk levels, which in turn dictate the type of background investigation that will be required for the individual who will occupy that position. In most agencies outside the Intelligence Community, OPM conducts the background investigations for both suitability and security clearance purposes. The tool does not directly determine whether a position requires a clearance, but rather helps determine the sensitivity level of the position. The determination to grant a clearance is based on whether a position requires access to classified information and, if access is required, the responsible official will designate the position to require a clearance. OPM developed the position designation system and automated tool for multiple reasons. First, OPM determined through a 2007 initiative that its existing regulations and guidance for position designation were complex and difficult to apply, resulting in inconsistent designations. As a result of a recommendation from the initiative, OPM created a simplified position designation process in 2008. Additionally, OPM officials noted that the tool is to support the goals of the security and suitability reform efforts, which require proper designation of national security and suitability positions. OPM first introduced the automated tool in November 2008, and issued an update of the tool in 2010. In August 2010, OPM issued guidance (1) recommending all agencies that request OPM background investigations use the tool, and (2) requiring agencies to use the tool for all positions in the competitive service, positions in the excepted service where the incumbent can be noncompetitively converted to the competitive service, and career appointments in the Senior Executive Service. Both DOD and DHS components use the tool. In addition, DOD issued guidance in September 2011 and August 2012 requiring its personnel to use OPM's tool to determine the proper position sensitivity designation. A DHS instruction requires personnel to designate all DHS positions--including positions in the DHS components--by using OPM's position sensitivity designation guidance, which is the basis of the tool. Office of the Director of National Intelligence (ODNI) officials told us that they believe OPM's tool is useful for determining a position's sensitivity level. However, although the DNI was designated as the Security Executive Agent in 2008, ODNI officials noted that the DNI did not have input into recent revisions of OPM's position designation tool. This lack of coordination for revising the tool exists, in part, because the execution of the roles and relationships between the Director of OPM and the DNI as Executive Agents are still evolving, although Executive Order 13467 defines responsibilities for each Executive Agent. Accordingly, we found in July 2012 that the Director of OPM and the DNI had not fully collaborated in executing their respective roles in the process for determining position designations. For example, OPM has had long- standing responsibility for establishing standards with respect to suitability for most federal government positions. Accordingly, the sections of the tool to be used for evaluating a position's suitability risk level are significantly more detailed than the sections designed to aid in designating the national security sensitivity level of the position. While most of OPM's position designation system, which is the basis of the tool, is devoted to suitability issues, only two pages are devoted to national security issues. Moreover, OPM did not seek to collaborate with the DNI when updating the tool in 2010. During our review completed in 2012, human capital and security officials from DOD and DHS and the selected components we examined affirmed that they were using the existing tool to determine the sensitivity level required by a position. However, in the absence of clearly defined policy from the DNI and the lack of collaborative input into the tool's design, officials explained that they sometimes had difficulty in using the tool to designate the sensitivity level of national security positions. OPM regularly conducts audits of its executive branch customer agency personnel security and suitability programs, which include a review of position designation to assess the agencies' alignment with OPM's position designation guidance. In the audit reports we obtained as part of our 2012 review, OPM found examples of inconsistency between agency position designation and OPM guidance, both before and after the implementation of OPM's tool. For instance, prior to the implementation of the tool, in a 2006 audit of an executive branch agency, OPM found that its sensitivity designations differed from the agency's designation in 13 of 23 positions. More recently, after the implementation of the tool, in an April 2012 audit of a DOD agency, OPM assessed the sensitivity levels of 39 positions, and OPM's designations differed from the agency's designations in 26 of those positions. In the April 2012 report, the DOD agency agreed with OPM's recommendations related to position designation, and the audit report confirmed that the agency had submitted evidence of corrective action in response to the position designation recommendations. OPM provided us with the results of 10 audits that it had conducted between 2005 and 2012, and 9 of those audit reports reflected inconsistencies between OPM position designation guidance and determinations of position sensitivity conducted by the agency. OPM officials noted, however, that they do not have the authority to direct agencies to make different designations because Executive Order 10450 provides agency heads with the ultimate responsibility for designating which positions are sensitive positions. ODNI conducted a separate position designation audit in response to the Intelligence Authorization Act for Fiscal Year 2010. In that 2011 report, ODNI found that the processes the executive branch agencies followed differed somewhat depending whether the position was civilian, military, or contractor. During the course of our 2012 review, DOD and DHS officials raised concerns regarding the guidance provided through the tool and expressed that they had difficulty implementing it. Specifically, officials from DHS's U.S. Immigration and Customs Enforcement stated that the use of the tool occasionally resulted in inconsistency, such as over- or underdesignating a position, and expressed a need for additional clear, easily interpreted guidance on designating national security positions. DOD officials stated that they have had difficulty implementing the tool because it focuses more on suitability than security, and the national security aspects of DOD's positions are of more concern to them than the suitability aspects. Further, an official from DOD's Office of the Under Secretary of Defense for Personnel and Readiness stated that the tool and DOD policy do not always align and that the tool does not cover the requirements for some DOD positions. For example, DOD's initial implementing guidance on using the tool stated that terms differ between DOD's personnel security policy and the tool, and the tool might suggest different position sensitivity levels than DOD policy required. Also, officials from the Air Force Personnel Security Office told us that they had challenges using the tool to classify civilian positions, including difficulty in linking the tool with Air Force practices for position designation. Moreover, an Air Force official stated a concern that the definition for national security positions is broadly written and could be considered to include all federal positions. Because we found that the executive branch had not provided clear guidance for the designation of national security positions, we recommended that the DNI, in coordination with the Director of OPM and other executive branch agencies as appropriate, issue clearly defined policy and procedures for federal agencies to follow when determining if federal civilian positions require a security clearance. In written comments on our July 2012 report, the ODNI concurred with this recommendation and agreed that executive branch agencies require simplified and uniform policy guidance to assist in determining appropriate sensitivity designations. We routinely monitor the status of agency actions to address our prior report recommendations. As part of that process, we found that a January 25, 2013 presidential memo authorized the DNI and OPM to jointly issue revisions to part 732 of Title 5 of the Code of Federal Regulations, which is intended to provide requirements and procedures for the designation of national security positions. Subsequently, ODNI and OPM drafted the proposed regulation, published it in the Federal Register on May 28, 2013, and obtained public comment on the regulation through June 27, 2013. ODNI and OPM officials told us they plan to jointly adjudicate public comments and prepare the final regulation for approval from OMB during October 2013. In reviewing the proposed regulation, we found that it would, if finalized in its current form, meet the intent of our recommendation to issue clearly defined policy and procedures for federal agencies to follow when determining if federal civilian positions require a security clearance. Specifically, the proposed regulation appears to add significant detail regarding the types of duties that would lead to a critical-sensitive designation, or those national security positions which have the potential to cause exceptionally grave damage to national security. Critical- sensitive positions detailed in the proposed regulation include positions that develop or approve war plans, major or special military operations, or critical and extremely important items of war, involve national security policy-making or policy-determining positions, with investigative duties, including handling of completed counter- intelligence or background investigations, having direct involvement with diplomatic relations and negotiations, in which the occupants have the ability to independently damage public health and safety with devastating results, and in which the occupants have the ability to independently compromise or exploit biological select agents or toxins, chemical agents, nuclear materials, or other hazardous materials, among several others. Further, we also recommended in 2012 that once clear policy and procedures for position designation are issued, the DNI and the Director of OPM should collaborate in their respective roles as Executive Agents to revise the position designation tool to reflect that guidance. ODNI concurred with this recommendation in its written comments on our report and stated that it planned to work with OPM and other executive branch agencies to develop a position designation tool that provides detailed descriptions of the types of positions where the occupant could bring about a material adverse impact to national security due to the duties and responsibilities of that position. OPM also concurred with this recommendation, stating that it was committed to revising the tool after revisions to position designation regulations are complete. The proposed revisions to part 732 of Title 5 of the Code of Federal Regulations appeared in the Federal Register, but have not yet been issued, and we recommended that the position designation tool be revised once policies and procedures for position designation are issued. We note that the proposed regulation states that OPM issues, and periodically revises, a Position Designation System, which describes in greater detail agency requirements for designating positions that could bring about a material adverse effect on the national security. Further, the proposed regulation would require that agencies use OPM's Position Designation System to designate the sensitivity level of each position covered by the regulation. As part of our ongoing processes to monitor agency actions in response to our recommendations, ODNI and OPM officials told us that actions were underway to revise the tool. For example, officials stated that an interagency working group had been established to oversee the updates to the current tool, while also determining the way forward to creating a new tool, and that officials were developing a project plan to guide the revision process. We plan to continue to review OPM guidance on the Position Designation System and to review steps taken by OPM and the DNI to revise the associated position designation tool to determine if the revised regulation and actions taken to revise the tool meet the intent of our recommendation. In July 2012, we reported that the executive branch did not have a consistent process for reviewing and validating existing security clearance requirements for federal civilian positions. According to Executive Order 12968, the number of employees that each agency determines is eligible for access to classified information shall be kept to the minimum required, and, subject to certain exceptions, eligibility shall be requested or granted only on the basis of a demonstrated, foreseeable need for access. Additionally, Executive Order 12968 states that access to classified information shall be terminated when an employee no longer has a need for access, and that requesting or approving eligibility for access in excess of the actual requirements is prohibited. Also, Executive Order 13467 authorizes the DNI to issue guidelines or instructions to the heads of agencies regarding, among other things, uniformity in determining eligibility for access to classified information. However, we reported in 2012 that the DNI had not issued policies and procedures for agencies to periodically review and revise or validate the existing clearance requirements for their federal civilian positions to ensure that clearances are 1) kept to a minimum and 2) reserved only for those positions with security clearance requirements that are in accordance with the national security needs of the time. Position descriptions not only identify the major duties and responsibilities of the position, but they also play a critical role in an agency's ability to recruit, develop, and retain the right number of individuals with the necessary skills and competencies to meet its mission. Position descriptions may change, as well as the national security environment as observed after September 11, 2001. During our 2012 review of several DOD and DHS components, we found that officials were aware of the requirement to keep the number of security clearances to a minimum but were not always subject to a standard requirement to review and validate the security clearance needs of existing positions on a periodic basis. We found, instead, that agencies' policies provide for a variety of practices for reviewing the clearance needs of federal civilian positions. In addition, agency officials told us that their policies are implemented inconsistently. DOD's personnel security regulation and other guidance provides DOD components with criteria to consider when determining whether a position is sensitive or requires access to classified information, and some DOD components also have developed their own guidance. For example, we found that: An Air Force Instruction requires commanders to review all military and civilian position designations annually to ensure proper level of access to classified information. The Army issued a memorandum in 2006 that required an immediate review of position sensitivity designations for all Army civilian positions by the end of the calendar year and requires subsequent reviews biennially. That memorandum further states that if a review warrants a change in position sensitivity affecting an individual's access to classified information, then access should be administratively adjusted and the periodic reinvestigation submitted accordingly. However, officials explained that improper position sensitivity designations continue to occur in the Army because they have a limited number of personnel in the security office relative to workload, and they only spot check clearance requests to ensure that they match the level of clearance required. Officials from DOD's Washington Headquarters Services told us that they have an informal practice of reviewing position descriptions and security designations for vacant or new positions, but they do not have a schedule for conducting periodic reviews of personnel security designations for already-filled positions. According to DHS guidance, supervisors are responsible for ensuring that (1) position designations are updated when a position undergoes major changes (e.g., changes in missions and functions, job responsibilities, work assignments, legislation, or classification standards), and (2) position security designations are assigned as new positions are created. Some components have additional requirements to review position designation more regularly to cover positions other than those newly created or vacant. For example, U.S. Coast Guard guidance states that hiring officials and supervisors should review position descriptions even when there is no vacancy and, as appropriate, either revise or review them. According to officials in U.S. Immigration and Customs Enforcement, supervisors are supposed to review position descriptions annually during the performance review process to ensure that the duties and responsibilities on the position description are up-to-date and accurate. However, officials stated that U.S. Immigration and Customs Enforcement does not have policies or requirements in place to ensure any particular level of detail in that review. Some of the components we met with as part of our 2012 review were, at that time, in the process of conducting a onetime review of position designations. In 2012, Transportation Security Administration officials stated that they reevaluated all of their position descriptions during the last 2 years because the agency determined that the re-evaluation of its position designations would improve operational efficiency by ensuring that positions were appropriately designated by using OPM's updated position designation tool. Further, those officials told us that they review position descriptions as positions become vacant or are created. Between fiscal years 2010 and 2011, while the Transportation Security Administration's overall workforce increased from 61,586 to 66,023, the number of investigations for top secret clearances decreased from 1,483 to 1,127. Conducting background investigations is costly. The federal government spent over $1 billion to conduct background investigations in fiscal year 2011. Furthermore, this does not include the costs for the adjudication or other phases of the personnel security clearances process. DOD and DHS officials acknowledged that overdesignating a position can result in expenses for unnecessary investigations. When a position is overdesignated, additional resources are unnecessarily spent conducting the investigation and adjudication of a background investigation that exceeds agency requirements. Specifically, the investigative workload for a top secret clearance is about 20 times greater than that of a secret clearance because it must be periodically reinvestigated twice as often as secret clearance investigations (every 5 years versus every 10 years) and requires 10 times as many investigative staff hours. The fiscal year 2014 base price for an initial top secret clearance investigation conducted by OPM is $3,959 and the cost of a periodic reinvestigation is $2,768. The base price of an investigation for a secret clearance is $272. If issues are identified during the course of an investigation for a secret clearance, additional costs may be incurred. Agencies employ varying practices because the DNI has not established a requirement that executive branch agencies consistently review and revise or validate existing position designations on a recurring basis. Such a recurring basis could include reviewing position designations during the periodic reinvestigation process. Without a requirement to consistently review, revise, or validate existing security clearance position designations, executive branch agencies--such as DOD and DHS--may be hiring and budgeting for both initial and periodic security clearance investigations using position descriptions and security clearance requirements that do not reflect national security needs. Finally, since reviews are not being done consistently, DOD, DHS, and other executive branch agencies cannot have reasonable assurance that they are keeping to a minimum the number of positions that require security clearances on the basis of a demonstrated and foreseeable need for access. Therefore, we recommended in July 2012 that the DNI, in coordination with the Director of OPM and other executive branch agencies as appropriate, issue guidance to require executive branch agencies to periodically review and revise or validate the designation of all federal civilian positions. In written comments on that report, the ODNI concurred with this recommendation and stated that as duties and responsibilities of federal positions may be subject to change, it planned to work with OPM and other executive branch agencies to ensure that position designation policies and procedures include a provision for periodic reviews. OPM stated in its written comments to our report that it would work with the DNI on guidance concerning periodic reviews of existing designations, once pending proposed regulations are finalized. ODNI and OPM are currently in the process of finalizing revisions to the position designation federal regulation. As part of our ongoing processes to routinely monitor the status of agency actions to address our prior recommendations, we note that the proposed regulation would newly require agencies to conduct a one-time reassessment of position designations within 24 months of the final regulation's effective date, which is an important step towards ensuring that the current designations of national security positions are accurate. However, the national security environment and the duties and descriptions of positions may change over time, thus the importance of periodic review or validation. The proposed regulation does not appear to require a periodic reassessment of positions' need for access to classified information as we recommended. We believe this needs to be done and, as part of monitoring the status of our recommendation, we will continue to review the finalized federal regulation and any related guidance that directs position designation to determine whether periodic review or validation is required. In conclusion, the correct designation of national security positions is a critical first step for safeguarding national security and preventing unnecessary and costly background investigations. We are encouraged that in response to our recommendations, ODNI and OPM have drafted a revised federal regulation and plan to jointly address comments and finalize these regulations. We will continue to monitor the outcome of the final federal regulation as well as other agency actions to address our remaining recommendations. Chairman Tester, Ranking Member Portman, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any questions that you or the other Members of the Subcommittee may have at this time. For further information on this testimony, please contact Brenda S. Farrell, Director, Defense Capabilities and Management, who may be reached at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony include Lori A. Atkinson (Assistant Director), Renee Brown, Sara Cradic, Jeffrey Heit, Erik Wilkins-McKee, Suzanne M. Perkins, and Michael Willems. Personnel Security Clearances: Opportunities Exist to Improve Quality Throughout the Process. GAO-14-186T. Washington, D.C.: November 13, 2013. Personnel Security Clearances: Full Development and Implementation of Metrics Needed to Measure Quality of Process. GAO-14-157T. Washington, D.C.: October 31, 2013. Personnel Security Clearances: Further Actions Needed to Improve the Process and Realize Efficiencies. GAO-13-728T. Washington, D.C.: June 20, 2013. Managing for Results: Agencies Should More Fully Develop Priority Goals under the GPRA Modernization Act. GAO-13-174. Washington, D.C.: April 19, 2013. Security Clearances: Agencies Need Clearly Defined Policy for Determining Civilian Position Requirements. GAO-12-800. Washington, D.C.: July 12, 2012. Personnel Security Clearances: Continuing Leadership and Attention Can Enhance Momentum Gained from Reform Effort. GAO-12-815T. Washington, D.C.: June 21, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington, D.C.: February 28, 2012. Background Investigations: Office of Personnel Management Needs to Improve Transparency of Its Pricing and Seek Cost Savings. GAO-12-197. Washington, D.C.: February 28, 2012. GAO's 2011 High-Risk Series: An Update. GAO-11-394T. Washington, D.C.: February 17, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Personnel Security Clearances: Overall Progress Has Been Made to Reform the Governmentwide Security Clearance Process. GAO-11-232T. Washington, D.C.: December 1, 2010. Personnel Security Clearances: Progress Has Been Made to Improve Timeliness but Continued Oversight Is Needed to Sustain Momentum. GAO-11-65. Washington, D.C.: November 19, 2010. DOD Personnel Clearances: Preliminary Observations on DOD's Progress on Addressing Timeliness and Quality Issues. GAO-11-185T. Washington, D.C.: November 16, 2010. Personnel Security Clearances: An Outcome-Focused Strategy and Comprehensive Reporting of Timeliness and Quality Would Provide Greater Visibility over the Clearance Process. GAO-10-117T. Washington, D.C.: October 1, 2009. Personnel Security Clearances: Progress Has Been Made to Reduce Delays but Further Actions Are Needed to Enhance Quality and Sustain Reform Efforts. GAO-09-684T. Washington, D.C.: September 15, 2009. Personnel Security Clearances: An Outcome-Focused Strategy Is Needed to Guide Implementation of the Reformed Clearance Process. GAO-09-488. Washington, D.C.: May 19, 2009. DOD Personnel Clearances: Comprehensive Timeliness Reporting, Complete Clearance Documentation, and Quality Measures Are Needed to Further Improve the Clearance Process. GAO-09-400. Washington, D.C.: May 19, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Personnel Security Clearances: Preliminary Observations on Joint Reform Efforts to Improve the Governmentwide Clearance Eligibility Process. GAO-08-1050T. Washington, D.C.: July 30, 2008. Personnel Clearances: Key Factors for Reforming the Security Clearance Process. GAO-08-776T. Washington, D.C.: May 22, 2008. Employee Security: Implementation of Identification Cards and DOD's Personnel Security Clearance Program Need Improvement. GAO-08-551T. Washington, D.C.: April 9, 2008. Personnel Clearances: Key Factors to Consider in Efforts to Reform Security Clearance Processes. GAO-08-352T. Washington, D.C.: February 27, 2008. DOD Personnel Clearances: DOD Faces Multiple Challenges in Its Efforts to Improve Clearance Processes for Industry Personnel. GAO-08-470T. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Improved Annual Reporting Would Enable More Informed Congressional Oversight. GAO-08-350. Washington, D.C.: February 13, 2008. DOD Personnel Clearances: Delays and Inadequate Documentation Found for Industry Personnel. GAO-07-842T. Washington, D.C.: May 17, 2007. High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007. DOD Personnel Clearances: Additional OMB Actions Are Needed to Improve the Security Clearance Process. GAO-06-1070. Washington, D.C.: September 28, 2006. DOD Personnel Clearances: New Concerns Slow Processing of Clearances for Industry Personnel. GAO-06-748T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Funding Challenges and Other Impediments Slow Clearances for Industry Personnel. GAO-06-747T. Washington, D.C.: May 17, 2006. DOD Personnel Clearances: Government Plan Addresses Some Long- standing Problems with DOD's Program, But Concerns Remain. GAO-06-233T. Washington, D.C.: November 9, 2005. DOD Personnel Clearances: Some Progress Has Been Made but Hurdles Remain to Overcome the Challenges That Led to GAO's High-Risk Designation. GAO-05-842T. Washington, D.C.: June 28, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. DOD Personnel Clearances: Preliminary Observations Related to Backlogs and Delays in Determining Security Clearance Eligibility for Industry Personnel. GAO-04-202T. Washington, D.C.: May 6, 2004. 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Personnel security clearances allow individuals access to classified information that, through unauthorized disclosure, can in some cases cause exceptionally grave damage to U.S. national security. A sound requirements process to determine whether a national security position requires access to classified information is needed to safeguard classified data and manage costs. The DNI reported that more than 4.9 million federal government and contractor employees held or were eligible to hold a security clearance in 2012. GAO has reported that the federal government spent over $1 billion to conduct background investigations (in support of security clearances and suitability determinations--the consideration of character and conduct for federal employment) in fiscal year 2011. This testimony addresses policies and procedures executive branch agencies use when (1) first determining whether federal civilian positions require a security clearance and (2) periodically reviewing and revising or validating existing federal civilian position security clearance requirements. This testimony is based on a July 2012 GAO report (GAO-12-800), in which GAO (1) reviewed relevant federal guidance and processes, (2) examined agency personnel security clearance policies, (3) obtained and analyzed an OPM tool used for position designation, and (4) met with officials from ODNI and OPM because of their Directors' assigned roles as Security and Suitability Executive Agents. Because DOD and DHS grant the most security clearances, that report focused on the security clearance requirements of federal civilian positions within those agencies. In July 2012, GAO reported that the Director of National Intelligence (DNI), as Security Executive Agent, had not provided executive branch agencies clearly defined policy and procedures to consistently determine if a position requires a personnel security clearance. Absent this guidance, agencies are using an Office of Personnel Management (OPM) position designation tool to determine the sensitivity and risk levels of civilian positions which, in turn, inform the type of investigation needed. OPM audits, however, found inconsistency in these position designations, and some agencies described problems implementing OPM's tool. For example, in an April 2012 audit OPM assessed the sensitivity levels of 39 positions, and its designations differed from the agency in 26 positions. Problems exist, in part, because OPM and the Office of the Director of National Intelligence (ODNI) did not collaborate on the development of this tool, and because their respective roles for suitability and security clearance reform are still evolving. As a result, to help determine the proper designation, GAO recommended that the DNI, in coordination with the Director of OPM, issue clearly defined policy and procedures for federal agencies to follow when determining if federal civilian positions require a security clearance. The DNI concurred with this recommendation. In May 2013, the DNI and OPM jointly drafted a proposed revision to the federal regulation on position designation which, if finalized in its current form, would provide additional requirements and examples of position duties at each sensitivity level. GAO also recommended that once those policies and procedures are in place, the DNI and the Director of OPM, in their roles as Executive Agents, collaborate to revise the position designation tool to reflect the new guidance. ODNI and OPM concurred with this recommendation and recently told GAO that they are revising the tool. GAO also reported in July 2012 that the DNI had not established guidance to require agencies to periodically review and revise or validate existing federal civilian position designations. GAO reported that Department of Defense (DOD) and Department of Homeland Security (DHS) component officials were aware of the requirement to keep the number of security clearances to a minimum, but were not always required to conduct periodic reviews and validations of the security clearance needs of existing positions. GAO found that without such a requirement, executive branch agencies may be hiring and budgeting for initial and periodic security clearance investigations using position descriptions and security clearance requirements that do not reflect current national security needs. Further, since reviews are not done consistently, executive branch agencies cannot have assurances that they are keeping the number of positions that require security clearances to a minimum. Therefore, GAO recommended in July 2012 that the DNI, in coordination with the Director of OPM, issue guidance to require executive branch agencies to periodically review and revise or validate the designation of all federal civilian positions. As of October 2013, ODNI and OPM are finalizing revisions to the federal regulation on position designation. While the proposed regulation requires agencies to conduct a one-time reassessment of position designation within 24 months of the final rule's effective date, it does not require a periodic reassessment of positions' need for access to classified information. GAO continues to believe that periodic reassessment is important.
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For many years, HUD has been the subject of sustained criticism for management and oversight weaknesses that have made it vulnerable to fraud, waste, abuse, and mismanagement. In 1994, we designated all of HUD's programs as high risk because of four long-standing management deficiencies: weak internal controls; inadequate information and financial management systems; an ineffective organizational structure, including a fundamental lack of management accountability and responsibility; and an insufficient mix of staff with the proper skills. HUD undertook reorganization and downsizing efforts in 1993 and 1994; and its 2020 Management Reform Plan that was announced in 1997, was the effort intended to finally resolve its managerial and operational deficiencies, among other things. HUD also said one of the purposes of its plan was to ensure HUD's relevance and effectiveness into the twenty-first century. HUD's 2020 Management Reform Plan was a complex and wide-ranging plan to change the negative perception of the agency by updating its mission and focusing its energy and resources on eliminating fraud, waste, and abuse in its programs. The reform plan presented two interrelated missions for HUD: (1) empower people and communities to improve themselves and succeed in the modern economy, and (2) restore public trust by achieving and demonstrating competence. With these two missions, HUD's goals were to become more collaborative with its partners; move from process-oriented activities to an emphasis on performance and product delivery; and develop a culture within HUD of zero tolerance for waste, fraud, and abuse. As part of the 2020 plan, HUD was to refocus and retrain its staff to ensure it had the skills and resources where needed. HUD planned to reduce staffing from 10,500 at the end of fiscal year 1996 to 7,500 by fiscal year 2002 through buyouts, attrition, and outplacement services. However, we found that the staffing target was not based on a systematic workload analysis, and we questioned whether HUD would have the capacity to carry out its responsibilities once the reforms were in place. HUD reduced staffing to about 9,000 full-time positions by March 1998, when the downsizing effort was terminated. During fiscal year 1999, HUD substantially completed its reorganization under the 2020 Management Reform Plan. In September 2000, we testified on HUD's progress in addressing its major management challenges as it tried to transform itself from a federal agency whose major programs were designated "high risk." In January 2001, we recognized that HUD's top management had given high priority to implementing the 2020 Management Reform Plan. Considering HUD's progress toward improving its operations through the management reform plan and consistent with our criteria for determining high risk, we reduced the number of programs deemed to be high risk from all HUD programs to two of its major program areas--single-family mortgage insurance and rental housing assistance. In October 2001, we reported that HUD had some successes in implementing its major 2020 management reforms, but we also identified challenges that remain. We reported that some initiatives, such as consolidating and streamlining operations in new centers, had produced results; other efforts, such as improving efficiency and accountability, had been hampered by inefficient distribution of workload and other issues. Overall, we identified strategic human capital management--of which workforce planning, recruiting, and hiring are significant component---as the most pressing management challenge facing HUD. Concerned about HUD's approach to using staff, Congress asked the National Academy of Public Administration (NAPA) to evaluate HUD's ability to develop staffing requirements based on meaningful measures and received a NAPA report on the issue in 1999. NAPA recommended that HUD adopt a management approach that bases staff estimates and allocations on the level of work and the specific location where it is to be performed. HUD made a commitment to implement this recommendation by developing its REAP in consultation with NAPA. In September 2000, the HUD IG expressed concern that the implementation of REAP had not progressed with the urgency that would have been expected for a priority status project. The human capital management challenges that HUD faces are a concern across the federal government. GAO, OMB, and the Office of Personnel Management (OPM) have challenged agencies to acquire and develop staffs whose size, skills, and deployment meet agency needs and to ensure leadership continuity and succession planning. Last year, we added strategic human capital management to our list of high-risk government programs as an area that needs attention to ensure that the national government functions in the most economic, efficient, and effective manner possible. Several of the key challenges we identified were directly related to workforce planning, recruiting, and hiring. Three of the four "human capital cornerstones" that we identified in our Model of Strategic Human Capital Management relate directly to the challenges at HUD that this report examines. These cornerstones are as follows: leadership commitment to human capital management and recognition that people are important enablers of agency performance; strategic human capital planning in which the human capital needs of the organization and new initiatives or refinements to existing human capital approaches are reflected in strategic workforce planning documents, and decisions involving human capital management and its link to agency results are routinely supported by complete, valid, and reliable data; and acquiring, developing, and retaining talent using strategies that are fully integrated with needs identified through strategic and annual planning and that take advantage of appropriate administrative actions available under current laws, rules, and regulations. In 2001, as part of the President's management agenda for improving the government's performance, OMB did a baseline evaluation of executive branch agencies' performance in five major management categories, including human capital management. It scored 26 executive branch agencies as achieving green, yellow, or red levels of performance in each management dimension. For human capital management, no agency received a green status, which would have indicated that it had met all core criteria. Three of the 26 agencies evaluated received a yellow status, indicating the achievement of some, but not all, of the core criteria; and 23 agencies, including HUD, received red status, indicating that that they had one or more major deficiencies in human capital management. HUD currently has a staff of about 9,000 to meet its mission of promoting adequate and affordable housing, economic opportunity, and a suitable living environment free from discrimination. To meet this mission, HUD has outlined the following eight strategic goals: Make the home-buying process less complicated, the paperwork less demanding, and the mortgage process less expensive. Help families move from rental housing to homeownership. Improve the quality of public and assisted housing and provide more choices for their residents. Strengthen and expand faith-based and community partnerships that enhance communities. Effectively address the challenge of homelessness. Embrace high standards of ethics, management, and accountability. Ensure equal opportunity and access to housing. Support community and economic development efforts. HUD's PIH office plays a major role in administering HUD's affordable rental housing programs. PIH has identified five activities to meet its mission of ensuring safe, decent, and affordable housing; create opportunities for residents' self-sufficiency and economic independence; and ensure fiscal integrity by all program participants. These mission- related activities are listed in figure 1. PIH is responsible for oversight of the public housing program that serves about 1.2 million low-income households and the housing voucher program that serves about 1.8 million low-income households. (See fig. 2.) Public housing authorities administer both programs. Because tenants' rents typically do not cover the cost of operating public housing, PIH administers subsidies, vouchers, and other federal payments to more than 3,000 local public housing authorities. PIH also provides the housing authorities with oversight, monitoring, and technical assistance in planning, developing, and managing public housing, and intervening if problems arise with public housing authorities' delivery of services. HUD also provides funds to housing authorities for major modernization projects through the Capital Fund Program that PIH administers. Although HUD has started to do workforce planning and has identified the resources required to do its current work, it does not have a comprehensive strategic workforce plan that identifies the knowledge, skills, and abilities it needs to build its workforce for the future. HUD has done a detailed analysis of its potential losses of staff to retirement; but without a complete workforce plan, HUD is not fully prepared to recruit and hire staff to pursue its mission. In the interim, HUD has begun to hire interns whom it hopes can be trained to fill positions that are likely to be affected by upcoming retirements. Workforce planning steps HUD has taken thus far include completion of a detailed analysis of HUD's potential staff losses due to retirement and the REAP, which estimates the staff needed to handle the current workload in each office. HUD has analyzed data on retirement eligibility by component office, position, and grade level. Among its findings is that by August 2003, half of its workforce in General Schedule (GS) Grades 9 through 15 will be eligible to retire. Figure 3 shows retirement eligibility by grade level. The REAP study reviews staffing levels by component office and the tasks that staff in various job classifications are assigned. On an office-by-office basis, the REAP study looked at the number of staff on board and assigned a staff ceiling--the number of staff needed for that office based on the work the office is currently performing--and then calculated the resources required to do the work. The REAP also provides a framework for periodic validation of the data. Figure 4 compares the REAP estimated needs for major HUD offices with the staff on board as of September 30, 2001. The compilation of data on retirement eligibilities and the REAP study are important first steps for HUD toward strategic human capital planning, but additional workforce planning steps are necessary. REAP has collected valuable information about staff levels and workload, but HUD has not done a comprehensive strategic workforce plan that includes an analysis of successes and shortcomings of existing human capital approaches; work that staff should be doing by thinking broadly of how the mission should change over the next decade; knowledge, skills, and abilities needed by staff to do this work; the capabilities of current staff; gaps in skills, competencies, and development needs and the links between strategies for filling these gaps and mission accomplishment; recruiting and hiring requirements necessary to fill the gaps; and the resources required and milestones for implementation. In its 2001 baseline evaluation of HUD's human capital management, completed as part of the President's management agenda for improving the government's performance, OMB identified the following deficiencies at HUD: skill gap deficiencies across the department; HUD's inability to sustain a high-performing workforce that is continually improving in productivity; strategically using existing personnel flexibilities, tools, and technology; and implementing succession planning; and human capital that is not aligned to support HUD's mission, goals, and organizational objectives. In response, HUD issued a human capital strategic management plan in February 2002 that summarizes its plans to address the deficiencies OMB identified. The plan focused on specific goals, including reducing the number of HUD managers and supervisors and GS 14 and 15 positions; expanding personnel flexibilities, such as transit subsidies and telecommuting; and providing employee training and development to fill skill gaps. However, as of June 2002, the plan was not comprehensive enough to fully address the deficiencies outlined by OMB or the broader elements of workforce planning that we have endorsed that would involve looking carefully at what work staff should be doing now and in the future, planning for training and other staff development, and recruiting and hiring to build the workforce needed to accomplish its mission in the future. Without a comprehensive strategic workforce plan, HUD is not fully prepared to recruit and hire staff to pursue its mission. We have noted that federal agencies faced with growing retirement eligibilities may have difficulty replacing the loss of skilled and experienced staff. We found that high-performing organizations address this human capital challenge by identifying their current and future needs--including the appropriate number of employees, the key competencies for mission accomplishment, and the appropriate deployment of staff across the organization--and then create strategies for identifying and filling the gaps. According to HUD officials, in light of the pending retirements, HUD is faced with a need for a large-scale recruiting and hiring effort because it has done little outside hiring in more than 10 years. Some vacant positions have gone unfilled; others have been filled through lateral transfers, promotions, or the upward mobility of administrative staff into professional positions. Said one manager, "all we are doing is stealing from one another." As a first step in the recruiting and hiring effort, in April 2001, the Human Resource Office proposed a strategy for a HUD intern program that would recruit interns at experience levels ranging from some high school to completion of graduate or professional degrees. The program is designed to bring on new staff at support or entry levels (GS 5, 7, 9, and 11 for legal interns)--current students or people who have earned high school, college, graduate, or professional degrees that qualify them for entry-level positions. According to HUD officials, the internship program is a way to begin bringing new staff into HUD who could be trained to take over higher level positions as retirements occur. The largest component of the program is the HUD career internship program. Candidates who perform successfully for 2 years as HUD career interns, completing rotations in various parts of the organization, will be offered career professional positions with HUD. An official said that no HUD career interns were hired in fiscal year 2001, its first year of inception. However, the program is in full operation this year. The official said HUD hopes to hire 140 HUD career interns and up to 60 interns in other components of the program by the end of fiscal year 2002. As of June 2002, 64 interns had been hired or accepted offers from HUD. The HUD internship program may be a good long-term approach for HUD as interns are converted to permanent positions and move up the career ladder. However, it does not help HUD to bring on board midcareer level employees, although its demographic analysis shows the greatest retirement eligibility is for employees in grades 13-15. (See fig. 3.) A Partnership for Public Service report in February 2002 looked at midcareer retirements and recruiting strategies government wide. It found that "the impending wave of federal employee retirements will have a disproportionately large impact on the mid-career ranks (GS Grades 12- 15) in government," and that "after a decade of downsizing in the federal workforce, there will likely be an insufficient number of well-qualified internal candidates to replace the retirees." On the basis of these findings, the Partnership for Public Service recommended that the federal government expand its midlevel hiring practices to include nonfederal candidates more frequently and suggested strategies for doing so, including advertising federal jobs and their benefits more broadly to targeted audiences and removing barriers to the hiring process that unnecessarily limit vacancies to current federal employees. In assessing how they believe workforce planning issues affect PIH's ability to meet its mission, PIH managers and staff we interviewed reported that the lack of a comprehensive workforce plan makes it difficult for them to accomplish several PIH mission-related activities and provide service to their customers. The workforce planning issue of greatest concern for these PIH managers and staff is staffing shortages. The staffing shortages are exacerbated by skill gaps and uncertainties about what work should be done and the best mix of staff knowledge, skills, and abilities to do it. Directors of several public housing and Native American field offices said that staffing shortages prevent them from providing the level of oversight and technical assistance that the housing authorities need. As shown in figure 5, the field offices were, as of September 2001, staffed at less than 90 percent of the REAP-recommended staffing levels. As a result of these staffing shortages, the directors said that they are not able to accomplish PIH's goals of providing effective oversight and technical assistance; acting as an agent of change; and forming problem-solving partnerships with its clients, residents, communities, and local government leadership. (See fig. 1.) Even with staffing shortages, the field office directors we interviewed said that they were meeting the goal of using risk assessment techniques to focus oversight efforts. In June 2002, PIH officials said that some new hiring in field offices had moved the numbers of staff on board closer to REAP-recommended ceilings. We received the following comments from directors of a public and a Native American housing field office on how staffing shortages sometimes had a negative impact on their ability to contribute to PIH's goals: We never have enough time to do all of the technical assistance that needs to be done. We are responsible for providing oversight and technical assistance to 38 public housing authorities, including small offices that require greater assistance than the larger, better-staffed and equipped offices. We generally visit about 25 public housing authorities a year to conduct oversight reviews and provide technical assistance. We used to have a set cycle on which all of our housing authorities received visits, but current workload and staffing levels do not allow the time. Staff we interviewed in field offices and centers provided specific examples of work that they could not complete or complete in a timely manner because of staffing shortages. The work included prompt response to correspondence from customers that required research of laws and regulations, writing program regulations and guidance, tracking audit findings to ensure that corrective actions were taken by housing authorities, and closing out files on completed projects. One staff member who was hired to help meet the goal of building community partnerships with active outreach efforts said he had been used instead "to do whatever needs doing the most at the moment, including information systems management, managing grants applications, and doing compliance reviews." A grants manager described the impact of staffing shortages on her workload and her customers as follows: When tribal housing office staff call with questions, I sometimes only have enough time to refer them to a handbook page to read. As a result, the plans submitted to us need more rework than they would have if we could have spent the time to be more helpful on the front end. Staffing shortages and workload imbalances have prevented us from having the chance to really improve customers' operations. Six of the seven field office and center managers we interviewed agreed that the workloads in their offices were much more or somewhat more than could be handled at current staffing levels. Twenty of the 34 professional staff we interviewed at PIH locations around the country described their workloads as somewhat or much more than they could handle during normal business hours. Fourteen of the 18 public housing revitalization specialists and Office of Native American Programs grants management and evaluation specialists--the PIH staff who are first-line contacts with public housing authority staff--described their workloads as somewhat or much more than they could handle. Two of these staff said that they were too new to their positions to assess the workload, and two staff said the workload was about right. Three directors of public housing and Native American program field offices said that they have skill gaps in their offices that exacerbate the staffing shortages they are experiencing. Among the areas where they said expertise is lacking are facilities management; demolitions; real estate development; and financing, particularly mixed financing using public and private funding to develop housing. One director noted "We do not have a level of expertise here that could be defined as 'highly skilled.' I would say that my staff has about three-fourths of the knowledge we need." Moreover, most of the field office directors we interviewed said that they expect the skill gaps to worsen over the next several years because of retirements of knowledgeable staff. Almost half of all PIH staff and over half of PIH staff in such positions as public housing revitalization specialist, financial analyst, and Native American program administrator are projected to be eligible to retire by August 2003. The following are comments we received from managers and staff in two field offices: The youngest professional staff person here is 48 years old, and the average age is 52. Almost all of our staff will be eligible to retire in the next 3 to 5 years. Fourteen of our 31 staff could retire within 5 years. The impact could be horrible, in terms both of the number of bodies to do the work and the brain drain of knowledge, skills, and abilities that take years to develop. It takes a long time to become good at interacting effectively with our tribal communities. Interviews with managers and staff of PIH offices also identified uncertainties about what work should be done and the best mix of staff knowledge, skills, and abilities to do it. For example, all of the directors of public housing and Native American program field offices we interviewed said that they used risk assessment techniques to focus oversight. However, some managers and staff in field offices said they were uncertain about the appropriate level of monitoring and technical assistance to provide to their customers. PIH offices had no standard methods of assigning levels of technical assistance and oversight based on risk. One manager noted that each field office develops an annual monitoring plan based on projections of what can be accomplished with the staff on board. Although practical considerations require this type of planning, more comprehensive, futuristic workforce planning discussions are necessary to deal with questions on the desirable level of monitoring and technical assistance to ensure that housing authorities use HUD funds to provide the best possible service to public housing residents and other customers. Strategic workforce planning is a major challenge for HUD. We have found that high-performing organizations address this human capital challenge by identifying their current and future needs--including the appropriate number of employees, the key competencies for mission accomplishment, and the appropriate deployment of staff across the organization--and then create strategies for identifying and filling the gaps. Because HUD has not addressed all of these elements of strategic workforce planning, it does not know what work its staff should be doing now and in the future to meet its strategic goals; what knowledge, skills, and abilities its staff needs to do this work; the capabilities of the current staff; what gaps exist in skills, competencies, and developmental needs; and what its recruitment and hiring strategy should be. Without a comprehensive workforce plan, HUD is not fully prepared to recruit and hire the people it needs to pursue its mission--an issue made critical by its estimate that about half of its professional staff and nearly 60 percent if its highest-graded GS employees will be eligible to retire by August 2003. We are recommending that the Secretary of HUD develop a comprehensive strategic workforce plan that is aligned with its overall strategic plan and identifies the knowledge, skills, and abilities HUD needs and the actions that it plans to take to build its workforce for the future. In commenting on a draft of this report, the HUD Assistant Secretary for Administration said that HUD recognizes the need for additional workforce planning, as we recommended, and did not disagree with our report. She also provided information on several HUD efforts to address the elements of a comprehensive workforce plan that we discussed in our report. For example, she said that HUD has established a Human Capital Management Executive Steering Committee, consisting of representatives from all HUD program areas, to develop a five-year strategic plan to focus on human capital issues. She also said that the HUD Training Academy started several initiatives to support workforce planning, including leadership and development training for new supervisors, aspiring supervisors, and managers. In addition, according to the Assistant Secretary for Administration, HUD is in the process of completing an effort to redeploy field office staff so they are in positions where their skills can best be used to meet program needs. HUD's comments are reprinted in appendix II. To determine how HUD uses workforce planning to guide recruiting and hiring, we analyzed documentation and interviewed officials. Our documentation analyses included our prior reports; NAPA studies; REAP results; HUD strategic plans, budget justifications, and workforce planning reports; and HUD IG reports. We interviewed headquarters PIH and Human Resource officials. To determine how PIH managers and staff believe workforce planning issues affect PIH's ability to meet its strategic goals, we analyzed strategic planning documents and interviewed PIH managers at HUD headquarters. We pretested and conducted structured interviews with managers and staff at four PIH field locations: public housing offices in Philadelphia, PA; Jacksonville, FL; and San Francisco, CA; and an office of Native American programs in Phoenix, AZ. We also visited several PIH-directed centers that HUD established beginning in 1997 as part of its 2020 management reform effort to consolidate operations that had previously been done in HUD field offices. Centers we visited were the Grants Management and Financial Management Centers in Washington, D.C.; and a Troubled Agency Recovery Center in Cleveland, OH. In consultation with PIH's acting directors of field operations and Native American programs, we judgmentally selected the offices we visited to include a mix of geographical locations, office sizes, and type of work performed in consultation with PIH's acting directors of field operations and Native American programs. At each of the locations, we interviewed professional employees who were from six professional job classifications and were available to talk with us. The results of our interviews cannot be generalized to PIH overall. Table 1 lists the professional positions from which we selected staff to interview in PIH field offices and centers and describes some of their duties. We did our work between September 2001 and July 2002 in accordance with generally accepted government auditing standards. As arranged with your office, we are sending copies of this report to the Secretary, Department of Housing and Urban Development. 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 staffs have any questions about this report, please call me at (202) 512-2834. Key contacts and major contributors to this report are listed in appendix III. In addition to those individuals named above, Deborah Knorr and Gretchen Pattison made key contributions to this report.
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Looming retirements during the next 5 years at the Department of Housing and Urban Development (HUD) have brought the need for workforce planning to the forefront. HUD has done some workforce planning and has determined how many staff it needs to meet its current workload, but it does not have a comprehensive strategic workforce plan to guide its recruiting, hiring, and other key human capital efforts. Workforce planning steps taken include a detailed analysis of HUD's potential staff losses and completion of HUD's resource estimation and allocation process, which estimates the staff needed to handle the current workload in each office. Some of the Public and Indian Housing (PIH) managers and staff reported that the lack of workforce planning makes it difficult to accomplish mission-related activities and provide customer service. The issue of greatest concern for PIH managers and staff is the staffing shortage. Because HUD lacks a comprehensive strategic workforce plan, some PIH managers and staff were uncertain about what work should be done and the best mix of staff knowledge, skills, and abilities to do it.
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Both mutual fund companies and banks are financial intermediaries, that is, they raise funds from savers and channel these funds back to the economy by investing them. Banks generally use their deposits either to make loans or to invest in certain debt securities, principally government bonds. Mutual funds do not make loans, but they do invest in securities, primarily bonds and stocks. Money from these funds, in turn, flows either directly (through primary securities markets) or indirectly (through secondary securities markets) to the issuers of such securities. Long before the recent mutual fund boom, the relative importance of bank loans as a source of finance had been declining. As early as the 1960s, some large businesses had been replacing their usage of bank loans by issuing short-term securities called commercial paper. Subsequently, more companies found ways to tap the securities markets for their financial needs, lessening their dependence on bank loans. For example, corporations' reliance on bank loans as a percentage of their credit market debt declined from 28 percent in 1970 to 20 percent in 1994. The household sector (generally residential and consumer borrowers) also has become less dependent on bank loans for the ultimate source of financing. Beginning in the mid-1970s, and to a much greater extent since the early 1980s, major portions of home mortgage portfolios have been sold by banks and thrifts to financial intermediaries who use them as collateral for marketable securities and then sell the securities to investors. More recently, significant amounts of consumers' credit card debt and automobile loans have been similarly financed by securities instead of bank credit. Through securitization, banks and thrifts provide the initial financing for these mortgage, credit card, and automobile loans. However, once the loans are sold, it is the securities market that is the ultimate source of financing. More broadly, the term securitization describes a process through which securities issuance supplants bank credit as a source of finance, even if the borrower originally received funds from a bank. In addition, the relative importance of bank loans has been further diminished by the increased provision of direct loans by nonbank financial intermediaries, including securities firms, insurance companies, and finance companies. In this report, discussion of the "impact of mutual funds on deposits" or of the "movement of money from deposits to mutual funds" refers not merely to direct withdrawal of deposits by customers for the sake of investing in mutual fund shares but also to customers' diversion into mutual funds of new receipts that otherwise might have been placed in deposits. To assess the impact of mutual funds on deposits, we examined and compared available data published by industry sources and the bank regulators. Data on deposits in banks are routinely reported to and published by the bank regulators. Data on mutual funds are gathered and published by an industry association, the Investment Company Institute (ICI). Moreover, the Federal Reserve maintains and publishes the Flow of Funds Accounts, which is an attempt to capture the entire framework of financial transactions in the economy, including all major groupings of participants and instruments. This publication includes the bank data and mutual funds data that we used (the Federal Reserve obtains the mutual fund data from ICI). In the Flow of Funds Accounts, the Federal Reserve presents statistics on (1) the amounts outstanding at the end of each quarter and each year and (2) the net flows during each quarter and each year. For bank deposit information, the change of the level from one period to the next is used to determine the net flows into or out of deposits during that period. The same method is used for money market mutual funds, where the funds' managers intend to maintain the value of a share constant at one dollar on a daily basis. For longer-term mutual funds, however, the period-to-period change in the fund's value generally does not equal the net flows during the period because the value fluctuates with (1) the flows of customer money, (2) the changing prices of the stocks and bonds held by the mutual funds, and (3) the reinvestment of dividends and interest in the fund. In the Flow of Funds Accounts, the net flows into mutual funds are calculated from industry data on changes in amounts outstanding and adjusted for movements of security-price averages. To assess the impact of mutual funds' growth on the total supply of loanable and investable funds, we examined the Flow of Funds Accounts data on the sources of finance for the economy. In addition, we did a literature search for research articles examining (1) how residential, consumer, and business borrowers obtain financing, not only from bank loans or securities issuance but also from other sources and (2) how lenders, including banks as well as nonbank providers such as finance companies, funded the financing they provided and whether they sold or securitized their finance. We supplemented our search of the statistical sources with other material. We used research articles published by the Federal Reserve and documents published by securities industry sources over the last 5 years. In addition, we interviewed Federal Reserve experts on the previously mentioned topics. We also drew upon information gathered from banks and mutual fund specialists who were interviewed for an ongoing related GAO assignment. The Federal Reserve provided written comments on a draft of this report. These comments are discussed on page 15. We did our review in Washington, D.C., from March 1994 to November 1994 in accordance with generally accepted government auditing standards. The Federal Reserve and the Securities Industry Association (SIA) agreed that the flow of funds into mutual funds has had a significant impact on bank deposits. Although some observers dispute the magnitude of this impact, the evidence we reviewed supports the view that mutual funds have attracted sizable amounts of money that otherwise might have been placed in bank deposits. At year-end 1994, the amount of money in mutual funds ($2,172 billion) was considerably less than that in bank deposits ($3,462 billion). The mutual fund total, however, had risen by almost $1.2 trillion since year-end 1989, most of it from net new inflows, while the deposit total was $89 billion less than at year-end 1989. Despite these data, some observers maintain that deposits have not been a major source of the flow of money into mutual funds in recent years. For example, one study by a securities firm claims that "mutual fund inflows do not depend on outflows from the banking system," arguing that "net new savings" are more important. ICI, a mutual funds industry association, stated that "CD proceeds play minor role as source for investment in stock and bond mutual funds," and that "current income" and "the proceeds from other investments" were far more important. Nonetheless, most observers whose studies we reviewed agree that mutual funds have had a significant effect on bank deposits. Federal Reserve publications state that there has been a movement from deposits into mutual funds. The same view is propounded by SIA. Moreover, in a 1994 survey of 205 bank chief executives, nearly half said that their banks had started selling mutual funds in order to retain customers. We did not find any reliable quantification of the full impact of mutual funds on deposits, including both the direct withdrawals and customers' diversion of new receipts that otherwise might have been placed in deposits. We assessed two quantitative approaches: (1) the total net flows into mutual funds and (2) ICI's estimate of the impact on deposits. Because both approaches were incomplete, we examined a third alternative: the relationship between deposits and overall economic activity. This third approach also has limitations because there are a variety of factors that affect the relationship between deposits and gross domestic product (GDP). Nonetheless, it provided a more comprehensive look than the other approaches. Using the ratio of deposits to GDP as a benchmark, we estimated that--for the period 1990 through 1994--the total impact of mutual funds on deposits may have been sizable, but probably less than $700 billion. The total net flows into mutual funds from all sources during 1990 through 1994 were $1,067 billion. (See table 1.) The impact on deposits had to be less than this amount because the evidence indicated there were also flows into mutual funds from nondeposit sources. For example, some of the money placed in mutual funds by the household sector probably derived from the sales of stocks and bonds since, in 1991 and 1993, the household sector sold more individual securities than it bought. (See table 2.) Another possible source of flows into mutual funds was the frequent occurrence of sizable lump-sum distributions to individuals from retirement plans and job-termination arrangements. According to both the Federal Reserve and SIA, much of this money was placed in mutual funds by the recipients. SIA's estimate of the impact of mutual funds on deposits was incomplete because it dealt only with the direct impact, i.e., the withdrawal of existing deposits for the sake of investing in mutual funds. Even this estimate of the direct impact was incomplete because it was primarily based on net withdrawals of banks' time deposits, rather than total deposits. Using time deposits as a measure, SIA stated that the flow from deposits into mutual funds could have been about $200 billion in 1992 and 1993 combined. In fact, during this period declines in time deposits were largely offset by increases in demand deposits. Since there is no reporting of either the destinations of deposit withdrawals or of the origins of deposit placements, we cannot be certain whether time deposit withdrawals went into mutual funds or if part of them went into demand deposits. In any event, we found no estimates of the indirect effects, i.e., the diversion of new receipts into mutual funds rather than into deposits. Such a measure is more important in a growing economy because, even if deposits are growing, they may not be growing as fast as they would absent the diversion to mutual funds. We attempted to derive a reasonable estimate of the combined direct and indirect impact of mutual funds on deposits by examining the relationship of deposits to total economic activity, as measured by GDP. In figure 1, the solid line shows that the relationship of deposits to GDP remained fairly stable for most of the last 30 years. With only one exception, it stayed within a band of 63 percent to 73 percent every year from 1963 through 1990. Large flows into mutual funds in the 1980s (shown in figure 1 by the gap between the solid line and the dotted line) did not push the deposit-to-GDP ratio outside this band. However, in the early 1990s the deposit-to-GDP ratio moved significantly below the band, dropping to 51 percent in 1994. The ratio of mutual funds to GDP has been rising since the early 1980s, but only since the late 1980s has the rise in mutual funds-to-GDP ratio been roughly equal to the decline in the deposit-to-GDP ratio. This apparent substitution or movement of money into mutual funds rather than bank deposits has been, at least in part, the result of historically low interest rates paid on bank deposits compared to expected risk-adjusted returns on mutual fund investments. If the gap between deposit rates of return and expected mutual fund rates of return narrows, this movement of funds out of deposits could slow or even reverse itself. We calculated what the deposit volumes would have been had the deposit-to-GDP ratio stayed at the lower end of its previous band, i.e., 63 percent. Using this benchmark, total deposits would have grown $695 billion during 1990 through 1994. Because deposits actually declined by $89 billion, this indicates a potential impact of $784 billion. Comparing actual deposits with the low end of the previous band is conservative. A deposit-to-GDP ratio nearer the middle of the band would indicate a larger shortfall. Nonetheless, it must be stressed that the deposit-to-GDP ratio has been pushed down by a number of factors in addition to a movement of deposits into mutual funds. These factors include a dramatic downsizing of the savings-institution industry, a decline in loans at commercial banks, and a shift by banks into greater use of nondeposit funding sources. We were unable to determine exactly how much of the decline in the deposits-to-GDP ratio can be attributed to the impact of mutual funds. Nonetheless, on the basis of the above analysis, we concluded that a reasonable estimate of the impact was sizable but probably less than $700 billion. The movement of money from bank deposits to mutual funds should have little if any effect on the total supply of loanable and investable funds available to the economy, even though this movement may have shifted the intermediaries through which finance flows. Both types of intermediaries (banks and mutual fund companies) generally invest a substantial portion of the funds they receive. As noted earlier, the share of bank loans in total finance was being reduced by securitization of assets long before mutual funds surged to prominence as competitors for customers' dollars. Mutual funds have further advanced this securitization process. Both mutual funds and banks generally invest a substantial portion of the funds they receive, with the mutual funds investing mainly in securities and the banks investing in loans and certain kinds of securities. Thus, at the same time that a sizable amount of customer money went from bank deposits to mutual funds, the funds' purchases of securities became a greater source of new finance to the economy than bank lending. In 1992 and 1993, about two-fifths of the net new funds flowing to the domestic nonfinancial sectors of the economy came via mutual funds, while the share that flowed via banks was about one-fourth of the net new funds. By and large, it was not possible to determine who "receives" the mutual funds' investments. Unlike bank lending, where the money goes directly from the lending bank to the borrower, mutual funds' investments largely flow through the securities markets, since most of the funds' purchases are of tradable securities. (A relatively small but interesting exception occurs with so-called "prime-rate" mutual funds, which purchase securitized bank loans.) As large amounts of customers' money flowed into mutual funds in the early 1990s, the funds' investments in securities added liquidity to the securities markets generally. This liquidity not only improved conditions for existing issuers desiring to raise additional money but also may have made it easier for a broader range of borrowers to tap the securities-issuance markets. Availability of finance for the three different borrower sectors--residential, consumer, and business--could be disproportionally affected by the movement of funds out of bank deposits and into mutual funds, even when the total supply of loanable and investable funds is not affected. Because mutual funds invest mainly in securities, it is possible that those who issue securities might increase their access to finance at the expense of those who do not. Unfortunately, there is no way to measure the extent to which this has occurred from the statistical information available. All three sectors obtain some of their financing through the securities markets, either through their own issues or via the intermediaries from which they obtain credit. Because significant amounts of finance flow through the latter intermediaries, we were unable to determine to what extent, or even whether, any of these sectors may face more difficulty in obtaining finance than they had previously experienced. However, we were able to determine that all three sectors increased their access to finance raised in the securities markets, although the degree varies by sector. In addition, we can describe the indirect channels through which securitization affects the availability of credit for these sectors, even though these indirect effects cannot be quantified. Residential finance has been extensively securitized. Although individual homeowners go to banks, thrifts, or mortgage companies for their mortgages, most residential mortgages are written in a way to facilitate their subsequent securitization. By the end of 1994, only 34 percent of the total value of home mortgages outstanding was directly held by commercial banks and thrifts, down from a two-thirds share in 1980 (see table 3). Nonetheless, banks and thrifts are now also providing indirect financing to homeowners: in addition to their (reduced) direct holdings of mortgages, they invest in mortgage-backed securities. Consumer credit is still largely provided by commercial banks. As of year-end 1994, 63 percent of consumer debt (nonmortgage) was held by depository institutions. Banks continue to actively originate consumer credit. Since the late 1980s, however, banks and other providers of consumer finance have securitized some of their automobile loans and credit card receivables, resulting in the securitized portion of consumer debt rising from zero in 1985 to 14 percent in 1994. (See table 4.) Moreover, consumers have another avenue of indirect access to the securities markets: borrowing from finance companies. These companies obtain two-thirds of their funds by issuing their own securities. We examined the supply of finance to the corporate sector for the years 1990 through 1994, when the greatest inflow into mutual funds occurred and when deposit growth was small or negative. During the first 4 years of this period, the amount of outstanding bank credit to nonfinancial corporations declined every year. (See table 5.) Not all corporations reduced their bank loans, of course, but the declines outweighed the increases. In 1994, for the first time during this period, there was an increase in outstanding bank credit to nonfinancial corporations. In the first year of this period, 1990, the corporate sector did not offset declining bank loans by increased issuance of securities. In fact, the sector redeemed more securities than it issued. Thereafter, however, corporations far surpassed previous records for raising new funds on the securities markets. Net issuance averaged $100 billion annually in 1991 through 1993, compared with a previous single-year record of $55 billion. In 1994 there was a sharp falloff of net securities issuance by the corporate sector along with renewed growth in bank loans. The flow of liquidity from mutual funds into the securities markets enhanced the capacity of the securities markets to absorb these new issues. From 1990 through 1994, mutual funds made net purchases of corporate securities averaging $104 billion annually. Mutual funds not only purchased the securities of large corporations. They also were major purchasers of shares of smaller companies issuing stock for the first time as well as major purchasers of bonds issued by companies whose debt was not highly rated (so-called junk bonds). For those business borrowers who are unable to issue securities, there are indirect ways in which funding from the securities markets can flow to them. For example, just as finance companies channel funds from the securities markets to consumers, it is common for finance companies to lend to middle-sized companies that otherwise would borrow from banks. Even in the "noncorporate, nonfarm business sector," where the borrowers tend to be quite small, finance companies supply about a fifth of total market debt. As another example, some business financing is funded by certain mutual funds that invest primarily in business loans bought from the originating banks. There is a possibility that those small businesses that are primarily dependent on small banks for their loans could experience reduced credit availability if their banks lost deposits to mutual funds. This could happen if neither these businesses nor their banks could readily obtain financing from other credit suppliers or from the capital markets. Available evidence shows that small businesses are more dependent on bank loans than large businesses. Whereas bank loans comprise about one-eighth of the debt of the corporate sector as a whole, a 1989 survey cited by the Federal Reserve suggested that small businesses get almost half of their debt financing from banks. Nonetheless, by implication, the average small business gets about half of its debt financing from nonbank sources. Some small businesses raise money by issuing securities. According to the Federal Reserve, many of these firms probably benefitted from the more receptive conditions in the markets in recent years. However, small businesses with less than $100 million in annual sales generally would not be able to sell securities. Nonetheless, small businesses can be indirect beneficiaries of mutual funds' investments, via the securities issued by finance companies that extend credit to small businesses. As another conduit, one securities firm has extended about $1 billion in credit lines to small businesses. Regarding the access of small businesses to bank loans, the movement of money out of deposits and into mutual funds does not necessarily mean that the availability of bank loans will be reduced. If the lenders are regional banks or larger, they may be losing some of their loan volume to securitization either because they are securitizing their own assets or because their corporate customers are turning to securities issuance. In this case, more of the remaining deposits of these banks should be available for lending to small businesses. Nonetheless, presumably there is some portion of small businesses that is solely or heavily dependent on small banks for their credit. These borrowers might be affected if their banks lose deposits to mutual funds. Because some small banks' borrower base is concentrated in small business, their clientele is not likely to reduce loans by switching to securities issuance. Thus, a cutback of these banks' funding sources would probably not be accompanied by a reduction of loan demand. Therefore, some small banks might have to respond to a loss of deposits by cutting back on loans outstanding. However, such cutbacks are only a hypothetical possibility. Recently, banks with $250 million or less in assets have had ample liquidity in the form of their holdings of bonds and other securities in their investment accounts. The ratio of securities to total assets averaged over 33 percent in 1993 and 1994 compared with an average of about 28 percent for much of the 1980s. If faced with a loss of deposits, a number of small banks presumably could fund existing and new loans by selling these securities. In sum, the channels of financing are quite varied; for the most part, a shift of customers' money from deposits into mutual funds need not reduce credit availability for any group of borrowers. There remains the possibility that some borrowers from small banks might face credit availability constraints in certain circumstances, but it is not clear whether those circumstances currently exist. We received written comments on a draft of this report from the Federal Reserve. In its letter, the Federal Reserve stated that the report provides a timely review of the flow of funds between mutual funds and bank deposits and the effect of these flows on credit availability. The Federal Reserve said it had no further comment regarding the report or its content because the report made no recommendations to the Federal Reserve. We are sending copies of this report to the Chairman of the Board of Governors of the Federal Reserve System and other interested parties. We will also make copies available to others upon request. The major contributors to this report were John Treanor, Banking Specialist, Stephen Swaim, Assistant Director, and Robert Pollard, Economist. If you have any questions, please contact me at (202) 512-8678. 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 examined whether the movement of funds from bank deposits into mutual funds affects the availability of credit for residential, consumer, or commercial purposes. GAO found that: (1) the amount of money in mutual funds grew from $994 billion at year-end 1989 to $2,172 billion at year-end 1994, mainly due to an increase of net customer inflows; (2) during the same period, bank deposits declined from $3.55 billion to $3.46 billion; (3) as much as $700 billion of the growth in mutual funds may have come at the expense of bank deposits between 1990 and 1994; (4) the movement of money into mutual funds has resulted partly from the relatively lower interest rates paid on bank deposits, but this should have little effect on the total supply of loanable and investable funds, since mutual funds also lend or invest a major portion of the funds they receive; (5) there was insufficient data on whether the different categories of borrowers were affected by the shift of money from bank deposits to mutual funds; (6) all categories of borrowers have recently increased their access to financing obtained through the securities markets; and (7) flows of deposits out of smaller banks could reduce the availability of finance for small businesses whose primary source of finance is loans from such banks.
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HCFA, an agency within the Department of Health and Human Services (HHS), is responsible for administering much of the federal government's multibillion-dollar investment in health care--primarily the Medicare and Medicaid programs. Rapid increases in Medicare program costs, coupled with increasing concern about fraud and abuse in the program, led the Congress to enact legislation--HIPAA and the BBA--to strengthen Medicare. HIPAA established the Medicare Integrity Program, which ensures increased funding for Medicare program safeguard efforts and authorizes HCFA to hire specialized antifraud contractors. The BBA made the most significant changes to Medicare in decades, designed to reduce the growth of Medicare spending. The law requires HCFA to implement new payment methodologies, expand managed care options, and strengthen program integrity activities. At the same time, these laws also added entirely new responsibilities--such as oversight of private health insurance and implementation of a new state children's health insurance program--to HCFA's historic mission to administer Medicare and Medicaid. 17 percent of all Medicare beneficiaries--were enrolled in more than 450 managed care plans as of December 1, 1998. Medicaid, a $177 billion federal and state grant-in-aid entitlement program administered by states, finances health care for about 36 million low-income families and blind, disabled, and elderly people. At the state level, Medicaid operates as a health insurance program covering acute-care services for most recipients, financing long-term medical care and social services for elderly and disabled people, and funding programs for people with developmental disabilities and mental illnesses. In addition, the BBA created the state-operated Children's Health Insurance Program, which provides federal grants to states to provide basic health insurance coverage for low-income, uninsured children. Through this program, states have a choice of either expanding their Medicaid programs or developing a separate program to insure children. Under HIPAA, HCFA also has a completely new responsibility for ensuring that private health insurance plans comply with federal standards. In five states that did not pass legislation conforming to key provisions of HIPAA, HCFA has direct responsibility for enforcing HIPAA standards for individual and group insurance plans. In addition, HIPAA, along with the BBA, provides HCFA more opportunities to improve its fraud and abuse identification and prevention programs in Medicare. HCFA had about 4,100 staff as of October 1998. About 65 percent were located in the central office and the remainder worked in the agency's 10 regional offices. In addition to its workforce, HCFA oversees Medicare claims administration contractors who employed an estimated 22,000 people in fiscal year 1997. Last year, we told you that substantial program growth and greater responsibilities appeared to be outstripping HCFA's capacity to manage its existing workload. Today, the message is a more complicated one. HCFA has made great strides in addressing many of its immediate priorities--including readying critical computer systems for the year 2000 and implementing many provisions of HIPAA and the BBA. But the number and complexity of the BBA's requirements and the urgency of systems changes, coupled with a backlog of decades-old problems associated with HCFA's routine operations, make it clear that much more needs to be accomplished. Over the past year, HCFA has made a concerted effort to deal with its most pressing priority--the Year 2000 computer systems problem--commonly referred to as Y2K. If uncorrected, Y2K problems could cause computer systems that run HCFA's programs to shut down or malfunction, resulting in serious disruptions to payments to Medicare providers and services to Medicare beneficiaries. Addressing Y2K is a formidable task for HCFA, because the Medicare program uses 6 standard claims processing systems, about 60 private contractors, and financial institutions nationwide to process about 900 million Medicare claims each year for about 1 million hospitals, physicians, and medical equipment suppliers. In September 1998, we reported that time was running out for HCFA to modify Medicare systems to handle Y2K. HCFA was severely behind schedule in repairing and testing its systems and in developing contingency plans to handle system failures. Until 1997, HCFA was attempting to develop the Medicare Transaction System--which would be Y2K compliant--to replace its existing Medicare claims processing systems. But the project was halted because of design problems and cost overruns. This left HCFA with multiple, noncompliant Medicare claims processing systems that needed modernization. Compounding this difficult task was HCFA's failure to adequately direct and monitor its Y2K project. We recommended changes to better manage its Y2K efforts, and HCFA agreed to implement our recommendations as soon as possible. HCFA recently reported to HHS that as of December 31, 1998, it had completed renovating 5 of the 6 standard systems used by its contractors to pay claims and all 25 of its mission-critical internal systems. We are now monitoring HCFA's progress in implementing the recommendations in our September 1998 report, and we are reviewing the agency's progress in addressing the critical areas of Y2K testing and business continuity and contingency planning. We will testify on these issues to the Congress in the next few weeks. Furthermore, although HCFA is not directly responsible for state Medicaid enrollment and payment systems, agency officials said they are concerned that some state systems may fail. To help prevent this, the agency has begun to work with states on their Y2K problems. modify to achieve Y2K compliance are obsolete and will need to be replaced soon after the year 2000. Y2K presented an immediate problem with an inflexible end point, which has forced HCFA to shelve its efforts to consolidate its Medicare claims processing systems and modernize other systems. After the termination of the Medicare Transaction System, HCFA decided to consolidate the number of systems that pay claims to reduce systems maintenance costs and streamline efforts to implement required systems changes. But systems consolidation could not go forward while HCFA and its contractors were renovating and testing their systems for Y2K readiness. As a result, it is spending millions to renovate certain systems for Y2K readiness that it plans to stop using soon after 2000. HCFA has completed many major tasks this past year and has implemented significant portions of HIPAA and the BBA, but progress remains slow. For example, HCFA has taken steps to allocate HIPAA funding and to implement authorities to combat waste and abuse in the Medicare program. HIPAA provided additional funds for HCFA's Medicare claims processing contractors to use to detect fraudulent and abusive billing practices. The claims administration contractors use these funds to hire and retain staff knowledgeable in conducting provider audits, claims reviews, and payment data analyses, among other activities. HCFA promptly issued the contractors' fiscal year 1999 budget allocations, unlike the situation in fiscal year 1998, when HCFA did not provide this funding to the contractors until a third of the year had passed. As part of HIPAA, the Congress also gave HCFA the authority to contract with specialists to perform payment safeguard activities. HCFA is now reviewing the submissions it received in response to its September 1998 solicitation for bids to become a program safeguard contractor. Such a contract could be awarded by May 1999, but the scope will be limited and will not provide many of the benefits initially envisioned from using a specialty contractor. took several steps toward implementing the new National Medicare Education Program last year. The regulations, published in June 1998, represented a massive undertaking accomplished within a very short time period. In rushing to reach the deadline, however, some of the provisions were developed without full consideration of their impact on managed care organizations. For example, the regulations required that managed care plans assess the health status of all new Medicare members within 90 days of enrollment, but this requirement would include existing plan members for whom the plan may already have comprehensive information. Similarly, the regulations require each managed care organization's chief executive officer to certify that the encounter data provided to HCFA are 100-percent accurate. To managed care plans, such a standard seems unreasonable because these data are generated from many sources not directly under their control, including contracting physicians, hospitals, and other providers. In addition, managed care plans are concerned that other requirements cannot realistically be accomplished in the required time frames, may be duplicative of existing accreditation and reporting requirements, and could create disincentives to work on more difficult quality improvement projects. HCFA has agreed to reconsider a number of items and is planning to change the standard for data accuracy so that plans' chief executive officers will certify to the best of their knowledge that the data provided to HCFA are accurate. For the new National Medicare Education Program, HCFA established an eight-point plan for educating beneficiaries about their new managed care options; implemented an Internet site for providing comparative managed care plan information; and has begun phasing in its toll-free call center and its mail-out of a revised Medicare handbook to beneficiaries in five states, which foreshadowed the nationwide mail campaign planned for this fall. The effort to produce Medicare handbooks was more complicated than the agency originally expected. Of the 15 comparative handbooks mailed to beneficiaries in different geographic areas, 12 were inaccurate because HCFA published them before managed care plans finalized their Medicare participation decisions. The Congress' efforts to encourage the growth of Medicare managed care could be thwarted if plans refuse to participate and if beneficiaries are confused, instead of enlightened, about their many health care choices. providers--regardless of their costs--fixed, predetermined amounts that vary according to patient need. To meet BBA targets, HCFA has to design and implement four PPS systems: a skilled nursing facility (SNF) PPS by July 1, 1998; a home health agency PPS by October 1, 1999, which was delayed by later legislation until October 1, 2000; a hospital outpatient PPS by calendar year 1999; and an inpatient rehabilitation PPS by fiscal year 2001. The SNF PPS was implemented on July 1, 1998. However, to prevent additional complications during system renovation and testing for Y2K, the agency has missed deadlines to make systems changes needed for beginning the hospital outpatient and home health agency prospective payment systems. These delays could affect both budgetary savings and Medicare beneficiaries themselves. The Congressional Budget Office had estimated that new payment methods for home health and outpatient services would save Medicare about $23 billion between fiscal years 1998 and 2002. In addition, the hospital outpatient PPS would have reduced the amounts elderly patients pay for such services. HHS estimated that between January 1999 and April 2000, senior citizens will have to pay an extra $570 million in higher copayments over what they would have paid if the hospital outpatient PPS had been implemented on time. While many Medicare beneficiaries have some sort of third-party coverage for costs that Medicare does not cover--referred to as "Medigap" policies--they are likely to be indirectly affected because premiums for Medigap policies are increasing in line with rising Medicare costs. Although HCFA officials were tracking both BBA and Y2K implementation, top agency officials did not inform the Congress until July 1998 that the agency would be delayed in instituting the new payment methods. HCFA officials attributed their late awareness of this problem to communications breakdowns at three levels. First, they believe operations and policy staff at headquarters responsible for designing the program changes were not consulting with each other and with others who were responsible for implementing them in the field. Second, they stated that top agency officials did not immediately find out what lower-level HCFA managers knew--how long it would take to implement complex BBA changes and how that could complicate Y2K testing of the systems. Finally, officials believe that there was inadequate consultation with Medicare contractors responsible for making the actual programming changes to their systems. While some parts of the BBA implementation were put on hold, HCFA moved quickly to implement a new SNF PPS. However, we believe that the SNF PPS has design flaws, and coupled with a lack of adequate planned oversight, this may diminish the anticipated reduction in Medicare costs that prospective payment was supposed to create. Savings depend on developing an appropriate daily payment (per diem) rate to reflect patients' needs. The new daily payment rate is based on the average daily cost of providing all Medicare-covered skilled nursing services, adjusted to take into account the patient's condition and expected care needs. We are concerned that the new SNF PPS' design preserves the opportunity for providers to increase their compensation by supplying potentially unnecessary services, since the amounts paid still depend heavily on the number of therapy and other services patients receive. Furthermore, HCFA has not planned sufficient oversight to prevent fraud and abuse. For SNFs, a facility's own assessment of its patients will determine whether a patient is eligible for Medicare coverage and how much will be paid. When Texas implemented a similar payment method for Medicaid, its on-site reviewers found that nursing homes' assessments were often inflated. Despite Texas' experience, HCFA does not currently have plans to monitor facilities' assessments to ensure they are appropriate and accurate. Nor has it ensured that the Medicare contractors--who pay the facilities' claims--will have timely information on patients to determine whether the rate to be paid is appropriate. studying HCFA's and the states' efforts to implement the Children's Health Insurance Program and will report on the results later this year. Over the last several years, HCFA has been lax in managing critical ongoing program responsibilities, such as financial management--particularly by Medicare claims administration contractors--and oversight of nursing home compliance. For example, our work on high-risk programs such as Medicare highlighted the need for major federal financial management reforms, which the Congress initially enacted in the 1990 Chief Financial Officers Act and later expanded in the 1994 Government Management Reform Act. Under this legislation, the 24 major departments and agencies such as HCFA must now produce annual financial statements subject to independent audit, beginning with those for fiscal year 1996. Since 1996, in conjunction with its audit of HCFA's financial statements, the HHS Office of Inspector General (OIG) has estimated the error rate for improper payments made by Medicare claims administration contractors. For fiscal year 1998, the OIG estimated that about 7 percent of Medicare fee-for-service payments for claims--$12.6 billion--did not comply with Medicare laws and regulations. This represents an improvement over fiscal year 1997, when the OIG estimated that Medicare contractors made $20.3 billion in improper payments--about 11 percent of all claims. However, the difference from 1997 to 1998 was almost entirely attributable to better documentation provided to the auditors, rather than to a substantive reduction in improper payments in categories such as "lack of medical necessity," "incorrect coding," and "noncovered services." integrated accounting system that can capture financial information at the contractor level. Moreover, the OIG found indications that HCFA's central and regional office oversight of operational and financial management controls was inadequate to ensure that contractor-provided financial information was consistent and accurate. Similarly, the OIG found that security for contractor and HCFA information systems was inadequate, imperiling the confidentiality of Medicare beneficiary personal and medical data. While HCFA had corrected some weaknesses found during the audit for fiscal year 1996, it was still possible for an unauthorized user to gain access to HCFA's database and modify sensitive beneficiary files. HCFA has recognized the need to protect the security of its information systems and, starting in 1997, began revising security policy and guidance, and implementing corrective action plans. Because of the need to focus on Y2K modifications, however, HCFA probably will not address many of these weaknesses in the near term. Medicaid financial management also is in need of reform. The OIG's 1997 audit revealed that HCFA had limited information on the federal portion of Medicaid accounts receivable and payable. In fiscal year 1997, HCFA relied on survey information from the states to estimate the amounts to record in the financial statements, and because the survey data were so limited, the OIG could not verify their accuracy. In addition, the audit noted that HCFA regional offices were not providing sufficient oversight of states' Medicaid claims processing and reporting, including states' efforts to deter fraud and abuse and collect overpayments. homes. HCFA has also added requirements that home health agencies demonstrate experience and expertise in home care by serving a minimum number of patients before initially certifying them as Medicare providers. However, these steps may not go far enough to protect vulnerable beneficiaries. We are now reviewing HCFA's oversight of state nursing home complaint investigations and inspections and will report to the Congress on these issues this year. Because its mission has been rapidly growing and changing, HCFA officials have worked hard to strengthen the agency's management capabilities. Despite these efforts, problems remain that hamper effective agency operations. While HCFA has developed a new focus on planning, including publishing a strategic plan, it does not require units to develop detailed plans to carry out day-to-day operations. The agency has completed its reorganization, but the resulting structure has contributed to various communication and coordination problems. Last year, HCFA lacked sufficient trained staff with the skills to effectively implement its top priorities. It hired more staff with needed skills in 1998, but it has not completed a long-term strategic approach to meet its future human resource needs. HCFA staff and managers are also concerned that its performance and award systems are not well linked to accomplishing its mission and that many managers are overburdened and lack managerial skills. These types of problems are found in other agencies, but HCFA still must be diligent in addressing them. The President's budget for fiscal year 2000 proposes a reform initiative for HCFA that is designed to increase its flexibility in the human resources area and to increase the agency's accountability. In December 1998, HCFA published its strategic plan, which focused on the organization as a whole and communicated the agency's vision, mission, and broad approaches to realizing that vision. This plan was developed to help HHS respond to requirements in the Government Performance and Results Act of 1993. In its strategic plan, HCFA clearly states that serving beneficiaries is its primary mission and, in doing so, the agency must be a prudent purchaser of health care. In addition to its overarching strategic plan, HCFA has also produced draft strategic plans for such significant areas as information technology and program integrity. desired outcomes; time frames; and assignments of responsibilities for task completion, are critical. Last year, we reported that HCFA was not planning its activities on a tactical level. Although tactical planning has been used in some specific instances during the past year, such as to help track implementation of BBA requirements, HCFA has still not institutionalized this level of planning in its day-to-day operations. In our interviews and focus groups, a pervasive theme was the need to work in a crisis mode, made worse by a lack of planning. For example, a staff member stated that she was being pulled from one "hot project" to another--which caused her to lose efficiency because she barely managed to master one subject before she was tasked with another. A manager told us that since the reorganization, little planning has taken place in his division, making even simple tasks harder. He said, as an example, that the divisions did not know how much travel money was available until the middle of the fiscal year and that routine trips had to be written up as emergencies to get approval. We heard similar concerns from managers and staff working on data systems and coverage policy. HCFA's July 1997 reorganization established a totally new structure designed to better focus the agency as a "beneficiary-centered purchaser" of health care. The reorganization created new centers that were intended to respond directly to HCFA's customers--the Center for Beneficiary Services, the Center for Health Plans and Providers, and the Center for Medicaid and State Operations--and to provide additional resources to Medicare's growing managed care program. In our January 1998 testimony, we noted that the agency's staff had not yet moved to the actual location of their new organizational units, which tended to exacerbate problems with internal communication and coordination. Almost a year after the reorganization, between June and August 1998, HCFA completed the physical relocations, placing staff within their new organizational units. Relocation was a major undertaking because HCFA had made dramatic shifts of groups and people. An estimated 80 percent of HCFA central office staff, along with their computers, files, and shared office equipment, were relocated during the move. Managers told us that the physical move was implemented well, minimized work disruptions, and enhanced HCFA's operational efficiencies. centers to enable them to work more closely together. We found that HCFA is still in the process of learning how to make its new organization work. Several managers said that they believe the quality of decision-making will be enhanced because input from many individuals and groups is required. But other managers and staff reported substantial internal and external communication problems as a result of the reorganization. For example, they said that the organization's decision-making process has become slow and cumbersome because it is more difficult to identify the key decisionmakers and find meeting times that can fit their busy schedules. We also were told that even identifying appropriate points of contact is sometimes difficult because new organizational titles are confusing. Finally, some managers and staff were concerned that when accountability for issues was shared by more than one center or office, tasks could "fall through the cracks" unless responsibilities were more clearly defined. Agency officials recognize that coordination is a problem and that there is sometimes a lack of accountability for decision-making. In response, they indicated that they are establishing teams on priority projects where key participants are identified and accountability for project completion is placed on one person. HCFA's reorganization and emerging role as a health care purchaser and beneficiary advocate have also led to changes in the way HCFA communicates with those outside the agency. Some changes, such as those brought on by the Medicare+Choice program and the availability of Medicare and Medicaid information on the Internet, have increased interaction with providers, provider groups, and beneficiaries, according to several HCFA employees. Some staff we spoke with expressed concern about this increased workload and their inability to readily refer people to appropriate HCFA entities because the new organizational lines of responsibility are still unclear. Also, we found that although the Internet means that HCFA is "open 24 hours a day" and can communicate differently through this new medium, neither senior staff nor agency plans have fully addressed the impact of the Internet on HCFA's workload and how managers might need to reallocate responsibilities. specialists. Senior agency officials told us that the new staff, with skills in areas such as managed care, private insurance, and market research, should help HCFA meet its new and growing responsibilities. We believe that HCFA's focus on attracting new employees needs to be long term and continuous because it will continue to lose staff whose expertise must be replaced or supplemented. Over the next 5 years, almost a quarter of HCFA's staff--who make up a large part of the agency's management and technical expertise--will be eligible to retire. In addition, managers say HCFA will need staff with "real world" expertise in private industry, including those who know how to purchase care competitively. While HCFA has not fully assessed its long-term human resource needs, senior officials told us that the agency is taking initial steps toward developing a long-term plan for investing in its human resources. HCFA currently has a draft human resources plan that covers the years 1999 through 2003. HCFA managers and staff discussed a variety of factors that hamper agency operations and limit effective management. Although we believe that HCFA is not unique in experiencing these problems, mitigating them could improve agency performance. These include a pass/fail performance rating system where virtually all staff pass, an awards program that does not necessarily reward superior performance, and flexible work schedules and locations that limit staff availability. Participants in our focus groups believed that HCFA's performance appraisal system for nonexecutive staff does not allow managers to meaningfully assess and report on staff performance because virtually everyone receives a passing grade. Staff believed that the pass/fail system is demoralizing to hard workers because no adverse action is taken for unsatisfactory performance. Similarly, according to managers and staff, the performance appraisal system does not give staff a sense of satisfaction when they perform well because it fails to recognize outstanding efforts. Some cited the prior performance system as preferable because exceptional performers could benefit by receiving more rapid pay increases. The Administrator found that the performance appraisal system for executives was also not useful in holding managers accountable and made changes this year to better differentiate senior managers' performance. The executive appraisal system has changed to a system with five levels of performance. Each executive manager has a performance agreement that is linked to performance goals for his or her set of responsibilities. Many managers and staff members also told us that the current awards program is not working. Although the program is intended to motivate staff, the opinions we gathered suggest that it may have just the opposite effect. Each unit establishes its own panel that makes award decisions and controls award amounts. Panels consist of an equal number of union-appointed and management-appointed representatives. Each panel sets its own criteria for making awards and determining the portion of its awards budget to give to managers for "on-the-spot" awards, which are awarded directly to staff for performance on specific projects throughout the year. Managers told us that they would like to be able to distinguish among the accomplishments of staff members and reward them accordingly, but both managers and staff perceive the awards process as lacking equity and integrity. Any staff member can nominate another for an award, and we were told that staff members sometimes nominate themselves and friends nominate each other. Managers also told us that sometimes almost all nominees in a unit receive awards because panels find it difficult to distinguish among nominees' performance. One manager who served as a panel member said that during the last fiscal year, about 250 employees were nominated for an award in his center--about two-thirds of all that center's employees. He said that only five of the nominees did not get an award. Last fiscal year, panels awarded about $678,000 to about 2,200 employees in grades 1 through 15--an average of about $300 per awardee. Managers also directly awarded about $213,000 through on-the-spot awards that can range from $50 to $250. While staff were highly critical of the performance appraisal and awards processes, they approved of the flexibility to set their own work hours and work locations. HCFA's personnel rules provide for flextime--in which employees may arrive at work at different times each day within core periods or work longer hours in a day and earn time off--and flexiplace--which allows employees to work at alternative locations. Under these rules, however, staff who work in the office only 4 days a week may be off when their managers need them to be in the office. Managers also told us that more time can be taken up with administrative matters as a result of more flexible work arrangements. They said that managing staff is more complicated, noting that planning the work, managing resources, and scheduling meetings is difficult, for instance, when all of the staff are only required to be in the office during a core period from Tuesday through Thursday--3 days a week. Employees need special approval to begin flexiplace, and a senior manager told us that they are now only approving about half of such applications. Some managers and staff discussed their concerns about supervisors' span of control and the lack of adequate training. They said that they believe some managers are responsible for supervising too many employees and do not have enough time to work with people who could benefit from on-the-job training. They also stated that some managers are not skilled at managing people, which they attribute largely to HCFA's tradition of promoting staff with excellent technical skills to the managerial level, and not rewarding them for developing their staff. Some also cited the lack of training provided to managers to improve their supervisory skills. Many managers and staff agreed that HCFA does not provide enough training opportunities to help them do their work. We were told that new staff get little orientation to the agency's organization, programs, goals, and mission. Focus group participants added that limited training and travel funds prevented them from attending seminars and receiving training. Each HCFA staff member received an average of 8 hours of training last year. New staff, who generally were hired within the last year, averaged even fewer hours. HCFA's senior management has identified management and other training as an area where HCFA must improve. The agency is developing a "model management initiative," which focuses on matching a manager's competencies with the specific skills that a manager needs for a given position. If approved by the Administrator, this model will be tested in the Office of the Chief of Operations. Then, if the initiative proves effective, it will be implemented in other parts of HCFA. HCFA is identifying better approaches to providing technical training and has doubled its training budget for next year--from about $800,000 in fiscal year 1998 to about $1.6 million in 1999. its accountability to the Congress by providing biannual reports on its progress. As HCFA moves into the 21st century, its challenges will continue to become more numerous and complex. Once it has finished preparing for Y2K, HCFA must face tasks it has had to put aside or has not fully addressed. Several immediate challenges lie ahead. HCFA must finish and then refine program changes to fully realize the benefits expected from the BBA. It also needs to renovate antiquated, and streamline redundant, computer systems. Furthermore, it needs to strengthen its financial management and efforts to preserve program integrity. Added to these responsibilities will be potential additional challenges associated with any restructuring of Medicare that follows the deliberations of the Bipartisan Commission on the Future of Medicare. Even if no major changes are introduced, HCFA's continuing challenges are taxing--strong leadership and management will be required to meet them. More effective planning, new staff with needed skills, and better accountability could help HCFA address these challenges and better ensure quality health care for the elderly, poor, and disabled. A true measure of HCFA's success will be its ability to maintain current momentum as it enters the 21st century. Mr. Chairman, this concludes my statement. I will be happy to answer any questions you or other Members of the Subcommittee may have. Major Management Challenges and Program Risks: Department of Health and Human Services (GAO/OCG-99-7, Jan. 1999). High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999). Medicare Computer Systems: Year 2000 Challenges Put Benefits and Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998). California Nursing Homes: Care Problems Persist Despite Federal and State Oversight (GAO/HEHS-98-202, July 27, 1998). Balanced Budget Act: Implementation of Key Medicare Mandates Must Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July 16, 1998). Medicare: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities (GAO/HEHS-98-160, June 1, 1998). Medicare Managed Care: Information Standards Would Help Beneficiaries Make More Informed Health Plan Choices (GAO/T-HEHS-98-162, May 6, 1998). Financial Audit: 1997 Consolidated Financial Statements of the United States Government (GAO/AIMD-98-127, Mar. 31, 1998). Medicaid: Demographics of Nonenrolled Children Suggest State Outreach Strategies (GAO/HEHS-98-93, Mar. 20, 1998). Medicare: HCFA Faces Multiple Challenges to Prepare for the 21st Century (GAO/T-HEHS-98-85, Jan. 29, 1998). Medicare Home Health Agencies: Certification Process Ineffective in Excluding Problem Agencies (GAO/HEHS-98-29, Dec. 16, 1997). Medicare: Effective Implementation of New Legislation Is Key to Reducing Fraud and Abuse (GAO/HEHS-98-59R, Dec. 3, 1997). Medicare Home Health: Success of Balanced Budget Act Cost Controls Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41, Oct. 29, 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. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO discussed the Health Care Financing Administration's (HCFA) progress in: (1) addressing its most immediate priorities; and (2) strengthening its internal management to effectively discharge its major implementation and oversight responsibilities. GAO noted that: (1) HCFA is facing an unprecedented set of challenges; (2) the immediacy and resource demands associated with meeting the year 2000 computer system challenges--coupled with HCFA's late start in addressing them--have put a tremendous burden on the agency this past year and have affected the timing and quality of its work on many other projects; (3) it has also slowed efforts to improve the oversight of ongoing operations, such as financial management and Medicare fee-for-service claims administration, which desperately need attention; (4) even where HCFA has made progress--such as in implementing a number of the mandated Health Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act of 1997 requirements--GAO believes that more work, and many refinements, are still needed; (5) HCFA must meet these challenges with an aging workforce; (6) HCFA has taken a number of steps internally to capitalize on its staff's strengths to deal with a rapidly changing health care marketplace and growing responsibilities; (7) for example, HCFA has developed a strategic plan that better articulates its future direction, has progressed in its customer-focused reorganization by moving staff to their new organizational units, and has hired more staff with needed skills; (8) on the other hand, in focus groups GAO conducted, HCFA managers and staff discussed issues that continue to hamper effective agency operations; (9) to further strengthen HCFA's ability to effectively manage its employees and programs, the administration has proposed new authorities for contracting and new flexibility in hiring in the President's budget for fiscal year 2000; (10) it also proposes new mechanisms to enhance agency accountability, with biannual reports to Congress and an advisory board to help the agency streamline internal and program management; (11) HCFA senior officials have taken concrete steps to improve agency management this year but will need to maintain the momentum over the next several years to overcome the agency's current and future challenges; and (12) this will be especially difficult in an agency that for years has been plagued by external pressures and management problems.
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Mr. Chairman and Members of the Committee: We are pleased to be here today to discuss the operations of the Office of Federal Housing Enterprise Oversight (OFHEO) and the status of OFHEO's efforts to fulfill its mission of helping to ensure the safety and soundness of the two largest housing government-sponsored enterprises: Fannie Mae and Freddie Mac (the enterprises). Congress has a long-standing concern that the safety and soundness of the enterprises be maintained so that they can continue to fulfill their public purposes while taxpayers are protected from unnecessary financial risks. Consequently, Congress passed the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the act), which established OFHEO as an independent regulator within the Department of Housing and Urban Development (HUD). Under the act, OFHEO is authorized to help ensure the enterprises' safety and soundness by setting capital standards, conducting examinations, and taking enforcement actions if unsafe and unsound financial or management practices are identified. As mandated in the Department of Veterans Affairs/HUD Appropriations Act of 1997, we recently issued a report on OFHEO's implementation of its safety and soundness responsibilities since it began operations in June 1993. We concluded that OFHEO has not yet fully implemented its statutory responsibilities and faces considerable future challenges in doing so. In particular, OFHEO currently does not expect to establish final risk-based capital standards for the enterprises until 1999, even though this process was to have been completed under the act by December 1, 1994. Further, OFHEO has not fully implemented a comprehensive and timely safety and soundness enterprise examination program. Although Fannie Mae and Freddie Mac have been consistently profitable in recent years, we believe it is essential, given the enterprises' outstanding financial commitments of about $1.5 trillion at year-end 1996, that OFHEO implement its safety and soundness responsibilities as quickly as feasible so that any potential long-term financial risks to taxpayers are lowered. The federal government's creation and continued sponsorship of Fannie Mae and Freddie Mac have created the perception in the financial markets that the government may choose to provide financial assistance to them in a financial emergency, even though there is no statutory requirement to do so. Recognizing the potential financial risks the enterprises' activities pose to taxpayers, Congress created OFHEO in 1992 as an independent safety and soundness regulator with wide authority to help ensure that the enterprises' long-term financial security is maintained. Congress established and chartered the enterprises as government-sponsored, privately owned and operated corporations to enhance the availability of mortgage credit across the nation during both good and bad economic times. It is widely accepted that the enterprises' activities have generated benefits to home-buyers, such as lower mortgage interest rates. Moreover, the enterprises have reduced regional disparities in mortgage interest rates and spurred the development of new technologies to facilitate the home financing process. However, the potential also exists that the federal government would choose to rescue the enterprises in a financial emergency. OFHEO officials have stated that, despite the enterprises' consistent profitability in recent years, past financial performance does not guarantee future success. For example, during the 1990s, Fannie Mae and Freddie Mac have rapidly increased the size of their debt-financed mortgage asset portfolios. According to OFHEO, large holdings of debt-financed mortgage assets potentially expose Fannie Mae and Freddie Mac to increased losses resulting from fluctuations in interest rates. For fiscal year 1998, OFHEO has requested a budget of about $16 million to carry out its safety and soundness responsibilities and to perform administrative support functions. As of October 27, 1997, OFHEO had a total staff of 96 individuals consisting of full-time and temporary staff, contract employees, and detailees from bank regulatory agencies. As required by the act, OFHEO is to carry out its oversight function in part by establishing minimum capital standards. Minimum capital is computed on the basis of capital ratios specified in the act that are applied to certain on-balance-sheet and off-balance-sheet obligations. OFHEO has classified Fannie Mae and Freddie Mac as "adequately capitalized" under the minimum standard in each quarter beginning with the quarter that ended on June 30, 1993. The act also mandated that OFHEO develop a stress test to serve as the basis for more sophisticated risk-based capital standards. The purpose of a stress test is to lower taxpayer risks by simulating, in a computer model, situations where the enterprises are exposed to adverse credit and interest rate scenarios and requiring them to hold sufficient capital to withstand these scenarios for a 10-year period, plus an additional 30 percent of that amount to cover management and operations risk. Under the act, the stress test and risk-based capital standards derived from the test were to have been completed by December 1, 1994. However, as of April 1997, OFHEO's acting director said the organization expected to issue a proposed rule implementing the stress test and risk-based capital standards by September 1998, with the final rule to be issued in 1999. The act also gave OFHEO broad authority and responsibility to examine the enterprises and requires annual on-site examinations. At such examinations, OFHEO staff with the assistance of contractors and bank regulatory detailees are to assess the financial condition of the enterprises and recommend improvements as necessary. OFHEO also has the authority to (1) take enforcement actions, such as cease and desist orders, against the enterprises to stop unsafe practices and (2) place an enterprise into a conservatorship when certain circumstances exist and the enterprise is unable to meet its financial obligations or it is critically undercapitalized. In OFHEO's planning process and its published documents, the organization has consistently underestimated the time necessary to complete major components of the stress test and risk-based capital standards. For example, in 1995 OFHEO estimated that the final rule would be issued in May 1997, but OFHEO now expects that the process will not be completed until 1999. We identified several reasons why OFHEO did not comply with the statutory deadline and found that OFHEO faces continuing challenges in meeting its current estimate. Thus, we believe that strong congressional oversight of the development process is necessary to help ensure that OFHEO's plan to complete the risk-based capital standards is accomplished as quickly as feasible. closely related to enterprise risks by developing its own sophisticated stress test and associated financial modeling capability. We note that OFHEO's approach has, ultimately, involved a substantial development period and commitment of resources. OFHEO encountered delays in obtaining accurate financial data from the enterprises. Beginning in 1994, OFHEO officials requested that the enterprises provide large amounts of historical and current financial data so it could do the work necessary to develop the stress test. According to OFHEO officials, the enterprises did not always provide all of the necessary data, or they provided data that may have been inaccurate. These problems persisted into 1996 and impeded development of the stress test, according to OFHEO officials. In response, Fannie Mae officials said that OFHEO's data requests were burdensome and would have been less extensive if OFHEO had used a simpler approach to develop the stress test. The Fannie Mae officials said that a more simplified approach would have resulted in appropriate risk-based capital standards and could have been completed faster than OFHEO is currently taking to develop its stress test. Freddie Mac officials said they have tried to assist OFHEO in developing the stress test and that inaccurate data submissions have not been responsible for the delays. OFHEO experienced significantly greater technical and managerial challenges and associated delays than initially anticipated in developing an integrated financial model. This model--which is referred to as the Financial Simulation Model is to serve as the foundation of the stress test--is designed to simulate the behavior of the enterprises' assets, liabilities, and off-balance-sheet obligations under adverse credit and interest rate scenarios. According to an OFHEO official, OFHEO had largely completed the model by April 1997, although some final testing and software documentation work remained. final rules while protecting proprietary enterprise data from unauthorized disclosure. Given OFHEO's history of consistently underestimating the time necessary to complete the stress test and risk-based capital standards, we believe congressional oversight appears necessary to ensure that OFHEO completes the process as soon as possible. Accordingly, we recommended that OFHEO report periodically to Congress on the organization's progress towards compliance with the plan. We further recommended that OFHEO inform Congress of any problems that may arise in completing the process by 1999, as well as corrective actions that the organization planned to address such problems. In the absence of a stress test and risk-based capital standards, OFHEO's primary means of helping to ensure the safety and soundness of the enterprises is its examination program. However, OFHEO has not fully implemented the detailed examination schedule and plan that it established in 1994, which limits the organization's ability to monitor the enterprises' financial condition. We believe that limited resources allocated to the examination office as well as staff attrition contributed to OFHEO's inability to fully implement the 1994 plan. Beginning in 1998, OFHEO plans to restructure its examination program so that it assesses all enterprise core risks annually. OFHEO established an examination plan in September 1994 that provided for a 2-year cycle for the assessment of six "core" risks, such as interest rate and credit, facing the enterprises. Although OFHEO identified six core risks, the plan stipulated that examiners were to cover these risks in five examinations--four examinations would each cover one core risk while another examination would cover two risks. OFHEO's examination plan was similar in substance but not in timing to risk-focused examination plans that the Office of the Comptroller of the Currency and the Federal Reserve System have established to monitor the activities of large commercial banks. As required by law, the bank regulators are to conduct full-scope examinations of large commercial banks annually. As of May 1997, OFHEO had completed or initiated examinations covering five of the six core risks facing the enterprises. However, OFHEO's current 3- to 4-year cycle for assessing the six core risks is considerably longer than the 2-year cycle established in the plan. In addition, OFHEO has scaled back the planned coverage of its most recently completed core risk examination; the examination covered only one of four business areas. OFHEO's 3-to 4-year examination cycle and limited examination coverage raise questions about the organization's ability to fully monitor the enterprises' financial activities and risks. In particular, with its current examination schedule, OFHEO may not be able to do another on-site examination of the enterprises' interest rate risks until 1999 or 2000, even though such risks may have increased because of increased holdings of debt-financed mortgage assets, since the previous core risk examination that addressed interest rate risk was completed in 1996. decision to commit virtually its entire staff of line examiners to each core risk examination for 1 year and the significant attrition the examination office has experienced have contributed to OFHEO's inability to fully implement its 2-year examination cycle. OFHEO officials said that another important factor that has contributed to OFHEO's inability to fully implement the 1994 examination plan was the amount of time that OFHEO examination staff needed to develop an understanding of the enterprises' operations and risk management. Prior to 1993 when OFHEO began operations, the enterprises had not been subjected to an examination oversight program. OFHEO officials said that the first round of examinations has taken longer than initially anticipated in 1994 because of the amount of time necessary to obtain basic information about the enterprises' operations and risk management practices. During the course of our audit work, OFHEO officials told us that the organization plans to reassess its examination program during 1997 and implement an annual examination cycle for all core risks by early 1998 to ensure that the enterprises' safety and soundness is adequately monitored. The OFHEO officials also said that the reassessment is to include a review of examination office staff resources to ensure that an annual examination cycle can be implemented. OFHEO's acting director also said that OFHEO may have some flexibility to increase its examination staff resources by shifting staff from its research activities as the stress test and risk-based capital standards are completed. We stated in our report that, without a reassessment of and potential reallocation of resources, OFHEO may not be able to implement an annual examination cycle by early 1998, since it had not fully implemented a 2-year cycle with existing examination office resources. In fact, as of June 1997, OFHEO had not initiated important components of the 1994 plan, such as one of the core risk examinations. Thus, we recommended that OFHEO include in the reassessment an analysis of the staff resources necessary to carry out alternative examination schedules, such as 1 or 2 years. Through such an analysis, OFHEO could help ensure a fuller consideration of the trade-offs associated with examination coverage provided versus costs involved and thereby engage in a more informed decisionmaking process. Senior OFHEO officials recently told us that they are in the process of reviewing examination office resources, and have decided to reallocate two positions from other offices to the examination office. Thus, the officials said the examinations office will have a total of 14 line examiner positions, rather than 12, and 19 positions overall. In addition, the director of OFHEO's examination office told us that OFHEO plans to make greater use of bank regulatory detailees, than has been the case in the past, to also help ensure the effective implementation of the annual examination cycle by early 1998. Nevertheless, given OFHEO's past difficulties in implementing its enterprise safety and soundness examination responsibilities, we believe that OFHEO's future efforts, including the implementation of its annual examination cycle, should be closely monitored. I would like to conclude by reiterating that OFHEO has a crucial role in helping to maintain the safety and soundness of Fannie Mae and Freddie Mac and thereby ensuring that the enterprises can continue to meet their housing mission without posing unnecessary risks to taxpayers. As a relatively new federal regulatory organization with complex responsibilities, OFHEO has faced considerable challenges in implementing its statutory safety and soundness requirements. Among its accomplishments, OFHEO has assembled a professional staff that appears to have considerable expertise in housing economics, mortgage finance, computer systems analysis, and financial institution examinations. Although the development process has been slow, OFHEO has developed a working financial model that it believes will serve as the basis of the stress test and OFHEO plans to complete the final risk-based capital rule by 1999. However, given the challenges that remain in meeting this schedule, as well as OFHEO's efforts to implement an annual examination cycle during 1998, we believe that continued strong congressional oversight of OFHEO's progress is essential. Mr. Chairman, this concludes my statement. My colleagues and I would be pleased to respond to any questions that 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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Pursuant to a congressional request, GAO discussed the operations of the Office of Federal Housing Enterprise Oversight (OFHEO) and the status of OFHEO's efforts to fulfill its mission of helping to ensure the safety and soundness of the two largest government-sponsored enterprises, Fannie Mae and Freddie Mac. GAO noted that: (1) OFHEO has not fully implemented its statutory safety and soundness responsibilities for Fannie Mae and Freddie Mac, and faces considerable future challenges in doing so; (2) OFHEO does not expect to complete a stress test and risk-based capital standards for Fannie Mae and Freddie Mac until 1999, though it was to be completed by December 1, 1994; (3) OFHEO has not fully implemented a comprehensive and timely enterprise examination program, resulting in its limited ability to lower the long-term financial risks to taxpayers associated with the enterprises' activities; (4) GAO has identified a number of reasons for OFHEO's inability to comply with the statutory deadline for completing the stress test and risk based capital standards; (5) GAO believes that strong congressional oversight of the development process is necessary to ensure that OFHEO completes the process as quickly as feasible; (6) OFHEO has not been able to fully implement an enterprise examination schedule that it established in 1994, has taken 3 to 4 years to examine the major risks facing the enterprises, and reduced the planned coverage of the most recently completed risk examination; (7) among other factors, limited resources allocated to the examination office and staff attrition contributed to OFHEO's inability to fully implement the 1994 plan; (8) OFHEO officials said that they planned to reassess the examination cycle and implement an annual examination cycle by early 1998 to cover all enterprise risks; (9) without a reassessment of resource requirements and potentially a reallocation of resources to the examinations office, OFHEO may not be able to fully implement an annual examination cycle; and (10) although Fannie Mae and Freddie Mac have been consistently profitable in recent years, GAO believes it is essential, given the enterprises' outstanding financial commitments of approximately $1.5 trillion at year-end 1996, that OFHEO implement its safety and soundness responsibilities as quickly as feasible.
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We found that several states have divested or frozen assets primarily related to Sudan and that the value of U.S. investment companies' Sudan- related asset holdings has declined considerably since March 2007. Our survey responses show that state fund managers have divested or frozen about $3.5 billion in assets primarily related to Sudan (see table 1). Specifically, fund managers from 23 of the states responding to our survey reported that, from 2006 to January 2010, they divested or froze about $3.5 billion in assets held in 67 operating companies they identified as related either to Sudan specifically or to a larger category of divestment targets, such as state sponsors of terrorism. All of the states that reported having divested or frozen Sudan-related assets had laws or policies regarding their Sudan-related assets, and the state fund managers who responded to our survey cited compliance with these laws and policies as their primary reason for divestment. Thirty-five U.S. states have enacted legislation, adopted policies, or both, affecting their Sudan-related investments. These 35 states did so often out of concern for the genocide in Darfur, as well as some concerns about terrorism. Their laws and policies vary in the specificity with which they address the sale and purchase of Sudan-related assets. For example, most states with laws and policies requiring divestment also prohibit or restrict future investments in Sudan-related companies. However, some laws and policies only mention prohibiting future investments but do not require divestment of Sudan-related investments held prior to enactment of the measures. In addition to divestment, many state laws and policies also mandate or encourage engagement--identifying companies and leveraging power as a shareholder or potential shareholder in an effort to change the investment or operating behavior of that company. Like the states, U.S.-based investment companies have sold Sudan-related shares. Specifically, our analysis shows that the value of U.S. holdings in six key foreign companies with Sudan-related business operations fell from $14.4 billion at the end of March 2007 to $5.9 billion at the end of December 2009, a decline of nearly 60 percent. This decline cannot be accounted for solely by changes in share price, indicating that U.S. investors, on net, chose to sell shares of these companies. Based on a price index weighted to the U.S. portfolio of Sudan-related equities, prices rose by roughly 7 percent from March 2007 to December 2009, while equity holdings fell by nearly 60 percent (see fig. 1). This suggests that net selling of Sudan-related equities explains the majority of the decline in U.S. holdings. It is not certain if this selling is related to conditions specific to Sudan or represents a more general reallocation of assets by U.S. investors. Nevertheless, some evidence suggests that Sudan-specific factors may have influenced investors' decisions to sell. Specifically, from December 2007 to December 2008, U.S. holdings in Sudan-related equities declined as a percentage of foreign oil and gas equity holdings and as a percentage of all foreign equity holdings. Investors said they weighed various factors in their decisions regarding Sudan-related assets. Most commonly, investors stated that they bought and sold Sudan-related assets for normal business reasons, such as maximizing shareholder value consistent with the guidelines in each fund's prospectus, as well as in response to specific client instructions. Each of the investment companies we interviewed issued a corporate statement regarding Sudan-related investing, and these corporate statements reflect a variety of investor perspectives. For example, one firm's statement indicated that it would ensure that its funds did not invest in companies materially involved in Sudan, while another's explained that it would remain invested in these companies in order to actively oppose their practices that it did not condone. We found that U.S. investors have often considered three factors when determining whether and how to divest from companies tied to Sudan: fiduciary responsibility, the difficulty identifying operating companies with ties to Sudan, and the possible effects of divestment on operating companies and the Sudanese people. Both state fund managers and private investment companies we contacted told us that they consider whether a decision to divest Sudan-related assets is consistent with fiduciary responsibility--generally the duty to act solely and prudently in the best interests of the client. Representatives from organizations that advocate for the interests of state fund managers told us that fiduciary duty could be a disincentive to divesting, depending on how each individual state's law is written. For instance, they expressed concerns that if the laws place emphasis on maximizing returns first and on divesting as a second priority, then fiduciary responsibility can be a disincentive to divesting. While some states make no explicit mention of fiduciary responsibility in their divestment policies and laws, some state constitutions emphasize its priority above all other responsibilities. Many state laws allow fund managers to stop divesting or to reinvest if there is a drop in the fund's value. In addition, while most of the 35 states' Sudan- related measures generally require divestment of Sudan-related assets consistent with the investing authority's fiduciary responsibilities, laws and policies in six states include clauses explicitly stating that the investing authority should only divest if doing so will not constitute a breach of fiduciary trust. Our survey results demonstrate that state fund managers, when expressing concerns about fiduciary responsibility, focused on the impact that divestment might have on a fund's returns and administrative costs. Specifically, 17 of the 29 fund managers (or 59 percent) who had divested or frozen their Sudan-related assets, or planned to do so, said they were concerned to a moderate or large extent that it would be difficult to divest while ensuring that fiduciary trust requirements were not breached, and their offices or states were not made vulnerable to lawsuits. This same concern was also cited as a moderate to large concern for 25 of the 41 (or 61 percent) fund managers who did not divest. Survey results also showed concern among state fund managers, regardless of whether they divested, regarding the financial risk of divesting. Specifically, 20 of the 29 managers (or 69 percent) who divested or planned to divest and 18 of the 41 (or 44 percent) who did not divest were concerned to a large or moderate extent that divestment could cause their funds to incur high transaction costs, earn reduced returns on investment, or both. Private investment companies expressed differing perspectives on whether divesting from Sudan is consistent with their fiduciary responsibilities. According to investment companies whose primary goal is maximizing returns, ceasing to invest in companies with Sudan-related operations based on criteria other than financial merit is inconsistent with their fiduciary responsibilities, unless their clients established these restrictions. Some of these investors stated that limiting the number of investment opportunities based on nonfinancial criteria can result in lower investment returns. Other investment companies, particularly those identifying themselves as socially responsible, maintain that divesting from Sudan based on nonfinancial criteria is consistent with fiduciary responsibility, as long as alternative equities selected can compete on the basis of financial criteria. For these investment companies, creating financially viable investment options that respond to social concerns, such as genocide or the environment, is the primary goal. These firms expressed confidence that taking nonfinancial factors into account results in an investment product that is competitive with other investments. As of May 2010, two companies that sold their Sudan-related assets had relied upon the safe harbor provision in SADA. Most companies told us that the provision was not necessary to their decision-making regarding Sudan-related assets. Investors considering whether and how to divest from companies with ties to Sudan have faced difficulties identifying these companies. SADA requires that, before divesting from Sudan-related companies, responsible entities must use credible, publicly available information to identify which companies have prohibited business operations related to Sudan. Nongovernmental organizations and private companies have sought to create and, in some cases, sell their lists of operating companies with business ties to Sudan to the public. Our survey results indicate that state fund managers have relied heavily on these sources of information. However, our analysis of available lists indicates that they differ significantly from one another. We compared three lists of companies with business ties to Sudan and found that, of the over 250 companies identified on one or more of these lists, only 15 appeared on all three. Representatives from the organizations that created these lists told us that obtaining and evaluating information on operating companies with business ties to Sudan is difficult, and that information that comes directly from companies is particularly useful. For example, they would consider an SEC disclosure filing to be a reliable source of information. However, the federal securities laws do not require companies specifically to disclose operations in countries designated as state sponsors of terrorism. While SEC regulations require disclosure of such operations if they constitute "material information," the meaning of "material information" is not explicitly defined by law and companies are ultimately responsible for the accuracy and adequacy of the information they disclose to investors. The SEC's Office of Global Security Risk, created in 2004, monitors whether the documents public companies file with the SEC include disclosure of material information regarding global security risk-related issues. According to officials from this office, they focus their reviews on companies with business activities in U.S.-designated state sponsors of terrorism, including Sudan. This office has suggested to companies that any operations they have in state sponsors of terrorism might be considered material because divestment campaigns and legislation mandating divestment from Sudan indicate that investors would consider this information important in making investment decisions. However, in their correspondence with the SEC, companies have raised concerns about these instructions. For example, one energy company wrote that its business dealings in state sponsors of terrorism did not need to be further disclosed in annual reports because, while these dealings may have been of interest to certain investors, they were not material to the general investing public. The Office of Global Security Risk provides limited monitoring of companies that conduct business in the four sectors covered under SADA. For example, SEC officials told us that they have corresponded with 59 of the 74 companies that file periodic reports with the SEC, and that they have identified as having ties to Sudan. However, many of these companies operate in industries not covered under SADA, such as food services, telecommunications, and pharmaceuticals. In addition, our analysis shows that the office has only corresponded with 5 of the 15 companies that are identified in all three of the lists we analyzed and that file with the SEC. All 15 of these companies operate in the four economic sectors identified in SADA. Furthermore, the office has not always followed up with companies concerning their correspondence. For example, in December 2005, the Office of Global Security Risk asked an oil company that was reported to have possible ties to Sudan to describe all current, historical, and anticipated operations in, and contacts with, Sudan, including through subsidiaries, controlling shareholders, affiliates, joint ventures, and other direct and indirect arrangements. The company did not provide a response to the request. Four years later, the office reiterated its question to the company. SEC officials also told us that, in cases where the office determines that its comment process has not resulted in full disclosure of material operations by a company, it will refer the company to the SEC's Division of Enforcement for possible investigation. According to these officials, the Office of Global Security Risk has referred one company to this division since the office was created in 2004. The SEC also has the discretionary authority to adopt a specific disclosure requirement for companies that trade on U.S. exchanges (such as requiring disclosure of any operations in state sponsors of terrorism). Although the SEC has not done so, it could exercise this authority by issuing an interim rule for comment and a final rule in the Federal Register. However, the agency has indicated that it is committed to the practice of relying on companies to ensure that their disclosures contain all material information about their operations in these countries. Some companies that have ceased operating in Sudan warned of a negative effect on the Sudanese people. For example, one company we spoke with told us that when it decided to leave Sudan and sell its stake in a project to another company, that company refused to sign the sales agreement until language conferring responsibility for continuing the seller's humanitarian programs was removed from the agreement. Another company that left the Sudanese market stated that it had been involved in a nationwide anti-AIDS program in Sudan, which it could no longer participate in after leaving Sudan. Because of concerns about these possible negative effects, some investors have shifted their approach toward engaging with companies in order to leverage their resources as shareholders to influence companies' behavior and promote efforts aimed at improving the lives of the Sudanese people. Some advocacy groups that were originally at the forefront of the divestment campaign also have shifted their focus toward engagement. One advocacy group we spoke with stated that it believed that divestment was too blunt of an approach because it targeted a wide array of companies, some of which may not have had material operations in Sudan. Instead, this group argued for an approach that targets companies involved in the industries that are most lucrative for the Sudanese government and that provides alternatives to divestment, such as engaging companies to try to influence their behavior. Like advocacy groups, some U.S. investment companies have also embraced the idea of engagement, and increasingly view divestment as a last resort because engagement allows companies to continue operating and provides positive incentives for them to use their resources to help the Sudanese people. U.S. states have also endorsed engagement as a viable alternative to divestment, with a few states identifying divestment only as a last resort. Nineteen of the 25 states whose laws or policies require divestment also encourage or require engagement. The eight foreign operating companies we spoke with generally agreed that, for them, engagement is preferable to divestment because it allows them to continue operating in Sudan and to discuss possible ways to improve the situation there. These companies consistently told us that they believe their business operations positively impact the Sudanese people. For example, a mining company told us that it built seven schools and a medical clinic, brought water and power supplies to the area around the mine, and started agricultural training programs for the local population. This company said it also convinced its business partners from the Sudanese government to contribute some of their profits from the mine to support a humanitarian organization operating in Darfur. Almost all of the companies we spoke with said they donated to or became directly involved in humanitarian projects as a direct result of their engagement with various advocacy groups and shareholders. A few of the companies we spoke with decided to limit their business activities in Sudan as a result of engagement processes. For example, one company we spoke with committed to not pursue any new business in Sudan until the situation in Darfur changes and United Nations peacekeepers are allowed in the country. The company indicated that this commitment sent a strong signal to the government of Sudan, which depends on the company to explore and identify natural resource deposits. Our analysis indicates that the U.S. government has complied with SADA's federal contract prohibition. Specifically, we found no evidence to suggest that the U.S. government has awarded contracts to companies identified as having prohibited business operations in Sudan or has violated the Federal Acquisition Regulation (FAR) rules implementing section 6 of SADA (Prohibition on United States Government Contracts). SADA seeks to prohibit the U.S. government from contracting with companies that conduct certain business operations in Sudan. To that end, section 6 of the act requires the heads of federal agencies to ensure that each contract for the procurement of goods or services includes a clause requiring the contractor to certify that it does not conduct prohibited business operations in Sudan in the four key economic sectors. Based on our analysis of one of the most widely used lists of companies with prohibited business ties to Sudan, we found that only 1 of 88 companies identified in the list has received federal contracts since the FAR requirements implementing SADA took effect in June 2008. However, the contract certification provision was not required for these particular contracts because they were purchase orders under simplified acquisition procedures, which generally do not require SADA certification under the FAR. In addition to the purchase orders with this company, we found that from June 12, 2008 to March 1, 2010, the U.S. government awarded 756 contracts to 29 affiliates and subsidiaries of the companies identified in the list as having prohibited business ties to Sudan. While SADA aims to prevent companies with prohibited business operations in Sudan from receiving federal contracts, it does not restrict federal contracting with these companies' affiliates and subsidiaries, provided that the affiliates and subsidiaries certify that they do not have prohibited business operations in Sudan. Some advocacy groups have disagreed with the FAR councils' decision to apply the requirement only to the entity directly contracting with the government because it allows companies that have certified to the federal government that they do not conduct prohibited business operations to continue operating in Sudan through their subsidiaries or affiliates. The FAR councils, however, stated that expanding the scope of the rule to include subsidiaries and affiliates would require the parties seeking federal contracts to attest to the business operations of parent companies, subsidiaries, and other affiliates about which they may not have information. In addition, the FAR councils noted that the company may not have any influence over the affairs of its related companies. Our review of a nonrandom selection of contracts awarded to these affiliates and subsidiaries indicates that the contractors provided the necessary certification, when required. Therefore, for these specific contracts, the U.S. government has complied with the contract prohibition section of SADA. We also found that the U.S. government has not granted any waivers pursuant to SADA, as allowed under the act, or determined that any companies submitted false certifications under SADA. As global awareness of the genocide in Darfur has grown, so too have efforts to combat this humanitarian crisis. Divestment from Sudan has been at the forefront of these efforts. However, in deciding whether and how to divest, stakeholders must consider how divestment affects foreign companies operating in Sudan, particularly those that strive to make a positive contribution to the Sudanese people. They must also ensure that divestment is consistent with their fiduciary responsibility. Additionally, they must identify and evaluate conflicting sources of information about which companies have Sudan-related business operations. Requiring companies to disclose their own operations in Sudan (as well as other state sponsors of terrorism) would provide more accurate and transparent information to investors carefully weighing whether and how to divest from Sudan. Furthermore, the strong demand for this information from states that require divestment, as well as from other investors, indicates that this information could be considered material--a judgment that the SEC has suggested in its correspondence with operating companies. In our report released today, we recommend that, in order to enhance the investing public's access to information needed to make well-informed decisions when determining whether and how to divest Sudan-related assets, the SEC consider issuing a rule requiring companies that trade on U.S. exchanges to disclose their business operations related to Sudan, as well as possibly other U.S.-designated state sponsors of terrorism. Mr. Chairman, this concludes my statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have. For questions or further information about this testimony, please contact Thomas Melito at (202) 512-9601, 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 include Cheryl Goodman, Assistant Director; Elizabeth Singer; Kay Halpern; Katy Forsyth; Michael Hoffman; R.G. Steinman; Julia Becker Vieweg; Sada Aksartova; Debbie Chung; JoAnna Berry; Noah Bleicher; Martin de Alteriis; Patrick Dynes; Justin Fisher; Cathy Hurley; Ernie Jackson; Debra Johnson; Julia Kennon; Jill Lacey; and Linda Rego. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Recognizing the humanitarian crisis in Darfur, Sudan, Congress enacted the Sudan Accountability and Divestment Act (SADA) in 2007. This law supports U.S. states' and investment companies' decisions to divest from companies with certain business ties to Sudan. It also seeks to prohibit federal contracting with these companies. This testimony (1) identifies actions that U.S. state fund managers and investment companies took regarding Sudan-related assets, (2) describes the factors that these entities considered in determining whether and how to divest, and (3) determines whether the U.S. government has contracted with companies identified as having certain Sudan-related business operations and assesses compliance with SADA's federal contract prohibition provision. This testimony is based on a GAO report (GAO-10-742), for which GAO surveyed states, analyzed investment data, assessed federal contracts, and interviewed government officials. Since 2006, U.S. state treasurers and public pension fund managers have divested or frozen about $3.5 billion in assets primarily related to Sudan in response to their states' laws and policies; U.S. investment companies, which also sold Sudan-related assets, most commonly cited normal business reasons for changes in their holdings. State fund managers GAO surveyed indicated that their primary reason for divesting or freezing Sudan-related assets was to comply with their states' laws or policies. Thirty-five U.S. states have enacted legislation or adopted policies affecting their investments related to Sudan, primarily in response to the Darfur crisis and Sudan's designation by the U.S. government as a state sponsor of terrorism. GAO also found that the value of U.S. shares invested in six key foreign companies with Sudan-related business operations declined by almost 60 percent from March 2007 to December 2009. The decline cannot be accounted for solely by lower stock prices for these companies, indicating that U.S. investors, on net, decided to sell shares in these companies. Investors indicated that they bought and sold Sudan-related assets for normal business reasons, such as maximizing shareholder value. U.S. states and investment companies have often considered three factors when determining whether and how to divest. First, they have considered whether divesting from Sudan is consistent with fiduciary responsibility--generally the duty to act solely and prudently in the interest of a beneficiary or plan participant. Second, they have considered the difficulty in identifying authoritative and consistent information about companies with Sudan-related business operations. GAO analyzed three available lists of these companies and found that they differed significantly from one another. Although information directly provided by companies through public documents, such as Securities and Exchange Commission (SEC) disclosures, is a particularly reliable source of information, federal securities laws do not require companies specifically to disclose business operations in state sponsors of terrorism. The SEC has the discretionary authority to adopt a specific disclosure requirement for this information but has not exercised this authority. Third, investors have considered the effect that divestment might have on operating companies with Sudan-related business activities, such as prompting companies interested in promoting social responsibility to leave Sudan, creating room for companies that do not share that interest to enter the Sudanese market. GAO's analysis, including a review of a nonrandom selection of contracts, indicates that the U.S. government has complied with SADA's contract prohibition provision. Specifically, the U.S. government has contracted with only one company identified on a widely used list of companies with business ties to Sudan, and the contracts awarded to this company did not violate SADA. The U.S. government has contracted with subsidiaries and affiliates of companies with business ties to Sudan, as SADA permits. The related GAO report recommends that the SEC consider issuing a rule requiring companies that trade on U.S. exchanges to disclose their business operations tied to Sudan, as well as possibly other state sponsors of terrorism. The SEC's Division of Corporation Finance agreed to present GAO's recommendation to the commission.
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Beginning in the 1930s, a number of federal housing programs have provided assistance to low-income renters and homeowners, including rent subsidies, mortgage insurance, and loans and grants for the purchase or repair of homes. Housing developments can be assisted by multiple programs. For example, a loan or mortgage on a multifamily property may be insured through a HUD or USDA program, and the property may have tenants that receive rental assistance from these agencies. In our earlier report, we identified a total of 23 federal housing programs that target or have special features for the elderly. Of these programs, 2 are intended for the elderly only, 3 target the elderly and disabled, and another 18 have special features for the elderly, such as income adjustments that lower elderly households' rental payments. Appendix I lists these housing assistance programs. In general, both HUD and USDA programs target families at lower income levels. HUD programs target families with incomes that are extremely low (no more than 30 percent of an area's median), very low (no more than 50 percent of an area's median), and low (no more than 80 percent of an area's median). USDA programs also target families with incomes that are very low and low. In addition, some USDA programs target families with moderate incomes (no more than 115 percent of an area's median). However, these programs do not reach all needy households, and waiting lists for many types of subsidized housing, including housing for the elderly, are often long. HUD has specific goals for increasing housing opportunities for the elderly, including one goal specifically related to supportive services. As outlined in its fiscal year 2004 Annual Performance Plan, these goals include (1) increasing the availability of affordable housing for the elderly, (2) increasing the number of assisted-living units, (3) increasing the number of elderly households living in privately owned, federally assisted multifamily housing served by a service coordinator, and (4) increasing elderly families' satisfaction with their Section 202 units. USDA does not have specific goals related to the elderly in its fiscal year 2004 Annual Performance Plan. As GAO has previously reported, virtually all the results that the federal government strives to achieve require the concerted and coordinated efforts of two or more agencies. This shared responsibility is an outgrowth of several factors, including the piecemeal evolution of federal programs and service delivery efforts. Achieving results on public problems, such as the potentially large service needs of a growing elderly population, increasingly calls for effective interagency coordination. However, our work has shown that a number of barriers inhibit coordination among agencies. For example: In reporting on the coordination of programs for the homeless, we noted that the federal government's system for providing assistance to low- income people is highly fragmented. Each federal assistance program usually has its own eligibility criteria, application, documentation requirements, and time frames; moreover, applicants may need to travel to many locations and interact with many caseworkers to receive assistance. A review of federally assisted transportation services for "transportation- disadvantaged" seniors (who are more likely to have difficulty accessing transportation due to physical ailments) found that 5 federal agencies administer 15 programs. Service providers told GAO that certain characteristics of federal programs, such as what the providers view as burdensome reporting requirements and limited program guidance, can impede the implementation of practices that enhance senior mobility. More generally, we have noted the range of barriers to coordination that agencies often face, including missions that are not mutually reinforcing or that may even conflict; concerns about protecting jurisdiction over missions and control over resources; and incompatible procedures, processes, data, and computer systems. Generally, HUD and USDA's housing assistance programs are not required to provide supportive services to the elderly. Of the 23 housing assistance programs that target or include the elderly among potential beneficiaries, only 4 require the owners of properties developed under the programs to ensure that supportive services are available. Appendix II provides summaries of the four programs, which include: HUD's Section 202 program, which subsidizes the development and operating costs of multifamily properties for elderly households with very low incomes. It is the only federal housing program that targets all of its rental units to very-low-income elderly households. Applicants for Section 202 funding must demonstrate that services will be available at the development or in the community where new construction is proposed. HUD's Assisted Living Conversion Program, which provides private nonprofit owners of eligible properties with grants to convert some or all of their units into assisted living facilities for the frail elderly. The reconfigured facilities must include enough community space to accommodate a central kitchen or dining area, lounges, and recreation and other multiple-use areas. The facilities must provide supportive services such as personal care, transportation, meals, housekeeping, and laundry. HUD's Section 232 Mortgage Insurance Program, which provides mortgage insurance for the construction or substantial rehabilitation of nursing homes (facilities that provide skilled nursing care and have 20 or more beds); intermediate care facilities (those that provide minimum but continuous care and have 20 or more beds); board and care homes (facilities that provide room, board, and continuous protective oversight and have at least 5 accommodations); and assisted living facilities (those with 5 or more units designed for frail elderly persons who need assistance with at least 3 activities of daily living). All insured facilities must provide supportive services, but these services vary according to the type of facility. USDA's Section 515 Program, which provides loans to construct or to purchase and substantially rehabilitate multifamily rental or cooperative housing and recreational facilities in rural communities. Tenants eligible to live in program properties may also receive rental assistance through HUD or USDA programs. The Congregate Housing subprogram funds the development of assisted, group living environments that must provide meals, transportation, housekeeping, personal services, and recreational and social activities. Generally, HUD and USDA do not provide funding for the services required under these housing programs. The property owners typically obtain other funds, either from federal programs, local charities, and civic groups to provide supportive services or must ensure that appropriate services are available in the community. HUD administers four service-related programs that can be used in conjunction with subsidized housing programs: two programs that provide supportive services to residents of public and multifamily properties developed under HUD programs, and two that link residents to supportive services. None of these programs are targeted exclusively to the elderly, but they either can be used in properties designated for the elderly or offer funding specifically for services for the elderly. The Congregate Housing Services Program provides grants for the delivery of meals and nonmedical supportive services to elderly and disabled residents of public and multifamily housing, including USDA's Section 515 housing. While HUD provides up to 40 percent of the cost of supportive services, grantees must pay at least 50 percent of the costs, and program participants pay fees to cover at least 10 percent. Like the Elderly/Disabled Services Coordinator Program under ROSS, the Congregate Housing Services Program has provided no new grants since 1995, but Congress has provided funds to extend expiring grants on an annual basis. The Neighborhood Networks program encourages property owners, managers, and residents of HUD-insured and -assisted housing to develop computer centers. Although computer accessibility is not a traditional supportive service for the elderly, a senior HUD official noted that having computers available enhances elderly residents' quality of life. HUD does not fund each center's planned costs but encourages property owners to seek cash grants, in-kind support, and donations from sources such as state and local governments, educational institutions, private foundations, and corporations. The ROSS grant program links public housing residents with appropriate services. This program differs from the Service Coordinator Program in that it is designed specifically for public housing residents. The ROSS program has five funding categories, including the Resident Service Delivery Models for the Elderly and Persons with Disabilities (Resident Services) and the Elderly/Disabled Service Coordinator Program. Resident Services funds can be used to hire a project coordinator; assess residents' needs for supportive services and link residents to federal, state, and local assistance programs; provide wellness programs; and coordinate and set up meal and transportation services. The Elderly/Disabled Service Coordinator Program has not provided new grants since 1995 but still services existing grants. The Service Coordinator Program provides funding for managers of multifamily properties designated for the elderly and disabled to hire coordinators to assist residents in obtaining supportive services from community agencies. These services, which may include personal assistance, transportation, counseling, meal delivery, and health care, are intended to help the elderly live independently and to prevent premature and inappropriate institutionalization. Service coordinators can be funded through competitive grant funds, residual receipts (excess income from a property), or rent increases. According to HUD's fiscal year 2003 Performance and Accountability Report, service coordinators were serving more than 111,000 units in elderly properties. Elderly residents of public and federally subsidized multifamily housing can also receive supportive services through partnerships between property owners and local organizations and through programs provided by HHS. For example, property owners can establish relationships with local nonprofit organizations, including churches, to ensure that residents have access to the services that they need. At their discretion, property owners may establish relationships that give the elderly access to meals, transportation, and housekeeping and personal care services. Although GAO did not obtain data on the extent to which such services are made available at all public and federally subsidized multifamily housing, in site visits to HUD and USDA multifamily properties, we found several examples of such partnerships: In Greensboro, North Carolina, Dolan Manor--a Section 202 housing development--has established a relationship with a volunteer group from a local church. The volunteer group provides a variety of services such as transportation for the residents. In Plain City, Ohio, residents of a Section 515 property called Pleasant Valley Garden receive meals five times a week in the community's senior center (a $2 donation is suggested). A local hospital donates the food and a nursing home facility prepares it. Volunteers, including residents, serve the meals. The senior center uses the funds collected from the lunch for its activities. In addition, local grocery stores donate bread products to the senior center daily. The United Way provides most of the funding for the senior center. In Guthrie, Oklahoma, Guthrie Properties--also a Section 515 property-- has established a relationship with the local Area Agency on Aging. The agency assists residents of Guthrie Properties in obtaining a variety of services, including meals and transportation to a senior center. Some elderly residents of public and federally subsidized housing may also obtain health-related services through programs run by HHS. For example, HHS's Public Housing Primary Care Program provides public housing residents with access to affordable comprehensive primary and preventive health care through clinics that are located either within public housing properties or in immediately accessible locations. The program awards grants to public and nonprofit private entities to establish the clinics. The organizations must work with public housing authorities to obtain the physical space for the clinics and to establish relationships with residents. Currently, there are 35 grantees, 3 of which are in rural areas. According to a program administrator, although clinics are not specifically geared toward public housing designated for the elderly, they can be established at such properties. Elderly residents of federally subsidized housing may also be eligible for the Medicaid Home and Community-Based Services (HCBS) Waiver Program, which is administered by HHS's Centers for Medicare and Medicaid Services. Through this waiver program, individuals eligible for Medicaid can receive needed health care without having to live in an institutional setting. HUD has identified these waivers as an innovative model for assisting the frail elderly in public housing. In addition, eligible elderly residents of federally subsidized housing may receive health care through the Program of All-Inclusive Care for the Elderly (PACE), which is also administered by the Centers for Medicare and Medicaid Services. Like the HCBS waiver program, this program enables eligible elderly individuals to obtain needed services without having to live in an institutional setting. The program integrates Medicare and Medicaid financing to provide comprehensive, coordinated care to older adults eligible for nursing homes. Figure 1 provides information on the housing assistance programs that can use federally funded supportive services programs that assist the elderly. Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions at this time. For further information on this testimony, please contact David G. Wood at (202) 512-8678. Individuals making key contributions to this testimony included Emily Chalmers, Natasha Ewing, Alison Martin, John McGrail, Marc Molino, Lisa Moore, John Mingus, Paul Schmidt, and Julianne Stephens. USDA Section 502 Rural Housing Loans (Direct) Section 502 Direct Housing Natural Disaster Loans Section 502 Guaranteed Rural Housing Loans Section 504 Rural Housing Repair and Rehabilitation Loans Section 515 Rural Rental Housing Loans Section 521 Rural Rental Assistance Section 538 Guaranteed Rural Rental Housing Loans Project-based Rental Assistance (Section 8 and Rent Supplement) (inactive) Section 8 Moderate Rehabilitation (inactive) Section 207 Mortgage Insurance for Manufactured Home Parks Section 207/223(f) Mortgage Insurance for Existing Multifamily Properties Section 213 Mortgage Insurance for Cooperatives Section 221(d)(3) Below-Market Interest Rate (inactive) Section 221(d)(3)/(d)(4) Mortgage Insurance Section 236 Mortgage Insurance and Interest Reduction Payments (inactive) Before fiscal year 1992, the Section 202 program also supported the development of housing for the disabled. The Section 515 program's Congregate Housing subprogram requires properties to provide supportive services.
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According to a congressionally established bipartisan commission, decreased investment in affordable housing and an elderly population that is projected to grow from about 12 percent of the population in 2002 to 20 percent by 2030 are likely to increase the number of elderly who must spend large portions of their incomes on housing. Moreover, according to this commission, more than one-third of the elderly tenants of government-subsidized housing require assistance with some type of activity of daily living, such as making a meal or getting in and out of bed. This testimony, which is based on a report issued in February 2005, discusses (1) the federal housing assistance programs requiring that supportive services be made available to elderly residents, (2) other Department of Housing and Urban Development (HUD) programs that assist the elderly in obtaining supportive services, and (3) private partnerships and federal health care programs that may provide supportive services to elderly beneficiaries of federal housing assistance. Of the 23 housing assistance programs GAO reviewed, only 4 require the owners of participating properties to ensure that services such as meals or transportation are available to residents. Three are HUD programs: the Section 202 Supportive Housing for the Elderly Program, which subsidizes multifamily properties for elderly households with very low incomes; the Assisted Living Conversion Program, which subsidizes the conversion of HUD-subsidized multifamily properties into assisted living facilities; and the Section 232 Mortgage Insurance Program, which insures mortgages for licensed facilities that provide varying levels of skilled care and services. USDA's Section 515 Rural Rental Housing Loan program, which makes loans for the construction and rehabilitation of rural multifamily properties, has a Congregate Housing Services subprogram that requires the provision of supportive services. HUD administers four programs that can be used with various housing programs to help the elderly with supportive services: Congregate Housing Services Program, which provides grants for the delivery of meals and nonmedical supportive services to elderly and disabled residents of public and multifamily housing; Neighborhood Networks Program, which encourages the development of computer centers in HUD-supported housing; Resident Opportunities and Self Sufficiency (ROSS) Program, which links public housing residents with services; and Service Coordinator Program, which funds coordinators who help elderly residents access services such as transportation and health care at some multifamily properties. Supportive services may also be available to elderly residents of subsidized housing through partnerships between individual properties and local organizations and through Department of Health and Human Services (HHS) programs. For example, HHS's Public Housing Primary Care Program provides public housing residents with access to affordable primary and preventive health care through clinics that are located in or near the properties. GAO did not obtain data on the extent to which such services are made available.
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The military services face the challenge of dealing with a large backlog of facilities maintenance and repair and insufficient funding devoted to sustainment, restoration and modernization. To address this issue, DOD is pursuing an installation strategy to reduce infrastructure and base operating costs and reshape military installations to meet the needs of the 21st century. After the Cold War, military force structure was reduced by 36 percent. Consequently, the Department was left with infrastructure it no longer needed for current military operations. To address this imbalance, the Department has undergone four rounds of base realignment and closures that have reduced its infrastructure holdings by about 21 percent. Even after the four rounds of base realignment and closures, the Department estimates that 20 to 25 percent of its infrastructure is not needed to meet current mission requirements. Meanwhile, service budgets frequently have been insufficient to address facility needs. In December 2001, Congress passed the National Defense Authorization Act for Fiscal Year 2002 giving the Department the authority for another round of base realignment and closure in 2005. The Department estimates it will save approximately $3 billion annually following these actions. Although the Department views the base realignment and closure process as having the greatest impact in terms of savings, it is only one initiative in a multi-part strategy to reshape and make the services' installations more efficient. Other important initiatives include, but are not limited to, housing and utility privatization, competitive sourcing of non-inherently governmental functions, demolition, and leasing of real property and facilities. DOD's leasing authority can be traced back to the Act of July 28, 1892. The act provided general authority for the Secretary of War to enter into leases for a maximum of 5 years for property that was "not for the time required for public use." The Navy received similar authority under a separate law in 1916. Neither statute permitted the services to retain cash proceeds or accept non-cash or "in-kind" consideration. Additionally, the Miscellaneous Receipts Act required all cash payments to be deposited in the Treasury. Congress expanded the Department's leasing authority in 1947. The expansion permitted the service secretaries to enter into leases for longer periods, grant the lessee a first right to buy the property in case of sale, and accept in-kind consideration. The expansion also provided that in-kind consideration could be applied specifically to the leased property or to the entire installation, if a substantial part of the installation was leased. Congress also provided limited relief from the Miscellaneous Receipts Act by permitting the services to be reimbursed for the costs of utilities or services provided in connection with a lease. The basic authority remained relatively unchanged until 1990, when Congress amended 10 U.S.C. 2667 to establish special accounts for cash payments. The amendment required the services to use the accounts for environmental restoration or facilities maintenance and repair. The amendment provided that, to the extent provided in appropriation acts, half of the proceeds were to be returned to the installation where the property was located and the other half was to be available for use by the services. The services had the option of allocating some or all of a service's half of the cash proceeds to the installation leasing the property or retaining it for any property owned by the service. Even with these amendments to 10 U.S.C. 2667, the Department believed that further revisions were needed to make the statute a better tool for utilizing its property. Section 2814 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 required the Department to provide Congress with an assessment of its authority to lease real property and proposed adjustments to 10 U.S.C. 2667. In its report, the Department proposed four changes that would have allowed the Department, in its view, to use its surplus capacity more effectively to further reduce installation support costs. The proposed changes included (1) allowing the use of cash proceeds without the additional step of congressional appropriation, (2) permitting environmental indemnification, (3) expanding the use of in-kind consideration, and (4) permitting new construction as in-kind consideration. Congress acted on these proposals, but did not implement all of the Department's proposals. In the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, Congress significantly expanded the services' authority to accept in- kind consideration. Specifically, Congress expanded authorized use of in- kind consideration to include additional services, such as construction of new facilities. It also allowed service secretaries to accept in-kind consideration at any property or facility under their control, rather than at only the installation leasing the property. Congress made similar changes to the authority to use funds from the special accounts for cash payments. These accounts may now be used for acquisition of facilities and facilities operation support, as well as construction of new facilities. The Department of Veterans Affairs has had similar enhanced leasing authority since 1991, which permits it to lease property for the purpose of generating revenues to improve services to veterans. Appendix II provides examples of Veterans Affairs' use of their enhanced leasing authority. The services have leased real property on their bases for years as a means to reduce infrastructure and base operating costs. The military services leased space for banks, credit unions, ATMs, storage, schools, and agricultural grazing. These projects served the needs of the community and generated modest amounts of revenues. From 1994 to 1998, the services entered into approximately 1,800 real property leases that generated $21.9 million. Agricultural and grazing leases comprised 36 percent of the total number of leases for all military Departments combined. Revenues from agricultural and grazing leases are retained to cover administrative costs of leasing and to cover financing of land-use management programs at installations. Service revenues from leasing increased to $10.7 million in fiscal year 1999, $14.4 million in fiscal year 2000, and $12.9 million in fiscal year 2001. These amounts do not include in-kind consideration. The Department estimates that, including in-kind consideration, the services collected the equivalent of $22 to $25 million annually for the 3-year period. This figure represents approximately one- third of 1 percent of the Department's $6 billion facilities capital improvement requirement. In the Department of Defense's 1999 leasing report to Congress, the Department estimated that the expanded leasing authority could increase its revenues to $100 to $150 million annually after the first 5 years of the expanded authority. To accomplish this, the Department expects the services to focus on larger and more complex leases, to include major development projects that involve real estate developers who lease the property, restore it, and in turn sublease the property to a variety of tenants. The services are also exploring ways to share in future revenues with developers as part of lease agreements. The services continue to use 10 U.S.C. 2667 for traditional leases, but the services have made limited efforts to use the expanded leasing authority, which was expected to result in larger and more complex projects. As a result, the services may not meet the Department's expectations of generating $100 to $150 million in annual revenues from the expanded authority. To date, the Army has completed two projects based on the expanded authority and has identified several other potential projects. (See app. III for more details on the projects currently under consideration by the Army using the expanded leasing authority.) On June 21, 2001, the Army signed a lease, with a developer who will restore several buildings at Fort Sam Houston, San Antonio, Texas, and sublease them. The Army expects to receive $253 million in revenue over the next 50 years from this project. On September 26, 2001, the Army signed a 33-year lease with the University of Missouri, which will develop and sublease 62 acres on Fort Leonard Wood, Missouri, for a technology park. The University of Missouri Systems and the State of Missouri will provide an initial investment of $4 million. According to an Army official, the Army will receive $500 annually for each sub-leased acre and 7 percent of the net proceeds collected from the sublease. This project will enhance the installation's mission by enabling industry and academic partners to co-locate on the installation. According to Air Force and Navy officials, they are in the process of identifying potential projects that would use the expanded leasing authority. However, as noted below, the services have cited numerous factors that were likely to limit the use of the expanded leasing authority. The services have identified a number of factors that have limited the use of the expanded leasing authority and that could adversely affect the program in the future. However, the Army's leasing experience indicates that leasing opportunities may exist notwithstanding these factors. A significant factor that could hinder the use of the expanded leasing authority may be the absence of strong program emphasis, including detailed program guidance and goals and a financial system capable of tracking revenues and in-kind consideration from leases. The services have identified a number of impediments that have made them cautious about using the expanded leasing authority. Some of their concerns have been raised by the congressionally authorized round of base realignment and closure scheduled for 2005 and force protection issues resulting from the events of September 11. Other potential impediments include mission compatibility, budget implications, legal requirements, and resource availability. Navy and Air Force officials cite the planned base realignment and closure process authorized for 2005 as one of the main obstacles to expanding their leasing efforts in the short-term. The services are hesitant to lease property on bases that might be subject to a base realignment and closure action or may be required for future mission needs. Navy officials expressed concern about having to terminate leases if an installation should subsequently be subject to a base realignment and closure action, citing costs it had inccurred under similar circumstances. For example, Navy officials stated they had to maintain the utilities at a base in El Toro, California, for a year after the base was closed because it could not terminate a lease without incurring substantial costs. The services also want to reserve property in the event that they have to accommodate missions from realigned or closed installations. An Air Force official stated that leased property might be needed for missions transferring from realigned or closed bases. The official added that the Air Force has significantly reduced its infrastructure by demolishing over 300,000 square feet of property and closing 31 bases in the previous base closure rounds. Thus, according to Air Force officials, there are not as many opportunities to lease. Also, according to a Navy official, laws and regulations, community interest, and the local congressional delegation can limit the service's ability to terminate leases, making the leases nearly irreversible commitments of assets. Consequently, the Navy and Air Force are hesitant to use the expanded leasing authority until the future base realignment and closure process identifies those installations that will be closed or realigned. All three of the services expressed concern about the impact of leasing on force protection and base security issues. For example, according to services officials, installation commanders are concerned about their ability to strengthen security and limit base access if they open their bases to private tenants. The events of September 11, 2001, have increased their concerns about these issues. Despite the need for increased emphasis on force protection and security concerns, the services may be able to mitigate, according to an Army official, the impact of force protection issues somewhat by locating leasing projects near the periphery of an installation. In addition, heightened security may be an advantage in attracting lease projects. The Army, for example, has chosen to emphasize the benefits of heightened security to potential leasing clients. It will promote additional security measures as a benefit in future lease proposals. Service officials also cited mission compatibility as an obstacle to leasing projects for some installations. These officials indicate that they do not want to create new missions on their installations and have issued memoranda stating that leases should be consistent with an installation's mission. However, according to service officials, finding projects that are mission related could be difficult. For example, the Navy has turned down proposals to lease and develop naval property because the leases would have conflicted with the Navy's mission. According to a Navy official, the Navy is concerned that the more involved it becomes with a community through leasing projects, the less flexibility and control it has over its installation. Furthermore, some officials have indicated that generating interest in leasing Navy properties is difficult because naval buildings and property generally have very specific uses and may not be easily modified to satisfy the needs of potential lessees. For example, naval shipyards have very specialized missions that limit the activities that can be conducted on them. Similarly, Air Force officials are concerned that joint use of an installation could compromise its mission. For example, if a private firm wanted to lease an aircraft hangar and allow private aircraft to take off and land, the Air Force would then have to coordinate those private flights with its flight schedule, which could affect its mission. The services may be able to overcome this issue by subleasing to government contractors and other service units that are currently leasing private property, and they may be able to find lease projects with private companies that reinforce their missions. For example, the Army is hoping to take advantage of San Antonio's medical industry to identify and attract leases at Fort Sam Houston, which has a large medical mission. Similarly, the Army is structuring a lease that would provide for a joint-use hot-test track in Yuma, Arizona. The Army would be able to test the durability of its vehicles in desert conditions in conjunction with a private vehicle manufacturer. Section 2667 of title 10, United States Code, provides that at least 50 percent of lease revenues must be returned to the installation where the lease is located. The Department and services view this as an incentive to installation commanders to identify and lease available property to help defray base operating support costs. However, according to the Department of Defense's leasing report to Congress, the Office of Management and Budget and Congress may view lease revenues as a substitute for direct appropriations and may reduce the Department's appropriation dollar-for-dollar by the increase in lease revenue. The Department may in turn reduce the services' budgets thus reducing or eliminating an incentive for them to identify and lease additional properties. This disincentive may be offset to some extent by the expanded leasing authority's broadened use of in-kind consideration to include additional services and new construction. In addition, in-kind consideration can remain at the installation, which allows the installation to immediately realize all of the benefits. Department and service information has indicated that the McKinney- Vento Homeless Assistance Act, National Historic Preservation Act, and environmental indemnification issues can discourage leasing of their facilities. However, others suggest that this is not always the case. The Department's report to Congress stated that the McKinney-Vento Homeless Assistance Act could discourage leasing. The McKinney-Vento Act mandates that providers for the homeless must be given an opportunity to use federal real property identified as not currently needed for mission requirements. However, service officials have found that while compliance with the McKinney-Vento Act is a time-consuming process, it does not necessarily impede their ability to respond to leasing opportunities. Also, service officials stated that the National Historic Preservation Act could hinder the leasing program. Many of the buildings on the three services' installations are historic properties and are protected by the National Historic Preservation Act. For example, the Army estimates that approximately 15,000 of its properties are listed on or eligible for the National Register of Historic Places. Service officials stated that numerous regulations on maintenance, preservation, and restoration of historic properties could limit a leasing project's success by limiting the developer's ability to attract tenants. Specifically, at Army property leased at Fort Sam Houston (where, according to Army officials, 57 percent of the buildings are historic), the state historic preservation office wanted the developer to retain walls that were blocking natural light. Through lengthy negotiations, the developer was able to convince preservation officials that they would be unable to secure a sufficient number of tenants to make the lease profitable, without the ability to design space with natural light. While the National Historic Preservation Act can create issues for a developer, the act can also be an incentive because of the potential tax credits a developer can receive for restoring historic property. For example, even though leased property is involved, the developer at Fort Sam Houston is seeking tax credits for the property, which he stated might be used to lower the rental rate of its sub-leases, including leases to the federal government. If the developer at Fort Sam Houston is successful, the tax credits could potentially attract developers and lessees to installations that would otherwise not be considered desirable due to location or other issues. In addition, a DOD official stated that the services could capitalize on their historic property by marketing the property to the film industry, which could generate substantial revenue. The Department's report and service officials stated that environmental indemnification (i.e., to hold harmless the lessee from liability for Department-related environmental contamination) is also a significant barrier to leasing. According to DOD, there is a perception in the private sector that military property has a high potential for being contaminated, even when current studies indicates otherwise. Potential lessees who are concerned about the liability for cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act may be discouraged from leasing military property. Although the Department has stated that under any leasing arrangement it is responsible for all environmental cleanup cost, potential lessees may be reluctant to engage in an agreements without indemnification. Limited resources, including well-trained personnel and funds may also impede the services' leasing efforts. The expanded authority, to the extent used or envisioned, could involve large, complex real estate transactions that require experienced legal and real estate personnel to complete. According to service officials, the lack of a sufficient number of staff members with the necessary real estate knowledge is an impediment to expanding leasing efforts. Service officials added that installation commanders--whom the services are relying on to identify potential leasing opportunities and prepare business cases supporting the project-- have not received any formal training and lack the necessary expertise. In addition, according to service officials, the services are reluctant to assume the risks of expending their limited resources on potential projects that may not result in a lease. According to Navy officials, the Navy has a limited number of trained real estate staff and many of them are involved with higher priority issues, such as utility privatization and its Ford Island development project. One Navy official stated that installation personnel are not trained to identify, complete, and manage leasing projects. Air Force officials expressed similar concerns, stating that installation commanders are not currently trained to manage property. Likewise, the Air Force has also dedicated its personnel to other priority projects, including its demonstration project at Brooks Air Force Base, limiting its ability to undertake additional leasing projects. To address the shortage of personnel, the Army at Fort Sam Houston converted its Total Quality Management Office into a business practices office to handle the leasing project. As a result of these efforts, the Army has projected that it will receive approximately $253 million in revenue over the lease's 50-year term. This has led the Army to encourage its major commands to establish business practices offices at their installations to handle, among other things, leasing functions. The services lack a strong program emphasis that would encourage the use of the expanded leasing authority. They have neither identified program goals in terms of desired savings and timelines for achieving them, nor have they developed implementation guidance. In addition, the services have not accurately accounted for existing lease revenue, and their accounting systems are not equipped to track in-kind consideration. The military services control and are responsible for the operation of their installations; therefore, DOD has essentially deferred to the military services to establish program guidance for implementing the expanded leasing authority. However, the services have not developed this guidance to include measurable goals and detailed guidance that will enable them to take full advantage of the expanded authority. Each service has issued policy memoranda outlining the goals and purpose of the expanded leasing authority, but these memoranda generally reiterate the Office of the Secretary of Defense's overall goal of expanding leasing efforts to reduce base operating costs and to improve installation efficiency. The services' memoranda do not identify measurable goals in terms of the amount of savings the services want to achieve and when they want to achieve them. Additionally, the services have not provided detailed guidance, such as criteria for identifying facilities and space available for leasing, nor a methodology to identify those projects that have the potential to return the most lease revenues. For example, although the Army is aggressively pursuing lease projects that could potentially generate millions of dollars in savings, it has not selected these projects systematically or determined how many projects it can successfully undertake given the complex nature of the leases. Instead of a formal management framework, the services have relied upon installation commanders to identify and pursue leasing opportunities. Service officials admit that many installation commanders may not be adequately prepared to handle these duties, as they lack personnel with both real estate and leasing experience. Where leasing has occurred, historically, the services have not accurately accounted for lease revenue, and their accounting systems are not equipped to track in-kind consideration received in lieu of cash. In the case of cash revenues, the law provides that at least 50 percent of the revenue must be returned to the installation where the leased property is located. According to service officials, returning lease revenue acts as an incentive to installation commanders to identify and lease as much of their real property as is reasonable. However, we found that two of the three services were unable to accurately track cash revenues, which resulted in installations from two services receiving less revenue than anticipated or no revenue: In fiscal year 2000, Air Force installations reported that they should have about $2.1 million in lease revenue. However, DOD's treasury leasing account records showed that Air Force installations only deposited about $1.4 million in the account, resulting in a $700,000 discrepancy, which the Air Force has yet to reconcile. Because of the $700,000 discrepancy, the Air Force pro-rated the lease revenues, giving each installation and its major command a share of the $1.4 million, but not necessarily 100 percent of the revenue they had generated, which is ordinarily Air Force policy. The Air Force is unable to identify whether the $700,000 was collected or incorrectly recorded into another account. According to Department records, the treasury leasing account showed that the Navy deposited $4.7 million in lease revenue in fiscal year 2000. However, the Navy's Financial Management and Budget Office is unable to identify the source of 48 deposits totaling approximately $800,000, and, therefore, the Navy has not distributed $2.35 million (50 percent of the revenues) back to the installations, as provided by 10 U.S.C. 2667. However, the Navy has already distributed 50 percent of the revenue for other service needs. Each of the services lacks a service-wide accounting system to track in- kind consideration, which can be accepted in lieu of cash payments and can include construction of new facilities or maintenance and repair services. In-kind consideration currently accounts for about 40 percent of lease revenue, according to Department of Defense officials, who encourage in-kind consideration as an alternative to cash revenue. While the expanded authority gave the services the ability to use in-kind consideration at any installation under its control, the lack of visibility over in-kind consideration at the service level limits the services' ability to accurately account for a significant portion of its leasing revenue. Consequently, the services may be unable to determine the success of their leasing efforts, which may limit their ability to use in-kind consideration for their highest priority projects. In an era of reduced budgets for infrastructure and base operating costs, leasing can be an important tool that allows the services to help meet some of their most critical infrastructure needs. We recognize that the impediments identified by the services are likely to limit the use of the expanded leasing authority somewhat. However, recent and on-going efforts by the Army to use the expanded authority suggest that with sufficient emphasis, opportunities may still exist to lease under this expanded authority. At present, the program lacks needed emphasis and planning in terms of formally developed goals or detailed guidance. Consequently, the services are not systematically identifying potential lease projects and have not determined how many of these projects to undertake at one time. In addition, revenue from existing lease projects has not been accurately accounted for and distributed to installations, which may discourage installation commanders from initiating projects under the expanded leasing authority. In-kind consideration represents approximately 40 percent of the benefits from these existing leases and is expected to increase. However, the services have not accounted for these receipts, which may prevent the services from assessing the full extent of their success. To make better use of the expanded leasing authority, we recommend that the Secretary of Defense require the Under Secretary of Defense for Acquisition, Technology, and Logistics to work with the Secretaries of the Air Force, Army, and Navy to place greater emphasis on an expanded leasing program in the form of program goals and measurements to monitor progress in reducing infrastructure and base operations costs; specific program guidelines, such as criteria for project selection; and accurately accounting for all cash revenues and developing a new system to account for in-kind consideration to ensure that all of the benefits from leasing are captured. 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 the House Committee on Government Reform not later than 60 days after the date of this report. A written statement must also be sent to the House and Senate Committees on Appropriations with the agency's first request for appropriations made more than 60 days after the date of this report. In commenting on a draft of this report, the Deputy Under Secretary of Defense (Installations and Environment) generally concurred with most of our recommendations while partly concurring with the recommendation to develop program goals and measurements to monitor progress in reducing infrastructure and base operations costs. While partially concurring with this recommendation, the Department noted two policy memoranda already issued identifying goals and objectives, and noted that while it believes there are opportunities to increase the number and the scope of leases under the expanded authority, it is dependent on a number of factors affecting individual projects. It was noncommittal regarding development of additional program goals. We found that while the Department has issued general program guidance, that guidance does not contain specific goals and measurements for tracking progress in using the expanded leasing authority. We continue to believe that despite likely limitations in the program, as outlined in the report, development of goals and measurements to monitor progress is important to fostering increased program emphasis. This is especially important, because as noted in the Department's comments, use of the expanded leasing authority is a key element of the Department's efficient facilities initiative. Therefore, we are making no change to our recommendation. The Department also provided observations on the challenges it faces in identifying and implementing projects under the expanded leasing authority. Among them are such challenges as identifying land and/or buildings that have sufficient market appeal to attract one or more private sector or public entities, as well as be of sufficient size and scope to permit a sufficient rate of return to the developer for the project to be accomplished. We agree that these are significant challenges along with others we have pointed out in our report. The Department's comments are included in this report as appendix IV. We are sending copies of this report to the Secretary of the Army, the Secretary of the Navy, the Secretary of the Air Force, the services' offices of installations and environment, and interested congressional committees and members. 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) 512-8412 if you or your staff has any questions concerning this report. Major contributors to this report are listed in appendix V. To assess the extent to which the services have used the expanded leasing authority since its enactment in fiscal year 2001, we identified current leasing projects and talked to services officials and private sector representatives. In addition, we visited an installation that has a project using the expanded leasing authority. Specifically, we interviewed officials at the Office of the Secretary of Defense; Office of the Assistant Secretary of the Navy Installations and Environment, Rosslyn, Virginia; Office of the Assistant Secretary of the Army Installations and Environment, Washington, D.C.; Office of the Assistant Chief of Staff for Installation Management, Army Headquarters, Washington, D.C.; Office of the Deputy Assistant Secretary of Army, Resource Analysis and Business Practices, Washington, D.C.; Naval Facilities Engineering Command Headquarters, Washington, D.C.; Air Force Real Estate Agency, Bolling Air Force Base, Washington, D.C.; Naval Sea Systems Command, Washington, D.C.; and Naval Air Systems Command, Crystal City, Virginia. In addition, we visited Fort Sam Houston, San Antonio, Texas, where the Army recently completed a lease under the expanded leasing authority. To identify factors that limited the services' use of the new authority, we identified and reviewed congressional legislation, Department of Defense and the services' memoranda, policies, and procedures, and accounting records. In addition to the officials listed above, we interviewed officials in the Office of Management and Budget, Washington, D.C.; Department of Defense's Office of the Comptroller, Washington, D.C.; Army Financial Management and Comptroller Office, Washington, D.C.; Navy Financial Management and Budget Office, Washington, D.C.; Air Force Financial Management and Budget Office; Air Force's Civil Engineers Operation and Maintenance Division, Crystal City, Virginia; Defense Financial and Accounting Services, Denver, Colorado and Cleveland, Ohio; U.S. Army Corp of Engineers, Washington, D.C.; and private sector representatives from Roy F. Weston, Inc., and Orion Partners, Inc., San Antonio, Texas. We conducted our review between June 2001 and April 2002 in accordance with generally accepted government auditing standards. Title 38 U.S.C., sections 8161-69, provides the Department of Veterans Affairs the authority to leverage its property into needed facilities, services, or resources. Veterans Affairs can lease underutilized property for up to 75 years in return for cash or in-kind consideration. Veterans Affairs has used its enhanced-use leasing authority to lease space for children's centers, offices, parking garages, health centers, residential lodging, and other purposes. For example, in Texas, Veterans Affairs leased unused land to a developer on its medical campus. The developer constructed a Veterans Affairs regional office building as well as other buildings and rented space to commercial businesses. According to Veterans Affairs, the project saved $6 million on construction, $10 million in operating costs, and produced annual revenue for Veterans Affairs through revenue sharing with the developer. In Indiana, Veterans Affairs leased underutilized land and facilities to the state to use as a psychiatric care facility. Veterans Affairs estimates it obtained $15.7 million in financial benefits and $5 million per year in operational savings. The lease revenue that Veterans Affairs receives from both sites funds veterans programs. Veterans Affairs enhanced-use leasing authority has been in effect since 1991 and has been extended four times to a current expiration of December 31, 2011. To date, Veterans Affairs has approved 16 projects, and 11 have been completed. According to Veterans Affairs officials, these projects have been successful and the Department's experiences could provide a framework for the Department of Defense's expanded leasing efforts. In addition, Veterans Affairs has studied over 100 initiatives, of which more than 50 are "in development." The Army has four projects under consideration using the expanded leasing authority that it believes will reduce base operating costs, including Picatinney Arsenal, Rock Island Arsenal, Yuma Proving Grounds, and Walter Reed Army Medical Center. The Army proposed leasing four buildings for joint military and commercial use as laboratories, light manufacturing, education/training, and administrative facilities at Picatinney Arsenal. On July 2, 2001, Picatinney Arsenal signed a conditional lease with a developer. The installation and developer are currently drafting their Business and Leasing Plan for approval by the Department of the Army. At Rock Island Arsenal, the Army has identified 14 buildings to lease under a joint use agreement, which would allow a private sector developer to market the facilities. Rock Island Arsenal is currently developing its Notice of Availability to lease, which serves as the basis for selecting a developer. At Yuma Proving Ground, the Army is seeking a private-sector developer to construct a Hot Weather Test Complex. Yuma Proving Ground is currently drafting a Report of Availability. As in-kind consideration, Yuma Proving Ground would also be able to use the test track for mission requirements. At Walter Reed Army Medical Center, the Army has identified one building to be restored and utilized as an office building for health care, or biomedical research organization, which is compatible with Walter Reed's mission. The building has historical significance and needs to be preserved. Estimated renovation costs are over $40 million, which the Army envisions would be incurred by the developer. In addition to those named above, Tommy Baril, Tinh Nguyen, Robert Ackley, Susan Woodward, and Nicole Carpenter made key contributions to this report.
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The military services face significant challenges in addressing facility sustainment, restoration, and modernization needs with limited funds. These challenges are magnified by the 20 to 25 percent of the Department of Defense's (DOD) real property that it views as not being needed to meet current mission requirements, but that adds to costs. To reduce these costs and acquire additional resources to maintain its facilities, DOD has developed a multi-part strategy involving base realignment and closure, housing and utility privatization, competitive sourcing of non-inherently governmental functions, and demolition of facilities that are no longer needed. Although the services continue to use the leasing authority provided for traditional type of leases, they have made limited efforts to use the expanded leasing authority enacted by Congress in fiscal year 2001. The services have identified a number of impediments that have limited the use of the expanded leasing authority and that could adversely affect the program in the future.
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Our preliminary analysis of NSF data indicates that for fiscal years 2000 through 2016, indirect costs on NSF awards ranged from 16 percent to 24 percent of the total annual amounts the agency awarded, though the percentage generally has increased since 2010. In fiscal year 2016, for example, NSF awards included approximately $1.3 billion budgeted for indirect costs, or about 22 percent of the total $5.8 billion that NSF awarded. Figure 1 illustrates annual funding for indirect costs over the 17- year period. NSF officials told us that variation in indirect costs from year to year can be due to a variety of factors such as (1) differences in the types of organizations awarded, (2) the types of activities supported by the individual awards--research vs. individuals or students vs. infrastructure, (3) the type of research activity, and (4) the disciplinary field of awards. As part of our ongoing review, we plan to conduct further analysis of these factors. The indirect costs on individual awards varied more widely than the year- to-year variations for each award. Most NSF awards included indirect costs in their budgets--for example, about 90 percent of the 12,013 awards that NSF made in fiscal year 2016 included indirect costs. Our preliminary analysis of those awards indicated that the proportion of funding for indirect costs ranged from less than 1 percent to 59 percent of the total award. Our preliminary analysis also indicates that average indirect costs budgeted on awards varied across types of awardees. NSF's data categorized awardees as federal; industry; small business; university; or other, a category that includes nonprofits and individual researchers. Figure 2 illustrates our preliminary analysis on the average percentage of total awards budgeted for indirect costs in fiscal year 2016, by type of awardee. As shown in the figure, our preliminary analysis indicates that university awardees had the highest average indirect costs--about 27 percent of the total amount of awards--and federal awardees had the lowest average indirect costs--about 8 percent of the total amount of awards. According to NSF officials, certain types of projects, such as those carried out at universities, typically involve more indirect costs than others. The officials said that this is because, for example, of universities' expense of maintaining scientific research facilities, which may be included as an indirect cost in awards. Because universities receive the bulk of NSF's award funding and have relatively high indirect costs, our preliminary analysis of NSF data indicates that universities accounted for about 91 percent of the approximately $1.3 billion budgeted for indirect costs in fiscal year 2016. As previously noted, NSF does not set the indirect cost rate for the universities to which it makes awards, as those rates are set by HHS or DOD. Our analysis also showed that awards to organizations for which NSF had cognizance (e.g., nonprofits, professional societies, museums, and operators of large shared-use facilities) had lower average budgeted indirect costs than awards to organizations for which other federal agencies had cognizance. As shown in figure 3, our preliminary analysis of NSF data indicates that, on average, NSF budgeted about 23 percent of award amounts for indirect costs on awards to organizations for which NSF did not have indirect cost cognizance and about 11 percent for indirect costs on awards to organizations for which NSF had cognizance. Our preliminary observations show that in fiscal year 2016, NSF made most of its awards to organizations for which it did not have cognizance. Our preliminary observations show that among the approximately 110 organizations for which NSF has cognizance, negotiated indirect cost rates can vary because of the type of work being funded by awards and the ways in which different organizations account for their costs. For example, salaries for administrative or clerical staff may be included as either an indirect or direct cost, as long as they are consistently treated across an organization's awards. Our preliminary analysis of the rate agreement case files for nine organizations in a nongeneralizable sample of files we reviewed showed the rates ranged from 5.5 percent to 59.8 percent. An organization may choose to budget indirect costs for an award at a level close to its negotiated indirect cost rate for the organization, or it may choose to budget the costs differently. For example, one of the organizations in our sample had a negotiated indirect cost rate of 51 percent in fiscal year 2016. In that year, the organization received one NSF award for $535,277 that budgeted $180,772 for indirect costs (or about 34 percent of the award)--a calculated indirect cost rate on the award of about 51 percent. Another organization in our sample had a negotiated indirect cost rate of 5.5 percent in 2016, and one of its NSF awards in fiscal year 2016, for $1,541,633, did not budget for any indirect costs. We based our preliminary analyses of indirect costs on data from the budgets of NSF awards--the only available NSF data on indirect costs. According to NSF officials, prospective awardees are required to provide direct and indirect costs in their proposed budgets using the organization's negotiated indirect cost rate. After an award is made, NSF does not require awardees to report information about indirect costs when requesting reimbursements for work done on their awards for projects. Specifically, NSF's Award Cash Management $ervice--NSF's online approach to award payments and post-award financial processes--does not collect data about indirect costs, although NSF is permitted to do so by OMB guidance. According to NSF officials, doing so would unnecessarily increase the reporting burden on awardees. Our preliminary review of NSF's guidance for setting indirect cost rates and a nongeneralizable sample of nine indirect cost rate files indicates that NSF has issued internal guidance that includes procedures for staff to conduct timely and uniform reviews of indirect cost rate proposals, collect data, set rates, and issue letters to formalize indirect cost rate agreements. However, we also found that NSF staff did not consistently apply the guidance. The guidance also includes tools and templates for staff to use to consistently set rates and procedures for updating the agency's tracking system for indirect cost rate proposals. However, in our preliminary analysis of NSF guidance, we found that (1) NSF staff did not consistently follow guidance for updating the tracking system, (2) the guidance did not include specific procedures for how supervisors are to document their review of staff workpapers, and (3) NSF had not updated the guidance to include procedures for implementing new provisions issued under the Uniform Guidance. In 2008, NSF created a database to track indirect cost rate proposals and developed guidance for updating the tracking database with proposal information. However, our preliminary analysis of reports from the tracking database indicates that NSF staff have not consistently followed the guidance for updating the tracking database with current data about the awardees for which NSF has cognizance and the status of indirect cost rate proposals. For example, in our preliminary analysis, we identified eight awardees for which NSF was no longer the cognizant agency but that still appeared in the tracking database on a list of agencies from which proposals were overdue. Cognizance for these awardees had been transferred to other agencies from 2009 through 2014. In addition, we identified 46 instances in which NSF staff had not followed the guidance to update the tracking database to reflect the current status of awardees' proposals, including instances in which the tracking database was missing either the received date or both the received and closed dates. In addition, while NSF's guidance describes procedures that staff are to follow for setting indirect cost rates, it only includes broad procedures for supervisory review--NSF's primary quality control process for setting indirect cost rates. The guidance does not describe specific steps that supervisors need to take when reviewing the work performed by staff when setting indirect cost rates, nor does it include how supervisors should annotate the results of their reviews in the workpapers. In our preliminary review of a nongeneralizable sample of nine NSF rate files, we did not find any documentation that a supervisor had reviewed the work performed by staff, such as verifying that staff had checked the accuracy of the total amount of awards over which an awardee's indirect costs were distributed. Such reviews are meant to provide reasonable assurance that only allowable, allocable, and reasonable indirect costs have been proposed and that such costs have been appropriately allocated to federally funded awards. Moreover, our preliminary observations on NSF's guidance indicates that it does not include procedures for implementing certain aspects of OMB's Uniform Guidance, which became effective for grants awarded on or after December 26, 2014. For example, a new provision under the Uniform Guidance allows research organizations that currently have a negotiated indirect cost rate to apply for a onetime extension of that rate for a period of up to 4 years; however, NSF guidance does not specify criteria for NSF staff to determine the circumstances under which an awardee could be given an extension. In closing, I would note that we are continuing our ongoing work to examine NSF's data on indirect costs for its awards over time and its implementation of its guidance for setting indirect cost rates for organizations over which it has cognizance. NSF awards billions of dollars to organizations each year and, given the constrained budget environment, it is essential that NSF ensures efficient and effective use of federal science funding. We look forward to continuing our work to determine whether NSF actions may be warranted to promote this objective. We plan to issue a report in fall 2017. Chairwoman Comstock, Chairman LaHood, Ranking Members Lipinski and Beyer, and Members of the Subcommittees, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff members have any questions concerning this testimony, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Joseph Cook, Assistant Director; Kim McGatlin, Assistant Director; Rathi Bose; Ellen Fried; Ruben Gzirian; Terrance Horner, Jr.; David Messman; Lillian Slodkowski; Kathryn Smith; and Sara Sullivan. 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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NSF awards billions of dollars to institutions of higher education (universities), K-12 school systems, industry, science associations, and other research organizations to promote scientific progress by supporting research and education. NSF reimburses awardees for direct and indirect costs incurred for most awards. Direct costs, such as salaries and equipment, can be attributed to a specific project that receives an NSF award. Indirect costs are not directly attributable to a specific project but are necessary for the general operation of an awardee organization, such as the costs of operating and maintaining facilities. For certain organizations, NSF also negotiates indirect cost rate agreements, which are then used for calculating reimbursements for indirect costs. Indirect cost rate negotiations and reimbursements are to be made in accordance with federal guidance and regulation and NSF policy. This testimony reflects GAO's preliminary observations from its ongoing review that examines (1) what is known about NSF's indirect costs for its awards over time, and (2) the extent to which NSF has implemented guidance for setting indirect cost rates for organizations. GAO reviewed relevant regulation, guidance, and agency documents; analyzed budget data, a nongeneralizable sample of nine indirect cost rate files from fiscal year 2016 selected based on award funding; and interviewed NSF officials. GAO's preliminary analysis of National Science Foundation (NSF) data indicates that for fiscal years 2000 through 2016, indirect costs on NSF awards ranged from 16 percent to 24 percent of the total annual amounts awarded, though the percentage generally has increased since 2010 (see fig.). NSF officials stated that variation in indirect costs from year to year can be due to a variety of reasons, such as the types of organizations awarded and the disciplinary field of awards. GAO's observations are based on data from planned budgets on individual NSF awards, rather than actual indirect cost expenditures, because NSF does not require awardees to report indirect costs separately from direct costs in their reimbursement requests. According to NSF officials, collecting such information would unnecessarily increase the reporting burden on awardees. NSF has issued guidance for negotiating indirect cost rate agreements that includes procedures for staff to conduct timely and uniform reviews of indirect cost rate proposals. GAO's preliminary review of NSF's guidance and a sample of nine indirect cost rate files found that (1) NSF staff did not consistently follow guidance for updating the agency's tracking database with current data about some awardees, (2) the guidance did not include specific procedures for how supervisors are to document their review of staff workpapers, and (3) NSF had not updated the guidance to include procedures for implementing certain aspects of Office of Management and Budget guidance that became effective for grants awarded on or after December 26, 2014, such as the circumstances in which NSF can provide an awardee with an extension of indirect cost rates. GAO is not making any recommendations in this testimony but will consider making recommendations, as appropriate, as it finalizes its work.
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Two NNSA offices, NA-23 and NA-25, documented management controls for almost all of their contracts that we reviewed; but the third office, NA- 24, could not provide us with the complete records necessary to document these controls. Similarly, NA-23 and NA-25 provide their technical reviewers and contract managers with procedural guidance that assists in maintaining these controls, while NA-24 did not provide this type of guidance. In addition, NA-23 and NA-25 maintain the key contract documents at headquarters and the national laboratories, respectively, in such a way that the records are quickly accessible for active monitoring by contract and program managers, as evidenced by their ability to provide us with key contract records. Two NNSA offices, NA-23 and NA-25, documented management controls for most of their contracts that we reviewed. As shown in table 1, for eight of the nine contracts we reviewed from these two offices, NA-23 staff and national laboratory officials who manage NA-25's contracts provided us with complete records of deliverables and invoices as well as evidence that technical reviewers and contract officers reviewed and approved deliverables and invoices, respectively. (For the ninth contract, which involved comprehensive physical protection upgrades to a strategic rocket forces site in Russia, Oak Ridge National Laboratory did not provide complete documentation of approvals for deliverables.) For example, the two contracts we reviewed from NA-23--which are designed to construct or refurbish fossil-fuel plants for the Russian cities of Zheleznogorsk and Seversk so that each city can shut down its plutonium-producing nuclear reactor that it currently uses to generate heat and electricity--involve multiple contractors in the United States and Russia. Despite being by far the largest contracts by dollar value in our sample ($390 million for Seversk and $570 million for Zheleznogorsk--the next largest contract was valued at $29 million), NA-23 headquarters provided us with, among other things, complete documentation of all invoices; photographs of the deliverables (i.e., construction work) completed to date; and evidence of the reviews and approvals of the invoices and payments to the foreign contractors and subcontractors. NA-23 also provided us with detailed breakdowns of work (called Work Breakdown Structures), work authorizations, and cost evaluations for each project. The documentation NA-23 provided us was among the most complete and organized of all the contracts we reviewed. An NA-23 official told us that this office makes efforts to specify in acute detail the work to be done and the costs for that work because this enables the office to effectively monitor and maintain a degree of control over the work of foreign contractors and subcontractors. NA-25 officials also provided us with complete documentation of management controls for the contracts they manage. As shown in table 1, for six of the seven contracts we reviewed, the national laboratories that manage these contracts provided complete records of deliverables and invoices as well as evidence that technical reviewers at the national laboratories and/or contract officers at the national laboratories and/or NA-25 reviewed and approved the deliverables and invoices, respectively. (The seventh contract is the Oak Ridge contract, mentioned above.) For example, for the two contracts we reviewed that Brookhaven National Laboratory manages for NA-25, each invoice on the contracts received at least one approval from technical reviewers at the laboratory, and each financial transaction received two approvals from contract managers. In another contract involving the purchase of nuclear detection devices for deployment in Russia, the national laboratory managing the contract-- Pacific Northwest--provided us with purchase orders for the contract as well as a receipt of delivery so that we could verify that the goods purchased had reached their destination prior to final delivery in Russia. Both NA-23 and NA-25 maintain copies of key records, such as deliverables and invoices within quick access to program and contract managers, as evidenced by the ability of each office to provide these records to us. NA-23 maintains these records at headquarters, while NA-25 maintains the records at the national laboratories that provide the day-to-day management over the contracts. However, it is important to note that the laboratories should be able to provide NNSA managers with complete and quick access to contract records, as the national laboratories are contractors to DOE, and it is NNSA that is ultimately responsible for monitoring the nonproliferation projects. NA-23 and NA-25 each apply formal, procedural guidance that assists technical reviewers and contract managers in maintaining management controls. For example, because the contracts involve capital procurement or acquisitions exceeding $5 million, NA-23 must apply the rules and procedures specified in DOE Order 413.3, Project Management for the Acquisition of Capital Assets. NA-23's contract managers receive program guidance through work authorizations signed by an authorized official at NNSA headquarters and guidance on the payment process via DOE's Contract Specialist Guide 42.8, which specifies procedures for review and approval of vouchers and invoices so that contract managers will handle them in a timely and efficient manner. According to NA-23 officials, Federal Acquisition Regulations also stipulate many of the specific steps that NA- 23 must undertake in the planning, implementation, and review of the contracts that make up the Seversk and Zheleznogorsk projects. NA-25 developed its own procedural guidance, known as the Project Management Document, for technical reviewers and contract officials. This guide provides instructions on, among other things, project planning, funds management, reporting of a project's ongoing progress and costs, contract management, and procedures for putting important contract data into NA- 25's Program Management Information System. Finally, according to NNSA's Director of Policy and Internal Controls Management and an NNSA official in charge of acquisitions in the Office of Defense Nuclear Nonproliferation, neither NA-23 nor NA-25 perform periodic reviews of their management control processes, although NNSA's Office of Engineering and Project Support, at the outset of NA-23's projects, did perform a general review of NA-23's management controls. GAO's management control guidelines state that agencies should monitor and regularly evaluate their control activities to ensure that they are still appropriate and working as intended. NA-24 could not provide evidence of the records necessary to document its management controls. Despite our numerous inquiries from January 2005 to June 2005 and discussions with agency officials--including one with NNSA's Principal Assistant Deputy Administrator--the documentation we received on seven of the nine contracts we examined from this office was either incomplete or did not provide a clear audit trail that we could follow. (For the two other contracts, one managed by Brookhaven National Laboratory and one managed by Los Alamos National Laboratory, laboratory officials provided complete documentation of management controls.) For example, for one contract managed by the Idaho National Laboratory involving the discovery of bioactive compounds in Russia that may be used in watershed protection or carbon sequestration: Ten of the 35 invoices did not include a document showing that NA-24 had authorized payment to the Russian contractors. Fourteen invoices on this contract did not include evidence that Idaho National Laboratory's technical reviewer for the contract approved the deliverable on which the invoice was based. For another contract managed through NA-24 headquarters, Foundation for Russian American Economic Cooperation (FRAEC), NA-24 provided us with documentation, but we were able to determine very little about the contract on the basis of this documentation because of the following reasons: there appeared to be no explanation of the linkages between the work products outlined in the contract, the deliverables, and the invoices, and we received fewer than half of the invoices for the contract and fewer than one-fifth of the deliverables for the contract. Senior officials with NA-24 told us that it doesn't need to keep copies of key contract documents because the documents are maintained at the national laboratories managing the contracts and accessible to NA-24. However, the fact NA-24 was unable to obtain complete sets of records on seven of the nine contracts we reviewed suggests otherwise. In addition, NA-24 did not provide us with formal, written guidance that provides managers with the procedures on how to process and maintain key contract records, and the office appears to rely on each national laboratory to provide its own procedural guidelines. Finally, NA-24, like NA-23 and NA-25, does not perform periodic reviews of its management control processes. GAO's management control guidelines state that agencies should monitor and regularly evaluate their control activities to ensure that they are still appropriate and working as intended. On the basis of our review of the contracts, it appears that, if an NNSA program office provides its managers with procedural guidance on how to maintain management controls, the office does a better job at implementing and documenting these management controls. In our view, procedural guidance enables program and contract managers to implement and document management controls in a systematic way, as evidenced by the fact that NA-23 and NA-25 each use procedural guidance and were able to document their controls. In addition, maintaining managers' quick and complete access to key contract records--regardless of whether the records are located at the national laboratory or NNSA headquarters--appears to coincide with maintaining and documenting management controls. Officials at NA-24 told us that they have access to all contract records through the laboratories that manage their contracts, yet the office was unable to provide us with these records. Finally, as required by GAO standards for management controls, periodic reviews of management controls would help the NNSA offices that we reviewed determine whether they are adhering to their management controls and whether these controls are relevant and effective. For example, if NA-24 had performed a review of its management control procedures, it might have discovered that it did not have on hand complete sets of invoices and approvals of deliverables for each of the office's nonproliferation contracts. To ensure that each NNSA office that we reviewed maintains complete documentation of its management controls, we recommend that the Secretary of Energy, working with the Administrator of the National Nuclear Security Administration, require NNSA to take the following three actions: each NNSA office use formal, procedural guidance that clearly states NNSA's program managers maintain quick access to key contract records such as deliverables and invoices that relate to management controls, regardless of whether the records are located at a national laboratory or headquarters; and NNSA perform periodic reviews of its management control processes to be certain that each program office's management controls can be documented and remain appropriate and effective. We provided the Department of Energy's National Nuclear Security Administration (NNSA) with a draft of this report for its review and comment. NNSA's written comments are presented as appendix III. In its written comments, NNSA notes that it will undertake a series of actions in response to our recommendations, but also states that our report creates an incorrect perception that the Defense Nuclear Nonproliferation Program, particularly NA-24, is lacking in the application of management controls. In their comments to our draft report, NNSA's major points are as follow: 1. We reviewed only contracts from a portion of NA-24, Global Initiatives for Proliferation Prevention (GIPP), and we did not receive complete documentation from NA-24 because we did not speak to the procurement officer for the GIPP program; 2. NA-24 has implemented "very stringent" management controls; 3. We mischaracterize the management controls on two contracts--one managed by the Idaho National Laboratory (INL) and the other managed by NA-24 headquarters staff; 4. For an NA-25 contract managed by Oak Ridge National Laboratory, we received incomplete documentation because of an initial misunderstanding by the laboratory rather than a control problem within NA-25, and that managers at Oak Ridge sent us the missing documents on August 16, 2005. 5. NA-25 does conduct external program management reviews of its management controls through a Technical Survey Team (TST). First, regarding the scope of our review, at the outset of our work, we asked NA-24 for a list of all its contracts in Russia and other countries that were active from the beginning of June 2001 through the end of June 2004, then took a nonprobability sample of those contracts. We did not intentionally focus solely on NA-24's GIPP program. Regardless, as we state in the report, results from nonprobability samples cannot be used to make inferences about a population, and our statements about NA-24 relate to its ability to document the management controls for the contracts we examined. Regarding NNSA's comment that we did not meet with the GIPP procurement officer, it is unclear to us why NNSA is making this point. For most of the contracts we reviewed, NA-24 provided us with documents directly. After providing NA-24 with a fact sheet stating that we received incomplete documentation for seven of the nine the contracts we reviewed, we met with NA-24's Assistant Deputy Administrator on June 27, 2005, who provided us with additional documentation that she characterized as "complete". After a thorough review, we found much of this additional documentation to be incomplete, indecipherable, and often duplicative of the information we had already been given earlier in our review. On August 17, 2005, after submitting our draft report to NNSA for comment, we met again with the Assistant Deputy Administrator as well as the Associate Assistant Deputy Administrator, the Principal Assistant Deputy Administrator for Defense Nuclear Nonproliferation, and the GIPP procurement officer. At this meeting, the procurement officer provided us with no new documentation, and the NA-24 officials again asserted that the documents they provided us in June were "complete". Furthermore, during the meeting, while discussing some of the documents that we found to be missing, we asked the officials to produce a few of these documents at random from the materials they gave us in June. In most cases, they were unable to do so. In fact, in the case of one missing document, an NA-24 official stated that it "had to be somewhere in there" (included in the materials submitted in June), but it was not. Second, we disagree with NA-24's contention that it has implemented "very stringent" management controls. Although NNSA cites a number of actions that NA-24 has taken to strengthen its controls, the fact remains that NA-24 did not provide us with sufficient documentation for seven of the nine contracts we reviewed despite numerous requests from us to do so. For example, on one contract managed by the Y-12 National Security Complex, rather than providing a "real-time" technical reviewer's approval for each deliverable, NA-24 provided us with a single email from the technical reviewer, dated June 24, 2005, that purported to cover two years' worth of missing approvals. This post-hoc approval does not represent a satisfactory management control. Based on what NA-24 provided us, we believe that the office's controls for some contracts we reviewed are weak. In our view, NA- 24 needs to implement actions that address and strengthen the specific management controls we identify in the report, and we are encouraged that NNSA has agreed to implement our recommendations. Third, for the INL-managed contract, NNSA asserts that it provided us in June with the documentation we sought. However, the documents were indecipherable to us because most were unlabeled, presented in no particular chronological order, and rely on emails in which neither the sender's nor recipients' positions were identified. For the headquarters- managed contract, NNSA contends that, at our meeting on August 17, 2005, it explained how the process of deliverables and invoices for this contract (providing assistance to the Foundation for Russian American Economic Cooperation) differs from the processes of other contracts we examined. Although this may be the case, the documents that NA-24 provided did not clearly explain or illustrate those processes. More importantly, the documents that NA-24 provided comprised fewer than one-half of the deliverables and one-fifth of the invoices that we identified in June as missing. Fourth, although we have fewer concerns about NA-25's management controls, in the case of one of the contracts managed by Oak Ridge National Laboratory, managers provided acceptable documentation of technical reviewers' approvals on only three of six deliverables. Although we agree with NNSA that officials at the laboratory did not initially provide us with complete documentation of technical approvals, as we state in the report, NNSA is ultimately responsible for the controls on its contracts, even if the contracts are managed day-to-day by someone else. In addition, the documentation that officials at the laboratory sent us on August 16, 2005, did not provide all the information that was missing. Rather, they provided documentation of one additional technical review and resubmitted materials that we had already informed Oak Ridge managers did not represent acceptable documentation. As a result, we stand by our recommendation that NNSA perform periodic reviews of management controls for each of the three offices we examined. Fifth, regarding NNSA's statement that TST performs external reviews of NA-25's management controls, it is important to note that the TST is a panel of experts established by DOE to determine if DOE-installed security systems at Russian nuclear sites meet departmental guidelines for effectively reducing the risk of nuclear theft. Moreover, we spoke to NNSA's Director of Policy and Internal Controls Management on August 26, 2005, and he agreed that, while the TST provides useful project oversight, it does not provide the kind of comprehensive review of program management controls examined in our review. More importantly, during the course of our work, NA-25 did not provide evidence of any reviews of their management controls. Finally, we believe it is important to note that management controls were most evident on NA-24 and NA-25 contracts managed by national laboratories from which we were able to obtain all the necessary documentation directly, without any NNSA headquarters involvement. This was especially noteworthy in the case of NA-24 because both of this office's contracts that we determined demonstrated effective management controls were managed by a national laboratory - Brookhaven or Los Alamos - and in both cases we obtained all the necessary documents directly from the laboratory managers. To assess the effectiveness of the NNSA's management controls of its nonproliferation projects, we identified the three offices within NNSA that currently oversee and manage the nonproliferation projects that fell within the scope of our work: (1) the Office of Nuclear Risk Reduction (designated by NNSA as NA-23), (2) the Office of Nonproliferation and International Security (NA-24), and (3) the Office of International Material Protection and Cooperation (NA-25). To identify what constitutes management controls, we consulted two GAO documents: Standards for Internal Controls in the Federal Government and Internal Control Management and Evaluation Tool. Using these documents, we focused on the management controls associated with NNSA's nonproliferation contracts. More specifically, we examined the supervisory actions designed to ensure that the work performed under the contract (known as "deliverables") meet the contract's specifications and that payments for that work receive required approvals and reach the intended recipients. To do this, we sought from NNSA the following documents for each of the contracts we reviewed: contract deliverables (or summary of the deliverable - as practicable); technical approval from an NNSA or national laboratory official for each invoices for all deliverables; documentation of an independent payment authorization and review for each deliverable, which should include at least one signature from a national laboratory financial office official supervising the contract and/or one official at NNSA headquarters; approval letter from NNSA or the national laboratory authorizing the final payment of the contractors for a deliverable (as applicable); a guide to the process each national laboratory uses to approve a deliverable and authorize payment. To select a nonprobability sample of contracts, we obtained, from the three offices in NNSA, a list of all their nonproliferation contracts in Russia and other countries that were active from the beginning of June 2001 through the end of June 2004. We identified contracts whose value exceeded $1 million and arranged them in descending dollar value. We chose the 15 contracts with the largest dollar value, subject to the constraints that (1) no more than two contracts come from NA-23, 7 contracts from NA-24, and six contracts from NA-25 and (2) a single national laboratory manages no more than three contracts in our sample. We chose these constraints so that (1) the mix of contracts among the three offices in our sample roughly reflected the mix of contracts among the three offices in our original list and (2) the sample would reflect a diversity of laboratories. Finally, we included one contract from each of the three remaining laboratories that were not yet included in our sample, bringing our final list to 18 contracts. To ensure that NNSA's lists of its nuclear nonproliferation contracts were sufficiently reliable for our purposes, we obtained responses to a series of questions covering issues such as data entry, data access, quality-control procedures, and the accuracy and completeness of the data for the eight databases from which these data were drawn. Follow-up questions were added, whenever necessary. Based on our review of this work, we found these data to be sufficiently reliable for the purpose of using these lists to select a nonprobability sample of 18 contracts for review. In addition to contract documents, we also interviewed NNSA officials in Washington, D.C., and Germantown, Maryland. To gather information about the contracts we selected for review, we traveled to Brookhaven National Laboratory in New York and Los Alamos and Sandia National Laboratories in New Mexico to meet with laboratory officials and program, project, procurement, and contract managers to explain our review; to learn about NNSA programs and projects, as well as procedures for implementing management controls; and to determine the kinds of project documents we would need. To gather information and documents on the remaining contracts, on the basis of what we learned during these trips, we sent detailed written communications and conducted teleconferences, numerous and frequent in some cases, with the requisite staff in headquarters and at other national laboratories. Specifically, we contacted staff at the Lawrence Berkeley and Lawrence Livermore National Laboratories in California, the Oak Ridge National Laboratory and the Y-12 National Security Complex in Tennessee, the Pacific Northwest National Laboratory in Washington, and the Idaho National Laboratory. We focused on identifying the controls implemented to ensure that former Soviet Union partners meet contract terms before the invoices for the deliverables are paid. After we gathered and evaluated all the available documentation from NNSA headquarters and the various national laboratories for each contract, we assessed the contracts on the basis of the completeness of their documentation and overall evidence of the implementation of management controls. We placed each contract in one of three categories: (1) contracts for which all or almost all of the necessary documentation was provided-- especially the major contract documents (statement of work and task orders), deliverables, and technical and independent contractual/financial approvals of each deliverable--providing clear evidence of the systematic implementation of management controls throughout the life-cycle of the contract; (2) contracts for which most of the documents were provided, suggesting that systematic implementation of management controls may be occurring but not clearly indicating as much; and (3) contracts for which there were significant gaps in necessary documentation, providing no basis to conclude that systematic management controls are implemented. We conducted our review between May 2004 and July 2005 in accordance with generally accepted government auditing standards. We are sending copies of this report to interested congressional committees and the Secretary of Energy. We will also make copies available to others upon request. In addition, the report will be available on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact Mr. 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 report. GAO contacts and staff acknowledgements are listed in appendix IV. The following table lists all NNSA contracts that we reviewed. Luch - Task Order 1 - Blend-down HEU to LEU PBZ-C2 Comprehensive Physical Protection Upgrades to Russian Navy Site CBC-B2 Comprehensive Physical Protection Upgrades to Russian Navy Site COMP2BR-Comprehensive Physical Protection System Upgrades Aquila - Purchase of Equipment to enhance the monitoring of nuclear materials FRAEC -Technical and administrative assistance in planning, establishing, and operating the international development centers. Pipe Coating Facility (#63544) - Establish a production facility within the city of Snezhinsk for the production of insulated pipes. T2-0192-RU - Development of a 3-D neutronics optimization algorithm for application to cancer treatment facilities. Nuclear Non-Proliferation Center -The Analytical Center for Nuclear Non- Proliferation will carry out research on several projects, including a Quarterly Information Bulletin and Internet Analysis and creation of an Internet page. T2-0186-RU - Development of a Tank Retrieval and Closure Demonstration Center in the Mining and Chemical Combine (MCC) to help in retrieval and processing of radioactive wastes generated during production of plutonium for nuclear weapons. T2-0194-RU - The use of new technologies to process important Ti alloys for medical applications and aerospace industries. T2-0204-UA - Welding and Reactive Diffusion Joining (RDJ) repair technologies for use in aircraft and land-based turbine engines. SAIC/P.O. # 14436 - Nuclear material detectors for border guards T2-0244-RU - Development of an explosives detection system. T2-2002-RU - Discovery of bioactive compounds from selected environments in Russia for products such as watershed protection and carbon sequestration. Luch Task Order 1 - Blend-down HEU to LEU PBZ C2 - Security Upgrades to Russian Navy Site CBC B2 - Security Upgrades to Russian Navy Site TVZ01- Minatom Guard Railcar Procurement COMP2BR - Comprehensive Physical Protection Systems Upgrades Aquila - Enhanced nuclear materials monitoring systems FRAEC - Technical and administrative assistance in planning, establishing, and operating international development centers. In addition, Nancy Crothers, Greg Marchand, Judy Pagano, Daren Sweeney, and Kevin Tarmann made significant contributions to this report.
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The National Defense Authorization Act for FY 2004 mandated that we assess the management of threat reduction and nonproliferation programs that the Departments of Defense and Energy each administer. The objective of this report is to assess how the Department of Energy's National Nuclear Security Administration (NNSA) implements management controls, which we define here to be the processes ensuring that work done under a contract meets contract specifications and that payments go to contractors as intended. Two NNSA offices, the Office of Nuclear Risk Reduction (designated by NNSA as NA-23) and International Material Protection and Cooperation (NA- 25), documented management controls for almost all of their contracts that we reviewed, but the third office, the Office of Nonproliferation and International Security (NA-24), did not document controls for most of their contracts because they could not provide the required documentation. More specifically, for eight of the nine NA-23 and NA-25 contracts we reviewed, the NA-23 headquarters staff and the laboratory staff that manage the contracts for NA-25 provided to us complete records of deliverables and invoices, as well as evidence that technical officials reviewed and approved the deliverables and contract officers reviewed and approved the invoices. (For the ninth contract, NA-25 provided us with incomplete documentation of its controls.) In addition, NA-23 and NA-25 each apply procedural guidance that assists managers in maintaining these controls. However, according to an NNSA official, none of the three offices currently perform periodic reviews to ensure their existing management controls remain appropriate. In contrast, we were unable to determine if NA-24 implements management controls because, for seven of the nine contracts we reviewed, the documentation it provided to us was in most cases either incomplete or it provided no clear audit trail that we could follow. (Documentation was complete for the eighth and ninth contracts.) The types of documents that were missing varied across and within some contracts. In addition, NA-24 does not provide its contract managers with procedural guidance on how to maintain its management controls, nor does it perform a periodic review of its controls to ensure the controls are effective and appropriate.
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Insurance is a mechanism for spreading risk over time, across large geographical areas, and among industries and individuals. While private insurers assume some financial risk when they write policies, they employ various strategies to manage risk so that they earn profits, limit potential financial exposure, and build capital needed to pay claims. For example, insurers charge premiums for coverage and establish underwriting standards, such as refusing to insure customers who pose unacceptable levels of risk or limiting coverage in particular geographic areas. Insurance companies may also purchase reinsurance to cover specific portions of their financial risk. Reinsurers use similar strategies as primary insurers to limit their risks. Under certain circumstances, the private sector may determine that a risk is uninsurable. For example, homeowner policies typically do not cover flood damage because private insurers are unwilling to accept the risk of potentially catastrophic losses associated with flooding. In other instances, the private sector may be willing to insure a risk, but at rates that are not affordable to many property owners. Without insurance, affected property owners must rely on their own resources or seek out disaster assistance from local, state, and federal sources. In situations where the private sector will not insure a particular type of risk, the public sector may create markets to ensure the availability of insurance. The federal government operates two such programs--the NFIP and the FCIC. NFIP provides insurance for flood damage to homeowners and commercial property owners in more than 20,000 communities. Homeowners with mortgages from federally regulated lenders on property in communities identified as being in high flood risk areas are required to purchase flood insurance on their dwellings. Optional, lower cost flood insurance is also available under the NFIP for properties in areas of lower flood risk. NFIP offers coverage for both the property and its contents, which may be purchased separately. FCIC insures agricultural commodities on a crop-by-crop and county-by-county basis based on farmer demand and the level of risk associated with the crop in a given region. Major crops, such as grains, are covered in almost every county where they are grown, while specialty crops such as fruit are covered only in some areas. Participating farmers can purchase different types of crop insurance and at different levels. Assessments by leading scientific bodies suggest that climate change could significantly alter the frequency or severity of weather-related events, such as drought and hurricanes. Leading scientific bodies report that the Earth warmed during the twentieth century-- 1.3 degrees Fahrenheit (0.74 degrees Celsius) from 1906 to 2005 according to a recent IPCC report--and is projected to continue to warm for the foreseeable future. While temperatures have varied throughout history, triggered by natural factors such as volcanic eruptions or changes in the earth's orbit, the key scientific assessments we reviewed have generally concluded that the observed increase in temperature in the past 100 years cannot be explained by natural variability alone. In recent years, major scientific bodies such as the IPCC, NAS, and the United Kingdom's Royal Academy have concluded that human activities are significantly increasing the concentrations of greenhouse gases and, in turn, global temperatures. Assuming continued growth in atmospheric concentration of greenhouse gases, the latest assessment of computer climate models projects that average global temperatures will warm by an additional 3.2 to 7.2 degrees Fahrenheit (1.8 to 4.0 degrees Celsius) during the next century. Based on model projections and expert judgment, the IPCC reported that future increases in the earth's temperature are likely to increase the frequency and severity of many damaging extreme weather-related events (summarized in table 1). The IPCC recently published summaries of two of the three components of its Fourth Assessment Report. The first, in which IPCC summarized the state of the physical science, reports higher confidence in projected patterns of warming and other regional-scale features, including changes in wind patterns, precipitation, and some aspects of extreme events such as drought, heavy precipitation events, and hurricanes. The second, in which IPCC addresses climate impacts and vulnerabilities, reported that the potential societal impacts from changes in temperature and extreme events vary widely across sector and region. For example, although the IPCC projects moderate climate change may increase yields for some rain-fed crops, crops that are near their warm temperature limit or depend on highly-used water resources face many challenges. Additionally, local crop production in any affected area may be negatively impacted by projected increases in the frequency of droughts or floods. Furthermore, the IPCC stated that the economic and social costs of extreme weather events will increase as these events become more intense and/or more frequent. Rapidly-growing coastal areas are particularly vulnerable, and the IPCC notes that readiness for increased exposure in these areas is low. These reports have not been publicly released in their entirety, but are expected sometime after May 2007. In addition to the IPCC's work, CCSP is assessing potential changes in the frequency or intensity of weather-related events specific to North America in a report scheduled for release in 2008. According to a National Oceanic and Atmospheric Administration official and agency documents, the report will focus on weather extremes that have a significant societal impact, such as extreme cold or heat spells, tropical and extra-tropical storms, and droughts. Importantly, officials have said the report will provide an assessment of the observed changes in weather and climate extremes, as well as future projections. Based on an examination of loss data from several different sources, we found that insurers incurred about $321.2 billion in weather-related losses from 1980 through 2005. In particular, as illustrated in Figure 1, our analysis found that weather-related losses accounted for 88 percent of all property losses paid by insurers during this period. All other property losses, including those associated with earthquakes and terrorist events, accounted for the remainder. Weather-related losses varied significantly from year to year, ranging from just over $2 billion in 1987 to more than $75 billion in 2005. Private insurers paid $243.5 billion--over 75 percent of the total weather- related losses we reviewed. The two major federal insurance programs-- NFIP and FCIC--paid the remaining $77.7 billion of the $321.2 billion in weather-related loss payments we reviewed. NFIP paid about $34.1 billion, or about 11 percent of the total weather-related loss payments we reviewed during this period. As illustrated in Figure 2, claims averaged about $1.3 billion per year, but ranged from $75.7 million in 1988 to $16.7 billion in 2005. Since 1980, FCIC claims totaled $43.6 billion, or about 14 percent of all weather-related claims during this period. As illustrated in Figure 3, FCIC losses averaged about $1.7 billion per year, ranging from $531.8 million in 1987 to $4.2 billion in 2002. The largest insured losses in the data we reviewed were associated with catastrophic weather events. Notably, crop insurers and other property insurers both face catastrophic weather-related risks, although the nature of the events for each is very different. In the case of crop insurance, drought accounted for more than 40 percent of weather-related loss payments from 1980 to 2005, and the years with the largest losses were associated with drought. Taken together, though, hurricanes were the most costly event in the data we reviewed. Although the United States experienced an average of only two hurricanes per year from 1980 through 2005, weather-related claims attributable to hurricanes totaled more than 45 percent of all weather-related losses--almost $146.8 billion. Moreover, as illustrated in Table 2, these losses appear to have increased during the past three decades. Several recent studies have commented on the apparent increases in hurricane losses during this time period, and weather-related disaster losses generally, with markedly different interpretations. Some argue that loss trends are largely explained by changes in societal and economic factors, such as population density, cost of building materials, and the structure of insurance policies. Others argue that increases in losses have been driven by changes in climate. To address the issue, Munich Re--one of the world's largest reinsurance companies--and the University of Colorado's Center for Science and Technology Policy Research jointly convened a workshop in Germany in May 2006 to assess factors leading to increasing weather-related losses. The workshop brought together a diverse group of international experts in the fields of climatology and disaster research. Workshop participants agreed that long-term records of disaster losses indicate that societal change and economic development are the principal factors explaining weather-related losses. However, participants also agreed that changing patterns of extreme events are drivers for recent increases in losses, and that additional increases in losses are likely, given IPCC's projections. The close relationship between the value of the resource exposed to weather-related losses and the amount of damage incurred may have ominous implications for a nation experiencing rapid growth in some of its most disaster-prone areas. AIR Worldwide, a leading catastrophe modeling firm, recently reported that insured losses should be expected to double roughly every 10 years because of increases in construction costs, increases in the number of structures, and changes in their characteristics. AIR's research estimates that, because of exposure growth, probable maximum catastrophe loss--an estimate of the largest possible loss that may occur, given the worst combination of circumstances--grew in constant 2005 dollars from $60 billion in 1995 to $110 billion in 2005, and it will likely grow to over $200 billion during the next 10 years. Major private and federal insurers are responding differently to the prospect of increasing weather-related losses associated with climate change. Many large private insurers are incorporating both near and longer-term elements of climatic change into their risk management practices. On the other hand, for a variety of reasons, the federal insurance programs have done little to develop the kind of information needed to understand the programs' long-term exposure to climate change. Catastrophic weather events pose a unique financial threat to private insurers' financial success because a single event can cause insolvency or a precipitous drop in earnings, liquidation of assets to meet cash needs, or a downgrade in the market ratings used to evaluate the soundness of companies in the industry. To prevent these disruptions, the American Academy of Actuaries (AAA)--the professional society that establishes, maintains, and enforces standards of qualification, practice, and conduct for actuaries in the United States--recommends, among other steps, that insurers measure their exposure to catastrophic weather-related risk. In particular, AAA emphasizes the shortcomings of estimating future catastrophic risk by extrapolating solely from historical losses, and endorses a more rigorous approach that incorporates underlying trends and factors in weather phenomena and current demographic, financial, and scientific data to estimate losses associated with various weather- related events. In our interviews with eleven of the largest private insurers operating in the U.S. property casualty insurance market, we sought to determine what key private insurers are doing to estimate and prepare for risks associated with potential climatic changes arising from natural or human factors. Representatives from each of the 11 major insurers we interviewed told us they incorporate near-term increases in the frequency and intensity of hurricanes into their risk estimates. Six specifically attributed the higher frequency and intensity of hurricanes to a 20- to 40-year climatic cycle of fluctuating temperatures in the north Atlantic Ocean, while the remaining five insurers did not elaborate on the elements of climatic change driving the differences in hurricane characteristics. In addition to managing their aggregate exposure on a near-term basis, some of the world's largest insurers have also taken a longer-term strategic approach to changes in catastrophic risk. Six of the eleven private insurers we interviewed reported taking one or more additional actions when asked if their company addresses climatic change in their weather-related risk management processes. These activities include monitoring scientific research (4 insurers), simulating the impact of a large loss event on their portfolios (3 insurers), and educating others in the industry about the risks of climatic change (3 insurers), among others. Moreover, major insurance and reinsurance companies, such as Allianz, Swiss Re, Munich Re, and Lloyds of London, have published reports that advocate increased industry awareness of the potential risks of climate change, and outline strategies to address the issue proactively. NFIP and FCIC have not developed information on the programs' longer- term exposure to the potential risk of increased extreme weather events associated with climate change as part of their risk management practices. The goals of the key federal insurance programs are fundamentally different from those of private insurers. Whereas private insurers stress the financial success of their business operations, the statutes governing the NFIP and FCIC promote affordable coverage and broad participation by individuals at risk over the programs' financial self-sufficiency by offering discounted or subsidized premiums. Also unlike the private sector, the NFIP and the FCIC have access to additional federal funds during high-loss years. Thus, neither program is required to assess and limit its catastrophic risk strictly within its ability to pay claims on an annual basis. Instead, to the extent possible, each program manages its risk within the context of its broader purposes in accordance with authorizing statutes and implementing regulations. Nonetheless, an improved understanding of the programs' financial exposure is becoming increasingly important. Notably, the federal insurance programs' liabilities have grown significantly, which leaves the federal government increasingly vulnerable to the financial impacts of catastrophic events. Data obtained from both the NFIP and FCIC programs indicate the federal government has grown markedly more exposed to weather-related losses. Figure 4 illustrates the growth of both program's exposure from 1980 to 2005. For NFIP, the program's total coverage increased fourfold in constant dollars during this time from about $207 billion to $875 billion in 2005 due to increasing property values and a doubling of the number of policies from 1.9 million to more than 4.6 million. The FCIC has effectively increased its exposure base 26-fold during this period. In particular, the program has significantly expanded the scope of crops covered and increased participation. The main implication of the exposure growth for both the programs is that the magnitude of potential claims, in absolute terms, is much greater today than in the past. Neither program has assessed the implications of a potential increase in the frequency or severity of weather-related events on program operations, although both programs have occasionally attempted to estimate their aggregate losses from potential catastrophic events. For example, FCIC officials stated that they had modeled past events, such as the 1993 Midwest Floods, using current participation levels to inform negotiations with private crop insurers over reinsurance terms. However, NFIP and FCIC officials explained that these efforts were informal exercises, and were not performed on a regular basis. Furthermore, according to NFIP and FCIC officials, both programs' estimates of weather-related risk rely heavily on historical weather patterns. As one NFIP official explained, the flood insurance program is designed to assess and insure against current-- not future--risks. Over time, agency officials stated, this process has allowed their programs to operate as intended. However, unlike private sector insurers, neither program has conducted an analysis of the potential impacts of an increase in the frequency or severity of weather-related events on continued program operations in the long-term. While comprehensive information on federal insurers' long-term exposure to catastrophic risk associated with climate change may not inform the NFIP's or FCIC's day-to-day operations, it could nonetheless provide valuable information for the Congress and other policy-makers who need to understand and prepare for fiscal challenges that extend well beyond the two programs' near-term operational horizons. We have highlighted the need for this kind of strategic information in recent reports that have expressed concern about the looming fiscal imbalances facing the nation. In particular, we observed that, "Our policy process will be challenged to act with more foresight to take early action on problems that may not constitute an urgent crisis but pose important long-term threats to the nation's fiscal, economic, security, and societal future." The prospect of increasing program liabilities, coupled with expected increases in frequency and severity of weather events associated with climate change, would appear to fit into this category. Agency officials identified several challenges that could complicate their efforts to assess these impacts at the program level. Both NFIP and FCIC officials stated there was insufficient scientific information on projected impacts at the regional and local level to accurately assess their impact on the flood and crop insurance programs. However, members of the insurance industry have analyzed and identified the potential risks climatic change poses to their business, despite similar challenges. Moreover, as previously discussed, both the IPCC and CCSP are expected to release significant assessments of the likely effect of increasing temperatures on weather events in coming months. The experience of many private insurers, who must proactively respond to longer-term changes in weather-related risk to remain solvent, suggests the kind of information that needs to be developed to make sound strategic decisions. Specifically, to help ensure their future viability, a growing number of private insurers are actively incorporating the potential for climate change into their strategic level analyses. In particular, some private insurers have run a variety of simulation exercises to determine the potential business impact of an increase in the frequency and severity of weather events. For example, one insurer simulated the impact of multiple large weather events occurring simultaneously. We believe a similar analysis could provide Congress with valuable information about the potential scale of losses facing the NFIP and FCIC in coming decades, particularly in light of the programs' expansion over the past 25 years. We believe that the FCIC and NFIP are uniquely positioned to provide strategic information on the potential impacts of climate change on their programs--information that would be of value to key decision makers charged with a long-term focus on the nation's fiscal health. Most notably, in exercising its oversight responsibilities, the Congress could use such information to examine whether the current structure and incentives of the federal insurance programs adequately address the challenges posed by potential increases in the frequency and severity of catastrophic weather events. While the precise content of these analyses can be debated, the activities of many private insurers already suggest a number of strong possibilities that may be applicable to assessing the potential implications of climate change on the federal insurance programs. Accordingly, our report being released today recommends that the Secretary of Agriculture and the Secretary of Homeland Security direct the Administrator of the Risk Management Agency and the Under Secretary of Homeland Security for Emergency Preparedness to analyze the potential long-term implications of climate change for the FCIC and the NFIP, respectively, and report their findings to the Congress. This analysis should use forthcoming assessments from the Climate Change Science Program and the Intergovernmental Panel on Climate Change to establish sound estimates of expected future conditions. Both agencies expressed agreement with this recommendation. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other Members of the Committee may have. For further information about this testimony, please contact me, John Stephenson, at 202-512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Contributors to this testimony include Steve Elstein, Assistant Director; Chase Huntley; Alison O'Neill; and Lisa Van Arsdale. 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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Weather-related events in the United States have caused tens of billions of dollars in damages annually over the past decade. A major portion of these losses is borne by private insurers and by two federal insurance programs-- the Federal Emergency Management Agency's National Flood Insurance Program (NFIP), which insures properties against flooding, and the Department of Agriculture's Federal Crop Insurance Corporation (FCIC), which insures crops against drought or other weather disasters. In this testimony, GAO (1) describes how climate change may affect future weather-related losses, (2) provides information on past insured weather-related losses, and (3) determines what major private insurers and federal insurers are doing to prepare for potential increases in such losses. This testimony is based on a report entitled Climate Change: Financial Risks to Federal and Private Insurers in Coming Decades are Potentially Significant (GAO-07-285) being released today. Key scientific assessments report that the effects of climate change on weather-related events and, subsequently, insured and uninsured losses, could be significant. The global average surface temperature has increased over the past century and climate models predict even more substantial, perhaps accelerating, increases in temperature in the future. Assessments by key governmental bodies generally found that rising temperatures are expected to increase the frequency and severity of damaging weather-related events, such as flooding or drought, although the timing and magnitude are as yet undetermined. Additional research on the effect of increasing temperatures on weather events is expected in the near future. Taken together, private and federal insurers paid more than $320 billion in claims on weather-related losses from 1980 to 2005. Claims varied significantly from year to year--largely due to the effects of catastrophic weather events such as hurricanes and droughts--but have generally increased during this period. The growth in population in hazard-prone areas and resulting real estate development have generally increased liabilities for insurers, and have helped to explain the increase in losses. Due to these and other factors, federal insurers' exposure has grown substantially. Since 1980, NFIP's exposure nearly quadrupled to nearly $1 trillion in 2005, and program expansion increased FCIC's exposure 26-fold to $44 billion. Major private and federal insurers are both exposed to the effects of climate change over coming decades, but are responding differently. Many large private insurers are incorporating climate change into their annual risk management practices, and some are addressing it strategically by assessing its potential long-term industry-wide impacts. In contrast, federal insurers have not developed and disseminated comparable information on long-term financial impacts. GAO acknowledges that the federal insurance programs are not profit-oriented, like private insurers. Nonetheless, a strategic analysis of the potential implications of climate change for the major federal insurance programs would help the Congress manage an emerging high-risk area with significant implications for the nation's growing long-term fiscal imbalance.
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When providers at VAMCs determine that a veteran needs outpatient specialty care, they request and manage consults using VHA's clinical consult process. Clinical consults include requests by physicians or other providers for both clinical consultations and procedures. A clinical consultation is a request seeking an opinion, advice, or expertise regarding evaluation or management of a patient's specific clinical concern, whereas a procedure is a request for a specialty procedure such as a colonoscopy. Clinical consults are typically requested by a veteran's primary care provider using VHA's electronic consult system. The consult process is governed by VHA's national consult policy. The policy requires VAMCs to manage consults using a national electronic consult system,to veterans. and requires VAMC staff to provide timely and appropriate care Once a provider sends a request, VHA requires specialty care providers to review it within 7 days and determine whether to accept the consult. If the specialty care provider accepts the consult--determines the consult is needed and is appropriate--an appointment is to be made for the patient to receive the consultation or procedure. In some cases, a provider may discontinue a consult for reasons such as the care is not needed, the patient refuses care, or the patient is deceased. In other cases the specialty care provider may determine that additional information is needed, and will send the consult back to the requesting provider, who can resubmit the consult with the needed information. Once the appointment is held, VHA's policy requires the specialty care provider to appropriately document the results of the consult, which would then close out the consult as completed in the electronic system. VHA's current guideline is that consults should be completed within 90 days of the request. If an appointment is not held, staff are to document why they were unable to complete the consult. According to VHA's consult policy, VHA central office officials have oversight responsibility for the consult process, including the measurement and monitoring of ongoing performance. In 2012, VHA created a database to capture all consults system-wide and, after reviewing these data, determined that the data were inadequate for monitoring purposes. One issue identified was the lack of standard processes and uses of the electronic consult system across VHA. For example, in addition to requesting consults for clinical concerns, the system also was being used to request and manage a variety of administrative tasks, such as requesting patient travel to appointments. Additionally, VHA could not accurately determine whether patients actually received the care they needed, or if they received the care in a timely fashion. According to VHA officials, approximately 2 million consults (both clinical and administrative consults) were unresolved for more than 90 days. Subsequently, VA's Under Secretary for Health convened a task force to address these and other issues regarding VHA's consult system, among other things. In response to the task force recommendations, in May 2013, VHA launched the Consult Management Business Rules Initiative to standardize aspects of the consult process, with the goal of developing consistent and reliable information on consults across all VAMCs. This initiative required VAMCs to complete four specific tasks between July 1, 2013, and May 1, 2014: Review and properly assign codes to consistently record consult requests in the consult system; Assign distinct identifiers in the electronic consult system to differentiate between clinical and administrative consults; Develop and implement strategies for requesting and managing requests for consults that are not needed within 90 days--known as "future care" consults; and Conduct a clinical review as warranted, and as appropriate, close all unresolved consults--those open more than 90 days. At the time of our December 2012 review, VHA measured outpatient medical appointment wait times as the number of days elapsed from the patient's or provider's desired date, as recorded in the VistA scheduling system by VAMCs' schedulers. In fiscal year 2012, VHA had a goal of completing new and established patient specialty care appointments within 14 days of the desired date. VHA established this goal based on its performance reported in previous years.achieving its wait time goals, VHA includes wait time measures--referred to as performance measures--in its budget submissions and To facilitate accountability for performance reports to Congress and stakeholders.measures, like wait time goals, have changed over time. Officials at VHA's central office, VISNs, and VAMCs all have oversight responsibilities for the implementation of VHA's scheduling policy. For example, each VAMC director, or designee, is responsible for ensuring that clinics' scheduling of medical appointments complies with VHA's scheduling policy and for ensuring that all staff who can schedule medical appointments in the VistA scheduling system have completed the required VHA scheduler training. In addition to the scheduling policy, VHA has a separate directive that establishes policy on the provision of telephone service related to clinical care, including facilitating telephone access for medical appointment management. Our ongoing work has identified examples of delays in veterans receiving requested outpatient specialty care at the five VAMCs we reviewed. We found consults that were not processed in accordance with VHA timeliness guidelines--for example, consults were not reviewed within 7 days, or completed within 90 days. We also found consults for which veterans did not receive the requested outpatient specialty care, and those for which the requested specialty care was provided, but were not properly closed in the consult system. VHA requires specialty care providers to review consults within 7 days and determine whether to accept the consult. Of the 150 consults we reviewed, the consult records indicated that VAMCs did not meet the 7-day requirement for 31 consults (21 percent). For one VAMC, nearly half the consults were not reviewed and triaged within 7 days. Officials at this VAMC cited a shortage of providers needed to review and triage the consults in a timely manner. Our ongoing work also has identified that for the majority of the 150 consults we reviewed, VAMCs did not meet VHA's timeliness guideline that care be provided and consults completed within 90 days. We found that veterans received care for 86 of the 150 consults we reviewed (57 percent), but in only 28 of the consults (19 percent) veterans received care within 90 days of the date the consult was requested. For the remaining 64 consults (43 percent), the patients did not receive the requested care. Specific examples of consults that were not completed in 90 days, or were closed without the patients being seen, include: For 3 of 10 gastroenterology consults we reviewed for one VAMC, we found that between 140 and 210 days elapsed from the dates the consults were requested to when the patients received care. For the consult that took 210 days, an appointment was not available within 90 days and the patient was placed on a waiting list before having a screening colonoscopy. For 4 of the 10 physical therapy consults we reviewed for one VAMC, we found that between 108 and 152 days elapsed, with no apparent actions taken to schedule an appointment for the veteran. The patients' files indicated that due to resource constraints, the clinic was not accepting consults for non-service-connected physical therapy evaluations.veteran was referred to non-VA care, and he was seen 252 days after the initial consult request. In the other 3 cases, the physical therapy clinic sent the consults back to the requesting provider, and the veterans did not receive care for that consult. In 1 of these cases, several months passed before the For all 10 of the cardiology consults we reviewed for one VAMC, we found that staff initially scheduled patients for appointments between 33 and 90 days after the request, but medical files indicated that patients either cancelled or did not show for their initial appointments. In several instances patients cancelled multiple times. In 4 of the cases VAMC staff closed the consults without the patients being seen; in the other 6 cases VAMC staff rescheduled the appointments for times that exceeded the 90-day timeframe. VAMC officials cited increased demand for services, patient no-shows, and cancelled appointments, among the factors that hinder their ability to meet VHA's guideline for completing consults within 90 days. Several VAMC officials also noted a growing demand for both gastroenterology procedures, such as colonoscopies, as well as consultations for physical therapy evaluations, combined with a difficulty in hiring and retaining specialists for these two clinical areas, as causes of periodic backlogs in providing these services. Officials at these facilities indicated that they try to mitigate backlogs by referring veterans to non-VA providers for care. While officials indicated that use of non-VA care can help mitigate backlogs, several officials indicated that non-VA care requires more coordination between the VAMC, the patient, and the non-VA provider; can require additional approvals for the care; and also may delay obtaining the results of medical appointments or procedures. In addition, wait times are generally not tracked for non-VA care. As such, officials acknowledged that this strategy does not always prevent delays in veterans receiving timely care or in completing consults. Our ongoing review also has identified one consult for which the patient experienced delays in obtaining non-VA care and died prior to obtaining needed care. In this case, the patient needed endovascular surgery to repair two aneurysms - abdominal aortic and an iliac. According to the patient's medical record, the timeline of events surrounding this consult was as follows: September 2013 - Patient was diagnosed with two aneurysms. October 2013 - VAMC scheduled patient for surgery in November, but subsequently cancelled the scheduled surgery due to staffing issues. December 2013 - VAMC approved non-VA care and referred the patient to a local hospital for surgery. Late December 2013 - After the patient followed up with the VAMC, it was discovered that the non-VA provider lost the patient's information. The VAMC resubmitted the patient's information to the non-VA provider. February 2014 - The consult was closed because the patient died prior to the surgery scheduled by the non-VA provider. According to VAMC officials, they conducted an investigation of this case. They found that the non-VA provider planned to perform the surgery on February 14, 2014, but the patient died the previous day. Additionally, they stated that according to the coroner, the patient died of cardiac disease and hypertension and that the aneurysms remained intact. Furthermore, our ongoing work shows that for nearly all of the consults where care had been provided within 90 days, an extended amount of time elapsed before specialty care providers completed them in the Specifically, for 28 of the 29 consults, even though care consult system.was provided, the consult remained open in the system, making it appear as though the requested care was not provided within 90 days. For one VAMC, we found that for all 10 cardiology consults we reviewed, specialty care providers did not properly document the results of the consults in order to close them in the system. In some cases, it took over 100 days from the time care was provided until the consults were completed in the system. Officials from several VAMCs told us that often specialty care providers do not choose the correct notes needed to document that the consults are complete. Officials attributed this ongoing issue in part to the use of residents, who rotate in and out of specialty care clinics after a few months and lack experience with completing consults. Officials from one VAMC told us that this requires VAMC leadership to continually train new residents on how to properly complete consults. To ensure that specialty care providers consistently choose the correct notes, this VAMC activated a prompt in its consult system asking each provider if the note the provider is entering is in response to a consult. Officials stated that this has resulted in providers more frequently choosing the correct note title to complete consults. Our ongoing work has identified variation in how the five VAMCs in our review have implemented key aspects of VHA's business rules, which limits the usefulness of the data in monitoring and overseeing consults system-wide. As previously noted, VHA's business rules were designed to standardize aspects of the consult process, thus creating consistency in VAMCs' management of consults. However, we have found variation in how VAMCs are implementing certain tasks required by the business rules. For example, VAMCs have developed different strategies for managing future care consults--requests for specialty care appointments that are not clinically needed for more than 90 days. One task of the consult business rules required VAMCs to develop and implement strategies for requesting and managing requests for future care consults. Based on our ongoing work, we have identified that VAMCs are adopting various strategies when implementing this task,such as piloting an electronic system for providers to manage future care consults outside of the consult system and entering the consult regardless of whether the care was needed beyond 90 days. However, during the course of our ongoing work, several VAMCs told us they are changing their strategies for requesting and managing future care consults. For example, officials from a VAMC that was piloting an electronic system stated that, after evaluating the pilot, they decided not to use this approach, and are instead planning to implement markers to identify future care consults. These consults will appear in the consult data, but will be identified as future care consults and remain appropriately open until care is provided. Officials from two other VAMCs that were entering consults regardless of whether the care was needed beyond 90 days told us they are no longer doing this. According to officials, instead they are implementing a separate electronic system to track needed future care outside of the consult system, and these future care needs will not appear in consult data until they are entered in the consult system closer to the date the care is needed. Based on our discussions with VHA officials, it is not clear the extent to which they are aware of the various strategies that VAMCs are using to comply with this task. According to VHA officials, they have not conducted a system-wide review of the future care strategies and did not have detailed information on the various strategies specific VAMCs have implemented. Overall, our ongoing work indicates that oversight of the implementation of VHA's consult business rules has been limited and has not included independent verification of VAMC actions. VAMCs were required to self- certify completion of each of the four tasks outlined in the business rules. VISNs were not required to independently verify that VAMCs appropriately completed the tasks. Without independent verification, however, VHA cannot be assured that VAMCs implemented the tasks correctly. Furthermore, our ongoing work shows that VHA did not require that VAMCs document how they addressed unresolved consults that were open greater than 90 days, and none of the five VAMCs in our ongoing review were able to provide us with specific documentation in this regard. VHA officials estimated that as of June 2014, about 278,000 consults (both clinical and administrative consults) remained unresolved system- wide. VAMC officials noted several reasons that consults were either completed or discontinued in this process of addressing unresolved consults, including improper recording of consult notes, patient cancellations, and patient deaths. At one of the VAMCs we reviewed, a specialty care clinic discontinued 18 consults the same day that a task for addressing unresolved consults was due. Three of these 18 consults were part of our random sample, and ongoing review has found no indication that a clinical review was conducted prior to the consults being discontinued. Ultimately, the lack of independent verification and documentation of how VAMCs addressed these unresolved consults may have resulted in VHA consult data that inaccurately reflected whether patients received the care needed or received it in a timely manner. Although VHA's consult business rules were intended to create consistency in VAMCs' consult data, our preliminary work has identified variation in managing key aspects of the consult process that are not addressed by the business rules. For example, there are no detailed system-wide VHA policies on how to handle patient no-shows and cancelled appointments, particularly when patients repeatedly miss appointments, which may make VAMCs' consult data difficult to assess. For example, if a patient cancels multiple specialty care appointments, the associated consult would remain open and could inappropriately suggest delays in care. To manage this type of situation, one VAMC developed a local consult policy referred to as the "1-1-30" rule. The rule states that a patient must receive at least 1 letter and 1 phone call, and be granted 30 days to contact the VAMC to schedule a specialty care appointment. If the patient fails to do so within this time frame, the specialty care provider may discontinue the consult. According to VAMC officials, several of the consults we reviewed would have been discontinued before reaching the 90-day threshold if the 1-1-30 rule had been in place at the time. Furthermore, all of the VAMCs included in our ongoing review had some type of policy addressing patient no-shows and cancelled appointments, each of which varied in its requirements. VHA officials indicated that they allow each VAMC to develop their own approach to addressing patient no-shows and cancelled appointments. Without a standard policy across VHA addressing patient no-shows and cancelled appointments, however, VHA consult data may reflect numerous variations of how VAMCs handle patient no-shows and cancelled appointments. In December 2012, we reported that VHA's reported outpatient medical appointment wait times were unreliable and that inconsistent implementation of VHA's scheduling policy may have resulted in increased wait times or delays in scheduling timely outpatient medical appointments. Specifically, we found that VHA's reported wait times were unreliable because of problems with recording the appointment desired date in the scheduling system. Since, at the time of our 2012 review, VHA measured medical appointment wait times as the number of days elapsed from the desired date, the reliability of reported wait time performance was dependent on the consistency with which VAMC schedulers recorded the desired date in the VistA scheduling system. However, VHA's scheduling policy and training documents were unclear and did not ensure consistent use of the desired date. Some schedulers at VAMCs that we visited did not record the desired date correctly. For example, the desired date was recorded based on appointment availability, which would have resulted in a reported wait time that was shorter than the patient actually experienced. At each of the four VAMCs in our 2012 review, we also found inconsistent implementation of VHA's scheduling policy, which impeded scheduling of timely medical appointments. For example, we found the electronic wait list was not always used to track new patients that needed medical appointments as required by VHA scheduling policy, putting these patients at risk for delays in care. Furthermore, VAMCs' oversight of compliance with VHA's scheduling policy, such as ensuring the completion of required scheduler training, was inconsistent across facilities. At that time, VAMCs also described other problems with scheduling timely medical appointments, including VHA's outdated and inefficient scheduling system, gaps in scheduler and provider staffing, and issues with telephone access. For example, officials at all VAMCs we visited in 2012 reported that high call volumes and a lack of staff dedicated to answering the telephones affected their ability to schedule timely medical appointments. VA concurred with the four recommendations included in our December 2012 report and has reported continuing actions to address them. First, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to improve the reliability of its outpatient medical appointment wait time measures. In response, VHA officials stated that they implemented more reliable measures of patient wait times for primary and specialty care. In fiscal years 2013 and 2014, primary and specialty care appointments for new patients have been measured using time stamps from the VistA scheduling system to report the time elapsed between the date the appointment was created--instead of the desired date--and the date the appointment was completed. VHA officials stated that they made the change from using desired date to creation date based on a study that showed a significant association between new patient wait times using the date the appointment was created and self-reported patient satisfaction with the timeliness of VHA appointments.FY 2013 Performance and Accountability Report, reported that VHA completed 40 percent of new patient specialty care appointments within 14 days of the date the appointment was created in fiscal year 2013; in contrast, VHA completed 90 percent of new patient specialty care appointments within 14 days of the desired date in fiscal year VA, in its 2012. VHA also modified its measurement of wait times for established patients, keeping the appointment desired date as the starting point, and using the date of the pending scheduled appointment, instead of the date of the completed appointment, as the end date for both primary and specialty care. VHA officials stated that they decided to use the pending appointment date instead of the completed appointment date because the pending appointment date does not include the time accrued by patient no-shows and cancelled appointments. In a June 5, 2014 statement from the Acting Secretary, VA indicated that it is removing measures related to the 14-day performance goal from VISN and VAMC directors' performance contracts. Second, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to ensure VAMCs consistently implement VHA's scheduling policy and ensure that all staff complete required training. In response, VHA officials stated that the department was in the process of revising the VHA scheduling policy to include changes, such as the new methodology for measuring wait times, and improvements and standardization of the use of the electronic wait list. In March 2013, VHA distributed guidance, via memo, to VAMCs describing this information and also offered webinars to VHA staff on eight dates in April and May of 2013. In June 2014, VHA officials told us that they were in the process of further revising the scheduling policy, in part to reflect findings from VA's system-wide access audit, and planned to issue a memo regarding new scheduling procedures at a future date. To assist VISNs and VAMCs in the task of verifying that all staff have completed required scheduler training, VHA has developed a database that will allow a VAMC to identify all staff that have scheduled appointments and the volume of appointments scheduled by each; VAMC staff can then compare this information to the list of staff that have completed the required training. However, as of June 2014, VHA officials have not established a target date for when this database would be made available for use by VAMCs. Third, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to require VAMCs to routinely assess scheduling needs for purposes of allocation of staffing resources. VHA officials stated that they are continuing to work on identifying the best methodology to carry out this recommendation, but stated that the database that tracks the volume of appointments scheduled by individual staff also may prove to be a viable tool to assess staffing needs and the allocation of resources. As of June 2014, VHA officials stated that they are continuing to address this recommendation including through internal and external discussions taking place in May and June 2014 regarding VHA scheduling policy. Finally, we recommended that the Secretary of VA direct the Under Secretary for Health to take actions to ensure that VAMCs provide oversight of telephone access, and implement best practices to improve telephone access for clinical care. In response, VHA required each VISN director to require VAMCs to assess their current telephone service against the VHA telephone improvement guide and to electronically post an improvement plan with quarterly updates. VAMCs are required to routinely update progress on the improvement plan. VHA officials cited improvement in telephone response and call abandonment rates since VAMCs were required to implement improvement plans. Additionally, VHA officials said that the department has contracted with an outside vendor to assess VHA's telephone infrastructure and business process and was reviewing the findings from the first vendor report in June 2014. Although VA has initiated actions to address our recommendations, we believe that continued work is needed to ensure these actions are fully implemented in a timely fashion. Our findings regarding incorrect use of the desired date in the scheduling system and the electronic wait list are consistent with VHA's recent findings from its system-wide access audit, indicating continued system-wide problems that could be addressed, in part, by implementing our recommendations. Furthermore, it is important that VA assess the extent to which these actions are achieving improvements in medical appointment wait times and scheduling oversight as intended. Ultimately, VHA's ability to ensure and accurately monitor access to timely medical appointments is critical to ensuring quality health care to veterans, who may have medical conditions that worsen if access is delayed. Chairman Miller, Ranking Member Michaud, and Members of the Committee, this concludes my statement. I would be pleased to respond to any questions you may have. For further information about this statement, please contact Debra A. Draper at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Key contributors to this statement were Bonnie Anderson, Assistant Director; Janina Austin, Assistant Director; Rebecca Abela; Jennie Apter; Jacquelyn Hamilton; David Lichtenfeld; Brienne Tierney; and Ann Tynan. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Access to timely medical appointments is critical to ensuring that veterans obtain needed medical care. Over the past few years, there have been numerous reports of VAMCs failing to provide timely care to veterans, and in some cases, these delays have reportedly resulted in harm to patients. As the number of these reports has grown, investigations have been launched by VA's Office of Inspector General and VA to examine VAMCs' medical appointment scheduling and other practices. In December 2012, GAO reported that improvements were needed in the reliability of VHA's reported medical appointment wait times, as well as oversight of the scheduling process. In May 2013, VHA launched the Consult Management Business Rules Initiative to standardize aspects of the consults process and develop system-wide consult data for monitoring. This testimony is based on GAO's ongoing work to update information previously provided to the Committee on April 9, 2014, including information on VHA's (1) process for managing consults; (2) oversight of consults; and (3) progress made implementing GAO's December 2012 recommendations. To conduct this work, GAO has reviewed documents and interviewed VHA officials. Additionally, GAO has interviewed officials from five VAMCs for the consults work and four VAMCs for the scheduling work that varied based on size, complexity, and location. GAO shared the information it used to prepare this statement with VA and incorporated its comments as appropriate. GAO's ongoing work examining the Department of Veterans Affairs' (VA) Veterans Health Administration's (VHA) process for managing outpatient specialty care consults has identified examples of delays in veterans receiving outpatient specialty care. GAO has found consults--requests for evaluation or management of a patient for a specific clinical concern--that were not processed in accordance with VHA timeliness guidelines. For example, consults were not reviewed within 7 days, or completed within 90 days. For 31 of the 150 consults GAO reviewed (21 percent), the consult records indicated that VA medical centers (VAMC) did not meet the 7-day review requirement. In addition, GAO found that veterans received care for 86 of the 150 consults (57 percent), but in only 28 of the consults (19 percent) was the care provided within 90 days. For the remaining 64 consults (43 percent), the patients did not receive the requested care. For 4 of the 10 physical therapy consults GAO reviewed for one VAMC, between 108 and 152 days elapsed with no apparent actions taken to schedule an appointment for the veteran. For 1 of these consults, several months passed before the veteran was referred for care to a non-VA health care facility. VAMC officials cited increased demand for services, and patient no-shows and cancelled appointments among the factors that lead to delays and hinder their ability to meet VHA's guideline of completing consults within 90 days of being requested. VA officials indicated that they may refer veterans to non-VA providers to help mitigate delays in care. GAO's ongoing work also has identified limitations in VHA's implementation and oversight of its new consult business rules designed to standardize aspects of the clinical consult process. Specifically, GAO has identified variation in how the five VAMCs reviewed have implemented key aspects of the business rules, such as strategies for managing future care consults--requests for specialty care appointments that are not clinically needed for more than 90 days. However, it is not clear the extent to which VHA is aware of the various strategies that VAMCs are using to comply with this task. Furthermore, oversight of the implementation of the business rules has been limited and does not include independent verification of VAMC actions. Because this work is ongoing, GAO is not making recommendations on VHA's consult process at this time. In December 2012, GAO reported that VHA's outpatient medical appointment wait times were unreliable and recommended that VA take actions to: (1) improve the reliability of its outpatient medical appointment wait time measures; (2) ensure VAMCs consistently implement VHA's scheduling policy, including the staff training requirements; (3) require VAMCs to routinely assess scheduling needs and allocate staffing resources accordingly; and (4) ensure that VAMCs provide oversight of telephone access, and implement best practices. As of June 2014, VA has reported ongoing actions to address these recommendations, but GAO found that continued work is needed to ensure these actions are fully implemented in a timely fashion. Ultimately, VHA's ability to ensure and accurately monitor access to timely medical appointments is critical to ensuring quality health care is provided to veterans, who may have medical conditions that worsen if care is delayed.
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Intellectual property has a broad range--anywhere from inventions, to technological enhancements, to methods of doing business, to computer programs, to literary and musical works and architectural drawings. Government-sponsored research has an equally broad range--from research in mathematical and physical sciences, computer and information sciences, biological and environmental sciences, and medical sciences, to research supporting military programs of the Department of Defense (DOD) and the atomic energy defense activity of the Department of Energy. The objective of some of this research, for example, cancer research, is to gain more comprehensive knowledge or understanding of the subject under study, without specific application. According to the National Science Foundation, about 3 percent of DOD's R&D funding and 41 percent of R&D funding by other agencies goes toward this type of study. Other research is directed at either gaining knowledge to meet a specific need or to develop specific materials, devices, or systems--such as a weapon system or the International Space Station. About 97 percent of DOD's R&D dollars and 55 percent of R&D dollars from other agencies supports applied research. The primary vehicles for funding research efforts are grants, cooperative agreements, and contracts. Today, our focus is largely on intellectual property rights that the government acquires through research done under contracts, which primarily fund applied research. As illustrated in the figure below, the R&D landscape has changed considerably over the past several decades. While the federal government had once been the main provider of the nation's R&D funds, accounting for 54 percent in 1953 and as much as 67 percent in 1964, as of 2000, its share amounted to 26 percent, or about $70 billion, according to the National Science Foundation. Patents, trademarks, copyrights, and trade secrets protect intellectual property. Only the federal government issues patents and registers copyrights, while trademarks may also be registered by states that have their own registration laws. State law governs trade secrets. Anyone who uses the intellectual property of another without proper authorization is said to have 'infringed' the property. Traditionally, an intellectual property owner's remedy for such unauthorized use would be a lawsuit for injunctive or monetary relief. Prior to 1980, the government generally retained title to any inventions created under federal research grants and contracts, although the specific policies varied among agencies. Over time, this policy increasingly became a source of dissatisfaction. First, there was a general belief that the results of government-owned research were not being made available to those who could use them. Second, advances attributable to university-based research funded by the government were not pursued because the universities had little incentive to seek use for inventions to which the government held title. Finally, the maze of rules and regulations and the lack of a uniform policy for government-owned inventions often frustrated those who did seek to use the research. The Bayh-Dole Act was passed in 1980 to address these concerns by creating a uniform patent policy for inventions resulting from federally sponsored research and development agreements. The act applied to small businesses, universities, and other nonprofit organizations and generally gave them the right to retain title to and profit from their inventions, provided they adhered to certain requirements. The government retained nonexclusive, nontransferable, irrevocable, paid-up (royalty-free) licenses to use the inventions. A presidential memorandum issued to the executive branch agencies on February 18, 1983, extended the Bayh-Dole Act to large businesses. It extended the patent policy of Bayh-Dole to any invention made in the performance of federally funded research and development contracts, grants, and cooperative agreements to the extent permitted by law. On April 10, 1987, the president issued Executive Order 12591, which, among other things, required executive agencies to promote commercialization in accordance with the 1983 presidential memorandum. Below are highlights of requirements related to the Bayh-Dole Act and Executive Order 12591. In addition to the traditional categories of intellectual property protections, government procurement regulations provide a layer of rights and obligations known as "data rights." These regulations describe the rights that the government may obtain to two types of data, computer software and technical data, delivered or produced under a government contract. These rights may include permission to use, reproduce, disclose, modify, adapt, or disseminate the technical data. A key feature of the DOD framework for data rights, and one implicit in the civilian agency framework, is that the extent of the government's rights is related to the degree of funding the government is providing. In some cases, the government may decide that it is in its best interest to forgo rights to technical data. For example, if the government wants to minimize its costs of having supercomputers developed exclusively for government use, it could waive its rights in order to spur commercial development. At the same time, situations arise where the government has a strong interest in obtaining and retaining data rights--either unlimited rights or government-purpose rights. These include long-term projects, such as cleanup at nuclear weapon sites, where the government may want to avoid disrupting the program if a change in contractors occurs. These also include projects that affect safety and security. For example, the Transportation Security Administration recently purchased the data rights for an explosives detection system manufactured by one company. The agency believed data rights were necessary in order to expand production of these machines and meet the congressionally mandated deadline for creating an explosives detection capability at airports. We contacted multiple agencies responsible for $191 billion or 88 percent of federal procurements in fiscal year 2001. At these agencies, we met with those officials responsible for procurement, management and oversight of contractor-derived intellectual property. We also analyzed agency and industry studies as well as agency guidance and requirements. In addition, we met with representatives from (1) commercial enterprises that either contract with the government or develop technologies of interest to the government as well as (2) associations representing commercial firms doing business with the government. Both industry and agency officials covered by our review had concerns about the effectiveness and the efficiency of successfully negotiating contracts with intellectual property issues. These concerns include a lack of good planning and expertise within the government and industry's apprehensions over certain government rights to data and inventions as well as the government's ability to protect proprietary data. Industry officials were particularly concerned about the span of rights the government wants over technical data. Industry officials asserted that rather than making a careful assessment of its needs, some contracting officers wanted to operate in a "comfort zone" by asking for unlimited rights to data, even when the research built on existing company technology. This was disconcerting to potential contractors because it meant that the government could give data to anyone it chose, including potential competitors. Some companies mentioned specific instances in which they delayed or declined participation in government contracts. These situations occurred when companies believed their core technologies would be at risk and the benefits from working with the government did not outweigh the risk of losing their rights to these technologies. Most agency officials said that intellectual property issues were at times hotly contested and could become the subject of intense negotiations. While agency officials indicated that problems related to intellectual property rights may have limited access to particular companies, they did not raise or cite specific instances where the agency was unable to acquire needed technology. In some situations, agencies exerted flexibility to overcome particular concerns and keep industry engaged in research efforts. DOD officials viewed intellectual property requirements and the manner in which these requirements are implemented as significantly affecting their ability to attract leading technology firms to DOD research and development activities. This concerns DOD, which believes it needs to engage leading firms in joint research efforts in order to promote development of commercial technologies that meet military needs. Last, agency officials, particularly DOD officials, voiced concerns about having access to technical data necessary to support and maintain systems over their useful life as well as the ability to procure some systems competitively, especially smaller systems. These officials stated that if they did not obtain sufficient data rights, they could not use competitive approaches to acquire support functions or additional units. We have reported on the difficulties that occurred when appropriate data rights were not obtained. In one instance, when the Army tried to procure data rights later in the system's life cycle, the manufacturer's price for the data was $100 million--almost as much as the entire program cost ($120 million) from 1996 through 2001. We have recommended, among other things, that DOD place greater emphasis on obtaining priced options for the purchase of technical data at the time proposals for new weapon systems are being considered--when the government's negotiating leverage is the greatest. Agency officials we spoke with generally agreed that some actions could be taken to address concerns about limited awareness of flexibilities and expertise without any legislative changes. Specifically, agencies could promote greater use of the flexibilities already available to them. DOD, for example, is advocating greater use of its "other transaction authority." This authority enables DOD to enter into agreements that are generally not subject to the federal laws and regulations governing standard contracts, grants, and cooperative agreements. By using this authority, where appropriate, DOD can increase its flexibility in negotiating intellectual property provisions and attract commercial firms that traditionally did not perform research for the government. A second example of agency flexibility to address industry concerns over the allocation of rights under the Bayh-Dole Act is a form of waiver, known as a determination of exceptional circumstances. This waiver has been used, for example, to work out intellectual property rights between pharmaceutical companies and universities or other firms. In these cases, pharmaceutical companies provide compounds that NIH tests to identify whether these compounds are effective in treating additional diseases or ailments. Universities and other commercial firms perform these tests. The exceptional circumstances determination allows the pharmaceutical companies to retain the intellectual property rights to any discoveries coming out of these tests, rather than the performer of the tests. An NIH official explained that a determination of exceptional circumstances could be made in these cases because the program would not exist in the absence of such a determination. Agencies could also strengthen advance planning on data requirements. For example, attention needs to be paid to what types of maintenance or support strategies will be pursued and what data rights are needed to support alternative strategies. Also, consideration could be given to obtaining priced options for the purchase of data rights that may be needed later.
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Improperly defined intellectual property rights in a government contract can result in the loss of an entity's critical assets or limit the development of applications critical to public health or safety. Conversely, successful contracts can spur economic development, innovation, and growth, and dramatically improve the quality of delivered goods and services. Contracting for intellectual property rights is difficult. The stakes are high, and negotiating positions are frequently ill-defined. Moreover, the concerns raised must be tempered with the understanding that government contracting can be challenging even without the complexities of intellectual property rights. Further, contractors often have reasons for not wanting to contract with the government, including concerns over profitability, capacity, accounting and administrative requirements, and opportunity costs. Within the commercial sector, companies identified a number of specific intellectual property concerns that affected their willingness to contract with the government. These included perceived poor definitions of what technical data is needed by the government, issues with the government's ability to protect proprietary data adequately, and unwillingness on the part of government officials to exercise the flexibilities available concerning intellectual property rights. Some of these concerns were on perception rather than experience, but, according to company officials, they nevertheless influence decisions not to seek contracts or collaborate with federal government entities. Agency officials shared many of these concerns. Poor upfront planning and limited experience/expertise among the federal contracting workforce were cited as impediments. Although agency officials indicated that intellectual property rights problems may have limited access to particular companies, they did not cite specific instances where the agency was unable to acquire needed technology. Agency officials said that improved training and awareness of the flexibility already in place as well as a better definition of data needs on individual contracts would improve the situation.
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Energy oversees a nationwide network of 40 contractor-operated industrial sites and research laboratories that have historically employed more than 600,000 workers in the production and testing of nuclear weapons. In implementing EEOICPA, the President acknowledged that it had been Energy's past policy to encourage and assist its contractors in opposing workers' claims for state workers' compensation benefits based on illnesses said to be caused by exposure to toxic substances at Energy facilities. Under the new law, workers or their survivors could apply for assistance from Energy in pursuing state workers' compensation benefits, and if they received a positive determination from Energy, the agency would direct its contractors to not contest the workers' compensation claims or awards. Energy's rules to implement the new program became effective in September 2002, and the agency began to process the applications it had been accepting since July 2001, when the law took effect. Energy's claims process has several steps, as shown in figure 1. First, claimants file applications and provide all available medical evidence. Energy then develops the claims by requesting records of employment, medical treatment, and exposure to toxic substances from the Energy facilities at which the workers were employed. If Energy determines that the worker was not employed by one of its facilities or did not have an illness that could be caused by exposure to toxic substances, the agency finds the claimant ineligible. For all others, once development is complete, a panel of three physicians reviews the case and decides whether exposure to a toxic substance during employment at an Energy facility was at least as likely as not to have caused, contributed to, or aggravated the claimed medical condition. The panel physicians are appointed by the National Institute for Occupational Safety and Health (NIOSH) but paid by Energy for this work. Claimants receiving positive determinations are advised that they may wish to file claims for state workers' compensation benefits. Claimants found ineligible or receiving negative determinations may appeal to Energy's Office of Hearings and Appeals. Each of the 50 states and the District of Columbia has its own workers' compensation program to provide benefits to workers who are injured on the job or contract a work-related illness. Benefits include medical treatment and cash payments that partially replace lost wages. Collectively, these state programs paid more than $46 billion in cash and medical benefits in 2001. In general, employers finance workers' compensation programs. Depending on state law, employers finance these programs through one of three methods: (1) they pay insurance premiums to a private insurance carrier, (2) they contribute to a state workers' compensation fund, or (3) they set funds aside for this purpose as self- insurance. Although state workers' compensation laws were enacted in part as an attempt to avoid litigation over workplace accidents, the workers' compensation process is still generally adversarial, with employers and their insurers tending to challenge aspects of claims that they consider not valid. State workers' compensation programs vary as to the level of benefits, length of payments, and time limits for filing. For example, in 1999, the maximum weekly benefit for a total disability in New Mexico was less than $400, while in Iowa it was approximately $950. In addition, in Idaho, the weekly benefit for total disability would be reduced after 52 weeks, while in Iowa benefits would continue at the original rate for the duration of the disability. Further, in Tennessee, a claim must be filed within 1 year of the beginning of incapacity or death. However, in Kentucky a claim must be filed within 3 years of exposure to most substances, but within 20 years of exposure to radiation or asbestos. As of June 30, 2003, Energy had completely processed about 6 percent of the nearly 19,000 cases that had been filed, and the majority of all cases filed were associated with facilities in nine states. Forty percent of cases were in processing, but more than 50 percent remained unprocessed. While some case characteristics can be determined, such as illness claimed, systems limitations prevent reporting on other case characteristics, such as the reasons for ineligibility or basic demographics. During the first 2 years of the program, ending June 30 2003, Energy had fully processed about 6 percent of the nearly 19,000 claims it received. The majority of these claims had been found ineligible because of either a lack of employment at an eligible facility or an illness related to toxic exposure. Of the cases that had been fully processed, 42 cases--less than one-third of 1 percent of the nearly 19,000 cases filed--had a final determination from a physician panel. More than two-thirds of these determinations (30 cases) were positive. At the time of our study, Energy had not yet begun processing more than half of the cases, and an additional 40 percent of cases were in processing (see fig. 2). The majority of cases being processed were in the case development stage, where Energy requests information from the facility at which the claimant was employed. Less than 1 percent of cases in process were ready for physician panel review, and an additional 1 percent were undergoing panel review. A majority of cases were filed early during program implementation, but new cases continue to be filed. Nearly two-thirds of cases were filed within the first year of the program, between July 2001 and June 2002. However, in the second year of the program--between July 2002 and June 30, 2003--Energy continued to receive more than 500 cases per month. Energy officials report that they currently receive approximately 100 new cases per week. While cases filed are associated with facilities in 38 states or territories, the majority of cases are associated with Energy facilities in nine states (see fig. 3). Facilities in Colorado, Idaho, Iowa, Kentucky, New Mexico, Ohio, South Carolina, Tennessee, and Washington account for more than 75 percent of cases received by June 30, 2003. The largest group of cases is associated with facilities in Tennessee. Workers filed the majority of cases, and cancer is the most frequently reported illness. Workers filed about 60 percent of cases, and survivors of deceased workers filed about 36 percent of cases. In about 1 percent of cases, a worker filed a claim that was subsequently taken up by a survivor. Cancer is the illness reported in more than half of the cases. Diseases affecting the lungs accounted for an additional 14 percent of cases. Specifically, chronic beryllium disease is reported in 1 percent of cases, and beryllium sensitivity, which may develop into chronic beryllium disease, is reported in an additional 5 percent. About 7 percent of cases reported asbestosis, and less than 1 percent claimed silicosis. Systems limitations prevent Energy officials from aggregating certain information important for program management. For example, the case management system does not collect information on the reasons that claimants had been declared ineligible or whether claimants have appealed decisions. Systematic tracking of the reasons for ineligibility would make it possible to identify other cases affected by appeal decisions that result in policy changes. While Energy officials report that during the major systems changes that occurred in July 2003, fields were added to the system to track appeals information, no information is yet available regarding ineligibility decisions. In addition, basic demographic data such as age and gender of claimants are not available. Gender information was not collected for the majority of cases. Further, insufficient edit controls-- for example, error checking that would prevent claimants' dates of birth from being entered if the date was in the future--prevent accurate reporting on claimants' ages. Insufficient strategic planning regarding data collection and tracking have made it difficult for Energy officials to completely track case progress and determine whether they are meeting the goals they have established for case processing. For example, Energy established a goal of completing case development within 120 days of case assignment to a case manager. However, the data system developed by contractors to aid in case management was developed without detailed specifications from Energy and did not originally collect sufficient information to track Energy's progress in meeting this 120-day goal. Furthermore, status tracking has been complicated by changes to the system and failure to consistently update status as cases progress. While Energy reports that changes made as of July 2003 should allow for improved tracking of case status, it is unclear whether these changes will be applied retroactively to status data already in the system. If they are not, Energy will still lack complete data regarding case-processing milestones achieved prior to these changes. Our analysis shows that a majority of cases associated with major Energy facilities in nine states will potentially have a willing payer of workers' compensation benefits. This finding reflects the number of cases for which contractors and their insurers are likely to not contest a workers' compensation claim, rather than the number of cases that will ultimately be paid. The contractors considered to be willing payers are those that have an order from, or agreement with, Energy to not contest claims. However, there are likely to be many claimants who will not have a willing payer in certain states, such as Ohio and Iowa. For all claimants, additional factors such as state workers' compensation provisions or contractors' uncertainty on how to compute the benefit may affect whether or how much compensation is paid. A majority of cases in nine states will potentially have a willing payer of workers' compensation benefits, assuming that for all cases there has been a positive physician panel determination and the claimant can demonstrate a loss from the worker's illness that has not previously been compensated. Specifically, based on our analysis of workers' compensation programs and the different types of workers' compensation coverage used by the major contractors, it appears that approximately 86 percent of these cases will potentially have a willing payer--that is, contractors and their insurers who will not contest the claims for benefits. It was necessary to assume that all cases filed would receive a positive determination by a physician panel because sufficient data are not available to project the outcomes of the physician panel process. More specifically, there are indications that the few cases that have received determinations from physician panels may not be representative of all cases filed, and sufficient details on workers' medical conditions were not available to enable us to independently judge the potential outcomes. In addition, we assumed that all workers experienced a loss that was not previously compensated because sufficient data were not available to enable us to make more detailed projections on this issue. As shown in table 1, most of the contractors for the major facilities in these states are self-insured, which enables Energy to direct them to not contest claims that receive a positive medical determination. In addition, the contractor in Colorado, which is not self-insured but has a commercial policy, took the initiative to enter into an agreement with Energy to not contest claims. The contractor viewed this action as being in its best interest to help the program run smoothly. However, it is unclear whether the arrangement will be effective because no cases in Colorado have yet received compensation. In such situations where there is a willing payer, the contractor's action to pay the compensation consistent with Energy's order to not contest a claim will override state workers' compensation provisions that might otherwise result in denial of a claim, such as failure to file a claim within a specified period of time. However, since no claimants to date have received compensation as a result of their cases filed with Energy, there is no actual experience about how contractors and state workers' compensation programs treat such cases. About 14 percent of cases in the nine states we analyzed may not have a willing payer. Therefore, in some instances these cases may be less likely to receive compensation than a comparable case for which there is a willing payer, unless the claimant is able to overcome challenges to the claim. Specifically, these cases that lack willing payers involve contractors that (1) have a commercial insurance policy, (2) use a state fund to pay workers' compensation claims, or (3) do not have a current contract with Energy. In each of these situations, Energy maintains that it lacks the authority to make or enforce an order to not contest claims. For instance, an Ohio Bureau of Workers' Compensation official said that the state would not automatically approve a case, but would evaluate each workers' compensation case carefully to ensure that it was valid and thereby protect its state fund. Concerns about the extent to which there will be willing payers of benefits have led to various proposals for addressing this issue. For example, the state of Ohio proposed that Energy designate the state as a contractor to provide a mechanism for reimbursing the state for paying the workers' compensation claims. However, Energy rejected this proposal on the ground that EEOICPA does not authorize the agency to establish such an arrangement. In a more wide-ranging proposal, legislation introduced in this Congress proposes to establish Subtitle D as a federal program with uniform benefits administered by the Department of Labor. In contrast to Subtitle B provisions that provide for a uniform federal benefit that is not affected by the degree of disability, various factors may affect whether a Subtitle D claimant is paid under the state workers' compensation program or how much compensation will be paid. Beyond the differences in the state programs that may result in varying amounts and length of payments, these factors include the demonstration of a loss resulting from the illness and contractors' uncertainty on how to compute compensation. Even with a positive determination from a physician panel and a willing payer, claimants who cannot demonstrate a loss, such as loss of wages or medical expenses, may not qualify for compensation. On the other hand, claimants with positive determinations but not a willing payer may still qualify for compensation under the state program if they show a loss and can overcome all challenges to the claim raised by the employer or the insurer. Contractors' uncertainty on how to compute compensation may also cause variation in whether or how much a claimant will receive in compensation. While contractors with self-insurance told us that they plan to comply with Energy's directives to not contest cases with positive determinations, some contractors were unclear about how to actually determine the amount of compensation that a claimant will receive. For example, one contractor raised a concern that no guidance exists to inform contractors about whether they can negotiate the degree of disability, a factor that could affect the amount of the workers' compensation benefit. Other contractors will likely experience similar situations, as Energy has not issued guidance on how to consistently compute compensation amounts. While not directly affecting compensation amounts, a related issue involves how contractors will be reimbursed for claims they pay. Energy uses several different types of contracts to carry out its mission, such as operations or cleanup, and these different types of contracts affect how workers' compensation claims will be paid. For example, a contractor responsible for managing and operating an Energy facility was told to pay the workers' compensation claims from its operating budget. The contractor said that this procedure may compromise its ability to conduct its primary responsibilities. On the other hand, a contractor cleaning up an Energy facility was told by Energy officials that its workers' compensation claims would be reimbursed under its contract, and therefore paying claims would not affect its ability to perform cleanup of the site. As a result of Energy's policies and procedures for processing claims, claimants have experienced lengthy delays in receiving the determinations they need to file workers' compensation claims. In particular, the number of cases developed during initial case processing has not always been sufficient to allow the physician panels to operate at full capacity. Moreover, even if these panels were operating at full capacity, the small pool of physicians qualified to serve on the panels would limit the agency's ability to produce more timely determinations. Energy has recently allocated more funds for staffing for case processing, but it is still exploring methods for improving the efficiency of its physician panel process. Energy's case development process has not consistently produced enough cases to ensure that the physician panels are functioning at full capacity. To make efficient use of physician panel resources, it is important to ensure that a sufficient supply of cases is ready for physician panel review. Energy officials established a goal of completing the development on 100 cases per week by August 2003 to keep the panels fully engaged. However, as of September 2003, Energy officials stated that the agency was completing development of only about 40 cases a week. Further, while agency officials indicated that they typically assigned 3 cases at a time to be reviewed within 30 days, several panel physicians indicated that they received fewer cases, some receiving a total of only 7 or 8 during their first year as a panelist. Energy was slow to implement its case development operation. Initially, agency officials did not have a plan to hire a specific number of employees for case development, but they expected to hire additional staff as they were needed. When Energy first began developing cases, in the fall of 2002, the case development process had a staff of about 14 case managers and assistants. With modest staffing increases, the program quickly outgrew the office space used for this function. Though Energy officials acknowledged the need for more personnel by spring 2003, they delayed hiring until additional space could be secured, in August. As of August 2003, Energy had more than tripled the number of employees dedicated to case development to about 50, and Energy officials believe that they will now be able to achieve their goal of completing development of 100 cases a week that will be ready for physician panel review. Energy officials cited a substantial increase in the number of cases ready for physician panel review during October 2003, and reported preparing more than a hundred cases for panel review in the first week of November 2003. Energy shifted nearly $10 million from other Energy accounts into this program in fiscal year 2003, and plans to shift an additional $33 million into the program in fiscal year 2004, to quadruple its case-processing operation. With additional resources, Energy plans to complete the development of all pending cases as quickly as possible and have them ready for the physician panels. However, this would create a large backlog of cases awaiting review by physician panels. Because most claims filed so far are from workers whose medical conditions are likely to change over time, creation of such a backlog could further slow the decision process by making it necessary to update medical records before panel review. Even if additional resources allow Energy to speed initial case development, the limited pool of qualified physicians for panels will likely prevent significant improvements in processing time. Currently, approximately 100 physicians are assigned to panels of 3 physicians. In an effort to improve overall processing time, Energy has requested that NIOSH appoint an additional 500 physicians to staff the panels. NIOSH has indicated that the pool of physicians with the appropriate credentials and experience (including those already appointed) may be limited to about 200. Even if Energy were able to increase the number of panel physicians to 200, with each panel reviewing 3 cases a month, the panels would not be able to review more than 200 cases in any 30-day period, given current procedures. Thus, even with double the number of physicians currently serving on panels, it could take more than 7 years to process all cases pending as of June 30, 2003, without consideration of the hundreds of new cases the agency is receiving each month. Energy officials are exploring ways that the panel process could be made more efficient. For example, the agency is currently planning to establish permanent physician panels in Washington, DC. Physicians who are willing to serve full-time for a 2- or 3-week period would staff these panels. In addition, the agency is considering reducing the number of physicians serving on each panel--for example, initially using one physician to review a case, assigning a second physician only if the first reaches a negative determination, and assigning a third physician if needed to break a tie. Energy staff are currently evaluating whether such a change would require a change in their regulations. Agency officials have also recommended additional sources from which NIOSH might recruit qualified physicians and are exploring other potential sources. For example, the physicians in the military services might be used on a part-time basis. In addition, physicians from the Public Health Service serve on temporary full-time details as panel physicians. Panel physicians have also suggested methods to Energy for improving the efficiency of the panels. For example, some physicians have stated that more complete profiles of the types and locations of specific toxic substances at each facility would speed their ability to decide cases. In addition, one panel physician told us that one of the cases he reviewed received a negative determination because specific documentation of toxic substances at the worker's location was lacking. While Energy officials reported that they have completed facility overviews for about half the major sites, specific data are available for only a few sites. Agency officials said that the scarcity of records related to toxic substances and a lack of sufficient resources constrain their ability to pursue building-by- building profiles for each facility. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other Members of the Committee may have at this time. For information regarding this testimony, please contact Robert E. Robertson, Director, or Andrew Sherrill, Assistant Director, Education, Workforce, and Income Security, at (202) 512-7215. Individuals making contributions to this testimony include Amy E. Buck, Melinda L. Cordero, Beverly Crawford, Patrick DiBattista, Corinna A. Nicolaou, Mary Nugent, and Rosemary Torres Lerma. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Energy (Energy) and its predecessor agencies and contractors have employed thousands of workers in the nuclear weapons production complex. Some employees were exposed to toxic substances, including radioactive and hazardous materials, during this work and many subsequently developed illnesses. Subtitle D of the Energy Employees Occupational Illness Compensation Program Act of 2000 allows Energy to help its contractor employees file state workers' compensation claims for illnesses determined by a panel of physicians to be caused by exposure to toxic substances in the course of employment at an Energy facility. Energy began accepting applications under this program in July 2001, but did not begin processing them until its final regulations became effective on September 13, 2002. The Congress mandated that GAO study the effectiveness of the benefit program under Subtitle D of this Act. This testimony is based on GAO's ongoing work on this issue and focuses on three key areas: (1) the number, status, and characteristics of claims filed with Energy; (2) the extent to which there will be a "willing payer" of workers' compensation benefits, that is, an insurer who--by order from, or agreement with, Energy--will not contest these claims; and (3) the extent to which Energy policies and procedures help employees file timely claims for these state benefits. As of June 30, 2003, Energy had completely processed only about 6 percent of the nearly 19,000 cases it had received. More than three-quarters of all cases were associated with facilities in nine states. Processing had not begun on over half of the cases and, of the remaining 40 percent of cases that were in processing, almost all were in the initial case development stage. While the majority of cases (86 percent) associated with major Energy facilities in nine states potentially have a willing payer of workers' compensation benefits, actual compensation is not certain. This figure is based primarily on the method of workers' compensation coverage used by Energy contractor employers and is not an estimate of the number of cases that will ultimately be paid. Since no claimants to date have received compensation as a result of their cases filed with Energy, there is no actual experience about how contractors and state programs treat such claims. Claimants have been delayed in filing for state worker's compensation benefits because of two bottlenecks in Energy's claims process. First, the case development process has not always produced sufficient cases to allow the panels of physicians who determine whether the worker's illness was caused by exposure to toxic substances to operate at full capacity. While additional resources may allow Energy to move sufficient cases through its case development process, the physician panel process will continue to be a second, more important, bottleneck. The number of panels, constrained by the scarcity of physicians qualified to serve on panels, will limit Energy's capacity to decide cases more quickly, using its current procedures. Energy officials are exploring ways that the panel process could be made more efficient.
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According to a 1995 assessment by the IPCC, climate models project that increasing atmospheric concentrations of the primary greenhouse gases--carbon dioxide, methane, and nitrous oxide--and aerosols will raise the average global surface temperature between 1.8 and 6.3 degrees Fahrenheit by 2100. The IPCC estimates that such a temperature increase could lead to many potential impacts, including flooding, droughts, changes in crop yields, and changes in ecosystems. In an effort to address concerns about the possibility of global climate change, the United States and other countries signed the United Nations Framework Convention on Climate Change at the Rio Earth Summit in May 1992. As of June 1996, 159 countries had ratified the Convention. The Convention's ultimate objective is to stabilize the concentrations of human-induced greenhouse gases in the atmosphere at a level that would prevent dangerous interference with the climate system. To accomplish this objective, the Convention directs the Annex I parties to adopt policies and measures to limit greenhouse gases and to protect and enhance the greenhouse gas sinks and reservoirs that absorb and store carbon dioxide from the atmosphere. The Convention also directs the Annex I parties to submit plans to the Conference of the Parties with detailed information on the policies and measures that will help return net greenhouse gas emissions to 1990 levels by 2000. (See app. I for more details on the Convention and a list of Annex I countries.) As of May 1996, 33 of the 36 countries listed under Annex I had ratified the Convention. At the first session of the Conference of the Parties to the Convention held in April 1995, the countries acknowledged that the existing commitments under the Convention are not adequate to meet the overall objective of stabilizing greenhouse gas concentrations. This determination was formally designated by the Conference of the Parties as the Berlin Mandate. To address the inadequacies, the parties agreed to begin a process to define actions in the post-2000 period, including strengthening the commitments of the parties included in Annex I by elaborating policies and measures, as well as by setting quantified objectives for limiting and reducing emissions. The Department of State's Under Secretary for Global Affairs recently announced to the Conference of the Parties that the United States supports the adoption of binding emissions targets beyond 2000. The process of determining actions beyond 2000, designed to include in its early stages an analysis and assessment phase, is scheduled for completion before the third Conference of the Parties, currently set for late 1997. Carbon dioxide is considered the major contributor to global warming. Developed countries--as identified by their membership in the Organization for Economic Cooperation and Development (OECD)--accounted for about half of the world's energy-related carbon dioxide emissions in 1990. The United States was responsible for about 22 percent of the total carbon dioxide emissions. Developing countries are projected to account for an increasing share of worldwide carbon dioxide emissions in the future as a result of their increasing growth in energy demand. For example, the Energy Information Administration estimates that China's share of carbon dioxide emissions will almost double from about 10 percent in 1990 to about 19 percent in 2015. Therefore, even if the developed countries are able to stabilize carbon dioxide emissions, worldwide emissions are likely to increase because of the expected large growth in developing countries. The incomplete, unreliable, and inconsistent data on emissions prevent a complete assessment of Annex I countries' efforts to limit greenhouse gas emissions to 1990 levels by 2000. These problems occurred for several reasons, including a lack of specific reporting requirements by the Convention. As of February 1996, the Convention had compiled data from the national plans of 29 Annex I countries. These countries accounted for 60 percent of the estimated global carbon dioxide emissions from fossil fuel combustion in 1990. All 29 countries reported 1990 data on carbon dioxide, and 28 of the 29 reported similar data on methane and nitrous oxide. However, eight countries did not provide projections to 2000 for at least one of those gases. For example, Spain did not include projections of either methane or nitrous oxide in its plan. Additionally, only eight countries provided projections of the other greenhouse gases also covered under the Convention, such as hydrofluorocarbons. While emissions for such gases are now small, they are projected to increase in the future. Also, some reported data lack precision. Specifically, although countries provided emissions data for methane and nitrous oxide, the level of certainty in such data is low. For example, the uncertainty range for reported methane emissions in Canada's national plan is plus or minus 30 percent at a 90-percent confidence level; the range is plus or minus 40 percent for nitrous oxide at an 85-percent confidence level. In contrast, the uncertainty level for Canada's carbon dioxide emissions was only plus or minus 4 percent at a 95-percent confidence level. Reliability in measuring the emissions data for methane and nitrous oxide is not as high as for carbon dioxide. Because these gases come from many sources and are nontoxic, little effort has been given to measuring their emissions. Additionally, the countries' emissions data were not always consistent. For example, some Annex I countries adjusted their 1990 inventory levels in order to develop what they believed to be a more reasonable starting point for projections to 2000. As a result, a different picture emerges of a country's ability to meet the goal, depending on whether the projections are compared to actual or adjusted 1990 levels. To illustrate, Denmark adjusted its 1990 inventory level upward to show what emissions would have been if imported hydroelectric power had been generated domestically with fossil fuels. Consequently, Denmark's carbon dioxide projections exceed the actual 1990 levels; but when the adjusted level for 1990 is used, the projections for 2000 are below the 1990 level. Two major factors contributed to problems in the Annex I countries' reporting of emissions data. First, the parties to the Convention did not formally adopt reporting guidelines until April 1995--after most countries had submitted their national plans--and the guidelines adopted in 1995 were not specific in all cases. For example, the guidelines did not specify whether emissions' projections were to be reported on the basis of gross emissions or net emissions, which account for the carbon dioxide removed from the atmosphere by forests and other greenhouse gas sinks. Only 13 of 29 Annex I countries separately reported projections of carbon dioxide sinks. The parties to the Convention have recognized shortcomings in the guidance. In its comments on a draft of this report, the Department of State noted that the parties had adopted revised reporting guidelines at their Second Conference in July 1996. These revised guidelines will be used for the second round of national plans due to be submitted in April 1997. The Department of State has stated that these national plans will be significantly improved because of the revised guidelines. Furthermore, it expects that the Conference of the Parties will continue to revise and improve the guidelines. The other major factor contributing to problems with the data on greenhouse gas emissions is that, as previously noted, the countries have not yet been able to quantify with certainty the emissions of methane and nitrous oxide because of the limited reporting data. Although the currently available emissions data prevent a complete assessment of countries' progress in meeting the Convention's goal, projections by energy forecasting agencies of carbon dioxide emissions from fossil fuel use--which is the largest single category of greenhouse gas emissions--indicate that few Annex I countries will likely be able to return emissions to 1990 levels by 2000. Of the major developed countries, only Germany and the United Kingdom appear likely to reduce carbon emissions to 1990 levels by the year 2000. Other major developed countries--including Canada, Italy, Japan, and the United States--will probably not reach the goal. A few other Annex I countries in eastern Europe, such as the Czech Republic, may be able to meet the Convention's goal. The projections by the Annex I countries themselves indicate that only 7 of the 24 countries that provided point estimates of carbon dioxide emissions in 2000 project that they can hold emissions near or below 1990 levels. (See table 1.) For the remaining countries, the increases over the 1990 inventory levels ranged from 1.7 percent to 28.8 percent. The projections from other organizations also indicate that few countries will be able to stabilize carbon dioxide emissions. For example, the Energy Information Administration's May 1996 International Energy Outlook forecasts that carbon dioxide emissions from energy consumption will increase for most of the Annex I countries from 1990 to 2000. Specifically, the agency projects that carbon dioxide emissions will increase 11 percent in the United States, 21 percent in Japan, 18 percent in Canada, and 6 percent in OECD Europe. The International Energy Agency (IEA) also projects increases in carbon dioxide emissions between 1990 and 2000 for Annex I countries. In its 1994 Review of Energy Policies of IEA Countries, published in July 1995, this agency forecasts increases in energy-related carbon dioxide of 10 percent for the United States, 13 percent for Canada, and 8 percent for Europe. On the basis of our review of six developed countries--Canada, Germany, Italy, Japan, the United Kingdom, and the United States--we found that energy use is the major factor affecting the ability of those countries to meet the goal of returning greenhouse gas emissions to 1990 levels by 2000. Therefore, the major factors that affect trends in energy use--such as growth in gross domestic product (GDP), population growth, energy prices, and energy efficiency--also affect trends in greenhouse gas emissions. The ability to shift from coal, the burning of which produces a high level of greenhouse gases, to other fuels is also a major factor. Table 2 provides information on these factors for the six countries we reviewed. (App. II provides additional information on the goals of the six countries in connection with climate change and the status of the additional actions that those countries are considering to help reach the Convention's goal.) In response to the Convention's goal on greenhouse gases, the United States issued its Climate Change Action Plan (CCAP) in October 1993. The plan includes 44 largely voluntary initiatives designed to return net emissions of the major greenhouse gases--carbon dioxide, methane, nitrous oxides, and hydrofluorocarbons--to 1990 levels by 2000. The CCAP aimed to cut the net projected growth of 7 percent in the major greenhouse gas emissions between 1990 and 2000 and to achieve stabilization at the 1990 level of 1,462 million metric tons of carbon equivalent (MMTCE). Without the plan's initiatives, emissions were projected to grow to 1,568 MMTCE. The CCAP laid the foundation for the U.S. national plan submitted to the Convention in September 1994. The United States estimates that it will fall short of its target. Efforts to reduce greenhouse gas emissions in the United States have been hampered by changes in forecasts of key economic variables, such as higher-than-projected economic growth and lower-than-expected energy prices, that differ from the assumptions made in the CCAP. The changes in these economic indicators tend to increase energy use and therefore also increase greenhouse gas emissions. For example, the world oil price per barrel in 2000 was estimated to be $24.04 (1994 dollars) in the CCAP, but the Energy Information Administration's 1996 Annual Energy Outlook--which contains the executive branch's latest forecasts--now estimates that the price will be $19.27 per barrel (1994 dollars). Also, annual population growth is now projected to be higher than expected when the CCAP was formulated--about 1.0 percent per year as compared with the 0.7 percent projected in 1993. Population growth tends to increase energy use and consequently greenhouse gas emissions. (App. III compares in more detail the changes in key economic factors and fuel prices affecting the U.S. efforts.) Officials at the Department of Energy and the Environmental Protection Agency--which are responsible for implementing the bulk of the CCAP actions--noted that the reductions in the funding for the plan also have a substantial negative effect on the United States' ability to reduce greenhouse gas emissions by 2000 by limiting the agencies' ability to implement voluntary initiatives in the plan. For example, in fiscal year 1996, only about one-half of the requested funds were appropriated. Table 3 provides annual budget requests and appropriations for fiscal years 1995 through 1997. Lower estimated prices will, in general, also make the implementation of voluntary initiatives less likely. According to an official with the Council on Environmental Quality, legislation has also precluded the implementation of the few nonvoluntary actions in the plan, such as requiring that tires be labeled for fuel economy. The Council on Environmental Quality, the Department of Energy, the Department of State, and the Environmental Protection Agency are currently revising the CCAP. A new plan is scheduled to be issued in the fall of 1996. Canada's national plan relies primarily on a set of voluntary measures aimed at increasing energy efficiency and conservation and encouraging a switch to less carbon dioxide-intensive energy sources. Because of Canada's high energy-intensity, most of its human-induced greenhouse gas emissions are generated by the demand for energy to heat and light homes, operate industries, and other uses. Factors such as low population density, large distances between urban areas, and a cold climate create unique circumstances that make Canada a highly energy-intensive country. A recent estimate indicates that Canada will likely miss the Convention goal by a significant amount--carbon dioxide emissions are estimated to increase by 18 percent by the Energy Information Administration. The country's high rate of energy intensity, low energy prices, and fast-growing population, among other factors, have contributed to the gap. Japan is also likely to miss the Convention's goal. Japan's Action Report on Climate Change, issued in 1994, estimated that total carbon dioxide emissions in 2000 would exceed their 1990 levels. Current projections by the Energy Information Administration indicate that carbon dioxide emissions in Japan may increase by 21 percent. Over the last 20 years, Japan has consistently consumed one of the lowest percentages of energy per dollar of economic output for developed countries because of energy efficiency programs and initiatives. Therefore, achieving additional greenhouse gas reductions is difficult. As a result, even low levels of growth in the economy and population increase energy use and greenhouse gas emissions. Additionally, Japan had planned to build several additional nuclear power plants that would emit fewer greenhouse gases than the coal-powered facilities they would replace. However, the country has encountered difficulties in siting and building those plants. Italy also is low in energy-intensity as compared to other major developed countries. According to a State Department official, Italy is more energy efficient than other developed countries because of high energy prices and regulations limiting energy use. Therefore, additional energy savings and greenhouse gas reductions may be difficult to achieve, although Italy is forecast to experience a relatively low rate of economic growth. Italy's national plan discusses additional measures to further reduce carbon dioxide emissions, but their impact may be minimal. In its national plan, Italy projects that its carbon dioxide emissions in 2000 will exceed 1990 emissions by about 12.5 percent without additional measures. Germany and the United Kingdom, the only two major developed countries positioned to meet the Convention's goal, are also subject to economic factors that can cause energy use to increase. However, as the result of unique circumstances set in motion before the Convention's goal was established, both Germany and the United Kingdom are likely to meet the goal. According to an official in Germany's Ministry of the Environment, the principal reason that Germany is expected to exceed the Convention's goal is the reunification of the former East Germany with West Germany in 1990. The depressed economic conditions in East Germany, including low productivity levels and high unemployment, and the shift from inefficient coal technology to natural gas are helping to reduce greenhouse gas emissions significantly. For instance, carbon dioxide emissions in the former East Germany have already decreased by about 43 percent from 1990 to 1994. In contrast, during the same period, carbon dioxide emissions increased about 3 percent in what was formerly West Germany. In its national plan, Germany has also sought to achieve the Convention's goal by implementing a broad range of voluntary and regulatory measures aimed at reducing greenhouse gas emissions. Progress in the United Kingdom is largely attributable to the privatization of its energy utilities over the last decade, which is bringing about a significant switch from coal to natural gas, the fossil fuel that produces the lowest level of carbon dioxide emissions per unit of energy consumed. To illustrate, the Energy Information Administration has estimated that natural gas as a percentage of total energy consumption will increase in the United Kingdom from 23 percent in 1990 to 35 percent in 2000. The United Kingdom has also increased its taxes on energy use, which it believes will also help to reduce greenhouse gas emissions. United Kingdom officials now estimate that carbon dioxide emissions in 2000 will be about 4 percent to 8 percent below 1990 emissions. The ability to assess countries' individual and relative efforts in reducing greenhouse gas emissions depends greatly on the countries' reporting of complete, reliable, and consistent emissions data. However, some of the national plans submitted by Annex I countries have not provided such data. Consequently, a complete assessment cannot be made of whether these countries will meet the Convention's goal of reducing all greenhouse gas emissions to 1990 levels by 2000. The recent adoption of revised reporting standards should improve the ability to assess progress against the current Convention goal. Negotiations are already under way aimed at reaching agreement on new, binding emissions targets past 2000 for these same countries. Reporting guidelines designed to help ensure that complete, reliable, and complete emissions data are provided by countries will also be an essential element of any new agreement. We recommend to the Secretary of State that, as part of ongoing international negotiations, the United States urge that reporting standards be formulated and adopted for any new targets beyond 2000 in order to enhance the completeness, reliability, and consistency of emissions data. We provided a draft of our report to the Department of State, the Council on Environmental Quality, the Department of Energy, and the Environmental Protection Agency for their review and comment. The Department of State commented that our report provides an accurate assessment of the progress of countries in reducing greenhouse gas emissions. The Department also agreed with our recommendation and noted that revisions had recently been made to the reporting guidelines that will lead to improved national plans. We updated our report to reflect that recent development. The Department also provided several additional comments, and we have revised the report as appropriate. (See app. IV for the Department of State's comments and our response.) The Council on Environmental Quality noted that our report provides a useful overview of the activities to date by the United States and other developed countries and agreed with our recommendation. The Council provided additional information to add context to our report. (See app. V for the Council's comments and our response.) The Department of Energy provided editorial comments on our report, which we incorporated as appropriate. The Environmental Protection Agency had no comments on our report. We conducted our audit work from September 1995 through July 1996 in accordance with generally accepted government auditing standards. A detailed discussion of our objectives, scope, and methodology is contained in appendix VI. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 15 days from the date of this letter. At that time, we will send copies to the Secretary of State; the Secretary of Energy; the Administrator, Environmental Protection Agency; the Director, Council on Environmental Quality; the Director, Office of Management and Budget; and other interested parties. We will also make copies available upon request. Please call me at (202) 512-6111 if you or your staff have any questions. Major contributors to this report are listed in appendix VII. The United Nations Framework Convention on Climate Change entered into force on March 21, 1994. As of June 1996, 159 countries had ratified the Convention. The Convention's ultimate objective is the "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous interference with the climate system from human activities." To achieve this goal, the Convention established different types of goals and commitments for developed and developing countries. Under the Convention, all parties are to do the following: Prepare and communicate to the Conference of the Parties inventories of greenhouse gas emissions caused by human activity using comparable methodologies. Develop and communicate to the Conference of the Parties programs to mitigate the effects of greenhouse gases and measures the countries might take to adapt to climate change. Cooperate in the transfer of technology addressing greenhouse gas emissions in all relevant sectors of the economy. Promote sustainable management of greenhouse gas sinks and reservoirs. Cooperate in preparing for adaptation to the impacts of climate change. Integrate considerations of climate change with other policies. Conduct research to reduce the uncertainties about scientific knowledge of climate change, the effects of the phenomenon, and the effectiveness of responses to it. Exchange information on matters such as technology and the economic consequences of actions covered by the Convention. In addition to the above commitments, the Convention required developed countries and other parties included in Annex I of the Convention to do the following: Adopt national policies and take corresponding measures to mitigate climate change with the aim of returning human-induced emissions of greenhouse gases to 1990 levels by the year 2000 and by protecting and enhancing greenhouse gas sinks and reservoirs. Communicate, within 6 months of the Convention's entry into force and periodically thereafter, detailed information on policies and measures to limit greenhouse gas emissions, as well as on the resulting projections of greenhouse gas emissions and removals by sinks. Coordinate as appropriate with other parties the relevant economic and administrative instruments developed to achieve the objective of the Convention. Identify and periodically review policies and practices that encourage activities that lead to greater levels of human-induced emissions of greenhouse gases than would otherwise occur. The 36 Annex I countries are listed below. Of the Annex I countries, Belarus, Ukraine, and Turkey have not ratified the Convention. The European Economic Community--now known as the European Union--was also included as an Annex I party to the Convention. The countries listed in bold are those undergoing a transition to a market economy. The six countries we reviewed--Canada, Germany, Italy, Japan, the United Kingdom, and the United States--established various goals and employed varying approaches to attempt to meet their commitments under the Convention. This appendix describes the goals and plans to meet the goals for each of the six countries we reviewed. In 1990, Canada adopted a national goal to stabilize net emissions of all greenhouse gases by 2000 relative to 1990 emissions. Canada released its National Report on Climate Change to meet the goal. Canada's approach relies primarily on a set of voluntary measures aimed at increasing energy efficiency and conservation and encouraging a switch to less carbon dioxide-intensive energy sources. Because of Canada's high energy-intensity, most of its greenhouse gas emissions are generated by the demand for energy to heat and light homes and operate industries, as well as for other uses. Carbon dioxide emissions, generated chiefly from energy production and consumption, accounted for the majority of the 1990 actual emissions. Canada has acknowledged that it will miss its national goal if additional actions are not taken. It is not yet known how any additional initiatives will affect Canada's progress toward the climate change goal. Germany established an ambitious goal of reducing its emissions of carbon dioxide by 25 percent to 30 percent and its emissions of other greenhouse gases by 50 percent in 2005 relative to 1987 emissions levels. Germany has sought to achieve the goals by implementing a broad range of over 100 measures primarily aimed at reducing carbon dioxide emissions. Thus far, carbon dioxide emissions in Germany have decreased by about 16 percent from 1987 to 1994, primarily because of depressed economic conditions in the former East Germany. In addition to those reductions, several German industry associations have agreed to voluntarily decrease carbon dioxide emissions by up to 20 percent relative to 1990 levels in order to help Germany meet its own ambitious goal. However, recent reports suggest that Germany will not be able to meet its own ambitious goal, although it will most likely meet the Convention's goal by reducing greenhouse gas emissions below 1990 levels by 2000. The Italian government has noted that its national plan was the outgrowth of policies adopted for the Convention, but also designed to comply with prior decisions by the European Union to stabilize greenhouse gas emissions. The plan cites several initiatives already under way in the energy and transportation sectors but notes that an annual increase of between 0.4 percent and 0.9 percent in carbon dioxide emissions from energy consumption would still result. The plan also discusses possible additional initiatives that would help stabilize greenhouse gas emissions. These initiatives are primarily aimed at electricity generation, industrial production, the residential sector, and transport. Budgetary constraints and other factors, however, may impede the implementation of such measures. A recent estimate by the Italian Environment Ministry is that carbon dioxide emissions will increase by about 3 percent between 1990 and 2000. An official in that ministry stated that the government is still confident that it can meet the Convention's goal by enacting additional measures. Japan has established a goal of stabilizing its per capita emissions and total emissions of carbon dioxide at 1990 levels by 2000. To achieve the carbon dioxide target, in October 1990 Japan established an Action Program to Arrest Global Warming. In addition, Japan has pledged to undertake efforts to stabilize methane, nitrous oxide, and other greenhouse gas emissions, but has not specified a reference year. Japan estimates that it will not reach its goal of reducing total carbon dioxide emissions, if additional measures are not taken. Japan sought to reduce its emissions by building several nuclear power plants to help phase out the use of coal, but it has encountered difficulties in siting and building the plants. The United Kingdom has adopted the Convention's goal of stabilizing emissions of all greenhouse gases at 1990 levels in the year 2000. The United Kingdom establishes its strategy for meeting the goal in a January 1994 report, Climate Change, The UK Programme. The program relies essentially on a set of measures to reduce carbon dioxide emissions by improving energy efficiency. The United Kingdom also has adopted an 8-percent value added tax on residential fuel. The United Kingdom's program aims to return carbon dioxide emissions to 1990 levels by reducing emissions by 6 percent. The program also aims to reduce emissions of methane around 10 percent below 1990 levels, nitrous oxide by 75 percent, and emissions of other greenhouse gases from 25 percent to 90 percent. A United Kingdom official said that the country estimates it will meet its national target. In response to its commitment to the Climate Convention, the United States issued the Climate Change Action Plan (CCAP) in October 1993. The plan includes 44 initiatives designed to return net emissions of the major greenhouse gases--carbon dioxide, methane, nitrous oxides, and hydrofluorocarbons--to 1990 levels by 2000. The plan relies primarily on voluntary programs to reduce greenhouse gas emissions and enhance the capacity of greenhouse gas sinks to store carbon dioxide removed from the atmosphere. The U.S. plan aims to cut the net projected growth of 7 percent in the major greenhouse gas emissions between 1990 and 2000 in order to return emissions to 1990 levels by 2000. The United States estimates that it will likely fall short of its target without additional measures. Currently, the Council on Environmental Quality, the Department of Energy, the Department of State, and the Environmental Protection Agency are updating the plan by developing additional ways to achieve the Convention's goal. The new CCAP is scheduled to be issued in the fall of 1996. Changes in key economic factors and energy prices have made it more difficult for the United States to meet the goal of reducing greenhouse gas emissions to 1990 levels by 2000. Table III.1 shows changes in key growth factors between the 1993 Climate Change Action Plan (CCAP) and the Energy Information Administration's Annual Energy Outlook (AEO) 1996. Table III.2 compares projected fuel prices in 2000 in these two documents. CCAP (percent) AEO 1996 (percent) CCAP (in 1991 dollars) CCAP (converted to 1994 dollars) AEO 1996 (in 1994 dollars) World oil price (dollars per barrel) Wellhead natural gas (dollars per thousand cubic feet) Minemouth coal (dollars per ton) The following are GAO's comments on the Department of State's letter dated July 31, 1996. 1. We have revised our report to reflect the recent adoption of revised reporting guidelines for national plans to be submitted in conjunction with the Convention's current goal and the potential improvement they provide. 2. We continue to believe that a significant portion of the emissions data from national plans submitted thus far are incomplete, unreliable, or inconsistent. Therefore, as noted in the report, these data limit an assessment of countries' progress against the Convention's goal. We agree that estimates provided by other groups, such as the International Energy Agency, also provide some basis for determining progress, especially given that many Annex I countries will probably not come close to reaching the Convention's current goal. However, these other estimates are limited to carbon dioxide. Additionally, it is unclear how emissions data from these other groups will be considered by the Conference of the Parties in assessing progress against the current goal or any future binding targets. 3. We revised our report to note the formulation and adoption of improved guidelines from the Conference of the Parties in July 1996. We also noted that the original guidelines were adopted in April 1995, after the submission of many of the national plans. 4. We do not state in our report that progress will be assessed solely on the basis of the national plans but rather that the ability to assess countries' progress depends greatly on complete, reliable, and consistent data. We believe national plans will be a key component of that assessment and therefore improving the data in the plans is important. Additionally, as noted in comment 2, estimates from other groups apply only to carbon dioxide, and it is unclear how such estimates would be factored into assessing progress by the Conference of the Parties. 5. We revised our recommendation to note that reporting guidance could help enhance the completeness, reliability, and consistency of the reported emissions data rather than solve all the data problems. Also, despite broad agreement on methodologies for calculation of historical emissions, high levels of uncertainty still exist on reported emissions data other than carbon dioxide. The following are GAO's comments on the Council on Environmental Quality's letter dated July 31, 1996. 1. The Council on Environmental Quality notes that it is not surprising that differences exist in details reported by the countries, particularly for gases that constitute only a small fraction of greenhouse gases. However, we found that some of the problems with reported greenhouse gas emissions data, such as adjustments to 1990 emissions, also applied to carbon dioxide, the greenhouse gas reported to be the largest contributor to global warming. Additionally, emissions of greenhouse gases other than carbon dioxide--for which reported emissions data were incomplete in some cases and for which the reliability of the data was uncertain--constitute a significant enough portion of estimated total greenhouse gases to influence whether or not countries can meet the Convention's current goal or future binding targets. For example, these gases have been estimated to account for about 15 percent of the total U.S. greenhouse gas emissions in 1990 and that percentage is higher in many Annex I countries. 2. We have revised the report to note this recent development. The Ranking Minority Member of the House Committee on Commerce asked us to review the efforts of the United States and other Annex I countries toward returning greenhouse gas emissions to 1990 levels by 2000 as agreed under the 1992 United Nations Framework Convention on Climate Change. In addition, the requester asked that we determine the major factors that may impede the countries' progress in achieving the goal. We conducted our work from September 1995 through July 1996 in accordance with generally accepted government auditing standards. To determine the progress that the United States and other Annex I countries have made in reducing greenhouse gas emissions to 1990 levels, we obtained data on each country's greenhouse gas emissions for 1990 and projections for 2000--from the United Nations Secretariat on the Climate Change Convention and from other groups such as the Energy Information Administration and the International Energy Agency. We also reviewed other reports prepared by the Convention Secretariat that assessed the adequacy of the Convention's reporting guidelines and the national plans. We also discussed reporting issues with State Department and Convention officials. To determine the major factors that affect the countries' progress toward achieving the emissions target, we concentrated our efforts on Canada, Germany, Italy, Japan, the United Kingdom and the United States. We chose those six countries because they have been the largest emitters of carbon dioxide for developed countries. We obtained and reviewed the national plans of the six countries and spoke with representatives of each country to determine the major factors affecting their ability to reach the Convention's goal. We also discussed these factors with climate change experts and reviewed relevant reports from the Organization for Economic Cooperation and Development, the International Energy Agency, the Energy Information Administration, the Global Climate Coalition, and the United States Climate Action Network. William F. McGee, Assistant Director Robert D. Wurster, Senior Evaluator Mary A. Crenshaw, 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. 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 evaluated the United States and other countries' progress in reducing greenhouse gas emissions to 1990 levels by year 2000. GAO found that: (1) incomplete, unreliable, and inconsistent data prevent a complete assessment of these countries' efforts to limit greenhouse gas emissions to 1990 levels by 2000; (2) the United Nations Framework Convention on Climate Change has compiled data emissions from 29 countries since February 1996; (3) all 29 countries reported 1990 data on carbon dioxide, 28 countries reported similar data for methane and nitrous oxide, and 8 countries did not provide projections to 2000 for at least one of the gases; (4) the level of uncertainty in emissions data is high since some countries adjusted their 1990 inventory levels to develop more reasonable projections for year 2000; (5) the Convention's reporting guidelines do not specify whether emissions' projections should be reported as gross emissions or net emissions; (6) this lack of detail affects the completeness and comparability of emissions inventories; (7) Germany and the United Kingdom are the only major developed countries that are likely to return to 1990 emissions levels by 2000; (8) energy use is the major factor affecting Annex I countries' ability to meet 1990 greenhouse levels by 2000; (9) efforts to reduce greenhouse gas emissions in the United States are hampered by changes in key economic variables; and (10) the adoption of revised reporting guidelines will help to ensure that complete and reliable emissions data are reported.
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The federal government and the states share responsibilities for financing and administering Medicaid. As a result of flexibility in the program's design, Medicaid consists of 56 distinct state-based programs. The challenges inherent in overseeing a program of Medicaid's size and diversity make the program vulnerable to inappropriate program spending. CMS is responsible for overseeing state Medicaid programs. For example, CMS is responsible for ensuring that states' capitated managed care payments meet actuarial soundness requirements, that supplemental payments are appropriate, and for supporting and overseeing state program integrity activities--activities intended to address Medicaid fraud, waste, and abuse. Managed care is a significant component of the Medicaid program, with nearly half of all Medicaid enrollees--approximately 20.7 million individuals--enrolled in capitated managed care in 2008. In 2007, there was a total of over $62 billion in federal and state spending for managed care. Under managed care, states use capitation payments to prospectively pay health plans to provide or arrange for services for Medicaid enrollees. Such capitation payments are required by federal law to be actuarially sound. CMS regulations, first issued in 2002, define actuarially sound rates as those that are (1) developed in accordance with generally accepted actuarial principles and practices, (2) appropriate for the populations to be covered and the services to be furnished, and (3) certified as meeting applicable regulatory requirements by qualified actuaries. In order to receive federal funds for their managed care programs, states must submit documentation to CMS regional offices for review, including a description of their rate-setting methodology and data used to set rates. This review, completed by CMS regional office staff, is designed to ensure that a state complies with the regulatory requirements for setting actuarially sound rates. Most state Medicaid programs make supplemental payments to certain providers in addition to the standard payments states make to these providers for Medicaid services. For purposes of this testimony, we have grouped supplemental payments into two broad categories: (1) Disproportionate Share Hospital (DSH) payments, which states are required to make to hospitals that treat large numbers of low-income uninsured people and Medicaid patients; and (2) non-DSH supplemental payments, which are not required by statute or regulation. In fiscal year 2010, states made more than $31 billion in supplemental payments; the federal share was more than $19 billion. CMS is responsible for overseeing these payment arrangements to ensure the propriety of expenditures for which states seek federal reimbursement, including whether states were appropriately financing their share. Program integrity activities are designed to prevent, or detect and recover, improper payments throughout the Medicaid program. The Deficit Reduction Act of 2005 expanded CMS's role regarding Medicaid program integrity, establishing the Medicaid Integrity Program to provide effective federal support and assistance to states to combat fraud, waste, and abuse. CMS's core program integrity activities include: National Provider Audit Program--a program through which separate CMS contractors analyze claims data to identify aberrant claims and potential billing vulnerabilities, and conduct postpayment audits based on data analysis leads in order to identify overpayments to Medicaid providers. Comprehensive program integrity reviews--comprehensive management reviews that are conducted every 3 years to assess the effectiveness of each state's program integrity efforts and determine whether the state's policies and procedures comply with federal law and regulations. State program integrity assessments--annual assessments in which CMS collects data on state Medicaid integrity activities--including program integrity staffing and expenditures, audits, fraud referrals, and recoveries--for the purposes of program evaluation and technical assistance support. CMS also provides training and technical assistance to states. For example, CMS's Medicaid Integrity Institute is the first national Medicaid integrity training program and offers state officials training and opportunities to develop relationships with program integrity staff from other states. We found that CMS had not ensured that all states were complying with the actuarial soundness requirements and did not have sufficient efforts in place to ensure that states were using reliable data to set managed care rates. Specifically, in August 2010, we reported that there were significant gaps in CMS's oversight of 2 of the 26 states included in our review. First, CMS had not reviewed one state's rate setting for multiple years and only determined that the state was not in compliance with the requirements through the course of our work. Second, at the time of our work, CMS had not completed a full review of a second state's rate setting since the actuarial soundness requirements became effective in August 2002, and therefore may have provided federal funds for managed care rates that were not in compliance with all of the requirements. In addition to these gaps in oversight, we found inconsistencies in the reviews CMS completed. For example, the extent to which CMS ensured state compliance with some of the actuarial soundness requirements was unclear because CMS officials did not always document their review or cite evidence of the state's compliance. When officials did cite evidence, the evidence did not always appear to meet the actuarial soundness requirements. Variation in practices across CMS regional offices contributed to these gaps and other inconsistencies in the agency's oversight of states' rate setting. For example, regional offices varied in the extent to which they tracked state compliance with the actuarial soundness requirements, their interpretations of how extensive a review of a state's rate setting was needed, and their determinations regarding sufficient evidence for meeting the actuarial soundness requirements. We also reported in 2010 that CMS's efforts to ensure the quality of the data used to set rates were generally limited to requiring assurances from states and health plans--efforts that did not provide the agency with enough information to ensure the quality of the data used. CMS regulations require states to describe the data used as the basis for rates and provide assurances from their actuaries that the data were appropriate for rate setting. The regulations do not include requirements for the type, amount, or age of the data used to set rates, and states are not required to report to CMS on the quality of the data. When reviewing states' descriptions of the data used to set rates, CMS officials focused primarily on the appropriateness of the data rather than their reliability. Additionally, we found that actuarial certification does not ensure that the data used to set rates are reliable. In particular, our review of rate-setting documentation found that some actuaries' certifications included a disclaimer that if the data used were incomplete or inaccurate then the rates would need to be revised. Furthermore, some actuaries noted that they did not audit or independently verify the data and relied on the state or health plans to ensure that the data were accurate and complete. With limited information on data quality, CMS cannot ensure that states' managed care rates are appropriate, which places billions of federal and state dollars at risk for misspending. States and other sources have information on the quality of data used for rate setting--information that CMS could obtain. In addition, CMS could conduct or require periodic audits of data used to set rates; CMS is required to conduct such audits for the Medicare managed care program. CMS took a number of steps that may address some of the variation that contributed to inconsistent oversight, such as requiring regional office officials to use a detailed checklist when reviewing states' rate setting; use of the checklist had previously been optional. However, we found variations in CMS oversight even when the checklist was used. Thus, to improve oversight of states' Medicaid managed care rate setting, we recommended that CMS (1) implement a mechanism for tracking state compliance, including tracking the effective dates of approved rates; (2) clarify guidance for CMS officials on conducting rate-setting reviews, such as identifying what evidence is sufficient to demonstrate state compliance with the actuarial soundness requirements, and how officials should document their reviews; and (3) make use of information on data quality in overseeing states' rate setting. HHS agreed with these recommendations, and as of June 2011, CMS officials indicated they were investigating ways to create an easily accessible database to help them more closely monitor the status of rate-setting approvals, reviewing and updating its guidance, and looking into incorporating information about data quality into its review and approval of Medicaid managed care rates. In our prior work, we have reported on varied financing arrangements involving supplemental payments that shifted costs from the states to the federal government. In some cases, the providers did not retain the full amount of the payments as some states required providers to return most, or all, of the supplemental payment to the state. Our work found that while a variety of federal legislative and CMS actions have helped curb inappropriate financing arrangements, gaps in oversight remain. Because such financing arrangements effectively increased the federal Medicaid share, they could compromise the fiscal integrity of Medicaid's federal and state partnership. Our most recent reports on supplemental payments underscore these gaps in federal oversight. In May 2008, we reported that CMS had not reviewed all supplemental payment arrangements to ensure that these payments were appropriate and used for Medicaid purposes. In November 2009, we found that ongoing federal oversight of supplemental payments was warranted, in part, because two of the four states reviewed did not comply with federal requirements to account for all Medicaid payments when calculating DSH payment limits for uncompensated hospital care. Recently implemented requirements have the potential to improve oversight of some supplemental payments, but concerns about other payments remain. and accountability requirements in place for DSH payments. However, these requirements are not in place for non-DSH supplemental payments, which may be increasing. Specifically, in 2006, states reported making $6.3 billion in non-DSH supplemental Medicaid payments, of which the federal share was $3.7 billion, but not all states were reporting their payments. By 2010, this amount had grown to $14 billion, with a federal share of $9.6 billion. However, according to CMS officials, states' reporting of non-DSH supplemental payments was likely incomplete. For example, there are now improved transparency As a result of our prior work, we have made numerous recommendations aimed at improving federal oversight of supplemental payments. Some key recommendations we made have not been implemented by CMS. We have recommended that CMS adopt transparency requirements for non- DSH supplemental payments and develop a strategy to ensure all state supplemental payment arrangements have been reviewed by CMS. CMS has taken some action to address some of these recommendations but we continue to believe additional action is warranted. CMS has raised concern that congressional action may be necessary to fully address our concerns. Additionally, given continued concerns associated with Medicaid supplemental payments, we have work under way related to states' reporting and CMS's oversight of DSH and non-DSH supplemental payments. See the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, SS 1001(d), 117 Stat. 2066, 2430-2431 (2003) (codified, as amended, at 42 U.S.C. SS 1395r-4(j)) and Medicaid Program, Disproportionate Share Hospital Payments, Final Rule, 73 Fed. Reg. 77,904 (Dec. 19, 2008). In December 2011, we testified that the key challenge CMS faced in implementing the statutorily established federal Medicaid Integrity Program was ensuring effective coordination to avoid duplicating state program integrity efforts, particularly in the area of auditing provider claims. At the outset of the Medicaid Integrity Program, CMS stressed the need for effective coordination and acknowledged the potential for duplication with states' ongoing efforts to identify Medicaid overpayments. However, the National Provider Audit Program results--the largest component of the Medicaid Integrity Program--call into question the effectiveness of CMS's communication, and its ability to avoid duplication with state audit programs. After examining CMS's program expenditures, we found that overpayments identified by its audit contractors since fiscal year 2009 were not commensurate with its contractors' costs. From fiscal years 2009 through 2011, CMS authorized 1,663 provider audits in 44 states. However, CMS's reported return on investment from these audits was negative. While its contractors identified $15.2 million in overpayments in fiscal year 2010, the combined cost of the National Provider Audit Program was about $36 million. In addition, CMS reported in 2011 that it was redesigning the National Provider Audit Program to achieve better results. Data limitations--in particular, the use of summary data that states submit to CMS on a quarterly basis--may have hampered the contractors' ability to identify improper claims beyond what states already identified. It remains to be seen, however, whether CMS's redesign of the National Provider Audit Program will result in an increase in identified overpayments. CMS's other core oversight activities--triennial comprehensive state program integrity reviews and annual assessments--are broad in scope and were conceived to provide a basis for the development of appropriate technical assistance. However, we found that much of the information collected from the annual assessments duplicated information collected during triennial reviews. Further, our review of a sample of assessments revealed missing data and a few implausible measures, such as one state reporting over 38 million managed care enrollees. Improved data collection activities and dialogue with states will help CMS ensure that it has complete and reliable state information on which to direct its training and technical assistance resources appropriately. Finally, we found that the Medicaid Integrity Institute appears to promote effective state coordination and collaboration. We reported that states have uniformly praised the institute and a special June 2011 session brought together Medicaid program integrity officials and representatives of Medicaid Fraud Control Units--independent state units responsible for investigating and prosecuting Medicaid fraud--in 39 states to improve working relations between these important partners. As we testified in December 2011, CMS's expanded role in ensuring Medicaid program integrity has presented both challenges to and opportunities for assisting states with their activities to ensure proper payments. We have ongoing work reviewing CMS's Medicaid program integrity activities that will provide additional information about CMS's oversight efforts in this area. Chairmen Gowdy and Jordan, this concludes by prepared statement. I would be happy to answer any questions that you or other Members may have. For further information about this statement, please contact Carolyn L. Yocom 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. Michelle B. Rosenberg, Assistant Director; Eagan Kemp; Drew Long; Peter Mangano; Christina Ritchie; and Hemi Tewarson were key contributors to this statement. Medicaid Program Integrity: Expanded Federal Role Presents Challenges to and Opportunities for Assisting States. GAO-12-288T. Washington, D.C.: December 7, 2011. Fraud Detection Systems: Additional Actions Needed to Support Program Integrity Efforts at Centers for Medicare and Medicaid Services. GAO-11-822T. Washington, D.C.: July 12, 2011. Fraud Detection Systems: Centers for Medicare and Medicaid Services Needs to Ensure More Widespread Use. GAO-11-475. Washington, D.C.: June 30, 2011. Improper Payments: Recent Efforts to Address Improper Payments and Remaining Challenges. GAO-11-575T. Washington, D.C.: April 15, 2011. Medicare and Medicaid Fraud, Waste, and Abuse: Effective Implementation of Recent Laws and Agency Actions Could Help Reduce Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011. Medicaid Managed Care: CMS's Oversight of States' Rate Setting Needs Improvement. GAO-10-810. Washington D.C.: August 4, 2010. Medicaid: Ongoing Federal Oversight of Payments to Offset Uncompensated Hospital Care Costs Is Warranted. GAO-10-69. Washington D.C.: November 20, 2009. Medicaid: Fraud and Abuse Related to Controlled Substances Identified in Selected States. GAO-09-1004T. Washington, D.C.: September 30, 2009. Medicaid: Fraud and Abuse Related to Controlled Substances Identified in Selected States. GAO-09-957. Washington, D.C.: September 9, 2009. Improper Payments: Progress Made but Challenges Remain in Estimating and Reducing Improper Payments. GAO-09-628T. Washington, D.C.: April 22, 2009. Medicaid: CMS Needs More Information on the Billions of Dollars Spent on Supplemental Payments. GAO-08-614. Washington D.C.: May 30, 2008. Medicaid Financing: Long-standing Concerns about Inappropriate State Arrangements Support Need for Improved Federal Oversight. GAO-08-650T. Washington D.C.: April 3, 2008. Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise Cost and Oversight Concerns. GAO-08-87. Washington, D.C.: January 31, 2008. Medicaid Financing: Long-standing Concerns about Inappropriate State Arrangements Support Need for Improved Federal Oversight. GAO-08-255T. Washington D.C.: November 1, 2007. 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 Integrity: Implementation of New Program Provides Opportunities for Federal Leadership to Combat Fraud, Waste, and Abuse. GAO-06-578T. Washington, D.C.: March 28, 2006. 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. Medicaid Fraud and Abuse: CMS's Commitment to Helping States Safeguard Program Dollars Is Limited. GAO-05-855T. Washington, D.C.: June 28, 2005. Medicaid Program Integrity: State and Federal Efforts to Prevent and Detect Improper Payments. GAO-04-707. Washington, D.C.: July 16, 2004. Medicaid: State Efforts to Control Improper Payments. GAO-01-662. Washington, D.C.: June 7, 2001. 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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Medicaid, a joint federal-state health care program, financed care for about 67 million people at a cost of $401 billion in fiscal year 2010. At the federal level, CMS, an agency within the Department of Health and Human Services, is responsible for overseeing the design and operations of states' Medicaid programs, while the states administer their respective programs' day-to-day operations. The shared financing arrangement between the federal government and the states presents challenges for program oversight and Medicaid has been on GAO's list of high-risk programs since 2003, in part, because of concerns about the fiscal management of the program. Our prior work has shown that CMS continues to face challenges overseeing the Medicaid program. Oversight of managed care rate-setting has been inconsistent. In August 2010, GAO reported that the Centers for Medicare & Medicaid Services (CMS) had not ensured that all states were complying with the managed care actuarial soundness requirements that rates be developed in accordance with actuarial principles, appropriate for the population and services, and certified by actuaries. For example, GAO found significant gaps in CMS's oversight of 2 of the 26 states reviewed--CMS had not reviewed one state's rates in multiple years and had not completed a full review of another state's rates since the actuarial soundness requirements became effective. Variation in practices across CMS regional offices contributed to these gaps and other inconsistencies in the agency's oversight of states' rate setting. GAO's previous work also found that CMS's efforts to ensure the quality of the data used to set rates were generally limited to requiring assurances from states and health plans--efforts that did not provide the agency with enough information to ensure the quality of the data used. With limited information on data quality, CMS cannot ensure that states' managed care rates are appropriate, which places billions of federal and state dollars at risk for misspending. GAO made recommendations to improve CMS's oversight. Oversight of supplemental payments needs improvement. GAO has reported on varied financing arrangements involving supplemental payments--disproportionate share hospital (DSH) payments states are required to make to certain hospitals, and other non-DSH supplemental payments--that increase federal funding without a commensurate increase in state funding. GAO's work has found that while a variety of federal legislative and CMS actions have helped curb inappropriate financing arrangements, gaps in oversight remain. For example, while there are federal requirements designed to improve transparency and accountability for state DSH payments, similar requirements are not in place for non-DSH supplemental payments, which may be increasing. From 2006 to 2010, state-reported non-DSH supplemental payments increased from $6.3 billion to $14 billion; however, according to CMS officials, reporting was likely incomplete. GAO made numerous recommendations aimed at improving oversight of supplemental payments. Challenges exist related to CMS's role ensuring program integrity. In December 2011, GAO testified that the key challenge CMS faced in implementing the statutorily established federal Medicaid Integrity Program was ensuring effective coordination to avoid duplicating state program integrity efforts, particularly in the area of auditing provider claims. GAO found that overpayments identified by its audit contractors since fiscal year 2009 were not commensurate with its contractors' costs, and CMS reported in 2011 that it was redesigning its audit program to achieve better results. Data limitations may have hampered the contractors' ability to identify improper claims beyond what states had already identified. With regard to CMS's other core oversight activities--annual assessments and triennial comprehensive state program integrity reviews--GAO found that much of the information collected from the annual assessments duplicated information collected during triennial reviews. Finally, CMS's Medicaid Integrity Institute, a national training program, appears to promote effective state coordination and collaboration.
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Medicare is the federal program that helps pay for a variety of health care services for about 44 million elderly and disabled beneficiaries. Most Medicare beneficiaries participate in Medicare Part B, which helps pay for certain physician, outpatient hospital, laboratory, and other services; medical equipment and supplies, such as oxygen, wheelchairs, hospital beds, walkers, orthotics, prosthetics, and surgical dressings; and certain outpatient drugs. Medicare Part B pays for most medical equipment and supplies using a series of fee schedules. Generally, Medicare has a separate fee schedule for each state that includes most items, and there are upper and lower limits on the allowable amounts that can be paid in different states to reduce variation in what Medicare pays for similar items in different parts of the country. Medicare pays 80 percent of the lesser of the actual charge for the item or fee schedule amount for the item, and the beneficiary pays the balance. Beneficiaries typically obtain medical equipment and supplies from suppliers, who submit claims to Medicare on beneficiaries' behalf. Suppliers include medical equipment retail establishments and outpatient providers, such as physicians, home health agencies, and physical therapists. To handle claims processing for medical equipment and supplies, CMS contracts with durable medical equipment Medicare administrative contractors. Using its authority under the BBA, CMS conducted a competitive bidding demonstration to set Medicare Part B payment rates for groups of selected medical equipment and supplies. CMS contracted with Palmetto Government Benefits Administrators (Palmetto) to administer the competitive bidding demonstration, which was implemented in two locations--the Polk County, Florida, metropolitan statistical area and parts of the San Antonio, Texas, metropolitan statistical area. Two cycles of bidding took place in Polk County, with competitively set fees effective from October 1, 1999, to September 30, 2001, and from October 1, 2001, to September 30, 2002. One cycle of bidding took place in San Antonio, and competitively set fees were effective from February 1, 2001, to December 31, 2002. Bidding and implementation processes were similar at both locations. The demonstration ended on December 31, 2002. In December 2003, the MMA required CMS to conduct competitive bidding for DME, supplies, off-the-shelf orthotics, and enteral nutrients and related equipment and supplies on a large scale. The MMA required that competition under the program begin in 10 of the largest metropolitan statistical areas in 2007, in 80 of the largest metropolitan statistical areas in 2009, and in other areas after 2009. The law established a new accreditation requirement for all Medicare suppliers of medical equipment and supplies and required CMS to develop financial and quality standards to use in selecting suppliers for the competitive bidding program. The law required CMS to take appropriate steps to ensure that small suppliers have an opportunity to be considered for participation in the competitive bidding program. CMS was required to establish a methodology for selecting bids from suppliers so that enough suppliers were selected to meet demand for competitively bid items within a given area. The law specified that at least two suppliers would be selected in each competitive area. The law also precluded judicial or administrative review of CMS's decisions to establish payment amounts, award contracts, designate areas for competition, select items and services, phase in implementation, and determine the bidding structure and number of suppliers selected under the competitive bidding program. The MMA required that an advisory committee be established to assist in carrying out the program. To help implement the competitive bidding program, CMS published its notice of proposed rulemaking on May 1, 2006, and its final rule on April 10, 2007. CMS's final rule provided more detail on the agency's implementation steps. For example, the law specified that the agency could not award a contract to an entity unless it met applicable financial standards specified by the Secretary of HHS. In its regulation, CMS specified the financial documents that had to be submitted by suppliers to be considered as potential bidders. Similarly, while the law indicated that the agency needed to ensure that small suppliers had an opportunity to participate, the regulation sets out a process to include a certain number of small suppliers based on the percentage of those who bid and met all applicable requirements. CMS established the initial round of bidding in 10 metropolitan statistical areas that included Charlotte, N.C.; Cincinnati, Ohio; Cleveland, Ohio; Dallas, Tex.; Kansas City, Mo.; Miami, Fla.; Orlando, Fla.; Pittsburgh, Pa.; Riverside, Calif.; and San Juan, P.R. On April 9, 2007, CMS opened the initial registration of suppliers for the first round of bidding and the bid period opened on May 15, 2007. As part of its program implementation for the first round, CMS conducted a supplier-education campaign, which included meetings, listserve announcements, a dedicated Web site, and a toll-free help desk. The bid period closed on September 25, 2007. CMS concluded bid evaluations and began the contracting process in March 2008, and the agency plans to announce the first round of winning suppliers in May 2008. Suppliers whose bids were disqualified because their bid did not meet program and bidding requirements will receive a letter informing them of the reason or reasons for their disqualification. After the program begins, suppliers whose bids were not chosen generally cannot receive Medicare payment for the competitively bid items in the metropolitan statistical areas included in the competitive bidding program. However, suppliers of certain rental items or oxygen that did not become suppliers in the competitive bidding program could continue to serve their existing Medicare customers. Suppliers that did not have bids chosen in the first round of the program may bid in the future rounds of competition. CMS said it plans to conduct a beneficiary-education campaign before the program goes into effect on July 1, 2008. Competitive bidding could reduce Medicare program payments by providing an incentive for suppliers to accept lower payment amounts for items and services to retain their ability to serve beneficiaries and potentially increase their market share. Using competition to obtain market prices in order to set payments for medical equipment and supplies is a new approach for Medicare that is fundamentally different than relying on fee schedules based on suppliers' historical charges to Medicare. Competitive bidding allows the market to provide information to CMS on what amounts suppliers will accept as payment to serve beneficiaries. In its demonstration, CMS used a competitive bidding process to determine which suppliers would be included and the competitively set fees that they would be paid. From among the bidders, the agency and Palmetto selected multiple demonstration suppliers to provide items in each group of related products. Suppliers could submit bids and have winning bids for one or more groups of items. These suppliers were not guaranteed that they would increase their business or serve a specific number of Medicare beneficiaries. Instead, the demonstration suppliers had to compete for beneficiaries' business. All demonstration suppliers were reimbursed for each competitively bid item provided to beneficiaries at the demonstration fee schedule amounts. The new fee schedules were based on the winning suppliers' bids for items included in the demonstration. Any Medicare supplier that served demonstration locations could provide items not included in the demonstration to beneficiaries. Evidence from the demonstration suggests that, for the items selected, competition helped set lower payment amounts and resulted in estimated program savings of $7.5 million. The demonstration's independent evaluators also estimated that beneficiaries saved $1.9 million. The demonstration provided evidence to health policy experts, including us and the Medicare Payment Advisory Commission, that competitive bidding for medical equipment and supplies could be a viable way for the program to use market forces to set lower payments without significantly affecting beneficiary access. About a year after the demonstration ended, the MMA required CMS to implement competitive bidding on a large scale and added requirements that suppliers would have to meet to participate in the competitive bidding program. The MMA also required the agency to develop quality standards and for suppliers to be assessed on those standards by accreditation organizations. In addition, the agency had to include a financial and quality assessment of suppliers as part of competitive bidding. The competitive bidding program was structured to operate much like the demonstration. Suppliers submitted bids, along with other materials specified by CMS. The application required suppliers to submit 3 years of financial documents, including income statements, credit reports, and balance sheets. The review of the financial documents was used as part of the criteria for determining which bids to consider. The bidders had to have a valid Medicare supplier billing number and be accredited. Suppliers had to submit bids for one or more groups of items. CMS then evaluated the bids based on demand, capacity, and price and chose bids that were at or under a certain amount. CMS estimates that the first round of its competitive bidding program will result in payment amounts that overall average 26 percent less than the current fee schedule amounts for the groups of items included, leading to savings for the Medicare program and its beneficiaries. CMS based its estimate on the price points suppliers submitted with their bids, weighted by market area and past utilization of items in each group. The estimated savings differed by groups of items, with the largest savings of 43 percent estimated for mail-order diabetic supplies. Competitive bidding changes Medicare's relationship with suppliers. Competitive bidding is designed to reduce payments by allowing CMS to choose suppliers based on their bids--a change from the long-standing policy that any qualified provider can participate in the program. The competitive bidding process was designed to limit the number of suppliers to those whose bids were at or under a certain amount while ensuring that enough suppliers were included to meet beneficiary demand. In the demonstration, 50 percent to 55 percent of the suppliers' bids were selected. With few exceptions, only the suppliers whose bids were chosen could be reimbursed by Medicare for competitively bid items provided to beneficiaries residing in the demonstration area. Furthermore, competitive bidding could help reduce improper payments because it provides CMS with the authority to select suppliers, based in part on new scrutiny of their financial documents and other application materials. In November 2007, CMS estimated that 10.3 percent of Medicare payments made to suppliers of medical equipment and supplies were improper--more than double the percentage of improper payments to other Medicare providers. Providing additional scrutiny of suppliers gives CMS the opportunity to screen out those whose finances do not indicate that they are stable, legitimate businesses. Because of concerns that competitive bidding may prompt suppliers to cut their costs by providing lower-quality items and curtailing services, ensuring quality and access through adequate oversight is critical. Limiting the number of suppliers could potentially affect beneficiaries' access to quality items and services if there are an insufficient number to meet their needs. For some beneficiaries, having a choice of suppliers for some items and services could be important. In our September 2004 report, we evaluated CMS's competitive bidding demonstration and recommended implementation actions for CMS to consider, including how to ensure access to quality items and services for beneficiaries. We indicated that quality assurance steps could include monitoring beneficiary satisfaction, setting standards for suppliers, providing beneficiaries with a choice of suppliers, and selecting winning bidders based on quality, in addition to the dollar amounts of bids. The demonstration projects used several approaches for ensuring quality and services for beneficiaries, including monitoring beneficiary satisfaction and applying quality measures as criteria to select winning suppliers. During the demonstration, CMS and Palmetto used full-time, onsite ombudsmen to respond to complaints, concerns, and questions from beneficiaries, suppliers, and others. In addition, to gauge beneficiary satisfaction, independent evaluators of the demonstration fielded two beneficiary surveys by mail--one for oxygen users and another for users of other products in the demonstration. These surveys contained measures of beneficiaries' assessments of their overall satisfaction, access to equipment, and quality of training and service provided by suppliers. Evaluators reported survey results indicating that beneficiaries generally remained satisfied with both the products provided and with their suppliers. The independent evaluators identified some areas for concern, including a decline in the use of portable oxygen among users and the possible shift away from suppliers making home deliveries, which may have indicated that suppliers were visiting new medical equipment users less frequently to provide routine maintenance visits. Because we considered careful monitoring of beneficiaries' experiences essential to ensure that any quality or access problems were identified quickly, we recommended that CMS monitor beneficiary satisfaction with the items and services provided under the new competitive bidding program. As competitive bidding expands and affects larger numbers of beneficiaries, problems such as those identified in the evaluations of the demonstration projects could become magnified. Therefore, continued monitoring of beneficiary satisfaction will be critical to identifying problems with suppliers or with items provided to beneficiaries. When such problems are identified in a timely manner, CMS may develop steps to address them. Such monitoring is important, not just when required by statute, but as part of an ongoing effort to ensure that the Medicare program is serving its beneficiaries effectively. CMS agreed with our recommendation and stated that the agency would monitor the beneficiary satisfaction with the quality and services provided under the competitive bidding process. CMS also stated in the preamble of its final rule on accreditation of suppliers published August 18, 2006, that it expects that implementing medical equipment and supplies quality standards and accreditation will lead to increased quality of items and services throughout the industry. Furthermore, CMS stated that it plans to provide education to Medicare beneficiaries on the competitive bidding process using approaches such as press releases, fact sheets, and notices. We will be assessing CMS's implementation of the competitive bidding program. As part of the MMA, we are required to review and report on the program's impact on suppliers and manufacturers and on quality and access of items and services provided to beneficiaries. As part of this review, we have been specifically requested to assess CMS's implementation of the program. We believe that competitive bidding could reduce payments for both the Medicare program and beneficiaries. The independent evaluators estimated savings achieved in the demonstration, and CMS has projected reductions in payment amounts in its competitive bidding program for both Medicare and its beneficiaries. In addition, the new financial standards and accreditation process being implemented in conjunction with the competitive bidding program should help improve the financial viability and quality of medical suppliers providing services to Medicare beneficiaries. But competitive bidding also provides incentives that could affect access to services and lower quality of items and services provided to beneficiaries, which need to be monitored carefully. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or members of the Subcommittee may have. For further information regarding this testimony, 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 testimony. Sheila Avruch, Assistant Director; Catina Bradley; Kelli Jones; Kevin Milne; Lisa Rogers; and Timothy Walker made contributions to this statement. Medicare: Improvements Needed to Address Improper Payments for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: January 31, 2007. Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a Distinct Annual Payment Update. GAO-06-62. Washington, D.C.: March 1, 2006. Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers. GAO-05-656. Washington, D.C.: September 22, 2005. Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 2004. Medicare: Past Experience Can Guide Future Competitive Bidding for Medical Equipment and Supplies. GAO-04-765. Washington, D.C.: September 7, 2004. Medicare: CMS Did Not Control Rising Power Wheelchair Spending. GAO-04-716T. Washington, D.C.: April 28, 2004. Medicare: Challenges Remain in Setting Payments for Medical Equipment and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 2002. Medicare Payments: Use of Revised "Inherent Reasonableness" Process Generally Appropriate. GAO/HEHS-00-79. Washington, D.C.: July 5, 2000. Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA Monitoring Needed. GAO/HEHS-99-56. Washington, D.C.: April 5, 1999. Medicare: Need to Overhaul Costly Payment System for Medical Equipment and Supplies. GAO/HEHS-98-102. Washington, D.C.: May 12, 1998. Medicare: Home Oxygen Program Warrants Continued HCFA Attention. GAO/HEHS-98-17. Washington, D.C.: November 7, 1997. Medicare: Excessive Payments for Medical Supplies Continue Despite Improvements. GAO/HEHS-95-171. Washington, D.C.: August 8, 1995. 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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For more than a decade, GAO has reported that Medicare has paid higher than market rates for medical equipment and supplies provided to beneficiaries under Medicare Part B. Since 1989, Medicare has used fee schedules primarily based on historical charges to set payment amounts. But this approach lacks flexibility to keep pace with market changes and increases costs to the federal government and Medicare's 44 million elderly and disabled beneficiaries. The Balanced Budget Act of 1997 required the Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--to test competitive bidding as a new way to set payments. CMS did this through a demonstration in two locations in which suppliers could compete on the basis of price and other factors for the right to provide their products. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to conduct competitive bidding on a large scale and suppliers to obtain accreditation. GAO was asked to describe the effects that competitive bidding could have on Medicare program payments and suppliers and the need for adequate oversight to ensure quality and access for beneficiaries in a competitive bidding environment. This testimony is based primarily on GAO work conducted from May 1994 to January 2007, which GAO updated by interviewing CMS officials and reviewing agency documents. Competitive bidding could reduce Medicare program payments by providing an incentive for suppliers to accept lower payments for items and services to retain their ability to serve beneficiaries and potentially increase their market share. Fundamentally different from fee schedules based on historical charges to Medicare, competitive bidding allows the market to help CMS determine payment amounts. In the demonstration, the new fee schedule amounts were based on the winning suppliers' bids for items included and 50 percent to 55 percent of the bids from suppliers were selected. Evidence from CMS's competitive bidding demonstration suggests that competition saved Medicare $7.5 million and saved beneficiaries $1.9 million--without significantly affecting beneficiary access. For the competitive bidding program, CMS required suppliers to obtain accreditation based on quality standards and provide financial documents to participate. This added scrutiny gives CMS the chance to screen out suppliers that may not be stable, legitimate businesses, which could contribute to lower rates of improper payment. CMS also evaluated the bids based on demand, capacity, and price and chose suppliers whose bids were at or under a certain amount. CMS estimates that the first round of its competitive bidding program will result in payment amounts that average 26 percent less than the current fee schedule amounts. Competitive bidding also changes Medicare's relationship with suppliers and departs from Medicare's practice of doing business with any qualified provider, because it is designed to limit the number of suppliers to those whose bids are at or under a certain amount. Because of concerns that competitive bidding may prompt suppliers to cut their costs by providing lower-quality items and curtailing services, ensuring quality and access through adequate oversight is critical for the success of the competitive bidding program. In September 2004, GAO indicated that quality assurance steps could include monitoring beneficiary satisfaction, setting standards for suppliers, giving beneficiaries a choice of suppliers, and selecting winning bidders based on quality and the dollar amount of the bids. As competitive bidding expands, problems that beneficiaries might experience could be magnified. Therefore, continued monitoring of beneficiary satisfaction will be critical to identify problems with suppliers or with items provided to beneficiaries. As required in the MMA, GAO will review and report on the competitive bidding program's impact on suppliers and manufacturers and its effect on quality and access for beneficiaries.
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Since World War II, many employers have voluntarily sponsored health insurance as a benefit to employees for purposes of recruitment and retention, and many have also extended these benefits to their retirees. The federal tax code gives employers incentives to subsidize health benefits because their contributions can be deducted as a business expense, and these contributions are also not considered taxable income for employees. Employer-sponsored health benefits are regulated under the Employee Retirement Income Security Act of 1974 (ERISA), which gives employers considerable flexibility to manage the cost, design, and extent of health care benefits they provide. Working adults and retirees aged 55 to 64 rely on employer-sponsored coverage as their primary source of health insurance. In 1999, according to the Bureau of the Census' Current Population Survey, employers provided coverage to 78 percent of all working adults aged 55 to 64 and to 57 percent of the 4 million retirees aged 55 to 64. Other retirees in this age group purchased individual (nongroup) health insurance or relied on Medicaid or other public insurance, and a significant portion--17 percent--were uninsured. (See fig. 1.) Retirees aged 65 or older typically rely on Medicare as their primary source of coverage. However, Medicare, which helps pay for hospital and physician expenses for acute care, has gaps in coverage that leave Medicare beneficiaries facing significant out-of-pocket costs. For example, Medicare does not cover most outpatient prescription drugs nor does it cover potentially catastrophic expenses associated with long-term stays in hospitals or skilled nursing facilities. As a result, most Medicare beneficiaries obtain supplemental insurance to cover some of these out-of- pocket costs. In 1999, according to the Current Population Survey, nearly one-third of the 23 million retirees aged 65 or older had Medicare with employer-sponsored supplemental coverage. Slightly more than one-third had Medicare with other sources of supplemental coverage. Most often, these beneficiaries had individually purchased supplemental coverage, known as Medigap, but some received assistance from Medicaid. The remaining portion of retirees had Medicare without supplemental coverage. However, many of these are enrolled in Medicare+Choice plans, which provide beneficiaries an alternative to traditional fee-for-service Medicare and typically have nominal cost-sharing requirements and often cover additional services, such as prescription drugs. Data from the 1998 Medicare Current Beneficiary Survey indicate that half of Medicare beneficiaries with Medicare-only coverage were enrolled in a Medicare+Choice plan. Medicare with employer supplemental coverage Medicare with other supplemental coverage Of the 23.4 million Americans aged 55 to 64 in 1999, 4.0 million (17 percent) were retired. For these retirees, "public" coverage includes Medicaid, Medicare (for eligible disabled individuals), and health care through the Departments of Defense or Veterans Affairs. Of the 32.6 million Americans aged 65 or older in 1999, 23.4 million (72 percent) were retired, with the remainder either still working or not working for reasons other than retirement. "Medicare without supplemental coverage" includes both traditional fee-for-service Medicare and Medicare+Choice plans because the Current Population Survey does not distinguish between these types of Medicare coverage. "Medicare with other supplemental coverage" includes those with individually purchased Medigap and Medicaid. "Other" includes those without Medicare but receiving employer-sponsored health insurance, Medicaid, or health care through the Departments of Defense or Veterans Affairs. The health care needs and costs of retired Americans are likely to grow significantly as the baby boom generation nears retirement age. As shown in figure 2, the number of individuals aged 55 to 64 will increase by 75 percent by 2020, and the number of people aged 65 or older will double by 2030. The sheer numbers of baby boomers and greater numbers of people reaching age 85 and beyond are expected to have a dramatic effect on the number of people needing long-term and other health care services because the prevalence of disabilities and dependency increases with age. Projections of the number of disabled elderly individuals who will need such care range from 2 to 4 times the current number. Insurance coverage, and access to effective preventive, acute, and long- term care, is particularly important for maintaining the health of older adults. For those individuals needing nursing home or other extensive continuing care, the costs can be substantial. On average, nursing home care costs an individual about $55,000 annually. Individuals needing care and their families pay a significant portion of long-term care costs out-of- pocket. Employer sponsorship of retiree health benefits continues to erode, with about one-third of large employers and few small employers currently offering health benefits to their retirees. Even when employers continue to offer insurance, many have reduced coverage by tightening eligibility requirements, increasing the share of premiums retirees pay for health benefits, or increasing copayments and deductibles. Increasing cost pressures on employers, such as rising premiums and a weakening economy, suggest that erosion in retiree health benefits may continue. The availability of employer-sponsored retiree health benefits has declined during the last decade. Two widely cited surveys--by William M. Mercer, Incorporated, and the Kaiser Family Foundation and Health Research and Educational Trust (Kaiser/HRET)--indicated that nearly half of large employers offered retiree health benefits in the early 1990s, but their most recent surveys reported that this proportion has declined to about one-third of large employers. (See fig. 3.) The decline in large employers offering retiree health benefits has continued in recent years, despite several years during the latter part of the 1990s experiencing a strong economy and relatively small premium increases. Large employers are less likely to offer these benefits to Medicare-eligible retirees than to retirees under age 65. These surveys also found that large employers are more likely to sponsor health insurance for retirees than are small firms, with fewer than 10 percent of the latter doing so. While fewer employers sponsor retiree health benefits now, the percentage of retirees obtaining health benefits through an employer has remained relatively stable in recent years. According to our analysis of the Current Population Survey, over half of retirees aged 55 to 64 and about one-third of retirees 65 or older had employer-sponsored coverage in 1999. (See fig. 4.) Since 1994, the percentage of both retirees aged 55 to 64 and those 65 or older with employer-sponsored coverage has varied from year to year by only 1 or 2 percentage points. This stability in coverage may exist in part because employers tend to reduce coverage for future rather than current retirees. Some employers that continue to offer retiree health coverage have adopted several strategies to limit their liability for these costs. These strategies include the following: Restricting eligibility. According to Mercer's data, among the 36 percent of large employers sponsoring health benefits for retirees younger than 65 in 2000, about 5 percent did so for only selected employees. The remaining 31 percent offered retiree health benefits to most retirees.Increasing retirees' share of premiums. The Mercer survey found that as many as one-fourth of employers increased retirees' share of premium contributions within the past 2 years. About 40 percent of large employers that offer health benefits to retirees younger than 65 require those retirees to pay the entire premium--an increase of about 8 percentage points since 1997. Increasing retirees' out-of-pocket costs. Both the Mercer and Kaiser/HRET surveys found that more than 10 percent of employers recently increased retirees' potential out-of-pocket costs for deductibles, coinsurance, and copayments. In particular, the Kaiser/HRET survey reported that one-third of employers have increased the amount that retirees pay for prescription drugs within the past 2 years. Limiting future commitments. The 1999 Kaiser/HRET survey found that in the previous 2 years 35 percent of large firms offering retiree health benefits limited their future financial commitment by implementing a cap on projected contributions for these benefits. Benefit consultants we interviewed stated that employers typically set their cap prospectively at a level higher than current spending, and if spending approaches the cap, they can either reduce benefits to stay within the cap or raise the cap. Some employers are considering, but few have implemented, a more fundamental change that would shift retiree health benefits to a defined contribution plan. Under a defined contribution plan, an employer directly provides each retiree with a fixed amount of money to purchase insurance coverage, either in the individual market or through a choice of plans offered by the employer. The individual is then responsible for the difference between the employer's contribution and the selected plan's total premium. Benefit consultants have reported that many employers would prefer to move toward a defined contribution approach. However, several issues, such as retirees' readiness to assume responsibility for managing their own health benefits and contractual bargaining agreements with union plans, could limit employers' ability to make such a fundamental change. Increasing economic pressures and evolving demographic trends could lead employers to reevaluate their provision of retiree health benefits and could result in further erosion of benefits. The following are contributing factors: Health insurance premium increases, which were less than the general inflation rate from 1995 to 1997, began to rise faster than general inflation in 1998 and were about 6 or 8 percentage points above the general inflation rate in 2001. The weakening economy may lead employers to reevaluate employee salary and benefit levels. Specifically, the nation's gross domestic product increased at an annual rate of 2.4 percent in the second quarter of 2001, slower than the 4.2 percent and 5.0 percent growth in 1999 and 2000. Also, the nation's unemployment rate has gradually but steadily increased to 4.9 percent as of September 2001 after reaching a historic low of 3.9 percent 1 year earlier. Many economists expect a further weakening of the economy, at least in the short term, as a result of the September 11 terrorist attacks. The aging of the baby boom generation will increase the proportion and number of Americans of retirement age, leading some employers to have a larger number of retirees for whom they provide coverage but comparatively fewer active workers to subsidize these benefits. Other factors have increased employers' uncertainty about their future role in providing retiree health benefits, but their implications are less clear. For example, if a proposed outpatient prescription drug benefit was added to Medicare, some employers could redesign their coverage to supplement the Medicare benefit, while others could choose to reduce or eliminate drug coverage. General workforce trends could also affect the availability of retiree health benefits. While some anecdotal information suggests increasing mobility of the workforce with fewer long-term job attachments, the data on this trend are mixed. Nonetheless, the percentage of workers with 20 or more years with a current employer has declined in recent decades and could indicate that fewer employees are likely to be eligible for retiree benefits that are often based on longevity with an employer. In addition, a March 2001 ruling in the Third U.S. Circuit Court of Appeals found an employer--Erie County, Pennsylvania--in violation of the Age Discrimination in Employment Act (ADEA) because it offered a benefit for Medicare-eligible retirees that the District Court found to be inferior to the benefit offered retirees not yet eligible for Medicare. To what extent the decision will lead to limitations on employers' flexibility in designing their retiree health benefits, and therefore discourage employers from offering such benefits, remains uncertain. This will depend, in part, on whether other circuit courts adopt similar interpretations of ADEA and which differences in benefits employers provide to non-Medicare-eligible and Medicare-eligible retirees are regarded as potential age-discrimination violations. The Equal Employment Opportunity Commission (EEOC) had initially said it would consider employers' reducing or eliminating retiree health benefits on the basis of a person's age or Medicare eligibility an ADEA violation. However, recognizing concerns raised by employers and unions that this decision could have adverse consequences on the availability of retiree health benefits, EEOC rescinded this policy statement on August 17, 2001. It is considering alternative policies to ensure that health benefits provided to Medicare-eligible retirees are consistent with ADEA without adversely affecting employers' sponsorship of retiree health benefits. At an age when their health care needs are likely to grow, retirees who lose access to employer-sponsored coverage may face limited coverage alternatives, and those who are unable to obtain coverage may do without or begin to rely on public programs. Some federal laws guarantee access to alternative sources of coverage to both retirees under 65 and those eligible for Medicare; but these options may be costly or limited, particularly for individuals in poor health. A problem apart from whether employer-provided retiree health coverage is available is the potential financial burden of long-term care. Medicare and the private insurance available to most retirees do not typically cover costs of long-term care services that are increasingly needed as the prevalence of disability grows with advancing age. Thus, paying for these services may present a significant and growing financial burden for many individuals and for public health care programs. Employers have been the predominant source of health coverage for most working adults. Although more than half of retirees report that they intend to continue working, the jobs they take are often part-time, or they are self-employed, and neither situation is likely to offer health benefits. Some individuals retire because of declining health--more than one-fifth of retirees aged 55 to 64 report being in fair or poor health--which further highlights their need for health insurance coverage. Therefore, even in retirement, over half of those aged 55 to 64 in 1999 continued to rely on health insurance either from their former employer or their spouse's employer. However, retirees without access to employer-sponsored coverage either seek an alternative source of health insurance or become uninsured. Individuals whose jobs provided health benefits that ended at retirement may continue temporary coverage through their employer for up to 18 months under provisions enacted as part of COBRA. But COBRA coverage may be an expensive alternative because the employer is not required to pay any portion of the premium and may charge the enrollee up to 102 percent of the group rate. The individual insurance market may be an option for some retirees until they become eligible for Medicare, but this alternative can be costly as well. Unlike the employer-sponsored market, where the price for coverage is based on risk characteristics of the entire group, premium prices in the individual insurance market in most states are based on the characteristics of each applicant, such as age, gender, geographic area, tobacco use, and health status. For example, premiums charged a 60- year-old man may be 2-1/2 times to nearly 4 times higher than those charged a 30-year-old man. For eligible individuals leaving group coverage, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) guarantees access to at least two individual insurance policies or an alternative such as a state high-risk pool, regardless of health status and without exclusions. Nevertheless, the premiums faced by retirees eligible for HIPAA protections, as well as by other retirees who must rely on the individual insurance market for coverage, may be substantially higher than those charged to healthier or younger individuals and may be cost- prohibitive. This is because retirees are more likely than working adults of the same age to be in fair or poor health. Unless they are guaranteed coverage by HIPAA, individuals with serious health conditions such as heart disease are virtually always denied coverage, and those with other, non-life-threatening conditions such as chronic back pain also may be excluded from coverage. Under a group plan, these individuals cannot be denied coverage, nor can they be required to pay a higher premium than others in the plan, and specific conditions can only be temporarily excluded from coverage. Although Medicare is the primary source of coverage for retirees 65 years or older, gaps in Medicare coverage mean this population may have high out-of-pocket costs for health care. For example, Medicare does not typically cover outpatient prescription drugs, and it primarily covers acute care but not long-term hospital and skilled nursing facility stays. Most Medicare-eligible retirees obtain supplemental coverage to pay some of the costs not covered by Medicare. Nearly one-third of Medicare-eligible retirees obtain this supplemental coverage from an employer, and most other Medicare beneficiaries seek other sources of supplemental coverage, such as Medigap or Medicaid, or participate in Medicare+Choice plans, which typically have low cost-sharing requirements and cover services such as prescription drugs that traditional Medicare does not cover. Retirees can purchase private individual Medigap coverage, but this coverage may cost more or be less comprehensive than typical employer- sponsored health coverage. Medigap policies are widely available to 65- year-old Medicare beneficiaries during an initial 6-month open-enrollment period guaranteed by federal law. Beneficiaries can select from among 10 standard policy types. Most purchasers buy mid-level policies that cover Medicare's cost-sharing requirements and selected other benefits, but not prescriptions. Relatively few Medigap purchasers (8 percent of those with a standardized Medigap policy) have bought the standardized plans that include prescription drug coverage. Whether they include prescription drug coverage or not, Medigap policies can be expensive--the average annual Medigap premium per covered life was more than $1,300 in 1999-- and still leave retirees with significant out-of-pocket costs. Medigap policies that provide prescription drug coverage average more than $1,600 compared with about $1,150 for standardized plans without prescription drug coverage. However, even the standardized coverage for prescription drugs pays less than half of beneficiaries' drug costs, and catastrophic prescription drug expenses are not covered. Access to Medigap policies may be more limited for beneficiaries who are not in the initial open-enrollment period or otherwise eligible for federally guaranteed access under certain other circumstances. For example, federal law provides certain guarantees to ensure an individual has access to Medigap insurance if an employer eliminates or reduces coverage. In these cases, the individuals are guaranteed access to 4 of the 10 standardized Medigap policies, regardless of their health status, but none of these 4 guaranteed plans includes prescription drug coverage. Although long-term care is a growing need for the retiree population, Medicare and private insurance (through employers or purchased individually) play a small role in financing this care. Public programs, primarily Medicaid, and individuals' out-of-pocket payments are the primary funding sources for nursing home and home and community- based care for those needing long-term care. In 1999, spending for nursing home and home health care was about $134 billion. Medicaid, which is generally only available after individuals have become nearly impoverished by spending down their assets, paid the largest share of these costs--nearly 44 percent. Individuals needing care and their families paid for almost 25 percent of these expenditures out-of-pocket. Medicare has traditionally primarily covered acute care, but during the 1990s it increasingly covered some long-term home health care services. In 1999, Medicare paid nearly 14 percent of nursing home and home health care. (See fig. 5.) While private long-term care insurance is viewed as a possible way to reduce catastrophic financial risk for the elderly and relieve some of the financing burden now shouldered by public programs, private insurance (through both long-term care insurance and traditional health insurance) accounted for a small share--10 percent in 1999--of long-term care spending. Most long-term care insurance is purchased individually, with premiums depending on the beneficiary's age at purchase. Premiums for a 65-year-old are typically about $1,000 per year and may be much higher for more generous coverage or older buyers. The private long-term care insurance market remains small, and few employers offer this insurance as a benefit to employees. Less than 10 percent of individuals 65 or older and an even lower percentage of those younger than 65 have purchased long-term care insurance. Most private long-term care insurance is bought by individuals, but some employers offer employees a voluntary group policy option for long-term care insurance. Only about one-fourth of long-term care insurance policies sold as of 2000 were group offerings, according to the American Council of Life Insurers. Even when employers offer long-term care insurance, they usually do not subsidize any of the costs. In 2000, the Congress passed legislation to offer optional group long-term care insurance to federal employees, retirees, and their relatives beginning by fiscal year 2003, with eligible individuals paying the full premium for the insurance. This initiative will likely establish the largest group offering of long-term care insurance and could encourage further expansion of this market. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions that you or Members of the Subcommittee may have. For more information regarding this testimony, please contact Kathryn G. Allen at (202) 512-7118 or John Dicken at (202) 512-7043. Susan Anthony and Carmen Rivera-Lowitt also made key contributions to this statement.
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In 1999, about 10 million Americans aged 55 and older relied on employer-sponsored health benefits until they became eligible for Medicare or to pay for out-of-pocket expenses not covered by Medicare. However, the number of employers offering these benefits has declined considerably during the past decade. Despite the recent strong economy and the relatively low increases in health insurance premiums during the late 1990's, the availability of employer-sponsored health benefits for retirees has declined. Two widely cited surveys found that only about one-third of large employers and less than 10 percent of small employers offer such benefits. Alternative sources of health care coverage for retirees may be costly, limited, or unavailable. Retirees not yet 65 may be eligible for coverage from a spouse's employer or from their former employer. Other retirees not yet 65 may seek coverage in the individual insurance market, but these policies can be expensive or may offer more limited coverage, especially for those with existing health problems. Nearly one-third of retirees eligible for Medicare have employer-sponsored supplemental coverage, but many others buy private supplemental coverage known as "Medigap." It can cost upwards of $1,300 per year for Medigap policies that include prescription drug coverage. Neither Medicare nor private insurance covers a significant share of long-term care expenses.
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The Social Security Act of 1935 authorized SSA to establish a record- keeping system to help manage the Social Security program, and this resulted in the creation of the SSN. Through a process known as enumeration, unique numbers are created for every person as a work and retirement benefit record for the Social Security program. SSA generally issues SSNs to most U.S. citizens, and SSNs are also available to noncitizens lawfully admitted to the United States with permission to work. SSA estimates that approximately 277 million individuals currently have SSNs. The SSN has become the identifier of choice for government agencies and private businesses, and thus it is used for a myriad of non- Social Security purposes. The growth in the use of SSNs is important to individual SSN holders because these numbers, along with names and birth certificates, are among the three personal identifiers most often sought by identity thieves. In addition, SSNs are used as breeder information to create additional false identification documents, such as drivers' licenses. Recent statistics collected by federal agencies and CRAs indicate that the incidence of identity theft appears to be growing. The Federal Trade Commission (FTC), the agency responsible for tracking identity theft, reported that consumer fraud and identity theft complaints grew from 404,000 in 2002 to 516,740 in 2003. In 2003, consumers also reported losses from fraud of more than $437 million, up from $343 million in 2002. In addition, identity crimes account for over 80 percent of SSN misuse allegations according to the SSA. Also, officials from two of the three national CRAs report an increase in the number of 7-year fraud alerts placed on consumer credit files, which they consider to be reliable indicators of the incidence of identity theft. Law enforcement entities report that identity theft is almost always a component of other crimes, such as bank fraud or credit card fraud, and may be prosecuted under the statutes covering those crimes. Private sector entities such as information resellers, CRAs, and health care organizations routinely obtain and use SSNs. Such entities obtain the SSNs from various public sources and their business clients wishing to use their services. We found that these entities usually use SSNs for various purposes, such as to build tools that verify an individual's identity or match existing records. Certain federal laws have limited the disclosures private sector entities are allowed to make to their customers, and some states have also enacted laws to restrict the private sector's use of SSNs. Private sector entities such as information resellers, CRAs, and health care organizations generally obtain SSNs from various public and private sources and use SSNs to help identify individuals. Of the various public sources available, large information resellers told us they obtain SSNs from various records displayed to the public such as records of bankruptcies, tax liens, civil judgments, criminal histories, deaths, real estate ownership, driving histories, voter registrations, and professional licenses. Large information resellers said that they try to obtain SSNs from public sources where possible, and to the extent public record information is provided on the Internet, they are likely to obtain it from such sources. Some of these officials also told us that they have people that go to courthouses or other repositories to obtain hard copies of public records. Additionally, they obtain batch files of electronic copies of all public records from some jurisdictions. Given the varied nature of SSN data found in public records, some reseller officials said they are more likely to rely on receiving SSNs from their business clients than they are from obtaining SSNs from public records. These entities obtain SSNs from their business clients, who provide SSNs in order to obtain a reseller's services or products, such as background checks, employee screening, determining criminal histories, or searching for individuals. Large information resellers also obtain SSN information from private sources. In many cases such information was obtained through review of data where a customer has voluntarily supplied information resellers with information about himself or herself. In addition, large reseller officials said they also use their clients' records in instances where the client has provided them with information. We also found that Internet-based resellers rely extensively on public sources and records displayed to the public. These resellers listed on their Web sites public information sources, such as newspapers, and various kinds of public record sources at the county, state, and national levels. During our investigation, we determined that once Internet-based resellers obtained an individual's SSN they relied on information in public records to help verify the individual's identity and amass information around the individual's SSN. Like information resellers, CRAs also obtain SSNs from public and private sources as well as from their customers or the businesses that furnish data to them. CRA officials said that they obtain SSNs from public sources, such as bankruptcy records, a fact that is especially important in terms of determining that the correct individual has declared bankruptcy. CRA officials also told us that they obtain SSNs from other information resellers, especially those that specialize in obtaining information from public records. However, SSNs are more likely to be obtained from businesses that subscribe to their services, such as banks, insurance companies, mortgage companies, debt collection agencies, child support enforcement agencies, credit grantors, and employment screening companies. Individuals provide these businesses with their SSNs for reasons such as applying for credit, and these businesses voluntarily report consumers' charge and payment transactions, accompanied by SSNs, to CRAs. We found that health care organizations were less likely to rely on public sources for SSN data. Health care organizations obtain SSNs from individuals themselves and from companies that offer health care plans. For example, subscribers or policyholders provide health care plans with their SSNs through their company or employer group when they enroll in health care plans. In addition to health care plans, health care organizations include health care providers, such as hospitals. Such entities often collect SSNs as part of the process of obtaining information on insured people. However, health care officials said that, particularly with hospitals, the medical record number rather than the SSN is the primary identifier. Information resellers, CRAs, and health care organization officials all said that they use SSNs to verify an individual's identity. Most of the officials we spoke to said that the SSN is the single most important identifier available, mainly because it is truly unique to an individual, unlike an individual's name and address, which can often change over an individual's lifetime. Large information resellers said that they generally use the SSN as an identity verification tool. Some of these entities have incorporated SSNs into their information technology, while others have incorporated SSNs into their clients' databases used for identity verification. For example, one large information reseller that specializes in information technology solutions has developed a customer verification data model that aids financial institutions in their compliance with some federal laws regarding "knowing your customer." We also found that Internet-based information resellers use the SSN as a factor in determining an individual's identity. We found these types of resellers to be more dependent on SSNs than the large information resellers, primarily because their focus is more related to providing investigative or background-type services to anyone willing to pay a fee. Most of the large information resellers officials we spoke to said that although they obtain the SSN from their business clients, the information they provide back to their customers rarely contains the SSN. Almost all of the officials we spoke to said that they provide their clients with a truncated SSN, an example of which would be xxx-xx-6789. CRAs use SSNs as the primary identifier of individuals, which enables them to match the information they receive from their business clients with the information stored in their databases on individuals. Because these companies have various commercial, financial, and government agencies furnishing data to them, the SSN is the primary factor that ensures that incoming data is matched correctly with an individual's information on file. For example, CRA officials said they use several factors to match incoming data with existing data, such as name, address, and financial account information. If all of the incoming data, except the SSN, match with existing data, then the SSN will determine the correct person's credit file. Given that people move, get married, and open new financial accounts, these officials said that it is hard to distinguish among individuals. Because the SSN is the one piece of information that remains constant, they said that it is the primary identifier that they use to match data. Health care organizations also use the SSN to help verify the identity of individuals. These organizations use SSNs, along with other information, such as name, address, and date of birth, as a factor in determining a member's identity. Health care officials said that health care plans, in particular, use the SSN as the primary identifier of an individual, and it often becomes the customer's insurance number. Health care officials said that they use SSNs for identification purposes, such as linking an individual's name to an SSN to determine if premium payments have been made. They also use the SSN as an online services identifier, as an alternative policy identifier, and for phone-in identity verification. Health care organizations also use SSNs to tie family members together where family coverage is used, to coordinate member benefits, and as a cross- check for pharmacy transactions. Health care industry association officials also said that SSNs are used for claims processing, especially with regard to Medicare. According to these officials, under some Medicare programs, SSNs are how Medicare identifies benefits provided to an individual. Certain federal and state laws have placed restrictions on certain private sector entities use and disclosure of consumers' personal information that includes SSNs. Such laws include the Fair Credit Reporting Act (FCRA), the Gramm-Leach-Bliley Act (GLBA), the Drivers Privacy Protection Act (DPPA), and the Health Insurance Portability and Accountability Act (HIPAA). As shown in table 1, the laws either restrict the disclosures that entities such as information resellers, CRAs, and health care organizations are allowed to make to specific purposes or restrict whom they are allowed to give the information to. Moreover, as shown in table 1, these laws focus on limiting or restricting access to certain personal information and are not specifically focused on information resellers. See appendix I for more information on these laws. We reviewed selected legislative documents of 18 states and found that at least 6 states have enacted their own legislation to restrict either the display or use of SSNs by the private sector. Notably, in 2001, California enacted Senate Bill (SB) 168, restricting private sector use of SSNs. Specifically, this law generally prohibits companies and persons from certain uses such as, posting or publicly displaying SSNs and printing SSNs on cards required to access the company's products or services. Furthermore, in 2002, shortly after the enactment of SB 168, California's Office of Privacy Protection published recommended practices for protecting the confidentiality of SSNs. These practices were to serve as guidelines to assist private and public sector organizations in handling SSNs. Similar to California's law, Missouri's law (2003 Mo. SB 61), which is not effective until July 1, 2006, bars companies from requiring individuals to transmit SSNs over the Internet without certain safety measures, such as encryption and passwords. However, while SB 61 prohibits a person or private entity from publicly posting or displaying an individual's SSN "in any manner," unlike California's law, it does not specifically prohibit printing the SSN on cards required to gain access to products or services. In addition, Arizona's law (2003 Ariz. Sess. Laws 137), effective January 1, 2005, restricts the use of SSNs in ways very similar to California's law. However, in addition to the private sector restrictions, it adds certain restrictions for state agencies and political subdivisions. For example, state agencies and political subdivisions are prohibited from printing an individual's SSN on cards and certain mailings to the individual. Last, Texas prohibits the display of SSNs on all cards, while Georgia and Utah's laws are directed at health insurers and, therefore, pertain primarily to insurance identification cards. None of these three laws contain the provisions mentioned above relating to Internet safety measures and mailing restrictions. Table 2 lists states that have enacted legislation and related provisions. Agencies at all levels of government frequently obtain and use SSNs. A number of federal laws require government agencies to obtain SSNs, and these agencies use SSNs to administer their programs, verify applicants' eligibility for services and benefits, and do research and evaluation. In addition, given the open nature of certain government records, SSNs appear in some records displayed to the public. Given the potential for misuse, some government agencies are taking steps to limit their use and display of SSNs and prevent the proliferation of false identities. Government agencies obtain SSNs because a number of federal laws and regulations require certain programs and federally funded activities to use the SSN for administrative purposes. Such laws and regulations require the use of the SSN as an individual's identifier to facilitate automated exchanges that help administrators enforce compliance with federal laws, determine eligibility for benefits, or both. For example, the Internal Revenue Code and regulations, which govern the administration of the federal personal income tax program, require that individuals' SSNs serve as taxpayer identification numbers. A number of other federal laws require program administrators to use SSNs in determining applicants' eligibility for federally funded benefits. The Social Security Act requires individuals to provide their SSNs in order to receive benefits under the SSI, Food Stamp, Temporary Assistance for Needy Families, and Medicaid programs. In addition, the Commercial Motor Vehicle Safety Act of 1986 requires the use of SSNs to identify individuals and established the Commercial Driver's License Information System, a nationwide database where states may use individuals' SSNs to search the database for other state-issued licenses commercial drivers may hold. Federal law also requires the use of SSNs in state child support programs to help states locate noncustodial parents, establish and enforce support orders, and recoup state welfare payments from parents. The law also requires states to record SSNs on many other state documents, such as professional, occupational, and marriage licenses; divorce decrees; paternity determinations; and death certificates. Government agencies use SSNs for a variety of reasons. We found that most of these agencies use SSNs to administer their programs, such as to identify, retrieve, and update their records. In addition, many agencies also use SSNs to share information with other entities to bolster the integrity of the programs they administer. As unique identifiers, SSNs help ensure that the agency is obtaining or matching information on the correct person. Government agencies also share information containing SSNs for the purpose of verifying an applicant's eligibility for services or benefits, such as matching records with state and local correctional facilities to identify individuals for whom the agency should terminate benefit payments. SSNs are also used to ensure program integrity. Agencies use SSNs to collect delinquent debts and even share information for this purpose. In addition, SSNs are used for statistics, research, and evaluation. Agencies responsible for collecting and maintaining data for statistical programs that are required by statute, make use of SSNs. In some cases, these data are compiled using information provided for another purpose. For example, the Bureau of the Census prepares annual population estimates for states and counties using individual income tax return data linked over time by SSN to determine immigration rates between localities. SSNs also provide government agencies and others with an effective mechanism for linking data on program participation with data from other sources to help evaluate the outcomes or effectiveness of government programs. In some cases, records containing SSNs are sometimes matched across multiple agency or program databases. Government agencies also use employees' SSNs to fulfill some of their responsibilities as employers. For example, personnel departments of these agencies use SSNs to help them maintain internal records and provide employee benefits. In addition, employers are required by law to use employees' SSNs when reporting wages. Wages are reported to SSA, and the agency uses this information to update earnings records it maintains for each individual. The Internal Revenue Service (IRS) also uses SSNs to match the employer wage reports with amounts individuals report on personal income tax returns. Federal law also requires that states maintain employers' reports of newly hired employees, identified by SSNs. States must forward this information to a national database that is used by state child support agencies to locate parents who are delinquent in child support payments. Finally, SSNs appear in some government records that are open to the public. For example, SSNs may already be a part of a document that is submitted to a recorder for official preservation, such as veterans' discharge papers. Documents that record financial transactions, such as tax liens and property settlements, also contain SSNs to help identify the correct individual. Government officials are also required by law to collect SSNs in numerous instances, and some state laws allow government entities to collect SSNs on voter registries to help avoid duplicate registrations. In addition, courts at all three levels of government also collect and maintain records that are routinely made available to the public. SSNs appear in court documents for a variety of reasons such as on documents that government officials create like criminal summonses, and in many cases, SSNs are already a part of documents that are submitted by attorneys or individuals as part of the evidence for a proceeding or a petition for an action. In some cases, federal law requires that SSNs be placed in certain records that courts maintain, such as child support orders. Despite the widespread use of SSNs at all levels of government, not all agencies use SSNs. We found that some agencies do not obtain, receive, or use SSNs of program participants, service recipients, or individual members of the public. Moreover, not all agencies use the SSN as their primary identification number for record-keeping purposes. These agencies maintain an alternative number that is used in addition to or in lieu of SSNs for certain activities. Some agencies are also taking steps to limit SSNs displayed on documents that may be viewed by others who may not have a need to view this personal information. For example, the Social Security Administration has truncated individuals' SSNs that appear on the approximately 120 million benefits statements it mails each year. Some states have also passed laws prohibiting the use of SSNs as a student identification number. Almost all states have modified their policies on placing SSNs on state drivers' licenses. At the federal level, SSA has taken steps in its enumeration process and verification service to help prevent SSNs from being used to proliferate false identities. SSA has formed a task force to address weaknesses in its enumeration process and has (1) increased document verifications and developed new initiatives to prevent the inappropriate assignment of SSNs to noncitizens, and (2) undertaken initiatives to shift the burden of processing noncitizen applications from its field offices. SSA also helps prevent the proliferation of false identities through its verification service, which allows state driver licensing agencies to verify the SSN, name, and date of birth of customers with SSA's master file of Social Security records. Finally, SSA has also acted to correct deficiencies in its information systems' internal controls. These changes were made in response to the findings of an independent audit that found that SSA's systems were exposed to both internal and external intrusion, increasing the possibility that sensitive information such as SSNs could be subject to unauthorized access, modification, and disclosure, as well as the risk of fraud. With regard to the courts, in a prior report we suggested that Congress consider addressing SSN security and display issues in state and local government and in public records, including those maintained by the judicial branch of government at all levels. We proposed that Congress convene a representative group of officials from all levels of government to develop a unified approach to safeguard SSNs used in all levels of government and particularly those displayed in public records. Public and private entities use SSNs for many legitimate and publicly beneficial purposes. However, the more frequently SSNs are obtained and used, the more likely they are to be misused. Individuals may voluntarily provide their SSNs to the private and public sectors to obtain services, but they should be able to be confident that their personal information is safe and secure. As we continue to learn more about the entities that obtain SSNs and the purposes for which they obtain them, policy makers will be able to determine if there are ways to limit access to this valuable piece of information and prevent it from being misused. However, restrictions on access or use may make it more difficult for businesses and government agencies to verify an individual's identity. Accordingly, policy makers will have to balance the potential benefits of restrictions on the use of SSNs on the one hand with the impact on legitimate needs for the use of SSNs on the other. We are continuing our work on protecting the privacy of SSNs in the private and public sectors, and we are pleased that this Subcommittee is considering this important policy issue. That concludes my testimony, and I would be pleased to respond to any questions the subcommittee has. For further information regarding this testimony, please contact Barbara D. Bovbjerg, Director or Tamara Cross, Assistant Director at (202) 512- 7215. GLBA requires companies to give consumers privacy notices that explain the institutions' information-sharing practices. In turn, consumers have the right to limit some, but not all, sharing of their nonpublic personal information. Financial institutions are permitted to disclose consumers' nonpublic personal information without offering them an opt-out right in the following circumstances: to effect a transaction requested by the consumer in connection with a financial product or service requested by the consumer; maintaining or servicing the consumer's account with the financial institution or another entity as part of a private label credit card program or other extension of credit; or a proposed or actual securitization, secondary market sale, or similar transaction; with the consent or at the direction of the consumer; to protect the confidentiality or security of the consumer's records; to prevent actual or potential fraud, for required institutional risk control or for resolving customer disputes or inquiries, to persons holding a legal or beneficial interest relating to the consumer, or to the consumer's fiduciary; to provide information to insurance rate advisory organizations, guaranty funds or agencies, rating agencies, industry standards agencies, and the institution's attorneys, accountants, and auditors; to the extent specifically permitted or required under other provisions of law and in accordance with the Right to Financial Privacy Act of 1978, to law enforcement agencies, self-regulatory organizations, or for an investigation on a matter related to public safety; to a consumer reporting agency in accordance with the Fair Credit Reporting Act or from a consumer report reported by a consumer reporting agency; in connection with a proposed or actual sale, merger, transfer, or exchange of all or a portion of a business if the disclosure concerns solely consumers of such business; to comply with federal, state, or local laws; an investigation or subpoena; or to respond to judicial process or government regulatory authorities. Financial institutions are required by GLBA to disclose to consumers at the initiation of a customer relationship, and annually thereafter, their privacy policies, including their policies with respect to sharing information with affiliates and non-affiliated third parties. Provisions under GLBA place limitations on financial institutions disclosure of customer data, thus affecting some CRAs and information resellers. We found that some CRAs consider themselves to be financial institutions under GLBA. These entities are therefore directly governed by GLBA's restrictions on disclosing nonpublic personal information to non- affiliated third parties. We also found that some of the information resellers we spoke to did not consider their companies to be financial institutions under GLBA. However, because they have financial institutions as their business clients, they complied with GLBA's provisions in order to better serve their clients and ensure that their clients are in accordance with GLBA. For example, if information resellers received information from financial institutions, they could resell the information only to the extent that they were consistent with the privacy policy of the originating financial institution. Information resellers and CRAs also said that they protect the use of non- public personal information and do not provide such information to individuals or unauthorized third parties. In addition to imposing obligations with respect to the disclosures of personal information, GLBA also requires federal agencies responsible for financial institutions to adopt appropriate standards for financial institutions relating to safeguarding customer records and information. Information resellers and CRA officials said that they adhere to GLBA's standards in order to secure financial institutions' information. The DPPA specifies a list of exceptions when personal information contained in a state motor vehicle record may be obtained and used (18 U.S.C. SS 2721(b)). These permissible uses include: for use by any government agency in carrying out its functions; for use in connection with matters of motor vehicle or driver safety and theft; motor vehicle emissions; motor vehicle product alterations, recalls, or advisories; motor vehicle market research activities, including survey research; for use in the normal course of business by a legitimate business, but only to verify the accuracy of personal information submitted by the individual to the business and, if such information is not correct, to obtain the correct information but only for purposes of preventing fraud by pursuing legal remedies against, or recovering on a debt or security interest against, the individual; for use in connection with any civil, criminal, administrative, or arbitral proceeding in any federal, state, or local court or agency; for use in research activities; for use by any insurer or insurance support organization in connection with claims investigation activities; for use in providing notice to the owners of towed or impounded vehicles; for use by a private investigative agency for any purpose permitted under the DPPA; for use by an employer or its agent or insurer to obtain information relating to the holder of a commercial driver's license; for use in connection with the operation of private toll transportation facilities; for any other use, if the state has obtained the express consent of the person to whom a request for personal information pertains; for bulk distribution of surveys, marketing, or solicitations, if the state has obtained the express consent of the person to whom such personal information pertains; for use by any requester, if the requester demonstrates that it has obtained the written consent of the individual to whom the information pertains; for any other use specifically authorized under a state law, if such use is related to the operation of a motor vehicle or public safety. As a result of DPPA, information resellers said they were restricted in their ability to obtain SSNs and other driver license information from state motor vehicle offices unless they were doing so for a permissible purpose under the law. These officials also said that information obtained from a consumer's motor vehicle record has to be in compliance with DPPA's permissible purposes, thereby restricting their ability to resell motor vehicle information to individuals or entities not allowed to receive such information under the law. Furthermore, because DPPA restricts state motor vehicle offices' ability to disclose driver license information, which includes SSN data, information resellers said they no longer try to obtain SSNs from state motor vehicle offices, except for permissible purposes. The HIPAA privacy rule also defines some rights and obligations for both covered entities and individual patients and health plan members. Some of the highlights are: Individuals must give specific authorization before health care providers can use or disclose protected information in most nonroutine circumstances, such as releasing information to an employer or for use in marketing activities. Covered entities will need to provide individuals with written notice of their privacy practices and patients' privacy rights. The notice will contain information that could be useful to individuals choosing a health plan, doctor, or other service provided. Patients will be generally asked to sign or otherwise acknowledge receipt of the privacy notice. Covered entities must obtain an individual's specific authorization before sending them marketing materials. Health care organizations, including health care providers and health plan insurers, are subject to HIPAA's requirements. In addition to providing individuals with privacy practices and notices, health care organizations are also restricted from disclosing a patient's health information without the patient's consent, except for purposes of treatment, payment, or other health care operations. Information resellers and CRAs did not consider themselves to be "covered entities" under HIPAA, although some information resellers said that their customers are considered to be business associates under HIPAA. As a result, they said they are obligated to operate under HIPAA's standards for privacy protection, and therefore could not resell medical information without having made sure HIPAA's privacy standards were met. Congress has limited the use of consumer reports to protect consumers' privacy. All users must have a permissible purpose under the FCRA to obtain a consumer report (15 USC 1681b). These permissible purposes are: as ordered by a court or a federal grand jury subpoena; as instructed by the consumer in writing; for the extension of credit as a result of an application from a consumer or the review or collection of a consumer's account; for employment purposes, including hiring and promotion decisions, where the consumer has given written permission; for the underwriting of insurance as a result of an application from a consumer; when there is a legitimate business need, in connection with a business transaction that is initiated by the consumer; to review a consumer's account to determine whether the consumer continues to meet the terms of the account; to determine a consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status; for use by a potential investor or servicer or current insurer in a valuation or assessment of the credit or prepayment risks associated with an existing credit obligation; and for use by state and local officials in connection with the determination of child support payments, or modifications and enforcement thereof. Under FCRA, Congress has limited the use of consumer reports to protect consumers' privacy and limits access to credit data to those who have a legally permissible purpose for using the data, such as the extension of credit, employment purposes, or underwriting insurance. However, these limits are not specific to SSNs. All of the CRAs that we spoke to said that they are considered consumer reporting agencies under FCRA. In addition, some of the information resellers we spoke to who handle or maintain consumer reports are classified as CRAs under FCRA. Both CRAs and information resellers said that as a result of FCRAs restrictions they are limited to providing credit data to their customers that have a permissible purpose under FCRA. Consequently, they are restricted by law from providing such information to the general public. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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In 1936, the Social Security Administration (SSA) established the Social Security number (SSN) to track workers' earnings for social security benefit purposes. Today, private and public sector entities frequently ask individuals for SSNs in order to conduct their businesses and sometimes to comply with federal laws. Although uses of SSNs can be beneficial to the public, SSNs are also a key piece of information in creating false identities either for financial misuse or for assuming an individual's identity. The retention of SSNs in the public and private sectors can create opportunities for identity theft. In addition, the aggregation of personal information, such as SSNs, in large corporate databases, as well as the public display of SSNs in various records accessed by the public, may provide criminals the opportunity to easily obtain this personal information. Given the heightened awareness of identity crimes, this testimony focuses on describing (1) how private sector entities obtain, use, and protect SSNs, and (2) public sector uses and protections of SSNs. Private sector entities rely extensively on SSNs. We reported early this year that entities such as information resellers, consumer reporting agencies, and health care organizations routinely obtain SSNs from their business clients and public sources, such as government records that can be displayed to the public. These entities then use SSNs for various purposes, such as to verify an individual's identity or to match existing records, and have come to rely on the SSN as an identifier, which helps them determine a person's identity for the purpose of providing the services they offer. There is no single federal law that regulates the overall use or restricts the disclosure of SSNs by private sector entities. However, certain federal laws have helped to place restrictions on the disclosures of personal information private sector entities are allowed to make to their customers, and certain states have enacted laws to restrict the private sector's use of SSNs. Public sector entities also extensively use SSNs. All three levels of government use the SSN to comply with certain federal laws and regulations, as well as for their own purposes. These agencies rely on the SSN to manage records, verify benefit eligibility, collect outstanding debt, and conduct research and program evaluations. In addition, given the open nature of certain government records, SSNs appear in records displayed to the public such as documents that record financial transactions or court documents. Despite the widespread reliance on and use of SSNs, government agencies are taking steps to safeguard the SSN. For example, some agencies are not using the SSN as the primary identification number. In a previous report, we proposed that Congress consider developing a unified approach to safeguarding SSNs used in all levels of government and particularly those displayed in public records, and we continue to believe that this approach has merit. The use of SSNs by both private and public sector entities is likely to continue, but the more frequently SSNs are used, the more likely they are to be misused given the continued rise in identity crimes. In considering restrictions to SSN use, policy makers will have to balance the protections that could occur from such restrictions with legitimate business needs for the use of SSNs.
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Legislative and executive branch action has led to a variety of governmentwide and agency-specific initiatives, started and ongoing, to enhance homeland security. Establishment of an Office of Homeland Security and the office's planned national security strategy represent important governmentwide initiatives to address homeland security concerns. The planned production of new vaccines or expansion of existing vaccines, additional intergovernmental-planning and consequence-management efforts, and enhancements to aviation, seaport, and border security suggest progress in enhancing homeland security. Moreover, Congress appropriated about $19.5 billion in fiscal year 2002 and about another $9.8 billion contained in a $40 billion emergency supplemental budget after September 11 to help address homeland security concerns. The president has requested about $37.7 billion for fiscal year 2003 for homeland security. In October 2001, the president established a single focal point to coordinate efforts to secure the United States from terrorist attacks--the Office of Homeland Security. This is consistent with a recommendation that we had previously made. The office is charged with broad responsibilities including, but not limited to (1) working with federal agencies, state and local governments, and private entities to develop a national strategy and to coordinate implementation of the strategy; (2) overseeing prevention, crisis-management, and consequence- management activities; (3) coordinating threat and intelligence information; (4) reviewing governmentwide budgets for homeland security as well as providing advice to agencies and the Office of Management and Budget on appropriate levels of funding; and (5) coordinating critical infrastructure protection. The office plans to issue its national strategy in July 2002. The strategy is to be "national" in scope not only by including states, localities, and private-sector entities, as well as federal agencies; but also by setting clear objectives for homeland security with performance measures to gauge progress. Also, the plan is to be supported by a crosscutting federal budget plan. In previous work on combating terrorism, we had also recommended that the Federal Bureau of Investigation work with appropriate agencies to develop a national-level threat assessment on terrorist use of weapons of mass destruction. The bureau concurred in July 1999 but never issued the assessment and has now suspended the effort. We continue to believe that the threat assessment is needed. Progress has been made and efforts are continuing to enhance U.S. capability to respond to biological terrorism. Research is underway 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. Another initiative includes the production of 155 million doses of smallpox vaccine to bring the total number of doses in the nation's stockpile to 286 million by the end of 2002, which is enough to protect every U.S. citizen. In addition, the National Institutes of Health plans to award a contract to accelerate development of new vaccines against anthrax. The number of "push packages" in the National Pharmaceutical Stockpilewill increase from 8 to 12. Each push package has quantities of several different antidotes and antibiotics that can treat and protect persons exposed to different biological and chemical agents. The push packages are planned to have enough pharmaceuticals to treat 12 million persons for inhalation anthrax as compared to the 2 million that could be treated before the project started. Finally, Mr. Chairman, the concerns you raised prior to September 11, 2001, about accountability over medical supplies, including items from the National Pharmaceutical Stockpile, put responsible agencies on alert, and they have subsequently improved their internal controls for these items so they are current, accounted for, and ready to use. As you know Mr. Chairman, federal, state, and local governments share a responsibility to prepare for a terrorist incident. The first responders to a terrorist incident usually belong to local governments and local emergency response organizations, which include local police and fire departments, emergency medical personnel, and public health agencies. Historically, the federal government has primarily provided leadership, training, and funding assistance. The president's First Responder Initiative was announced in his State of the Union address of January 29, 2002. The initiative will be led by the Federal Emergency Management Agency, and its proposed fiscal year 2003 budget includes $3.5 billion to provide the first responder community with funds to conduct important planning and exercises, purchase equipment, and train their personnel. At the request of the Subcommittee on Government Efficiency, Financial Management, and Intergovernmental Relations, House Committee on Government Reform, we have begun to examine the preparedness issues confronting state and local governments and will report back to the subcommittee later this year. Progress has been made in addressing aviation security concerns, but significant challenges will need to be confronted later this year to meet established goals and time frames. The Congress passed the Aviation and Transportation Security Act in November 2001, which created the Transportation Security Administration with broad new responsibilities for aviation security. The administration faces the daunting challenge of creating this new organizational structure, which must implement more than two dozen specific actions by the end of 2002. All actions due to date have been completed, but formidable tasks remain. For example, the administration is required to have sufficient explosive detection systems in place to screen all checked baggage at more than 400 airports nationwide by December 31, 2002. As of January 2002, fewer than 170 of these machines had been installed. The administration estimates that about 2,000 additional machines will need to be produced and installed by the end of the year. Concerns have been raised that the vendors will not be able to produce sufficient number of machines to meet the deadline. The administration continues to work to identify ways to fill the gap between the requirement and the production capability, including considering the use of noncertified equipment as an interim measure. Also, the administration needs to hire about 40,000 employees, including more than 30,000 screeners, federal air marshals, and other officials. Achieving this goal presents a big challenge because a significant number of the current screening workforce may not qualify for screening positions. Airport screeners must now be U.S. citizens and be able to speak and read English. For example, currently up to 80 percent of the personnel in these positions at Dulles International Airport in Washington, D.C., do not qualify for employment. While not currently as high-profile as airport security, the vulnerability of major commercial seaports to criminal and terrorist activity has caused concern for many years, and the terrorist attacks on September 11, 2001, elevated those concerns again. Even prior to the attacks, this subcommittee expressed concerns about seaport security and the potential consequences of a terrorist attack on the successful deployment of our military forces. Because of these concerns, you asked us to examine the effectiveness of Department of Defense force protection measures at critical seaports located within the United States and at overseas locations, and we will issue our report to you later this year. As part of our work, some of which I can highlight today, we have observed efforts by the Coast Guard to improve seaport security since the attacks. In order to establish a clear indication of how Coast Guard units and personnel should respond to various threat levels at seaports, the Coast Guard is developing three new maritime security levels. The first level, "new normal," will encompass a greater level of security effort in the ports, including increased emphasis on security patrols, improved awareness of all activity in and around seaports, and better information about inbound vessels and their cargo. The other two security levels will contain increasingly heightened security measures to be taken if threat conditions escalate. The Coast Guard has also initiated the "sea marshal" program, whereby armed Coast Guard teams are placed aboard select commercial vessels navigating the waters of some of our major ports. A third Coast Guard initiative underway is the development of a vulnerability assessment methodology that the Coast Guard plans to use at more than 50 major U.S. seaports to identify vulnerabilities of critical infrastructure at each port. Congress is considering legislation to enhance seaport security. The port and maritime security legislation, which passed the Senate in December, contains a number of provisions aimed at further improving the state of seaport security. Among these provisions are establishing local port security committees, comprised of a broad range of federal, state, and local governments as well as commercial representatives; requiring vulnerability assessments at major U.S. seaports; developing comprehensive security plans for all waterfront facilities; improving collection and coordination of intelligence; improving training for maritime security professionals; making federal grants for security infrastructure improvements; and preparing a national maritime transportation security plan. Moreover, for fiscal year 2002, Congress appropriated $93.3 million to the Transportation Security Administration for port security assessment and improvements. The Immigration and Naturalization Service (INS) has a number of efforts underway designed to increase border security to prevent terrorists or other undesirable aliens from entering the United States. The service proposes to spend nearly $3 billion on border enforcement in fiscal year 2003, about 75 percent of its total enforcement budget of $4.1 billion. I will describe some of the service's efforts to increase security at the nation's ports of entry and between the ports, as well as to coordinate efforts with Canadian authorities to deter illegal entry into Canada or the United States. Currently, the United States does not have a system for identifying who has overstayed their visa, nor a sufficient ability to identify and locate visitors who may pose a security threat. Consequently, INS is developing an entry and exit system to create records for aliens arriving in the United States and match them with those aliens' departure records. The Immigration and Naturalization Service Data Management Improvement Act of 2000 requires the attorney general to implement such a system at all airports and seaports by the end of 2003, at the 50 land border ports with the greatest numbers of arriving and departing aliens by the end of 2004, and at all ports by the end of 2005. The USA Patriot Act, passed in October 2001, instructs the attorney general and the secretary of state to focus on two new elements in designing an entry and exit system--the development of tamper-resistant documents readable at ports of entry, and the utilization of biometric technology. Legislation now before Congress would go further by making the use of biometrics a requirement in the proposed entry and exit system. Implementing such a system within the mandated deadlines represents a major challenge for the INS. According to INS officials, important policy decisions significantly affecting development, cost, schedule, and operation of an entry and exit system have yet to be made. For example, it has not been decided whether arrival and departure data for Canadian citizens will be recorded in the new system. Currently, Canadian citizens are not required to present documents to enter the United States. The particular biometric identifier to be used, such as a fingerprint or facial recognition, has not been determined. Nor has a decision been made on whether a traveler's biometric would be checked only upon entry, or at departure, too. The INS' proposed fiscal year 2003 budget states that INS seeks to spend $380 million on the proposed system in fiscal year 2003. To increase the detection and apprehension of inadmissible aliens, including terrorists, at the nation's ports of entry, the service seeks to add nearly 1,200 inspectors in fiscal year 2003 to operate more inspection lanes at land ports and air ports of entry, and examine information on arriving passengers in order to identify high-risk travelers. To deter illegal entry between the ports of entry and make our borders more secure, the INS seeks to add an additional 570 Border Patrol agents in fiscal year 2003. In response to the September 11 attack, of the 570 Border Patrol positions, INS now seeks to add 285 agents to the northern border, thereby accelerating a staffing buildup at the northern border. The remaining half will be deployed to the southwest border. This represents a departure from previous decisions to deploy most new agent positions to the southwest border. Along the northern border, the service plans on maintaining an air surveillance program capable of responding 24 hours a day 7 days a week. Plus it plans to complete the installation of 67 automated surveillance systems and begin construction of 44 new systems. In addition, the INS has signed a memorandum of agreement with the Department of Defense allowing about 700 National Guard troops and equipment, such as helicopters, to assist in border enforcement duties for up to 6 months. The agreement allows the use of the troops for such activities as assisting in surveillance, transporting Border Patrol agents, as well as managing traffic at ports of entry. In December 2001, the United States and Canada signed a Smart Border Declaration calling for increased coordination to create a border that facilitates the free flow of people and commerce while maintaining homeland security. The declaration calls for such actions as (1) implementing collaborative systems to identify security risks while expediting the flow of low-risk travelers, (2) identifying persons who pose a security threat before they arrive at North American airports or seaports through collaborative approaches such as reviewing crew and passenger manifests, and (3) establishing a secure system to allow low-risk frequent travelers between the two countries to cross the border more efficiently. The INS and other U.S. and Canadian agencies are in the initial stages of working on developing plans and initiatives to implement the declaration's objectives. Congress has also acted and provided significant homeland security funds. According to documents supporting the president's fiscal year 2003 budget request, about $19.5 billion in federal funding for homeland security was enacted in fiscal year 2002. Congress added about $9.8 billion more in an emergency supplemental appropriation of $40 billion following the September 11 attacks. The funds were to be used for a variety of homeland security needs including supporting first responders, defending against biological terrorism, securing U.S. borders, enhancing aviation security, and supporting Department of Defense support to homeland security, among other things. The president has now requested about $37.7 billion for homeland security in his fiscal year 2003 budget request. Our ongoing work indicates that federal agencies, state and local governments, and the private sector are looking for guidance from the Office of Homeland Security on how to better integrate their missions and more effectively contribute to the overarching homeland security effort. In interviews with officials at more than a dozen federal agencies, we found that a broadly accepted definition of homeland security did not exist. Some of these officials believed that it was essential that the concept and related terms be defined, particularly because homeland security initiatives are crosscutting, and a clear definition promotes a common understanding of operational plans and requirements, and can help avoid duplication of effort and gaps in coverage. Common definitions promote more effective agency and intergovernmental operations and permit more accurate monitoring of homeland security expenditures at all levels of government. The Office of Homeland Security may establish such a definition. The Office of Management and Budget believes a single definition of homeland security can be used to enforce budget discipline. Although some agencies are looking to the Office of Homeland Security for guidance on how their agencies should be integrated into the overall security effort and to explain what else they should be doing beyond their traditional missions, they also want their viewpoints incorporated as this guidance evolves. For example, an official at the Centers for Disease Control and Prevention saw the Office of Homeland Security as both providing leadership and getting "everyone to the table" to facilitate a common understanding of roles and responsibilities. State officials told us that they also seek additional clarity on how they can best participate in the planned national strategy for homeland security. The planned national strategy should identify additional roles for state and local governments, but the National Governor's Association made clear to us that governments oppose mandated participation and prefer broad guidelines or benchmarks. State officials were also concerned about the cost of assuming additional responsibilities, and they plan to rely on the federal government for funding assistance. The National Governors Association estimates fiscal year 2002 state budget shortfalls of between $40 billion and $50 billion, making it increasingly difficult for the states to take on expensive, new homeland security initiatives without federal assistance. As we address the state fiscal issues through grants and other tools, we must (1) consider targeting the funds to states and localities with the greatest need, (2) discourage the replacement of state and local funds with federal funds, and (3) strike a balance between accountability and flexibility. State and local governments believe that to function as partners in homeland security they need better access to threat information. Officials at the National Emergency Management Association, which represents state and local emergency management personnel, stated that such personnel experienced problems receiving critical intelligence information and that this hampered their ability to help pre-empt terrorists before they strike. According to these officials, certain state or local emergency management personnel, emergency management directors, and certain fire and police chiefs hold security clearances granted by the Federal Emergency Management Agency; however, other federal agencies, such as the Federal Bureau of Investigation, do not recognize these clearances. Moreover, the National Governor's Association said that intelligence sharing is a problem between the federal government and the states. The association explained that most governors do not have a security clearance and, therefore, do not receive classified threat information, potentially impacting their ability to effectively use the National Guard and hampering their emergency preparedness capability. On the other hand, we were told that local Federal Bureau of Investigation offices in most states have a good relationship with the emergency management community and at times shared sensitive information under certain circumstances. The private sector is also concerned about costs, but in the context of new regulations to promote security. In our discussions with officials from associations representing the banking, electrical energy, and transportation sectors, they expressed the conviction that their member companies desire to fully participate as partners in homeland security programs. These associations represent major companies that own infrastructure critical to the functioning of our nation's economy. For example, the North American Electric Reliability Council is the primary point of contact with the federal government on issues relating to the security of the nation's electrical infrastructure. It has partnered with the Federal Bureau of Investigation and the Department of Energy to establish threat levels that they in turn share with utility companies within their organization. Such partnerships are essential, but the private sector may be reluctant to embrace them because of concern over new and excessive regulation, although their assets might be better protected. According to National Industrial Transportation League officials, for example, transport companies express a willingness to adopt prudent security measures such as increased security checks in loading areas and security checks for carrier drivers. However, the league is concerned that the cost of additional layers of security could cripple their ability to conduct business and felt that a line has to be drawn between security and the openness needed to conduct business. If it is to be comprehensive, a national strategy should address many of these issues. Once the homeland security strategy is developed, participating public and private sector organizations will need to understand and prepare for their defined roles under the strategy. In that connection, Y2K-style partnerships can be helpful. While the federal government can assign roles to federal agencies under the strategy, it will need to reach consensus with the other levels of government and with the private sector on their roles. As you know Mr. Chairman, the world was concerned about the potential for computer failures at the start of the year 2000, known as Y2K. The recognition of the interconnectedness of critical information systems led to the conclusion that a coordinated effort was needed to address the problem. Consequently, Congress, the administration, federal agencies, state and local governments, and private sector organizations collaborated to address Y2K issues and prevent the potential disruption that could have resulted from widespread computer failure. Similarly, the homeland security strategy is intended to include federal, state, and local government agencies and private sector entities working collaboratively, as they did in addressing Y2K issues. The Y2K task force approach may offer a model for developing the public- private partnerships necessary under a comprehensive homeland security strategy. A massive mobilization with federal government leadership was undertaken in connection with Y2K, which included partnerships with state, local, and international governments and the private sector and effective communication to address critical issues. Government actions went beyond the boundaries of individual programs or agencies and involved governmentwide oversight, interagency cooperation, and cooperation among federal, state, and local governments as well as with private sector entities and even foreign countries. These broad efforts can be grouped into the following five categories: Congressional oversight of agencies to hold them accountable for demonstrating progress to heighten public awareness of the problem. Central leadership and coordination to ensure that federal systems were ready for the date change, to coordinate efforts primarily with the states, and to promote private-sector and foreign-government action. Partnerships within the intergovernmental system and with the private entities, divided into key economic sectors to address such issues as contingency planning. Communications to share information on the status of systems, products, and services, and to share recommended solutions. Human capital and budget initiatives to help ensure that the government could recruit and retain the technical expertise needed to convert systems and communicate with the other partners and to fund conversion operations. As we reported in September 2000, the value of federal leadership, oversight, and partnerships was repeatedly cited as a key to success in addressing Y2K issues at a Lessons Learned summit that was broadly attended by representatives from public and private sector entities. Developing a homeland security plan may require a similar level of leadership, oversight, and partnerships with state and local governments, and the private sector. In addition, as in the case of Y2K efforts, Congressional oversight will be very important in connection with the design and implementation of the homeland security strategy. Mr. Chairman, this concludes my prepared statement. I would be happy to answer any questions you or members of the subcommittee may have. Please contact me at (202) 512-4300 for more information. Raymond J. Decker, Brian. J. Lepore, Stephen L. Caldwell, Lorelei St. James, Patricia Sari-Spear, Kim Seay, William J. Rigazio, Matthew W. Ullengren, Deborah Colantonio, and Susan Woodward made key contributions to this statement. Homeland Security: Challenges and Strategies in Addressing Short- and Long-Term National Needs (GAO-02-160T, November 7, 2001). Homeland Security: A Risk Management Approach Can Guide Preparedness Efforts (GAO-02-208T, October 31, 2001). Homeland Security: Need to Consider VA's Role in Strengthening Federal Preparedness (GAO-02-145T, October 15, 2001). Homeland Security: Key Elements of a Risk Management Approach (GAO- 02-150T, October 12, 2001). Homeland Security: A Framework for Addressing the Nation's Issues (GAO-01-1158T, September 21, 2001). Combating Terrorism: Key Aspects of a National Strategy to Enhance State and Local Preparedness (GAO-02-483T, March 1, 2002). Combating Terrorism: Considerations For Investing Resources in Chemical and Biological Preparedness (GAO-01-162T, October 17, 2001). Combating Terrorism: Selected Challenges and Related Recommendations (GAO-01-822, September 20, 2001). Combating Terrorism: Actions Needed to Improve DOD's Antiterrorism Program Implementation and Management (GAO-01-909, September 19, 2001). Combating Terrorism: Comments on H.R. 525 to Create a President's Council on Domestic Preparedness (GAO-01-555T, May 9, 2001). Combating Terrorism: Observations on Options to Improve the Federal Response (GAO-01-660T, April 24, 2001). Combating Terrorism: Comments on Counterterrorism Leadership and National Strategy (GAO-01-556T, March 27, 2001). Combating Terrorism: FEMA Continues to Make Progress in Coordinating Preparedness and Response (GAO-01-15, March 20, 2001). Combating Terrorism: Federal Response Teams Provide Varied Capabilities: Opportunities Remain to Improve Coordination (GAO-01-14, November 30, 2000). Combating Terrorism: Need to Eliminate Duplicate Federal Weapons of Mass Destruction Training (GAO/NSIAD-00-64, March 21, 2000). Combating Terrorism: Observations on the Threat of Chemical and Biological Terrorism (GAO/T-NSIAD-00-50, October 20, 1999). Combating Terrorism: Need for Comprehensive Threat and Risk Assessments of Chemical and Biological Attack (GAO/NSIAD-99-163, September 7, 1999). Combating Terrorism: Observations on Growth in Federal Programs (GAO/T-NSIAD-99-181, June 9, 1999). Combating Terrorism: Analysis of Potential Emergency Response Equipment and Sustainment Costs (GAO-NSIAD-99-151, June 9, 1999). Combating Terrorism: Use of National Guard Response Teams Is Unclear (GAO/NSIAD-99-110, May 21, 1999). Combating Terrorism: Observations on Federal Spending to Combat Terrorism (GAO/T-NSIAD/GGD-99-107, March 11, 1999). Combating Terrorism: Opportunities to Improve Domestic Preparedness Program Focus and Efficiency (GAO-NSIAD-99-3, November 12, 1998). Combating Terrorism: Observations on the Nunn-Lugar-Domenici Domestic Preparedness Program (GAO/T-NSIAD-99-16, October 2, 1998). Combating Terrorism: Threat and Risk Assessments Can Help Prioritize and Target Program Investments (GAO/NSIAD-98-74, April 9, 1998). Combating Terrorism: Spending on Governmentwide Programs Requires Better Management and Coordination (GAO/NSIAD-98-39, December 1, 1997). Bioterrorism: The Centers for Disease Control and Prevention's Role in Public Health Protection (GAO-02-235T, November 15, 2001). Bioterrorism: Review of Public Health and Medical Preparedness (GAO-02- 149T, October 10, 2001). Bioterrorism: Public Health and Medical Preparedness (GAO-02-141T, October 10, 2001). Bioterrorism: Coordination and Preparedness (GAO-02-129T, October 5, 2001). Bioterrorism: Federal Research and Preparedness Activities (GAO-01-915, September 28, 2001). Chemical and Biological Defense: Improved Risk Assessments and Inventory Management Are Needed (GAO-01-667, September 28, 2001). West Nile Virus Outbreak: Lessons for Public Health Preparedness (GAO/HEHS-00-180, September 11, 2000). Need for Comprehensive Threat and Risk Assessments of Chemical and Biological Attacks (GAO/NSIAD-99-163, September 7, 1999). Chemical and Biological Defense: Program Planning and Evaluation Should Follow Results Act Framework (GAO/NSIAD-99-159, August 16, 1999). Combating Terrorism: Observations on Biological Terrorism and Public Health Initiatives (GAO/T-NSIAD-99-112, March 16, 1999). Disaster Assistance: Improvement Needed in Disaster Declaration Criteria and Eligibility Assurance Procedures (GAO-01-837, August 31, 2001). Federal Emergency Management Agency: Status of Achieving Key Outcomes and Addressing Major Management Challenges (GAO-01-832, July 9, 2001). FEMA and Army Must Be Proactive in Preparing States for Emergencies (GAO-01-850, August 13, 2001). Results-Oriented Budget Practices in Federal Agencies (GAO-01-1084SP, August 2001).
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Enhancing homeland security is a complex effort that involves all 50 states, the District of Columbia, and the territories; thousands of municipalities; and countless private entities. Since September 11, the nation has taken many actions to combat terrorism and enhance homeland security. It is well known that the U.S. military is conducting operations in Afghanistan. Various legislative and executive branch actions to enhance homeland security have been taken or were underway prior to and since September 11. Government and nongovernment activities are looking to the Office of Homeland Security for further guidance on how to better integrate their missions and more effectively contribute to the overarching homeland security effort. Having a common definition can help avoid duplication of effort and gaps in coverage by identifying agency roles and responsibilities. Although the agencies are looking for guidance, they also want to ensure that their unique missions are factored in as guidance is developed. At the same time, some agencies are unsure what they should be doing beyond their traditional missions. Once the national strategy is issued, federal, state, and local government agencies and private sector groups will need to work together to achieve the goals and objectives. Public-private partnerships used to address Y2K concerns can also be used to promote the national strategy.
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The U.S. export control system for items with military applications is divided into two regimes. State licenses munitions items, which are designed, developed, configured, adapted, or modified for military applications, and Commerce licenses most dual-use items, which are items that have both commercial and military applications. Although the Commerce licensing system is the primary vehicle to control dual-use items, some dual-use items--those of such military sensitivity that stronger control is merited--are controlled under the State system. Commercial communications satellites are intended to facilitate civil communication functions through various media, such as voice, data, and video, but they often carry military data as well. In contrast, military communications satellites are used exclusively to transfer information related to national security and have one or more of nine characteristics that allow the satellites to be used for such purposes as providing real-time battlefield data and relaying intelligence data for specific military needs. There are similarities in the technologies used to integrate a satellite to its launch vehicle and ballistic missiles. In March 1996, the executive branch announced a change in licensing jurisdiction transferring two items--commercial jet engine hot section technologies and commercial communications satellites--from State to Commerce. In October and November 1996, Commerce and State published regulations implementing this change, with Commerce defining enhanced export controls to apply when licensing these two items. State and Commerce's export control systems are based on fundamentally different premises. The Arms Export Control Act gives the State Department the authority to use export controls to further national security and foreign policy interests, without regard to economic or commercial interests. In contrast, the Commerce Department, as the overseer of the system created by the Export Administration Act, is charged with weighing U.S. economic and trade interests along with national security and foreign policy interests. Differences in the underlying purposes of the control systems are manifested in the systems' structure. Key differences reflect who participates in licensing decisions, scope of controls, time frame for the decision, coverage by sanctions, and requirements for congressional notification. Participants. Commerce's process involves five agencies--the Departments of Commerce, State, Defense, Energy, and the Arms Control and Disarmament Agency. Other agencies can be asked to review specific license applications. For most items, Commerce approves the license if there is no disagreement from reviewing agencies. When there is a disagreement, the chair of an interagency group known as the Operating Committee, a Commerce official, makes the initial decision after receiving input from the reviewing agencies. This decision can be appealed to the Advisory Committee on Export Policy, a sub-cabinet level group comprised of officials from the same five agencies, and from there to the cabinet-level Export Administration Review Board, and then to the President. In contrast, the State system commonly involves only Defense and State. While no formal multi-level review process exists, Defense officials stated that license applications for commercial communications satellites are frequently referred to other agencies, such as the Arms Control and Disarmament Agency, the National Security Agency, and the Defense Intelligence Agency. Day-to-day licensing decisions are made by the Director, Office of Defense Trade Controls, but disagreements could be discussed through organizational levels up to the Secretary of State. This difference in who makes licensing decisions underscores the weight the two systems assign to economic and commercial interests relative to national security concerns. Commerce, as the advocate for commercial interests, is the focal point for the process and makes the initial determination. Under State's system, Commerce is not involved, underscoring the primacy of national security and foreign policy concern. Scope of Controls. The two systems also differ in the scope of controls. Commerce controls items to specific destinations for specific reasons. Some items are subject to controls targeted to former communist countries while others are controlled to prevent them from reaching countries for reasons that include antiterrorism, regional stability, and nonproliferation. In contrast, munitions items are controlled to all destinations, and State has broad authority to deny a license; it can deny a request simply with the explanation that it is against U.S. national security or foreign policy interests. Time frames. Commerce's system is more transparent to the license applicant than State's system. Time frames are clearly established, the review process is more predictable, and more information is shared with the exporter on the reasons for denials or conditions on the license. Congressional Notification. Exports under State's system that exceed certain dollar thresholds (including all satellites) require notification to the Congress. Licenses for Commerce-controlled items are not subject to congressional notification, with the exception of items controlled for antiterrorism. Sanctions. The applicability of sanctions may also differ under the two export control systems. Commercial communications satellites are subject to two important types of sanctions: (1) Missile Technology Control Regime and (2) Tiananmen Square sanctions. Under Missile Technology sanctions, both State and Commerce are required to deny the export of identified, missile-related goods and technologies. Communications satellites are not so-identified but contain components that are identified as missile-related. When the United States imposed Missile Technology sanctions on China in 1993, exports of communications satellites controlled by State were not approved while exports of satellites controlled by Commerce were permitted. Under Tiananmen Square sanctions, satellites licensed by State and Commerce have identical treatment. These sanctions prohibit the export of satellites for launch from launch vehicles owned by China. However, the President can waive this prohibition if such a waiver is in the national interest. Export control of commercial communications satellites has been a matter of contention over the years among U.S. satellite manufacturers and the agencies involved in their export licensing jurisdiction--the Departments of Commerce, Defense, State, and the intelligence community. To put their views in context, I would now like to provide a brief chronology of key events in the transfer of commercial communications satellites to the Commerce Control List. As the demand for satellite launch capabilities grew, U. S. satellite manufacturers looked abroad to supplement domestic facilities. In 1988, President Reagan proposed that China be allowed to launch U.S.-origin commercial satellites. The United States and China signed an agreement in January 1989 under which China agreed to charge prices for commercial launch services similar to those charged by other competitors for launch services and to launch nine U.S.-built satellites through 1994. Following the June 1989 crackdown by the Chinese government on peaceful political demonstrations on Tiananmen Square in Beijing, President Bush imposed export sanctions on China. President Bush subsequently waived these sanctions for the export of three U.S.-origin satellites for launch from China. In February 1990, Congress passed the Tiananmen Square sanctions law (P.L. 101-246) to suspend certain programs and activities relating to the Peoples Republic of China. This law also suspends the export of U.S. satellites for launch from Chinese-owned vehicles. In November 1990, the President ordered the removal of dual-use items from State's munitions list unless significant U.S. national security interests would be jeopardized. This action was designed to bring U.S. controls in line with the industrial (dual-use) list maintained by the Coordinating Committee for Multilateral Export Controls, a multilateral export control arrangement. Commercial communications satellites were contained on the industrial list. Pursuant to this order, State led an interagency review, including officials from Defense, Commerce, and other agencies, to determine which dual-use items should be removed from State's munitions list and transferred to Commerce's jurisdiction. The review was conducted between December 1990 and April 1992. As part of this review, a working group identified and established performance parameters for the militarily-sensitive characteristics of communications satellites. During the review period, industry groups supported moving commercial communications satellites, ground stations, and associated technical data to the Commerce Control List. In October 1992, State issued regulations transferring jurisdiction of some commercial communications satellites to Commerce. These regulations also defined what satellites remained under its control by listing nine militarily sensitive characteristics that, if included in a commercial communications satellite, warranted their control on State's munitions list. (These characteristics are discussed in app. I.) The regulations noted that parts, components, accessories, attachments, and associated equipment (including ground support equipment) remained on the munitions list, but could be included on a Commerce license application if the equipment was needed for a specific launch of a commercial communications satellite controlled by Commerce. After the transfer, Commerce noted that this limited transfer only partially fulfilled the President's 1990 directive. Export controls over commercial communications satellites were again taken up in September 1993. The Trade Promotion Coordinating Committee, an interagency body composed of representatives from most government agencies, issued a report in which it committed the administration to review dual-use items on the munitions list, such as commercial communications satellites, to expedite moving them to the Commerce Control List. Industry continued to support the move of commercial communications satellites, ground stations, and associated technical data from State to Commerce control. In April 1995, the Chairman of the President's Export Council met with the Secretary of State to discuss issues related to the jurisdiction of commercial communications satellites and the impact of sanctions that affected the export and launch of satellites to China. Also in April 1995, State formed the Comsat Technical Working Group to examine export controls over commercial communications satellites and to recommend whether the militarily sensitive characteristics of satellites could be more narrowly defined consistent with national security and intelligence interests. This interagency group included representatives from State, Defense, the National Security Agency, Commerce, the National Aeronautics and Space Administration, and the intelligence community. The interagency group reported its findings in October 1995. Consistent with the findings of the Comsat Technical Working Group and with the input from industry through the Defense Trade Advisory Group, the Secretary of State denied the transfer of commercial communications satellites to Commerce in October 1995 and approved a plan to narrow, but not eliminate, State's jurisdiction over these satellites. Unhappy with State's decision to retain jurisdiction of commercial communications satellites, Commerce appealed it to the National Security Council and the President. In March 1996, the President, after additional interagency meetings on this issue, announced the transfer of export control authority for all commercial communications satellites from State to Commerce. A key part of these discussions was the issuance of an executive order in December 1995 that modified Commerce's procedures for processing licenses. This executive order required Commerce to refer all licenses to State, Defense, Energy, and the Arms Control and Disarmament Agency. This change addressed a key shortcoming that we had reported on in several prior reviews. In response to the concerns of Defense and State officials about this transfer, Commerce agreed to add additional controls to exports of satellites designed to mirror the stronger controls already applied to items on State's munitions list. Changes included the establishment of a new control, the significant item control, for the export of sensitive satellites to all destinations. The policy objective of this control--consistency with U.S. national security and foreign policy interests--is broadly stated. The functioning of the Operating Committee, the interagency group that makes the initial licensing determination, was also modified. This change required that the licensing decision for these satellites be made by majority vote of the five agencies, rather than by the chair of the Committee. Satellites were also exempted from other provisions governing the licensing of most items on the Commerce Control List. In October and November 1996, Commerce and State published changes to their respective regulations, formally transferring licensing jurisdiction for commercial communications satellites with militarily sensitive characteristics from State to Commerce. Additional procedural changes were implemented through an executive order and a presidential decision directive issued in October 1996. According to Commerce officials, the President's March 1996 decision reflected Commerce's long-held position that all commercial communications satellites should be under its jurisdiction. Commerce argued that these satellites are intended for commercial end use and are therefore not munitions. Commerce maintained that transferring jurisdiction to the dual-use list would also make U.S. controls consistent with treatment of these items under multilateral export control regimes. Manufacturers of satellites supported the transfer of commercial communications satellites to the Commerce Control List. They believed that such satellites are intended for commercial end use and are therefore not munitions subject to State's licensing process. They also believed that the Commerce process was more responsive to business due to its clearly established time frames and predictability of the licensing process. Under State's jurisdiction, the satellites were subject to Missile Technology sanctions requiring denial of exports and to congressional notifications. Satellite manufacturers also expressed the view that some of the militarily sensitive characteristics of communications satellites are no longer unique to military satellites. State and Defense point out that the basis for including items on the munitions list is the sensitivity of the item and whether it has been specifically designed for military applications, not how the item will be used. These officials have expressed concern about the potential for improvements in missile capabilities through disclosure of technical data to integrate the satellite with the launch vehicle and the operational capability that specific satellite characteristics could give a potential adversary. The process of planning a satellite launch takes several months, and there is concern that technical discussions between U.S. and foreign representatives may lead to the transfer of information on militarily sensitive components. Defense and State officials said they were particularly concerned about the technologies to integrate the satellite to the launch vehicle because this technology can also be applied to launch ballistic missiles to improve their performance and reliability. Accelerometers, kick motors, separation mechanisms, and attitude control systems are examples of equipment used in both satellites and ballistic missiles. State officials said that such equipment and technology merit control for national security reasons. They also expressed concern about the operational capability that specific characteristics, in particular antijam capability, crosslinks, and baseband processing, could give a potential adversary. No export license application for a satellite launch has been denied under either the State or Commerce systems. Therefore, the conditions attached to the license are particularly significant. Exports of U.S. satellites for launch in China are governed by a government-to-government agreement addressing technology safeguards. This agreement establishes the basic authorities for the U.S. government to institute controls intended to ensure that sensitive technology is not inadvertently transferred to China. This agreement is one of three government-to-government agreements with China on satellites. The others address pricing and liability issues. During our 1997 review and in recent discussions, officials pointed to two principal safeguard mechanisms to protect technologies. These safeguard mechanisms include technology transfer control plans and the presence of Defense Department monitors during the launch of the satellites. State or Commerce may choose to include these safeguards as conditions to licenses. Technology transfer control plans are prepared by the exporter and approved by Defense. The plans outline the internal control procedures the company will follow to prevent the disclosure of technology except as authorized for the integration and launch of the satellite. These plans typically include requirements for the presence of Defense monitors at technical meetings with Chinese officials as well as procedures to ensure that Defense reviews and clears the release of any technical data provided by the company. Defense monitors at the launch help ensure that the physical security over the satellite is maintained and monitor any on-site technical meetings between the company and Chinese officials. Authority for these monitors to perform this work in China is granted under the terms of the government-to-government safeguards agreement. Additional government control may be exercised on technology transfers through State's licensing of technical assistance and technical data. State technical assistance agreements detail the types of information that can be provided and give Defense an opportunity to scrutinize the type of information being considered for export. Technical assistance agreements, however, are not always required for satellite exports to China. While such licenses were required for satellites licensed for export by State, Commerce-licensed satellites do not have a separate technical assistance licensing requirement. The addition of new controls over satellites transferred to Commerce's jurisdiction in 1996 addressed some of the key areas where the Commerce procedures are less stringent than those at State. There remain, however, differences in how the export of satellites are controlled under these new procedures. Congressional notification requirements no longer apply, although Congress is currently notified because of the Tiananmen waiver process. Sanctions do not always apply to items under Commerce's jurisdiction. For example, under the 1993 Missile Technology sanctions, sanctions were not imposed on satellites that included missile-related components. Defense's power to influence the decision-making process has diminished since the transfer. When under State jurisdiction, State and Defense officials stated that State would routinely defer to the recommendations of Defense if national security concerns are raised. Under Commerce jurisdiction, Defense must now either persuade a majority of other agencies to agree with its position to stop an export or escalate their objection to the cabinet-level Export Administration Review Board, an event that has not occurred in recent years. Technical information may not be as clearly controlled under the Commerce system. Unlike State, Commerce does not require a company to obtain an export license to market a satellite. Commerce regulations also do not have a separate export commodity control category for technical data, leaving it unclear how this information is licensed. Commerce has informed one large satellite maker that some of this technical data does not require an individual license. Without clear licensing requirements for technical information, Defense does not have an opportunity to review the need for monitors and safeguards or attend technical meetings to ensure that sensitive information is not inadvertently disclosed. The additional controls applied to the militarily sensitive commercial communications satellites transferred to Commerce's control in 1996 were not applied to the satellites transferred in 1993. These satellites are therefore reviewed under the normal interagency process and are subject to more limited controls. This concludes our statement. We appreciate the opportunity to provide this information for the record of this hearing. Antennas and/or antenna systems with the ability to respond to incoming interference by adaptively reducing antenna gain in the direction of the interference. Ensures that communications remain open during crises. Allows a satellite to receive incoming signals. An antenna aimed at a spot roughly 200 nautical miles in diameter or less can become a sensitive radio listening device and is very effective against ground-based interception efforts. Provide the capability to transmit data from one satellite to another without going through a ground station. Permits the expansion of regional satellite communication coverage to global coverage and provides source-to-destination connectivity that can span the globe. It is very difficult to intercept and permits very secure communications. Allows a satellite to switch from one frequency to another with an on-board processor. On-board switching can provide resistance to jamming of signals. Scramble signals and data transmitted to and from a satellite. Allows telemetry and control of a satellite, which provides positive control and denies unauthorized access. Certain encryption capabilities have significant intelligence features important to the National Security Agency. Provide protection from natural and man-made radiation environment in space, which can be harmful to electronic circuits. Permit a satellite to operate in nuclear war environments and may enable its electronic components to survive a nuclear explosion. Allows rapid changes when the satellite is on orbit. Military maneuvers require that a satellite have the capability to accelerate faster than a certain speed to cover new areas of interest. Provides a low probability that a signal will be intercepted. High performance pointing capabilities provide superior intelligence-gathering capabilities. Used to deliver satellites to their proper orbital slots. If the motors can be restarted, the satellite can execute military maneuvers because it can move to cover new areas. 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 evolution of export controls on commercial communications satellites, focusing on: (1) key elements in the export control systems of the Department of Commerce and the Department of State; (2) how export controls for commercial satellites have evolved over the years; (3) the concerns and issues debated over the transfer of commercial communications satellites to the export licensing jurisdiction of Commerce; and (4) the safeguards that may be applied to commercial satellite exports. GAO noted that: (1) the U.S. export control system--comprised of both the Commerce and State systems--is about managing risk; (2) exports to some countries involve less risk than to other countries and exports of some items involve less risk than others; (3) the planning of a satellite launch with technical discussions and exchanges of information taking place over several months, involves risk no matter which agency is the licensing authority; (4) recently, events have focused on the appropriateness of Commerce jurisdiction over communication satellites; (5) by design, Commerce's system gives greater weight to economic and commercial concerns, implicitly accepting greater security risks; and (6) State's system gives primacy to national security and foreign policy concerns, lessening--but not eliminating--the risk of damage to U.S. national security interests.
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The U.S. Department of Agriculture (USDA) is the federal government's principal provider of loans used to assist the nation's rural areas in developing their utility infrastructure. Through RUS, USDA finances the construction, improvement, and repair of electrical, telecommunications, and water and waste disposal systems. RUS provides credit assistance through direct loans and through repayment guarantees on loans made by other lenders. Established by the Federal Crop Insurance Reform and the Department of Agriculture Reorganization Act of 1994, RUS administers the electricity and telecommunications programs that were operated by the former Rural Electrification Administration and the water and waste disposal programs that were operated by the former Rural Development Administration. As of September 30, 1996, which was the most recent information available to us at the time of our review, RUS' entire portfolio of loans--including direct and guaranteed electricity, telecommunications, and water and waste disposal loans--totaled $42.5 billion. Electricity loans made up over $32 billion, or 75 percent of this total. Most of the RUS electric loans and loan guarantees were made during the late 1970s and early 1980s. For example, from fiscal years 1979 through 1983, RUS approved loans and loan guarantees of about $29 billion, whereas during fiscal years 1992 through 1996, it approved a total of about $4 billion in electric loans and loan guarantees. RUS electricity loans were made primarily to rural electric cooperatives; more than 99 percent of the borrowers with electricity loans are nonprofit cooperatives. These cooperatives are either Generation and Transmission (G&T) cooperatives or distribution cooperatives. A G&T cooperative is a nonprofit rural electric system whose chief function is to produce and sell electric power on a wholesale basis to its owners, who consist of distribution cooperatives and other G&T cooperatives. A distribution cooperative sells the electricity it buys from a G&T cooperative to its owners, the retail customers. As of September 30, 1996, the bulk of the electric loan portfolio was made up of loans to the G&Ts. The principal outstanding on these G&T loans was approximately $22.5 billion, about 70 percent of the portfolio. Distribution borrowers made up the remaining 30 percent of the electric portfolio. At the time of our review, there were 55 G&T borrowers and 782 distribution borrowers. Our review focused on the G&T loans since they make up the majority, in terms of dollars, of the portfolio and generally pose the greatest risk of loss to the federal government. The federal government incurs financial losses when borrowers are unable to repay the balances owed on their loans and the government does not have sufficient legal recourse against the borrowers to recover the full loan amounts. In all instances, G&T loans are collateralized; however, RUS has never foreclosed on a loan. RUS generally has been unable to successfully pursue foreclosure once the borrower files for bankruptcy because the borrower's assets are protected until the proceedings are settled. In addition, in recent cases where debt was written off, the government forgave the debt and therefore did not attempt to pursue further collection. Under Department of Justice (DOJ) authority, during fiscal year 1996 and through July 31, 1997, RUS wrote off about $1.5 billion of loans to rural electric cooperatives. The most significant write-offs relate to two G&T loans. In fiscal year 1996, one G&T made a lump sum payment of $237 million to RUS in exchange for RUS writing off and forgiving the remaining $982 million of its RUS loan balance. The G&T's financial problems began with its involvement as a minority-share owner in a nuclear project that experienced lengthy delays in construction as well as severe cost escalation. When construction of the plant began in 1976, its total cost was projected to be $430 million. However, according to the Congressional Research Service, the actual cost at completion in 1987 was $3.9 billion as measured in nominal terms (1987 dollars). These cost increases are due in part to changes in Nuclear Regulatory Commission health and safety regulations after the Three Mile Island accident. The remaining portion is generally due to inflation over time and capitalization of interest during the delays. The borrower defaulted in 1986, had its debt restructured in 1993, and finally had its debt partially forgiven in September 1996. This borrower is no longer in the RUS program. In the early part of fiscal year 1997, another G&T borrower made a lump sum payment of approximately $238.5 million in exchange for forgiveness of its remaining $502 million loan balance. The G&T and its six distribution cooperatives borrowed the $238.5 million from a private lender, the National Rural Utilities Cooperative Finance Corporation. The G&T had originally borrowed from RUS to build a two-unit coal-fired generating plant and to finance a coal mine that would supply fuel for the generating plant. The plant was built in anticipation of industrial development from the emerging shale oil industry. However, the growth in demand did not materialize, and there was no market for the power. Although the borrower had its debt restructured in 1989, it still experienced financial difficulties due to a depressed power market. RUS and DOJ decided that the best way to resolve the matter was to accept a partial lump sum payment on the debt rather than force the borrower into bankruptcy. The borrower and its member distribution cooperatives are no longer in the RUS program. It is probable that RUS will have additional loan write-offs and therefore that the federal government will incur further losses in the short term from loans to borrowers that have been identified as financially stressed by RUS management. At the time of our review, RUS reports indicated that about $10.5 billion of the $22.5 billion in G&T debt was owed by 13 financially stressed G&T borrowers. Of these, four borrowers with about $7 billion in outstanding debt were in bankruptcy. The remaining nine borrowers had investments in uneconomical generating plants and/or had formally requested financial assistance in the form of debt forgiveness from RUS. According to RUS officials, these plant investments became uneconomical because of cost overruns, continuing changes in regulations, and soaring interest rates. These investments resulted in high levels of debt and debt-servicing requirements, making power produced from these plants expensive. (See attachment I for a list and brief discussion of these borrowers.) Since cooperatives are nonprofit organizations, there is little or no profit built into their rate structure, which helps keep electric rates as low as possible. However, the lack of retained profit generally means the cooperatives have little or no cash reserves to draw upon. Thus, when cash flow is insufficient to service debt, cooperatives must raise electricity rates and/or cut other costs enough to service debt obligations. If they are unable to do so, they may default on their government loans. This was the scenario for the previously discussed write-offs in fiscal year 1996 and through July 31, 1997. Additional write-offs are expected to occur. For example, according to RUS officials, at the time of our review, the agency was considering writing off as much as $3 billion of the total $4.2 billion debt owed by Cajun Electric, a RUS borrower that has been in bankruptcy since December 1994. Cajun Electric filed for bankruptcy protection after the Louisiana Public Service Commission disapproved a requested rate increase and instead lowered rates to a level that reduced the amount of revenues available to Cajun to make annual debt service payments. Several factors contributed to Cajun's heavy debt, including its investment in a nuclear facility that experienced construction cost overruns and its excess electricity generation capacity resulting from overestimation of the demand for electricity in Louisiana during the 1980s. In addition to the financially stressed loans, RUS had loans outstanding to G&T borrowers that were considered viable by RUS but may become stressed in the future due to high costs and competitive or regulatory pressures. We believe it is probable that the federal government will eventually incur losses on some of these G&T loans. We believe the future viability of these G&T borrowers will be determined based on their ability to be competitive in a deregulated market. In order to assess the ability of RUS cooperatives to withstand competitive pressures, we focused on production costs for 33 of the 55 G&T borrowers with loans outstanding of about $11.7 billion as of September 30, 1996. We excluded 9 G&Ts that only transmit electricity and the 13 financially stressed borrowers discussed above. Our analysis showed that for 27 of the 33 G&T borrowers, production costs were higher in their respective regional markets than investor-owned utilities, and that for 17 of the 33, production costs were higher than publicly-owned generating utilities. The relatively high average production costs indicate that the majority of G&Ts may have difficulty competing in a deregulated market. RUS officials told us that several borrowers have already asked RUS to renegotiate or write off their debt because they do not expect to be competitive due to high costs. RUS officials stated that they will not write off debt solely to make borrowers more competitive. As with the financially stressed borrowers, some of the G&T borrowers considered viable by RUS at the time of our work had high debt costs because of investments in uneconomical plants. In addition, according to RUS officials, there are two unique factors that cause cost disparity between the G&Ts and their competition. One factor is the sparser customer density per mile for cooperatives and the corresponding high cost of providing service to the rural areas. A second factor has been the inability to refinance higher cost Federal Financing Bank (FFB) debt when lower interest rates have prevailed. However, RUS officials said that recent legislative changes that enable cooperatives to refinance FFB debt with a penalty may help align G&T interest rates with those of the investor-owned utilities. In the short term, G&Ts will likely be shielded from competition because of the all-requirements wholesale power contracts between the G&T and their member distribution cooperatives. With rare exceptions, these long-term contracts obligate the distribution cooperatives to purchase all of their respective power needs from the G&T. In fact, RUS requires the terms of the contracts to be at least as long as the G&T loan repayment period. However, wholesale power contracts have been challenged recently in the courts by several distribution cooperatives because of the obligation to purchase expensive G&T power. According to RUS officials, one bankrupt G&T's member cooperatives challenged their wholesale power contracts in court in order to obtain less expensive power. RUS officials believe that the long-term contracts will come under increased scrutiny and potential renegotiation or court challenges as other sources of less expensive power become available. Wholesale rates under these contracts are set by a G&T's board of directors with approval from RUS. In states whose commissions regulate cooperatives, the cooperatives must file requests with the commissions for rate increases or decreases. Several of the currently bankrupt borrowers were denied requests for rate increases from state commissions. However, RUS officials indicated they do not expect G&Ts to pursue rate increases as a means to recover their costs because of the recognition of declining rates in a competitive environment. RUS officials also acknowledge that borrowers with high costs are likely to request debt forgiveness as a means to reduce costs in order to be competitive in the future. As discussed above, denials of requested rate increases by state commissions culminated in several G&Ts filing for bankruptcy. Eighteen of the RUS G&T borrowers operate in states where regulatory commissions must approve rate increases. These commissions may deny a request for a rate increase if they believe such an increase will have a negative impact on the region. According to RUS officials, some commissions have denied rate increases to cover the costs of projects that the commissions had previously approved for construction. Therefore, G&Ts with high costs may be likely candidates to default on their RUS loans, even without direct competitive pressures. In summary, in the last several years, through July 1997, RUS has experienced loan write-offs of $1.5 billion. Additional write-offs related to the $10.5 billion in loans identified by RUS as financially stressed as of the time of our review are likely in the near term. And finally, RUS has loans outstanding to G&T borrowers that are currently considered viable by RUS that may become stressed in the future due to high production costs and competitive or regulatory pressures. We believe it is probable that the federal government will incur losses eventually on some of these G&T loans. The future viability of these G&T loans will be determined based in part on the RUS cooperatives' ability to be competitive in a deregulated market. Mr. Chairman, that concludes my statement. I would be happy to answer any questions you or other Members of the Subcommittee may have. The following is a list and brief discussion of each of the 13 financially stressed G&T borrowers. This information is as of September 30, 1996; therefore, changes may have occurred subsequent to our review. Borrower A: Invested in construction of a nuclear plant that experienced cost overruns and was never completed. The state commission denied rate increases to cover the cost of the cooperative's investment in the plant. The borrower defaulted on its loan in 1984 and declared bankruptcy in 1985. The bankruptcy proceedings have been in court for 12 years and are still not completely resolved. Borrower B: Made an investment in a nuclear plant that proved to be uneconomical. While this borrower does not appear to be currently experiencing financial difficulties, RUS considers it financially stressed because it has formally requested financial assistance due to impending competitive pressures. Borrower C: Made an investment in a nuclear plant that proved to be uneconomical. While this borrower does not appear to be currently experiencing financial difficulties, RUS considers it financially stressed because it has formally requested financial assistance due to impending competitive pressures. Borrower D: Uses primarily coal-fired generation. The borrower overbuilt due to anticipated growth in electricity demand that did not occur. During construction of a new plant, economic conditions in the area changed and demand for electricity dropped, which resulted in less revenue than predicted from the plant. The cooperative was repeatedly denied rate increases to cover the cost of its plants by the state commission. Borrower E: Has a small percentage share in a nuclear plant that proved to be uneconomical. The borrower has substantially higher electricity rates than the investor-owned utilities in its region. The cooperative has been denied rate increases to cover its losses by the state commission. Although the borrower has had some of its debt refinanced, it is still experiencing financial difficulties. Borrower F: A G&T with primarily coal-fired generating plants that overbuilt due to anticipated industrial growth related to two large aluminum smelting companies. When aluminum prices dropped in the early 1980s, the companies threatened to move their operations if the cooperative did not lower electricity rates. The state commission denied rate increases over the fear of losing these industries. RUS restructured the borrower's debt in 1987 and 1990. The cooperative filed for bankruptcy in September 1996 because its other creditors were unwilling to negotiate. Borrower G: Built a coal-fired plant and invested in a nuclear plant in the mid-1970s that was completed late and experienced construction cost overruns. Several factors contributed to the cooperative's heavy debt, including excess electricity generation construction resulting from overestimation of the demand for electricity during the 1980s. The new capacity was intended to serve a growth in demand that did not materialize. The state commission disapproved a rate increase and instead lowered rates to a level that precluded full debt service coverage. The commission also refused to support a restructuring agreement that included a significant RUS loan write-off. The rate increase was requested by the cooperative because of its high costs. The borrower filed for bankruptcy in December 1994. Borrower H: Invested in construction of a nuclear plant that proved to be uneconomical. The project was completed 10 years late and over budget. In addition, there was a dramatic drop in the demand for electricity in the cooperative's service area, and the state commission would not allow rate increases to recover capital investment. The borrower had its debt restructured in 1987; however, it is requesting additional financial assistance due to anticipated competitive pressure. A final settlement between RUS and the borrower was reached in June 1997. The borrower was expected to receive a write-off of $165 million. The final payment and related debt write-off were scheduled to occur December 30, 1997. Borrower I: Invested in a clean-burning coal plant that experienced severe cost overruns. The borrower has substantially higher electricity rates than the investor-owned utilities in its region. The state commission has denied the cooperative's request for rate increases. The borrower had some of its debt refinanced, but it is still experiencing financial difficulty. Borrower J: Invested in a nuclear plant that proved to be uneconomical. The plant was completed late, which resulted in cost overruns. As a result, the cooperative's wholesale power rates are very high. The borrower has requested debt restructuring due to its high cost of production and anticipated competitive pressure. Borrower K: Invested in a nuclear plant that proved to be uneconomical. The plant was completed late, which resulted in severe cost overruns. The cooperative's wholesale power rates are very high, which has resulted in extreme unrest in the member distribution cooperatives. The borrower is surrounded by investor-owned utilities with lower wholesale rates. In addition, the borrower's system is very difficult and expensive to maintain and experiences frequent power outages. The borrower has requested financial assistance because of anticipated competitive pressure. Borrower L: Invested in a nuclear plant that proved to be uneconomical. The plant was completed late, which resulted in severe cost overruns. The cooperative has only five member distribution cooperatives, which makes it difficult to cover its high production costs. This borrower chose not to declare bankruptcy and is seeking financial assistance. This borrower has refinanced its debt to lower its interest rate, but is still experiencing financial difficulty and has requested additional financial assistance. Borrower M: Invested in a nuclear plant that proved to be uneconomical. In addition, the cooperative had a stagnant customer base in the 1980s. RUS tried to negotiate a restructuring agreement, but the state commission denied two separate plans. In April 1996, the borrower filed for bankruptcy. 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 Rural Utilities Service's (RUS) electric loan portfolio and the potential for future losses to the federal government from these loans, focusing on: (1) substantial write-offs of loans to rural electric cooperatives; (2) likely additional losses to the federal government from loans to financially stressed borrowers; and (3) the potential for future losses from viable loans that may become stressed in the future due to high production costs and competitive or regulatory pressures. GAO noted that: (1) under Department of Justice authority, during fiscal year (FY) 1996 and through July 31, 1997, RUS wrote off about $1.5 billion of loans to rural electric cooperatives; (2) the most significant write-offs relate to two generation and transmission (G&T) loans; (3) it is probable that RUS will have additional loan write-offs and therefore that the federal government will incur losses in the short term from loans to borrowers that have been identified as financially stressed by RUS management; (4) at the time of GAO's review, RUS reports indicated that about $10.5 billion of the $22.5 billion in G&T debt was owed by 13 financially stressed G&T borrowers; (5) in addition to the financially stressed loans, RUS had loans outstanding to G&T borrowers that were considered viable by RUS but may become stressed in the future due to high costs and competitive or regulatory pressures; (6) GAO believes it is probable that the federal government will eventually incur losses on some of these G&T loans; (7) GAO also believes the future viability of these G&T borrowers will be determined based on their ability to be competitive in a deregulated market; (8) relatively high average production costs indicate that the majority of G&Ts may have difficulty competing in a deregulated market; (9) as with the financially stressed borrowers, some of the G&T borrowers considered viable by RUS at the time of GAO's work had high debt costs because of investments in uneconomical plants; (10) in the short term, G&Ts will likely be shielded from competition because of the all-requirements wholesale power contracts between the G&T and their member distribution cooperatives; (11) wholesale rates under these contracts are set by a G&T's board of directors with approval from RUS; (12) in states whose commissions regulate cooperatives, the cooperative must file a request with the commission for a rate increase or decrease; (13) these commissions may deny a request for a rate increase if they believe such an increase will have a negative impact on the region; (14) denials of requested rate increases by state commissions culminated in several G&Ts filing bankruptcy; (15) according to RUS officials, some commissions have denied a rate increase to cover the cost of projects that the commission had previously approved for construction; and (16) therefore, G&Ts with high costs may be likely candidates to default on their RUS loans, even without direct competitive pressures.
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Question 1: Does DOE have statutory authority that specifically authorizes it to spend the funds appropriated to other federal agencies and use those funds for LDRD? The Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 authorizes DOE to conduct R&D at DOE facilities for "other departments and agencies of the government . . ." The act requires that when DOE conducts R&D for other agencies, it impose a charge to recover its costs of conducting the work. The charge must include both direct costs that DOE incurs in carrying out the work and all associated overhead costs. When DOE assesses the charge to recover its costs, the ordering agency transfers amounts from its appropriation to DOE to pay the assessed charge. An interagency transaction, like that authorized by section 7259a, is not unlike a contractual transaction. Because of a statutory prohibition on transferring funds between two appropriations, federal agencies require specific statutory authority, like section 7259a, to engage in interagency transactions. In other words, federal agencies require statutory authority to contract with each other. Section 7259a permits other federal agencies to contract with DOE for R&D. When other agencies transfer amounts to DOE to pay the charge that DOE assesses under section 7259a, and DOE uses those amounts to defray the costs it incurred in carrying out the work for the other agency, DOE is not "spending" funds appropriated to another agency any more than a private vendor with whom the agency had contracted for services "spends" federal appropriations when it uses amounts received in payment from the federal agency to defray its costs of doing business. As in a contractual transaction, when a federal agency transfers amounts to DOE in payment of the section 7259a charge, the funds transferred become DOE funds and are available for the same purposes and uses as the other amounts in the DOE appropriation account to which they are credited. When DOE agrees to carry out R&D for another agency and conducts the work in one of its laboratories, DOE asks the contractor who operates its laboratory to undertake the R&D tasks. In that case, the cost to DOE of having its contractor conduct these tasks is a direct cost that DOE is required by section 7259a to include in the charge that it assesses the other agency. The other agency is not paying DOE's contractor; in fact, the other agency has no legal relationship with DOE's contractor. The amount DOE owes its contractor for this work is determined by the terms of the contract that DOE has with its contractor. Included in the amounts DOE pays its contractor is an amount for LDRD. The National Defense Authorization Act for Fiscal Year 1991 requires DOE to pay its laboratory contractors an amount for LDRD, not to exceed 6 percent of the amount that DOE pays to the contractor for national security activities. Consequently, DOE is not "using" funds appropriated to other federal agencies for LDRD. LDRD is a cost that DOE incurs, both statutorily and contractually, whenever the laboratory's contractor performs work for DOE. When another agency asks DOE to conduct R&D on its behalf, and DOE, in performing that work incurs an LDRD cost, DOE, under section 7259a, properly includes that cost in calculating what it will charge the ordering agency. Just as a private vendor factors its costs of doing business into the price it charges for services rendered, DOE, under section 7259a, must factor its costs of doing business, including LDRD, into the amount it charges other agencies. That DOE might use monies properly transferred from another agency to defray the LDRD amount it owes its laboratory contractor does not mean that DOE is "using" another agency's funds for LDRD any more than a private vendor is using a federal agency's appropriation when it applies amounts paid by a federal agency for services rendered to defray its costs of doing business. Question 2: Congressional appropriations laws must comply with defense and domestic firewalls in Senate budget resolutions adopted by Congress. What mechanism has DOE had in place to ensure that funds appropriated for defense purposes are used only for defense activities and that funds appropriated for domestic purposes are used only for activities in support of those domestic agencies? This question applies to both LDRD conducted with DOE funds and LDRD conducted with funds received from other federal agencies. As discussed in our response to question 1, DOE's funds support the LDRD programs at participating DOE contractor-operated laboratories--not the appropriations of other agencies. Under the terms of the agreement when another federal agency asks DOE to perform work on its behalf, the agency agrees to reimburse DOE all costs that DOE incurs in performing the work. In funding and carrying out LDRD, DOE and the laboratories must comply with statutory requirements imposed on them. For example, DOE and its contractor-operated laboratories are required to comply with the National Defense Authorization Act for Fiscal Year 1998, which requires that when DOE uses its appropriation for nuclear weapons activities to pay for LDRD, the LDRD must support projects in DOE's national security mission and when DOE uses its environmental restoration, waste management, or nuclear materials and facilities stabilization appropriation to pay for LDRD, the LDRD must support projects in these mission areas. In addition, the Homeland Security Act of 2002 specifically directs that when DHS orders work from DOE's laboratories, the laboratories must use the associated LDRD funds only for purposes that benefit DHS missions. Officials at each of the laboratories we visited told us that, because LDRD promotes cutting-edge science and technology, much of the R&D conducted is basic research that, by definition, can result in applications that benefit both defense and civilian agencies. Thus, projects proposed with the intention of supporting a defense mission may lead to cross- cutting applications that benefit Homeland Security or other civilian agencies. Specifically, officials at DOE's weapons laboratories cited examples in sensor research for identifying traces of radiological and biological agents that had benefited both the nuclear nonproliferation and homeland security missions. They also mentioned LDRD projects that had applications for the NIH's cancer research programs, as well as DHS and DOE. Question 3: Which federal agencies, in addition to DOE, have a similar process whereby up to 6 percent of funds appropriated to the agency (or any other federal agency) may be diverted to purposes other than those for which the Congress appropriated the funds? NASA's Jet Propulsion Laboratory, operated by the California Institute of Technology, is the only federal laboratory we identified that includes an assessment on the work performed for other federal agencies to support a laboratory-directed R&D program. In fiscal year 2003, the Jet Propulsion Laboratory Director's R&D Fund received about $91,000 through an assessment of .025 percent on all projects over $250,000 performed for other federal agencies--primarily DOD. The Director's R&D Fund also received $3.5 million from NASA's research directorates that was pro rated on the basis of their expected R&D funding at the Jet Propulsion Laboratory. Similar to DOE's LDRD program, the Director's R&D Fund is designed to promote innovative science and new technology. The fund also encourages collaborative work with the California Institute of Technology, other universities, other federal laboratories, and industry. The Jet Propulsion Laboratory's director awards funding to research projects on the basis of peer review of their scientific merits. The Air Force's Lincoln Laboratory, operated by the Massachusetts Institute of Technology, has a Directed Defense Research and Engineering program. However, unlike LDRD, the Defense budget provides the Directed Defense Research and Engineering program with about $25 million annually through a direct appropriation from the Congress--Lincoln does not include an assessment in its indirect-cost rate to finance its program. Similar to DOE's LDRD program, Lincoln Laboratory's director awards funding to research projects on the basis of peer review of their scientific merits. The Army and the Navy also reported that their In-house Laboratory Independent Research program is fully funded by their appropriations. NRC's Center for Nuclear Waste Regulatory Analyses, operated by the Southwest Research Institute, also has a small self-initiated research program. However, NRC's center does not receive funding support from other federal agencies. Question 4: What mechanisms has DOE had in place to ensure that the department fully complies with all statutory and report language in appropriations bills for itself and other federal agencies when DOE spends funds on their behalf? DOE has issued a departmental order for the LDRD program and clarifying memoranda and guidance to ensure departmental compliance with statutory requirements and congressional direction in committee reports. These include the following: The National Defense Authorization Act for Fiscal Year 1991 established an annual 6-percent funding limit on LDRD. Subsequently, DOE's Order 413.2A established departmental requirements for the LDRD program, and each laboratory establishes a fixed rate for the LDRD assessment each year that ensures compliance with the 6-percent funding limit. DOE officials told us that the department does not need to link the LDRD funding from non-DOE sources to specific LDRD projects because it treats LDRD as an indirect cost that, under cost accounting standards, must be pooled with other LDRD funds and not tracked back to a specific funding source. The DOE officials added that LDRD costs are charged to all laboratory customers at the same rate and are considered a normal cost of doing business. The National Defense Authorization Act for Fiscal Year 1998 limited the use of LDRD funds (1) originating from nuclear weapons funding to LDRD projects that support DOE's national security mission and (2) originating from environmental restoration, waste management, or nuclear materials and facilities stabilization for LDRD projects that support these missions. DOE and laboratory LDRD managers told us that they have achieved the act's funding requirements through (1) the identification of areas of emphasis that are likely to benefit DOE's national security and environmental management missions in each laboratory's annual LDRD program plan and its calls for proposals and (2) the laboratory's LDRD manager's and DOE site office's review of proposals recommended for funding. The National Defense Authorization Act for Fiscal Year 1998 also required that DOE report to the Congress on the extent to which the LDRD Program has met the objective of supporting R&D with long-term application to national security. DOE's most recent report to the Congress stated that, in fiscal year 2003, the laboratories spent about $356 million for LDRD, of which defense customers, through reimbursement to DOE, provided $243 million and nondefense customers, through reimbursement to DOE, provided $113 million. DOE concluded that about $268 million of the LDRD funding supported projects expected to benefit the defense and national security missions and about $283 million of the LDRD funding supported projects expected to benefit the nondefense mission areas. The Conference Report accompanying the Energy and Water Development Appropriations Act for Fiscal Year 2002 directs that (1) when accepting funds from another federal agency for work, DOE notify the agency in writing how much will be used for LDRD and (2) the Secretary of Energy affirm each year that all LDRD projects support R&D that benefits the sponsoring agencies' programs and are consistent with their appropriations acts. On April 30, 2002, the Secretary of Energy issued a memorandum to the Under Secretary for Nuclear Security and the Under Secretary for Energy, Science and Environment that provided guidance directing that all DOE agreements to perform R&D for other federal agencies provide notice about each participating laboratory's LDRD program, including (1) the applicable indirect-cost rate, (2) an estimate of the associated cost, and (3) an explanation of the LDRD program's purpose. Furthermore, each agreement to perform work states that DOE will conclude that, by approving the agreement and providing funds, the agency acknowledges that LDRD benefits the agency and is consistent with its appropriation requirements. DOE officials told us that the DOE site office responsible for the laboratory typically sends this notification to the program manager or contracting officer at the sponsoring agency. The Homeland Security Act of 2002 requires that DHS funds are not to be expended for LDRD unless such activities support DHS missions. On February 28, 2003, the Secretary of Energy and the Secretary of Homeland Security entered into a Memorandum of Agreement that establishes a framework for DHS to access the capabilities of DOE's national laboratories and production facilities. On April 21, 2003, DOE's Deputy Secretary issued DOE Notice 481.1A, Reimbursable Work for Department of Homeland Security, which provided information on the process by which DHS would place orders for reimbursable work activities at the DOE laboratories. The DOE notice includes provisions that DOE notify DHS of LDRD charges in the cost proposals and that DHS acknowledge the benefits of LDRD prior to final approval. DHS has set up centers at each of the DOE laboratories to facilitate its access, and DOE and DHS are still formalizing their working relationship. Question 5: To what extent does the leadership of federal agencies that give funds to DOE for its laboratories to conduct R&D on their behalf fully understand that up to 6 percent of the funds may be diverted under DOE's LDRD program to purposes that have nothing to do with the purpose for which the Congress originally appropriated the funds? Please detail the written notifications that DOE has issued in response to the requirement in the Conference Report for the Energy and Water Development Appropriations Act for Fiscal Year 2002 that DOE notify federal agencies in writing how much of their funds may be diverted to LDRD. Senior officials at each of the six federal agencies we contacted stated that their offices were aware that the DOE laboratories included a charge of up to 6 percent for LDRD in the costs they are required to reimburse DOE. Specifically, the senior officials in the Office of the Chief Financial Officer (CFO) and/or the Office of General Counsel at each agency told us that the LDRD program's inclusion as an indirect cost does not limit their ability to comply with their agency's statutory or appropriations requirements. Similarly, none of the research managers and/or contracting officers at these agencies expressed concern about the LDRD program or its funding method. In December 2003, at the direction in the Conference Report accompanying the Energy and Water Development Appropriations Act for Fiscal Year 2002, DOE sent the CFOs of 22 agencies information about the LDRD program and its inclusion in the indirect costs for R&D performed at DOE laboratories. Specifically, DOE provided each CFO office, with the exception of DHS, with a copy of the Secretary of Energy's April 2002 memorandum, an explanation of how the LDRD program is funded, and a description of DOE's notification process. However, DOE did not identify a point of contact within each agency's Office of the CFO or provide the CFO's room number, and senior officials in the CFO's office at Transportation and NRC told us that they did not receive DOE's information even though they were the appropriate point of contact. These officials commented on the LDRD program after we provided them with copies of the DOE materials. Similarly, research managers and/or contracting officers responsible for funding R&D at DOE's contractor-operated laboratories for DOD, DHS, DOT, NASA, NIH, and NRC had differing levels of knowledge about how the LDRD program functioned and how it is funded. For example, the DOD, DHS, and NASA research managers we interviewed had detailed knowledge of the LDRD program. In contrast, research managers at DOT were less familiar with the LDRD program and how it is funded. They told us that this was mainly because the department funds relatively little R&D at the DOE laboratories and the decisions to use the DOE laboratories are made by the departmental agencies. Question 6: Please identify any instances when another federal agency has refused to pay the LDRD charge assessed by the DOE laboratories on work for other agencies, as well as any instances when the DOE laboratories have voluntarily waived assessment of the LDRD charge on funds received from another federal agency. None of the officials at the six agencies we contacted cited any instances when their agencies have refused to reimburse DOE for the LDRD charge or expressed concern about the LDRD expense. In June 1998, DOE and NIH signed a Memorandum of Understanding that clarified the terms and conditions of NIH grants awarded to DOE laboratories. Among other things, the Memorandum of Understanding states that (1) the DOE laboratory contractor may be the awardee organization, (2) DOE will waive its 3-percent administrative overhead rate, and (3) while NIH awards will not include an allowance for LDRD, the DOE laboratories may recover LDRD costs from the total funding included in grants awarded to DOE laboratory contractors. Cognizant officials at DOE and its laboratories told us that they are not aware of any instances in which a federal customer has objected to or stated that they would not reimburse DOE for the LDRD charge. The officials also did not identify any instances in which the DOE laboratories had not charged DOE for the LDRD portion of the work done on another agency's behalf--either voluntarily or involuntarily. Managers at each of the nine DOE laboratories told us that their policy is to use the same indirect cost rate for all R&D and other operations performed at the laboratory. Question 7: On April 30, 2002, the Secretary of Energy issued revised LDRD guidance in response to direction provided in the Conference Report for the Energy and Water Development Appropriations for Fiscal Year 2002. Subsequently, DOE's National Nuclear Security Administration (NNSA) and Office of Science issued more detailed guidance to their respective laboratories. What is the status of implementing the changes to the LDRD approval and reporting process as outlined in this guidance? Do these new procedures constitute a firewall between LDRD using defense appropriations and LDRD using nondefense appropriations, as some in DOE have claimed? DOE has implemented changes to the LDRD approval and reporting process as outlined in the Secretary's memorandum and the NNSA and Office of Science guidance. These changes include having a DOE official review and concur on all LDRD projects prior to approval by laboratory directors and requiring DOE field officials associated with each laboratory to certify annually that LDRD projects benefit the programs of the sponsoring agencies. When approving these projects, DOE does not distinguish whether the projects benefit defense or nondefense activities because, in its view, LDRD projects are new concepts that may benefit more than one area and therefore cannot be categorized in this manner. DOE officials' role in approving proposed LDRD projects is to ensure that the projects support DOE's national security mission. However, as stated earlier, DOE's annual report identifies the amounts of LDRD funding it receives from defense and nondefense sponsors and the amounts of LDRD funding that support projects expected to have primary benefit to defense or nondefense mission areas. Question 8: Are the laboratories supplementing their funds for LDRD with funds designated for the Strategic Initiative? None of the nine DOE laboratories has been supplementing funding for LDRD programs with other laboratory funds, such as Idaho National Engineering and Environmental Laboratory's (INEEL) Strategic Initiative, according to officials of DOE's Office of Inspector General; Office of Management Budget and Evaluation; Office of Science; NNSA; Office of Nuclear Energy, Science, and Technology; and the nine laboratories. As stated earlier, DOE's Order 413.2A prohibits DOE's laboratories from using LDRD funds on projects that will need additional non-LDRD funding to reach their goals. A May 2003 DOE Inspector General report cited possible misuse of INEEL's Strategic Initiative Fund for LDRD projects. In response, DOE's acting CFO conducted a review of the expenditures in question and determined that no funds were misused and INEEL had not exceeded its LDRD funding limit. The Inspector General accepted the CFO's findings. Question 9: What does DOE do to ensure, in advance, that different laboratories do not undertake duplicative LDRD projects? What does DOE do to ensure that LDRD projects are not duplicative of research in other federal agencies or in universities? DOE and its laboratories rely on the scientists, who submit proposals; members of peer review committees; and laboratory managers to ensure that LDRD projects do not duplicate research at other laboratories or universities. According to officials at the four laboratories we visited, the chances for duplication among LDRD projects are remote for several reasons. First, the NNSA laboratories (Los Alamos, Lawrence Livermore, and Sandia) coordinate their work to ensure there is no duplication. Second, peer review groups consisting of laboratory, DOE, industry, and university representatives involve themselves in project management and try to eradicate duplication or other potential wastes of resources. Third, science is a very competitive field, and scientists have strong incentives to conduct original research and publish or present the results of that research. Finally, because basic science explores fundamental principles, scientists may be looking at the same issue, for example, techniques for sensing ever smaller amounts of an element, but for different reasons or with different approaches. In addition, our September 2001 report concluded that the LDRD project-selection and review processes that are in place at the nine DOE laboratories are adequate to reasonably ensure compliance with DOE's project-selection guidelines. Question 10: To what extent does DOE believe that the LDRD program is still a necessary tool to recruit and retain scientists? Officials at NNSA laboratories told us that LDRD remains a necessary tool to recruit and retain top scientists because their program work provides little opportunity for basic scientific research. Similarly, INEEL officials told us that LDRD plays a major role in attracting and retaining the most qualified scientists and engineers at their laboratory. In comparison, officials at Office of Science laboratories believe that LDRD is important for recruiting and retaining scientists; however, they noted its role is less essential for their laboratories because they primarily perform basic research. NNSA laboratory managers told us that LDRD is an essential tool for recruiting and retaining scientists for several reasons. As a recruiting tool, the LDRD program is vital because the mission of the NNSA laboratories-- to perform applied research to develop nuclear weapons technologies-- does not readily attract qualified new hires. The LDRD program has served as a stepping stone for the NNSA laboratories to attract and hire many scientists by supporting from nearly one-half to two-thirds of the post doctoral researchers at the laboratories. For example, one of the three LDRD program components at Los Alamos National Laboratory makes awards to research proposals specifically targeted at post-doctoral candidates. As a result, 262 (61 percent) of the 427 post-doctoral scientists charged substantial amounts of time to LDRD. According to NNSA laboratory managers, post-doctoral scientists who work at their laboratories are more likely to seek permanent employment at the laboratory, and LDRD projects provide opportunities for laboratory managers to evaluate the post-doctoral scientists for future employment. In some cases, the LDRD program also provides meaningful work opportunities at the NNSA laboratories while newly hired scientists wait to receive their security clearances. In addition, the LDRD program provides opportunities for collaboration with universities and other research organizations, thereby providing a pipeline for new employees. As a retention tool, LDRD provides scientists with funding to perform basic and applied research on the cutting edge of their field, improve their technical skills, and make scientific contributions in their fields. INEEL managers told us that the LDRD program funded 55 percent of the post-doctoral candidates supported by the laboratory in fiscal year 2002. The managers attributed about 40 percent of the scientists and engineers hired at INEEL in the past 4 years to investments in LDRD. Managers at the five Office of Science laboratories told us that the LDRD program is important for their efforts to recruit and retain scientists. However, they noted that the LDRD program is less important to their laboratories than it is to the NNSA laboratories, because their laboratories mainly fund basic research. According to laboratories managers, it is basic research and the opportunity for technological advances--whether performed as LDRD or as program work--that attracts and maintains the interest of the top scientists. As a result, the Office of Science laboratories typically devote, at most, slightly over 4 percent of their R&D and other operating funds to LDRD each year and have substantially smaller LDRD programs than the NNSA laboratories. Question 11: How much has each of the nine DOE laboratories spent on LDRD from fiscal year 1998 through fiscal year 2003, and which federal agencies' funds have been used and in what amounts? For the 6 years from fiscal year 1998 through fiscal year 2003, DOE's nine laboratories spent a total of $1.8 billion, or an average of $296 million per year, on LDRD. In fiscal year 2003, the laboratories received $7.7 billion from DOE and other federal agencies, through reimbursement to DOE, and spent $347 million, or 4.5 percent, on LDRD. Los Alamos National Laboratory, Sandia National Laboratories, and Lawrence Livermore National Laboratory accounted for $257 million, or 74 percent, of the LDRD funds. DOE, DOD, and the intelligence agencies have been the primary sources of LDRD funding, accounting for 96 percent of the federal support in fiscal year 2003. Table 2 shows that the nine laboratories received $7.7 billion from DOE and other federal agencies for their R&D and other operating expenses in fiscal year 2003. Specifically, DOE and DOD provided $7.3 billion, or 96 percent, of the federal funding that the laboratories received. NIH, NRC, and NASA provided $190 million, or 2.5 percent, of the funding. DOT and DHS provided only $12.6 million and $9.4 million, respectively, for work at the DOE laboratories. Table 3 shows that, in fiscal year 2003, the nine DOE laboratories allocated to LDRD $347 million, or 4.5 percent, of the $7.7 billion they received from DOE and other federal sources, through reimbursement to DOE. Los Alamos National Laboratory, Sandia National Laboratories, and Lawrence Livermore National Laboratory accounted for $257 million, or 74 percent, of the $347 million. DOE's appropriations accounted for $293 million, or 84 percent, of the LDRD funding from federal sources, while $54 million, or 16 percent, originated from other federal agencies, through reimbursement to DOE. DOD and the intelligence agencies accounted for $41 million, or 12 percent. NIH, NRC, and NASA together accounted for $7.5 million, or 2 percent. Appendix 1 provides data on each laboratory's total R&D spending and LDRD spending for DOE and other federal agencies, through reimbursement to DOE, for fiscal years 1998 through 2001, and appendix II provides more detailed data on each laboratory's total R&D spending and LDRD spending by subagency for fiscal years 2002 and 2003. The funding amounts for prior fiscal years are presented in fiscal year 2003 dollars. We provided DOE with a draft of this report for its review and comment. In written comments, DOE agreed with the report. (See app. III.) DOE also provided comments to improve the report's technical accuracy, which we incorporated as appropriate. To assess DOE's statutory authority for charging other federal agencies for LDRD, we researched and analyzed statutes and legislative histories and referred to principles of appropriations law. To identify laboratory-initiated research programs similar to LDRD at other federal agencies' laboratories, we interviewed cognizant officials within DOD, DHS, DOT, NASA, NIH, and NRC. Through their payments to DOE, these federal agencies were among the primary sources of LDRD funding generated from R&D performed for non-DOE agencies from fiscal years 1998 through 2003. To examine DOE's policies and procedures for ensuring that its laboratories spend LDRD funds in ways that benefit the requesting agencies' programs and are consistent with their appropriation acts, we evaluated DOE's implementing order and documents for the LDRD program and interviewed cognizant officials at DOE and obtained information from its nine contractor-operated laboratories regarding the actions they have taken to improve the program's accountability. In addition, we contacted cognizant officials in the Office of the CFO and/or the Office of General Counsel in DOD, DOT, NASA, NIH, and NRC to determine whether the funding structure of the LDRD program presented issues for their compliance with statutory or appropriations requirements. These five agencies, through their reimbursements to DOE, were among the primary sources of LDRD funding at the nine DOE laboratories from fiscal years 1998 through 2003. We also contacted cognizant officials in the Office of the CFO and the Science and Technology Directorate in DHS because of its special relationship with DOE's laboratories. To assess whether the LDRD program is a necessary tool for recruiting and retaining laboratory scientists, we obtained information from cognizant officials at each of DOE's nine laboratories about the role that LDRD plays in recruiting and retaining scientists and obtained documentation. We also reviewed laboratories' information on the participation of post-doctoral scientists and others in LDRD research. To provide data on the sources and amounts of LDRD funding, we obtained data from each laboratory on its operating and LDRD funds for fiscal year 1998 through fiscal year 2003. Specifically, the laboratories provided financial data for each of DOE's major program budgets and for each federal agency that, in a given year, funded more than $1 million in R&D through DOE's Work for Others program. Because the laboratories' prior fiscal year data were in nominal dollars, we converted their current dollars to constant fiscal year 2003 dollars using deflators for nondefense from the Office of Management and Budget's Budget of the United States Government, Fiscal Year 2005, Historical Tables. We also obtained from key database officials responses to a series of questions focused on data reliability covering issues such as data entry access, quality control procedures, and the accuracy and completeness of the data. Follow-up questions were added whenever necessary. In addition, we reviewed all data provided by the laboratories, investigated all instances where we had questions regarding issues such as categories or amounts, and made corrections as needed. Based on this work, we determined that the financial data provided were sufficiently reliable for the purposes of our report. We did not assess the reliability of the fiscal year 1992 LDRD funding total, which was used for background purposes only. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to the Secretary of Energy, the Director of the Office of Management and Budget, and other interested parties. We will also make copies available to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841. Key contributors to this report were Richard Cheston, Carol Kolarik, Daren Sweeney, Doreen Feldman, and Hannah Laufe. 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. 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The Department of Energy's (DOE) contractor-operated laboratories perform mission-related research and development (R&D) for DOE and other federal agencies. In 1992, DOE established the Laboratory- Directed Research and Development (LDRD) program, under which laboratory directors may allocate funding to scientists to conduct worthy independent research. DOE allows participating laboratories to support their LDRD programs by including a charge of up to 6 percent of the total project cost in the indirect costs for R&D performed for DOE and other federal agencies. GAO was asked to address 11 specific questions on DOE's LDRD program regarding: DOE's statutory authority for charging other federal agencies for LDRD, DOE's policies and procedures for ensuring departmental compliance with statutory requirements and committee report direction, the extent to which DOE believes the LDRD program is a necessary tool for recruiting and retaining laboratory scientists, and the sources and amounts of LDRD funding that each laboratory received from fiscal year 1998 through fiscal year 2003. In commenting on the draft report, DOE agreed with its factual accuracy. By law, when DOE conducts R&D for other federal agencies and uses a laboratory contractor to carry out the tasks, DOE must recover from the other agency all costs, including LDRD, DOE owes its contractor in performing the work. DOE has issued a departmental order and clarifying memoranda and guidance to ensure LDRD program compliance with statutory requirements and congressional direction. For example, the Secretary of Energy's April 2002 guidance requires that agencies funding work at its laboratories be notified about the LDRD program, including the laboratory's indirect-cost rate and an estimate of the associated cost. According to senior budget, legal, and research program officials at six federal agencies that fund work at the DOE laboratories, inclusion of funding for the LDRD program as an indirect cost does not limit their agency's ability to comply with statutory or appropriations requirements. Managers at the four DOE laboratories that primarily conduct nuclear weapons and environmental management R&D told us that LDRD is vital for recruiting and retaining top scientists, while managers at the five Office of Science laboratories said that LDRD plays an important, but less vital, role in recruiting and retaining top scientists. From fiscal year 1998 through fiscal year 2003, DOE's contractor-operated laboratories spent a total of $1.8 billion, or an average of $296 million per year, on LDRD. DOE accounted for 84 percent and the Department of Defense and the intelligence agencies, through their payments to DOE, accounted for 12 percent of the federal support for the LDRD program in fiscal year 2003.
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DOD's primary military medical mission is to maintain the health of 1.7 million active duty service personnel and to be prepared to deliver health care during times of war. Also, as an employer, DOD offers health care services to 6.6 million non-active duty beneficiaries such as dependents of active duty personnel and military retirees. The bulk of the health care is provided at more than 600 military hospitals and clinics worldwide, which are operated by the Army, Navy, and Air Force. DOD's direct health care system is supplemented by a DOD-administered insurance-like program called the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). In fiscal year 1996, DOD expects to spend about $11.8 billion providing care directly to its beneficiaries and about $3.6 billion for CHAMPUS. In response to such challenges as increasing health care costs and uneven access to care, in the late 1980s DOD initiated, under congressional authority, a series of demonstration programs to evaluate alternative health care delivery approaches. In the National Defense Authorization Act for Fiscal Year 1994 (P.L. 103-160), the Congress directed DOD to prescribe and implement, to the maximum extent practicable, a nationwide managed health care benefit program modeled on health maintenance organization (HMO) plans. The Congress specifically required that this new program could not incur costs greater than DOD would incur in the program's absence and that beneficiaries enrolling in the managed care program would have reduced out-of-pocket costs. Drawing from its experience with the demonstration projects, DOD designed TRICARE as its managed health care program. TRICARE is designed to give beneficiaries a choice among TRICARE Prime, which is similar to an HMO; TRICARE Extra, which is similar to a preferred provider organization; and TRICARE Standard, which is the current CHAMPUS fee-for-service-type benefit. Beneficiaries who select TRICARE Prime must enroll to receive care under this option. The program uses regional managed care support contracts to augment the capabilities of military hospitals by having contractors perform some managed care functions as well as arrange for care in the civilian sector. There will be seven managed care support contracts covering the 12 TRICARE regions. To coordinate the services and the contractors and monitor health care delivery, each region is headed by a joint-service administrative organization called a lead agent. DOD has estimated that the managed care support contracts will cost about $17 billion over the 5-year contract period. DOD has awarded four contracts and plans to have all contracts awarded and the TRICARE program fully implemented by September 1997. Background on the TRICARE program is in appendix I. The Northwest Region was the first region to begin enrolling beneficiaries in March 1995. Three regions, the Golden Gate Region, the Hawaii-Pacific Region, and Region Nine, began enrolling beneficiaries in October 1995, followed by the Southwest Region in November 1995. While the contract has been awarded for the Southeast and Gulf South Regions, they are not scheduled to begin health care delivery under TRICARE until July 1996. Figure 1 shows the DOD regions covered by the seven managed care support contracts. The shaded areas are the regions where TRICARE has been implemented in various stages as of March 1996. DOD has experienced difficulties in awarding its managed care support contracts. Each of the contracts awarded thus far has been protested. The protest of the first contract, encompassing the Golden Gate Region, Hawaii-Pacific Region, and Region Nine, was sustained, and DOD was required to recompete the contract. The protests for the Northwest Region's and Southwest Region's contracts and the contract including both the Southeast and Gulf South Regions were denied. Last year, in response to congressional concerns about DOD's difficulties with an early contract award covering California and Hawaii for which GAOsustained a protest, we reviewed problems identified by the bid protest experience. We reported that while DOD had taken steps to improve future contract awards, several areas of concern remained. Among our recommendations--which DOD agreed to adopt--were that DOD consider the potential effects on competition of such large TRICARE contracts and weigh alternative award approaches to help ensure competition during the next procurement round. We also urged that DOD try to simplify the next round's solicitation requirements and seek to incorporate best-practice, managed care techniques in the contracts. We further recommended that DOD establish general qualification requirements for its board members who evaluate contractors' proposals. We plan to follow up on these issues and begin a study of how well DOD's contractors are performing under the current contracts. Despite unanticipated obstacles, DOD's early implementation of TRICARE is progressing in line with DOD expectations. DOD has enrolled large numbers of beneficiaries in TRICARE Prime, including many of the active duty dependents DOD particularly wants to enroll. It has also succeeded in encouraging TRICARE Prime enrollees to select military health care providers--the source of care that DOD believes is more cost-effective than civilian-provided care. In addition, DOD is addressing implementation problems that early on caused confusion for beneficiaries and difficulties for military health care managers. As DOD intended through its marketing efforts, many beneficiaries have enrolled in TRICARE Prime, particularly the target population of active duty dependents that tends to rely heavily on the DOD health care system. As of January 31--after almost 12 months of operation in the Northwest Region and fewer than 4 months in four other regions--more than 400,000 people had enrolled in TRICARE Prime. In the Northwest Region, about two-thirds of active duty dependents have chosen this option, as shown in figure 2. Also, in those regions under way, the bulk of beneficiaries choosing TRICARE Prime have enrolled with military, rather than civilian, health care providers. This enhances DOD's goal of fully utilizing its military medical facilities and providing care in the less expensive military setting. Figure 3 shows that in the Northwest Region, over two-thirds of the beneficiaries have chosen to enroll with a military health care provider. During the period from the contract award through the start of health care delivery, DOD encountered and addressed various start-up problems. A delay in the TRICARE benefits package and higher than expected early enrollment together led to initial beneficiary confusion. Also, computer system problems have hindered DOD's ability to manage the enrollment process. One early setback was the delay in the approval of the TRICARE benefits package, which details the beneficiaries' fees and copayments for health care services. DOD did not approve the benefits package until just 2 months before the Northwest Region began enrolling beneficiaries. Military facilities had already begun their marketing and education efforts with the proposed benefits; however, the approved benefits package changed the enrollment fees. Because of this, people became confused, and DOD and the contractor had to explain the changes. This confusion did not occur in other regions, because the TRICARE benefits package was in place before marketing and education began. Despite the benefits package delay, the Northwest Region had more people wanting to enroll than it anticipated. Although the contractor had projected that 28,000 beneficiaries would enroll during the first year, approximately 58,000 beneficiaries enrolled during the first 4 months. The contractor responsible for managing the enrollment process was understaffed and had to hire temporary employees. The temporary employees were not adequately trained and could not sufficiently address beneficiaries' questions about TRICARE, which further confused beneficiaries. Later, DOD and the Northwest Region shared their experiences through an extensive lessons-learned effort with other regions. Thus, the Southwest Region contractor hired temporary employees and trained them with its regular employees before enrollment began. Although the Southwest Region also experienced higher enrollment than anticipated, DOD and the contractor avoided much of the beneficiary confusion that the Northwest Region experienced. During the enrollment process, DOD has also encountered problems stemming from the inability of its medical information system to interact with the contractors' systems. Because of their configurations, the systems cannot communicate, meaning that data cannot be transferred from one system to another. As a result, according to lead agent officials, DOD does not have a complete database of all beneficiaries enrolled in TRICARE Prime, and regional officials must rely on the contractor to provide enrollment data. However, DOD is addressing the problem by having the Northwest contractor provide special reports from its system and, in the Southwest Region, having the contractor put beneficiary enrollment data in both the DOD and contractor systems. DOD plans to address this problem by amending the contracts to require contractors' medical information systems to exchange information with DOD's system. The degree to which cost savings can be achieved under TRICARE remains uncertain and depends on DOD's ability to operate the system as it is designed to work. Issues have emerged during early implementation that may hinder DOD's efforts to contain costs. TRICARE depends on managed care to achieve maximum efficiency of its military facilities and control rising health care costs by using techniques such as sharing resources with the support contractor and managing beneficiaries' use of health care services. DOD has estimated that resource sharing could save $810 million over 5 years, but DOD and contractor officials responsible for entering into specific resource-sharing agreements have told us they do not fully understand the potential cost implications of such agreements. This lack of understanding continues to impede implementation of resource sharing under TRICARE, and the effectiveness of the program remains uncertain. Resource sharing is a feature of the TRICARE contracts that allows the contractor, through agreements with DOD, to provide personnel, equipment, and/or supplies to a military facility to improve its capability to provide care. DOD officials believe that providing health care to military beneficiaries in military facilities is less expensive than comparable care in the civilian sector, so maximizing the use of military facilities results in savings to both DOD and the contractor. For example, the contractor might provide an anesthesiologist to a military hospital so that more surgeries could be performed there rather than at a more costly private facility at DOD expense, thereby reducing overall costs. Similarly, contractor costs for the service provided are reduced by using the military facility and supporting resources. Evaluating the cost-effectiveness of resource-sharing agreements is very difficult and complex. Each agreement must be analyzed to determine whether the savings from providing care in the military facility offset increased facility costs under the agreement, such as the cost of supplies, staff, or support services that would not have been used if the agreement had not been established. Also, the extent of resource-sharing savings will be a factor in future regional contract price adjustments, which further adds to the complexity of these agreements. DOD has given regional officials, military facility commanders, and contractors a financial analysis worksheet to help determine the cost-effectiveness of the agreements. DOD has also provided some training sessions in the regions. Despite these efforts, DOD and contractor officials remain confused about making appropriate decisions regarding the financial implications of these agreements. According to lead agent officials, they are uncertain about how individual agreements may affect future contract price adjustments. Because of this, some regions have been slow to enter into agreements, and the anticipated savings may not be achieved. DOD officials told us that they recognize this deficiency and plan to address it. They said that DOD is currently developing a formal training program for resource sharing and that they also plan to provide military treatment facility commanders with a new computer-based analytical tool to enable them to determine the potential effects of resource-sharing agreements. There is, however, a more direct, less confusing means to accomplish contractor support of direct care in military facilities. Using a different program called task order resource support, military facility commanders can contract separately with the managed care support contractor for particular resources to augment their direct care capabilities. DOD officials told us that, in the past, very little resource support has taken place because hospital commanders did not have the level of control over CHAMPUS funds they needed to enter into these agreements. Now, however, DOD has proposed an alternative financing mechanism for the managed care support contracts. If adopted, this financing method would give facility commanders more control of CHAMPUS funds along with their direct care funds and, therefore, more flexibility to enter into resource support agreements. With this flexibility, DOD managers would be able to directly buy the services they need to avoid sending some patients out of their hospitals for needed care. This may have the effect of reducing the need to negotiate the more complex resource-sharing agreements while still making the most of contractor support of military facility capabilities. DOD's alternative financing approach is still being developed, however, so its eventual impact on contractor support of military direct care capabilities is still unclear. DOD estimated that utilization management in its facilities could save over $480 million nationwide over 5 years. However, DOD and the contractor were not ready to perform this function at the start of health care delivery in the Northwest and Southwest Regions as planned. Therefore, the full extent of TRICARE savings from utilization management may not be realized. Utilization management is intended to ensure that beneficiaries receive necessary and appropriate care in the most cost-effective manner. For example, utilization management reviews would verify that hospital admissions are medically necessary before patients check in or that lengths of hospital stays are not excessive. Utilization management also includes case management, which involves assigning health care providers to manage care for patients with high-cost, chronic conditions (such as diabetes or asthma) to try to avoid costly and disruptive crises that lead to emergency room visits or unscheduled hospital admissions. Utilization management can be done internally by the military facilities, or the contract can be written so that the contractor is required to perform this function. In the Southwest Region, where the contractor is responsible for utilization management, regional officials have expressed dissatisfaction with the contractor's performance of utilization management activities and have withheld partial contract payments until the contractor's performance improves. Because the contractor has hired additional utilization management staff, both DOD and the contractor believe the situation will be resolved soon. The Northwest Region's utilization management program, which is handled by the military, was not implemented for over 5 months, but it is now under way. Because of TRICARE's newness, size, and complexity, appropriate and effective information management has become increasingly important. During early TRICARE implementation, DOD did not define performance measures to evaluate how well it is meeting its goals, but DOD is now defining such measures at the national and regional levels. However, some data needed to evaluate the program are not being captured. Before TRICARE's implementation, DOD had not defined performance measures needed to monitor and evaluate all major aspects of health care delivery at both the regional and national levels. During implementation, the regional officials quickly recognized the importance of having such measures for evaluating achievement of regional and national TRICARE goals, and for providing a good information base for management decisions. Thus, the regions have begun creating their own sets of measures to assess the efficiency and effectiveness of the delivery of health care services in the region. These measures will be used in an ongoing evaluation of customer services, including patient satisfaction, and clinical services, including inpatient and outpatient care, disease prevention and health screening, disease management, enrollee health, and population health management. DOD is separately developing a set of performance measures to be used at the headquarters level to monitor various aspects of health care delivery across the regions, such as TRICARE Prime enrollment and preventable admissions. DOD officials said the identification of performance measures will be a continuing effort for all health care stakeholders as DOD's needs change throughout TRICARE implementation. However, the appropriateness and effectiveness of these performance measures remain to be seen. Currently, neither DOD nor the contractors are tracking access data to ensure that they are meeting DOD's standards for access to primary care services. However, these data are needed to enable the Congress and DOD to measure TRICARE's performance against this key system goal. Access to care relates to a patient's ability to get the appropriate level of health care in a timely manner. Timely access to military health care has long been a major source of beneficiary dissatisfaction. To improve performance in this area, DOD established primary care access standards in their 1994 TRICARE Policy Guidelines. These standards apply to both military and civilian providers and address areas such as wait times for appointments and the availability of emergency services. The following are DOD's current access standards for maximum appointment wait times: 4 weeks for a well visit, which is nonurgent care for health maintenance 1 week for a routine visit, which is nonurgent care requiring a health care 1 day for acute illness care, which is urgent care requiring a health care provider. DOD collects some access data through an annual beneficiary satisfaction survey. The DOD survey contains 25 questions that look at how easily beneficiaries entered the health care system and whether they received the care they believed was necessary. Types of questions include where care was received, types of preventive services received, the number of calls made for an appointment, usual length of time between scheduling the appointment and seeing a provider, usual length of wait in the provider's office, approximate travel time from residence to provider's office, and beneficiaries' general level of satisfaction with access to care. Although important, these survey data are based on beneficiaries' perceptions generalized over a 12-month period and do not measure DOD's actual performance against its newly established standards. DOD could collect the access data needed to measure its performance at the time beneficiaries schedule their primary care appointments. According to lead agent and Health Affairs officials, they are currently not doing so because DOD's patient appointment and scheduling system, as configured, does not capture this information. DOD officials told us that the needed access data could likely be gathered by modifying the DOD appointment and scheduling system to capture precise waiting time information while still complementing these empirical data with the annual survey data. DOD also is not collecting the enrollment data needed to identify eligible beneficiaries who enroll in TRICARE but have not previously been users of the military health care system. Identifying beneficiaries attracted to military care by the TRICARE program is crucial to DOD's ability to contain health care costs because, as the Congressional Budget Office estimates, this population accounts for about 25 percent of DOD's 8.3 million beneficiaries. Each of these current nonusers who chooses TRICARE Prime adds to the overall cost of military health care. Although DOD believes that the impact of such enrollment will be lessened because of the annual enrollment fee and through targeted marketing to current system users, DOD officials told us that TRICARE Prime's generous benefits will entice some nonusers to enroll, and that data on such enrollment are needed. However, DOD has not yet developed a definition that will enable it to identify these enrollees. DOD officials at both the national and regional levels told us that defining the various types of former nonusers, though necessary, is difficult because beneficiaries rely on the military health care system in varying degrees. For example, some beneficiaries have other health insurance but continue to use the military pharmacies. Also, some beneficiaries may begin to use military health care for reasons other than the TRICARE reforms, such as the loss of other health insurance. Once DOD has a working definition of this population of former nonusers, it can seek to ensure that appropriate data are being captured to identify these beneficiaries. DOD officials told us that the collection of such data should be done through a set of questions consistently administered to enrollees across the regions. By gathering this information, DOD could better evaluate the impact of this enrollment on TRICARE's costs. Ultimately, DOD needs these data to reassess TRICARE's cost-sharing structure as it works to contain overall health care costs while maintaining fees for beneficiaries that are neither too high nor too low. Despite initial beneficiary confusion caused by marketing and education problems, as well as problems with computer systems' compatibility, early implementation of TRICARE is progressing consistent with congressional and DOD goals. However, the success of DOD's current efforts to address the implementation of resource-sharing agreements and utilization management is critical to containing health care costs. DOD also needs to gather certain enrollment and performance data so that it and the Congress can assess TRICARE's success in the future. We recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to collect data on the timeliness of appointments in order to measure TRICARE's performance in improving beneficiary access against DOD's standards and assess the impact of new beneficiaries who would not be using military health care if not for TRICARE, by defining these new users, identifying them, and estimating the cost implications of their use of military health care. In a letter dated May 15, 1996, commenting on a draft of this report, the Director of TRICARE Operations Policy wrote that DOD fully agreed with the report and with both of our recommendations. Regarding our recommendation concerning DOD's need to collect data on the timeliness of appointments, the Director said that DOD already identifies the time between when an appointment is made and the actual appointment. However, in order to gather access data more precisely and completely, DOD plans to make computer system modifications during fiscal year 1997. The Director also wrote that DOD strongly believes that access data should continue to be collected through surveys of beneficiaries. As stated in the report, we agree that both types of access-to-care information are important. We believe that DOD's plans for collecting access data, if implemented properly, should be sufficient to measure TRICARE's success against DOD's standards. Regarding our recommendation that DOD assess the cost implications of TRICARE enrollment by beneficiaries who would not otherwise be using military health care, the Director commented that DOD has taken several steps to minimize such enrollments, including designing TRICARE's cost-sharing structure and targeting marketing to current military medical system users. While we agree that cost sharing and enrollment targeting will deter some from enrolling in TRICARE, the program is still attractive to beneficiaries who would not otherwise be using military health care. The Director also said that DOD is enhancing a computer information system that will allow it to track the extent that enrollees have other health insurance, which, in concert with the beneficiary survey data, should help DOD assess the impact of beneficiaries who would not be using military health care if not for TRICARE. DOD officials also suggested several technical changes to the report that we incorporated as appropriate. We are sending copies of this report to the Secretary of Defense and will make copies available to others upon request. Please contact me at (202) 512-7111 or Dan Brier, Assistant Director, at (202) 512-6803 if you or your staff have any questions concerning this report. Other major contributors are Allan Richardson, Evaluator-in-Charge, Bonnie Anderson, Sylvia Jones, and David Lewis. TRICARE is intended to ensure a high-quality, consistent health care benefit, preserve choice of health care providers for beneficiaries, improve access to care, and contain health care costs. TRICARE features a triple-option benefit. The first option, TRICARE Standard, mirrors the current fee-for-service CHAMPUS program. The second option is TRICARE Extra, a preferred provider option through which beneficiaries receive a 5-percent discount on the Standard option when they choose among a specified network of providers. The third option, TRICARE Prime, represents the greatest change to defense health care delivery. TRICARE Prime is an HMO alternative and is the only option that requires beneficiaries to enroll. To implement and administer the TRICARE program, DOD has reorganized the military health care system into 12 new, joint-service regions. DOD created the position of lead agent for each region to coordinate among the three services and the contractor and to monitor the delivery of health care. The lead agent is a designated military medical facility commander supported by a joint-service staff. Table I.1 presents information on the 12 TRICARE regions, including the designated lead agents, the states included in the regional boundaries, and the number of military medical facilities in each region. National Capital (Bethesda, Walter Reed, and Malcolm Grow Medical Centers) TRICARE uses contracted civilian health care providers to supplement the care provided by the defense health care system on a regional basis--a significant feature maintained from earlier demonstration programs. The managed care support contractors' responsibilities include developing networks of civilian providers, locating providers for beneficiaries, performing utilization management functions, processing claims, and providing beneficiary support functions. Seven contracts will be awarded to civilian health care companies covering the 12 TRICARE health care regions. Table I.2 describes the status of contract awards and start dates for health care delivery. Between the contract award date and the health care delivery start date is a 6- to 8-month transition period for both DOD and the contractor. During this time, the contractor performs tasks such as the establishment of provider networks and beneficiary support functions. Both the contractor and DOD begin some early marketing and education of beneficiaries and providers. Enrollment of all eligible non-active duty beneficiaries begins either during the transition phase or at the start of health care delivery. 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 Department of Defense's (DOD) implementation of its TRICARE managed health care program, focusing on: (1) whether early implementation produced the expected results; (2) how early outcomes may affect costs; and (3) whether DOD is capturing data needed to manage and assess TRICARE performance. GAO found that: (1) early implementation of TRICARE has resulted in large numbers of beneficiaries enrolling in TRICARE Prime, which DOD believes is cost-effective; (2) DOD has encountered many start-up problems, such as a delay in the TRICARE benefits package, higher than expected early enrollment, and computer systems' incompatibility; (3) DOD and TRICARE contractors have diligently addressed their start-up problems and have disseminated lessons learned from those problems; (4) DOD efforts to contain TRICARE costs may be hindered by uncertainties regarding resource-sharing arrangements and utilization management problems; (5) DOD is exploring the use of task order resource support as an alternative to resource sharing arrangements and giving hospital commanders more control over dependent-care funds to give military hospitals more flexibility in obtaining support services from TRICARE contractors; (6) DOD delayed implementing utilization management because it was not ready to perform this function in the northwest and southwest regions as planned; and (7) although DOD is defining TRICARE performance measures, it is not collecting key data on beneficiaries' access to care or the enrollment of former nonusers who are eligible to use the military health care system.
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The plaintiffs in the Olmstead case were two women with developmental disabilities and mental illness who claimed that Georgia was violating title II of the ADA, which prohibits discrimination against people with disabilities in the provision of public services. Both women were being treated as inpatients in a state psychiatric hospital. The women and their treating physicians agreed that a community-based setting would be appropriate for their needs. The Supreme Court held that it was discriminatory for the plaintiffs to remain institutionalized when a qualified state professional had approved community placement, the women were not opposed to such a placement, and the state could reasonably accommodate the placement, taking into account its resources and the needs of other state residents with mental disabilities. The Olmstead decision is an interpretation of public entities' obligations under title II of the ADA. As one of several federal civil rights statutes, the ADA provides broad nondiscrimination protection for individuals with disabilities in employment, public services, public accommodations, transportation, and telecommunications. Specifically, title II of the ADA applies to public services furnished by governmental agencies and provides in part that "no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity." Two ADA implementing regulations were key in the Supreme Court's ruling in Olmstead. The first requires that public entities make "reasonable modifications" when necessary to avoid discrimination on the basis of disability, unless the entity can demonstrate that the modification would "fundamentally alter the nature of the service, program or activity." The second requires public entities to provide services in "the most integrated setting appropriate to the needs of qualified individuals with disabilities."That setting could be in the community, such as a person's home, or in an institution, depending on the needs of the individual. For example, professionals might agree that a nursing home is the most integrated setting appropriate for an institutionalized person's needs. In Olmstead, physicians at the state hospital had determined that services in a community-based setting were appropriate for the plaintiffs. The Supreme Court recognized, however, that the appropriate setting for services is determined on a case-by-case basis and that the state must continue to provide a range of services for people with different types of disabilities. The ADA has a broad scope in that it applies to individuals of all disabilities and ages. The definition of disability under the ADA is a physical or mental impairment that is serious enough to limit a major life activity, such as caring for oneself, walking, seeing, hearing, speaking, breathing, working, performing manual tasks, or learning. The breadth of this definition thus covers people with very diverse disabilities and needs for assistance. For some individuals with disabilities, assistance from another person is necessary--direct, "hands-on" assistance or supervision to ensure that everyday activities are performed in a safe, consistent, and appropriate manner. For others, special equipment or training may enable them to continue to function independently. Disability may be present from an early age, as is the case for individuals with mental retardation or developmental disabilities; occur as the result of a disease or traumatic injury; or manifest itself as a part of a natural aging process. Moreover, the assistance needed depends on the type of disability. For example, individuals with physical disabilities often require significant help with daily activities of self-care. In contrast, individuals with Alzheimer's disease or chronic mental illness may be able to perform everyday tasks and may need supervision rather than hands-on assistance. To be a "qualified" individual with a disability under title II of the ADA, the person must meet the eligibility requirements for receipt of services from a public entity or for participation in a public program, activity, or service--such as the income and asset limitations established for eligibility in the Medicaid program. The breadth of the disabled population to whom Olmstead may eventually apply is uncertain. Much is unknown about the widely varying population of people with disabilities, the settings in which they are receiving services, and the extent to which their conditions would put them at risk of institutionalization. Demographic data show, however, that the response to Olmstead will take place in the context of significant increases in the number of people with disabilities. As the baby boom generation grows older, they are more likely to be affected by disabling conditions. Of the many public programs that support people with disabilities, the federal-state Medicaid program plays the most dominant role for supporting long-term care needs. Services through this program have been provided primarily in institutional long-term care settings, but a growing proportion of Medicaid long-term care expenses in the past decade has been for home and community-based services. At present, however, there are wide differences between states in the degree to which home and community-based services are provided. States also face varying challenges in supporting community living beyond what can be provided through long-term care programs, such as ensuring adequate supports for housing and transportation, and maintaining adequate programs to ensure quality care is provided in community settings. The Olmstead decision has been widely interpreted to apply to people with varying types of disabilities who are either in institutions or at risk of institutionalization. One reason for the uncertainty about how many may be affected is that, as the decision recognized, the appropriateness of a person's being placed in an institution or receiving home or community- based services would depend in part on the person's wishes and the recommendations of his or her treatment professionals. Another reason is that information on the number of people with disabilities who are at risk of institutionalization is difficult to establish. Number of institutionalized individuals. On the basis of information from different sources, we estimate that the total number of people with disabilities who are being served in different types of institutional settings is at least 1.8 million. This figure includes about 1.6 million people in nursing facilities, 106,000 in institutions for the mentally retarded or developmentally disabled, and 57,000 in state and county facilities for the mentally ill. Number at risk of institutionalization. The number of people who are living in the community but at risk of institutionalization is difficult to establish. In an earlier study we estimated that, nationwide, 2.3 million adults of all ages lived in home or community-based settings and required considerable help from another person to perform two or more self-care activities. More difficult to estimate is the number of disabled children at risk of institutionalization. The demographics associated with the increasing number of aging baby boomers will likely drive the increased demand for services in a wide range of long-term care settings. Although a chronic physical or mental disability may occur at any age, the older an individual becomes, the more likely a person will develop disabling conditions. For example, less than 4 percent of children under 15 years old have a severe disability, compared with 58 percent of those 80 years and older. The baby boom generation-- those born between 1946 and 1964--will contribute significantly to the growth in the number of elderly individuals with disabilities who need long-term care and to the amount of resources required to pay for it. The oldest baby boomers, now in their fifties, will turn 65 in 2011. In 2000, about 13 percent of our nation's population was composed of individuals aged 65 or older. By 2020, that percentage will increase by nearly one-third to about 17 percent--one in six Americans--and will represent nearly 20 million more seniors than there are today. By 2040, the number of seniors aged 85 and older will more than triple to 14 million (see fig. 1). However, because older people are healthier now than in the past, no consensus exists on the extent to which the growing elderly population will increase the number of disabled elderly people needing long-term care. Projections of the number of disabled elderly individuals who will need care range between 2 and 4 times the current number. The changing demographics will also likely affect the demand for paid long-term care services. An estimated 60 percent of the disabled elderly living in communities now rely exclusively on their families and other unpaid sources for their care. Because of factors such as the greater geographic dispersion of families and the large and growing percentage of women who work outside the home, many baby boomers may have no option but to rely on paid long-term care providers. A smaller proportion of this generation in the future may have a spouse or adult children to provide unpaid care and therefore may have to rely on more formal or public services. Medicaid is by far the largest public program supporting long-term care.States administer this joint federal-state health financing program for low- income people within broad federal requirements and with oversight from the Centers for Medicare and Medicaid Services (CMS), the agency that administers the program at the federal level. In 2000, Medicaid long-term care expenditures represented over one-third of the total $194 billion spent by Medicaid for all medical services. Although at least 70 different federal programs provide assistance to individuals with disabilities at substantial cost, Medicaid is the most significant source of federal funds for providing long-term care. Earlier this year, we reported that Medicaid paid nearly 44 percent of the $134 billion spent nationwide for long-term care in 1999, including postacute and chronic care in nursing homes and home and community-based care. Individuals needing care, and their families, paid for almost 25 percent of these expenditures out-of-pocket. Medicare and other public programs covered almost 17 percent, and private insurance and other private sources (including long-term care insurance as well as services paid by traditional health insurance) accounted for the remaining 15 percent. (See fig. 2.) These amounts, however, do not include the many hidden costs of long-term care. For example, they do not include wages lost when an unpaid family caregiver takes time off from work to provide assistance. Historically, Medicaid long-term care expenditures have financed services delivered in nursing homes or other institutions, but the proportion of spending directed to home and community-based care has increased steadily over the past decade, as shown in figure 3. Federal and state Medicaid spending on home and community-based services was about $18 billion (27 percent) of the $68 billion spent on long-term care in fiscal year 2000. Much of the Medicaid coverage of home and community-based services is at each state's discretion. One type of coverage, however, is not optional: states are required to cover home health services for medically necessary care (see table 1). A second type of services, called personal care, is optional. The primary means by which states provide home and community-based services is through another optional approach: home and community-based services (HCBS) waivers, which are set forth at section 1915(c) of the Social Security Act. States apply to the federal government for these waivers, which, if approved, allow states to limit the availability of services geographically, target specific populations or conditions, control the number of individuals served, and cap overall expenditures. To receive such a waiver, states must demonstrate that the cost of the services to be provided under a waiver (plus other state Medicaid services) is no more than what would have been spent on institutional care (plus any other Medicaid services provided to institutionalized individuals). States often operate several different waivers serving different population groups, and they have often limited the size and scope of the waivers to help target their Medicaid resources and control spending. While expenditures for these services have generally grown over time, states' use of HCBS waivers to provide services in community settings has grown at the highest rate. Expenditures for services provided under HCBS waivers grew at an average annual rate of 28 percent between 1988 and 2000--twice as much as Medicaid's expenditures for home health services and three times as much as for personal care services. Expenditures under the HCBS waivers vary widely with the type of disability covered. The average cost across all programs in 1999 was about $15,331 per recipient. For persons with developmental disabilities, the average cost was twice the average ($30,421); for programs serving the aged and aged disabled, the average cost was much lower ($5,849). This variation results from several factors, but primarily from differences in the type and amount of program services supplied versus services from other sources such as family members. The average costs for providing waiver and other home and community-based services is much lower than average costs for institutionalizing a person. However, the costs of these community-based services do not include significant other costs that must be covered when a person lives in his or her home or in a community- based setting, such as costs for housing, meals, and transportation, as well as the additional costs and burden for family and other informal caregivers. The proportion of Medicaid long-term care spending devoted to home and community-based services varies widely among states. Some states have taken advantage of Medicaid HCBS waivers to develop extensive home and community-based services, while other states have traditionally relied more heavily on institutional and nursing facility services. This variation is reflected in differences in the extent of states' total Medicaid long-term care spending devoted to home and community-based care (defined to include the waivers, home health, and personal care services). For example, in 1999, 9 states devoted 40 percent or more of Medicaid long- term care expenditures to community-based care, whereas 11 states and the District of Columbia devoted less than 20 percent. (See fig. 4.) States also vary in the amount of home and community-based services they offer specifically through HCBS waivers. According to data compiled by researchers, an estimated 688,000 disabled persons were being served under 212 HCBS waivers in 49 states (excluding Arizona) and the District of Columbia in 1999. (See app. I.) These waivers covered several different types of disabled populations and settings. All but two states operated at least one waiver covering services for people with mental retardation or developmental disabilities, and all but the District of Columbia operated at least one waiver for the aged disabled. Overall, states had 73 waivers covering services for people with mental retardation or developmental disabilities serving nearly 260,000 participants, 65 waivers covering services for almost 382,000 aged or aged disabled participants, and 27 waivers serving about 25,000 physically disabled individuals. Nationwide, the number of people served by waivers varies substantially across states. Oregon, for example, served more than 8 times as many people per capita in its large waiver for the aged and disabled, compared with several other states that had waivers for the same target population. In most states, the demand for HCBS waiver services has exceeded what is available and has resulted in waiting lists. Waiting list data, however, are incomplete and inconsistent. States are not required to keep waiting lists, and not all do so. Among states that keep waiting lists, criteria for inclusion on the lists vary. In one 1998-99 telephone survey of 50 states and the District of Columbia, Medicaid officials in 42 states reported waiting lists for one or more of their waivers, although they often lacked exact numbers. Officials in only eight states reported that they considered their waiver capacity and funding to be adequate and that they did not have waiting lists for persons eligible for services under those waivers. The states face a number of challenges in providing services to support people with disabilities living in the community, and these challenges extend beyond what can be provided by the Medicaid program alone. The additional costs to the states of supporting people with disabilities in the community are a concern. For example, Medicaid does not pay for housing or meals for individuals who are receiving long-term care services in their own homes or in a community setting, such as an adult foster home. Consequently, a number of state agencies may need to coordinate the delivery and funding of such costly supports as housing and transportation. States may also find their efforts to move people out of institutions complicated by the scarcity of caregivers--both paid personal attendants and unpaid family members and friends--who are needed to provide the home and community services. Finally, there are concerns about the difficulty of establishing adequate programs to ensure that quality care is being provided in the different types of noninstitutional service settings throughout the community. We have reported on quality-of-care and consumer protection issues in assisted living facilities, an increasingly popular long-term care option in the community. States have the primary responsibility for the oversight of care furnished in assisted living facilities, and they generally approach this responsibility through state licensing requirements and routine compliance inspections. However, the licensing standards, as well as the frequency and content of the periodic inspections, are not uniform across the states. In our sample of more that 750 assisted living facilities in four states, the states cited more than 25 percent of the facilities for five or more quality-of-care or consumer protection problems during 1996 and 1997. Frequently identified problems included facilities providing inadequate or insufficient care to residents; having insufficient, unqualified, and untrained staff; and failing to provide residents appropriate medications or storing medications improperly. State officials attributed most of the common problems identified in assisted living facilities to insufficient staffing and inadequate training, exacerbated by high staff turnover and low pay for caregiver staff. The Supreme Court's Olmstead decision left open questions about the extent to which states could be required to restructure their current long- term care programs for people with disabilities to ensure that care is provided in the most integrated setting appropriate for each person's circumstances. Interpretation of the Olmstead decision is an ongoing process. While the Supreme Court held in Olmstead that institutionalization of people with disabilities is discrimination under the ADA under certain circumstances, it also recognized that there are limits to what states can do, given available resources and the obligation to provide a range of services for people with disabilities. Most states are responding to the decision by developing plans for how they will serve people with disabilities in less restrictive settings. These plans are works in progress, however, and it is too soon to tell how and when they may be implemented. State responses will also be shaped over time by the resolution of the many pending lawsuits and formal complaints that have been filed against them and others. The Supreme Court held that states may be required to serve people with disabilities in community settings when such placements can be reasonably accommodated. However, it recognized that states' obligations to provide services are not boundless. Specifically, the Court emphasized that while the ADA's implementing regulations require reasonable modifications by the state to avoid discrimination against the disabled, those regulations also allow a state to resist requested modifications if they would entail a "fundamental alteration" of the state's existing services and programs. The Court provided some guidance for determining whether accommodations sought by plaintiffs constitute a reasonable modification or a fundamental alteration of an existing program, which would not be required under the ADA. The Court directed that such a determination should include consideration of the resources of the state, the cost of providing community-based care to the plaintiffs, the range of services the state provides to others with disabilities, and the state's obligation to provide those services equitably. The Court suggested that if a state were to "demonstrate that it had a comprehensive, effectively working plan for placing qualified persons with mental disabilities in less restrictive settings, and a waiting list that moved at a reasonable pace not controlled by the state's endeavors to keep its institutions fully populated, the reasonable modification standard would be met." The single most concrete state response to the Olmstead decision has been to develop plans that demonstrate how the states propose to serve people with disabilities in less restrictive settings, as suggested by the Supreme Court. HCFA provided early guidance and technical assistance to states in these efforts. But most of these state plans are still works in progress, and it is too soon to tell how and when they will be implemented. To help states with their Olmstead planning activities, between January and July 2000 , HCFA issued general guidance to the states in developing "comprehensive, effectively working plans" to ensure that individuals with disabilities receive services in the most integrated setting appropriate. To encourage states to design and implement improvements in their community-based long-term care services, HCFA also announced a set of competitive grant initiatives, funded at nearly $70 million, to be awarded by October 1, 2001. (See app. II for details about these competitive grants.) In addition, HCFA made $50,000 starter grants available to each of the states and territories, with no financial match required, to assist their initial planning efforts. As of July 2001, 49 states (every state except Arizona) had applied for and received these starter grants, which must be used to obtain consumer input and improve services. As of September 2001, an estimated 40 states and the District of Columbia had task forces or commissions that were addressing Olmstead issues. According to the National Conference of State Legislatures (NCSL), which is tracking the states' efforts, the goal for most of these states was to complete initial plans by the end of this year or early 2002. Ten states were not developing Olmstead plans, for a variety of reasons. NCSL reported that some of the states that were not planning already have relatively extensive home and community care programs and may believe that such planning is not necessary. As the result of a 1999 lawsuit settlement, for example, Oregon had developed a 6-year plan to eliminate the waiting list of more than 5,000 people for its waiver program serving people with developmental disabilities. Moreover, Oregon was the only state to dedicate more than half of its 1999 Medicaid long-term care spending to home and community-based services. Vermont also is not working on an Olmstead plan because it has implemented a range of activities over the years that are related to downsizing institutions and moving toward home and community-based care. On the basis of a preliminary review of about 14 draft Olmstead plans, NCSL reported that the contents are quite variable. A few plans are relatively extensive and well documented, including determinations of need, inventories of available services, funding needs, and roadmaps for what needs to be done. According to NCSL, other plans consist primarily of lists of recommendations to the governor or state legislature, without specifying how the recommendations are to be implemented, by which agencies, or in what time frame. It is too early to tell how or when the states will implement the steps they propose in their Olmstead plans. On the basis of the information collected by NCSL, it appears that few states have passed legislation relating to Olmstead--for example, appropriating funding to expand community residential options or authorizing program changes. As of July 2001, NCSL was able to identify 15 Olmstead-related bills that were considered in eight states during 2001, of which 4 were enacted. One bill simply provided for development of the state plan, while others appropriated funding, required a new home and community-based attendant services program, or proposed long-term care reforms. Increased state legislative activity is expected in 2002, as more Olmstead plans are completed. State responses to Olmstead also will be influenced by the resolution of the numerous lawsuits and formal complaints that have been filed and are still pending. Olmstead-related lawsuits, now being considered in almost half the states, often seek specific Medicaid services to meet the needs of people with disabilities. Lawsuits on behalf of people with disabilities seeking Medicaid and other services in community-based settings often are initiated by advocacy organizations. According to the National Association of Protection and Advocacy Systems (NAPAS), Protection and Advocacy Organizations report that about 30 relevant cases concerning access to publicly funded health services whose resolution may relate to Olmstead are still active. Plaintiffs in the cases include residents of state psychiatric facilities, developmental disabilities centers, and nursing homes, as well as people living in the community who are at risk of institutionalization. Their complaints raise such issues as prompt access to community-based services, the limitations of Medicaid waiver programs, and the need for assessments to determine the most integrated setting appropriate to each individual. It is difficult to predict the overall outcome of these active cases since each involves highly individual circumstances, including the nature of the plaintiffs' concerns and each state's unique Medicaid program structure and funding. According to a NAPAS representative, two recent cases in Hawaii and Louisiana illustrate some of the issues raised by Olmstead- related lawsuits and how they were resolved through voluntary settlements. The Hawaii case shows how one federal court addressed the state's obligation to move people off its waiting lists at a reasonable pace, applying the Olmstead decision to people with disabilities who were not institutionalized. The plaintiffs claimed that Hawaii was operating its waiver program for people with mental retardation and developmental disabilities in a manner that violated the ADA and Medicaid law. The plaintiffs were living at home while on a waiting list for community-based waiver services--the majority of the plaintiffs had been on the waiting list for over 90 days and some for over 2 years. They could have obtained services if they had been willing to live in institutions, but they wished to stay in the community. The court found that Olmstead applied to the case even though the plaintiffs were not institutionalized. Hawaii argued that the plaintiffs were on the waiting list because of a lack of funds and that providing services for more people would cause the state to exceed funding limits set up in its waiver program. The court rejected the state's argument and held that funding shortages did not meet the definition of a "fundamental alteration." The court also found that Hawaii did not provide evidence of a comprehensive plan to keep the waiting list moving at a reasonable pace, suggested by the Olmstead opinion. In July 2000, the parties settled the case by agreeing that Hawaii would fund 700 additional community placements over 3 years and move people from the waiting list at a reasonable pace. The Louisiana case was filed in 2000 on behalf of people living in nursing homes, or at imminent risk of nursing home admission, who were waiting for services offered through three Medicaid HCBS waivers that provided personal attendant care, adult day health care, and other services to elderly and disabled adults. The plaintiffs claimed that the state was failing to provide services in the most integrated setting as required by the ADA. They also claimed that the state was not following Medicaid statutory requirements to provide services with reasonable promptness and to allow choice among available services. As part of a settlement of this case, Louisiana agreed to make all reasonable efforts to expand its capacity to provide home and community-based services and to reduce waiting lists in accordance with specific goals. For example, the state will increase the number of waiver slots by a minimum of 650 slots by 2002, with additional increases planned through 2005. The state also agreed to apply to CMS to add a personal care service option to its Medicaid plan, thereby making personal care services available to all eligible Medicaid recipients who are in nursing homes, at imminent risk of nursing home admission, or recently discharged. In addition, the state agreed to determine the status of persons currently on waiting lists for waiver services and to take steps to inform Medicaid beneficiaries and health professionals about the full range of available service options. Olmstead issues are also being addressed through a formal complaint resolution process operated by the Office for Civil Rights (OCR) within HHS. As part of its responsibility for enforcing the ADA, OCR receives and helps resolve formal complaints related to the ADA. When OCR receives Olmstead-related complaints from individuals and parties, it works through its regional offices to resolve them by involving the complainants and the affected state agencies. If a complaint cannot be resolved at the state and regional OCR level, OCR's central office may get involved. Finally, if these steps are not successful, the complaint is referred to the Department of Justice. As of August 2001, no Olmstead-related cases had been referred to the Department of Justice. From 1999 through August 2001, OCR received 423 ADA-related complaints. These complaints generally involved a concern that people did not receive services in the most integrated setting. OCR reported that, as of August 2001, 154 complaints had been settled and 269 remained pending. These complaints had been filed in 36 states and the District of Columbia, with more than half filed in seven states. A recent analysis of 334 Olmstead-related complaints indicated that 228 complaints (68 percent) were related to people residing in institutions. The ongoing resolution of Olmstead-related lawsuits and complaints will help establish precedent for the types of Medicaid program modifications states may have to make to their long-term care programs. Meanwhile, it is difficult to generalize about the potential impact of the many ongoing cases because each case will be decided on its own facts. The extent of what federal courts will require states to do to comply with the ADA as interpreted in Olmstead will become more clear over time as additional cases are resolved. In the wake of the Olmstead decision, states may face growing pressures to expand services for the elderly and other people with disabilities in a variety of settings that allow for a range of choices. Despite the numerous activities under way at the state and federal levels to respond to this decision, the full implications of the Olmstead decision are far from settled. Ongoing complaints and legal challenges continue to prompt states to make incremental changes at the same time that they continue to frame states' legal obligations for providing services to the disabled. States face challenges in determining who and how many people meet the criteria of needing and seeking services and also in balancing the resource and service needs of eligible individuals with the availability of state funds. This balancing of needs and resources will be an even greater issue in the coming years as the baby boom generation ages and adds to the demand for long-term care services. While Medicaid has a prominent role in supporting the long-term care services provided today, other financing sources also play an important role in our current system. These include private resources--including out-of-pocket spending, private insurance, and family support--as well as many other public programs. Finding ways to develop and finance additional service capacity that meets needs, allows choice, and ensures quality care will be a challenge for this generation, their families, and federal, state, and local governments. Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions you or the other Committee members may have. For more information regarding this testimony, please contact me at (202) 512-7114 or Katherine Iritani at (206) 287-4820. Bruce D. Greenstein, Behn Miller, Suzanne C. Rubins, Ellen M. Smith, and Stan Stenersen also made key contributions to this statement. In January 2001, HCFA announced a set of grant initiatives called "Systems Change for Community Living." These grants are intended to encourage states to design and implement improvements in community long-term support services. Total funding for these grants is $70 million for fiscal year 2001. States will have 36 months to expend the funds. States and other organizations, in partnership with their disabled and elderly communities, were invited to submit proposals for one or more of these four distinct grant programs (see table 2). Agency officials reported receiving 161 separate applications for these grants for more than $240 million. The agency expects all grant awards to be made by October 1, 2001.
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In the Olmstead case, the Supreme Court decided that states were violating title II of the Americans with Disabilities Act of 1990 (ADA) if they provided care to disabled people in institutional settings when they could be a appropriately served in a home or community-based setting. Considerable attention has focused on the decision's implications for Medicaid, the dominant public program supporting long-term care institutional, home, and community-based services. Although Medicaid spending for home and community-based service is growing, these are largely optional benefits that states may or may not choose to offer, and states vary widely in the degree to which they cover them. The implications of the Olmstead decision--in terms of the scope and the nature of states' obligation to provide home and community-based long-term care services--are still unfolding. Although the Supreme Court ruled that providing care in institutional settings may violate the ADA, it also recognized that there are limits to what states can do, given the available resources and the obligation to provide a range of services for disabled people. The decision left many open questions for states and lower courts to resolve. State programs also may be influenced over time as dozens of lawsuits and hundreds of formal complaints seeking access to appropriate services are resolved.
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Current domestic uses of UAS are limited and include law enforcement, monitoring or fighting forest fires, border security, weather research, and scientific data collection. UAS have a wide-range of potential uses, including commercial uses such as pipeline, utility, and farm fence inspections; vehicular traffic monitoring; real estate and construction site photography; relaying telecommunication signals; and crop dusting. FAA's long-range goal is to permit, to the greatest extent possible, routine UAS operations in the national airspace system while ensuring safety. Using UAS for commercial purposes is not currently allowed in the national airspace. As the list of potential uses for UAS grows, so do the concerns about how they will affect existing military and non-military aviation as well as concerns about how they might be used. Domestically, state and local law enforcement entities represent the greatest potential use of small UAS in the near term because small UAS can offer a simple and cost effective solution for airborne law enforcement activities for agencies that cannot afford a helicopter or other larger aircraft. For example, federal officials and one airborne law enforcement official said that a small UAS costing between $30,000 and $50,000 is more likely to be purchased by state and local law enforcement entities because the cost is nearly equivalent to that of a patrol car. According to recent FAA data, 12 state and local law enforcement entities have a Certificate of Waiver or Authorization (COA) while an official at the Department of Justice said that approximately 100 law enforcement entities have expressed interest in using a UAS for some of their missions. According to law enforcement officials with whom we spoke, small UAS are ideal for certain types of law enforcement activities. Officials anticipate that small UAS could provide support for tactical teams, post-event crime scene analysis and critical infrastructure photography. Officials said that they do not anticipate using small UAS for routine patrols or missions that would require flights over extended distances or time periods. FAA has been working with the Department of Justice's National Institute of Justice to develop a COA process through a memorandum of understanding to better meet the operational requirements of law enforcement entities. While the memorandum of understanding establishing this COA process has not been finalized, there are two law enforcement entities that are using small UAS on a consistent basis for their missions and operations. The proposed process would allow law enforcement entities to receive a COA for training and performance evaluation. When the entity has shown proficiency in operating its UAS, it would then receive an operational COA allowing it to operate small UAS for a range of missions. In May 2012, FAA stated that it met its first requirement to expedite the COA process for public safety entities. FAA's reauthorization also required the agency to enter into agreements with appropriate government agencies to simplify the COA process and allow a government public safety agency to operate unmanned aircraft weighing 4.4 pounds or less if flown within the line of sight of the operator, less than 400 feet above the ground, and during daylight conditions, among others stipulations. In 2008, we reported that UAS could not meet the aviation safety requirements developed for manned aircraft and posed several obstacles to operating safely and routinely in the national airspace system. Sense and avoid technologies. To date, no suitable technology has been identified that would provide UAS with the capability to meet the detect, sense, and avoid requirements of the national airspace system. Our ongoing work indicates that research has been carried out to mitigate this, but the inability for UAS to sense and avoid other aircraft or objects remains an obstacle. With no pilot to scan the sky, UAS do not have an on-board capability to directly "see" other aircraft. Consequently, the UAS must possess the capability to sense and avoid an object using on-board equipment, or with the assistance of a human on the ground or in a chase aircraft, or by other means, such as radar. Many UAS, particularly smaller models, will likely operate at altitudes below 18,000 feet, sharing airspace with other vehicles or objects. Sensing and avoiding other vehicles or objects represents a particular challenge for UAS, because other vehicles or objects at this altitude often do not transmit an electronic signal to identify themselves and, even if they did, many small UAS, do not have equipment to detect such signals if they are used and may be too small to carry such equipment. Command and control communications. Similar to what we previously reported, ensuring uninterrupted command and control for UAS remains a key obstacle for safe and routine integration into the national airspace. Without such control, the UAS could collide with another aircraft or crash, causing injury or property damage. The lack of dedicated radiofrequency spectrum for UAS operations heightens the possibility that an operator could lose command and control of the UAS. Unlike manned aircraft that use dedicated radio frequencies, non-military UAS currently use undedicated frequencies and remain vulnerable to unintentional or intentional interference. To address the potential interruption of command and control, UAS generally have pre-programmed maneuvers to follow if the command and control link becomes interrupted (called a "lost-link scenario"). However, these procedures are not standardized across all types of UAS and, therefore, remain unpredictable to air traffic controllers who have responsibility for ensuring safe separation of aircraft in their airspace. Standards. A rigorous certification process with established performance thresholds is needed to ensure that UAS and pilots meet safety, reliability, and performance standards. Minimum aviation system standards are needed in three areas: performance; command and control communications; and sense and avoid. In 2004, RTCA, a standards-making body sponsored by FAA, established a federal advisory committee called the Special Committee 203 (or SC 203), to establish minimum performance standards for FAA to use in developing UAS regulations. Individuals from academia and the private sector serve on the committee, along with FAA, NASA, and DOD officials. ASTM International Committee F38 on UAS, an international voluntary consensus standards-making body, is working with FAA to develop standards to support the integration of small UAS into the national airspace. Regulations. FAA regulations govern the routine operation of most aircraft in the national airspace system. do not contain provisions to address issues relating to unmanned aircraft. As we highlighted in our previous report, existing regulations may need to be modified to address the unique characteristics of UAS. Today, UAS continue to operate as exceptions to the regulatory framework rather than being governed by it. This has limited the number of UAS operations in the national airspace, and that limitation has, in turn, contributed to the lack of operational data on UAS in domestic operations previously discussed. One industry forecast noted that growth in the non-military UAS market is unlikely until regulations allow for the routine operation of UAS. Without specific and permanent regulations for safe operation of UAS, federal stakeholders, including DOD, continue to face challenges. The lack of final regulations could hinder the acceleration of safe and routine integration of UAS into the national airspace. Given the remaining obstacles to UAS integration, we stated in 2008 that Congress should consider creating an overarching body within FAA to coordinate federal, academic, and private-sector efforts in meeting the safety challenges of allowing routine access to the national airspace system. While it has not created this overarching body, FAA's Joint Planning and Development Office has taken on a similar role. In addition, Congress set forth requirements for FAA in its February 2012 reauthorization to facilitate UAS integration. Additionally, we made two recommendations to FAA related to its planning and data analysis efforts to facilitate the process of allowing UAS routine access to the national airspace, which FAA has implemented. Title 14, Code of Federal Regulations (14 CFR). DHS is one of several partner agencies of FAA's Joint Planning and Development Office (JPDO) working to safely integrate UAS into the national airspace. TSA has the authority to regulate the security of all transportation modes, including non-military UAS, and according to TSA officials, its aviation security efforts include monitoring reports on potential security threats regarding the use of UAS. While UAS operations in the national airspace are limited and take place under closely controlled conditions, this could change if UAS have routine access to the national airspace system. Further, DHS owns and uses UAS. Security is a significant issue that could be exacerbated with an increase in the number of UAS, and could impede UAS use even after all other obstacles have been addressed. In 2004, TSA issued an advisory in which it stated that there was no credible evidence to suggest that terrorist organizations plan to use remote controlled aircraft or UAS in the United States. However, the TSA advisory also provided that the federal government remains concerned that UAS could be modified and used to attack key assets and infrastructure in the United States. TSA advised individuals to report any suspicious activities to local law enforcement and the TSA General Aviation Hotline. Security requirements have yet to be developed for UAS ground control stations--the UAS equivalent of the cockpit. Legislation introduced in the 112th Congress would prohibit the use of UAS as weapons while operating in the national airspace. In our 2008 report, we recommended that the Secretary of Homeland Security direct the Administrator of TSA to examine the security implications of future, non-military UAS operations in the national airspace and take any actions deemed appropriate. TSA agreed that consideration and examination of new aviation technologies and operations is critical to ensuring the continued security of the national airspace. According to TSA officials, TSA continues to work with the FAA and other federal agencies concerning airspace security by implementing security procedures in an attempt to protect the National Airspace System. Examples of this collaboration include the coordinated efforts to allow access to temporary flight restricted airspace such as those put in place for Presidential travel and DHS Security Events. However, to date, neither DHS nor TSA has taken any actions to implement our 2008 recommendation. According to TSA officials, TSA believes its current practices are sufficient and no additional actions have been needed since we issued our recommendation. DHS is also an owner and user of UAS. Since 2005, CBP has flown UAS for border security missions. FAA granted DHS authority to operate UAS to support its national security mission along the United States northern and southern land borders, among other areas. Recently, DHS officials told us that DHS has also flown UAS over the Caribbean to search for narcotics-carrying submarines and speedboats. According to DHS officials, CBP owns ten UAS that it operates in conjunction with other agencies for various missions. As of May 2012, CBP has flown missions to support six federal and state agencies along with several DHS agencies. These missions have included providing the National Oceanic and Atmospheric Administration with videos of damaged dams and bridges where flooding occurred or was threatened, and providing surveillance for DHS's Immigration and Customs Enforcement over a suspected smuggler's tunnel. DHS, DOD, and NASA, are working with FAA to identify and evaluate options to increase UAS access in the national airspace. DHS officials reported that if funding was available, they plan to expand their fleet to 24 total UAS that would be operational by fiscal year 2016, including 11 on the southwest border. The DHS Inspector General reviewed CBP's actions to establish its UAS program, the purpose of which is to provide reconnaissance, surveillance, targeting, and acquisition capabilities across all CBP areas of responsibility. The Inspector General assessed whether CBP has established an adequate operation plan to define, prioritize, and execute its unmanned aircraft mission. The Inspector General's May 2012 report found that CBP had not achieved its scheduled or desired level of flight hours for its UAS. It estimated that CBP used its UAS less than 40 percent of the time it would have expected. Our ongoing work has identified several UAS issues that, although not new, are emerging as areas of further consideration in light of the efforts towards safe and routine access to the national airspace. These include concerns about 1) privacy as it relates to the collection and use of surveillance data, 2) the use of model aircraft, which are aircraft flown for hobby or recreation, and 3) the jamming and spoofing of the Global Positioning System (GPS). Privacy concerns over collection and use of surveillance data. Following the enactment of the UAS provisions of the 2012 FAA reauthorization act, members of Congress, a civil liberties organization, and others have expressed concern that the increased use of UAS for surveillance and other purposes in the national airspace has potential privacy implications. Concerns include the potential for increased amounts of government surveillance using technologies placed on UAS as well as the collection and use of such data. Surveillance by federal agencies using UAS must take into account associated constitutional Fourth Amendment protections against unreasonable searches and seizures. In addition, at the individual agency level, there are multiple federal laws designed to provide protections for personal information used by federal agencies. While the 2012 FAA reauthorization act contains provisions designed to accelerate the safe integration of UAS into the national airspace, proposed legislation in the 112th session of Congress, seeks to limit or serve as a check on uses of UAS by, for example, limiting the ability of the federal government to use UAS to gather information pertaining to criminal conduct without a warrant. Currently, no federal agency has specific statutory responsibility to regulate privacy matters relating to UAS. UAS stakeholders disagreed as to whether the regulation of UAS privacy related issues should be centralized within one federal agency, or if centralized, which agency would be best positioned to handle such a responsibility. Some stakeholders have suggested that FAA or another federal agency should develop regulations for the types of allowable uses of UAS to specifically protect the privacy of individuals as well as rules for the conditions and types of data that small UAS can collect. Furthermore, stakeholders with whom we spoke said that developing guidelines for technology use on UAS ahead of widespread adoption by law enforcement entities may preclude abuses of the technology and a negative public perception of UAS. Representatives from one civil liberties organization told us that since FAA has responsibility to regulate the national airspace, it could be positioned to handle responsibility for incorporating rules that govern UAS use and data collection. Some stakeholders have suggested that the FAA has the opportunity and responsibility to incorporate such privacy issues into the small UAS rule that is currently underway and in future rulemaking procedures. However, FAA officials have said that regulating these sensors is outside the FAA's mission, which is primarily focused on aviation safety, and has proposed language in its small UAS Notice of Proposed Rulemaking to clarify this. Model aircraft. According to an FAA official with whom we spoke and other stakeholders, another concern related to UAS is the oversight of the operation of model aircraft--aircraft flown for hobby or recreation--capable of sustained flight in the atmosphere and a number of other characteristics. Owners of model aircraft do not require a COA to operate their aircraft. Furthermore, as part of its 2012 reauthorization act, FAA is prohibited from developing any rule or regulation for model aircraft under a specified set of conditions. However, the 2012 reauthorization act also specifies that nothing in the act's model aircraft provisions shall be construed to limit FAA's authority to take enforcement action against the operator of a model aircraft who endangers the safety of the national airspace system. The Federal Bureau of Investigation report of the arrest and criminal prosecution of a man plotting to use a large remote-controlled model aircraft filled with plastic explosives to attack the Pentagon and U.S. Capitol in September 2011 has highlighted the potential for model aircraft to be used for non-approved or unintended purposes. The Academy of Model Aeronautics, which promotes the development of model aviation as a recognized sport and represents a membership of over 150,000, published several documents to guide model aircraft users on safety, model aircraft size and speed, and use. For example, the Academy's National Model Aircraft Safety Code specifies that model aircraft will not be flown in a careless or reckless manner and will not carry pyrotechnic devices that explode or burn, or any device that propels a projectile or drops any object that creates a hazard to persons or property (with some exceptions). Aeronautics also provides guidance on "sense and avoid" to its members, such as a ceiling of 400 feet above ground of aircraft weighing 55 pounds or less. However, apart from FAA's voluntary safety standards for model aircraft operators, FAA has no regulations relating to model aircraft. Currently, FAA does not require a license for any model aircraft operators, but according to FAA, the small UAS Notice of Proposed Rule Making, under development and expected to be published late 2012, may contain a provision that requires certain model aircraft to be registered. GPS jamming and spoofing. The Academy of Model Aeronautics National Model Aircraft Safety Code allows members to fly devices that burn producing smoke and are securely attached to the model aircraft and use rocket motors if they remain attached to the model during flight. Model rockets may be flown but not launched from a model aircraft. GPS spoofing is when counterfeit GPS signals are generated for the purpose of manipulating a target receiver's reported position and time. Todd E. Humphreys, Detection Strategy for Cryptographic GNSS Anti-Spoofing, IEEE Transactions on Aerospace and Electronics Systems (August 2011). cost devices that jam GPS signals are prevalent. According to one industry expert, GPS jamming would become a larger problem if GPS is the only method for navigating a UAS. This problem can be mitigated by having a second or redundant navigation system onboard the UAS that is not reliant on GPS. In addition, a number of federal UAS stakeholders we interviewed stated that GPS jamming is not an issue for the larger, military-type UAS, as they have an encrypted communications link on the aircraft. A stakeholder noted that GPS jamming can be mitigated for small UAS by encrypting its communications, but the costs associated with encryption may make it infeasible. Recently, researchers at the University of Texas demonstrated that the GPS signal controlling a small UAS could be spoofed using a portable software radio. The research team found that it was straightforward to mount an intermediate-level spoofing attack but difficult and expensive to mount a more sophisticated attack. The emerging issues we identified not only may exist as part of efforts to safely and routinely integrate UAS into the national airspace, but may also persist once integration has occurred. Thus, these issues may warrant further examination both presently and in the future. Chairman McCaul, Ranking Member Keating, and Members of the Subcommittee, this concludes my prepared statement. We plan to report more fully this fall on these same issues, including the status of efforts to address obstacles to the safe and routine integration of UAS into the national airspace. I would be pleased to answer any questions at this time. For further information on this testimony, please contact Gerald L. Dillingham, Ph.D., at (202) 512-2834 or [email protected]. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Maria Edelstein, Assistant Director; Amy Abramowitz; Erin Cohen; John de Ferrari; Colin Fallon; Rebecca Gambler; Geoffrey Hamilton; David Hooper; Daniel Hoy; Joe Kirschbaum; Brian Lepore; SaraAnn Moessbauer; Faye Morrison; Sharon Pickup; Tina Won Sherman; and Matthew Ullengren. 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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UAS aircraft do not carry a human operator on board, but instead operate on pre-programmed routes or by following commands from pilot-operated ground stations. An aircraft is considered to be a small UAS if it is 55 pounds or less, while a large UAS is anything greater. Current domestic uses of UAS are limited and include law enforcement, monitoring or fighting forest fires, border security, weather research, and scientific data collection by the federal government. FAA authorizes military and non-military UAS operations on a limited basis after conducting a case-by-case safety review. Several other federal agencies also have a role or interest in UAS, including DHS. In 2008, GAO reported that safe and routine access to the national airspace system poses several obstacles. This testimony discusses 1) obstacles identified in GAO's previous report on the safe and routine integration of UAS into the national airspace, 2) DHS's role in the domestic use of these systems, and 3) preliminary observations on emerging issues from GAO's ongoing work. This testimony is based on a 2008 GAO report and ongoing work, and is focused on issues related to non-military UAS. In ongoing work, GAO analyzed FAA's efforts to integrate UAS into the national airspace, the role of other federal agencies in achieving safe and routine integration, and other emerging issues; reviewed FAA and other federal agency efforts and documents; and conducted selected interviews with officials from FAA and other federal, industry, and academic stakeholders. GAO earlier reported that unmanned aircraft systems (UAS) could not meet the aviation safety requirements developed for manned aircraft and posed several obstacles to operating safely and routinely in the national airspace system. These include 1) the inability for UAS to detect, sense, and avoid other aircraft and airborne objects in a manner similar to "see and avoid" by a pilot in a manned aircraft; 2) vulnerabilities in the command and control of UAS operations; 3) the lack of technological and operational standards needed to guide the safe and consistent performance of UAS; and 4) the lack of final regulations to accelerate the safe integration of UAS into the national airspace. GAO stated in 2008 that Congress should consider creating an overarching body within the Federal Aviation Administration (FAA) to address obstacles for routine access. FAA's Joint Planning and Development Office (JPDO) has taken on a similar role. FAA has implemented GAO's two recommendations related to its planning and data analysis efforts to facilitate integration. The Department of Homeland Security (DHS) is one of several partner agencies of JPDO working to safely integrate UAS into the national airspace. Since 2005, FAA has granted DHS authority to operate UAS to support its national security mission in areas such as the U.S. northern and southern land borders. DHS's Transportation Security Administration (TSA) has the authority to regulate security of all modes of transportation, including non-military UAS, and according to TSA officials, its aviation security efforts include monitoring reports on potential security threats regarding the use of UAS. Security considerations could be exacerbated with routine UAS access. TSA has not taken any actions to implement GAO's 2008 recommendation that it examine the security implications of future, non-military UAS. GAO's ongoing work has identified several UAS issues that, although not new, are emerging as areas of further consideration in light of greater access to the national airspace. These include concerns about privacy relating to the collection and use of surveillance data. Currently, no federal agency has specific statutory responsibility to regulate privacy matters relating to UAS. Another emerging issue is the use of model aircraft (aircraft flown for hobby or recreation) in the national airspace. FAA is generally prohibited from developing any rule or regulation for model aircraft. The Federal Bureau of Investigation report of a plot to use a model aircraft filled with plastic explosives to attack the Pentagon and U.S. Capitol in September 2011 has highlighted the potential for model aircraft to be used for unintended purposes. An additional emerging issue is interruption of the command and control of UAS operations through the jamming and spoofing of the Global Positioning System between the UAS and ground control station. GAO plans to report more fully this fall on these issues, including the status of efforts to address obstacles to the safe and routine integration of UAS into the national airspace.
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Older adults are being financially exploited by strangers who inundate them with mail, telephone, or Internet scams; unscrupulous financial services providers; and untrustworthy in-home caregivers (see table 1 for more details). For example: Mass marketing scams: Local law enforcement authorities in the four states we visited indicated that investigating and prosecuting the growing number of cases involving interstate and international mass marketing fraud, which often targets older adults, is particularly difficult for them. Interstate or international mass marketing scams include "grandparent scams," which persuade victims to wire money to bail "grandchildren" out of jail or pay their expenses, and foreign lottery scams that require victims to pay sizeable sums before they can receive their winnings. In 2011, the Federal Bureau of Investigation's (FBI) Internet Crime Complaint Center received over 300,000 complaints from victims of all ages about online fraud alone, with reported losses of about $485 million. Exploitation by financial services professionals: Older adults may consult with a variety of financial professionals, such as financial planners, broker-dealers, and insurance agents. However, older adults, similar to other consumers, may lack the information to make sound decisions about choosing a financial services provider and protecting their assets from exploitation. As a result, they may unknowingly put themselves at risk of financial exploitation. Older adults can be sold what they believe to be legitimate investments but are actually fraudulent products that hold little or no value, or may be fooled by financial professionals who use questionable tactics to market financial products, such as "free lunch seminars" at which financial professionals seek to sell financial products to older adults during a free meal. Exploitation by in-home caregivers: Local officials cited exploitation by in-home caregivers--who range from personal care aides who provide non-medical assistance to home health aides who may check an older adult's vital signs--as a type of abuse that is difficult to prevent, in part because these older adults may rely on and trust their caregivers. For example, a caregiver may be given access to an older adult's ATM or credit card to help with banking or grocery shopping, and later be found withdrawing money or purchasing items for themselves. We identified a number of ways the federal government was supporting or could further support state and local efforts to combat elder financial exploitation. Local law enforcement officials we met with indicated it is not clear how they should obtain the federal support they need to respond to interstate and international mass marketing fraud cases. Justice officials told us they believe that local officials know which federal employees to contact; however, state and local law enforcement officials told us it would be helpful to have more specific information. Cases that local officials do not refer to a federal agency due to a lack of correct contact information may not be investigated or prosecuted by either federal or local authorities. In our November 2012 report, we recommended that the Attorney General conduct outreach to state and local law enforcement agencies to clarify the process for contacting the federal government in these cases and the ways in which the federal government could provide support. Justice agreed with this recommendation, and in December 2012 held a meeting to begin identifying points of contact both within and outside the Department, such as FBI field offices, US Attorneys' offices, the Internet Crime Complaint Center, and FTC's Consumer Sentinel database. Justice noted that it will develop an implementation plan and timeline to initiate outreach to the appropriate state and local agencies. In addition to not knowing whom to contact, state and local law enforcement officials in the four states we visited told us that they are concerned that federal agencies do not take enough of the cases that are referred to them. For example, a law enforcement official from California described a case of widespread interstate check fraud, expressing frustration with federal agencies that would not provide any support when he requested it. Federal officials, on the other hand, told us that they cannot take all cases referred to them by state and local law enforcement and that they must prioritize their caseload to make the best use of their limited resources. Justice and FTC officials said they tend to focus on larger cases in which many victims were affected or a significant amount of money was lost, and Justice's U.S. Attorneys also apply regional priorities, such as the vulnerability (including age) of the victim, when determining which cases to take. Even if federal agencies choose not to take a case a state or local agency refers to them, Justice officials told us that consistent referrals of cases by state and local authorities allow them to identify patterns or combine several complaints against the same individual into one case. Federal agencies have made some efforts to provide safeguards to prevent exploitation by financial services professionals, which was cited as a challenge by public officials in all four states we visited. When it comes to preventing the sale to older adults of unsuitable or fraudulent investments, SEC and CFPB have each taken steps to help older adults avoid being exploited. SEC and CFPB have conducted research related to investment fraud that targets older adults, and in August 2012, SEC released a study on financial literacy among investors and stated the agency's desire to develop a strategy for increasing the financial literacy of certain groups, including older adults. Further, there is a link on SEC's website to Financial Industry Regulatory Authority (FINRA), information consumers can use to check a financial services provider's qualifications and to understand the many designations used by securities professionals. CFPB also issued a report in 2013 addressing how information about financial advisors and their credentials should be provided to older adults. To prevent exploitation by in-home caregivers--also identified as a challenge by officials in the four states we visited-- the Patient Protection and Affordable Care Act of 2010 required the Centers for Medicare and Medicaid Services to implement the National Background Check Program, which encourages but does not require states to adopt safeguards to protect clients of in-home caregivers. This program provides grants to states to conduct background checks for employees of long-term care facilities and providers, such as home health agencies and personal care service providers. As of November 2012, 19 states were participating. According to the National Conference of State Legislatures, many states require agencies to conduct background checks before employing in-home caregivers who are paid by Medicaid or with other state funds. These laws, however, vary greatly in their breadth and scope and in the amount of flexibility afforded the agencies when they use the checks to make hiring decisions. For example, Napa County, California, has initiated an innovative paid in-home caregiver screening initiative. Before in-home caregivers can work in that county, they must submit to a background check and obtain a permit annually. Other federal efforts are broader in scope rather than focusing on a particular type of elder financial exploitation, such as those covering public awareness, banks, collaboration among agencies, and data collection. State and local officials told us that older adults need more information about what constitutes elder financial exploitation in order to know how to avoid it. At the state level, the Pennsylvania Attorney General's Office has published a guide on how seniors can avoid scams and fraud, and in Cook County, Illinois, the Senior Law Enforcement Academy within the Sheriff's Department instructs older adults in how to prevent elder financial exploitation. At the federal level, each of the seven federal agencies we reviewed independently produces educational materials that could help prevent elder financial exploitation. However, these seven agencies do not conduct their activities as part of a broader coordinated approach. In previous work, we found that agencies can use limited funding more efficiently by coordinating their activities and can strengthen their collaboration by establishing joint strategies. The need to increase coordination of efforts to promote public awareness in this area was discussed in 2012 at a high-level multi-agency meeting on elder justice. One participant observed that federal efforts to promote awareness are unorganized and uncoordinated, and one expert noted that there is a clear need for a strategic, multifaceted public awareness campaign. In our November 2012 report, we recommended that the federal government take a more strategic approach to its efforts to increase public awareness of elder financial exploitation. HHS has begun to act on this recommendation, as described below. In our November 2012 report, we could identify no federal requirements for banks to train employees to recognize or report elder financial exploitation, even though they are well-positioned to identify and report it because they are able to observe it firsthand. For example, a bank teller who sees an older adult regularly is likely to notice if that individual is accompanied by someone new and seems pressured to withdraw money or if the older adult suddenly begins to wire large sums of money internationally. However, many social services and law enforcement officials we spoke with indicated banks do not always recognize or report exploitation or provide the evidence needed to investigate it. AoA is considering collaborating with one large national bank on a project to develop bank training on elder financial exploitation. In addition, financial institutions are required to file Suspicious Activity Reports (SARs) of potentially illegal bank transactions that involve, individually or in the aggregate, at least $5,000 with FinCEN, which has issued an advisory to banks that describes elder financial exploitation and its potential indicators. Our November 2012 report recommended that CFPB develop a plan to educate bank staff on elder financial exploitation. CFPB concurred with our recommendation and has begun to share information on currently available training programs with banks and industry associations. Federal agencies have taken some steps to promote and inform collaboration between the social services and criminal justice systems in states, which officials in three of the four states we contacted for our November 2012 report identified as a challenge. These two systems do not respond to exploitation or carry out their work in the same way. The social services system protects and supports victims and the criminal justice system investigates and prosecutes crimes. As a result, there can be difficulties communicating across disciplines and different views regarding limits on information-sharing. Yet due to the nature of elder financial exploitation, collaboration can be an effective means to facilitate case investigation and prosecution. We identified a number of local initiatives to help bridge the gap between social services and criminal justice agencies. For example, in some Pennsylvania and New York counties, multidisciplinary groups meet to discuss and help resolve all types of elder abuse cases. The Philadelphia Financial Exploitation Task Force and financial abuse specialist teams in some California counties, on the other hand, concentrate only on elder financial exploitation cases. At the federal level, a few grants from AoA and Justice to combat elder abuse or other crimes have required or encouraged collaboration, such as the use of multi-disciplinary teams, in states. In our November 2012 report, we recommended that the federal government take steps to help state and local agencies collaborate. HHS has begun to act on this recommendation, as described below. FTC's Consumer Sentinel Network is an online database that houses millions of consumer complaints available to law enforcement. Sentinel's roster of 28 current data contributors includes 12 state attorneys general, the FBI's Internet Crime Complaint Center, and the Council of Better Business Bureaus. More than 2,600 users from over 2,000 law enforcement agencies worldwide use the system to share information, prosecute cases, and pursue leads. FTC (2012) Consumer Sentinel Network Data Book for January - December 2011. decrease the numbers of people who submit complaints. It additionally said that it may be possible to determine if a complaint involves elder fraud using other information in the complaint. We maintain the importance of our recommendation to FTC. Elder financial exploitation is a complex, nationwide problem, and combating it effectively requires a concerted, ongoing effort on the part of states and localities. It also requires support and leadership at the federal level. Each of the seven federal agencies we reviewed is working to address this problem in ways that are consistent with its mission. However, preventing and responding to elder financial exploitation also calls for a more cohesive and deliberate national strategy. This is an opportune time for the federal government to be looking at elder financial exploitation, because the Elder Justice Act of 2009 has established the Elder Justice Coordinating Council (EJCC)--a group of federal agency heads charged with setting priorities, coordinating federal efforts, and recommending actions to ensure elder justice nationwide--which has recently begun to examine these issues. The EJCC can be the vehicle for defining and implementing such a national strategy. To this end, in our November 2012 report we recommended that the EJCC develop a written national strategy for combating elder financial exploitation. Among other things, this strategy should ensure coordination of public awareness activities across federal agencies; promote agency collaboration; and promote investigation and prosecution of elder financial exploitation. The EJCC held an official meeting on May 13, 2013. Its working group presented a number of recommendations, including ones that focused on enhancing interagency collaboration, strategically promoting public awareness, and combating financial exploitation. Next steps will include receiving public comments and drafting a federal agenda for elder justice activities for EJCC consideration. Chairman Terry, Ranking Member Schakowsky, and Members of the Subcommittee, this concludes my statement. I would be happy to answer any questions you might have. For questions about this testimony, please contact Kay Brown at (202) 512-7215 or [email protected]. Contacts from our Office of Congressional Relations and Office of Public Affairs are on the last page of this statement. Individuals who made key contributions to this testimony include Clarita Mrena, Eve Weisberg, Monika Gomez, Brittni Milam, and James Bennett. Contributing to our November 2012 report were Andrea Dawson, Gary Bianchi, Jessica Botsford, Jason Bromberg, Alicia Cackley, Paul Desaulniers, Holly Dye, Eileen Larence, Jean McSween, Chris Morehouse, Claudine Pauselli, Almeta Spencer, Kate Van Gelder, and Craig Winslow. 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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Elder financial exploitation is the illegal or improper use of an older adult's funds or property. It has been described as an epidemic with society-wide repercussions. While combating elder financial exploitation is largely the responsibility of state and local social service, criminal justice, and consumer protection agencies, the federal government has a role to play in this area. GAO was asked to testify on the different forms elder financial exploitation can take and the ways federal agencies can help combat it. This testimony is based on information in a report issued in November 2012 (see GAO-13-110). To obtain this information, GAO interviewed public officials in California, Illinois, New York, and Pennsylvania--states that had large elderly populations and initiatives to combat financial exploitation; officials from seven federal agencies; and experts in this field. GAO also reviewed federal strategic plans and other relevant documents, research, laws, and regulations. Older adults are being financially exploited by strangers who inundate them with mail, telephone, or Internet scams; unscrupulous financial services professionals; and untrustworthy in-home caregivers. Local law enforcement authorities in the four states GAO visited indicated that investigating and prosecuting the growing number of cases involving interstate and international mass marketing fraud--such as "grandparent scams," which persuade victims to wire money to bail "grandchildren" out of jail or pay their expenses--is particularly difficult. In addition, older adults, like other consumers, may lack the information needed to make sound decisions when choosing a financial services provider. As a result, they can unknowingly risk financial exploitation by those who use questionable tactics to market unsuitable or illegal financial products. Local officials also noted that it is difficult to prevent exploitation by in-home caregivers, such as home health or personal care aides, individuals older adults must rely on. GAO identified several ways the federal government is, or could be, supporting state and local efforts to combat elder financial exploitation. With regard to mass marketing scams, GAO has recommended that the Department of Justice reach out to law enforcement authorities in states to clarify how they can obtain the federal assistance needed to handle interstate or international mass marketing fraud. To help prevent exploitation by financial services professionals, the Securities and Exchange Commission links to a public website where the qualifications of individual financial services providers can be found, and the Consumer Financial Protection Bureau has issued guidance on how best to convey this information to older adults. To prevent exploitation by in-home caregivers, the Centers for Medicare and Medicaid Services provides grants that fund background checks for employees of agencies that provide these services. Other federal efforts are broader in scope and help combat all types of elder financial exploitation. For example, each of the seven federal agencies GAO reviewed has independently undertaken activities to increase public awareness of this exploitation; however, GAO has recommended that the federal government develop a more strategic approach to these efforts. Further, recognizing the importance of collaboration among those interacting with older adults, GAO has recommended measures to educate bank staff on how to identify potential exploitation and improve collaboration among social service and law enforcement agencies, among others, as they respond to reports of exploitation. GAO has also noted the need for more data on the extent and nature of elder financial exploitation, some of which can be collected from consumer complaints filed with federal agencies. Finally, preventing and responding to elder financial exploitation calls for a more cohesive and deliberate national strategy. To this end, GAO has recommended that the Elder Justice Coordinating Council--a group of federal agency heads charged with setting priorities and coordinating federal efforts to combat elder abuse nationwide--develop a written national strategy for combating elder financial exploitation. In its November 2012 report, GAO made multiple recommendations to federal agencies, and the agencies generally agreed with the recommendations.
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Medical devices can range in complexity from a simple tongue depressor to a sophisticated CT (computed tomography) x-ray system. Most of the devices reach the market through FDA's premarket notification (or 510(k)) review process. Under its 510(k) authority, FDA may determine that a device is substantially equivalent to a device already on the market and therefore not likely to pose a significant increase in risk to public safety. When evaluating 510(k) applications, FDA makes a determination regarding whether the new device is as safe and effective as a legally marketed predicate device. Performance data (bench, animal, or clinical) are required in most 510(k) applications, but clinical data are needed in less than 10 percent of applications. An alternative mode of entry into the market is through the premarket approval (PMA) process. PMA review is more stringent and typically longer than 510(k) review. For PMAs, FDA determines the safety and effectiveness of the device based on information provided by the applicant. Nonclinical data are included as appropriate. However the answers to the fundamental questions of safety and effectiveness are determined from data derived from clinical trials. FDA also regulates research conducted to determine the safety and effectiveness of unapproved devices. FDA approval is required only for "significant risk" devices. Applicants submit applications for such devices to obtain an investigational device exemption (IDE) from regulatory requirements and approval to conduct clinical research. For an IDE, unlike PMAs and 510(k)s, it is the proposed clinical study that is being assessed--not just the device. Modifications of medical devices, including any expansion of their labeled uses, are also subject to FDA regulation. Applications to modify a device that entered the market through a PMA are generally linked to the original PMA application and are called PMA supplements. In contrast, modifications to a 510(k) device are submitted as new 510(k) applications. References may be made to previous 510(k) applications. FDA uses several measures of duration to report the amount of time spent reviewing applications. In this letter, we use only three of those measures. The first is simply the time that elapses between FDA's receipt of an application and its final decision on it (total elapsed time). The second measure is the time that FDA has the application under its review process (FDA time). This includes both the time the application is under active review and the time it is in the FDA review queue. The amount of time FDA's review process has been suspended, waiting for additional information from the applicant, is our third measure (non-FDA time). Our measures of review time are not intended to be used to assess the agency's compliance with time limits for review established under the Federal Food, Drug, and Cosmetic Act (the act). The time limits for PMA, 510(k), and IDE applications are 180, 90, and 30 days, respectively. FDA regulations allow for both the suspension and resetting of the FDA review clock under certain circumstances. How review time is calculated differs for 510(k)s and PMAs. If a PMA application is incomplete, depending on the extent of the deficiencies, FDA may place the application on hold and request further information. When the application is placed on hold, the FDA review clock is stopped until the agency receives the additional information. With minor deficiencies, the FDA review clock resumes running upon receipt of the information. With major deficiencies, FDA resets the FDA clock to zero upon receipt of the information. In this situation, all previously accrued FDA time is disregarded. (The resetting of the FDA clock can also be triggered by the applicant's submission of unsolicited supplementary information.) The amount of time that accrues while the agency is waiting for the additional information constitutes non-FDA time. For 510(k)s, the FDA clock is reset upon receipt of a response to either major or minor deficiencies. For this report, we define FDA time as the total amount of time that the application is under FDA's review process. That is, our measure of FDA time does not include the time that elapses during any suspension, but does include time that elapsed before the resetting of the FDA clock. The total amount of time that accrues while the agency is waiting for additional information constitutes non-FDA time. (The sum of FDA and non-FDA time is our first measure of duration--total elapsed time.) The act establishes three classes of medical devices, each with an increasing level of regulation to ensure safety and effectiveness. The least regulated, class I devices, are subject to compliance with general controls. Approximately 40 percent of the different types of medical devices fall into class I. At the other extreme is premarket approval for class III devices, which constitute about 12 percent of the different types of medical devices. Of the remainder, a little over 40 percent are class II devices, and about 3 percent are as yet unclassified. In May 1994, FDA implemented a three-tier system to manage its review workload. Classified medical devices are assigned to one of three tiers according to an assessment of the risk posed by the device and its complexity. Tier 3 devices are considered the riskiest and require intensive review of the science (including clinical data) and labeling. Review of the least risky devices, tier 1, entails a "focused labeling review" of the intended use. In addition to the three tiers is a group of class I devices that pose little or no risk and were exempted from the premarket notification (510(k)) requirements of the act. Under the class and tier systems, approximately 20 percent of the different types of medical devices are exempted from premarket notification. A little over half of all the different types of medical devices are classified as tier 2 devices. Tiers 1 and 3 constitute 14 and 12 percent of the different types of medical devices, respectively. From 1989 through 1991, the median time between the submission of a 510(k) application and FDA's decision (total elapsed time) was relatively stable at about 80 to 90 days. The next 2 years showed a sharp increase that peaked at 230 days in 1993. Although the median review time showed a decline in 1994 (152 days), it remained higher than that of the initial 3 years. (See figure 1.) Similarly, the mean also indicated a peak in review time in 1993 and a subsequent decline. The mean review time increased from 124 days in 1989 to 269 days in 1993. In 1994, the mean dropped to 166 days; however, this mean will increase as the 13 percent of the applications that remained open are closed. (See table II.1.) Of all the applications submitted to FDA to market new devices during the period under review, a little over 90 percent were for 510(k)s. Between 1989 and 1994, the number of 510(k) applications remained relatively stable, ranging from a high of 7,023 in 1989 to a low of 5,774 in 1991. In 1994, 6,446 applications were submitted. Of the 40,950 510(k) applications submitted during the period under review, approximately 73 percent were determined to be substantially equivalent. (That is, the device is equivalent to a predicate device already on the market and thus is cleared for marketing.) Only 2 percent were found to be nonequivalent, and 6 percent remained open. Other decisions--including applications for which a 510(k) was not required and those that were withdrawn by the applicant--account for the rest. (See appendix I for details on other FDA decision categories.) For applications determined to be substantially equivalent, non-FDA time--the amount of time FDA placed the application on hold while waiting for additional information--comprised almost 20 percent of the total elapsed time. (See table II.7.) Figure 2 displays FDA and non-FDA time to determine equivalency for 510(k) applications. The trends in review time differed for original PMAs and PMA supplements. There was no clear trend in review times for original PMA applications using either medians or means since a large proportion of the applications had yet to be completed. The median time between the submission of an application and FDA's decision (total elapsed time) fluctuated from a low of 414 days in 1989 to a high of 984 days in 1992. Less than 50 percent of the applications submitted in 1994 were completed; thus, the median review time was undetermined. (See figure 3.) Except for 1989, the means were lower than the medians because of the large number of open cases. The percent of applications that remained open increased from 4 percent in 1989 to 81 percent in 1994. The means, then, represent the time to a decision for applications that were less time-consuming. When the open cases are completed, lengthy review times will cause an increase in the means. (See table III.1.) For PMA supplements, the median time ranged from 126 days to 173 days in the first 3 years, then jumped to 288 days in 1992. In 1993 and 1994, the median declined to 242 and 193 days, respectively. (See figure 4.) This trend was reflected in the mean review time that peaked at 336 days in 1992. Although the mean dropped to 162 days in 1994, this is expected to increase because 21 percent of the applications had not been completed at the time of our study. (See table III.7.) Applications for original PMAs made up less than 1 percent of all applications submitted to FDA to market new devices in the period we reviewed. PMA supplements comprised about 8 percent of the applications. The number of applications submitted for PMA review declined each year. In 1989, applications for original PMAs numbered 84. By 1994, they were down to 43. Similarly, PMA supplements decreased from 804 in 1989 to 372 in 1994. (See tables III.1 and III.7.) Of the 401 applications submitted for original PMAs, 33 percent were approved, 26 were withdrawn, and nearly a third remained open. The remainder (about 9 percent) fell into a miscellaneous category. (See appendix I.) A much higher percentage of the 3,640 PMA supplements (78 percent) were approved in this same period, and fewer PMA supplements were withdrawn (12 percent). About 9 percent of the applications remained open, and 2 percent fell into the miscellaneous category. For PMA reviews that resulted in approval, non-FDA time constituted approximately one-fourth of the total elapsed time for original PMAs and about one-third for PMA supplements. The mean FDA time for original PMAs ranged from 155 days in 1994 to 591 days in 1992. Non-FDA times for those years were 34 days in 1994 and 165 days in 1992. For PMA supplements, FDA review times were lower, ranging from a low of 105 days (1990) to a high of 202 days (1992). Non-FDA time for those years were 59 days (1990) and 98 days (1992), respectively. (See table III.13.) Figures 5 and 6 display the proportion of FDA and non-FDA time for the subset of PMAs that were approved. For IDEs, the mean review time between submission and FDA action was 30 days, and it has not changed substantially over time. Unlike 510(k)s and PMAs, IDEs are "deemed approved" if FDA does not act within 30 days. Of the 1,478 original IDE submissions from fiscal year 1989 to 1995, 33 percent were initially approved (488) and 62 percent were denied or withdrawn (909). The number of IDE submissions each year ranged from a high of 264 in 1990 to a low of 171 in 1994. (See table IV.1.) Our objective was to address the following general question: How has the time that 510(k), PMA, and IDE applications spend under FDA review changed between fiscal year 1989 and the present? To answer that question, we also looked at a subset of applications that were approved, distinguishing the portion of time spent in FDA's review process (FDA time) from that spent waiting for additional information (non-FDA time). For applications that were approved, we present the average number of amendments that were subsequently added to the initial application as well as the average number of times FDA requested additional information from the applicant. (Both of these activities affect FDA's review time.) We used both the median and mean to characterize review time. We use the median for two reasons. First, a large proportion of the applications have yet to be completed. Since the median is the midpoint when all review times are arranged in consecutive order, its value can be determined even when some applications requiring lengthy review remain open. In contrast, the mean can only be determined from completed applications. (In this case, applications that have been completed by May 18, 1995.) In addition, the mean will increase as applications with lengthy reviews are completed. To illustrate, for applications submitted in 1993, the mean time to a decision was 269 days for 510(k) applications that have been closed. However, 3 percent of the applications have yet to be decided. If these lengthy reviews were arbitrarily closed at May 18, 1995 (the cutoff date for our data collection), the mean would increase to 285 days. In contrast, the median review time (230 days) would remain the same regardless of when these open applications were completed. The second reason for using the median is that the distributions of review time for 510(k), original PMA, and PMA supplement applications are not symmetric, that is, having about the same number of applications requiring short reviews as lengthy reviews. The median is less sensitive to extreme values than the mean. As a result, the review time of a single application requiring an extremely lengthy review would have considerably more effect on the mean than the median. Figure 7 shows the distribution for 510(k)s submitted in 1993, the most recent year in which at least 95 percent of all 510(k) applications had been completed. The distribution is skewed with a mean review time of 269 days and a median review time of 222 days for all completed applications. Mean = 269 Median = 222 To provide additional information, we report on the mean review times as well as the median. The discrepancy between the two measures gives some indication of the distribution of review time. When the mean is larger than the median, as in the case of the 510(k)s above, it indicates that a group of applications required lengthy reviews. Another reason we report the means is that, until recently, FDA reported review time in terms of means. In appendix I, we provide the categories we used to designate the different FDA decisions and how our categories correspond to those used by FDA. Detailed responses to our study objective are found in tabular form in appendixes II, III, and IV for 510(k)s, PMAs, and IDEs, respectively. We report our findings according to the fiscal year in which the applications were submitted to FDA. By contrast, FDA commonly reports review time according to the fiscal year in which the review was completed. Although both approaches measure review time, their resultant statistics can vary substantially. For example, several complex applications involving lengthy 2-year reviews submitted in 1989 would increase the average review time for fiscal year 1989 in our statistics and for fiscal year 1991 in FDA's statistics. Consequently, the trend for review time based on date-of-submission cohorts can differ from the trend based on date-of-decision cohorts. (See appendix V for a comparison of mean review time based on the two methods.) The two methods provide different information and are useful for different purposes. Using the date-of-decision cohort is useful when examining productivity and the management of resources. This method takes into consideration the actual number of applications reviewed in a given year including all backlogs from previous years. Alternatively, using the date-of-submission cohort is useful when examining the impact of a change in FDA review policy, which quite often only affects those applications submitted after its implementation. To minimize the effect of different policies on review time within a cohort, we used the date-of-submission method. We conducted our work in accordance with generally accepted government auditing standards between May and June 1995. Officials from FDA reviewed a draft of this report and provided written comments, which are reproduced in appendix VI. Their technical comments, which have been incorporated into the text where appropriate, have not been reprinted in the appendix. FDA believed that the report misrepresented the current state of the program as the draft did not acknowledge recent changes in the review process. FDA officials suggested a number of explanations for the apparent trends in the data we reported (see appendix VI). Although recent initiatives to improve the review process provide a context in which to explain the data, they were outside the scope of our work. We were not able to verify the effect these changes have actually had on review time. To the extent that these changes did affect review time, they are reflected in the review times as presented and are likely to be reflected in future review times. The agency also believed that the draft did not reflect the recent improvements in review time. We provided additional measures of review time in order to present the review times for the more recent years. We have also included more information on the difference between the date-of-submission and date-of-decision cohorts, and we have expanded our methodological discussion in response to points FDA made on the clarity of our presentation. (Additional responses to the agency comments are included in appendix VI.) As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date of issue. We will then send copies to other interested congressional committees, the Secretary of the Department of Health and Human Services, and the Commissioner of Food and Drugs. Copies will also be made available to others upon request. If you or your staff have any questions about this report, please call me at (202) 512-3092. The major contributors to this report are listed in appendix VII. FDA uses different categories to specify the type of decision for 510(k)s, PMAs, and IDEs. For our analysis, we collapsed the multiple decision codes into several categories. The correspondence between our categories and FDA's are in table I.1. Additional information requested; applicant cannot respond within 30 days Drug (CDER) review required (continued) The following tables present the data for premarket notifications, or 510(k)s, for fiscal years 1989 through May 18, 1995. The first set of tables (tables II.1 through II.6) presents the time to a decision--from the date the application is submitted to the date a decision is rendered. We first present a summary table on the time to a decision by fiscal year (table II.1). The grand total for the number of applications includes open cases--that is, applications for which there had not been any decision made as of May 18, 1995. As the distribution for time to a decision is not symmetric (see figure 1 in the letter), we present the means and percentiles to characterize the distribution. (The means and percentiles do not include open cases.) The second table is a summary of the time to a decision by class, tier, medical specialty of the device, and reviewing division (table II.2). The next four tables (II.3 through II.6) provide the details for these summary tables. The totals in these tables include only applications for which a decision has been rendered. The class, tier, and medical specialty of some of the devices have yet to be determined and are designated with N/A. Medical specialties other than general hospital or general and plastic surgery include anesthesiology; cardiovascular; clinical chemistry; dental; ear, nose, and throat; gastroenterology/urology; hematology; immunology; microbiology; neurology; obstetrics/gynecology; ophthalmic; orthopedic; pathology; physical medicine; radiology; and clinical toxicology. The five reviewing divisions in FDA's Center for Devices and Radiological Health are Division of Clinical Laboratory Devices (DCLD); Division of Cardiovascular, Respiratory and Neurological Devices (DCRND); Division of General and Restorative Devices (DGRD); Division of Ophthalmic Devices (DOD); and Division of Reproductive, Abdominal, Ear, Nose and Throat, and Radiological Devices (DRAER). The second set of tables (tables II.7 through II.12) presents the mean time to determine equivalency. We provide the means for total FDA time, non-FDA time, and total elapsed time. FDA time is the total amount of time the application was under FDA review including queue time--the time to equivalency without resetting the FDA review clock. The total elapsed time, the duration between the submission of the application and FDA's decision, equals the sum of the FDA and non-FDA time. We deleted cases that had missing values or apparent data entry errors for the values relevant to calculating FDA and non-FDA time. Therefore, the total number of applications determined to be equivalent in this group of tables differs from that in the first set. Again, we have two summary tables, followed by four tables providing time to determine equivalency by class, tier, medical specialty, and reviewing division (tables II.7 through II.12). In reviewing a PMA application, FDA conducts an initial review to determine whether the application contains sufficient information to make a determination on its safety and effectiveness. A filing decision is made--filed, filed with deficiencies specified, or not filed--based on the adequacy of the information submitted. The manufacturer is notified of the status of the application at this time, especially since deficiencies need to be addressed. As part of the substantive review, a small proportion of PMA applications are also reviewed by an advisory panel. These panels include clinical scientists in specific medical specialties and representatives from both industry and consumer groups. The advisory panels review the applications and provide recommendations to the agency to either approve, deny, or conditionally approve them. FDA then makes a final determination on the application. To examine in greater detail those cases where the intermediate milestones were applicable, we calculated the average duration between the various dates--submission, filing, panel decision, and final decision. The number of applications differs for each of the milestones as not all have filing or panel dates. (See figure III.1.) The following tables present information on review time for PMA applications for fiscal years 1989 through 1995. Original PMA applications are distinguished from PMA supplements. Some observations were deleted from our data because of apparent data entry errors. The first set of tables (tables III.1 through III.6) presents the time to a decision for original PMAs--from the date the application is submitted to the date a decision is rendered. The second set of tables (tables III.7 through III.12) provides similar information, in the same format, for PMA supplements. We first present a summary table on the time to a decision by fiscal year (tables III.1 and III.7). Again, the grand total for the number of applications includes the number of open cases--that is, applications for which there had not been any decision made as of May 18, 1995. As with 510(k)s, the distributions of time to a decision for original PMAs and PMA supplements are not symmetric. Thus we report means and percentiles to characterize these distributions. (These means and percentiles do not include open cases.) Figure III.2 presents the distribution for original PMAs submitted in 1989, the most recent year for which at least 95 percent of the applications had been completed. Figure III.3 presents the distribution for PMA supplements submitted in 1991, the most recent year with at least a 95-percent completion date. The second table is a summary of the time to a decision by class, tier, relevant medical specialty of the device, and reviewing division (tables III.2 and III.8). The two summary tables are followed by four tables (tables III.3 through III.6 and III.9 through III.12) presenting the details by class, tier, medical specialty, and reviewing division. The totals in these tables include only applications for which a decision has been rendered. The class, tier, and medical specialty of some of the devices have yet to be determined and are designated with N/A. Medical specialities other than cardiovascular or ophthalmic include anesthesiology; clinical chemistry; dental; ear, nose, and throat; gastroenterology/urology; general and plastic surgery; general hospital; hematology; immunology; microbiology; neurology; obstetrics/gynecology; orthopedic; pathology; physical medicine; radiology; and clinical toxicology. The third set of tables provides information on the time to an approval, for both original PMAs and PMA supplements (tables III.13 through III.18). Four different measures of duration are provided--total FDA time, non-FDA time, total elapsed time, and FDA review time. Total FDA time is the amount of time the application is under FDA's review process. Non-FDA time is the time the FDA clock is suspended waiting for additional information from the applicant. The total elapsed time, the duration from the date the application is submitted to the date of FDA's decision, equals the sum of total FDA and non-FDA time. FDA review time is FDA time for the last cycle--excluding any time accrued before the latest resetting of the FDA clock. Again, we first provide a summary table for time to an approval by fiscal year (table III.13). In this table, we also provide the number of amendments or the number of times additional information was added to the initial submission. Not all amendments were for information requested by FDA as can be seen from the number of requests for information. Table III.13 is followed by a summary by class, tier, medical specialty, and reviewing division (table III.14). Tables III.15 though III.18 provide the details for these two summary tables. The following tables present the average days to a decision for investigational device exemptions. The first table presents the averages for the years from October 1, 1988, through May 18, 1995. This is followed by summaries by class, tier, medical specialty, and then reviewing division. The next four tables (tables IV.3 through IV.6) provide the details for these summary tables. We reported our findings according to the fiscal year in which the applications were submitted to FDA (date-of-submission cohort). By contrast, FDA commonly reports review time according to the fiscal year in which the review was completed (date-of-decision cohort). This led to discrepancies between our results and those reported by FDA. The following table illustrates the differences in calculating total elapsed time by the year that the application was submitted and the year that a decision was rendered. Comparisons are provided for 510(k)s, PMA supplements, original PMAs, and IDEs. Our dataset did not include applications submitted before October 1, 1988. Consequently, the results presented in the following table understated the number of cases, as well as the elapsed time, when calculated by the year of decision. That is, an application submitted in fiscal year 1988 and completed in 1989 would not have been in our dataset. The following are GAO's comments on the August 2, 1995, letter from FDA. 1. The purpose of our review was to provide to FDA's congressional oversight committee descriptive statistics on review time for medical device submissions between 1989 and May 1995. It was not to perform an audit of whether FDA was in compliance with statutory review time, nor to examine how changes in FDA management practices may have resulted in shortening (or lengthening) review times. FDA officials suggested that a number of process changes and other factors may have contributed to the trends we reported--for example, the increased complexity of the typical submission that resulted from the agency's exemption from review of certain low-risk devices. We are not able to verify the effect changes have actually had on review time, and it may be that it is still too early for their impact to be definitively assessed. 2. In discussing our methodology in the draft report, we noted the differences between FDA's typical method of reporting review time according to the year in which action on applications is finalized, as opposed to our method of assigning applications to the year in which they were submitted. We also included an appendix that compares the results of the two different approaches. (See appendix V.) We agree with FDA that it is important for the reader to understand these differences and have further expanded our discussion of methodology to emphasize this point. (See p. 14.) 3. We agree with FDA that our report "deals only with calculations of averages and percentiles"--that is, with means, medians (or 50th percentile), as well as the 5th and 95th percentiles. However, FDA's suggested additions do not extend beyond such descriptive statistics. We also agree that mean review times in the presence of numerous open cases may not be meaningful. For this reason, we have included open cases in our tables that report review time, but we have excluded them from the calculation of means. FDA suggests that we include open cases in our calculation of medians. We have adopted this suggestion and presented our discussion of trends in terms of the median review time for all cases. It should be noted, however, that including open cases increases our estimate of review time. (For example, including open cases raises the calculation of 510(k) median review time from the 126 days we reported for 1994 to 152 days.) Figure VI.1 depicts the relationship among the three measures of elapsed time for 510(k) submissions: the mean of closed cases, the median of closed cases, and the median of all cases. The two measures of closed cases reveal roughly parallel trends, with median review time averaging some 45 days fewer than mean review time. The two estimates of median review time are nearly identical from 1989 through 1990 since there are very few cases from that period that remain open. The divergence between the two medians increases as the number of open cases increases in recent years until 1995, when the median, including open cases, is larger than the mean of closed cases. Mean (Closed Cases) Median (Closed Cases) Median (All Cases) 4. While we are unable to reproduce the calculations performed by FDA, we agree in general with the trends indicated by FDA. Specifically, Our calculations, as presented in our draft report tables II.7 and following, showed a decrease from 1993 to 1994 in FDA review time for finding a 510(k) submission substantially equivalent. By our calculation, this declined from a mean of 173 days in 1993 to 100 days in 1994. The proportion of 510(k) applications reaching initial determination within 90 days of submission increased from 15.8 percent in 1993 to 32 percent in 1994 and 57.9 percent between October 1, 1994, and May 18, 1995. Clearly, since 1993, more 510(k) cases have been determined within 90 days, and the backlog of undetermined cases has been reduced. Because a review of the nature and complexity of the cases still open was beyond the scope of this study, we cannot predict with certainty whether, when these cases are ultimately determined, average review time for 1995 cases will be shorter than for cases submitted in 1993. 5. FDA time was reported in our draft report tables II.7 through II.12, and findings contrasting the differences between FDA time and non-FDA time were also included. Additional language addressing this distinction has been included in the text of the report. 6. FDA's contends that 1989 was an atypical year for 510(k) submissions and therefore a poor benchmark. However, we do not believe that starting our reporting in 1989 introduced any significant bias into our report of the 510(k) workload. Indeed, our draft report concluded that the number of 510(k) submissions had "remained relatively stable" over the 1989-94 period. If we had extrapolated the data from the first 7-1/2 months of 1995 to a full year, we would have concluded that the current fiscal year would have a substantially lower number of 510(k) submissions (16 percent to 31 percent) than any of the previous 6 years. 7. The tier classification was created by FDA to manage its review workload; however, it was not our intention to evaluate or in any way assess the use of tiers for such purposes. The tier classification was based on "the potential risk and complexity of the device." Accordingly, both class and tier provide a rough indication of a device's complexity. 8. We agree that our draft report aggregated original PMA submissions and PMA supplements in summarizing its findings. We have now disaggregated PMA statistics throughout. 9. We interpret the figures presented by FDA to represent the mean number of days elapsed between receipt (or filing) of a PMA submission and a given month for cases that have not been decided. We agree with FDA that the average review time for open original PMAs does not appear to have increased substantially since the beginning of calendar 1994 and that the average review time has decreased for PMA supplements since late 1994. Decreasing these averages is the product of either an increasing number of new cases entering the system or of closing out older cases in the backlog or both. Since the number of PMAs (originals and supplements) submitted in recent years has declined, the evidence suggests that the drop in average time for pending PMA supplements resulted from eliminating lengthy backlogged cases. 10. As noted earlier, assessing the impact of specific management initiatives is beyond the scope of this report. However, we do agree with FDA that the approval rate for initial IDE submissions doubled between 1994 and 1995; by our calculations, it increased from 25 percent to 54 percent. We have not independently examined the total time to approval for all IDEs. Robert E. White, Assistant Director Bertha Dong, Project Manager Venkareddy Chennareddy, Referencer Elizabeth Scullin, 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 (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 Food and Drug Administration's (FDA) review of medical devices, focusing on how FDA review time has changed from fiscal year 1989 to May 18, 1995. GAO found that: (1) FDA review times for medical device applications remained stable from 1989 to 1991, increased sharply in 1992 and 1993, and dropped in 1994; (2) in 1994, the median review time for 510(k) applications was 152 days, which was higher than the median review time during 1989 through 1991; (3) the review time trend for original premarket approval (PMA) applications was unclear because many applications remained open; (4) the median review time for original PMA applications peaked at 984 days in 1992; (5) the review time trend for supplementary PMA applications fluctuated slightly in the first 3 years, peaked in 1992, and declined to 193 days in 1994; (6) in many instances, FDA placed 501(k) applications on hold while waiting for additional information, which comprised almost 20 percent of its total elapsed review time; and (7) the mean review time for investigational device exemptions was 30 days.
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IRS and state revenue offices are both charged with responsibility for collecting taxes. More than half of the states have based their income tax systems on the federal tax system, with an overlap of many taxpayers. For the most part, this common customer base is dealt with separately by IRS and the state agencies. Given their common roles and customer bases, opportunities for collaboration among IRS and states' revenue offices exist. IRS is facing budget reductions and downsizing. Because of decreasing resources, it becomes even more important to identify ways that IRS and the states can cooperate to improve efficiencies and maximize their return on investment. IRS and the states have been involved in cooperative tax administration efforts since the 1920s. By engaging in cooperative efforts, state agencies and the federal government have attempted to achieve greater compliance and efficiency than they could by working separately. Early cooperative efforts involved the sharing of taxpayer income and tax liability information. In 1957, these activities became governed by formal agreements between IRS and the states to specify the types of tax information to be shared. In 1978, IRS fixed responsibility for the exchange of federal and state tax information with the disclosure officers in its regional and district offices. IRS also charged its district directors with responsibility for working personally with state tax agencies to establish and conduct FedState cooperative projects. In 1991, the Office of FedState Relations was established in the National Office to facilitate cooperative tax administration and foster joint projects. IRS originally assigned a senior executive and five staff to this office. IRS chose to not provide full-time field staff to facilitate and foster projects. District directors continued to be responsible for liaison and personal involvement. Most disclosure officers were assigned responsibility for coordinator and facilitator duties on a part-time basis. As of November 1995, 49 states were participating in the FedState program, and, according to IRS officials, approximately 600 to 700 projects were ongoing or proposed. In recent years, IRS and the Department of the Treasury have drafted and proposed legislation to further the FedState program. In June 1995, the President announced that he would submit to Congress proposed legislation to facilitate additional FedState cooperative efforts to streamline tax administration, such as joint filing and processing of return information. The proposed legislation would allow IRS and state taxing agencies to delegate tax administration powers and compensate one another pursuant to agreements. The most recent version of the legislation was submitted to Congress in March 1996. No action has been taken yet. In 1978 and 1985, we issued reports on the FedState program. The 1978 report to the Joint Committee on Taxation concluded that the program had a low priority within IRS and had no unified direction because responsibility for the program was not fixed. In response, IRS assigned program responsibility to the Office of Disclosure Operations. Both the 1978 and 1985 reports concluded that IRS and the states were not using much of their exchanged data and were not sharing other potentially useful information. In response, IRS established reviews to determine if states needed and used the confidential return information provided by IRS. Our review of the FedState program arose from a December 9, 1994, hearing on compliance costs and taxpayer burden held by the Subcommittee on Oversight of the House Committee on Ways and Means. At that hearing, the Subcommittee expressed interest in how the states and the federal government could work together to reduce taxpayer burden. Our objectives for this report were to (1) identify the potential benefits of FedState cooperative efforts; (2) determine what, if any, conditions may impede the success of the program; and (3) determine what, if any, FedState program concerns the states have with IRS' planned reorganization. To achieve our interrelated objectives, we interviewed IRS officials responsible for the FedState program in IRS' national and southeast regional offices, as well as its Albany, NY; Atlanta, GA; Baltimore, MD; Columbia, SC; Phoenix, AZ; and St. Paul, MN, district offices. We interviewed state revenue department officials knowledgeable of FedState activities in Arizona, Georgia, Maryland, Minnesota, New York, and South Carolina. These locations were selected on the basis of their proximity to our offices or because IRS officials said they were characterized by a high level of FedState activity. We also (1) reviewed FedState documents, such as the 1994 FedState Cooperative Ventures Catalog and the FedState Concept of Operations Report from IRS, and program reports from state department of revenue offices we visited; (2) collected detailed information, such as project descriptions and any data on costs and benefits, on FedState projects in the states we visited; and (3) reviewed various legislative proposals related to FedState activities. We interviewed Federation of Tax Administrators (FTA) officials knowledgeable of the FedState program. FTA represents state tax administrators and is actively involved in promoting effective working relationships among IRS and state tax agencies. We held a group discussion with and surveyed state tax administrators on their views regarding cooperative FedState efforts at the June 1995 FTA conference in Cleveland, OH. Participation in the discussion and survey was voluntary. Our work was done between January 1995 and April 1996 in accordance with generally accepted government auditing standards. We provided a draft of this report to the Commissioner of Internal Revenue and the Executive Director, FTA, for their comments. We met with FTA on August 15, 1996, and with IRS officials on September 4, 1996, to discuss this report. Their comments are summarized and evaluated beginning on page 13 and incorporated into this report where appropriate. Due to the similarities in the functions of IRS and state revenue departments, numerous opportunities exist to improve tax administration efficiencies through FedState cooperative efforts. For example, taxpayer data tape exchanges can improve compliance and enforcement by enabling IRS and the states to identify noncompliant taxpayers and take appropriate action. Similarly, joint federal and state taxpayer education and assistance efforts can reduce taxpayer burden by making it easier for taxpayers to obtain information about tax requirements. More sophisticated technology provides additional ways for IRS and the states to reduce taxpayer burden. For example, in one district the state and IRS can automatically transfer telephone taxpayer assistance calls to each other to respond to taxpayers more quickly and efficiently. Data limitations prevented us from ascertaining whether the existing mix of FedState projects has helped IRS toward meeting its goals of improving compliance, increasing efficiency, and reducing taxpayer burden. A project designed to increase compliance may also have the positive effect of reducing burden or increasing efficiency. An official in IRS' Office of FedState Relations told us that four of the most common efforts have been taxpayer data tape exchanges, federal/state joint electronic filing programs, state refund offset programs, and the joint dyed diesel fuel program. Taxpayer data tape exchanges, which began in the 1960s, constitute one of the oldest FedState cooperative efforts. According to IRS, currently almost all states participate in tape and information exchanges. By exchanging tapes that include taxpayer return data, IRS and the states have been able to identify taxpayers who failed to file returns or who filed returns but owed more taxes. Although comprehensive data on the revenues collected through this effort have not been systematically tracked, the data collected by some states and IRS districts demonstrate that computer tape exchanges have increased revenues. For example, one state billed taxpayers for $37.5 million in 1990 state income taxes on the basis of data in IRS tapes that showed IRS adjustments to taxpayers' federal taxes. The state billed those taxpayers who had failed to report and pay additional state income tax due as a result of the federal adjustments. The joint electronic filing effort--which was initiated in 1991 as a limited research test with the South Carolina Tax Commission--is an initiative among IRS and the states to allow taxpayers to simultaneously file state and federal returns electronically. According to IRS, 31 states will participate in the 1996 FedState Electronic Filing program. Electronic returns go to IRS, which then is to send the states their portions of the filing. While no systematic effort has been made to assess the benefits of joint electronic filing, IRS believes that joint filing increases efficiency because it encourages electronic filing and thus eliminates the costs of processing and storing paper returns. Also, according to IRS, electronic filing reduces administrative costs to both IRS and the states because mathematical errors are detected electronically and transcription errors are eliminated. Finally, IRS said that joint electronic filing reduces taxpayer burden by enabling taxpayers to submit their state and federal returns in a single electronic transmission, thus avoiding corresponding mathematical errors. The state refund offset program, also referred to as the State Income Tax Levy Program (SITLP), allows IRS to levy state tax refunds to fulfill federal tax debts. According to IRS, a levy is more efficient than other collection enforcement actions. The program has been in operation since 1985. According to an IRS official, 31 states participated in SITLP, which in 1995 netted IRS $81.7 million in due taxes. To increase the efficiency of its motor fuels compliance efforts, IRS is part of the dyed diesel fuel program, which was established in 1994 and involves sampling fuel in storage and vehicles to ensure that red-dyed fuel, which is tax free, is not used as taxable fuel on highways. According to IRS, 15 states have contracted with IRS to sample and test diesel fuel in vehicles used on highways. IRS believes the program has increased compliance. IRS' preliminary data indicate that diesel fuel excise tax collections increased by about $1.2 billion, or 22.5 percent, from calendar year 1993 to 1994. In addition to these four common efforts, numerous efforts have been initiated at the IRS district and state levels. For example, IRS and 1 state revenue department conducted a joint video conference seminar linked to 19 locations statewide to inform tax practitioners of changes in the tax laws. IRS and the state hoped this combined video conference would (1) improve taxpayer service by informing a greater number of practitioners in more remote locations and (2) increase efficiency by reducing the amount of time and money IRS and state employees spent traveling to such seminars. Another IRS district and state tax agency targeted a localized group of nonfiling and underreporting self-employed taxpayers. To increase efficiency, IRS and the state tax agency each audited a segment of such taxpayers' returns and assessed taxes, shared audit results, and based assessments on each other's audits. According to an IRS official, this effort yielded approximately $5 million in state and federal taxes and added 400 filing taxpayers. Other examples of joint efforts are included in appendix II. While the FedState program offers opportunities for increasing taxpayer compliance, improving taxpayer service, reducing the burden on the taxpayer, and increasing the efficiency of tax administration, IRS has not developed an overall strategy to guide FedState projects to better assure the most efficient use of IRS resources. The Office of FedState Relations was established to foster and facilitate FedState cooperative efforts. The Director of the Office of FedState Relations has been responsible for planning and directing FedState efforts that involve the integration and coordination of IRS resources, and reviewing and evaluating FedState activities to ensure optimum results. However, IRS has not developed an overall strategy for the Office of FedState Relations to fulfill its purpose, to link FedState efforts with IRS' overall agency goals and objectives, or to establish an evaluation mechanism for the program. Strategic planning at the program level offers a framework for tying agency goals and objectives with program-level actions. This helps to ensure that budget trade-offs at the program level are directly tied to the agency's overall strategy. In the absence of such planning efforts, the agency will lack assurance that the individual programs in which it participates represent the best choices for achieving its overall goals and objectives. Currently, FedState efforts vary from state to state. While these variances generally reflect differences in state and regional operating agendas, they also underscore a weakness in IRS' FedState efforts--namely, the lack of a centralized strategic planning function. Currently, no unit within IRS is responsible for providing a strategic framework for the projects. While IRS' Office of FedState Relations is responsible for facilitating cooperative projects between IRS and the states, the office offers little guidance to help local units choose the most productive projects, nor does it help local units to determine whether their project efforts are helping IRS to achieve its strategic goals. For example, such guidance to local units might identify FedState efforts that are most beneficial to both IRS and state offices, efforts that link strategically to IRS' main goals, and efforts that help ensure that IRS resources are most efficiently used. Absent such guidance, local units may be missing out on projects that offer greater benefits or operating projects that are not worthwhile. We found that most decisionmaking about FedState programs occurred at the district level, where IRS district and state officials worked together to identify and initiate projects. The local level was a natural decisionmaking location since participation by the district or state was voluntary and depended on the project. State and IRS officials told us that it is important to maintain the local focus of the efforts because of the variation in needs, resources, and taxpayer issues. According to the IRS district and state officials we interviewed, the level of FedState activity that existed between district IRS offices and state tax agencies was highly dependent on the working relationship between their respective managers and the top managers' commitment to the FedState program. To assist in developing this working relationship, it seems to us that local districts and state agencies could benefit from guidance to help ensure that they are pursuing the FedState efforts that would benefit them the most. The Office of FedState Relations views its role as an advocate for the program and as a clearinghouse for project ideas. In addition, IRS officials said the Office of FedState Relations worked to develop legislation designed to make it easier for state revenue offices and IRS to engage in joint or reciprocal tax administration functions such as filing of returns and processing of returns and return information. The most recent version of the legislation was submitted to Congress in March 1996, and no subsequent action has been taken yet. The proposed legislation would authorize IRS to enter into tax agreements with the states and to delegate tax administration responsibilities and compensate each other for activities. As a clearinghouse, the Office of FedState Relations provided information to districts on existing and proposed projects, primarily through a catalog that included descriptions of FedState projects provided by the IRS districts themselves. According to IRS, the catalog was not intended to be comprehensive and did not include information on such things as status, costs, and results. IRS has not developed a strategic framework for achieving FedState's purpose of facilitating and fostering cooperative efforts between IRS and the states. Without a strategic plan, IRS cannot be assured that FedState resources are being focused on those projects that will contribute most to IRS' mission. Nor has the office set performance goals to guide cooperative efforts or determine how well its programs are doing. Setting performance goals is an integral part of managing for results and is a current organizational emphasis in IRS. IRS also has not provided guidance as to what types of FedState efforts have the greatest potential to further IRS' mission. The Office of FedState Relations has undergone several organizational and staff changes. As a result, the office has not had the benefit of stable and continuous support and direction in terms of resources and staffing. In the past 2 years, at least six different individuals have held the position of FedState director or acting director and the organizational location of the office has changed twice. According to IRS officials, the size of the staff has fluctuated between 5 and 21 people. Further, the director position has been downgraded from a senior executive position to a GS-15 position. According to an official in the Office of FedState Relations, the current staff comprises 19 individuals, most at the GS-12 level or higher. Four of these staff persons were transferred to the Office of FedState Relations because their former offices were reorganized or their positions were abolished. IRS officials said that further staffing changes may take place. Neither IRS nor the states have systematically monitored or assessed the results of individual FedState projects. With performance-based data, IRS national and district offices could make more informed decisions on resource allocations and program priorities. Such data might also provide support for IRS' national office to encourage broader participation by IRS district and state revenue offices. Currently, IRS does not have the project information needed to ensure that the FedState program is managed in a way that maximizes resource investments. In 1994, IRS compiled a FedState catalog of projects that listed more than 280 proposed or actual FedState efforts. FedState officials told us that this listing was not comprehensive. Further, the FedState office generally does not have information on the status of these projects, such as project implementation dates, the resources required to operate the projects, or project benefits. Quantitative, results-focused data have been collected for some FedState projects. Of the 126 projects we reviewed in 6 districts, data to monitor or assess the projects were collected on 31, or 25 percent. Further, none of the 126 projects we reviewed was evaluated in terms of total project costs. Of the 31 measured projects, few provided measures that linked project outcomes to IRS' main goals of increasing compliance, reducing burden, and improving tax administration efficiency. The most common measure was the amount of additional revenue generated by the projects. For the remaining 95 projects, success was measured intuitively or projects were just assumed to provide benefits. IRS has recognized the need to evaluate the results of FedState projects. However, the results of these efforts have been limited. For example, in 1994, a former Director of the Office of FedState Relations said the office planned to create an information-sharing cost model to show the benefits of the FedState program and generate greater interest in FedState projects among the states. However, this model has not been created. According to the current Director of the Office of FedState Relations, the project was terminated due to a lack of resources. In another effort to evaluate FedState projects, in 1994 the Office of FedState Relations instituted a best-practices approach that encouraged local offices to submit information on their most successful FedState projects. The office developed guidance for local offices to use in describing projects, resources required, and results achieved. Thus far, only two projects have been selected as best practices, according to IRS officials. IRS has sent descriptions of the projects, along with implementation guidelines, to its local offices nationwide in the hope that they will be widely adopted. According to IRS officials, the Office of FedState Relations also planned to work with field FedState staff to complete plans by November 1995 to measure the benefits of selected FedState projects. According to an IRS official, few measurement plans have been submitted because FedState field staff were overwhelmed by the demands of measuring projects, coordinating ongoing FedState projects, and handling staffing changes and duties related to IRS' reorganization. IRS did not provide more specific details on the nature of the issues and the impact of staffing and organizational changes on IRS' ability to measure program results. In addition, IRS' Western Region Internal Audit group reviewed federal and state information sharing in the Western Region. In May 1994, it reported that district management could not accurately identify and track the costs or accomplishments of FedState activities and that current systems did not capture this type of data. The review also found that without accurate tracking techniques, the districts could not address the effectiveness of FedState projects in reducing taxpayer burden, increasing compliance, and improving quality. In response, the Western Region's Chief Compliance Officer created a working group to develop a cost/benefit model to measure the success of FedState projects. They later rolled this project into a National Office Research and Analysis plan. The FedState program's ability to contribute significantly to IRS' strategic objectives relies considerably on the participation of IRS districts and states. Due to the voluntary nature of the program, the quality of the relationships among the states and IRS district offices is a critical component of the decision to initiate projects. However, because of IRS' latest reorganization, some states have voiced concerns about the possible deterioration of FedState relationships that have developed over the years. In May 1995, IRS announced a planned reorganization of its field office structure to reduce the number of IRS district offices from 63 to 33 and the number of regions from 7 to 4 by the end of fiscal year 1996. Before the reorganization, each state had at least one district office. Along with a district director, most district offices had part-time FedState coordinators who acted as liaisons to the states. With the reduction in the number of districts, IRS plans to put the area covered by the districts to be eliminated under consolidated management of another district. IRS staff is to remain in locations that were formerly district offices; however, the district director and other management positions are to be eliminated. In our discussions with state officials, many expressed concern about the effect that reorganization would have on their relationships with IRS. To help better understand these concerns, we held a joint meeting with representatives from nine state tax agencies. Many participants told us that they placed a high premium on the personal commitment of top managers at IRS district offices. They also said that they viewed the good lines of communications that they had developed through ongoing personal contacts and close working relationships with their district IRS counterparts as being important to the success of FedState activities. The participants said that the elimination of district offices in some states may impede FedState cooperation because (1) there may be no IRS counterparts for state officials in those states that have lost IRS district offices and (2) the geographical distance between state offices and some district directors may tend to discourage the development of a close working relationship. In essence, these participants were concerned about the continuation of ongoing FedState projects and the prospect of future projects. In 1995, the IRS Transition Executive, responsible for overseeing IRS' reorganization, produced a transition plan that, according to officials from the Office of FedState Relations, will be implemented. The plan addresses the states' concerns by recommending to regional IRS commissioners that a full-time FedState coordinator and a full-time disclosure officer be established in each of the continuing district and regional offices. In the past, district FedState coordinators were not full-time positions; rather, FedState activities were typically considered a collateral duty of the district disclosure officer. Some IRS officials had expressed concern about disclosure officers being given the role of coordinator, since their primary responsibility is to safeguard data, not to look for ways to share it. According to IRS officials, the highest-level official remaining in each district office scheduled to be closed will be designated FedState liaison as a collateral duty. It is too early to assess whether the plan will address the states' concerns because of the recency of the reorganization. FedState cooperative efforts provide IRS and the states with opportunities to increase taxpayer compliance, improve taxpayer service, reduce taxpayer burden, and improve the efficiency of tax administration activities. However, IRS has not provided the strategic framework, guidance, and performance goals for the FedState program that would enable it to take fuller advantage of these opportunities. Specifically, IRS' Office of FedState Relations has not provided guidance to local IRS districts and states, and the level and types of efforts undertaken appear to rely primarily on the commitment of IRS district management and the state. It is important to maintain the local focus of the efforts because of the variation in needs, resources, and taxpayer issues. At the same time, data that identify best practices would better enable IRS to promote the practices' adoption on a wider scale. Further, IRS has not developed performance goals for the FedState program and has not collected data on most programs to monitor or assess program progress and results. Consequently, IRS national and district offices do not have the information needed to manage and assess the FedState program as a whole and make informed decisions about individual FedState projects. As a result, IRS may be missing opportunities to target program efforts and maximize potential program benefits. Finally, some state tax officials are concerned that IRS' reorganization of its district offices may impede or even end the long-standing relationships with IRS district officials that have made cooperative FedState projects possible. It is too early to determine what impact the reorganization will have on the program. To enhance opportunities for increased benefits from the FedState program we recommend that you develop and monitor, in conjunction with the states, implementation of a strategic framework that links FedState project objectives to IRS and state mission objectives; and establish performance goals and ways to monitor and assess program results. We requested comments on a draft of this report from you or your designated representatives. Responsible IRS officials, including the Director, Governmental Liaison and Disclosure, and the Director, Office of FedState Relations, provided comments and supplementary documents in a September 4, 1996, meeting and additional comments dated September 27, 1996. We have incorporated modifications in response to their comments in this report where appropriate. FedState officials emphasized that the conditions identified in our report related to the way the program operated before they took charge. They are in the process of making changes they think will improve the program and they said our concerns would be addressed in that process. In response to our recommendation to develop a strategic framework, Office of FedState Relations officials said they believed they had already undertaken important steps toward a strategic plan, in particular by establishing FedState plans and procedures in Spring 1996. By definition, they said, the program focuses on the identification, exploration, and implementation of innovative solutions to mutual challenges at the local level. Further, they commented that while they recognized the importance of strategic planning at the national level, IRS will continue to look to IRS executives to leverage these opportunities with their state counterparts at the local level. IRS officials said they have established plans and procedures that will link FedState project objectives to IRS and state mission objectives. For example, they told us they established the National FedState Steering Committee. Among other responsibilities, the Committee has been developing FedState policies and procedures to ensure that specific FedState goals are consistent with IRS goals. The Committee developed FedState project guidelines which were forwarded to IRS regional offices in August 1996. This guidance is responsive to our recommendation and should help IRS improve its program. The Office of FedState Relations also has been developing a "FedState Program Letter" for fiscal year 1997. According to IRS officials, the Program Letter will provide general guidance about the FedState program, its objectives, current priorities, and other information. FedState officials said the Program Letter will outline long-range objectives as well as set priorities for fiscal year 1997. Further, they commented that they have stabilized the management team and have filled director positions with permanent, top-level managers which should help to overcome concerns about the instability of the Office. We believe that IRS has taken important steps toward a strategic framework, but it is too early to assess the effectiveness of these steps because they were recently implemented or have not been finalized. IRS officials also agreed with our recommendation to establish performance goals and ways to monitor and assess program results. They said steps to improve in these areas have already been taken. For example, the Office of FedState Relations distributed guidance to district and service center FedState coordinators on how to report the results of individual FedState projects. The guidance requests that coordinators quarterly report information on their FedState projects, including baseline measures for new initiatives and specific results for ongoing projects. Also, in August 1996, the Office of FedState Relations provided FedState coordinators guidelines on how to develop projects and propose projects that might be replicated nationwide. Among other things, these guidelines request that coordinators specify how projects results are to be measured and how the measurements relate to the goals of the project. We believe that, when fully implemented, these steps may provide more of the information IRS needs to manage and assess the program. We are encouraged by the enthusiasm and commitment current IRS officials show for the FedState program. However, during our review various FedState officials have told us about plans or procedures to develop FedState program and project measures. Many of these were abandoned or were never fully realized. To be successful, IRS' current plans to develop a strategic framework and measures must be fully implemented and supported by the appropriate IRS officials at the national and local levels. In a meeting on August 15, 1996, we obtained comments on a draft of this report from Federation of Tax Administrators (FTA) officials responsible for FedState-related issues, including the Executive Director and Government Affairs Associate. The officials generally agreed with our recommendations. However, the officials said that the strategic framework must allow enough flexibility for state taxing agencies and local IRS officials to decide which FedState projects they will pursue. Also, the officials said FTA conducted a study that showed the revenue benefits to the states from IRS' taxpayer data tape exchange program. FTA issued its report on September 25, 1996. The head of a federal agency is required by 31 U.S.C. 720 to submit a written statement on actions taken on these recommendations to the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight not later than 60 days after the date of this report. A written statement must also be sent to the House and Senate Committee on Appropriations with the agency's first request for appropriations made more than 60 days after the date of this report. We are sending copies of this report to interested congressional committees, including the Chairman and Ranking Minority Member of the House Committee on Ways and Means and its Subcommittee on Oversight, the Chairman and Ranking Minority Member of the Senate Finance Committee, the Secretary of the Treasury, and other interested parties. Copies will also be made available to others upon request. Major contributors to this report are listed in appendix III. Please contact me on (202) 512-9110 if you have any questions concerning the report. State income tax? Degree of conformity to federal income tax Adjusted gross income (AGI) Federal taxable income (FTI) Only interest and dividends are taxed (continued) State income tax? The development of materials and the provision of customer service by all functions. IRS and a state revenue agency opened a "New Business Assistance Center" to inform new business owners of their federal and state tax responsibilities and how to comply. The receipt and processing of tax returns, payments, and information documents, both paper and electronic. To prevent erroneous Earned Income Credit refunds, a state obtained a list from IRS of taxpayers with freezes on their accounts that they used to determine whether to also freeze a taxpayer's account. Account adjustments to tax, penalties, and interest, including amended returns, taxpayer requests, claims, and service-initiated changes. In one state, after IRS audits a taxpayer's return, it informs the taxpayer that any changes to federal tax liability may affect state tax liability and the taxpayer may be required to file an amended state tax return. The matching of information documents against tax returns and accounts to identify nonfilers. IRS obtained state tax filing records to identify taxpayers filing a state income tax return but not a federal income tax return. The selection and examination of income, excise, employment, employee plans/exempt organizations (EP/EO), and estate and gift returns to determine tax liability (including appellate review). Also includes EP/EO determinations. IRS and a state conducted a joint sweep of auto dealerships to determine whether they were filing IRS Form 8300s and reporting state sales tax for cash sales over $10,000. Includes all efforts to secure payment of tax liabilities. In some states, if a taxpayer owes both the IRS and state revenue agency, the taxpayer can go to either IRS or the state revenue agency and set up an installment agreement to resolve both accounts. Encompasses all civil and criminal investigative activities. Two IRS districts and a state department of revenue have a project to identify and conduct joint investigations of individuals who are filing fraudulent tax returns electronically. The development and maintenance of information systems, including telecommunications, systems security and privacy, and systems standards. A state department of revenue provides one IRS district with all information the state receives on fuel sales, purchases, licenses, and distributors' reports. Using this information, the district created an automated database to promote and monitor compliance in the motor fuel industry. Financial, human resource, and asset management. In several states, IRS and the state revenue office share training resources. For example, an IRS district trained state revenue employees on federal corporate tax laws. (Table notes on next page) Ronald W. Jones, Evaluator-in-Charge Troy D. Thompson, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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GAO reviewed the status of the Internal Revenue Service's (IRS) FedState Cooperative Program, focusing on: (1) potential program benefits to taxpayers, IRS, and the states; (2) conditions that may impede program success; and (3) states' concerns on the impact of IRS reorganization on the program. GAO found that: (1) the potential benefits of the FedState program include increasing taxpayer compliance, reducing taxpayer burden, and improving the efficiency of tax administration functions; (2) the FedState joint electronic filing program reduces administrative costs for IRS and the states by detecting math errors and eliminating transcription errors; (3) taxpayer data tape exchanges enable IRS and the states to identify taxpayers who fail to file a return or who owe more taxes; (4) the state refund offset program allows IRS to levy state refunds to fulfill the federal tax debt; (5) IRS lacks a centralized, strategic plan for ensuring that the FedState program is achieving the agency's objectives; (6) IRS and the states do not have a system to monitor and assess the results of individual FedState projects; (7) IRS needs to establish performance-based criteria for the program so that district offices can make more informed decisions on resource allocations and program priorities; and (8) some states have expressed concern that the reorganization of IRS will have a negative impact on the FedState program.
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Since the late 1950s, the birth rate of women aged 15 to 19 has decreased by about 41 percent overall. (One substantial increase started around the mid-1980s, then reversed itself in the early 1990s). The overall decrease in the teen birth rate parallels the overall decline in the U.S. birth rate as a whole, which has fallen 47 percent over the same time period. In contrast, the proportion of teen births outside of marriage has steadily increased over the same period (1957-95) from 14 percent to 78 percent of all teen births. (See fig. 1.) In 1995, the most recent year for which final data are available, the annual birth rate for women aged 15 through 19 was approximately 57 per thousand, compared with 96 per thousand in 1957 when the rate was at its peak. (See fig. 1.) There was a similar decline in the birth rate for all women over the same time period. The rate fell from 123 per thousand to 66 per thousand for women aged 15 through 44, a decline of 47 percent. While the overall trend in the teen birth rate has been downward, fluctuations have occurred. The most dramatic increase began in 1986 after the teen birth rate had reached 50 per thousand, the lowest point in 40 years. Between 1986 and 1991, the rate increased by 24 percent before starting to decline again. The percentage of births to unmarried teen women has increased substantially over the past several decades. In 1995, 78 percent of teen births were to unmarried women, compared with about 14 percent in 1957. This trend parallels a rise in births outside of marriage for the general population of women. Births to unmarried women of all ages had risen to 32 percent of the total in 1995 from about 5 percent in 1957. Teen birth rates in 1995 varied considerably by race, age, and geography. Rates for black and Hispanic teens were more than double those of white teens, and older teens constituted nearly two-thirds of teens who gave birth in 1995. Higher rates of teen births were found in the southern and southwestern states. In 1995, birth rates for Hispanic and black teens were 107 and 99 per thousand, respectively--more than twice the rate for white teens at 39 per thousand. Black and Hispanic women were also more likely to begin their families at younger ages. Compared with white teens, they were twice as likely to give birth by age 20. In 1995, the birth rates for teen women aged 18 to 19 were more than double the rates for those aged 15 to 17, regardless of race. (See table 1.) A similar pattern is evident among unmarried teens, where older teens had birth rates about double those of younger teenage women. In 1995, teen birth rates were the lowest in the northern states and highest in the South and the Southwest. (See fig. 2.) The states with the lowest rates had 45 or fewer births per thousand teen women while the states with the highest rates had 66 or more births per thousand. The 12 highest rates, which are concentrated in the southern and southwestern states, are 1.5 times the lowest rates in the northern states. A recent analysis of these patterns shows that teen birth-rate variations by geographic area correspond to the racial and ethnic distributions in the United States--higher numbers of blacks and Hispanics live in southern and southwestern states. A comparison of 1990 urban and rural teen birth rates for eight southeastern states shows that rural teen birth rates were higher than urban rates in three of four race and age categories. Among white women aged 15 to 17 and 18 to 19 and black women aged 18 to 19, those who lived in rural areas had higher birth rates than those who lived in urban areas. Only black women aged 15 through 17 had higher rates in urban areas. The study links the higher rural birth rates to a relatively lower use of abortion in rural areas. This profile provides descriptive characteristics of teen mothers who gave birth in the 1990s. Of teens who gave birth in 1995, almost half were white and most were age 18 or 19 and unmarried. About two-thirds of teen births were the result of an unintended pregnancy, and many births (21 percent) were a second or later child. About two-thirds of teen mothers graduated from high school; however, teen mothers graduated at substantially lower rates than teen women without children. (See table 2.) Furthermore, teen mothers reported drug use in the past month that was similar to that of other women their age. Also, 28 percent of white teen mothers reported smoking tobacco during their pregnancy, compared with 5 percent of black and Hispanic mothers. Almost half of the 512,000 births in 1995 (233,000) were to white teen mothers. The remainder included an almost even distribution of births between blacks (137,000) and Hispanics (122,000). (See fig. 3.) Births to teen mothers were predominantly to older teens. In 1995, about 60 percent of all children born to teens--married and unmarried--were born to 18-and 19-year-olds. Of the remaining 40 percent born to younger teenage women, most were born to women aged 15 to 17, with just slightly more than 12,000 born to women under age 15. (See table 2 and fig. 4.) About three-fourths of all teenage women who gave birth were unmarried at the time of the birth. Black teen mothers were predominantly unmarried (95 percent), while 68 percent of white and 68 percent of Hispanic teen mothers were unmarried at the time of the birth. In 1995, more than one-fifth of all teen births in the United States were to teenage women who had already given birth to at least one child. (See table 2.) The highest proportions of second or later births were among 18- and 19-year-olds. In this age group, 36 percent of black teen births, 30 percent of Hispanic teen births, and 21 percent of white teen births were a second or later child. The chance of the birth being a second or later birth was similar for all teens, regardless of race, age, or marital status. (See table 3.) A high percentage of births to teens in the United States result from unintended pregnancies. Between 1990 and 1995, 65 percent of births to teenage mothers were reported as unintended, whereas about one-third of all U.S. births were reported as unintended in that period. From 1990 to 1995, about 75 percent of births to black teen mothers, 67 percent to white teen mothers, and 46 percent to Hispanic teen mothers were reported as unintended. (See table 2 and fig. 5.) Generally, women who give birth in their teens have substantially lower high school graduation rates than those who do not. A recent education study shows that about 64 percent of teen mothers graduated from high school or earned a general equivalency diploma within 2 years after the time they would have graduated, compared with about 94 percent of teenage women who did not give birth. An older study similarly found that less than 60 percent of teen mothers graduated from high school by age 25, compared with 90 percent of women who did not have a child in their teens. Also, high school completion rates among teen mothers vary considerably by race. Black teen mothers--in both a 1990s study and a 1970s study--had the highest high school completion rates compared with whites and Hispanics. Research shows that a large percentage of teenage mothers eventually become welfare recipients. Data from a 1990 Congressional Budget Office report show that almost half of all teen mothers and three-quarters of unmarried teen mothers received AFDC within 5 years of giving birth. By contrast, only about one-quarter of married teen mothers received AFDC during the same time period. In our 1994 report, we similarly found that women who gave birth as teenagers made up nearly half of the unmarried AFDC caseload. Also, survey data from 1995 show that 69 percent of births to teens in a 5-year period were paid for by Medicaid or other government sources. Substance use among teen mothers is comparable to that for other women their age. In a national survey, about one-sixth of teen mothers aged 15 to 19 reported any illicit drug use in the past month, while about one-third reported alcohol and one-third cigarette use during that time. Similar percentages of women without children in those age groups reported using those substances in the past month. Smoking during the pregnancy, by contrast, appears lower for teens than for their peers with children. Compared with the one-third of teen mothers aged 15 to 17 who smoke, about 17 percent of mothers that age who gave birth in 1995 reported smoking while they were pregnant. However, smoking cigarettes during pregnancy varied by race or ethnicity; about 28 percent of white teen mothers reported smoking during pregnancy, compared with about 5 percent of black or Hispanic teenage mothers. Certain social factors, such as the teen's level of school involvement or family background and income, appear to influence the likelihood that a woman will give birth in her teenage years. Generally, lower school involvement, unstable family structure, and declining family income are associated with an increased likelihood of teen births. According to one study, teens who experienced multiple risk factors such as early school failure, poverty, or family dysfunction were more likely to become teenage mothers. Beyond a few factors, which had similar effects across the groups studied, the impact of other social factors on the likelihood of teen births varied by racial or ethnic group. Family instability, such as divorce and remarriage; declining family income, such as with job loss; and lower standardized test scores were associated with an increased likelihood of a teen birth, while family stability, increasing family income, and higher standardized test scores were associated with a reduced likelihood of birth for each group studied. Staying in school and living in two-parent families were associated with a lower risk of birth for white and Hispanic teens but had no effect for black teens. Socioeconomic status (SES) also had a mixed effect across racial groups. Lower SES was associated with an increased likelihood of a teen birth for Hispanic teens, a decreased likelihood for black teens, and had no effect on white teens. Higher SES had the opposite effect. Living in female-headed single-parent families was associated with an increased likelihood of a birth for black teens but had no effect for white teens. And only white teens were more likely to become teen mothers if their mothers had also been teen mothers. (See fig. 6.) Research indicates a link between school involvement and teen births. A national study of girls who were eighth-graders in 1988, found several measures of school involvement, including dropping out, were associated with a greater risk of a subsequent teen birth. However, only one measure--lower standardized test scores--was consistently associated with an increased risk of a teen birth in all racial and ethnic groups. Other measures, such as lower grades or limited postsecondary education plans, were associated with an increased likelihood of a teenaged birth for one or more races but not for all. For example, lower grades in school were associated with an increased likelihood of a school-aged pregnancy leading to a birth for white and black teens. (See fig. 6.) Teenage women who dropped out of school were more likely than those who stayed in school to become pregnant and give birth in their teens. However, an association between dropping out of school and teen pregnancy was observed only among whites and Hispanics. After controlling for family background and measures of school involvement and performance, white and Hispanic teens who dropped out of school were about 1.5 times more likely to become a teenage mother than white and Hispanic teens who stayed in school. For black teens, drop-out status had no effect on teen pregnancy. Moreover, of school-age teens who gave birth, more than one quarter (28 percent) dropped out of school prior to pregnancy; an additional 30 percent dropped out after the pregnancy or birth of a child, and 42 percent stayed in school. These findings are consistent with those of a study of teen experiences in the 1970s and early 1980s. Limited postsecondary education plans were associated with a greater likelihood of a school-aged birth for black and Hispanic teens. Descriptive studies have generally found a lower risk of teen birth in two-parent families than with other family types. A study of the effects of changes in family structure--such as divorce, appearance of a stepparent, going to live with grandparents or in an institution--on teen women found that the greater the number of such changes, the greater the probability of an early teen birth, regardless of family income. (See fig. 6.) The impact of family structure or family instability, however, varied by race or ethnicity. For example, one study found that being born into and reared through early childhood in a single-parent family headed by a woman was associated with higher likelihood of a birth for black teens but not for white teens. Another recent study found that living in a two-parent "intact" family during the eighth grade was associated with less risk of birth for white and Hispanic teens--but not for black teens. (See fig. 6.) Another factor associated with teen births only among white teens was having a parent who was also a teenage mother. Some descriptive research suggests that teens from lower income families have a greater likelihood of a having a teen birth than teens from higher-income families. However, recent multivariate analysis shows that the effect of SES on teen births varies by race and ethnicity. For example, a descriptive analysis of 1988 eighth-graders found that less than 7 percent of those from families with high incomes had had a child by the age of 20, compared with about 37 percent of teenage women from low-income families. However, after controlling for a number of family background characteristics, lower SES was associated with an increased risk of teen pregnancy for Hispanics, lower risk for blacks, but had no effect for whites. (See fig. 6.) Higher SES had the opposite effect for Hispanics and blacks. An analysis of earlier data (1970s and early 1980s), which also controlled for a number of family background characteristics, found a relationship between a decline in family income and the risk of teen births. For example, job loss or other types of income losses were associated with a higher likelihood of a birth among black and white teens. (See fig. 6.) External experts on the data presented reviewed a draft of this report. We included their comments where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we will make no further distribution of this report until 30 days from its issue date. At that time we will send copies to the Secretary of Health and Human Services and other interested parties. We will also make copies available to others upon request. Major contributors were James O. McClyde, Assistant Director, and Barbara Chapman, Evaluator-in-Charge. Please contact me on (202) 512-7119 if you or your staff have any questions about this report. We used studies based primarily on nationally representative data sources to profile mothers who gave birth before age 20. We relied primarily on two types of data sources: national birth certificate information and the most current analyses and data tables from longitudinal surveys and other recent surveys. The national birth certificate data--collected by states and then transmitted to the National Center for Health Statistics for processing and publication--provides comprehensive information on U.S. birth rates over time. Much of the information in this report--including birth rates and trends, marital status, first or later birth, and tobacco use during pregnancy--was derived or calculated from the published 1995 natality statistics. For example, we calculated the percentage of teen births that were second or later births by racial and ethnic group. We requested that Substance Abuse and Mental Health Services Administration (SAMHSA) do a special analysis of data from the National Household Survey on Drug Abuse (NHSDA) 1994-96 in order to compare the drug use of teen mothers with that of teen women without children. To further develop a profile and identify factors associated with teen motherhood, we reviewed studies of nationally representative databases that link information regarding a teen birth to a mother's education and family background. Specifically, we used the National Longitudinal Survey of Youth (NLSY) launched in 1979, which surveyed a sample of 14- to 21-year-olds and reinterviewed them annually. A more recent survey, the National Education Longitudinal Study of 1988 (NELS:88), followed a nationally representative sample of eighth graders to 1994. We used data from this more recent cohort, particularly in the discussion of education-related issues. We obtained additional information from the National Survey of Family Growth (NSFG), conducted in 1995, as well as several of the NHSDAs done in the 1990s and studies that used them. (See table I.1.) Limitations and lack of comparability among the various data sources restricted our ability to make comparisons or report by race and marital status in some cases. Because information was more readily available on teen mothers as a whole, and three-quarters of teen births in 1995 were to unmarried teens, we often present data on all teen mothers in lieu of specific information on unmarried teen mothers. With few exceptions, the information we present represents the experiences of U.S. teen women in the 1990s. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.
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Pursuant to a congressional request, GAO provided social and demographic information about teen mothers, focusing on: (1) trends in birth rates for teens; (2) a profile of teen mothers; and (3) factors, such as education or family background, that may influence the likelihood of teen motherhood. GAO noted that: (1) although the birth rate for teenage women decreased 41 percent from the late 1950s to 1995--paralleling the decline in the U.S. birth rate--the number of babies born to teenagers is still high; (2) births to unmarried teenage mothers, however, more than quintupled as a proportion of total teen births over the same period; (3) as of 1995, the teen birth rate was about 57 per thousand; however, rates varied considerably by subgroup; (4) the birth rates for black and Hispanic teenage women are more than twice those for white teens; (5) in 1995, nearly half of teen mothers were white and most were aged 18 to 19 and unmarried; (6) about two-thirds of recent teen mothers did not intend to get pregnant or have a child; however, about one-fifth of women who gave birth already had one child; (7) teenage mothers also graduate from high school at lower rates than all teen women; (8) 64 percent of teen mothers complete high school, compared with about 90 percent of all teen women; (9) research studies that have examined the antecedents of teen motherhood have shown that limited involvement in school and some family background characteristics--such as family instability and declines in family income--are associated with increased likelihood of teen motherhood; and (10) the effect of most factors varies among racial and ethnic groups.
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DOD space systems support and provide a wide range of capabilities to a large number of users, including the military services, the intelligence community, civil agencies, and others. These capabilities include positioning, navigation, and timing; meteorology; missile warning; and secure communications, among others. Space systems can take a long time to develop and often consist of multiple components, including satellites, ground control stations, terminals, and user equipment. DOD satellite systems are also expensive to acquire. Unit costs for current DOD satellites can range from $500 million to over $3 billion, and ground systems can cost as much as $3.5 billion. The cost to launch just one satellite can climb to well over $100 million. Most major space programs have experienced significant cost and schedule increases. For instance, program costs for the Advanced Extremely High Frequency (AEHF) satellite program, a protected satellite communications system, had grown 116 percent as of our latest review, and its first satellite was launched over 3.5 years late. For the Space Based Infrared System High (SBIRS High), a missile warning satellite program, costs grew nearly 300 percent and the launch of the first satellite was delayed roughly 9 years. Last year, we reported that contract costs for the Global Positioning System (GPS) ground system, designed to control on-orbit GPS satellites, had more than doubled and the program had experienced a 4-year delay. The delivery of that ground system is now estimated to be delayed another 2 years, for a cumulative 6-year delay. Some DOD officials say even that is an optimistic timeline. Table 1 below provides more details on the current status of DOD's major space programs. Cost and schedule growth in DOD's space programs is sometimes driven by the inherent risks associated with developing complex space technology; however, for at least the past 7 years we have identified a number of other management and oversight problems that can worsen the situation. These include overly optimistic cost and schedule estimating, pushing programs forward without sufficient knowledge about technology and design, and problems in overseeing and managing contractors, among others. Some of DOD's programs in operation were also exceedingly ambitious, which in turn increased technology, design, and engineering risks. While satellite programs have provided users with important and useful capabilities, their cost growth has significantly limited DOD's buying power--at a time when more resources may be needed to protect space systems and to recapitalize the space portfolio. Since 2013, I have testified that DOD has implemented actions to address space acquisition problems, and most of its major space programs have transitioned into the production phase where fewer problems tend to occur. These range from improvements to cost estimating practices and development testing to improvements in oversight and leadership, such as the addition of the Defense Space Council, designed to bring together senior leaders on important issues facing space. DOD has also started fewer new programs and even those are less ambitious than prior efforts, which helps to reduce the risk of cost and schedule growth. Given the problems we have identified in the GPS program, however, it is clear that more needs to be done to improve the management of space acquisitions. Our past work has recommended numerous actions that can be taken to address the problems we typically see in space programs. Generally, we have recommended that DOD separate the process of technology discovery from acquisition, follow an incremental path toward meeting user needs, match resources and requirements at program start, and use quantifiable data and demonstrable knowledge to move programs forward to next phases. We also have identified practices related to cost estimating, program manager tenure, quality assurance, technology transition, and an array of other aspects of acquisition program management that could benefit space programs. Right now, DOD is at a crossroads for space. Fiscal constraints and increasing threats--both environmental and adversarial--to space systems have led DOD to consider alternatives for acquiring and launching space-based capabilities. For satellites, our reports since 2013 have described efforts such as: disaggregating large satellites into multiple, smaller satellites or payloads; relying on commercial satellites to host government payloads; and procuring certain capabilities, such as bandwidth and ground control, as services instead of developing and deploying government-owned networks or spacecraft. For space launch this includes continuing to introduce competition into acquisitions as well as eliminating reliance on Russian-built rocket engines. In some cases, such as space launch, changes are being implemented. For example, as we reported in April 2015, DOD has introduced competition into acquisitions. In other areas, such as space-based environmental (or weather) monitoring, decisions have just recently been made. In still others, such as protected satellite communications and overhead persistent infrared sensing, decisions on the way forward, including satellite architectures, have not yet been made though alternatives have been assessed. Figure 1 describes some changes DOD is considering in some areas for space. In multiple reports since our last testimony on this subject in April 2015, our work has touched on these and other potential changes. Our reports have specifically covered issues associated with protecting space assets, transforming launch acquisitions, and improving purchases of commercial satellite bandwidth, as well as the development of the GPS ground control system and user equipment. We are also currently examining the analysis used to support decisions on future weather system acquisitions as well as space leadership. All of this work is summarized below. Together, these reports highlight several major challenges facing DOD as it undertakes efforts to change its approaches to space acquisitions. First, though DOD is conducting analyses of alternatives to support decisions about the future of various programs, our preliminary work suggests there are gaps in cost and other data needed to weigh the pros and cons of changes to space systems. Second, most changes being considered today will impact ground systems and user equipment, but these systems continue to be very troubled by cost and schedule overruns. Third, leadership for space acquisitions is still fragmented, which may hamper the implementation of changes, especially those that stretch across satellites, ground systems and user equipment. Space Situational Awareness Costs. According to Air Force Space Command, U.S. space systems face intentional and unintentional threats, which have increased rapidly over the past 20 years. These include radio frequency interference (including jamming), laser dazzling and blinding, kinetic intercept vehicles, and ground system attacks. Additionally, the hazards of the already-harsh space environment (for example, extreme temperature fluctuations and radiation) have increased, including numbers of active and inactive satellites, spent rocket bodies, and other fragments and debris. In response, recent government-wide and DOD-specific strategic and policy guidance have stressed the need for U.S. space systems to be survivable or resilient against such threats. The government relies primarily on DOD and the intelligence community to provide Space Situational Awareness (SSA)--the current and predictive knowledge and characterization of space objects and the operational environment upon which space operations depend--to provide critical data for planning, operating, and protecting space assets and to inform government and military operations. In October 2015, as mandated by the Senate Armed Services Committee, we reported on estimated costs of SSA efforts over the next 5 years. Specifically, we reported that the government's planned unclassified budget for SSA core efforts--DOD, the National Aeronautics and Space Administration (NASA), and the National Oceanic and Atmospheric Administration (NOAA) operations of sensors, upgrades, and new developments--averages about $1 billion per year for fiscal years 2015 through 2020. Operations and payroll accounts for about 63 percent of the core budget during fiscal years 2015 through 2020, while investments for new sensors and systems, as well as upgrades for existing ones, account for the rest. Moreover, we could not report total costs since SSA is not the primary mission for many of the sensors that perform this mission. This is partly because DOD leverages systems that perform other missions to conduct SSA. This is a good practice since it reduces duplication and overlap but it makes accounting for SSA costs difficult. For example, missile defense sensors also perform SSA missions. The Missile Defense Agency has not determined what percentage of its budget for operating its missile defense sensors, which averages about $538 million per year over the next several years, would be allocated to the SSA mission. Moreover, these sensors would be procured by the Missile Defense Agency even if they were not involved in the SSA mission. Responsive Launch. In light of DOD's dramatically increased demand and dependence on space capabilities and that operationally responsive low cost launch could assist in addressing such needs, DOD was required to report to the Congress on "responsive launch," which generally means the ability to launch space assets to their intended orbits as the need arises, possibly to augment or reconstitute existing space capabilities. In October 2015, we reported that DOD did not yet have a consolidated plan for developing a responsive launch capability since there were no formal requirements for such a capability. DOD and contractor officials we spoke with also highlighted several potential challenges DOD faces as it pursues operationally responsive launch capabilities. For example, DOD officials told us that existing national security space program architectures (including payloads, ground systems, user equipment, and launch systems) may need to be modified to improve responsiveness, which could present challenges. That is, modifying one program could have repercussions for another, including changes to infrastructure and command and control elements. Further, while smaller, simpler satellites may require less time and effort to develop, build, and launch, a larger number of satellites may be needed to provide the same level of capability, and the transition from existing system designs could increase costs. DOD plans to validate future responsive launch requirements as it gains knowledge about emerging threats. Once this is done, having a single focal point for prioritizing and developing its responsive launch capabilities will be important, especially since different components of DOD already have ongoing efforts in place to develop responsive launch capabilities. Competitive Launch Acquisition. The Air Force is working to introduce competition into the Evolved Expendable Launch Vehicle (EELV) program. For almost 10 years, the EELV program had only one company capable of providing launches. In working to introduce competition into launch contracts, the Air Force is changing its acquisition approach for launch services, including the amount of cost and performance data that it plans to obtain under future launch contracts. Given these expected changes, the National Defense Authorization Act for Fiscal Year 2015 included a provision for us to examine the advisability of requiring that launch providers establish or maintain business systems that comply with the data requirements and cost accounting standards of the Department of Defense. The United Launch Alliance (ULA)--EELV's incumbent provider--currently provides national security space launch services under a contract with cost-reimbursable provisions awarded using negotiated procedures. Under this type of contract, the Air Force is able to obtain from ULA cost and performance data from contractor business systems. The Air Force uses this business data for a variety of purposes, including monitoring contractor performance and identifying risks that could affect the program's cost, schedule, or performance. However, for at least the first phase of future launches, the Air Force chose to change its acquisition approach to procure launch services as a commercial item using a firm-fixed-price contract, which will prevent the service from collecting business data at the same level of detail. As a result, the Air Force will have significantly less insight into program costs and performance than what it has under the current contract with ULA, though according to the Air Force the level of information gathered is sufficient for monitoring launch costs in a competitive, fixed-price environment. In August 2015, we reported that the acquisition approach chosen for the first competitive launches offers some benefits to the government, including increased competition, but it could limit program oversight and scheduling flexibility. The Air Force asserts that the use of full and open competitive procedures in a commercial item acquisition will increase the potential to keep more than one launch company viable. The Air Force's use of commercial item contracts eliminates the need for contractors to develop the business systems associated with a cost-reimbursement contract and generally places greater responsibility upon the contractor for cost control. However, the Air Force has struggled with EELV program management and lack of oversight in the past, and removing the requirement for cost and performance data could leave it vulnerable to similar problems in the future in an uncertain commercial market. Also, the first competitive contracts may limit the Air Force's flexibility in modifying its launch schedule, and schedule changes resulting from satellite production delays may result in added costs. Satellite delays have historically been an issue for the program, and the Air Force's ability to modify the launch schedule is an important component of the current acquisition approach with ULA. We also reported that the Air Force is at risk of making decisions about future EELV acquisitions without sufficient knowledge. The Air Force plans to develop an acquisition strategy for the next phase of competitive launches before it has any actionable data from the first competitive launches. In addition, the Air Force views competition as crucial to the success of its new acquisition strategy, yet the viability of a competitive launch industry is uncertain. The launch industry is undergoing changes, and the ability of the domestic industry to sustain two or more providers in the long-term, while desirable, is unclear. Presently, there is only one company certified to compete with ULA for national security launches, and there are no other potential competitors in the near future. To adequately plan for future competitions and ensure informed decision making before committing to a strategy, it will be important for the Air Force to obtain knowledge about its new acquisition approach and on the launch industry. The Air Force concurred with our recommendation to ensure the next phases incorporate lessons learned. Purchases of commercial satellite bandwidth. DOD depends on commercial satellite communications (SATCOM) to support a variety of critical mission needs, from unmanned aerial vehicles and intelligence to voice and data for military personnel. Data from fiscal year 2011, the most recent information available, show that DOD spent over $1 billion leasing commercial SATCOM. In prior work, we found that some major DOD users of commercial SATCOM were dissatisfied with the Defense Information Systems Agency's (DISA) acquisition process, seeing it as too costly and lengthy. These users also indicated that the contracts used were too inflexible. The Senate Armed Services Committee's report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2014 included a provision for DOD to provide a report detailing a 5-, 10-, and 25-year strategy for using a mix of DOD and commercial satellite bandwidth, and for us to review DOD's acquisition strategy of the report, issued in August 2014. In July 2015, we reported that DOD procurement of SATCOM is fragmented and inefficient. DOD policy requires all of its components to procure commercial SATCOM through DISA but we found that some components were independently procuring SATCOM to meet their individual needs. DOD's most recent SATCOM usage report estimates that over 30 percent of commercial SATCOM is bought independently by DOD components, even though DOD found the average cost of commercial SATCOM bought through DISA is about 16 percent lower than independently bought commercial SATCOM. Fragmentation such as this limits opportunities for DOD to bundle purchases, share services, and streamline its procurement of commercial SATCOM. DOD is taking steps to improve its SATCOM procurement and address challenges through "pathfinder" efforts aimed at identifying short- and long-term options. For example, DOD intends to study the potential benefits of using innovative contracting approaches as it procures military and commercial SATCOM, and refine its understanding of DOD's global SATCOM requirements. However, it may be several years before DOD is able to evaluate the results of its pathfinder efforts. For example, all of the 10 pathfinders planned or already underway are expected to be completed in or beyond fiscal year 2017. DOD's efforts to improve its procurement of military and commercial SATCOM will also be hampered by two long-standing challenges--lack of knowledge of what DOD is spending on commercial SATCOM and resistance to centralized management of SATCOM procurement. We reported on and made recommendations to improve both in 2003. Specifically, we recommended that DOD strengthen its capacity to provide accurate and complete analyses of commercial bandwidth spending and implement a strategic management framework for improving the acquisition of commercial bandwidth. DOD generally concurred with our 2003 recommendations and developed a plan to address them, but none of DOD's corrective actions were carried out as intended. These challenges are commonly faced by organizations seeking to strategically source procurements of services, but our work has shown they can be overcome by employing best practices, to include conducting detailed spend analyses and centralized management of service procurements to identify procurement inefficiencies and opportunities. GPS Ground System and User Equipment. In 2009, we reported that development of space systems is not optimally aligned, and we recently noted that development of satellites often outpaces that of ground systems and user terminals (such as those on airplanes, ground vehicles, and ships), leading to underutilized on-orbit satellites and delays in getting new capabilities to end users. In some cases, gaps in delivery can add up to years, meaning that a satellite is launched but not effectively used for years until ground systems become available. The reasons for the gaps in the delivery of space system segments include funding instability, and poor acquisition management (requirements instability, underestimation of technical complexity, and poor contractor oversight). Our September 2015 report on GPS showed that these problems still persist. Specifically, we reported that the Air Force awarded the contract to begin GPS Next Generation Operational Control System (OCX) development-- the command and control system for GPS III satellites--without following key acquisition practices such as completing a preliminary design review before development start as called for by best practices and generally required by statute. In addition, key requirements, particularly for cybersecurity, were not well understood by the Air Force and contractor at the time of contract award. The contractor, Raytheon, experienced significant software development challenges from the onset, but the Air Force consistently presented optimistic assessments of OCX progress to acquisition overseers. Further, the Air Force complicated matters by accelerating OCX development to better synchronize it with the projected completion time lines of the GPS III satellite program, but this resulted in disruptions to the OCX development effort. As Raytheon continued to struggle developing OCX, the program office paused development in late 2013 to fix what it believed were the root causes of the development issues, and significantly increased the program's cost and schedule estimates. However, progress reports to DOD acquisition leadership continued to be overly optimistic relative to the reality of OCX problems. OCX issues appear to be persistent and systemic, raising doubts whether all root causes have been adequately identified, let alone addressed, and whether realistic cost and schedule estimates have been developed. Furthermore, since we reported in September 2015, the Under Secretary of Defense for Acquisition, Technology and Logistics has directed the OCX program to add an additional 24 months to its delivery schedule, increasing the delay to roughly 6 years from what was estimated at contract award. And some DOD officials believe the program could realistically need another 2 years beyond that before the first increment of the OCX ground system is delivered. We also reported that the Air Force revised the Military GPS User Equipment (MGUE) acquisition strategy several times in attempts to develop military-code (or M-code) capability--which can help users operate in jamming environments. Even so, the military services were unlikely to have sufficient knowledge about MGUE design and performance to make informed procurement decisions starting in fiscal year 2018 because it was uncertain whether an important design review would be conducted prior to that time and because operational testing would still be under way. Again, GPS is not the only program where we have seen these types of problems. AEHF and the Mobile User Objective System have encountered significant delays with the delivery of user equipment and the SBIRS High ground system was not fully completed when satellites were launched. Moreover, we have reported that these challenges could intensify with the potentially larger numbers and novel configurations of satellites, payloads, and other components of a disaggregated approach. Analysis of Alternatives for Weather Systems. DOD has been conducting analyses of alternatives (AOA) to assist in deciding what space assets should be acquired for its missile warning, protected communications and environmental monitoring (weather) missions. AOAs provide insight into the technical feasibility and costs of alternatives and can carry significant weight in the decision-making process, in part because they involve participation and oversight by a diverse mix of military, civilian, and contractor personnel. We testified last year that the time frames for making decisions about the way forward are narrowing, and if not made in time, DOD may be forced to continue with existing approaches for its next systems. As of today, only the weather AOA has been completed and approved by DOD. We were required by the National Defense Authorization Act for Fiscal Year 2015 to review this particular AOA. We are currently in the process of completing this review and expect to issue our final report in mid-March 2016. Our preliminary findings are that the AOA provided thorough analysis of some of the 12 capabilities identified for the assessment, but ineffective coordination with NOAA, among other issues, imposed limitations on the analysis of the two highest-priority capabilities--cloud characterization and theater weather imagery. Specifically, DOD did not employ a formal collaboration mechanism that identified roles and responsibilities for DOD and NOAA in conducting the AOA, which contributed to DOD making an incorrect assumption about the continued availability of critical data from European partner satellites. As a result, the two capabilities were not as thoroughly analyzed for potential solutions, and they are now being re-assessed outside of the AOA process as near-term gaps approach. We plan to recommend that DOD ensure the leads of future planning efforts establish formal mechanisms for coordination and collaboration with NOAA that specify roles and responsibilities to ensure accountability for both agencies. DOD concurred with this recommendation in its review of our draft report. A positive aspect of the weather AOA was that DOD took a relatively new approach to analyzing alternatives with cost-efficiency in mind, including considering which capabilities DOD needed to provide and which could be provided by leveraging other sources of data. This should help DOD find cost-effective ways for meeting some of its needs. Space Leadership. The DOD's space acquisition portfolio has numerous stakeholders, including each of the military services; intelligence community organizations; research agencies; multiple DOD headquarters offices; civil government agencies; and the Executive Office of the President. Over more than the last 15 years, we have noted--along with congressional committees, and various commissions and reviews--concern about the fragmented nature of DOD's space system acquisition processes and acquisition oversight. In September 2015, we began a review based on language in the Senate Report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016 which is looking at: (1) how DOD's management and oversight of space system acquisitions are structured; (2) whether past recommendations for improving this structure have been implemented; and (3) what challenges, if any, result from this current structure. Our preliminary findings indicate that the structure of space system acquisitions and oversight continues to be complicated. It involves a large number of stakeholders, and there is no single individual, office, or entity in place that provides oversight for the overall space program acquisition structure. A number of commissions and study groups have recommended substantive changes to the way the government plans for, acquires, and manages space systems, including centralizing planning and decision-making authority for space systems and establishing oversight authority outside the Air Force. Additionally, various DOD officials and experts that we spoke with noted other problems with the process of acquiring and managing space systems, including long acquisition timelines and extensive review processes, decision-making authority being at too high a level, and little long-term planning or system architecture work. DOD does point to a recent change in DOD's organizational structure for space programs that attempts to mitigate these problems. The Deputy Secretary of Defense designated the Secretary of the Air Force as the Principal DOD Space Advisor, with responsibility for overseeing all defense space policies, strategies and plans, and serving as an independent advisor on all space matters to the Secretary of Defense and other DOD leadership. This is a new position and its responsibilities are still being fully established according to DOD officials; however at this point it is too early to tell whether this position will have sufficient enforcement authority and the extent to which it will address the leadership problems raised in the past. Our reviews in recent years have made a number of recommendations aimed at putting DOD on a better footing as it considers and implements significant changes for space programs. For example, we recommended that when planning for the next phase of competition for launches, the Air Force use an incremental approach to the next acquisition strategy to ensure that it does not commit itself to a strategy until data is available to make an informed decision. For purchases of commercial bandwidth, we recommended that DOD conduct a spend analysis identifying procurement inefficiencies and opportunities; and assess whether further centralization of commercial SATCOM procurement could be beneficial. DOD concurred. It is too early to determine the extent to which DOD will implement these and other recommendations made this year but we have seen considerable efforts to address recommendations from other reports. For instance, in 2013, we recommended that future DOD satellite acquisition programs be directed to determine a business case for proceeding with either a dedicated or shared network for that program's satellite control operations and develop a department-wide long-term plan for modernizing its Air Force Satellite Control Network and any future shared networks and implementing commercial practices to improve DOD satellite control networks. DOD has taken initial steps toward making a significant transformation in its satellite control operations. We look forward to assessing its plans in the near future in response to a mandate from this Committee. As noted earlier, we have also made numerous recommendations related to acquisition management and our ongoing review of space leadership will highlight what past recommendations may still be worth addressing. Overall, it is exceedingly important that DOD address acquisition governance and management problems in the near future. Work is already underway on recapitalizing the space portfolio, yet fiscal constraints and past problems have limited resources available for new programs. Moreover, protecting space assets will likely require more investments as well as more effective coordination. Chairman Sessions and Ranking Member Donnelly, this concludes my statement for the record. For further information about this statement, please contact Cristina Chaplain 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. Individuals who made key contributions to this statement include Rich Horiuchi, Assistant Director; Claire Buck; Maricela Cherveny; Alyssa Weir; Emily Bond; and Oziel Trevino. Key contributors for the previous work on which this statement is based are listed in the products cited. Key contributors to related ongoing work include Raj Chitikila; Laura Hook; Andrea Evans; Brenna Guarneros; Krista Mantsch; and James Tallon. Space Acquisitions: GAO Assessment of DOD Responsive Launch Report. GAO-16-156R. Washington, D.C.: October 29, 2015. Space Situational Awareness: Status of Efforts and Planned Budgets. GAO-16-6R. Washington, D.C.: October 8, 2015. GPS: Actions Needed to Address Ground System Development Problems and User Equipment Production Readiness. GAO-15-657. Washington, D.C.: September 9, 2015. Evolved Expendable Launch Vehicle: The Air Force Needs to Adopt an Incremental Approach to Future Acquisition Planning to Enable Incorporation of Lessons Learned. GAO-15-623. Washington, D.C.: August 11, 2015. Defense Satellite Communications: DOD Needs Additional Information to Improve Procurements. GAO-15-459. Washington, D.C.: July 17, 2015. Space Acquisitions: Some Programs Have Overcome Past Problems, but Challenges and Uncertainty Remain for the Future. GAO-15-492T. Washington, D.C.: April 29, 2015. Space Acquisitions: Space Based Infrared System Could Benefit from Technology Insertion Planning. GAO-15-366. Washington, D.C.: April 2, 2015. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-15-342SP. Washington, D.C.: March 12, 2015. Defense Major Automated Information Systems: Cost and Schedule Commitments Need to Be Established Earlier. GAO-15-282. Washington, D.C.: February 26, 2015. DOD Space Systems: Additional Knowledge Would Better Support Decisions about Disaggregating Large Satellites. GAO-15-7. Washington, D.C.: October 30, 2014. Space Acquisitions: Acquisition Management Continues to Improve but Challenges Persist for Current and Future Programs. GAO-14-382T. Washington, D.C.: March 12, 2014. U.S. Launch Enterprise: Acquisition Best Practices Can Benefit Future Efforts. GAO-14-776T. Washington, D.C.: July 16, 2014. Evolved Expendable Launch Vehicle: Introducing Competition into National Security Space Launch Acquisitions. GAO-14-259T. Washington, D.C.: March 5, 2014 The Air Force's Evolved Expendable Launch Vehicle Competitive Procurement. GAO-14-377R. Washington, D.C.: March 4, 2014. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP. Washington, D.C.: April 8, 2014. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-14-340SP. Washington, D.C.: March 31, 2014. Space Acquisitions: Assessment of Overhead Persistent Infrared Technology Report. GAO-14-287R. Washington, D.C.: January 13, 2014. Space: Defense and Civilian Agencies Request Significant Funding for Launch-Related Activities. GAO-13-802R. Washington, D.C.: September 9, 2013. Global Positioning System: A Comprehensive Assessment of Potential Options and Related Costs is Needed. GAO-13-729. Washington, D.C.: September 9, 2013. Space Acquisitions: DOD Is Overcoming Long-Standing Problems, but Faces Challenges to Ensuring Its Investments are Optimized. GAO-13-508T. Washington, D.C.: April 24, 2013. Launch Services New Entrant Certification Guide. GAO-13-317R. Washington, D.C.: February 7, 2013. Satellite Control: Long-Term Planning and Adoption of Commercial Practices Could Improve DOD's Operations. GAO-13-315. Washington, D.C.: April 18, 2013. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-13-294SP. Washington, D.C.: March 28, 2013. Evolved Expendable Launch Vehicle: DOD Is Addressing Knowledge Gaps in Its New Acquisition Strategy. GAO-12-822. Washington, D.C.: July 26, 2012. Space Acquisitions: DOD Faces Challenges in Fully Realizing Benefits of Satellite Acquisition Improvements. GAO-12-563T. Washington, D.C.: March 21, 2012. Space Acquisitions: DOD Delivering New Generations of Satellites, but Space System Acquisition Challenges Remain. GAO-11-590T. Washington, D.C.: May 11, 2011. Space Acquisitions: Development and Oversight Challenges in Delivering Improved Space Situational Awareness Capabilities. GAO-11-545. Washington, D.C.: May 27, 2011. Space and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts Quality Problems in Major Programs. GAO-11-404. Washington, D.C.: June 24, 2011. Global Positioning System: Challenges in Sustaining and Upgrading Capabilities Persist. GAO-10-636. Washington, D.C.: September 15, 2010. Defense Acquisitions: Challenges in Aligning Space System Components. GAO-10-55. Washington D.C.: October 29, 2009. Satellite Communications: Strategic Approach Needed for DOD's Procurement of Commercial Satellite Bandwidth. GAO-04-206. Washington D.C.: December 10, 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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DOD is shifting its traditional approach to space acquisitions, bolstering its protection of space systems, and engaging with more commercial providers. Given the time and resource demands of DOD's space systems and today's budget environment, challenges that hinder these transitions must be addressed. This statement focuses on (1) the current status and cost of major DOD space system acquisitions, and (2) challenges and barriers DOD faces in addressing future space-based mission needs. This statement highlights the results of GAO's work on space acquisitions over the past year and presents preliminary observations from ongoing work. We obtained comments from DOD on a draft of preliminary findings contained in this statement. Most major space programs have experienced significant cost and schedule increases. For instance, program costs for the Advanced Extremely High Frequency satellite program, a protected satellite communications system, have grown 116 percent as of our latest review, and its first satellite was launched more than 3 years late. For the Space Based Infrared System High, a missile warning satellite program, costs grew almost 300 percent and its first satellite was launched roughly 9 years late. Last year, we reported that contract costs for the Global Positioning System (GPS) ground system, designed to control on-orbit GPS satellites, had more than doubled and the program had experienced a 4-year delay. The delivery of that ground system is now estimated to be delayed another 2 years, for a cumulative 6-year delay. Some DOD officials say even that is an optimistic timeline. Though steps have been taken to improve acquisition management in space, problems with GPS show that much more work is needed, especially since DOD is considering going in new directions for space programs. Right now, DOD is at a crossroads for space. Fiscal constraints and increasing threats--both environmental and adversarial--to space systems have led DOD to consider alternatives for acquiring and launching space-based capabilities, such as: disaggregating large satellites into multiple, smaller satellites or payloads; relying on commercial satellites to host government payloads; and procuring certain capabilities, such as bandwidth and ground control, as services instead of developing and deploying government-owned networks or spacecraft. This year, GAO's work on space acquisitions continued to show that DOD faces several major challenges as it undertakes efforts to change its approaches to space acquisitions. Our work assessed a range of issues including DOD's analysis supporting its decisions on future weather satellites, space leadership, and the introduction of competition into space launch acquisitions. These and other studies surfaced several challenges: First, though DOD is conducting analyses of alternatives to support decisions about the future of space programs, there are gaps in cost and other data needed to weigh the pros and cons of changes to space systems. Second, most changes being considered today will impact ground systems and user equipment, but these systems continue to be troubled by management and development issues. Third, leadership for space acquisitions is still fragmented, which will likely hamper the implementation of new acquisition approaches, especially those that stretch across satellites, ground systems and user equipment. Past GAO reports have generally recommended that DOD adopt best practices. DOD has generally agreed and taken actions to address these recommendations. Consequently, GAO is not making any recommendations in this statement.
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During the three decades in which uranium was used in the government's nuclear weapons and energy programs, for every ounce of uranium that was extracted from ore, 99 ounces of waste were produced in the form of mill tailings--a finely ground, sand-like material. By the time the government's need for uranium peaked in the late 1960s, tons of mill tailings had been produced at the processing sites. After fulfilling their government contracts, many companies closed down their uranium mills and left large piles of tailings at the mill sites. Because the tailings were not disposed of properly, they were spread by wind, water, and human intervention, thus contaminating properties beyond the mill sites. In some communities, the tailings were used as building materials for homes, schools, office buildings, and roads because at the time the health risks were not commonly known. The tailings and waste liquids from uranium ore processing also contaminated the groundwater. Tailings from the ore processing resulted in radioactive contamination at about 50 sites (located mostly in the southwestern United States) and at 5,276 nearby properties. The most hazardous constituent of uranium mill tailings is radium. Radium produces radon, a radioactive gas whose decay products can cause lung cancer. The amount of radon released from a pile of tailings remains constant for about 80,000 years. Tailings also emit gamma radiation, which can increase the incidence of cancer and genetic risks. Other potentially hazardous substances in the tailings include arsenic, molybdenum, and selenium. DOE's cleanup authority was established by the Uranium Mill Tailings Radiation Control Act of 1978. Title I of the act governs the cleanup of uranium ore processing sites that were already inactive at the time the legislation was passed. These 24 sites are referred to as Title I sites. Under the act, DOE is to clean up the Title I sites, as well as nearby properties that were contaminated. In doing so, DOE works closely with the affected states and Indian tribes. DOE pays for most of this cleanup, but the affected states contribute 10 percent of the costs for remedial actions. Title II of the act covers the cleanup of sites that were still active when the act was passed. These 26 sites are referred to as Title II sites. Title II sites are cleaned up mostly at the expense of the private companies that own and operate them. They are then turned over to the federal government for long-term custody. Before a Title II site is turned over to the government, NRC works with the sites' owners/operators to make sure that sufficient funds will be available to cover the costs of long-term monitoring and maintenance. The cleanup of surface contamination consists of four key steps: (1) identifying the type and extent of contamination; (2) obtaining a disposal site; (3) developing an action plan, which describes the cleanup method and specifies the design requirements; and (4) carrying out the cleanup using the selected method. Generally, the primary cleanup method consists of enclosing the tailings in a disposal cell--a containment area that is covered with compacted clay to prevent the release of radon and then topped with rocks or vegetation. Similarly, the cleanup of groundwater contamination consists of identifying the type and extent of contamination, developing an action plan, and carrying out the cleanup using the selected method. According to DOE, depending on the type and extent of contamination, and the possible health risks, the appropriate method may be (1) leaving the groundwater as it is, (2) allowing it to cleanse itself over time (called natural flushing), or (3) using an active cleanup technique such as pumping the water out of the ground and treating it. Mr. Chairman, we now return to the topics discussed in our report: the status and cost of DOE's surface and groundwater cleanup and the factors that could affect the federal government's costs in the future. Since our report was issued on December 15, 1995, DOE has made additional progress in cleaning up and licensing Title I sites. As of February 1996, DOE's surface cleanup was complete at 16 of the 24 Title I sites, under way at 6 additional sites, and on hold at the remaining 2 sites.Of the 16 sites where DOE has completed the cleanup, 4 have been licensed by NARC as meeting the standards of the Environmental Protection Agency (EPA). Ten of the other 12 sites are working on obtaining such a license, and the remaining two sites do not require licensing because the tailings were relocated to other sites. Additionally, DOE has completed the surface cleanup at about 97 percent of the 5,276 nearby properties that were also contaminated. Although DOE expects to complete the surface cleanup of the Title I sites by the beginning of 1997, it does not expect all of Narc activities to be completed until the end of 1998. As for the cleanup of groundwater at the Title I sites, DOE began this task in 1991 and currently estimates completion in about 2014. Since its inception in 1979, DOE's project for cleaning up the Title I sites has grown in size and in cost. In 1982, DOE estimated that the cleanups would be completed in 7 years and that only one pile of tailings would need to be relocated. By 1992, however, the Department was estimating that the surface cleanup would be completed in 1998 and that 13 piles of tailings would need to be relocated. The project's expansion was caused by several factors, including the development of EPA's new groundwater protection standards; the establishment or revision of other federal standards addressing such things as the transport of the tailings and the safety of workers; and the unexpected discovery of additional tailings, both at the processing sites and at newly identified, affected properties nearby. In addition, DOE made changes in its cleanup strategies to respond to state and local concerns. For example, at the Grand Junction, Colorado, site the county's concern about safety led to the construction of railroad transfer facilities and the use of both rail cars and trucks to transport contaminated materials. The cheaper method of simply trucking the materials would have routed extensive truck traffic through heavily populated areas. Along with the project's expansion came cost increases. In the early 1980s, DOE estimated that the total cleanup cost--for both the surface and groundwater--would be about $1.7 billion. By November 1995, this estimate had grown to $2.4 billion. DOE spent $2 billion on surface cleanup activities through fiscal year 1994 and expects to spend about $300 million more through 1998. As for groundwater, DOE has not started any cleanup. By June 1995, the Department had spent about $16.7 million on site characterization and various planning activities. To make the cleanup as cost-effective as it can, DOE is proposing to leave the groundwater as it is at 13 sites, allow the groundwater to cleanse itself over time at another 9 sites, and to use an active cleanup method at 2 locations in Monument Valley and Tuba City, Arizona. The final selection of cleanup strategies depends largely on DOE's reaching agreement with the affected states and tribes. At this point, however, DOE has yet to finalize agreements on any of the groundwater cleanup strategies it is proposing. At the time we issued our report, the cleanups were projected to cost at least another $130 million using the proposed strategies, and perhaps as much as $202 million. More recently, a DOE groundwater official has indicated that the Department could reduce these costs by shifting some of the larger costs to earlier years; reducing the amounts built into the strategies for contingencies, and using newer, performance-based contracting methods. Once all of the sites have been cleaned up, the federal government's responsibilities, and the costs associated with them, will continue far into the future. What these future costs will amount to is currently unknown and will depend largely on how three issues are resolved. First, because the effort to clean up the groundwater is in its infancy, its final scope and cost will depend largely on the remediation methods chosen and the financial participation of the affected states. It is too early to know whether the affected states or tribes will ultimately persuade DOE to implement more costly remedies than those the Department has proposed or whether any of the technical assumptions underlying DOE's proposed strategies will prove to be invalid. If either of these outcomes occurs, DOE may implement more costly cleanup strategies than it has proposed, thereby increasing the final cost of the groundwater cleanup. DOE has already identified five sites where it believes it may have to implement more expensive alternatives than the ones it initially proposed. In addition, the final cost of the groundwater cleanup depends on the affected states' ability and willingness to pay their share of the cleanup costs. According to a DOE official, Pennsylvania, Oregon, and Utah may not have funding for the groundwater cleanup program. DOE believes that it is prohibited from cleaning up the contamination if the states do not pay their share. Accordingly, as we noted in our report, we believe that the Congress may want to consider whether and under what circumstances DOE can complete the cleanup of the sites if the states do not provide financial support. Second, DOE may incur further costs to dispose of uranium mill tailings that are unearthed in the future in the Grand Junction, Colorado, area. DOE has already cleaned up the Grand Junction processing site and over 4,000 nearby properties, at a cost of about $700 million. Nevertheless, in the past, about a million cubic yards of tailings were used in burying utility lines and constructing roads in the area and remain today under the utility corridors and road surfaces. In future years, utility and road repairs will likely unearth these tailings, resulting in a potential public health hazard if the tailings are mishandled. In response to this problem, DOE is working with NRC and Colorado officials to develop a plan for temporarily storing the tailings as they are unearthed and periodically transporting them to a nearby disposal cell--referred to as the Cheney cell, located near the city of Grand Junction--for permanent disposal. Under this plan, the city or county would be responsible for hauling the tailings to the disposal cell, and DOE would be responsible for the cost of placing the tailings in the cell. The plan envisions that a portion of the Cheney disposal cell would remain open, at an annual cost of several hundred thousand dollars. When the cell is full, or after a period of 20 to 25 years, it would be closed. However, DOE does not currently have the authority to implement this plan because the law requires that all disposal cells be closed upon the completion of the surface cleanup. Accordingly, we suggested in our report that the Congress might want to consider whether DOE should be authorized to keep a portion of the Cheney disposal cell open to dispose of tailings that are unearthed in the future in this area. Finally, DOE's costs for long-term care are still somewhat uncertain. DOE will ultimately be responsible for long-term custody, that is, the surveillance and maintenance, of both Title I and Title II sites, but the Department only bears the financial responsibility for these activities at Title I sites. For Title II sites, the owners/operators are responsible for funding the long-term surveillance and maintenance. Although NRC's minimum one-time charge to site owners/operators is supposed to be sufficient to cover the cost of long-term custody so that they, not the federal government, bear these costs in full, NRC has not reviewed its estimate of basic surveillance costs since 1980, and DOE is currently estimating that basic monitoring will cost about 3 times more than NRC estimates. Moreover, while DOE maintains that ongoing routine maintenance will be needed at all sites, NRC's charge does not provide any amount for ongoing maintenance. In light of the consequent potential shortfall in maintenance funds, our report recommended that NRC and DOE work together to update the charge for basic surveillance and determine if routine maintenance will be required at each site. On the basis of our recommendations, NRC officials agreed to reexamine the charge and determine the need for routine maintenance at each site. They also said that they are working with DOE to clarify the Department's role in determining the funding requirements for long-term custody. Mr. Chairman, this concludes our prepared statement. We will be pleased to answer any questions that you or 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 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. 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GAO discussed the status and cost of the Department of Energy's (DOE) uranium mill tailings cleanup program and the factors that could affect future costs. GAO noted that: (1) surface contamination cleanup has been completed at two-thirds of the identified sites and is underway at most of the others; (2) if DOE completes its surface cleanup program in 1998, it will have cost $2.3 billion, taken 8 years longer than expected, and be $261 million over budget; (3) DOE cleanup costs increased because there were more contaminated sites than anticipated, some sites were more contaminated than others, and changes were needed to respond to state and local concerns; (4) the future cost of the uranium mill tailings cleanup will largely depend on the future DOE role in the program, the remediation methods used, and the willingness of states to share final cleanup costs; and (5) the Nuclear Regulatory Commission needs to ensure that enough funds are collected from the responsible parties to protect U.S. taxpayers from future cleanup costs.
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In September 2012, we found that DHS employees reported having lower average morale than the average for the rest of the federal government, but morale varied across components and employee groups within the department. Specifically, we found that DHS employees as a whole reported lower satisfaction and engagement--the extent to which employees are immersed in their work and spending extra effort on job performance--than the rest of the federal government according to several measures. In particular, the 2011 FEVS showed that DHS employees had 4.5 percentage points lower job satisfaction and 7.0 percentage points lower engagement. Although DHS employees generally reported improvements in Job Satisfaction Index levels from 2006 to 2011 that narrowed the gap between DHS and the government average, employees continued to indicate less satisfaction than the government-wide average. For example, DHS employees reported satisfaction increased by 5 percentage points, from 59 percent in 2006 to 64 percent in 2011, but scores in both years were below the government- wide averages of 66 percent and 68 percent, respectively. As we reported in September 2012, the Partnership for Public Service analysis of FEVS data also indicated consistent levels of low employee satisfaction for DHS relative to those of other federal agencies. As with DHS's 2011 ranking, 31st of 33 large federal agencies, the Partnership for Public Service ranked DHS 28th of 32 in 2010, 28th of 30 in 2009, and 29th of 30 in 2007 in the Best Places to Work ranking on overall scores for employee satisfaction and commitment. As we reported in September 2012, our analyses of 2011 FEVS results further indicated that average DHS-wide employee satisfaction and engagement scores were consistently lower when compared with average non-DHS employee scores in the same demographic groups, including supervisory status, pay, and agency tenure groups. For example, within most pay categories, DHS employees reported lower satisfaction and engagement than non-DHS employees in the same pay groups. In addition, we reported that DHS was not more likely than other agencies to employ the types of staff who tended to have lower morale across all agencies. Instead, employees in the various groups we analyzed had lower morale at DHS than the same types of employees at other agencies. We concluded that the gap between DHS and government-wide scores may be explained by factors unique to DHS, such as management practices and the nature of the agency's work, or by differences among employees we could not analyze. In September 2012, we also found that levels of satisfaction and engagement varied across components, with some components reporting scores above the non-DHS averages. For example, employees from CBP and the Coast Guard were 1 and 1.5 percentage points more satisfied than the rest of the government, respectively, according to the 2011 FEVS Job Satisfaction Index. We further reported that several components with lower morale, such as TSA and ICE, made up a substantial share of FEVS respondents at DHS, and accounted for a significant portion of the overall difference between the department and other agencies. For example, survey respondents representing the approximately 55,000 employees at TSA and approximately 20,000 employees at ICE were on average 11.6 and 7.9 percentage points less satisfied than the rest of the government, respectively. Job satisfaction and engagement varied within components as well. For example, employees in TSA's Federal Security Director staff reported higher satisfaction (by 13 percentage points) and engagement (by 14 percentage points) than TSA's airport security screeners. Within CBP, Border Patrol employees were 8 percentage points more satisfied and 12 percentage points more engaged than CBP field operations employees.On the basis of our findings we concluded that given this variation across and within components, it was imperative that DHS understand and address employee morale problems through targeted actions that address employees' underlying concerns. In our September 2012 report, we also found that DHS and the selected components had taken steps to determine the root causes of employee morale problems and implemented corrective actions, but that the department could strengthen its survey analyses and metrics for action plan success. To understand morale problems, DHS and selected components took steps, such as implementing an exit survey and routinely analyzing FEVS results. Components GAO selected for review--ICE, TSA, the Coast Guard, and CBP--conducted varying levels of analyses regarding the root causes of morale to understand leading issues that may relate to morale. DHS and the selected components planned actions to improve FEVS scores based on analyses of survey results, but we found that these efforts could be enhanced. Specifically, 2011 DHS-wide survey analyses did not include evaluations of demographic group differences on morale-related issues, the Coast Guard did not perform benchmarking analyses, and it was not evident from documentation the extent to which DHS and its components used root cause analyses in their action planning to address morale problems. As we reported in September 2012, without these elements, DHS risked not being able to address the underlying concerns of its varied employee population. We therefore recommended that DHS's OCHCO and component human capital officials examine their root cause analysis efforts and, where absent, add the following: comparisons of demographic groups, benchmarking against similar organizations, and linkage of root cause findings to action plans. In addition, in September 2012, we found that despite having broad performance metrics in place to track and assess DHS employee morale on an agency-wide level, DHS did not have specific metrics within the action plans that were consistently clear and measurable. For example, one way the Coast Guard intended to address low-scoring FEVS topics was through improving employee training options, which it sought to measure by whether it developed e-learning courses for new employees. However, we found that this measure lacked key information that would make it more clear--namely, the course content or the specific training being provided--and did not list quantifiable or other measure values to determine when the goal had been reached, such as a target number of new employees who would receive training. As a result, we concluded that DHS's ability to assess its efforts to address employee morale problems and determine if changes should be made to ensure progress toward achieving its goals was limited. To help address this concern, we recommended that DHS components establish metrics of success within their action plans that are clear and measurable. DHS concurred with our two recommendations and has taken steps since September 2012 to address them. However, as of December 2013, DHS has not yet fully implemented these recommendations. Enhancing root cause analysis: As of December 2013, DHS OCHCO had created a checklist for components to consult when creating action plans to address employee survey results. The checklist includes instructions to clearly identify the root cause associated with each action item and to indicate whether the action addresses the root cause. In addition, according to DHS OCHCO officials, OCHCO, CBP, ICE and TSA completed demographic analysis of the 2012 FEVS results, but were not certain of the extent to which other components had completed analyses. However, according to these officials, difficulties in identifying comparable organizations limited components' benchmarking efforts. For example, while CBP identified a Canadian border security organization with which CBP officials intend to benchmark employee survey results, other DHS components did not find organizations, such as airport security organizations, against which to benchmark. OCHCO officials did not elaborate, however, on why it was difficult to find organizations against which to benchmark. We recognize that there can be some challenges associated with identifying organizations against which to benchmark. However, we continue to believe that DHS components could benefit from doing so as, according to the Partnership for Public Service, benchmarking agency survey results against those of similar organizations can provide a point of reference for improvements. DHS components and DHS-wide efforts have not yet fully examined their root cause analysis efforts and, where absent, added comparisons of demographic groups, benchmarking against similar organizations, and linkage of root cause findings to action plans, as we recommended in September 2012. Establishing metrics of success: OCHCO officials stated that, as of December 2013, they had directed component human capital officials to reevaluate their action plans to ensure that metrics of success were clear and measurable. However, in December 2013 we reviewed the 2013 action plans produced by the four DHS components we selected for our September 2012 report--ICE, CBP, TSA, and the Coast Guard--and found that their measures of success did not contain clear and measurable targets. Of the 53 measures of success reviewed across the four components, 16 were unclear and 35 lacked measurable targets.and compelling direction for ICE, is to be implemented by creating a work group consisting of the top six leaders in the agency together with the heads of ICE's policy and public affairs offices to create a clear and compelling mission and priorities to drive the agency's efforts. To determine whether ICE succeeds in implementing this action item, ICE's measures of success include: (1) agency creates a mission statement and priority that guide employee focus and behaviors; (2) ICE's first several layers of leadership indicate full support for the hard choices the direction-setting causes; (3) test focus group results; and (4) pulse survey. However, it is not clear, for example, what the "test focus group results" and "pulse survey" measures of success are measuring, and there are no measurable targets against which to assess success. By ensuring that DHS and component action plans contain measures of success that are clear and include measurable targets, DHS can better position itself to determine if its action plans are effective. For example, one action item, to create a clear Despite DHS's efforts, since publication of our September 2012 report, DHS employee morale has declined, and the gap between DHS and government-wide scores has widened in key areas. Specifically, FEVS fiscal year 2012 and 2013 survey results released since our 2012 report indicate that DHS employees continue to report lower average satisfaction than the average for the rest of the federal government. For example, as shown in figure 1, 2013 FEVS data show that DHS employee satisfaction decreased 7 percentage points since 2011, which is more than the government-wide decrease of 4 percentage points over that same period of time. As a result, DHS employee satisfaction in 2013 is 7 percentage points lower than the government-wide average, a difference not seen since 2006. Moreover, consistent with our reporting in September 2012, morale varied across components, as shown in table 1. For example, while the Federal Law Enforcement Training Center and U.S. Citizenship and Immigration Service scored above the government-wide average with respect to employee satisfaction, the TSA and the National Protection and Programs Directorate scored below the government-wide average. In addition, DHS has also consistently scored lower than the government- wide average on the FEVS Leadership and Knowledge Management Index, which indicates the extent to which employees hold their leadership in high regard, both overall and on specific facets of leadership. For example, the index includes questions such as whether leaders generate high levels of motivation and commitment in the workforce, and whether employees have a high level of respect for their organization's senior leaders. From fiscal years 2006 through 2013, DHS scored lower than the government-wide average each year for which survey data are available. While government-wide scores for this index have declined 3 percentage points since 2011, DHS's scores have decreased 5 percentage points, widening the gap between DHS and the government-wide average to 9 percentage points. See figure 2 for additional detail. In December 2013, DHS senior officials provided a recent analysis they performed of 2012 FEVS results that indicated DHS low morale issues may persist because of employee concerns about senior leadership and supervisors, among other things, such as whether their talents are being well-used. DHS's analysis of the 2012 FEVS results identified survey questions that correlated most strongly with index measures, such as the Job Satisfaction and Employee Engagement indexes. As noted in DHS's analysis, the evaluation assessed the correlations among survey items, but did not attempt to identify the root cause for the survey results. For example, DHS found that the survey question, "How satisfied are you with the policies and practices of your senior leaders?" was more strongly correlated with the Job Satisfaction Index. However, DHS did not do further research to determine the specific senior leader policies and practices that affected satisfaction or explain why this effect occurred. According to DHS senior officials, on the basis of the results of this analysis and the Acting Secretary of Homeland Security's review of the 2013 FEVS results, the department plans to launch additional employee surveys to probe perspectives on departmental leadership. As we have previously reported, given the critical nature of DHS's mission to protect the security and economy of our nation, it is important that DHS employees be satisfied with their jobs so that DHS can retain and attract the talent required to complete its work. Accordingly, it is important for DHS to continue efforts to understand the root causes behind employee survey results. In February 2012, we reported that DHS SES vacancy rates, while reaching a peak of 25 percent in 2006, had generally declined since that time--from 25 percent in fiscal year 2006 to 10 percent at the end of fiscal year 2011, as shown in figure 3. Since February 2012, DHS data indicate that SES vacancy percentages have remained relatively stable. In particular, according to DHS data, at the end of fiscal year 2012 the SES vacancy rate was approximately 9 percent, and approximately 11 percent at the end of fiscal year 2013. Although there is no generally agreed-upon standard for acceptable vacancy rates, to provide perspective, in our February 2012 report we compared DHS's rates with those of other agencies subject to the Chief Financial Officers (CFO) Act of 1990, as amended. 2006 through 2010--the most recent year for which federal-wide vacancy-rate data were available at the time of our February 2012 report--DHS vacancy rates were at times statistically higher than those at other CFO Act agencies. For example, in fiscal year 2010, the DHS SES vacancy rate at the end of the year was 17 percent and ranged from a low of 8.4 percent to a high of 20.7 percent during the course of the year. This compares with an average vacancy rate across other CFO agencies of 9.0 percent at the end of fiscal year 2010. Further, as we reported in February 2012, vacancy rates varied widely across DHS components. For example, at the end of fiscal year 2011, 20 percent of SES positions at the Federal Emergency Management Agency (FEMA) and 19.5 percent of SES equivalent position at TSA were vacant, compared with 5 percent at the Coast Guard and zero percent at the U.S. Secret Service. Vacancy rates at components generally declined from 2006 through 2011. See 31 U.S.C. SS 901 (identifying 24 agencies subject to requirements of the CFO Act). As of 2009, CFO Act agencies employed 98 percent of all federal employees. events like presidential transitions, and organizational factors such as reorganizations. We also found that in fiscal year 2010, DHS's senior leadership attrition rate was 11.4 percent, and that from fiscal years 2006 through 2010, the most frequent separation types were retirements and resignations. DHS's attrition rates were statistically higher than the average of other CFO agencies in 2006, 2007, and 2009, but not statistically different in 2008 and 2010. OCHCO officials told us in December 2013 that while they no longer identify increases in allocations or organizational factors as significant to SES vacancy rates, budgetary constraints can present challenges. For example, these officials stated that budgetary constraints make it difficult for the department to fund allocated positions. In addition, DHS data provided in December 2013 indicate that the number of vacant DHS political positions, including positions that do and do not require Senate confirmation, doubled from 13 in fiscal year 2012 to 26 in fiscal year 2013. From fiscal year 2012 to 2013, the total number of filled political positions decreased from 73 to 56. In addition, some political positions were filled temporarily through employees serving in "acting" positions. In particular, DHS data provided in December 2013 indicate that 3 of 13 vacated positions were filled with personnel in acting positions at the end of fiscal year 2012 and 10 of 26 positions were filled in this manner at the end of fiscal year 2013. DHS has efforts under way to enhance senior leadership training and hiring, but it is too early to assess their effectiveness at reducing vacancy rates. In February 2012, we reported that DHS had (1) implemented a simplified pilot hiring process aimed at attracting additional qualified applicants and planned to expand the method for all SES, and (2) implemented a centralized SES candidate development program aimed at providing a consistent approach to leadership training. According to DHS officials, as of December 2013, the pilot hiring process had been made available to all DHS components, but the department had not performed analysis to assess the process' impact on hiring. In addition, officials stated that in 2013, the first class of SES candidates had completed the candidate development program; however, the program's impact on leadership training could not yet be determined. Chairman McCaul, Ranking Member Thompson, and members of the committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. 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 Joseph P. Cruz (Assistant Director), Ben Atwater, Katherine Davis, Tracey King, Thomas Lombardi, Taylor Matheson, Jeff Tessin, Julia Vieweg, and Yee Wong. Key contributors for the previous work that this testimony is based on are listed in each product. 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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DHS is the third-largest cabinet-level department in the federal government, with more than 240,000 employees situated throughout the nation. Employees engage in a broad range of jobs to support its missions, including aviation and border security, emergency response, cybersecurity, and critical infrastructure protection, among others. Since it began operations in 2003, DHS has faced challenges in implementing human capital functions, and its employees have reported having low job satisfaction. In addition, Congress has raised questions about DHS's ability to hire and retain senior executives. This testimony addresses (1) how DHS's employees' workforce satisfaction compares with that of other federal government employees and the extent to which DHS is taking steps to improve employee morale, and (2) vacancies in DHS senior leadership positions. This statement is based on products GAO issued in February 2012 and September 2012 and selected updates conducted in December 2013. GAO analyzed FEVS results and DHS vacancy data for fiscal years 2012 and 2013 and interviewed DHS officials. In September 2012, GAO reported that Department of Homeland Security (DHS) employees identified having lower average morale than the average for the rest of the federal government, but morale varied across components. Specifically, GAO found that, according to the Office of Personnel Management's 2011 Federal Employee Viewpoint Survey (FEVS), DHS employees had 4.5 percentage points lower job satisfaction and 7.0 percentage point lower engagement--the extent to which employees are immersed in their work and spending extra effort on job performance. Several components with lower morale, such as the Transportation Security Administration, made up a substantial share of FEVS respondents at DHS and accounted for a significant portion of the overall difference between the department and other agencies. In September 2012, GAO recommended that DHS take action to better determine the root cause of low employee morale, and where absent, add benchmarking against similar organizations, among other things. Since September 2012, DHS has taken a number of actions intended to improve employee morale, such as directing component human capital officials to reevaluate their action plans to ensure that metrics of success are clear and measurable. In December 2013, GAO found that DHS has actions underway to address GAO's recommendations but DHS has not fully implemented them. It will be important to do so, as DHS employee job satisfaction declined in fiscal years 2012 and 2013 FEVS results. Specifically, 2013 FEVS data show that DHS employee satisfaction decreased 7 percentage points since 2011, which is more than the government-wide decrease of 4 percentage points over the same time period. As a result, the gap between average DHS employee satisfaction and the government-wide average widened to 7 percentage points. DHS has also consistently scored lower than the government-wide average on the FEVS Leadership and Knowledge Management index, which indicates the extent to which employees hold their leadership in high regard. Since 2011, DHS's scores for this index have decreased 5 percentage points, widening the gap between the DHS average and the government-wide average to 9 percentage points. In February 2012, GAO reported that DHS Senior Executive Service (SES) vacancy rates, while reaching a peak of 25 percent in 2006, had generally declined, reaching 10 percent at the end of fiscal year 2011. GAO also reported that component officials identified a number of factors that may have contributed to component SES vacancy rates during that time period, including increases in SES allocations, events like presidential transitions, and organizational factors such as reorganizations. To help reduce SES vacancy rates, DHS has (1) implemented a simplified pilot hiring process aimed at attracting additional qualified applicants and planned to expand the method for all SES, and (2) implemented a centralized SES candidate development program aimed at providing a consistent approach to leadership training. As of December 2013, DHS had made the pilot process available to all components, but had not yet performed analysis of these efforts' effectiveness at reducing SES vacancy rates which, according to DHS data, have remained relatively steady since GAO's February 2012 report--11 percent at the end of fiscal year 2013. GAO has made recommendations in prior reports for DHS to strengthen its analysis of low employee morale, and identify clear and measurable metrics for action plan success. DHS concurred with these recommendations and has reported actions under way to address them. GAO provided a copy of new information in this statement to DHS for review. DHS confirmed the accuracy of this information.
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In March 2014 and April 2015, we reported that CBP had made progress in deploying programs under the Arizona Border Surveillance Technology Plan, but that CBP could take additional action to strengthen its management of the Plan and the Plan's various programs. The Plan's seven acquisition programs include fixed and mobile surveillance systems, agent portable devices, and ground sensors. Its three-highest cost programs which represent 97 percent of the Plan's estimated cost are the Integrated Fixed Tower (IFT), Remote Video Surveillance System (RVSS), and Mobile Surveillance Capability (MSC). In March 2014, we found that CBP had a schedule for each of the Plan's seven programs, and that four of the programs would not meet their originally planned completion dates. We also found that some of the programs had experienced delays relative to their baseline schedules, as of March 2013. More recently, in our April 2015 assessment of DHS's major acquisitions programs, we reported on the status of the IFT program in particular, noting that from March 2012 to September 2014, the program's initial operational capability date had slipped from the end of September 2013 to the end of September 2015. CBP officials said that this slip occurred because the program released its request for proposals behind schedule, and then received more proposals than anticipated. The subsequent bid protest extended the slip. CBP officials said these delays contributed to the IFT's full operational capability slip, but funding shortfalls are the major contributor to the delay. Originally, full operational capability was scheduled to occur by September 2015, but as of December 2014, it was scheduled for March 2022. The IFT program anticipated it would receive less than half the fiscal year 2015 funding it needed to remain on track, and it anticipated its funding plan would be reduced further in the future. As a result of this expected funding shortage, the program anticipated it would be able to deliver 24 of 52 planned IFT units, with the funding through 2020, and that it planned to deploy the IFT units to three of the six original Border Patrol Station areas of responsibility. Furthermore, the Chief of the Border Patrol had informed the program that 12 of the 28 remaining IFT units systems are not needed given changing threats. Further, with regard to schedules, scheduling best practices are summarized into four characteristics of reliable schedules-- comprehensive, well constructed, credible, and controlled (i.e., schedules are periodically updated and progress is monitored). We assessed CBP's schedules as of March 2013 for the three highest-cost programs and found in March 2014 that schedules for two of the programs at least partially met each characteristic (i.e., satisfied about half of the criterion), and the schedule for the other program at least minimally met each characteristic (i.e., satisfied a small portion of the criterion). For example, the schedule for the IFT program partially met the characteristic of being credible in that CBP had performed a schedule risk analysis for the program, but the risk analysis was not based on any connection between risks and specific activities. For the MSC program, the schedule minimally met the characteristic of being controlled in that it did not have valid baseline dates for activities or milestones by which CBP could track progress. We recommended that CBP ensure that scheduling best practices are applied to the IFT, RVSS, and MSC schedules. DHS concurred with the recommendation and stated that CBP planned to ensure that scheduling best practices would be applied as far as practical when updating the three programs' schedules. In May 2015, CBP provided us a summary of its completed and planned milestones for the IFT, RVSS, and MSC programs. However, CBP has not provided us with a complete program schedule for the IFT, RVSS, and MSC, and, therefore, we cannot determine the extent to which the agency has followed best practices when updating the respective schedules. In March 2014, we also found that CBP had not developed an Integrated Master Schedule for the Plan in accordance with best practices. Rather, CBP had used separate schedules for each program to manage implementation of the Plan, as CBP officials stated that the Plan contains individual acquisition programs rather than integrated programs. However, collectively these programs are intended to provide CBP with a combination of surveillance capabilities to be used along the Arizona border with Mexico, and resources are shared among the programs. According to scheduling best practices, an Integrated Master Schedule is a critical management tool for complex systems that involve a number of different projects, such as the Plan, to allow managers to monitor all work activities, how long activities will take, and how the activities are related to one another. We concluded that developing and maintaining an integrated master schedule for the Plan could help provide CBP a comprehensive view of the Plan and help CBP better understand how schedule changes in each individual program could affect implementation of the overall plan. We recommended that CBP develop an integrated master schedule for the Plan. CBP did not concur with this recommendation and maintained that an integrated master schedule for the Plan in one file undermines the DHS-approved implementation strategy for the individual programs making up the Plan, and that the implementation of this recommendation would essentially create a large, aggregated program, and effectively create an aggregated "system of systems." DHS further stated that a key element of the Plan has been the disaggregation of technology procurements. However, as we noted in the report, collectively these programs are intended to provide CBP with a combination of surveillance capabilities to be used along the Arizona border with Mexico. Moreover, while the programs themselves may be independent of one another, the Plan's resources are being shared among the programs. We continue to believe that developing an integrated master schedule for the Plan is needed. Developing and maintaining an integrated master schedule for the Plan could allow CBP insight into current or programmed allocation of resources for all programs as opposed to attempting to resolve any resource constraints for each program individually. In addition, in March 2014, we reported that the life-cycle cost estimates for the Plan reflected some, but not all, best practices. Cost-estimating best practices are summarized into four characteristics--well documented, comprehensive, accurate, and credible. Our analysis of CBP's estimate for the Plan and estimates completed at the time of our review for the two highest-cost programs--the IFT and RVSS programs-- showed that these estimates at least partially met three of these characteristics: well documented, comprehensive, and accurate. In terms of being credible, these estimates had not been verified with independent cost estimates in accordance with best practices. We concluded that ensuring that scheduling best practices were applied to the programs' schedules and verifying life-cycle cost estimates with independent estimates could help better ensure the reliability of the schedules and estimates, and we recommended that CBP verify the life-cycle cost estimates for the IFT and RVSS programs with independent cost estimates and reconcile any differences. DHS concurred with this recommendation, but stated that at this point it does not believe that there would be a benefit in expending funds to obtain independent cost estimates and that if the costs realized to date continue to hold, there may be no requirement or value added in conducting full-blown updates with independent cost estimates. We recognize the need to balance the cost and time to verify the life-cycle cost estimates with the benefits to be gained from verification with independent cost estimates. However, we continue to believe that independently verifying the life-cycle cost estimates for the IFT and RVSS programs and reconciling any differences, consistent with best practices, could help CBP better ensure the reliability of the estimates. As of May 2015, CBP officials stated that the agency plans to update the life-cycle cost estimates for the three of its highest-cost programs under the Plan, including IFT and RVSS, by the end of calendar year 2015. We reported in March 2014 that CBP identified the mission benefits of its surveillance technologies, as we recommended in November 2011. More specifically, CBP had identified mission benefits of surveillance technologies to be deployed under the Plan, such as improved situational awareness and agent safety. However, we also reported that the agency had not developed key attributes for performance metrics for all surveillance technology to be deployed as part of the Plan, as we recommended in November 2011. As of May 2015, CBP had identified a set of potential key attributes for performance metrics for all technologies to be deployed under the Plan; however, CBP officials stated that this set of measures was under review as the agency continues to refine the measures to better inform the nature of the contributions and impacts of surveillance technology on its border security mission. While CBP has yet to apply these measures, CBP established a time line for developing performance measures for each technology. CBP officials stated that by the end of fiscal year 2015, baselines for each performance measure will be developed, at which time the agency plans to begin using the data to evaluate the individual and collective contributions of specific technology assets deployed under the Plan. Moreover, CBP plans to establish a tool by the end of fiscal year 2016 that explains the qualitative and quantitative impacts of technology and tactical infrastructure on situational awareness in specific areas of the border environment. While these are positive steps, until CBP completes its efforts to fully develop and apply key attributes for performance metrics for all technologies to be deployed under the Plan, it will not be able to fully assess its progress in implementing the Plan and determine when mission benefits have been fully realized. Moreover, in March 2014, we found that CBP does not capture complete data on the contributions of these technologies, which in combination with other relevant performance metrics or indicators could be used to better determine the contributions of CBP's surveillance technologies and inform resource allocation decisions. Although CBP has a field within its Enforcement Integrated Database for maintaining data on whether technological assets, such as SBInet surveillance towers, and nontechnological assets, such as canine teams, assisted or contributed to the apprehension of illegal entrants and seizure of drugs and other contraband, according to CBP officials, Border Patrol agents were not required to record these data. This limited CBP's ability to collect, track, and analyze available data on asset assists to help monitor the contribution of surveillance technologies, including its SBInet system, to Border Patrol apprehensions and seizures and inform resource allocation decisions. We recommended that CBP require data on asset assists to be recorded and tracked within its database and that once these data were required to be recorded and tracked, analyze available data on apprehensions and technological assists, in combination with other relevant performance metrics or indicators, as appropriate, to determine the contribution of surveillance technologies to CBP's border security efforts. CBP concurred with our recommendations and has taken steps to address it. In June 2014, in response to our recommendation, CBP issued guidance informing Border Patrol agents that the asset assist data field within its database was now a mandatory data field. Agents are required to enter any assisting surveillance technology or other equipment before proceeding. While this is a positive step, to fully address our recommendations, CBP needs to analyze data on apprehensions and seizures, in combination with other relevant performance metrics, to determine the contribution of surveillance technologies to its border security mission. In addition, with regard to fencing and tactical infrastructure, CBP reported that from fiscal year 2005 through May 2015, the total miles of vehicle and pedestrian fencing along 2,000-mile U.S.-Mexico border increased from approximately 120 miles to 652 miles. With the completion of the new fencing and other tactical infrastructure, DHS is now responsible for maintaining this infrastructure including repairing breached sections of fencing which cost the department at least $7.2 million in 2010, as reported by CBP. Moreover, we have previously reported on CBP's efforts to assess the impact of fencing and tactical infrastructure on border security. Specifically, in our May 2010 and September 2009 reports, we found that CBP had not accounted for the impact of its investment in border fencing and infrastructure on border security. CBP had reported an increase in control of southwest border miles, but could not account separately for the impact of the border fencing and other infrastructure. In September 2009, we recommended that CBP determine the contribution of border fencing and other infrastructure to border security. DHS concurred with our recommendation, and in response, CBP contracted with the Homeland Security Studies and Analysis Institute to conduct an analysis of the impact of tactical infrastructure on border security. To effectively carry out their respective border security missions, CBP and ICE agents and officers require interoperable communications--the capability of different electronic communications systems to readily connect with one another to enable timely communications--with one another and with state and local agencies, as we reported in March 2015. In 2008, DHS components, including CBP and ICE, initiated individual TACCOM modernization programs to upgrade radio systems that were past expected service life to improve the performance of these systems and to help achieve interoperability across federal, state, and local agencies that are responsible for securing the border. In March 2015, we reported that from 2009 through 2013, CBP completed full modernization projects in 4 of the 9 sectors that constitute the southwest border. In these 4 sectors, Yuma, Tucson, Rio Grande Valley, and El Paso, CBP has (1) upgraded outdated analog tactical communications equipment and infrastructure to digital systems and (2) expanded coverage and provided capacity enhancements by procuring additional equipment and building out new tower sites in areas where CBP agents operate that were not previously covered with existing infrastructure. In 2009, CBP also revised its modernization approach for all remaining sectors, halting the addition of any new tower sites, and adding a project known as Digital in Place (DIP) as a capstone to this program. The scope of the DIP project entails one-for-one replacements of analog systems with digital systems and does not provide additional coverage or capacity enhancements. CBP plans to implement DIP in the remaining 5 sectors along the southwest border that did not receive full modernization upgrades. As of May 2015, DIP projects had been completed in 3 of the 5 sectors along the southwest border--Big Bend, Laredo, and Del Rio-- and were under way in other locations across the nation.CBP, because DIP does not include new site build-outs, among other things, this approach will greatly reduce the costs associated with the full modernization approach and is expected to be completed in a relatively shorter time period. GAO-15-201. information could help CBP better identify any challenges with use of the system and assess system performance. For example, although CBP collects information on radio system availability and maintenance, CBP officials stated that they have not used this information to assess overall system performance to determine the extent to which upgraded radio systems are meeting user needs or to identify areas in need of corrective action. According to CBP officials, the agency had not yet analyzed available data to determine the extent to which upgraded radio systems are meeting user needs or to identify areas in need of corrective action because complete operational data have not been collected for all sites to which radio systems were deployed and because these data are maintained across different repositories that are not currently linked together. CBP officials recognized the need to collect sufficient data to monitor radio system performance and at the time of our report, stated that the agency was taking steps to address this need by collecting data in recently modernized sites. They further stated that once the data had been collected, the agency planned to consolidate these data in a central repository. Moreover, in March 2015 we found that most of the groups of CBP radio users we met with reported experiencing challenges relating to operational performance. For example, 7 of the 10 groups of CBP radio users we met with in the Tucson, Rio Grande Valley, and El Paso sectors stated that coverage gaps continued to affect their ability to communicate, even after the upgrades were completed. Specifically, 2 groups stated that coverage in some areas seemed to be worse after the upgrades were completed, 4 groups stated that coverage gaps had been reduced but continued to exist after the upgrades, and 1 group stated that while coverage had improved in some areas, the group did not receive the coverage enhancements it expected to receive, especially in critical areas. We recommended in March 2015 that CBP develop a plan to monitor the performance of its deployed radio systems. DHS concurred with this recommendation and stated that it will work to complete a CBP Land Mobile Radio System Performance Monitoring Plan by December 31, 2015. We also found in March 2015 that ICE does not have complete information to effectively manage its TACCOM modernization program. Specifically, we reported that ICE has 58 completed, ongoing, or planned projects under its TACCOM modernization program and has taken some actions to modernize its TACCOM radio systems, including along the southwest border. Specifically, according to ICE officials, the agency has replaced individual analog TACCOM radios and equipment with digital systems across all 26 ICE regions, including the southwest border regions. In addition, while ICE has completed full modernization projects--which entail expanding coverage and capacity by building new sites--in other regions across the United States, it had not developed plans to modernize any southwest border regions. Instead, to meet the needs of ICE radio users in the southwest border regions, ICE officials stated that the agency's strategy focused on leveraging other agency infrastructure in areas where ICE does not have infrastructure until funding is approved to initiate modernization projects in these regions. For example, in Yuma and Tucson, ICE officials stated that the agency primarily uses CBP's radio system. Further, we found that while ICE has developed some documentation for the individual projects, such as individual project plans, and provided us with an integrated master schedule for the 58 ongoing, planned, and completed projects, the agency had not documented an overall plan to manage its TACCOM modernization program and provide oversight across all projects. For example, ICE officials were unable to provide documentation that all TACCOM equipment had been upgraded to digital systems. Additionally, our interviews with groups of ICE radio users showed that agency efforts to upgrade its TACCOM technology-- including leveraging other agency infrastructure in areas where ICE does not have infrastructure--may not be supporting ICE radio user needs along the southwest border. For example, 2 of the 3 groups of ICE radio users we met with in Tucson, Rio Grande Valley, and El Paso that operate on CBP land-mobile radio networks stated that coverage was worse after the upgrades or did not meet ICE radio user needs because the new system did not provide the capabilities the agency promised to deliver. The third group stated that CBP's modernization project upgrades enhanced coverage in a limited capacity but created new challenges for ICE because of the increase in communication traffic. Specifically, ICE radio users in this location stated that since they are using CBP channels, Border Patrol has priority of use, so when there is too much traffic on a channel, ICE radio users are unable to access the channel or get kicked off the system and hear a busy signal when attempting to use their radios. All 4 groups of ICE radio users we met with stated that operability and interoperability challenges frequently compromised their investigations and resulted in unacceptable risks to officer safety. We reported that ICE officials agreed that ICE radio user coverage needs had not been met in the southwest border areas and at the time of our report stated that the agency was taking steps to assess radio user needs in these locations. Specifically, ICE officials stated that they were soliciting information from radio users on their operational needs and briefing ICE management to inform future decisions about ICE coverage and funding needs. However, at that time ICE officials also stated that there were no plans for creating a program plan to guide and document these efforts. We recommended that ICE develop a program plan to ensure that the agency establishes the appropriate documentation of resource needs, program goals, and measures to monitor the performance of its deployed radio systems. DHS concurred with this recommendation. In response to our recommendation, DHS stated that ICE's Office of the Chief Information Officer will develop a program to facilitate, coordinate, and maintain ICE's deployed radio systems, and will ensure that the agency establishes the proper documentation of resource needs, defines program goals, and establishes measures to monitor performance by January 31, 2016. We also concluded in March 2015 that CBP and ICE could do more to ensure the agencies are meeting the training needs of all CBP and ICE radio users. We reported that CBP provided training to its agents and officers on upgraded radio systems in each southwest border location that received upgrades. However, 8 of 14 CBP radio user groups we met with suggested that radio users be provided with additional radio training to enhance their proficiency in using radio systems. Further, we found that CBP does not know how many radio users are in need of training. We recommended in March 2015 that CBP (1) develop and implement a plan to address any skills gaps for CBP agents and officers related to understanding the new digital radio systems and interagency radio use protocols, and (2) develop a mechanism to verify that all Border Patrol and Office of Field Operations radio users receive radio training. DHS concurred with these recommendations and estimated a completion date of March 31, 2016. We also found that ICE provided training on the upgraded radio systems in one location, but 3 of the 4 ICE radio user groups we met with in field locations stated that additional training would help address challenges experienced by radio users. Further, ICE officials stated that they did not track the training that the agency provided. We recommended in March 2015 that ICE (1) develop and implement a plan to address any skills gaps for ICE agents related to understanding the new digital radio systems and interagency radio use protocols, and (2) develop a mechanism to verify that all ICE radio users receive radio training. DHS concurred with these recommendations. In response to these recommendations, DHS stated that ICE will propose an increase in training for new agents and will develop a mechanism to verify that all ICE radio users receive radio training by March 31, 2016. Our March 2012 report on OAM assets highlighted several areas the agency could address to better ensure the mix and placement of assets is effective and efficient. These areas included: (1) documentation clearly linking deployment decisions to mission needs and threats, (2) documentation on the assessments and analysis used to support decisions on the mix and placement of assets, and (3) consideration of how deployment of border technology will affect customer requirements for air and marine assets across locations. Specifically, our March 2012 report found that OAM had not documented significant events, such as its analyses to support its asset mix and placement across locations, and as a result, lacked a record to help demonstrate that its decisions to allocate assets were the most effective ones in fulfilling customer needs and addressing threats, among other things. While OAM's Fiscal Year 2010 Aircraft Deployment Plan stated that OAM deployed aircraft and maritime vessels to ensure its forces were positioned to best meet the needs of CBP field commanders and respond to the latest intelligence on emerging threats, OAM did not have documentation that clearly linked the deployment decisions in the plan to mission needs or threats. We also found that OAM did not provide higher rates of support to locations Border Patrol identified as high priority, a fact that indicated that a reassessment of OAM's resource mix and placement could help ensure that it meets mission needs, addresses threats, and mitigates risk. OAM officials stated that while they deployed a majority of assets to high-priority sectors, budgetary constraints, other national priorities, and the need to maintain presence across border locations limited overall increases in assets or the amount of assets they could redeploy from lower-priority sectors. While we recognized OAM's resource constraints, the agency did not have documentation of analyses assessing the impact of these constraints and whether actions could be taken to improve the mix and placement of assets within them. Thus, the extent to which the deployment of OAM assets and personnel, including those assigned to the southwest border, most effectively utilized OAM's constrained assets to meet mission needs and address threats was unclear. We also found in March 2012 that OAM did not document assessments and analyses to support the agency's decisions on the mix and placement of assets. DHS's 2005 aviation management directive requires operating entities to use their aircraft in the most cost-effective way to meet requirements. Although OAM officials stated that it factored cost- effectiveness considerations, such as efforts to move similar types of aircraft to the same locations to help reduce maintenance and training costs into its deployment decisions, OAM did not have documentation of analyses it performed to make these decisions. OAM headquarters officials stated that they made deployment decisions during formal discussions and ongoing meetings in close collaboration with Border Patrol, and considered a range of factors such as operational capability, mission priorities, and threats. OAM officials said that while they generally documented final decisions affecting the mix and placement of assets, they did not document assessments and analyses to support these decisions. In addition, we reported that CBP and DHS had ongoing interagency efforts under way to increase air and marine domain awareness across U.S. borders through deployment of technology that may decrease Border Patrol's use of OAM assets for air and marine domain awareness. However, at the time of our review, OAM was not planning to assess how technology capabilities could affect the mix and placement of air and marine assets until the technology has been deployed. Specifically, we concluded that Border Patrol, CBP, and DHS had strategic and technological initiatives under way that would likely affect customer requirements for air and marine support and the mix and placement of assets across locations. CBP and DHS also had ongoing interagency efforts under way to increase air and marine domain awareness across U.S. borders through deployment of technology that may decrease Border Patrol's use of OAM assets for air and marine domain awareness. OAM officials stated that they would consider how technology capabilities affect the mix and placement of air and marine assets once such technology has been deployed. To address the findings of our March 2012 report, we recommended that CBP, to the extent that benefits outweigh the costs, reassess the mix and placement of OAM's air and marine assets to include mission requirements, performance results, and anticipated CBP strategic and technological changes. DHS concurred with this recommendation and responded that it planned to address some of these actions as part of the Fiscal Year 2012-2013 Aircraft Deployment Plan. In September 2014, CBP provided this Plan, approved in May 2012, and updated information on its subsequent efforts to address this recommendation, including a description of actions taken to reassess the mix and placement of OAM's assets. In particular, CBP noted that in late 2012, it initiated some actions based on its analysis of CBP data and assessment of OAM statistical information, such as the priority for flight hours by location based on Border Patrol and OAM data on arrests; apprehensions; and seizures of cocaine, marijuana, currency, weapons, vehicles, aircraft, and vessels. According to OAM, after consulting with DHS and CBP officials and approval from the DHS Secretary in May 2013, the office began a realignment of personnel, aircraft, and vessels from the northern border to the southern border based on its evaluation of the utilization and efficiency of current assets and available funding to accomplish the transfers. CBP's actions are a positive step to more effectively allocating scarce assets. As of April 2015, OAM officials said that they were in the process of providing GAO with the data and analysis used to support this realignment of assets in order to fully document implementation of the recommendation. Chairman Johnson, Ranking Member Carper, and members of the committee, this concludes my prepared statement. I will be happy to answer any questions you may have. For further information about this testimony, please contact Rebecca Gambler at (202) 512-8777 or [email protected]. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement included Kirk Kiester (Assistant Director), as well as Carissa Bryant, Adam Gomez, Yvette Gutierrez, Jon Najmi, Meg Ullengren, and Michelle Woods. Other contributors to the work on which this statement is based included Cindy Ayers, Jeanette Espinola, and Nancy Kawahara. Homeland Security Acquisitions: Major Program Assessments Reveal Actions Needed to Improve Accountability. GAO-15-171SP. Washington, D.C.: April 22, 2015. 2015 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-15-404SP. (Washington, D.C.: April 14, 2015). Border Security: Additional Efforts Needed to Address Persistent Challenges in Achieving Radio Interoperability. GAO-15-201. Washington, D.C.: March 23, 2015. Arizona Border Surveillance Technology Plan: Additional Actions Needed to Strengthen Management and Assess Effectiveness. GAO-14-411T. Washington, D.C.: March 12, 2014. Arizona Border Surveillance Technology Plan: Additional Actions Needed to Strengthen Management and Assess Effectiveness. GAO-14-368. (Washington, D.C.: March 3, 2014). Border Security: Progress and Challenges in DHS Implementation and Assessment Efforts. GAO-13-653T. Washington, D.C.: June 27, 2013. Border Security: DHS's Progress and Challenges in Securing U.S. Borders. GAO-13-414T. Washington, D.C.: March 14, 2013. GAO Schedule Assessment Guide: Best Practices for Project Schedules. GAO-12-120G (exposure draft). Washington, D.C.: May 2012. Border Security: Opportunities Exist to Ensure More Effective Use of DHS's Air and Marine Assets. GAO-12-518. Washington, D.C.: March 30, 2012. U.S. Customs and Border Protection's Border Security Fencing, Infrastructure and Technology Fiscal Year 2011 Expenditure Plan. GAO-12-106R. Washington, D.C.: November 17, 2011. Arizona Border Surveillance Technology: More Information on Plans and Costs Is Needed before Proceeding. GAO-12-22. (Washington, D.C.: November 4, 2011). Secure Border Initiative: Technology Deployment Delays Persist and the Impact of Border Fencing Has Not Been Assessed. GAO-09-896. (Washington, D.C.: September 9, 2009). GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. GAO-09-3SP. (Washington, D.C.: March 2009). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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DHS has employed a variety of technology, infrastructure, and other assets to help secure the border. For example, in January 2011, CBP developed the Arizona Border Surveillance Technology Plan, which includes seven acquisition programs related to fixed and mobile surveillance systems, agent-portable devices, and ground sensors. CBP has also deployed tactical infrastructure--fencing, roads, and lights--and tactical communications (radio systems) and uses air and marine assets to secure the border. In recent years, GAO has reported on a variety of DHS border security programs and operations. This statement addresses some of the key issues and recommendations GAO has made in the following areas: (1) DHS's efforts to implement the Arizona Border Surveillance Technology Plan and deploy tactical infrastructure, (2) CBP's and ICE's efforts to modernize radio systems, and (3) OAM mix and placement of assets. This statement is based on prior products GAO issued from September 2009 through April 2015, along with selected updates conducted in April and May 2015 to obtain information from DHS on actions it has taken to address prior GAO recommendations. GAO reported in March 2014 that U.S. Customs and Border Protection (CBP), within the Department of Homeland Security (DHS), had made progress in deploying programs under the Arizona Border Surveillance Technology Plan (the Plan), but that CBP could strengthen its management and assessment of the Plan's programs. Specifically, GAO reported that CBP's schedules and life-cycle cost estimates for the Plan and its three highest-cost programs met some but not all best practices and recommended that CBP ensure that its schedules and estimates more fully address best practices, such as validating its cost estimates with independent estimates. CBP concurred and is taking steps toward addressing GAO's recommendations, such as planning to update cost estimates by the end of calendar year 2015. Further, in March 2014, GAO reported that while CBP had identified mission benefits of technologies to be deployed under the Plan, such as improved situational awareness, the agency had not developed key attributes for performance metrics for all technologies, as GAO recommended. In April 2015, GAO reported that CBP had identified a set of potential key attributes for performance metrics for deployed technologies and CBP officials stated that by the end of fiscal year 2015, baselines for each performance measure will be developed and the agency will begin using the data to evaluate the contributions of specific technology assets. In March 2015, GAO reported that DHS, CBP, and U.S. Immigration and Customs Enforcement (ICE) had taken steps to upgrade tactical communications equipment and infrastructure, such as completing full modernization projects in four of the nine southwest border sectors, but could benefit by developing performance and program plans. Since rolling out upgrades--which include replacing and updating equipment and expanding infrastructure--CBP had not established an ongoing performance monitoring plan to determine whether the systems were working as intended. CBP agreed to develop such a plan, as GAO recommended, and is working to complete the plan by the end of 2015. Further, GAO reported in March 2015 that ICE did not have a program plan to manage its portfolio of modernization projects. DHS concurred with GAO's recommendation to develop a plan and stated that ICE will develop a program to facilitate, coordinate, and maintain ICE's radio systems, and document resource needs, define program goals, and establish performance measures by January 2016. In March 2012, GAO reported that the Office of Air and Marine (OAM) within CBP could benefit from reassessing its mix and placement of assets to better address mission needs and threats. GAO reported that OAM should clearly document the linkage of deployment decisions to mission needs and threat and its analysis and assessments used to support its decisions on the mix and placement of assets. GAO also reported that OAM could consider how border technology deployment will affect customer requirements for OAM assets. GAO recommended that CBP reassess the mix and placement of OAM's assets to include mission requirements, among other things. CBP concurred, and after May 2013, OAM began a realignment of personnel, aircraft, and vessels from the northern border to the southern border based on its evaluation of the utilization and efficiency of current assets and available funding to accomplish the transfers. In April 2015, OAM officials stated that they are working to provide GAO with the data and analysis used to support the realignment of assets. In its prior work, GAO made recommendations to DHS to strengthen its management of plans and programs, tactical communications, and mix and placement of OAM assets. DHS generally agreed and plans to address the recommendations. Consequently, GAO is not making any new recommendations in this testimony.
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The National Defense Stockpile is a reserve of strategic and critical materials that may be unavailable in the United States in sufficient quantities to meet unanticipated national security requirements. The Defense Logistics Agency's Defense National Stockpile Center (DNSC) has managed the stockpile since 1988. Zinc is one of 92 strategic and critical materials stored in the stockpile. It is commonly used for galvanizing, die-casting, manufacturing brass and bronze, and making the U.S. penny. It is produced in various grades--special high grade, high grade, continuous galvanizing, controlled lead, and prime western--that are distinguishable by the amount of impurities they contain, such as lead, cadmium, and iron. Special high grade is the most pure, prime western the least. As of March 30, 1996, DNSC has nearly 300,000 tons of slab zinc, valued at $300 million, stored at 15 facilities in 9 states. (See app. I.) About 91 percent is either high grade (48 percent) or prime western grade (43 percent). "to the maximum extent feasible . . . efforts shall be made . . . to avoid undue disruption of the usual markets of producers, processors, and consumers of such materials and to protect the United States against avoidable loss." DNSC has been authorized to sell up to 50,000 tons of zinc in fiscal year 1996 and 50,000 tons in fiscal year 1997. It is conducting monthly sales using sealed bidding procedures. Bids for a minimum of 20 tons are accepted from producers, processors, traders, and consumers on an "as-is, where-is" basis. Between 1993 and March 1996, DNSC sold approximately 77,000 tons of zinc for about $60 million. DNSC's plans, as provided to the Congress, indicate that, if authorized, it intends to sell up to 50,000 tons annually until the inventory is depleted. Money generated from sales is put into the National Defense Stockpile Transaction Fund and used for stockpile operations or, as authorized and appropriated by the Congress, for other defense purposes. When evaluating the potential for undue market disruption, DNSC and the Market Impact Committee consider the usual market for zinc to be the total U.S. market for all grades of the commodity. AZA contends, however, that the statute requires an evaluation based only on the markets for the grades of zinc the stockpile plans to sell. We find that the statute does not specify the market the government is to examine and that the government's determination to consider the entire zinc market has a sound basis. The Stock Piling Act authorizes the acquisition, management, and disposal of "strategic and critical materials" and requires efforts by the stockpile managers, to the maximum extent feasible, "to avoid undue disruption of the usual markets of producers, processors, and consumers of such materials." AZA argues that the phrase "such materials" refers only to the specific grades of zinc being disposed of from the stockpile and that the phrase "usual markets" refers only to producers, processors, and consumers of those specific grades. The government, on the other hand, believes that "material" refers to the commodity of zinc, regardless of grades; therefore, the usual markets to which the statute refers means the total market for the commodity, not just the markets for the specific grades being sold from the stockpile. Although it is clear from the Stock Piling Act that the phrase such materials refers to the strategic and critical materials disposed of under the act, the statute does not require a market analysis based on specific grades of stockpile commodities. In addition, while the act requires efforts to avoid undue disruption of the usual markets for materials sold from the stockpile, it does not define the phrase usual markets or otherwise specify what markets the government is to examine to determine whether stockpile sales could be unduly disruptive. Furthermore, while it is clear from the act's legislative history that the Congress was concerned with the market effects of stockpile sales, there is no indication that the Congress envisioned an evaluation at any particular market level. Generally, without a statutory definition or clear indication of congressional intent, an agency charged with implementing a statute has the discretion to define a phrase such as usual markets. The courts have said that an agency's determination in such circumstances will not be overturned, provided it has a reasonable basis. We believe the determination by DNSC and the Market Impact Committee concerning the usual markets for zinc has a sound basis. According to DNSC officials, their determinations are based on the practices for each industry and commodity. Some commodities consist of grades that have separate industry uses and generally cannot be substituted for one another, according to DNSC. For example, the mineral fluorspar, another stockpile material being disposed of, is divided into grades having distinct end uses--a metallurgical grade used in the manufacture of certain metals and an acid grade used by the glass industry. In contrast, in some cases, different grades of zinc may be used for the same purpose, such as certain types of galvanizing. Annual legislation authorizing sales from the stockpile reflect these differences between commodities. Disposals of certain commodities, such as zinc and lead, are authorized on a generic basis; authorization for disposing of other commodities, such as fluorspar, is given by separate grades and amounts. DNSC and the Market Impact Committee's view of the zinc market as an entire market is a long-standing one shared by previous managers of the stockpile. Specifically, the General Services Administration and the Federal Emergency Management Agency, both prior managers of the stockpile, have defined the usual market for zinc as the entire market. Our discussions with zinc market participants--that is, companies producing or processing zinc, those buying and selling zinc as traders or brokers, those that consume zinc in their manufacturing processes, and individuals who study or report on the zinc markets--support this view of the larger market. Some of these discussions were with AZA members. The consensus was that some zinc consumers adjust their purchases of different grades of zinc according to changing market factors. Some producers adjust their production of different grades according to supply and demand for each grade. According to the participants, the impact of market events, such as an increased supply because of stockpile sales, could affect not only the market of the particular grade sold, but also the overall market because a significant decline in the price of one grade would be expected to depress the prices of other grades. Pricing data we reviewed show that prices of different grades tend to follow similar patterns. Although some zinc consumers may not purchase materials sold from the stockpile, we do not believe that the Stock Piling Act requires the government to limit its review of the usual markets to only those consumers likely to buy zinc from the stockpile. According to DNSC, a company may not buy stockpile zinc for a number of reasons. For example, even if a company could use the grade of zinc being sold, the material may not be available in sufficient quantity or quality, or at low enough prices, to justify changing suppliers. Even though such a company may not buy zinc from the stockpile, that company could be affected by the increase in supply resulting from stockpile sales. The government recognizes that sales from the stockpile can affect some participants in the market more than others. Stockpile sales increase supplies that can drive down prices and cause a particular producer or processor to lose business. The stockpile is in effect an additional zinc producer. One major U.S. zinc producer, for example, produces only one grade of zinc, which is one of those DNSC has offered for sale. This producer stated that it had lost sales because of the stockpile sales. However, the Market Impact Committee stated that the loss of business by one producer, in and of itself, does not necessarily unduly disrupt the overall market. Some customers taking advantage of lower prices from a new supplier is a normal commercial activity. One factor that may limit the impact of stockpile sales on U.S. zinc producers is the international character of the zinc market. Zinc is an internationally traded commodity. In 1994, the latest year for which data were available, U.S. zinc consumption (all grades) was about 17 percent of the world's consumption, and the United States had to rely on imports for about 67 percent of the 1.2 million tons of slab zinc consumed. According to zinc market participants and analysts, although prices and market conditions for zinc can differ by country, international trade tends to spread the effects of changing market conditions across countries. For example, if U.S. prices fell, then suppliers would decrease their sales to the U.S. market and increase their sales to other markets, thus distributing the price effects to those other markets. DNSC has established policies and procedures to avoid unduly disrupting the zinc markets. Specifically, it has publicized its sales and price policy and solicited public comments; sold less zinc than it was authorized to sell; and tried to sell zinc close to market prices. DNSC's policy for disposing of zinc is to (1) dispose of those quantities of materials as authorized by the Congress; (2) maximize revenues, though not necessarily maximize sales; and (3) be responsive to industry and congressional concerns. In addition, a policy statement was published in the October 17, 1994, Federal Register. DNSC also works closely with the Market Impact Committee. The Committee reviews a range of data and analysis compiled by DNSC and other agencies, and it may also review DNSC's proposed sales methods. It is the Committee's policy to solicit industry views concerning the proposed disposals. The Committee is particularly interested in any information that would indicate a potential market disruption if DNSC sold any zinc. Based on this evidence, the Committee can recommend reductions in the proposed commodity disposal levels. If DNSC refuses to accept the Committee's recommendations, it must provide written justification with its submission of the annual materials plan to the Congress. According to the Committee, a steady, well-publicized disposal program helps increase market certainty, whereas irregular sales contributes to market uncertainty. DNSC must submit an annual materials plan to the Congress to show the quantity of materials to be disposed of, the views of the Market Impact Committee on the projected domestic and foreign economic effects of such disposals, the recommendations submitted by the Committee relative to the disposals, and justification for the disposal. Table 1 provides a summary of the amounts requested and approved. The most recent plan, submitted on February 15, 1996, requested authority to dispose of up to 50,000 tons for fiscal year 1997. The plan also included DNSC's proposal to sell up to 50,000 tons annually until the inventory is depleted. DNSC has sold less zinc than it was authorized over the last several years. Between March 1993, when DNSC began selling zinc, and March 1996, DNSC has sold approximately 77,000 tons, although it was authorized to sell 209,000 tons. Figure 1 provides a yearly comparison of the amounts sold and amounts authorized. Industry members and metals analysts told us that the stockpile's sales prices are as important as quantity when it comes to market disruption. AZA officials stated that DNSC was selling stockpile zinc at fire-sale prices, well below the London Metal Exchange and other market prices. Even though DNSC's policy is that all excess materials will be sold as close to market prices as possible, its sales of zinc in 1993 and part of 1994 were at prices below the London Metal Exchange. Both the Market Impact Committee and AZA urged DNSC to raise its minimum price level, which it did, beginning in late 1994. Since 1994, the prices DNSC has accepted for zinc have been above the London Metal Exchange's prices. The London Metal Exchange sets the world price for special high grade zinc daily. Producers add an additional charge, referred to as a premium, to the Exchange price to set their selling prices. A premium can vary by producer, sales contract, and customer, and covers such things as transportation, quality guarantees, and financing terms. As figure 2 shows, through the second quarter of fiscal year 1994, the stockpile made all sales at prices below the London Metal Exchange prices. From the fourth quarter of fiscal year 1994 to the present, all sales prices have been above the London Metal Exchange price. The relation of DNSC's sales prices to the London Metal Exchange prices is only one measure of how closely DNSC is selling to market prices. Figure 3 compares the DNSC sales prices to both the London Metal Exchange and spot market prices from April 1995 to August 1996. The data shows that the prices for high grade and prime western grades sold by DNSC and those for spot sales in the commercial market are roughly 2 to 3 cents apart, a difference which DNSC and the Market Impact Committee believe is reasonable given that the government does not provide transportation, financing, or certification of product quality. DNSC's terms require buyers to pay for transportation, pay for the product prior to delivery, and accept the product on an "as is" (quality not certified) basis. Commercial terms typically require the seller or producer to pay for transportation, provide for financing (often 30 to 40 days), and certify the quality of the product. The DNSC data in figure 3 represent the average sales prices for high grade and prime western zinc sold at the regular DNSC sales on the third Tuesday of every month. The spot market prices are the commercial prices, averaged, for high grade and prime western zinc, as reported by the American Metal Market for the date of each DNSC sale. The London Metal Exchange data are the prices set by the London Metal Exchange for special high grade zinc on the same day as the DNSC sales. Although the London Metal Exchange price is based on special high grade, the premium for other grades is typically marked against the special high grade price. DNSC receives bids within a wide range of prices, both above and below the London Metal Exchange. Sometimes, it receives multiple bids from a single bidder at prices above, at, and below the London Metal Exchange. DNSC must decide which ones to accept and which ones to reject. DNSC has rejected more bids than it has accepted in every year it has offered zinc for sale. (See fig. 4.) In fiscal year 1996, for example, it accepted only one of every four bids received. (App. III lists DNSC's sales activities, including the bids accepted and bids rejected.) DNSC plans to continue to closely monitor prices when accepting bids to ensure that the market is not unduly disrupted. DNSC's actions, we believe, demonstrate that it is paying attention to the market and is committed to avoiding an undue disruption. It is important that DNSC accept prices for its zinc that are as close to market prices as possible. We asked DOD, the Market Impact Committee, AZA, U.S.-based AZA members, and a number of other companies and organizations with whom we discussed this matter to comment on a draft of this report. DOD and the Market Impact Committee fully concurred with the report. Their comments are included as appendix IV. AZA disagreed with the report's conclusions, stating that we reached those conclusions based on our accepting certain inaccurate government data, avoiding certain AZA facts, and introducing irrelevant material. First, while AZA agreed that the phrase "usual markets" is not defined in the act, it said that we did not properly consider congressional intent in reviewing the government's interpretation of the phrase "usual markets." It stated that because the legislative history indicates that the Congress was particularly concerned about the effect on the markets that stockpile sales might have, those charged with construing the phrase must choose the construction that results in the minimum amount of market impact. It is our view, however, that the legislative history does not require such an interpretation of the statute. In this regard, the legislative history, including the Senate report cited by AZA (S. Rpt. No. 804, 79th Cong., 1st Sess. 1945) shows that while the Congress was concerned about market impact, the concern was that "sudden disposals" of stockpile materials "might break the market," not that all market disruption must be avoided. Some additional language was included in the body of the report to clarify our position. Next, AZA stated that certain materials we cited in the report were not relevant as justification for the government's action to avoid unduly disrupting the usual zinc market. We believe the materials are relevant, but have added a figure and text comparing DNSC sales prices to spot market prices to clarify our position. Finally, AZA stated that we had not reported certain facts it believed were relevant to the dispute between the government and itself about the size of what AZA views as the usual market for high grade and prime western zinc. We have provided additional information for clarification in appendix II. The complete response of AZA and our specific comments to the points raised are included as appendix V. Of the AZA members commenting on our draft report, one fully agreed with our conclusions and another generally agreed but believed certain statements relating to uses of different grades of zinc and market factors were misleading. We have clarified the discussion on this in the final report to address these concerns. A third member said it was disappointed with our interpretation that the government's view of the usual market has a sound basis. The members' comments are included as appendix VI. Four other respondents--an association of zinc consumers, a zinc broker, a zinc trader, and a metals trade publication official--concurred with our findings and conclusions. Their comments are included in appendix VII. The focus of our work was on the dispute between the government and AZA as it related to the government's interpretation of the statutory phrase "usual markets" as applied to the zinc sales program, and DOD's efforts to not unduly disrupt the zinc market. To assess the merits of each side's position on the government's interpretation and its efforts not to disrupt the zinc market, we met with the Executive Director of AZA and reviewed data AZA provided us. We met with the Administrator, Deputy Administrator, General Counsel, and zinc commodity specialists at DNSC and reviewed the data they provided us. We also met with the cochairs of the Market Impact Committee and each of the Committee members and reviewed the minutes of each meeting where zinc disposals were considered during the last 3 years. And, we met with industry and metals analysts for the Department of Commerce and the Bureau of Mines (now part of the U.S. Geological Survey) to determine how they calculated the size of the zinc markets. We reviewed the applicable statute, its legislative history, and relevant court cases. We discussed the statute and its interpretation with DNSC's counsel and with the executive director of AZA. To complement our discussions with AZA and to obtain the views on the government's interpretation of usual markets and its efforts not to disrupt the markets, we met with each of the various groups represented in the zinc market--that is, companies producing or processing zinc, those buying and selling zinc as traders or brokers, those that consume zinc in their manufacturing processes, and individuals who study or report on the zinc markets--we reviewed various documents these companies and organizations had submitted to DNSC or the Market Impact Committee and contacted them about the government/AZA dispute and/or their particular operations. We also asked each company or organization whose correspondence we reviewed or we contacted to comment on a draft of this report. We have included copies of the responses in the appendixes. The list of companies and organizations we contacted or whose documents we reviewed were the following: Big River Zinc Corp., Sauget, Illinois Huron Valley Steel, Belleville, Michigan Savage Zinc, Inc., Clarksville, Tennessee Zinc Corporation of America, Monaca, Pennsylvania Parks-Pioneer Metals Co., Milwaukee, Wisconsin Trademet, Inc., Scarsdale, New York zinc consumers or their associations American Galvanizers Association, Aurora, Colorado Frontier Hot-Dip Galvanizing, Inc., Buffalo, New York Galvan Industries, Inc., Harrisburg, North Carolina Independent Zinc Alloyers Association, Washington, D.C. Rogers Galvanizing Company, Tulsa, Oklahoma Tennessee Galvanizing, Jasper, Tennessee U.S. Zinc, Houston, Texas metals analysts and others CRU International Ltd., London, United Kingdom International Lead/Zinc Study Group, London, United Kingdom Ryan's Notes, Pelham, New York We visited the DNSC storage site at Letterkenny Army Depot, near Chambersburg, Pennsylvania, to examine how DNSC stores zinc and prepares it for sale. We did not assess DNSC's sales methods--that is, its selling on the "spot" market, as opposed to selling under long-term contracts--or the impact of congressionally imposed sales price constraints. The fiscal years 1995, 1996, and 1997 DOD appropriations acts have prohibited DNSC from accepting prices from prospective bidders if zinc prices decline more than 5 percent below the London Metals Exchange market price reported on the date the act was enacted. We performed our review from December 1995 to August 1996 in accordance with generally accepted government auditing standards. We are providing copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Appropriations, Subcommittee on Defense; Senate Committee on Armed Services; House Committee on Appropriations, Subcommittee on National Security; House Committee on National Security; the Director, Office of Management and Budget; the Secretary of Defense; the Director, Defense Logistics Agency; the Administrator, DNSC; the cochairs of the Market Impact Committee; AZA; and all parties that assisted us in this review. We will also make copies available to other interested parties upon request. Please contact me on (202) 512-8412 if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix VIII. Scotia, N.Y. Voorheesville, N.Y. Somerville, N.J. Marietta, Pa. Mechanicsburg, Pa. Chambersburg, Pa. Point Pleasant, W.Va. Huntsville, Ala. The American Zinc Association (AZA) and the government have long disputed the size of the usual market for high grade and prime western zinc. According to AZA's definition of the usual markets for high grade and prime western grade slab zinc, using 1994 data, the usual market is 250,000 tons of actual consumption a year. Officials of the Department of Commerce--members of the Market Impact Committee--estimate the market of these grades to be about 350,000 tons a year, counting both slab and hot metal. AZA's estimates are based on high grade and prime western consumption, as reported by its members, and U.S. Bureau of the Census data on imports from all countries not represented in AZA and adjusted to include stockpile sales and changes in stocks. Commerce's estimates are based on Bureau of Mines survey data, Commerce and Census import data, and discussions with zinc importers--many of whom are AZA members. The government has revised its estimate of this market from over 600,000 tons to 446,000 tons to its current estimate of 350,000 tons. The latest revision was due primarily to revised estimates of large steel mill consumption of high grade and prime western grade and in the amount of high grade and prime western grade tonnage imported. A major factor underlying the remaining 100,000-ton difference between the two estimates is the treatment of internal hot prime western metal produced by one prime western processor and used in its zinc oxide production facility (about 62,000 tons). AZA did not include this amount in its estimate of the production of slab prime western grade zinc, stating that this is hot metal, not slab. The government agreed that this tonnage should not be reported as slab and revised the reporting of it under the heading of "zinc metal." The government nevertheless maintains that although this prime western zinc is not converted to slab, it should be included in the estimates of the size of the high grade and prime western zinc market because prime western zinc is being consumed. An additional difference (38,000 tons) between AZA and the government is that the government's estimates of potential domestic consumption of high grade and prime western zinc includes tonnage that "hot-dip" galvanizersuse, but that is currently being supplied by special high grade zinc. The government believes that high grade or prime western can be used for this purpose and should be used in the market size estimates. AZA, however, stated that "potential" consumption should not be considered in any discussion of usual markets. In summary, the two sides now agree with each other's numbers, but not how those numbers are to be used. In any event, the government's determination of undue disruption of the usual market does not depend on the specific size of the high grade and prime western market alone, but rather on the larger market for all grades of zinc. Prices accepted as measured against the London Metal Exchange price (range in percent) The following are GAO's comments on the American Zinc Association's letter dated September 6, 1996. 1. The final report (app. II) reflects the numbers used by the Market Impact Committee. 2. The final report (app. II) shows that the government has revised its reporting. 3. Neither we nor the Market Impact Committee has asserted that the stockpile slab could substitute for the hot metal in the particular company's production of zinc oxide. Zinc oxide producers use slab zinc or zinc recovered from recycled materials as their feed. This particular company, as AZA pointed out, does not use slab as its feed. It uses hot metal that has not been converted into slab. Whether the prime western zinc refined by this company is first converted into slab or is kept as hot metal is not relevant to whether it is part of the high grade/prime western zinc market. 4. The final report (app. II) reflects that while the two sides now agree with each other's numbers, they do not agree on how those numbers are to be used. In any event, the government's determination of undue disruption of the usual market does not depend on the specific size of the high grade and prime western market alone, but rather on the larger market for all grades of zinc. Also, we revised the text to clarify the source of the numbers. 5. It is not our position that all zinc is the same, that all grades have the same uses, or that there is perfect substitution among the grades. Rather, our position is that the different grades of zinc can be considered to be in the same market because most producers can switch from one grade to another, some consumers (galvanizers) can use different grades for the same purpose, and prices of the different grades of zinc move in similar patterns. 6. As AZA points out, bids are rejected for many reasons. Some bids are "low-ball" and are rejected. However, we disagree with AZA's comment that DNSC rejects bids because there are sometimes more bids than tonnage available for sale. Under DNSC's current sales arrangements, there is no monthly limit as to the amount that can be sold, except as dictated by the yearly limit set forth in the annual congressional authorization. At the start of the current sales program for zinc, DNSC's solicitation publicized that the government was soliciting bids for approximately 8 million pounds, or 4,000 tons, a month. In October 1995, the amount per month was raised to 100 million pounds, or 50,000 tons, which was the entire authorization for the year. Despite AZA's assertion, DNSC said that it had not rejected bids because it had received more bids than the amount available for sale. DNSC indicated that the primary reason bids were rejected was because the price offered was too low and would not have maximized revenue for the government. 7. To clarify our point that DNSC is showing concern for the prices at which it sells zinc, we added figure 3 comparing DNSC's selling prices with those for spot market transactions in the commercial market. It shows that for the period cited, DNSC's sales prices were within 2 to 3 cents of the commercial market. Both DNSC and the Market Impact Committee believe that the difference is reasonable considering the different terms of sale for DNSC and commercial transactions. Comments from producers, consumers, and others on our draft report also support this position. DNSC's sales require the buyer to pay for transportation from the government depot, pay for the zinc before delivery, and accept the zinc on an "as-is" basis. Commercial transactions are made on a delivered price basis, provide for 30- to 40-day financing, and have the zinc's quality certified. 8. (See comment 5.) We have not concluded that all zinc is the same, but rather that different grades of zinc can be in the same market. Most producers can switch production from one grade of zinc to another. If a producer who is currently selling prime western or high grade zinc can get a better return on its investment by selling another grade, it may do so (after factoring in customer relationships that the producer may want to maintain). Thus, that producer's ability to switch production to another grade means that the price decrease required to absorb additional supply, such as stockpile sales, is less than it would be if all sellers of high grade or prime western had no alternative but to continue to supply high grade or prime western zinc. 9. (See comment 8.) As stated, we did not conclude that zinc itself is fungible in all, or even most, uses, at least not given the range of price differences in the market. There are, however, some substitution possibilities for some zinc consumers, and most zinc suppliers. This limits the degree that the price of one grade of zinc will rise or fall without affecting the prices of other grades. 10. We agree that where a statutory term is undefined, the interpretation that best reflects the intent of the Congress should generally be adopted. However, contrary to the AZA statement, nothing in the act's legislative history requires DNSC to adopt AZA's view of usual markets. Our final report reflects this position. 11. (See comments 8 and 9.) We did not state that consumers switch from higher to lower grades of zinc. However, in commenting on our draft report, one consumer (U.S. Zinc) that uses slab zinc to produce zinc oxide indicated that it could substitute stockpile high grade for imported special high grade for most of its needs. We did say that some consumers can switch from one grade of zinc to another and this is one reason for including different grades of zinc in the same market. The 38,000 tons of high grade or prime western zinc that some hot-dip galvanizers can use, and is currently being supplied by special high grade zinc, is an example of potential consumption substitution. The following are GAO's comments on letters from individual members of AZA. 1. For clarification, we have revised the text of the final report. 2. We did not conclude that zinc itself is fungible in all, or even most uses, at least not given the range of price differences in the market. There are, however, some substitution possibilities for some zinc consumers and most zinc suppliers. This limits the degree that the price of one grade of zinc will rise or fall without affecting the prices of other grades. Brad H. Hathaway, Associate Director Reginald L. Furr, Assistant Director J. Kenneth Brubaker, Evaluator-in-Charge Barbara L. Wooten, Evaluator Celia J. Thomas, Economist Carolyn S. Blocker, 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. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO reviewed issues surrounding a dispute between the American Zinc Association (AZA) and the federal government about the Department of Defense's (DOD) sale of excess zinc from the National Defense Stockpile, focusing on: (1) the government's basis for its interpretation of the statutory phrase "usual markets" as applied to the zinc sales program; and (2) DOD's efforts to not unduly disrupt the zinc market. GAO found that: (1) the statute that governs sales from the stockpile does not define the usual markets for stockpile materials; (2) accordingly, executive branch officials have discretion in identifying the relevant market for particular sales; (3) the Defense Logistics Agency's Defense National Stockpile Center (DNSC) and the Market Impact Committee, the intergovernmental group that is statutorily required to advise DNSC on the U.S. and foreign effects of sales from the stockpile, have concluded that for stockpile sales of zinc, the usual market is the total U.S. market for all grades of zinc, not just the grades being sold from the stockpile; (4) AZA considers the usual market to be the U.S. market for only the particular grades being sold from the stockpile; (5) GAO believes the government's determination has a sound basis; (6) the determination is based on practices that exist in the zinc industry, and it is consistent with the views of zinc market participants with whom GAO discussed this matter; (7) DNSC has policies and procedures for selling zinc without unduly disrupting the zinc market; (8) specifically, it has: (a) publicized its policy on timing of sales, amounts to be sold, and relation of sales prices to market prices; (b) provided plans to the appropriate congressional committees for approval; (c) sold less zinc than it was authorized to sell; and (d) given increased emphasis to selling at prices close to commercial market prices; (9) the government recognizes that stockpile sales can affect some sellers more than others, despite its attempts to minimize disruption; (10) the sales may, for example, have a greater impact on the sellers of the grades being sold from the stockpile, and a seller of one grade could be more affected than a seller of several grades; (11) the increase in zinc supplies can lower prices and cause particular producers or processors to lose business; (12) however, the Market Impact Committee contends that this is normal commercial activity, not an undue disruption; and (13) DNSC plans to continue to closely monitor prices when accepting bids to ensure that the market is not unduly disrupted.
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Before advanced computerized techniques, obtaining people's personal information usually required visiting courthouses or other government facilities to inspect paper-based public records, and information contained in product registrations and other business records was not generally available at all. Automation of the collection and aggregation of multiple-source data, combined with the ease and speed of its retrieval, have dramatically reduced the time and effort needed to obtain such information. Information resellers provide services based on these technological advances. We use the term "information resellers" to refer to businesses that vary in many ways but have in common the fact that they collect and aggregate personal information from multiple sources and make it available to their customers. These businesses do not all focus exclusively on aggregating and reselling personal information. For example, Dun & Bradstreet primarily provides information on commercial enterprises for the purpose of contributing to decision making regarding those enterprises. In doing so, it may supply personal information about individuals associated with those commercial enterprises. To a certain extent, the activities of information resellers may also overlap with the functions of consumer reporting agencies, also known as credit bureaus-- entities that collect and sell information about individuals' creditworthiness, among other things. To the extent that information resellers perform the functions of consumer reporting agencies, they are subject to legislation specifically addressing that industry, particularly the Fair Credit Reporting Act. Information resellers have now amassed extensive amounts of personal information about large numbers of Americans. They supply it to customers in both government and the private sector, typically via a centralized online resource. Generally, three types of information are collected: * Public records such as birth and death records, property records, motor vehicle and voter registrations, criminal records, and civil case files. * Publicly available information not found in public records but nevertheless publicly available through other sources, such as telephone directories, business directories, classified ads or magazines, Internet sites, and other sources accessible by the general public. * Nonpublic information derived from proprietary or nonpublic sources, such as credit header data, product warranty registrations, and other application information provided to private businesses directly by consumers. Figure 1 illustrates how these types of information are collected and aggregated into reports that are ultimately accessed by customers, including government agencies, through contractual agreements. No single federal law governs all use or disclosure of personal information. The major requirements for the protection of personal privacy by federal agencies come from the Privacy Act of 1974 and the privacy provisions of the E-Government Act of 2002. Federal use of personal information is governed primarily by the Privacy Act of 1974, which 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. It also defines "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 by placing a notice in the Federal Register identifying, among other things, the type of data collected, the types of individuals about whom information is collected, the intended uses of data, and procedures that individuals can use to review and correct personal information. Additional provisions of the Privacy Act are discussed in the report we are issuing today. The E-Government Act of 2002 requires that agencies conduct privacy impact assessments (PIA). A PIA is an analysis of how personal information is collected, stored, shared, and managed in a federal system. Under the E-Government Act and related OMB guidance, agencies must conduct PIAs (1) before developing or procuring information technology that collects, maintains, or disseminates information that is in a personally identifiable form; (2) before initiating any new data collections involving personal information that will be collected, maintained, or disseminated using information technology if the same questions are asked of 10 or more people; or (3) when a system change creates new privacy risks, for example, by changing the way in which personal information is being used. OMB is tasked with providing guidance to agencies on how to implement the provisions of the Privacy Act and the E-Government Act and has done so, beginning with guidance on the Privacy Act, issued in 1975. OMB's guidance on implementing the privacy provisions of the E-Government Act of 2002 identifies circumstances under which agencies must conduct PIAs and explains how to conduct them. The Privacy Act of 1974 is largely based on a set of internationally recognized principles for protecting the privacy and security of personal information known as the Fair Information Practices. A U.S. government advisory committee first proposed the practices in 1973 to address what it termed a poor level of protection afforded to privacy under contemporary law. The Organization for Economic Cooperation and Development (OECD) developed a revised version of the Fair Information Practices in 1980 that has, with some variation, formed the basis of privacy laws and related policies in many countries, including the United States, Germany, Sweden, Australia, New Zealand, and the European Union. The eight principles of the OECD Fair Information Practices are shown in table 1. The Fair Information Practices are not precise legal requirements. Rather, they provide a framework of principles for balancing the need for privacy with other public policy interests, such as national security, law enforcement, and administrative efficiency. Ways to strike that balance vary among countries and according to the type of information under consideration. The Departments of Justice, Homeland Security, State, and the Social Security Administration reported approximately $30 million in contractual arrangements with information resellers in fiscal year 2005. The agencies reported using personal information obtained from resellers for a variety of purposes including law enforcement, counterterrorism, fraud detection/prevention, and debt collection. In all, approximately 91 percent of agency uses of reseller data were in the categories of law enforcement (69 percent) or counterterrorism (22 percent). Figure 2 details contract values categorized by their reported use. The Department of Justice, which accounted for about 63 percent of the funding, mostly used the data for law enforcement and counterterrorism. DHS also used reseller information primarily for law enforcement and counterterrorism. State and SSA reported acquiring personal information from information resellers for fraud prevention and detection, identity verification, and benefit eligibility determination. In fiscal year 2005, the Department of Justice and its components reported approximately $19 million in acquisitions from a wide variety of information resellers, primarily for purposes related to law enforcement (75 percent) and counterterrorism (18 percent). The Federal Bureau of Investigation (FBI), which is Justice's largest user of information resellers, uses reseller information to, among other things, analyze intelligence and detect terrorist activities in support of ongoing investigations by law enforcement agencies and the intelligence community. In this capacity, resellers provide the FBI's Foreign Terrorist Tracking Task Force with names, addresses, telephone numbers, and other biographical and demographical information as well as legal briefs, vehicle and boat registrations, and business ownership records. The Drug Enforcement Administration (DEA), the second largest Justice user of information resellers in fiscal year 2005, obtains reseller data primarily to detect fraud in prescription drug transactions. Agents use reseller data to detect irregular prescription patterns for specific drugs and trace this information to the pharmacy and prescribing doctor. DHS and its components reported that they used information reseller data in fiscal year 2005 primarily for law enforcement purposes, such as developing leads on subjects in criminal investigations and detecting fraud in immigration benefit applications (part of enforcing the immigration laws). DHS's largest investigative component, the U.S. Immigration and Customs Enforcement, is also its largest user of personal information from resellers. It collects data such as address and vehicle information for criminal investigations and background security checks. U.S. Customs and Border Protection conducts queries on people, businesses, property, and corresponding links via a secure Internet connection. The Federal Emergency Management Agency uses an information reseller to detect fraud in disaster assistance applications. DHS also reported using information resellers in its counterterrorism efforts. For example, the Transportation Security Administration (TSA) used data obtained from information resellers as part of a test associated with the development of its domestic passenger prescreening program, called "Secure Flight." TSA plans for Secure Flight to compare domestic flight reservation information submitted to TSA by aircraft operators with federal watch lists of individuals known or suspected of activities related to terrorism. In an effort to ensure the accuracy of Social Security benefit payments, the Social Security Administration and its components reported approximately $1.3 million in contracts with information resellers in fiscal year 2005 for purposes relating to fraud prevention (such as skiptracing), confirming suspected fraud related to workers compensation payments, obtaining information on criminal suspects for follow-up investigations, and collecting debts. For example, the Office of the Inspector General (OIG), the largest user of information reseller data at SSA, uses several information resellers to assist investigative agents in detecting benefit abuse by Social Security claimants and to assist agents in locating claimants. Regional office agents may also use reseller data in investigating persons suspected of claiming disability fraudulently. The Department of State and its components reported approximately $569,000 in contracts with information resellers for fiscal year 2005, mainly to support investigations of passport-related activities. For example, several components accessed personal information to validate familial relationships, birth and identity data, and other information submitted on immigrant and nonimmigrant visa petitions. State also uses reseller data to investigate passport and visa fraud cases. Although the information resellers that do business with the federal agencies we reviewed have taken steps to protect privacy, these measures were not fully consistent with the Fair Information Practices. Most significantly, the first four principles, relating to collection limitation, data quality, purpose specification, and use limitation, are largely at odds with the nature of the information reseller business. These principles center on limiting the collection and use of personal information and require data accuracy based on that limited purpose and limited use of the information. However, the information reseller industry presupposes that the collection and use of personal information is not limited to specific purposes, but instead can be made available to multiple customers for multiple purposes. Resellers make it their business to collect large amounts of personal information and to combine that information in new ways so that it serves purposes other than those for which it was originally collected. Further, they are limited in their ability to ensure the accuracy, currency, or relevance of their holdings, because these qualities may vary based on customers' varying uses. Information reseller policies and procedures were consistent with aspects of the remaining four Fair Information Practices. Large resellers reported implementing a variety of security safeguards, such as stringent customer credentialing, to improve protection of personal information. Resellers also generally provided public notice of key aspects of their privacy policies and practices (relevant to the openness principle), and reported taking actions to ensure internal compliance with their own privacy policies (relevant to the accountability principle). However, while information resellers generally allow individuals limited access to their personal information, they generally limit the opportunity to correct or delete inaccurate information contained in reseller databases (relevant to the individual participation principle). In brief, reseller practices compare with the Fair Information Practices as follows: Collection limitation. Resellers do not limit collections to specific purposes but collect large amounts of personal information. In practice, resellers are limited in the personal information that they can obtain by laws that apply to specific kinds of information (for example, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act, which restrict the collection, use, and disclosure of certain consumer and financial data). However, beyond specific legal restrictions, information resellers generally attempt to aggregate large amounts of personal information so as to provide useful information to a broad range of customers. Resellers do not make provisions to notify the individuals involved when they obtain personal data from their many sources, including public records. Concomitantly, individuals are not afforded an opportunity to express or withhold their consent when the information is collected. Resellers said they believe it is not appropriate or practical for them to provide notice or obtain consent from individuals because they do not collect information directly from them. Under certain conditions, some information resellers offer consumers an "opt-out" option--that is, individuals may request that information about themselves be suppressed from selected databases. However, resellers generally offer this option only with respect to certain types of information, such as marketing products, and only under limited circumstances, such as if the individual is a law enforcement officer or a victim of identity theft. Two resellers stated their belief that under certain circumstances it may not be appropriate to provide consumers with opportunities for opting out, such as when information products are designed to detect fraud or locate criminals. These resellers stated that if individuals were permitted to opt out of fraud prevention databases, some of those opting out could be criminals, which would undermine the effectiveness and utility of these databases. Data quality. Information resellers reported taking steps to ensure that they generally receive accurate data from their sources and that they do not introduce errors in the process of transcribing and aggregating information. However, they generally provide their customers with exactly the same data they obtain and do not claim or guarantee that the information is accurate for a specific purpose. Some resellers' privacy policies state that they expect their data to contain some errors. Further, resellers varied in their policies regarding correction of data determined to be inaccurate as obtained by them. One reseller stated that it would delete information in its databases that was found to be inaccurate. Another stated that even if an individual presents persuasive evidence that certain information is in error, the reseller generally does not make changes if the information comes directly from an official public source (unless instructed to do so by that source). Because they are not the original source of the personal information, information resellers generally direct individuals to the original sources to correct any errors. Several resellers stated that they would correct any identified errors introduced through their own processing and aggregation of data. Purpose specification. While information resellers specify purpose in a general way by describing the types of businesses that use their data, they generally do not designate specific intended uses for each of their data collections. Resellers generally obtain information that has already been collected for a specific purpose and make that information available to their customers, who in turn have a broader variety of purposes for using it. For example, personal information originally submitted by a customer to register a product warranty could be obtained by a reseller and subsequently made available to another business or government agency, which might use it for an unrelated purpose, such as identity verification, background checking, or marketing. It is difficult for resellers to provide greater specificity because they make their data available to many customers for a wide range of legitimate purposes. As a result, the public is made aware only of the broad range of potential uses to which their personal information may be put, rather than a specific use, as envisioned in the Fair Information Practices. Use limitation. Because information reseller purposes are specified very broadly, it is difficult for resellers to ensure that use of the information in their databases is limited. As previously discussed, information reseller data may have many different uses, depending on the types of customers involved. However, resellers do take steps to ensure that their customers' use of personal information is limited to legally sanctioned purposes. Information resellers pass this responsibility to their customers through licensing agreements and contract terms and agreements. Customers are usually required to certify that they will only use information obtained from the reseller in ways permissible under laws such as the Gramm-Leach- Bliley Act and the Driver's Privacy Protection Act. The information resellers used by the federal agencies we reviewed generally also reported taking steps to ensure that access to certain sensitive types of personally identifiable information--particularly Social Security numbers--is limited to certain customers and uses. Security safeguards. While we did not evaluate the effectiveness of resellers' information security programs, resellers we spoke with said they employ various safeguards to protect consumers' personal information. They implemented these safeguards in part for business reasons but also because federal laws require such protections. Resellers describe these safeguards in various policy statements, such as online and data privacy policies or privacy statements posted on Internet sites. Given recent incidents, large information resellers also reported having recently taken steps to improve their safeguards against unauthorized access. Two resellers reported that they had taken steps to improve their procedures for authorizing customers to have access to sensitive information, such as Social Security numbers. For example, one reseller established a credentialing task force with the goal of centralizing its customer credentialing process. In addition to enhancing safeguards on customer access authorizations, resellers have instituted a variety of other security controls. For example, three large information resellers have implemented physical safeguards at their data centers, such as continuous monitoring of employees entering and exiting facilities, monitoring of activity on customer accounts, and strong authentication of users entering and exiting secure areas within the data centers. Openness. To address openness, information resellers took steps to inform the public about key aspects of their privacy policies. They used means such as company Web sites and brochures to inform the public of specific policies and practices regarding the collection and use of personal information. Reseller Web sites also generally provided information about the types of information products the resellers offered--including product samples--as well as general descriptions about the types of customers served. Individual participation. Although information resellers allow individuals access to their personal information, this access is generally limited. Resellers may provide an individual a report containing certain types of information--such as compilations of public records information--however, the report may not include all information maintained by the resellers about that individual. Further, because they obtain their information from other sources, most resellers have limited provisions for correcting or deleting inaccurate information contained in their databases. If individuals find inaccuracies in such reports, they generally cannot have these corrected by the resellers. Resellers, as a matter of policy, do not make corrections to data obtained from other sources, even if the individual provides evidence that the data are wrong. Instead, they direct individuals wishing to make corrections to contact the original sources of the data. Several resellers stated that they would correct any identified errors resulting from their own processing and aggregation of data (for example, transposing numbers or letters or incorrectly aggregating information). Accountability. Although information resellers' overall application of the Fair Information Practices varied, each reseller we spoke with reported actions to ensure compliance with its own privacy policies. For example, resellers reported designating chief privacy officers to monitor compliance with internal privacy policies and applicable laws. Information resellers reported that these officials had a range of responsibilities aimed at ensuring accountability for privacy policies, such as establishing consumer access and customer credentialing procedures, monitoring compliance with federal and state laws, and evaluating new sources of data (for example, cell phone records). Although there are no industrywide standards requiring resellers to conduct periodic audits of their compliance with privacy policies, one information reseller reported using a third party to conduct privacy audits on an annual basis. Using a third party to audit compliance with privacy policies further helps to ensure that an information reseller is accountable for the implementation of its privacy practices. In commenting on excerpts of our draft report, several resellers raised concerns regarding the version of the Fair Information Practices we used to assess their practices, stating their view that it applied more appropriately to organizations that collect information directly from consumers and that they were not legally bound to adhere to the Fair Information Practices. As discussed in our report, the version of the Fair Information Practices we used has been widely adopted and cited within the federal government as well as internationally. Further, we use it as an analytical framework for identifying potential privacy issues for further consideration by Congress--not as criteria for strict compliance. Resellers also stated that the draft did not take into account their view that public record information is open to all for any use not prohibited by state or federal law. However, we believe it is not clear that individuals give up all privacy rights to personal information contained in public records, and we believe it is important to assess the status of privacy protections for all personal information being offered commercially to the government so that informed policy decisions can be made about the appropriate balance between resellers' services and the public's right to privacy. In our report we suggest that Congress consider the extent to which information resellers should adhere to the Fair Information Practices. Agencies generally lacked policies that specifically address their use of personal information from commercial sources (although DHS Privacy Office officials have reported that they are drafting such a policy), and agency practices for handling personal information acquired from information resellers did not always fully reflect the Fair Information Practices. Specifically, agency practices generally reflected four of the eight Fair Information Practices. As table 2 shows, the collection limitation, data quality, use limitation, and security safeguards principles were generally reflected in agency practices. For example, several agency components (specifically, law enforcement agencies such as the FBI and the U.S. Secret Service) reported that in practice, they generally corroborate information obtained from resellers when it is used as part of an investigation. This practice is consistent with the principle of data quality. Agency policies and practices with regard to the other four principles were uneven. Specifically, agencies did not always have policies or practices in place to address the purpose specification, openness, and individual participation principles with respect to reseller data. The inconsistencies in applying these principles as well as the lack of specific agency policies can be attributed in part to ambiguities in OMB guidance regarding the applicability of the Privacy Act to information obtained from resellers. Further, privacy impact assessments, a valuable tool that could address important aspects of the Fair Information Practices, are not conducted often. Finally, components within each of the four agencies did not consistently hold staff accountable by monitoring usage of personal information from information resellers and ensuring that it was appropriate; thus, their application of the accountability principle was uneven. Agency procedures generally reflected the collection limitation, data quality, use limitation, and security safeguards principles. Regarding collection limitation, for most law-enforcement and counterterrorism purposes (which accounted for 90 percent of usage in fiscal year 2005), agencies generally limited their personal data collection in that they reported obtaining information only on specific individuals under investigation or associates of those individuals. Regarding data quality, agencies reported taking steps to mitigate the risk of inaccurate information reseller data by corroborating information obtained from resellers. Agency officials described the practice of corroborating information as a standard element of conducting investigations. Likewise, for non-law- enforcement use, such as debt collection and fraud detection and prevention, agency components reported that they mitigated potential problems with the accuracy of data provided by resellers by obtaining additional information from other sources when necessary. As for use limitation, agency officials said their use of reseller information was limited to distinct purposes, which were generally related to law enforcement or counterterrorism. Finally, while we did not assess the effectiveness of information security at any of these agencies, we found that all four had measures in place intended to safeguard the security of personal information obtained from resellers. The purpose specification, openness, and individual participation principles stipulate that individuals should be made aware of the purpose and intended uses of the personal information being collected about them, and, if necessary, have the ability to access and correct their information. These principles are reflected in the Privacy Act requirement for agencies to publish in the Federal Register, "upon establishment or revision, a notice of the existence and character of a system of records." This notice is to include, among other things, the categories of records in the system as well as the categories of sources of records. In a number of cases, agencies using reseller information did not adhere to the purpose specification or openness principles in that they did not notify the public that they were using such information and did not specify the purpose for their data collections. Agency officials said that they generally did not prepare system-of-records notices that would address these principles because they were not required to do so by the Privacy Act. The act's vehicle for public notification--the system-of-records notice--becomes binding on an agency only when the agency collects, maintains, and retrieves personal data in the way defined by the act or when a contractor does the same thing explicitly on behalf of the government. Agencies generally did not issue system-of-records notices specifically for their use of information resellers largely because information reseller databases were not considered "systems of records operated by or on behalf of a government agency" and thus were not considered subject to the provisions of the Privacy Act. OMB guidance on implementing the Privacy Act does not specifically refer to the use of reseller data or how it should be treated. According to OMB and other agency officials, information resellers operate their databases for multiple customers, and federal agency use of these databases does not amount to the operation of a system of records on behalf of the government. Further, agency officials stated that merely querying information reseller databases did not amount to agency "maintenance" of the personal information being queried and thus also did not trigger the provisions of the Privacy Act. In many cases, agency officials considered their use of resellers to be of this type--essentially "ad hoc" querying or "pinging" of reseller databases for personal information about specific individuals, which they believed they were not doing in connection with a formal system of records. In other cases, however, agencies maintained information reseller data in systems for which system-of-records notices had been previously published. For example, law enforcement agency officials stated that, to the extent they retain the results of reseller data queries, this collection and use is covered by the system of records notices for their case file systems. However, in preparing such notices, agencies generally did not specify that they were obtaining information from resellers. Among system of records notices that were identified by agency officials as applying to the use of reseller data, only one--TSA's system of records notice for the test phase of its Secure Flight program--specifically identified the use of information reseller data. In several of these cases, agency sources for personal information were described only in vague terms, such as "private organizations," "other public sources," or "public source material," when information was being obtained from information resellers. The inconsistency with which agencies specify resellers as a source of information in system-of-records notices is due in part to ambiguity in OMB guidance, which states that "for systems of records which contain information obtained from sources other than the individual to whom the records pertain, the notice should list the types of sources used." Although the guidance is unclear what would constitute adequate disclosure of "types of sources," OMB and DHS Privacy Office officials agreed that to the extent that reseller data is subject to the Privacy Act, agencies should specifically identify information resellers as a source and that merely citing public records information does not sufficiently describe the source. Aside from certain law enforcement exemptions to the Privacy Act, adherence to the purpose specification and openness principles is critical to preserving a measure of individual control over the use of personal information. Without clear guidance from OMB or specific policies in place, agencies have not consistently reflected these principles in their collection and use of reseller information. As a result, without being notified of the existence of an agency's information collection activities, individuals have no ability to know that their personal information could be obtained from commercial sources and potentially used as a basis, or partial basis, for taking action that could have consequences for their welfare. PIAs can be an important tool to help agencies to address openness and purpose specification principles early in the process of developing new information systems. To the extent that PIAs are made publicly available, they provide explanations to the public about such things as the information that will be collected, why it is being collected, how it is to be used, and how the system and data will be maintained and protected. However, few agency components reported developing PIAs for their systems or programs that make use of information reseller data. As with system-of-records notices, agencies often did not conduct PIAs because officials did not believe they were required. Current OMB guidance on conducting PIAs is not always clear about when they should be conducted. According to guidance from OMB, a PIA is required by the E-Government Act when agencies "systematically incorporate into existing information systems databases of information in identifiable form purchased or obtained from commercial or public sources." However, the same guidance also instructs agencies that "merely querying a database on an ad hoc basis does not trigger the PIA requirement." Reported uses of reseller data were generally not described as a "systematic" incorporation of data into existing information systems; rather, most involved querying a database and in some cases retaining the results of these queries. OMB officials stated that agencies would need to make their own judgments on whether retaining the results of searches of information reseller databases constituted a "systematic incorporation" of information. The DHS Privacy Office has been working to clarify guidance on the use of reseller information in general as well as the specific requirements for conducting PIAs. DHS recently issued guidance requiring PIAs to be conducted whenever reseller data are involved. However, although the DHS guidance clearly states that PIAs are required when personally identifiable information is obtained from a commercial source, it also states that "merely querying such a source on an ad hoc basis using existing technology does not trigger the PIA requirement." Like OMB's guidance, the DHS guidance is not clear, because agency personnel are left to make individual determinations as to whether queries are "on an ad hoc basis." Until PIAs are conducted more thoroughly and consistently, the public is likely to remain incompletely informed about agency purposes and uses for obtaining reseller information. In our report we recommended that the Director, OMB, revise privacy guidance to clarify the applicability of requirements for public notices and privacy impact assessments to agency use of personal information from resellers and direct agencies to review their uses of such information to ensure it is explicitly referenced in privacy notices and assessments. Further, we recommended that agencies develop specific policies for the use of personal information from resellers. According to the accountability principle, individuals controlling the collection or use of personal information should be accountable for ensuring the implementation of the Fair Information Practices. This means that agencies should take steps to ensure that they use personal information from information resellers appropriately. Agencies described using activities to oversee their use of reseller information that were largely based on trust in the individual user to use the information appropriately, rather than management oversight of usage details. For example, in describing controls placed on the use of commercial data, officials from component agencies identified measures such as instructing users that reseller data are for official use only, and requiring users to sign statements attesting 1) to their need to access information reseller databases and 2) that their use will be limited to official business. Additionally, agency officials reported that their users are required to select from a list of vendor-defined "permissible purposes" (for example, law enforcement, transactions authorized by the consumer) before conducting a search on reseller databases. While these practices appear consistent with the accountability principle, they are focused on individual user responsibility instead of monitoring and oversight. Agencies did not have practices in place to obtain reports from resellers that would allow them to monitor usage of reseller databases at a detailed level. Although agencies generally receive usage reports from the information resellers, these reports are designed primarily for monitoring costs. Further, these reports generally contained only high-level statistics on the number of searches and databases accessed, not the contents of what was actually searched, thus limiting their utility in monitoring usage. To the extent that federal agencies do not implement methods such as user monitoring or auditing of usage records, they provide limited accountability for their usage of information reseller data and have limited assurance that the information is being used appropriately. In summary, services provided by information resellers are important to federal agency functions such as law enforcement and fraud protection and identification. Resellers have practices in place to protect privacy, but these practices are not fully consistent with the Fair Information Practices, which resellers are not legally required to follow. Among other things, resellers collect large amounts of information about individuals without their knowledge or consent, do not ensure that the data they make available are accurate for a given purpose, and generally do not make corrections to the data when errors are identified by individuals. Information resellers believe that application of the relevant principles of the Fair Information Practices is inappropriate or impractical in these situations. However, given that reseller data may be used for a variety of purposes, determining the appropriate degree of control or influence individuals should have over the way in which their personal information is obtained and used--as envisioned in the Fair Information Practices--is critical. As Congress weighs various legislative options, adherence to the Fair Information Practices will be an important consideration in determining the appropriate balance between the services provided by information resellers to customers such as government agencies and the public's right to privacy. While agencies take steps to adhere to Fair Information Practices such as the collection limitation, data quality, use limitation, and security safeguards principles, they have not taken all the steps they could to reflect others--or to comply with specific Privacy Act and e-Government Act requirements--in their handling of reseller data. Because OMB privacy guidance does not clearly address information reseller data, agencies are left largely on their own to determine how to satisfy legal requirements and protect privacy when acquiring and using reseller data. Without current and specific guidance, the government risks continued uneven adherence to important, well-established privacy principles and lacks assurance that the privacy rights of individuals are adequately protected. Mr. Chairmen, this concludes my testimony today. I would be happy to answer any questions you or other members of the subcommittees may have. If you have any questions concerning this testimony, please contact Linda Koontz, Director, Information Management, at (202) 512-6240, or [email protected]. Other individuals who made key contributions to this testimony were Mathew Bader, Barbara Collier, John de Ferrari, Pamlutricia Greenleaf, David Plocher, Jamie Pressman, and Amos Tevelow. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Federal agencies collect and use personal information for various purposes from information resellers--companies that amass and sell data from many sources. GAO was asked to testify on its report being issued today on agency use of reseller data. For that report, GAO was asked to determine how the Departments of Justice, Homeland Security, and State and the Social Security Administration use personal data from resellers and to review the extent to which information resellers' policies and practices reflect the Fair Information Practices, a set of widely accepted principles for protecting the privacy and security of personal data. GAO also examined agencies' policies and practices for handling personal data from resellers to determine whether these reflect the Fair Information Practices. In fiscal year 2005, the Departments of Justice, Homeland Security, and State and the Social Security Administration reported that they used personal information obtained from resellers for a variety of purposes, including performing criminal investigations, locating witnesses and fugitives, researching assets held by individuals of interest, and detecting prescription drug fraud. The agencies spent approximately $30 million on contractual arrangements with resellers that enabled the acquisition and use of such information. About 91 percent of the planned fiscal year 2005 spending was for law enforcement (69 percent) or counterterrorism (22 percent). The major information resellers that do business with the federal agencies GAO reviewed have practices in place to protect privacy, but these measures are not fully consistent with the Fair Information Practices. For example, the principles that the collection and use of personal information should be limited and its intended use specified are largely at odds with the nature of the information reseller business, which is based on obtaining personal information from many sources and making it available to multiple customers for multiple purposes. Resellers believe it is not appropriate for them to fully adhere to these principles because they do not obtain their information directly from individuals. Nonetheless, in many cases, resellers take steps that address aspects of the Fair Information Practices. For example, resellers reported that they have taken steps recently to improve their security safeguards, and they generally inform the public about key privacy principles and policies. However, resellers generally limit the extent to which individuals can gain access to personal information held about themselves, as well as the extent to which inaccurate information contained in their databases can be corrected or deleted. Agency practices for handling personal information acquired from information resellers did not always fully reflect the Fair Information Practices. That is, for some of these principles, agency practices were uneven. For example, although agencies issued public notices when they systematically collected personal information, these notices did not always notify the public that information resellers were among the sources to be used. This practice is not consistent with the principle that individuals should be informed about privacy policies and the collection of information. Contributing to the uneven application of the Fair Information Practices are ambiguities in guidance from the Office of Management and Budget regarding the applicability of privacy requirements to federal agency uses of reseller information. In addition, agencies generally lack policies that specifically address these uses.
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In 1994, U.S. consumers spent over $600 billion on food--about $334 billion for consumption at home and $268 billion for consumption outside the home. To regulate the safety of this food, the federal government spends over $1 billion annually, and state governments and industry spend unknown additional amounts. However, foodborne illnesses still occur and are a continuing health and economic concern. The Centers for Disease Control and Prevention (CDC), in the Department of Health and Human Services, estimates that over 6 million illnesses and about 9,000 deaths resulting from foodborne pathogens occur each year.These illnesses and deaths are very costly. For example, FSIS estimated that nearly 5 million illnesses and about 4,000 deaths were caused by meat and poultry products in 1993, at a cost estimated to be from $4.5 billion to $7.5 billion. Twelve federal agencies implement as many as 35 food safety and related laws. The responsibilities of these agencies are outlined in appendix I. FDA, which has primary responsibility for the safety of all foods except meat and poultry, carries out its responsibility through physical inspections of food-processing plants. FSIS, which has primary responsibility for meat and poultry safety, carries out its responsibility largely through organoleptic inspections of meat and poultry--that is, using sight, smell, and touch--to determine the wholesomeness of products at slaughter plants. These carcass-by-carcass inspections date back to the turn of the century. These continuous inspections at slaughter plants, along with FSIS' daily inspections of processing plants, account for about one-half of the federal government's expenditures for food safety. In 1992, we reported that this historic approach to food safety is not well suited to preventing the largest current threat to the food safety system--microbiological contamination. We suggested moving to HACCP systems. In December 1995, FDA issued a final regulation, effective in December 1997, that requires fish- and seafood-processing plants to establish HACCP systems. FSIS' proposed HACCP regulation for meat and poultry was published in February 1995. The final regulation is expected in early 1996, and FSIS plans for it to become effective in 1997 and be phased in over a period of years. The National Marine Fisheries Service (NMFS) issued its final regulation for its ongoing, voluntary HACCP-based inspection program for fish and seafood products in July 1992. As of February 1996, 88 plants were being inspected under this program. Plants are charged a fee for the inspections. The overall structure of and approach taken by the federal food safety system is much the same as it was in 1989. FDA and FSIS are still primarily responsible for regulating food safety. Both agencies continue to physically inspect food-processing plants and products to detect food safety hazards. FDA's inspection frequency continues to be constrained by resources--in 1989, the agency inspected each plant, on average, once every 3 to 5 years. Currently, FDA plans to inspect food-processing plants once every 8 years, on average. FSIS continues to rely primarily on daily organoleptic inspections to detect contamination in meat and poultry. FSIS' organoleptic methods are not designed to detect microbiological contamination--the most serious threat to human health from meat and poultry. Both agencies continue to conduct some chemical analyses of products to detect chemical contamination. While the overall structure of and approach taken by the federal food safety system have not changed, FDA and FSIS have both experienced some internal reorganizations in recent years. FDA, for example, reorganized its Center for Food Safety and Applied Nutrition along commodity lines--so there is now the Office of Seafood, for example--rather than by scientific discipline, such as microbiology. Similarly, during its reorganization, USDA transferred all of its food safety activities to FSIS. For example, USDA transferred to FSIS responsibility for (1) inspecting egg products from the Agricultural Marketing Service and for (2) identifying research needs and coordinating efforts among government, industry, and academia on food safety in animal production from the Animal and Plant Health Inspection Service. In addition to FDA and FSIS, 10 other agencies have limited food safety responsibilities and have had no or limited change in their duties since 1989. Table 1 sets forth the 12 agencies and their responsibilities. While the agencies' structures and approaches to food safety have remained essentially the same over the last 5 years, new congressional mandates and the growth of the food sector have resulted in increased budgets and greater workloads. For example, in 1990, the Congress enacted food-labeling legislation that requires food companies to provide nutrition information so that consumers can make informed choices. FDA and FSIS were both involved in developing and overseeing these new requirements. In addition, from 1989 through 1994, the food sector grew by about $89 billion (about $50 billion in constant dollars), and there has been a large increase in the number of animals slaughtered. From fiscal year 1989 through fiscal year 1994, the 12 agencies' budgets increased from $851 million to nearly $1.2 billion, an increase of about $170 million when adjusted for inflation. For FDA and FSIS--the two principal food safety agencies--funds for food safety increased by about 37 percent and about 14 percent, respectively, in constant 1989 dollars. The remaining 10 agencies either lost funding or had small increases. While responsibilities and budgets increased over this period, staffing remained constant at about 17,000 employees. Table 2 gives information on funding and staffing levels for the 12 agencies for fiscal years 1989 and 1994. In the face of increased responsibilities and workloads, FDA and FSIS have reduced the number of food safety inspections and shortened the length of the inspections in each plant, respectively. While FDA has had an increase in its number of inspectors, it performed fewer food safety inspection activities than it did in 1989. Although the number of food-processing plants for which FDA has inspection responsibility remains about the same, at 53,000, other activities for which it has responsibility, such as ones involving blood banks and plants that manufacture medical devices, have higher priority than inspecting food-processing plants. To meet its increased responsibilities, FDA reduced the number of food safety inspections in its operating plan from about once every 3 to 5 years, on average, in 1989 to about once every 8 years in 1994. As a result, the number of food plants FDA inspected dropped from 6,368 in 1989 to 4,799 in 1994. FSIS' workload also increased because of the growth in the number of animals being slaughtered. Because its staff has not increased sufficiently to carry out carcass-by-carcass and bird-by-bird inspections under its traditional practices, FSIS has taken a number of steps, including having supervisors conduct slaughter inspections, reducing the amount of time spent on inspecting processing plants, and increasing the number of processing plants that inspectors cover. Table 3 shows the increase in the number of animals slaughtered. Three federal food safety agencies are embracing HACCP programs, which will fundamentally alter the federal food safety system and industry operations for ensuring meat, poultry, and seafood safety. FDA and FSIS have proposed mandatory HACCP systems for meat, poultry, and seafood. NMFS has adopted a voluntary HACCP-based inspection program for seafood. In contrast to the current system, these initiatives emphasize the detection and prevention of microbiological contamination by the industry and call for the industry's increased accountability for food safety. Federal agencies' inspection roles will also change--in addition to detecting safety hazards, the agencies will oversee the plants' HACCP systems. Under these HACCP initiatives, industry is responsible for identifying the points where any microbiological, chemical, and physical safety hazard may occur in food production--known as the critical control points--and establishing procedures at those control points to detect and/or prevent such hazards. In addition, plants are required to document their activities, including establishing a record of actions taken to address any safety hazards. FDA's and FSIS' current inspection systems concentrate on detecting physical contamination and abnormalities and plants' compliance with good manufacturing practices and sanitation procedures. While each agency performs some testing for microbiological and chemical contamination, these activities are currently a small part of the overall inspection activities. In contrast, HACCP systems call for plants to employ quality control procedures designed to identify opportunities for preventing all safety hazards, including microbiological contamination--the most serious food safety threat. FDA and FSIS plan to continue their inspection activities. In addition, the agencies will oversee the plants' HACCP systems to ensure that each plant implements and operates an effective system. The scientific community has specified that in order for HACCP systems to be effective, there must be two components: (1) Each plant in the industry must implement an effective HACCP plan, and (2) federal agencies must inspect each plant's HACCP-based quality control system to ensure that it is working as designed. Furthermore, to ensure the systems' integrity, the National Academy of Sciences has recommended that the level of federal inspections be based on the compliance history of each plant and that the risk of the product be based on the safety hazards of each step in production. However, because of FDA's resource constraints and FSIS' regulatory restrictions, the agencies' ability to inspect plants on the basis of the risk they pose is limited. Specifically, FDA plans to inspect seafood plants once every 2 years, on average, regardless of their compliance history, and plants producing the highest-risk seafood once per year. While individual inspectors may visit noncompliant plants more frequently, other plants will not be inspected as a result because of limited inspection resources. Because FSIS is required by law to have continuous inspections of slaughtering plants and daily inspections of processing plants, the agency must continue its daily and carcass-by-carcass inspections. To take into account food safety risks in processing plants, FSIS plans to consider risk when scheduling the daily tasks that inspectors will perform. In addition, in slaughtering plants, FSIS plans to initiate pilot projects to explore other ways to perform its mandated carcass-by-carcass inspections with fewer resources. Unlike these other agencies, NMFS bases the frequency of inspections, for seafood plants participating in the voluntary HACCP-based inspection program, on the risk that they present. NMFS determines the riskiness of the plants as indicated by past inspections and the inherent risk associated with the product. As plants achieve and maintain compliance with NMFS' standards, NMFS reduces the frequency of its inspections. The higher the plant's NMFS rating for safety, the fewer inspections the plant receives and the lower the cost to the plant, since plants pay for the inspection. Plants with the best safety rating are inspected every 6 months, while plants with the lowest safety rating are inspected every 2 weeks. Plants that are not able to maintain compliance with NMFS' program standards are dropped from the program or placed under daily inspection while deficiencies are being corrected. Of the about 300 seafood plants that participate in NMFS' voluntary inspection programs, 88 seafood plants are under the HACCP program. These plants, like the approximately 4,800 total seafood plants, are also subject to FDA's inspections. Appendix II provides a comparison of some aspects of NMFS' and FDA's seafood HACCP initiatives. We provided copies of a draft of this report to each of the 12 agencies for its review and comment. Seven of these agencies generally agreed with the information discussed, and provided clarifying comments and technical corrections, which we have incorporated into the report. Four agencies did not have any comments. FDA disagreed with our characterization of HACCP systems as a fundamental change for the agency. FDA officials, including the Strategic Manager for HACCP Policy, viewed the changes planned for the seafood inspection program as a continuation of historical efforts by the agency and cited their low-acid canned food program and their issuance of good manufacturing practices as examples. While we recognize that FDA's approach to food safety has evolved over the years, we continue to believe that the move to HACCP represents a significant shift in FDA's policy. We further believe that our characterization of this shift is consistent with FDA's previous characterizations. In particular, in its HACCP rulemaking proposal, FDA stated that it was responding to the need for a "new paradigm" for seafood inspection, one that provides an ongoing, scientifically established system of intensive, preventative monitoring. We believe that taken in context, the HACCP-related changes being implemented by FSIS, FDA, and NMFS do represent a fundamental shift in the federal government's approach to food safety. To obtain information on agencies' responsibilities, funding, staffing, and workloads, we asked the 12 agencies involved in food safety to provide data similar to the 1989 data presented in our two-volume 1990 report. We did not verify the accuracy of these data. We also visited five seafood-processing plants that NMFS had identified to understand and observe how its user-fee, voluntary HACCP-based inspection program worked. In addition, we examined other reports and studies on meat, poultry, and seafood inspection and used prior GAO studies. We interviewed agency and industry officials and obtained additional data from FDA, FSIS, and NMFS concerning HACCP proposals, plans, and operations. We attended public meetings on FSIS' HACCP proposal. We conducted our work at agencies' headquarters in the Washington, D.C., area and in NMFS' Western Inspection Region. We performed our work from July 1995 through March 1996 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Senate Committee on Agriculture, Nutrition, and Forestry, and other appropriate congressional committees. We will also send copies of this report to the Secretaries of Agriculture, Commerce, Health and Human Services, and the Treasury; the Administrator, Environmental Protection Agency; and the Commissioner, Federal Trade Commission. We will also make copies available to others upon request. Please contact me at (202) 512-5138 if you or your staff have any questions. Major contributors to this report are listed in appendix III. Food and Drug Administration (FDA) is responsible for ensuring that domestic and imported food products (except meat, poultry, and processed egg products) are safe, wholesome, and properly labeled. The Federal Food, Drug, and Cosmetic Act, as amended, is the major law relating to FDA's food safety and quality activities. The act also authorizes FDA to maintain surveillance of all animal drugs, feeds, and veterinary devices to ensure that drugs and feeds used in animals are safe, are properly labeled, and produce no human health hazards when used in food-producing animals. Food Safety and Inspection Service (FSIS) is responsible for ensuring that meat, poultry, and processed egg products moving in interstate and foreign commerce are safe, wholesome, and correctly marked, labeled, and packaged. FSIS carries out its meat and poultry inspection responsibilities under the Federal Meat Inspection Act, as amended, and the Poultry Products Inspection Act, as amended. Amendments to these acts require that meat inspected by state inspection programs and imported meat are to meet inspection standards "at least equal to" those of the federal program. Furthermore, the Department of Agriculture Reorganization Act of 1994 transferred to FSIS food safety inspections previously being performed by other organizations within the U.S. Department of Agriculture (USDA). Animal and Plant Health Inspection Service (APHIS) is responsible for ensuring the health and care of animals and plants. APHIS has no statutory authority for public health issues unless the concern to public health is also a concern to animal or plant health. APHIS identifies research and data needs and coordinates research programs designed to protect the animal industry against pathogens or diseases that are a risk to humans to improve food safety. Grain Inspection, Packers and Stockyards Administration (GIPSA) is responsible for sharing information with FDA concerning food safety and for ensuring the quality of grains for marketing. For example, GIPSA covers the inspecting of corn, sorghum, and rice for aflatoxin, which causes human illness. GIPSA caries out its responsibilities under the U.S. Grain Standards Act, as amended, and the Agricultural Marketing Act of 1946, as amended. Agricultural Marketing Service (AMS) is primarily responsible for establishing the standards of quality and condition and for grading the quality of dairy, egg, fruit, meat, poultry, seafood, and vegetable products. As part of this grading process, AMS considers safety factors, such as the cleanliness of the product. AMS carries out its wide array of programs to facilitate marketing under more than 30 statutes--for example, the Agricultural Marketing Agreement Act of 1937, as amended; the Agricultural Marketing Act of 1946, as amended; the Egg Products Inspection Act, as amended; the Export Apple and Pear Act, as amended; and the Export Grape and Plum Act, as amended. Agricultural Research Service (ARS) is responsible for conducting a wide range of research relating to USDA's mission including food safety research. ARS carries out its programs under the Department of Agriculture Organic Act of 1862; the Research and Marketing Act of 1946, as amended; and the National Agricultural Research, Extension, and Teaching Policy Act of 1977, as amended. National Marine Fisheries Service (NMFS), within the Department of Commerce, conducts its voluntary seafood safety and quality inspection programs under the Agricultural Marketing Act of 1946, as amended, and the Fish and Wildlife Act of 1956, as amended. In addition to the inspection and certification services provided for fishery products for human consumption, NMFS also provides inspection and certification services for animal feeds and pet foods containing a fishery base. Environmental Protection Agency (EPA) is responsible for regulating all pesticide products sold or distributed in the country and setting maximum allowed residue levels--tolerances--for pesticides on food commodities and animal feed. EPA's activities are conducted under the Federal Insecticide, Fungicide, and Rodenticide Act, as amended, and the Federal Food, Drug, and Cosmetic Act, as amended. Centers for Disease Control and Prevention (CDC) is charged with protecting the nation's public health by providing leadership and direction in preventing and controlling diseases and responding to public health emergencies. CDC engages in public health activities related to food safety under the general authority of the Public Health Service Act, as amended. Federal Trade Commission (FTC) enforces the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices. FTC's food safety objective is to prevent consumer deception through the misrepresentation of food. U.S. Customs Service (Customs) is responsible for collecting revenues and enforcing various customs and related laws. Customs assists FDA and FSIS in carrying out their regulatory role in food safety. Bureau of Alcohol, Tobacco and Firearms (ATF) is responsible for administering and enforcing laws covering the production (including safety), use, and distribution of alcoholic beverages under the Federal Alcohol Administration Act and the Internal Revenue Code. Critical control point: Any step in a process that, if not properly controlled, may result in an unacceptable safety, wholesomeness, or economic fraud risk. Critical control point: A point in a food process at which control can be applied and a food safety hazard can be prevented, eliminated, or reduced to acceptable levels. Process: One or more actions or operations to harvest, produce, store, handle, distribute, or sell a product or group of similar products. Processing: With respect to fish or fishery products, the handling, storing, preparing into different market forms, packing, labeling, or holding of a product. Firms that wish to participate in the program may apply orally or in writing. However, the applicant must submit a written HACCP plan, which must be reviewed and approved prior to validation. Every processor shall conduct a hazard analysis to determine whether food safety hazards are reasonably likely to occur and to identify preventive measures. If this analysis reveals one or more such hazards, the processor shall implement a written HACCP plan for each processing location and for each kind of fish and fishery product. Failure to have and implement a HACCP plan that complies with the requirements shall render the products adulterated. (1) Organization chart and narrative describing duties of personnel. (2) Description of fishery products. (3) Process flow charts. (4) Critical control point work sheet, including critical points, hazards, preventive measures, critical limits, monitoring procedures, corrective actions, and records. (5) Record-keeping system. (6) Verification procedures. (7) Sanitation standard operating procedures. (8) Consumer complaint file. (9) Recall procedures. (1) A list of the food safety hazards that are reasonably likely to occur and thus must be controlled for each fish and fishery product. (2) A list of the critical control points for each identified hazard. (3) List of the critical limits that must be met at each of the critical control points. (4) Procedures used to monitor each of the critical control points to ensure compliance with critical limits. (5) Any corrective action plans that have been developed to respond to deviations from critical control point limits. (6) List of the verification procedures and frequency of verification. (7) Record-keeping system to document monitoring of critical control points. On a fee basis, regional officials will review and approve a HACCP plan. When ready for validation, the plan is sent to the National HACCP Coordinator for final review and approval. One or more Consumer Safety Officers and inspectors will perform an on-site validation of the plan. The validation team will conduct the test after the firm has operated for at least 10 production days. FDA's HACCP rule does not mention any requirement for prior FDA review and approval of a firm's HACCP plan. FDA's HACCP rule provides for an overall verification that the HACCP plan is being effectively implemented. (continued) Each facility must employ a NMFS-certified person knowledgeable of the HACCP program's principles to be present during all processing times. Functions, such as developing a HACCP plan, reassessing and modifying the HACCP plan, and performing the record review, shall be performed by an individual who has successfully completed a standardized course of instruction recognized by FDA in the application of HACCP principles in the processing of fish and fishery products at a program of instruction approved by FDA. This trained individual need not be an employee of the processor. Different audit schedules exist for participating vessels, processors, and retail and food service firms. The audit schedules are on a sliding frequency scale: as performance improves, the frequency of audits decreases. Audits are unannounced. For processors, the frequency ranges from daily audits in plants that are temporarily out of compliance to audits every 6 months for a high level of proven compliance. The entry level in the HACCP program calls for audits every 2 weeks. FDA plans to review the seafood-processing plants about once every 2 years on average. These inspections have occurred nearly once per year, on average, for the highest-risk fish and seafood firms and about once every 3 to 4 years, on average, for low-risk firms. All of the plant's records must be maintained by the firm for a period of 6 months beyond the expected shelf life of the product and must be accessible at all times to NMFS' inspection personnel. Records required by the regulations shall be retained at the processing facility or importer's business for at least 1 year after preparation for refrigerated products and 2 years for frozen, shelf-stable, or processed products. All records shall be available for official review and copying by FDA inspectors. NMFS has fees and charges to recover costs for administering the HACCP program. Fees are collected for preplan consultation, plan review and validation, inspections, and laboratory analysis of samples. Travel and per diem charges are added. FDA will not fund the additional work on HACCP's compliance with user fees. Edward M. Zadjura, Assistant Director John M. Nicholson, Jr., Evaluator-in-Charge Dennis Richards Karla Springer Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO provided information on the federal food safety system, focusing on recent federal initiatives to improve meat, poultry, and seafood safety. GAO found that: (1) the Food and Drug Administration (FDA) and the Food Safety and Inspection Service (FSIS) are primarily responsible for regulating food safety; (2) both agencies inspect meat, poultry, and seafood plants, but are constrained by resource limitations; (3) FDA plans to inspect each food processing plant once every 8 years, or once every 5 years when it can use state inspection resources; (4) Congress has increased the mandates of both agencies since 1989, including requiring FDA and FSIS to help develop and oversee new food labelling requirements; (5) while the agencies' budgets have increased, their staffing remained constant; (6) FDA, FSIS, and the National Marine Fisheries Service, which maintains a voluntary seafood inspection program, are implementing hazard analysis and critical control point (HACCP) programs, which emphasize the detection and prevention of microbial contamination and increase the role of industry in ensuring food safety; and (7) HACCP initiatives represent a fundamental shift in the government's approach to ensuring food safety.
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Under the Mining Law of 1872 (30 U.S.C. 22 et seq.), United States citizens and businesses may freely prospect for hard rock minerals--such as gold, silver, lead, and copper--on most federal lands not specifically closed to mining. Although all mining claims must be filed with the Bureau of Land Management (BLM), each agency is responsible for the surface management of mining activities that take place on lands it manages. When mining operators or other responsible parties have previously failed to reclaim areas where mining operations have taken place on federal lands and are currently economically unable to do so, the burden of cleaning up these properties may fall upon the taxpayers. Regulations promulgated by BLM and the Forest Service in 1980 and 1974, respectively, require that once mining activities are completed, the mine operators must reclaim all areas disturbed by their operations as soon as possible. Furthermore, according to the Department of the Interior and the Forest Service, even before these regulations were promulgated, the operators were responsible for cleaning up their sites under state laws requiring the reclamation of such sites and under laws prohibiting the creation of nuisances. Mining operations that were ongoing when BLM's and the Forest Service's regulations were promulgated were allowed to continue, but they had to be brought into compliance with each agency's surface management regulations. According to Department of the Interior and Forest Service officials, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. 9601 et seq.) imposes liability on mining operators for cleaning up abandoned mining operations that release hazardous substances on federal lands. National Park Service and Fish and Wildlife Service (FWS) lands have generally been withdrawn from mineral exploration. However, there are abandoned hard rock mine sites on these lands. Some are sites that preexisted the establishment or expansion of a park or wildlife refuge, and some are sites whose operators had valid existing rights when the lands were withdrawn from mining but have not reclaimed the sites. In addition to the land-managing agencies, two other agencies within the Department of the Interior--the Bureau of Mines and U.S. Geological Survey (USGS)--have addressed the issue of abandoned hard rock mines. The Bureau of Mines is concerned with mineral production and environmental remediation technologies. USGS assesses mineral resources and mining-related environmental problems. Attempts to determine how many hard rock mines lie abandoned nationwide have not resulted in a definitive inventory of these mines on federal lands. The four major land-managing agencies are in various stages of inventorying the abandoned mines on the lands they manage. Other organizations, such as the Bureau of Mines and the Mineral Policy Center,have also attempted to estimate the number of sites. However, because these sites are defined and counted differently, the individual results cannot be meaningfully combined or compared. BLM, which began an inventory in 1994, has made no overall estimate of the number of abandoned mine sites. BLM's Nevada and Utah state offices are piloting the agency's inventory approach, and several other state offices, including Colorado and Montana, have also begun field inventories, with the following results: The Nevada state office estimates 400,000 mine openings, structures, and other individual components of mining operations statewide, regardless of who owns the land. As the inventory progresses, it will differentiate between federal and other lands. The Utah state office is working with the state of Utah to inventory sites. On the basis of information from the state of Utah's Abandoned Mine Reclamation Program and some fieldwork, the estimated number of sites in Utah is 17,000 to 20,000 on public and private lands. The Colorado state office, which expects to complete its portion of the inventory in 1996, is identifying a smaller number of sites on federal lands than it expected. While officials initially expected to find as many as 15,000 sites on federal lands in Colorado, field staff have found that few of the mines are actually located on BLM-managed lands. The Montana state office, working in cooperation with the Montana Bureau of Mines and Geology, has identified about 1,000 sites on BLM-managed lands in that state. The National Park Service, in an effort begun in 1984, has counted the number of abandoned hard rock mines in almost all of its units--99 percent, according to officials--except for some in Alaska and the 3.1 million acres over which it acquired jurisdiction as a result of the California Desert Protection Act of 1994 (P.L. 103-433). The agency has tallied 2,500 sites, but the field personnel responsible for the inventory defined sites in different ways. Although the National Park Service defines a "site" as a "particular operation . . . or area where mining occurred, which may . . . multiple 'openings,' i.e., shafts, adits, inclines, pits, prospects, etc.," the agency's units defined sites in different ways, according to officials. For example, one unit defined a site as a grouping of mining-related features; others designated individual features, such as a single mine opening, as one site. According to FWS, the agency's wildlife refuges contain approximately 240 abandoned hard rock mine sites. FWS obtained this information on the number of sites by reviewing its mining files and requesting confirmation from its field offices. FWS does not consider abandoned hard rock mines a major problem on its refuges. According to the Forest Service, there are about 25,000 sites within National Forest boundaries. The Forest Service identified these sites using aerial photography and fieldwork, and the data were compiled by the U.S. Department of Agriculture's Office of the Inspector General through a questionnaire. The Forest Service is attempting to more precisely screen the sites in individual forests and expects to complete this effort in 1997. The Bureau of Mines and USGS have estimated the total number of abandoned hard rock mines on federal lands. However, these estimates cannot be meaningfully compared with any of the other estimates because they vary in scope and in the types of data used for the estimates. The Bureau of Mines estimates that there are 15,300 sites on the lands managed by the agencies within the Department of the Interior and 12,500 sites on the lands managed by the Forest Service. These estimates are based on information in the Minerals Availability System/Minerals Industry Location System, a computerized database containing information about the location of and past activities at over 200,000 mineral deposits. However, these data were collected for purposes other than inventorying abandoned mines, and although they identify areas where mining occurred, they do not account for all mine sites and features. As a result, according to a National Park Service report and BLM officials, these data require further confirmation to ensure their accuracy. Although USGS has not independently inventoried abandoned mine sites, it compiled data from the land-managing agencies in response to a congressional request for information about sites containing hazardous materials on the lands managed by the Department of the Interior. Using the assumption that all abandoned hard rock mines are potentially contaminated, USGS estimated that, as of July 1994, there were approximately 88,000 sites on the lands managed by agencies within the Department of the Interior. USGS obtained these data from the agencies, with the exception of BLM. For the lands managed by that agency, USGS made estimates from data included in a 1991 report by the Western Governors' Association entitled Inactive and Abandoned Noncoal Mines--A Scoping Study. The 1991 report of the Western Governors' Association reported data obtained from 33 states on abandoned and inactive hard rock mines. However, the report cautioned that "The findings presented are not comparable among states because of variability in the definitions . . . used by states, and variability in the type and quality of data available to states. Neither the number of sites, nor the cost of remediation, reported by individual states can be totalled to present a consistent national total." The Western Governors' Association, in an effort funded by the Bureau of Mines, is working with state and federal agencies and private organizations to recommend consistent terminology and guidelines that would aid in future inventories. In a June 1993 report, the Mineral Policy Center estimated that there were about 560,000 mine sites on public and private lands. This estimate was also based upon data reported by the Western Governors' Association, supplemented with interviews and documents from state officials and discussions with private contractors and consultants. The problems posed by abandoned hard rock mines can generally be classified as physical safety hazards or environmental degradation. Physical safety hazards, which can lead to human injury or death, may include concealed shafts or pits, unsafe structures, and explosives. Conditions causing environmental degradation may include drainage of toxic or acidic water, which could result in soil and groundwater contamination or biological impacts. However, because not all of the agencies have completed their inventories, they have not conducted the necessary fieldwork to identify how many mine sites with problems of each type are on the lands they manage. Furthermore, the factors the agencies use to classify their inventories are not consistent from agency to agency. According to BLM's guidance on the inventory, as sites are identified they should be placed in categories according to the presence or potential for safety or environmental hazards, as well as reclamation needs. BLM also has a basic ranking system, but the agency has not yet compared the rankings across state or field offices. BLM's inventory in Nevada found extensive safety hazards and confirmed that most of the chemically hazardous sites are already known. The current focus of BLM's Montana state office is on approximately 100 sites that are affecting water quality. The National Park Service classifies sites according to the type and degree of hazard they present. Each site that will require reclamation is ranked on the basis of its (1) degree of hazard, (2) degree of impact on the environment, and (3) accessibility. The weight applied to these criteria is flexible and varies according to the relevant program's emphasis. According to the National Park Service's Associate Director for Natural Resources, Stewardship, and Science, the agency has a basic knowledge of the hazards at every identified abandoned mine site. The 2,500 identified sites include nearly 7,700 hazardous openings, and the National Park Service estimates that 5 to 10 percent of all the sites pose an environmental threat, such as the impairment of water quality. FWS program officials say that there are no known hazardous sites with abandoned mines on wildlife refuges. FWS has not categorized its sites any further. The Forest Service is classifying its sites according to the existing and potential environmental degradation, identifying sites according to whether they may degrade water quality or other natural resources or contain hazardous materials. According to a March 1993 report by the Forest Service, over 1,500 western mining sites with significant problems of acid drainage have been identified on the lands in the National Forest System. A hazardous material specialist with the Forest Service said that approximately 10 percent of the abandoned mine sites on the lands managed by that agency have a high potential to be hazardous waste sites. The Bureau of Mines and USGS have both focused on environmental effects in classifying the sites. However, their sources of data are different, and the data were compiled for different purposes. Both agencies are working with an interdepartmental task force, in which the four land-managing agencies are also involved, that has proposed addressing the effects of abandoned hard rock mines throughout watersheds, rather than site by site. The Bureau of Mines used data based on the mines' past production. On the basis of a study of sites in one national forest, the Bureau of Mines has suggested that approximately 2 percent of abandoned hard rock sites might need detailed assessments; a smaller number would need environmental remediation. USGS collected data from individual agencies, which, as noted earlier, may have different methods and strategies for classifying sites. The Western Governors' Association and the Mineral Policy Center also attempted to categorize abandoned hard rock mine sites according to their hazards. However, as with the inventory estimates, they reported the data differently. The states provided data for the report by the Western Governors' Association on the types of hazards associated with abandoned hard rock mines, but they did not all report in the same way. For example, Montana reported the numbers of sites, disturbed acres, mine openings, acres of mine dumps, mill sites, smelters, miles of polluted water, and hazardous structures. In contrast, Nevada reported the number of sites, disturbed acres, and mine openings, without the additional detail. In its June 1993 report, the Mineral Policy Center classified all abandoned hard rock mine sites into six types, ranging from "benign" to "Superfund." This classification was based on information in the report of the Western Governors' Association and on follow-up with the states and the Environmental Protection Agency. Specifically, the Mineral Policy Center classified the sites as follows: 194,500 were benign, needing little if any remediation; 231,900 needed revegetation or landscaping; 116,300 presented safety hazards needing prompt but not necessarily extensive action; 14,400 needed extensive work to prevent surface water contamination; 500 needed complex work to prevent groundwater contamination; and 50 were Superfund sites, posing a severe threat to the public and needing complex cleanup. No nationwide cost estimate for reclaiming abandoned hard rock mines on federal lands is available. Preparing accurate estimates of the reclamation costs requires detailed assessments, or characterizations, of the sites, involving physical inspection and in-depth evaluation of the problems at each site. These studies are costly because the estimates can involve complex hydrology and chemistry of soil and water. Historic preservation and protection of endangered species can also affect reclamation costs. The agencies have completed a few such detailed site analyses. An estimate of the total cost to reclaim BLM lands is not available because the agency's inventory is not yet complete. However, according to BLM geologists, (1) costs will vary among the states depending upon the type of reclamation required and (2) the costs to clean up environmental damage are much higher than the costs to alleviate physical safety hazards. For example, the costs will be different in Colorado and Montana, where BLM officials are concerned about how the sites are affecting water quality, than in a more arid state such as Nevada. In Nevada, where water quality is less likely to be affected, BLM officials are focusing more on public safety because of the proximity of abandoned mine sites to population centers. The National Park Service estimates that the cost to reclaim the abandoned mine sites on the lands it currently manages will total about $165 million. These costs include about $40 million for short-term, or urgent, needs. However, these estimates do not include all the National Park Service's lands in Alaska or the 3.1 million acres over which it recently acquired jurisdiction in the California desert. The estimates are based on the National Park Service's experience in reclaiming abandoned mine sites and mitigating their effects. Although FWS has not estimated reclamation costs, the small number of abandoned mines at most of the refuges are not considered a significant problem and are not known to be hazardous, according to agency officials. The Forest Service estimates the total cost to reclaim the abandoned mine sites on the federal and private lands within National Forest boundaries to be about $4.7 billion. This estimate includes $2.5 billion to clean up approximately 2,500 sites with hazardous waste and restore the natural resources at these sites, and an additional $2.2 billion to restore water quality and address safety problems at the remaining 22,500 sites. The Forest Service still needs to complete preliminary site investigations to rank the sites for more detailed analysis, officials said. These detailed site assessments will give the Forest Service the information it needs to prepare more accurate cost estimates. The Bureau of Mines estimated the "worst-case" cost of reclaiming abandoned mine sites on federal lands at between $4 billion and $35.3 billion. However, this estimate was based upon the assumption that as many as 10,450 sites would require reclamation, while Bureau of Mines officials expect the actual number of sites that would be reclaimed to be far smaller. USGS has not estimated reclamation costs. In a September 1991 report, the Department of the Interior's Office of Inspector General estimated that it would cost about $11 billion to reclaim the "known universe" of all abandoned noncoal mine sites (not just those on federally managed lands). This estimate was based upon the Bureau of Mines' estimate of the extent of damage rather than on the number and type of abandoned hard rock mine sites. The report did not include an estimate of the number of sites, nor did it classify the sites by the type of hazard they present. In most cases, the states reporting to the Western Governors' Association estimated the cost of reclaiming sites. However, not all the states reported such estimates, and those that did so reported statewide estimates without regard to whether the lands were publicly or privately owned. The Mineral Policy Center has projected the total cost of cleaning up all abandoned hard rock mines (not just those on federal lands) to be from $33 billion to $72 billion. This estimate was based on data contained in the Western Governors' Association's report and on follow-up discussions with the participating states and with the Environmental Protection Agency. We requested comments on a draft of this report from the Secretary of the Interior and the Chief of the Forest Service or their designees. We met with and obtained comments from officials from the Department of the Interior's Office of the Solicitor, BLM, National Park Service, FWS, USGS, and Office of Policy Analysis and with officials from the U.S. Department of Agriculture's Forest Service and Office of General Counsel. These officials generally agreed with the factual information presented in this report. Officials from several of the agencies provided technical clarifications, which we have incorporated as appropriate. Officials from the Department of the Interior asked that we recognize their concern that a comprehensive inventory could be mandated. According to these officials, such an inventory would be costly and take efforts away from remediation. In this regard, officials from Interior's agencies noted that the interagency approach of targeting remediation throughout a watershed towards those water bodies impaired by drainage from the abandoned mines would be more cost-effective and worthwhile than a comprehensive inventory of individual mine sites on federal lands. Interior and Forest Service officials noted that environmental problems on federal lands often result from abandoned hard rock mines on private lands located within those federally managed lands. Because the purpose of our report was to provide information on the number of abandoned mines on federal lands, the hazards these mines pose, and the cost to reclaim them, we did not evaluate the agencies' specific approaches to inventorying or remediating these mine sites, nor did we address other issues affecting federal lands. In conducting our review, we examined relevant reports and other documents prepared by the four principal land-managing agencies we reviewed within the departments of the Interior and Agriculture. We also interviewed program managers from these organizations in Washington, D.C., and in regional, state, and local offices, as appropriate. In addition, we reviewed reports by Interior's Office of Inspector General, the Western Governors' Association, and the Mineral Policy Center. A full description of our scope and methodology is included in appendix II. We conducted our review from May 1995 through January 1996 in accordance with generally accepted government auditing standards. As requested, unless you publicly announce its contents earlier, we plan no further distribution of this report until 7 days after the date of this letter. At that time, we will send copies to appropriate congressional committees and federal agencies and to other interested parties. We will also make copies available to others on request. Please call me at (202) 512-3841 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix III. Degree of hazard, degree of environmental impact, accessibility $165 million (about $40 million short-term) Six categories ranging from "benign" to "Superfund" The Ranking Minority Member, House Committee on Resources, asked us to report on the (1) approximate number of abandoned hard rock mines on federally managed land, (2) types of hazards these mines pose, and (3) approximate cost to reclaim these mines. To determine the approximate number of such mines on federally managed lands, we obtained the available inventory information from program managers in the Department of the Interior and the U.S. Department of Agriculture. We focused on the Department of the Interior's Bureau of Land Management (BLM), National Park Service, and Fish and Wildlife Service (FWS) and on the U.S. Department of Agriculture's Forest Service because they manage 623 million acres, or about 95 percent of the federal lands in the United States. To ascertain the types of hazards these abandoned mines pose, we reviewed the agencies' documents and interviewed program managers in the two departments. To obtain estimates of the costs to reclaim these mines, we interviewed program managers and obtained any estimates that had already been prepared by the agencies in both departments. We also interviewed officials from the U.S. Department of Agriculture's Office of the Inspector General. We reviewed relevant documents and interviewed program managers in the departments of the Interior and Agriculture. At the Department of the Interior, we met with officials from the three key land-managing agencies: BLM, the National Park Service, and FWS. We also met with program officials from the Bureau of Mines and the U.S. Geological Survey (USGS), and the Office of Inspector General. At the U.S. Department of Agriculture, we met with program officials from the Forest Service and Office of the Inspector General. We also interviewed representatives of the Western Governors' Association and the Mineral Policy Center, and reviewed their reports. We did not evaluate the agencies' or other organizations' inventory or cost-estimation methodologies. In addition, we reviewed three audit reports issued by the Department of the Interior's Inspector General. At the time of our review, the U.S. Department of Agriculture's Inspector General was validating the Forest Service's inventory of abandoned hard rock mines. The Inspector General's report had not been issued at the time of this report. Sue E. Naiberk, Assistant Director David E. Flores, Evaluator-in-Charge Jennifer L. Duncan, 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. 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. 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Pursuant to a congressional request, GAO provided information on abandoned hard rock mines on federal lands, focusing on the: (1) approximate number of such mines; (2) types of hazards the mines pose; and (3) approximate cost to reclaim the mines. GAO found that: (1) the four major federal land managing agencies are each taking inventory of the abandoned mines on the lands they manage, but because the agencies do not use consistent methodologies to develop their estimates, there is no definitive inventory available; (2) the Forest Service has estimated of the number of abandoned mines on federal lands to be up to 25,000 sites; (3) nonfederal entities are also working to standardize terminology and guidelines to aid in future inventories; (4) abandoned hard rock mines can pose physical safety hazards, cause environmental degradation, and contaminate water; (5) the agencies use different factors to classify their sites for risk, and only two of the four agencies rank the severity of hazards; (6) nonfederal organizations have determined that 194,500 sites were generally safe, while 231,900 needed landscaping, 116,300 presented minor safety hazards, 14,900 could cause water contamination, and 50 threatened public safety and required complex cleanup; (7) the agencies have not completed the fieldwork needed to identify the number and types of problems on their sites; and (8) the Bureau of Mines believes that worst-case scenario costs could range between $4 billion and $35.3 billion and nonfederal organizations estimate that costs could exceed $70 billion, but no comprehensive cost estimate for reclaiming abandoned hard rock mines on federal lands exists.
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Ultra-filtration technology separates the components of milk according to their size by passing milk under pressure through a thin porous membrane. Specifically, ultra filtration allows the smaller lactose, water, mineral, and vitamin molecules to pass through the membrane, while the larger protein and fat molecules--key components for making cheese-- are retained and concentrated. (See app. II for further explanation of ultra filtration and its use in the cheese-making process.) Although ultra- filtration equipment is expensive, it creates an ingredient well suited for making cheese and other food products requiring a high milk protein content. In addition, the removal of water and lactose reduces the volume of milk, and thereby lowers its transportation and storage costs. All ultra- filtered milk imported into the United States in 2000 was in a dry powder form. The U.S. Customs Service's milk protein concentrates classification includes processed milk products containing between 40 percent and 90 percent protein. Imported powdered milk products with less than 40 percent protein are usually classified as nonfat dry milk and are subject to a tariff-rate quota that limits the amount that can be imported at a low tariff rate. In addition to ultra-filtered milk products, the milk protein concentrate classification includes concentrates made through other processes, such as blending nonfat dry milk with highly concentrated proteins. These products are often tailored to a specific use in products requiring a protein ingredient. FDA's standards of identity regulations permit cheese manufacturers under the "alternate make" provisions to use ultra filtration as an acceptable procedure during the cheese-making process. Consequently, milk that has been ultra-filtered as an integral part of the cheese-making process is acceptable as a component of a standardized cheese, according to FDA. In 1999 and 2000, organizations representing cheese makers petitioned FDA to amend its cheese standards to expand its definition of milk to include wet ultra-filtered milk. The industry petitioners requested permission to use wet ultra-filtered milk from external sources as an ingredient in standardized cheeses because it would increase the efficiency of cheese manufacturing and would explicitly recognize filtered milk products as interchangeable with other forms of milk. One of the industry petitioners, who had also asked FDA to allow the use of the dry ultra-filtered milk in standardized cheeses, later withdrew this part of the request when U.S. milk producers raised concerns that increased imports might displace domestic milk products. FDA has not yet acted on the petitions. Specific data on U.S. imports of ultra-filtered milk do not exist because these imports are included in the broader classification of milk protein concentrates. Milk protein concentrate imports increased 56-fold from 1990 to 1999. In 1999, they came primarily from New Zealand, Ireland, Germany, Australia, the Netherlands, and Canada. Milk protein concentrates are used as ingredients in cheese, frozen desserts, bakery products, and sports and other nutritional supplement products. The United States has no quota restrictions on milk protein concentrate imports, and duties are low. FDA officials told us that these imports pose little food safety risk and therefore receive minimal monitoring. U.S. milk protein concentrate imports grew from 805 metric tons in 1990 to 7,288 metric tons in 1995 to 44,878 metric tons in 1999 (see fig. 1). Imports almost doubled in 1999 alone. The volume of imported milk protein in these concentrates was approximately equivalent to 0.8 percent to 1.8 percent of the total U.S. production of milk protein in 1999. The estimate's range reflects the fact that imported milk protein concentrates may contain between 40-and 90-percent protein. The U.S. Customs Service does not collect data on the protein percentage of milk protein concentrate imports. The total number of countries exporting milk protein concentrates to the United States grew from 4 to 16 from 1990 to 1999. (See app. III.) Australia was the only country to export milk protein concentrates in each of the 10 years. Figure 2 shows the growth in imports for each major exporter and other countries from 1995 to 1999. The share of imports among the six largest exporting countries rose from 75 to 95 percent during this 5-year period. Although the U.S. Customs Service does not categorize its data on milk protein concentrate imports according to the manufacturing process used, representatives of Australian and New Zealand exporters assured us that their milk protein concentrate exports were all made using ultra filtration. Conversely, Canadian government officials said all of their country's milk protein concentrate exports to the United States are made by blending milk proteins. U.S. and foreign industry executives told us that U.S. milk protein concentrate imports rose rapidly in recent years primarily because of (1) the relationship between the U.S. and international prices of milk protein, especially nonfat dry milk, and (2) the growth of the U.S. nutritional foods industry and many other new products using milk protein concentrates. According to these executives, international milk prices were below U.S. milk prices in recent years, giving U.S. dairy food manufacturers a financial incentive to substitute imported milk protein concentrates for domestic milk in products such as nonstandardized cheese. This price differential primarily stimulated U.S. imports of milk protein concentrates having lower percentages of protein--between 40 and 56 percent. More recently, U.S. demand for these milk protein concentrates has decreased, according to an Australian exporter, because the international price of milk protein is near the U.S. price. The strong growth of the U.S. nutritional foods industry has created new demand for high-protein milk protein concentrates that are 70- to 85- percent protein. Representatives of Australia and New Zealand exporters told us that this industry grew out of extensive research and development to create nutritional supplements for athletes, the elderly, and health conscious individuals. Milk protein concentrates provide an important source of protein in these nutritional products. Because high-protein milk protein concentrates are often customized for use in specific end products, their producers and exporters can sell them at higher prices than the equivalent amount of domestic milk protein, the exporters said. Despite their higher prices, the demand for these specialized high-protein products in the United States is strong. Industry executives noted that high-protein milk protein concentrate imports have not displaced domestic milk supplies because they are filling the growing demand for new nutritional products. In addition, a trade association representative and an academic expert noted that economic disincentives have prevented U.S. production of dry milk protein concentrates. Federal agencies and industry trade associations do not collect data on U.S. companies' use of imported milk protein concentrates because this information is considered proprietary. According to milk protein concentrate exporters, U.S. cheese, frozen dessert, bakery, and nutritional foods industries primarily use the dry milk protein concentrate imports. In particular, dry milk protein concentrates containing lower levels of protein--42 to 56 percent--can be added to the raw milk used to make cheese, ensuring a consistent composition regardless of the seasonal variations in milk. Various concentrations of milk protein are also used in ice cream and other frozen desserts, bakery and confection products, and nonstandardized cheese. Milk protein concentrates containing higher protein levels--70 to 85 percent--are chiefly used in sport-, adult-, and hospital-nutrition products. Concentrates containing 90-percent protein are especially useful for manufacturers seeking lactose- and sugar-free claims for their products, according to a major exporter. (See app. IV for more details on the composition and uses of dry milk protein concentrate imports provided by some exporters.) The U.S. Customs Service and FDA share responsibility for monitoring milk protein concentrate imports for compliance with trade or food safety requirements. Unlike nonfat dry milk imports, which have less than a 40 percent protein content, the United States does not use a tariff-rate quota to restrict the quantity of milk protein concentrate imports. The United States imposes a duty of $0.0037 per kilogram on all milk protein concentrate imports except Canadian imports, which are duty-free under the North American Free Trade Agreement. The milk protein concentrates classification, which is intended to include all nonfat dry milk powder containing between 40 and 90 percent protein regardless of its method of production, allows a broad range of milk protein concentrates to enter the United States, according to the U.S. Customs Service. FDA and USDA's Food Safety and Inspection Service are responsible for ensuring that imported food products are safe, wholesome, and properly labeled. FDA and USDA work with the U.S. Customs Service to ensure the safety of imported food products by monitoring and testing samples of imported foods. Customs uses a computer system containing information provided by the milk protein concentrate importers and FDA-developed screening criteria to determine which shipments may be automatically released and which should be subjected to inspection or laboratory testing. Products such as milk protein concentrates, which are believed to pose minimal safety risks, are frequently released automatically. FDA annually inspects or conducts laboratory analyses on less than 2 percent of all types of imported food shipments. FDA officials told us that they have little concern about the safety of dry milk protein concentrates because the products are treated with heat during pasteurization and drying, which kills pathogens. In addition to screening milk protein concentrate imports, the United States has agreements with Australia, Belgium, Denmark, France, Ireland, the Netherlands, New Zealand, Norway, and Sweden regarding dry milk and milk protein imports. The agreements are to ensure that these countries adhere to FDA's food safety regulations, thereby minimizing the need for FDA to inspect these imports. No country has reached a broader agreement with the United States that their entire food safety system is equivalent to the United States thus enabling FDA to apply fewer resources to screening their imports. Dairy products, including milk protein concentrate products, will be subject to a not-yet-implemented "veterinary equivalency agreement" with the European Union and its 15 member countries. This agreement would provide a framework for the future equivalence of the European Union. Many U.S. cheese plants produce and use wet ultra-filtered milk to make standardized and nonstandardized cheeses, according to industry executives. However, federal and industry sources could not provide data on the amount of wet ultra-filtered milk produced domestically or on its use. USDA and state officials told us that 22 dairy manufacturing plants nationwide and 4 large dairy farms in New Mexico and Texas have the capacity to make wet ultra-filtered milk. Most of the ultra-filtered milk is used within the dairy manufacturing plants to make cheese, although some is transported to other plants for use. The milk concentrated at on-farm ultra-filtration plants is transported mainly to cheese plants in the Midwest to make standardized cheese or other products. Data are not routinely collected on the amount of ultra-filtered milk produced by U.S. cheese plants or other food processors for internal use or for shipment elsewhere, according to USDA and FDA officials and industry executives. USDA's Agricultural Marketing Service (AMS) staff, which oversees the administration of milk marketing in 11 regions across the United States, collects data on the intended use of the milk but not on intermediate products, such as ultra-filtered milk, that are often produced and used in making cheese. Similarly, AMS staff said that ultra-filtered milk produced in one plant for use in another is included with other bulk milk products and not tracked separately. Trade association executives told us that they have no data on the amount of wet ultra-filtered milk U.S. dairy manufacturing plants produced and used. Trade association staff said that manufacturers would probably not respond to a request for such data because the information is considered proprietary and because of concern surrounding the petitions to use wet ultra-filtered milk now before FDA. Executives involved with the relatively new on-farm production of ultra-filtered milk provided overall annual production data, which are discussed below. Many U.S. cheese-making plants have adopted ultra filtration of milk as part of the cheese-making process under the provisions in FDA's standards of identity regulations allowing for "alternate make" procedures for many of the standardized cheese and related cheese products. The "alternate make" procedures accommodate innovation by allowing these standardized cheeses to be made by any procedure that produces a finished cheese having the same physical and chemical properties as the cheese prepared by the traditional process. Filtration removes the liquid components of milk that would otherwise be removed in the traditional process when whey is separated from cheese curd. Proponents of ultra filtration state that the cheese produced is also nutritionally equivalent. The goal of ultra-filtered milk producers is to create the ideal combination of milk solids (i.e., protein and fat) for the particular style of cheese. AMS' milk marketing staff provided a list of milk processing plants that have ultra-filtration equipment for milk in the 47 states covered at least in part by federal milk market orders. Three states--California, Alaska, and Hawaii--are not covered by federal regulation. We contacted officials in California--a large dairy state that regulates its dairy industry separately-- to acquire similar information. The 48 states reported a combined total of 22 dairy manufacturing plants with ultra-filtration equipment for milk. AMS and California officials reported that at least five of these plants transported a portion of their ultra-filtered milk product to other plants. They further stated that it was possible for cheese makers to use their ultra-filtration equipment to concentrate the whey byproduct from the cheese-making process rather than to concentrate the milk entering the cheese-making process. AMS officials said that, to the extent they were aware, the transportation of ultra-filtered milk between manufacturing plants typically involved transfers between facilities of the same company. The American Dairy Products Institute and the National Cheese Institute of the International Dairy Foods Association have petitioned FDA to amend its standards of identity for cheese to include wet ultra-filtered milk in the definition of milk allowed in standardized cheese. According to the American Dairy Products Institute, ultra-filtration makes cheese manufacturing more efficient using new technology and may benefit consumers if cost savings are passed on. It also allows more efficient movement of milk from areas with an excess of fluid milk to areas with an insufficient supply, the American Dairy Products Institute said. The National Cheese Institute noted that the "alternate make procedure," already included in the regulations for some of the standardized cheeses, provides a legal basis for the use of filtered milk in the manufacture of standardized cheese. However, the institute wants to see the standards amended to explicitly recognize ultra-filtered milk in the standards' definition of milk. By explicitly recognizing ultra-filtered milk as milk for cheese manufacturing, FDA would allow manufacturers to use ultra- filtered milk in the standardized cheeses that do not include "alternate make procedure" provisions. The National Cheese Institute states that the greater use of ultra-filtered milk would help manage seasonal imbalances in the milk supply in various regions and in the demand for cheese. The institute said the lower hauling costs for filtered milk have enabled cheese makers to buy milk from distant regions and meet their needs for manufacturing, especially when regional milk supplies are disrupted by adverse conditions. FDA said it has exercised enforcement discretion on ultra-filtered milk, and has not enforced the standards of identity against cheese plants that use wet ultra-filtered milk produced outside of their plants. In 1996, T.C. Jacoby & Co., a St. Louis broker of dairy products, requested that FDA allow the use of ultra-filtered milk from an on-farm ultra- filtration plant in New Mexico to Bongards Creamery of Bongards, Minnesota, to make cheddar cheese. The broker also raised the issue of how to label the cheese to indicate the ultra-filtered milk ingredient in the final cheese product. FDA responded that the ultra-filtered milk could be used by Bongards to make cheddar cheese as long as the cheese was nutritionally, physically, and chemically the same as cheese produced traditionally. FDA allowed the label of the cheddar cheese to state that "milk" was an ingredient, provided that the cheddar cheese manufactured from it is equivalent. FDA allowed a pilot project for one farm and one cheese plant. The joint venture involving Jacoby & Co. subsequently expanded its production of ultra-filtered milk to three additional farms and its sales to manufacturers in Idaho, Illinois, Iowa, Minnesota, North Dakota, Ohio, Pennsylvania, South Dakota, and Wisconsin. FDA is considering the petitions but has taken no action to revise its standards of identity to reflect this use of ultra-filtered milk. The joint venture's dairy, Select Milk Producers Inc., ultra-filters unheated whole raw milk on three farms in New Mexico and one in Texas. The process reduces the volume and weight of the whole milk the dairy starts with and reduces transportation costs for shipping it to manufacturers. The joint venture, which first sold wet ultra-filtered milk in 1997, reported sales of approximately 150 million pounds of ultra-filtered milk in 2000, mainly for making standardized cheeses. On-farm ultra filtration of milk removes two-thirds of the liquid components of the milk--mainly water--to greatly reduce the costs to transport the ultra-filtered milk to market. For example, company officials noted one shipment for which the costs were reduced from $4.50 per hundredweight of milk to $1.20 for the remaining filtered milk. They added that this cost advantage is justified only for long-distance hauling, however, because the capital costs for installing ultra-filtration equipment are high. (See app. V for the composition of the various concentrates of wet ultra-filtered milk.) FDA relies on its own inspections and those conducted by the states under contract or partnership agreements to enforce its standards of identity regulations in about 1,000 cheese-making plants across the country. In fiscal year 1999, FDA inspected nine cheese-making plants for compliance with food labeling and economic regulations, which include checking compliance with the standards of identity for cheese. None of these inspections were done exclusively to monitor for compliance with standards of identity, and data indicating the number of these inspections that actually covered the standards of identity were not available. Similarly, the states conducting inspections on FDA's behalf did not exclusively inspect for the identity standards for cheese. In fiscal year 1999, FDA and state inspectors reported no violations for the use of imported ultra-filtered milk or milk protein concentrates to make standardized cheese. In addition, states conduct their own inspections of cheese plants for compliance with standards of identity requirements under state law. For example, in 2000, Vermont inspectors found two cheese plants using imported milk protein concentrates to make standardized cheeses in violation of federal and state regulations. Vermont issued warning letters and the plants discontinued this use. FDA reported that its own inspections of cheese-making plants for compliance with FDA's food labeling and economic regulations, which include the standards of identity for cheese, are relatively infrequent. In fact, they accounted for 9 of the total 499 domestic inspections for composition, standards, labeling, and economics regulations in all types of food manufacturing plants during fiscal year 1999. FDA said none of the nine inspections in cheese plants was done specifically to check for compliance with standards of identity on cheese. FDA also said that the agency devoted 0.7 staff year during fiscal year 1999 to FDA's food labeling and economic regulations for cheese. However, FDA reported that its inspectors and state inspectors working for FDA in fiscal year 1999, inspected about 300 of approximately 1,000 cheese-making plants throughout the United States for a variety of other purposes. FDA inspected 108 plants on its own. FDA officials said that states inspected 65 cheese plants under partnership agreements, 125 cheese plants under 37 contracts, and 2 under both a state partnership and contract. Overall, FDA reported inspections of about 3,500 of about 22,000 food manufacturing plants in fiscal year 1999. To increase the number of inspections of food manufacturing firms, FDA has contracts or forms partnerships with state agencies to help carry out monitoring responsibilities relating to food safety and quality. FDA provides its compliance policies and inspection guidelines to state inspectors and sometimes conducts joint inspections with state inspectors. In addition, states such as Wisconsin and Vermont have adopted FDA's cheese standards of identity as their own standards under state law. In fiscal year 2000, FDA had contracts with 37 states to cover food inspections. Under these contracts, FDA paid states to conduct and report on food inspections of all types. State officials then inspected locations under the state or FDA authority. The number of completed inspections to check for compliance with the standards of identity for cheese, however, was not available. Officials at Wisconsin's Department of Agriculture, Trade, and Consumer Protection told us they worked closely with FDA on contracted inspections, meeting annually with FDA officials to plan and coordinate their inspection efforts to avoid duplication. At these meetings, FDA provides state authorities with a list of the dairy establishments for Wisconsin inspectors to visit during the year. In addition, for each inspection done under its contract with FDA, Wisconsin inspectors complete a FDA inspection report describing the inspection results. Wisconsin officials reported that they did 82 inspections under the contract with FDA in fiscal year 1999 and 62 in fiscal year 2000. Wisconsin officials told us that the state had 142 cheese-making plants in 1999 that produced many types of cheese. Wisconsin dairy inspectors check cheese plants for safety and sanitation, food composition and labeling regulations---including standards of identity---and to collect product samples. Wisconsin officials said their inspectors make on-site visits to cheese plants on a semiannual basis, taking a total of 36 samples each year for laboratory analysis of microbes, moisture content, and comparison of ingredients with FDA and Wisconsin standards. Wisconsin estimated that it expended 3.1 and 2.8 staff years in fiscal years 1999 and 2000 respectively, on routine inspections of cheese plants, not including nonroutine and contract inspections. State officials did not have the data to estimate the time spent specifically on standards of identity. FDA and the states also have 15 partnership agreements related to FDA's regulation of dairy products. Under these partnerships, FDA and the states (or food-related organizations) collaborate on such efforts as training inspectors and sharing test results. FDA does not fund activities carried out by states under its partnership agreements, and the states bear the responsibility for handling any violations. In addition to these efforts, the states conduct their own inspections under state law, which can include the standards of identity. For example, both Vermont and Wisconsin routinely inspect plants for compliance with state laws and regulations, and both have adopted FDA's standards of identity as part of their states' food safety and quality laws. Vermont officials told us that the state has no formal working relationship, such as a partnership or a contract, with FDA relating to dairy inspections. However, Vermont's dairy inspectors coordinate with FDA on dairy matters. Vermont officials stated that about 2.0 staff years are used annually to inspect about 40 dairy plants, 28 of which are cheese making. Vermont's officials inspect the dairy plants for sanitation and cheese standards of identity and to collect samples. Tests of samples for microbes and animal drugs are done about once a month at the larger dairy plants. The inspectors visit the dairy plants on a quarterly basis and the larger plants about 20 times per year, according to Vermont officials. FDA and the two states we contacted--Vermont and Wisconsin---report few violations of FDA's cheese standards of identity. In fiscal year 1999, FDA reported that no violations involving the use of ultra-filtered milk in standardized cheese in federal and the contracted state inspections. Likewise, Wisconsin officials told us that they had found no cheese standards of identity violations relating to the use of ultra-filtered milk in cheese in the past few years. They did report a December 2000 incident in which a cheese plant was found to be using milk protein concentrate in nonstandardized ricotta cheese. While the use of the ingredient was not a violation of state or federal standards, the product's label did not identify the ingredient as required by law. The plant stopped using the milk protein concentrate until the label could be corrected, state officials reported. In 2000, Vermont inspectors found two cheese plants using imported milk protein concentrate to make cheeses covered by FDA's standards of identity in violation of federal and state law. Vermont officials wrote letters to the plants warning that this ingredient was not permitted by the standards. Vermont officials said the plants discontinued its use and the cases were closed. We provided FDA with a draft of this report for its review and comment. FDA generally agreed with the report and provided some specific comments, which we have incorporated into the report as appropriate. FDA's comments and our responses are in appendix VI. To identify the trends in ultra-filtered milk imports into the United States between 1990 and 1999, we obtained data compiled by the U.S. Census Bureau from the U.S. Customs Service on annual imports of milk protein concentrates, which includes ultra-filtered milk. To identify any quantity, tariff, or other trade restrictions applicable to imported ultra-filtered milk, we reviewed the U.S. Harmonized Tariff Schedule and interviewed USDA, Customs, and FDA officials and representatives of domestic and foreign dairy trade associations and reviewed relevant reports and publications. To identify the uses of dry ultra-filtered milk and milk protein concentrates in the manufacture of cheese and other products in the United States, we obtained information from trade association representatives, domestic and foreign company executives, and federal officials. To identify the use of domestically produced ultra-filtered milk in the manufacture of cheese and other food products in the United States, we reviewed relevant FDA standards of identity and other regulations and available published reports. We also interviewed USDA officials; California, Vermont, and Wisconsin state officials; trade association representatives; company executives; and academicians. To identify FDA's and state agencies' efforts to enforce the federal standards of identity regulations, particularly the use of ultra-filtered milk in cheese production, we interviewed officials of USDA, FDA, Wisconsin, and Vermont regarding the extent of their activities and amount of staff resources used to monitor the standards. We conducted our review from August 2000 through February 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the congressional committees with jurisdiction over dairy products; the Honorable Ann M. Veneman, Secretary of Agriculture; the Honorable Dr. Bernard Schwetz, Acting Commissioner of the Food and Drug Administration; the Honorable Charles W. Winwood, Acting Commissioner, U.S. Customs Service; the Honorable Mitchell E. Daniels, Jr., Director of the Office of Management and Budget; and other interested parties. We will make copies available to others on request. If you have any questions about this report, please contact me or Richard Cheston, Assistant Director, at (202) 512-3841. Key contributors to this report were Diana P. Cheng, Jonathan S. McMurray, John P. Scott, and Richard B. Shargots. Table 1 below shows the cheeses and related cheese products by section number covered by the Food and Drug Administration's (FDA) Standards of Identity regulations (21 C.F.R., Part 133, Subpart B). Because these regulations do not identify ultra-filtered milk as an approved ingredient, manufacturers of standardized cheeses and related cheese products cannot use ultra-filtered milk that is produced outside the cheese-making plant. (FDA has allowed an exception to this for a pilot project producing ultra-filtered milk on a farm in New Mexico for use in a Minnesota cheese plant.) If milk protein concentrates are used in a cheese product, then the product cannot bear the name of a standardized product, which is listed below. However, milk protein concentrates can be used as ingredients for nonstandardized cheese products not listed, such as feta cheese and pizza cheese. FDA also has standards of identity for many other product types, including milk and cream, frozen desserts, bakery, macaroni and noodles, and frozen vegetables. Cheese making combines an ancient art with scientific knowledge to manufacture uniform products by removing water and retaining the desirable solids in milk. Prior to making cheese, cheese makers test the quality of the milk. Then they may adjust for seasonal variations in the composition of milk, specifically milk proteins, to ensure that uniform milk is used to manufacture consistent cheese throughout the year. Traditionally, cheese makers use nonfat dry milk or liquid condensed milk as the chief ingredient to adjust the milk proteins but these have limitations due to the lactose content in these forms of milk. Ultra-filtered milk provides cheese makers with an alternative product for this purpose. Ultra-filtered milk concentrates the proteins by removing the water and lactose in milk, permitting greater efficiency in cheese making. Because the starting ingredients contain less liquid, the volume of whey (primarily water, lactose, whey proteins, and minerals) removed during cheese making is reduced and less effort and time are spent to expel the liquid from the cheese curds leading to its transformation into cheese. Figure 3 is a simplified diagram of the ultra-filtration process that enlarges a portion of the process to show how milk components are separated. In ultra filtration, a filter (membrane with minute pores) retains the larger molecules (fat and protein) and allows the smaller molecules (water, lactose, and some minerals) to pass through. Although vitamins are a component in milk, they are not shown in the figure because they are found within the fat and water components. Ultra filtration is not 100- percent efficient because some milk flows parallel to the filter pushed by pressure and not all of the milk comes in contact with the filter. Therefore, wet ultra-filtered milk will contain some water, lactose, and minerals. Because of practical limitations on the amount of ultra-filtered milk that can be used in making cheese, ultra-filtered milk is normally used to supplement skim or whole milk used to make cheese. Cheese-making experts said that the majority of cheese vats in U.S. plants are not designed to use only ultra-filtered milk, which is thicker than skim or whole milk. A high proportion of ultra-filtered milk would cause the equipment to malfunction. In addition, because highly concentrated ultra- filtered milk is not nutritionally equivalent to fluid milk, it could not be used as the sole ingredient in cheese. If cheese were made entirely from ultra-filtered milk, its texture, composition, and other characteristics would be different from cheese made traditionally. Although experts believe that these limitations can be addressed, the limitations currently prevent cheese makers from making cheese entirely from ultra-filtered milk at a concentration greater than "2X" in which half of the water is removed leaving twice as many solids (fat and protein) as compared to whole milk. Figure 4 shows a flowchart of the cheese-making process. Ultra-filtered milk can be used to maintain consistent levels of fat and protein components in the raw milk used to make cheese, ensuring that cheese quality is the same throughout the year. It can also be used in larger quantities to increase the total solids (fat and proteins) in the raw milk, resulting in larger yields. Cheese making involves transforming milk proteins into solid lumps (curds), separating the curds' solids from the liquid (whey), shaping or pressing these curds into molds, and aging the shaped curds. Table 2 shows U.S. imports of milk protein concentrates between 1990 and 1999. Between 1990 and 1994, U.S. imports of milk protein concentrates increased 15-fold, and the number of suppliers grew from 4 countries to 11 countries. From 1995 to 1999, U.S. imports of milk protein concentrates increased 6-fold. Over the 10-year period, U.S. imports of milk protein concentrates increased 56-fold. Australia is the only country that exported milk protein concentrates to the United States in each year during this 10- year period. Table 3 provides a general overview of the milk protein concentrate (MPC) products made from skim milk and their suggested uses, as provided by their distributors. It is not a comprehensive list because the uses for milk protein concentrate are reportedly expanding and developing, and only a few of the exporters we contacted opted to provide this information. Milk protein concentrates are typically described by their approximate protein content expressed as a percentage. For example, MPC 42 contains 42 percent protein based on dry weight. The other components in the product vary depending on its producer and customization of the products to meet customer specifications. Table 4 provides the composition of various concentrations of wet ultra- filtered milk made from whole milk. The composition of ultra-filtered milk depends on the composition of the raw milk, which may vary depending on the season in which the milk was produced. Because ultra filtration removes liquids and concentrates the protein and fat components of milk, the table indicates the degree to which solids are concentrated. For example, in a "2X" concentration, half of the water is removed leaving twice as many solids (i.e. fat and protein) compared with whole milk. The following are GAO's comments on the Food and Drug Administration's written response to our draft report dated February 2, 2001. 1. We have substituted these sentences as suggested. 2. We have added language to the footnote and to appendix V to explain that we are referring to the amount of "true" protein in whole milk, which is approximately 3 percent. While some sources in literature cite the higher value of "crude" protein, we feel "true" protein is the best value to use in our example. According to academic experts, the total or "crude" protein in milk that FDA refers to is estimated from measuring the total nitrogen content of milk. The total amount of nitrogen comes from both protein and non-protein sources. The experts noted that the measurement of "crude" protein is inaccurate because test equipment does not measure the amount of non-protein nitrogen precisely. By testing for "true" protein only, which electronic testing equipment can accurately detect, this measurement error is corrected. In addition, USDA's AMS, in its 1999 decision on milk market order reform, stated that the use of total or "crude" protein measurement overstates the amount of protein in milk by the amount of non-protein nitrogen, which has little or no effect on dairy product yields. Therefore, AMS decided that milk should be priced under federal milk orders on the basis of its true protein content. 3. We have revised the sentence as suggested.
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The ultra-filtration process for milk, developed in the 1970s, removes most of the fluid components, leaving a high concentration of milk protein that allows cheese and other manufacturers to produce their products more efficiently. No specific data on amount of ultra-filtered milk imports exists because these imports fall under the broader U.S. Customs Service classification of milk protein concentrate. Exporters of milk protein concentrates face minimal U.S. import restrictions, and the Food and Drug Administration (FDA) believes the milk protein concentrates pose minimal safety risks. Similarly, there is little data on the amount and use of domestically produced ultra-filtered milk in U.S. cheese making plants. According to the Department of Agriculture and state sources, a total of 22 dairy plants nationwide and five large dairy farms in New Mexico and Texas produce ultra-filtered milk. The plants primarily produce and use ultra-filtered milk in the process of making cheese. The five farms transport their product primarily to cheese-making plants in the Midwest, where most is used to make standardized cheeses. FDA relies on its own inspections, and those it contracts with 37 states, to enforce its standards of identity regulations. In addition to these federally funded inspections, some states conduct their own inspections of cheese plants for compliance with standards of identity requirements under state law.
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The concept of "universal service" has traditionally meant providing residential telephone subscribers with nationwide access to basic telephone services at reasonable rates. The Telecommunications Act of 1996 broadened the scope of universal service to include, among other things, support for schools and libraries. The act instructed the commission to establish a universal service support mechanism to ensure that eligible schools and libraries have affordable access to and use of certain telecommunications services for educational purposes. In addition, Congress authorized FCC to "establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms . . . and libraries. . . ." Based on this direction, and following the recommendations of a Federal-State Joint Board on Universal Service, FCC established the schools and libraries universal service mechanism that is commonly referred to as the E-rate program. The program is funded through statutorily mandated payments by companies that provide interstate telecommunications services. Many of these companies, in turn, pass their contribution costs on to their subscribers through a line item on subscribers' phone bills. FCC capped funding for the E-rate program at $2.25 billion per year, although funding requests by schools and libraries can greatly exceed the cap. For example, schools and libraries requested more than $4.2 billion in E-rate funding for the 2004 funding year. In 1998, FCC appointed USAC as the program's permanent administrator, although FCC retains responsibility for overseeing the program's operations and ensuring compliance with the commission's rules. In response to congressional conference committee direction, FCC has specified that USAC "may not make policy, interpret unclear provisions of the statute or rules, or interpret the intent of Congress." USAC is responsible for carrying out the program's day-to-day operations, such as maintaining a Web site that contains program information and application procedures; answering inquiries from schools and libraries; processing and reviewing applications; making funding commitment decisions and issuing funding commitment letters; and collecting, managing, investing, and disbursing E-rate funds. FCC permits--and in fact relies on--USAC to establish administrative procedures that program participants are required to follow as they work through the application and funding process. Under the E-rate program, eligible schools, libraries, and consortia that include eligible schools and libraries may receive discounts for eligible services. Eligible schools and libraries may apply annually to receive E- rate support. The program places schools and libraries into various discount categories, based on indicators of need, so that the school or library pays a percentage of the cost for the service and the E-rate program funds the remainder. E-rate discounts range from 20 percent to 90 percent. USAC reviews all of the applications and related forms and issues funding commitment decision letters. Generally, it is the service provider that seeks reimbursement from USAC for the discounted portion of the service rather than the school or library. FCC established an unusual structure for the E-rate program but has never conducted a comprehensive assessment of which federal requirements, policies, and practices apply to the program, to USAC, or to the Universal Service Fund itself. FCC recently began to address a few of these issues, concluding that as a permanent indefinite appropriation, the Universal Service Fund is subject to the Antideficiency Act and that USAC's issuance of commitment letters constitutes obligations for purposes of the act. However, FCC's conclusions concerning the status of the Universal Service Fund raise further issues relating to the collection, deposit, obligation, and disbursement of those funds--issues that FCC needs to explore and resolve comprehensively rather than in an ad hoc fashion as problems arise. The Telecommunications Act of 1996 neither specified how FCC was to administer universal service to schools and libraries nor prescribed the structure and legal parameters of the universal service mechanisms to be created. To carry out the day-to-day activities of the E-rate program, FCC relied on a structure it had used for other universal service programs in the past--a not-for-profit corporation established at FCC's direction that would operate under FCC oversight. However, the structure of the E-rate program is unusual in several respects compared with other federal programs: FCC appointed USAC as the permanent administrator of the Universal Service Fund, and FCC's Chairman has final approval over USAC's Board of Directors. USAC is responsible for administering the program under FCC orders, rules, and directives. However, USAC is not part of FCC or any other government entity; it is not a government corporation established by Congress; and no contract or memorandum of understanding exists between FCC and USAC for the administration of the E-rate program. Thus, USAC operates and disburses funds under less explicit federal ties than many other federal programs. Questions as to whether the monies in the Universal Service Fund should be treated as federal funds have troubled the program from the start. Even though the fund has been listed in the budget of the United States and, since fiscal year 2004, has been subject to an annual apportionment from the Office of Management and Budget (OMB), the monies are maintained outside of Treasury accounts by USAC and some of the monies have been invested. The United States Treasury implements the statutory controls and restrictions involving the proper collection and deposit of appropriated funds, including the financial accounting and reporting of all receipts and disbursements, the security of appropriated funds, and agencies' responsibilities for those funds. Since the inception of the E-rate program, FCC has struggled with identifying the nature of the Universal Service Fund and the managerial, fiscal, and accountability requirements that apply to the fund. In the past, FCC's Inspector General (IG) has noted that the commission could not ensure that Universal Service Fund activities were in compliance with all laws and regulations because the issue of which laws and regulations were applicable to the fund was unresolved. During our review, FCC officials told us that the commission has substantially resolved the IG's concerns through recent orders, including FCC's 2003 order that USAC begin preparing Universal Service Fund financial statements consistent with generally accepted accounting principles for federal agencies (GovGAAP) and keep the fund in accordance with the United States Government Standard General Ledger. While it is true that these steps and other FCC determinations should provide greater protections for universal service funding, FCC has addressed only a few of the issues that need to be resolved. In fact, staff from the FCC's IG's office told us that they do not believe the commission's GovGAAP order adequately addressed their concerns because the order did not comprehensively detail which fiscal requirements apply to the Universal Service Fund and which do not. FCC maintains that it has undertaken a timely and extensive analysis of the significant legal issues associated with the status of the Universal Service Fund and has generally done so on a case-by-case basis. We recognize that FCC has engaged in internal deliberations and external consultations and analysis of a number of statutes. However, we do not believe that this was done in a timely manner or that it is appropriate to do this on a case-by-case basis, which puts FCC and the program in the position of reacting to problems as they occur rather than setting up an organization and internal controls designed to ensure compliance with applicable laws. As you know, Mr. Chairman, a problem with this ad hoc approach was dramatically illustrated with regard to the applicability of the Antideficiency Act to the Universal Service Fund. In October 2003, FCC ordered USAC to prepare financial statements for the Universal Service Fund, as a component of FCC, consistent with GovGAAP, which FCC and USAC had not previously applied to the fund. In February 2004, staff from USAC realized during contractor-provided training on GovGAAP procedures that the commitment letters sent to beneficiaries (notifying them whether their funding is approved and in what amount) might be viewed as "obligations" of appropriated funds. If so viewed, and if FCC also found the Antideficiency Act--which does not allow an agency or program to make obligations in excess of available budgetary resources-- to be applicable to the E-rate program, then USAC would need to dramatically increase the program's cash-on-hand and lessen the program's investments to provide budgetary authority sufficient to satisfy the Antideficiency Act. As a result, USAC suspended funding commitments in August 2004 while waiting for a commission decision on how to proceed. At the end of September 2004--facing the end of the fiscal year-- FCC decided that commitment letters were obligations; that the Antideficiency Act did apply to the program; and that USAC would need to immediately liquidate some of its investments to come into compliance with the Antideficiency Act. According to USAC officials, the liquidations cost the fund approximately $4.6 million in immediate losses and could potentially result in millions in foregone annual interest income. In response to these events, in December 2004, Congress passed a bill granting the Universal Service Fund a one-year exemption from the Antideficiency Act. As we explain more fully in our report, Mr. Chairman, we agree with FCC's determinations that the Universal Service Fund is a permanent appropriation subject to the Antideficiency Act and that its funding commitment decision letters constitute recordable obligations of the Universal Service Fund. However, there are several significant fiscal law issues that remain unresolved. We believe that where FCC has determined that fiscal controls and policies do not apply, the commission should reconsider these determinations in light of the status of universal service monies as federal funds. For example, in view of its determination that the fund constitutes an appropriation, FCC needs to reconsider the applicability of the Miscellaneous Receipts Statute, 31 U.S.C. SS 3302, which requires that money received for the use of the United States be deposited in the Treasury unless otherwise authorized by law. FCC also needs to assess the applicability of other fiscal control and accountability statutes (e.g., the Single Audit Act and the Cash Management Improvement Act). Another major issue that remains to be resolved involves the extent to which FCC has delegated some functions for the E-rate program to USAC. For example, are the disbursement policies and practices for the E-rate program consistent with statutory and regulatory requirements for the disbursement of public funds? Are some of the functions carried out by USAC, even though they have been characterized as administrative or ministerial, arguably inherently governmental activities that must be performed by government personnel? Resolving these issues in a comprehensive fashion, rather than continuing to rely on reactive, case-by- case determinations, is key to ensuring that FCC establishes the proper foundation of government accountability standards and safeguards for the E-rate program and the Universal Service Fund. We are encouraged that FCC just announced that it has contracted with the National Academy of Public Administration (NAPA) for NAPA to study and explore alternative models to the current organizational and governance structure of the Universal Service Fund program. We believe this study will go a long way toward addressing the concerns outlined in our report and we look forward to seeing the results of NAPA's efforts. Although $13 billion in E-rate funding has been committed to beneficiaries during the past 7 years, FCC did not develop useful performance goals and measures to assess the specific impact of these funds on schools' and libraries' Internet access and to improve the management of the program, despite a recommendation by us in 1998 to do so. At the time of our current review, FCC staff was considering, but had not yet finalized, new E-rate goals and measures in response to OMB's concerns about this deficiency in a 2003 OMB assessment of the program. One of the management tasks facing FCC is to establish strategic goals for the E-rate program, as well as annual goals linked to them. The Telecommunications Act of 1996 did not include specific goals for supporting schools and libraries, but instead used general language directing FCC to establish competitively neutral rules for enhancing access to advanced telecommunications and information services for all public and nonprofit private elementary and secondary school classrooms and libraries. As the agency accountable for the E-rate program, FCC is responsible under the Government Performance and Results Act of 1993 (Results Act) for establishing the program's long-term strategic goals and annual goals, measuring its own performance in meeting these goals, and reporting publicly on how well it is doing. For fiscal years 2000 through 2002, FCC's goals focused on achieving certain percentage levels of Internet connectivity during a given fiscal year for schools, public school instructional classrooms, and libraries. However, the data that FCC used to report on its progress was limited to public schools (thereby excluding two other major groups of beneficiaries--private schools and libraries) and did not isolate the impact of E-rate funding from other sources of funding, such as state and local government. This is a significant measurement problem because, over the years, the demand for internal connections funding by applicants has exceeded the E-rate funds available for this purpose by billions of dollars. Unsuccessful applicants had to rely on other sources of support to meet their internal connection needs. Even with these E-rate funding limitations, there has been significant growth in Internet access for public schools since the program issued its first funding commitments in late 1998. At the time, according to data from the Department of Education's National Center for Educational Statistics (NCES), 89 percent of all public schools and 51 percent of public school instructional classrooms already had Internet access. By 2002, 99 percent of public schools and 92 percent of public school instructional classrooms had Internet access. Yet although billions of dollars in E-rate funds have been committed since 1998, adequate program data was not developed to answer a fundamental performance question: How much of the increase since 1998 in public schools' Internet access has been a result of the E-rate program, as opposed to other sources of federal, state, local, and private funding? Performance goals and measures are used not only to assess a program's impact but also to develop strategies for resolving mission-critical management problems. However, management-oriented goals have not been a feature of FCC's performance plans, despite long-standing concerns about the program's effectiveness in key areas. For example, two such goals--related to assessing how well the program's competitive bidding process was working and increasing program participation by low- income and rural school districts and rural libraries--were planned but not carried forward. FCC did not include any E-rate goals for fiscal years 2003 and 2004 in its recent annual performance reports. The failure to measure effectively the program's impact on public and private schools and libraries over the past 7 years undercuts one of the fundamental purposes of the Results Act: to have federal agencies adopt a fact-based, businesslike framework for program management and accountability. The problem is not just a lack of data for accurately characterizing program results in terms of increasing Internet access. Other basic questions about the E-rate program also become more difficult to address, such as the program's efficiency and cost-effectiveness in supporting the telecommunications needs of schools and libraries. For example, a review of the program by OMB in 2003 concluded that there was no way to tell whether the program has resulted in the cost-effective deployment and use of advanced telecommunications services for schools and libraries. OMB also noted that there was little oversight to ensure that the program beneficiaries were using the funding appropriately and effectively. In response to these concerns, FCC staff have been working on developing new performance goals and measures for the E-rate program and plan to finalize them and seek OMB approval in fiscal year 2005. FCC testified before Congress in June 2004 that it relies on three chief components in overseeing the E-rate program: rulemaking proceedings, beneficiary audits, and fact-specific adjudicatory decisions (i.e., appeals decisions). We found weaknesses with FCC's implementation of each of these mechanisms, limiting the effectiveness of FCC's oversight of the program and the enforcement of program procedures to guard against waste, fraud, and abuse of E-rate funding. As part of its oversight of the E-rate program, FCC is responsible for establishing new rules and policies for the program or making changes to existing rules, as well as providing the detailed guidance that USAC requires to effectively administer the program. FCC carries out this responsibility through its rulemaking process. FCC's E-rate rulemakings, however, have often been broadly worded and lacking specificity. Thus, USAC has needed to craft the more detailed administrative procedures necessary to implement the rules. However, in crafting administrative procedures, USAC is strictly prohibited under FCC rules from making policy, interpreting unclear provisions of the statute or rules, or interpreting the intent of Congress. We were told by FCC and USAC officials that USAC does not put procedures in place without some level of FCC approval. We were also told that this approval is sometimes informal, such as e-mail exchanges or telephone conversations between FCC and USAC staff. This approval can come in more formal ways as well, such as when the commission expressly endorses USAC operating procedures in commission orders or codifies USAC procedures into FCC's rules. However, two problems have arisen with USAC administrative procedures. First, although USAC is prohibited under FCC rules from making policy, some USAC procedures deal with more than just ministerial details and arguably rise to the level of policy decisions. For example, in June 2004, USAC was able to identify at least a dozen administrative procedures that, if violated by the applicant, would lead to complete or partial denial of the funding request even though there was no precisely corresponding FCC rule. The critical nature of USAC's administrative procedures is further illustrated by FCC's repeated codification of them throughout the history of the program. FCC's codification of USAC procedures--after those procedures have been put in place and applied to program participants-- raises concerns about whether these procedures are more than ministerial and are, in fact, policy changes that should be coming from FCC in the first place. Moreover, in its August 2004 order (in a section dealing with the resolution of audit findings), the commission directs USAC to annually "identify any USAC administrative procedures that should be codified in our rules to facilitate program oversight." This process begs the question of which entity is really establishing the rules of the E-rate program and raises concerns about the depth of involvement by FCC staff with the management of the program. Second, even though USAC procedures are issued with some degree of FCC approval, enforcement problems could arise when audits uncover violations of USAC procedures by beneficiaries or service providers. The FCC IG has expressed concern over situations where USAC administrative procedures have not been formally codified because commission staff have stated that, in such situations, there is generally no legal basis to recover funds from applicants that failed to comply with the USAC procedures. In its August 2004 order, the commission attempted to clarify the rules of the program with relation to recovery of funds. However, even under the August 2004 order, the commission did not clearly address the treatment of beneficiaries who violate a USAC administrative procedure that has not been codified. FCC's use of beneficiary audits as an oversight mechanism has also had weaknesses, although FCC and USAC are now working to address some of these weaknesses. Since 2000, there have been 122 beneficiary audits conducted by outside firms, 57 by USAC staff, and 14 by the FCC IG (2 of which were performed under agreement with the Inspector General of the Department of the Interior). Beneficiary audits are the most robust mechanism available to the commission in the oversight of the E-rate program, yet FCC generally has been slow to respond to audit findings and has not made full use of the audit findings as a means to understand and resolve problems within the program. First, audit findings can indicate that a beneficiary or service provider has violated existing E-rate program rules. In these cases, USAC or FCC can seek recovery of E-rate funds, if justified. In the FCC IG's May 2004 Semiannual Report, however, the IG observes that audit findings are not being addressed in a timely manner and that, as a result, timely action is not being taken to recover inappropriately disbursed funds. The IG notes that in some cases the delay is caused by USAC and, in other cases, the delay is caused because USAC is not receiving timely guidance from the commission (USAC must seek guidance from the commission when an audit finding is not a clear violation of an FCC rule or when policy questions are raised). Regardless, the recovery of inappropriately disbursed funds is important to the integrity of the program and needs to occur in a timely fashion. Second, under GAO's Standards for Internal Controls in the Federal Government, agencies are responsible for promptly reviewing and evaluating findings from audits, including taking action to correct a deficiency or taking advantage of the opportunity for improvement. Thus, if an audit shows a problem but no actual rule violation, FCC should be examining why the problem arose and determining if a rule change is needed to address the problem (or perhaps simply addressing the problem through a clarification to applicant instructions or forms). FCC has been slow, however, to use audit findings to make programmatic changes. For example, several important audit findings from the 1998 program year were only recently resolved by an FCC rulemaking in August 2004. In its August 2004 order, the commission concluded that a standardized, uniform process for resolving audit findings was necessary, and directed USAC to submit to FCC a proposal for resolving audit findings. FCC also instructed USAC to specify deadlines in its proposal "to ensure audit findings are resolved in a timely manner." USAC submitted its Proposed Audit Resolution Plan to FCC on October 28, 2004. The plan memorializes much of the current audit process and provides deadlines for the various stages of the audit process. FCC released the proposed audit plan for public comment in December 2004. In addition to the Proposed Audit Resolution Plan, the commission instructed USAC to submit a report to FCC on a semiannual basis summarizing the status of all outstanding audit findings. The commission also stated that it expects USAC to identify for commission consideration on at least an annual basis all audit findings raising management concerns that are not addressed by existing FCC rules. Lastly, the commission took the unusual step of providing a limited delegation to the Wireline Competition Bureau (the bureau within FCC with the greatest share of the responsibility for managing the E-rate program) to address audit findings and to act on requests for waiver of rules warranting recovery of funds. These actions could help ensure, on a prospective basis, that audit findings are more thoroughly and quickly addressed. However, much still depends on timely action being taken by FCC, particularly if audit findings suggest the need for a rulemaking. In addition to problems with responding to audit findings, the audits conducted to date have been of limited use because neither FCC nor USAC have conducted an audit effort using a statistical approach that would allow them to project the audit results to all E-rate beneficiaries. Thus, at present, no one involved with the E-rate program has a basis for making a definitive statement about the amount of waste, fraud, and abuse in the program. Of the various groups of beneficiary audits conducted to date, all were of insufficient size and design to analyze the amount of fraud or waste in the program or the number of times that any particular problem might be occurring programwide. At the time we concluded our review, FCC and USAC were in the process of soliciting and reviewing responses to a Request for Proposal for audit services to conduct additional beneficiary audits. Under FCC's rules, program participants can seek review of USAC's decisions, although FCC's appeals process for the E-rate program has been slow in some cases. Because appeals decisions are used as precedent, this slowness adds uncertainty to the program and impacts beneficiaries. FCC rules state that FCC is to decide appeals within 90 days, although FCC can extend this period. At the time of our review there was a substantial appeals backlog at FCC (i.e., appeals pending for longer than 90 days). Out of 1,865 appeals to FCC from 1998 through the end of 2004, approximately 527 appeals remain undecided, of which 458 (25 percent) are backlog appeals. We were told by FCC officials that some of the backlog is due to staffing issues. FCC officials said they do not have enough staff to handle appeals in a timely manner. FCC officials also noted that there has been frequent staff turnover within the E-rate program, which adds some delay to appeals decisions because new staff necessarily take time to learn about the program and the issues. Additionally, we were told that another factor contributing to the backlog is that the appeals have become more complicated as the program has matured. Lastly, some appeals may be tied up if the issue is currently in the rulemaking process. The appeals backlog is of particular concern given that the E-rate program is a technology program. An applicant who appeals a funding denial and works through the process to achieve a reversal and funding two years later might have ultimately won funding for outdated technology. FCC officials told us that they are working to resolve all backlogged E-rate appeals by the end of calendar year 2005. In summary, Mr. Chairman, we remain concerned that FCC has not done enough to proactively manage and provide a framework of government accountability for the multibillion-dollar E-rate program. Lack of clarity about what accountability standards apply to the program causes confusion among program participants and can lead to situations where funding commitments are interrupted pending decisions about applicable law, such as happened with the Antideficiency Act in the fall of 2004. Ineffective performance goals and measures make it difficult to assess the program's effectiveness and chart its future course. Weaknesses in oversight and enforcement can lead to misuse of E-rate funding by program participants that, in turn, deprives other schools and libraries whose requests for support were denied due to funding limitations. To address these management and oversight problems identified in our review of the E-rate program, our report recommends that the Chairman of FCC direct commission staff to (1) conduct and document a comprehensive assessment to determine whether all necessary government accountability requirements, policies, and practices have been applied and are fully in place to protect the E-rate program and universal service funding; (2) establish meaningful performance goals and measures for the E-rate program; and (3) develop a strategy for reducing the E-rate program's appeals backlog, including ensuring that adequate staffing resources are devoted to E-rate appeals. We conducted our work from December 2003 through December 2004 in accordance with generally accepted government auditing standards. We interviewed officials from FCC's Wireline Competition Bureau, Enforcement Bureau, Office of General Counsel, Office of Managing Director, Office of Strategic Planning and Policy Analysis, and Office of Inspector General. We also interviewed officials from USAC. In addition, we interviewed officials from OMB and the Department of Education regarding performance goals and measures. OMB had conducted its own assessment of the E-rate program in 2003, which we also discussed with OMB officials. We reviewed and analyzed FCC, USAC, and OMB documents related to the management and oversight of the E-rate program. The information we gathered was sufficiently reliable for the purposes of our review. See our full report for a more detailed explanation of our scope and methodology. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have. For further information about this testimony, please contact me at (202) 512-2834. Edda Emmanuelli-Perez, John Finedore, Faye Morrison, and Mindi Weisenbloom also made key contributions to this statement. This is a work of the U.S. government and is not subject to copyright protection in the United States. 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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Since 1998, the Federal Communications Commission's (FCC) E-rate program has committed more than $13 billion to help schools and libraries acquire Internet and telecommunications services. Recently, allegations of fraud, waste, and abuse by some E-rate program participants have come to light. As steward of the program, FCC must ensure that participants use E-rate funds appropriately and that there is managerial and financial accountability surrounding the funds. This testimony is based on GAO's February 2005 report GAO-05-151 , which reviewed (1) the effect of the current structure of the E-rate program on FCC's management of the program, (2) FCC's development and use of E-rate performance goals and measures, and (3) the effectiveness of FCC's program oversight mechanisms. FCC established the E-rate program using an organizational structure unusual to the government without conducting a comprehensive assessment to determine which federal requirements, policies, and practices apply to it. The E-rate program is administered by a private, not-for-profit corporation with no contract or memorandum of understanding with FCC, and program funds are maintained outside of the U.S. Treasury, raising issues related to the collection, deposit, obligation, and disbursement of the funding. While FCC recently concluded that the Universal Service Fund constitutes an appropriation and is subject to the Antideficiency Act, this raises further issues concerning the applicability of other fiscal control and accountability statutes. These issues need to be explored and resolved comprehensively to ensure that appropriate governmental accountability standards are fully in place to help protect the program and the fund from fraud, waste, and abuse. FCC has not developed useful performance goals and measures for assessing and managing the E-rate program. The goals established for fiscal years 2000 through 2002 focused on the percentage of public schools connected to the Internet, but the data used to measure performance did not isolate the impact of E-rate funding from other sources of funding, such as state and local government. A key unanswered question, therefore, is the extent to which increases in connectivity can be attributed to E-rate. In addition, goals for improving E-rate program management have not been a feature of FCC's performance plans. In its 2003 assessment of the program, OMB noted that FCC discontinued E-rate performance measures after fiscal year 2002 and concluded that there was no way to tell whether the program has resulted in the cost-effective deployment and use of advanced telecommunications services for schools and libraries. In response to OMB's concerns, FCC is currently working on developing new E-rate goals. FCC's oversight mechanisms contain weaknesses that limit FCC's management of the program and its ability to understand the scope of any fraud, waste, and abuse within the program. According to FCC officials, oversight of the program is primarily handled through agency rulemaking procedures, beneficiary audits, and appeals decisions. FCC's rulemakings have often lacked specificity and led to a distinction between FCC's rules and the procedures put in place by the program administrator--a distinction that has affected the recovery of funds for program violations. While audits of E-rate beneficiaries have been conducted, FCC has been slow to respond to audit findings and make full use of them to strengthen the program. In addition, the small number of audits completed to date do not provide a basis for accurately assessing the level of fraud, waste, and abuse occurring in the program, although the program administrator is working to address this issue. According to FCC officials, there is also a substantial backlog of E-rate appeals due in part to a shortage of staff and staff turnover. Because appeal decisions establish precedent, this slowness adds uncertainty to the program.
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Between fiscal years 1998 and 2002, HUD administered a total of 21 technical assistance programs, most of which are associated with programs in its offices of Community Planning and Development and Public and Indian Housing. The other three offices that administer technical assistance programs are the offices of Housing, Fair Housing and Equal Opportunity, and Healthy Homes-Lead Hazard Control. Table 1 lists the 21 technical assistance programs, by program office, and their budgets. As shown in Figure 1, from fiscal year 1998 through fiscal year 2002, the annual funding for all of HUD's technical assistance programs ranged from $128 million to $201 million. These sums accounted for less than 1 percent of HUD's overall budget, which averaged about $28 billion in each of those years. Technical assistance funds fluctuated each year because the funds for specific technical assistance programs increased or decreased or because technical assistance programs were introduced or discontinued in any given year. For example, technical assistance funding increased by 43 percent from fiscal year 1998 to fiscal year 1999. During this time, the technical assistance funds (1) increased from $9 million to $17 million for the Office of Troubled Agency Recovery, (2) were initiated in 1999 with $11 million for Resident Opportunities and Self-Sufficiency, and (3) increased from $18 million to $25 million for section 4 capacity building under the Community Development Block Grant program. From fiscal year 2001 to fiscal year 2002, estimated, technical assistance funding fell by about 10 percent, primarily because the Lead-Based Paint Hazard Reduction funds were reduced from $22 million to $5 million, the HOME funds were reduced from $22 million to $12 million, the HOPE VI funds were reduced from $10 million to $6.3 million, and the Drug Elimination Grant Program and its technical assistance funds were abolished. Figure 2 illustrates the breakdown of the cumulative technical assistance funding from fiscal year 1998 through fiscal year 2002 by program office. Not surprisingly, the two offices that administer the largest number of programs have the largest share of the overall technical assistance budget. While the overriding purpose of technical assistance is to improve the ability of program participants to administer HUD's programs more effectively, each HUD program office determines its own approach and administers technical assistance according to its program needs. Table 2 describes the purpose of the technical assistance as defined by the five HUD program offices. HUD provides appropriated funds both for its primary programs and for related technical assistance programs. It distributes the program funds to program participants such as state and local governments and other participating organizations, and it awards the technical assistance funds to providers, which use the money to deliver technical assistance to recipients. Figure 3 illustrates this process. The recipients of HUD's technical assistance are generally those entities or organizations that administer HUD's programs. They also vary by program and include state and local governments, public and Indian housing agencies, tenants of federally subsidized housing, and property owners receiving federal housing subsidies. The providers of technical assistance can be HUD officials but typically are entities or organizations that receive funding from HUD to deliver such assistance. Providers, which also vary by program, include community- based, for-profit, and nonprofit organizations; public and Indian housing agencies; housing finance agencies; and resident service organizations. We visited with technical assistance providers in selected locations across the country to observe the various methods used by each of the five program offices to deliver technical assistance to recipients. In the following examples, each case details the recipients, providers, and purpose of the technical assistance provided. The recipients of the Office of Community Planning and Development's technical assistance are local nonprofit organizations, state and local governments, and other organizations participating in and receiving funds through HUD's community development programs. The providers of these technical assistance programs are for-profit and nonprofit organizations and government agencies that have demonstrated expertise in providing the guidance and training that program participants can use. For 2 days, we observed a technical assistance provider for the HOME program work with two community housing development organizations in Arkansas. The purpose of the technical assistance was to help the organizations plan for and improve their procedures for developing low-income rural housing. Over the 2 days, the technical assistance provider evaluated the housing built by the community development organizations with HOME program funds and advised them on HUD-mandated procedures for counseling prospective low-income home buyers. The recipients of technical assistance provided through the Office of Public and Indian Housing's Resident Opportunities and Self-Sufficiency Program's capacity building funds are associations of public housing residents that HUD has determined lack the capacity to administer welfare-to-work programs or conduct management activities. The providers of the technical assistance are resident and other nonprofit organizations. We observed a 1-day conference conducted by a Massachusetts statewide public housing tenant organization in conjunction with several other organizations. The training was designed to increase the knowledge and build the capacity of public housing agencies, their residents, and state and local officials involved in planning and rulemaking. Topics included income recertification, methods of influencing housing legislation, public housing safety and security, and private-market housing initiatives. A Boston HUD employee served as a panel member during one of the training sessions. The recipients of the Office of Fair Housing and Equal Opportunity's technical assistance include state and local fair housing enforcement agencies, public and private nonprofit fair housing agencies, and other groups that are working to prevent and eliminate discriminatory housing practices. According to an official from the Office of Fair Housing and Equal Opportunity, providers of technical assistance are HUD staff and qualified, established fair housing enforcement agencies. We observed a Fair Housing employee in HUD's San Francisco regional office provide technical assistance training to 10 employees of California's Department of Fair Employment and Housing. The objective was to help the state agency process fair housing complaints more effectively, and the topics included tips on investigating fair housing complaints, theories of discrimination, and case conciliation and evidence. The recipients of technical assistance provided through the Office of Housing's Outreach and Technical Assistance Grants are tenants living in federally subsidized properties affected by mortgage restructuring through the Mark-to-Market program. The providers of technical assistance are small or large community-based organizations that focus on improving tenant's ability to understand the restructuring of their Section 8 property. In Columbus, Ohio, we observed a meeting between the potential new owners of a HUD property scheduled to undergo financial restructuring and two organizations representing the tenants who live there. The purpose of the meeting, coordinated by a technical assistance provider, was to give tenants a role in the restructuring process and to keep them apprised of potential changes to their building. Topics discussed included rent stabilization, building renovations, security systems, and modifications for handicapped accessibility. The recipients of technical assistance provided through the Office of Healthy Homes and Lead Hazard Control's Technical Studies Programs include state, local, and tribal governments; private property owners; and individuals who are maintenance and renovation workers. The providers of technical assistance include academic and nonprofit organizations, state and local governments, and federally recognized Indian tribes. We observed a technical assistance provider conduct mandatory classroom training for about 50 owners and workers of federally subsidized properties at a Philadelphia housing authority maintenance facility. The recipients hoped to become certified to remove lead-based paint hazards from their properties by learning safe work practices at the training. The course covered such topics as lead exposure and maintenance work, lead safety, and quality assurance. HUD selects technical assistance providers both competitively and noncompetitively. Seventeen of the 21 technical assistance programs used a competitive selection process. Because Congress specifies the organizations to provide the technical assistance under three of Community Planning and Development's Block Grant Programs, HUD distributes the funds for those programs noncompetitively. The fourth noncompetitive program, the Fair Housing Assistance program, is noncompetitive because the funds are distributed through a formula grant to all eligible state and local fair housing enforcement agencies. The process for obtaining an award also varies by funding instrument. HUD has a set policy explaining the procedures and protocols for using the various funding instruments (contracts, grants, and cooperative agreements). When HUD selects technical assistance providers competitively, it awards funding through contracts, grant agreements, and cooperative agreements. HUD refers to all three award mechanisms as funding instruments. A contract is used when the principal purpose of the award is the acquisition by purchase, lease, or barter of property or services for the direct benefit of the government. According to the Director of the Office of Departmental Grants Management and Oversight, contracts are the award instrument that gives HUD the most control because HUD simply directs the contractor to do a specific task. For example, a program official in the Office of Native American Programs told us that her office retains decision-making authority by issuing contracts that enable her to control the technical assistance providers' use of funds and outreach to recipients. A grant agreement is used when the principal purpose of the relationship between the awardee and HUD is the transfer of money or property for a public purpose and substantial federal involvement is not anticipated. A cooperative agreement's purpose is similar to a grant agreement's purpose, but is generally used when the awarding agency anticipates the need for close federal involvement over the life of the award. The cooperative agreement stipulates the nature, character, and extent of the anticipated involvement. A HUD official told us that a cooperative agreement generally gives HUD less control than a contract, but more control than a grant agreement. HUD's Office of Departmental Grants Management and Oversight provides basic guidelines on when to use a contract, grant, or cooperative agreement. According to HUD, a program office, when selecting the appropriate funding instrument to be used, should first look to the program's authorizing legislation for authority to enter into a contract or other type of arrangement. Noncompetitive awards are specified by statute or based on a formula. Specifically, Congress appropriates technical assistance funds noncompetitively for the Local Initiative Support Corporation, the Enterprise Foundation, Habitat for Humanity, Youthbuild USA, and the Housing Assistance Council under the Community Development Block Grant (CDBG) program, administered by HUD's Office of Community Planning and Development. Congress also appropriates noncompetitive funding for National American Indian Housing Council technical assistance programs, administered by the Office of Pubic and Indian Housing. In addition, HUD's Office of Fair Housing and Equal Opportunity uses a formula to distribute Fair Housing and Assistance technical assistance funds. These noncompetitive, technical assistance programs comprised $50.1 million in fiscal year 2001, about 25 percent of the technical assistance funding for that year and about $54.5 million, or 30 percent of the fiscal year 2002 technical assistance funding. Prospective technical assistance providers respond either to a HUD request for a proposal for a contract or to a Notice of Funding Availability (NOFA) for a grant or cooperative agreement. In practice, HUD has issued the funding notices for the majority of its grants and cooperative agreements, including its technical assistance funding, in a single notice called the SuperNOFA (Super Notice of Funding Availability). Applicants submit contract proposals or funding applications to HUD staff who make recommendations to each program office's selecting officials. These officials then make the final selections and announce the awards. Contract proposals are managed through HUD headquarters or designated contracting offices, while applications for grants or cooperative agreements for some technical assistance programs are submitted to both headquarters and the field office in which the applicant is seeking to provide services. Any award, regardless of the type of funding instrument, has a fixed performance period. The contract request for proposal or NOFA will stipulate the proposed period of performance and indicate whether additional funding can be provided beyond the period of performance without further competition. The five offices that administer technical assistance have basic oversight procedures in place. Such procedures usually include monitoring the technical assistance provider's performance by reviewing payment requests and financial reports, and providing a written evaluation of the technical assistance provider's performance. Most program offices require technical assistance providers to submit quarterly, annual, or close-out reports, or a combination of these reports, on the status of their technical assistance programs, which are to be reviewed by HUD program staff. Headquarters or field office staff may be directly responsible for oversight, depending on which office administers the technical assistance, though headquarters offices are ultimately responsible for ensuring that appropriate oversight is conducted. HUD does not offer any central guidance on, or require its program offices to directly measure, the impact or outcomes of the technical assistance programs they administer. The Government Performance and Results Act of 1993 (GPRA) requires that program officials develop performance measures and track performance relative to the goals in their strategic and annual plans. However, according to the Director of HUD's Office of Departmental Operations and Coordination, this requirement does not apply to the related technical assistance programs. In his view, if the technical assistance supports the program and the program is doing well, then the technical assistance is having a positive impact. However, GPRA emphasizes the importance of establishing objective and quantifiable measures at each organizational level that can be linked to the overall agency program goals. Without specific measures on the impact of its technical assistance, HUD cannot demonstrate the incremental value of the assistance. The Director of the Office of Departmental Grants Management and Compliance told us that HUD is not planning any initiatives to coordinate how program offices are measuring the impact of their technical assistance programs. An official from the Massachusetts State Office of Community Planning and Development told us that without this guidance, it is unclear how the impact of these services should be measured. We found a wide range of HUD processes for measuring the impact of technical assistance, ranging from CPD's section 4 capacity building organizations, which document detailed evaluations of their accomplishments; to CPD's Rural Housing and Economic Development program, which collects annual outcome data; to Public and Indian Housing's Resident Opportunity Self Sufficiency Program, which has no established process and measures performance on a grant-by-grant basis. While some program officials have said that it is difficult or not even possible to measure the impact of technical assistance, other program offices have impact measures in place. A Public and Indian Housing (PIH) field official from the Office of Native American Programs told us that he has seen nationwide training courses that he believes are inefficient and expensive. While he believes that local one-on-one training would be more productive, he does not believe he could measure whether attendees are retaining the information received or whether one-on-one training would be more effective. By contrast, a PIH official said that the office conducts evaluations after the technical assistance for drug elimination is provided and then follows-up with another evaluation in 6 months to measure recipients' retention of information. We also spoke with a technical assistance provider who administers multiple questionnaires to measure recipients' retention of material taught at homeless training programs. Similarly, Chicago CPD staff reported that they measure the success of technical assistance programs aimed at teaching local groups how to apply for federal grants by the number of grantees that submit proper paperwork.
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This testimony discusses the results of GAO's review of the Department of Housing and Urban Development's (HUD) technical assistance and capacity-building programs. Technical assistance programs can be defined as training designed to improve the performance or management of program recipients, such as teaching one-on-one procurement regulations to housing authority staff. Capacity building can be generally defined as funding to strengthen the capacity or capability of program recipients or providers--typically housing or community development organizations--thereby building the institutional knowledge within those organizations. The overall goal of both technical assistance and capacity building is to enhance the delivery of HUD's housing and community development programs. HUD administers 21 technical assistance programs through five program offices. From fiscal year 1998 through fiscal year 2002, the annual funding for HUD technical assistance ranged between $128 million and $201 million, accounting for less than 1 percent of HUD's overall budget each year. Although the general purpose of HUD's technical assistance is to help program participants carry out HUD program goals, each program office designs technical assistance specifically related to its programs. Recipients could be states and units of local government, public or Indian housing agencies, private and nonprofit organizations, or individuals. Providers could be HUD officials or, more commonly, state or local governments, profit and nonprofit organizations, or public housing agencies. HUD awards funding for 17 of the 21 technical assistance programs competitively. The funding for the remaining programs is awarded noncompetitively. HUD uses three types of funding instruments and determines which type to use on the basis of its relationship with the awardee and the level of federal involvement anticipated. All five HUD program offices perform basic oversight of the technical assistance they administer, such as visually observing the technical assistance or reviewing reports submitted by the providers to ensure that the technical assistance was provided. In addition, some program offices also have impact measures in place. HUD does not measure the impact or outcome of technical assistance and does not offer any central guidance on how the program offices should measure its impact.
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The National Flood Insurance Act of 1968 established NFIP as an alternative to providing direct assistance after floods. NFIP, which provides government-guaranteed flood insurance to homeowners and businesses, was intended to reduce the federal government's escalating costs for repairing flood damage after disasters. FEMA, which is within the Department of Homeland Security (DHS), is responsible for the oversight and management of NFIP. Since NFIP's inception, Congress has enacted several pieces of legislation to strengthen the program. The Flood Disaster Protection Act of 1973 made flood insurance mandatory for owners of properties in vulnerable areas who had mortgages from federally regulated lenders and provided additional incentives for communities to join the program. The National Flood Insurance Reform Act of 1994 strengthened the mandatory purchase requirements for owners of properties located in special flood hazard areas (SFHA) with mortgages from federally regulated lenders. Finally, the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 authorized grant programs to mitigate properties that experienced repetitive flooding losses. Owners of these repetitive loss properties who do not mitigate may face higher premiums. To participate in NFIP, communities agree to enforce regulations for land use and new construction in high-risk flood zones and to adopt and enforce state and community floodplain management regulations to reduce future flood damage. Currently, more than 20,000 communities participate in NFIP. NFIP has mapped flood risks across the country, assigning flood zone designations based on risk levels, and these designations are a factor in determining premium rates. NFIP offers two types of flood insurance premiums: subsidized and full risk. The National Flood Insurance Act of 1968 authorizes NFIP to offer subsidized premiums to owners of certain properties. These subsidized premium rates, which represent about 40 percent to 45 percent of the cost of covering the full risk of flood damage to the properties, apply to about 22 percent of all NFIP policies. To help reduce or eliminate the long-term risk of flood damage to buildings and other structures insured by NFIP, FEMA has used a variety of mitigation efforts, such as elevation, relocation, and demolition. Despite these efforts, the inventories of repetitive loss properties--generally, as defined by FEMA, those that have had two or more flood insurance claims payments of $1,000 or more over 10 years-- and policies with subsidized premium rates have continued to grow. In response to the magnitude and severity of the losses from the 2005 hurricanes, Congress increased NFIP's borrowing authority from Treasury to about $20.8 billion. We have previously identified four public policy goals for evaluating the federal role in providing natural catastrophe insurance: charging premium rates that fully reflect actual risks, limiting costs to taxpayers before and after a disaster, encouraging broad participation in natural catastrophe insurance encouraging private markets to provide natural catastrophe insurance. Taking action to achieve these goals would benefit both NFIP and the taxpayers who fund the program but would require trade-offs. I will discuss the key areas that need to be addressed, actions that can be taken to help achieve these goals, and the trade-offs that would be required. As I have noted, NFIP currently does not charge all program participants rates that reflect the full risk of flooding to their properties. First, the act requires FEMA to charge many policyholders less than full-risk rates to encourage program participation. While the percentage of subsidized properties was expected to decline as new construction replaced subsidized properties, today nearly one out of four NFIP policies is based on a subsidized rate. Second, FEMA may "grandfather" properties that are already in the program when new flood maps place them in higher-risk zones, allowing some property owners to pay premium rates that apply to the previous lower-risk zone. FEMA officials told us they made the decision to allow grandfathering because of external pressure to reduce the effects of rate increases, and considerations of equity, ease of administration, and the goals of promoting floodplain management. Similarly, FEMA recently introduced a new rating option called the Preferred Risk Policy Eligibility Extension that in effect equals a temporary grandfathering of premium rates. While these policies typically would have to be converted to more expensive policies when they were renewed after a new flood map came into effect, FEMA has extended eligibility for these lower rates. Finally, we have also raised questions about whether NFIP's full-risk rates reflect actual flood risks. Because many premium rates charged by NFIP do not reflect the full risk of loss, the program is less likely to be able to pay claims in years with catastrophic losses, as occurred in 2005, and may need to borrow from Treasury to pay claims in those years. Increasing premium rates to fully reflect the risk of loss--including the risk of catastrophic loss--would generally require reducing or eliminating subsidized and grandfathered rates and offers several advantages. Specifically, increasing rates could: result in premium rates that more fully reflected the actual risk of loss; decrease costs for taxpayers by reducing costs associated with postdisaster borrowing to pay claims; and encourage private market participation, because the rates would more closely approximate those that would be charged by private insurers. However, eliminating subsidized and grandfathered rates and increasing rates overall would increase costs to some homeowners, who might then cancel their flood policies or elect not to buy them at all. According to FEMA, subsidized premium rates are generally 40 percent to 45 percent of rates that would reflect the full risk of loss. For example, the projected average annual subsidized premium was $1,121 as of October 2010, discounted from the $2,500 to $2,800 that FEMA said would be required to cover the full risk of loss. In a 2009 report, we also analyzed the possibility of creating a catastrophic loss fund within NFIP (one way to help pay for catastrophic losses). Our analysis found that in order to create a fund equal to 1 percent of NFIP's total exposure by 2020, the average subsidized premium--which typically is in one of the highest-risk zones--would need to increase from $840 to around $2,696, while the average full-risk premium would increase from around $358 to $1,149. Such steep increases could reduce participation, either because homeowners could no longer afford their policies or simply deemed them too costly, and increase taxpayer costs for postdisaster assistance to property owners who no longer had flood insurance. However, a variety of actions could be taken to mitigate these disadvantages. For example, subsidized rates could be phased out over time or not transferred with the property when it is sold. Moreover, as we noted in our past work, targeted assistance could be offered to those most in need to help them pay increased NFIP premiums. This assistance could take several forms, including direct assistance through NFIP, tax credits, or grants. In addition, to the extent that those who might forgo coverage were actually required to purchase it, additional actions could be taken to better ensure that they purchased policies. According to the RAND Corporation, in SFHAs, where property owners with loans from federally insured or regulated lenders are required to purchase flood insurance, as few as 50 percent of the properties had flood insurance in 2006. In order to reduce expenses to taxpayers that can result when NFIP borrows from Treasury, NFIP needs to be able to generate enough in premiums to pay its claims, even in years with catastrophic losses--a goal that is closely tied to that of eliminating subsidies and other reduced rates. Since the program's inception, NFIP premiums have come close to covering claims in average loss years but not in years of catastrophic flooding, particularly 2005. Unlike private insurance companies, NFIP does not purchase reinsurance to cover catastrophic losses. As a result, NFIP has funded such losses after the fact by borrowing from Treasury. As we have seen, such borrowing exposes taxpayers to the risk of loss. NFIP still owes approximately $17.8 billion of the amount it borrowed from Treasury for losses incurred during the 2005 hurricane season. The high cost of servicing this debt means it may never be repaid, could in fact increase, and will continue to affect the program's solvency and be a burden to taxpayers. Another way to limit costs to taxpayers is to decrease the risk of losses by undertaking mitigation efforts that could reduce the extent of damage from flooding. FEMA has taken steps to help homeowners and communities mitigate properties by making improvements designed to reduce flood damage--for example, elevation, relocation, and demolition. As we have reported, from fiscal year 1997 through fiscal year 2007, nearly 30,000 properties were mitigated using FEMA funds. Increasing mitigation efforts could further reduce flood damage to properties and communities, helping to put NFIP on a firmer financial footing and reducing taxpayers' exposure. FEMA has made particular efforts to address the issue of repetitive loss properties through mitigation. These properties account for just 1 percent of NFIP's insured properties but are responsible for 25 percent to 30 percent of claims. Despite FEMA's efforts, the number of repetitive loss properties increased from 76,202 in 1997 to 132,100 in March 2011, or by about 73 percent. FEMA also has some authority to raise premium rates for property owners who refuse mitigation offers in connection with the Severe Repetitive Loss Pilot Grant Program. In these situations, FEMA can initially increase premiums to up to 150 percent of their current amount and may raise them again (by up to the same amount) on properties that incur a claim of more than $1,500. However, FEMA cannot increase premiums on property owners who pay the full-risk rate but refuse a mitigation offer, and in no case can rate increases exceed the full- risk rate for the structure. In addition, FEMA is not allowed to discontinue coverage for those who refuse mitigation offers. As a result, FEMA is limited in its ability to compel owners of repetitive loss properties to undertake flood mitigation efforts. Mitigation offers significant advantages. As I have noted, mitigated properties are less likely to be at a high risk for flood damage, making it easier for NFIP to charge them full-risk rates that cover actual losses. Allowing NFIP to deny coverage to owners of repetitive loss properties who refused to undertake mitigation efforts could further reduce costs to the program and ultimately to taxpayers. One disadvantage of increased mitigation efforts is that they can impose up-front costs on homeowners and communities required to undertake them and could raise taxpayers' costs if the federal government elected to provide additional mitigation assistance. Those costs could increase still further if property owners who were dropped from the program for refusing to mitigate later-received federal postdisaster assistance. These trade-offs are not insignificant, although certain actions could be taken to reduce them. For example, federal assistance such as low-cost loans, grants, or tax credits could be provided to help property owners pay for the up-front costs of mitigation efforts. Any reform efforts could explore ways to improve mitigation efforts to help ensure maximum effectiveness. For example, FEMA has three separate flood mitigation programs. Having multiple programs may not be the most cost-efficient and effective way to promote mitigation and may unnecessarily complicate mitigation efforts. Increasing participation in NFIP, and thus the size of the risk pool, would help ensure that losses from flood damage did not become the responsibility of the taxpayer. Participation rates have been estimated to be as low as 50 percent in SFHAs, where property owners with loans from federally insured and regulated lenders are required to purchase flood insurance, and participation in lower-risk areas is significantly lower. For example, participation rates outside of SFHAs have been found to be as low as 1 percent, leaving significant room to increase participation. Expanding participation in NFIP would have a number of advantages. As a growing number of participants shared the risks of flooding, premium rates could be lower than they would be with fewer participants. Currently, NFIP must take all applicants for flood insurance, unlike private insurers, and thus is limited in its ability to manage its risk exposure. To the extent that properties added to the program were in geographic areas where participation had historically been low and in low- and medium-risk areas, the increased diversity could lower rates as the overall risk to the program decreased. Further, increased program participation could reduce taxpayer costs by reducing the number of property owners who might draw on federally funded postdisaster assistance. However, efforts to expand participation in NFIP would have to be carefully implemented, for several reasons. First, as we have noted, NFIP cannot reject applicants on the basis of risk. As a result, if participation increased only in SFHAs, the program could see its concentration of high- risk properties grow significantly and face the prospect of more severe losses. Second, a similar scenario could emerge if mandatory purchase requirements were expanded and newly covered properties were in communities that did not participate in NFIP and thus did not meet standards--such as building codes--that could reduce flood losses. As a result, some of the newly enrolled properties might be eligible for subsidized premium rates or, because of restrictions on how much FEMA can charge in premiums, might not pay rates that covered the actual risk of flooding. Finally, historically FEMA has attempted to encourage participation by charging lower rates; however, doing so results in rates that do not fully reflect the risks of flooding and exposes taxpayers to increased risk. Moderating the challenges associated with expanding participation could take a variety of forms. Newly added properties could be required to pay full-risk rates, and low-income property owners could be offered some type of assistance to help them pay their premiums. Outreach efforts would need to include areas with low and moderate flood risks to help ensure that the risk pool remained diversified. For example, FEMA's goals for NFIP include increasing penetration in low-risk flood zones, among homeowners without federally related mortgages in all zones, and in geographic areas with repetitive losses and low penetration rates. Currently, the private market provides only a limited amount of flood insurance coverage. In 2009, we reported that while aggregate information was not available on the precise size of the private flood insurance market, it was considered relatively small. The 2006 RAND study estimated that 180,000 to 260,000 insurance policies for both primary and gap coverage were in effect. We also reported that private flood insurance policies are generally purchased in conjunction with NFIP policies, with the NFIP policy covering the deductible on the private policy. Finally, we reported that NFIP premiums were generally less expensive than premiums for private flood insurance for similar coverage. For example, one insurer told us that for a specified amount of coverage for flood damage to a structure, an NFIP policy might be as low as $500, while a private policy might be as high as $900. Similar coverage for flood damage to contents might be $350 for an NFIP policy but around $600 for a private policy. Given the limited nature of private sector participation, encouraging private market participation could transfer some of the federal government's risk exposure to the private markets and away from taxpayers. However, identifying ways to achieve that end has generally been elusive. In 2007, we evaluated the trade-offs of having a mandatory all-perils policies that would include flood risks. For example, it would alleviate uncertainty about the types of natural events homeowners insurance covered, such as those that emerged following Hurricane Katrina. However, at the time the industry was generally opposed to an all- perils policy because of the large potential losses a mandatory policy would entail. Increased private market participation is also not without potential disadvantages. First, if the private markets provide coverage for only the lowest-risk properties currently in NFIP, the percentage of high-risk properties in the program would increase. This scenario could result in higher rates as the amount needed to cover the full risk of flooding increased. Without higher rates, however, the federal government would face further exposure to loss. Second, private insurers, who are able to charge according to risk, would likely charge higher rates than NFIP has been charging unless they received support from the federal government. As we have seen, such increases could create affordability concerns for low-income policyholders. Strategies to help mitigate these disadvantages could include requiring private market coverage for all property owners-- not just those in high-risk areas--and, as described earlier, providing targeted assistance to help low-income property owners pay for their flood coverage. In addition, Congress could provide options to private insurers to help lower the cost of such coverage, including tax incentives or federal reinsurance. As Congress weighs NFIP's various financial challenges in its efforts to reform the program, it must also consider a number of operational and management issues that may limit efforts to meet program goals and impair NFIP's stability. For the past 35 years, we have highlighted challenges with NFIP and its administration and operations. For example, most recently we have identified a number of issues impairing the program's effectiveness in areas that include the reasonableness of payments to Write-Your-Own (WYO) insurers, the adequacy of financial controls over the WYO program, and the adequacy of oversight of non- WYO contractors. In our report, which reviews FEMA's management of NFIP, we addressed, among other things, (1) the extent to which FEMA's management practices affect the agency's ability to meet NFIP's mission and (2) lessons to be learned from the cancellation of FEMA's most recent attempt to modernize NFIP's flood insurance policy and claims processing system. We found that FEMA faces significant management challenges in areas that affect its administration of NFIP. First, FEMA has not finalized strategic guidance and direction for NFIP and therefore lacks goals and objectives for the program and the necessary starting point for developing performance measures that would assess the program's effectiveness. Second, FEMA faces a number of human capital challenges related to turnover, hiring, and tracking the many contractors that play a key role in NFIP. Further, FEMA lacks a plan that would help ensure consistent day- to-day operations when it deploys staff to respond to federal disasters. Third, collaboration between program and support offices that contribute to administering NFIP has at times been ineffective, leading to challenges in effectively carrying out some key functions, including information technology, acquisition, and financial management. Finally, FEMA does not have a comprehensive set of processes and systems to guide its operations. Specifically, it lacks an updated records management policy, an electronic document management system, procedures to effectively manage unliquidated obligations, and a fully developed and implemented documentation of its business processes. FEMA has begun taking steps to improve its acquisition management and document some of its business processes, but the results of its efforts remain to be seen. Unless it takes further steps to address these management challenges, FEMA will be limited in its ability to manage NFIP's operations or better ensure program effectiveness. In our report we made eight recommendations addressing these issues. DHS agreed with these recommendations and FEMA has begun to take steps to begin addressing some of them. For example, FEMA has begun developing a strategy for the administration of its mitigation and insurance programs, conducting a workforce assessment, holding outreach sessions between program and support offices to improve collaboration, and developing training and certification programs for acquisition management. We also found that the cancelled development of the Next Generation Flood Insurance Management System (NextGen), FEMA's latest attempt to modernize NFIP's insurance policy and claims management system, illustrated weaknesses in NFIP's acquisition management activities. Despite investing roughly 7 years and $40 million, FEMA ultimately canceled the effort in November 2009 because it failed to meet user expectations, forcing the agency to continue relying on a 30-year-old system that does not fully support NFIP's mission needs and is costly to maintain and operate. A number of acquisition management weaknesses led to NextGen's failure and cancellation. Specifically, business and functional requirements were not sufficiently defined; system users did not actively participate in determining the requirements for the development of system prototypes or in pilot testing activities; test planning and project risks were not adequately managed; and project management office staffing was limited. As FEMA begins a new effort to modernize the existing legacy system, it plans to apply lessons learned from its NextGen experience. While FEMA has begun implementing some changes to its acquisition management practices, it remains to be seen if they will help FEMA avoid some of the problems that led to NextGen's failure. Unless it develops appropriate acquisitions processes and applies lessons learned from the NextGen failure, FEMA will be unable to develop an effective policies and claims processing system for NFIP. DHS agreed with our recommendations that DHS provide regular oversight of FEMA's next attempt to modernize the system and help ensure FEMA applies lessons learned. Congressional action is needed to increase the financial stability of NFIP and limit taxpayer exposure. GAO previously identified four public policy goals that can provide a framework for crafting or evaluating proposals to reform NFIP. First, any congressional reform effort should include measures for charging premium rates that accurately reflect the risk of loss, including catastrophic losses. Meeting this goal would require changing the law governing NFIP to reduce or eliminate subsidized rates, limits on annual rate increases, and grandfathered or other rates that do not fully reflect the risk of loss. In taking such a step, Congress may choose to provide assistance to certain property owners, and should consider providing appropriate authorization and funding of such incentives to ensure transparency. Second, because of the potentially high costs of individual and community mitigation efforts, which can reduce the frequency and extent of flood damage, Congress may need to provide funding or access to funds for such efforts and consider ways to improve the efficiency of existing mitigation programs. Moreover, if Congress wished to allow NFIP to deny coverage to owners of properties with repetitive losses who refuse mitigation efforts, it would need to give FEMA appropriate authority. Third, Congress could encourage FEMA to continue to increase participation in the program by expanding targeted outreach efforts and limiting postdisaster assistance to those individuals who choose not to mitigate in moderate- and high-risk areas. And finally, to address the goal of encouraging private sector participation, Congress could encourage FEMA to explore private sector alternatives to providing flood insurance or for sharing insurance risks, provided such efforts do not increase taxpayers' exposure. For its part, FEMA needs to take action to address a number of fundamental operational and managerial issues that also threaten the stability of NFIP and have contributed to its remaining on GAO's high-risk list. These include improving its strategic planning, human capital planning, intra-agency collaboration, records management, acquisition management, and information technology. While FEMA continues to make some progress in some areas, fully addressing these issues is vital to its long-term operational efficiency and financial stability. Chairman Johnson and Ranking Member Shelby, this concludes my prepared statement. I would be pleased to respond to any of the questions you or other members of the Committee may have at this time. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. For further information about this testimony, please contact Orice Williams Brown at (202) 512-8678 or [email protected]. This statement was prepared under the direction of Patrick Ward. Key contributors were Christopher Forys, Nima Patel Edwards, Emily Chalmers, and Tania Calhoun. FEMA: Action Needed to Improve Administration of the National Flood Insurance Program. GAO-11-297. Washington, D.C.: June 9, 2011. Flood Insurance: Public Policy Goals Provide A Framework for Reform. GAO-11-429T. Washington, D.C.: March 11, 2011. FEMA Flood Maps: Some Standards and Processes in Place to Promote Map Accuracy and Outreach, but Opportunities Exist to Address Implementation Challenges. GAO-11-17. Washington, D.C.: December 2, 2010. National Flood Insurance Program: Continued Actions Needed to Address Financial and Operational Issues. GAO-10-1063T. Washington, D.C.: September 22, 2010. National Flood Insurance Program: Continued Actions Needed to Address Financial and Operational Issues. GAO-10-631T. Washington, D.C.: April 21, 2010. Financial Management: Improvements Needed in National Flood Insurance Program's Financial Controls and Oversight. GAO-10-66. Washington, D.C.: December 22, 2009. Flood Insurance: Opportunities Exist to Improve Oversight of the WYO Program. GAO-09-455. Washington, D.C.: August 21, 2009. Information on Proposed Changes to the National Flood Insurance Program. GAO-09-420R. Washington, D.C.: February 27, 2009. High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January 2009. Flood Insurance: Options for Addressing the Financial Impact of Subsidized Premium Rates on the National Flood Insurance Program. GAO-09-20. Washington, D.C.: November 14, 2008. Flood Insurance: FEMA's Rate-Setting Process Warrants Attention. GAO-09-12. Washington, D.C.: October 31, 2008. National Flood Insurance Program: Financial Challenges Underscore Need for Improved Oversight of Mitigation Programs and Key Contracts. GAO-08-437. Washington, D.C.: June 16, 2008. Natural Catastrophe Insurance: Analysis of a Proposed Combined Federal Flood and Wind Insurance Program. GAO-08-504. Washington, D.C.: April 25, 2008. National Flood Insurance Program: Greater Transparency and Oversight of Wind and Flood Damage Determinations Are Needed. GAO-08-28. Washington, D.C.: December 28, 2007. National Disasters: Public Policy Options for Changing the Federal Role in Natural Catastrophe Insurance. GAO-08-7. Washington, D.C.: November 26, 2007. Federal Emergency Management Agency: Ongoing Challenges Facing the National Flood Insurance Program. GAO-08-118T. Washington, D.C.: October 2, 2007. National Flood Insurance Program: FEMA's Management and Oversight of Payments for Insurance Company Services Should Be Improved. GAO-07-1078. Washington, D.C.: September 5, 2007. National Flood Insurance Program: Preliminary Views on FEMA's Ability to Ensure Accurate Payments on Hurricane-Damaged Properties. GAO-07-991T. Washington, D.C.: June 12, 2007. Coastal Barrier Resources System: Status of Development That Has Occurred and Financial Assistance Provided by Federal Agencies. GAO-07-356. Washington, D.C.: March 19, 2007. Budget Issues: FEMA Needs Adequate Data, Plans, and Systems to Effectively Manage Resources for Day-to-Day Operations. GAO-07-139. Washington, D.C.: January 19, 2007. National Flood Insurance Program: New Processes Aided Hurricane Katrina Claims Handling, but FEMA's Oversight Should Be Improved. GAO-07-169. Washington, D.C.: December 15, 2006. GAO'S High-Risk Program. GAO-06-497T. Washington, D.C.: March 15, 2006. Federal Emergency Management Agency: Challenges for the National Flood Insurance Program. GAO-06-335T. Washington, D.C.: January 25, 2006. Federal Emergency Management Agency: Improvements Needed to Enhance Oversight and Management of the National Flood Insurance Program. GAO-06-119. Washington, D.C.: October 18, 2005. Determining Performance and Accountability Challenges and High Risks. GAO-01-159SP. Washington, D.C.: November 2000. Standards for Internal Control in the Federal Government. GAO/AIMD-00-21.3.1. Washington, D.C.: November 1999. Budget Issues: Budgeting for Federal Insurance Programs. GAO/T-AIMD-98-147. Washington, D.C.: April 23, 1998. Budget Issues: Budgeting for Federal Insurance Programs. GAO/AIMD-97-16. Washington, D.C.: September 30, 1997. National Flood Insurance Program: Major Changes Needed If It Is To Operate Without A Federal Subsidy. GAO/RCED-83-53. Washington, D.C.: January 3, 1983. Formidable Administrative Problems Challenge Achieving National Flood Insurance Program Objectives. RED-76-94. Washington, D.C.: April 22, 1976. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The National Flood Insurance Program (NFIP) has been on GAO's high-risk list since 2006, when the program had to borrow from the U.S. Treasury to cover losses from the 2005 hurricanes. The outstanding debt is $17.8 billion as of June 2011. This sizeable debt, plus operational and management challenges that GAO has identified at the Federal Emergency Management Agency (FEMA), which administers NFIP, have combined to keep the program on the high-risk list. NFIP's need to borrow to cover claims in years of catastrophic flooding has raised concerns about the program's long-term financial solvency. This testimony (1) discusses ways to place NFIP on a sounder financial footing in light of public policy goals for federal involvement in natural catastrophe insurance and (2) highlights operational and management challenges at FEMA that affect the program. In preparing this statement, GAO relied on its past work on NFIP, including a June 2011 report on FEMA's management of NFIP, which focused on its planning, policies, processes, and systems. The management review included areas such as strategic and human capital planning, acquisition management, and intra-agency collaboration. Congressional action is needed to increase the financial stability of NFIP and limit taxpayer exposure. GAO previously identified four public policy goals that can provide a framework for crafting or evaluating proposals to reform NFIP. These goals are: (1) charging premium rates that fully reflect risks, (2) limiting costs to taxpayers before and after a disaster, (3) encouraging broad participation in the program, and (4) encouraging private markets to provide flood insurance. Successfully reforming NFIP would require trade-offs among these often competing goals. For example, nearly one in four policyholders does not pay full-risk rates, and many pay a lower subsidized or "grandfathered" rate. Reducing or eliminating less than full-risk rates would decrease costs to taxpayers but substantially increase costs for many policyholders, some of whom might leave the program, potentially increasing postdisaster federal assistance. However, these trade-offs could be mitigated by providing assistance only to those who need it, limiting postdisaster assistance for flooding, and phasing in premium rates that fully reflect risks. Increasing mitigation efforts to reduce the probability and severity of flood damage would also reduce flood claims in the long term but would have significant up-front costs that might require federal assistance. One way to address this trade-off would be to better ensure that current mitigation programs are effective and efficient. Encouraging broad participation in the program could be achieved by expanding mandatory purchase requirements or increasing targeted outreach to help diversify the risk pool. Such efforts could help keep rates relatively low and reduce NFIP's exposure but would have to be effectively managed to help ensure that outreach efforts are broadly based. Encouraging private markets is the most difficult challenge because virtually no private market for flood insurance exists for most residential and commercial properties. FEMA's ongoing efforts to explore alternative structures may provide ideas that could be evaluated and considered. Several operational and management issues also limit FEMA's progress in addressing NFIP's challenges, and continued action by FEMA will be needed to help ensure the stability of the program. For example, in numerous past reports, GAO identified weaknesses in areas that include financial controls and oversight of private insurers and contractors, and made many recommendations to address them. While FEMA has made progress in addressing some areas, GAO's June 2011 report identified a number of management challenges facing the program, including strategic and human capital planning, records management, collaboration among offices, and financial and acquisition management. In this report, we also made a number of recommendations to address these challenges. FEMA agreed with the recommendations and discussed the steps being taken to address some of them. GAO has made numerous recommendations aimed at improving financial controls, oversight of private insurers and contractors, and FEMA's management of NFIP. DHS generally agreed with our recommendations.
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The way DOD develops and produces its major weapons systems has had disappointing outcomes. There is a vast difference between DOD's budgeting plans and the reality of the cost of its systems. Performance, if it is defined as the capability that actually reaches the warfighter, often falls short, as cost increases result in fewer quantities of produced systems and schedule slips. Performance, if it is defined as an acceptable return on investment, has not lived up to promises. Table 1 illustrates seven programs with a significant reduction in buying power; we have reported similar outcomes in many more programs. For example, the Air Force initially planned to buy 648 F/A-22 Raptor tactical aircraft at a program acquisition unit cost of about $125 million (fiscal year 2006 dollars). Technology and design components matured late in the development of the aircraft, which contributed to cost growth and schedule delays. Now, the Air Force plans to buy 181 aircraft at a program acquisition unit cost of about $361 million, an almost 189 percent increase. Furthermore, the conventional acquisition process is not agile enough for today's demands. Congress has expressed concern that urgent warfighting requirements are not being met in the most expeditious manner and has put in place several authorities for rapid acquisition to work around the process. The U.S. Joint Forces Command's Limited Acquisition Authority and the Secretary of Defense's Rapid Acquisition Authority seek the ability to get warfighting capability to the field faster. According to U.S. Joint Forces Command officials, it is only through Limited Acquisition Authority that the command has the authority to satisfy the unanticipated, unbudgeted, urgent mission needs of other combatant commands. With a formal process that requires as many as 5, 10, or 15 years to get from program start to production, such experiments are needed to meet the warfighters' needs. Today we are at a crossroad. Our nation is on an unsustainable fiscal path. Long-term budget simulations by GAO, the Congressional Budget Office, and others show that, over the long term, we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Federal discretionary spending, along with other federal policies and programs, will face serious budget pressures in the coming years stemming from new budgetary demands and demographic trends. Defense spending falls within the discretionary spending accounts. Further, current military operations, such as those in Afghanistan and Iraq, consume a large share of DOD resources and are causing faster wear on existing weapons. Refurbishment or replacement sooner than planned is putting further pressure on DOD's investment accounts. At the same time DOD is facing these problems, programs are commanding larger budgets. DOD is undertaking new efforts that are expected to be the most expensive and complex ever and on which DOD is heavily relying to fundamentally transform military operations. And it is giving contractors increased program management responsibilities to develop requirements, design products, and select major system and subsystem contractors. Table 2 shows that just 5 years ago, the top five weapon systems cost about $291 billion combined; today, the top five weapon systems cost about $550 billion. If these megasystems are managed with traditional margins of error, the financial consequences can be dire, especially in light of a constrained discretionary budget. Success for acquisitions means making sound decisions to ensure that program investments are getting promised returns. In the commercial world, successful companies have no choice but to adopt processes and cultures that emphasize basing decisions on knowledge, reducing risks prior to undertaking new efforts, producing realistic cost and schedule estimates, and building-in quality in order to deliver products to customers at the right price, the right time, and the right cost. At first blush, it would seem DOD's definition of success would be very similar: deliver capability to the warfighter at the right price, the right time, and the right cost. However, this is not happening within DOD. In an important sense, success has come to mean starting and continuing programs even when cost, schedule, and quantities must be sacrificed. DOD knows what to do to improve acquisitions but finds it difficult to apply the controls or assign the accountability necessary for successful outcomes. To understand why these problems persist, we must look not just at the product development process but at the underlying requirements and budgeting processes to define problems and find solutions. Over the last several years, we have undertaken a body of work that examines weapon acquisition issues from a perspective that draws upon lessons learned from best product development practices. Leading commercial firms expect that their program managers will deliver high- quality products on time and within budget. Doing otherwise could result in the customer walking away. Thus, those firms have created an environment and adopted practices that put their program managers in a good position to succeed in meeting these expectations. Collectively, these practices comprise a process that is anchored in knowledge. It is a process in which technology development and product development are treated differently and managed separately. The process of developing technology culminates in discovery--the gathering of knowledge--and must, by its nature, allow room for unexpected results and delays. Leading firms do not ask their product managers to develop technology. Successful programs give responsibility for maturing technologies to a science and technology organizations, rather than the program or product development managers. The process of developing a product culminates in delivery, and, therefore, gives great weight to design and production. The firms demand--and receive--specific knowledge about a new product before production begins. A program does not go forward unless a strong business case on which the program was originally justified continues to hold true. Successful product developers ensure a high level of knowledge is achieved at key junctures in development. We characterize these junctures as knowledge points. These knowledge points and associated indicators are defined as follows: Knowledge point 1: Resources and needs match. This point occurs when a sound business case is made for the product--that is, a match is made between the customer's requirements and the product developer's available resources in terms of knowledge, time, money, and capacity. Achieving a high level of technology maturity at the start of system development is an important indicator of whether this match has been made. This means that the technologies needed to meet essential product requirements have been demonstrated to work in their intended environment. Knowledge point 2: Product design is stable. This point occurs when a program determines that a product's design is stable-- that is, it will meet customer requirements, as well as cost, schedule and reliability targets. A best practice is to achieve design stability at the system-level critical design review, usually held midway through development. Completion of at least 90 percent of engineering drawings at the system design review provides tangible evidence that the design is stable. Knowledge point 3: Production processes are mature. This point is achieved when it has been demonstrated that the company can manufacture the product within cost, schedule, and quality targets. A best practice is to ensure that all key manufacturing processes are in statistical control--that is, they are repeatable, sustainable, and capable of consistently producing parts within the product's quality tolerances and standards--at the start of production. A result of this knowledge-based process is evolutionary product development, an incremental approach that enables developers to rely more on available resources rather than making promises about unproven technologies. Predictability is a key to success as successful product developers know that invention cannot be scheduled and its cost is difficult to estimate. They do not bring technology into new product development unless that technology has been demonstrated to meet the user's requirements. Allowing technology development to spill over into product development puts an extra burden on decision makers and provides a weak foundation for making product development estimates. While the user may not initially receive the ultimate capability under this approach, the initial product is available sooner and at a lower, more predictable cost. There is a synergy in this process, as the attainment of each successive knowledge point builds on the preceding one. Metrics gauge when the requisite level of knowledge has been attained. Controls are used to attain a high level of knowledge before making additional significant investments. Controls are considered effective if they are backed by measurable criteria and if decision makers are required to consider them before deciding to advance a program to the next level. Effective controls help decision makers gauge progress in meeting cost, schedule, and performance goals and ensure that managers will (1) conduct activities to capture relevant product development knowledge, (2) provide evidence that knowledge was captured, and (3) hold decision reviews to determine that appropriate knowledge was captured to move to the next phase. The result is a product development process that holds decision makers accountable and delivers excellent results in a predictable manner. A hallmark of an executable program is shorter development cycle times, which allow more systems to enter production more quickly. DOD itself suggests that product development should be limited to about 5 years. Time constraints, such as this, are important because they serve to limit the initial product's requirements. Limiting product development cycle times to 5 years or less would allow for more frequent assimilation of new technologies into weapon systems, speeding new technology to the warfighter, hold program managers accountable, as well as make more frequent and predictable work in production, where contractors and the industrial base can profit by being efficient. DOD's policy adopts the knowledge-based, evolutionary approach used by leading commercial companies that enables developers to rely more on available resources rather than making promises about unproven technologies. The policy provides a framework for developers to ask themselves at key decision points whether they have the knowledge they need to move to the next phase of acquisition. For example, DOD Directive 5000.1 states that program managers "shall provide knowledge about key aspects of a system at key points in the acquisition process," such as demonstrating "technologies in a relevant environment ... prior to program initiation." This knowledge-based framework can help managers gain the confidence they need to make significant and sound investment decisions for major weapon systems. In placing greater emphasis on evolutionary product development, the policy sets up a more manageable environment for achieving knowledge. However, the longstanding problem of programs beginning development with immature technologies is continuing to be seen on even the newest programs. Several programs approved to begin product development within only the last few years began with most of their technologies immature and have already experienced significant development cost increases. In the case of the Army's Future Combat Systems, nearly 2 years after program launch and with $4.6 billion invested, only 1 out of more than 50 critical technologies is considered mature and the research and development cost estimate has grown by 48 percent. In March 2005, we reported that very few programs--15 percent of the programs we assessed--began development having demonstrated high levels of technology maturity. Acquisition unit costs for programs leveraging mature technologies increased by less than 1 percent, whereas programs that started development with immature technologies experienced an average acquisition unit cost increase of nearly 21 percent over the first full estimate. The decision to start a new program is the most highly leveraged point in the product development process. Establishing a sound business case for individual programs depends on disciplined requirements and funding processes. Our work has shown that DOD's requirements process generates more demand for new programs than fiscal resources can support. DOD compounds the problem by approving so many highly complex and interdependent programs. Moreover, once a program is approved, requirements can be added along the way that increases costs and risks. Once too many programs are approved to start, the budgeting process exacerbates problems. Because programs are funded annually and department wide, cross-portfolio priorities have not been established, competition for funding continues over time, forcing programs to view success as the ability to secure the next funding increment rather than delivering capabilities when and as promised. As a result, there is pressure to suppress bad news about programs, which could endanger funding and support, as well as to skip testing because of its high cost. Concurrently, when faced with budget constraints, senior officials tend to make across- the-board cuts to all programs rather than make the hard decisions as to which ones to keep and which ones to cancel or cut back. In many cases, the system delivers less performance than promised when initial investment decisions were made. So, the condition we encounter time after time describes a predictable outcome. The acquisition environment encourages launching product developments that embody more technical unknowns and less knowledge about the performance and production risks they entail. A new weapon system is encouraged to possess performance features that significantly distinguish it from other systems and promises the best capability. A new program will not be approved unless its costs fall within forecasts of available funds and, therefore, looks affordable. Because cost and schedule estimates are comparatively soft at the time, successfully competing for funds encourages the program's estimates to be squeezed into the funds available. Consequently, DOD program managers have incentives to promote performance features and design characteristics that rely on immature technologies and decision makers lack the knowledge they need to make good decisions. A path can be laid out to make decisions that will lead to better program choices and better outcomes. Much of this is known and has been recommended by one study or another. GAO itself has issued hundreds of reports. The key recommendations we have made have been focused on the product development process: constraining individual program requirements by working within available resources and by leveraging systems engineering; establishing clear business cases for each individual investment; enabling science and technology organizations to shoulder the ensuring that the workforce is capable of managing requirements trades, source selection, and knowledge-based acquisition strategies; and establishing and enforcing controls to ensure that appropriate knowledge is captured and used at critical junctures before moving programs forward and investing more money. As I have outlined above, however, setting the right conditions for successful acquisitions outcomes goes beyond product development. We are currently examining how to bring discipline to the Department's requirements and budgetary process and the role played by the program manager. As we conduct this work, we will be asking who is currently accountable for acquisition decisions; who should be held accountable; how much deviation from the original business case is allowed before the entire program investment is reconsidered; and what is the penalty when investments do not result in meeting promised warfighter needs? We can make hard, but thoughtful, decisions now or postpone them, allowing budgetary realities to force draconian decisions later. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or other members of the subcommittee may have. For further information regarding this testimony, please contact Katherine V. Schinasi at (202) 512-4841 or [email protected]. Individuals making key contributions to this testimony included Paul L. Francis, David B. Best, David J. Hand, Alan R. Frazier, Adam Vodraska, and Lily J. Chin. Space Acquisitions: Stronger Development Practices and Investment Planning Needed to Address Continuing Problems. GAO-05-891T. Washington, D.C.: July 12, 2005. Air Force Procurement: Protests Challenging Role of Biased Official Sustained. GAO-05-436T. Washington, D.C.: April 14, 2005. Tactical Aircraft: F/A-22 and JSF Acquisition Plans and Implications for Tactical Aircraft Modernization. GAO-05-591T. Washington, D.C.: April 6, 2005. Defense Acquisitions: Assessments of Selected Major Weapon Programs. GAO-05-301. Washington, D.C.: March 31, 2005. Defense Acquisitions: Future Combat Systems Challenges and Prospects for Success. GAO-05-428T. Washington, D.C.: March 16, 2005. Defense Acquisitions: Stronger Management Practices Are Needed to Improve DOD's Software-Intensive Weapon Acquisitions. GAO-04-393. Washington, D.C.: March 1, 2004. Defense Acquisitions: DOD's Revised Policy Emphasizes Best Practices, but More Controls Are Needed. GAO-04-53. Washington, D.C.: November 10, 2003. Best Practices: Setting Requirements Differently Could Reduce Weapon Systems' Total Ownership Costs. GAO-03-57. Washington, D.C.: February 11, 2003. Best Practices: Capturing Design and Manufacturing Knowledge Early Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.: July 15, 2002. Defense Acquisitions: DOD Faces Challenges in Implementing Best Practices. GAO-02-469T. Washington, D.C.: February 27, 2002. Best Practices: Better Matching of Needs and Resources Will Lead to Better Weapon System Outcomes. GAO-01-288. Washington, D.C.: March 8, 2001. Best Practices: A More Constructive Test Approach Is Key to Better Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.: July 31, 2000. Defense Acquisition: Employing Best Practices Can Shape Better Weapon System Decisions. GAO/T-NSIAD-00-137. Washington, D.C.: April 26, 2000. Best Practices: DOD Training Can Do More to Help Weapon System Program Implement Best Practices. GAO/NSIAD-99-206. Washington, D.C.: August 16, 1999. Best Practices: Better Management of Technology Development Can Improve Weapon System Outcomes. GAO/NSIAD-99-162. Washington, D.C.: July 30, 1999. Defense Acquisitions: Best Commercial Practices Can Improve Program Outcomes. GAO/T-NSIAD-99-116. Washington, D.C.: March 17, 1999. Defense Acquisition: Improved Program Outcomes Are Possible. GAO/T-NSIAD-98-123. Washington, D.C.: March 18, 1998. Best Practices: Successful Application to Weapon Acquisition Requires Changes in DOD's Environment. GAO/NSIAD-98-56. Washington, D.C.: February 24, 1998. Major Acquisitions: Significant Changes Underway in DOD's Earned Value Management Process. GAO/NSIAD-97-108. Washington, D.C.: May 5, 1997. Best Practices: Commercial Quality Assurance Practices Offer Improvements for DOD. GAO/NSIAD-96-162. Washington, D.C.: August 26, 1996. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Defense (DOD) is shepherding a portfolio of major weapon systems valued at about $1.3 trillion. How DOD is managing this investment has been a matter of concern for some time. Since 1990, GAO has designated DOD's weapon system acquisitions as a high-risk area for fraud, waste, abuse, and mismanagement. DOD has experienced cost overruns, missed deadlines, performance shortfalls, and persistent management problems. In light of the serious budget pressures facing the nation, such problems are especially troubling. GAO has issued hundreds of reports addressing broad-based issues, such as best practices, as well as reports focusing on individual acquisitions. These reports have included many recommendations. Congress asked GAO to testify on possible problems with and improvements to defense acquisition policy. In doing so, we highlight the risks of conducting business as usual and identify some of the solutions we have found in successful acquisition programs and organizations. DOD is facing a cascading number of problems in managing its acquisitions. Cost increases incurred while developing new weapon systems mean DOD cannot produce as many of those weapons as intended nor can it be relied on to deliver to the warfighter when promised. Military operations in Afghanistan and Iraq are consuming a large share of DOD resources and causing the department to invest more money sooner than expected to replace or fix existing weapons. Meanwhile, DOD is intent on transforming military operations and has its eye on multiple megasystems that are expected to be the most expensive and complex ever. These costly conditions are running head-on into the nation's unsustainable fiscal path. DOD knows what to do to achieve more successful outcomes but finds it difficult to apply the necessary discipline and controls or assign much-needed accountability. DOD has written into policy an approach that emphasizes attaining a certain level of knowledge at critical junctures before managers agree to invest more money in the next phase of weapon system development. This knowledge-based approach results in evolutionary--that is, incremental, manageable, predictable--development and inserts several controls to help managers gauge progress in meeting cost, schedule, and performance goals. But DOD is not employing the knowledge-based approach, discipline is lacking, and business cases are weak. Persistent practices show a decided lack of restraint. DOD's requirements process generates more demand for new programs than fiscal resources can support. DOD compounds the problem by approving so many highly complex and interdependent programs. Once too many programs are approved to start, the budgeting process exacerbates problems. Because programs are funded annually and departmentwide, cross-portfolio priorities have not been established, competition for funding continues over time, forcing programs to view success as the ability to secure the next funding increment rather than delivering capabilities when and as promised. Improving this condition requires discipline in the requirements and budgetary processes. Determining who should be held accountable for deviations and what penalties are needed is crucial. If DOD cannot discipline itself now to execute programs within fiscal realities, then draconian, budget-driven decisions may have to be made later.
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The Coast Guard is a multimission, maritime military service within DHS. The Coast Guard's responsibilities fall into two general categories--those related to homeland security missions, such as port security and vessel escorts, and those related to non-homeland security missions, such as search and rescue and polar ice operations. To carry out these responsibilities, the Coast Guard operates a number of vessels and aircraft and, through its Deepwater Program, is currently modernizing or replacing those assets. At the start of the Deepwater Program in the late 1990s, the Coast Guard chose to use a system-of-systems acquisition strategy. A system-of-systems is defined as a set or arrangement of assets that results when independent assets are integrated into a larger system that delivers unique capabilities. As the systems integrator, ICGS was responsible for designing, constructing, deploying, supporting, and integrating the Deepwater assets into a system-of-systems. Under this approach, the Coast Guard provided the contractor with broad, overall performance specifications--such as the ability to interdict illegal immigrants--and ICGS determined the asset specifications. According to Coast Guard officials, the ICGS proposal was submitted and priced as a package; that is, the Coast Guard bought the entire solution and could not reject any individual component. In November 2006, the Coast Guard submitted a cost, schedule, and performance baseline to DHS that established the total acquisition cost of the ICGS solution at $24.2 billion and projected that the acquisition would be completed in 2027. In May 2007, shortly after the Coast Guard had announced its intention to take over the role of systems integrator, DHS approved the baseline. Table 1 describes in more detail the assets the Coast Guard is planning to procure according to approved baselines. In deciding to take over the systems integrator role from ICGS, the Coast Guard has taken steps to increase government control and accountability by, among other things, applying the disciplined program management processes in its Major Systems Acquisition Manual (MSAM) to Deepwater assets. The MSAM requires documentation and approval of acquisition decisions at key points in a program's life-cycle by designated officials at high levels. The Coast Guard has established a number of goals and deadlines for completing these activities in its Blueprint for Acquisition Reform, which was initially released in July 2007 and was last updated in July 2008. The Coast Guard has taken three major steps to become the systems integrator for the Deepwater Program. It has defined and assigned systems integrator functions to Coast Guard stakeholders, begun to reassess the capabilities and mix of assets it requires, and significantly reduced the contractual responsibilities of ICGS. While the Coast Guard has made progress in applying the disciplined MSAM acquisition process to its Deepwater assets, it did not meet its goal of being fully compliant by the second quarter of fiscal year 2009. In the meantime, the Coast Guard continues with production of certain assets and award of new contracts in light of what it views as pressing operational needs. The role of systems integrator involves planning, organizing, and integrating a mix of assets into a system-of-systems capability greater than the sum of the capabilities of the individual parts. ICGS's role as systems integrator for the Deepwater Program included requirements management, systems engineering, and defining how assets would be employed by Coast Guard users in an operational setting. In addition, the contractor had technical authority over all asset design and configuration decisions. In 2008, the Coast Guard acknowledged that in order to assume the role of systems integrator, it needed to define systems integrator functions and assign them to Coast Guard stakeholders. Through codified changes to internal relationships, policies, and contractual arrangements, the Coast Guard has done so. For example, the Coast Guard formally designated certain directorates as technical authorities to establish, monitor, and approve technical standards for Deepwater assets related to design, construction, maintenance, logistics, C4ISR, and life-cycle staffing and training. The Coast Guard's capabilities directorate determines operational requirements and the asset mix to satisfy those requirements and establishes priorities. This directorate is expected to collaborate with the technical authorities to ensure that the Coast Guard's technical standards are incorporated during the requirements development process. Further, the acquisition directorate's program and project managers are to be held accountable for ensuring that the assets it procures fulfill operational requirements and the technical authority standards. The relationships between Coast Guard directorates in executing their systems integrator roles are represented graphically in figure 1. When it contracted with ICGS, the Coast Guard had limited insight into how the contractor's proposed solution would meet overall mission needs, limiting its ability to justify the proposed solution and make informed decisions about possible trade-offs. To improve its insight, the capabilities directorate has initiated a fundamental reassessment of the capabilities and mix of assets the Coast Guard needs to fulfill its Deepwater missions. The goals of this fleet mix analysis include validating mission performance requirements and revisiting the number and mix of all assets that are part of the Deepwater Program. A specific part of the study will be to analyze alternatives and quantities for the Offshore Patrol Cutter, an asset which accounts for a projected $8 billion of the total Deepwater costs. According to an official, the results of this analysis are expected in the summer of 2009. Coast Guard leadership plans to assess the results and make future procurement decisions based on the analysis. In conjunction with its assuming the role of systems integrator, the Coast Guard has significantly reduced the scope of work on contract with ICGS. In March 2009, the Coast Guard issued a task order to ICGS limited to tasks such as data management and quality assurance for assets currently under contract with ICGS including C4ISR, the Maritime Patrol Aircraft (MPA), and the National Security Cutter (NSC). The Coast Guard is currently developing plans to transition these functions from ICGS to the Coast Guard or an independent third party by February 2011 when this task order expires. For assets procured or planned to be procured outside of the ICGS contract such as the Offshore Patrol Cutter, systems engineering and program management functions are expected to be carried out by the Coast Guard with support from third parties and contractors. According to officials, the Coast Guard has no plans to award additional orders to ICGS for systems integrator functions within the current award term or for any work after the award term expires in January 2011. Since our June 2008 report on the Deepwater Program, and taking into account our recommendation, the Coast Guard has improved its MSAM process. For example, the process now dictates that the acquisition project and program managers work collaboratively with the technical authorities as described above. The MSAM process was revised to require acquisition planning and an analysis of alternatives for procurement to start at an earlier stage, which is intended to help inform the budget and planning processes. Other improvements include the adoption of our recommendation for a formal design review, Milestone 2A, before authorizing low-rate initial production. The MSAM phases and milestones are shown in figure 2. Because the Coast Guard previously exempted Deepwater from the MSAM process, assets were procured without following a disciplined program management approach. Recognizing the importance of ensuring that each acquisition project is managed through sustainable and repeatable processes and wanting to adhere to proven acquisition procedures, in July 2008, the Coast Guard set a goal of completing the MSAM acquisition management activities for all Deepwater assets by the second quarter of fiscal year 2009. However, of the 12 Deepwater assets in the concept and technology development phase or later, 9 are behind plan in terms of MSAM compliance. In the meantime, the Coast Guard has proceeded with production and awarded new contracts without all of the knowledge it needs to ensure that the capabilities it is buying will meet Coast Guard needs within cost and schedule constraints. For assets already in production, such as the MPA and the NSC, the Coast Guard has made some progress in the past year in retroactively developing acquisition documentation with the intent of providing the traceability from mission needs to operational performance that was previously lacking. For example, the Coast Guard approved an operational requirements document for the MPA in October 2008 to establish a formal performance baseline and identify attributes for testing. Through this process, the Coast Guard discovered that ICGS's requirement for operational availability (the amount of time that an aircraft is available to perform missions) was excessive compared to the Coast Guard's own standards. According to a Coast Guard official, the ICGS requirement would have needlessly increased costs to maintain and operate the aircraft. Even as the Coast Guard gains this additional knowledge about MPA requirements, it is continuing with this procurement despite not having completed operational testing. According to the MSAM, testing in an operational environment should be completed with the initial production variants of an asset to demonstrate that capabilities meet requirements before committing to larger purchases. An approved test plan helps ensure that the tests conducted are clearly linked to requirements and mission needs. While the MPA began an operational assessment in July 2008, the Coast Guard still lacked, as of March 2009, a test plan approved by DHS and endorsed by its independent test authority, the Navy's Commander Operational Testing and Evaluation Force. With 11 of 36 MPAs already on contract, the Coast Guard has completed the operational assessment but does not plan to complete operational testing until the fiscal year 2011 time frame. Similarly, according to Coast Guard officials, operational testing of the NSC, also conducted by the Coast Guard's independent test authority, has begun in the absence of an approved test plan, which is now expected in July 2009. By the time testing is scheduled to be completed in 2011, the Coast Guard plans to have six of eight NSCs either built or on contract. According to the MSAM process, operational requirements must be approved before procuring an asset. However, since committing to the MSAM process, the Coast Guard has awarded new contracts for assets without having all required acquisition documentation in place, due to its determination that the need for these capabilities is pressing. This situation puts the Coast Guard at risk of cost overruns and schedule slips if it turns out that what it is buying does not meet requirements. In September 2008, after conducting a full and open competition, the Coast Guard awarded an $88.2 million contract for the design and construction of a lead Fast Response Cutter. However, the Coast Guard does not have an approved operational requirements document or test plan for this asset. Recognizing the risks inherent in this approach, the Coast Guard developed a basic requirements document and an acquisition strategy based on procuring a proven design. These documents were reviewed and approved by the Coast Guard's capabilities directorate, the engineering and logistics directorate, and chief of staff before the procurement began. According to a Coast Guard official, the Coast Guard intends to have an approved operational requirements document before procuring additional ships. In February 2009, the Coast Guard issued a $77.7 million task order to ICGS for a second segment of C4SIR design and development, before developing its requirements for performance. Design and development costs for the first segment increased from $55.5 million to $141.3 million. According to Coast Guard officials, this increase was due in part to the structure of the ICGS contract under which the Coast Guard lacked visibility into the software development processes and requirements. Furthermore, ICGS's C4ISR solution for the Deepwater Program contains proprietary software. The Coast Guard has acquired data rights to the software and, according to Coast Guard officials, has determined that the capabilities it is buying meet Coast Guard technical standards for maintenance, logistics, and interoperability. Since the establishment of the $24.2 billion baseline for the Deepwater program in 2007, the anticipated cost, schedules, and capabilities of many of the Deepwater assets have changed, in part due to the Coast Guard's increased insight into what it is buying. The purpose of the 2007 baseline was to establish cost, schedule, and operational requirements for the Deepwater system as a whole; these were then allocated to the major assets. Coast Guard officials have stated that this baseline reflected not a traditional cost estimate but rather the anticipated contract costs as determined by ICGS. Furthermore, the Coast Guard lacked insight into how ICGS arrived at some of the costs for Deepwater assets. As the Coast Guard has assumed greater responsibility for management of the Deepwater Program, it has begun to improve its understanding of costs by establishing new baselines for individual assets based on its own cost estimates. These baselines begin at the asset level and are developed by Coast Guard project managers, validated by a separate office within the acquisition branch and, in most cases, are reviewed and approved by DHS. The estimates use common cost estimating procedures and assumptions, and may account for costs not previously captured. Beginning in September 2008 the Coast Guard began submitting new baselines to DHS. To date, 10 asset baselines have been submitted to DHS and 4 have been approved. These new baselines are formulated using various sources of information depending on the acquisition phase of the asset. For example, the baseline for the NSC was updated using the actual costs of material, labor, and other considerations already in effect at the shipyards. The baselines for other assets, like the MPA, were updated using independent cost estimates. As the Coast Guard approaches major milestones, such as the decision to enter low-rate initial production or begin system development, officials have stated that the cost estimates for all assets will be reassessed and revalidated. As the Coast Guard has developed its own cost baselines for Deepwater assets, it has become apparent that some of the assets it is procuring will likely cost more than anticipated. While the Coast Guard is still in the process of communicating the effect and origin of these cost issues to DHS, information available to date for assets shows that the total cost of the program will likely exceed $24.2 billion, with potential cost growth of approximately $2.1 billion through the life of the Deepwater Program. As more baselines are approved by DHS, further cost growth may become apparent. Table 2 provides the estimates of asset costs available as of April 2009. It does not reflect the roughly $3.6 billion in other Deepwater costs, such as program management, that the Coast Guard states do not require a new baseline. The effort by the Coast Guard to develop new baselines provides not only a better understanding of the costs of the Deepwater assets, but also insight into the drivers of any cost growth. For example, the new NSC baseline attributes a $1.3 billion rise in cost to a range of factors, from the additional costs to correct fatigue issues on the first three cutters to the rise in commodity and labor prices. The additional $517 million needed to procure all 36 MPA is attributed primarily to items that were not accounted for in the previous baseline, including a simulator to train aircrews, facility improvements, and adequate spare parts. By understanding the reasons for cost growth, the Coast Guard may be able to better anticipate and control costs in the future. The Coast Guard has structured some of the new baselines to show how cost growth could be controlled by making trade-offs in asset quantities and/or capabilities. For example, the new MPA baseline provides cost increments that show the acquisition may be able to remain within its initial allotment of the overall $24.2 billion if 8 fewer aircraft are acquired. Coast Guard officials have stated that other baselines currently under review by DHS present similar cost increments. This information, if combined with data from the fleet mix study to show the effect of quantity or capability reductions on the system-of-systems as a whole, offers a unique opportunity to the Coast Guard for serious discussions of trade- offs. The Coast Guard's reevaluation of baselines has also changed its understanding of the delivery schedules and capabilities of Deepwater assets. According to the new baselines, a number of assets will be available for operational use later than originally anticipated. This includes a 12-month delay for the NSC to reach its initial operating capability and an 18-month delay for the MPA. Coast Guard officials stated that the restructuring of the unmanned aircraft and small boat projects has delayed the deployment of these assets with the NSC and affects the ship's anticipated capabilities in the near term. We plan to report later this summer on the operational effect of the delays in the NSC project. While the Coast Guard plans to update its annual budget requests with asset-based cost information, the current structure of its budget submission could limit Congress's understanding of details at the asset level. The budget submission presents total acquisition costs only at the overall Deepwater system level ($24.2 billion), and the description of funding for individual assets does not include key information such as costs beyond the current 5-year capital investment plan, i.e., life-cycle costs, or the total quantities of assets planned. For example, while the justification of the NSC request includes an account of the capabilities the asset is expected to provide, how these capabilities link to the Coast Guard's missions, and details on what activities past appropriations have funded, it does not include estimates of total program cost, future award or delivery dates of remaining assets, or even the total number of assets to be procured. Our past work has emphasized that one of the keys to a successful capital acquisition, such as the multibillion-dollar ships and aircraft the Coast Guard is procuring, is budget submissions that clearly communicate needs. A key part of this communication is to provide decision makers with information about cost estimates, risks, and the scope of a planned project before committing substantial resources to it. Good budgeting also requires that the full costs of a project be considered upfront when decisions are made. Other agencies within the federal government that acquire systems similar to those of the Coast Guard capture these elements in justifications of their requests. To illustrate, table 3 provides a comparison of the information found in the NSC budget justification with that used by the Navy for its shipbuilding programs. While the Coast Guard does include some of this information in its asset- level Quarterly Acquisition Reports to Congress and the Deepwater Program Expenditure Report, these documents are provided only to the appropriations committees, and the information is restricted due to acquisition sensitive material. One reason the Coast Guard originally sought a systems integrator was because it recognized that it lacked the experience and depth in its workforce to manage the acquisition internally. Now that the Coast Guard has taken control of the Deepwater acquisition, it acknowledges that it faces challenges in hiring and retaining qualified acquisition personnel and that this situation poses a risk to the successful execution of its acquisition programs. According to human capital officials in the acquisition directorate, as of April 2009, the acquisition branch had funding for 855 military and civilian personnel and had filled 717 of these positions-- leaving 16 percent unfilled. The Coast Guard has identified some of these unfilled positions as core to the acquisition workforce, such as contracting officers and specialists, program management support staff, and engineering and technical specialists. Even as it attempts to fill its current vacancies, the Coast Guard plans to increase the size of its acquisition workforce significantly by the end of fiscal year 2011. To supplement and enhance the use of its internal expertise, the Coast Guard has increased its use of third-party, independent experts outside of both the Coast Guard and existing Deepwater contractors. For example, a number of organizations within the Navy provided independent views and expertise on a wide range of issues, including testing and safety. In addition, the Coast Guard will use the American Bureau of Shipping, an independent organization that establishes and applies standards for the design and construction of ship and other marine equipment, as an advisor and independent reviewer on the design and construction of the Fast Response Cutter. The Coast Guard has also begun a relationship with a university-affiliated research center to augment its expertise as it executes its fleet mix analysis. In addition to third party experts, the Coast Guard has been increasing its use of support contractors. Currently, there are approximately 200 contractor employees in support of the acquisition directorate-- representing 24 percent of its total acquisition workforce--a number that has steadily increased in recent years. These contractors are performing a variety of services--some of which support functions the Coast Guard has identified as core to the government acquisition workforce--including project management support, engineering, contract administration, and business analysis and management. While support contractors can provide a variety of essential services, their use must be carefully overseen to ensure that they do not perform inherently governmental roles. The Coast Guard acknowledges this risk and is monitoring its use of support contractors to properly identify the functions they perform, as well as developing a policy to define what is and what is not inherently governmental. While the Coast Guard may be hard-pressed to fill the government acquisition positions it has identified both now and in the future, it has made progress in identifying the broader challenges it faces and is working to mitigate them. The Coast Guard has updated two documents key to this effort, the Blueprint for Acquisition Reform, now in its third iteration, and the Acquisition Human Capital Strategic Plan, which is in its second iteration. Each document identifies challenges the Coast Guard faces in developing and managing its acquisition workforce and outlines initiatives and policies to meet these challenges. For example, the Acquisition Human Capital Strategic Plan lays out three overall challenges and outlines over a dozen strategies the Coast Guard is pursuing to address them in building and maintaining an acquisition workforce. The discussion of strategies includes status indicators and milestones to monitor progress, as well as supporting actions such as the formation of partnerships with the Defense Acquisition University and continually monitoring turnover in critical occupations. The Blueprint for Acquisition Reform supports many these initiatives and provides deadlines for their completion. In fact, the Coast Guard has already completed a number of initiatives including achieving and maintaining Level III program manager certifications, adopting a model to assess future workforce needs, incorporating requests for additional staff into the budget cycle, initiating tracking of workforce trends and metrics, expanding use of merit-based rewards and recognitions, and initiating training on interactions and relationships with contractors. In conclusion, I'd like to emphasize several key points as we continue to oversee the various Coast Guard initiatives discussed today. It is important to recognize that Coast Guard leadership has made significant progress in identifying and addressing the challenges in taking on the role of systems integrator for the Deepwater Program. The Coast Guard is continuing to build on this progress by starting to follow a disciplined program management approach that improves its knowledge of what is required to meet its goals. An important component of this approach is gaining realistic assessments of needed capabilities and associated costs to enable the Coast Guard and Congress to better execute decision making and oversight. The Coast Guard's ability to build an adequate acquisition workforce is critical, and over time the right balance must be struck between numbers of government and contractor personnel. Until the Coast Guard gains a thorough understanding of what it is buying and how much it will cost, and is able to put in place the necessary workforce to manage the Deepwater Program, it will continue to face risks in carrying out this multibillion dollar acquisition. Mr. Chairman, this concludes my statement and I would be happy to respond to any questions the committee may have. For further information about this testimony, please contact John P. Hutton, Director, Acquisition and Sourcing Management, at (202) 512-4841, [email protected]. Other individuals making key contributions to this testimony include Michele Mackin, Assistant Director; Greg Campbell; Carolynn Cavanaugh; J. Kristopher Keener; Angie Nichols-Friedman; and Sylvia Schatz. Coast Guard: Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.: June 24, 2008. Coast Guard: Observations on Changes to Management and Oversight of the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24, 2009. Status of Selected Assets of the Coast Guard's Deepwater Program. GAO-08-270R. Washington, D.C.: March 11, 2008. Coast Guard: Deepwater Program Management Initiatives and Key Homeland Security Missions. GAO-08-531T. Washington, D.C.: March 5, 2008. Coast Guard: Status of Efforts to Improve Deepwater Program Management and Address Operational Challenges. GAO-07-575T. Washington, D.C.: March 8, 2007. Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts. GAO-06-764. Washington, D.C.: June 23, 2006. Coast Guard: Changes to Deepwater Plan Appear Sound, and Program Management Has Improved, but Continued Monitoring Is Warranted. GAO-06-546. Washington, D.C.: April 28, 2006. Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset Condition Issues and Program Management, but Acquisition Challenges Remain. GAO-05-757. Washington, D.C.: July 22, 2005. Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy Assets and Acquisition Management Challenges. GAO-05-651T. Washington, D.C.: June 21, 2005. Coast Guard: Deepwater Program Acquisition Schedule Update Needed. GAO-04-695. Washington, D.C.: June 14, 2004. Contract Management: Coast Guard's Deepwater Program Needs Increased Attention to Management and Contractor Oversight. GAO-04-380. Washington, D.C.: March 9, 2004. Coast Guard: Actions Needed to Mitigate Deepwater Project Risks. GAO-01-659T. Washington, D.C.: May 3, 2001. 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 Deepwater Program is intended to recapitalize the Coast Guard's fleet and includes efforts to build or modernize five classes each of ships and aircraft, and procure other key capabilities. In 2002, the Coast Guard contracted with Integrated Coast Guard Systems (ICGS) to manage the acquisition as systems integrator. After the program experienced a series of failures, the Coast Guard announced in April 2007 that it would take over the lead role, with future work on individual assets to be potentially bid competitively outside of the existing contract. A program baseline of $24.2 billion was set as well. In June 2008, GAO reported on the new approach and concluded that while these steps were beneficial, continued oversight and improvement was necessary. The Coast Guard has taken actions to address the recommendations in that report. This testimony updates key issues from prior work: (1) Coast Guard program management at the overall Deepwater Program and asset levels; (2) how cost, schedules, and capabilities have changed from the 2007 baseline and how well costs are communicated to Congress; and (3) Coast Guard efforts to manage and build its acquisition workforce. GAO reviewed Coast Guard acquisition program baselines, human capital plans and other documents, and interviewed officials. For information not previously reported, GAO obtained Coast Guard views. The Coast Guard generally concurred with the findings. The Coast Guard has assumed the role of systems integrator for the overall Deepwater Program by reducing the scope of work on contract with ICGS and assigning these functions to Coast Guard stakeholders. As part of its systems integration responsibilities, the Coast Guard has undertaken a fundamental reassessment of the capabilities, number, and mix of assets it needs; according to an official, it expects to complete this analysis by the summer of 2009. At the individual Deepwater asset level, the Coast Guard has improved and begun to apply the disciplined management process found in its Major Systems Acquisition Manual, but did not meet its goal of complete adherence to this process for all Deepwater assets by the second quarter of fiscal year 2009. For example, key acquisition management activities--such as operational requirements documents and test plans--are not in place for assets with contracts recently awarded or in production, placing the Coast Guard at risk of cost overruns or schedule slips. Due in part to the Coast Guard's increased insight into what it is buying, the anticipated cost, schedules, and capabilities of many of the Deepwater assets have changed since the establishment of the $24.2 billion baseline in 2007. Coast Guard officials have stated that this baseline reflected not a traditional cost estimate but rather the anticipated contract costs as determined by ICGS. As the Coast Guard has developed its own cost baselines for some assets, it has become apparent that some of the assets it is procuring will likely cost more than anticipated. Information to date shows that the total cost of the program may grow by $2.1 billion. As more cost baselines are developed and approved, further cost growth may become apparent. In addition, while the Coast Guard plans to update its annual budget requests with asset-based cost information, the current structure of its budget submission to Congress does not include certain details at the asset level, such as estimates of total costs and total numbers to be procured. The Coast Guard's reevaluation of baselines has also changed its understanding of the delivery schedules and capabilities of Deepwater assets. One reason the Coast Guard sought a systems integrator from outside the Coast Guard was because it recognized that it lacked the experience and depth in workforce to manage the acquisition internally. The Coast Guard acknowledges that it still faces challenges in hiring and retaining qualified acquisition personnel and that this situation poses a risk to the successful execution of its acquisition programs. According to human capital officials in the acquisition directorate, as of April 2009, the acquisition branch had 16 percent of positions unfilled, including key jobs such as contracting officers and systems engineers. Even as it attempts to fill its current vacancies, the Coast Guard plans to increase the size of its acquisition workforce significantly by the end of fiscal year 2011. While the Coast Guard may be hard-pressed to fill these positions, it has made progress in identifying the broader challenges it faces and is working to mitigate them. In the meantime, the Coast Guard has been increasing its use of support contractors.
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A number of areas on the President's Management Agenda are consistent with issues highlighted by our work on the High Risk Program, our annual reports on fragmentation, overlap, and duplication, and other work related to long-standing management challenges. Over the years, we have made hundreds of recommendations to address these issues. The current and prior administrations have taken actions to address many of these recommendations, and have made progress in many areas. Much more, however, remains to be done. Lasting solutions to remaining issues offer the potential to save billions of dollars, dramatically improve service to the American public, and strengthen public confidence and trust in the performance and accountability of our national government. Examples of where the President's Management Agenda and our work are consistent include: Using information technology (IT) to better manage for results. The government invests about $80 billion annually in IT. Improving the transparency of about 700 major IT investments with the IT Dashboard can help focus attention on troubled projects. In addition, holding executive reviews, known as TechStat sessions, of selected investments that are not producing results has resulted in positive outcomes such as accelerated delivery, reduced scope, and termination. We have made recommendations to improve the accuracy and use of the IT Dashboard and for the Office of Management and Budget (OMB) and agencies to hold more TechStat sessions. OMB has generally concurred with our Dashboard recommendations and has taken actions such as improving the accuracy of the reported investment cost and schedule data. OMB also agreed with our recommendation to hold more TechStat sessions and stated that OMB and the agencies were taking appropriate steps to meet that recommendation. Other IT initiatives such as PortfolioStat and Data Center Consolidation can eliminate duplicative investments and close hundreds of centers, resulting in billions in savings. For example, we recently reported that the PortfolioStat initiative has the potential to save between $5.8 and $7.9 billion. We have made multiple recommendations to OMB and agencies to more fully implement and report on eliminating duplicative and inefficient IT investments. OMB agreed with some of these recommendations and subsequently clarified its guidance on how agencies should identify potentially duplicative investments. Further, agencies have also generally agreed with our recommendations and taken steps such as conducting portfolio reviews to identify duplicative investments and report those results via the IT Dashboard. Addressing improper payments. The federal government serves as the steward of taxpayer dollars and should safeguard them against improper payments. The President's Management Agenda is consistent with our prior reporting that predictive analytic technologies can help agencies better identify and prevent improper payments. Further, OMB reported that it plans to develop more detailed categories of improper payments, which can help agencies tailor corrective action plans to better address the root causes of improper payments. In fiscal year 2013, estimated governmentwide improper payments totaled approximately $106 billion; however, this may not cover the full extent of improper payments throughout the federal government. In order to determine the full extent of improper payments governmentwide and to more effectively reduce and recover them, continued attention is needed to (1) adopt sound risk assessment and improper payment estimation methodologies and (2) develop effective corrective action plans and preventive and detective controls to address the root causes of improper payments. Expanding strategic sourcing. One area that could yield significant cost savings is the expanded use of strategic sourcing, a process that moves away from numerous individual procurements to a broader aggregate approach. Our work has found that federal agencies could better leverage their buying power and achieve additional savings by directing more procurement spending to existing strategic sourcing contracts and further expanding strategic sourcing practices to their highest spending procurement categories. For example, most agencies' efforts do not address their highest spending areas such as services. We estimated that savings of one percent from selected large agencies' procurement spending alone would equate to over $4 billion. In that regard, the President's Management Agenda calls on federal agencies to expand the use of strategic sourcing to better leverage the government's buying power and reduce contract duplication. It did not, however, lay out specific governmentwide metrics or savings goals. We had previously recommended that OMB establish additional metrics to measure progress toward goals. OMB has efforts underway to address this recommendation. Strengthening strategic human capital management. Consistent with the President's Management Agenda goal to attract and retain a talented workforce, foster a culture of excellence, and invest in the Senior Executive Service (SES), we have reported that addressing complex challenges such as homeland security, economic stability, and other national priorities requires a high-quality workforce able to work seamlessly with other agencies, levels of government, and across sectors. Strategic human capital management has been on our High Risk List since 2001. Since then, as a result of actions taken by Congress, the Office of Personnel Management, and individual agencies, important progress has been made. Still, additional efforts are needed in such areas as human capital planning, building results-oriented cultures, and talent management, such as (1) addressing government-wide and agency- specific skill gaps and enhancing workforce diversity, (2) strengthening performance management systems to improve the "line of sight" between individual performance and organizational outcomes, and (3) fully assessing the costs and benefits of SES training. Improving the Department of Defense's (DOD) weapons systems and services acquisition. The President's Management Agenda is consistent with our findings and recommendations on improving the Department of Defense's (DOD) acquisition of weapon systems and services, issues that have been on GAO's High Risk List since the 1990s. DOD has made some progress in this area. Over the past several years it has decreased the size of its major defense acquisition program portfolio as well as its estimated total cost; however, programs continue to experience cost growth over time. DOD has launched its "Better Buying Power" initiatives to achieve more efficiency and reduce cost growth. We have tracked implementation of some of these initiatives and found that DOD has largely been successful in implementing its "should-cost" effort to lower contract prices during negotiations and has reported near-term cost savings as a result. DOD has had less success in implementing affordability constraints--which limit a program's total cost throughout its lifecycle--an initiative that has the potential for long-term savings if implemented effectively. Similarly, we have found that DOD has made mixed progress in improving its acquisition of services. DOD leadership has demonstrated a commitment to improving service acquisitions and management, but the department's efforts are hindered, in part, by limited knowledge and baseline data on the current state of service acquisitions and the absence of goals and metrics to assess its progress. We have ongoing reviews to help improve the efficiency of DOD's weapon system acquisition process and the effectiveness of its portfolio management practices that we believe will further the administration's and Congress' efforts in this area. Lasting success in addressing the difficult and longstanding issues on the President's Management Agenda will hinge on effective implementation, including sustained top leadership attention. For example, our work has shown that there are five key factors that are essential to resolving high- risk issues: 1. a demonstrated strong commitment to, and top leadership support for, 2. the capacity to address problems; 3. a corrective action plan; 4. a program to monitor corrective measures; and 5. demonstrated progress in implementing corrective measures. Top administration officials have continued to show their commitment to ensuring that significant management challenges, including those on the High Risk List, receive attention and oversight. OMB regularly convenes meetings for agencies to provide progress updates on high-risk issues. GAO and OMB have agreed to hold a series of meetings on the issues on GAO's High Risk List. The purposes of these meetings are to discuss progress achieved and specifically focus on actions that are needed to fully address high-risk issues and ultimately remove them from the list. These meetings typically include OMB's Deputy Director for Management, agency leaders, as well as myself and have provided a useful forum for constructive and productive dialogues. The President's Management Agenda also commits to making continued progress in managing for results. In that regard, our work has shown that progress has been made in implementing the GPRA Modernization Act of 2010 (GPRAMA). For example, the executive branch has taken a number of steps to implement key provisions of GPRAMA. The Office of Management and Budget (OMB) has developed cross-agency priority goals, and agencies developed agency priority goals. Agency officials reported that their agencies have assigned performance management leadership roles and responsibilities to officials who generally participate in performance management activities, including quarterly performance reviews for agency priority goals. Further, OMB developed Performance.gov, a government-wide website, which provides quarterly updates on cross-agency priority goals and agency priority goals. While the building blocks needed for implementation are being put in place, much more needs to be done before the provisions of the act are fully useful to decision makers as shown in the following examples. Executive branch efforts to address crosscutting issues are hampered by the lack of a comprehensive list of programs--a key requirement of the act. As we have noted, such a list is critical for aligning federal government efforts for identifying potential fragmentation, overlap, or duplication among federal programs or activities. GPRAMA requires OMB to compile and make publicly available a comprehensive list of all federal programs identified by agencies, and to include the purposes of each program, how it contributes to the agency's mission, and recent funding information. OMB began implementing this provision by directing 24 large federal agencies to develop and publish inventories of their programs in May 2013. Our preliminary review of these initial inventories identified concerns about the usefulness of the information being developed and the extent to which it might be able to assist executive branch and congressional efforts to identify and address fragmentation, overlap, and duplication. OMB's guidance for developing the inventories provided agencies with flexibility to define their programs, such as by outcomes, customers, products/services, organizational structure, and budget structure. As a result, agencies took various approaches to define their programs--with many using their budget structure while others used different approaches such as identifying programs by related outcomes or customer focus. The variation in definitions across agencies will limit comparability among like programs. In addition, as reported in our annual reports on fragmentation, overlap and duplication, we have found that federal budget and cost information is often not available or not sufficiently reliable to identify the level of funding provided to programs or activities. For example, agencies could not isolate budgetary information for some programs because the data were aggregated at higher levels. OMB identified 12 different program types (e.g., block grants, regulatory, credit) for agencies to assign to their programs; however, the list of program types does not include tax expenditures, which represent a substantial federal commitment. OMB does not yet have definitive plans on when this effort will be expanded beyond the current 24 agencies to cover all other agencies and programs. We plan to further explore these issues and report on potential ways that the federal program inventory might be improved going forward later this spring. Collaboration across agencies, levels of government, or sectors is fundamental to addressing many high-risk issues and reducing fragmentation, overlap, and duplication. In one example, we have noted that better coordination among the more than 30 federal agencies that collect, maintain, and use geospatial information could help reduce duplication of investments and provide the opportunity for potential savings of millions of dollars. In another example, the Department of Veterans Affairs and DOD operate two of the nation's largest health care systems, together providing health care to nearly 16 million veterans, service members, military retirees, and other beneficiaries at estimated costs for fiscal year 2013 of about $53 billion and $49 billion, respectively. As part of their health care efforts, the departments have established collaboration sites--locations where the two departments share health care resources through hundreds of agreements and projects--to deliver care jointly with the aim of improving access, quality, and cost-effectiveness of care. However, we found that the departments do not have a fully developed and formalized process for systematically identifying all opportunities for new or enhanced collaboration, potentially missing opportunities to improve health care access and quality, and reduce costs. Many collaborative mechanisms, such as interagency groups and specially created interagency offices, do not operate as effectively as they could. These mechanisms face challenges with issues such as identifying a common outcome and managing resources across agency lines. Our work has found practices and corresponding effective implementation approaches that collaborative mechanisms have used to work effectively across agency lines. For example, we have found practices and approaches such as agreeing on roles and responsibilities, with corresponding accountability for both the agency and the individual participants, creating an inventory of agency resources dedicated towards interagency outcomes, developing outcomes that represent the collective interests of participants, and developing performance measures that are tied to shared outcomes, can help enhance and sustain collaboration. OMB's 2013 guidance implementing GPRAMA directs agencies, beginning in 2014, to conduct annual reviews of progress towards strategic objectives--the outcomes or impacts the agency is intending to achieve. Agency leaders are responsible for assessing progress on each strategic objective established in the agency's strategic plan. Effective implementation could help identify and address fragmentation, overlap, and duplication issues because as part of the strategic reviews, agencies are to identify the various organizations, programs, regulations, tax expenditures, policies, and other activities that contribute to each objective both within and outside the agency. Where progress in achieving an objective is lagging, the reviews are intended to identify strategies for improvement, such as strengthening collaboration to better address crosscutting challenges. If successfully implemented in a way that is open, inclusive, and transparent--to Congress, delivery partners, and a full range of stakeholders--this approach could help decision makers assess the relative contributions of various programs that contribute to a given objective. Successful strategic reviews could also help decision makers identify and assess the interplay of public policy tools that are being used, to ensure that those tools are effective and mutually reinforcing, and results are being efficiently achieved. Our annual reports on fragmentation, overlap and duplication have also highlighted several instances in which executive branch agencies do not collect necessary performance data. In an example from our 2011 annual report, we noted that a lack of information on program outcomes for economic development, where four agencies administer 80 programs, was a longstanding problem. We suggested that the four agencies--the Departments of Commerce, Housing and Urban Development, and Agriculture and the Small Business Administration--collect accurate and complete information on program outcomes. As of March 2013, the four agencies had taken actions to begin to collect better data on program performance. Moreover, our June 2013 report on GPRAMA implementation found that agencies continue to face long-standing issues with measuring performance, such as obtaining complete, timely, and accurate performance information across various programs and activities. In one example, we reported in June 2013 on two Federal Emergency Management Agency (FEMA) grant programs that collect performance information and feed the resulting data into a higher-level Department of Homeland Security (DHS) goal. We found that data were self-reported by recipients and FEMA had varied and inconsistent approaches to verifying and validating the data. We recommended that FEMA ensure that there are consistent procedures in place to verify and validate grant performance data. DHS, of which FEMA is a part, concurred with the recommendation. Given the Performance Improvement Council's responsibilities for addressing crosscutting performance issues and sharing performance improvement practices, our June 2013 report noted that it could do more to examine and address the difficulties agencies face to measuring performance across various program types, such as grants and contracts. We recommended that OMB work with the Performance Improvement Council to develop a detailed approach for addressing these long- standing performance measurement issues. OMB staff agreed with this recommendation. Even in instances where agencies are collecting performance information, our periodic surveys of federal managers between 1997 and 2013 have found little improvement in managers' reported use of performance information to improve results. However, agencies' quarterly performance reviews of progress on their priority goals--which began at most agencies in 2011 under GPRAMA--show promise as a leadership strategy for improving the use of performance information in agencies. Of the 12 percent of federal managers who both responded to our survey and reported they were very familiar with these reviews, 76 percent agreed that their top leadership demonstrated a strong commitment to using performance information to guide decision making to a great or very great extent. In addition, according to our 2012 survey of performance improvement officers at 24 agencies, the majority (21 out of 24 agencies required to conduct these reviews) reported that actionable opportunities for performance improvement were identified through the reviews at least half the time. To operate as effectively and efficiently as possible and to make difficult decisions to address the federal government's fiscal challenges, Congress, the administration, and federal managers must have ready access to reliable and complete financial and performance information-- both for individual federal entities and for the federal government as a whole. Overall, significant progress has been made since the enactment of key federal financial management reforms in the 1990s; however, our February 2014 report on the U.S. government's consolidated financial statements underscores that much work remains to improve federal financial management, and these improvements are urgently needed. In that report, we concluded that certain material weaknesses in internal control over financial reporting and other limitations on the scope of our work resulted in conditions that prevented us from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2013, and 2012. Three major impediments prevented us from rendering an opinion on the federal government's accrual-based consolidated financial statements: serious financial management problems at DOD that have prevented its financial statements from being auditable -- about 33 percent of the federal government's reported total assets as of September 30, 2013, and approximately 16 percent of the federal government's reported net cost for fiscal year 2013 relate to DOD, which received a disclaimer of opinion on its consolidated financial statements, the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and the federal government's ineffective process for preparing the consolidated financial statements. In addition to the material weaknesses underlying the three major impediments, we identified other material weaknesses which resulted in ineffective internal control over financial reporting for fiscal year 2013. These weaknesses are the federal government's inability to determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them, identify and timely resolve information security control deficiencies and manage information security risks on an ongoing basis, and effectively manage its tax collection activities. There are also risks that certain factors could affect the federal government's financial condition in the future, including the following: The U.S. Postal Service (USPS) is facing a deteriorating financial situation with a lack of liquidity as it has reached its borrowing limit of $15 billion and finished fiscal year 2013 with a reported net loss of $5 billion. The Federal Housing Administration's (FHA) mortgage insurance portfolio continues to grow, and its insurance fund has experienced major financial difficulties. FHA's capital ratio for its Mutual Mortgage Insurance Fund remained below the required 2 percent level as of the end of fiscal year 2013. The ultimate roles of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in the mortgage market may further affect FHA's financial condition. The Pension Benefit Guaranty Corporation's (PBGC) financial future is uncertain because of long-term challenges related to PBGC's governance and funding structure. PBGC's liabilities exceeded its assets by about $36 billion as of September 30, 2013. PBGC reported that it is subject to further losses if plan terminations that are reasonably possible occur. GAO's High Risk List includes several of these issues, such as information security, USPS's business model, DOD financial management, and the PBGC and FHA insurance programs. Increased attention to risks that could affect the federal government's financial condition is made more important because of the nation's longer- term fiscal challenges. The administration's long-term fiscal projections-- and our own long-term federal fiscal simulations--show that, absent policy changes, the federal government continues to face an unsustainable long-term fiscal path. The oldest members of the baby- boom generation are already eligible for Social Security retirement benefits and for Medicare benefits. Under the administration's projections--and our simulations--spending for the major health and retirement programs will increase in coming decades as more members of the baby-boom generation become eligible for benefits and the health care cost for each enrollee increases. Over the long term, the imbalance between revenue and spending built into current law and policy will lead to continued growth of debt held by the public as a share of Gross Domestic Product (GDP). This situation--in which debt grows faster than GDP--means the current federal fiscal path is unsustainable. Reliable financial and performance information is even more critical as (1) federal managers likely face increasingly tight budget constraints and need to operate their respective entities as efficiently and effectively as possible and (2) decision makers carry out the important task of deciding how to use multiple tools (tax provisions, discretionary spending, mandatory spending, and credit programs) to address the federal government's fiscal challenges. Similarly ongoing attention is needed to address issues identified in our annual reports on fragmentation, overlap, duplication, and potential cost savings and revenue enhancements. Of the 162 areas that we have identified in our annual reports, 19 (12 percent) have been fully addressed, 111 (69 percent) have been partially addressed, and 31 (19 percent) have not been addressed. More specifically, of the approximately 380 actions identified in our annual reports, 87 (23 percent) have been fully addressed, 187 (49 percent) have been partially addressed, and 104 (28 percent) have not been addressed as of December 2013. Our reports and GAO's Action Tracker provide details for each of the issues, describing the nature of the problems, what actions have been taken to address them, and what remains to be done to make further progress. While agencies have continued to make progress, important opportunities have yet to be pursued. The details in our reports, along with successful implementation by agencies and continued oversight by Congress, can form a solid foundation for progress to address risks, improve programs and operations, and achieve greater efficiencies and effectiveness. In 2012, OMB collected information from the responsible agencies on the steps they have taken to address our suggested actions. To ensure sustained leadership attention on these actions, OMB also asked the performance improvement officers from responsible agencies to monitor the progress being made. GAO and OMB staff meet throughout the year to discuss the issues identified by our work and the extent to which the administration is working to address the issues. These meetings have been helpful in monitoring progress. However, given that issues of fragmentation, overlap, and duplication often involve multiple agencies, the discussions need to be elevated to include more senior officials who have the responsibility and authority for resolving the crosscutting issues identified. In addition to financial management and widespread fragmentation, overlap, and duplication issues, the federal government must address pressing challenges with its cybersecurity. As computer technology has advanced, federal agencies and our nation's critical infrastructures such as power distribution, water supply, telecommunications, and emergency services have become increasingly dependent on computerized information systems and electronic data to carry out operations and to process, maintain, and report essential information. The security of these systems and data is essential to protecting national security, economic prosperity, and public health and safety. We have reported that (1) cyber threats to systems supporting government operations and critical infrastructure were evolving and growing, (2) cyber incidents affecting computer systems and networks continue to rise, and (3) the federal government continues to face challenges in a number of key aspects of its approach to cybersecurity, including those related to protecting the nation's critical infrastructure. For these reasons, federal information security has been on GAO's list of high-risk areas since 1997; in 2003, we expanded this high-risk area to include cyber critical infrastructure protection. The federal government has taken a variety of actions that are intended to enhance federal and critical infrastructure cybersecurity. For example, the government issued numerous strategy-related documents over the last decade, many of which addressed aspects of the challenge areas we identified. The administration also took steps to enhance various cybersecurity capabilities, including establishing agency performance goals and a tracking mechanism to monitor performance in three cross- agency priority areas. In February 2013, the president issued Presidential Policy Directive 21 on critical infrastructure security and resilience and Executive Order 13,636 on improving critical infrastructure cybersecurity. Improving these capabilities is a step in the right direction, and their effective implementation can enhance federal information security and the cybersecurity and resilience of our nation's critical infrastructure. However, more needs to be done to accelerate the progress made in bolstering the cybersecurity posture of the nation and federal government. The administration and executive branch agencies need to implement the hundreds of recommendations made by GAO and agency inspectors general to address cyber challenges, resolve known deficiencies, and fully implement effective information security programs. Until then, a broad array of federal assets and operations will remain at risk of fraud, misuse, and disruption, and the nation's most critical federal and private sector infrastructure systems will remain at increased risk of attack from our adversaries. Congress is considering several bills that are intended, if enacted into law and effectively implemented by the executive branch, to improve cyber information sharing and the cybersecurity posture of the federal government and the nation. In closing, our nation's long-term fiscal challenges underscore the need for the federal government to operate in an efficient and effective manner. To do so, the federal government must address a number of significant management and governance challenges--many highlighted by our High Risk List and our annual reports on fragmentation, overlap, and duplication. Our work has also highlighted a variety of approaches the executive branch and Congress could take to resolve these issues moving forward. In doing so, it is vital that both branches of government demonstrate the sustained leadership commitment needed to address these challenges. Given the crosscutting nature of many of these challenges, it will be particularly important for OMB to play a leadership role in the Executive Branch. Chairman Carper, Ranking Member Dr. Coburn, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. For further information regarding this testimony, please contact J. Christopher Mihm, Managing Director, Strategic Issues, at (202) 512- 6806 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this 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 is one of the world's largest and most diverse entities, with about $3.5 trillion in outlays in fiscal year 2013, funding an extensive array of programs and operations. Moreover, it faces a number of significant fiscal, management, and governance challenges in responding to the varied and increasingly complex issues it seeks to address. This statement focuses on (1) GAO's work related to the President's Management Agenda, and (2) additional opportunities for decision makers to address major management challenges. This statement is primarily based upon our published and ongoing work covering GAO's High Risk List; fragmentation, overlap, and duplication reports; and managing for results work. The work upon which these published reports and preliminary findings were based was conducted in accordance with generally accepted government auditing standards. GAO has made numerous recommendations to OMB and executive branch agencies in these areas and reports in this statement on the status of selected key recommendations. A number of areas on the President's Management Agenda are consistent with issues highlighted by GAO's work on the High Risk Program, its annual reports on fragmentation, overlap, and duplication, and other work related to long-standing management challenges. These include, for example: using information technology to better manage for results; addressing improper payments; expanding strategic sourcing; strengthening strategic human capital management; and improving the Department of Defense's weapon systems and services acquisitions. Lasting success in addressing the difficult and longstanding issues on the Presidents Management Agenda will hinge on effective implementation, including sustained top leadership attention. GAO and the Office of Management and Budget (OMB) have agreed to hold a series of high level meetings on the issues on GAO's High Risk List to discuss progress and actions that are needed to fully address high-risk issues. Further, the executive branch has taken a number of steps to implement key provisions of the GPRA Modernization Act by developing cross-agency and agency priority goals; assigning performance management roles and responsibilities to leadership; conducting agency quarterly performance reviews; and developing Performance.gov, a website that provides quarterly updates on the priority goals. However, additional opportunities exist for decision makers to address major performance management challenges, including, for example: Developing a comprehensive inventory of federal programs. GAO's preliminary review of the program inventories produced by 24 large federal agencies identified concerns about the usefulness of the information provided in these inventories for addressing crosscutting issues. Enhancing the use of collaborative mechanisms. Addressing many of the challenges government faces requires collaboration across agencies, levels of government, or sectors. Yet the mechanisms the federal government uses to collaborate do not always operate effectively. Effectively implementing strategic reviews . Starting in 2014, agency leaders are to annually assess how relevant organizations, programs, and activities, both within and outside of their agencies, are contributing to progress on their strategic objectives and identify corrective actions where progress is lagging. Such reviews could help address fragmentation, overlap, and duplication issues. Improving capacity to gather and use better performance information . GAO's work has found that federal decision makers often lack complete and reliable performance data needed to address the government's management challenges. Furthermore, the administration needs to accelerate progress in (1) addressing major impediments preventing GAO from rendering an opinion on the U.S. government's consolidated financial statements and risks to the government's future financial condition; (2) elevating top leadership attention to the areas identified in our annual reports on fragmentation, overlap, and duplication; and (3) responding to pressing challenges with its cybersecurity, such as evolving cyber threats to systems supporting government operations and critical infrastructure. Congress also has key roles in addressing each of these issues.
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Twelve years ago, in September 1993, the National Performance Review called for an overhaul of DOD's temporary duty (TDY) travel system. In response, DOD created the DOD Task Force to Reengineer Travel to examine the process. In January 1995, the task force issued the Report of the Department of Defense Task Force to Reengineer Travel. The Task Force's report pinpointed three principal causes for DOD's inefficient travel system: (1) travel policies and programs were focused on compliance with rigid rules rather than mission performance, (2) travel practices did not keep pace with travel management improvements implemented by industry, and (3) the travel system was not integrated. On December 13, 1995, the Under Secretary of Defense for Acquisition, Technology, and Logistics and the Under Secretary of Defense (Comptroller)/Chief Financial Officer issued a memorandum, "Reengineering Travel Initiative," establishing the PMO-DTS to acquire travel services that would be used DOD-wide. Additionally, in a 1997 report to the Congress, the DOD Comptroller pointed out that the existing DOD TDY travel system was never designed to be an integrated system. Furthermore, the report stated that because there was no centralized focus on the department's travel practices, the travel policies were issued by different offices and the process had become fragmented and "stove- piped." The report further noted that there was no vehicle in the current structure to overcome these deficiencies, as no one individual within the department had specific responsibility for management control of the TDY travel system. To address these concerns and after the use of competitive procedures, the department awarded a firm fixed-price, performance-based services contract to BDM International, Inc. (BDM) in May 1998. In September 1998, we upheld the department's selection of BDM. Under the terms of the contract, the contractor was to start deploying a travel system and to begin providing travel services for approximately 11,000 sites worldwide, within 120 days of the effective date of the contract, completing deployment approximately 38 months later. The contract specified that, upon DTS's achieving initial operational capability (IOC), BDM was to be paid a one-time deployment fee of $20 for each user and a transaction fee of $5.27 for each travel voucher processed. The estimated cost for the contract was approximately $264 million. Prior to commencing the work, BDM was acquired by TRW Inc. (TRW), which became the contractor of record. The operational assessment of DTS at Whiteman Air Force Base, Missouri, from October through December 2000, disclosed serious failures. For example, the system's response time was slower than anticipated, the result being that it took longer than expected to process a travel order/voucher. Because of the severity of the problems, in January 2001, a joint memorandum was issued by the Under Secretary of Defense (Comptroller) and the Deputy Under Secretary of Defense (Acquisition, Technology & Logistics) directing a functional and technical assessment of DTS. The memorandum also directed that a determination be made of any future contract actions that would be necessary, based on the assessment results. In July 2001, the Under Secretary of Defense (Comptroller) and the Under Secretary of Defense (Acquisition, Technology & Logistics) approved proceeding with the DTS program and restructuring the contract with TRW. The TRW contract was restructured through a series of contract modifications which were finalized on March 29, 2002. The Government agreed to provide TRW consideration in the amount of about $44 million for restructure of the contract. TRW agreed to release and discharge the Government from liability and agreed to waive any and all liabilities, obligations, claims and demands related to or arising from its early performance efforts under the original contract. Northrop Grumman subsequently acquired TRW in December 2002, and, as such, is now the contractor of record. The first deployment of DTS was at Ellsworth Air Force Base, South Dakota, in February 2002. As of September 2005, DTS has been deployed to approximately 5,600 locations. The department currently estimates that DTS will be fully deployed to all 11,000 locations by the end of fiscal year 2006, with an estimated total development and production cost of approximately $474 million. Of this amount, the contract for the design, development, and deployment of DTS, as restructured is worth approximately $264 million--the same amount as specified in the original contract that was agreed to with BDM. The remaining costs are DOD internal costs associated with areas such as the operation of the program management office, the voucher payment process, and management of the numerous CTO contractors. Over the past several years, we have reported pervasive weaknesses in DOD's travel program. These weaknesses have hindered the department's operational efficiencies and have left it vulnerable to fraud, waste, and abuse. These weaknesses are highlighted below. On the basis of statistical sampling, we estimated that 72 percent of the over 68,000 premium class airline tickets DOD purchased for fiscal years 2001 and 2002 were not properly authorized and that 73 percent were not properly justified. During fiscal years 2001 and 2002, DOD spent almost $124 million on airline tickets that included at least one leg of the trip in premium class--usually business class. Because each premium class ticket costs the government up to thousands of dollars more than a coach class ticket, unauthorized premium class travel resulted in millions of dollars of unnecessary costs annually. Because of control breakdowns, DOD paid for airline tickets that were neither used nor processed for refund--amounting to about 58,000 tickets totaling more than $21 million for fiscal years 2001 and 2002. DOD was not aware of this problem before our audit and did not maintain any data on unused tickets. Based on limited data provided by the airlines, it is possible that the unused value of the fully and partially unused tickets that DOD purchased from fiscal year 1997 through fiscal year 2003 with DOD's CBA could be at least $100 million. We found that DOD sometimes paid twice for the same airline ticket--first to the Bank of America for the monthly DOD credit card bill, and second to the traveler, who was reimbursed for the same ticket. Based on our mining of limited data, the potential magnitude of the improper payments was 27,000 transactions for over $8 million. For example, DOD paid a Navy GS-15 civilian employee approximately $10,000 for 13 airline tickets he had not purchased. DTS development and implementation have been problematic, especially in the area of requirements and testing key functionality to ensure that the system would perform as intended. Given the lack of adherence to such a key practice, it is not surprising that critical flaws have been identified after deployment, resulting in significant schedule slippages. As originally envisioned, the initial deployment of DTS was to commence 120 days after the effective date of the contract award in September 1998, with complete deployment to approximately 11,000 locations by April 2002. However, that date has been changed to September 2006--a slippage of over 4 years. Our recent analysis of selected requirements disclosed that the testing of DTS is not always adequate prior to updated software being released for use by DOD personnel. System testing is a critical process utilized by organizations to improve an entity's confidence that the system will satisfy the requirements of the end user and will operate as intended. Additionally, an efficient and effective system testing program is one of the critical elements that need to be in place in order to have reasonable assurance that an organization has implemented the disciplined processes necessary to reduce project risks to acceptable levels in software development. In one key area, our results to date have identified instances in which the testing of DTS was inadequate, which precluded DOD from having reasonable assurance that DTS displayed the proper flights and airfares. This occurred because the PMO-DTS failed to ensure that the appropriate system interfaces were tested. Additionally, because a system requirement covering this had never been defined, there was not reasonable assurance that DTS displayed the accurate number of flights and related airfares within a given flight window. As a result of these two weaknesses, DOD travelers might not have received accurate information on available flights and airfares, which could have resulted in higher travel costs. Specific details on these two weaknesses are discussed below. The DOD tests for determining whether DTS displayed the proper flights and airfares did not provide reasonable assurance that the proper (1) flights were displayed and (2) airfares for those flights were displayed. DTS uses a commercial product to obtain information from the database that contains the applicable flight and airfare information (commonly referred to as a Global Distribution System or ). In testing whether DTS displayed the proper flights and airfares, the information returned from the commercial product was compared with the information displayed in DTS and was found to be in agreement. However, the commercial product did not provide all of the appropriate flights or airfares to DTS that were contained in the GDS. Since the PMO-DTS neither performed an end-to-end test nor made sure that the information returned from this commercial product was in agreement with the information contained in the GDS, it did not have reasonable assurance that DTS was displaying the proper flights and airfares information to the users. According to DOD officials, this system weakness was detected by users complaining that DTS did not display the proper flights and airfares. DOD officials stated that prior to the August 2005 system update, DTS should have displayed 12 flights, if that many flights were available, within a flight window. DTS program officials and Northrop Grumman personnel acknowledged that this particular system requirement had never been tested because DOD failed to document the requirement until January 2005. Therefore, DOD did not have reasonable assurance that DTS displayed the required number of flights and related airfare information. The inability to ensure that the proper number of flights was displayed could have caused DOD to incur unnecessary travel cost. As we have noted in previous reports, requirements that are not defined are unlikely to be tested. PMO-DTS officials acknowledged that these two problems have been ongoing since the initial implementation of DTS. PMO-DTS officials have stated that the two problems were corrected as part of the August 2005 DTS system update. We are in the process of verifying whether the actions taken by DOD will correct the problems. Of the four previously reported DOD travel problems, DTS has corrected one of the problems while the others remain. However, the remaining problems are not necessarily within the purview of DTS and may take departmentwide action to fully address. While DOD has taken actions to improve existing guidance and controls related to premium class travel, including system changes in DTS, we identified instances in which unauthorized premium class travel continues. In November 2003, the Under Secretary of Defense (Personnel and Readiness) formed a task force to address our prior recommendations that focused on three major areas: (1) policy and controls of travel authorization, (2) ticket issuance and reporting, and (3) internal control and oversight. Subsequently, several policy changes were made to improve the control and accountability over premium class travel. For example, the approval level for first class travel was elevated to a three-star general and for business class travel to a two-star general or civilian equivalent. Other changes included strengthening the description of circumstances when premium class travel may be used to more clearly show that it is an exceptional circumstance and not a common practice. In all cases, approving officials must have their own premium class travel approved at the next level. These changes also set a broad policy that CTOs are not to issue premium class tickets without proper authorization. In September 2004, the PMO-DTS made system changes to DTS that blocked seven fare codes that were considered to be premium class fare codes from being displayed or selected by the traveler through DTS. According to the PMO- DTS, the airline industry does not have standardized fare code indicators to identify first class, business class, and economy class. Subsequently, DOD found that economy class fare codes were being blocked using the seven codes and in May 2005, reduced the list to three codes. Despite these various changes in policy and to DTS, we continue to identify instances in which premium class travel is occurring without the proper authorization. To date, our preliminary analysis disclosed at least 68 cases that involved improperly approved premium class travel. In one case, we found that a Department of the Army civilian employee (GS-12) flew from Columbia, South Carolina via Atlanta, Georgia to Gulf Port, Mississippi to attend a conference. On the return trip, one leg included first class accommodations. From our review and analysis of Bank of America data and the travel voucher, DOD paid $1,107 for the airfare. The cost of a GSA city pair round trip airfare was $770. According to information provided by the Army, the traveler informed the Army that he was meeting another traveler at the destination and they were going to share a rental car and there were no seats available on the flight the other traveler had booked. Therefore, the individual selected a flight arriving as close as possible to the time of the traveler he was meeting. This is not a valid justification, and the premium class fare was not approved by the appropriate official. Additionally, the premium class fare occurred on the return flight. Furthermore, based upon our review to date, none of the 68 cases that involved improper premium class travel had the required approval. DTS still does not have the capability to determine whether a traveler does not use all or a portion of an airline ticket. To address this problem, DOD directed that all new CTO contract solicitations require CTOs to prepare that unused ticket reports which identify tickets that were not used within a specified time period, usually 30 days past the trip date, so that they can be cancelled and processed for refund. Additionally, the various DOD components were directed to modify existing CTO contracts to require the CTOs to process refunds for unused airline tickets. At the five locations we visited we found that the Army and Air Force CTOs prepared daily and monthly reports. The Navy CTOs produced the unused ticket report on a weekly basis, and the Marine Corps CTOs prepared the report monthly. However, according to DOD officials, this requirement has not yet been implemented in all the existing CTO contracts. Our preliminary observations indicate that DTS was designed to ensure that tickets purchased through the CBA cannot be claimed on the individual's travel voucher as a reimbursement to the traveler. As part of our statistical sample discussed later, we found 14 travel vouchers in which an airline ticket purchased with the CBA was included on the voucher; however, the traveler did not receive reimbursement for the claim. DFAS has previously reported problems with the accuracy of DTS travel payments. For the first quarter of fiscal year 2004, DFAS reported a 14 percent inaccuracy rate in the DTS travel payments of airfare, lodging, and meals, and incidental expenses. Our preliminary analysis of 170 travel vouchers disclosed that for the two attributes that are directly related to the operation of the DTS system--computation of lodging reimbursement and meals and incidental expenses (per diem)--the DTS calculations were correct in all instances on the basis of the information provided by the traveler. However, we continue to identify numerous instances in which employee errors led to inaccurate reimbursements. In some cases, errors occurred because incorrect data were entered into DTS by the traveler. In other cases, the reviews by the AOs were inadequate. In regard to the AO reviews, our preliminary analysis indicates that approximately 66 travel vouchers or 39 percent were paid even though there was not reasonable assurance that the amount of the reimbursement was accurate. More specifically, 49 of 66 travel vouchers lacked adequate receipts for the amounts claimed. Receipts are required for all expenses of $75 or more and for lodging, regardless of the amount. However, for the 49 vouchers, we saw no evidence that the AO was provided with the appropriate receipts by the traveler. In one case, the traveler was reimbursed for expenses claimed in excess of $500, even though none of the required receipts were available for review and approval by the AO. According to DOD regulations, "the AOs signature on the expense report certifies that the travel was taken, that the charges are reasonable...and that the payment of the authorized expenses is approved." While the signature of the AO signifies that the payment is approved, it falls short of ensuring that amounts claimed are reasonable in the cases in which receipts for airfare and lodging are not provided. Until the overall review process is improved, travel payment problems will continue to occur. DOD's goal of making DTS the standard travel system within the department depends upon the development, testing, and implementation of system interfaces with the myriad of related DOD systems, as well as private-sector systems such as the system used by credit card company that provides DOD military and civilian employees with travel cards. While DOD has developed 32 interfaces, the PMO-DTS is aware of at least 17 additional DOD business systems for which interfaces must be developed. To date, the development and testing of the interfaces has cost DOD reportedly over $30 million. Developing the interfaces is time consuming and costly. Additionally, the underutilization of DTS at the sites where it has been deployed is also hindering the department's efforts to have a standard travel system throughout the department. Furthermore, the underutilization impacts the estimated savings that are to be derived from the use of DTS departmentwide. One of DOD's long-standing problems has been the lack of integrated systems. To address this issue and minimize the manual entry of data, interfaces between existing systems must be developed to provide the exchange of data that is critical for day-to-day operations. For example, DTS needs to know before permitting the authorization of travel that sufficient funds are available to pay for the travel--information that comes from a non-DTS system--and once the travel has been authorized, another system needs to know this information so that it can record an obligation and provide management and other systems with information on the funds that remain available. Interfaces are also needed with private-sector systems, such as the credit card company that provides DOD personnel with travel cards. Figure 1 illustrates the numerous DTS system interfaces that have already been developed and implemented with the department's business systems. Figure 2 shows the DTS system interfaces that must be developed in the future with the department's business systems. While DOD was able to develop and implement the interfaces with the 32 systems, the development of each remaining interface will present the PMO-DTS with challenges. For example, the detailed requirements for each of the remaining interfaces have not yet been defined. Such requirements would define (1) what information will be exchanged and (2) how the data exchange will be conducted. This is understandable in some cases such as the Army General Fund Financial enterprise resource planning (ERP), which is a relatively new endeavor within the department and it will be some time before DOD is in position to start development of the interface. Additionally, the development of the DTS interfaces depends on other system owners' achieving their time frames for implementation. For example, the Navy ERP is one of the DOD systems with which DTS is to interface and exchange data. Any difficulties with the Navy's ERP implementation schedule could adversely affect DTS's interface testing and, thereby, result in a slippage in the interface being implemented. The above two factors also affect DTS's ability to develop reliable cost estimates for the future interfaces. Another challenge for DTS in achieving its goal of a standard travel system within DOD is the continued use of the existing legacy travel systems, which are owned and operated by the various DOD components. Currently, at least 31 legacy travel systems are continuing to be operated within the department. As we have previously reported, because each DOD component receives its own funding for the operation, maintenance, and modernization of its own systems, there is no incentive for DOD components to eliminate duplicative travel systems. We recognize that some of the existing travel systems, such as the Integrated Automated Travel System version 6.0, cannot be completely eliminated because it performs other functions, such as permanent change of station travel claims that DTS cannot process. However, in other cases, the department is spending funds on duplicative systems that perform the same function as DTS. The funding of multiple systems that perform the same function is one of the reasons why the department has 4,150 business systems. Since these legacy systems are not owned and operated by DTS, the PMO-DTS does not have the authority to discontinue their operation. This is an issue that must be addressed from a departmentwide perspective. Because of the continued operation of the legacy systems at locations where DTS has been fully deployed, DOD components pay DFAS higher processing fees for processing manual travel vouchers as opposed to processing the travel vouchers electronically through DTS. According to an April 13, 2005, memorandum from the Assistant Secretary of the Army (Financial Management and Comptroller), DFAS was charging the Army $34 for each travel voucher processed manually and $2.22 for each travel voucher processed electronically--a difference of $31.78. The memorandum further noted that for the period October 1, 2004, to February 28, 2005, at locations where DTS had been deployed, the Army paid DFAS approximately $6 million to process 177,000 travel vouchers manually--$34 per travel voucher, versus about $186,000 to process 84,000 travel vouchers electronically--$2.22 per voucher. Overall, for this 5- month period, the Army reported that it spent about $5.6 million more to process these travel vouchers manually as opposed to electronically using DTS. The military services have recognized the importance of utilizing DTS to the fullest extent possible. The Army issued a memorandum in September 2004 directing each Army installation to fully disseminate DTS to all travelers within 90 to 180 days after IOC at each installation. The memorandum included a list of sites that should be fully disseminated and the types of vouchers that must be processed through DTS. Furthermore, the memorandum noted that travel vouchers that could be processed in DTS should not be sent to DFAS for processing. In a similar manner, in February 2005, the Marine Corps directed that upon declaration of DTS's IOC at each location, commands will have DTS fully fielded within 90 days and will stop using other travel processes that have the capabilities of DTS. The Air Force issued a memorandum in November 2004 that stressed the importance of using DTS when implemented at an installation. The Navy has not issued a similar directive. Despite these messages, DTS remains underutilized by the military services. The military services, and in particular, the Army, have taken steps to monitor DTS's usage, but others, such as the Marine Corps, do not capture the data necessary to assess the extent to which DTS is being underutilized. The lack of pertinent data hinders management's ability to monitor its progress toward the DOD vision of DTS as the standard TDY system. Overhauling DOD's financial management and business operations--one of the largest and most complex organizations in the world--represents a daunting challenge. DTS, intended to be the department's end-to-end travel management system, illustrates some of the obstacles that must be overcome by DOD's array of transformation efforts. With over 3.3 million military and civilian personnel as potential travel system users, the sheer size and complexity of the undertaking overshadows any such project in the private sector. Nonetheless, standardized business systems across the department will be the key to achieving billions of dollars of annual savings through successful DOD transformation. As we have previously reported, because each DOD component receives its own funding for the operation, maintenance, and modernization of its own systems, nonintegrated, parochial business systems have proliferated-- 4,150 business systems throughout the department by a recent count. The elimination of "stove-piped" legacy systems and cheaper electronic processing, which could be achieved with the successful implementation of DTS, are critical to realizing the anticipated savings. In closing, we commend the Subcommittee for holding this hearing as a catalyst for improving the department's travel management practices. We also would like to reiterate that following this testimony, we plan to issue a report that will include recommendations to the Secretary of Defense aimed at improving the department's implementation of DTS. Mr. Chairman and Members of the Subcommittee, this concludes our prepared statement. We would be pleased to respond to any questions you may have. DOD has taken several steps to address its needs for the use of intellectual and tangible property in the DTS, but it has not yet completed the exercise of the rights it determined necessary for long-term development and implementation of the DTS. While the original contract awarded to BDM did not specifically address intellectual property rights, TRW, as the successor to BDM, acquired in 2001 perpetual rights to use three key commercial software programs to accommodate technology decisions that necessitated modifying some software for use in DTS. When DOD and TRW agreed to restructure the DTS contract, they modified the contract to include several key provisions that provided DOD with rights to various categories of intellectual and tangible property. As set out below, DOD officials told us that they have yet to complete the exercise of some of DOD's intellectual property rights and to secure title to hardware necessary to meet its long-term acquisition needs, but those steps are in progress. The original DTS contract awarded in 1998 did not specifically address the Government's intellectual property rights because the contract was structured primarily as a fixed-priced travel services contact rather than as a government-funded development effort. As such, the contractor was responsible for securing the necessary intellectual property rights in the commercial software and other products being used, except for those pertaining to existing DOD systems or used by DOD under other agreements. The fixed price for the services would include the cost to the contractor to obtain or develop the necessary software, hardware, and technical data in order to provide the required travel services to DOD. According to DOD officials, DOD and TRW determined in 2001 that three key commercial software programs used in DTS would not meet DOD's requirements without modification. Accordingly, in September 2001, TRW executed a license agreement with the firm holding the copyright to the software programs for TRW to use in developing and deploying DTS within DOD. The firm charged TRW with a one-time fee for the rights under the agreement. Under the license agreement, TRW obtained a perpetual and exclusive license to use the three software programs and related software documentation to develop and deploy software and services for use in the DTS. This license includes the authority to modify the source code to one of the software programs. The license agreement authorizes the assignment of TRW's rights under the agreement to DOD for the DTS project. The license agreement does not expressly condition such an assignment on payment of a fee. According to DOD officials, DOD has approached Northrop Grumman Space & Mission Systems Corp. (Northrop Grumman), as the successor to TRW, requesting assignment of those rights to DOD. In a September 22, 2005, letter to the DTS contracting officer, Northrop Grumman represented that they would assign its rights under the license agreement to DOD at the conclusion of the contract, if requested. The license agreement also provides that Northrop Grumman may sublicense its rights under the agreement to other entities in support of DTS. DOD officials told us that they believe Northrop Grumman's assignment of these rights to DOD would include the authority for DOD to sublicense the rights to other DOD contractors for use in providing services related to DTS. The DOD officials noted that they are in the process of modernizing the DTS application to include a potential complete replacement of the licensed software with custom developed software. The officials stated that they are still evaluating whether an assignment of rights and issuance of any sublicenses actually would be needed in light of these changes. In the restructuring of the DTS contract, DOD and TRW agreed to address a number of intellectual and tangible property categories under the contract that DOD officials told us would satisfy DOD's long-term DTS development and implementation plans. The restructured contract incorporated several standard DOD intellectual property rights clauses, but DOD is still evaluating ownership rights related to key hardware used in the DTS. The restructured contract incorporates standard DOD intellectual property rights clauses for a system being developed at government expense and it specifically gives DOD perpetual rights to DTS software. The perpetual rights for different categories of intellectual property generally depend upon the source of the funding of their development. In particular, the contract requires Northrop Grumman to "provide a perpetual license for DOD use worldwide for DTS software" in accordance with certain standard clauses or in accordance with standard commercial terms for commercial software. Also, the contract incorporates a clause that requires Northrop Grumman to grant or obtain for the government royalty free, world-wide, nonexclusive, irrevocable license rights in technical data. Further, these clauses include provisions that permit Northrop Grumman to assert restrictions on the government's use, release or disclosure of technical data and computer software, depending upon the funding of their development. For commercial software used in the DTS, Northrop Grumman has asserted restrictions applicable to commercial software licenses. Some of the licenses Northrop Grumman obtained for use of commercial software may be neither perpetual nor assignable to DOD, but DOD officials told us that this does not cause risk to the project since there are available alternative methods to acquire similar licenses. Table 1 sets out DOD's rights in these categories. Finally, the contract incorporated a standard clause governing restrictions DOD may place on information it provides to Northrop Grumman for use under the contract. The restructured contract requires Northrop Grumman to provide all hardware (and other equipment) necessary to deliver services under the contract, but DOD officials told us that they are discussing delivery schedules and ownership rights to hardware items, principally configuration items. In a September 23, 2005, letter to the DTS contracting officer, Northrop Grumman represented that they would assign title to certain hardware at the conclusion of the contract, if requested. Finally, DOD has leased some hardware items necessary to interface with the airline Global Distribution Systems and it will need to evaluate the terms of those leases. To determine if the Department of Defense (DOD) effectively tested key Defense Travel System (DTS) functionality associated with flights and airfares, we reviewed the applicable requirements and the related testing prior to the August 2005 release to determine if the desired functionality was effectively implemented. To determine if DTS will correct the problems previously identified with DOD travel, we analyzed past GAO reports and testimonies, selected Defense Finance and Accounting Service (DFAS) reports, and DOD congressional testimonies. In this regard, we focused on how DTS addresses issues related to premium class travel, unused tickets, and centrally billed accounts. We also randomly sampled 170 travel vouchers to ascertain if some of the problems previously reported upon by DFAS have been resolved. To be included within the selected sample, the travel vouchers had to be for trips that were in DTS and for travel started on or after October 1, 2004, and ended on or before December 31, 2004. We have not yet finalized our projections for the sample. To assess the use of premium class travel, we obtained databases from Bank of America and the Project Management Office-Defense Travel System (PMO-DTS), which provided information on the actual travel transactions and traveler information for the period October-December 2004. The Bank of America's database contained all DOD transactions for the first quarter of fiscal year 2005, and the PMO-DTS database contained all vouchers processed by DTS for the same time period. We removed all transactions that were not specifically airline charges, such as rail charges and commercial travel office fees, and then selected all fare codes that corresponded to the potential issuance of a premium class ticket. This resulted in 419 instances in which a premium class ticket could have been issued. We have not finalized our analysis. To identify some of the challenges confronting the department in making DTS the department's standard travel system, we discussed with PMO-DTS officials their implementation strategy and reviewed past GAO reports and testimonies related to the department's efforts to improve the accuracy and reliability of the information in its business systems. We briefed DOD officials on the contents of this testimony. We assessed the reliability of the DOD data we used for our preliminary evaluation by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purpose of this testimony. We performed our audit work from October 2004 through September 2005, in accordance with U.S. generally accepted government auditing standards. To describe DOD's property rights in the DTS we reviewed the DTS contract, applicable acquisition regulations, DOD intellectual property guidance, key DTS license agreements, and written responses from PMO- DTS to our questions, and we met with PMO-DTS and contracting officials and with their legal counsel. For future information about this testimony, please contact McCoy Williams at (202) 512-6906 or [email protected] or Keith A. Rhodes at (202) 512-6412 or [email protected]. Our contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. In addition to the above contacts, the following individuals made key contributions to this testimony: Darby Smith, Assistant Director; J. Christopher Martin, Senior Level Technologist; Beatrice Alff; Francine DelVecchio; Francis Dymond; Thomas Hackney; Gloria Hernandezsaunders; Wilfred Holloway; Jason Kelly; Sheila Miller; Robert Sharpe; Patrick Tobo; and Adam Vodraska. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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The Department of Defense (DOD) has been working to develop and implement a standard end-to-end travel system for the last 10 years. Congress has been at the forefront in addressing issues related to DOD's travel management practices with the hearing today being another example of its oversight efforts. Because of widespread congressional interest in the Defense Travel System (DTS), GAO's current audit is being performed under the statutory authority given to the Comptroller General of the United States. GAO's testimony is based on the preliminary results of that audit and focuses on the following three key questions: (1) Has DOD effectively tested key functionality in DTS related to flights and fare information? (2) Will DTS correct the problems related to DOD travel previously identified by GAO and others? and (3) What challenges remain in ensuring that DTS achieves its goal as DOD's standard travel system? In addition, the Subcommittee asked that GAO provide a description of the intellectual property rights of DOD in DTS. Subsequent to this testimony, GAO plans to issue a report that will include recommendations to the Secretary of Defense aimed at improving the department's implementation of DTS. DTS development and implementation have been problematic, especially in the area of testing key functionality to ensure that the system will perform as intended. Consequently, critical flaws have been identified after deployment, resulting in significant schedule slippages. GAO's recent analysis of selected requirements disclosed that system testing was ineffective in ensuring that the promised capability has been delivered as intended. For example, GAO found that DOD did not have reasonable assurance that DTS properly display flight and airfare information. This problem was not detected prior to deployment, since DOD failed to properly test system interfaces. Accordingly, DOD travelers might not have received accurate information which, could have resulted in higher travel costs. DTS has corrected some of the previously reported travel problems but others remain. Specifically, DTS has resolved the problem related to duplicate payment for airline tickets purchased with the centrally billed accounts. However, problems remain related to improper premium class travel, unused tickets that are not refunded, and accuracy of traveler's claims. These remaining problems cannot be resolved solely within DTS and will take departmentwide action to address. GAO identified two key challenges facing DTS in becoming DOD's standard travel system: (1) developing needed interfaces and (2) underutilization of DTS at sites where it has been deployed. While DTS has developed 32 interfaces with various DOD business systems, it will have to develop interfaces with at least 17 additional systems--not a trivial task. Furthermore, the continued use of the existing legacy travel systems results in underutilization of DTS and affects the savings that DTS was planned to achieve. Components incur additional costs by operating two systems with the same function--the legacy system and DTS--and by paying higher processing fees for manual travel vouchers as opposed to processing the travel vouchers electronically through DTS.
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Congress enacted SCRA in December 2003 as a modernized version of the Soldiers' and Sailors' Civil Relief Act of 1940. In addition to providing protections related to residential mortgages, the act covers other types of loans (such as credit card and automobile) and other financial contracts, products, and proceedings, such as rental agreements, eviction, installment contracts, civil judicial and administrative proceedings, motor vehicle leases, life insurance, health insurance, and income tax payments. SCRA provides the following mortgage-related protections to servicemembers: Interest rate cap. Servicemembers who obtain mortgages prior to serving on active duty status are eligible to have their interest rate and The servicer is to forgive interest and any fees capped at 6 percent.fees above 6 percent per year. Servicemembers must provide written notice to their servicer of their active duty status to avail themselves of this provision. Foreclosure proceedings. A servicer cannot sell, foreclose, or seize the property of a servicemember for breach of a preservice obligation unless a court order is issued prior to the foreclosure or unless the servicemember executes a valid waiver. If the servicer files an action in court to enforce the terms of the mortgage, the court may stay any proceedings or adjust the obligation. Fines and penalties. A court may reduce or waive a fine or penalty incurred by a servicemember who fails to perform a contractual obligation and incurs the penalty as a result if the servicemember was in military service at the time the fine or penalty was incurred and the servicemember's ability to perform the obligation was materially affected by his or her military service. Federal authorities have applied this provision to prepayment penalties incurred by servicemembers who relocate due to permanent change-of-station orders and consequently sell their homes and pay off mortgages early. Adverse credit reporting. A servicer may not report adverse credit information to a credit reporting agency solely because servicemembers exercise their SCRA rights, including requests to have their mortgage interest rates and fees capped at 6 percent. Both servicemembers and servicers have responsibility for activating or applying SCRA protections. For example, to receive the interest-rate benefit, servicemembers must identify themselves as active duty military and provide a copy of their military orders to their financial institution. However, the responsibility of extending SCRA foreclosure protections to eligible servicemembers often falls to mortgage servicers. The burden is on the financial institution to ensure that borrowers are not active duty military before conducting foreclosure proceedings. Eligible servicemembers are protected even if they do not tell their financial institution about their active duty status. One of the primary tools mortgage servicers use to comply with SCRA is a website operated by DOD's Defense Manpower Data Center (DMDC) that allows mortgage servicers and others to query DMDC's database to determine the active duty status of a servicemember. Under SCRA, the Secretaries of each military service and the Secretary of Homeland Security have the primary responsibility for ensuring that servicemembers receive information on their SCRA rights and protections. Typically, legal assistance attorneys on military installations provide servicemembers with information on SCRA during routine briefings, in handouts, and during one-on-one sessions. Additionally, DOD has established public and private partnerships to assist in the financial education of servicemembers. The limited data we obtained from four financial institutions showed that a small fraction of their borrowers qualified for SCRA protections. Our analysis suggests that SCRA-protected borrowers generally had higher rates of delinquency, although this pattern was not consistent across the institutions in our sample and cannot be generalized. However, SCRA protections may benefit some servicemembers. SCRA-protected borrowers at two of the three institutions from which we had usable data were more likely to cure their mortgage delinquencies than other military borrowers. Some servicemembers also appeared to have benefitted from the SCRA interest rate cap. Financial institutions we contacted could not provide sufficient data to assess the impact of different protection periods, but our analysis indicates that mortgage delinquencies appeared to increase in the first year after active duty. Based on our interviews and the data sources we reviewed, the number of servicemembers with mortgages eligible for SCRA protections is not known because servicers have not systematically collected this information, although limited data are available. Federal banking regulators do not generally require financial institutions to report information on SCRA-eligible loans or on the number and size of loans that they service for servicemembers. SCRA compliance requires that financial institutions check whether a borrower is an active duty servicemember and therefore eligible for protection under SCRA before initiating a foreclosure proceeding. However, institutions are not required to conduct these checks on loans in the rest of their portfolio, and two told us that they do not routinely check a borrower's military status unless the borrower is delinquent on the mortgage. Consequently, the number of SCRA-eligible loans that these two institutions reported to us only includes delinquent borrowers and those who reported their SCRA eligibility to the financial institution. Two other institutions were able to more comprehensively report the number of SCRA-eligible loans in their portfolio because they routinely check their portfolio against the DMDC database. Additionally, only one of the financial institutions we contacted was able to produce historical data on the total number of known SCRA- eligible loans in its portfolio. Although exact information on the total number of servicemembers eligible for the mortgage protections under SCRA is not known, DOD data provide some context for approximating the population of servicemembers who are homeowners with mortgage payments and who therefore might be eligible for SCRA protections. According to DOD data, in 2012 there were approximately 1.4 million active duty servicemembers and an additional 848,000 National Guard and Reserve members, of which approximately 104,000 were deployed. While DOD does not maintain data on the number of servicemembers who are homeowners, DOD's 2012 SOF survey indicated that approximately 30 percent of active duty military made mortgage payments. For reservists, DOD's most recent survey of homeownership in June 2009 indicated that 53 percent of reservists made mortgage payments. According to DOD officials, industry trade group representatives, SCRA experts, and military service organizations, the servicemembers most likely to be eligible for SCRA mortgage protections are members of the Reserve components because they were more likely to have had mortgages before entering active duty service. Although comprehensive data on the number of servicemembers eligible for SCRA are not available, four financial institutions provided us with some data on the servicemembers they have identified in their portfolios in 2012. According to these data, a small percentage of the financial institutions' total loan portfolios were identified as being eligible for SCRA protections. Table 1 details the number of loans held by each of the institutions from which we obtained data, including the estimated number of loans belonging to servicemembers and the number of loans the institutions identified as SCRA-eligible. Collectively, we estimate that the financial institutions from which we received useable data service approximately 27-29 percent of the mortgages held by servicemembers. This estimate is based on information from DOD's SOF results on the estimated percentage of active duty servicemembers and reservists who make mortgage payments and the reported and estimated number of military borrowers that each of these institutions reported in their portfolios. Representatives with three of the financial institutions told us they have made changes to their data systems over the past 2 years to help better identify whether mortgage holders were active duty military and eligible for SCRA protections. They attributed these changes, in part, to DOD's April 2012 upgrade of the DMDC database to allow financial institutions to check on the active duty status of up to 250,000 borrowers at once, as opposed to checking one individual at a time. Since then, some of the institutions had made changes to their systems to use the DMDC database to routinely check the military status of borrowers, thereby improving their available data on SCRA-eligible borrowers. Of the financial institutions we contacted, representatives with two told us that they now regularly check their entire loan portfolio against the DMDC database. Representatives with the other institutions said that they only check the military status of delinquent borrowers. To illustrate the extent to which these changes could improve the accuracy of the data on SCRA- eligible borrowers, representatives of one financial institution told us they used to rely on postal codes to help identify borrowers on or near military bases to determine whether they were likely servicemembers. This institution has since switched to a data system that allows a check of its entire portfolio against the DMDC database so that the institution can more accurately identify which borrowers are also servicemembers. Our analysis of data from three financial institutions suggests that SCRA- protected borrowers were substantially more likely to experience delinquency at any time than their non-SCRA-protected military counterparts, with one exception. The institutions provided us data with substantial inherent limitations that prevented us from fully analyzing the repayment practices of their military borrowers. However, the limited data allowed us to conduct some analyses of borrowers' delinquency rates and the rates at which delinquent borrowers became current on their mortgages. At two servicers, we found that SCRA-protected borrowers had delinquency rates from 16 to 20 percent. In contrast, non-SCRA- protected military borrowers had delinquency rates that ranged from 4 to 8 percent. These rates also varied across time within an institution. However, delinquency rates for the large credit union we analyzed were significantly smaller, and its SCRA-protected borrowers were less likely to be delinquent. For example, in the fourth quarter of 2012, 0.01 percent of SCRA-protected borrowers at this institution were delinquent on their loans, while 0.56 percent of the remaining borrowers in its loan portfolio were delinquent. The variation in delinquency rates among these financial institutions indicates that factors in addition to SCRA protection likely influence an institution's delinquency rates, including differences among each institution's lending standards and policies or borrower characteristics, such as income and marital status. Although it should be interpreted with caution because the results were not consistent at all three institutions for which we could conduct the analysis, our data analysis also suggests that borrowers protected by SCRA may have a better chance of curing their mortgage delinquency-- making payments sufficient to restore their loan to current status--than those without the protections. The summary loan data we obtained from one institution show that its SCRA-protected military borrowers who were 90 or more days delinquent were almost twice as likely to cure their delinquency within a year than civilian borrowers and almost five times as likely as other military borrowers who were not SCRA-protected. Our analysis of loan-level data from another institution also suggested that its SCRA-protected borrowers had a higher likelihood of curing their mortgage delinquency than military borrowers not SCRA-protected, although their chances of curing the delinquency declined after leaving active duty.suggested that cure rates for active duty SCRA-protected servicemembers were substantially lower than their noneligible active duty counterparts. Again, these differences in cure rates among the three institutions could reflect differences in institution policies or borrower characteristics. However, our analysis of data provided by a third institution Our data analysis also indicates that at least some servicemembers have benefitted from the SCRA interest rate cap. As discussed earlier, servicemembers must provide written notice to their servicer of their active duty status to avail themselves of this provision. Analysis of one institution's data showed that approximately 32 percent of identified SCRA-eligible borrowers had a loan with an interest rate above 6 percent at origination. According to data provided by this institution--which included the initial interest rate and a current interest rate for 9 consecutive months in 2013--some SCRA-eligible borrowers saw their interest rates reduced to 6 percent or less, but almost 82 percent of the loans for those eligible for such a reduction retained rates above 6 percent. However, SCRA-eligible borrowers with interest rates higher than 6 percent had a larger average drop in interest rates from origination through the first 9 months of 2013 than non-SCRA-eligible military borrowers or SCRA-protected borrowers with initial rates below 6 percent. We cannot determine how many rate reductions resulted from the application of SCRA protections; other potential reasons for rate decreases include refinancing or a rate reset on adjustable-rate loans. Several financial institutions told us that more servicemembers could benefit from the rate cap protection if they provided proof of their active duty status to their mortgage servicer. For example, representatives from one financial institution told us that they receive military documentation (orders, commanding officer letters, etc.) on 31 percent of their SCRA- eligible borrowers--as a result, up to 69 percent may not be receiving the full financial benefit that SCRA affords. The data financial institutions we contacted were able to provide were generally not sufficient to assess the impact of the various protection periods in effect since the enactment of SCRA: 90 days, 9 months, and 1 year. Because most of the institutions we interviewed reported that they made enhancements to their data systems in 2012 to better identify SCRA-eligible borrowers, they were unable to provide data for both SCRA-eligible borrowers and a comparison group of other military borrowers before the end of 2011, when the protection periods were shorter. Furthermore, none of our data that included SCRA-eligible borrowers and a comparison group of non-SCRA-eligible borrowers covered more than a 1-year span. As a result, the data were insufficient to evaluate the effectiveness of SCRA in enhancing the longer-term financial well-being of the servicemember leaving active duty or over the life of the mortgage. Finally, our measures of financial well-being-- likelihood of becoming delinquent, curing a delinquency, and obtaining a reduction in the mortgage interest rate--are not comprehensive measures of financial well-being, but were the best measures available to us in the data. Our analysis of one servicer's data suggests that all military borrowers-- SCRA-protected or not--had a higher likelihood of becoming delinquent in the first year after they left active duty than when in the military. For example, in the loan-level data from an institution that used the DMDC database to check the military status of its entire loan portfolio, all of its military borrowers had a higher likelihood of becoming delinquent in the first year after they left active duty than when in service, with that risk declining somewhat over the course of the year for non-SCRA-protected military borrowers. Although not generalizeable, these findings are consistent with concerns, described below, that servicemembers may face financial vulnerability after separating from service. Those who were SCRA-protected had a smaller increase in delinquency rates in the first year after leaving active duty than other military borrowers, but this may be due to SCRA-protected borrowers having their loans become delinquent at higher rates before leaving active duty and not to a protective effect of SCRA. Although we were generally unable to obtain data to analyze the impact of the varying protection periods, data from one institution provided some indication of a positive effect of SCRA protection for servicemembers receiving up to a year of protection. Analyzable data from one institution on the mortgage status of all its military borrowers for a 9-month period in 2013, including those who had left active duty service within the last year, indicated that SCRA-protected borrowers who were within the 1-year protection period after leaving active duty service had a higher chance of curing their delinquencies than did the institution's other military borrowers who had left active duty service. We found this effect despite this being the same institution where we found that SCRA-eligible borrowers were less likely to cure their mortgage delinquencies when still on active duty (compared with non-SCRA-eligible borrowers). Overall, the findings from our data analysis on delinquencies and cure rates were consistent with our interviews and past work showing that the first year after servicemembers leave active duty can be a time of financial vulnerability. We previously reported that while the overall unemployment rate for military veterans was comparable to that of non- veterans, the unemployment rate for veterans more recently separated from the military was higher than for civilians and other veterans. Additionally, representatives from the National Guard and Army Reserve said that Guard and Reserve members may return to jobs in the civilian sector that could be lower paying or less stable than their previous military work. Based on a June 2012 DOD SOF survey of Reserve component members, an estimated 40 percent of reservists considered reemployment, returning to work, or financial stability as their biggest concern about returning from their most recent activation or deployment. As we reported in 2012, some financial institutions extended SCRA protections beyond those stated in the act, as a result of identified SCRA violations and investigations in 2011. For example, three mortgage servicers we included in this review noted that they had reduced the interest rate charged on servicemembers' mortgages to 4 percent--below the 6 percent required in SCRA. Additionally, the National Mortgage Settlement in February 2012 required five mortgage servicers to extend foreclosure protections to any servicemember--regardless of whether their mortgage was obtained prior to active duty status--who receives Hostile Fire/Imminent Danger Pay or serving at a location more than 750 miles away from his or her home.meeting these conditions may not be foreclosed upon without a court order. Two financial institutions we interviewed extended SCRA foreclosure protections to all active duty servicemembers. One of the financial institutions told us that they have made SCRA foreclosure protections available to all active duty servicemembers for the loans that As a result, any servicemember they own and service (thus, about 16 percent of their mortgage portfolio receives SCRA protection). However, officials at this institution said that they were bound by investor guidelines for the loans they service for other investors, such as Fannie Mae, the Department of Housing and Urban Development, and private investors. The officials said that many of the large investors have not revised their rules to extend SCRA protections; as a result, the institution has been unable to extend SCRA protections to all noneligible borrowers whose loans are owned by these entities. None of the financial institutions we interviewed advocated for a change in the length of time that servicemembers received SCRA protection. Officials at one institution told us that they considered a 1-year period a reasonable amount of time for servicemembers to gain financial stability after leaving active duty and that they implemented the 1-year protection period before it became law. One attorney we interviewed who has a significant SCRA-related practice supported the extension of the SCRA foreclosure protection to 1 year because the revised timeframe matches the mortgage interest-rate protection period, which has remained at 1 year since 2008, when mortgages were added to the SCRA provision that limits interest rates to 6-percent. In contrast, a representative of one of the military support organizations we interviewed noted that, based on his interactions with servicemembers, the effect of extending the foreclosure protection from 9 months to 1 year has been negligible, although he also said that the extension was a positive development. DOD has entered into partnerships with many federal agencies and nonprofit organizations to help provide financial education to servicemembers, but limited information on the effectiveness of these efforts exists. Under SCRA, the Secretaries of the individual services and the Secretary of Homeland Security have the primary responsibility for ensuring that servicemembers receive information on SCRA rights and protections. Servicemembers are informed of their SCRA rights in a variety of ways. For example, briefings are provided on military bases and during deployment activities; legal assistance attorneys provide counseling; and a number of outreach media, such as publications and websites, are aimed at informing servicemembers of their SCRA rights. DOD also has entered into partnerships with many other federal agencies and nonprofit organizations to help provide financial education to servicemembers. These efforts include promoting awareness of personal finances, helping servicemembers and their families increase savings and reduce debt, and educating them about predatory lending practices. As shown in fig. 1, the external partners that worked with DOD have included financial regulators and nonprofit organizations. According to DOD officials, these external partners primarily focus on promoting general financial fitness and well-being as part of DOD's For example, partners including the Financial Readiness Campaign.Consumer Federation of America, the Better Business Bureau Military Line, and the Financial Industry Regulatory Authority's Investor Education Foundation provide financial education resources free of charge to servicemembers. DOD and the Consumer Federation of America also conduct the Military Saves Campaign every year, a social marketing campaign to persuade, motivate, and encourage military families to save money every month and to convince leaders and organizations to aggressively promote automatic savings. DOD has partnerships with the Department of the Treasury and the Federal Trade Commission to address consumer awareness, identity theft, and insurance scams targeted at servicemembers and their families. In addition, DOD officials noted that some partners provide SCRA outreach and support to servicemembers. For example, the Bureau of Consumer Financial Protection has an Office of Servicemember Affairs that provides SCRA outreach to servicemembers and mortgage servicers responsible for complying with the act. This agency also works directly with servicemembers by collecting consumer complaints against depository institutions and coordinating those complaints with depository institutions to get a response from them and, if necessary, appropriate legal assistance offices. Similarly, nonprofit partners including the National Military Family Association, the Association of Military Banks of America, and the National Association of Federal Credit Unions provide information on SCRA protections to their members. But DOD officials also noted that partners are not required by DOD to provide SCRA education, and that such education may represent a rather small component of the partnership efforts. DOD established its financial education partnerships by signing memorandums of understanding (MOU) with the federal agencies and nonprofit organizations engaged in its Financial Readiness Campaign. The MOUs include the organizations' pledges to support the efforts of military personnel responsible for providing financial education and financial counseling to servicemembers and their families as well as additional responsibilities of the individual partners. According to the program manager of DOD's Financial Readiness Program (in the Office of Family Policy, Children and Youth, which collaborates with the partners), there are no formal expectations that any of the partners provide education about SCRA protections. She noted that such a requirement would not make sense for some partners, including those that do not interact directly with servicemembers but instead provide educational materials about financial well-being. The manager said that it was important that all of DOD's partners be aware of the SCRA protections, and she planned to remind each of them about the SCRA protections in an upcoming partners meeting. The program manager noted that although her office has not conducted any formal evaluations of the partnerships to determine how effective the partners have been in fulfilling the educational responsibilities outlined in their MOUs, she believes that they have functioned well. According to personal financial managers in the individual services (who work with the personal financial advisors who provide financial education to servicemembers at military installations) and representatives from a military association, the education partnerships have been working well overall. But they also told us that obtaining additional information about the educational resources available through the partnerships and their performance would be helpful. For example, one association noted that it could benefit from a central website to serve as a clearinghouse for educational information from the various financial education partners. Staff from another organization said that DOD should regularly review all of these partners to ensure they were fulfilling their responsibilities. DOD officials told us they would likely discuss these suggestions at upcoming meetings with their financial education partners. The program manager of the Personal Financial Readiness Program also noted that to manage the partnerships, she regularly communicates with the partners to stay informed of their activities. In addition, she said that the Office of Family Policy, Children and Youth has been encouraging individual installation commanders to enter into agreements with local nonprofit organizations. The local partners would provide education assistance more tailored to servicemembers' situations than the more global information the DOD partners provided. As we noted in our 2012 report, DOD has surveyed servicemembers on whether they had received training on SCRA protections, but had not assessed the effectiveness of its educational methods. To assess servicemembers' awareness of SCRA protections, in 2008 DOD asked in its SOF surveys if active duty servicemembers and members of the Reserve components had received SCRA training. Forty-seven percent of members of the Reserve components--including those activated in 2008--reported that they had received SCRA training and 35 percent of regular active duty servicemembers reported that they had received training. Without an assessment of the effectiveness of its educational methods (for example, by using focus groups of servicemembers or results of testing to reinforce retention of SCRA information), we noted that DOD might not be able to ensure it reached servicemembers in the most effective manner. We recommended that DOD assess the effectiveness of its efforts to educate servicemembers on SCRA and determine better ways for making servicemembers aware of their SCRA rights and benefits, including improving the ways in which reservists obtain such information. In response to our recommendation, as of December 2013, DOD was reviewing the results of its recent surveys on the overall financial well- being of military families. The surveys have been administered to three groups: servicemembers, military financial counselors, and military legal assistance attorneys. While the surveys are not focused solely on SCRA, they take into account all financial products, including mortgages and student loans, covered by SCRA. DOD officials explained that they would use the results, including any recommendations from legal assistance attorneys, to adjust training and education on SCRA benefits, should such issues be identified. Our findings for this report--that many servicemembers appeared not to have taken advantage of their ability to reduce their mortgage interest rates as entitled--appear to reaffirm that DOD's SCRA education efforts could be improved and that an assessment of the effectiveness of these efforts is still warranted. We provided a draft of this report to the Department of Defense, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Bureau of Consumer Financial Protection for comment. The Department of Defense and the Office of the Comptroller of the Currency provided technical comments that were incorporated, as appropriate. We are sending copies of this report to interested congressional committees. We will also send copies to the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of Defense, the Comptroller of the Currency, and the Director of the Consumer Financial Protection Bureau. 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) 512-8678 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 key contributions to this report are listed in appendix II. This report examines (1) available information on changes in the financial well-being of servicemembers who received foreclosure-prevention and mortgage-related interest rate protections under SCRA, including the extent to which servicemembers became delinquent on their mortgages after leaving active duty and the impact of protection periods; and (2) the Department of Defense's (DOD) partnerships with public- and private- sector entities to provide financial education and counseling about SCRA mortgage protections to servicemembers and views on the effectiveness of these partnerships. To assess changes in the financial well-being of servicemembers who receive SCRA mortgage protections, including the extent to which servicemembers became delinquent on their mortgages after leaving active duty and the impact of protection periods, we analyzed legislation and reviewed our prior work on SCRA. We obtained and analyzed loan- level data, institution-specific summary data, or both, from four financial institutions (three large single-family mortgage servicers and a large credit union). A fifth institution (a large single-family servicer) we contacted was unable to provide us with data for inclusion in our review. We did not identify financial institutions to protect the privacy of individual borrower data. Table 2 provides a summary of the data we obtained. We conducted a quantitative analysis of the data, which included information on (1) loan history, including loan status and total fees; (2) loan details such as the loan-to-value ratio and principal balance; and (3) financial outcomes of borrowers, such as initial and updated credit scores and whether the borrowers filed for bankruptcy or cured mortgage defaults. After controlling for loan and demographic characteristics and other factors to the extent that such data were available, we developed logistic regression models to estimate the probability of different populations becoming delinquent on their mortgage and curing their mortgage delinquency (by bringing their payments current). The estimates from these models may contain some degree of bias because we could not control for economic or military operations changes, such as changes in housing prices or force deployment that might affect a servicemember's ability to repay a mortgage. Our analysis is not based on a representative sample of all servicemembers eligible to receive SCRA mortgage protections and therefore is not generalizable to the larger population. Moreover, we identified a number of limitations in the data of the four financial institutions. For example, the various servicer datasets identify SCRA status imperfectly and capture activity over different time periods with different periodicities. We also cannot rule out missing observations or other inaccuracies. Other issues include conflicting data on SCRA eligibility, data reliability issues related to the DOD database used to identify servicemembers (which is operated by the Defense Manpower Data Center, or DMDC), data quality differences across time within a given servicer's portfolio, and data artifacts that may skew the delinquency statistics for at least one institution. Lastly, as servicer systems vary across institutions, none of the servicers from which we requested data provided us with every data field we requested for our loan-level analysis. Due to the differences in the data provided by each institution, we conducted a separate quantitative analysis of the data from each institution that provided loan-level data. To the extent that data were available, we also calculated summary statistics for each institution on the changes in financial well-being of the servicemembers, which allowed for some basis of comparison across institutions in levels of delinquency and cure rates. To conduct as reliable analyses as the data allowed, we also corrected apparent data errors, addressed inconsistencies, and corroborated results with past work where possible. Through these actions, and interviews with knowledgeable financial institution officials, we determined that the mortgage data and our data analysis were sufficiently reliable for the limited purposes of this report. However, because some servicer practices related to SCRA have made it difficult to distinguish SCRA-protected servicemembers from other military personnel, the relative delinquency and cure rates we derived from these data represent approximations, are not definitive, and should be interpreted with caution. Furthermore, we analyzed data from DOD's Status of Forces (SOF) surveys from 2007 to 2012, which are administered to a sample of active duty servicemembers and reservists on a regular basis and cover topics such as readiness and financial well-being. We determined the survey data we used were sufficiently reliable for our purposes. We also analyzed DOD data on the size of the active duty military population and DOD survey data to estimate the percentage of servicemembers who make payments on a mortgage and may be eligible for SCRA protections, and the percentage of military borrowers that our sample of borrowers from selected financial institutions covers. Lastly, we also interviewed two lawyers with knowledge of SCRA, five selected financial institutions, DOD officials (including those responsible for individual military services, the Status of Forces Surveys, and a database of active duty status of servicemembers), and representatives of military associations and selected financial institutions to obtain available information or reports on the impact of SCRA protections on the long-term financial well-being of servicemembers and their families. To examine the effectiveness of DOD's partnerships, we analyzed documentation on DOD's partnerships with public and private entities that provide financial education and counseling to servicemembers. For example, we reviewed memorandums of understanding DOD signed with the federal agencies and nonprofit organizations engaged in its Financial Readiness Campaign. We reviewed the nature of such partnerships, including information or efforts related to SCRA mortgage protections. We also conducted interviews with DOD officials, including the program manager of DOD's Personal Financial Readiness Program and personal financial managers in each of the individual military services; selected DOD partners that provide SCRA-related education to servicemembers; a military support association; and two lawyers with knowledge of SCRA. We asked about how such partnerships provide SCRA mortgage education and counseling and gathered views on and any assessments of the partnerships' effectiveness. We conducted this performance audit from June 2013 to January 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, Cody Goebel, Assistant Director; James Ashley; Bethany Benitez; Kathleen Boggs; Abigail Brown; Rudy Chatlos; Grant Mallie; Deena Richart; Barbara Roesmann; and Jena Sinkfield made key contributions to this report.
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SCRA seeks to protect eligible active duty military personnel in the event that their military service prevents them from meeting financial obligations. Mortgage-related protections include prohibiting mortgage servicers from foreclosing on servicemembers' homes without court orders and capping fees and interest rates at 6 percent. Traditionally, servicemembers received 90 days of protection beyond their active duty service, but this period was extended to 9 months in 2008 and to 1 year in 2012. The legislation that provided the 1-year protection period also mandated that GAO report on these protections. This report examines (1) available information on changes in the financial well-being of servicemembers who received foreclosure-prevention and mortgage-related interest rate protections under SCRA, including the extent to which they became delinquent and the impact of protection periods; and (2) DOD's partnerships with public- and private-sector entities to provide financial education and counseling about SCRA mortgage protections to servicemembers and views on the effectiveness of these partnerships. To address these objectives, GAO sought and received data from three large mortgage servicers and a large credit union covering a large portion of all mortgage loans outstanding and potentially SCRA-eligible borrowers. GAO also reviewed documentation on DOD's partnerships and relevant education efforts related to SCRA mortgage protections. GAO interviewed DOD officials and partners who provided SCRA mortgage education and counseling. The number of servicemembers with mortgages eligible for Servicemembers Civil Relief Act (SCRA) mortgage protections is unknown because servicers have not collected this information in a comprehensive manner. Based on the limited and nongeneralizeable information that GAO obtained from the three mortgage servicers and the credit union, a small percentage of the total loan portfolios were identified as eligible for SCRA protections. Two large servicers had loan-level data on delinquency rates. For those identified as SCRA-eligible, rates ranged from 16 to 20 percent and from 4 to 8 percent for their other military borrowers. Delinquencies at the credit union were under 1 percent. Some servicemembers appeared to have benefitted from the SCRA interest rate cap of 6 percent, but many eligible borrowers had apparently not taken advantage of this protection. For example, at one institution 82 percent of those who could benefit from the interest rate caps still had mortgage rates above 6 percent. The data also were insufficient to assess the impact of SCRA protections after servicemembers left active duty, although one institution's limited data indicated that military borrowers had a higher risk of delinquency in the first year after leaving active duty. But those with SCRA protections also were more likely to cure delinquencies during this period than the institution's other military borrowers. Given the many limitations to the data, these results should only be considered illustrative. Most of these institutions indicated that they made recent changes to better identify SCRA-eligible borrowers and improve the accuracy of the data. The Department of Defense (DOD) has partnerships with many federal agencies and nonprofit organizations to help provide financial education to servicemembers, but limited information on the effectiveness of these partnerships exists. DOD and its partners have focused on promoting general financial fitness rather than providing information about SCRA protections. But some partners provide SCRA outreach and support to servicemembers. For example, the Bureau of Consumer Financial Protection has an Office of Servicemember Affairs that provides SCRA outreach to servicemembers and mortgage servicers responsible for complying with the act. Although stakeholders GAO interviewed generally offered favorable views of these partnerships, some said obtaining additional information about educational resources and partnership performance could improve programs. However, DOD has not undertaken any formal evaluations of the effectiveness of these partnerships. This finding is consistent with GAO's July 2012 review of SCRA education efforts, which found that DOD had not assessed the effectiveness of its educational methods and therefore could not ensure it reached servicemembers in the most effective manner. GAO recommended in July 2012 that DOD assess the effectiveness of its efforts to educate servicemembers on SCRA to determine better ways for making servicemembers (including reservists) aware of SCRA rights and benefits. In response to that recommendation, as of December 2013, DOD was reviewing the results of its recent surveys on the overall financial well-being of military families and planned to use these results to adjust training and education for SCRA, as appropriate. GAO's current finding that many servicemembers did not appear to be taking advantage of the SCRA interest rate cap appears to reaffirm that DOD's SCRA education efforts could be improved and that an assessment of the effectiveness of these efforts is still warranted.
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An effective military medical surveillance system needs to collect reliable information on (1) the health care provided to service members before, during, and after deployment, (2) where and when service members were deployed, (3) environmental and occupational health threats or exposures during deployment (in theater) and appropriate protective and countermeasures, and (4) baseline health status and subsequent health changes. This information is needed to monitor the overall health condition of deployed troops, inform them of potential health risks, as well as maintain and improve the health of service members and veterans. In times of conflict, a military medical surveillance system is particularly critical to ensure the deployment of a fit and healthy force and to prevent disease and injuries from degrading force capabilities. DOD needs reliable medical surveillance data to determine who is fit for deployment; to prepare service members for deployment, including providing vaccinations to protect against possible exposure to environmental and biological threats; and to treat physical and psychological conditions that result from deployment. DOD also uses this information to develop educational measures for service members and medical personnel to ensure that service members receive appropriate care. Reliable medical surveillance information is also critical for VA to carry out its missions. In addition to VA's better known missions--to provide health care and benefits to veterans and medical research and education-- VA has a fourth mission: to provide medical backup to DOD in times of war and civilian health care backup in the event of disasters producing mass casualties. VA needs reliable medical surveillance data from DOD to treat casualties of military conflicts, provide health care to veterans who have left active duty, assist in conducting research should troops be exposed to environmental or occupational hazards, and identify service- connected disabilities to adjudicate veterans' disability claims. Investigations into the unexplained illnesses of service members and veterans who had been deployed to the Persian Gulf uncovered the need for DOD to implement an effective medical surveillance system to obtain comprehensive medical data on deployed service members, including Reservists and National Guardsmen. Epidemiological and health outcome studies to determine the causes of these illnesses have been hampered by a lack of (1) complete baseline health data on Gulf War veterans; (2) assessments of their potential exposure to environmental health hazards; and (3) specific health data on care provided before, during, and after deployment. The Presidential Advisory Committee on Gulf War Veterans' Illnesses' and IOM's 1996 investigations into the causes of illnesses experienced by Gulf War veterans confirmed the need for more effective medical surveillance capabilities. The National Science and Technology Council, as tasked by the Presidential Advisory Committee, also assessed the medical surveillance system for deployed service members. In 1998, the council reported that inaccurate recordkeeping made it extremely difficult to get a clear picture of what risk factors might be responsible for Gulf War illnesses. It also reported that without reliable deployment and health assessment information, it was difficult to ensure that veterans' service-related benefits claims were adjudicated appropriately. The council concluded that the Gulf War exposed many deficiencies in the ability to collect, maintain, and transfer accurate data describing the movement of troops, potential exposures to health risks, and medical incidents in theater. The council reported that the government's recordkeeping capabilities were not designed to track troop and asset movements to the degree needed to determine who might have been exposed to any given environmental or wartime health hazard. The council also reported major deficiencies in health risk communications, including not adequately informing service members of the risks associated with countermeasures such as vaccines. Without this information, service members may not recognize potential side effects of these countermeasures or take prompt precautionary actions, including seeking medical care. In response to these reports, DOD strengthened its medical surveillance system under Operation Joint Endeavor when service members were deployed to Bosnia-Herzegovina, Croatia, and Hungary. In addition to implementing departmentwide medical surveillance policies, DOD developed specific medical surveillance programs to improve monitoring and tracking environmental and biomedical threats in theater. While these efforts represented important steps, a number of deficiencies remained. On the positive side, the Assistant Secretary of Defense (Health Affairs) issued a health surveillance policy for troops deploying to Bosnia. This guidance stressed the need to (1) identify health threats in theater, (2) routinely and uniformly collect and analyze information relevant to troop health, and (3) disseminate this information in a timely manner. DOD required medical units to develop weekly reports on the incidence rates of major categories of diseases and injuries during all deployments. Data from these disease and non-battle-injury reports showed theaterwide illness and injury trends so that preventive measures could be identified and forwarded to the theater medical command regarding abnormal trends or actions that should be taken. DOD also established the U.S. Army Center for Health Promotion and Preventive Medicine--a major enhancement to DOD's ability to perform environmental monitoring and tracking. For example, the center operates and maintains a repository of service members' serum samples--the largest serum repository in the world--for epidemiological studies to examine potential health issues for services members and veterans. The center also operates and maintains a system for integrating, analyzing, and reporting data from multiple sources relevant to the health and readiness of military personnel. This capability was augmented with the establishment of the 520th Theater Army Medical Laboratory--a deployable public health laboratory for providing environmental sampling and analysis in theater. The sampling results can be used to identify specific preventive measures and safeguards to be taken to protect troops from harmful exposures and to develop procedures to treat anyone exposed to health hazards. During Operation Joint Endeavor, this laboratory was used in Tuzla, Bosnia--where most of the U.S. forces were located--to conduct air, water, soil, and other environmental monitoring. Despite the Department's progress, we and others have reported on DOD's implementation difficulties during Operation Joint Endeavor and the shortcomings in DOD's ability to maintain reliable health information on service members. Knowledge of who is deployed and their whereabouts is critical for identifying individuals who may have been exposed to health hazards while deployed. However, in May 1997, we reported that inaccurate information on who was deployed and where and when they were deployed--a problem during the Gulf War--continued to be a concern during Operation Joint Endeavor.For example, we found that the Defense Manpower Data Center (DMDC) database--where military services are required to report deployment information--did not include records for at least 200 Navy service members who were deployed. Conversely, the DMDC database included Air Force personnel who were never actually deployed. In addition, we reported that DOD had not developed a system for tracking the movement of service members within theater. IOM also reported that during Operation Joint Endeavor, locations of deployed service members were still not systematically documented or archived for future use. We also reported in May 1997 that for the more than 600 Army personnel whose medical records we reviewed, DOD's centralized database for postdeployment medical assessments did not capture 12 percent of those assessments conducted in theater and 52 percent of those conducted after returning home. These data are needed by epidemiologists and other researchers to assess at an aggregate level the changes that have occurred between service members' pre- and postdeployment health assessments. Further, many service members' medical records did not include complete information on the in-theater postdeployment medical assessments that had been conducted. The Army's European Surgeon General attributed missing in-theater health information to DOD's policy of having service members hand-carry paper assessment forms from the theater to their home units, where their permanent medical records were maintained. The assessments were frequently lost en route. We have also reported that not all medical encounters in theater were being recorded in individual records. Our 1997 report indicated that this problem was particularly common for immunizations given in theater. Detailed data on service members' vaccine history are vital for scheduling the regimen of vaccinations and boosters and for tracking individuals who received vaccinations from a specific vaccine lot in the event that health concerns about the lot emerge. We found that almost one-fourth of the service members' medical records that we reviewed did not document the fact that they had received a vaccine for tick-borne encephalitis. In addition, in its 2000 report, IOM cited limited progress in medical recordkeeping for deployed active duty and reserve forces and emphasized the need for records of immunizations to be included in individual medical records. Responding to our and others' recommendations to improve information on service members' deployments, in-theater medical encounters, and immunizations, DOD has continued to revise and expand its policies related to medical surveillance, and the system continues to evolve. In addition, in 2000, DOD released its Force Health Protection plan, which presents the Department's vision for protecting deployed forces and includes the goal of joint medical logistics support for all services by 2010. The vision articulated in this capstone document emphasizes force fitness and health preparedness, casualty prevention, and casualty care and management. A key component of the plan is improved monitoring and surveillance of health threats in military operations and more sophisticated data collection and recordkeeping before, during, and after deployments. However, IOM criticized DOD's progress in implementing its medical surveillance program as well as its failure to implement several recommendations that IOM had made. In addition, IOM raised concerns about DOD's ability to achieve the vision outlined in the Force Health Protection plan. We have also reported that some of DOD's programs designed to improve medical surveillance have not been fully implemented. IOM's 2000 report presented the results of its assessment of DOD's progress in implementing recommendations for improving medical surveillance made by IOM and several others. IOM stated that, although DOD generally concurred with the findings of these groups, DOD had made few concrete changes at the field level. In addition, environmental and medical hazards were not yet well integrated in the information provided to commanders. The IOM report notes that a major reason for this lack of progress is that no single authority within DOD has been assigned responsibility for the implementation of the recommendations and plans. IOM said that because of the complexity of the tasks and the overlapping areas of responsibility involved, the single authority must rest with the Secretary of Defense. In its report, IOM describes six strategies that in its view demand further emphasis and require greater efforts by DOD: Use a systematic process to prospectively evaluate non-battle-related risks associated with the activities and settings of deployments. Collect and manage environmental data and personnel location, biological samples, and activity data to facilitate analysis of deployment exposures and to support clinical care and public health activities. Develop the risk assessment, risk management, and risk communication skills of military leaders at all levels. Accelerate implementation of a health surveillance system that completely spans an individual's time in service. Implement strategies to address medically unexplained symptoms in deployed populations. Implement a joint computerized patient record and other automated recordkeeping that meets the information needs of those involved with individual care and military public health. DOD guidance established requirements for recording and tracking vaccinations and automating medical records for archiving and recalling medical encounters. While our work indicates that DOD has made some progress in improving its immunization information, the Department faces numerous challenges in implementing an automated medical record. DOD also recently established guidelines and additional policy initiatives for improving military medical surveillance. In October 1999, we reported that DOD's Vaccine Adverse Event Reporting System--which relies on medical staff or service members to provide needed vaccine data--may not have included some information on adverse reactions because these personnel had not received guidance needed to submit reports to the system. According to DOD officials, medical staff may also report any other reaction they think might be caused by the vaccine, but because this is not stated explicitly in DOD's guidance on vaccinations, some medical staff may be unsure about which reactions to report. Also, in April 2000, we testified that vaccination data were not consistently recorded in paper records and in a central database, as DOD requires.For example, when comparing records from the database with paper records at four military installations, we found that information on the number of vaccinations given to service members, the dates of the vaccinations, and the vaccine lot numbers were inconsistent at all four installations. At one installation, the database and records did not agree 78 percent to 92 percent of the time. DOD has begun to make progress in implementing our recommendations, including ensuring timely and accurate data in its immunization tracking system. The Gulf War revealed the need to have information technology play a bigger role in medical surveillance to ensure that information is readily accessible to DOD and VA. In August 1997, DOD established requirements that called for the use of innovative technology, such as an automated medical record device that can document inpatient and outpatient encounters in all settings and that can archive the information for local recall and format it for an injury, illness, and exposure surveillance database. Also, in 1997, the President, responding to deficiencies in DOD's and VA's data capabilities for handling service members' health information, called for the two agencies to start developing a comprehensive, lifelong medical record for each service member. As we reported in April 2001, DOD's and VA's numerous databases and electronic systems for capturing mission-critical data, including health information, are not linked and information cannot be readily shared. DOD has several initiatives under way to link many of its information systems--some with VA. For example, in an effort to create a comprehensive, lifelong medical record for service members and veterans and to allow health care professionals to share clinical information, DOD and VA, along with the Indian Health Service (IHS), initiated the Government Computer-Based Patient Record (GCPR) project in 1998. GCPR is seen as yielding a number of potential benefits, including improved research and quality of care, and clinical and administrative efficiencies. However, our April 2001 report described several factors-- including planning weaknesses, competing priorities, and inadequate accountability--that made it unlikely that DOD and VA would accomplish GCPR or realize its benefits in the near future. To strengthen the management and oversight of GCPR, we made several recommendations, including designating a lead entity with a clear line of authority for the project and creating comprehensive and coordinated plans for sharing meaningful, accurate, and secure patient health data. For the near term, DOD and VA have decided to reconsider their approach to GCPR and focus on allowing VA to access selected health data on service members captured by DOD. According to DOD and VA officials, full operation is expected to begin the third quarter of this fiscal year, once testing of the near-term system has been completed. DOD health information is an especially critical information source given VA's fourth mission to provide medical backup to the military health system in times of national emergency and war. Under the near-term effort, VA will be able to access laboratory and radiology results, outpatient pharmacy data, and patient demographic information. This approach, however, will not provide VA access to information on the health status of personnel when they enter military service; on medical care provided to Reservists while not on active duty; or on the care military personnel received from providers outside DOD, including TRICARE providers. In addition, because VA will only be able to view this information, physicians will not be able to easily organize or otherwise manipulate the data for quick review or research. DOD has several other initiatives for improving its information technology capabilities, which are in various stages of development. For example, DOD is developing the Theater Medical Information Program (TMIP), which is intended to capture medical information on deployed personnel and link it with medical information captured in the Department's new medical information system. As of October 2001, officials told us that they planned to begin field testing for TMIP in spring 2002, with deployment expected in 2003. A component system of TMIP-- Transportation Command Regulating and Command and Control Evacuation System--is also under development and aims to allow casualty tracking and provide in-transit visibility of casualties during wartime and peacetime. Also under development is the Global Expeditionary Medical System (GEMS), which DOD characterizes as a stepping stone to an integrated biohazard surveillance and detection system. In addition to its ongoing information technology initiatives, DOD recently issued two major policies for advancing its military medical surveillance system. Specifically, in December 2001, DOD issued clinical practice guidelines, developed collaboratively with VA, to provide a structure for primary care providers to evaluate and manage patients with deployment- related health concerns. According to DOD, the guidelines were issued in response to congressional concerns and IOM's recommendations. The guidelines are expected to improve the continuity of care and health-risk communication for service members and their families for the wide variety of medical concerns that are related to military deployments. Because the guidelines became effective January 31, 2002, it is too early for us to comment on their implementation. Finally, DOD issued updated procedures on February 1, 2002, for deployment health surveillance and readiness. These procedures supersede those laid out in DOD's December 1998 memorandum. The 2002 memorandum adds important procedures for occupational and environmental health surveillance and updates pre- and postdeployment health assessment requirements. These new procedures take effect on March 1, 2002. According to officials from DOD's Health Affairs office, military medical surveillance is a top priority, as evidenced by the Department's having placed responsibility for implementing medical surveillance policies with one authority--the Deputy Assistant Secretary of Defense for Force Health Protection and Readiness. However, these officials also characterized force health protection as a concept made up of multiple programs across the services. For example, we learned that each service is responsible for implementing DOD's policy initiatives for achieving force health protection goals. This raises concerns about how the services will uniformly collect and share core information on deployments and how they will integrate data on the health status of service members. These officials also confirmed that DOD's military medical surveillance policies will depend on the priority and resources dedicated to their implementation. Clearly, the need for comprehensive health information on service members and veterans is compelling, and much more needs to be done. However, it is also a very difficult task because of uncertainties about what conditions may exist in a deployed setting, such as potential military conflicts, environmental hazards, and the frequency of troop movements. Moreover, the outlook for successful surveillance is complicated by scientific uncertainty regarding the health effects of exposures and changes in technology that affect the feasibility of monitoring and tracking troop movements. While progress is being made, DOD will need to continue to make a concerted effort to resolve the remaining deficiencies in its surveillance system and be vigilant in its oversight. VA's ability to perform its missions to care for veterans and compensate them for their service-connected conditions will depend in part on the adequacy of DOD's medical surveillance system. For further information, please contact Cynthia A. Bascetta at (202) 512- 7101. Individuals making key contributions to this testimony included Ann Calvaresi Barr, Diana Shevlin, Karen Sloan, and Keith Steck.
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The Department of Defense (DOD) and the Department of Veterans Affairs (VA) recently established a medical surveillance system to respond to the health care needs of both military personnel and veterans. A medical surveillance system involves the ongoing collection and analysis of uniform information on deployments, environmental health threats, disease monitoring, medical assessments, and medical encounters and its timely dissemination to military commanders, medical personnel, and others. GAO and others have reported extensively on weaknesses in DOD's medical surveillance capability and performance during the Gulf War and Operation Joint Endeavor. Investigations into the unexplained illnesses of Gulf War veterans revealed DOD's inability to collect, maintain, and transfer accurate data on the movement of troops, potential exposures to health risks, and medical incidents during deployment. DOD improved its medical surveillance system under Operation Joint Endeavor, which provided useful information to military commanders and medical personnel. However, several problems persist. DOD has several efforts under way to improve the reliability of deployment information and enhance its information technology capabilities. Although its recent policies and reorganization reflect a commitment to establish a comprehensive medical surveillance system, much needs to be done to implement the system. To the extent DOD's medical surveillance capability is realized, VA will be better able to serve veterans and provide backup to DOD in times of war.
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During the first year of the advocacy review panel requirements' implementation, OSHA convened a panel for one draft rule and published two other proposed rules for which panels were not held. SBA's Chief Counsel for Advocacy agreed with OSHA's certification that neither of these two proposed rules required an advocacy review panel. As of November 1, 1997, EPA had convened advocacy review panels for four draft rules. EPA also published 17 other proposed rules that were reviewed by OIRA for which panels were not held because EPA certified that the proposed rules would not have a significant economic impact on a substantial number of small entities. SBA's Chief Counsel said that EPA should have convened panels for 2 of these 17 proposed rules--the rules setting national ambient air quality standards for ozone and for particulate matter. Some of the small entity representatives that we interviewed also said that EPA should have convened advocacy review panels for these two proposed rules. EPA officials said that review panels were not required for the ozone and particulate matter rules because they would not, by themselves, have a significant economic impact on a substantial number of small entities. The officials said that any effects that the rules would have on small entities would only occur when the states determine how the standards will be specifically implemented. However, SBA's Chief Counsel for Advocacy disagreed with EPA's assessment. He said that the promulgation of these two rules cannot be separated from their implementation, and that effects on small entities will flow "inexorably" from the standards EPA established. We could not determine whether EPA should have convened advocacy review panels for the ozone and particulate matter rules because there are no clear governmentwide criteria for determining whether a rule has a "significant economic impact on a substantial number of small entities." Specifically, it is unclear whether health standards that an agency establishes by regulation should be considered separable from implementation requirements established by state governments or other entities. The Regulatory Flexibility Act (RFA), which SBREFA amended, does not define the term "significant economic impact on a substantial number of small entities." Although the RFA requires the SBA Chief Counsel for Advocacy to monitor agencies' compliance with the act, it does not expressly authorize SBA or any other entity to interpret key provisions. In a previous report we noted that agencies had different interpretations regarding how the RFA's provisions should be interpreted. In another report, we said that if Congress wishes to strengthen the implementation of the RFA it should consider amending the act to provide clear authority and responsibility to interpret key provisions and issue guidance. In our report that is being issued today, we again conclude that governmentwide criteria are needed regarding what constitutes a "significant economic impact on a substantial number of small entities." Therefore, we said that if Congress wishes to clarify and strengthen the implementation of the RFA and SBREFA, it should consider providing SBA or another entity with clear authority to interpret the RFA's key provisions. We also said that Congress could consider establishing, or requiring SBA or some other entity to develop, governmentwide criteria defining the phrase "significant economic impact on a substantial number of small entities." Specifically, those criteria should state whether the establishment of regulatory standards by a federal agency should be separated from implementation requirements imposed by other entities. Governmentwide criteria can help ensure consistency in how the RFA and SBREFA are implemented across federal agencies. However, those criteria must be flexible enough to allow for some agency-by-agency variations in the kinds of impacts that should be considered "significant" and what constitutes a "substantial" number of small entities. As of November 1, 1997, EPA and OSHA had convened five advocacy review panels. OSHA convened the first panel on September 10, 1996, to review its draft standard for occupational exposure to tuberculosis (TB). EPA convened panels to review the following four draft rules: (1) control of emissions of air pollution from nonroad diesel engines (Mar. 25, 1997); (2) effluent limitations guidelines and pretreatment standards for the industrial laundries point source category (June 6, 1997); (3) stormwater phase II--national pollutant discharge elimination system (June 19, 1997); and (4) effluent limitations guidelines and standards for the transportation equipment-cleaning industry (July 16, 1997). The panels, EPA and OSHA, and SBA's Chief Counsel for Advocacy generally followed SBREFA's procedural requirements on how those panels should be convened and conducted. For example, as required by the statute: EPA and OSHA notified the SBA Chief Counsel before each of the panels and provided him with information on the potential impacts of the draft rules and the types of small entities that might be affected. The Chief Counsel responded to EPA and OSHA no later than 15 days after receipt of these materials and helped identify individuals representative of the affected small entities. Each of the five panels reviewed materials that the regulatory agencies had prepared and collected advice and recommendations from the small entity representatives. However, there were a few minor inconsistencies with SBREFA's specific statutory requirements in the five panels we reviewed. For example, three of the panels took a few days longer than the 60 days allowed by the statute to conclude their deliberations and issue a report. Also, EPA did not formally designate a chair for its panels until June 11, 1996--about 6 weeks later than the statute required. Members of Congress and congressional staff viewed this as an attempt to prejudice the panel members' consideration, and the practice was changed. For subsequent panels, EPA developed a summary of the comments it had received from small entities before the panels were convened, which it provided to the panel members. The panel members themselves then gathered advice and recommendations from the small entity representatives and drafted the final reports. As of November 1, 1997, two of the draft rules for which EPA and OSHA held advocacy review panels had been published as notices of proposed rulemaking in the Federal Register--OSHA's proposed rule on the occupational exposure to TB and EPA's proposed rule to control nonroad diesel engine emissions. The panels' recommendations for these draft rules focused on providing small entities with flexibility in how to comply with the rules and on the need to consider potentially overlapping local, state, and federal regulations and enforcement. OSHA and EPA primarily responded to the panels' recommendations in the supplementary information sections of the proposed rules, although OSHA also made some changes to the text of its rule. For example, one of the TB panel's major recommendations was that OSHA reexamine the application of the draft rule to homeless shelters. In the supplementary information section of the proposed rule, OSHA said that it was conducting a special study of this issue and would hold hearings on issue\ related to TB exposure in homeless shelters. The TB panel also recommended that OSHA examine the potential cost savings associated with allowing TB training that a worker received in one place of employment to be used to satisfy training requirements in another place of employment. In response, OSHA changed the text of the draft rule to allow the portability of nonsite specific training. officials had already decided how the rules would be written before convening the panels, and that the officials were not interested in making any significant changes to the rules. Although most of the 32 small entity representatives with whom we spoke said that they thought the review panel process was worthwhile, about three-fourths of them suggested changes to improve that process. Their comments primarily focused on the following four issues: (1) the time frames in which the panels were conducted, (2) the composition of the groups of small entity representatives commenting to the panels, (3) the methods the panels used to gather comments, and (4) the materials about the draft rules that the regulatory agencies provided. Seven of the small entity representatives said they would have liked more advance notice of panel meetings and telephone conference calls with the panels. Some of these representatives said that short notices had prevented them from participating in certain panel efforts. Fourteen representatives said they were not given enough time to study the materials provided before being asked to comment on the draft rules. Five representatives suggested holding the panels earlier in the rulemaking process to increase the likelihood that the panels could affect the draft rules. Fourteen small entity representatives thought that the composition of those providing input to the panels could be improved. Specifically, they said that the panels should have obtained input from more representatives of (1) individual small entities, not just representatives from associations; (2) certain types of affected small entities that were not included (e.g., from certain geographic areas); (3) small entities that would bear the burden of implementing the draft rules (e.g., small municipalities); and (4) small entities that were reviewing the draft rule for the first time, and that had not been previously involved in developing the draft rules. Nine of the small entity representatives said that the conference calls that OSHA and EPA typically used to obtain their views limited the amount of discussion that could take place. Most of these representatives expressed a preference for face-to-face meetings because they believed the discussions would be fuller and provide greater value to the panels. informed discussion of the rules' potential impacts on small entities, eight representatives said they believed the materials could have been improved. Six thought the materials were too vague or did not provide enough information. However, two representatives said that the materials were too voluminous and complex to expeditiously review. The agency officials we interviewed also offered suggestions for improving the panels. Because you will be hearing from those same officials later in this hearing, I will not go into detail about those suggestions. However, their comments centered on some of the same issues raised by the small entity representatives, including the timing of the panels, the materials provided to the representatives, and the manner by which comments are obtained. Many of the agency officials and small entity representatives that we interviewed said they believed the panel process has provided an opportunity to identify significant impacts on small entities and has given the agencies a better appreciation of the small entities' concerns. However, implementation of the panel process has not been without controversy or concern. Our greatest concern about the panel process is the lack of clarity regarding whether EPA should have convened advocacy review panels for its national ambient air quality standards for ozone and for particulate matter. That concern is directly traceable to the lack of agreed-upon governmentwide criteria as to when a rule has a "significant economic impact on a substantial number of small entities" under the RFA. If governmentwide criteria had been established regarding when initial regulatory flexibility analyses should be prepared (and, therefore, when SBREFA advocacy review panels should be convened), the dispute regarding whether EPA should have convened additional panels would likely not have arisen. In particular, governmentwide criteria should address whether the establishment of regulatory standards by a federal agency should be separated from the subsequent implementation requirements imposed by states or other entities. Some of the concerns that small entity representatives expressed about the panel process may be difficult to resolve. When panels are held earlier in the process, it is less likely that the materials will be fully developed to provide detailed data and analyses to the small entity representatives. However, delaying the panels until such data are available could limit the opportunity for small entities to influence key decisions. How agencies implement the advocacy review panel process will have a pronounced effect on its continued viability. If small entity representatives are given the opportunity to discuss the issues they believe are important and see that their input is taken seriously, it is likely that they will continue to view the panel process as a useful opportunity to provide their comments on draft rules relatively early in the rulemaking process. Mr. Chairman and Madam Chairwoman, 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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GAO discussed the Small Business Regulatory Enforcement Fairness Act's (SBREFA) advocacy review panel provisions, focusing on: (1) whether the Environmental Protection Agency (EPA) or the Occupational Safety and Health Administration (OSHA) had applied the advocacy review panel requirements to all applicable rules that they proposed in the first year of the panel requirements; (2) whether the EPA and OSHA panels, the regulatory agencies themselves, and the Small Business Administration's (SBA) Chief Counsel for Advocacy followed the statute's procedural requirements; (3) identify any changes that EPA and OSHA made to the draft rules as a result of the panels' recommendations; and (4) identify any suggestions that agency officials and small entity representatives had regarding how the advocacy review panel process could be improved. GAO noted that: (1) as of November 1, 1997, EPA and OSHA had convened five review panels; (2) EPA and SBA's Chief Counsel for Advocacy disagree regarding the applicability of the panel requirements to two other rules that EPA proposed in December 1996--the national ambient air quality standards for ozone and for particulate matter; (3) specifically, EPA and the Chief Counsel disagree regarding whether the effects of states' implementation of these health standards can be separated from the standards themselves in determining whether EPA's rules may have a significant economic impact on a substantial number of small entities; (4) GAO suggested that Congress resolve this issue by taking steps to clarify the meaning of the term "significant impact"; (5) the agencies and the panels generally met SBREFA's procedural requirements, but there were several differences in how the panels operated; (6) the panels' recommendations regarding the two proposed rules that had been published as of November 1, 1997, focused on various issues, such as providing small entities with greater compliance flexibility and considering the effects of potentially overlapping regulations; (7) the agencies generally responded to those recommendations in the supplementary information sections of the proposed rules; and (8) the small entity representatives with whom GAO spoke and, to a lesser extent, the agency officials GAO interviewed, offered several suggestions to improve the advocacy review panel process.
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AFMC, headquartered at Wright-Patterson Air Force Base, Ohio, was created in 1992. It conducts research, development, test and evaluation, as well as provides acquisition-management services and logistics support necessary to ensure the readiness of Air Force weapon systems. AFMC has traditionally fulfilled its mission of equipping the Air Force through: the Air Force Research Laboratory; product centers that develop and acquire the weapon systems; test centers that offer the testing of the systems; and air logistics centers that service, upgrade, and repair the systems over their lifetimes. In addition, AFMC's various specialized centers are designed to perform other functions, including foreign military sales and delivery of nuclear capabilities. In light of the budget pressures that the Department of Defense (DOD) and, in turn, AFMC faced in recent years, the Office of the Secretary of Defense's Resource Management Decision 703A2 directed that civilian staffing levels for all services be returned to fiscal year 2010 levels. In response, AFMC announced a plan for reorganization in November 2011, which was designed to achieve position cuts and produce efficiencies throughout the command. As such, the reorganization eliminated 1,051 civilian positions and combined the functions of its 12 centers into 5 centers with each center assuming responsibility for one of AFMC's 5 mission areas: (1) science and technology, (2) life-cycle management, (3) test and evaluation, (4) sustainment, and (5) nuclear weapon support. The geographic location where the functions of the former 12 centers were performed generally did not change as a result of the reorganization to the 5 current centers. Figure 1 shows the structure of AFMC before and after the reorganization. ESC was one of AFMC's 12 former centers, headquartered at Hanscom Air Force Base, Massachusetts. ESC served as the Air Force's center for the development and acquisition of electronic command-and-control systems. Under the reorganization, ESC's functions were consolidated with other centers to become AFLCMC, a center at Wright-Patterson Air Force Base established in July 2012 with responsibility for total life-cycle management of all aircraft, engines, munitions, and electronic systems. Life-cycle management involves the refinement of product requirements to address existing needs, technology development, system development, production and fielding, and ongoing sustainment of the product. Hanscom Air Force Base has two directorates that are responsible for the life-cycle management of electronic systems: (1) Battle Management and (2) Command, Control, Communications, Intelligence and Networks. The directorates are led by PEOs who are ultimately responsible for acquisition of the systems in their portfolio and their timely delivery to the customer. To achieve their mission of acquisition and product support, PEOs are supported by system program managers, each of whom has responsibility for the development and design of support systems for a particular electronic system. PEOs are also supported by functional offices, which provide technical services such as acquisition, engineering, financial management, and contracting. The reorganization affected the reporting chains of command and the workforce composition for some offices, but did not change the acquisition mission at Hanscom Air Force Base. The reorganization affected the reporting chains of command and the composition of the workforce for some offices at Hanscom Air Force Base. Specifically, the reorganization affected the reporting chains of command within PEO directorates by inactivating ESC, removing its 3-star Commander, and integrating the former ESC into AFLCMC, a newly established organization led by a 3-star commander at Wright- Patterson Air Force Base. Although Hanscom's two PEOs continue to report to the Air Force's service acquisition executive at the Pentagon in performing their mission related to acquisition of weapon systems and product support, under the reorganization they also support the AFLCMC Commander in organizing, training, and equipping the PEO directorates (see fig. 2). The reorganization also affected the reporting chains of command for system program managers, who support PEOs. Prior to the reorganization, system program managers reported to the PEOs for initial system development, system procurement, manufacturing, and testing of weapon systems. Once the weapon systems matured, the functions of the system program manager transferred to an air logistics center where the system program manager reported to the designated acquisition officials for product sustainment responsibilities. The reorganization eliminated the position of designated acquisition officials and, as a result, system program managers report to PEOs at all stages of the product life cycle, including product sustainment. This change affected the functions of PEOs, who under the reorganization have oversight responsibility not just for the acquisition of the weapon systems, as they did under the old structure, but also for the sustainment and product support of these systems. Further, the reorganization affected the reporting chains of command for personnel in Hanscom's functional offices. Specifically, functional office personnel at Hanscom Air Force Base--who provide technical services such as acquisition, engineering, financial management, and contracting--previously were managed by locally-based ESC leadership. Under the reorganization, they report directly to senior functional managers at Wright-Patterson Air Force Base. As a result of this change, senior functional managers oversee the flow of funding and task assignments that were formerly managed at individual locations, according to Hanscom's functional office personnel. For example, Hanscom officials said that prior to the reorganization, officials at Hanscom Air Force Base could determine what positions required a top-secret security clearance, whereas since the reorganization senior functional managers at Wright-Patterson Air Force Base make these determinations. In addition to its effects on the reporting chains of command, the reorganization also affected the composition of Hanscom's workforce by eliminating about 10 percent of its civilian authorizations.the reorganization eliminated 131 of Hanscom's 1,258 civilian authorizations that were comprised exclusively of government positions and did not include contractor positions, according to a Hanscom contracting official. All of these positions were identified by AFMC as overhead. AFMC officials said they targeted overhead positions for elimination, rather than first eliminating vacant positions or making uniform cuts across all centers, in an effort to implement the cuts in a strategic manner. After deciding to focus the cuts on positions identified as overhead, AFMC officials stated that they consulted with all of their product centers to come to an agreement on positions that qualified as overhead. VERA/VSIP are programs that allow agencies to incentivize surplus or displaced employees to separate by early retirement, voluntary retirement, or resignation. The Homeland Security Act of 2002, Pub. L. No. 107-296, SS1313(b), authorized these programs under regulations issued by the Office of Personnel Management. The Office of Personnel Management has issued guidance to the agencies stating that these programs may be used when the buyout averts an involuntary separation of the person taking the buyout or another individual who can fill the position that was vacated by the person taking the buyout. either already were vacant or became vacant as the result of other employees agreeing to leave through VERA/VSIP, and 1 person was removed while in a probationary period (see fig. 3). The reorganization did not change the mission of Hanscom's directorates that are responsible for the acquisition of electronic systems. Our analysis of documentation from Hanscom and Wright-Patterson Air Force Bases showed that the PEOs responsible for carrying out Hanscom's acquisition mission have remained at Hanscom Air Force Base and no positions were eliminated within Hanscom's directorates that are directly involved with the implementation of its acquisition mission. Moreover, both of the PEOs at Hanscom Air Force Base who directly manage the acquisition of weapon systems, as well as system program managers who work for them, told us the reorganization did not change the processes for carrying out their mission, or change acquisition and fielding processes and timeframes. While the Air Force recently expanded the portfolios of the two PEOs at Hanscom Air Force Base, Air Force officials attributed this change to an unrelated initiative by the Air Force's service acquisition executive. In addition, none of the six customers we interviewed identified any changes in how Hanscom Air Force Base components carry out their acquisition functions, including how they interact with and deliver products to the customer. The reorganization resulted in opportunities and some concerns at Hanscom Air Force Base, and AFLCMC has taken steps to facilitate its implementation. Officials at Hanscom Air Force Base and Wright-Patterson Air Force Base, as well as Hanscom customers and contractors, stated that the reorganization resulted in opportunities to help strengthen the delivery of products to customers. These opportunities include increased focus on life-cycle management of weapon systems by PEOs, an increase in collaboration of personnel within the restructured AFLCMC, and greater standardization of processes. Increased focus on life-cycle management. According to officials at Wright-Patterson Air Force Base and Hanscom Air Force Base, one of the benefits of the reorganization is the focus on life-cycle management achieved by giving PEOs responsibilities over all phases of the weapon system's life cycle. By assuming oversight over all phases of the life cycle, PEOs can more efficiently manage the systems in their portfolio, according to Hanscom's PEOs and system program managers whom we interviewed. For example, one PEO told us that overseeing the system through its entire life cycle has allowed him to be more aware of sustainment-related costs during a system's development, thus bringing the potential for more long-term value to the customer. Further, three of the six customers we interviewed stated that an increased focus on life-cycle management could result in greater efficiencies and value to the customer in the long term. Increased collaboration within the command. Wright-Patterson Air Force Base and Hanscom Air Force Base officials cited increased opportunities for collaboration as a result of bringing several centers and all of AFMC's PEOs under the command of AFLCMC. For example, the Commander of AFLCMC and both of Hanscom's PEOs stated that the reorganization provided PEOs and their staff with increased opportunities to exchange key information related to products. According to one of the PEOs, the sharing of information is especially important when different PEOs are responsible for products that complement each other, such as products that comprise a single weapon system. Further, senior functional managers at Wright- Patterson Air Force Base said the establishment of AFLCMC enables functional office personnel from different AFLCMC locations to share technical expertise related to weapon systems under their purview, and an engineering official at Hanscom Air Force Base said that she and her counterparts at other AFLCMC locations have become more aware of each others' needs in carrying out duties such as recruiting and hiring personnel. Greater standardization of processes. AFMC and AFLCMC headquarters officials at Wright-Patterson Air Force Base stated that the reorganization allowed them to standardize processes and avoid duplication associated with each location-based product center maintaining its own set of processes. For example, personnel officials at Wright-Patterson Air Force Base cited the benefits of having a standard process of approving waivers from certain training requirements across AFLCMC. Standardization of processes is one of AFLCMC's six strategic objectives, and the organization has taken steps to promote standardization, including establishing a Process and Standards Board, which led the effort to identify key processes best suited to standardization, such as processes for developing cost estimates by financial management personnel, awarding contracts by contracting personnel, and conducting analysis of information technology systems by engineering personnel. However, a former ESC command staff member expressed concerns about the appropriateness of standardizing certain processes given the specialized needs of each of the former product centers subsumed under AFLCMC. For example, he said the engineering expertise required to support the development of aeronautical systems at Wright-Patterson Air Force Base is different than the engineering expertise and processes required to support the development of electronic systems at Hanscom Air Force Base. Current and former Hanscom officials and six contractors we interviewed also raised some concerns associated with the reorganization. These concerns related to: increased workload for functional office personnel at Hanscom Air Force Base due to position eliminations there, process delays resulting from centralization of various administrative processes and actions at Wright-Patterson Air Force Base, officials at Wright- Patterson Air Force Base not having a full understanding of Hanscom's programs, and possible future diminished importance of Hanscom Air Force Base as the center of electronic systems for the Air Force. AFMC and AFLCMC officials said they do not share these concerns and do not agree that these issues reflect significant problems. Specifically, current and former personnel and contractors we interviewed stated the following concerns. Increased workload. Functional office personnel at Hanscom Air Force Base said they experienced an increase in their workload due to the reorganization. They said they have had to assume responsibility for the tasks previously performed by personnel whose positions were eliminated. For example, an official providing functional support to one of Hanscom's directorates said her colleague had to review immunization records for personnel within the directorate, a task previously performed by other functional office personnel within ESC. This official said her concern was that such tasks could take time away from her office's primary responsibility of supporting the directorate's acquisition mission. Moreover, functional office personnel said due to ESC inactivation and the subsequent elimination of positions providing ESC-wide functional support, they no longer have the capability to maintain some of the projects previously performed at the ESC level. For example, Hanscom's functional office officials stated they discontinued projects, such as a mentoring program for financial management personnel and a knowledge-sharing online resource for engineering personnel. In response, the AFLCMC Commander said Hanscom Air Force Base retained key functional expertise on site because it has remained an operating location for functional office personnel under the new structure. Process delays. In interviews, functional office personnel at Hanscom Air Force Base, system program managers, and two contractors stated that some processes have become more time consuming with senior functional managers at Wright-Patterson Air Force Base approving actions previously approved by ESC leadership at Hanscom Air Force Base. For example, a financial management official at Hanscom Air Force Base said due to the reorganization her office experienced delays in the flow of funds from headquarters at Wright-Patterson Air Force Base, which created concerns about meeting fielding timelines. Similarly, contracting and personnel officials at Hanscom Air Force Base said some processes, such as obtaining waivers from certain standard requirements or filling positions, take longer since they have to wait for approval by AFLCMC headquarters at Wright-Patterson Air Force Base. In the past, officials said these actions could be expeditiously approved by the ESC leadership at Hanscom Air Force Base. A former ESC command staff member stated that these process delays could lead to program decision delays, which could affect the PEOs' acquisition mission. With regard to centralization of approval authority, AFMC and AFLCMC officials said any delays in approval authority have not adversely affected the customers. Moreover, they said standardizing processes will help reduce duplication and is expected to generate greater efficiencies for the customer in the long term. Lack of full understanding of Hanscom's programs. In interviews, functional office personnel at Hanscom Air Force Base, members of the former ESC leadership team, and two of the seven contractors expressed concerns that AFLCMC personnel at Wright-Patterson Air Force Base, who provide support to all AFLCMC locations, may not have a full understanding of Hanscom's programs. For example, a former ESC command staff member and an engineering official at Hanscom Air Force Base stated that the type of engineering support required for electronic systems is different from the type of support required for other systems that fall under AFLCMC. The engineering official said information technology requirements for airplanes differ from those for electronic systems, and personnel at Wright-Patterson Air Force Base may not have a full understanding of the technical requirements needed to support Hanscom's programs. Similarly, a financial management official at Hanscom Air Force Base said the process of estimating the cost of software applicable to Hanscom's electronic systems is different than the cost-estimating procedures for other types of products such as aircraft engines. While ESC's former Commander credited AFLCMC's leadership with trying to increase the capacity of Wright-Patterson Air Force Base personnel to support Hanscom's electronic systems, a former ESC command staff member stated it may be more difficult to locate the needed engineering and information technology expertise at Wright-Patterson Air Force Base, which may not have as strong of a relationship with academia in the Dayton, Ohio, area as Hanscom Air Force Base does in the Boston, Massachusetts, region. In addressing the limited understanding of Hanscom's electronic systems programs by Wright-Patterson Air Force Base personnel, AFMC and AFLCMC officials stated senior functional managers at Wright-Patterson Air Force Base do not require specific expertise in electronic systems because the processes, such as personnel and financial management, apply across systems and programs. Possibility of diminished importance of Hanscom Air Force Base in the future. Hanscom officials and the majority of the contractors we interviewed expressed concerns about the extent of Hanscom's continued importance to the Air Force. They said the inactivation of ESC as a stand-alone center and the removal of a 3-star commander from the base raised questions among Hanscom personnel and contractors whether the base might be susceptible to closure in the future. Additionally, contractors cited concerns about the loss of an on-site leader who can serve as an advocate for Hanscom's unique role in the acquisition of electronic systems and as a link between Hanscom and the contracting community that supports these programs. Regarding Hanscom's future, the AFLCMC Commander told us that AFLCMC fully recognizes the importance of Hanscom's mission for national defense and plans to retain its core mission implementation functions. AFLCMC has taken steps to facilitate the implementation of the reorganization across all affected locations, including Hanscom Air Force Base. To help manage the reorganization process, AFLCMC established a governance structure that includes the following entities: the 100-Day Taskforce, which addresses administrative issues that may arise in the course of the reorganization; the AFLCMC Council, which meets monthly to track performance against the established metrics; and the Standards and Process Board, which convenes as needed to identify ways to standardize processes across AFLCMC. Further, AFLCMC has taken steps to communicate reorganization goals, plans, and progress to stakeholders across the command such as periodic newsletters, teleconferences, and web-based discussion forums. For example, AFLCMC's senior officials said that they hold weekly teleconferences with PEOs at each of AFLCMC's locations, including Hanscom Air Force Base, to better understand the concerns they may be having. AFLCMC also publishes a monthly newsletter that offers a forum for keeping stakeholders informed of issues affecting the new organization, such as the development of new organizational objectives and performance metrics. Other communication mechanisms that AFLCMC officials mentioned include regular visits by the AFLCMC Commander to Hanscom Air Force Base, conferences of personnel across AFLCMC, and encouraging AFLCMC personnel to submit ideas for improvements in the processes of the new organization. In addition, all 10 senior functional managers at Wright-Patterson Air Force Base whom we interviewed stated that they use various mechanisms to regularly communicate with the functional office personnel in different geographic locations, such as video teleconferences, computer cameras, and secure video chats. Hanscom's functional office personnel whom we interviewed had different perceptions regarding the sufficiency of AFLCMC's efforts. Some functional office personnel at Hanscom Air Force Base stated that AFLCMC leadership has been effective in reaching out to them and hearing their concerns. For example, officials from contracting and acquisition offices credited the AFLCMC Commander for making regular visits to the base to discuss the reorganization with the stakeholders and obtain their input. By contrast, other functional office personnel stated existing efforts to address their concerns were insufficient. For example, two functional office personnel told us they have raised concerns with AFLCMC headquarters about the reorganization and its effects at Hanscom Air Force Base--such as hiring rules set by Wright-Patterson Air Force Base that do not reflect the realities of Hanscom's more competitive labor market in the Boston region--and, in their opinion, the leadership did not address them. AFLCMC senior officials said that the various communication mechanisms that they have put in place allow them to obtain and address concerns from stakeholders across each location affected by the reorganization. The effects of the reorganization on Hanscom's core mission of delivering electronic systems to customers are not yet fully known, and AFLCMC has developed metrics to measure how it is meeting customers' needs. The effects of the reorganization on Hanscom's core mission of delivering electronic systems to customers are not yet known, as it is too early to assess changes resulting from the reorganization; also multiple factors unrelated to the reorganization may affect mission implementation. Given that the reorganization went into effect on October 1, 2012, AFLCMC's Vice Commander, system program managers, and various functional office personnel at Hanscom Air Force Base stated it is too early to know the reorganization's effects on Hanscom's ability to meet customer needs. One customer told us it could take several years for his office to discern the effects, if any, from the reorganization, such as changes in Hanscom's ability to deliver on schedule. Five contractor representatives also stated they have not experienced changes in their relationships with Hanscom Air Force Base as the result of the reorganization, and four of them noted it is too early to know the effect of the reorganization on the contractor community. AFMC and AFLCMC officials also stated that it is difficult to attribute to the reorganization any changes in how Hanscom Air Force Base is meeting its customers' needs because of multiple external factors that can affect mission, such as budget changes and decisions made at the Air Force's headquarters and at DOD levels. In addition, when these factors occur nearly simultaneously, it may be difficult to attribute the effects to any particular factor. They said the reorganization at Hanscom Air Force Base coincided with a number of other initiatives affecting the base, all of which could potentially affect Hanscom's ability to meet the needs of its customers. For example, the Air Force restructured the portfolios of PEOs and placed two rather than three PEOs at Hanscom Air Force Base effective July 2012, a decision that two customers told us could affect PEOs' responsiveness to the customer. The change in PEOs' portfolios was during the time that ESC was inactivated as part of the reorganization. Another change involved the reduction in the level of contractor support at Hanscom Air Force Base, which was driven by multiple initiatives, unrelated to AFMC's reorganization, such as the Office of the Secretary of Defense Comptroller's Resource Management Decision 802. For example, two of the seven contractors we interviewed reported cuts in their number of contracts with Hanscom Air Force Base, but AFMC and AFLCMC officials stated that such cuts were not related to the reorganization and were driven by other factors, such as the budgetary pressures faced by the Air Force and DOD. AFLCMC established objectives and associated metrics to assess how it is organizing, training, and equipping program offices to fulfill their core mission of delivering electronic systems to the customer. These metrics are designed to measure how AFLCMC is meeting customer needs, rather than the effects of the reorganization itself. However, officials said that by assessing acquisition processes and outcomes, the metrics will provide information on how well the reorganization is working. AFLCMC relied on the expertise of its acquisition and product support leaders in developing the metrics. Specifically, AFLCMC assigned each of its six objectives to a team of senior officials, giving each team the responsibility for developing the metrics for an assigned objective and for tracking the metrics to assess attainment of the objective. Senior AFLCMC leaders said that the teams will report on their progress during monthly meetings of the AFLCMC Council, discussing initiatives in support of their assigned objective and the need for any adjustments to the metrics. As of February 2013, the metrics had been approved by AFMC. Table 1 shows the objectives and what the related metrics are intended to measure. A detailed list of AFLCMC's metrics is provided in appendix II. According to AFLCMC officials, these metrics generally are based on the data that have long been collected at the program or directorate levels; they will be aggregated for all programs within AFLCMC to show how well the new organization is meeting its objectives. AFLCMC senior officials said such aggregated measures will allow them to examine trends across the organization, as well as identify specific areas within the organization where improvement may be needed in organizing, training, or equipping AFLCMC components to better meet customer needs. For example, although program offices have always looked at schedule achievement, the new schedule achievement metric will aggregate this information across all program offices, identify which area of the organization may be lagging behind, and serve as an indicator of whether AFLCMC is fulfilling its responsibilities of assisting program offices with setting realistic acquisition schedules. Hanscom's stakeholders generally agreed that metrics focused on acquisition outcomes--rather than on the reorganization--are adequate measures of how well Hanscom Air Force Base is fulfilling its mission of meeting the needs of its customers. For example, Hanscom's system program managers, as well as five of its customers, said the key metric of the reorganization's success is the continuous ability of Hanscom Air Force Base to deliver capabilities to the customer on time, on cost, and within existing regulations and specifications--all of which the new metrics are designed to capture. AFLCMC senior officials said AFLCMC began data collection for the new metrics in February 2013, with measures to be continuously tracked by individual offices and aggregated monthly at the AFLCMC level. AFLCMC intends to rely on existing data systems to minimize the data collection burden, and they have undertaken a number of initiatives, such as enhancing existing information technology tools, to allow data to be aggregated at the AFLCMC level. We requested comments on the draft of this report from DOD. The department provided technical comments, which we incorporated as appropriate. We are sending copies of this report to appropriate congressional committees; the Secretary of Defense; the Chairman, Joint Chiefs of Staff; the Secretary of the Air Force; the Commander, Air Force Materiel Command; and the Commander, Air Force Life Cycle Management Center. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-6912 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. To conduct our review of the reorganization of the Air Force's Electronic Systems Center (ESC) at Hanscom Air Force Base, we visited or contacted the organizations shown in table 2. In examining the extent to which the Air Force Life Cycle Management Center (AFLCMC) developed metrics to measure how well it is meeting the needs of the customer, we obtained the objectives and the associated metrics developed by AFLCMC. Table 3 presents a summary of AFLCMC's six objectives and the associated metrics to measure performance against each of these objectives. In addition to the contact named above, GAO staff who made key contributions to this report include Mark A. Pross, Assistant Director; Natalya Barden; Jennifer Cheung; Rajiv D'Cruz; Greg Marchand; Travis Masters; Richard Powelson; Amie Steele; Sabrina Streagle; and Elizabeth Wood.
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Electronic command and control systems, which rely on technologies such as radar, satellite, and electronic surveillance, play a critical role in modern-day defense strategy. ESC at Hanscom Air Force Base supported the Air Force's ability to develop and acquire these capabilities. It was inactivated in July 2012 as part of an effort to respond to an initiative by the Office of the Secretary of Defense to reduce civilian positions to fiscal year 2010 levels. The reorganization consolidated ESC into AFLCMC at Wright-Patterson Air Force Base, which manages weapon systems from inception to retirement. Congress directed GAO to assess the effect of the reorganization on Hanscom's mission. This report examines (1) how the reorganization affected reporting chains of command, workforce composition, and the acquisition mission at Hanscom Air Force Base, (2) opportunities and concerns resulting from the reorganization at Hanscom, and (3) what is known about the effects of the reorganization and what metrics have been developed to assess how the new organization is meeting customers' needs. GAO evaluated relevant documentation; reviewed data on eliminated positions; and interviewed Air Force officials, selected contractors based on size and proximity to Hanscom Air Force Base, and Hanscom's primary customers. Results from these interviews cannot be generalized but offer stakeholders' perspectives on the reorganization. The reorganization of the Air Force Materiel Command (AFMC) affected reporting chains of command and workforce composition for some offices at Hanscom Air Force Base, but did not change how former components of the Electronic Systems Center (ESC) at Hanscom carry out their acquisition mission. Personnel in functional offices who provide technical services previously reported to the locally-based ESC leadership; they now report directly to senior functional managers at Wright-Patterson Air Force Base, who oversee functional offices across all locations of the new Air Force Life Cycle Management Center (AFLCMC) established by the reorganization. In addition, the reorganization eliminated 131 functional office positions (about 10 percent of Hanscom's civilian positions), which AFMC determined were not directly involved with development, delivery, or sustainment of weapon systems. GAO's analysis of Hanscom's data showed that the eliminated positions included 13 which were unfilled; of personnel in the remaining 118 positions, 15 accepted voluntary-separation agreements, 102 were reassigned at Hanscom Air Force Base, and 1 was removed. The reorganization did not change the mission of directorates that deliver electronic capabilities to customers. Various opportunities and concerns at Hanscom Air Force Base resulted from the reorganization. According to officials at Hanscom and Wright-Patterson Air Force Bases, customers, and contractors, the opportunities include increased focus on life-cycle management of electronic systems, increased collaboration within the command, and greater standardization of processes. Hanscom Air Force Base officials and contractors identified some concerns related to increased workload for functional office personnel due to position eliminations, process delays, the lack of full understanding of Hanscom's programs by AFLCMC officials, and whether Hanscom Air Force Base will continue as the center of electronic systems for the Air Force. However, AFMC and AFLCMC senior officials generally did not see these concerns as significant problems. For example, they stated that AFLCMC's senior functional managers do not require in-depth technical knowledge of Hanscom's programs because the functions, such as financial management, apply across programs. AFLCMC's steps to facilitate the reorganization include establishing a governance structure and communicating with stakeholders. The effects of the reorganization on Hanscom's core mission of delivering electronic systems to customers are not yet fully known, but AFLCMC has developed metrics to measure how well it is meeting customer needs. Officials stated the changes went into effect only recently and multiple factors unrelated to the reorganization, such as budget changes, may affect the mission. However, AFLCMC developed organizational objectives and associated metrics in areas such as delivering cost-effective acquisition solutions and providing affordable and effective product support. The metrics, while not designed to measure the effects of the reorganization, are intended to measure how AFLCMC is meeting customers' needs. The data for the metrics will be collected by individual offices and aggregated monthly at the AFLCMC level, according to its senior officials. GAO is not making recommendations in this report. DOD provided technical comments, which GAO incorporated as appropriate.
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Since FLSA was enacted, Congress has amended it several times, including recently increasing the federal minimum wage from $5.15 an hour, which it has been since September 1997, to $7.25 an hour in three steps over a 2- year period ending in July 2009. In 2007, about 2 million workers were earning at or below the federal minimum wage. FLSA also limits the normal work week to 40 hours and requires that most employers pay 1 1/2 times normal wages, or overtime pay, to eligible employees who work longer hours. Furthermore, FLSA and its regulations limit the types of jobs, number of hours, times of day, and types of equipment that youth can work. WHD's headquarters office, 5 regional offices, and 74 district and field offices with approximately 730 investigative staff are responsible for enforcing employer compliance with labor laws. In 2007, WHD's budget was approximately $165 million. WHD conducts several types of enforcement actions, ranging from comprehensive investigations covering all laws under the agency's jurisdiction to conciliations, a quick remediation process generally limited to a single alleged FLSA violation--such as a missed paycheck for a single worker, in which a WHD investigator contacts the employer by phone to try to resolve a complaint received from a worker. WHD also initiates enforcement actions in an effort to target employers likely to violate FLSA. For many years, WHD officials have considered low wage workers to be most vulnerable to FLSA violations. In 2007, about 54 million workers were among this population. Furthermore, WHD officials, researchers, and employee advocates have expressed concerns that foreign born workers, although generally protected by FLSA to the same extent as other workers, may be less likely than others to complain because they may be unaware of federal laws or fear deportation if they are undocumented. About 19 percent of low wage workers, as defined by researchers in studies commissioned by WHD, were foreign born in 2007. When WHD finds violations during enforcement actions, it computes and attempts to collect back wages owed to workers and, where permitted by law, imposes penalties and other remedies. Other remedies pertaining to FLSA include the hot goods provision, which allows WHD to seize goods created in violation of FLSA, and liquidated damages, which permit workers to receive additional damages as a result of minimum wage or overtime violations. If employers refuse to pay the back wages and/or penalties assessed, WHD officials, with the assistance of attorneys from Labor's Office of the Solicitor, may pursue the cases in the courts. WHD's partnerships are formal written agreements with external groups-- including states, foreign consulates, and employee and employer associations--designed to improve compliance. Its outreach activities include informational materials and seminars for employers and workers designed to improve public awareness of the provisions of FLSA. WHD holds seminars, provides training to employer associations, and distributes materials on FLSA provisions to employers and workers. In addition, as part of its outreach activities, WHD provides technical assistance to employers through its local offices, national hotline, and Web site. WHD, like other federal agencies, is required by the Government Performance and Results Act of 1993 (GPRA) to establish a framework to help align its activities with the agency's mission and goals. It is also required to develop long-term goals as well as establish performance measures to use in assessing the success of its efforts. Furthermore, to promote agency accountability, it is required to issue annual performance reports on its progress in meeting these goals. From 1997 to 2007, the number of WHD's enforcement actions decreased by more than a third, from approximately 47,000 actions in 1997 to just under 30,000 in 2007. According to WHD, although enforcement actions have comprised the majority of its compliance activities, the total number of actions decreased over this period because of three factors: the increased use of more time-consuming comprehensive investigations, a decrease in the number of investigators, and improved screening of complaints to eliminate those that may not result in violations. Most of these enforcement actions conducted from 1997 to 20007 were initiated by complaints from workers. The remaining enforcement actions, which were initiated by WHD, decreased 45 percent over the period, from approximately 13,000 in 1997 to approximately 7,000 in 2007. WHD's partnerships and outreach activities constituted about 19 percent of its total staff time. From 1997 to 2007, the total number of FLSA enforcement actions WHD conducted decreased, and lengthy, comprehensive investigations made up an increasingly larger share of this total. Of WHD's total resources, the majority was spent ensuring compliance with FLSA, which covers more workers than the other laws under WHD's jurisdiction. Based on available data from 2000 to 2007, the majority of staff time spent on FLSA compliance activities--81 percent--was spent on enforcement. However, the total number of enforcement actions, including investigations and conciliations, declined from approximately 47,000 in 1997 to just under 30,000 in 2007, as shown in figure 1. In addition, WHD attributed the decrease in the number of enforcement actions to three factors. First, the proportion of comprehensive investigations, which require more staff time than other types of enforcement actions, increased over this period--from 39 percent of all enforcement actions in 2000 to 51 percent in 2007. Agency officials said that WHD emphasized comprehensive investigations in an effort to increase future compliance because they provide an opportunity for WHD to educate employers about the laws under its jurisdiction. Second, officials cited the decrease in the agency's investigative staff--and the loss of experienced investigators in particular--as reasons for this trend. As shown in figure 2, the number of investigators decreased over this period by more than 20 percent, from 942 in 1997 to 732 in 2007. Finally, a senior WHD official told us that the agency now screens out complaints that are not likely to result in FLSA violations more effectively than it did previously. The majority (72 percent) of WHD's enforcement actions were initiated in response to complaints from workers. From 2000 to 2007, more than half of these enforcement actions--approximately 52 percent--were conciliations, which WHD conducted over the phone. Conciliations were also the quickest type of enforcement action--taking 2 1/2 hours, on average, compared to nearly 35 hours, on average, for other types of enforcement actions. However, conciliations are generally limited to a complaint about a single violation involving only one worker. Although this enforcement action allows initial complaints to be quickly closed, a WHD-commissioned study found conciliations to be associated with an increased probability of detecting violations in subsequent investigations of a specific employer. Further information on complaints handled via conciliations can be found in a companion GAO testimony being released today for this hearing. Nearly all of the remaining enforcement actions initiated by complaints from workers were comprehensive investigations (38 percent) or limited investigations (7 percent). See figure 3 for the types of enforcement actions WHD conducted in response to complaints from 2000 through 2007. From 1997 to 2007, the number of WHD-initiated enforcement actions declined by 45 percent, as shown in figure 4. As a proportion of all enforcement actions, those initiated by WHD decreased slightly over the period, from 28 percent of all actions in 1997 to 24 percent in 2007. From 2000 to 2007, in planning and conducting WHD-initiated enforcement actions, the agency primarily targeted four industry groups: agriculture, accommodation and food services, manufacturing, and health care and social services. These four industries generally coincide with those for which WHD had strategic initiatives for increasing compliance for several years: agriculture, restaurants, garment manufacturing, and health care. The agency conducted the largest proportion of WHD-initiated enforcement actions--22 percent--in the accommodation and food services industry. However, at the same time, WHD increased its focus on the agriculture industry from 7 percent of WHD-initiated enforcement actions in 2000 to 20 percent in 2007. The majority of enforcement actions in the agriculture industry--82 percent--were initiated by WHD, while actions in all other industries were usually initiated as a result of complaints. The number of enforcement actions and the proportion of WHD-initiated enforcement actions varied among WHD's five regions. For example, WHD's Southeastern region conducted the largest number of enforcement actions--approximately 128,000 from 1997 to 2007. In contrast, the Western region conducted the fewest--approximately 44,000. In addition, because the Western region had a smaller workload of enforcement actions initiated by complaints, nearly half of its enforcement actions conducted from 1997 to 2007 were initiated by WHD, compared to only 14 percent for the Southeastern region. Agency officials said that when states have no minimum wage or overtime standards, or weak enforcement of such laws, WHD regions in which those states are located have heavier complaint workloads. Across WHD's five regions, regions with a greater proportion of states with a minimum wage below the federal level also had a greater proportion of enforcement actions that were initiated by complaints. In the majority of its enforcement actions--approximately 75 percent from 2000 to 2007--WHD found employers in violation of FLSA, and most of these violations were of the overtime provisions of FLSA. In 2007, for example, nearly 85 percent of the FLSA violations WHD found were related to overtime, while 14 percent were minimum wage violations, and 2 percent were violations of FLSA's child labor provisions. When violations were found, employers agreed to pay some amount of the back wages owed to their workers approximately 90 percent of the time. In addition, the total amount of back wages employers agreed to pay increased by 41 percent, from approximately $164 million in 2000 to about $230 million in 2007--the highest amount for this period. Furthermore, the average amount of back wages per enforcement action nearly doubled, increasing from approximately $5,400 per enforcement action in 2000 to $10,500 in 2007. In those cases in which employers agreed to pay, most (about 94 percent) resulted in employers agreeing to pay the full amount they owed to workers. However, in 6 percent of the cases, employers agreed to pay less than the amount they owed--an average of 24 cents for each dollar owed. In addition, WHD could not provide us with data on the amount of back wages assessed that were collected because WHD does not track this information in their WHISARD database. In addition to assessing back wages from employers found to be in violation of FLSA, WHD may also assess penalties for repeated or willful violations, or for child labor violations, but the agency made limited use of these penalties from 2000 to 2007. WHD assessed penalties for 6 percent of the enforcement actions conducted during this period in which it found FLSA violations. This percentage increased to a peak of almost 9 percent in 2001, before falling steadily to under 5 percent in 2006. Partnerships and outreach represent a small proportion of WHD's compliance activities, constituting about 19 percent of all WHD staff time from 2000 to 2007. From 1999 to 2007, the agency established 78 formal partnerships, 67 of which were still in place as of March 2008. Its earlier partnerships were largely with state governments, while more recent partnerships were primarily with employer groups. Other partnerships included worker associations, foreign consulates, and other agencies within the federal government. Overall, there was limited growth in the number of partnerships that WHD established, with a peak of 15 in 2004. According to its partnership agreements, WHD sought to utilize partnerships in several ways to improve FLSA compliance. The most common partnership activity was education, which was specified in 94 percent of partnership agreements. Education encompasses a number of activities, including WHD attendance at seminars and training sessions regarding wage and hour laws and the distribution of pamphlets and other educational materials to workers and employers. The second most common partnership activity was complaint referrals. More than half of the partnership agreement documents contained language that encouraged or provided guidelines for partners to refer relevant complaints to WHD and, in the case of other governmental partners such as state labor agencies, for WHD to refer cases to them. monitoring agreements, which provided guidelines for employers to use in monitoring themselves or their contractors for potential FLSA violations and reporting violations to WHD; sharing of enforcement information, mainly used in partnerships with other federal or state enforcement agencies; and bilingual assistance, which included the distribution of educational materials in foreign languages and assistance with translation of wage and hour regulations. From 2000 to 2007, WHD conducted approximately 13,600 FLSA-related outreach activities such as seminars, exhibits, media appearances, and mailings. During this period, the percentage of staff time spent on outreach events decreased, from approximately 22 percent in 2000 to 13 percent in 2007. From 2003 to 2007, the largest proportion of outreach events targeted employers, although more diverse audiences have been included in recent years. Over this period, employers were the intended audience for 46 percent of the outreach events WHD conducted. In contrast, workers were the intended audience for 14 percent of events. However, over this period, WHD began to target more diverse groups of non employer groups, including schools, governmental agencies, and community-based organizations. In planning and conducting its compliance activities, WHD does not effectively use available information and tools. First, WHD does not use information, such as data on the number of complaints each office receives or the backlog of complaints for each office, or other information, such as input from external groups. This information could help the agency manage its workload and allocate its staff resources accordingly. Second, in targeting employers for investigation, WHD focused on employers in the same industries from 1997 to 2007, despite findings from its commissioned studies intended to help it focus on low wage industries in which FLSA violations are likely to occur. Finally, the agency may not sufficiently leverage existing tools such as hotlines and partnerships to improve compliance with FLSA. In planning its FLSA compliance activities, WHD does not use the following information to focus its work: Information on complaints received from workers. WHD does not use key information regarding the complaints it receives from workers that could help the agency manage its workload. First, WHD does not have a consistent process for documenting the receipt of, or actions taken in response to, complaints. According to guidance on GPRA planning, understanding customers' needs, such the demand for WHD's services in response to complaints, is important to help ensure that an agency aligns its activities, processes, and resources to support its mission and help it achieve its goals. Although WHD's Field Operations Handbook provides guidelines for recording complaints, and there is a complaint intake screen in the agency's WHISARD database, the handbook also states that, even if a complaint indicates probable violations, it may be rejected by district office managers based on factors such as the office's workload or available travel funds. Therefore, WHD staff usually enter a complaint into the database only when it is likely to result in finding of violations. In addition, although one office we visited maintained separate logs of all complaints received, WHD does not require all complaints, including the actions taken, to be recorded. As a result, WHD does not have a complete picture of all of the complaints it receives and the agency cannot be held accountable for the actions it takes in response to complaints. Backlogs of complaints. Although the number of complaints each office receives greatly affects its workload and ability to initiate investigations, WHD does not have a consistent process for tracking information on complaint backlogs across its offices. For data to be useful to GPRA planning and an agency's decision making, they must be complete, accurate, and consistent. WHD officials told us that the agency's offices vary in how they track their backlogs of complaints. However, headquarters officials said that they do not track the regional or district offices' backlogs, nor do they know how they are measured. Therefore, WHD cannot consider these backlogs in its planning efforts, including its allocation of staff resources to its regional and district offices. Input from external groups such as employer and worker advocacy organizations with an interest in WHD's activities. In the past, WHD held meetings with external stakeholders--organizations with an interest in the agency's activities--at a national level, but more recently, the agency has relied on second-hand information from its district offices to identify the concerns of these groups. GAO has reported that it is important to involve external stakeholders in the planning process, such as developing goals and performance measures. Agencies that have involved these external groups report that this cooperation has allowed them to more effectively use their resources. According to agency headquarters officials, prior to 2000, WHD held meetings at a national level with external organizations such as industry groups, advocates, unions, and state officials. Around 2000, WHD began relying instead on its district office staff to gather input on external stakeholders' concerns and provide this information at WHD's annual planning meetings. However, these planning meetings are not held until after the agency's national and regional priorities are set, thereby limiting external stakeholder input in the early phases of the process. In addition, WHD headquarters officials said its district offices report input from external stakeholders as part of annual performance reports submitted to the regional offices. However, we found little evidence of stakeholder recommendations in WHD's planning and reporting documents. State labor regulations and levels of enforcement. In planning the allocation of staff to its regional offices, WHD does not consider information on state labor laws or the extent to which these laws are enforced for the states covered by the district offices in each region. According to GPRA guidance, understanding the external environment in which its offices operate should be a key part of WHD's strategic planning process. Because WHD offices in states with weaker labor laws or enforcement may receive more complaints, these factors may directly affect the workload of WHD's district offices. For example, according to WHD officials, because the state of Georgia does not conduct investigations of overtime or minimum wage violations, the Atlanta WHD district office has a heavy workload of complaints regarding these issues. Officials told us that WHD headquarters does not consider state laws or enforcement in making allocations of investigators to its regions, and that each region has been allocated approximately five investigators each year for the past few years. From 1997 to 2007, in targeting employers for investigation, WHD focused on employers in the same industries despite obtaining information from its commissioned studies on low wage industries in which FLSA violations are likely to occur. During its annual planning process, the agency develops national and local initiatives that focus on selected industries in which it will conduct investigations. Individual employers within these industries are often selected for these WHD-initiated investigations in one of two ways. WHD either obtains a statistical sample of employers or selects them using the judgment of its staff--for example, by looking through a telephone directory of local businesses. Over this period, WHD considered low wage workers to be most vulnerable to FLSA violations, but it did not clearly define who these workers were or identify the industries in which they were concentrated until 2004. Instead, according to WHD officials, the agency relied primarily on its historical enforcement data--the majority of which consisted of actions initiated by complaints--and observations from regional and district officials to focus its compliance activities. WHD centered its work on nine industries, and based many of its performance indicators on garment manufacturing, nursing homes, and agriculture. However, district officials told us that it was difficult to contribute to all of these national goals because few of WHD's offices are located in areas that have a substantial number of employers in the garment manufacturing industry to investigate. To ensure that all of its offices could contribute to its national goals, and that industries in which workers are less likely to complain were included in its plans, WHD changed its focus to include more low wage industries. In 2002, the agency commissioned a series of studies to define the population of low wage workers, and to determine in which industries these workers were most likely to experience minimum wage and overtime violations. Researchers used data from the Bureau of Labor Statistics to estimate how common and severe minimum wage and overtime violations were throughout all industries. They found that 33 industries had a high potential for violations of the minimum wage and overtime provisions of FLSA, including 9 that ranked highest nationally for violation potential. However, since the completion of the studies in 2004, WHD has not used this information to substantially refocus its efforts or target its investigations. The proportion of WHD-initiated investigations targeting these top 9 industries has risen by approximately 2 percent since 2004. Therefore, the investigations initiated by WHD may not have addressed the needs of low wage workers most vulnerable to FLSA violations. Local WHD officials also told us that despite the results of these studies, the focus of their investigations has not substantially changed. For example, the agriculture industry, which is not on the national list of 33 priority industries, was the focus of 16 percent of WHD-initiated investigations from 2005 to 2007. In addition, WHD headquarters officials told us that the agency cannot regularly measure its progress in improving compliance in the 33 industries because it does not have the resources needed to conduct the investigations it uses to evaluate whether compliance has improved. Finally, most district-level WHD officials told us they were not aware of the specifics of these commissioned studies. For example, at one WHD district office, the managers told us brief presentations on some of the studies were provided at management meetings, but copies of the full studies were not provided, and investigators we spoke with at this office said they were not aware of the studies and therefore could not incorporate the results of these studies into planning their work. WHD does not sufficiently leverage its existing tools to increase compliance. These include the following: Use of penalties for willful and repeat violations. WHD does not know the extent to which it has leveraged its statutory penalty authority because it does not track how often willful or repeat violations are found. WHD can assess penalties when employers willfully or repeatedly violate FLSA but WHD does not track how often it finds repeated or willful violations or when penalties are not assessed for such violations. In addition, a study commissioned by WHD showed that, when employers are assessed penalties, they are more likely to comply in the future and other employers in the same region--regardless of industry--are also more likely to comply. Although the agency has occasionally addressed the use of penalties in its performance plans--for example, by including a measure for increasing the use of penalties and other remedies in its 2007 plan-WHD managers did not emphasize the importance of these tools by including them in the agency's performance reports, which are used by external groups to hold the agency accountable. Furthermore, there was no quantifiable goal associated with the measure in the 2007 plan, and officials told us that it was intended only as a reminder to staff that penalties were one tool they could use to encourage compliance. Collection of back wages and penalties. WHD began collecting more data on its enforcement actions in 2000 with the introduction of its WHISARD database. However, the agency does not use information on whether back wages and penalties assessed are collected to determine whether it is fulfilling its mission of ensuring that workers receive the wages they are owed or verify that employers are being penalized for violating FLSA, respectively. WHD headquarters officials in charge of strategic planning told us they do not know whether back wages or penalties are collected from employers, although this information is tracked in its financial accounting systems. They also could not provide information on how long it takes the agency to collect back wages or penalties. Hotlines and office telephone lines. WHD is not fully utilizing its hotlines or its regular office telephone lines to reach potential complainants. WHD has set up some hotlines through partnerships, but these hotlines are not always effective. For example, one partnership set up a hotline targeted toward Latino workers and hosted by the Mexican Consulate. One member of the partnership said that she tested the hotline repeatedly over 6-month period but the phone was never answered. When we made test calls to this hotline asking about wage-related issues, staff either did not refer us to WHD or other government agencies or did not return our calls. Phone systems also vary among WHD's offices, and only some have the capacity to take messages outside of office hours, when workers with complaints may be more likely to call. For example, at one district office, we were told that they did not have an answering machine on which callers could leave messages after hours because they had no one to return these calls during the day. In addition, state officials and advocates said that some local WHD offices are not always available by phone to help callers with detailed questions. At one district office we visited, investigators said that calls went straight to a voice mail system, where callers were instructed to leave a message and wait for a return call from WHD staff. Partnerships. Although partnerships can help WHD leverage resources and reach potential complainants, some of WHD's partners, including state labor agency officials, told us that WHD does not always provide adequate support to its partnerships. First, some state officials said that WHD does not notify them of the status of complaints or of actions taken. For example, one state official told us about a case in which an employer violated state and federal labor laws, but WHD settled with the employer without consulting state officials. The state officials said they were unhappy with the settlement, mainly because it resulted in the employer paying less in back wages. Second, WHD has not allowed its investigators to take part in some joint investigations with state labor agencies or send investigators to events intended to help educate the worker community. Third, several of WHD's partners told us that the agency has not provided adequate financial support for outreach events, leaving the funding to nonprofit organizations. For example, WHD officials in Houston told us that, although one of its partnership's billboards advertising a hotline for Latino workers needed to be replaced, the office was unable to provide any funding to replace them because WHD headquarters had not approved the funds. In California, WHD officials told us they do not support expanding the agency's Employment, Education, and Outreach (EMPLEO) partnership--which received an award from Harvard University's Kennedy School of Government for successful innovation--to other areas of the state or hold certain outreach events because these efforts would generate more referrals than the agency could handle. The extent to which WHD's activities have improved FLSA compliance is unknown, because WHD frequently changes both how it measures and how it reports on its performance. When agencies provide trend data in their performance reports, decision makers can compare current and past progress in meeting long-term goals. While WHD's long-term goals and strategies have generally remained the same since 1997, WHD often changes how it measures its progress, keeping about 90 percent of its measures for 2 years or less. According to WHD officials, the agency decided to discontinue some of its measures either because they had been met or because WHD realized they were not appropriate. In addition, while WHD specified a number of performance measures each year in its planning documents, it included less than one-third of them in its annual performance reports. Moreover, although WHD established a total of 131 performance measures throughout the period from 1997 to 2007, it reported on 6 of them for more than 1 year. This lack of consistent information on WHD's progress in meeting its goals makes it difficult to assess how well WHD's efforts are improving compliance with FLSA. Since the first time Labor was required to report on it performance in 1999, WHD has included similar performance goals and strategies related to its FLSA compliance activities in its annual performance reports. For 1999 to 2006, WHD had the general outcome goal of increasing compliance with worker protection laws and, by 2002, also had a more program- specific goal of ensuring that American workplaces legally, fairly, and safely employed and compensated their workers. For 2007, the agency reported on the program-specific goal of ensuring workers received the wages due. Also, from 1999 to 2007, the agency reported on how it used its three types of compliance activities--enforcement, outreach, and partnerships--to reach its goals. While its goals and strategies did not change, WHD often changed how it measured its progress. From 1997 to 2007, WHD included 131 FLSA-related performance measures in its plans but kept about 90 percent of these for 2 years or less. A majority of these measures--67 percent--were reported for only 1 year. Furthermore, for most of the period from 1997 to 2007, WHD had strategic initiatives for improving compliance in its targeted industries--agriculture, garment, and health care--as well as a strategic initiative designed to measure and reduce recidivism by re-investigating employers it had previously investigated and found in violation of FLSA. However, the agency also frequently changed how it measured progress in both of these areas. For example, although WHD had 10 performance measures for improving compliance in agriculture from 1997 to 2007, it kept only 1 of them for more than a year. These frequent changes to its performance measures have affected the ability of agency officials and outside observers to understand WHD's progress and for agency officials to make decisions for future strategic planning. In a recently issued study WHD commissioned to obtain recommendations for future performance measures for reducing recidivism, researchers found that they could not assess the agency's progress to date because of the frequent changes in its measures. According to WHD officials, the agency discontinued some of its performance measures because they had been met or were not appropriate. Specifically, WHD officials stated that during their annual planning process, they make ongoing refinements to their performance measures. Throughout the years, the agency has decided to discontinue measures for several reasons, including (1) the agency data it used to assess its progress in meeting the measure were not reliable; (2) agency staff did not understand how the measures related to their work; (3) staff did not believe the agency could influence the measure through its work; (4) the issue the measure was attempting to address was no longer relevant; and (5) the agency had met the targets for the measure repeatedly. For example, although growers typically rotate their crops annually, WHD's performance measures for the agriculture industry focused on compliance among growers of specific crops, such as lettuce and tomatoes. After 4 years of using various performance measures based on crops, WHD realized that because growers often change crops, this approach was not measuring compliance for the same group of growers over time and discontinued using these measures. In addition to frequently changing its performance measures, WHD does not report on many of the measures. While WHD specified a number of performance measures each year in its planning documents, it included less than one-third of them in its annual performance reports. Of the 131 FLSA-related performance measures, WHD reported on 40 of them (29 percent) in its annual performance reports. WHD officials attributed this lack of reporting to departmental space limitations in annual reports. Moreover, although WHD reported on 40 of its performance measures from 1999 to 2007, it reported on only 6 of them for more than 1 year. The agency met 30 of its goals (75 percent) for the measures on which it reported, and meeting the goals was among the reasons WHD officials cited for discontinuing the use of some measures. However, nearly half of the measures WHD met were designed to establish baselines for understanding the current state of compliance or an agency process; they were not meant to measure agency progress. Overall, the lack of consistent reporting further complicates the ability of those within and outside the agency to assess how well WHD's efforts have improved compliance with FLSA. While WHD is responsible for protecting some of the basic rights of U.S. workers by enforcing FLSA, it does not know how effectively it is doing so. As with all government agencies, WHD must determine how to strategically manage its limited resources to help ensure the most efficient and effective outcomes. Although WHD has been challenged by reductions in its investigative staff, it has not used all available information to promote compliance, such as the studies in which it has invested that could inform how it targets employers for WHD-initiated investigations. In addition, it has not fully leveraged available tools, such as hotlines, office phone lines, and partnerships, that could extend its reach or tracked penalties and collection of back wages to know their impact on compliance. Furthermore, by not consistently measuring and reporting its progress in meeting the unchanging goal of ensuring FLSA compliance, the agency is unable to account for its progress more than a decade after GPRA implementation. To more effectively plan and conduct its compliance activities, we recommend that the Secretary of Labor direct the Administrator of WHD to enter all complaints and actions taken in response to complaints in its WHISARD database, and use this information as part of its resource allocation process; establish a process to help ensure that input from external stakeholders, such as employer associations and worker advocacy groups, is obtained and incorporated as appropriate into its planning process; incorporate information from its commissioned studies in its strategic planning process to improve targeting of employers for investigation; and identify ways to leverage its existing tools by improving services provided through hotlines, office phone lines, and partnerships, and improving its tracking of whether penalties are assessed when repeat or willful violations are found and whether back wages and penalties assessed are collected. To provide better accountability in meeting its goal of improving employer compliance, we recommend that the Secretary of Labor direct the Administrator of WHD to establish, consistently maintain, and report on its performance measures for FLSA. We held a meeting with WHD officials on June 20, 2008, in which we discussed our findings and recommendations in detail. At that meeting, they provided comments on our recommendation regarding obtaining input from external stakeholders. We adjusted the recommendation to indicate that they consider stakeholder input only as appropriate. They also indicated that their priorities do not currently include entering information on all complaints received from workers. However, their database would allow them to enter this information. In addition, we provided a copy of our draft statement to WHD, but the agency declined to comment on it prior to the hearing. Mr. Chairman, this completes my prepared statement. I would be pleased to respond to any questions you or other members of the Committee may have. For further information, please contact Anne-Marie Lasowski at (202) 512-7215. Individuals making key contributions to this testimony include Revae Moran, Danielle Giese, Amy Sweet, Miles Ingram, Susan Aschoff, Sheila McCoy, John G. Smale, Jr., Jerome Sandau, and Olivia Lopez. To identify the trends in WHD's FLSA investigations and other compliance activities from fiscal year 1997 to 2007, we obtained and analyzed data from WHD's Wage and Hour Investigator Support and Reporting Database (WHISARD). The data included information on WHD's enforcement actions, back wages, penalties, partnerships, and outreach activities. All data we reported were assessed for reliability and determined to be sufficiently reliable for the purposes of this statement. In addition, we gathered quantitative and qualitative information from agency officials on factors that may have influenced these trends, including staff resources. To assess the effectiveness of WHD's planning and implementation of compliance activities and whether these activities led to improvements in FLSA compliance, we analyzed WHD's annual performance plans and reports in light of GAO's work and guidance on strategic planning and performance management for regulatory agencies. In addition, we examined performance assessments conducted by outside experts at WHD's request. Finally, for all of these research objectives, we interviewed WHD officials at the national and regional level and external organizations representing employers and employees affected by WHD's compliance activities and visited WHD and state offices in California, Georgia, New Hampshire, Texas, and Wisconsin. We selected these states using several criteria that would provide a mix of characteristics, including the concentration of hourly workers earning at or below the federal minimum wage in each state; the number of formal agreements between WHD and state or local organizations; and geographic diversity. We also made test calls to WHD's local and national hotlines. In addition, we reviewed all relevant laws and regulations. We conducted this performance audit from August 2007 through July 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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Over 130 million workers are protected from substandard wages and working conditions by the Fair Labor Standards Act (FLSA). This act contains specific provisions to ensure that workers are paid the federal minimum wage and for overtime, and that youth are protected from working too many hours and from hazardous conditions. The Department of Labor's Wage and Hour Division (WHD) is responsible for enforcing employer compliance with FLSA. To secure compliance, WHD uses enforcement actions, partnerships with external groups, and outreach activities. In response to a congressional request, we examined (1) the trends in FLSA compliance activities from fiscal years 1997 to 2007, (2) the effectiveness of WHD's efforts to plan and conduct these activities, and (3) the extent to which these activities have improved FLSA compliance. From fiscal years 1997 to 2007, the number of WHD's enforcement actions decreased by more than a third, from approximately 47,000 in 1997 to just under 30,000 in 2007. According to WHD, the total number of actions decreased over this period because of three factors: the increased use of more time-consuming comprehensive investigations, a decrease in the number of investigators, and screening of complaints to eliminate those that may not result in violations. Most of these actions (72 percent) were initiated from 1997 to 2007 in response to complaints from workers. The remaining enforcement actions, which were initiated by WHD, were concentrated in four industry groups: agriculture, accommodation and food services, manufacturing, and health care and social services. WHD's other two types of compliance activities--partnerships and outreach--constituted about 19 percent of WHD's staff time based on available data from 2000 to 2007. WHD did not effectively take advantage of available information and tools in planning and conducting its compliance activities. In planning these activities, WHD did not use available information, including key data on complaints and input from external groups such as employer and worker advocacy organizations, to inform its planning process. Also, in targeting businesses for investigation, WHD focused on the same industries from 1997 to 2007 despite information from its commissioned studies on low wage industries in which FLSA violations are likely to occur. As a result, WHD may not be addressing the needs of workers most vulnerable to FLSA violations. Finally, the agency does not sufficiently leverage its existing tools, such as tracking the use and collection of penalties and back wages, or using its hotlines and partnerships, to encourage employers to comply with FLSA and reach potential complainants. The extent to which WHD's activities have improved FLSA compliance is unknown because WHD frequently changes both how it measures and how it reports on its performance. When agencies provide trend data in their performance reports, decision makers can compare current and past progress in meeting long-term goals. While WHD's long-term goals and strategies generally remained the same from 1997 to 2007, WHD often changed how it measured its progress, keeping about 90 percent of its measures for 2 years or less. Moreover, WHD established a total of 131 performance measures throughout this period, but reported on 6 of these measures for more than 1 year. This lack of consistent information on WHD's progress in meeting its goals makes it difficult to assess how well WHD's efforts are improving compliance with FLSA.
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Our report on the latest round of ASP testing found that DHS increased the rigor of ASP testing in comparison with previous tests and that a particular area of improvement was in the performance testing at the Nevada Test Site, where DNDO compared the capability of ASP and current-generation equipment to detect and identify nuclear and radiological materials. For example, unlike in prior tests, the plan for the 2008 performance test stipulated that there would be no system contractor involvement in test execution. Such improvements addressed concerns we previously raised about the potential for bias and provided credibility to the results. Nevertheless, based on the following factors, we continue to question whether the benefits of the new portal monitors justify the high cost: The DHS criteria for a significant increase in operational effectiveness. Our chief concern with the criteria is that they require a marginal improvement over current-generation portal monitors in the detection of certain weapons-usable nuclear materials when ASPs are deployed for primary screening. DNDO considers detection of such materials to be a key limitation of current-generation portal monitors. We are particularly concerned about the marginal improvement required of ASPs because the detection threshold for the current-generation portal monitors does not specify a level of radiation shielding that smugglers could realistically use. DOE and national laboratory officials told us that DOE's threat guidance used to set the current detection threshold is based not on an analysis of the capabilities of potential smugglers to take effective shielding measures but rather on the limited sensitivity of PVTs to detect anything more than certain lightly shielded nuclear materials. DNDO officials acknowledge that both the new and current-generation portal monitors are capable of detecting certain nuclear materials only when unshielded or lightly shielded. The marginal improvement in detection of such materials required of ASPs is particularly notable given that DNDO has not completed efforts to fine-tune PVTs' software and thereby improve sensitivity to nuclear materials. DNDO officials expect they can achieve small improvements in sensitivity, but DNDO has not yet funded efforts to fine-tune PVTs' software. In contrast to the marginal improvement required in detection of certain nuclear materials, the primary screening requirement to reduce the rate of innocent alarms could result in hundreds of fewer secondary screenings per day, thereby reducing CBP's workload and delays to commerce. In addition, the secondary screening criteria, which require ASPs to reduce the probability of misidentifying special nuclear material by one-half, address the inability of relatively small handheld devices to consistently locate and identify potential threats in large cargo containers. Preliminary results of performance testing and field validation. The preliminary results presented to us by DNDO are mixed, particularly in the capability of ASPs used for primary screening to detect certain shielded nuclear materials. Preliminary results show that the new portal monitors detected certain nuclear materials better than PVTs when shielding approximated DOE threat guidance, which is based on light shielding. In contrast, differences in system performance were less notable when shielding was slightly increased or decreased: Both the PVTs and ASPs were frequently able to detect certain nuclear materials when shielding was below threat guidance, and both systems had difficulty detecting such materials when shielding was somewhat greater than threat guidance. With regard to secondary screening, ASPs performed better than handheld devices in identification of threats when masked by naturally occurring radioactive material. However, differences in the ability to identify certain shielded nuclear materials depended on the level of shielding, with increasing levels appearing to reduce any ASP advantages over the handheld identification devices. Other phases of testing uncovered multiple problems in meeting requirements for successfully integrating the new technology into operations at ports of entry. Of the two ASP vendors participating in the 2008 round of testing, one has fallen behind due to severe problems encountered during testing of ASPs' readiness to be integrated into operations at ports of entry ("integration testing"); the problems may require that the vendor redo previous test phases to be considered for certification. The other vendor's system completed integration testing, but CBP suspended field validation after 2 weeks because of serious performance problems resulting in an overall increase in the number of referrals for secondary screening compared with existing equipment. DNDO's plans for computer simulations. DNDO does not plan to complete injection studies--computer simulations for testing the response of ASPs and PVTs to simulated threat objects concealed in cargo containers--prior to the Secretary of Homeland Security's decision on certification even though delays to the ASP test schedule have allowed more time to conduct the studies. According to DNDO officials, injection studies address the inability of performance testing to replicate the wide variety of cargo coming into the United States and the inability to place special nuclear material and other threat objects in cargo during field validation. DNDO had earlier indicated that injection studies could provide information comparing the performance of the two systems as part of the certification process for both primary and secondary screening. However, DNDO subsequently decided that performance testing would provide sufficient information to support a decision on ASP certification. DNDO officials said they would instead use injection studies to support effective deployment of the new portal monitors. Lack of an updated cost-benefit analysis. DNDO has not yet updated its cost-benefit analysis to take into account the results of the latest round of ASP testing. An updated analysis that takes into account the results from the latest round of testing, including injection studies, might show that DNDO's plan to replace existing equipment with ASPs is not justified, particularly given the marginal improvement in detection of certain nuclear materials required of ASPs and the potential to improve the current-generation portal monitors' sensitivity to nuclear materials, most likely at a lower cost. DNDO officials said they are currently updating the ASP cost-benefit analysis and plan to complete it prior to a decision on certification by the Secretary of Homeland Security. Our report recommended that the Secretary of Homeland Security direct DNDO to (1) assess whether ASPs meet the criteria for a significant increase in operational effectiveness based on a valid comparison with PVTs' full performance potential and (2) revise the schedule for ASP testing and certification to allow sufficient time for review and analysis of results from the final phases of testing and completion of all tests, including injection studies. We further recommended that, if ASPs are certified, the Secretary direct DNDO to develop an initial deployment plan that allows CBP to uncover and resolve any additional problems not identified through testing before proceeding to full-scale deployment. DHS agreed to a phased deployment that should allow time to uncover ASP problems but disagreed with GAO's other recommendations, which we continue to believe remain valid. The challenges DNDO has faced in developing and testing ASPs illustrate the importance of following existing DHS policies as well as best practices for investments in complex homeland security acquisitions and for testing of new technologies. The DHS investment review process calls for executive decision making at key points in an investment's life cycle and includes many acquisition best practices that, if applied consistently, could help increase the chances for successful outcomes. However, we reported in November 2008 that, for the period from fiscal year 2004 through the second quarter of fiscal year 2008, DHS had not effectively implemented or adhered to its investment review process due to a lack of senior management officials' involvement as well as limited monitoring and resources. In particular, of DHS's 48 major investments requiring milestone and annual reviews under the department's investment review policy, 45 were not assessed in accordance with this policy. In addition, many major investments, including DNDO's ASP program, had not met the department's requirements for basic acquisition documents necessary to inform the investment review process. As a result, DHS had not consistently provided the oversight needed to identify and address cost, schedule, and performance problems in its major investments. Among other things, our November 2008 report recommended that the Secretary of Homeland Security direct component heads, such as the Director of DNDO, to ensure that the components have established processes to manage major investments consistent with departmental policies. DHS generally concurred with our recommendations, and we noted that DHS had begun several efforts to address shortcomings in the investment review process identified in our report, including issuing an interim directive requiring DHS components to align their internal policies and procedures by the end of the third quarter of fiscal year 2009. In January 2009, DHS issued a memorandum instructing component heads to create acquisition executives in their organizations to be responsible for management and oversight of component acquisition processes. If fully implemented, these steps should help ensure that DHS components have established processes to manage major investments. Based on our body of work on ASP testing, one of the primary lessons to be learned is to avoid the pitfalls in testing that stem from a rush to procure new technologies. GAO has previously reported on the negative consequences of pressures imposed by closely linking testing and development programs with decisions to procure and deploy new technologies, including the creation of incentives to postpone difficult tests and limit open communication about test results. We found that testing programs designed to validate a product's performance against increasing standards for different stages in product development are a best practice for acquisition strategies for new technologies. In the case of ASPs, the push to replace existing equipment with the new portal monitors led to a testing program that until recently lacked the necessary rigor. Even for the most recent round of testing, DNDO's schedule consistently underestimated the time required to conduct tests, resolve problems uncovered during testing, and complete key documents, including final test reports. In addition, DNDO's original working schedule did not anticipate the time required to update its cost-benefit analysis to take into account the latest test results. The schedule anticipated completion of testing in mid-September 2008 and the DHS Secretary's decision on ASP certification between September and November 2008. However, testing is still not completed, and DNDO took months longer than anticipated to complete the final report on performance testing. As previously mentioned, a number of aspects of the latest round of ASP testing increased the rigor in comparison with earlier rounds and, if properly implemented, could improve the rigor in DHS's testing of other advanced technologies. Key aspects included the following: Criteria for ensuring test requirements are met. The test and evaluation master plan established criteria requiring that the ASPs meet certain requirements before starting or completing any test phase. For example, the plan required that ASPs have no critical or severe issues rendering them completely unusable or impairing their function. The criteria provided a formal means to ensure that ASPs met certain basic requirements prior to the start of each phase of testing. DNDO and CBP adhered to the criteria even though doing so resulted in integration testing taking longer than anticipated and delaying the start of field validation. Participation of the technology end user. The participation of CBP (the end user of the new portal monitors) provided an independent check, within DHS, of DNDO's efforts to develop and test the new portal monitors. For example, CBP added a final requirement to integration testing before proceeding to field validation to demonstrate ASPs' ability to operate for 40 hours without additional problems and thereby provide for a productive field validation. In addition, the participation of CBP officers in the 2008 round of performance testing allowed DNDO to adhere more closely than in previous tests to CBP's standard operating procedure for conducting a secondary inspection using the handheld identification devices, thereby providing for an objective test. Participation of an independent test authority. The DHS Science and Technology Directorate, which is responsible for developing and implementing the department's test and evaluation policies and standards, will have the lead role in the final phase of ASP testing and thereby provide an additional independent check on testing efforts. The Science and Technology Directorate identified two critical questions, related to ASPs' operational effectiveness (i.e., detection and identification of threats) and suitability (e.g., reliability, maintainability, and supportability), and drafted its own test plan to address those questions. Mr. Chairman, this completes my prepared statement. I would be happy to respond to any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact me at (202) 512-3841 or [email protected]. Ned Woodward (Assistant Director), Joseph Cook, and Kevin Tarmann made key contributions to this testimony. Dr. Timothy Persons (Chief Scientist), James Ashley, Steve Caldwell, John Hutton, Omari Norman, Alison O'Neill, Amelia Shachoy, and Rebecca Shea also made important contributions. Combating Nuclear Smuggling: DHS Has Made Progress Deploying Radiation Detection Equipment at U.S. Ports-of-Entry, but Concerns Remain. GAO-06-389. Washington, D.C.: March 22, 2006. Key findings. Prototypes of advanced spectroscopic portals (ASP) were expected to be significantly more expensive than current-generation portal monitors but had not been shown to be more effective. For example, Domestic Nuclear Detection Office (DNDO) officials' preliminary analysis of 10 ASPs tested at the Nevada Test Site found that the new portal monitors outperformed current-generation equipment in detecting numerous small, medium-size, and threatlike radioactive objects and were able to identify and dismiss most naturally occurring radioactive material. However, the detection capabilities of both types of portal monitors converged as the amount of source material decreased. Recommendations. We recommended that the Secretary of Homeland Security work with the Director of DNDO to analyze the benefits and costs of deploying ASPs before any of the new equipment is purchased to determine whether any additional detection capability is worth the additional cost. We also recommended that the total program cost estimate for the radiation portal monitor project be revised after completion of the cost-benefit analysis. Combating Nuclear Smuggling: DHS's Cost-Benefit Analysis to Support the Purchase of New Radiation Detection Portal Monitors Was Not Based on Available Performance Data and Did Not Fully Evaluate All the Monitors' Costs and Benefits. GAO-07-133R. Washington, D.C.: October 17, 2006. Combating Nuclear Smuggling: DHS's Decision to Procure and Deploy the Next Generation of Radiation Detection Equipment Is Not Supported by Its Cost-Benefit Analysis. GAO-07-581T. Washington, D.C.: March 14, 2007. Key findings. DNDO's cost-benefit analysis issued in response to our March 2006 recommendation did not provide a sound analytical basis for DNDO's decision to purchase and deploy ASPs. We identified a number of problems with the analysis of both the performance of the new portal monitors and the costs. With regard to performance, DNDO did not use the results of its own tests and instead relied on assumptions of the new technology's anticipated performance level. In addition, the analysis focused on identifying highly enriched uranium (HEU) and did not consider how well the new portal monitors can correctly detect or identify other dangerous radiological or nuclear materials. With regard to costs, DNDO did not follow the DHS guidelines for performing cost-benefit analyses and used questionable assumptions about the procurement costs of portal monitor technology. Recommendations. We recommended that DHS and DNDO conduct a new cost-benefit analysis using sound analytical methods, including actual performance data and a complete accounting of all major costs and benefits as required by DHS guidelines, and that DNDO conduct realistic testing for both ASPs and current-generation portal monitors. Combating Nuclear Smuggling: DNDO Has Not Yet Collected Most of the National Laboratories' Test Results on Radiation Portal Monitors in Support of DNDO's Testing and Development Program. GAO-07-347R. Washington, D.C.: March 9, 2007. Key findings. DNDO had not collected a comprehensive inventory of testing information on current-generation portal monitors. Such information, if collected and used, could improve DNDO's understanding of how well portal monitors detect different radiological and nuclear materials under varying conditions. In turn, this understanding would assist DNDO's future testing, development, deployment, and purchases of portal monitors. Recommendations. We recommended that the Secretary of Homeland Security, working with the Director of DNDO, collect reports concerning all of the testing of current-generation portal monitors and review the test reports in order to develop an information database on how the portal monitors perform in both laboratory and field tests on a variety of indicators, such as their ability to detect specific radiological and nuclear materials. Combating Nuclear Smuggling: Additional Actions Needed to Ensure Adequate Testing of Next Generation Radiation Detection Equipment. GAO-07-1247T. Washington, D.C.: September 18, 2007. Key findings. We found that tests conducted by DNDO in early 2007 were not an objective and rigorous assessment of the ASPs' capabilities. Specifically, we raised concerns about DNDO using biased test methods that enhanced the apparent performance of ASPs; not testing the limitations of ASPs' detection capabilities--for example, by not using a sufficient amount of the type of materials that would mask or hide dangerous sources and that ASPs would likely encounter at ports of entry; and not using a critical Customs and Border Protection (CBP) standard operating procedure that is fundamental to the performance of handheld radiation detectors in the field. Recommendations. We recommended that the Secretary of Homeland Security delay Secretarial certification and full-scale production decisions on ASPs until all relevant tests and studies had been completed and limitations to tests and studies had been identified and addressed. We further recommended that DHS determine the need for additional testing in cooperation with CBP and other stakeholders and, if additional testing was needed, that the Secretary of DHS appoint an independent group within DHS to conduct objective, comprehensive, and transparent testing that realistically demonstrates the capabilities and limitations of ASPs. Combating Nuclear Smuggling: DHS's Program to Procure and Deploy Advanced Radiation Detection Portal Monitors Is Likely to Exceed the Department's Previous Cost Estimates. GAO-08-1108R. Washington, D.C.: September 22, 2008. Key findings. Our independent cost estimate suggested that from 2007 through 2017 the total cost of DNDO's 2006 project execution plan (the most recent official documentation of the program to equip U.S. ports of entry with radiation detection equipment) would likely be about $3.1 billion but could range from $2.6 billion to $3.8 billion. In contrast, we found that DNDO's cost estimate of $2.1 billion was unreliable because it omitted major project costs, such as elements of the ASPs' life cycle, and relied on a flawed methodology. DNDO officials told us that the agency was no longer following the 2006 project execution plan and that the scope of the agency's ASP deployment strategy had been reduced to only the standard cargo portal monitor. Our analysis of DNDO's summary information outlining its scaled-back plan indicated the total cost to deploy standard cargo portals over the period 2008 through 2017 would be about $2 billion but could range from $1.7 billion to $2.3 billion. Agency officials acknowledged the program requirements that would have been fulfilled by the discontinued ASPs remained valid, including screening rail cars and airport cargo, but the agency had no plans for how such screening would be accomplished. Recommendations. We recommended that the Secretary of Homeland Security direct the Director of DNDO to work with CBP to update the projection execution plan to guide the entire radiation detection program at U.S. ports of entry, revise the estimate of the program's cost and ensure that the estimate considers all of the costs associated with its project execution plan, and communicate the revised estimate to Congress so that it is fully apprised of the program's scope and funding requirements. Combating Nuclear Smuggling: DHS Needs to Consider the Full Costs and Complete All Tests Prior to Making a Decision on Whether to Purchase Advanced Portal Monitors. GAO-08-1178T. Washington, D.C.: September 25, 2008. Key findings. In preliminary observations of the 2008 round of ASP testing, we found that DNDO had made progress in addressing a number of problems we identified in previous rounds of ASP testing. However, the DHS criteria for significant increase in operational effectiveness appeared to set a low bar for improvement--for example, by requiring ASPs to perform at least as well as current-generation equipment when nuclear material is present in cargo but not specifying an actual improvement. In addition, the ASP certification schedule did not allow for completion of computer simulations that could provide useful data on ASP capabilities prior to the Secretary's decision on certification. Finally, we questioned the replacement of current-generation equipment with ASPs until DNDO demonstrates that any additional increase in security would be worth the ASPs' much higher cost. Combating Nuclear Smuggling: DHS's Phase 3 Test Report on Advanced Portal Monitors Does Not Fully Disclose the Limitations of the Test Results. GAO-08-979. Washington, D.C.: September 30, 2008. Key findings. DNDO's report on the second group of ASP tests in 2007 (the Phase 3 tests) did not appropriately state test limitations. As a result, the report did not accurately depict the results and could potentially be misleading. The purpose of the Phase 3 tests was to conduct a limited number of test runs in order to identify areas in which the ASP software needed improvement. While aspects of the Phase 3 report addressed this purpose, the preponderance of the report went beyond the test's original purpose and made comparisons of the performance of the ASPs with one another or with currently deployed portal monitors. We found that it would not be appropriate to use the Phase 3 test report in determining whether the ASPs represent a significant improvement over currently deployed radiation equipment because the limited number of test runs did not support many of the comparisons of ASP performance made in the report. Recommendations. We recommended that the Secretary of DHS use the results of the Phase 3 tests solely for the purposes for which they were intended--to identify areas needing improvement--and not as a justification for certifying whether the ASPs warrant full-scale production. If the Secretary intends to consider the results of the Phase 3 tests in making a certification decision regarding ASPs, we further recommended that the Secretary direct the Director of DNDO to revise and clarify the Phase 3 test report to more fully disclose and articulate the limitations present in the Phase 3 tests and clearly state which insights from the Phase 3 report are factored into any decision regarding the certification that ASPs demonstrate a significant increase in operational effectiveness. Finally, we recommended that the Secretary direct the Director of DNDO to take steps to ensure that any limitations associated with the 2008 round of testing are properly disclosed when the results are reported. Combating Nuclear Smuggling: DHS Improved Testing of Advanced Radiation Detection Portal Monitors, but Preliminary Results Show Limits of the New Technology. GAO-09-655. Washington, D.C.: May 21, 2009. Key findings. We reported that the DHS criteria for a significant increase in operational effectiveness require a large reduction in innocent alarms but a marginal improvement in the detection of certain weapons-usable nuclear materials. In addition, the criteria do not take the current- generation portal monitors' full potential into account because DNDO has not completed efforts to improve their performance. With regard to ASP testing, we found that DHS increased the rigor in comparison with previous tests, thereby adding credibility to the test results, but that preliminary results were mixed. The results showed that the new portal monitors performed better than current-generation portal monitors in detection of certain nuclear materials concealed by light shielding approximating the threat guidance for setting detection thresholds, but differences in sensitivity were less notable when shielding was slightly below or above that level. Testing also uncovered multiple problems in ASPs meeting the requirements for successful integration into operations at ports of entry. Finally, we found that DNDO did not plan to complete computer simulations that could provide additional insight into ASP capabilities and limitations prior to certification even though delays to testing allowed more time to conduct the simulations. Recommendations. We recommended that the Secretary of Homeland Security direct the Director of DNDO to assess whether ASPs meet the criteria for a significant increase in operational effectiveness based on a valid comparison with current-generation portal monitors' full performance potential and revise the schedule for ASP testing and certification to allow sufficient time for review and analysis of results from the final phases of testing and completion of all tests, including computer simulations. If ASPs are certified, we further recommended that the Secretary of Homeland Security direct the Director of DNDO to develop an initial deployment plan that allows CBP to uncover and resolve any additional problems not identified through testing before proceeding to full-scale deployment. 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. 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The Department of Homeland Security's (DHS) Domestic Nuclear Detection Office (DNDO) is responsible for addressing the threat of nuclear smuggling. Radiation detection portal monitors are key elements in the nation's defenses against such threats. DHS has sponsored testing to develop new monitors, known as advanced spectroscopic portal (ASP) monitors, to replace radiation detection equipment being used at ports of entry. DNDO expects that ASPs may offer improvements over current-generation portal monitors, particularly the potential to identify as well as detect radioactive material and thereby to reduce both the risk of missed threats and the rate of innocent alarms, which DNDO considers to be key limitations of radiation detection equipment currently used by Customs and Border Protection (CBP) at U.S. ports of entry. However, ASPs cost significantly more than current generation portal monitors. Due to concerns about ASPs' cost and performance, Congress has required that the Secretary of Homeland Security certify that ASPs provide a significant increase in operational effectiveness before obligating funds for full-scale ASP procurement. This testimony addresses (1) GAO findings on DNDO's latest round of ASP testing, and (2) lessons from ASP testing that can be applied to other DHS technology investments. These findings are based on GAO's May 2009 report GAO-09-655 and other related reports. GAO's report on the latest round of ASP testing found that DHS increased the rigor in comparison with previous tests and thereby added credibility to the test results. However, GAO's report also questioned whether the benefits of the ASPs justify the high cost. In particular, the DHS criteria for a significant increase in operational effectiveness require only a marginal improvement in the detection of certain weapons-usable nuclear materials, which DNDO considers a key limitation of current-generation portal monitors. The marginal improvement required of ASPs is particularly notable given that DNDO has not completed efforts to fine-tune current-generation equipment to provide greater sensitivity. Moreover, the preliminary test results show that ASPs performed better than current-generation portal monitors in detection of such materials concealed by light shielding approximating the threat guidance for setting detection thresholds, but that differences in sensitivity were less notable when shielding was slightly below or above that level. Finally, DNDO has not yet updated its cost-benefit analysis to take into account the results of the latest round of ASP testing and does not plan to complete computer simulations that could provide additional insight into ASP capabilities and limitations prior to certification even though test delays have allowed more time to conduct the simulations. DNDO officials believe the other tests are sufficient for ASPs to demonstrate a significant increase in operational effectiveness. GAO recommended that DHS assess ASPs against the full potential of current-generation equipment and revise the program schedule to allow time to conduct computer simulations and to uncover and resolve problems with ASPs before full-scale deployment. DHS agreed to a phased deployment that should allow time to uncover ASP problems but disagreed with the other recommendations, which GAO believes remain valid. The challenges DNDO has faced in developing and testing ASPs illustrate the importance of following best practices for investments in complex homeland security acquisitions and for testing of new technologies. GAO recently found that many major DHS investments, including DNDO's ASP program, had not met the department's requirements for basic acquisition documents necessary to inform the investment review process, which has adopted many acquisition best practices. As a result, DHS had not consistently provided the oversight needed to identify and address cost, schedule, and performance problems in its major investments. A primary lesson to be learned regarding testing is that the push to replace existing equipment with the new portal monitors led to an ASP testing program that until recently lacked the necessary rigor. Even for the most recent round of testing, DNDO's schedule consistently underestimated the time required to conduct tests and resolve problems uncovered during testing. In contrast, GAO has previously found that testing programs designed to validate a product's performance against increasing standards for different stages in product development are a best practice for acquisition strategies for new technologies. Aspects that improved the latest round of ASP testing could also, if properly implemented, provide rigor to DHS's testing of other advanced technologies.
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CCRCs represent one form of managed care for the elderly. Many CCRCs have managed both acute medical and long-term care services for the elderly for decades. CCRCs plan, administer, and often provide these services, in combination with housing and other services, frequently in a campus-like setting. The number of residents in a CCRC varies, but averages about 300, most of whom are elderly people leading active lifestyles and living in independent housing units. Some residents receive personal care, such as assistance in bathing and dressing, either in their own residential units or in special assisted living units, and some receive skilled nursing facility care. Residents may also receive physician, laboratory, and other care on site. Expenses for these and other medical services are reimbursable by Medicare on the same basis as for the elderly who do not live in CCRCs. CCRCs assess prospective residents' health and financial status to ensure a fit with services offered and required fees. Residents commonly pay an entry fee to join the community and a monthly fee thereafter. These fees vary considerably depending on factors such as the level of CCRC financial risk for long-term care services, the size of the residential unit chosen, whether fees are for single individuals or couples, and the kinds of additional services and amenities provided. (See app. II for a description of the different financial risks CCRCs assume.) In the 11 CCRCs we visited--all of which assume residents' risk for long-term care costs--entry fees ranged from a low of $34,000 for a studio apartment for one individual to a high of $439,600 for a two-bedroom home for a couple. Monthly fees in the 11 communities ranged from $1,383 for an individual to $4,267 for a couple. The CCRCs we visited use a variety of practices for health promotion, disease prevention, and early detection of health problems to help residents maintain their health and functioning. These practices are part of an approach to care that encourages CCRC residents to adopt or maintain a lifestyle that is believed to promote good health. Providing activities and services, usually on site, encourages residents to take advantage of them. Many of the CCRCs we visited promote good health for their residents by encouraging exercise, proper nutrition, and social involvement. Encouraging regular exercise is a common practice that CCRCs we visited use to maintain or improve residents' health and functioning. CCRC efforts include having swimming pools and fitness equipment on site, providing staff for exercise programs, and sponsoring lectures and information on the value of exercise. Exercise classes and activities include aerobics, flexibility and strength exercises, swimming, yoga, lawn bowling, and square dancing. Residents may participate through a formal program or on an informal basis. Several CCRCs also strongly encourage walking. The campus-like designs of some CCRCs encourage walking by locating residential buildings within walking distance of commonly used services. Some campuses also incorporate nature trails or other attractive walks. Another common health promotion practice at CCRCs we visited is the encouragement of proper nutrition. Residents at many of these CCRCs are offered three meals a day in common dining rooms, which encourages adequate consumption of healthy foods. Some CCRCs require residents to have at least one of their meals each day in these settings. For other meals, residents may cook at home or eat elsewhere. The foods offered and nutrition information provided encourage residents to eat appropriately for weight and other health considerations. Special diets may be provided. At most of the CCRCs we visited dieticians are often available for consultation and can help residents develop individual diet plans. CCRC officials told us that on-site dietary counseling and nutritionally balanced meals in congregate, attractively decorated dining areas help encourage adequate nutrition and healthy eating habits. Encouraging residents to interact socially is also a common practice among the CCRCs we visited. CCRC officials told us that they encourage interaction because social isolation is associated with poorer health and functioning among the elderly. They also said that the physical layout of CCRCs fosters social interaction and is an integral part of the CCRC model. Residents live next door to each other and may see each other frequently through visits or while eating in congregate settings, checking mail, and engaging in a wide range of CCRC activities. Recreational, educational, cultural, and volunteer activities are frequently initiated, planned, and organized by residents. Officials said that arranging and participating in these kinds of activities are an important part of residents' social interaction in the community. Activities may include on-campus lectures, movies, musical performances, woodworking, flower arranging, photography, and civic and charitable activities. Many of the CCRCs we visited attempt to maintain their residents' health and functioning through disease prevention and early detection of health problems. These activities are carried out by nurses, social workers and physicians who may be either affiliated with or independent of the CCRC. Most CCRCs we visited encourage immunizations against common preventable diseases, such as flu and pneumonia, to reduce illness and possible fatalities. They may encourage immunization in a number of ways, including inoculation clinics, seminars, distribution of printed materials, and reminders from medical staff when a resident makes an outpatient visit or has a medical examination. Most of the CCRCs we visited encourage early detection of health problems through periodic medical exams and other health assessments. CCRC officials told us that these exams and assessments help staff and residents to be more proactive in using effective medical treatments and changing lifestyles to slow or reverse the loss of good health and function. A combination of physicians, nurse practitioners, and social workers may conduct elements of these exams and assessments, which may include periodic inventories of prescription drugs used by a resident to assess potential unwanted side effects from drug interactions, examination of an individual's ease in walking or getting out of a chair, and observation of changes in an individual's mental state. CCRC medical exams may include testing blood pressure for hypertension and blood glucose levels for diabetes. They may also include tests for colon, breast, and prostate cancer as well as vision and hearing impairments. Residents' medical records and staff are usually on site, making the periodic exams and assessments convenient for residents. The CCRCs we visited typically encourage periodic medical exams through seminars, written materials, and reminders such as notices sent to residents on their birthdays asking them to schedule an exam. Some CCRCs follow up by telephone or other means when residents do not schedule or appear for medical exams. If a resident does not come for an exam after follow-up, some CCRC officials told us that this information is tracked and an exam conducted when the resident next comes in for outpatient care because of illness. CCRCs we visited use a multidisciplinary, coordinated approach to manage care for their residents with chronic conditions such as hypertension and heart disease. Essential elements of this approach include a wide range of on-site services, coordination of services to ensure residents receive them in an appropriate and timely manner, and active monitoring of residents with chronic conditions. The prevalence of chronic conditions increases substantially with age, and CCRC officials told us that properly managing these conditions helps maintain residents' functioning while delaying or reducing use of costly services such as hospital care. CCRCs we visited offer a wide range of services on site to manage care for residents with chronic conditions. These services may include primary health care, care by specialists, skilled nursing care, and laboratory testing. Other services may include physical therapy, social work, personal care, dietary counseling, home chore service, and transportation. Various combinations of services may be provided across a range of settings, including an outpatient clinic, a skilled nursing facility, or a resident's own home. In addition, some of the CCRCs we visited adapt their health promotion and wellness programs to help meet the needs of residents with chronic conditions. For example, they may modify a regular exercise program to help people with arthritis retain the ability to walk. Similarly, these CCRCs may encourage and help those with chronic conditions to continue regular social interaction through special arrangements. For example, a resident who can no longer walk to recreational events and congregate eating areas may be provided with an electric cart so that he or she can remain independent. CCRC officials told us that having a wide range of services on site makes it possible to manage most of the care of residents with chronic conditions within the community even when the needs are intense. CCRC officials said that residents less frequently need care at hospital emergency rooms or as many days of hospital care when admitted because they have access to physicians, nursing care, and other services at the CCRC. The availability of a skilled nursing facility where residents can easily be admitted from the hospital or from home for short stays may also help return residents more quickly to their homes, according to these officials. CCRCs we visited typically coordinate services to enhance their benefit for residents. CCRC staff coordinate various services provided by both CCRC staff and other providers whether on site or off. For example, a CCRC may coordinate an arthritic resident's pain relief medication, specialized exercise program, home modifications, the availability of walkers or other ambulatory aides, and periodic assistance with dressing or bathing to help the resident stay as functional as possible and to reduce or delay the use of more intensive services. Multidisciplinary teams may facilitate coordination through joint team assessments and the development of a plan of care. Teams meet regularly to reassess needs and services. CCRC officials told us that nursing staff generally serve as the focal point for convening teams and providing ongoing coordination of services between team meetings. Some CCRC officials said that nursing and social work staff usually have day-to-day responsibility for coordinating services and troubleshooting when problems arise. CCRC officials told us that they actively monitor residents with chronic conditions. Staff oversees the plan of care developed for each resident with chronic conditions to ensure that the resident is receiving needed services. Monitoring can include simply verifying that a resident has visited the clinic as prescribed or kept a scheduled appointment with the physical therapist. Or professional care staff may review medical records, visit or call the resident at home, or call other service providers to verify that care was received. Frequent monitoring is necessary in some cases because a resident's physical and mental condition can change quickly and require different services. For example, CCRC staff may check more frequently if episodes of pain may impair an arthritic resident's ability to walk or dress unassisted. CCRC officials told us that nonmedical staff and the residents themselves can also be important in the monitoring process. Some CCRCs we visited train food services staff, residential and grounds crews, and other staff to recognize potentially serious problems that residents may have and to report this information to clinical or social work staff. For example, a housekeeper may inform clinical staff that an individual with some memory loss has burned pots on the stove or that a resident with arthritis is unable to get out of bed on a particular day. In addition, some CCRCs encourage residents to notify them when they see or suspect that another resident may need assistance. In some CCRCs, buddy systems are developed in which two residents agree to contact or watch out for each other regularly. When problems are reported, clinical staff call or visit residents to investigate and respond as needed. Many of the practices we identified in CCRCs for health promotion, disease prevention, and early detection of health problems are credited by experts and the literature with reducing the risk of disease and disability and improving health and functioning among the elderly. Among the measures considered to be effective are regular physical exams that include screening for early detection of conditions such as hypertension, colon cancer, breast cancer, and vision and hearing loss, and immunization against flu and pneumonia. Education and counseling to encourage exercise and proper nutrition are also recommended. Regular aerobic or conditioning exercise reduces the risk of coronary heart disease, diabetes, and obesity, and exercises to improve strength, flexibility, and balance may reduce the risk of falls and fractures. Encouraging social interaction may also reduce isolation, which is associated with poorer health and functioning among the elderly. The coordinated, multidisciplinary approach to chronic disease management used by the CCRCs we visited is also consistent with the recommendations of geriatric care experts and is supported in the literature as effective in slowing the progression of disease and restoring loss of function. Multiple interventions are often used in managing many chronic conditions that are common among the elderly, such as hypertension, cardiovascular disease, and arthritis. These methods may include drug therapy, physical and occupational therapy, behavior modification, counseling, and use of special medical equipment. Experts told us that because care for older people with chronic conditions may involve many modes of treatment and disciplines, it needs to be organized, coordinated, and managed. Crucial to effective care management, they said, is providing periodic monitoring and follow-up both to ensure that the chronic condition is being controlled and to minimize any negative effects of treatment. While evidence exists for the effectiveness of many of the practices we found in these CCRCs, their effect on health care costs and use of health services has not been conclusively demonstrated. With the exception of flu immunizations and medical screening for certain forms of cancer, such as breast and colon cancer, little evidence exists to demonstrate clearly the cost-effectiveness of most of the individual health promotion and chronic disease management practices used by the CCRCs. Furthermore, CCRC residents tend to be very different from the general elderly population on a number of important sociodemographic, health, and other measures. No studies have been conducted that adequately consider these factors in assessing the effect of the CCRC package of services on health costs. Because no federal agency or program was the focus of our review, we did not seek agency comments. We did, however, have a number of experts in geriatric medicine and continuing care retirement communities review a draft of this report. They generally agreed with its contents and provided technical comments that we incorporated as appropriate. We are sending copies of this report to the Secretary of Health and Human Services; the Administrator, Health Care Financing Administration; and other interested parties. Copies of this report will also be made available to other interested parties on request. If you or your staff have any questions, please call me at (202) 512-7119 or Bruce D. Layton, Assistant Director, at (202) 512-6837. Other major contributors to this report are James C. Musselwhite, Eric R. Anderson, Ron Viereck, and Carla Brown. We focused our work on practices that 11 continuing care retirement communities (CCRCs) use to maintain or improve the health and functioning of their elderly residents and to manage the use of health and other services by residents with chronic conditions. We also examined what is known about the possible health and cost effects of these practices. To address our study objectives, we (1) visited 11 CCRCs to examine care management practices, (2) reviewed the literature on CCRCs and on health and cost effects of CCRCs' practices, and (3) interviewed experts on CCRCs and geriatric medicine as well as officials from HCFA's Office of Managed Care. The 11 CCRCs we visited in California, Maryland, Pennsylvania, and Virginia (see table I.1) were selected primarily for three reasons. First, they assume most residents' financial risk for the cost of long-term care (see app. II for a description of CCRC financial risk arrangements for long-term care costs).These financial arrangements provide incentives to manage health and other services so that residents remain healthy and functioning as independently as possible and so that costs are controlled. Second, these CCRCs are accredited by the Continuing Care Accreditation Commission.Third, they represent some range of geographic variation. Our findings from this sample of CCRCs, however, cannot be generalized to all CCRCs, to CCRCs that are at financial risk for most residents' long-term care costs, or to those that are accredited. We conducted structured interviews to obtain information from CCRC executive officers, administrative officials, and medical staff regarding the practices used for health promotion, disease prevention, medical screening, and management of chronic conditions. In addition, we collected documentation on services provided and residents' contracts, and we directly observed some CCRC activities, programs, campus buildings, and grounds used by residents. We conducted telephone follow-ups to obtain additional information from CCRC officials as needed. To examine the potential health and cost effects of CCRC practices, we reviewed the literature and interviewed selected experts in geriatric medicine regarding generally accepted practices or guidelines for health promotion, disease prevention, medical screening, and management of chronic conditions. We also interviewed officials from HCFA's Office of Managed Care. We conducted our review between June and November 1996 in accordance with generally accepted government auditing standards. CCRCs assume different levels of financial risk for the costs of their residents' long-term care services, such as nursing home care and assisted living services. These long-term care services are provided in combination with housing, residential services such as cleaning and meals, and related services. CCRCs' financial risks for residents' care are defined in lifetime contracts between the CCRC and the individual resident. A CCRC may offer more than one type of long-term care risk arrangement from which residents may choose. Some CCRCs are at full financial risk for the cost of long-term care services. This means that the CCRC must pay all the costs of long-term care services residents need except for those costs that may be reimbursed by third parties such as Medicare. These CCRCs typically require that residents pay an entrance fee and a monthly fee that includes prepayment for long-term care costs, similar to an insurance arrangement. The monthly fee can increase based on changes in operating costs and inflation adjustments but not because of the use of long-term care services. As a result, residents having these agreements are not at risk for covered long-term care costs. This kind of agreement is sometimes known as a life care agreement or an extensive or Type A contract. Some CCRCs are at partial financial risk for the cost of long-term care services. These CCRCs must pay some, but not all, of the costs of long-term care services for residents beyond those reimbursed by third parties such as Medicare. The financial risk of these CCRCs is limited by a cap on the amount of long-term care services for which the CCRC will pay. For example, for each resident, a CCRC may pay for a maximum of 30 or 60 days of nursing home care per year, whatever limit is specified in the resident's contract. Under these arrangements, CCRCs typically require that residents pay an entry and monthly fee, which may be lower than the fees for arrangements under which CCRCs assume full financial risk for the costs of long-term care. Until the cap on long-term care services is reached, residents' monthly fees under the partial risk agreement can increase based on changes in operating costs and inflation adjustments but not as a result of the use of long-term care services. If the contract cap is reached, however, the resident is at risk for the cost of all additional long-term care services not reimbursed by third parties. This kind of agreement is sometimes known as a modified, limited services, or Type B contract. Some CCRCs are not at risk for the cost of long-term care services. These CCRCs require residents to pay for services they use either through a combination of an entry fee and a monthly fee or through a monthly fee alone. Monthly fees in either payment arrangement can increase based on operating costs, inflation adjustments, and the use of long-term care services. As a result, residents are at risk for all long-term care service costs not reimbursed by third parties such as Medicare. When this kind of risk arrangement is based on a combination of an entrance fee and a monthly fee it is sometimes known as a Type C contract. When it is based only on a monthly fee it is sometimes known as a Type D contract. Under either Type C or D contracts, residents typically pay lower fees than under Type A or B contracts unless long-term care services are needed. 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 processes of managed care in continuing care retirement communities (CCRC), focusing on: (1) CCRC practices for promoting wellness; (2) practices for managing care for elderly people with chronic conditions; and (3) evidence regarding the possible effect of these practices on health status and costs. GAO found that: (1) to serve their elderly residents, CCRCs GAO examined manage care to meet the needs of both healthy individuals and those who have chronic conditions; (2) they use active strategies to promote health, prevent disease, and detect health problems early by encouraging exercise, proper nutrition, social contacts, immunizations, and periodic medical exams and assessments for all residents; (3) many of these CCRCs also have multidisciplinary teams of nurses, social workers, rehabilitation specialists, physicians, dieticians, or others to plan and manage residents' care; (4) these teams meet periodically to discuss residents' health and functional status, determine whether services are needed, and decide on the types of treatment, services, and supports that will be provided; (5) CCRC staff coordinate a wide range of health and other services, whether provided on or off site, to enhance their benefit to the individual resident; (6) active monitoring of the health and functioning of residents who have chronic conditions, such as arthritis, hypertension, and heart disease, is an integral part of this coordinated, multidisciplinary approach to managing care; (7) many of these CCRCs' practices are considered to be effective in improving the health and functioning of the elderly, although their effect on health care costs is largely undemonstrated; (8) regular medical exams and health assessments, immunizations, and counseling to encourage exercise, proper nutrition, and social interaction are all recommended by experts and the literature as effective health promotion and disease prevention strategies for the elderly; (9) in addition, geriatric experts recommend a coordinated and multidisciplinary approach to manage chronic conditions among the elderly because their care may involve many modes of treatment and disciplines; and (10) while the health benefit of these practices has been demonstrated, little evidence exists to demonstrate health cost savings from either the CCRC package of services or most of the practices individually.
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In November 2013, we reported that (1) peer-reviewed, published research we reviewed did not support whether nonverbal behavioral indicators can be used to reliably identify deception, (2) methodological issues limited the usefulness of DHS's April 2011 SPOT validation study, and (3) variation in referral rates raised questions about the use of indicators. In November 2013, we reported that our review of meta-analyses (studies that analyze other studies and synthesize their findings) that included findings from over 400 studies related to detecting deception conducted over the past 60 years, other academic and government studies, and interviews with experts in the field, called into question the use of behavior observation techniques, that is, human observation unaided by technology, as a means for reliably detecting deception. The meta- analyses we reviewed collectively found that the ability of human observers to accurately identify deceptive behavior based on behavioral cues or indicators is the same as or slightly better than chance (54 percent). We also reported on other studies that do not support the use of behavioral indicators to identify mal-intent or threats to aviation. In commenting on a draft of our November 2013 report, DHS stated that one of these studies, a 2013 RAND report, provides evidence that supports the SPOT program. However, the RAND report, which concludes that there is current value and unrealized potential for using behavioral indicators as part of a system to detect attacks, refers to behavioral indicators that are defined and used significantly more broadly than those in the SPOT program. The indicators reviewed in the RAND report are not used in the SPOT program, and, according to the RAND report's findings, could not be used in real time in an airport environment. Further, in November 2013, we found that DHS's April 2011 validation study does not demonstrate effectiveness of the SPOT behavioral indicators because of methodological weaknesses. The validation study found, among other things, that some SPOT indicators were predictive of outcomes that represent high-risk passengers, and that SPOT procedures, which rely on the SPOT behavioral indicators, were more effective than a random selection protocol implemented by BDOs in identifying outcomes that represent high-risk passengers. While the April 2011 SPOT validation study is a useful initial step and, in part, addressed issues raised in our May 2010 report, methodological weaknesses limit its usefulness. Specifically, as we reported in November 2013, these weaknesses include, among other things, the use of potentially unreliable data and issues related to one of the study's outcome measures. First, the data the study used to determine the extent to which the SPOT behavioral indicators led to correct screening decisions at checkpoints were from the SPOT database that we had previously found in May 2010 to be potentially unreliable. In 2010, we found, among other things, that BDOs could not record all behaviors observed in the SPOT database because the database limited entry to eight behaviors, six signs of deception, and four types of serious prohibited items per passenger referred for additional screening, though BDOs are trained to identify 94 total indicators.subsequent to our May 2010 report, the validation study used data that were collected from 2006 through 2010, prior to TSA's improvements to the SPOT database. Consequently, the data were not sufficiently reliable for use in conducting a statistical analysis of the association between the indicators and high-risk passenger outcomes. Although TSA made changes to the database Second, our analysis of the validation study data regarding one of the primary high-risk outcome measures--LEO arrests--suggests that the screening process was different for passengers depending on whether they were selected using SPOT procedures or the random selection protocol. Specifically, different levels of criteria were used to determine whether passengers in each group were referred to a LEO, which is a necessary precondition for an arrest. Because of this discrepancy between the study groups, the results related to the LEO arrest metric are questionable and cannot be relied upon to demonstrate the effectiveness of the SPOT program's behavioral indicators. In November 2013, we also reported on other methodological weaknesses, including design limitations and monitoring weaknesses, that could have affected the usefulness of the validation study's results in determining the effectiveness of the SPOT program's behavioral indicators. In November 2013, we reported that variation in referral rates and subjective interpretation of the behavioral indicators raise questions about the use of indicators, but TSA has efforts under way to study the indicators. Specifically, we found that SPOT referral data from fiscal years 2011 and 2012 indicate that SPOT and LEO referral rates vary significantly across BDOs at some airports, which raises questions about the use of SPOT behavioral indicators by BDOs. The rate at which BDOs referred passengers for SPOT referral screening ranged from 0 to 26 referrals per 160 hours worked during the 2-year period we reviewed. Similarly, the rate at which BDOs referred passengers to In November 2013, we LEOs ranged from 0 to 8 per 160 hours worked.also reported that BDOs and TSA officials we interviewed said that some of the behavioral indicators are subjective and TSA has not demonstrated that BDOs can consistently interpret the behavioral indicators. We found that there is a statistically significant relationship between the length of time an individual has been a BDO and the number of SPOT referrals the individual makes. This suggests that different levels of experience may be one reason why BDOs apply the behavioral indicators differently. TSA has efforts underway to better define the behavioral indicators currently used by BDOs, and to complete an inter-rater reliability study. The inter- rater reliability study could help TSA determine whether BDOs can consistently and reliably interpret the behavioral indicators, which is a critical component of validating the SPOT program's results and ensuring that the program is implemented consistently. According to TSA, the current contract to study the indicators and the inter-rater reliability study will be completed in 2014. In November 2013, we reported that TSA plans to collect and analyze additional performance data needed to assess the effectiveness of its behavior detection activities. In response to a recommendation in our May 2010 report to develop a plan for outcome-based performance measures, TSA completed a performance metrics plan in November 2012. The plan defined an ideal set of 40 metrics within three major categories that TSA needs to collect to measure the performance of its behavior detection activities. As of June 2013, TSA had collected some information for 18 of 40 metrics the plan identified, but the agency was collecting little to none of the data required to assess the performance and security effectiveness of its behavior detection activities or the SPOT program specifically. For example, TSA did not and does not currently collect the data required to determine the number of passengers meaningfully assessed by BDOs, BDOs' level of fatigue, or the impact that fatigue has on their performance. To address these and other deficiencies, the performance metrics plan identifies 22 initiatives that are under way or planned as of November 2012. For example, in May 2013, TSA began to implement a new data collection system, BDO Efficiency and Accountability Metrics, designed to track and analyze BDO daily operational data, including BDO locations and time spent performing different activities. According to TSA officials, these data will allow the agency to gain insight on how BDOs are utilized, and improve analysis of the SPOT program. However, according to the performance metrics plan, TSA will require at least an additional 3 years and additional resources before it can begin to report on the performance and security effectiveness of its behavior detection activities or the SPOT program. Without the data needed to assess the effectiveness of behavior detection activities or the SPOT program, we reported in November 2013 that TSA uses SPOT referral, LEO referral, and arrest statistics to help track the program's activities. As shown in figure 1, of the approximately 61,000 SPOT referrals made during fiscal years 2011 and 2012 at the 49 airports we analyzed, approximately 8,700 (13.6 percent) resulted in a referral to a LEO. Of the SPOT referrals that resulted in a LEO referral, 365 (4 percent) resulted in an arrest. TSA has taken a positive step toward determining the effectiveness of its behavior detection activities by developing the performance metrics plan, as we recommended in May 2010. However, as we reported in November 2013, TSA cannot demonstrate the effectiveness of its behavior detection activities, and available evidence does not support whether behavioral indicators can be used to identify threats to aviation security. According to Office of Management and Budget (OMB) guidance accompanying the fiscal year 2014 budget, it is incumbent upon agencies to use resources on programs that have been rigorously evaluated and determined to be effective, and to fix or eliminate those programs that have not demonstrated results. As we concluded in our November 2013 report, until TSA can provide scientifically validated evidence demonstrating that behavioral indicators can be used to identify passengers who may pose a threat to aviation security, the agency risks funding activities that have not been determined to be effective. Therefore, in our November 2013 report, we recommended that TSA limit future funding for its behavior detection activities. DHS did not concur with our recommendation. The negatively and significantly related indicators were more commonly associated with passengers who were not identified as high-risk, than with passengers who were identified as high-risk. available. However, as described in the report, in addition to the meta- analyses of over 400 studies related to detecting deception conducted over the past 60 years that we reviewed, we also reviewed several documents on behavior detection research that DHS officials provided to us, including documents from an unclassified and a classified literature review that DHS had commissioned. Finally, in stating its nonconcurrence with the recommendation to limit future funding in support of its behavior detection activities, DHS stated that TSA's overall security program is composed of interrelated parts, and to disrupt one piece of the multilayered approach may have an adverse impact on other pieces. As we reported in November 2013, TSA has not developed the performance measures that would allow it to assess the effectiveness of its behavior detection activities compared with other screening methods, such as physical screening. As a result, the impact of behavior detection activities on TSA's overall security program is unknown. Further, not all screening methods are present at every airport, and TSA has modified the screening procedures and equipment used at airports over time. These modifications have included the discontinuance of screening equipment that was determined to be unneeded or ineffective. Therefore, we concluded that providing scientifically validated evidence that demonstrates that behavioral indicators can be used to identify passengers who may pose a threat to aviation security is critical to the implementation of TSA's behavior detection activities. Consequently, we added a matter for congressional consideration to the November 2013 report. Specifically, we suggested that Congress consider the findings in the report regarding the absence of scientifically validated evidence for using behavioral indicators to identify aviation security threats when assessing the potential benefits of behavior detection activities relative to their cost when making future funding decisions related to aviation security. Such action should help ensure that security-related funding is directed to programs that have demonstrated their effectiveness. Chairman Hudson, Ranking Member Richmond, and members of the subcommittee, this concludes my prepared testimony. I look forward to answering 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 David Bruno (Assistant Director), Nancy Kawahara, Elizabeth Kowalewski, Susanna Kuebler, Grant M. Mallie, Amanda K. Miller, Linda S. Miller, and Douglas M. Sloane. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.
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This testimony discusses GAO's November 2013 report assessing the Department of Homeland Security (DHS) Transportation Security Administration's (TSA) behavior detection activities, specifically the Screening of Passengers by Observation Technique (SPOT) program. The recent events at Los Angeles International Airport provide an unfortunate reminder of TSA's continued importance in providing security for the traveling public. TSA's behavior detection activities, in particular the SPOT program, are intended to identify high-risk passengers based on behavioral indicators that indicate mal-intent. In October 2003, TSA began testing the SPOT program, and by fiscal year 2012, about 3,000 behavior detection officers (BDO) had been deployed to 176 of the more than 450 TSA-regulated airports in the United States. TSA has expended a total of approximately $900 million on the program since it was fully deployed in 2007. This testimony highlights the key findings of GAO's November 8, 2013, report on TSA's behavior detection activities. Specifically, like the report, this statement will address (1) the extent to which available evidence supports the use of behavioral indicators to identify aviation security threats, and (2) whether TSA has data necessary to assess the effectiveness of the SPOT program in identifying threats to aviation security. In November 2013, GAO reported that (1) peer-reviewed, published research we reviewed did not support whether nonverbal behavioral indicators can be used to reliably identify deception, (2) methodological issues limited the usefulness of DHS's April 2011 SPOT validation study, and (3) variation in referral rates raised questions about the use of indicators. GAO reported that its review of meta-analyses (studies that analyze other studies and synthesize their findings) that included findings from over 400 studies related to detecting deception conducted over the past 60 years, other academic and government studies, and interviews with experts in the field, called into question the use of behavior observation techniques, that is, human observation unaided by technology, as a means for reliably detecting deception. The meta-analyses GAO reviewed collectively found that the ability of human observers to accurately identify deceptive behavior based on behavioral cues or indicators is the same as or slightly better than chance (54 percent). GAO also reported on other studies that do not support the use of behavioral indicators to identify mal-intent or threats to aviation. GAO found that DHS's April 2011 validation study does not demonstrate effectiveness of the SPOT behavioral indicators because of methodological weaknesses. The validation study found, among other things, that some SPOT indicators were predictive of outcomes that represent high-risk passengers, and that SPOT procedures, which rely on the SPOT behavioral indicators, were more effective than a random selection protocol implemented by BDOs in identifying outcomes that represent high-risk passengers. While the April 2011 SPOT validation study is a useful initial step and, in part, addressed issues raised in GAO's May 2010 report, methodological weaknesses limit its usefulness. Specifically, as GAO reported in November 2013, these weaknesses include, among other things, the use of potentially unreliable data and issues related to one of the study's outcome measures.
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Federal law enforcement agencies pursue fugitives wanted for crimes that fall within their jurisdictions. Generally, federal fugitives are persons whose whereabouts are unknown and who (1) are being sought because they have been charged with one or more federal crimes; (2) have failed to appear for a required court action or for deportation; or (3) have escaped from federal custody. The agencies we contacted generally required that information on these persons be entered quickly onto the NCIC wanted person file to facilitate location by others and enhance public and law enforcement personnel safety. NCIC has the nation's most extensive computerized criminal justice information system. Its system consists of a central computer at FBI headquarters in Washington, D.C.; dedicated telecommunications lines; and a coordinated network of federal and state criminal justice information systems. NCIC's system consists of millions of records in 14 files, including files on wanted persons, stolen vehicles, and missing persons. Over 19,000 federal, state, and local law enforcement and other criminal justice agencies in the United States and Canada have direct access to NCIC. An additional 51,000 agencies can access NCIC indirectly through agreements with agencies that have direct access. An Advisory Policy Board composed of representatives from criminal justice agencies throughout the United States is responsible for establishing and implementing the system's operational policies. NCIC and the Advisory Policy Board also receive suggestions from a federal working group composed of several representatives from federal law enforcement agencies, which include ATF, the Customs Service, INS, and USMS. The FBI is responsible for the overall management of NCIC. Agencies entering data onto the NCIC files are expected to comply with the specifications and standards set by NCIC and must perform periodic reviews to ensure that the information they entered on NCIC is still valid (e.g., that a valid arrest warrant still exists). NCIC personnel are to also periodically review the agencies' NCIC records. Despite agencies' policies calling for entry of fugitives onto the NCIC wanted person file as early as possible after issuance of an arrest warrant, many fugitives' data, including those fugitives classified as dangerous, were entered long after arrest warrants were issued. NCIC written policy calls for timely entries, which it defines as entry made immediately after a decision is made to (1) arrest or authorize arrest and (2) extradite the located fugitives (extradition generally involves state or local law enforcement agencies). NCIC officials said that when they review an agency's use of NCIC records they consider entries made after 24 hours (48 hours if a weekend intervenes) as untimely. However, participating agencies are not required to adhere to the suggested NCIC criteria for timeliness. Rather, each agency sets its own criteria on when to enter fugitives onto the wanted person file. FBI, USMS, and ATF policies for entering fugitives onto the wanted person file required entry shortly after the arrest warrant, notice of escape, or other document authorizing detention was issued: the FBI and USMS required immediate entry, meaning within 24 hours; ATF allowed up to 10 days for entry if the delay served a law enforcement purpose. Customs Service policy called for entry after reasonable efforts to locate the fugitive had failed and essentially defined "reasonable" as being after all investigative leads on the fugitive's location have been exhausted. INS' policy provided no time frame for making the entry. Figure 1 illustrates the entry times, by time elapsed since arrest warrant issuance, for the 20,968 FBI, USMS, ATF, and Customs Service fugitive records on the wanted person file as of April 6, 1994, and for the 3,794 of those records that were entered after September 30, 1993. As figure 1 shows, only 34 percent of all fugitives were entered onto the file within 2 days and slightly more than half (54 percent) were entered within 1 week. These entry times were better for the records entered after September 30, 1993. For example, 41 percent were entered within 2 days and 61 percent within 1 week. These entry times and others are shown in appendix II (table II.1). Agencies are to enter a caution notation on the wanted person file records of fugitives who are considered dangerous or suicidal or who have a serious medical condition. According to FBI and USMS officials, most fugitives with a caution notation on their file should be considered dangerous. Figure 2 illustrates the entry times for the 7,864 FBI, USMS, ATF, and Customs Service fugitive records with a caution notation on the wanted person file as of April 6, 1994, and the entry times for the 1,838 of these caution-noted records that were entered after September 30, 1993. Despite the caution notation, as figure 2 shows, only 36 percent of all caution fugitives were entered onto the file within 2 days and slightly more than half (52 percent) were entered within 1 week. Entry times were better for the records entered after September 30, 1993. For example, 42 percent were entered within 2 days and 59 percent within 1 week. These entry times and others are shown in appendix II (table II.2). As noted earlier, except for the Customs Service, the agencies whose records we analyzed generally required that their fugitives be entered onto the wanted person file soon after the arrest warrant was issued. However, the agencies did not always comply with their own policies. For example, the FBI's policy is to enter fugitives onto the file as soon as the decision to make an arrest is made or immediately after the arrest warrant is issued. The FBI has defined "immediately" to mean not more than 24 hours after the arrest warrant is issued because it believes that failure to promptly enter fugitive records onto the file places every member of the criminal justice system, as well as the general public, at risk. However, our comparison of NCIC entries with arrest warrant dates revealed that only 31 percent of the FBI's entries overall and 34 percent of caution fugitive entries were made on the same day of the arrest warrant, and 48 percent and 50 percent, respectively, were made by the end of the next day. Table 1 shows the agencies' reported policies for entering fugitives onto the NCIC wanted person file and entry times for their fugitives on the file as of April 6, 1994. Except for the Customs Service, the agencies' entry times for the April 6, 1994, records that were entered onto the wanted person file after September 30, 1993, were somewhat shorter than the times for all of the April 6 fugitive records. For example, 79 percent of all FBI records on the file as of April 6, 1994, were entered within 4 weeks versus 84 percent of the records entered after September 30, 1993. The Customs Service entered 42 percent of its April 6 records within 4 weeks versus 31 percent of those entered after September 30, 1993. More statistics on entry times for records on the April 6 wanted person file are included in appendix II (tables II.3 through II.6). All of the agencies we contacted believed that unwarranted delays in entering fugitives onto the wanted person file could adversely affect timely apprehensions and endanger lives. Many fugitives are apprehended by an agency other than the one responsible for entering them onto the file. Therefore, timely entries onto the file allow law enforcement agencies that come into contact with the fugitives for other reasons, such as minor traffic violations, to check the file and detain these fugitives immediately. NCIC officials told us they developed a procedure to compensate, in part, for delayed entries. Under this procedure, NCIC is to compare a new wanted person file entry with all file queries made 72 hours prior to the entry. When there is a match, NCIC officials are to notify the involved agencies. While the fugitive, for example, may not have been detained after a traffic stop because he or she was not on the file when the query was made, the subsequent matching could provide leads to the person's location. NCIC officials told us that in June 1995, for example, this procedure provided 369 leads from the wanted or missing person files that resulted in 9 persons being arrested or located. However, the officials did not know how many of the 369 leads involved fugitives who were not apprehended because they had fled before the delayed match occurred. Except for the FBI internal inspection program and USMS' program reviews, the agencies we contacted did not systematically monitor or have information on the time taken to enter fugitives on the wanted person file. Nor did they have information on the reasons for delays in entering fugitives. Moreover, NCIC had done limited reviews of ATF's, the Customs Service's, and USMS' entry times on the wanted person file. The FBI's internal inspections are to include a review of entry times for a sample of wanted person file records. According to the FBI, 24 (or 65 percent) of the 37 FBI field office inspections completed between October 1993 and July 1995 had findings regarding the failure to make timely entries. For 21 of the 24 field office inspections, officials reported that over 10 percent of the entries they reviewed were not in compliance with entry time requirements. Of the 21 inspections, officials reported that 12 showed delays in over 30 percent of the entries reviewed and that 4 showed delays in over 50 percent of the entries reviewed. Furthermore, 7 of the 24 inspections reported a median delay of 1 week or more, 10 were less than a week, and 7 did not identify the number of days the entries had been delayed. The reports generally did not identify reasons for delayed entries, but officials recommended that the office heads strengthen administrative controls to prevent future delays. Also, 3 of the 24 reports noted that entry delays were found during the preceding review of the involved offices. The remaining 21 reports, based on data the FBI provided us, made no mention of prior inspections. Of the 21 reports, 7 were done during fiscal year 1995. On the basis of information provided by the FBI during our previous fugitive work, we determined that at least three of the seven reports involved offices that were found to have entry time problems during their prior inspections. According to a USMS program review official, its internal program reviews involved looking at some fugitive cases, and these reviews generally found that entries were made within 1 or 2 days after the arrest warrant date. NCIC officials told us that they had reviewed wanted person file use by ATF, the Customs Service, and USMS at least once since 1992. The officials do not review FBI use, relying instead on the FBI's inspection program. An NCIC 1995 report covering various federal agencies, including ATF and the Customs Service, reported problems with one of the Customs Service communications centers that entered records onto the wanted person file.The report stated that there was a significant delay in entering records and that the average delay ranged from 1 week to 1 month. It did not identify the number of records with problems or the reasons for delays. But, it noted that a Customs Service headquarters official contacted the communications center about taking corrective action. Another NCIC 1995 report involving a review of selected USMS offices and other agencies reported that all records reviewed had been entered in a timely manner. FBI, USMS, ATF, and Customs Service officials we briefed on the results of our analyses of the wanted person file generally expressed concern about our findings. None could explain specifically why entries were delayed. They believed that some were the result of employees becoming involved with higher priority matters (e.g., responding to another more immediate case) or delaying entry for a valid law enforcement purpose (e.g., the opportunity to simultaneously arrest several suspects). However, all agreed that some delays were due to the lack of oversight or various other problems that could be addressed. For example, USMS officials said there might have been some delays in their being notified by (1) the courts of persons who failed to make a required court appearance or (2) the Drug Enforcement Administration regarding drug case fugitives that the USMS is responsible for pursuing. As a result of our work, FBI, USMS, ATF, and Customs Service officials committed to examining their more recent entry times and identifying actions they would take, if necessary, to address any problems. Because of our findings regarding these agencies' entry times, INS officials also said they would take action to help ensure that INS field offices submit their fugitive cases for entry onto the wanted person file in a timely manner. A Supervisory Special Agent representing the FBI Violent Crime and Fugitive unit in headquarters said his unit reviewed the entry times for all entries to the wanted person file from January 1994 through June 1995. He said they found that 58 percent of their fugitives had been entered within 1 day after the date of the arrest warrant and 78 percent within 10 days. These times were better than the overall rates (48 percent by the next day and 79 percent within 4 weeks) we found for all FBI fugitives on the April 6, 1994, wanted person file. The FBI official further stated that the entry times for the persons wanted for the federal crime of unlawful flight to avoid prosecution were much better (80 percent entered in 1 day) than the entry times (40 percent entered in 1 day) for those wanted for other federal crimes, such as bank robbery. In commenting on a draft of this report, FBI officials noted that it was imperative that delays be kept to an absolute minimum and that they would continue efforts to minimize entry delays. They said that the FBI inspection program would continue to audit the field offices' entries to help ensure the timely entry of fugitives without unmitigated delay. USMS officials said they would review their entry times and, if necessary, send out reminders to their field offices about prompt entries. Entry within 24 hours is one of the new performance measures they plan to use for field offices. The officials believe that this, along with their internal reviews and the periodic NCIC audits, should minimize any future problems with entry times. ATF officials said they reviewed some of their recent entries and the fugitive cases from our work involving entry times over 3 months, which we provided at their request. They said that their review validated our findings and that they advised the agents in charge of the involved ATF field offices of the problems and the need for corrective action. Overall, ATF officials said they would enhance their capacity to monitor entry times and identify problems. Specifically, they said their communications center will obtain more information when making entries onto the wanted person file as requested by ATF's field offices. The field offices are to be contacted about entries made after 15 days (ATF's 10-day period when entry may be delayed for a valid reason plus a 5-day grace period). The officials also noted that ATF's communications center staff will review entry times during the periodic validation checks they make of the agency's wanted person file records. They also stated that ATF's internal inspections staff will consider looking at entry times when they conduct inspections of ATF's field offices. ATF officials said they expected a marked improvement in their entry times within a year. "Effective immediately, whenever an arrest warrant is issued pursuant to a Customs investigation and the arrest of the subject is not anticipated within a reasonable amount of time, a Customs Fugitive Report will be faxed to the Communications Center (for entry into NCIC) within 24 hours. A reasonable amount of time should be that operationally necessary to effect the arrest of the subject, but should not exceed 10 days." Furthermore, the Customs Service's coordinator said the criteria will note that there can be exceptions, such as the need to avoid interference with an ongoing investigation. When the delay is no longer needed, the reason for the delay is to be identified on the submitted fugitive report. Customs Service officials also told us that their agency's office that oversees periodic validation checks of Customs Service wanted person file records will now also look at entry times and will use "within 24 hours" as the criterion for timely entry. As a result of our findings involving other law enforcement agencies and their desire to address problems that may exist or occur, INS officials told us they will add a reminder about the need for timely entries on the form that their field offices complete and that INS headquarters officials then use to make entries to the wanted person file. Noting that INS had only been using the file since 1991, the officials said they expect, as their use of NCIC grows, to develop improved ways for promoting timely use of the wanted person file as well as other NCIC files. USMS, ATF, Customs Service, and INS officials noted that the periodic audits of the wanted person file by NCIC officials would help agencies identify problem areas. However, NCIC officials told us that they are now doing less checking of entry times because of increased workload and staff downsizing. The FBI, USMS, ATF, and the Customs Service entered many fugitives onto the wanted person file long after their arrest had been authorized. This occurred despite policies generally calling for quick entry and the view that use of the wanted person file aids apprehension and public and law enforcement personnel safety. In response to our findings, the FBI, ATF, and the Customs Service did their own reviews and noted similar entry time problems. USMS officials said they would review their entry times. Given the concern about public and law enforcement personnel safety and fugitive apprehension, we believe it is important that NCIC and its participating agencies have clear, written policies calling for and defining immediate entry and setting forth any exceptions. While there seems to be agreement on the need for prompt entry, there is no generally accepted definition of immediate entry. However, a consensus seems to be evolving, at least among the agencies we reviewed. NCIC officials consider entry after 24 hours to be untimely, although NCIC has not made this a part of its written policies. FBI and USMS officials told us that although a definition does not appear in written form, immediate entry meant within 24 hours. The Customs Service plans to adopt and put the 24-hour criterion in writing. Exceptions to immediate entry could be allowed for those cases where an arrest is expected to occur quickly or for other established operational reasons. Furthermore, adherence to the policies could be better ensured if the agencies periodically monitored and reviewed entry times and reasons for delays and communicated problems and suggested actions to their field offices. Finally, although we did not examine the entry times for all law enforcement agencies in the Departments of Justice and the Treasury, we believe that the same reasons for timely entry generally would apply to these other agencies. Moreover, it seems reasonable that timely entries would be of concern to law enforcement organizations in other federal agencies. We recommend that the Attorney General require the Directors of the FBI and USMS and the Commissioner of INS and that the Secretary of the Treasury require the Director of ATF and the Commissioner of the Customs Service to ensure that they have written policies that require immediate entry of fugitives onto the NCIC wanted person file, unless imminent arrest is expected or other mitigating reasons exist. In this regard, we also recommend that the Attorney General, as the official ultimately responsible for NCIC and the wanted person file, seek consensus among federal law enforcement agencies on a definition of immediate entry and include this definition as guidance in the NCIC operating policies on the use of the wanted person file. To ensure that timely entries are made, we recommend that the Attorney General and the Secretary of the Treasury require the agency heads to establish and implement measures for ensuring compliance with the policy for immediate entry of fugitives' data onto the NCIC wanted person file, including periodically reviewing entry times and identifying and evaluating reasons for delays. Also, we recommend that the Attorney General and the Secretary of the Treasury require the heads of other agencies within their respective Departments that use the wanted person file to determine whether they have adequate entry time policies and monitoring mechanisms and, if not, to establish such policies and mechanisms. Furthermore, we recommend that the Attorney General require the FBI Director, working with the NCIC Advisory Policy Board, to (1) advise law enforcement organizations in federal departments and agencies outside of the Departments of Justice and the Treasury of the importance of timely entry and (2) encourage them to determine whether they have adequate entry time policies and monitoring mechanisms. We requested comments on a draft of this report from the Attorney General and the Secretary of the Treasury. Responsible Department of Justice officials from the Office of the Assistant Attorney General for Administration, the FBI, INS, and USMS provided Justice's comments in a meeting on December 11, 1995. Responsible Department of the Treasury officials from the Office of the Under Secretary for Enforcement, ATF, and the Customs Service provided Treasury's comments in a meeting on December 5, 1995. Justice officials said that the Department generally agreed with our findings and recommendations and that the Department's component agencies recognize the need for timely wanted person entries to protect law enforcement officers and the general public and to assist in the location of criminal and alien absconders. They said, however, that setting a single policy for timeliness and measuring timeliness is not a simple matter. They specifically noted the following. A myriad of reasons may preclude the entry of a wanted person within 24 hours of the date of the warrant. For example, entry might be delayed because of (1) insufficient data (e.g., date of birth) to properly identify the fugitive; (2) circumstances germane to a particular case (e.g., where the subject is given opportunity to surrender in exchange for the subject's cooperation); or (3) the involvement of sealed indictments, particularly in multiple subject cases where the government does not want to disclose ongoing investigations not ready for indictment. When modifying records, it is sometimes easier to delete the entry and reenter it. This would result in an entry date on the wanted person file that appears to be late, but does not reflect the earlier data entry. Compelling the entry of all INS fugitive alien cases within a specific time frame will not meet the criteria required for successful conclusion of the cases in many instances. For example, in INS' failure to surrender cases, entry is dependent on meeting certain criteria (e.g., has failed to appear for deportation upon demand by INS) rather than a specific time. When measuring timeliness, it would be more useful to evaluate the reasons for delayed entry rather than reviewing the entry's date against that of the warrant. We recognize that not all fugitives can or should be entered onto the wanted person file within a short time frame and that some entry dates on the file may be incorrect. How much of the delay we found is due to valid reasons or incorrect dates is unknown. We noted earlier in this report that the agencies could not explain specifically why entries were delayed but did identify both valid and invalid reasons why delays might occur (see pp. 11-12). Our recommendations recognize that entry policies need to allow for delays for valid reasons and that monitoring mechanisms need to identify and evaluate reasons why specific entries were delayed. Furthermore, we believe that the findings of the FBI's inspection program, the checks made by ATF and Customs Service officials after we brought our findings to their attention, and the agencies' overall agreement with our findings and recommendations make it clear that substantial delays have occurred for invalid reasons and that the agencies can improve upon the entry times we found. Also, the Justice officials said that despite the many reasons for delaying entry and INS' particular situation, actions have been taken or are being taken to better define and ensure timely entry of fugitives onto the wanted person file. Concerning changes to overall NCIC policy guidance, they said that any changes must be made pursuant to established procedures and that the FBI would formally submit our recommendations for review by the NCIC's Advisory Policy Board during meetings to be held in the spring of 1996. The Justice officials also noted that the FBI, INS, and USMS are initiating or have been using systems for ensuring timeliness of fugitive entries. They cited the FBI inspection program, which they said recently identified a 22-percent unmitigated delay in fugitive entries in one field office and led to the office taking corrective action. Referring to plans for the USMS to take over responsibility for INS' criminal fugitives, they noted that INS plans to meet the USMS entry criteria (i.e., immediate entry, which USMS officials earlier told us meant within 24 hours). They also noted that USMS plans to evaluate entry times as part of a system to assess the performance of its field offices on fugitive cases. Treasury officials generally agreed with the recommendations we made to their Department. Furthermore, given that Treasury works closely with Justice to address federal law enforcement issues, the Under Secretary's representative expressed Treasury's interest in working with Justice to address our recommendations to seek a consensus on a definition of immediate entry and to bring the need for adequate entry time policies and monitoring mechanisms to the attention of other federal law enforcement organizations. Concerning specific agency actions, the ATF officials noted that ATF (1) issued a memorandum to its field offices in 1995 reiterating its entry time policy and outlining steps taken or planned to enforce it, including establishing audit and follow-up procedures, and (2) will further revise its policy guidance to call for entry within 24 hours. The Customs' official noted that the Customs Service has issued revised policy guidance to require entry within 24 hours and will follow through on measures to ensure compliance as discussed on page 13 of this report. We are sending copies of this report to interested congressional committees and members. We are also sending copies to the heads of various other federal agencies that had records on the April 6, 1994, wanted person file for their information. These agencies include the Department of Defense, Department of State, and the U.S. Postal Service. We will also make copies available to others upon request. The major contributors to this report are listed in appendix III. If you have any questions concerning this report, please call me on (202) 512-8777. Our overall objective was to follow up on information from earlier work that seemed to show that federal law enforcement agencies were not timely entering in their fugitives onto the NCIC wanted person file. Specifically, we sought to identify (1) how long federal agencies took to enter fugitives onto the wanted person file; (2) what information the agencies had on entry times and the means used to monitor entry times; and (3) what actions agencies took, considered, or could take to reduce any entry delays. We focused on the FBI, INS, USMS, ATF, and the Customs Service. These agencies accounted for 78 percent of the records on the April 1994 wanted person file that we acquired during our earlier work. They were also the principal fugitive-hunting agencies within the Justice and Treasury Departments, the two departments mainly addressed in our earlier fugitive work. To accomplish our objectives, we analyzed principally the wanted person file data obtained on a prior review of interagency cooperation of federal fugitive activities. We also interviewed officials and reviewed various documents obtained at the headquarters offices of the FBI, INS, USMS, ATF, and the Customs Service. The wanted person data involved federal fugitive records on the wanted person file as of April 6, 1994. We did not update these data by obtaining and analyzing more recent files since the agencies expressed the willingness to look into or otherwise act to address actual or potential problems with entry time. Sufficient data were available on the wanted person file we earlier obtained to identify the elapsed time between the date of the arrest warrant, or other document authorizing apprehension, and the date of record entry for at least 99 percent of the April 6, 1994, individual records of the FBI, USMS, ATF, and the Customs Service. INS' wanted person file records did not have this information and thus were excluded from our analysis. Table I.1 shows by agency the number of records we analyzed. We briefed FBI, INS, USMS, ATF, and Customs Service officials responsible for fugitive policies on the results of our analyses. We also interviewed them as to any (1) current information they might have on entry policies and times; (2) means their agencies had for staying abreast of entry times and for ensuring timely entries; (3) known or possible causes and effects of delayed entries; and (4) actions that had been taken to address entry time problems or actions that would be or could be taken as a result of our findings. We also interviewed NCIC officials and FBI and USMS officials responsible for conducting reviews of field office operations (called "inspections" in FBI and "program reviews" in USMS) about their findings regarding entry times. We reviewed sections of inspection reports that represented, according to FBI officials, all findings on entry time problems from inspections conducted from October 1993 to July 1995. We did not review any USMS reports since officials told us they generally did not find problems with entry times. Officials at the other agencies we contacted said they did not have such reviews (INS) or that their reviews did not look at entry times (ATF and the Customs Service). We also interviewed a representative of the International Association of Chiefs of Police about the importance of the wanted person file in fugitive apprehension and public and law enforcement personnel safety. Average (days) Median (days) Average (days) Median (days) Average (days) Median (days) Average (days) Median (days) Daniel C. Harris, Assistant Director, Administration of Justice Issues Carl Trisler, Evaluator-in-Charge Andrew Goldberg, Intern Pamela V. Williams, Communications Analyst David Alexander, Senior Social Science 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. 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GAO reviewed the Federal Bureau of Investigation's (FBI) National Crime Information Center (NCIC) wanted person file, focusing on the: (1) length of time it takes federal law enforcement agencies to enter fugitives onto the file; (2) information that agencies have on data entry times and the means used to monitor entry times; and (3) agencies' plans to reduce entry delays. GAO found that: (1) FBI and the U.S. Marshals Service (USMS) require that fugitives be entered onto the wanted persons file within one day after an arrest warrant is issued; (2) the Bureau of Alcohol, Tobacco, and Firearms (ATF) allows up to ten days for data entry if the delay serves a valid law enforcement purpose; (3) the Customs Service requires data entry after reasonable efforts to locate a fugitive have failed; (4) the Immigration and Naturalization Service (INS) has no policy regarding the timeliness of data entry; (5) 28 percent of FBI, USMS, ATF, and Customs' entries are made one day after issuance of the arrest warrant, 54 percent within one week, and 70 percent within four weeks; (6) data entry times for dangerous fugitives do not differ substantially from overall data entry times; (7) ATF and Customs do not monitor their data entry times or know the reasons for delays in entering fugitives on the wanted persons file; (8) FBI found that there are delays in between 30 and 50 percent of its data entries, with a median delay of about one week; and (9) all the federal law enforcement agencies plan to take action to minimize data entry delays.
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TRICARE, DOD's health care program, has 9.1 million eligible beneficiaries that include active duty, certain reservists, and retired members of the uniformed services, as well as their families and survivors. Beneficiaries may generally obtain care from either MTFs or civilian providers. TRICARE beneficiaries can obtain prescription drugs directly from MTFs, the TMOP, and network and nonnetwork retail pharmacies. The pharmacy benefits law, as passed in October 1999, directed the Secretary of Defense to establish a pharmacy benefits program. The program is, among other things required to include a uniform formulary that should ensure drugs are available in the complete range of therapeutic classes; required to make drugs on the uniform formulary available to beneficiaries at MTFs, the TMOP, and retail pharmacies; and authorized to establish copayment requirements for generic, formulary, and nonformulary drugs. The pharmacy benefits law also directed the Secretary of Defense to establish the P&T Committee to develop the uniform formulary, and the BAP to review and comment on the development of the uniform formulary. Finally, the Secretary of Defense was to implement the use of the Pharmacy Data Transaction Service (PDTS) at designated MTFs, the TMOP, and retail network pharmacies. The PDTS is an electronic service that DOD uses to maintain prescription drug information for all TRICARE beneficiaries worldwide. In 2001, DOD established the current pharmacy copayment structure, which is based on whether a drug is classified as formulary generic (tier 1), formulary brand-name (tier 2), or nonformulary (tier 3). The copayment also depends on where the beneficiary chooses to fill his or her prescription. (See table 1.) The NDAA for Fiscal Year 2007 directed DOD to establish the Task Force on the Future of Military Health Care to assess health care services provided to members of the military, retirees, and their families and to make recommendations for sustaining those services. In addition to other aspects of DOD's health care system, the task force reviewed DOD's pharmacy benefits program. It issued an interim report in May 2007 and a final report in December 2007 to the Secretary of Defense on its findings and recommendations. The Secretary of Defense may comment on the recommendations provided in the task force's final report and, within 90 days of its issuance, must forward the report to the Committees on Armed Services of the Senate and the House of Representatives. DOD's spending on prescription drugs more than tripled from $1.6 billion in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy spending accounted for the greatest increase, rising almost ninefold from $455 million to $3.9 billion. It also grew from 29 percent of DOD's overall drug spending to 63 percent--the largest increase of the points of service. TMOP spending rose from $106 million to $721 million and increased from 7 percent of total spending to 12 percent. MTF pharmacy spending rose from $1 billion in fiscal year 2000 to $1.7 billion in fiscal 2004, but declined slightly to $1.5 billion in fiscal year 2006. In fiscal year 2000, MTF spending accounted for 65 percent of DOD's overall drug spending but declined to 25 percent in fiscal year 2006. (See fig. 1.) Three overarching factors influenced these trends. First, because federal pricing arrangements that generally result in lower prices were not applied to drugs dispensed at retail pharmacies during this time period, these drugs were generally more expensive for both DOD and its beneficiaries than the drugs dispensed at MTFs or the TMOP. However, the NDAA for Fiscal Year 2008 requires that federal pricing arrangements now be applied to TRICARE prescriptions filled at retail pharmacies. Second, the increased use of retail pharmacies has exacerbated the effect of higher retail prices. More beneficiaries are using only retail pharmacies to obtain their prescriptions--about 2 million in fiscal year 2006, up from about 1 million in fiscal year 2002 (see fig. 2). Further, beneficiaries are obtaining more maintenance drugs--drugs for long-term conditions, such as high blood pressure or cholesterol--at retail pharmacies (see fig. 3). From fiscal year 2004 through fiscal year 2006, the number of maintenance drug prescriptions dispensed at retail pharmacies increased by more than 11.6 million. Those dispensed at the TMOP increased much less, by about 1.5 million, while those at MTFs decreased by about 2.5 million. DOD officials cited additional reasons that they believed contributed to the increased use of retail pharmacies, though they could not quantify the effect of these reasons. These reasons included: base closures, which have decreased the number of MTF pharmacies; deployment of MTF personnel, which limits MTF appointment availability, resulting in more beneficiaries going to civilian providers and filling their prescriptions at retail pharmacies; the vast TRICARE retail network of about 59,000 pharmacies, which has become more convenient for beneficiaries; and the prescription copayment structure, which does not discourage beneficiaries from using the more costly retail pharmacies. Third, according to DOD officials, TRICARE expansions have led to a growing population of aging beneficiaries, who use more drugs. By fiscal year 2006, about 1.7 million beneficiaries, age 65 or older, were eligible for the pharmacy benefit through TRICARE benefit expansions that began in 2001. According to DOD data, retail pharmacy spending for beneficiaries age 65 or older increased by about 207 percent from fiscal year 2002 through fiscal year 2006--slightly higher than the 184 percent increase for beneficiaries under age 65. (See fig. 4.) DOD officials told us that the average cost per beneficiary at retail pharmacies in fiscal year 2006 was about $1,277 for beneficiaries age 65 or older, compared with about $368 for those under age 65. MTF spending declined slightly for both age groups as TMOP spending increased. Those under age 65 were more likely to use MTFs, while those age 65 or older were more likely to use the TMOP. DOD has efforts under way to limit its prescription drug spending through the use of its uniform formulary and through beneficiary outreach for the TMOP. In an attempt to further limit its drug spending, both DOD and its Task Force on the Future of Military Health Care have recommended changes to the beneficiary copayment structure intended to encourage beneficiaries to use more cost-effective points of service. However, the NDAA through Fiscal Year 2008 prohibits any increase to retail copayments through fiscal year 2008. According to DOD officials, the agency has limited its prescription drug spending primarily through costs avoided through the use of its uniform formulary, which was implemented during 2005. DOD data show that the agency avoided about $447 million in drug costs in fiscal year 2006 and $916 million in drug costs in fiscal year 2007. MTFs accounted for most of DOD's cost avoidance, while retail network pharmacies accounted for the least. Cost avoidance is affected by the following factors that result from DOD's formulary decisions: The prices DOD obtains for drugs. In exchange for including a manufacturer's drug on the uniform formulary, manufacturers can offer DOD prices below those otherwise available through statutory federal pricing arrangements, which applied only to drugs dispensed at MTFs and the TMOP during the time of our review. According to DOD officials, the agency had obtained prices for drugs dispensed at MTFs and the TMOP that are about 30 percent to 50 percent lower than the prices it obtained for drugs dispensed at network and nonnetwork retail pharmacies. This difference in price can be attributed to savings achieved through the discounts obtained for uniform formulary placement as well as the lower prices obtained through federal pricing arrangements for drugs dispensed at MTFs and the TMOP. Changes in beneficiaries' use of formulary and nonformulary drugs within a therapeutic class. Once a drug is designated nonformulary, its use may be substituted with a formulary drug, which results in lower copayments for the beneficiary and lower costs to DOD. Because MTFs are generally limited to dispensing formulary drugs, cost avoidance attributed to the use of formulary drugs over nonformulary drugs is higher at this point of service than at the TMOP and retail network pharmacies, where beneficiaries can obtain more costly nonformulary drugs. Changes in beneficiaries' use of generic and brand-name drugs within a therapeutic class. For both formulary and nonformulary drugs, DOD requires the substitution of generic drugs for brand-name drugs at MTFs, the TMOP, and retail pharmacies when a generic equivalent is available. A brand-name drug having a generic equivalent may be dispensed only if the prescribing physician establishes medical necessity for its use. A beneficiary's use of a generic drug in place of a brand-name drug results in lower costs to the beneficiary and to DOD. Changes in beneficiaries' use of MTFs, the TMOP, and retail pharmacies as a result of formulary designations. For example, a beneficiary may shift from obtaining a 30-day supply of a formulary drug at a retail pharmacy, where the beneficiary's copayment would be higher, to an MTF where the beneficiary can obtain a 90-day supply of the drug without a copayment. To calculate cost avoidance, DOD first determines the costs it incurred at MTFs, the TMOP, and retail network pharmacies for each drug as a result of its designation as either formulary or nonformulary. DOD then subtracts these incurred costs from the estimated costs it would have incurred at MTFs, the TMOP, and retail network pharmacies if the designation had not been made. Cost avoidance is the difference between the incurred and estimated costs. In addition to costs avoided, DOD has obtained voluntary manufacturer rebates for some of the formulary drugs dispensed at retail network pharmacies--though these rebates are a much smaller proportion of overall savings. Because federal pricing arrangements were not previously applied to drugs dispensed at retail pharmacies, DOD implemented the VARR in August 2006 to allow manufacturers to offer rebates for these drugs. There are two types of VARRs: the Uniform Formulary VARR and the Utilization VARR. The Uniform Formulary VARR is an agreement between DOD and a manufacturer that is contingent on the manufacturer's drug being selected for the uniform formulary. DOD officials told us that as of October 1, 2007, the agency had collected about $28 million through Uniform Formulary VARRs for fiscal year 2007. As manufacturers continue to enter into these agreements, DOD expects the amount it collects to increase over time. The Utilization VARR allows manufacturers to offer a rebate to DOD for drugs that are not on the uniform formulary. According to DOD, this includes drugs that have not yet been reviewed for the uniform formulary and drugs that have been reviewed and designated nonformulary. Unlike the Uniform Formulary VARR, the Utilization VARR does not secure formulary placement. As of October 2007, no manufacturers had entered into a Utilization VARR with DOD. In our discussions with 10 drug manufacturers about the VARR program, 7 of them told us that they had submitted Uniform Formulary VARRs for DOD's consideration. Of these 7 manufacturers, 5 indicated that their participation was driven by the possibility that their drug would be selected for the uniform formulary. With regard to the Utilization VARR, 8 of the 10 manufacturers we spoke with indicated that there was little or no incentive provided to manufacturers to enter into these rebate agreements with DOD. DOD has outreach efforts under way intended to help encourage beneficiaries to use the TMOP instead of retail pharmacies. In 2006, according to DOD officials, the agency began to expand its outreach for the TMOP through quarterly newsletters, news releases, and other materials emphasizing its convenience and cost savings for beneficiaries. DOD partnered with, for example, beneficiary organizations and family support groups to help distribute these outreach materials. DOD also encouraged health care providers to promote the use of the TMOP among the TRICARE beneficiaries they serve. MTF pharmacists also participated in these efforts by posting signs advertising the TMOP in their facilities. In addition, DOD launched its Member Choice Center in August 2007, the goal of which is to help beneficiaries transfer their prescriptions from retail pharmacies to the TMOP. To educate beneficiaries about the center's availability, DOD included information about it in newsletters and other outreach materials. According to DOD officials, the center transferred about 60,000 prescriptions from retail pharmacies to the TMOP as of late December 2007. In addition to these efforts, DOD intended to specifically target those beneficiaries who frequently obtained high-cost drugs from retail pharmacies. DOD officials told us that, as of January 2008, this aspect of the program had not yet begun and that DOD was working with the contractor for the TMOP to develop a letter to be sent to these beneficiaries. DOD has proposed changes to beneficiary copayments for fiscal years 2007 and 2008 in an effort to encourage beneficiaries to obtain prescriptions from more cost-effective points of service. Specifically, DOD proposed to eliminate copayments for generic drugs dispensed at the TMOP and to increase retail pharmacy copayments from $3 for formulary generic drugs to $5, and from $9 for formulary brand-name drugs to $15. DOD first proposed these changes for fiscal year 2007, but Congress prohibited any increase to retail pharmacy copayments for that fiscal year. DOD repeated the proposal for the next fiscal year, but the NDAA for Fiscal Year 2008 prohibits any increase to retail copayments through the fiscal year. In addition, the Task Force on the Future of Military Health Care concluded in its final report that DOD's copayment policies and formulary tier structure do not create effective incentives to stimulate compliance with clinical best practices or the most cost-effective points of service for obtaining drugs. It recommended that DOD's pharmacy tier and copayment structures be revised based on clinical and cost-effectiveness standards to promote greater incentive to use preferred medications and cost-effective points of service. Specifically, the task force stated that a four-tier formulary could encourage beneficiaries to use less costly drugs and use them more appropriately. It also stated that when a formulary includes more tiers, it is easier to lower out-of-pocket costs for drugs that treat certain chronic diseases and remove compliance barriers. DOD decides which drugs to include on the uniform formulary based on reviews in which the clinical and cost-effectiveness of a drug is compared with other drugs in its class. This process, established by DOD under the requirements of the pharmacy benefits law, involves three entities: The Pharmacy and Therapeutics (P&T) Committee recommends drugs to be added to the uniform formulary based on clinical and cost-effectiveness reviews. (For P&T Committee membership, see app. I.) The BAP comments on the P&T Committee's recommendations from a beneficiary perspective. (For BAP membership, see app. I.) The Director of TMA makes final decisions after considering both the P&T Committee's recommendations and the BAP's comments. (See fig. 5.) The P&T Committee meets quarterly and generally reviews two to four drug classes at each meeting. The priority for therapeutic class reviews is determined by various factors, such as the conversion of a drug from brand-name to generic and the rate of utilization among beneficiaries. The P&T Committee first reviews the clinical effectiveness of the drugs in a class. It considers such information as indications for which the drug has been approved by the Food and Drug Administration, the incidence and severity of adverse effects, and the results of studies on effectiveness and clinical outcomes. Using this information, the committee determines whether the drugs are therapeutically equivalent. It then reviews the cost- effectiveness of the drugs, considering such information as the price and rebate quotes submitted by manufacturers and the estimated financial effect of possible formulary decisions. The committee then determines the relative cost-effectiveness of each drug in the class. On the basis of the outcomes of both the clinical and cost-effectiveness reviews, the committee recommends that each drug in the class be designated as either formulary or nonformulary. If the committee finds that the drugs in a class are therapeutically equivalent, it generally recommends that the lower-cost drugs be designated as formulary. However, the committee has recommended that certain higher-cost drugs it believed offered additional clinical benefits be designated as formulary. For example, the committee recommended that two drugs used to treat breakthrough pain in cancer patients, Fentora and Actiq, be designated as formulary despite a more than a fortyfold increase in cost over the two most cost-effective drugs in the class. While therapeutically equivalent to the other drugs in the class, both Fentora and Actiq can be dissolved orally, which the committee valued for patients who have difficulty swallowing drugs in tablet form. In addition to recommending that a drug be designated as formulary or nonformulary, the P&T Committee recommends an implementation period to inform pharmacies and beneficiaries of formulary decisions. Its recommendations are then provided to the BAP. Once the BAP receives the P&T Committee's recommendations, it provides comments on behalf of beneficiaries. It reviews each recommendation and determines whether it agrees or disagrees with the P&T Committee. As of October 2007, the BAP and the P&T Committee disagreed about 17 percent of the time, mostly about the length of implementation periods. For example, the P&T Committee recommended that formulary and nonformulary designations for drugs used to treat overactive bladder conditions become effective about 60 days after the final formulary decision was made. The BAP stated that additional time was needed to notify beneficiaries currently using drugs within the class, suggesting that the formulary designations become effective about 120 days after the final formulary decision was made. Finally, the BAP's comments are documented and submitted to the Director of TMA for consideration when making final formulary decisions. After reviewing both the P&T Committee's recommendations and the BAP's comments, the Director of TMA makes final formulary decisions. In a decision paper, the director approves or disapproves of the P&T Committee's recommendations and may provide written comments explaining his decision. Although the Director of TMA makes the final decision, no drug may be designated as nonformulary unless the P&T Committee has recommended the nonformulary designation. As of October 2007, the Director of TMA had approved 188 out of the 190 P&T Committee recommendations. Uniform formulary decisions become effective on the date decision papers are signed by the Director, and the papers are made publicly available on the TRICARE Web site. As of October 2007, 28 drug classes representing 322 drugs had been reviewed for the formulary. Of the 322 drugs reviewed, 249 were designated as formulary. DOD uses electronic systems, which detect potential problems related to prescribed drugs, for quality assurance at MTFs, the TMOP, and retail network pharmacies. It also takes steps to obtain beneficiary feedback through surveys and by obtaining beneficiaries' comments. In addition, DOD uses pharmacy data to identify beneficiaries who might benefit from participating in a disease management program. AHLTA, a global electronic health information system, alerts MTF providers to duplicate drug treatments, therapeutic overlap, drug interactions, and drug allergies when a prescription is entered into the system. MTF providers are required to use AHLTA when prescribing drugs. If, for example, AHLTA identifies a drug allergy, the provider receives an alert and can prescribe an alternative drug. The Composite Health Care System (CHCS) provides similar alerts to staff at MTF pharmacies. When a patient's prescription is processed, the CHCS informs the staff of duplicate treatments, therapeutic overlap, drug interactions, and drug allergies. DOD officials stated that CHCS acts as a redundant quality assurance mechanism, allowing the pharmacists to double-check prescriptions written by MTF providers. If a beneficiary brings a prescription to the MTF pharmacy from a contract provider (outside of the MTF), CHCS will still inform the pharmacy staff of potential problems when they enter the prescription information into the system. The PDTS detects duplicate drug treatments, therapeutic overlap, and drug interactions at the TMOP and retail network pharmacies. From these points of service, the prescription information is electronically submitted to the PDTS, which verifies the individual's TRICARE enrollment and provides information on duplicate treatments, therapeutic overlap, and drug interactions. The TMOP and retail network pharmacies are responsible for obtaining drug allergy information from the beneficiary, because the PDTS does not contain that information. Beneficiaries are asked to provide drug allergy information when they sign up to receive prescriptions through the TMOP. At retail pharmacies, the pharmacist is supposed to ask the beneficiary about their drug allergies and check their local pharmacy system for this information. Prescriptions filled at nonnetwork retail pharmacies are input into the PDTS when DOD receives a claim submitted by the beneficiary. DOD administers two surveys that ask specific questions about the TRICARE pharmacy benefit. The Health Care Survey of DOD Beneficiaries is administered quarterly, but questions specific to the pharmacy benefit are asked once a year. The survey asks beneficiaries who had prescriptions filled during the last 90 days about pharmacy access and utilization. The second survey, the TMOP Satisfaction Survey, is a telephone survey administered quarterly. Survey participants are selected randomly among beneficiaries who used the TMOP in the last 90 days. The purpose of this survey is to determine whether Express Scripts, the contractor that administers the TMOP, will receive an incentive payment. Express Scripts is provided this payment when the level of beneficiary satisfaction with the TMOP is 90 percent or greater. Express Scripts has scored 90 percent or greater for 17 of the 18 quarters since March 2003. DOD officials stated that they also obtained beneficiary comments on the pharmacy benefits program during meetings with representatives of military associations that represent many TRICARE beneficiaries. At the local level, MTFs also collect information about beneficiary experience with the MTF pharmacy on such issues as hours of operation, waiting times, and service provided by the pharmacy technicians. These issues are usually addressed at the individual MTFs. DOD generally uses the results of the Health Care Survey of DOD Beneficiaries to tailor articles in newsletters about the pharmacy program and to make improvements to it--for example, to simplify and encourage the use of the TMOP. DOD officials stated that on the basis of the results of the 2006 survey and feedback from military associations, they learned DOD beneficiaries wanted an easy method to transfer their prescriptions from retail pharmacies to the TMOP. In August 2007, DOD launched the Member Choice Center, where beneficiaries can call for assistance, register online for the TMOP, and transfer their prescriptions from retail pharmacies. The center contacts the beneficiary's physician, at the beneficiaries' request, to obtain new prescriptions and forward them to the TMOP for processing. According to DOD officials, DOD uses PDTS data to identify beneficiaries who might benefit from participating in DOD's disease management program, an organized effort to achieve desired health outcomes in populations with prevalent, often chronic diseases, for which care practices may be subject to considerable variation. The PDTS contains data on specific drugs, dosages, and dispensing dates. So, for example, DOD uses PDTS data on drugs dispensed for asthma to identify beneficiaries who have asthma. DOD uses this information and other criteria to determine whether a beneficiary is a candidate for the asthma disease management program. Once identified, DOD provides patient lists to the managed care support contractors, who also provide the information to MTFs. Providers are encouraged to support their patient's active participation in the disease management program and to facilitate care, such as needed laboratory tests or screening examinations. DOD implemented disease management programs for congestive heart failure and asthma in September 2006 and diabetes in June 2007, which are administered by the managed care support contractors. MTFs are required to provide disease management programs for asthma, diabetes, and screening mammograms. DOD conducts annual comprehensive analyses to quantify the effect of the disease management programs. The NDAA for Fiscal Year 2007 required that DOD's disease management program address, at a minimum: diabetes, cancer, heart disease, asthma, chronic obstructive pulmonary disorder, and depression and anxiety disorders. DOD is working to expand its disease management program to include all of the specific diseases and conditions mandated and plans to report to Congress in March 2008 on the program's design, development, and implementation plan. DOD's pharmacy spending increased at an unsustainable rate from fiscal year 2000 through fiscal year 2006. Retail pharmacy spending drove most of the increase, primarily due to the lack of federal pricing arrangements and increased beneficiary utilization at these pharmacies. In contrast, increases in pharmacy spending at MTFs and the TMOP, typically the more cost-effective points of service, were less pronounced. DOD has taken steps to curtail its rising pharmacy spending, including using its uniform formulary to obtain lower drug prices and creating a rebate program for retail pharmacies--efforts that have saved the agency hundreds of millions of dollars. More recently, DOD established an outreach program to encourage beneficiaries to transfer their prescriptions from retail pharmacies to the TMOP, which has been a less costly option for both DOD and its beneficiaries. DOD's ongoing efforts are important to limit future prescription drug spending. In addition, the agency has its task force's proposals to consider, which include changes to the copayment and tier structures aimed at shifting beneficiary utilization away from retail pharmacies. The agency is also undertaking a fundamental reform--the NDAA for Fiscal Year 2008 requirement to apply federal pricing arrangements to drugs dispensed at retail pharmacies--that could have an even greater effect on spending. DOD will need to carefully monitor the effect of this new requirement along with its ongoing efforts in order to assess the progress in controlling spending. DOD will also need to determine what types of additional efforts, if any, will be necessary to ensure the fiscal sustainability of its pharmacy benefits program. To help ensure the fiscal sustainability of DOD's pharmacy benefits program and complement more fundamental reforms recently enacted or recently proposed, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to monitor the effect of federal pricing arrangements for drugs dispensed at retail pharmacies along with ongoing efforts to limit pharmacy spending to determine the extent to which they reduce the growth in retail pharmacy costs, and identify, implement, and monitor other efforts, as needed, to reduce the growth in retail pharmacy spending. In commenting on a draft of this report, DOD stated that it concurred with our findings and recommendations and that it remains diligent in its efforts to curtail retail pharmacy costs. DOD noted that its recently implemented outreach program to encourage beneficiaries to transfer prescriptions from retail pharmacies to the less expensive TMOP has had an unanticipated level of participation. Specifically, in response to our recommendation to monitor the impact of federal pricing arrangements for drugs dispensed at retail pharmacies, DOD stated that it has requested additional resources to implement this NDAA for Fiscal Year 2008 requirement. DOD acknowledged that, when fully implemented, this authority will have a significant impact on controlling the growth in retail pharmacy costs. While this may likely be the case, we reiterate the need for DOD to monitor the extent to which the federal pricing reduces growth in pharmacy spending in order to determine whether additional efforts to reduce spending are warranted. With regard to our recommendation to implement other efforts, as needed, to reduce growth in retail pharmacy spending, DOD responded that the recommendations of its task force would have an impact on overall DOD pharmacy costs in general and retail pharmacy costs in particular. However, DOD stated that congressional action is necessary for these measures to be implemented and that it stands ready to implement them if granted the authority to do so. Nonetheless, our recommendation was not limited solely to the task force recommendations. DOD could explore other cost saving initiatives, similar to its outreach efforts to encourage beneficiaries' use of the TMOP, which do not require congressional action. DOD's comments are reprinted in appendix II. We are sending copies of this report to the Secretary of Defense and other interested parties. We will also make copies available to others on request. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions 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. Major contributors to this report were Bonnie Anderson, Assistant Director; Keyla Lee; Lesia Mandzia; and Tim Walker. The Department of Defense Pharmacy and Therapeutics Committee consists of both voting and nonvoting members. Physician Chairman, Health Affairs/TRICARE Management Activity Director, Department of Defense Pharmacy Programs, TRICARE Director, Department of Defense Pharmacoeconomic Center The Army, Navy, and Air Force Surgeons General Internal Medicine One Army, Navy, or Air Force Surgeon General Pediatric specialty One Army, Navy, or Air Force Surgeon General Family Practice specialty One Army, Navy, or Air Force Surgeon General Obstetric/Gynecology One physician or pharmacist from the United States Coast Guard The Army, Navy, and Air Force Pharmacy specialty consultants or One provider at large from the Army, Navy, and Air Force One physician or pharmacist from the Department of Veterans Affairs The Contracting Officer's Representative for the TRICARE Retail The Contracting Officer's Representative for the TRICARE Mail Order The Pediatric, Family Practice, and Obstetric/Gynecology positions on the P&T Committee are rotated among the services every 3 years.
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Estimated to reach $15 billion by 2015, the Department of Defense's (DOD) prescription drug spending has been a growing concern for the federal government. The John Warner National Defense Authorization Act (NDAA) for Fiscal Year 2007 required GAO to examine DOD's pharmacy benefits program. Specifically, as discussed with the committees of jurisdiction, GAO examined DOD's prescription drug spending trends from fiscal years 2000 through 2006 and DOD's key efforts to limit its prescription drug spending. To conduct this work, GAO analyzed DOD's data on spending trends, including trends in beneficiary pharmacy use. GAO also assessed DOD's cost avoidance data and the agency's efforts to limit spending through its uniform formulary, which is a list of preferred drugs available to all beneficiaries. GAO interviewed DOD officials about these and other efforts to limit spending. Collectively, DOD's drug spending at retail pharmacies, military treatment facilities (MTF), and the TRICARE Mail Order Pharmacy (TMOP) more than tripled from $1.6 billion in fiscal year 2000 to $6.2 billion in fiscal year 2006. Retail pharmacy spending drove most of this increase, rising almost ninefold from $455 million to $3.9 billion and growing from 29 percent of overall drug spending to 63 percent. The growth in retail spending reflects the fact that federal pricing arrangements, which generally result in prices lower than retail prices, were not applied to drugs dispensed at retail pharmacies during this time. In addition, beneficiaries' increased use of retail pharmacies over the less costly options of MTFs or the TMOP exacerbated the effect of these higher prices. For example, 2 million beneficiaries used only retail pharmacies in fiscal year 2006--double the number in fiscal year 2002. However, future growth in retail pharmacy spending may slow as the NDAA for Fiscal Year 2008 now requires that federal pricing arrangements be applied to drugs dispensed at retail pharmacies. DOD's key efforts to limit its prescription drug spending have included its use of the uniform formulary and beneficiary outreach to encourage use of the TMOP. By leveraging its uniform formulary, which was implemented in fiscal year 2005, the agency avoided about $447 million in drug costs in fiscal year 2006 and $916 million in fiscal year 2007, according to DOD's data. In exchange for formulary placement, manufacturers can offer DOD prices below those otherwise available through federal pricing arrangements, which at the time of our review were applied only to drugs dispensed at MTFs and the TMOP. To compensate, in August 2006, DOD began obtaining voluntary manufacturer rebates for formulary drugs dispensed at retail network pharmacies. As of October 1, 2007, DOD collected about $28 million in rebates for fiscal year 2007. Also in 2006, DOD began beneficiary outreach--through quarterly newsletters and other materials--emphasizing the TMOP's convenience and cost savings. To help beneficiaries transfer their prescriptions to the TMOP, DOD launched the Member Choice Center in August 2007 and plans to target related outreach toward beneficiaries who frequently obtain high-cost drugs from retail pharmacies. DOD's ongoing efforts are important to limit future prescription drug spending. In addition, DOD has the recommendations of a congressionally mandated task force to consider--that copayment policies be changed to encourage beneficiaries to purchase preferred drugs from cost-effective sources. The agency is also undertaking a fundamental reform--the NDAA for Fiscal Year 2008 requirement to apply federal pricing arrangements to drugs dispensed at retail pharmacies--that could have an even greater impact on spending. DOD will need to carefully monitor the impact of this new requirement along with its ongoing efforts in order to assess the progress in controlling spending. DOD will also need to determine what types of additional efforts, if any, will be necessary to ensure the fiscal sustainability of its pharmacy benefits program.
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The U.S. election system is highly decentralized and based upon a complex interaction of people (election officials and voters), processes, and technology. Voters, local election jurisdictions, states, and the federal government all play important roles in ensuring that ballots are successfully cast in an election. The elections process within the United States is primarily the responsibility of the individual states and their election jurisdictions. States have considerable discretion in how they organize the elections process and this is reflected in the diversity of processes and deadlines that states have for voter registration and absentee voting, including diversity in the processes and deadlines that apply to military voters. Each state has its own election system with a somewhat distinct approach. Within each of these 55 systems, the guidelines and procedures established for local election jurisdictions can be very general or specific. Even when imposing requirements, such as statewide voter registration systems and provisional voting on the states in the Help America Vote Act of 2002, Congress left states discretion in how to implement those requirements and did not require uniformity. Executive Order 12642, dated June 8, 1988, designated the Secretary of Defense or his designee as responsible for carrying out the federal functions under UOCAVA. UOCAVA requires the presidential designee to (1) compile and distribute information on state absentee voting procedures, (2) design absentee registration and voting materials, (3) work with state and local election officials in carrying out the act, and (4) report to Congress and the President after each presidential election on the effectiveness of the program's activities, including a statistical analysis on UOCAVA voter participation. DOD Directive 1000.4, dated April 14, 2004, is DOD's implementing guidance for the federal voting assistance program, and it designated the Under Secretary of Defense for Personnel and Readiness (USD P&R) as responsible for administering and overseeing the program. For 2004, FVAP had a full-time staff of 13 and a fiscal year budget of approximately $6 million. FVAP's mission is to (1) inform and educate U.S. citizens worldwide of their right to vote, (2) foster voting participation, and (3) protect the integrity of and enhance the electoral process at the federal, state, and local levels. DOD Directive 1000.4 also sets forth DOD and service roles and responsibilities in providing voting education and assistance. In accordance with the directive, FVAP relies heavily upon the military services for distribution of absentee voting materials to military servicemembers. According to the DOD directive, each military service is to appoint a senior service voting representative, assisted by a service voting action officer, to oversee the implementation of the service's voting assistance program. The directive also states that the military services are to designate trained VAOs at every level of command to provide voting education and assistance to servicemembers and their eligible dependents. One VAO on each military installation should be assigned to coordinate voting efforts conducted by VAOs in subordinate units and tenant commands. Where possible, installation VAOs should be of the civilian rank GS-12 or higher, or officer pay grade O-4 or higher. In accordance with the DOD directive, commanders designate persons to serve as VAOs. Serving as a VAO is a collateral duty, to be performed along with the servicemember's other duties. For the 2004 presidential election, FVAP expanded its efforts beyond those taken for the 2000 election to provide military personnel tools needed to vote by absentee ballot. FVAP distributed more absentee voting materials and improved the accessibility of its Web site, which includes voting information. Also, FVAP conducted 102 more voting training workshops for its VAOs than it did for the 2000 election. FVAP also provided an online training course for them. FVAP also designed an electronic version of the Federal Write-in Absentee Ballot--an emergency ballot accepted by all states and territories--although its availability was not announced until a few weeks before the election. In assessing its efforts for the 2004 election, using data from its postelection surveys, FVAP attributed increased voter participation rates to an effective voter information and education program. However, in light of low survey response rates, FVAP's estimates and conclusions should be interpreted with caution. In preparing for the 2004 election, FVAP distributed more absentee voting materials and improved the accessibility of its Web site. For the 2000 election, we reported that voting materials such as the Federal Post Card Application (FPCA)--the registration and absentee ballot request form for UOCAVA citizens--were not always available when needed. DOD officials stated that they had enough 2004 election materials for their potential absentee voters. Each service reported meeting the DOD requirement of 100 percent in-hand delivery of FPCAs to each servicemember by January 15. After the 2000 presidential election, FVAP took steps to make its Web site more accessible to UOCAVA citizens worldwide by changing security parameters surrounding the site. According to FVAP, prior to the 2004 election, its Web site was within the existing DOD ".mil" domain, which includes built-in security firewalls. Some overseas Internet service providers were consequently blocked from accessing this site because hackers were attempting to get into the DOD system. As a result, FVAP moved the site out of the DOD ".mil" domain to a less secure domain. In September 2004, FVAP issued a news release announcing this change and provided a list of Web site addresses that would allow access to the site. FVAP also added more election-related links to its Web site to assist UOCAVA citizens in the voting process. The Web site (which FVAP considers one of its primary vehicles for disseminating voting information and materials) provides downloadable voting forms and links to all of FVAP's informational materials, such as the Voting Assistance Guide, Web sites of federal elected officials, and state election sites. It also contains contact information for FVAP and the military departments' voting assistance programs. Although FVAP provided more resources to UOCAVA citizens concerning absentee voting, it is ultimately the responsibility of the voter to be aware of and understand these resources, and to take the actions needed to participate in the absentee voting process. For the 2004 election, FVAP increased the number of VAO training workshops it conducted to 164. The workshops were conducted at military installations around the world, including installations where units were preparing to deploy. In contrast, only 62 training workshops were conducted for the 2000 election. FVAP conducts workshops during years of federal elections to train VAOs in providing voting assistance. As an alternative to its in-person voting workshops, in March 2004 FVAP added an online training course to its Web site. This course was also available on CD-ROM. According to FVAP, completion of the workshop or the online course meets a DOD requirement that VAOs receive training every 2 years. Installation VAOs are responsible for monitoring completion of training. The training gives VAOs instructions for completing voting forms, discusses their responsibilities, and informs them about the resources available to conduct a successful voting assistance program. On October 21, 2004, just a few weeks prior to the election, FVAP issued a news release announcing an electronic version of the Federal Write-in Absentee Ballot, an emergency ballot accepted by all states and territories. UOCAVA citizens who do not receive their requested state absentee ballots in time to meet state deadlines for receipt of voted ballots can use the Federal Write-in Absentee Ballot. The national defense authorization act for fiscal year 2005 amended the eligibility criteria for using the Federal Write-in Absentee Ballot. Prior to the change, a UOCAVA citizen had to be outside of the United States, have applied for a regular absentee ballot early enough to meet state election deadlines, and not have received the requested absentee ballot from the state. Under the new criteria, the Federal Write-in Absentee Ballot can also be used by military servicemembers stationed in the United States, as well as overseas. On the basis of its 2004 postelection survey, FVAP reported higher voter participation rates among uniformed service members in its quadrennial report to Congress and the President on the effectiveness of its 2004 voting assistance efforts. The report included a statistical analysis of voter participation and discussed experiences of uniformed servicemembers during the election, as well as a description of state and federal cooperation in carrying out the requirements of UOCAVA. However, the low survey response rate raises concerns about FVAP's ability to project increased voter participation rates among military servicemembers. We reported in 2001 that some absentee ballots became disqualified for various reasons, including improperly completed ballot return envelopes, failure to provide a signature, or lack of a valid residential address in the local jurisdiction. We recommended that FVAP develop a methodology, in conjunction with state and local election jurisdictions, to gather nationally projectable data on disqualified military absentee ballots and reasons for their disqualification. In anticipation of gathering nationally projectable data, prior to the election, FVAP randomly selected approximately 1,000 local election officials to receive an advance copy of the postelection survey so they would know what information to collect during the election to complete the survey. The survey solicited a variety of information concerning the election process and absentee voting, such as the number of ballots issued, received, and counted, as well as reasons for ballot disqualification. In FVAP's 2005 report, it cited the top two reasons for disqualification as ballots were received too late or were returned as undeliverable. FVAP reported higher participation rates for military servicemembers in the 2004 presidential election as compared with the rate reported for the 2000 election. FVAP attributed the higher voting participation rate to an effective voter information and education program that included command support and agency emphasis. State progress in simplifying absentee voting procedures and increased interest in the election were also cited as reasons for increased voting participation. However, a low survey response rate raises concerns about FVAP's ability to project participation rate changes among uniformed servicemembers. According to FVAP, while the 2004 postelection survey was designed to provide national estimates, the survey experienced a low response rate, 27 percent. FVAP did not perform any analysis comparing those who responded to the survey with those who did not respond. Such an analysis would allow researchers to determine if those who responded to the survey are different in some way from those who did not respond. If it is determined that there is a difference between those who responded and those who did not, then the results cannot be generalized across the entire population of potential survey participants. In addition, FVAP did no analysis to account for sampling error. Sampling error occurs when a survey is sent to a sample of a population rather than to the entire population. While techniques exist to measure sampling error, FVAP did not use these techniques in their report. The practical difficulties in conducting surveys of this type may introduce other types of errors as well, commonly known as nonsampling errors. For example, errors can be introduced if (1) respondents have difficulty interpreting a particular question, (2) respondents have access to different information when answering a question, or (3) those entering raw survey data make keypunching errors. DOD has taken actions in response to our prior recommendations regarding voting assistance to servicemembers. In 2001, we recommended that DOD revise its voting guidance, improve program oversight, and increase command emphasis to reduce the variance in voting assistance to military servicemembers. In 2001, we reported that implementation of the federal voting assistance program by DOD was uneven due to incomplete service guidance, lack of oversight, and insufficient command support. Prior to the 2004 presidential election, DOD implemented corrective actions, such as revising voting guidance and increasing emphasis on voting education at top command levels to address our recommendations. However, the level of assistance continued to vary at the installations we visited. Because the VAO role is a collateral duty and VAOs' understanding and interest in the voting process differ, some variance in voting assistance may always exist. DOD plans to continue its efforts to improve absentee voting assistance. In response to our recommendations in 2001, the services revised their voting guidance and enhanced oversight of the military's voting assistance program. In 2001, we reported that the services had not incorporated all of the key requirements of DOD Directive 1000.4 into their own voting policies, and that DOD exercised very little oversight of the military's voting assistance programs. These factors contributed to some installations not providing effective voting assistance. We recommended that the Secretary of Defense direct the services to revise their voting guidance to be in compliance with DOD's voting requirements, and provide for more voting program oversight through inspector general reviews and a lessons-learned program. Subsequent to DOD's revision of Directive 1000.4, the services revised their guidance to reflect DOD's voting requirements. In the 2002-03 Voting Action Plan, FVAP implemented a best practices program to support the development and sharing of best practices used among VAOs in operating voting assistance programs. FVAP included guidance on its Web site and in its Voting Assistance Guide on how VAOs could identify and submit a best practice. Identified best practices for all the services are published on the FVAP Web site and in the Voting Information News--FVAP's monthly newsletter to VAOs. For the 2004 election, emphasis on voting education and awareness increased throughout the top levels of command within DOD. In 2001, we reported that lack of DOD command support contributed to the mixed success of the services' voting programs and recommended that the Senior Service Voting Representatives monitor and periodically report to FVAP on the level of installation command support. To ensure command awareness and involvement in implementing the voting assistance program, in late 2003, the USD P&R began holding monthly meetings with FVAP and the Senior Service Voting Representatives and discussed the status of service voting assistance programs. In 2001, we also reported that some installations and units did not appoint VAOs as required by DOD Directive 1000.4. In March 2004, the Secretary of Defense and Deputy Secretary of Defense issued memorandums to the Secretaries of the military departments, the Chairman of the Joint Chiefs of Staff, and Commanders of the Combatant Commands, directing them to support voting at all levels of command. These memoranda were issued to ensure that voting materials were made available to all units and that VAOs were assigned and available to assist voters. The Chairman of the Joint Chiefs of Staff also recorded a DOD-wide message regarding the opportunity to vote and ways in which VAOs could provide assistance. This message was used by FVAP in its training presentations and was distributed to military installations worldwide. During our review, we found that each service reported to DOD that it assigned VAOs at all levels of command. Voting representatives from each service used a variety of servicewide communications to disseminate voting information and stressed the importance of voting. For example, the Marine Corps produced a videotaped interview stressing the importance of voting that was distributed throughout the Marine Corps. The Army included absentee voting information in a pop-up message that was included on every soldier's e-mail account. In each service, the Voting Action Officer sent periodic messages to unit VAOs, reminding them of key voting dates and areas to focus on as the election drew closer. Throughout the organizational structure, these VAOs contacted servicemembers through servicewide e-mail messages, which contained information on how to get voting assistance and reminders of voting deadlines. According to service voting representatives, some components put together media campaigns that included reminders in base newspapers, billboards, and radio and closed circuit television programs. They also displayed posters in areas frequented by servicemembers (such as exchanges, fitness centers, commissaries, and food court areas). Despite the efforts of DOD and the states, our April 2006 report identified two major challenges that remain in providing voting assistance to military personnel, which are: simplifying and standardizing the time-consuming and multistep absentee voting process, which includes different requirements and time frames for each state; and developing and implementing a secure electronic registration and voting system. FVAP attempted to make the absentee voting process easier by encouraging states through its Legislative Initiatives program, to simplify the multi-step process and standardize their absentee voting requirements. Many military personnel we spoke to after the 2000 and 2004 general elections expressed concerns about the varied state and local requirements for absentee voting and the short time frame provided by many states and local jurisdictions for sending and returning ballots. FVAP's Legislative Initiatives program encouraged states to adopt changes to improve the absentee voting process for military personnel. However, the majority of states have not agreed to any new initiatives since FVAP's 2001 report to Congress and the President on the effectiveness of its efforts during the 2000 election. FVAP is limited in its ability to affect state voting procedures because it lacks the authority to require states to take action on absentee voting initiatives. In the 1980s, FVAP began its Legislative Initiatives program with 11 initiatives, and as of December 2005 it had not added any others. Two of the 11 initiatives--(1) accept one FPCA as an absentee ballot request for all elections during the calendar year and (2) removal of the not-earlier-than restrictions for registration and absentee ballot requests--were made mandatory for all states by the National Defense Authorization Act for Fiscal Year 2002 and the Help America Vote Act of 2002, respectively. According to FVAP, this action was the result of state election officials working with congressional lawmakers to improve the absentee voting process. Between FVAP's 2001 and 2005 reports to Congress and the President, the majority of the states had not agreed to any of the remaining nine initiatives. Since FVAP's 2001 report, 21 states agreed to one or more of the nine legislative initiatives, totaling 28 agreements. Table 1 shows the number of agreements with the initiatives since the 2001 report. According to FVAP records, one state withdrew its support for the 40 to 45-day ballot transit time initiative. Initiatives with the most state support were (1) the removal of the notary requirement on election materials and (2) allowing the use of electronic transmission of election materials. We also found a disparity in the number of initiatives that states have adopted. For example, Iowa is the only state to have adopted all nine initiatives, while Vermont, American Samoa, and Guam have adopted only one initiative each. The absentee voting process requires the potential voter to take the following five steps: (1) register to vote, (2) request an absentee ballot, (3) receive the ballot from the local election office, (4) correctly complete the ballot, and (5) return it (generally through the mail) in time to be counted for the election. (See fig. 1.) There are several ways for military servicemembers to accomplish these steps. Military voters must plan ahead, particularly when deployed during elections. Moreover, military voters require more time to transmit voting materials because of distance. Military servicemembers are encouraged to use the Federal Post Card Application (FPCA) to register to vote and to request an absentee ballot. Servicemembers can obtain the FPCA from several sources, including the unit VAO, from the Internet via FVAP's Web site, or from their local election office. DOD Directive 1000.4, Federal Voting Assistance Program, requires the in-hand delivery of a FPCA to eligible voters and their voting age dependents by January 15th of each year. DOD encourages potential voters to complete and mail the FPCA early, in order to receive absentee ballots for all upcoming federal elections during the year. Military mail and the U.S. postal service are the primary means for transmitting voting materials, according to servicemembers with whom we spoke. Knowing when to complete the first step of the election process can be challenging since each state has its own deadlines for receipt of FPCAs, and the deadline is different depending on whether or not the voter is already registered. For example, according to the Voting Assistance Guide, Montana required a voter that had not previously registered to submit an FPCA at least 30 days prior to the election. A voter who was already registered had to ensure that the FPCA was received by the County Election Administrator by noon on the day before the election. For Idaho voters, the FPCA had to be postmarked by the 25th day before the election, if they were not registered. If they were registered, the County Clerk had to receive the FPCA by 5:00 p.m. on the 6th day before the election. For Virginia uniformed services voters, the FPCA had to arrive not later than 5 days before the election, whether already registered or not. Using different deadlines for newly registered and previously registered voters to return their absentee ballots may have some administrative logic and basis. For example, the process of verifying the eligibility of a newly registered voter might take longer than the process for previously registered voters, and if there was some question about the registration information provided, the early deadlines provide some time to contact the voter and get it corrected. For the November 2004 general election, according to our site survey, nine states reported having absentee ballot deadlines for voters outside the United States that were more lenient than the ballot deadlines for voters inside the United States. Table 2 lists these nine states and the difference between the mail-in ballot deadline from inside the United States and the mail-in absentee ballot deadline from outside the United States. Another challenge for military service members in completing the FPCA is to know where they will be located when the ballots are mailed by the local election official. If the voter changes locations after submitting the FPCA and does not notify the local election official, the ballot will be sent to the address on the FPCA and not the voter's new location. This can be further complicated by a 2002 amendment to UOCAVA, which allowed military personnel to apply for absentee ballots for the next two federal elections. If servicemembers request ballots for the next two federal elections, they must project up to a 4-year period where they will be located when the ballots are mailed. DOD recommended that military servicemembers complete an FPCA annually in order to maintain registration and receive ballots for upcoming elections. After a valid FPCA has been received by the local election official, the next step for the voter is to receive the absentee ballot. Prior to mailing the ballot, the local election jurisdiction must process the FPCA. Based on one of our recent reports, local election jurisdictions reported encountering problems in processing FPCAs. For example, 39 percent of the jurisdictions received the FPCA too late to process--a problem also encountered with other state-provided absentee ballot applications. An estimated 19 percent of local jurisdictions encountered the problem of receiving the FPCA too late to process more frequently than the other problems. Other reported problems with FPCAs included (1) missing or inadequate voting residence address, (2) applied to wrong jurisdiction, (3) missing or inadequate voting mailing address, (4) missing or illegible signature, (5) application not witnessed, attested, or notarized, and (6) excuse for absence did not meet state law requirements. The determination of when the state mails its ballots sometimes depends on when the state holds its primary elections. FVAP has an initiative encouraging a 40 to 45-day transit time for mailing and returning absentee ballots; however, 14 states have yet to adopt this initiative. During our focus group discussions, some servicemembers commented that they either did not receive their absentee ballot or they received it so late that they did not believe they had sufficient time to complete and return it in time to be counted. After the voter completes the ballot, the voted ballot must be returned to the local election official within time frames established by each state. As we reported in 2004, deployed military servicemembers face numerous problems with mail delivery, such as military postal personnel who were inadequately trained and initially scarce because of late deployments, as well as inadequate postal facilities, material-handling equipment, and transportation assets to handle mail surge. In December 2004, DOD reported that it had taken actions to arrange for transmission of absentee ballot materials by Express Mail through the Military Postal Service Agency and the U.S. Postal Service. However, during our focus group discussions, servicemembers cited problems with the mail, such as it being a low priority when a unit is moving from one location to another; susceptibility of mail shipments to attack while in theater; and the absence of daily mail service on some military ships. For example, some servicemembers said that mail sat on the ships for as long as a week, waiting for pick up. Others stated that in the desert, mail trucks are sometimes destroyed during enemy attacks. Voters must also cope with registration requirements that vary when local jurisdictions interpret state requirements differently. We found variation in the counties we visited in several states as to how they implemented state laws and regulations, with some holding strictly to the letter of the law and others applying more flexibility in accepting registration applications and ballots. For example: In Florida, officials in three counties told us they allow registration of applicants who have never lived in the county, while the fourth county said they require a specific address where the applicant actually lived. In New Jersey, officials in three counties said they accepted any ballot that showed a signature anywhere on the envelope while the fourth county disqualified any ballot that did not strictly meet all technical requirements. Some local election officials in the states we visited took actions to help absentee voters comply with state and local voting requirements by tracking down missing information on the registration form or ballot envelope and ensuring that applications and ballots went to the right jurisdiction. However, local officials told us they must balance voting convenience with ensuring the integrity of the voting process. This balance often requires the exercise of judgment on the part of local election officials. Developing and implementing a secure electronic registration and voting system, which would likely improve the timely delivery of ballots and increase voter participation, has proven to be a challenging task for FVAP. Eighty-seven percent of servicemembers who responded to our focus group survey said they were likely to vote over the Internet if security was guaranteed. However, FVAP has not developed a system that would protect the security and privacy of absentee ballots cast over the Internet. For example, during the 2000 presidential election, FVAP conducted a small proof of concept Internet voting project that enabled 84 voters to vote over the Internet. While the project demonstrated that it was possible for a limited number of voters to cast ballots online, FVAP's project assessment concluded that security concerns needed to be addressed before expanding remote (i.e., Internet) voting to a larger population. In 2001, we also reported that remote Internet-based registration and voting are unlikely to be implemented on a large scale in the near future because of security risks with such a system. For the 2004 election, FVAP developed a secure registration and voting experiment. However, it was not used by any voters. The National Defense Authorization Act for Fiscal Year 2002 directed DOD to conduct an electronic voting experiment and gather data to make recommendations regarding the continued use of Internet registration and voting. In response to this requirement, FVAP developed the Secure Electronic Registration and Voting Experiment (SERVE), an Internet-based registration and voting system for UOCAVA citizens. The experiment was to be used for the 2004 election by UOCAVA citizens from seven participating states, with the eventual goal of supporting the entire military population, their dependents, and overseas citizens. The real barrier to success is not a lack of vision, skill, resources, or dedication, it is the fact that, given the current Internet and PC security technology, and the goal of a secure, all-electronic remote voting system, the FVAP has taken on an essentially impossible task. According to FVAP, after the minority group issued its report, the full peer review group did not issue a final report. Also, because DOD did not want to call into question the integrity of votes that would have been cast via SERVE, they decided to shut it down prior to its use by any absentee voters. FVAP could not provide details on what it received for the approximately $26 million that it invested in SERVE. FVAP officials stated that they received some services from the contractor, but no hardware or other equipment. Communications technologies, such as faxing, e-mail, and the Internet, can improve communication between local jurisdictions and voters during some portions of the election process. For example, FVAP's Electronic Transmission Service (ETS) has been in existence since the 1990s, and is used by UOCAVA citizens and state and local officials to fax election materials when conditions do not allow for timely delivery of materials through the mail. For the November 2004 general election, FVAP's Voting Assistance Guide showed that the states allowed some form of electronic transmission of the FPCA, blank absentee ballot and the voted ballot. However, it is important to note that of the 10,500 local government jurisdictions responsible for conducting elections nationwide, particular local jurisdictions might not offer all of the options allowed by state absentee ballot provisions. As shown in Table 3, for the November 2004 presidential election, 44 states allowed the FPCA to be faxed to the local election jurisdiction for registration and ballot request. In each of these states, the completed FPCA also had to be mailed to the local election jurisdiction. In one state, the completed FPCA had to be mailed or postmarked the same day that the FPCA was faxed. A smaller number of states allowed the blank absentee ballot to be faxed to the voter and an even smaller number of states allowed the voted ballot to be sent back to the local election jurisdiction. According to FVAP's records, in calendar year 2004 ETS processed 46,614 faxes, including 38,194 FPCAs, 1,844 blank ballots to citizens, and 879 voted ballots to local election officials. Total costs to operate ETS in 2004 were about $452,000. According to FVAP's revised Voting Assistance Guide for 2006-2007, only one additional state allowed the faxing of the FPCA for registration and ballot request. Table 3 also shows options allowed by each state and territory for electronic transmission of election materials for the November 2006 election. Two additional states also allowed the faxing of the blank ballot. In September 2004, DOD implemented the Interim Voting Assistance System (IVAS), an electronic ballot delivery system, as an alternative to the traditional mail process. Although IVAS was meant to streamline the voting process, its strict eligibility requirements prevented it from being utilized by many military voters. IVAS was open to active duty servicemembers, their dependents, and DOD overseas personnel who were registered to vote. These citizens also had to be enrolled in the Defense Enrollment Eligibility Reporting System, and had to come from a state and county participating in the project. FVAP officials said the system was limited to DOD members because their identities could be verified more easily than those of nonmilitary overseas citizens. Voters would obtain their ballots through IVAS by logging onto www.MyBallot.mil and requesting a ballot from their participating local election jurisdiction. One hundred and eight counties in eight states and one territory agreed to participate in IVAS; however, only 17 citizens downloaded their ballots from the site during the 2004 election. According to FVAP, many states did not participate in IVAS for a variety of reasons including state legislative restrictions, workload surrounding regular election responsibilities and additional Help America Vote Act requirements, lack of technical capability, election procedural requirements and barriers, and unavailability of Internet access. Despite low usage of the electronic initiatives and existing security concerns, we found that servicemembers and VAOs at the installations we visited strongly supported some form of electronic transmission of voting materials. During our focus group discussions, servicemembers stated that election materials for the 2004 presidential election were most often sent and received through the U.S. postal system. Servicemembers also commented that the implementation of a secure electronic registration and voting system could increase voter participation and possibly improve confidence among voters that their votes were received and counted. Additionally, servicemembers said that an electronic registration and voting system would improve the absentee voting process by providing an alternative to the mail process, particularly for those servicemembers deployed on a ship or in remote locations. However, at one location, some servicemembers were more comfortable with the paper ballot system and said that an electronic voting system would not work because its security could never be guaranteed. The federal government, states, and local election jurisdictions have a shared responsibility to help increase military voters' awareness of absentee voting procedures and make the process easier while protecting its integrity. The election process within the United States is primarily the responsibility of the individual states and their election jurisdictions. Despite some progress by FVAP in streamlining the absentee voting process, absentee voting requirements and deadlines continue to vary from state to state. While it is ultimately the responsibility of the voter to understand and comply with these deadlines, varying state requirements can cause confusion among voters and VAOs about deadlines and procedures for registering and voting by absentee ballot. The ability to transmit and receive voting materials electronically provides military servicemembers another option to submit a ballot in time to participate in an election. Although state law may allow electronic transmission of voting materials, including voted ballots, the 10,500 local election jurisdictions must be willing and equipped to accommodate this technology. The integration of people, processes and technology are very important to the United States' election system. 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. Elections: The Nation's Evolving Election System as Reflected in the November 2004 General Election. GAO-06-450. Washington, D.C.: June 6, 2006 Elections: Absentee Voting Assistance to Military and Overseas Citizens Increased for 2004 General Election, but Challenges Remain. GAO-06- 521. Washington, D.C.: April 7, 2006. Election Reform: Nine States' Experiences Implementing Federal Requirements for Computerized Statewide Voter Registration Lists. GAO-06-247. Washington, D.C.: February 7, 2006. Elections: Views of Selected Local Election Officials on Managing Voter Registration and Ensuring Eligible Citizens Can Vote. GAO-05-997. Washington, D.C.: September 27, 2005. Elections: Federal Efforts to Improve Security and Reliability of Electronic Voting Systems Are Underway, but Key Activities Need to be Completed. GAO-05-956. Washington, D.C.: September 21, 2005. Elections: Additional Data Could Help State and Local Elections Officials Maintain Accurate Voter Registration Lists. GAO-05-478. Washington, D.C.: June 10, 2005. Department of Justice's Activities to Address Past Election-Related Voting Irregularities. GAO-04-1041R. Washington, D.C.: September 14, 2004. Elections: Electronic Voting Offers Opportunities and Presents Challenges. GAO-04-975T. Washington, D.C.: July 20, 2004. Elections: Voting Assistance to Military and Overseas Citizens Should Be Improved. GAO-01-1026. Washington, D.C.: September 28, 2001. Elections: The Scope of Congressional Authority in Election Administration. GAO-01-470. Washington, D.C.: March 13, 2001. 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 narrow margin of victory in the 2000 presidential election raised concerns about the extent to which members of the military and their dependents living abroad were able to vote via absentee ballot. In September 2001, GAO made recommendations to address variances in the Department of Defense's (DOD) Federal Voting Assistance Program (FVAP). Along with the military services, FVAP is responsible for educating and assisting military personnel in the absentee voting process. Leading up to the 2004 presidential election, Members of Congress raised concerns about efforts under FVAP to facilitate absentee voting. This testimony, which draws on prior GAO work, addresses three questions: (1) How did FVAP's assistance efforts differ between the 2000 and 2004 presidential elections? (2) What actions did DOD take in response to prior GAO recommendations on absentee voting? and (3) What challenges remain in providing voting assistance to military personnel? For the 2004 presidential election, FVAP expanded its efforts beyond those taken for the 2000 election to facilitate absentee voting by military personnel. FVAP distributed more absentee voting materials and improved the accessibility of its Web site, which includes voting information. Also, FVAP conducted 102 more voting training workshops than it did for the 2000 election, and it provided an online training course for Voting Assistance Officers (VAO). FVAP also designed an electronic version of the Federal Write-in Absentee Ballot--an emergency ballot accepted by all states and territories--although its availability was not announced until a few weeks before the election. In assessing its efforts for the 2004 election, using data from its postelection surveys, FVAP attributed increased voter participation rates to an effective voter information and education program. However, in light of low survey response rates, FVAP's estimates and conclusions should be interpreted with caution. DOD has taken actions in response to GAO's prior recommendations regarding voting assistance to servicemembers. In 2001, GAO recommended that DOD revise its voting guidance, improve program oversight, and increase command emphasis to reduce the variance in voting assistance to military servicemembers. Prior to the 2004 presidential election, DOD implemented corrective actions that addressed GAO's recommendations. Specifically, the services revised their voting guidance and enhanced oversight of the military's voting assistance program, and emphasis on voting education and awareness increased throughout the top levels of command within DOD. However, the level of assistance continued to vary at the installations GAO visited. Because the VAO role is a collateral duty and VAOs' understanding and interest in the voting process differ, some variance in voting assistance may always exist. DOD plans to continue its efforts to improve absentee voting assistance. Despite efforts of DOD and the states, GAO's April 2006 report identified two major challenges that remain in providing voting assistance to military personnel: (1) simplifying and standardizing the time-consuming and multi-step absentee voting process, which includes different requirements and time frames for each state; and (2) developing and implementing a secure electronic registration and voting system. FVAP attempted to make the absentee voting process easier by using its Legislative Initiatives program to encourage states to simplify the multi-step process and standardize their absentee voting requirements. However, the majority of states have not agreed to any new initiatives since FVAP's 2001 report on the 2000 election. FVAP is limited in its ability to affect state voting procedures because it lacks the authority to require states to take action on absentee voting initiatives. For the 2004 election, FVAP developed an electronic registration and voting experiment. However, it was not used by any voters due to concerns about the security of the system. Because DOD did not want to call into question the integrity of votes that would have been cast via the system, they decided to shut the experiment down prior to its use by any absentee voters. Some technologies--such as faxing, e-mail and the Internet--have been used to improve communication between local jurisdictions and voters.
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The serious underfunding of many airline company pension plans has been widely reported. Underfunded pension plans are a symptom of the financial turmoil the airline industry currently faces. Several industry trends, such as the emergence of well-capitalized low cost airlines and reliance on the Internet to distribute tickets, are fundamentally reshaping the structure of the airline industry. Certain technology trends have served to provide lower cost alternatives to travel for business purposes, such as videoconferencing and network meetings. In addition, a series of unforeseen events, such as the terrorist attacks of September 11, 2001 and the war in the Middle East, have served to sharply reduce the demand for air travel in recent years. These and other factors have combined to create a highly competitive environment, which has been particularly challenging for the legacy airlines. As we reported in August, the financial performance and viability of legacy airlines has deteriorated significantly compared with low-cost airlines since 2000. Legacy airlines have collectively lost $24.3 billion over the last 3 years, while low-cost airlines made $1.3 billion in profits. During this time Congress provided the industry approximately $8.6 billion in assistance. Airlines responded to these financial challenges by reducing costs and cutting capacity. From October 1, 2001 through December 31, 2003, the collective operating costs of legacy airlines decreased by about $12.7 billion dollars, while capacity fell 12.6 percent. Of this total, legacy airlines worked with unions to achieve $5.5 billion in labor cost cuts. Despite these cost-cutting efforts, low-cost airlines still maintain a significant unit cost advantage over legacy airlines. Legacy airlines also face considerable debt and pension funding obligations in the next few years. Meanwhile, neither legacy nor low-cost airlines have been able to significantly improve their revenues owing to continued pressure on airline fares. In their efforts to cut costs further, despite significant rises in fuel costs, the legacy airlines have focused on labor costs, since they represent the single largest operating cost the airlines face. As part of reducing their labor costs, a number of legacy airlines have begun to consider terminating their DB pension plans, under current bankruptcy and pension laws. United Airlines recently announced that it would not make roughly $500 million in contributions to its pension plans this year. In addition, US Airways does not plan to make roughly $100 million in contributions to its remaining pension plans, and stated it would be "irrational" to make pension contributions during its current bankruptcy court filing. The potential termination of these underfunded pension plans confronts Congress with three key policy issues. The most visible is the financial exposure of PBGC. The agency reports that airline pensions are currently underfunded by $31 billion. This figure includes $8.3 billion of underfunding in United's plans, and $2.3 billion of underfunding for US Airways. Second, thousands of plan participants and beneficiaries will lose pension benefits due to limits on PBGC guarantees and certain provisions affecting PBGC's insurance program. Finally, airlines that terminate their plans may gain a competitive advantage because such terminations effectively lower overall labor costs. Those lower costs may also permit some airlines to continue operating that might otherwise be forced to exit the marketplace. I would like to emphasize three important facts that should put the airlines' current problems in perspective. First, this is not the first time we have witnessed the simultaneous struggles of the airline industry and airline pension underfunding. As a former Acting Executive Director of PBGC and Assistant Secretary of Labor for Pension and Welfare Benefit Programs in the 1980s, I monitored similar issues plaguing major air carriers at the time. Since then, we've seen PBGC take over a number of badly underfunded plans including Pan American, Eastern, Braniff, and TWA. More recently, in early 2003, US Airways' Pilots Plans terminated, presenting a claim of $754 million to the single-employer program. Second, the airlines' experience illustrates the speed with which a pension funding crisis can develop. In 2001, PBGC reported that as a whole the air transportation industry had more than enough assets to cover the liabilities in its pension plans. Yet just 3 years later the industry threatens to saddle PBGC with its biggest losses ever from plan terminations. Finally, serious pension underfunding is not confined to the airline industry. Of the 10 most underfunded pension plan terminations in PBGC's history, 5 have been in the steel industry, an industry that has faced extreme economic difficulty for decades. Looking ahead, in addition to airlines, automotive related firms may present the greatest ongoing risk to PBGC, with over $60 billion in underfunding as of 2003. Thus, while there are unique circumstances that have contributed to the airlines' competitive and pension troubles, they unfortunately are not alone. We have highlighted several potential sources of problems in the pension system that have contributed to the broad underfunding of DB pension plans generally, including airline plans. Single-employer pension plans have suffered from a so-called "perfect storm" of key economic conditions, in which declines in stock prices lowered the value of pension assets used to pay benefits, while at the same time a decline in interest rates inflated the value of pension liabilities. The combined "bottom line" result is that many plans have insufficient resources to pay all of their future promised benefits. While these cyclical factors may improve and reverse some of the pension underfunding, other trends suggest more serious structural problems to the single-employer insurance program's long-term viability. These include a declining number of DB plans, a decline in the percentage of participants that are active (as opposed to retired) workers, and a rise in alternative retirement savings vehicles, such as defined contribution (DC) plans, which provide retirement benefits with more portability but which transfer the investment risk from the employer to the employee. In addition, as the PBGC takeover of severely underfunded plans suggests, the existing pension funding rules have not ensured that sponsors contribute enough to their plans to pay all the retirement benefits promised to date. Also, while the current structure of insurance premiums paid by plan sponsors to PBGC requires higher premiums from some underfunded plans, in many cases these were not enough of an incentive for firms to fund their plans sufficiently. Furthermore, certain provisions of PBGC's current guarantee and recovery provisions also need to be reviewed and possibly revised. The current pension crisis facing the airline industry and PBGC illustrates the need for comprehensive pension reform that tackles the full range of challenges across all industries, not just airlines. Such a comprehensive reform would focus on incentives, transparency, and accountability. Reforms must include meaningful incentives for sponsors to adequately fund their plans. They must provide additional transparency for participants, and ensure accountability for those firms that fail to match the benefit promises they make with the resources necessary to fulfill them. The airline industry's funding problems also highlight the difficulties in addressing these problems during difficult economic times for an industry. These difficulties limit the feasible policy options for pension reform because many firms have fewer resources to support required plan contributions. Therefore, pension reform should attempt to improve incentives for firms to contribute more to their pension plans during good economic times, when they are more likely to be able to afford such contributions. Also, reform needs to consider the voluntary nature of pensions. After all, employers do not have to offer pensions, and reforms that may be deemed to be onerous might drive healthy plans out of the system. Nevertheless, firms should be held accountable for paying promised pension benefits to their workers. Along these lines, reforms should reconsider PBGC's current premium rate structure to take into account the plan sponsor's financial condition, the nature of the pension plan's investment portfolio, and the structure of the plan's benefit provisions (e.g., shutdown benefits or pension offset provisions). Charging more truly "risk-related" premiums could increase PBGC's revenue while providing an incentive for plan sponsors to better fund their plans. However, significant increases in premiums that are not based on the degree of risk posed by different plans may force financially healthy companies out of the defined-benefit system and discourage other plan sponsors from entering the system. The rules of the current pension system, and any attempts to reform these rules, carry wide-ranging implications for airlines and other industries, as well as pension participants and beneficiaries, the PBGC, and potentially the American taxpayer. When PBGC takes over a pension plan from a bankrupt sponsor, participants can lose some of their promised pension benefits because PBGC guarantees may be capped. For 2004, PBGC pays a maximum monthly benefit of about $3,700 to a 65-year old pension participant; for younger participants, the guarantee declines, such that a 55-year old is guaranteed only $1,664 monthly. In addition, recent benefit increases and early retirement subsidies can also be reduced based on PBGC's guarantee structure. For the agency itself, continued takeovers of severely underfunded plans make the eventual bankruptcy of PBGC an increasingly likely scenario. In the event that PBGC has insufficient funds to pay the benefits of plans it has taken over, it has the ability to borrow $100 million from the U.S. Treasury. This amount represents only a small fraction of the single-employer program's $9.7 billion deficit as of March 2004. Congress would likely face enormous pressure to "bail out" the PBGC at taxpayer expense. If Congress decided not to fund a bailout of PBGC, pension participants and retirees would likely face drastic cuts in their pension benefits. Congress should consider the incentives that pension rules and reform may have on other financial decisions within affected industries. For example, under current conditions, the presence of PBGC insurance may create certain "moral hazard" incentives--struggling plan sponsors may place other financial priorities above "funding up" its pension plan because they know PBGC will pay guaranteed benefits. Firms may even have an incentive to seek Chapter 11 bankruptcy in order to escape their pension obligations. As a result, once a sponsor with an underfunded pension plan gets into financial trouble, existing incentives may exacerbate the funding shortfall for PBGC. This moral hazard effect has the potential to escalate, with the initial bankruptcy of firms with underfunded plans creating a vicious cycle of bankruptcies and plan terminations. Firms with onerous pension obligations and strained finances could see PBGC as a means of shedding these liabilities, thereby providing them with a competitive advantage over other firms that deliver on their pension commitments. This would also potentially subject PBGC to a series of terminations of underfunded plans in the same industry, as we have already seen with the steel and airline industries in the past 20 years. Overall, despite a series of reforms over the years, current pension funding and insurance laws create incentives for financially troubled firms to use PBGC in ways that Congress did not intend when it formed the agency in 1974. PBGC was established to pay the pension benefits of participants in the event that an employer could not. As pension policy has developed, however, firms with underfunded pension plans may come to view PBGC coverage as a fallback or "put option" for financial assistance. Further, because PBGC generally takes over underfunded plans of bankrupt companies, PBGC insurance may create an additional incentive for troubled firms to seek bankruptcy protection, which in turn may affect the competitive balance within an industry. This should not be the role for the pension insurance system. Certain rules that affect funding for underfunded plans of troubled sponsors can also create perverse incentives for employees that aggravate a plan's underfunding. To the extent that participants believe that the PBGC guarantee may not cover their full benefits, many eligible participants may elect to retire and take all or part of their benefits in a lump sum rather than as lifetime annuity payments in order to maximize the value of their accrued benefits. In some cases, this may create a "run on the bank," exacerbating the possibility of the plan's insolvency as assets are liquidated more quickly than expected, and potentially leaving fewer assets to pay benefits for other participants. As previously noted, it can also create incentives for workers to retire prematurely, creating potential labor shortages in key occupations for the firm. We have seen aspects of these effects in some airline pilots' reaction to the deteriorating financial condition of their employers and pension plans. Further, current rules may create an incentive for financially troubled sponsors to increase benefits, even if they have insufficient funding to pay current benefit levels. Currently, sponsors can increase plan benefits for underfunded plans, even in some cases where the plans are less than 60 percent funded. Thus, sponsors and employees that agree to benefit increases from an underfunded plan as a sponsor is approaching bankruptcy can essentially transfer this additional liability to PBGC, potentially exacerbating the agency's financial condition. These represent just a few of the many issues that deserve the attention of the Congress. We have and will continue to perform work in this area in an effort to assist the Congress. The current problems plaguing many pensions in the airline industry should be seen as symptomatic for the pension system overall and should demonstrate that the way we currently fund and insure pension benefits has to change. Ignoring this warning would serve to adversely affect employers who continue to sponsor DB plans, workers and retirees who depend on those pension plans, and American taxpayers who may be asked to pay for these benefits in the future. Finally, the tragic events of September 11, 2001 combined with other factors are not only having an adverse affect on the financial condition of the airline industry, they are also affecting the financial condition of the Federal Aviation Administration's Airport and Airway Trust Fund. This is a matter beyond the scope of this hearing that the Committee may want to address in the future. I would be happy to take any questions the Committee might 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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At the same time that "legacy" airlines face tremendous competitive pressures that are contributing to a fundamental restructuring of the airline industry, they face the daunting task of shoring up their underfunded pension plans, which currently are underfunded by an estimated $31 billion. Terminating these pension plans confronts Congress with three policy issues. The most visible is the financial exposure of the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private pensions. The agency's single-employer pension program already faces a deficit of an estimated $9.7 billion, and the airline plans present a potential threat to the agency's viability. Second, plan participants and beneficiaries may lose pension benefits due to limits on PBGC guarantees. Finally, airlines that terminate their plans may gain a competitive advantage because such terminations effectively lower overall labor costs. This testimony addresses (1) the situation the airlines are facing today, (2) overall pension developments, and (3) the policy implications of addressing these issues. The problems posed by the airlines' underfunded plans, while extremely serious in the short term, are only the latest symptom of the decline in the health of our nation's defined benefit (DB) pension system. These problems illustrate weaknesses in the pension system overall and demonstrate that the way plans currently fund and insure pension benefits has to change. Underfunded pension plans are a symptom of the financial turmoil currently facing the airline industry. Industry trends, including the emergence of well-capitalized low cost airlines and other factors, have created a highly competitive environment that has been particularly challenging for the legacy airlines. Since 2000, the financial performance of legacy airlines has deteriorated significantly. Legacy airlines have collectively lost $24.3 billion over the last 3 years. Despite cost-cutting efforts, legacy airlines continue to face considerable debt and pension funding obligations. In this context, a number of legacy airlines have begun to consider terminating their DB pension plans. For example, United Airlines recently announced that it would not make roughly $500 million in contributions to its pension plans this year and US Airways announced that it does not plan to make roughly $100 million in contributions. The problems of underfunded DB pension plans extend far beyond the airline industry. We have highlighted several problems that have contributed to the broad underfunding of DB plans generally, including airline plans. These problems include cyclical factors like the so called "perfect storm" of key economic conditions, in which declines in stock prices lowered the value of pension assets used to pay benefits, while at the same time a decline in interest rates inflated the value of pension liabilities. The combined "bottom line" result is that many plans today have insufficient resources to pay all of their future promised benefits. Other long term trends suggest more serious structural problems to the system, including a declining number of DB plans, a decline in the percentage of participants that are active (as opposed to retired) workers, and other factors. Existing pension funding rules and the current structure for paying PBGC insurance premiums have not ensured that sponsors contribute enough to their plans to pay promised benefits. The current pension crisis facing the airline industry and PBGC, and how the Congress chooses to address that crisis, has wide-ranging implications for airlines and other industries, as well as for pension participants, PBGC, and potentially the American taxpayer. This crisis also illustrates the need for comprehensive pension reform that tackles the full range of challenges crossing all industries and not just airlines. Such a comprehensive reform would include meaningful incentives for sponsors to adequately fund their plans, provide additional transparency for participants, and ensure accountability for those firms that fail to match the benefit promises they make with the resources necessary to fulfill those promises.
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In fiscal year 2009, the federal government spent over $4 billion specifically to improve the quality of our nation's 3 million teachers through numerous programs across the government. Teacher quality can be enhanced through a variety of activities, including training, recruitment, and curriculum and assessment tools. In turn, these activities can influence student learning and ultimately improve the global competitiveness of the American workforce in a knowledge-based economy. Federal efforts to improve teacher quality have led to the creation and expansion of a variety of programs across the federal government. However, there is no governmentwide strategy to minimize fragmentation, overlap, or potential duplication among these programs. Specifically, GAO identified 82 distinct programs designed to help improve teacher quality, either as a primary purpose or as an allowable activity, administered across 10 federal agencies. Many of these programs share similar goals. For example, 9 of the 82 programs support improving the quality of teaching in science, technology, engineering, and mathematics (STEM subjects) and these programs alone are administered across the Departments of Education, Defense, and Energy; the National Aeronautics and Space Administration; and the National Science Foundation. Further, in fiscal year 2010, the majority (53) of the programs GAO identified supporting teacher quality improvements received $50 million or less in funding and many have their own separate administrative processes. The proliferation of programs has resulted in fragmentation that can frustrate agency efforts to administer programs in a comprehensive manner, limit the ability to determine which programs are most cost effective, and ultimately increase program costs. For example, eight different Education offices administer over 60 of the federal programs supporting teacher quality improvements, primarily in the form of competitive grants. Education officials believe that federal programs have failed to make significant progress in helping states close achievement gaps between schools serving students from different socioeconomic backgrounds, because, in part, federal programs that focus on teaching and learning of specific subjects are too fragmented to help state and district officials strengthen instruction and increase student achievement in a comprehensive manner. While Education officials noted, and GAO concurs, that a mixture of programs can target services to underserved populations and yield strategic innovations, the current programs are not structured in a way that enables educators and policymakers to identify the most effective practices to replicate. According to Education officials, it is typically not cost-effective to allocate the funds necessary to conduct rigorous evaluations of small programs; therefore, small programs are unlikely to be evaluated. Finally, it is more costly to administer multiple separate federal programs because each program has its own policies, applications, award competitions, reporting requirements, and, in some cases, federal evaluations. While all of the 82 federal programs GAO identified support teacher quality improvement efforts, several overlap in that they share more than one key program characteristic. For example, teacher quality programs may overlap if they share similar objectives, serve similar target groups, or fund similar activities. GAO previously reported that 23 of the programs administered by Education in fiscal year 2009 had improving teacher quality as a specific focus, which suggested that there may be overlap among these and other programs that have teacher quality improvements as an allowable activity. When looking across a broader set of criteria, GAO found that 14 of the programs administered by Education overlapped with another program with regard to allowable activities as well as shared objectives and target groups (see fig. 1). For example, the Transition to Teaching program and Teacher Quality Partnership Grant program can both be used to fund similar teacher preparation activities through institutions of higher education for the purpose of helping individuals from nonteaching fields become qualified to teach. Although there is overlap among these programs, several factors make it difficult to determine whether there is unnecessary duplication. First, when similar teacher quality activities are funded through different programs and delivered by different entities, some overlap can occur unintentionally, but is not necessarily wasteful. For example, a local school district could use funds from the Foreign Language Assistance program to pay for professional development for a teacher who will be implementing a new foreign language course, and this teacher could also attend a summer seminar on best practices for teaching the foreign language at a Language Resource Center. Second, by design, individual teachers may benefit from federally funded training or financial support at different points in their careers. Specifically, the teacher from this example could also receive teacher certification through a program funded by the Teachers for a Competitive Tomorrow program. Further, both broad and narrowly targeted programs exist simultaneously, meaning that the same teacher who receives professional development funded from any one or more of the above three programs might also receive professional development that is funded through Title I, Part A of ESEA. The actual content of these professional development activities may differ though, since the primary goal of each program is different. In this example, it would be difficult to know whether the absence of any one of these programs would make a difference in terms of the teacher's ability to teach the new language effectively. In addition, our larger body of work on federal education programs has also found a wide array of programs with similar objectives, target populations, and services across multiple federal agencies. This includes a number of efforts to catalogue and determine how much is spent on a wide variety of federally funded education programs. For example: In 2010, we reported that the federal government provided an estimated $166.9 billion over the 3-year period during fiscal years 2006 to 2008 to administer 151 different federal K-12 and early childhood education programs. In 2005, we identified 207 federal education programs that support science, technology, engineering, and mathematics (STEM) administered by 13 federal civilian agencies. In past work, GAO and Education's Inspector General have concluded that improved planning and coordination could help Education better leverage expertise and limited resources, and to anticipate and develop options for addressing potential problems among the multitude of programs it administers. Generally, GAO has reported that uncoordinated program efforts can waste scarce funds, confuse and frustrate program customers, and limit the overall effectiveness of the federal effort. GAO identified key practices that can help enhance and sustain collaboration among federal agencies which include establishing mutually reinforcing or joint strategies to achieve the outcome; identifying and addressing needs by leveraging resources; agreeing upon agency roles and responsibilities; establishing compatible policies, procedures, and other means to operate across agency boundaries; developing mechanisms to monitor, evaluate, and report on the results of collaborative efforts; reinforcing agency accountability for collaborative efforts through agency plans and reports; and reinforcing individual accountability for collaborative efforts through agency performance management systems. In 2009, GAO recommended that the Secretary of Education work with other agencies as appropriate to develop a coordinated approach for routinely and systematically sharing information that can assist federal programs, states, and local providers in achieving efficient service delivery. Education has established working groups to help develop more effective collaboration across Education offices, and has reached out to other agencies to develop a framework for sharing information on some teacher quality activities, but it has noted that coordination efforts do not always prove useful and cannot fully eliminate barriers to program alignment, such as programs with differing definitions for similar populations of grantees, which create an impediment to coordination. However, given the large number of teacher quality programs and the extent of overlap, it is unlikely that improved coordination alone can fully mitigate the effects of the fragmented and overlapping federal effort. In our work we have identified multiple barriers to collaboration, including the conflicting missions of agencies; challenges reaching consensus on priorities; and incompatible procedures, processes, data, and computer systems. As this Subcommittee considers its annual spending priorities, it may be an opportune time to consider options for addressing fragmentation and overlap among federal teacher quality programs and what is known about how well these programs are achieving their objectives. As you consider options for how to address fragmentation, overlap, and potential duplication, I would like to highlight three approaches for you to consider: 1. enhancing program evaluations and performance information; 2. fostering coordination and strategic planning for program areas that span multiple federal agencies; and 3. consolidating existing programs. Information about the effectiveness of programs can help guide policymakers and program managers in making tough decisions about how to prioritize the use of scarce resources and improve the efficiency of existing programs. However, there can be many challenges to obtaining this information. For example, it may not be cost-effective to allocate the funds necessary to conduct rigorous evaluations of the many small programs and, as a result, these programs are unlikely to be evaluated. As we have reported, many programs, especially smaller programs, have not been evaluated, which can limit the ability of Congress to make informed decisions about which programs to continue, expand, modify, consolidate, or eliminate. For example: In 2009, we also reported that while evaluations have been conducted, or are under way, for about two-fifths of the 23 teacher quality programs we identified, little is known about the extent to which most programs are achieving their desired results. In 2010, GAO reported that there were 151 different federal K-12 and early childhood education programs but that more than half of these programs have not been evaluated, including 8 of the 20 largest programs, which together account for about 90 percent of total funding for these programs. Recognizing the importance of program evaluations, as part of its high priority performance goals in its 2011 budget and performance plan, Education has proposed implementation of a comprehensive approach to inform its policies and major initiatives. Specifically, it has proposed to 1) increase by two-thirds the number of its discretionary programs that use evaluation, performance measures, and other program data, 2) implement rigorous evaluations of its highest priority programs and initiatives, and 3) ensure that newly authorized discretionary programs include a rigorous evaluation component. However, Education has noted that linking performance of specific outcomes to federal education programs is complicated. For example, federal education funds often support state or local efforts, making it difficult to assess the federal contribution to performance of specific outcomes, and it can be difficult to isolate the effect of a single program given the multitude of programs that could potentially affect outcomes. There are also governmentwide strategies that may play an important role. Specifically, in January 2011, the President signed the GPRA Modernization Act of 2010 (GPRAMA), updating the almost two-decades- old Government Performance and Results Act (GPRA). Implementing provisions of the new act--such as its emphasis on establishing outcome- oriented goals covering a limited number of crosscutting policy areas-- could play an important role in clarifying desired outcomes and addressing program performance spanning multiple organizations. Specifically, GPRAMA requires (1) disclosure of information about the accuracy and reliability of performance data, (2) identification of crosscutting management challenges, and (3) quarterly reporting on priority goals on a publicly available Web site. Additionally, GPRAMA significantly enhances requirements for agencies to consult with Congress when establishing or adjusting governmentwide and agency goals. The Office of Management and Budget (OMB) and agencies are to consult with relevant committees, obtaining majority and minority views, about proposed goals at least once every 2 years. This information can inform deliberations on spending priorities and help re-examine the fundamental structure, operation, funding, and performance of a number of federal education programs. However, to be successful, it will be important for agencies to build the analytical capacity to both use the performance information, and to ensure its quality--both in terms of staff trained to do the analysis and availability of research and evaluation resources. Where programs cross federal agencies, Congress can establish requirements to ensure federal agencies are working together on common goals. For example, Congress mandated--through the America COMPETES Reauthorization Act of 2007--that the Office of Science and Technology Policy develop and maintain an inventory of STEM education programs including documentation of the effectiveness of these programs, assess the potential overlap and duplication of these programs, determine the extent of evaluations, and develop a 5-year strategic plan for STEM education, among other things. In establishing these requirements, Congress put in place a set of requirements to provide information to inform its decisions about strategic priorities. Consolidating existing programs is another option for Congress to address fragmentation, overlap, and duplication. In the education area, Congress consolidated several bilingual education programs into the English Language Acquisition State Grant Program as part of the 2001 ESEA reauthorization. As we reported prior to the consolidation, existing bilingual programs shared the same goals, targeted the same types of children, and provided similar services. In consolidating these programs, Congress gave state and local educational agencies greater flexibility in the design and administration of language instructional programs. Congress has another opportunity to address these issues through the pending reauthorization of the ESEA. Specifically, to minimize any wasteful fragmentation and overlap among teacher quality programs, Congress may choose either to eliminate programs that are too small to evaluate cost effectively or to combine programs serving similar target groups into a larger program. Education has already proposed combining 38 programs into 11 programs in its reauthorization proposal, which could allow the agency to dedicate a higher portion of its administrative resources to monitoring programs for results and providing technical assistance. Congress might also include legislative provisions to help Education reduce fragmentation, such as by giving broader discretion to the agency to move resources away from certain programs. Congress could provide Education guidelines for selecting these programs. For example, Congress could allow Education discretion to consolidate programs with administrative costs exceeding a certain threshold or programs that fail to meet performance goals, into larger or more successful programs. Finally, to the extent that overlapping programs continue to be authorized, they could be better aligned with each other in a way that allows for comparison and evaluation to ensure they are complementary rather than duplicative. In conclusion, removing and preventing unnecessary duplication, overlap, and fragmentation among federal teacher quality programs is clearly challenging. These are difficult issues to address because they may require agencies and Congress to re-examine within and across various mission areas the fundamental structure, operation, funding, and performance of a number of long-standing federal programs or activities. Implementing provisions of GPRAMA--such as its emphasis on establishing priority outcome-oriented goals, including those covering crosscutting policy areas--could play an important role in clarifying desired outcomes, addressing program performance spanning multiple agencies, and facilitating future actions to reduce unnecessary duplication, overlap, and fragmentation. Further, by ensuring that Education conducts rigorous evaluations of key programs Congress could obtain additional information on program performance to better inform its decisions on spending priorities. Sustained attention and oversight by Congress will also be critical. Thank you, Chairman Rehberg, Ranking Member DeLauro, and Members of the Subcommittee. This concludes my prepared statement. I would be pleased to answer any questions you may have. For further information on this testimony please contact George A. Scott, Director, Education, Workforce, and Income Security, who may be reached at (202) 512-7215, or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs offices may be found on the last page of this statement. This statement will be available at no charge on the GAO Web site at http://www.gao.gov. Opportunities to Reduce Fragmentation, Overlap, and Potential Duplication in Federal Teacher Quality and Employment and Training Programs. GAO-11-509T. Washington, D.C.: April 6, 2011. List of Selected Federal Programs That Have Similar or Overlapping Objectives, Provide Similar Services, or Are Fragmented Across Government Missions. GAO-11-474R. Washington, D.C.: March 18, 2011. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-441T. Washington, D.C.: March 3, 2011. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. Department of Education: Improved Oversight and Controls Could Help Education Better Respond to Evolving Priorities. GAO-11-194. Washington, D.C.: February 10, 2011. Federal Education Funding: Overview of K-12 and Early Childhood Education Programs. GAO-10-51. Washington, D.C.: January 27, 2010. English Language Learning: Diverse Federal and State Efforts to Support Adult English Language Learning Could Benefit from More Coordination. GAO-09-575. Washington: D.C.: July 29, 2009. Teacher Preparation: Multiple Federal Education Offices Support Teacher Preparation for Instructing Students with Disabilities and English Language Learners, but Systematic Departmentwide Coordination Could Enhance This Assistance. GAO-09-573. Washington, D.C.: July 20, 2009. Teacher Quality: Sustained Coordination among Key Federal Education Programs Could Enhance State Efforts to Improve Teacher Quality. GAO-09-593. Washington, D.C.: July 6, 2009. Teacher Quality: Approaches, Implementation, and Evaluation of Key Federal Efforts. GAO-07-861T. Washington, D.C.: May 17, 2007. Higher Education: Science, Technology, Engineering, and Mathematics Trends and the Role of Federal Programs. GAO-06-702T. Washington: May 3, 2006. Higher Education: Federal Science, Technology, Engineering, and Mathematics Programs and Related Trends. GAO-06-114. Washington, D.C.: October 12, 2005. Special Education: Additional Assistance and Better Coordination Needed among Education Offices to Help States Meet the NCLBA Teacher Requirements. GAO-04-659. Washington, D.C.: July 15, 2004. Special Education: Grant Programs Designed to Serve Children Ages 0- 5. GAO-02-394. Washington, D.C.: April 25, 2002. Head Start and Even Start: Greater Collaboration Needed on Measures of Adult Education and Literacy. GAO-02-348. Washington, D.C.: March 29, 2002. Bilingual Education: Four Overlapping Programs Could Be Consolidated. GAO-01-657. Washington, D.C.: May 14, 2001. Early Education and Care: Overlap Indicates Need to Assess Crosscutting Programs. GAO/HEHS-00-78. Washington, D.C.: April 28, 2000. Education and Care: Early Childhood Programs and Services for Low- Income Families. GAO/HEHS-00-11. Washington: D.C.: November 15, 1999. Federal Education Funding: Multiple Programs and Lack of Data Raise Efficiency and Effectiveness Concerns. GAO/T-HEHS-98-46. Washington, D.C.: November 6, 1997. Multiple Teacher Training Programs: Information on Budgets, Services, and Target Groups. GAO/HEHS-95-71FS. Washington, D.C.: February 22, 1995. Early Childhood Programs: Multiple Programs and Overlapping Target Groups. GAO/HEHS-95-4FS. Washington, D.C.: October 31, 1994. 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 from our recent work on fragmentation, overlap, and potential duplication in federally funded programs that support teacher quality. We recently issued a report addressing fragmentation, overlap, and potential duplication in federal programs that outlined opportunities to reduce potential duplication across a wide range of federal programs, including teacher quality programs. Our recent work on teacher quality programs builds on a long history of work where we identified a number of education programs with similar goals, beneficiaries, and allowable activities that are administered by multiple federal agencies. This work may help inform congressional deliberations over how to prioritize spending given the rapidly building fiscal pressures facing our nation's government. In recent years, the Department of Education (Education) has faced expanded responsibilities that have challenged the department to strategically allocate resources to balance new duties with ongoing ones. For example, we reported the number of grants Education awarded increased from about 14,000 in 2000 to about 21,000 just 2 years later and has since remained around 18,000, even as the number of full-time equivalent staff decreased by 13 percent from fiscal years 2000 to 2009. New programs often increase Education's workload, requiring staff to develop new guidance and provide technical assistance to program participants. Our work examining fragmentation, overlap, and potential duplication can help inform decisions on how to prioritize spending, which could also help Education address these challenges and better allocate scarce resources. In particular, our recent work identified 82 programs supporting teacher quality, which are characterized by fragmentation and overlap. Fragmentation of programs exists when programs serve the same broad area of national need but are administered across different federal agencies or offices. Program overlap exists when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries. Overlap and fragmentation among government programs or activities can be harbingers of unnecessary duplication. Given the challenges associated with fragmentation, overlap, and potential duplication, careful, thoughtful actions will be needed to address these issues. This testimony draws upon the results of our recently issued report and our past work and addresses (1) what is known about fragmentation, overlap, and potential duplication among teacher quality programs; and (2) what are additional ways that Congress could minimize fragmentation, overlap, and duplication among these programs? We identified 82 distinct programs designed to help improve teacher quality administered across 10 federal agencies, many of which share similar goals. However, there is no governmentwide strategy to minimize fragmentation, overlap, or potential duplication among these programs. The fragmentation and overlap of teacher quality programs can frustrate agency efforts to administer programs in a comprehensive manner, limit the ability to determine which programs are most cost effective, and ultimately increase program costs. In addition, our larger body of work on federal education programs has also found a wide array of programs with similar objectives, target populations, and services across multiple federal agencies. In past work, GAO and Education's Inspector General have concluded that improved planning and coordination could help Education better leverage expertise and limited resources; however, given the large number of teacher quality programs and the extent of overlap, it is unlikely that improved coordination alone can fully mitigate the effects of the fragmented and overlapping federal effort. Sustained congressional oversight can also play a key role in addressing these issues. Congress could address these issues through legislation, particularly through the pending reauthorization of the Elementary and Secondary Education Act of 1965 (ESEA), and Education has already proposed combining 38 programs into 11 programs in its reauthorization and fiscal year 2012 budget proposals. Further, actions taken by Congress in the past demonstrate ways this Subcommittee can address these issues. However, effective oversight may be challenging as many of the programs we identified, especially smaller programs, have not been evaluated.
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